-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P0WYt95vizC4PL+w3U9K14B8H+Np48L/xKLxbeLGX/1lX1PdHigv0n7mgQSdID6S 7ixdLedPvGvyvKZm/d9X4Q== 0000878004-97-000003.txt : 19970401 0000878004-97-000003.hdr.sgml : 19970401 ACCESSION NUMBER: 0000878004-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHUGACH ELECTRIC ASSOCIATION INC CENTRAL INDEX KEY: 0000878004 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 920014224 STATE OF INCORPORATION: AK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-42125 FILM NUMBER: 97568344 BUSINESS ADDRESS: STREET 1: 5601 MINNESOTA DR STREET 2: PO BOX 196300 CITY: ANCHORAGE STATE: AK ZIP: 99518 BUSINESS PHONE: 9075637494 10-K 1 FORM 10-K FOR CHUGACH ELECTRIC ASSOCIATION, INC. FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (As last amended in Rel. No. 34-31327, eff. 10-21-92) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (x)Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1996 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the transition period from ____________________ to _____________________ Commission file Number 33-42125 Chugach Electric Association, Inc. (Exact name of registrant as specified in its charter) Alaska 92-0014224 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 5601 Minnesota Drive, Anchorage, Alaska 99518 Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (907) 563-7494 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Securities registered pursuant to Section 12(g) of the Act: (Title of class) (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /x/ Yes / / No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. N/A State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. (See definition of affiliate in Rule 405, 17 CFR 230.405). N/A CHUGACH ELECTRIC ASSOCIATION, INC. 1996 Form 10-K Annual Report Table of Contents Page PART I Item 1 - Business 1 Item 2 - Properties 11 Item 3 - Legal Proceedings 15 Item 4 - Submission of Matters to a Vote of Security Holders 18 PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters 18 Item 6 - Selected Financial Data 18 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 8 - Financial Statements and Supplementary Data 33 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 53 PART III Item 10 - Directors and Executive Officers of the Registrant 53 Item 11 - Executive Compensation 55 Item 12 - Security Ownership of Certain Beneficial Owners and Management 58 Item 13 - Certain Relationships and Related Transactions 58 PART IV Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 58 SIGNATURES 71 PART I Item 1 - Business GENERAL Chugach Electric Association, Inc. (Chugach or Association) is the largest electric utility in Alaska. Chugach was organized as an Alaska not-for-profit electric cooperative in 1948 and is engaged in the generation, transmission and distribution of electricity to approximately 67,000 metered locations in the Anchorage and upper Kenai Peninsula areas. Through an interconnected regional electrical system, Chugach's power flows throughout Alaska's Railbelt, a 400-mile-long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state, including Alaska's largest cities, Anchorage and Fairbanks. On a regular basis, through its direct service to retail customers and indirectly through its wholesale and economy energy sales, Chugach provides some or all of the electricity used by approximately two-thirds of Alaska's electric customers. In addition, on a periodic basis, Chugach provides electricity to the Anchorage-area customers of Municipal Light & Power (ML&P). Chugach also supplies much of the power requirements of three wholesale customers, Matanuska Electric Association (MEA), Homer Electric Association (Homer) and the City of Seward (Seward). Substantially all of Chugach's currently owned generating capacity is fueled by natural gas, which Chugach purchases under long-term, relatively low-cost gas contracts. The remainder of Chugach's generating resources are hydroelectric facilities. The Chugach system includes 501.4 megawatts (MW) of installed generating capacity that is provided by 15 generating units, 1,556 miles of distribution lines and 402 miles of transmission lines. During 1996, Chugach sold 2.22 billion kilowatt hours (kWh) of power. In general, cooperatives are business organizations that are owned by their members. Cooperatives are designed to give groups of individuals or entities the opportunity to serve their own needs in a particular area of business activity and to solve their own problems in that area more effectively than when acting independently. In addition, as not-for-profit organizations, cooperatives are intended to provide services to their members at the lowest possible cost, in part by eliminating the need to produce profits or a return on equity. Today, cooperatives operate throughout the United States in such diverse areas as utilities, agriculture, irrigation, insurance and credit. All cooperatives are based upon similar principles and legal foundations. Since members' equity is not considered an investment, a cooperative's objectives and policies are oriented to serving member interests, rather than maximizing return on investment. Chugach's members are the consumers of the electricity sold by Chugach. As of December 31, 1996, Chugach had approximately 54,000 retail members receiving service at approximately 67,000 metered locations. The business and affairs of Chugach are managed by the General Manager and are overseen by its seven-member Board of Directors. Directors are elected at large by the membership and serve three-year staggered terms. Each member is entitled to one 1 vote. In addition to voting for directors, members have voting rights with respect to the sale, lease, or other disposition, except by mortgage or deed of trust, of all or a substantial portion of Chugach's property. Chugach customers are billed per a tariff rate, on a monthly basis for electrical energy consumed during the preceding month. Billing rates are approved by the Alaska Public Utilities Commission (APUC). Such rates have been adjusted quarterly or semi-annually pursuant to a simplified rate filing procedure (see Rate Regulation and Rates). Rates (derived from the historic cost of service basis) may generate revenues in excess of current period costs (net operating margins and nonoperating margins) in any year and are designated on Chugach's Statements of Revenues, Expenses and Patronage Capital as "assignable margins." Retained assignable margins are designated on Chugach's balance sheet as "patronage capital," which is assigned to each member on the basis of patronage. In furtherance of Chugach's operations as a cooperative, Chugach credits to its members, or patrons, all amounts received from the patrons for the furnishing of electricity in excess of Chugach's operating costs, expenses and provision for reasonable reserves. Such excess amounts (i.e., assignable margins) are considered capital furnished by the patrons, and are credited to their accounts and held by Chugach until such future time as they are retired and returned without interest. Chugach's Bylaws provide that such capital credits are to be retired (i) upon Chugach's dissolution or liquidation after payment of all of Chugach's outstanding indebtedness or (ii) at any earlier time if the Board of Directors determines that Chugach's financial condition will not be thereby impaired. At December 31, 1996, Chugach has a policy of retiring patronage capital on a general 20-year cycle for retail customers (i.e., patronage capital provided by the retail customer in 1975 is retired in 1995). In recent years, this rotation has been accelerated to a 13-year rotation cycle. In 1996, the Board of Directors approved a retirement of retail capital credits, whereby, one-half of the retail margins earned in 1983 were returned to retail customers. Wholesale capital credits have been retired on a 10-year cycle pursuant to the Equity Management Plan Settlement Agreement, despite its expiration in 1995. A new Settlement Agreement (different than the aforementioned agreement) has been negotiated with Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T)/MEA/Homer and has been approved by the APUC. Under this agreement, wholesale capital credits will continue to be rotated on a 10-year cycle until 1998. After 1998, wholesale capital credits are expected to be rotated using the retail schedule in place at that time. Chugach is currently in the process of updating its Equity Management Plan which will address future rotation schedules for wholesale and retail customers. When complete, the plan will be submitted to the Board of Directors for approval. Approval of actual capital credit retirements is at the discretion of the Association's Board of Directors. As an electric cooperative, Chugach is exempt from federal income taxation under Section 501(c)(12) of the Internal Revenue Code (Code). Alaska electric cooperatives must pay to the State of Alaska, in lieu of state and local ad valorem, income and excise taxes, a tax at the rate of $0.0005 per kWh of electricity sold in the retail market during the preceding year. In 2 addition, Chugach collects a regulatory cost charge of $.000322 per kWh of retail electricity sold. This charge is assessed to fund the operations of the APUC. It is a pass-through and thus does not impact Chugach margins. Beginning January 1, 1997, the regulatory cost charge was reduced to $.000297 per kWh of retail electricity sold. Chugach's workforce consists of approximately 356 full-time employees. Approximately two-thirds of Chugach's employees are members of the International Brotherhood of Electrical Workers (IBEW). Chugach has collective bargaining agreements with the IBEW which are in effect through January 1998. Characteristics of the Service Areas of Chugach and its Largest Customers As indicated in the foregoing, the service areas of Chugach and its wholesale and economy energy customers are often described collectively as the Railbelt Region of Alaska because the three geographic regions, from Fairbanks in central Alaska, through Anchorage, and south to the Kenai Peninsula, are linked by the Alaska Railroad. Anchorage is the trade, service and financial center for most of Alaska and serves as a major center for many state governmental functions. Other significant contributing factors to the Anchorage economy include a large federal government and military presence, tourism, air and rail transportation facilities, and headquarters support for the petroleum, mining and other basic industries located elsewhere in the state. The Matanuska-Susitna Borough is immediately northeast of Anchorage, centered around the communities of Palmer and Wasilla. Although agriculture, tourism, mining and forestry are factors in the economy of the Matanuska-Susitna Borough, the economic well-being of the area is closely tied to that of Anchorage. The Kenai Peninsula is south of Anchorage with an economy substantially independent of the Anchorage area. The most significant basic industry on the Kenai Peninsula is the production and processing of petroleum products from Cook Inlet. Other important basic industries include tourism and fish harvesting and processing. Principal communities on the Kenai Peninsula are Homer, Seward, Kenai and Soldotna. Fairbanks is the center of economic activity for the central part of the state. Fairbanks (250 air miles north of Anchorage and about 400 air miles south of Alaska's northern border) is Alaska's second largest city. Basic economic activities in the Fairbanks region include federal and state government and military operations, the University of Alaska, tourism and support of natural resource development in the interior and northern parts of the state. Recently a major gold mine has commenced operation near Fairbanks. The Trans-Alaska Pipeline System passes near Fairbanks on its route from Prudhoe Bay to Valdez. 3 Rate Regulation and Rates Chugach is subject to rate regulation by the APUC. In January 1987, the APUC adopted a simplified rate filing (SRF) procedure for use solely by electric cooperatives. Under the SRF procedure, electric cooperatives may submit proposed base demand and energy rate changes to the APUC for approval (either on a quarterly or semi-annual basis) without the necessity of undergoing a formal hearing process. The proposed rates must be approved by the Board of Directors of the electric cooperative before they will be accepted by the APUC for consideration. Chugach has been a participant in this process since 1989. In August 1996, the Chugach Board of Directors approved a petition to the APUC to withdraw from the SRF process. The petition was submitted as part of Docket U-96-37, which was opened to resolve rate disputes with Chugach's wholesale customers. Interim-refundable rates for wholesale customers were ordered pending resolution of the docket. In February 1997, the APUC approved a Settlement Agreement between Chugach and AEG&T/MEA/Homer that resolved issues in the docket and established permanent rates. As part of the Settlement Agreement, the wholesale customers agreed not to oppose Chugach's withdrawal from SRF. The APUC orders have not addressed Chugach's withdrawal from SRF but Chugach anticipates approval of its petition. As part of the Order, the Association was required to file Cost of Service and Revenue Requirement Studies. Chugach filed these studies in March 1997. If Chugach's petition to withdraw from the SRF process is approved, future demand and energy rate changes will be sought through general rate case and other normal APUC procedures. While the formal ratemaking process typically takes nine months to one year, it is within the APUC's authority to authorize, after a notice period, rate changes on an interim- refundable basis. In addition, the APUC has been willing to open limited dockets to resolve specific issues from which expeditious decisions can often be generated. For 1997, Chugach management and its Board of Directors have committed that retail and wholesale base rates will remain at current levels. As part of the Settlement Agreement with AEG&T/MEA/Homer, Chugach has committed that their demand and energy rate levels remain at current levels through 1999 and may be reduced if existing rates provide returns higher than specified in the Agreement. The Association will continue to recover changes in its fuel and purchased power expense levels through routine fuel surcharge filings with the APUC. Chugach currently manages its business in an effort to meet or exceed an average overall TIER of 1.25 from operations in accordance with its Equity Management Plan. The Indenture of Trust, Series A, First Mortgage bonds (Indenture) dated September 15, 1991 requires Chugach to set rates designed to yield margins for interest (a TIER-like statistic) equal to at least 1.20 times total interest expense. The authorized rate-setting TIER level of 1.35 has allowed Chugach to achieve greater than the 1.20 margins for interest. In the Cost of Service and Revenue Requirement Studies filed in March 1997, Chugach requested a rate-setting TIER of 1.25. In 1996, Chugach's achieved TIER was 1.39. 4 Sales to Customers The following table shows the energy sales to and electric revenues from Chugach's retail, wholesale, and economy energy customers for the year ended December 31, 1996: Energy Loads and Revenues by Class of Customer Percent of Total MWh 1996 Revenues 1996 Revenues --- ------------- -------------- Direct retail sales: Residential 485,423 $ 47,109,647 35.3% Commercial 527,006 39,218,216 29.4 --------- ----------- ------ Total 1,012,429 86,327,863 64.7 --------- ----------- ------ Wholesale sales: MEA 491,541 22,881,086 17.2 Homer 414,284 16,062,969 12.0 Seward 51,476 2,075,293 1.6 --------- ----------- ------ Total 957,301 41,019,348 30.8 --------- ----------- ------ Economy Energy Sales: GVEA 246,020 6,004,542 4.5 Other 92 3,693 0.0 --------- ----------- ------ 246,112 6,008,235 4.5 --------- ----------- ------ Total sales to customers 2,215,842 $ 133,355,446 100.00% --------- ----------- ------ Retail Customers Certificated Service Territory. Chugach's retail service area covers the populated areas of Anchorage as well as remote mountain areas and villages. The service area ranges from the northern Kenai Peninsula on the South, to Tyonek on the West, to Whittier on the East and to Fort Richardson on the North. Any change in Chugach's certificated service area requires the approval of the APUC. Customers. Chugach directly serves approximately 67,000 retail customers, as measured by meters. There are approximately 54,000 members of Chugach; not all customers are members due to the high density of multiple family dwellings in the retail service area. In many ways, Chugach's retail customer base does not conform to the traditional rural electric cooperative customer base in that Chugach's customers are primarily urban and suburban rather than rural. The urban nature of Chugach's customer base means that Chugach has a higher customer density per line mile than is typical for rural electric cooperatives. Higher customer density means that fixed costs can be spread over a greater number of customers. As a result of lower average costs attributable to each customer, Chugach may benefit from a greater level of stability in revenue, as compared to a less dense distribution system in which each individual customer would have a more significant impact on operating results. For the past five years no retail customer accounted for more than 5% of Chugach's revenues. 5 Wholesale Customers Chugach is the principal supplier of power under wholesale power contracts with MEA, Seward and Homer. Chugach's wholesale power contracts represented $41.0 million in revenues and 30.8% of Chugach's total sales to customers in 1996. MEA and Homer. Chugach's contract with AEG&T (a generation and transmission cooperative of which MEA and Homer are the only full-fledged members; ML&P is an associate member) for the benefit of MEA obligates MEA to purchase all of its electric power requirements from Chugach. Contractually, MEA has the right, subject to APUC approval, to convert to a net requirements purchaser of power from Chugach, under which MEA would be obligated to buy its needed power from Chugach, net of its power needs satisfied from any of its own or AEG&T's resources (including from the 39 MW Soldotna 1 gas-fired generating station owned by AEG&T). After conversion to net requirements under the contract, MEA cannot reduce the amount of power it purchases from Chugach below a certain minimum amount. MEA also has the right, on seven years advance notice and subject to APUC approval, to convert to a take-or-pay purchaser of a fixed amount of power. If MEA converts to net requirements service, MEA will be required to pay demand charges based upon the highest post-1985 historical coincident peak of the MEA system. Therefore, Chugach will continue to recover fixed costs if MEA converts to net-requirements service. Also, Chugach's revenues from energy sales to MEA would decline in proportion to the reduction in the energy sold, but this decline would be largely offset by savings in the variable costs associated with energy production. The MEA contract is in effect through December 31, 2014. Chugach's contract with AEG&T for the benefit of Homer obligates Homer to take-or-pay for 73 MW of capacity (demand), and not less than 350,000 MWh (energy) per year. The Homer contract includes certain limitations on the costs that may be included in the rates charged to Homer by Chugach. The Homer contract expires on January 1, 2014. Homer's remaining resource requirements are provided by AEG&T's Soldotna unit and AEG&T shares attributable to Homer from the Bradley Lake hydroelectric project. Chugach and AEG&T have signed a dispatch agreement whereby Chugach has access to all of the Soldotna unit output except that which is required to supply Homer's load in excess of 73 MW. The term is for 40,000 operating hours or 10 years, whichever is first, although the term will be extended by three years if Chugach makes significant use of the unit during the last three years of the original contract term. Chugach agreed to generate at least 322 GWh and obtained an economical gas supply for the unit. AEG&T receives payment for variable operating and maintenance costs plus a margin for energy produced by the unit. Chugach obtained use of the unit output while AEG&T retained ownership costs and responsibility. In 1996, Chugach used 47 GWh from the Soldotna unit. Seward. Chugach currently provides all the firm power needs of Seward. Renewal and extension of Chugach's contract with Seward is currently under negotiation. In 1996, sales under this agreement amounted to 1.6% of Chugach's sales to customers. 6 Economy Customers Golden Valley Electric Association. Under the terms of Chugach's agreement with Golden Valley Electric Association (GVEA), GVEA is obligated, under certain circumstances, to purchase, if available from Chugach, its non-firm energy needs until 2008. Sales under this agreement accounted for 4.5% of Chugach's 1996 sales revenues. Chugach and GVEA have entered into a tentative pooling agreement whereby the resources of both utilities would be dispatched on a common basis to reduce constraints on when non-firm energy would be available to GVEA. Construction of a coal-fired generation facility at Healy (Healy II) is underway with 50% of the construction costs funded from a United States Department of Energy grant under the Clean Coal Technology III Demonstration Program. This facility is projected to be operational in mid-1998 and is expected to produce up to 50 MW of coal-fired power. When Healy II becomes operational, GVEA will reduce its purchases of non-firm energy from Chugach by taking firm power from Healy II. Chugach's management does not believe that such a reduction will have a material adverse effect on Chugach. The Ft. Knox gold mine with an anticipated load of 30-35 MW began operation during the last quarter of 1996. FUEL SUPPLY In 1996, 91% of Chugach's power was generated from gas, and 91% of that gas-fired generation took place at Beluga. Chugach's three sources of natural gas are (1) the Beluga River Field producers [ARCO Alaska, Inc. (ARCO), Municipal Light & Power (ML&P) (old Shell) and Chevron USA Inc. (Chevron)], (2) Marathon Oil Company (Marathon) and (3) ENSTAR Natural Gas Company (ENSTAR). ARCO, ML&P and Chevron each own one-third of the gas produced from the Beluga River Field and in 1996 provided approximately equal shares of the Beluga gas. Chugach has approximately 471 billion cubic feet (BCF) of gas committed to it from the Beluga River Field producers and Marathon. Chugach currently uses about 20 BCF of natural gas per year for firm service. Chugach believes that this usage will remain fairly constant and estimates that its current contract gas will last 18 to 21 years. In 1996, Shell sold its interests in the Beluga River Field to ML&P and ML&P assumed Shell's contractual obligations to sell natural gas to Chugach. Chugach believes that this transfer will have no material effect on the delivery of Beluga gas to Chugach. Chugach's fuel supply is lower priced than that available to other generators in the interconnected Railbelt. ML&P burns natural gas purchased from the Beluga River Field producers and transported by ENSTAR. Chugach has a transportation contract with ENSTAR to transport Chugach gas purchased from Marathon or the Beluga River Producers to the Soldotna (AEG&T) and/or International Power plants (International). The rate for firm transportation is $0.63 per MCF and the rate for interruptible transportation is $0.30 per MCF. There is a minimum monthly bill of $2,600. The primary reasons that Chugach's fuel supply is lower priced than that available to other generators are (i) Chugach purchases its gas directly 7 from producers rather than from gas utilities and (ii) Chugach's power plants are located in close proximity to gas fields so that there are insignificant transportation costs included in the price of the fuel. ML&P currently depends on ENSTAR to transport all of the gas it uses. The ENSTAR tariff rate is $105,000 per month plus $0.28 per MCF. GVEA uses both coal-fired and oil-fired generators. Because of the high cost of fuel oil, GVEA is normally an importer of lower cost power from the south. Beluga River Field Producers Chugach has similar requirements contracts with each of ARCO, ML&P (old Shell) and Chevron that were executed in April 1989, superseding contracts that had been in place since 1973. Each of the contracts with the Beluga River Field producers provides for delivery of gas on different terms in three different periods. Period 1 related to the delivery of gas previously committed by the respective producer under the 1973 contracts terminated in June 1996. The maximum deliverability under the Beluga and Marathon contracts is in excess of the peak winter demand requirements of the Beluga plant and allows for increased deliverability should Chugach's combined-cycle plant be out of service. During Period 2, which began in June 1996 and continues until the earlier of the delivery of 180 BCF of natural gas or December 31, 2013, Chugach is entitled to take delivery of up to 180 BCF of natural gas (60 BCF per Beluga River Field producer). During this period, Chugach is required to take 60% of its total fuel requirements at Beluga from the three Beluga River Field producers, exclusive of gas purchased at Beluga under the Marathon contract for use in making sales to GVEA or certain other wholesale purchasers. The price for gas during this period under the ARCO and ML&P (old Shell) contracts is approximately 88% (or $1.28 per MCF on December 31, 1996) of the price of gas under the Marathon contract (described below), plus taxes. The price during this period under the Chevron contract is approximately 110% (or $1.60 per MCF on December 31, 1996) of the price of gas under the Marathon contract (described below), plus taxes. During Period 3 under the Beluga River Field producers' contracts, which begins at the earlier of December 31, 2013 or the end of Period 2, Chugach may become entitled to take delivery of up to 120 BCF of natural gas (40 BCF per producer). Whether any gas will be taken in Period 3, and the price and take requirements with respect thereto, are to be determined in the future based upon then-current market conditions. Chugach also has supplemental, annually renewable contracts with the Beluga River Field producers to supply supplemental gas (for peak periods of energy usage) if they have it available in excess of the amounts guaranteed in the basic contracts. The supplemental gas contracts raise the daily deliverability of gas to an aggregate of 85,200 MCF per day from the Beluga River Field producers. The base price of the gas under these contracts is the same as the base price under the Marathon contract described below, plus taxes. 8 Marathon Chugach entered into a requirements contract with Marathon in September 1988 for an initial commitment of 215 BCF. The contract expires December 31, 2015 or, if earlier, the date on which Marathon has delivered to Chugach a volume of gas in total which equals or exceeds the total volume of gas that Marathon is required to sell and deliver to Chugach under the agreement. The base price for gas under the Marathon contract is $1.35 per MCF, adjusted quarterly to reflect the percentage change between the preceding twelve-month period and a base period in the average prices of West Texas Intermediate Crude Oil (a benchmark of the Light Sweet Crude Oil Futures Index), the Producer Price Index for natural gas, and the Consumer Price Index for heating fuel oil. The price on December 31, 1996, exclusive of taxes was $1.45 per MCF. Under the terms of the Marathon contract, Marathon generally provides the primary supply of gas required for sales to GVEA, all of Chugach's requirements at Bernice Lake and 40% of the requirements at Beluga. Marathon also has a right of first refusal to provide additional gas under any sales agreements that Chugach may enter into with electric utilities that Chugach does not currently serve. ENSTAR Natural Gas Company Chugach and ENSTAR signed a transportation agreement in December 1992 that was approved by the APUC in January 1993, whereby ENSTAR would transport Chugach's gas purchased from the Beluga producers or Marathon on a firm basis to both Chugach's International Power Plant and AEG&T's Soldotna Power Plant at a transportation rate of $0.63 per MCF. In addition, ENSTAR agreed to transport gas on an interruptible basis for off-system sales at a rate of $0.30 per MCF. The agreement contains a minimum monthly bill of $2,600 for firm service. Chugach holds a reservation to receive its gas requirements at International Power Plant from ENSTAR under a tariff approved by the APUC in the event that the transportation agreement is subsequently canceled. Under the currently suspended tariff, ENSTAR is obligated to supply all of the gas Chugach desires at a price approved by the APUC. There would be a monthly minimum bill of $10,465, but no requirement to actually use any gas at International. The current delivered price under the tariff is $2.53 per MCF. COMPLIANCE WITH ENVIRONMENTAL STANDARDS Regulatory initiatives arising out of recent amendments to State and Federal environmental laws (including the Clean Air Act Amendments of 1990) may require significant capital expenditures in the future. These initiatives have not developed to the point where their financial impact on Chugach can be determined. Other environmental compliance changes will require new substation designs to incorporate spill containment features. The cost of incorporating these features has been considered in future construction work plan projects. 9 REFINANCINGS On September 19, 1991, Chugach issued $314,000,000 of First Mortgage Bonds, 1991 Series A, for purposes of repaying existing debt to the Federal Financing Bank (FFB) and the Rural Electrification Administration (REA), (now Rural Utilities Services (RUS)). Pursuant to Section 311 of the Rural Electrification Act, Chugach was permitted to prepay the REA debt at a discounted rate of approximately 9%, resulting in a discount of approximately $45,000,000. The gain on prepayment of the REA debt has been deferred and Chugach has obtained permission from the APUC to flow through the benefit to consumers through lower rates in the future. Of the total issuances, bonds in the amount of $52,000,000 are due in 2002 and bear interest at 8.08% (Series A 2002 Bonds) and bonds in the original amount of $262,000,000 are due in 2022 and bear interest at 9.14% (Series A 2022 Bonds). Interest is payable semiannually on March 15 and September 15. The Series A 2002 Bonds are subject to annual sinking fund redemption at 100% of the principal amount thereof that commenced March 15, 1993. The Series A 2022 Bonds are subject to annual sinking fund redemption at 100% of the principal amount thereof commencing March 15, 2003. The Series A 2002 Bonds are not subject to optional redemption. The Series A 2022 Bonds are redeemable at the option of Chugach on any interest payment date at an initial redemption price of 109.14% of the principal amount thereof declining ratably to par on March 15, 2012. The Indenture prohibits outstanding short-term indebtedness (other than trade payables) in excess of 15% of Chugach's net utility plant and limits certain cash investments to specific securities. Chugach has reacquired $39,295,000 of the Series A 2022 bonds since December 1995 leaving a remaining balance of $222,705,000 at December 31, 1996. Chugach has negotiated a supplemental indenture (Third Supplemental Indenture of Trust) with CoBank for up to $80 million in future bond financing. At December 31, 1996, Chugach had bonds in the amount of $56.6 million outstanding under this financing arrangement. This balance is comprised of a $1.6 million bond (CoBank 1) which carries an interest rate of 8.95% maturing in 2002, a $10 million bond (CoBank 2) with a 7.76% interest rate, due in 2005, a $21.5 million bond (CoBank 3) currently priced at 6.45% (repriced monthly) and a $23.5 million bond (CoBank 4) currently priced at 6.45% (also repriced monthly). Principal payments on the CoBank 3 and 4 bonds commence in 2003 and continue through 2022. In addition, Chugach has negotiated with NRUCFC for another $80 million supplemental indenture (Fifth Supplemental Indenture of Trust). At December 31, 1996, no amounts were outstanding under this financing arrangement. 10 Item 2 - Properties SYSTEM ASSETS General Chugach has 501.4 MW of installed capacity consisting of 15 generating units at four power plants. These include 365.6 MW of operating capacity at Beluga on the west side of Cook Inlet; 70.0 MW of power at Bernice Lake on the Kenai Peninsula; 48.6 MW of power at International Station in Anchorage; and 17.2 MW at Cooper Lake, which is also on the Kenai Peninsula. In addition to its own generation, Chugach purchases power from the 30 MW Eklutna Hydroelectric Project currently owned by the Alaska Power Administration of the U.S. Department of Energy (APA) but under an agreement for sale to a consortium of local utilities (including Chugach), and from the 90 MW Bradley Lake hydroelectric project owned by the Alaska Energy Authority (AEA) (through Alaska Industrial Development and Export Authority (AIDEA)) operated by Homer and dispatched by Chugach. The Beluga, Bernice Lake and International facilities are all currently fueled by natural gas. Chugach owns its offices and headquarters, located adjacent to its International Station in Anchorage, in fee simple. Warehouse space for some generation, transmission and distribution inventory (including a small amount of office space) is leased from an independent party not directly affiliated with Chugach. Generation Assets Chugach owns the land and improvements comprising its generating facilities at Beluga and International. It also owns all improvements comprising its generating plant at Bernice Lake, which is located on land originally leased from Chevron Oil Company now owned by Homer, and its generating plant at Cooper Lake, which is located on federal land pursuant to a major project license (Federal License) granted to Chugach by the Federal Power Commission in 1957. The Bernice Lake ground lease expires in 2011 and the Federal License for the Cooper Lake facility expires in 2007. The management of Chugach has no reason to believe at this time that it will not be able to renew the Federal License or the Bernice Lake ground lease if desirable. 11 The following table lists specifics of the generating facilities of Chugach: Commercial Facility Type of Fuel Rated Capacity (1) Operation Date -------- ------------ ------------------ ----------------- Beluga Power Plant: Unit 1 Natural Gas 15.7 1968 Unit 2 Natural Gas 15.7 1968 Unit 3 Natural Gas 64.7 1972 Unit 5 Natural Gas 66.5 1975 Unit 6 Natural Gas 74.0 1975 Unit 7 Natural Gas 74.0 1978 Unit 8 Steam (2) 55.0 1981 ----- 365.6 Bernice Lake Power Plant: Unit 2 Natural Gas 19.0 1968 Unit 3 Natural Gas 25.5 1978 Unit 4 Natural Gas 25.5 1981 ----- 70.0 International Generating Station: Unit 1 Natural Gas 15.0 1964 Unit 2 Natural Gas 15.1 1965 Unit 3 Natural Gas 18.5 1969 ----- 48.6 Cooper Lake Hydroelectric Plant: Unit 1 Hydroelectric 8.6 1960 Unit 2 Hydroelectric 8.6 1960 ----- 17.2 Total units 15 501.4 -- ----- (1) Capacity rating in MW at 30 degrees Fahrenheit. (2) Steam turbine-powered generator with heat provided by exhaust from natural-gas fueled Units 6 and 7 (combined-cycle). (3) Beluga Unit 4 and Bernice Lake Unit 1 were retired during 1994. 12 Transmission and Distribution Assets As of December 31, 1996, Chugach's transmission and distribution assets included 40 substations and 402 miles of transmission lines, 933 miles of overhead distribution lines and 623 miles of underground distribution line. Chugach owns the land on which 21 of its substations are located and a portion of the right-of-way connecting its Beluga plant to Anchorage. Many substations and a substantial number of Chugach's transmission and distribution rights-of-way are the subject of federal or state permits and licenses. Under the Federal License and a permit from the United States Forest Service, Chugach operates its Quartz Creek transmission substation, substations at Hope, Summit Lake and Daves Creek, and transmission lines over all federal lands between Cooper Lake on the Kenai Peninsula and Anchorage. Long-term permits from the Alaska Division of Lands and the Alaska Railroad Corporation govern much of the rest of Chugach's transmission system outside the Anchorage area. Within the Anchorage area, Chugach operates its University Substation and several major transmission lines pursuant to long-term rights-of-way grants from the United States Bureau of Land Management, and transmission and distribution lines have been constructed across privately-owned lands pursuant to easements and across public rights-of-way and waterways pursuant to authority granted by the appropriate governmental entity. Title Substantially all of the properties and assets of Chugach, including generation, transmission and distribution properties, but excluding all excepted property, are pledged to secure repayment of the Series A Bonds and all other bonds that may be issued under the Indenture. The Indenture defines excepted property to include, among other things, cash on hand, instruments and certain securities (other than those required to be deposited with the Trustee under the terms of the Indenture), patents and transportation equipment (including vehicles, vessels and barges) in which a security interest cannot be perfected by filing, leases for an original term of less than five years, certain non-assignable permits, licenses and contractual rights, property located outside the State of Alaska and not used in connection with Chugach's generation, transmission and distribution system and other property in which a security interest cannot legally be perfected. The lien of the Indenture is subject to certain permitted encumbrances which the Indenture defines to include certain identified restrictions, exceptions, reservations, conditions and limitations existing on the date of the Indenture, reservations in U.S. patents, nondelinquent or contested tax liens, local easements, leases and reservations and liens for nondelinquent rent or wages. The lien of the Indenture is also subject to the lien in favor of the Trustee to recover amounts owing to the Trustee under the Indenture. In addition to the Indenture, many of Chugach's properties are burdened by easements, plat restrictions, mineral reservation, water rights and similar title exceptions common to the area or customarily reserved in conveyances from federal or state governmental entities, and to additional minor title encumbrances and defects. In the opinion of Chugach's general counsel, 13 none of these title defects will materially impair the use of its properties in the operation of its business. In addition, a lawsuit was filed against the State of Alaska in which the plaintiffs allege that the manner in which the State administered and disposed of certain lands violates the Alaska Mental Health Enabling Act. One of Chugach's substations and its right-of-way across State lands may be subject to the plaintiffs' claims. Chugach's management believes that such claims will not materially affect Chugach's financial position, results of operations or cash flows. Chugach operates its Bernice Lake facility on lands originally leased from Chevron Oil Company (now owned by Homer) pursuant to a lease that is scheduled to expire in 2011. Chugach also operates several terminal connection sites and a substation under long-term or renewable leases from the State of Alaska and private parties. In addition, as discussed above, a substantial number of Chugach's transmission and distribution rights-of-way, and several distribution substations, are the subject of federal or state permits and easements. Under the Alaska Cooperative Act, Chugach is given the power of eminent domain for the purpose and in the manner provided by the Alaska condemnation laws for acquiring private property for public use. Other Assets Bradley Lake. Chugach is a participant in the Bradley Lake Hydroelectric Project (Bradley Lake), which is a 90 MW hydroelectric facility near Homer on the southern end of the Kenai Peninsula that was placed into service in September 1991. The project was financed and built by AEA through grants from the State of Alaska and the issuance of $166 million principal amount of revenue bonds supported by power sales agreements with six electric utilities that will share the output from the facility (Chugach, ML&P, Homer and MEA (through AEG&T), GVEA and Seward). Effective August 12, 1993, AEA became part of the Alaska Industrial Development and Export Authority (AIDEA). Chugach and the other participating utilities have entered into take-or-pay power sales agreements under which AEA has sold percentage shares of the project capacity and the utilities have agreed to pay a like percentage of annual costs of the project (including ownership, operation and maintenance costs, debt-service costs and amounts required to maintain established reserves). Under these take-or-pay power sales agreements, the purchasing utilities have agreed to pay all project costs from the date of commercial operation even if no energy is produced. Chugach has a 27.4 MW or 30.4% share in Bradley Lake, and takes Seward's and MEA's shares which it net bills to them, for a total of 45% of the project's capacity. The length of the agreement is "fifty years from the date of commercialization or when the revenue bond principal is repaid, whichever is the longer." Chugach believes that, under a worst-case scenario, it could be faced with annual expenditures of approximately $4.6 million 14 as a result of its Bradley Lake take-or-pay obligations. Chugach believes that this expense would be recoverable through the fuel surcharge ratemaking process. The share of debt service for which the Association is responsible is approximately $47,000,000 plus interest. Chugach also provides transmission and related services as a wheeling agent (one who dispatches and transmits power of third parties over its own system) for all of the participants in the project. Upon the default of a participant, and subject to certain other conditions, AEA is entitled to increase each participant's share of costs pro rata, to the extent necessary to compensate for the failure of another participant to pay its share, provided that no participant's percentage share is increased by more than 25%. Chugach and AEG&T have also negotiated a Bradley Lake Scheduling Agreement whereby Chugach schedules AEG&T/Homer's share of the Bradley Lake project for the benefit of the Chugach system. AEG&T continues to pay its Bradley Lake costs and receives credit for the Bradley Lake energy generated for Homer. Chugach pays a fixed annual fee of $112,000 to AEG&T for these scheduling rights. This agreement allows Chugach to improve the efficiency of its generating resources through better hydrothermal coordination. Eklutna. Chugach contracts with the APA for 9 MW of firm power and 45,900 MWh of energy from Eklutna. MEA also has a contract for 5 MW and 25,500 MWh of energy from Eklutna, which is pooled with Chugach's purchases and sold back to MEA to be used in meeting its overall requirements. Chugach's contract for the purchase of power from Eklutna expires in 2014. Chugach, MEA and ML&P have entered into an agreement to purchase Eklutna, which has been approved by the U.S. Congress. Under the terms of the purchase agreement, Chugach is entitled to a 30% share of the project. It is projected that joint utility ownership of the project would slightly reduce the cost of project power otherwise available to Chugach. Transfer of ownership will occur on or before November 1997 in accordance with the Transition Plan. Chugach currently estimates that its 30% share of the project would cost $1.8 million. ML&P. ML&P is the second largest generating utility in Alaska. ML&P, like Chugach, primarily generates power from units fueled by natural gas, which it currently purchases from the producers at the Beluga River Field. Item 3 - Legal Proceedings LITIGATION Standard Steel Salvage Yard Site A cost recovery action was filed in Federal District Court on December 27, 1991 by the United States against Chugach and six other Potentially Responsible Parties (PRPs) seeking reimbursement of removal and response action costs (Past Response Costs) incurred by US EPA at the Standard Steel and Metals Salvage Yard Superfund Site in Anchorage, Alaska 15 (Site). The six other PRPs named in the action are the Alaska Railroad, Westinghouse Electric Corporation, Sears Roebuck and Co., Montgomery Ward & Co., J.C. Penney Company, Inc. and Bridgestone/Firestone, Inc. On September 23, 1992, Chugach entered into an Administrative Order on Consent (AOC) with the EPA to perform a remedial investigation and feasibility study (RI/FS) for the Site. The RI/FS was completed in 1996 and, based on the results of the RI/FS, EPA selected the remedy of soil stabilization and solidification (S/S) for cleanup of the Site and documented its selection in a Record of Decision issued in July, 1996. In December 1996, a partial consent decree (Partial Consent Decree) settling the cost recovery action was entered by the Federal District Court. Under the Partial Consent Decree the PRPs and the United States settled the following costs associated with the Site: Past Response Costs incurred by EPA through December 1991; RI/FS costs; drum and scrap removal costs; past enforcement costs incurred by the Department of Justice (DOJ) through December 11, 1996; and EPA oversight costs related to the RI/FS. The settlement under the Partial Consent Decree allocates 14.37% of the above costs to Chugach. Chugach has paid its share of Past Response Costs and DOJ enforcement costs under the Partial Consent Decree. The total estimated cost of the settlement under the Partial Consent Decree is approximately $6,800,000 of which Chugach's share will be approximately $977,000. These amounts are estimates because RI/FS expenses and EPA oversight costs are not yet fully known and, therefore, the total amount to be paid by Chugach under the Partial Consent Decree is not known with certainty. The Partial Consent Decree does not settle Chugach's liability for future costs of designing and performing the S/S remedy (Future Costs). Although the Partial Consent Decree does not settle Chugach's or the other private PRP's liability for Future Costs, the Partial Consent Decree does bind the federal PRPs and the Alaska Railroad to pay an aggregate share of 64% of Future Costs. Chugach and the five other private PRPs have reached a separate settlement to divide the remaining 36% of Future Costs among themselves. Under that settlement, Chugach's percentage share of liability for Future Costs will equal 15.39%. Chugach's agreement to perform remedial design and remedial action (RD/RA) at the Site will be memorialized in a new Consent Decree (RD/RA Decree) that is being negotiated between the private PRPs and the United States. The RD/RA Decree is expected to contain the scope of work for the RD/RA as well as settlement terms, including EPA's covenant not to sue Chugach and the other private PRPs for Future Costs once the RD/RA is completed. The estimate of Future Costs of RD/RA at the Site, as determined by Chugach's consultants based on cost estimates contained in the FS report, ranges from $5,231,200 to $6,619,800. The RD/RA Decree contains a cost estimate, as determined by EPA and including a 50% cost overrun contingency, of $8,400,000. Chugach's share of these estimated RD/RA expenses would range from approximately $805,082 to $1,292,760. These amounts are only estimates, 16 however, the actual, full scope of the S/S cleanup at the Site will not be known, and the projected costs associated with the remedy cannot be refined, until EPA approves remedial design documents. Under the RD/RA Decree, Chugach and the other PRPs will be required to reimburse the United States for EPA oversight costs and DOJ enforcement costs relating to the RD/RA. Those costs have not been estimated by the United States and are unknown at this time. Therefore, the total amount paid by Chugach under the RD/RA Decree cannot be predicted with certainty. In addition, the RD/RA Decree contains reservation of rights allowing EPA to seek further response actions and payments from the PRPs under certain circumstances, including costs associated with alleged natural resource damages. At this time, no claims have been made pertaining to alleged natural resource damages and no prediction can be made whether EPA will request activities through its reservation of rights under RD/RA Decree. Finally, it is uncertain whether Chugach and the other PRPs will enter into the RD/RA Decree with EPA until negotiations are completed. Four of Chugach's insurance carriers have agreed under a reservation of rights to pay, and currently are paying, Chugach's costs of defense for the Site. The carriers have reserved their rights regarding indemnification of Chugach for response costs. Management believes that all past and future costs incurred for response, removal, investigation and cleanup of the Site would be fully recoverable in rates or covered by insurance and therefore would have no impact on Chugach's financial condition or results of operations. 17 Item 4 - Submission of Matters to a Vote of Security Holders Not Applicable PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters Not Applicable Item 6 - Selected Financial Data The following tables present selected historical information relating to financial condition and results of operations over the past five years: Balance Sheet Data ............. 1996 1995 1994 1993 1992 ------------ ------------ ------------- ------------ ------------ Plant net: In service .................. $400,052,837 $391,200,269 $ 390,969,561 $382,804,772 $383,934,140 Construction work in progress 19,826,957 27,068,964 22,795,657 27,698,289 23,713,420 ------------ ------------ ------------- ------------ ------------ Electric plant, net ...... 419,879,794 418,269,233 413,765,218 410,503,061 407,647,560 Other assets ................ 63,415,182 66,521,090 65,559,620 65,816,373 62,885,825 ------------ ------------ ------------- ------------ ------------ Total assets ............. $483,294,976 $484,790,323 $ 479,324,838 $476,319,434 $470,533,385 ------------ ------------ ------------- ------------ ------------ Capitalization: Long-term debt .............. 307,905,847 305,641,703 303,675,870 308,869,343 313,004,720 Capital leases .............. -- -- 131,582 261,991 314,838 Equities and margins ........ 104,477,942 99,230,550 94,579,059 84,089,720 78,803,200 ------------ ------------ ------------- ------------ ------------ Total capitalization ..... $412,383,789 $404,872,253 $ 398,386,511 $393,221,054 $392,122,758 ------------ ------------ ------------- ------------ ------------ Summary Operations Data Operating revenues ............. 134,876,668 129,379,308 130,912,171 $122,159,761 117,575,113 Operating expenses ............. 100,913,804 95,920,361 90,151,993 90,346,001 87,200,819 Interest expense ............... 27,052,186 27,207,648 27,508,928 27,544,280 27,596,927 Amortization of gain on refinancing .................. 1,703,136 2,150,476 1,926,212 1,948,394 1,963,198 ------------ ------------ ------------- ------------ ------------ Net operating margins ..... 8,613,814 8,401,775 15,177,462 6,217,874 4,740,565 Nonoperating margins ........... 1,217,557 604,418 (249,028) 795,378 839,394 ------------ ------------ ------------- ------------ ------------ Assignable margins ........ $ 9,831,371 $ 9,006,193 $ 14,928,434 $ 7,013,252 $ 5,579,959 ------------ ------------ ------------- ------------ ------------
18 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Chugach operates on a not-for-profit basis and, accordingly, seeks only to generate revenues sufficient to pay operating and maintenance costs, the cost of purchased power, capital expenditures, depreciation and principal and interest on all indebtedness of Chugach and to provide for the establishment of reasonable margins and reserves. Revenues in excess of current period costs (net operating margins and nonoperating margins) in any year are designated on Chugach's Statements of Revenues, Expenses and Patronage Capital as assignable margins. Retained assignable margins are designated on Chugach's balance sheet as patronage capital, which is assigned to each member on the basis of patronage. This patronage capital constitutes the principal equity of Chugach. Revenues Operating revenues include sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues. In 1996, operating revenues were approximately 4.2% higher than 1995. This increase was largely attributable to higher sales to all three customer classes. Demand and energy rate increases (on an interim-refundable basis) to both of the wholesale customer classes contributed to the rise in revenues. Retail demand and energy rates did not change in 1996. Higher fuel costs also contributed to the increase since fuel and purchased power costs are passed directly to customers through a fuel and purchased power adjustment factor. Volume of power sold varies not only with weather but also, in part, depends upon the volume of energy taken by wholesale and economy energy customers (Homer, MEA, Seward and GVEA) from the Bradley Lake hydroelectric project. In 1995 operating revenues were approximately 1.2% lower than 1994 operating revenues due mostly to base rate decreases for retail and both wholesale customer classes. These decreases more than offset an increase in Megawatt hours (MWh) sold to retail and both wholesale customer classes. Revenues and power sold were as follows for the years ended December 31: Year MWh sold Operating revenues 1996 2,215,842 $134,876,668 1995 2,136,599 129,379,308 1994 2,115,155 130,912,171 Chugach makes economy sales primarily to GVEA. These sales commenced in 1988 and have contributed to Chugach's growth in operating revenues. Chugach does not take such economy sales into consideration in its long-range resource planning process because these sales are non-firm sales that depend on GVEA's need for additional power and Chugach's available 19 generating capacity at the time. In 1996, economy sales to GVEA constituted approximately 4.5% of Chugach's sales revenues. The impact of inflation on Chugach's revenues falls into two rate categories as follows: Fuel Surcharge Fuel and purchased power costs are passed directly to Chugach's wholesale and retail customers through a fuel and purchased power adjustment factor. Changes in these costs due to inflation or other market conditions are passed directly to Chugach's retail and wholesale customers, which results in either a direct increase or decrease to Chugach's system revenues. The fuel adjustment factor is currently approved on a quarterly basis by the APUC. There are no limitations on surcharge rate changes. Increases in Chugach's fuel and purchased power costs result in increased revenues while decreases in costs result in lower revenues. Revenue from the fuel adjustment charge does not impact margins. In 1988 Chugach began making economy energy sales at a price that contemplated the future cost of the gas used to generate such energy. The APUC authorized Chugach to establish a fund whereby 80% of the margins earned from these sales would be used to mitigate the rate impact when natural gas prices increased in accordance with the fuel contracts which occurred in June 1996. The margins in this fund, known as the rate stabilization fund, are being returned to Chugach's ratepayers over a 12-month period in the form of a credit to the fuel adjustment factor. The entire balance of the fund will be returned to ratepayers by May 1997. Chugach suspended accruals to the submarine cable reserve in 1995 pursuant to an agreement with the wholesale customers. The balance of the reserve is being returned to ratepayers via a credit to the fuel adjustment factor over a period of 15 months, ending in March 1997. Simplified Rate Filing Since 1989 operating and maintenance costs and other nonfuel and purchased power costs have been recouped through a Simplified Rate Filing (SRF) process, that enabled Chugach to raise its electric prices up to 8% over a cumulative twelve-month period or up to 20% over a cumulative thirty-six month period, subject to APUC approval. Chugach's annual rate changes, excluding fuel adjustments, for retail and wholesale classes for the years 1994 through 1996 were as follows: 20 1996 1995 1994 ---- ---- ---- Retail 0.00% (4.92%) 0.86% Wholesale: MEA/Seward 2.46% (7.39%) (.07%) Homer 5.32% (9.52%) 2.61% Since Chugach's SRF rates are established on a revenue-requirement basis, changes in operating and other nonfuel and purchased power costs result in changes to system revenues. Each SRF requires a resolution from the Chugach Board of Directors authorizing the rates requested. The filing must then be approved by the APUC. In August 1996, the Chugach Board of Directors approved a petition to the APUC to withdraw from the SRF process. If approved, future demand and energy rate changes will be requested through a general rate case and other normal APUC procedures. The wholesale demand and energy rate changes for 1996 (shown above) were approved by the APUC on an interim-refundable basis. In February 1997, the APUC approved a Settlement Agreement between Chugach and AEG&T/MEA/Homer which resolved outstanding issues surrounding the APUC's approval of the aforementioned interim-refundable rates. Pursuant to this Settlement Agreement, Chugach agreed to refund a portion of the amounts collected under these interim-refundable rates. This refund amount is not material to Chugach's financial condition or results of operations. Expenses Chugach's operating expenses for the years ended December 31, 1996, 1995 and 1994 were as follows: Year Operating expenses 1996 $100,913,804 1995 95,920,361 1994 90,151,993 Operating expenses for 1996 were 5.2% higher than 1995. Operating expenses for 1995 were 6.4% higher than 1994. The reasons for the significant operating expense variances follow: Year ended December 31, 1996 versus year ended December 31, 1995 Chugach experienced a 17.5% increase in production costs in 1996 over 1995. This rise 21 is due mostly to higher fuel prices and higher fuel consumption associated with the increase in kWh sales. As previously reported, Chugach has now completed the transition into Period 2 under the long-term fuel supply contracts (see Fuel Supply in Item 1). Fuel costs now result from market-based prices instead of the lower prices from Period 1 (old Beluga gas) as outlined in the contracts. Thus, future fuel costs are expected to be higher in comparison to prior periods. Distribution expense decreased by 12.2% in 1996 from the same period in 1995. This decrease was caused mostly by lower levels of line maintenance expense resulting from a decrease in distribution right-of-way clearing activities. The focus of these clearing activities was on distribution lines in 1995 and transmission lines in 1996. Depreciation expense again increased in 1996 over 1995. This was the combined result of a higher plant in service balance as well as the completion of a depreciation rate phase-in plan approved by the APUC. Transmission plant depreciation rates for submarine cables were implemented in 1994, while revised depreciation rates for the remainder of transmission, distribution and general plant were implemented in 1995. Implementation of the revised generation plant depreciation rates took place in January 1996. These rates were obtained from the original Depreciation Study that included plant asset account activity through December 31, 1990. The APUC required that Chugach file an update to the original study. This update, for plant asset account balances as of December 31, 1994 was submitted to the APUC although Chugach did not request a change in depreciation rates. The study has again been updated for plant asset account balances at December 31, 1995. Chugach plans to submit the new depreciation rates from the latest update to the study to the APUC for implementation effective January 1, 1998. Other interest expense was higher during 1996 than in 1995. This was due to a higher average outstanding balance on the short-term lines of credit. The line of credit was used to fund the reacquisitions of Chugach's Series A, 2022 bonds during 1996. Several draws were subsequently converted to long-term bonds under the Third Supplemental Indenture (CoBank 3 and 4). Interest charged to construction decreased in 1996 due mostly to a lower construction work in progress balance during the period. Year ended December 31, 1995 versus year ended December 31, 1994 Chugach is engaged in a periodic maintenance program whereby generation units are subject to major overhauls based on their anticipated run times. Overhaul costs are variable as the level of maintenance required is uncertain pending completion of inspections prior to the overhaul work taking place. Additionally, in 1995 Chugach implemented Smaller Retirement Unit (SRU) accounting for its production maintenance projects. SRU accounting allows for the capitalization of production major component costs that would have been expensed as maintenance under the previous capitalization methodology. 22 Production costs increased by 17.0% from 1994 to 1995. This increase is largely due to higher fuel consumption associated with the increase in kWh sales. Additionally, fuel prices increased in 1995 over 1994. Higher production maintenance expense also contributed to the overall increase in Production expense. During 1995, Beluga units 3 and 7 were overhauled with the non-SRU portions of the projects being charged to maintenance expense. This compares to 1994 when the only major overhaul undertaken was the Beluga unit 8 and steam plant project. This project cost was deferred and is being amortized to expense over the useful life of the overhaul project. Transmission expense in 1995 increased 11.2% over the 1994 level. This increase was largely due to costs associated with restoration of real property leased by Chugach as a result of evicting a sublessee preparatory to returning the leasehold to Chugach's lessor and terminating the lease, as well as settlement of a claim with regard to adjacent property previously leased by Chugach. The property had been primarily used by Chugach to store submarine cable and associated equipment and as a staging area for submarine cable repair projects. The 10.2% increase in Customer accounts expense in 1995 was caused, in large part, by a higher level of costs associated with the corporate image advertising campaign and publication of a commercial customer newsletter. There were no retail capital credits retired during 1995; capital credit payments are offset against the corresponding previously uncollectible accounts prior to distribution. This contributed to an increase in the uncollectible accounts expense. Additionally, amortization of the Data Processing 5-Year Conversion Plan charged to Customer accounts expense increased in 1995 over 1994. Depreciation expense increased in 1995 over 1994. This was caused by the combination of a higher plant in service balance as well as new depreciation rates put into effect during 1995. The rates were changed as part of the aforementioned phase-in plan approved by the APUC. Short-term interest expense increased in 1995 relative to 1994 due to greater usage of the short-term lines of credit and generally higher rates in effect during the period. Interest charged to construction increased in 1995 over 1994 due mostly to higher rates which offset a slightly lower average construction work in progress balance during the period. 23 Margins Chugach's assignable margins for the years ended December 31, 1996, 1995 and 1994 were as follows: Period Net operating margins Nonoperating margins Assignable margins 1996 $ 8,613,814 $ 1,217,557 $ 9,831,371 1995 $ 8,401,775 $ 604,418 $ 9,006,193 1994 $ 15,177,462 $ (249,028) $14,928,434
Nonoperating margins increased in 1996 over 1995 primarily because of the write-off of a failed submarine cable and other property in 1995. No similar events took place in 1996. Additionally, more capital credits were received in 1996 than 1995. This increase was due mostly to the higher level of borrowing from CoBank (capital credits received are based on patronage). Nonoperating margins increased in 1995 over 1994 substantially due to a lower amount of losses on property dispositions. Additionally, interest income was higher due to generally higher interest rates in effect during the period and a higher average cash balance available for investment. Also, allowance for funds used during construction (AFUDC) increased for essentially the same reason noted above for interest charged to construction. Patronage Capital (Equity) Consistent with the directives of the Equity Management Plan approved by the Board of Directors, Chugach's customers and the APUC, Chugach's patronage capital and total equity have shown steady growth, both in dollars and as a percentage of capitalization. The following table summarizes Chugach's patronage capital and total equity position since 1994: 1996 1995 1994 ------------ ----------- ----------- Patronage capital at beginning of year . $ 95,421,358 $91,079,686 $80,802,620 Retirement of capital credits and estate payments ............................ 4,567,212 4,664,521 4,651,368 Assignable margins ..................... 9,831,371 9,006,193 14,928,434 ------------ ----------- ----------- Patronage capital at end of year ....... 100,685,517 95,421,358 91,079,686 Other equity ........................... 3,792,425 3,809,192 3,499,373 ------------ ----------- ----------- Total equity ......... $104,477,942 $99,230,550 $94,579,059 ------------ ----------- -----------
24 Chugach is in the process of updating its Equity Management Plan which will address future rotation schedules for its retail and wholesale customers. When complete, the plan will be submitted to the Board of Directors for approval. The Indenture includes a covenant restricting the distribution of patronage capital to members. Chugach cannot distribute patronage capital to members if 1) an event of default exists or 2) the aggregate amount of patronage capital distribution exceeds the sum of $7,000,000 plus 35 percent of the aggregate assignable margins earned after December 31, 1990. Times Interest Earned Ratio (TIER) Alaska electric cooperatives generally set rates on the basis of TIER. TIER is determined by dividing the sum of assignable margins plus long-term interest expense (excluding capitalized interest) by long-term interest expense. Beginning in 1989, Chugach's Board of Directors implemented an Equity Management Plan which established a schedule for building Chugach's equity. The plan requires that Chugach manage its business with a view to achieving a TIER of 1.25 or greater. Chugach's achieved TIERs for the past five years were as follows: Period TIER 1996 1.39 1995 1.34 1994 1.58 1993 1.27 1992 1.21 The Indenture requires Chugach to establish rates reasonably expected to yield margins for interest (MFI) equal to at least 1.20 times total interest expense, where margins for interest are defined as net margins plus interest charges and accruals for federal income and other taxes imposed on income after deduction of interest charges for such period, provided that the amount of nonoperating margins included in assignable margins shall not exceed 50% of assignable margins. Chugach's achieved MFIs for the past five years are not materially different from the TIER calculations shown above. The Indenture requires that Chugach achieve such a 1.20 ratio for any 12 consecutive month period of the last 18 months before issuing additional Bonds (other than additional Bonds issued based on deposited cash and, under certain circumstances, retirement of Bonds). MATERIAL CHANGES IN FINANCIAL CONDITION Chugach maintained a stable asset base from 1995 to 1996. Notable changes among the components include: a decrease in restricted cash (margins from economy energy sales or rate stabilization fund) caused by the return of these funds to the ratepayers (through the fuel surcharge mechanism); an increase in restricted construction funds due to the receipt of the 25 grant funds for the Southern Intertie Siting Study (from AIDEA); a decrease in accounts receivable caused in large part by the timing of receipts in 1995 from a large customer (i.e. two months billings were included in the December 31, 1995 balance); and a lower material and supplies inventory balance, which was due to the majority of the components included in the balance at December 31, 1995 being capitalized to plant during 1996. Reacquisitions of the Series A 2022 bonds that took place in 1996 represent the major change in long-term obligations. As described in Item 1 (Refinancings), Chugach replaced some of its Series A 2022 bonds with bonds under the CoBank Supplemental Indenture. This also caused the decrease in accrued interest payable as the new bonds were priced lower than the bonds they replaced. Other notable changes include: a higher fuel payable balance caused by both the timing of payments to the suppliers and the increase in fuel prices; the increase in other liabilities due to the current portions of both the rate stabilization fund and the submarine cable reserve fund being reclassified from deferred credits and an additional accrual related to the Standard Steel litigation (see Item 3); and the lower balance in the deferred credits caused by the aforementioned reclassification and a reduction in the balance of the original refinancing gain due to the bond reacquisitions (the bond reacquisitions resulted in a higher pro rata recognition of the original refinancing gain and refinancing costs deferred credits; these amounts were combined with the transaction costs (premiums) and are included in a regulatory asset which is being amortized over the life of the replacement debt). LIQUIDITY AND CAPITAL RESOURCES Chugach satisfies its operational and capital cash requirements through internally generated funds, a $50 million line of credit with the National Rural Utilities Cooperative Finance Corporation (NRUCFC) and a $35 million line of credit with CoBank. At December 31, 1996, $2.75 million was outstanding on the NRUCFC line which carried an interest rate of 6.35%. The NRUCFC line of credit expires February 19, 1998. At December 31, 1996, no amount was outstanding on the CoBank line. The CoBank line of credit expires August 1, 1997, but is expected to be renewed. Chugach's capital improvement requirements are based on long-range plans and other supporting studies and are executed through a five-year construction work plan. 26 Five-year work plans are fully developed and updated every year. Shown below is an estimate of capital expenditures for the years 1997 through 2001: 1997 $21.0 million 1998 $35.2 million 1999 $19.7 million 2000 $18.9 million 2001 $40.2 million The following table summarizes Chugach's historical capital additions for the years 1992 through 1996: Historical Capital Improvement Additions (000's omitted) 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- Generation ...... $ 7,622 $ 4,978 $ 950 $ 2,754 $ 9,132 Transmission .... 9,661 4,497 6,038 4,528 611 Distribution .... 10,625 11,488 18,501 7,265 7,477 General and other 2,137 3,421 1,925 1,988 3,084 ------- ------- ------- ------- ------- Total ... $30,045 $24,384 $27,414 $16,535 $20,304 ------- ------- ------- ------- -------
In 1997 the Association will update the Equity Management Plan. Following is a five-year summary of those anticipated capital credit retirements: Year ending Wholesale Retail Total 1997 $1,206,000 $1,431,000 $2,637,000 1998 1,533,000 2,146,000 3,679,000 1999 0 1,766,000 1,766,000 2000 0 1,783,000 1,783,000 2001 0 1,823,000 1,823,000 27 Chugach's outstanding long-term obligations and maturity dates at December 31, 1996 are as follows: 1996 First mortgage bonds of 8.08% maturing in 2002 and 9.14% maturing in 2022, with interest payable semiannually March 15 and September 15: 8.08% $ 34,554,000 9.14% 222,705,000 CoBank 8.95% bond maturing in 2002, with interest payable monthly .......................................... 1,587,703 CoBank 7.76% bond maturing in 2005, with interest payable monthly .......................................... 10,000,000 CoBank 6.35% (variable rate, repriced monthly, currently 6.45%) bonds maturing 2022, with interest payable monthly ...................................... 45,000,000 Capital lease for computer equipment at an interest rate of 9.10% with monthly payments of approximately $1,700 through July 1998 ............................................... 30,896 ------------ Total long-term obligations ........................................ 313,877,599 Less current installments ................................................ 5,971,752 Long-term obligations, excluding current installments ............................................. $307,905,847 ------------
Sinking Fund Principal maturities requirements Year ending First mortgage December 31 bonds Total CoBank mortgage bonds Capital leases 1997 $ 5,706,000 $ 234,856 $ 30,896 $ 5,971,752 1998 5,643,000 256,346 - 5,899,346 1999 5,809,000 279,802 - 6,088,802 2000 6,067,000 305,405 - 6,372,405 2001 6,097,000 333,350 - 6,430,350 Thereafter 227,937,000 55,177,944 - 283,114,944 ------------ ---------- --------- ----------- $ 257,259,000 $ 56,587,703 $ 30,896 $ 313,877,599 ------------ ---------- ------- ----------- 28 On September 19, 1991, Chugach issued $314 million of First Mortgage Bonds, 1991 Series A Bonds, for purposes of repaying existing debt to the FFB and the REA. Pursuant to Section 311 of the Rural Electrification Act, Chugach was permitted to prepay the REA debt at a discounted rate of approximately 9%, resulting in a discount of approximately $45 million. The gain on prepayment was deferred at December 31, 1991 because Chugach expected to pass the benefit of the gain through to ratepayers prospectively in the form of lower rates. In April 1992, Chugach received formal approval from the APUC to defer the gain and amortize it into income over the life of the bonds. Annual amortization for 1996, 1995 and 1994 was approximately $2 million. Chugach has negotiated a supplemental indenture (Third Supplemental Indenture of Trust) with CoBank for up to $80 million in future bond financing. At December 31, 1996, Chugach had bonds in the amount of $56.6 million outstanding under this financing arrangement. This balance is comprised of a $1.6 million bond which carries an interest rate of 8.95% maturing in 2002, a $10 million bond with a 7.76% interest rate, due in 2005, a $21.5 million bond (CoBank 3), currently priced at 6.45% (repriced monthly) and a $23.5 million bond (CoBank 4) currently priced at 6.45% (also repriced monthly). Principal payments on the CoBank 3 and 4 bonds commence in 2003 and continue through 2022. In addition, Chugach has negotiated a similar supplemental indenture with NRUCFC, also for $80 million (Fifth Supplemental Indenture of Trust). At December 31, 1996, no amounts were outstanding under this financing vehicle. Since December 1995, Chugach has reacquired $39.295 million of its Series A 2022 bonds. This strategy has been in response to the favorable long-term interest rate environment. Chugach will continue to explore reacquisition of its Series A 2022 bonds if market conditions warrant such action. Besides these reacquisition transactions (and any similar future refinancings) Chugach does not anticipate issuance of long-term debt in the next 12 months. Chugach management expects that cash flows from operations and external funding sources will be sufficient to cover operational and capital funding requirements in 1997 and thereafter. Impact of Recent Accounting Pronouncements In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 121 "Accounting for Impairment of Long Lived Assets and Long Lived Assets to be Disposed Of" (SFAS No. 121). SFAS No. 121 addresses accounting for the impairment of long-lived assets, identifiable intangibles and goodwill related to those assets. It also provides guidance for recognition and measurement of impairment losses. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995, thus, Chugach implemented the new standard in 1996. The statement did not have a material impact on Chugach's financial condition or results of operations. On an ongoing basis, Chugach assesses its regulatory assets to ensure that impairment has not occurred. 29 ENVIRONMENTAL MATTERS Standard Steel Salvage Yard Site A cost recovery action was filed in Federal District Court on December 27, 1991 by the United States against Chugach and six other Potentially Responsible Parties (PRPs) seeking reimbursement of removal and response action costs (Past Response Costs) incurred by US EPA at the Standard Steel and Metals Salvage Yard Superfund Site in Anchorage, Alaska (Site). The six other PRPs named in the action are the Alaska Railroad, Westinghouse Electric Corporation, Sears Roebuck and Co., Montgomery Ward & Co., J.C. Penney Company, Inc. and Bridgestone/Firestone, Inc. On September 23, 1992, Chugach entered into an Administrative Order on Consent (AOC) with the EPA to perform a remedial investigation and feasibility study (RI/FS) for the Site. The RI/FS was completed in 1996 and, based on the results of the RI/FS, EPA selected the remedy of soil stabilization and solidification (S/S) for cleanup of the Site and documented its selection in a Record of Decision issued in July, 1996. In December 1996, a partial consent decree (Partial Consent Decree) settling the cost recovery action was entered by the Federal District Court. Under the Partial Consent Decree the PRPs and the United States settled the following costs associated with the Site: Past Response Costs incurred by EPA through December 1991; RI/FS costs; drum and scrap removal costs; past enforcement costs incurred by the Department of Justice (DOJ) through December 11, 1996; and EPA oversight costs related to the RI/FS. The settlement under the Partial Consent Decree allocates 14.37% of the above costs to Chugach. Chugach has paid its share of Past Response Costs and DOJ enforcement costs under the Partial Consent Decree. The total estimated cost of the settlement under the Partial Consent Decree is approximately $6,800,000 of which Chugach's share will be approximately $977,000. These amounts are estimates because RI/FS expenses and EPA oversight costs are not yet fully known and, therefore, the total amount to be paid by Chugach under the Partial Consent Decree is not known with certainty. The Partial Consent Decree does not settle Chugach's liability for future costs of designing and performing the S/S remedy (Future Costs). Although the Partial Consent Decree does not settle Chugach's or the other private PRP's liability for Future Costs, the Partial Consent Decree does bind the federal PRPs and the Alaska Railroad to pay an aggregate share of 64% of Future Costs. Chugach and the five other private PRPs have reached a separate settlement to divide the remaining 36% of Future Costs among themselves. Under that settlement, Chugach's percentage share of liability for Future Costs will equal 15.39%. Chugach's agreement to perform remedial design and remedial action (RD/RA) at the Site will be memorialized in a new Consent Decree (RD/RA Decree) that is being negotiated between the private PRPs and the United States. The RD/RA Decree is expected to contain the scope 30 of work for the RD/RA as well as settlement terms, including EPA's covenant not to sue Chugach and the other private PRPs for Future Costs once the RD/RA is completed. The estimate of Future Costs of RD/RA at the Site, as determined by Chugach's consultants based on cost estimates contained in the FS report, ranges from $5,231,200 to $6,619,800. The RD/RA Decree contains a cost estimate, as determined by EPA and including a 50% cost overrun contingency, of $8,400,000. Chugach's share of these estimated RD/RA expenses would range from approximately $805,082 to $1,292,760. These amounts are only estimates, however, the actual, full scope of the S/S cleanup at the Site will not be known, and the projected costs associated with the remedy cannot be refined, until EPA approves remedial design documents. Under the RD/RA Decree, Chugach and the other PRPs will be required to reimburse the United States for EPA oversight costs and DOJ enforcement costs relating to the RD/RA. Those costs have not been estimated by the United States and are unknown at this time. Therefore, the total amount paid by Chugach under the RD/RA Decree cannot be predicted with certainty. In addition, the RD/RA Decree contains reservation of rights allowing EPA to seek further response actions and payments from the PRPs under certain circumstances, including costs associated with alleged natural resource damages. At this time, no claims have been made pertaining to alleged natural resource damages and no prediction can be made whether EPA will request activities through its reservation of rights under RD/RA Decree. Finally, it is uncertain whether Chugach and the other PRPs will enter into the RD/RA Decree with EPA until negotiations are completed. Four of Chugach's insurance carriers have agreed under a reservation of rights to pay, and currently are paying, Chugach's costs of defense for the Site. The carriers have reserved their rights regarding indemnification of Chugach for response costs. Management believes that all past and future costs incurred for response, removal, investigation and cleanup of the Site would be fully recoverable in rates or covered by insurance and therefore would have no impact on Chugach's financial condition or results of operations. OUTLOOK Nationwide, the electric utility industry is entering a period of unprecedented competition. Electric utilities in Alaska will not be immune from these competitive forces. Chugach has taken several steps to be more effectively positioned to meet the challenge of a competitive market for electricity. Chugach participates in national benchmarking projects to improve system operations. Recent studies have focused on line extensions, field services, new service costs, meter reading and purchasing. As a result of these studies, Chugach has been able to make these processes more efficient which has led to lower costs. The Association is committed to continue reviewing all areas of its operations and to serve its customers in a way that maintains higher reliability while containing the cost of electricity. 31 In addition to participation in benchmarking studies, Chugach has also implemented strategic alliances in the purchasing and warehousing areas. These alliances are designed to improve efficiency and thus, contribute to lower operating costs. Chugach will continue to explore other areas for strategic alliance opportunities. The company is also creating a new strategic planning process to address how the cooperative can prepare for competition. In 1995, the Strategic Planning Group (a team of employees from different operational areas) was created. This group has evolved into four separate teams comprised of Strategic Planning Group employees, executive managers and members of the board. The teams include Retail Strategy, Wholesale Strategy, Corporate Direction and Organization. The Retail Strategy, Wholesale Strategy and Corporate Direction teams are working on development of the key strategies in their respective focus area. Once developed, the Organization team will combine these strategies and develop a detailed action plan for preparing Chugach for the future and competition. 32 Item 8 - Financial Statements and Supplementary Data December 31, 1996 and 1995 Independent Auditors' Report The Board of Directors Chugach Electric Association, Inc.: We have audited the accompanying balance sheets of Chugach Electric Association, Inc. as of December 31, 1996 and 1995, and the related statements of revenues, expenses and patronage capital and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Association's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chugach Electric Association, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Anchorage, Alaska /s/ KPMG Peat Marwick LLP March 5, 1997 33 CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets December 31, 1996 and 1995 Assets 1996 1995 ------------ ------------ Utility plant (notes 2 and 14): Electric plant in service ................ $615,464,060 $587,877,992 Construction work in progress ............ 19,826,957 27,068,964 ------------ ------------ 635,291,017 614,946,956 Less accumulated depreciation ............ 215,411,223 196,677,723 ------------ ------------ Net utility plant ...... 419,879,794 418,269,233 ------------ ------------ Other property and investments, at cost: Nonutility property ...................... 3,550 3,550 Investments in associated organizations (note 3) .............................. 7,647,189 7,513,807 Restricted cash - margins from Economy Energy Sales, all repurchase agreements 1,599,239 3,026,634 ------------ ------------ 9,249,978 10,543,991 ------------ ------------ Current assets: Cash and cash equivalents, including repurchase agreements of $6,216,073 in 1996 and $6,360,452 in 1995 ........... 6,226,365 6,371,687 Cash - restricted construction funds ..... 1,371,386 -- Special deposits ......................... 89,232 97,789 Accounts receivable, less provision for doubtful accounts of $367,085 in 1996 and $436,083 in 1995 .................. 15,369,883 17,108,823 Materials and supplies, at average cost .. 16,187,592 18,498,783 Prepayments .............................. 694,257 675,117 Other current assets ..................... 294,380 412,209 ------------ ------------ Total current assets ..... 40,233,095 43,164,408 ------------ ------------ Deferred charges (notes 10 and 16) ............ 13,932,109 12,812,691 ------------ ------------ $483,294,976 $484,790,323 ------------ ------------
See accompanying notes to financial statements. 34 CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets, Continued December 31, 1996 and 1995 Liabilities 1996 1995 ------------ ------------ Equities and margins (note 12): Memberships ............................... $ 812,748 $ 765,123 Patronage capital (note 4) ................ 100,685,517 95,421,358 Other (note 5) ............................ 2,979,677 3,044,069 ------------ ------------ 104,477,942 99,230,550 ------------ ------------ Long-term obligations, excluding current installments (notes 6 and 7): First mortgage bonds payable .............. 251,553,000 294,054,000 National Bank for Cooperatives bonds payable .................................. 56,352,847 11,587,703 ------------ ------------ 307,905,847 305,641,703 ------------ ------------ Current liabilities: Bank overdraft ............................ 806,546 492,204 Notes payable (note 6) .................... 2,750,000 8,000,000 Current installments of long-term debt and capital leases (notes 6 and 7) ......... 5,971,752 5,665,749 Accounts payable .......................... 5,178,161 6,659,477 Consumer deposits ......................... 1,066,906 1,119,056 Accrued interest .......................... 7,076,388 8,052,786 Salaries, wages and benefits .............. 3,583,422 3,772,608 Fuel ...................................... 6,047,574 2,289,776 Other (note 16) ........................... 5,012,191 2,624,341 ------------ ------------ Total current liabilities .. 37,492,940 38,675,997 ------------ ------------ Deferred credits (note 13) ..................... 33,418,247 41,242,073 ------------ ------------ $483,294,976 $484,790,323 ------------ ------------
See accompanying notes to financial statements. 35 CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Revenues, Expenses and Patronage Capital Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 ------------- ------------- ------------- Operating revenues ................... $ 134,876,668 $ 129,379,308 $ 130,912,171 ------------- ------------- ------------- Operating expenses: Production ...................... 37,066,444 31,533,567 26,947,797 Purchased power ................. 10,024,483 10,136,623 10,311,046 Transmission .................... 3,667,039 3,460,823 3,112,527 Distribution .................... 8,789,683 10,008,020 10,036,600 Consumer accounts ............... 6,978,856 7,089,847 6,431,363 Administrative, general and other 13,713,690 14,395,125 15,431,254 Depreciation .................... 20,673,609 19,296,356 17,881,406 ------------- ------------- ------------- Total operating expenses 100,913,804 95,920,361 90,151,993 ------------- ------------- ------------- Interest: On long-term debt ............... 25,029,257 25,559,725 25,876,104 Charged to construction - credit (616,090) (1,114,928) (704,813) On short-term debt .............. 935,883 612,375 411,425 ------------- ------------- ------------- Net interest ............ 25,349,050 25,057,172 25,582,716 ------------- ------------- ------------- Net operating margins ... 8,613,814 8,401,775 15,177,462 Nonoperating margins: Interest income ................. 695,699 730,041 589,537 Other ........................... 566,908 351,586 91,552 Property loss ................... (45,050) (477,209) (930,117) ------------- ------------- ------------- Assignable margins ....... 9,831,371 9,006,193 14,928,434 Patronage capital at beginning of year 95,421,358 91,079,686 80,802,620 Retirement of capital credits and estate payments ................... (4,567,212) (4,664,521) (4,651,368) ------------- ------------- ------------- Patronage capital at end of year ..... $ 100,685,517 $ 95,421,358 $ 91,079,686 ------------- ------------- -------------
See accompanying notes to financial statements. 36 CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 ------------ ------------ ------------ Cash flows from operating activities: Assignable margins ........................................................ $ 9,831,371 $ 9,006,193 $ 14,928,434 ------------ ------------ ------------ Adjustments to reconcile assignable margins to net cash provided by operating activities: Depreciation and amortization ............................................. 23,221,162 21,846,611 19,963,165 Capitalized interest (AFUDC/IDC) .......................................... (809,302) (1,354,273) (825,500) Property losses and obsolete inventory write-off .......................... 45,050 477,434 2,110,125 Other ..................................................................... (265,643) 343,806 369,791 Changes in assets and liabilities: (Increase) decrease in assets: Special deposits ..................................................... 8,557 (44,332) 51,702 Accounts receivable .................................................. 1,738,940 (3,492,435) 814,163 Notes receivable ..................................................... -- 2,533 28,434 Prepayments .......................................................... (19,140) 194,790 (272,084) Materials and supplies, net .......................................... 2,311,191 1,527,094 (1,522,925) Deferred charges ..................................................... (4,581,795) (2,222,963) (3,577,693) Other ................................................................ 117,829 (14,740) 3,640 Increase (decrease) in liabilities: Accounts payable ..................................................... (1,481,316) 3,125,594 (163,379) Accrued interest ..................................................... (976,398) (136,434) (13,428) Deferred credits ..................................................... (8,023,874) (3,274,768) (1,837,226) Consumer deposits, net ............................................... (52,150) (73,789) (18,281) Other ................................................................ 5,956,463 389,099 1,789,648 ------------ ------------ ------------ Total adjustments ............................................... 17,189,574 17,293,227 16,900,152 ------------ ------------ ------------ Net cash provided by operating activities .................................................... 27,020,945 26,299,420 31,828,586 ------------ ------------ ------------ Cash flows from investing activities: Extension and replacement of plant ........................................ (20,605,093) (22,058,887) (21,733,836) Decrease in investments in associated organizations ....................... 132,261 267,393 229,897 ------------ ------------ ------------ Net cash (used) in investing activities ......................... (20,472,832) (21,791,494) (21,503,939) ------------ ------------ ------------ Cash flows from financing activities: Net increase (decrease) in bank overdraft ................................. 314,342 (635,111) (1,534,005) Transfer to restricted construction funds ................................. (1,371,386) -- -- Net increase (decrease) in notes payable .................................. (5,250,000) 500,000 (2,500,000) Proceeds from long-term debt .............................................. 45,000,000 10,000,000 -- Repayments of long-term debt .............................................. (42,429,853) (8,312,527) (4,185,104) Memberships and donations received (refunded) ............................. (16,768) 309,821 212,272 Retirement of patronage capital ........................................... (4,567,212) (4,664,521) (4,651,368) Increase in (refunds) and transfers of consumer advances for construction ........................................................ 1,627,442 (1,309,828) 465,382 ------------ ------------ ------------ Net cash used by financing activities ................................................... (6,693,435) (4,112,166) (12,192,823) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents .................................................. (145,322) 395,760 (1,868,176) Cash and cash equivalents at beginning of year ................................. 6,371,687 5,975,927 7,844,103 ------------ ------------ ------------ Cash and cash equivalents at end of year ....................................... $ 6,226,365 $ 6,371,687 $ 5,975,927 ------------ ------------ ------------ Supplemental disclosure of cash flow information - ............................. $ 26,325,449 $ 25,193,606 $ 25,596,144 ------------ ------------ ------------ interest expense paid, net of amounts capitalized
See accompanying notes to financial statements. 37 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements December 31, 1996 and 1995 (1) Description of Business and Summary of Significant Accounting Policies Description of Business Chugach Electric Association, Inc. (Association or Chugach) is the largest electric utility in Alaska. The Association is engaged in the generation, transmission and distribution of electricity to directly served retail customers in the Anchorage and upper Kenai Peninsula areas. Through an interconnected regional electrical system, Chugach's power flows throughout Alaska's Railbelt, a 400-mile-long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state, including Alaska's largest cities, Anchorage and Fairbanks. Chugach also supplies much of the power requirements of three wholesale customers, Matanuska Electric Association (MEA), Homer Electric Association (Homer) and the City of Seward (Seward). The Association operates on a not-for-profit basis and, accordingly, seeks only to generate revenues sufficient to pay operating and maintenance costs, the cost of purchased power, capital expenditures, depreciation, and principal and interest on all indebtedness and to provide for the establishment of reasonable margins and reserves. The Association is subject to the regulatory authority of the Alaska Public Utilities Commission (APUC). Management Estimates In preparing the financial statements, management of the Association is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Summary of Significant Accounting Policies The accounting records of the Association conform to the Uniform System of Accounts as prescribed by the Federal Energy Regulatory Commission. The Association meets the criteria, and accordingly, follows the accounting and reporting requirements of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS 71). Revenues in excess of current period costs (net operating margins and nonoperating margins) in any year are designated on the Association's statement of revenues and expenses as assignable margins. Retained assignable margins are designated on the Association's balance sheet as patronage capital, which is assigned to each member on the basis of patronage. This patronage capital constitutes the principal equity of the Association. The Association performs an annual evaluation of the requirements of SFAS 71 and related exposures. Reclassifications Certain reclassifications have been made to the 1994 and 1995 financial statements to conform to the 1996 presentation. 38 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements Plant Additions and Retirements Additions to electric plant in service are recorded at original cost of contracted services, direct labor and materials, and indirect overhead charges. For property replaced or retired, the average unit cost of the property unit, plus removal cost, less salvage, is charged to accumulated provision for depreciation. The cost of replacement is added to electric plant. The Association implemented Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long Lived Assets and Long Lived Assets to be Disposed Of in 1996. There was no material impact on the financial statements. In 1994 the Association completed a feasibility study concerning the desirability of implementing Smaller Retirement Unit accounting. The Association implemented Smaller Retirement Unit accounting in 1995. Smaller Retirement Unit accounting allows for the capitalization of generation major component costs which would have been expensed as maintenance under the previous capitalization methodology. Operating Revenues Operating revenues are based on billing rates authorized by the APUC which are applied to customers' usage of electricity. Included in operating revenue are billings rendered to customers adjusted for differences in meter read dates from year to year. The Association's tariffs include provisions for the flow through of gas cost increases pursuant to existing gas supply contracts. During 1988 the Association commenced some sales of energy at a price which contemplates the future replacement cost of the gas used to generate such energy, referred to as Economy Energy Sales. Pursuant to an order by the APUC, 80% of the margins from Economy Energy Sales is deferred to mitigate future gas price increases. Return of these deferred margins, plus accrued interest earnings, to ratepayers began in June 1996, when the transition from lower priced natural gas to higher priced natural gas occurred. These margins will be returned, over a twelve month period, in the form of a credit to the Fuel Cost Recovery Adjustment (FCRA) factor. In August 1996, the Board of Directors approved a petition to the Alaska Public Utilities Commission (APUC) to withdraw from the Simplified Rate Filing (SRF) process. This petition was submitted to the APUC as part of Docket U-96-37, which was opened to resolve rate disputes with Chugach's wholesale customers. Interim-refundable rates for wholesale customers were ordered pending resolution of the docket. In February 1997, the APUC approved a Settlement Agreement between Chugach and its wholesale customers resolving issues in the docket and establishing permanent rates. As part of the APUC order, the Association is required to file Cost of Service and Revenue Requirement Studies. Chugach will file these studies in March 1997. As part of the Settlement Agreement, the wholesale customers agreed not to oppose Chugach's withdrawal from SRF. The APUC orders have not addressed Chugach's withdrawal from SRF but Chugach anticipates approval of its petition. Future rate changes will be applied for through general rate case and other normal APUC procedures. 39 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements Investments in Associated Organizations Investments in associated organizations are carried at cost. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, which becomes effective for fiscal years beginning after December 15, 1993. Initial adoption is required to be reflected prospectively. The statement requires entities to classify debt and equity securities as held-to-maturity securities, trading securities or available-for-sale securities. Held-to-maturity securities are to be reported at amortized cost. Trading securities are to be reported at fair value, with unrealized gains and losses included in earnings. Available-for-sale securities are to be reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of patronage capital. Chugach adopted the statement in 1994 but its impact was not significant as all investments were classified as held-to-maturity. The Association has the intent and ability to hold these investments to maturity. Deferred Charges and Credits Deferred charges, representing regulatory assets, are amortized to operating expense over the period allowed for rate-making purposes, generally five years. Nonrefundable contributions in aid of construction are credited to the associated cost of construction of property units. Refundable contributions in aid of construction are held in deferred credits pending their return or other disposition. Depreciation and Amortization Depreciation and amortization rates have been applied on a straight-line basis and at December 31, 1996 are as follows: Rate (%) Steam production plant 2.68 - 2.95 Hydraulic production plant 1.33 - 2.24 Other production plant 3.46 - 7.07 Transmission plant 1.85 - 5.00 Distribution plant 2.10 - 6.67 General plant 2.22 - 25.00 Other 2.75 In 1994, the first phase of a three part phase-in of new depreciation rates occurred as APUC approved rates for submarine cables (Transmission plant) were implemented. The impact of utilization of these new depreciation rates on the financial statements was not material. In 1995, the balance of Transmission plant, all of Distribution plant and General plant rates were implemented. In 1996, new Generation plant depreciation rates were implemented. 40 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements Capitalized Interest Allowance for funds used during construction and interest charged to construction - credit are the estimated costs during the period of construction of equity and borrowed funds used for construction purposes. The Association capitalized such funds at the average rate (adjusted monthly) of 8.6% during 1996, 8.2% during 1995 and 7.6% during 1994. Cash and Cash Equivalents For purposes of the statement of cash flows, the Association considers all highly liquid debt instruments with a maturity of three months or less upon acquisition by the Association (excluding restricted cash and investments) to be cash equivalents. Fair Value of Financial Instruments Statement of Financial Accounting Standards 107, Disclosures About the Fair Value of Financial Instruments, requires disclosure of the fair value of certain on and off balance sheet financial instruments for which it is practicable to estimate that value. The following methods are used to estimate the fair value of financial instruments: Cash and cash equivalents and restricted cash - the carrying amount approximates fair value because of the short maturity of those instruments. Investments in associated organizations - the carrying amount approximates fair value because of limited marketability and current market interest rates which approximate interest rates on the investments. Consumer deposits - the carrying amount approximates fair value because of the short refunding term. Notes payable - the carrying amount approximates fair value because of the short maturity of the notes. Long-term obligations - the fair value is estimated based on the quoted market price for same or similar issues (note 7). 41 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements 2) Utility Plant Summary Major classes of electric plant as of December 31 are as follows: 1996 1995 ---- ---- Electric plant in service: Steam production plant $ 60,392,869 $ 60,392,869 Hydraulic production plant 8,798,695 8,766,762 Other production plant 107,278,076 107,222,121 Transmission plant 189,961,660 189,792,544 Distribution plant 144,939,571 137,233,348 General plant 61,174,312 59,326,923 Unclassified electric plant in service 37,533,642 19,814,513 Equipment under capital leases 674,323 618,000 Other 4,710,912 4,710,912 ------------ ------------ Total electric plant in service 615,464,060 587,877,992 Construction work in progress 19,826,957 27,068,964 ----------- ----------- Total electric plant in service and construction work in progress $ 635,291,017 $ 614,946,956 ----------- ----------- Depreciation of unclassified electric plant in service has been included in functional plant depreciation accounts in accordance with the anticipated eventual classification of the plant investment. (3) Investments in Associated Organizations Investments in associated organizations include the following at December 31: 1996 1995 ---- ---- National Rural Utilities Cooperative Finance Corporation (NRUCFC) $ 6,095,980 $ 6,095,980 National Bank for Cooperatives (CoBank) 1,352,010 1,253,223 NRUCFC capital term certificates 29,120 16,317 Other 170,079 148,287 --------- --------- $ 7,647,189 $ 7,513,807 --------- --------- 42 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements The Farm Credit Administration, CoBank's federal regulators, requires minimum capital adequacy standards for all Farm Credit System institutions. CoBank's loan agreements require, as a condition of the extension of credit, that an equity ownership position be established by all borrowers. The Association's investment in NRUCFC similarly was required by its financing arrangements with NRUCFC. The investments in NRUCFC and CoBank mature at various dates through 2020 and bear interest at rates ranging from 3% to 5%. (4) Patronage Capital The Association has approved an Equity Management Plan which established in general, a ten-year (for wholesale customers) and twenty-year (for retail customers) capital credit retirement of patronage capital, based on the members' proportionate contribution to Association assignable margins. At December 31, 1996, out of the total of $100,685,517 patronage capital, the Association had assigned $90,854,146 of such patronage capital (net of capital credit retirements). Approval of actual capital credit retirements is at the discretion of the Association's Board of Directors. In November 1995, the Board of Directors approved retirement of wholesale capital credits for 1985 resulting in an authorized distribution of $4,535,362. The Board of Directors elected to not authorize a retail capital credit retirement for 1995. In November 1996, the Board of Directors approved the retirement of $1,868,785 of retail capital credits representing 50 percent of the 1983 retail patronage. In December 1996, the Board of Directors authorized the retirement of $2,135,078 of wholesale capital credits from 1986 resulting in an authorized 1996 distribution of $4,003,863. A special return of wholesale capital credits in the amount of $392,136 was authorized by the Board of Directors under the terms of APUC Docket U-92-10. In 1997 the Association will update the Equity Management Plan. Following is a five-year summary of those anticipated capital credit retirements: Year ending Wholesale Retail Total 1997 $1,206,000 $1,431,000 $2,637,000 1998 1,533,000 2,146,000 3,679,000 1999 0 1,766,000 1,766,000 2000 0 1,783,000 1,783,000 2001 0 1,823,000 1,823,000 43 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (5) Other Equities A summary of other equities at December 31 follows: 1996 1995 ---- ---- Nonoperating margins, prior to 1967 $ 23,625 $ 23,625 Donated capital 183,580 203,478 Unredeemed capital credit retirement 2,772,472 2,816,966 ---------- ---------- $ 2,979,677 $ 3,044,069 ---------- ---------- (6) Long-term Obligations Long-term obligations at December 31 are as follows: 1996 1995 ------------ ------------ First mortgage bonds of 8.08% maturing in 2002 and 9.14% maturing in 2022, with interest payable semiannually March 15 and September 15: 8.08% $ 34,554,000 $ 39,873,000 9.14% 222,705,000 259,500,000 CoBank 8.95% bond maturing in 2002, with interest payable monthly .......................................... 1,587,703 1,802,871 CoBank 7.76% bond maturing in 2005, with interest payable monthly .......................................... 10,000,000 10,000,000 CoBank 6.35% (variable rate, repriced monthly) bonds maturing 2022, with interest payable monthly ................................................. 45,000,000 -- Capital lease for computer equipment at an interest rate of 9.10% with monthly payments of approximately $1,700 through July 1998 ............................................... 30,896 131,581 ------------ ------------ Total long-term obligations ........................................ 313,877,599 311,307,452 Less current installments ................................................ 5,971,752 5,665,749 ------------ ------------ Long-term obligations, excluding current installments ............................................. $307,905,847 $305,641,703 ------------ ------------
Substantially all assets are pledged as collateral for the long-term obligations. 44 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements Maturities of Long-term Obligations Long-term obligations at December 31, 1996 mature as follows: Sinking Fund Principal maturities requirements Year ending First mortgage December 31 bonds Total CoBank mortgage bonds Capital leases 1997 $ 5,706,000 $ 234,856 $ 30,896 $ 5,971,752 1998 5,643,000 256,346 - 5,899,346 1999 5,809,000 279,802 - 6,088,802 2000 6,067,000 305,405 - 6,372,405 2001 6,097,000 333,350 - 6,430,350 Thereafter 227,937,000 55,177,944 - 283,114,944 ------------ ---------- --------- ----------- $ 257,259,000 $ 56,587,703 $ 30,896 $ 313,877,599 ------------ ---------- ------- ----------- Lines of Credit The Association had an annual line of credit of $35,000,000 in 1996 and 1995 available with CoBank. The CoBank line of credit expires August 1, 1997 but is expected to be renewed. At December 31, 1996, there was no outstanding balance on this line of credit. At December 31, 1995, $3,000,000 was outstanding at an interest rate of 6.35%. In addition, the Association had an annual line of credit of $50,000,000 available at December 31, 1996 and 1995 with NRUCFC. At December 31, 1996, $2,750,000 was outstanding at an interest rate of 6.35%. At December 31, 1995, $5,000,000 was outstanding at an interest rate of 6.35%. The NRUCFC line of credit expires February 19, 1998. Refinancing On September 19, 1991, Chugach issued $314,000,000 of First Mortgage Bonds, 1991 Series A (Bonds), for purposes of repaying existing debt to the Federal Financing Bank and the Rural Electrification Administration (now Rural Utilities Services). Pursuant to Section 311 of the Rural Electrification Act, Chugach was permitted to prepay the REA debt at a discounted rate of approximately 9%, resulting in a discount of approximately $45,000,000 (note 13). The bonds maturing in 2002 (Series A 2002 Bonds) are subject to annual sinking fund redemption at 100% of the principal amount thereof which commenced March 15, 1993. The bonds maturing in 2022 (Series A 2022 Bonds) are subject to annual sinking fund redemption at 100% of the principal amount thereof commencing March 15, 2003. The Series A 2002 Bonds are not subject to optional redemption. The Series A 2022 Bonds 45 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements are redeemable at the option of Chugach on any interest payment date at an initial redemption price commencing in 2002 of 109.140% of the principal amount thereof declining ratably to par on March 15, 2012. The Bonds are secured by a first lien on substantially all of Chugach's assets. The Indenture prohibits outstanding short-term indebtedness (other than trade payables) in excess of 15% of Chugach's net utility plant and limits certain cash investments to specific securities. In December 1995, Chugach reacquired $2,500,000 of the Series A 2022 Bonds at a premium of 116.8795. Total transaction cost, including accrued interest and premium, was $2,982,286. In February 1996, Chugach reacquired $2,445,000 of the Series A 2022 Bonds at a premium of 117.5000. Total transaction cost, including accrued interest and premium, was $2,970,334. In March 1996, Chugach reacquired $13,150,000 of the Series A 2022 Bonds at a premium of 115.3750. Total transaction cost, including accrued interest and premium, was $15,762,752. In June 1996, Chugach reacquired $20,000,000 of the Series A 2022 Bonds at a premium of 109.375. Total transaction costs, including accrued interest and premium was $22,347,233. In September 1996, Chugach reacquired $1,200,000 of the Series A 2022 Bonds at a premium of 108.528. Total transaction cost, including accrued interest and premium, was $1,356,567. (7) Fair Value of Financial Instruments The estimated fair values (in thousands) of the long-term obligations included in the financial statements at December 31 are as follows: 1996 1995 ---- ---- Carrying Fair Carrying Fair Value Value Value Value Long-term obligations (including current installments) $313,878 $348,273 $311,307 $365,663 Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions. 46 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (8) Minimum Take Provision The Association previously contracted to purchase a minimum amount of natural gas each year through May 1996. The daily purchase requirement is 45,000 MCF at a price of $0.40 per MCF (adjusted pursuant to contract provisions). Subsequent to May 1996, all gas contracts are requirements contracts with no specified minimum purchase requirement. These contracts extend to approximately the year 2015 or 2025 under certain conditions. Management believes all gas purchase expenses will be fully recovered in rates. A liability under the minimum take provisions of the purchase contracts was not required at December 31, 1996. (9) Employee Benefits Pension benefits for substantially all employees are provided through the Alaska Electrical Trust and Alaska Hotel, Restaurant and Camp Employees Health and Welfare Trust Funds (union employees) and the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program (nonunion employees). The Association makes annual contributions to the plans equal to the amounts accrued for pension expense. For the union plans, the Association pays a contractual hourly amount per union employee which is based on total plan costs for all employees of all employers participating in the plan. In these master, multiple-employer plans, the accumulated benefits and plan assets are not determined or allocated separately to the individual employer. Pension costs for union plans were approximately $1,889,000 in 1996, $1,860,000 in 1995 and $1,805,000 in 1994. For the years ended December 31, 1993 and 1992, NRECA did not require contributions to the plan; consequently, no pension cost was incurred. The moratorium was lifted in 1994 and $178,000 was contributed to the NRECA pension plan. In 1995 the moratorium was in effect from May through December. From January through April 1995, a total of $484,000 was contributed to the NRECA plan. In 1996 the moratorium was in effect from January through September. From October through December 1996, $266,000 was contributed to the NRECA plan. (10) Deferred Charges Deferred charges consisted of the following at December 31: 1996 1995 ---- ---- Debt issuance and reacquisition costs $ 4,220,403 $ 4,110,684 Refurbishment of transmission equipment 290,123 299,383 Computer software and conversion 4,702,932 5,633,811 Studies 1,021,820 901,710 Fuel supply negotiations 437,758 460,474 Major overhaul of steam generating unit 1,042,624 1,247,730 Other (note 16) 2,216,449 158,899 ---------- ---------- $ 13,932,109 $ 12,812,691 ---------- ---------- (11) Income Taxes The Association is exempt from federal income taxes under the provisions of Section 501(c)(12) of the Internal Revenue Code. 47 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (12) Return of Capital Under provisions of its long-term debt agreements, the Association is not directly or indirectly permitted to declare or pay any dividend or make any payments, distributions or retirements of patronage capital to members if an event of default exists with respect to its bonds (event of default), if payment of such distribution would result in an event of default, or if the aggregate amount expended for all distributions on and after September 26, 1991 exceeds the sum of $7,000,000 plus 35% of the aggregate assignable margins (whether or not such assignable margins have since been allocated to members) of the Association earned after December 31, 1990 (or, in the case such aggregate shall be a deficit, minus 100% of such deficit). The Association may declare and make distributions at any time if, after giving effect thereto, the Association's aggregate margins and equities as of the end of the most recent fiscal quarter would be not less than 45% of the Association's total liabilities and equities as of the date of the distribution. The Association does not anticipate that this provision will limit the anticipated capital credit retirements described in note 4. (13) Deferred Credits Deferred credits at December 31 consisted of the following: 1996 1995 ---- ---- Regulatory liability - unamortized gain on reacquired debt $ 29,726,201 $ 35,720,461 Refundable consumer advances for construction 2,904,690 1,277,248 Deferred economy energy margins, including accrued interest - 2,774,954 Estimated initial installation costs for transformers and meters 470,460 416,532 Submarine cable reserve - 729,600 Post retirement benefit obligation 255,700 283,200 Other 61,196 40,078 ----------- ----------- $ 33,418,247 $ 41,242,073 ---------- ---------- In conjunction with the refinancing described in note 6, the Association recognized a gain of approximately $45,000,000. The APUC permitted the Association to flow through the gain to consumers in the form of reduced rates over a period equal to the life of the bonds using the effective interest method; consequently, the gain has been deferred for financial reporting purposes as required by SFAS 71. Amortization of the deferred gain of approximately $2,000,000 was recorded annually in 1996, 1995 and 1994. 48 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements Accruals for the Submarine Cable Reserve (begun in 1992 at $400,000 per year plus a 2% per year inflation factor) were suspended in 1995 by agreement with Chugach's wholesale customers. The balance of the reserve is being returned to ratepayers via a credit to the Fuel Cost Recovery Adjustment Factor over 15 months which began in July 1996. (14) Bradley Lake Hydroelectric Project The Association is a participant in the Bradley Lake Hydroelectric Project (Bradley Lake). Bradley Lake was built and financed by the Alaska Energy Authority (AEA) through State of Alaska grants and $166,000,000 of revenue bonds. The Association and other participating utilities have entered into take-or-pay power sales agreements under which shares of the project capacity have been purchased and the participants have agreed to pay a like percentage of annual costs of the project (including ownership, operation and maintenance costs, debt service costs and amounts required to maintain established reserves). Under these take-or-pay power sales agreements, the participants have agreed to pay all project costs from the date of commercial operation even if no energy is produced. The Association has a 30.4% share of the project's capacity. The share of debt service exclusive of interest, for which the Association is responsible is approximately $47,000,000. Under a worst case scenario, the Association could be faced with annual expenditures of approximately $4.6 million as a result of its Bradley Lake take-or-pay obligations. Management believes that such expenditures, if any, would be recoverable through the fuel surcharge ratemaking process. Upon the default of a Bradley Lake participant, and subject to certain other conditions, AEA, through Alaska Industrial Development and Export Authority, is entitled to increase each participant's share of costs pro rata, to the extent necessary to compensate for the failure of another participant to pay its share, provided that no participant's percentage share is increased by more than 25%. The following represents information with respect to Bradley Lake at June 30, 1996 (the most recent date for which information is available). The Association's share of expenses were $3,957,930 in 1996, $4,100,154 in 1995 and $4,231,644 in 1994 and are included in purchased power in the accompanying financial statements: Proportionate Total share Plant in service $ 306,601,978 $ 93,207,000 Accumulated depreciation (32,679,560) (9,935,000) Interest expense 11,181,937 3,399,000 Other electric plant in service of $4,710,912 represents the Association's share of a Bradley Lake transmission line financed internally. 49 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (15) Eklutna Hydroelectric Project In 1996, the Association along with Matanuska Electric Association (MEA) and Municipal Light and Power (ML&P) entered the transition phase of the Eklutna Hydroelectric Project acquisition. Formal transfer of ownership from the Alaska Power Administration to the participating utilities is expected to take place by November 1997. During the transition phase, MEA will operate and maintain the facility. Chugach and ML&P will reimburse MEA for their proportionate shares of the operations and maintenance costs. Chugach's eventual ownership share of the plant is 9/30's of the plant's available output. Under net billing arrangements, Chugach will purchase 14/30's of the plant's available output. Chugach's share of the total purchase price of the facility will be approximately $1,800,000 in 1997. (16) Commitments and Contingencies Construction The Association is engaged in a continuous construction program. Management estimates that approximately $21,000,000 will be spent on the construction program in 1997, including approximately $2,400,000 due to use of Smaller Retirement Unit accounting methodology for generation unit major overhauls. Contingencies The Association is a participant in various legal actions, claims and unasserted claims, both for and against its interests. Management believes that the outcome of any such matters will not materially impact the Association. Standard Steel Salvage Yard Site A cost recovery action was filed in Federal District Court on December 27, 1991 by the United States against Chugach and six other Potentially Responsible Parties (PRPs) seeking reimbursement of removal and response action costs (Past Response Costs) incurred by US EPA at the Standard Steel and Metals Salvage Yard Superfund Site in Anchorage, Alaska (Site). The six other PRPs named in the action are the Alaska Railroad, Westinghouse Electric Corporation, Sears Roebuck and Co., Montgomery Ward & Co., J.C. Penney Company, Inc. and Bridgestone/Firestone, Inc. On September 23, 1992, Chugach entered into an Administrative Order on Consent (AOC) with the EPA to perform a remedial investigation and feasibility study (RI/FS) for the Site. The RI/FS was completed in 1996 and, based on the results of the RI/FS, EPA selected the remedy of soil stabilization and solidification (S/S) for cleanup of the Site and documented its selection in a Record of Decision issued in July, 1996. 50 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements In December 1996, a partial consent decree (Partial Consent Decree) settling the cost recovery action was entered by the Federal District Court. Under the Partial Consent Decree the PRPs and the United States settled the following costs associated with the Site: Past Response Costs incurred by EPA through December 1991; RI/FS costs; drum and scrap removal costs; past enforcement costs incurred by the Department of Justice (DOJ) through December 11, 1996; and EPA oversight costs related to the RI/FS. The settlement under the Partial Consent Decree allocates 14.37% of the above costs to Chugach. Chugach has paid its share of Past Response Costs and DOJ enforcement costs under the Partial Consent Decree. The total estimated cost of the settlement under the Partial Consent Decree is approximately $6,800,000 of which Chugach's share will be approximately $977,000. These amounts are estimates because RI/FS expenses and EPA oversight costs are not yet fully known and, therefore, the total amount to be paid by Chugach under the Partial Consent Decree is not known with certainty. The Partial Consent Decree does not settle Chugach's liability for future costs of designing and performing the S/S remedy (Future Costs). Although the Partial Consent Decree does not settle Chugach's or the other private PRP's liability for Future Costs, the Partial Consent Decree does bind the federal PRPs and the Alaska Railroad to pay an aggregate share of 64% of Future Costs. Chugach and the five other private PRPs have reached a separate settlement to divide the remaining 36% of Future Costs among themselves. Under that settlement, Chugach's percentage share of liability for Future Costs will equal 15.39%. Chugach's agreement to perform remedial design and remedial action (RD/RA) at the Site will be memorialized in a new Consent Decree (RD/RA Decree) that is being negotiated between the private PRPs and the United States. The RD/RA Decree is expected to contain the scope of work for the RD/RA as well as settlement terms, including EPA's covenant not to sue Chugach and the other private PRPs for Future Costs once the RD/RA is completed. The estimate of Future Costs of RD/RA at the Site, as determined by Chugach's consultants based on cost estimates contained in the FS report, ranges from $5,231,200 to $6,619,800. The RD/RA Decree contains a cost estimate, as determined by EPA and including a 50% cost overrun contingency, of $8,400,000. Chugach's share of these estimated RD/RA expenses would range from approximately $805,082 to $1,292,760. These amounts are only estimates, however, the actual, full scope of the S/S cleanup at the Site will not be known, and the projected costs associated with the remedy cannot be refined, until EPA approves remedial design documents. Under the RD/RA Decree, Chugach and the other PRPs will be required to reimburse the United States for EPA oversight costs and DOJ enforcement costs relating to the RD/RA. Those costs have not been estimated by the United States and are unknown at this time. Therefore, the total amount paid by Chugach under the RD/RA Decree cannot be 51 (Continued) CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements predicted with certainty. In addition, the RD/RA Decree contains reservation of rights allowing EPA to seek further response actions and payments from the PRPs under certain circumstances, including costs associated with alleged natural resource damages. At this time, no claims have been made pertaining to alleged natural resource damages and no prediction can be made whether EPA will request activities through its reservation of rights under RD/RA Decree. Finally, it is uncertain whether Chugach and the other PRPs will enter into the RD/RA Decree with EPA until negotiations are completed. Four of Chugach's insurance carriers have agreed under a reservation of rights to pay, and currently are paying, Chugach's costs of defense for the Site. The carriers have reserved their rights regarding indemnification of Chugach for response costs. Management believes that all past and future costs incurred for response, removal, investigation and cleanup of the Site would be fully recoverable in rates or covered by insurance and therefore would have no impact on Chugach's financial condition or results of operations. Regulatory Cost Charge In 1992 the State of Alaska Legislature passed legislation authorizing the Department of Revenue to collect a regulatory cost charge from utilities in order to fund the APUC. The tax is assessed on all retail consumers and is based on kilowatt hour (kWh) consumption. The Regulatory Cost Charge has decreased since its inception (November 1992) from an initial rate of $.000626 per kWh to the current rate of $.000297, effective January 1, 1997. 52 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10 - Directors and Executive Officers of the Registrant MANAGEMENT Executives Chugach operates under the direction of a Board of Directors that is elected at large by its membership. Day-to-day business and affairs are administered by the General Manager. Chugach's seven-member Board of Directors sets policy and provides direction to Chugach's General Manager. The following table sets forth certain information with respect to the executive management of Chugach: Name Age Positions held Eugene N. Bjornstad 59 General Manager Lee D. Thibert 41 Executive Manager, Operating Divisions Evan J. Griffith, Jr. 55 Executive Manager, Finance and Planning William R. Stewart 50 Executive Manager, Administration Eugene N. Bjornstad was appointed General Manager of Chugach June 22, 1994. Prior to that he served as Acting General Manager from March 28, 1994 until his permanent appointment. He joined Chugach in 1983 and served as Executive Manager, Operating Divisions from 1988 to 1994. Lee D. Thibert was appointed Acting Executive Manager, Operating Divisions in June of 1994 and received permanent appointment to this position on December 1, 1994. Prior to moving up to the Executive Manager position, he served as Director of Operations from June 1987. Evan J. Griffith, Jr. has been Executive Manager, Finance and Planning of Chugach since August 1989 and was Budget/Program Analyst for the Anchorage Municipal Assembly from August 1984 to August 1989. William R. Stewart has been Executive Manager, Administration of Chugach since July 1987, was Division Director of Administration of Chugach from January 1984 to July 1987 and Staff Assistant to the General Manager of Chugach from November 1982 to January 1984. He has been employed at Chugach since 1969. 53 Board of Directors Raymond A. "Ray" Kreig - President. Ray Kreig, 50, is president of R.A. Kreig & Associates, a consulting firm specializing in land and site assessment. He is a professional civil engineer and geologist. Mr. Kreig was elected to the board in April 1994 and became President in April 1995. Pat Jasper - Vice President. Pat Jasper, 67, is a small business owner and has been a computer programmer and systems analyst. She was originally elected to the Board in April 1995 to fill a one-year term, and served as Secretary to April 1996. She was re-elected in April 1996 and has been Vice President since then. Mary Minder - Secretary. Mary Minder, 57, was elected to the Board in April 1995 and served as Treasurer until April 1996 when she became Secretary. Ms. Minder is a realtor and associate real estate broker. Kathleen A. Weeks - Treasurer. Kathleen Weeks, 50, is an attorney in private practice. Her specialty is divorce, real estate and probate law. She was elected to the Board in April 1995, served as Vice President from that time to April 1996 when she became Treasurer. Christopher Birch, 46, is a professional engineer employed by the Alaska Department of Transportation and Public Facilities. He was appointed to the Board to fill the seat vacated by Marty Bushue in October 1996. Ed Granger - Director. Ed Granger, 62, is a retired professional engineer working in real estate. He was elected to the board in 1991. He resigned in March 1994, one month before his first term expired. He was reappointed to the Board to fill the remaining term of another resigned director in June 1995 and was re-elected in April 1996. Elizabeth Page "Pat" Kennedy - Director. Pat Kennedy, 58, was President of Chugach from April 1994 to April 1995. Ms. Kennedy has served on the board since 1993 and was Secretary from April 1993 to April 1994. She is an attorney who has been licensed to practice law since 1976 and has been in private practice since 1990. Martin J. "Marty" Bushue - Director. Marty Bushue, 51, is a professional electrical engineer and a principal of MJB Engineering. He has 21 years of engineering and project management experience in Alaska. He was elected to the board in April 1994. Mr. Bushue resigned from the board for personal reasons in October 1996. 54 Item 11 - Executive Compensation CASH COMPENSATION The following table sets forth all remuneration paid by Chugach for the calendar years ended December 31, 1996, 1995 and 1994 with respect to each of the four executive officers of Chugach, all of whose total cash and cash equivalent compensation exceeded $100,000, and for all such executive officers as a group: Name Principal position Year Salary Eugene N. Bjornstad General Manager 1996 $ 167,296 1995 164,924 1994 146,044 Lee D. Thibert Executive Manager, Operating 1996 118,562 Divisions 1995 119,312 1994 111,732 Evan J. Griffith, Jr. Executive Manager, Finance & 1996 137,434 Planning 1995 126,378 1994 120,483 William R. Stewart Executive Manager, 1996 134,393 Administration 1995 129,738 1994 127,027 Directors of Chugach are compensated for their services in the amount of $100 per board meeting attended (including committee meetings) up to a maximum of seventy meetings per year for a director and eighty-five meetings per year for the President. Upon termination, Mr. Bjornstad's employment agreement provides that he may receive an amount equal to his salary for the remaining term of his employment agreement (which number shall not be less than six months) plus any accrued annual leave or other compensation then due as of the effective date of the notice of termination. COMPENSATION PURSUANT TO PLANS Chugach has elected to participate in the National Rural Electric Cooperative Association Retirement and Security Program (Plan), a multiple employer defined benefit master pension plan maintained and administered by the National Rural Electric Cooperative Association for the benefit of its members and their employees. The Plan is intended to be a qualified pension plan under Section 401(a) of the Code. All employees of Chugach not covered by a union agreement become participants in the Plan on the first day of the month following completion of one year of eligibility service. An employee is credited with one year of eligibility service if he completes 1,000 hours of service either in his first twelve consecutive months of employment or in any calendar year for Chugach or certain other employers in rural electrification (related employers). Pension benefits vest at the rate of 10% for each of the first four years of vesting service and become fully vested and nonforfeitable on the earlier of the date a participant has five years of vesting service or the date the participant attains age 55 fifty-five while employed by Chugach or a related employer. A participant is credited with one year of vesting service for each calendar year in which he performs at least one hour of service for Chugach or a related employer. Pension benefits are generally paid upon the participant's retirement or death. A participant may also elect to receive pension benefits while still employed by Chugach if he has reached his normal retirement date by completing thirty years of benefit service (as hereinafter defined) or, if earlier, by attaining age sixty-two. A participant may elect to receive actuarially reduced early retirement pension benefits before his normal retirement date provided he has attained age fifty-five. Pension benefits paid in normal form are paid monthly for the remaining lifetime of the participant. Unless an actuarially equivalent optional form of benefit payment to the participant is elected, upon the death of a participant the participant's surviving spouse will receive pension benefits for life equal to 50% of the participant's benefit. The annual amount of a participant's pension benefit and the resulting monthly payments the participant receives under the normal form of payment are based on the number of his years of participation in the Plan (benefit service) and the highest five-year average of the annual rate of his base salary during the last ten years of his participation in the Plan (final average salary). Annual compensation in excess of $200,000, as adjusted by the Internal Revenue Service for cost of living increases, is disregarded after January 1, 1989. The participant's annual pension benefit at his normal retirement date is equal to the product of his years of benefit service (up to thirty) times final average salary times 2%. The following table sets forth the estimated annual pension benefit payable at normal retirement date for participants in the specified final average salary and years of benefit service categories: Final Years of benefit service Average Salary 15 20 25 30 35 -- -- -- -- -- $ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 75,000 150,000 45,000 60,000 75,000 90,000 90,000 The annual pension benefits indicated above are the joint and surviving spouse life annuity amounts payable by the Plan, and they are not subject to any deduction for Social Security or other offset amounts. Benefit service as of December 31, 1996 taken into account under the Plan for the executive officers is shown below. Base salary for 1996 taken into account under the Plan for purposes of determining final average salary is also included. 56 Covered Name Principal Position Benefit Service Compensation Eugene N. Bjornstad General Manager 12.7 $ 156,021 Lee D. Thibert Executive Manager, 8.6 118,664 Operating Divisions Evan J. Griffith, Jr. Executive Manager, 6.3 123,968 Finance & Planning William R. Stewart Executive Manager, 26.7 123,968 Administration 57 Item 12 - Security Ownership of Certain Beneficial Owners and Management Not Applicable Item 13 - Certain Relationships and Related Transactions Not Applicable PART IV Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K Page Financial Statements Included in Part IV of this Report: Independent Auditors' Report 33 Balance Sheets, December 31, 1996 and 1995 34 Statements of Revenues, Expenses and Patronage Capital, Years ended December 31, 1996, 1995 and 1994 36 Statements of Cash Flows, Years ended December 31, 1996, 1995 and 1994 37 Notes to Financial Statements 38-52 Financial Statement Schedules Included in Part IV of this Report: Independent Auditors' Report 59 Schedule II - Valuation and Qualifying Accounts, Years ended December 31, 1996, 1995 and 1994 60 Other schedules are omitted as they are not required or are not applicable, or the required information is shown in the applicable financial statements or notes thereto. 58 Independent Auditors' Report The Board of Directors Chugach Electric Association, Inc.: Under the date of March 5, 1997, we reported on the balance sheets of Chugach Electric Association, Inc. as of December 31, 1996 and 1995 and the related statements of revenues, expenses and patronage capital and cash flows for each of the years in the three-year period ended December 31, 1996 which are included in Part II of the Company's Annual Report on Form 10-K. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule listed in the index to Item 14 of the Company's 1996 Annual Report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion such schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Anchorage, Alaska /s/ KPMG Peat Marwick LLP March 5, 1997 59 Schedule II CHUGACH ELECTRIC ASSOCIATION, INC. Valuation and Qualifying Accounts Balance at Charged Balance beginning to costs at end of year and expenses Deductions of year Allowance for doubtful accounts: Activity for year ended: December 31, 1996 $(436,083) $(566,844) $ 635,842 $ (367,085) December 31, 1995 (569,769) (534,646) 668,332 (436,083) December 31, 1994 (891,563) (736,847) 1,058,641 (569,769) 60 EXHIBITS Listed below are the exhibits which are filed as part of this Report: Exhibit number Description Page *3.1 Articles of Incorporation of the Registrant **3.2 Bylaws of the Registrant (as amended April 25, 1996) *4.1 Trust Indenture, dated as of September 15, 1991, between the Registrant and Security Pacific Bank Washington, N.A., Trustee (Including forms of bonds) *4.2 First Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle- First National Bank dated March 17, 1993 *4.3 Second Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle- First National Bank dated May 19, 1994 *4.4 Third Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle- First National Bank *4.4.1 Closing Documents dated November 30, 1994, First Mortgage Bond, CoBank Series (CoBank-1), Due March 15, 2002 pursuant to the Third Supple- mental Indenture of Trust dated June 29, 1994 *4.4.2 Closing documents dated August 31, 1995 First Mortgage Bond, CoBank Series (CoBank-2), due August 31, 2005 pursuant to the Third Supplemental Indenture of Trust **4.4.3 Closing documents dated April 30, 1996 First Mortgage Bond, CoBank Series (CoBank-3), due March 15, 2022 pursuant to the Third Supplemental Indenture of Trust ***4.4.4 Closing documents dated September 30, 1996 First Mortgage Bond, CoBank Series (CoBank-4), Due June 15, 2022 pursuant to the Third Supplemental Indenture of Trust *4.5 Fourth Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle-First National Bank dated March 1, 1995 *4.6 Fifth Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle-First National Bank dated September 6, 1995
61 Exhibit number Description Page **4.7 Sixth Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle-First National Bank dated April 3, 1996 *10.1 Joint Use Agreement between the City of Seward and the Registrant *10.2 Wholesale Power Agreement between the City of Seward and the Registrant *10.3 Agreement for Sale of Electric Power and Energy between Homer Electric Association, Inc., Alaska Electric Generation and Transmission Association, Inc. and the Registrant *10.4 Modified Agreement for the Sale and Purchase of Electric Power and Energy between Matanuska Electric Association, Inc., Alaska Electric Generation and Transmission Association, Inc. and the Registrant *10.4.1 First Amendment to Modified Agreement for the Sale and Purchase of Electric Power and Energy dated April 5, 1989 by and among Chugach Electric Association, Inc., Matanuska Electric Association, Inc. and Alaska Electric Generation & Trans- mission Cooperative, Inc. *10.5 Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. *10.6 Amendment No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. *10.7 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company *10.8 Amendatory Agreement No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company *10.9 Amendatory Agreement No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company *10.10 Amendatory Agreement No. 3 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company
62 Exhibit number Description Page *10.11 Letter of Understanding between the Registrant and Marathon Oil Company *10.12 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Shell Western E&P Inc. *10.13 Amendatory Agreement No. 1 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc. *10.14 Amendment No. 2 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc. 10.14.1 Amendment No. 3 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc. 73 *10.15 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc. *10.16 Letter of Understanding to the Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc. *10.17 Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc. *10.18 Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc. *10.19 Alaska Intertie Agreement between Alaska Power Authority, Municipality of Anchorage, the Registrant, City of Fairbanks, Alaska Municipal Utilities System, Golden Valley Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. *10.20 Memorandum of Understanding Regarding Intertie Upgrades among Alaska Energy Authority, the Registrant, Golden Valley Electric Association, Inc., Homer Electric Association, Inc., Matanuska Electric Association, Inc., Municipality of Anchorage dba Municipal Light and Power, and the City of Seward d/b/a Seward Electric System *10.21 Addendum No. 1 to the Alaska Intertie Agreement-- Reserve Capacity and Operating Reserve Responsibility
63 Exhibit number Description Page *10.22 Bradley Lake Agreement for the Sale and Purchase of Electric Power between the Alaska Power Authority, Golden Valley Electric Association, Inc., the Municipality of Anchorage, the City of Seward, the Alaska Electric Generation & Transmission Cooperative, Inc., Homer Electric Association, Inc., Matanuska Electric Association Inc. and the Registrant *10.23 Agreement for the Wheeling of Electric Power and for Related Services by and among the Registrant, Homer Electric Association, Inc., Golden Valley Electric Association, Inc., Matanuska Electric Association, Inc., the Municipality of Anchorage, Inc. dba Municipal Light & Power, the City of Seward dba Seward Electric System and Alaska Electric Generation and Transmission Cooperative, Inc. *10.24 Transmission Sharing Agreement by and among Homer Electric Association, Inc., the Registrant, Golden Valley Electric Association, Inc., and the Municipality of Anchorage d/b/a Municipal Light and Power *10.25 Amendment to Agreement for Sale of Transmission Capability among Homer Electric Association, Inc., Alaska Electric Generation and Transmission Cooperative, Inc., the Registrant, Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Municipal Light and Power *10.26 Net Billing Agreement among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. *10.27 Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power *10.28 Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power Addendum No. 1 *10.29 Amendment No. 1 to Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power
64 Exhibit number Description Page *10.30 Agreement between the Registrant and Chevron USA, Inc. for the Sale and Purchase of Supplemental Natural Gas *10.31 Agreement between the Registrant and Shell Western E&P Inc. for the Sale and Purchase of Supplemental Natural Gas *10.32 Agreement between the Registrant and ARCO Alaska, Inc. for the Sale and Purchase of Supplemental Natural Gas *10.33 Eklutna Purchase Agreement among the Registrant, Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power and Alaska Power Administration *10.33.1 Amendment No. 1 to Eklutna Purchase Agreement among the Registrant, Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power and Alaska Power Administration *10.33.2 Eklutna Purchase Agreement Amendment No. 2 effective June 14, 1993 between Chugach, MEA, ML&P and the Alaska Power Administration 10.33.3 Eklutna Hydroelectric Project Transition Plan, by and among the Registrant; The United States of America d/b/a Alaska Power Administration, a unit of the Department of Energy; the Municipality of Anchorage d/b/a Municipal Light & Power; and Matanuska Electric Association, Inc. 79 *10.34 University Substation 1991 Improvements Contract between the Registrant and Alcan Electrical and Engineering, Inc. *10.35 Camp Facilities Replacement Contract between the Registrant and Baugh Construction and Engineering Company *10.36 Lease Amendment between Standard Oil Company of California and the Registrant *10.37 Lease Amendment between Chevron USA, Inc. and the Registrant
65 Exhibit number Description Page *10.38 Settlement Agreement among the Registrant, Homer Electric Association, Inc., Matanuska Electric Association, Inc., the City of Seward and Alaska Electric Generation and Transmission Cooperative, Inc. resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan, and Loan Covenant Disputes *10.38.1 First Amendment to "Settlement Agreement Resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan and Loan Covenant Disputes" in APUC Docket U-92-10 between Chugach and MEA, Homer and AEG&T dated March 1993 *10.39 Loan Agreement between the National Bank for Cooperatives (formerly Spokane Bank for Cooperatives) and the Registrant, as amended *10.40 Amendment dated September 13, 1991 to Loan Agreement between the National Bank for Cooperatives and the Registrant *10.41 Form of Commitment Letter to be entered into between the National Bank for Cooperatives and Registrant *10.42 Agreement between the Municipality of Anchorage d/b/a Anchorage Municipal Light and Power, Chugach Electric Association, Inc., Matanuska Electric Association, Inc., U.S. Fish and Wildlife Service, National Marine Fisheries Service, Alaska Energy Authority, and the State of Alaska Relative to the Eklutna and Snettisham Hydroelectric Projects *10.43 Bradley Lake Hydroelectric Agreement for the Dispatch of Electric Power and for Related Services by and among Chugach Electric Association, Inc. and the Alaska Energy Authority *10.44 Net Billing Agreement among Chugach Electric Association, Inc. and the City of Seward *10.45 Soldotna One System Use and Dispatch Agreement by and among Alaska Electric Generation and Transmission Cooperative, Inc. and Chugach Electric Association, Inc.
66 Exhibit number Description Page *10.46 Agreement for Bradley Lake Resource Scheduling between Chugach, Homer Electric Association, Inc. and the Alaska Electric Generation and Transmission Cooperative, Inc. dated September 29, 1992 *10.47 Gas Transportation Agreement between Chugach, Alaska Pipeline Company and ENSTAR Natural Gas Company dated December 7, 1992 *10.48 Daves Creek Substation Agreement between Chugach and the Alaska Energy Authority dated March 13, 1992 *10.49 Memorandum of Agreement between Chugach and AEG&T dated April 27, 1993 regarding Interest Expense Allocator *10.50 Settlement Agreement between Chugach and Intervenor Wholesale Customers in APUC Docket U-93-15 dated September 1993 regarding depreciation of submarine cables *10.51 Fifty Million Dollar Line of Credit Agreement between Chugach and the National Rural Utilities Cooperative Finance Corporation executed February 19, 1993 *10.52 Twenty Five Million Dollar Line of Credit Agreement and Promissory Note between Chugach and National Bank for Cooperatives *10.52.1 Amendment to Line of Credit Agreement between Chugach and National Bank for Cooperatives dated March 11, 1994 *10.52.2 Amendment to Line of Credit Agreement between Chugach and National Bank for Cooperatives and amended and restated Promissory Note (thirty-five million dollars) dated April 18, 1994 *10.52.3 Amendment to Line of Credit Agreement between Chugach and National Bank for Cooperatives (thirty-five million dollars) dated May 1, 1995 *10.52.4 Amendment to Line of Credit Agreement between Chugach and National Bank for Cooperatives (thirty-five million dollars) dated May 15, 1995
67 Exhibit number Description Page *10.53 Bill of Sale between Chugach and Cook Inlet Tug & Barge Co. for the barge SUSITNA dated March 1, 1993 *10.54 Intertie Grant Agreement between Chugach and GVEA, FMUS, ML&P, AEG&T, MEA, Homer, Seward, the State of Alaska, Department of Administration, and AIDEA dated October 26, 1993 *10.55 Grant Transfer and Delegation Agreement between Chugach and GVEA, FMUS, ML&P, AEG&T, MEA, Homer, Seward, the State of Alaska, Department of Administration, and AIDEA dated November 5, 1993 *10.56 Letter of Understanding between Chugach and IBEW dated January 6, 1993 regarding the Outside Plant Personnel Agreement *10.57 Letter of Understanding between Chugach and IBEW dated January 6, 1993 regarding the Office and Engineering Agreement *10.58 Letter of Understanding between Chugach and IBEW dated January 6, 1993 regarding the Generation Plant Personnel Agreement *10.59 Eklutna Power Sales Contract No. 85-79AP10004 between Chugach and Alaska Power Administration dated October 13, 1979 *10.59.1 Contract Modification No. 1 to Contract No 85-79AP10004 between Chugach and the Alaska Power Administration dated October 19, 1988 extending the Eklutna Power Sales Agreement *10.59.2 Amendment to Exhibit E of Modification No. 1 to Contract No. 85-79AP10004 between Chugach and Alaska Power Administration dated October 29, 1993 regarding the Eklutna Power Sales Agreement *10.59.3 Contract Modification No. 2 to Contract No. 85-79AP10004 between Chugach and the Alaska Power Administration dated November 9, 1993 extending the Eklutna Power Sales Agreement *10.60 Employment Agreement by and among Chugach Electric Association, Inc. and Eugene N. Bjornstad dated July 6, 1994
68 Exhibit number Description Page *10.61 United States Department of Energy, Alaska Power Administration, Eklutna Project, Contract No. DE-SC85-95AP10042 for Electric Service to Chugach Electric Association, Inc., Matanuska Electric Association, Inc. and Municipality of Anchorage dba Municipal Light & Power dated December 29, 1994 **10.62 Hotel Employees & Restaurant Employees Union agreement covering terms and conditions of employment - Beluga Power Plant Culinary Employees dated the 2nd day of March, 1995 12.1 N/A *19.0 Administrative Order on Consent for Remedial Investigation/Feasibility Study between Chugach and the United States Environmental Protection Agency dated September 23, 1992 *19.1 Proposed Partial Consent Decree in Standard Steel Superfund Site matter ***19.2 Partial Consent Decree in Standard Steel Superfund Site matter 27 Financial Data Schedule (filed electronically)
* Previously referred to in the Registrant's Annual Report on Form 10-K dated December 31, 1995. ** Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated June 30, 1996. *** Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated September 30, 1996. REPORTS ON FORM 8-K The Company was not required to file any report on Form 8-K for the quarter ended December 31, 1996. 69 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 26, 1997. CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/ Eugene N. Bjornstad Eugene N. Bjornstad, General Manager Date: March 26, 1997 70 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated March 26, 1997: /s/ Eugene N. Bjornstad - -------------------------------------- Eugene N. Bjornstad General Manager /s/ Lee D. Thibert - -------------------------------------- Lee D. Thibert Executive Manager, Operating Divisions /s/ Evan J. Griffith, Jr. - -------------------------------------- Evan J. Griffith, Jr. Executive Manager, Finance and Planning /s/ William R. Stewart (principal financial officer) - -------------------------------------- William R. Stewart Executive Manager, Administration /s/ Michael R. Cunningham - -------------------------------------- Michael R. Cunningham Controller /s/ Raymond A. Kreig (principal accounting officer) - -------------------------------------- Raymond A. Kreig President and Director /s/ Patricia Jasper (principal executive officer) - -------------------------------------- Patricia Jasper Vice President and Director /s/ Mary Minder - -------------------------------------- Mary Minder Secretary and Director /s/ Kathleen A. Weeks - -------------------------------------- Kathleen A. Weeks Treasurer and Director /s/ Christopher Birch - -------------------------------------- Christopher Birch Director /s/ Ed Granger - -------------------------------------- Ed Granger Director /s/ Elizabeth P. Kennedy - -------------------------------------- Elizabeth P. Kennedy Director 71 Supplemental information to be furnished with reports filed pursuant to Section 15(d) of the Act by registrants which have not registered securities pursuant to Section 12, of the Act: Chugach has not made an Annual Report to securities holders for 1996 and will not make such a report after the filing of this Form 10-K. As a consequence, no copies of any such report will be furnished to the Securities and Exchange Commission. 72 EX-10.14.1 2 AMENDMENT NO. 3 TO SHELL NATURAL GAS CONTRACT AMENDATORY AGREEMENT NO. 3 TO THE AGREEMENT FOR THE SALE AND PURCHASE OF NATURAL GAS BETWEEN CHUGACH ELECTRIC ASSOCIATION AND SHELL WESTERN E&P INC. THIS AGREEMENT is made and entered into this 14th day of October, 1996, by and between Shell Western E&P Inc., a corporation organized under the laws of the State of Delaware ("SWEPI"), and Chugach Electric Association, Inc., an Alaska nonprofit electric cooperative membership corporation ("Chugach"). WHEREAS, SWEPI owns a one-third working interest in the natural gas reserves underlying the Beluga River Unit, Cook Inlet, Alaska; and WHEREAS, SWEPI, as Seller, and Chugach, as Buyer, have entered into an Agreement for the Sale and Purchase of Natural Gas dated April 25, 1989, as amended on October 1, 1989 and June 20, 1990, and as supplemented on November 2, 1990 ("Natural Gas Agreement"); and WHEREAS, SWEPI has entered into a Purchase and Sale Agreement with the Municipality of Anchorage d/b/a Municipal Light & Power ("ML&P") dated April 9, 1996 ("PSA"), as amended by the Supplemental Agreement dated September 24, 1996, whereby SWEPI has agreed to sell and ML&P has agreed to purchase SWEPI's one-third working interest in the Beluga River Unit effective September 1, 1996; and WHEREAS, by letter dated December 4, 1989, the Alaska Department of Natural Resources ("ADNR") agreed to use the price for the gas established in the Natural Gas Agreement as the royalty value for the State's share of royalty production pursuant to AS 38.05.180(aa); and WHEREAS, SWEPI desires to assign the Natural Gas Agreement to ML&P; and WHEREAS, Chugach desires to reduce future commercial interaction between itself and ML&P with respect to the rights and obligations of the parties under the Natural Gas Agreement; and WHEREAS, SWEPI and Chugach desire to amend the terms and conditions of the Natural Gas Agreement in order to permit the assignment of such amended Natural Gas Agreement to ML&P with the consent of Chugach. NOW, THEREFORE, SWEPI and Chugach, in consideration of the mutual promises set forth herein, agree as follows: 1. All references hereunder to Sections, Subsections, or Exhibits shall mean such Section, Subsection, or Exhibit contained in the Natural Gas Agreement. 2. This Agreement amending the terms and conditions of the Natural Gas Agreement shall become effective only upon the Closing of the PSA, as such term is defined in the PSA or any amendment thereto, and upon approval of this Agreement by the Alaska Public Utilities Commission ("APUC"). In the event the Closing does not occur under the terms and conditions of the PSA, the Natural Gas Agreement will not be assigned by SWEPI to ML&P and this Agreement amending the terms of the Natural Gas Agreement shall be void, ab initio. 3. Chugach may continue its status as an intervenor in Docket U-96-36 which is pending before the APUC, but shall not take any position before the APUC which would oppose the proposed sale of SWEPI's one-third interest in the Beluga River Unit to ML&P or any other position which would cause the APUC to condition the terms of the PSA. Chugach shall be free to argue to the APUC in Docket U-96-36 that the APUC should establish a separate docket to investigate the appropriate limitations and requirements, if any, that should govern ML&P's internal accounting for and pricing of gas used to generate electric power. 4. Chugach shall give its consent to the assignment of the Natural Gas Agreement, as amended herein to ML&P, pursuant to Section 10.6. Assignment of the Natural Gas Agreement, as amended by this Agreement, will be without a release of SWEPI's obligations under the Natural Gas Agreement, and shall not relieve SWEPI of its obligations to Chugach under the Natural Gas Agreement. 5. In Section 1.15, delete the reference to "Administrator of the Rural Electrification Administration, an agency of the United States Department of Agriculture, and Spokane Bank for Cooperatives." 6. In Section 4.4, SWEPI acknowledges that gas committed to Chugach under the Natural Gas Agreement enjoys a priority over any gas that ML&P will acquire from SWEPI, to the extent that ML&P uses or otherwise disposes of such gas for sale or to generate electric power. Chugach acknowledges that SWEPI retains the rights specified in Article II of the Natural Gas Agreement and that the priority for the contract specified in Exhibit A of the Natural Gas Agreement is not affected by this Agreement. 7. SWEPI shall be deemed to decline any offer by Chugach, pursuant to Section 5.5, to sell any volume of gas not previously committed under the Natural Gas Agreement. 8. Under Section 5.5(C), if ARCO Alaska, Inc. ("ARCO") either declines or does not decline to permit Chugach the right to take as Third Party Replacement Gas any gas then committed to Chugach under the Sale and Purchase of Natural Gas Agreement dated April 21, 1989, between ARCO and Chugach ("ARCO Contract"), SWEPI shall be deemed to have acted in the same manner as ARCO. In this respect, Chugach shall provide to SWEPI on a timely basis a copy of the communications between ARCO and Chugach pertaining to this Third Party Replacement gas matter. Notwithstanding the above, SWEPI may decline to permit Chugach to take Third Party Replacement gas to the extent that ML&P requires the necessary deliverability to satisfy ML&P's actual and verifiable requirements for deliverability necessary for the generation of electric power by ML&P. 9. Except for differences in excess deliverability provided by producers for gas supplied under Sections 5.5(C), 5.7(B) or 5.7(C), pursuant to Section 5.6, Chugach shall have met its obligation to SWEPI and SWEPI shall have met its obligation to Chugach if Chugach purchases and takes from SWEPI and SWEPI sells and delivers to Chugach exactly the same volumes as Chugach purchases and takes from ARCO and ARCO sells and delivers to Chugach under the ARCO Contract. In this respect, Chugach shall provide to SWEPI on a timely basis a copy of the communications between Chugach and ARCO pertaining to the volume of gas purchased and taken under the ARCO Contract. 10. Under Sections 5.7(B) and 5.7(C), if ARCO declines or does not decline to permit Chugach to take gas in excess of the then applicable deliverability requirement ("excess delivery gas") under its Contract, then SWEPI shall be deemed to have acted in the same manner as ARCO. In this respect, Chugach shall provide to SWEPI on a timely basis a copy of the communications between ARCO and Chugach pertaining to excess delivery gas. Notwithstanding the above, SWEPI may decline to permit Chugach to take excess delivery gas to the extent that ML&P requires such gas to satisfy ML&P's actual and verifiable requirements for deliverability necessary for the generation of electric power by ML&P. 11. The reference in Section 5.5(C) to "then existing other commitments", the reference in Section 5.7(B) to "the deliverability is not committed to the performance of any other contract", and the reference in Section 5.7(C) to "within the operational and contractual limitations and constraints to which SWEPI is subject" shall, subject to the provisions of Section 4.4, as described in Section 6 of this Agreement, include satisfaction of ML&P's actual and verifiable requirements for deliverability necessary for the generation of electric power by ML&P. 12. Under Section 6.1, SWEPI shall be deemed to have acted in the same manner as ARCO reacts under the ARCO Contract as to whether the annual Forecast is unreasonably high or low. "Va" in Section 6.1 under this Agreement shall be equal to "Va" under the ARCO Contract, as the same shall be determined and resolved by ARCO and Chugach under the ARCO Contract. 13. In complying with Section 6.1, any records which Chugach, in the ordinary course of doing business, would not make public or provide to a competitor shall not be required to be furnished to SWEPI under the terms of the Natural Gas Agreement. Further, SWEPI shall not knowingly obtain or seek to obtain such information from ARCO, Chevron, Marathon, or their respective successors or assigns of their respective contracts with Chugach. 14. Under Sections 6.2 and 6.3, SWEPI shall be deemed to have given its consent for Chugach to take the actions referenced in such Sections, if ARCO has given its consent for Chugach to take the actions referenced in such Sections under the ARCO Contract. SWEPI may elect to give its consent for Chugach to take the actions referenced in such Sections. 15. In Section 6.5, substitute "Chugach shall not take any action to displace gas provided by SWEPI which it has not taken under the ARCO Contract or under the Sale and Purchase of Natural Gas Agreement dated April 27, 1989, between Chevron and Chugach ("Chevron Contract") to displace gas provided by ARCO or Chevron, respectively" for the proviso in the last three lines of Section 6.5. 16. In Section 7.3, add the following sentence at the end of the Section: "Any Period 2 Volume remaining to be taken on December 31, 2013, shall be taken by no later than December 31, 2015." 17. Any adjustment to the price of gas delivered by SWEPI under the Natural Gas Agreement due to Btu adjustment under Section 7.10 or Exhibit D shall be identical to the price adjustment, if any, as the same shall be determined and resolved by ARCO under the ARCO Contract. 18. As long as ARCO is the Operator of the Beluga River Unit, ARCO shall be the dispatching agent for SWEPI under the Natural Gas Agreement, and shall be responsible for complying with dispatching requests of Chugach. Neither SWEPI nor ML&P nor Chugach or their successors or assigns will become Operator of the Beluga River Unit, nor will SWEPI or ML&P become the dispatching agent responsible for complying with dispatching requests of Chugach. 19. In Section 10.1, add the words "except in the case of bad faith" to the end of the second sentence. 20. For purposes of Section 10.2, the Municipality of Anchorage shall not be considered as a governmental agency of competent jurisdiction. 21. Under Section 10.9, the right of access to property of the other shall be limited to access by Chugach to the Beluga River Unit, and shall not give either Chugach or SWEPI the right to access of the property of the other. 22. In Section 10.11, the access to the records of a Party by the other Party shall be limited to records of the Operator/Dispatcher of gas from the Beluga River Unit. 23. In Section 10.13, substitute "Alaska Public Utilities Commission" for "approved by each entity whose approval is a Necessary Approval". 24. With respect to Exhibit D, Paragraph B. III (b), SWEPI shall be deemed to have agreed to any substitute indices and/or commodities required under Paragraph B as ARCO and Chevron shall agree to under the ARCO Contract and the Chevron Contract, respectively. In the event ARCO and Chevron do not act in the same manner with respect to substitute indicies and/or commodities, SWEPI may elect to act in the same manner as either ARCO or Chevron. 25. Nothing in this Agreement shall affect SWEPI's rights and obligations under the Beluga River Unit Joint Operating Agreement dated April 1, 1962, as amended. SWEPI represents that there is nothing in the Joint Operating Agreement which prevents SWEPI from performing its obligations under this Agreement. 26. Exhibit E shall be deleted in its entirety and the attached Exhibit E shall be substituted therefor. 27. Except for the foregoing amendments to the Natural Gas Agreement, all other terms and conditions of the Natural Gas Agreement shall remain in full force and effect. 28. In Section 7.6, add the following as subsection (F): "(F) SWEPI shall notify Chugach of any notice or demand received from the Alaska Department of Revenue, or successor agency, which assesses Reimbursable Tax or Taxes with respect to the gas delivered to Chugach by SWEPI under the Natural Gas Agreement as amended herein. At the request of Chugach, SWEPI shall pay such assessment under protest. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CHUGACH ELECTRIC ASSOCIATION, SHELL WESTERN E&P INC. INC. By: /s/ Eugene N. Bjornstad By: /s/ Steve Merritt Its: General Manager Its: Attorney-in-Fact EX-10.33.3 3 EKLUTNA HYDROELECTRIC PROJECT TRANSITION PLAN 1996 EKLUTNA HYDROELECTRIC PROJECT TRANSITION PLAN by and among THE UNITED STATES OF AMERICA d/b/a ALASKA POWER ADMINISTRATION, a unit of the DEPARTMENT OF ENERGY; THE MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT & POWER; CHUGACH ELECTRIC ASSOCIATION, INC.; and MATANUSKA ELECTRIC ASSOCIATION, INC. 1996 Eklutna Transition Plan Page 1 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 1996 EKLUTNA HYDROELECTRIC PROJECT TRANSITION PLAN by and among THE UNITED STATES OF AMERICA d/b/a ALASKA POWER ADMINISTRATION, a unit of the DEPARTMENT OF ENERGY; THE MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT & POWER; CHUGACH ELECTRIC ASSOCIATION, INC.; and MATANUSKA ELECTRIC ASSOCIATION, INC. This plan comprises: o Transition Plan, consisting of 13 Sections contained on 10 pages; o Exhibit A, consisting of 33 pages; o Exhibit B, consisting of 5 pages; o Exhibit C, consisting of 12 pages; o Exhibit D, consisting of 25 pages; o Exhibit E, consisting of 9 pages; and THIS PLAN ("PLAN") dated as of May 28, 1996, is adopted by and among, namely, The United States of America d/b/a Alaska Power Administration (APA) a unit of the Department of Energy (DOE); The Municipality of Anchorage (ML&P); the Chugach Electric Association, Inc.(CEA); and the Matanuska Electric Association, Inc. (MEA). Unless specifically referred to herein, the above are hereinafter designated the "Parties." RECITALS: WHEREAS, by the Alaska Power Administration Asset Sale and Termination Act, APA is authorized to sell to the undersigned Utilities (hereinafter the "Eklutna Purchasers"), physical assets, property interests, and all other interests the DOE may have in the Eklutna Hydroelectric Generation Plant, tunnels, transmission lines, rights-of-way, equipment, rolling stock, and other rights in contract (hereinafter the "Eklutna Project") as set forth in the Eklutna Purchase Agreement, dated August 2, 1989, attached hereto and incorporated below by reference as Exhibit A (hereinafter referred to as the Purchase Agreement) together with all amendments thereto; and 1996 Eklutna Transition Plan Page 2 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 WHEREAS, the Eklutna Purchasers are required prior to May 28, 1996, pursuant to the Purchase Agreement to jointly develop and adopt specific transition plans setting forth the arrangements and a timetable for completing the sale and transfer; and WHEREAS, the Eklutna Purchasers have signed a Memorandum of Understanding dated July 25, 1989, attached hereto as Exhibit B, in which they mutually declare their respective proportionate shares of the Eklutna Project's capacity, energy, and undivided interest in Eklutna assets to be 16/30 to ML&P (53.33%); 9/30 to CEA (30%); and 5/30 to MEA (16.67%), and further declare that the Eklutna Project operating costs will be borne in these same proportions; and WHEREAS, the Eklutna Purchasers, subject to the rights of the Parties to amend the terms of the Purchase Agreement subsequent to adoption of this Plan, desire to formalize transition plans and arrangements by the terms of this Plan; and WHEREAS, the Parties intend that this Plan shall foster an efficient, orderly, and expeditious transfer of the Eklutna Project and its operation to the Eklutna Purchasers, and further intend that the transfer be accomplished with minimum costs and minimum adverse impacts to APA employees. NOW THEREFORE, IN CONSIDERATION of the mutual covenants set forth herein, the Parties agree as follows: SECTION 1. PARTIES Parties to This Plan: The Parties to this Plan are the United States of America d/b/a Alaska Power Administration (APA) a unit of the Department of Energy (DOE), and the Eklutna Purchasers: The Municipality of Anchorage d/b/a Municipal Light & Power (ML&P), purchaser of 16/30ths of the Eklutna Project (53.33%); the Chugach Electric Association, Inc. (CEA), purchaser of 9/30ths of the Eklutna Project (30%); and the Matanuska Electric Association (MEA), purchaser of 5/30ths of the Eklutna Project (16.67%). The Eklutna Purchasers shall, after the Transaction Date, own an undivided interest in the Eklutna Project assets identified in Section 4 of the Purchase Agreement that are the subject of this Plan, and will exercise the rights and bear the responsibilities of such ownership in proportion to their respective shares. SECTION 2. TERM OF PLAN (a) Effective Date. This Plan shall become effective upon execution by all of the Parties ("Effective Date"). 1996 Eklutna Transition Plan Page 3 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 (b) Expiration Date. Unless earlier terminated pursuant to other provisions of this Plan, this Plan shall expire upon completion of the tasks herein defined or as otherwise mutually agreed upon by all of the Parties. SECTION 3. SELECTION OF A TRANSACTION DATE The date upon which ownership of the Eklutna Project transfers to the Eklutna Purchasers is the "Transaction Date" and shall be within 30 days of the completion of all items listed in Exhibit C and section 10 of this Plan to the satisfaction of all Parties or as late as November 28, 1997, or later if mutually agreed upon. SECTION 4. SCHEDULE FOR PAYMENTS TO THE UNITED STATES TREASURY (a) Section 5(a) of the Purchase Agreement specifies the selling price of the Eklutna Project as the discounted present value of the remaining payment stream (as described in the 1987 repayment study) plus $1,000,000.00. The present value using the 9% discount rate will be determined by APA using the methodology of Section 5 of the Purchase Agreement and the remaining payments described in Exhibit B of Amendment No. 3 to the Purchase Agreement dated June 22, 1995. The price estimated in the Purchase Agreement assumes adjustments for a Transaction Date that is other than the beginning of a federal fiscal year. If the established Transaction Date is a date other than the start of the federal fiscal year, the selling price will be established and payments scheduled in accordance with the Purchase Agreement. The payment to the U.S. Treasury will be fully paid within five years of the Transaction Date. The portion paid to the U.S. Treasury following the Transaction Date will carry interest of 9% per annum. (b) The Eklutna Purchasers intend to make payments to the U.S. Treasury or deposits in an escrow account with certified funds (by check or wire transfer) on the Transaction Date. If any Eklutna Purchaser should otherwise choose to make payments within the allowable five year window, such election must be announced prior to the Transaction Date. A schedule will then be developed and any and all interest charges associated with the established schedule will be borne by the Eklutna Purchaser (or Purchasers) that so elect to make payments. An interest bearing escrow account may be established in which the Eklutna Purchasers may deposit payment amounts. Funds will be held in this escrow account to cover completion of outstanding land, property, or other issues identified on the Transaction Date. Funds will be 1996 Eklutna Transition Plan Page 4 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 released to the U.S. Treasury as mutually agreed to by the Parties. Interest on funds held in this escrow account shall be credited toward the 9% per annum interest to be paid by the Eklutna Purchasers to the U.S. Treasury on the portion paid following the Transaction Date, from the Transaction Date until the date the payments are actually made to the U.S. Treasury. SECTION 5. ARRANGEMENTS AND TIMETABLE FOR TRANSFER OF OPERATIONS, MAINTENANCE , POWER MARKETING, AND ADMINISTRATION OF THE EKLUTNA PROJECT EVENT TIMETABLE APA and the Eklutna Purchasers set mutually agreeable functional ............... Complete transfer date of October 1, 1996 ("Transition Date") Eklutna Purchasers provide APA with proposed organization and staffing requirements related to employees currently at the Eklutna ............ May 28, 1996 - -------------------------------------------------------------------------------- ------------ Project ........................................................................ Eklutna Purchasers representatives meet with the Eklutna Project Jun 10, 1996 personnel to discuss detailed transition staffing plans ........................ Eklutna Operating Committee (EOC), as established in this Plan, ................ Jun 28, 1996 - -------------------------------------------------------------------------------- ------------ begins to meet, develops coordination procedures for functional control in consultation with APA, and conduct other business ................... Parties determine the budgetary offsets to current Eklutna Project rates and propose new power rates for the transition period ................... Jul 1, 1996 - -------------------------------------------------------------------------------- ------------ APA initiates personnel actions necessary to facilitate the functional transfer to the utilities ........................................... Aug 15, 1996 - -------------------------------------------------------------------------------- ------------ Detailed plans, agreements, and SOP's in place and executed for ................ Aug 30, 1996 - -------------------------------------------------------------------------------- ------------ October 1, 1996 change in functional control ................................... ------------ Eklutna personnel transition to their respective utility employer ............. Oct 1, 1996 - -------------------------------------------------------------------------------- ------------ EOC manages the operation and adjusts procedures as required in ............... Commences consultation with APA .......................................................... Oct 1, 1996
1996 Eklutna Transition Plan Page 5 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 Office space and full access to all government records for an APA Commences real estate person and rewind contracting officer's representative Oct 1, 1996 will be provided by Eklutna Purchasers. 1996 Eklutna Transition Plan Page 6 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 SECTION 6. ACTIVITIES AND SCHEDULES FOR COMPLETION OF SALE EVENT TIMETABLE Formal environmental, engineering, and safety inspections continue until complete ............................................ Aug 1, 1996 Parties agree on resolution of inspection issues ................... Aug 30, 1996 Generator rewind, plant modifications, and inspection corrective actions continue until completed ................................... As Required Title and land conveyance issues continue until complete ........... Transaction Date Conveyance documents in final draft ................................ Aug 30, 1996 Transaction Date and the Eklutna Project sale executed ............. Nov 28, 1997 (unless earlier agreed upon)
SECTION 7. TRANSFER OF DATA AND OTHER RECORDS TO PURCHASERS EVENT TIMETABLE APA Listing of Eklutna Project data and records to be transferred which will include their current location ....................... May 24, 1996 Site selection by Eklutna Purchasers for data and document ...... Aug 1, 1996 relocation plan .................................................
1996 Eklutna Transition Plan Page 7 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 Data and documents transferred to Eklutna Purchasers after the To Be Transaction Date as mutually agreed to by Parties. Determined 1996 Eklutna Transition Plan Page 8 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 SECTION 8. INSPECTION RESULTS AND REQUIRED DOE WORK PLAN Inspection results and a required DOE work plan are attached hereto as Exhibit C. The Parties agree that this list may not be all inclusive, and other work items may be added by any Eklutna Purchaser if, in their judgment, new information warrants. The Parties will mutually agree who has the responsibility to correct the added work items and set the schedule for their completion. All formal inspection results and action plans to deal with outstanding issues shall be finalized by August 1, 1996. Description of inspection lists in this Exhibit C: (a) Listing of engineering inspection results as known when this Plan is executed, the timetable of work to be completed by APA, and the resolution of other inspection issues. (b) Listing of environmental and safety inspection results and the APA responses are in draft form as of the Effective Date of this Plan, and shall be included in this Exhibit C upon receipt of same. SECTION 9. EKLUTNA ASSETS Attached as Exhibit D are the Physical assets list of APA and asset lists of each of the utilities for those assets located on APA property. APA intends to transfer, on the Transaction Date, full title to all such assets to Eklutna Purchasers. If the Eklutna Purchasers should choose to operate and/or maintain the Eklutna Project prior to the Transaction Date, they shall be authorized to use listed APA equipment, tools, and vehicles. All assets listed by each utility as their own are not intended to be, and shall not be, transferred to the other Eklutna Purchasers, but shall remain available for the benefit of the Eklutna Project. APA is in the process of finalizing its survey results on all rights-of-way, easements, and structures intended to be transferred. All parcels, rights-of-way, and easements shall be fully described upon completion and compiled for inclusion in the transfer documents executed on the Transaction Date. Any discrepancies shall be dealt with pursuant to Section 10 below. SECTION 10. TITLE CONDITION TO ALL EKLUTNA ASSETS AND PLANNED REMEDIES All personal property transferred to Eklutna Purchasers by APA shall be free and clear of any rights of third parties on the Transaction Date. Pursuant to the Purchase Agreement, APA represents to the Eklutna Purchasers that it, or its designated successor or assigns, shall provide without cost to the Eklutna Purchasers real property interests described as follows: (a) Titles to APA fee owned property, including Reed and Palmer substations free and clear of encumbrances or conditions of title which would restrict the Eklutna Purchasers' rights to continue to operate the Eklutna Project, including the transmission lines and facilities located within described rights-of-way, easements, or permitted areas; 1996 Eklutna Transition Plan Page 9 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 (b) The generation facility free of any encumbrances, covenants, and/or restrictions which would arise from its designation as historically significant and would prevent the Eklutna Purchasers from use, maintenance, repair, remodel, modification or upgrade of the buildings or equipment of the Eklutna Project assets; (c) Fee title to the Anchorage Substation property and other Eklutna Project land rights free and clear of claims of Cook Inlet Region Inc.; (d) Access rights-of-way or easements allowing access for line maintenance of the transmission lines presently being used as disclosed by the 1996 survey; (e) Easement rights to cross military reserve and fee owned properties owned or controlled by the United States Army within Ft. Richardson, Alaska on the existing transmission line right-of-way; (f) Easements, rights-of-way, or permits as required to provide for 115 KV transmission line facilities located in the CEA double circuit portion of the transmission line as set forth in contract No. 85-80AP10022.000; (g) Easement rights for the existing transmission lines across private property, including those areas of easements presently authorized under 44LD513 and section 17(b) of ANCSA, free and clear of claims of Eklutna Inc. or other underlying landowners and free of encroachments disclosed by the APA 1996 survey; (h) Transfer of all other agreements and rights and obligations with parties who are not purchasers under this agreement; and (i) Easement and access rights for the Wasilla Radio Relay facility free and clear of third party claims. (j) Rights-of-way across property owned by the United States and managed by the Bureau of Land Management. (k) Questions as to any limitations that there may be on the use of or interference with all natural inflows to and waters of the Eklutna Reservoir will be resolved. In the event any of these rights can not be transferred to the Eklutna Purchasers, or must be acquired by APA to be transferred to the Eklutna Purchasers, APA and its successor or assigns warrant that they will proceed to acquire such rights through the legal acquisition process, even if such process is not completed by the Transaction Date. APA and its successor or assigns warrant that they have the staff and resources necessary to acquire the interests outlined above and will use such staff and other resources to complete the acquisition in a timely manner. Resolution of any real property issues will be identified in the transaction documents. SECTION 11. EKLUTNA PURCHASERS MANNER OF ACTING, FUNCTIONAL RESPONSIBILITY, AND STAFFING Attached hereto as Exhibit E is the Eklutna Purchasers' plan for delineation of responsibilities and activities to effect the transition of the currently employed APA personnel at Eklutna and Eklutna Project operations. 1996 Eklutna Transition Plan Page 10 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 SECTION 12. NO THIRD-PARTY BENEFICIARIES The provisions of this Plan shall not create any rights in favor of any person, corporation, or association not a Party to this Plan, and the obligations herein assumed are solely for the use and benefit of the Parties to this Plan and their successors and assigns. SECTION 13. MODIFICATIONS TO THIS PLAN The provisions of this Plan have been negotiated by the Parties and represent their best effort to follow the intent of the APA Asset Sale and Termination Act pursuant to the Purchase Agreement. Should modifications to this Plan become necessary, the Parties agree to continue their best effort to work toward changes that are mutually agreeable to the Parties, and in timely enough fashion that this agreement and any such modifications are adopted by the Parties on or before the Transaction Date. 1996 Eklutna Transition Plan Page 11 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 Alaska Power Administration, a unit of the U.S. Department Of Energy /s/ Nicki J. French Nicki J. French Assistant Administrator Municipality of Anchorage /s/ Larry A. Crawford Larry A. Crawford Municipal Manager Chugach Electric Association, Inc. /s/ Eugene N. Bjornstad Eugene N. Bjornstad General Manager Matanuska Electric Association, Inc. /s/ Wayne D. Carmony Wayne D. Carmony General Manager 1996 Eklutna Transition Plan Page 12 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 1996 Eklutna Transition Plan Page 13 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 RECOMMENDED: APPROVED AS TO FORM: Anchorage Municipal Light & Power MUNICIPALITY OF ANCHORAGE /s/ Thomas R. Stahr /s/ Mary K. Hughes - ------------------- --------------------------------- Thomas R. Stahr Mary K. Hughes General Manager Municipal Attorney RECOMMENDED: MUNICIPALITY OF ANCHORAGE /s/ G Vakalis - ---------------------------------------------------- George J. Vakalis Operations Manager 1996 Eklutna Transition Plan Page 14 of 14 c:\1-Patty\Eklutna\Transpln\EK-SIGN.doc 5/24/96 c:\1-Patty\Eklutna\Transpln\Exhibt-C.doc EXHIBIT A Eklutna Purchase Agreement August 2, 1989 Chugach Electric Association, Inc. Matanuska Electric Association, Inc. Municipality of Anchorage d/b/a Municipal Light & Power Alaska Power Administration United States Department of Energy Eklutna Purchase Agreement Table of Contents Page 1. Parties to the Agreement.....................................1 2. Purpose......................................................1 3. Definitions..................................................1 4. Assets to be Sold or Transferred.............................2 5. Price and Payment Terms......................................4 6. Responsibilities.............................................5 7. Operation and Maintenance Expenses, Revenues.................6 8. Non-Power Users..............................................6 9. Transition Plans and Activities..............................7 10. Interim Activities...........................................8 11. Post-sale Operations, Maintenance and Power Marketing Arrangements............................11 12. Effective Date..............................................12 13. Environmental Management....................................12 14. Term........................................................12 15. Dispute Resolution..........................................13 16. Notice......................................................13 17. Amendment...................................................13 18. Approvals...................................................13 19. Assignment..................................................14 20. Force Majeure...............................................14 21. Continuing Support and Assistance...........................14 22. Relationship of Purchasers..................................14 23. Agreement for Benefit of Parties Only.......................15 24. Miscellaneous Provisions....................................15 Table of Contents Appended Material: Exhibit A: Lands, Easements and Rights-of-Ways, Including Map Marked Exhibit A, Dated February 3, 1989 Exhibit B: Future Principal & Interest Payments Projected Selling Price August 2, 1989 EKLUTNA PURCHASE AGREEMENT 1. Parties to the Agreement. The parties to this Agreement are the Alaska Power Administration (APAD), a unit of the United States Department of Energy, and the Municipality of Anchorage d/b/a Municipal Light and Power (ML&P), the Chugach Electric Association, Inc, (Chugach) and Matanuska Electric Association, Inc. (MEA) (Purchasers) . 2. Purpose. This Agreement sets out arrangements, terms and conditions for sale of the Eklutna Hydroelectric Project (Eklutna) to Purchasers, such arrangements, terms and conditions to be implemented if the United States Congress authorizes such sale. 3. Definitions, As used in this Agreement: "ADNR" means the Alaska Department of Natural Resources. "ANCSA" means the Alaska Native Claims Settlement Act (PL-92-203). "APAD" means the Alaska Power Administration, a unit of the United States Department of Energy (including any successor entity). "Chugach" means the Chugach Electric Association, Inc. "BLM's means the United States Bureau of Land Management. "Eklutna" means the Eklutna Hydroelectric Project authorized, constructed and operated pursuant to the Eklutna Project Act of July 31, 1950 (64 Stat, 382, as amended), including any and all property and facilities acquired or used in connection with Eklutna. "MEA" means the Matanuska Electric Association, Inc. "ML&P" means the Municipality of Anchorage, d\b\a Municipal Light and Power. "Purchasers" means ML&P, Chugach, and MEA. Eklutna Purchase Agreement August 2. 1989 Page 2 "Actions" means actions, inaction, and omissions. "Transaction Date" means the date on which ownership of Eklutna is to be transferred to the Purchasers as set forth in Sections 4 and 9, 4. Assets to be Sold and Transferred. a. The Eklutna assets to be sold and transferred consist of the power production, transmission, associated real property and all other facilities and assets provided or otherwise acquired for Eklutna under the Eklutna Project Act of July 31, 1950 (64 Stat. 382, as amended) including but not limited to: (1) Eklutna Dam; power intake structure; power tunnel and penstock; the Eklutna powerplant containing two complete turbine-generator sets with ratings of 15,000 kilowatts, each; auxiliary electrical and mechanical systems; a tailrace and tailrace embankment; switchyard, transformers, 115 kilovolt transmission lines connecting the powerplant with Palmer and Anchorage; Anchorage, Palmer and Reed Substations; access roads; maintenance facilities and vehicles; supervisory control and communications systems; various buildings including office, warehouse,, and garage; personal property, including spare parts and equipment; and any improvements,, replacements and renewals of such major items; (2) Title in acquired land at Palmer Substation, and easements or rights-of-way for Eklutna facilities on privately owned land as described in Exhibit A; and fee title to lands at Anchorage Substation if the Department of Interior determines that the lands are available under law for conveyance to the Purchasers; (3) Granted rights-of-way for existing Eklutna facilities located on BLM managed lands and military lands as described in Exhibit A; (4) Studies, records, drawings, operating data,, technical information; water rights including the reservoir rights; licenses and any other permits; accurate location maps of Eklutna facilities tied to public land surveys; acceptable land descriptions of the areas of the easements, permits and licenses showing the location of the Eklutna facilities within the described areas; other tangible rights as required for operations and maintenance of Eklutna facilities; and warranties or other intangible rights associated with the assets to be transferred and sold, Eklutna Purchase Agreement August 2, 1989 Page 3 b. Granted rights-of-way for existing Eklutna facilities located on BLM managed lands including lands selected by the State of Alaska and military lands shall: (1) Be sufficient for operation, maintenance, repairs, renewals and replacements of Eklutna facilities located on such lands, including provisions for access. (2) Be issued consistent with existing Federal statutes, at no cost to the Purchasers, and remain effective for a period equal to the life of Eklutna as extended by any improvements, repairs, renewals or replacements; provided further that if Eklutna is further sold or transferred to private ownership, BLM may assess such reasonable and customary fees for continued use of the rights-of-way on BLM managed lands and military lands as consistent with law or regulation. c. The life of Eklutna shall continue as long as Eklutna is capable of generating and transmitting electricity, Temporary interruptions in service or generation of power shall not constitute a termination of the life of Eklutna, Disuse of one portion of the project system shall not cause the life to Eklutna as a whole to terminate, d. APAD shall provide satisfactory assurance that ANCSA 17(b) easement rights crossing native lands are sufficient for continued operation, maintenance, repair and replacement of Eklutna facilities by the Purchasers. e. The above description of assets is intended to be general and not precise or all inclusive, As part of the transition activities, the parties will jointly prepare a particularized listing of the assets to be sold and transferred. f. APAD intends that the sale and transfer of Eklutna to the Purchasers not result in additional costs to the Purchasers for licenses, permits or other rights for Eklutna,, which costs would not have been incurred under continued Federal ownership of Eklutna. g. Nothing in this Agreement shall prevent Purchasers from seeking substantial change in Eklutna. Purchasers shall be responsible for any appropriate approvals by affected government and non-governmental entities required for such substantial change. h. On the Transaction Date, the APAD shall convey or cause to be conveyed title to all Eklutna assets to the Purchasers by bill of sale or other instrument of conveyance, provided that Purchasers pay or make arrangement for payment under Section 5 of Eklutna Purchase Agreement August 2, 1989 Page 4 this Agreement, and provided further that for any assets not available for transfer at the Transaction Date, APAD shall provide: (1) Mutually satisfactory assurance that such remaining assets will be transferred to the Purchasers subsequently and in a timely fashion, and (2) Clear authority to the Purchasers for the beneficial use, enjoyment and occupancy of such remaining assets pending their conveyance to the Purchasers, (3) If APAD fails to perform any of the requirements stated in paragraphs 4(h),, 4(h)(1) or 4(h)(2) above,, the parties agree to discuss appropriate remedies. The parties may agree to mediation, arbitration or other means to resolve issues presented by a failure of APAD to perform such requirements, Purchasers shall also have an absolute right to terminate the Agreement in the event APAD fails to perform such requirements, i. If after the Transaction Date some event occurs which prevents APAD from transferring title and beneficial use, enjoyment and occupancy of Eklutna to the Purchasers, the parties agree to discuss and implement appropriate remedies including resolution through negotiation, arbitration or litigation, as appropriate. 5. Price and Payment Terms. a. If the Transaction Date is October 1. 1989, the selling price shall be $10,435,000. If the Transaction Date is October 1. 1990, the selling price shall be $9,580,000. If the Transaction Date is October 1, 1991, the selling price shall be $8,631,000. If the Transaction Date is other than one of the three above dates, the selling price will be calculated by APAD as the discounted present value as of the Transaction Date of all remaining principal and interest payments after the Transaction Date according to the payment schedule shown on Exhibit B of this agreement plus $1 f 000 I 000 ($1 million) , Exhibit B payments for the first year will be prorated to reflect the portion of the year remaining after the Transaction Date. Subsequent Exhibit B payments will be assumed at mid-year (April), Eklutna Purchase Agreement August 2. 1989 Page 5 The price determination is to be included in the transition plan required under Section 9 below. b. The Purchasers shall pay the full selling price to the United States Treasury within five years after the Transaction Date. Any portion of the selling price paid after the Transaction Date will carry interest charges payable to the United States Treasury as discussed below, If the full price is paid by the Transaction Date, there will be no interest charges. The purpose for allowing up to five years for the payments is to provide some flexibility to the Purchasers in arranging for payment and start up costs so as to minimize adverse impacts on Purchasers" ratepayers, The purpose of the interest charges is to assure that the United States Treasury receives the full value of the selling price. The Purchasers shall not seek Federal financing for the purchase. c. The discount rate to be used for determination of the selling price shall be nine percent (9%), The interest rate to be charged for payments after the Transaction Date shall be nine percent (9%). The sales price described above is full consideration for all Eklutna assets described in Section 4 (Assets to be Sold and Transferred). d. APAD shall not change its rate criteria for the purpose of accelerating principal payments before the Transaction Date, The Purchasers shall not delay their take of allocated power for the purpose of shifting revenues beyond the Transaction Date, 6. Responsibilities. a. As of the Transaction Date, the Purchasers shall assume all ownership responsibilities for Eklutna and ownership responsibilities of APAD and its successors for Eklutna shall cease, except as follows: (1) APAD shall be solely responsible for all costs to close out APAD responsibilities including but not limited to Federal employee entitlements and benefits for APAD employees, (2) The parties recognize that there may be unfinished work as of the Transaction Date which is the responsibility of APAD to complete. Such unfinished work could include incomplete transfer of some assets to be completed by APAD under Sections 4 and 10 or specific APAD responsibilities Eklutna Purchase Agreement August 2, 1989 Page 6 arising out of the joint determination of maintenance activities to be completed by APAD under Sections 9 and 10, APAD shall be solely responsible for such unfinished work, (3) APA shall be solely responsible for any claims or other legal proceedings arising from actions or alleged actions by APAD while APAD managed or operated Eklutna or from actions or alleged actions by APAD in carrying out remaining APAD responsibilities under this agreement after the Transaction Date." 7. Operation and Maintenance Expenses, Revenues. Operation and maintenance expenses up to the Transaction Date, including all obligations incurred by APAD which require payments after the Transaction Date shall be the responsibility of APAD, Subsequent operation and maintenance expenses shall be the responsibility of the Purchasers, APAD fund balances from Congressional appropriations as of the Transaction Date shall remain with APAD. All revenues for power sold up to the Transaction Date will be returned to the United States Treasury, The Purchasers shall be responsible for sales of power after the Transaction Date, including the collection and disposition of revenues therefrom. 8. Non-Power Users. a. The parties do not intend to adversely affect non-power users' rights as a result of transfer of ownership and control of Eklutna from the Federal government to the Purchasers. As of the Transaction Date, the Purchasers shall assume all APAD responsibilities and benefits with respect to the following agreements, including amendments and supplemental agreements made or entered into prior to the Transaction Date, provided that after the effective date of this Agreement, APAD shall consult with the Purchasers prior to making additional amendments and supplemental agreements: (1) The agreement dated February 17, 1984, between APAD and the Municipality of Anchorage concerning the Eklutna Water Project; as amended by Supplemental Agreement No. 1 dated August 24, 1988; (2) The agreement dated November 1, 1982, between APAD and Cook Inlet Aquaculture Association concerning the Eklutna hatchery, Eklutna Purchase Agreement August 2, 1989 Page 7 b. The Purchasers shall consult with BLM and ADNR to ensure effective and proper management of lands required for Eklutna, c. Except to the extent Purchasers determine public recreational uses shall be limited by safety and operational requirements, the Purchasers will continue to make Eklutna lands and water available to the public for recreation uses. 9. Transition Plans and Activities. a. Within six months after the Congressional authorization is obtained, the Purchasers and APAD shall adopt specific transition plans setting forth the arrangements and a timetable for completing the sale and transfer, The parties intend that the transition plans shall foster an efficient, orderly and expeditious transfer of Eklutna and its operation to the Purchasers, minimize transition costs and minimize adverse impacts on employees, The transition plans and activities shall be developed jointly by the Purchasers and APAD and, among other items, shall include: (1) The selection of a "Transaction Date" on which ownership of Eklutna would transfer to the Purchasers; (2) A schedule for payments to the United States Treasury including provisions for reasonable grace periods; (3) Arrangements and timetable for the transfer of operations, maintenance, power marketing and administration of Eklutna; (4) A definition of activities and schedules for completing the sale and the assignment of responsibilities for such activities; (5) A continuation of the consultations and access to records and data, and arrangements and timetable for transfer of data and other records to the Purchasers; (6) Provisions for environmental, engineering and safety inspections by the Purchasers and APAD and a joint determination by the Purchasers and APAD of specific maintenance activities, including procurement, to be completed by the APAD; (7) If necessary, provisions for completing any asset transfer actions that may not be completed as of the Transaction Date; (8) A particularized listing of all the Eklutna assets to be sold and transferred, including photocopies of all Eklutna Purchase Agreement August 2, 1989 Page 8 rights-of-way obtained from BLM, accurate location maps of the Eklutna facilities tied to public land surveys, and suitable legal descriptions of all real property interest. The parties to this Agreement recognize that the lands work will not be completed before the date of the transition plans, (9) A description of the condition of title to the Eklutna assets as of the date of the transition plans, identifying with particularity third party interests and rights and other matters affecting title that may materially impair the ability of the Purchasers to have the full beneficial use,, enjoyment, occupancy and operation of the Eklutna assets, and a description of APAD's intended course of action prior to the Transaction Date to remove, resolve or limit such matters, (10) Transition staffing plans as necessary to assure continuity of operations and minimizing adverse impacts on APAD employees, In this regard, the parties agree that for two years after the Transaction Date APAD Eklutna personnel have first call on post-transfer Eklutna jobs for which they are qualified subject to the labor agreements of Purchasers. The staffing plans shall also consider transferring portions or all of the operations and maintenance functions to the Purchasers in advance of the Transaction Date, if that course of action is found to be feasible and helpful in minimizing adverse impacts to employees. In a manner consistent with their personnel policies and staffing requirements, the Purchasers will assist in locating suitable employment opportunities for displaced APAD employees for a period of two years after the Transaction Date; and (11) Other matters as may be considered necessary by the parties, 10. Interim Activities. The parties to this Agreement recognize that, in addition to the transition plans and activities described above, a number of actions need to be taken by the parties and other entities. The asset transfer and sale involves several entities including the Federal, State and local governments and two Alaska Native corporations. The parties intend to maintain full coordination with each of these entities and ensure that legislation authorizing the sale and transfer provides appropriate authority to implement the sale and transfer, The parties shall take all actions necessary to complete the sale and transfer including, but not limited to, the following listed actions: Eklutna Purchase Agreement August 2, 1989 Page 9 a. APAD shall prepare Congressional legislation needed to implement this Agreement. The legislation, among other items, shall include provisions to accomplish the following: (1) Authorize in accordance with this Agreement the sale and transfer of Eklutna to the Purchasers. (2) Direct and authorize other Federal agencies, including the United States Department of the Interior, to assist and cooperate in sale implementation including transfer of Eklutna assets under their jurisdiction. (3) Authorize and direct the Secretary of Interior to issue rights-of-way to Alaska Power Administration for subsequent assignment to Purchasers at no cost to remain effective for a period equal to the life of Eklutna as extended by improvements, repairs, renewals or replacements, sufficient for operation, maintenance, repair and replacement of Eklutna facilities located on lands managed by the BLM including land selected by the State of Alaska, and military lands, including access; provided that if Eklutna is further sold or transferred to private ownership, the BLM may assess such reasonable and customary fees for continued use of the rights-of-way on BLM managed lands and military lands as consistent with current law or regulation; provided further that at no additional cost fee title to lands at Anchorage Substation shall be transferred to Purchasers if the Department of Interior determines that the lands are available under law for conveyance to the Purchasers. (4) Authorize the State of Alaska (State) to select and direct the Secretary of Interior to convey to the State certain Eklutna lands identified in Exhibit A, including the lake bed of Eklutna Lake if not navigable under the submerged Lands Act and approximately 853 acres of improved lands housing the powerhouse,, intake structure,, dam facilities, and a portion of the power tunnel under the provision of section 6 of the Alaska Statehood Act of July 7, 1958, Public Law 85-508, and the North Anchorage Land Agreement of January 31, 1983, such conveyances to be subject to the rights-of-way being provided to Purchasers under Section 10(a)(3) above. (5) Exempt Eklutna and the Purchasers,, including but not limited to subsequent facilities modifications, from jurisdiction of the Federal Energy Regulatory Commission under the Federal Power Act (16 U*S*CO 791),, unless such modifications impact Federal lands other than those presently used for Eklutna. Eklutna Purchase Agreement August 2, 1989 Page 10 (6) Authorize expenditure of such sums as are necessary to prepare Eklutna assets for sale and conveyance, such preparations to provide sufficient title to ensure the beneficial use, enjoyment and occupancy to the Purchasers of the assets to be sold. b. APAD shall, in addition to the responsibilities set forth in Section 4: (1) Prepare all Eklutna assets including but not limited to those assets described in Section 4 (Assets to be Sold and Transferred) for conveyance to the Purchasers including all actions necessary to establish sufficient title to ensure the beneficial use, enjoyment and occupancy to the Purchasers of such assets. (2) Apply for and obtain BLM rights-of-way necessary for operation, maintenance, repair and replacement of Eklutna facilities located on Federal lands, managed by the BLM, such rights-of-way to be subsequently transferred to the Purchasers. (3) Provide satisfactory assurance that the Purchasers have sufficient ANCSA 17(b) easement rights for continued operation, maintenance,, repair and replacement of Eklutna facilities. (4) Continue to maintain Eklutna in accordance with prudent utility practices, and Federal, and utility industry standards, (5) Appoint one person and an alternate to represent APAD for all activities required of APAD after the execution of this Agreement and prior to the Transaction Date. (6) Manage and operate Eklutna in accordance with prudent utility practices, and Federal and utility industry standards in such a manner as to not diminish the capability of Eklutna to produce energy and power at historic levels. C. Purchasers shall: (1) Establish organizational, functional and staffing arrangements for operations, maintenance and administration of Eklutna to be in effect on or before the Transaction Date including the following: (A) Purchasers agree with each other and the APAD that each Purchaser shall appoint one person and an Eklutna Purchase Agreement August 2. 1989 Page 11 alternate to represent that Purchaser for all activities required of Purchasers after the execution of this Agreement and prior to the Transaction Date. (B) By the Transaction Date, Purchasers shall agree in writing to have an effective organization which shall be responsible for the sale of power, operation and maintenance of Eklutna and, if necessary, Purchasers shall execute power sales agreements to purchase power from Eklutna. (C) Purchasers shall provide in their organizational agreements that if one or more of the Purchasers are unable or unwilling to purchase its share of Eklutna, then the other Purchasers may purchase that share, (2) Arrange for the payment of the amounts set out in Section 5 (Price and Payment Terms) to be paid to the United States Treasury, d. The Purchasers and APAD shall conduct engineering, environmental and safety inspections at Eklutna and jointly determine a list of items or matters they consider necessary to be changed or modified prior to transfer. APAD shall make such changes and modifications prior to the Transaction Date, or provide appropriate assurances that those changes or modifications shall be made, The Purchasers and APAD shall also consensually and jointly determine the acceptability of Eklutna for transfer to the Purchasers, Failure to reach agreement on the joint determination of either the list of necessary changes or modifications or the acceptability of Eklutna for transfer shall constitute grounds for termination of the Agreement. e. This Agreement may be terminated by Purchasers if, prior to the Transaction Date, the value of Eklutna or its capability to produce energy and power has been diminished by any cause after the execution of this Agreement. Any notice of termination shall be provided to APAD in writing. f. The parties agree that the above-listed action in subsections(a) through (d) are crucial to the sale and transfer of Eklutna. The Purchasers may elect to terminate this Agreement if the authorizing legislation does not contain substantially the same provisions set forth in Section 10(a) or if APAD fails to complete its obligations under Sections 10(b) and 10(d), APAD may elect to terminate this Agreement if the Purchasers fail to complete their obligations under Sections 10(c) and 10(d). 11. Post-sale Operations, Maintenance and Power Marketing Arrangements. Eklutna Purchase Agreement August 2, 1989 Page 12 The Purchasers shall establish appropriate organizational, staffing and administrative arrangements for Eklutna on or before the Transaction Date. To assist in implementation of these post-sale arrangements, APAD shall make available for inspection and use by the Purchasers all Eklutna records and data and shall consult with the Purchasers on operation procedures, replacement schedules, staffing plans and training on a continuing basis starting on the effective date of this Agreement, These provisions are intended to ensure that the Purchasers have full opportunity to become fully familiar with Eklutna and to help identify further specific actions that shall facilitate the transfer of operation of Eklutna to the Purchasers. 12. Effective Date. This Agreement shall become effective as of the calendar date on which all parties have executed this Agreement. 13. Environmental Management. The parties intend that the transfer of ownership be accomplished in a manner that assures continued compliance with environmental and public safety standards and laws including appropriate dam safety measures, The parties note that, under applicable Department of Energy instructions, APAD is required to prepare a management plan for Eklutna covering environmental and safety requirements. APAD shall develop and implement such management plan prior to the date on which the transaction plans are adopted and in full consultation with the Purchasers, Failure by the Purchasers to agree to such a plan shall be grounds for termination of this Agreement by the Purchasers. The Purchasers agree to continue the implementation of such management plan after the Transaction Date, including periodic updates of the plan as needed. 14. Term. This Agreement shall remain in effect for such time as is necessary to complete the sale of Eklutna to the Purchasers and payments for such sale to the United States Treasury, provided that this Agreement shall terminate two years after the effective date if authorization by Congressional legislation has not been obtained within those two years,, and provided further Eklutna Purchase Agreement August 2. 1989 Page 13 that this Agreement shall terminate two years after the date of the Congressional authorization if transfer of Eklutna to the Purchasers has not occurred by that time. The above termination dates may be extended by mutual agreement of the parties, The above termination provisions are intended to provide ample time to obtain Congressional authorization and complete the transaction. However, it is the intent of the parties to obtain such authorization as quickly as possible and complete the sale as quickly thereafter as is reasonably practicable. This Agreement shall be terminated if, at any time prior to the Transaction Date, the Purchasers determine they are not able to meet the payment terms and so notify APAD in writing, 15. Dispute Resolution. The parties shall attempt to settle any claim or controversy arising out of this Agreement in good faith. The parties may agree to submit any claim or controversy to a mutually-acceptable mediator, the cost of which shall be borne equally by APAD and Purchasers, The use of such a procedure shall not be construed to affect adversely the rights of either party under the doctrines of laches, waiver or estoppel. Nothing in this section shall prevent any party from resorting to judicial procedures. Any judicial action shall be filed in the Federal court at Anchorage, Alaska, 16. Notice. All notices under this Agreement shall be in writing directed to the Purchasers through the General Managers of the Purchasers, and to the APAD through the Administrator of the APAD or its successor. 17. Amendment. This Agreement may be modified only by mutual agreement in writing between the Purchasers and APAD. Any such modifications must be consistent with applicable State and Federal law. 18. Approvals. Any final sale and transfer of Eklutna shall become effective only on the obtaining of all required regulatory and administrative approvals or on receiving satisfactory assurance that such approvals are forthcoming. Eklutna Purchase Agreement August 2, 1989 Page 14 19. Assignment. This Agreement shall inure to the benefit of, and be binding upon the respective successors and assigns of the parties to this Agreement, provided however, that neither this Agreement nor any interest therein shall be transferred or assigned by any party to any other party,, except to the United States or an agency thereof, without the written consent of the others whose written consent shall not be unreasonably withheld, However, any assignment by Purchasers must be made to a successor in interest to the Purchasers and such assignment shall provide that the power from Eklutna be used for the benefit of customers in the service area of the Purchasers, Any of the Purchasers may assign its interest to the Alaska Electric Generation & Transmission Cooperative,, Inc. (AEG&T) subject to any existing agreements, including amendments, between Chugach,, AEG&T and MEA. 20. Force Majeure. Failure by either APAD or the Purchasers to perform any of the requirements of this Agreement brought about by causes beyond their control and without fault or negligence of the parties shall constitute an excusable delay. In any instance where excusable delay occurs, the time for completing the work shall be extended by negotiation of the parties, 21. Continuing Support and Assistance. The parties agree to support and assist each other in the mutually satisfactory resolution of any unforeseen problems associated with the transfer. APAD and the Purchasers recognize that new issues involving the transfer process may arise prior to and after transfer, or that issues considered resolved may need further clarification, implementation or other resolution. APAD and the Purchasers agree that open lines of communication are desirable after the date of this Agreement and after transfer to facilitate the transfer process. To that end , APAD and the Purchasers each agree to exercise their good faith efforts in implementing the terms of this Agreement expeditiously. APAD further agrees to use its best efforts to make available an appropriate Federal entity to implement this section in the event that APAD as an identifiable Federal entity ceases to exist. 22. Relationship of Purchasers. The covenants, obligations and liabilities of the Purchasers are intended to be several and not joint or collective, and nothing contained herein shall be construed to Eklutna Purchase Agreement August 2, 1989 Page 15 create an association, joint venture, trust or partnership, or to impose a trust or partnership covenant, obligation or liability on or with regard to any of the Purchasers. Each Purchaser shall be individually responsible for its own covenants, obligations and liabilities as provided in this Agreement. No Purchaser shall, by virtue of this Agreement, be under the control of, or be deemed to control, the other Purchaser. No Purchaser shall be the agent of, or have a right or power to bind, the other Purchasers without its express written consent, except as may be expressly provided in this Agreement,, or as may be otherwise provided by existing law. The provisions of this Section may be modified by the final approved agreements provided for under Section 10 (c) (1) , 23. Agreement for Benefit of Parties Only. As provided in Section 8, above, the parties intend to protect fully the rights of non-power users of Eklutna land and water. The parties do not intend by this Agreement to create rights in, or to grant remedies to, any third party as a beneficiary of this Agreement, or as a beneficiary of any duty, covenant, obligation or undertaking established by, or performed pursuant to, this Agreement. 24. Miscellaneous Provisions. a. The parties agree, upon request of the other parties, to make, execute and deliver any and all documents reasonably required to implement this Agreement. b. Captions and headings appearing in this Agreement are included to facilitate reference to the Agreement, and they are not to be read as a part of this Agreement, nor shall they have bearing on its interpretation. c. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREFORE, the parties have caused this Agreement to be executed the day and year written hereafter. Eklutna Purchase Agreement August 2, 1989 Page 16 DATED this 2nd day of August, 1989, CHUGACH ELECTRIC ASSOCIATION, INC, by: /s/ Lace Walls Lace Walls President MATANUSKA ELECTRIC ASSOCIATION, INC, by: /s/ Robert L. Husted Robert L. Husted President MUNICIPALITY OF ANCHORAGE D/B/A MUNICIPAL LIGHT AND POWER by: /s/ Tom Fink Tom Fink Mayor ALASKA POWER ADMINISTRATION by: /s/ Robert J. Cross Robert J. Cross Administrator Eklutna Purchase Agreement August 2. 1989 Exhibit A Page 1 of 2 Lands, Easements and Rights-of-Way Exhibit A consists of this narrative (pages 1 and 2 of 2) and the map prepared by BLM, signed and dated February 3, 1989, This exhibit describes and displays present land status for the Eklutna Hydroelectric Project and describes in general terms the conveyances of land and land rights contemplated in the purchase agreement. 1. BLM - managed lands and military lands used for Eklutna Project for which BLM is to provide APAD rights-of-way sufficient for operation, maintenance, repair and replacement of Eklutna facilities, such rights-of-way to be assigned by APAD to the Purchasers. Legend Symbols and Description. Withdrawals. Refers to approximately 863 acres of public lands withdrawn for Eklutna at the "Intake Area," "Power Tunnel," "Eklutna Powerplant" and "Anchorage Substation," The total acreage is comprised of the following land: a. Approximately 320 acres withdrawn for the "Power Tunnel" under Public Land Order 1231 dated September 28, 1955. b. Approximately 230 acres utilized for the "Intake Area" and approximately 60 acres for a portion of "Eklutna Powerplant" as described by ANCSA 3(e) determination AA-51183 dated July 30, 1986. c. Approximately 243 acres utilized for "Eklutna Powerplant" as described by ANCSA 3(e) determination AA-42534 dated September 1, 1982. d. Approximately 10 acres withdrawn for "Anchorage Substation" under Secretarial order dated April 4, 1952. State Land-R/W. Refers to rights-of-way across State-selected lands covering the transmission line east of "Eklutna Powerplant" to the Knik River. Military Land-R/W, Refers to rights-of-way across military lands used for Eklutna transmission lines. Eklutna Purchase Agreement August 2, 1989 Exhibit A Page 2 of 2 Acquired-3 (e). Refers to approximately 2.5 acres of acquired land used for "Reed Substation" as described by ANCSA 3(e) determination AA-45155 dated July 30, 1985. 2. ANCSA 17(b) Easements. Map symbol: N Native Land - 17(b) Easements. Refers to rights-of-way that are reserved for portions of the 115kV transmission line, access roads and other Eklutna facilities located on Native corporation lands, and exist as easement reservations in the ANCSA conveyances to the Native corporations pursuant to Section 17(b) of ANCSA. These easements will not be altered by the sale of Eklutna and the Purchasers may use these easements for their intended purposes, 3. APAD Acquired Land and Easements. Refers to land and easements acquired by the Bureau of Reclamation (predecessor of APAD) during construction of Eklutna and now controlled by APAD. APAD will assign the land and easements to the Purchasers. Legend Symbols and Description: Acquired. Refers to approximately 0.8 acres of land owned by APAD at Palmer Substation, Acquired-Easements, Refers to approximately 33 easements across private lands acquired by the Bureau of Reclamation (predecessor of APAD) and now held by APAD, 4. Other Easements on Private Land. Map [Symbol]: Note: Other Easements on Private Lands To Be Acquired - See Exhibit A Narrative Refers to approximately two hundred and fifty (250) parcels of private land located along the 115kV transmission line, many of which require title curative action for purposes of perfecting assignable easement rights or rights-of-way for the Purchasers, APAD shall be responsible for acquiring assignable easement rights or rights-of-way across these lands, for subsequent assignment to Purchasers, 5. Reservoir. Eklutna Lake as designated on the map is the reservoir described in the body of the Agreement. Exhibit B Eklutna Purchase Agreement Future Principal and Interest Payments, (FY 1987 Power Repayment Study Data) Units: $1000's FISCAL YEAR PRINCIPAL INTEREST TOTAL 1989 693 346 1,039 1990 1,316 316 1,632 1991 1,383 283 1,666 1992 0 265 265 1993 629 658 887 1994 1,476 231 1,707 1995 0 213 213 1996 1,318 196 1,514 1997 1,548 160 1,708 1998 1,586 121 1,707 1999 1,624 81 1,705 2000 0 61 61 2001 1,472 43 1,515 2002 952 12 964 TOTAL '89 - 02 $13,997 $2,586 $16,583 TOTAL '90 - 02 $13,304 $2,240 $15,544 TOTAL '91 - 02 $11,988 $1,924 $13,912 TOTAL '92 - 02 $10,605 $1,641 $12,246 Projected Selling Price Units: $1000's Transaction Present Value of 1/ Selling Date Remaining Payments Price Oct. 1, 1989 $9,435 $10,435 (start of FY 1990) Oct. l, 1990 $8,580 $ 9,580 (start of FY 1991) Oct. 1, 1991 $7,631 $ 8,631 (start of FY 1992) 1/ Discount Rate of 9.0%; payments assumed at mid year. Eklutna Purchase Agreement August 2, 1989 Amendment No. 1 1. Purpose. This Amendment No. 1 reflects new information with respect to lands, extends the term of the August 2, 1989, Eklutna Purchase Agreement ("Agreement"), and states the selling price if. the Transaction Date is October 1, 1992, or October 1, 1993. 2. Amendments to Section 10, Interim Activities. Section 10a. (4) of the Agreement is amended to read as follows: "10.a.(4) Authorize the State of Alaska (State) to select and direct the Secretary of the Interior to convey to the State certain Eklutna lands identified in Exhibit A, including approximately 853 acres of improved lands housing the powerhouse, intake structure, dam facilities,, and a portion of the power tunnel under the provision of Section 6(a) of the Alaska Statehood Act of July 7, 1958, Public Law 85-508, and the North Anchorage Land Agreement of January 31, 1983, such conveyances to be subject to the rights-of-way being provided to Purchasers under Section 10(a)(3) above." 3. Amendment to Section 5. Price and Payment Terms. Section 5 (a) of the Agreement is amended to read as follows: "a. If the Transaction Date is October 1, 1991, the selling price shall be $8,613,000. If the Transaction Date is October 1, 1992, the selling be $9,022,000. If the Transaction Date is October 1, 1993, the selling be $8,818,000. If the Transaction Date is other than one of the three above dates, the selling price will be calculated by APAD as the discounted present value as of the Transaction Date of all remaining principal and interest payments after the Transaction Date according to the payment schedule shown on Exhibit B of this agreement plus $1,000,000 ($1 million), Exhibit B payments for the first year will be prorated to reflect the portion of the year remaining after the Transaction Date. Subsequent Exhibit B payments will be assumed at mid-year (April). Eklutna Purchase Agreement August 2, 1989 Amendment No. 1 Page 2 The price determination is to be included in the transition plan required under Section 9 below." 4. New Exhibit B. A new Exhibit B dated June 25, 1991, reflecting the above amendment to Section 5, Price and Payment Terms, is incorporated in the Agreement in place of the original Exhibit B. 5. Extended Term. The first paragraph of Section 14 of the Agreement is amended to read as follows: "This Agreement shall remain in effect for such time as is necessary to complete the sale of Eklutna to the Purchasers and payments for such sale to the United States Treasury, provided that this Agreement shall terminate four years after the effective date if authorization by Congressional legislation has not been obtained within those four years, and provided further that this Agreement shall terminate two years after the date of the Congressional authorization if transfer of Eklutna to the Purchasers has not occurred by that time. The above termination dates may be extended by mutual agreement of the parties." 6. Effective Date This Amendment No. 1 to the Agreement shall become effective as of the calendar date on which all parties have executed this Amendment. Eklutna Purchase Agreement August 2, 1989 Amendment No. 1 Page 3 DATED this 30th day of July, 1991. CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/ Thomas D. Humphrey, Pres 7/30/91 Thomas D. Humphrey Date President MATANUSKA ELECTRIC ASSOCIATION, INC. By: /s/ Jess Lee 7/29/91 Jess Lee Date President MUNICIPALITY OF ANCHORAGE D/B/A MUNICIPAL LIGHT AND POWER By: /s/ Tom Fink 7/30/91 Tom Fink Date Mayor ALASKA POWER ADMINISTRATION By: /s/ Robert J. Cross July 26, 1991 -------------------------------------- --------------- Robert J. Cross Date Administrator Exhibit B 06/25/91 Eklutna Purchase Agreement Future Principal and Interest Payments (FY 1987 Power Repayment Study Data) Units: $1,000's FISCAL YEAR PRINCIPAL INTEREST TOTAL 1989 693 346 1,039 1990 1,316 316 1,632 1991 1,383 283 1,666 1992 0 265 265 1993 629 258 887 1994 1,476 231 1,707 1995 0 213 213 1996 1,318 196 1,514 1997 1,548 160 1,708 1998 1,586 121 1,707 1999 1,624 81 1,705 2000 0 61 61 2001 1,472 43 1,515 2002 952 12 964 TOTAL '92 - 02 $10,605 $1,641 $12,246 TOTAL '93 - 02 $10,605 $1,376 $11,981 TOTAL '94 - 02 $9,976 $1.118 $11,094 Projected Selling Price Units: $1,000's Transaction Present Value of Selling Date Remaining Payments Price Oct. 1, 1991 $7,613 $8,613 (start of FY 1992) Oct. 1, 1992 $8,022 $9,022 (start of FY 1993) Oct. 1, 1993 $7,818 $8,818 (start of FY 1994) Discount Rate 9.0%; payments assumed at mid-year. Eklutna Purchase Agreement August 2, 1989 Amendment No. 2 1. Purpose. This Amendment No. 2 extends the term of the August 2, 1989, Eklutna Purchase Agreement ("Agreement"), and states the selling price if the Transaction Date is October 1, 1993, October 1, 1994, or October 1, 1995, 2. Amendment to Section 5, Price and Payment Terms. Section 5 (a) of the Agreement is amended to read as follows: "a. If the Transaction Date is October 1, 1993, the selling price shall be $8,810,000. If the Transaction Date is October 1, 1994, the selling price shall be $7,733,000. If the Transaction Date is October 1, 1995, the selling price shall be $8,117,000. If the Transaction Date is other than one of the three above dates, the selling price will be calculated by APAD as the discounted present value as of the Transaction Date of all remaining principal and interest payments after the Transaction Date according to the payment schedule shown on Exhibit B of this agreement plus $1,000,000 ($1 million). Exhibit B payments for the first year will be prorated to reflect the portion of the year remaining after the Transaction Date. Subsequent Exhibit B payments will be assumed at mid-year (April). The price determination is to be included in the transition plan required under Section 9 below," 3. New Exhibit B. A new Exhibit B dated March 8, 1993, reflecting the above amendment to Section 5, Price and Payment Terms, is incorporated in the Agreement in place of the Amendment No. 1 Exhibit B. 4. Extended Term. The first paragraph of Section 14 of the Agreement is amended to read as follows: Eklutna Purchase Agreement August 2, 1989 Amendment No. 2 Page 2 "This Agreement shall remain in effect for such time as is necessary to complete the sale of Eklutna to the Purchasers and payments for such sale to the United States Treasury, provided that this Agreement shall terminate six years after the effective date if authorization by Congressional legislation has not been obtained within those six years, and provided further that this Agreement shall terminate two years after the date of the Congressional authorization if transfer of Eklutna to the Purchasers has not occurred by that time. The above termination dates may be extended by mutual agreement of the parties." 5. Effective Date. This Amendment No. 2 to the Agreement shall become effective as of the calendar date on which all parties have executed this Amendment. Eklutna Purchase Agreement August 2, 1989 Amendment No. 2 Page 3 DATED this 14 day of June, 1993. CHUGACH ELECTRIC ASSOCIATION, INC, By: /s/ William Ryan 5/19/93 William L. Ryan Date President MATANUSKA ELECTRIC ASSOCIATION, INC, By: /s/ Barbara J. Miller June 8, 1993 -------------------------------- -------------- Barbara J. Miller Date President MUNICIPALITY OF ANCHORAGE D/B/A MUNICIPAL LIGHT AND POWER By: /s/ Tom Fink 4/28/93 Tom Fink Date Mayor ALASKA POWER ADMINISTRATION By: /s/ Michael A. Deihl 3/26/93 Michael A. Deihl Date Administrator Exhibit B 03/26/93 Eklutna Purchase Agreement Amendment No. 2 Future Principal and Interest Payments (FY 1987 Power Repayment Study Data) Units: $1,000's FISCAL YEAR PRINCIPAL INTEREST TOTAL 1994 1,476 231 1,707 1995 0 213 213 1996 1,318 196 1,514 1997 1,548 160 1,708 1998 1,586 121 1,707 1999 1,624 81 1,705 2000 0 61 61 2001 1,472 43 1,515 2002 952 12 964 TOTAL '94 - 02 $9,976 $1,118 $11,094 TOTAL '95 - 02 $8,500 $887 $9,387 TOTAL '96 - 02 $8,500 $674 $9,174 Projected Selling Price Units: $1,000's Transaction Present Value of Selling Date Remaining Payments Price Oct. 1, 1993 $7,810 $8,810 (start of FY 1994) Oct. 1, 1994 $6,733 $7,733 (start of FY 1995) Oct. 1, 1995 $7,117 $8,117 (start of FY 1996) Discount Rate 9.0%; payments assumed at mid-year. Eklutna Purchase Agreement April 21, 1995 Amendment No. 3 1. Purpose. This Amendment No. 3 extends the term of the August 2, 1989, Eklutna Purchase Agreement('Agreement"), and states the selling price if the Transaction Date is October 1, 1995, October 1, 1996, or October 1, 1997. 2. Amendment to Section 5. Price and Payment Terms. Section 5 (a) of the Agreement is amended to read as follows: " a.If the Transaction Date is October 1, 1995,the selling price shall be $8,117,000. If the Transaction Date is October l, 1996, the selling price shall be $7,178,000. If the Transaction Date is October 1, 1997, the selling price shall be $5,953,000. If the Transaction Date is other than one of the three above dates, the selling price will be calculated by APAD as the discounted present value as of the Transaction Date of all remaining principal and interest payments after the Transaction Date according to the payment schedule shown on Exhibit B of this agreement plus $1,000,000 ($1 million). Exhibit B payments for the first year will be prorated to reflect the portion of the year remaining after the Transaction Date. Subsequent Exhibit B payments will be assumed at mid-year (April). The price determination is to be included in the transition plan required under Section 9 below." 3. New Exhibit B. A new Exhibit B dated February 23, 1995, reflecting the above amendment to Section 5, Price and Payment Terms, is incorporated in the Agreement in place of the Amendment No. 1 Exhibit B. 4. Extended Terms. The first paragraph of Section 14 of the Agreement is amended to read as follows: Eklutna Purchase Agreement April 21, 1995 Amendment No. 3 Page 2 "This Agreement shall remain in effect for such time as is necessary to complete the sale of Eklutna to the Purchasers and payments for such sale to the United States Treasury, provided that this Agreement shall terminate eight years after the effective date if authorization by Congressional legislation has not been obtained within those eight years, and provided further that this Agreement shall terminate two years after the date of the Congressional authorization if transfer of Eklutna to the Purchasers has not occurred by that time. The above termination dates may be extended by mutual agreement of the parties." 5. Effective Date. This Amendment No. 3 to the Agreement shall become effective as of the calendar date on which all parties have executed this Amendment. Eklutna Purchase Agreement April 21, 1995 Amendment No. 3 Page 3 DATED this 22 day of June, 1995. CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/ Elizabeth P. Kennedy 4/25/95 Elizabeth Page Kennedy Date President MATANUSKA ELECTRIC ASSOCIATION, INC. By: /s/ Barbara J. Miller May 4, 1995 ----------------------------------------------------- ------------- Barbara J. Miller Date President MUNICIPALITY OF ANCHORAGE D/B/A MUNICIPAL LIGHT AND POWER By: /s/ Larry D. Crawford 6/22/95 Larry D/ Crawford Date Municipal Manager ALASKA POWER ADMINISTRATION By: /s/ Michael A. Deihl April 21, 1995 --------------------------------------------------- ---------------- Michael A. Deihl Administrator 02/23/95 Exhibit B Eklutna Purchase Agreement Amendment No. 3 FUTURE PRINCIPAL AND INTEREST PAYMENTS (FY 1987 POWER REPAYMENT STUDY DATA) Units: $1,000's FISCAL YEAR PRINCIPAL INTEREST TOTAL 1996 1,318 196 1,514 1997 1,548 160 1,708 1998 1,586 121 1,707 1999 1,624 81 1,705 2000 0 61 61 2001 1,472 43 1,515 2002 952 12 964 TOTAL '96 - 02 8,500 674 9,174 TOTAL '97 - 02 7,182 478 7,660 TOTAL '98 - 02 5,634 318 5,952 PROJECTED SELLING PRICE Units: $ 1,000's Present Value of Remaining Payments Transaction Date (Discount Rate = 9%) Selling Price October 1, 1995 7,117 8,117 (start of FY 1996) October 1, 1996 6,178 7,178 (start of FY 1997) October 1, 1997 4,953 5,953 (start of FY 1998) NOTE: Payments assumed at mid-year. c:\1-Patty\Eklutna\Transpln\Exhibt-C.doc EXHIBIT B Memorandum of Understanding July 25, 1989 between Chugach Electric Association, Inc. Matanuska Electric Association, Inc. Municipality of Anchorage d/b/a Municipal Light & Power MEMORANDUM OF UNDERSTANDING THIS MEMORANDUM OF UNDERSTANDING is made this 25th day of July, 1989, by and among MATANUSKA ELECTRIC ASSOCIATION INC, ("MEA"), CHUGACH ELECTRIC ASSOCIATION, INC, ("Chugach"), and the MUNICIPALITY OF ANCHORAGE d/b/a ANCHORAGE MUNICIPAL LIGHT & POWER ("ML&P"), MEA, Chugach and ML&P are hereinafter collectively called the "Purchasers," 1. Recital. The Purchasers are parties to that certain Eklutna Purchase Agreement ("Purchase Agreement") dated as of March 31, 1989, with the Alaska Power Administration ("APAD") which concerns the purchase by Purchasers of certain real and personal property referred to therein as "Eklutna," It is understood that the Purchase Agreement has not yet been executed by ML&P and is therefore not yet effective. The parties expect that the Purchase Agreement will be so executed and, upon that assumption, enter into this Memorandum of Understanding. 2, Cost, Power and Title Interests of Purchasers. It is mutually understood by the Purchasers that the allocation of output power (capacity and energy) from Eklutna (as defined in Section 3 of the Purchase Agreement) under the Purchase Agreement will continue as under the present participation in the following proportions: 16/30 to ML&P, 9/30 to Chugach and 5/30 to MEA, and that these same proportionate shares will determine the Purchasers' respective proportionate shares of their undivided interest in the Eklutna assets identified in Section 4 of the - -1- Purchase agreement, the Purchasers' respective shares of the purchase price identified in Section 5 of the Purchase Agreement, and the Purchasers' respective shares of Eklutna's operating costs. 3. Operation of Eklutna. It is further understood and agreed that the Purchasers and their successors and assigns shall operate Eklutna in accordance with prudent electric utility practices in order to produce power in the most efficient manner possible for the maximum beneficial use of customers in the service area of the Purchasers, subject to compliance with those water usage agreements that the Purchasers have agreed to assume pursuant to Section 8 of the Purchase Agreement, MATANUSKA ELECTRIC ASSOCIATION, INC. By: /s/ Ken Ritchey Its: Acting General Manager CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/ David L. Highers Its: General Manager MUNICIPALITY OF ANCHORAGE d/b/a ANCHORAGE MUNICIPAL LIGHT & POWER By: /s/ Tom Fink Its: Mayor JAC/dmj K:MEA MUNICIPALITY OF ANCHORAGE ASSEMBLY MEMORANDUM No. AM 674-89 Meeting Date. From: Mayor Fink Subject: Eklutna Purchase Agreement In its AR87-41(S-1) as amended and dated March 3, 1987, the Anchorage Municipal Assembly resolved that (1) the best interest of the public may be served by federal transfer of the Eklutna Hydroelectric Facility to the Municipality or other local entities with all rights, title and interest of the United States, including reserved and acquired water rights; and (2) the administration may commence formal negotiations with the Department of Energy regarding divestiture of the project. On May 20, 1987, the Alaska Power Association (APA) formally requested proposals from the Municipality of Anchorage, Chugach Electric Association (CEA), and the Matanuska Electric Association (MEA) for the purchase and transfer of the Eklutna Power Project. The Municipality of Anchorage d/b/a Municipal Light and Power (ML&P), CEA, and MEA (cumulatively the "Purchasers") have developed a joint proposal for purchase of the Eklutna Project. The Joint proposals presently under review by the Municipality of Anchorage Chugach Electric Association and Matanuska Electric Association is entitled "Eklutna Purchase Agreement" and sets out arrangements, terms, and conditions for sale of Eklutna to purchasers, such arrangements terms, and conditions to be implemented if the United States Congress authorizes such sale. The following are essential terms of the proposed agreement: a. The Eklutna assets to be sold and transferred generally consist of the power productions transmissions associated real property and all other facilities and assets, provided for Eklutna under the Eklutna Project Act of July 31, 1950; all rights-of-way and easements for existing Eklutna facilities located on BLM managed lands and military lands; and water rights, including the reservoir rights. b. Within six (6) months of Congressional authorization, transition plans are to be adopted which will, among other things, identify the Transaction Date on which ownership of the Eklutna facilities will transfer to Purchasers; determine a schedule for payment of the purchase price to the United States Treasury; provide for the orderly transfer of the operations and related activities Of Eklutna; provide for environmental engineering and safety inspections by Purchasers; provide for completion of any asset transfer; develop a particularized listing of assets to be sold or transferred; and address other matters may be considered necessary by the parties. ASSEMBLY MEMORANDUM Eklutna Purchase Agreement Page 2 c. Total or combined Purchase Price to the three purchasing utilities is dependent on the timing of the Transaction Date:$10,435,000 if on October 1, 1989; $9,580,000 if on October 1, 1990; $81,631,000 if on October 1, 1991. Any other Transaction Date shall result in a selling price calculated as the discounted present value of all remaining principal and interest payments plus $1 million. The full selling price is to be paid within five (5) years after the Transaction Date using an interest rate of 9 percent. The discount rate to be used in determining the selling price is also 9 percent. ML&P's share of the purchase price is 16/30 or initially $5,565,333.33, which moneys will be committed upon the effective date of the Agreement. d. Effective date of the Purchase Agreement is the calendar date on which all parties have executed the agreement. The Agreement requires authorization by Congressional legislation within two years of the effective date of the Agreement, and further requires transfer of Eklutna assets within two years of Congressional legislation authorizing the transfer. e. The covenants, obligations and liabilities of the Purchasers are intended to be several and not joint or collective. ML&P, CEA, and MEA shall each acquire an undivided interest of 16/30, 9/30 and 5/30, respectively in the Eklutna Power Project. f. Purchasers of Eklutna are assuming all responsibilities associated with the Agreement dated February 17, 1984 between APA and the municipality of Anchorage concerning the Eklutna Water Project and the Supplemental Agreement No. 1 dated August 24, 1988. AWWU's entitlement to secure a long range source of water for Anchorage with the Eklutna Water Project is thereby preserved. g. The Purchasers are executing a memorandum of understanding concerning the possible election by the municipality to internally reassign its interest in the Eklutna Power Project. In the event of a sale or transfer of ML&P or for other reasons the Municipality may retain its interest in the Eklutna Power Project for the benefit of the Municipality and the Eklutna Water Project. ASSEMBLY MEMORANDUM Eklutna Purchase Agreement Page 3 The subject Eklutna Purchase Agreement will result in lower costs to ML&P for Eklutna power than under existing federal ownership. The Agreement ensures that ML&P will retain its current share of Eklutna output for the life of the Project. Since Eklutna is and will continue to be ML&P's lowest cost energy sources retention of ML&P's share will continue to stabilize rates. It is recommended that the Assembly authorize the Administration to enter into an agreement for the purchase of Eklutna under the basic terms and conditions outlined above. Concur: Submitted by: /s/ Richard L. Besse for /s/ Thomas R. Stahr Lee Nunn Thomas R. Stahr Executive Manager General Manager Enterprise Activities Municipal Light & Power Concur: Funds Certification: (0530 Operating) 8500-8605-2328-0000 $5,565,333.33 /s/ Larry D Crawford Larry D. Crawford Municipal Manager /s/ Bob Nelson Bob Nelson Chief Fiscal Officer Respectfully Submitted: Concur: /s/ Tom Fink /s/ Richard D. Kibby Tom Fink Richard D. Kibby Mayor Municipal Attorney Concur: /s/ Richard L. Besse Richard L. Besse, P.E. General Manager Anchorage Water & Wastewater Utility c:\1-Patty\Eklutna\Transpln\Exhibt-C.doc EXHIBIT C Engineering inspection results listing (to date) including APA's response to the Stone & Webster report in 12 pages to ML&P dated May 13, 1996. Environmental and safety inspection results and APA's response will not be available from Stone & Webster until after the Effective Date of this Plan. These results are incorporated into Exhibit C by reference, and will be included by mutual consent of the Parties upon receipt from Stone & Webster. Mr. Moe T. Aslam, P.E. May 13, 1996 Chief Engineer Anchorage Municipal Light & Power J.O.No. 05450.07 821 East First Avenue Anchorage, AK 99501 TRANSFER OF THE EKLUTNA HYDROELECTRIC PROJECT PALMER, ALASKA ANCHORAGE MUNICIPAL LIGHT AND POWER Dear Moe: The following items are suggested for inclusion in your list of major items to be discussed among APA and the Purchasing Utilities: o Survey of Dam and comparison with 1987 Survey o APA's current program for routine inspections of the dam o Rehabilitation of Power Tunnel Adit o Environmental Management Plan o List of Physically separated sites to be included in the transfer, together with land and landrights data o List of vehicles and off road equipment to be transferred o Transmission Line Survey A more comprehensive list of Technical and Miscellaneous Items is attached. The list of environmental issues, and Health and Safety are prepared by Jim Rogers and the list of Health and Safety issues, prepared by Mike Daniels, Mike Schowen and Sterling Larson will follow. Best Regards, /s/ Fred R. Harty, Jr. BJT Fred R. Harty, Jr. Task Coordinator Attachment FRH:bjt TECHNICAL AND MISCELLANEOUS ITEMS NOTED FOR FURTHER CONSIDERATION DURING THE TRANSFER INSPECTIONS FOR THE EKLUTNA HYDROELECTRIC PROJECT (see also the separate lists covering: o Environmental Items o Safety and Health Items) APA POSITION TRANSITION TEAM RESOLUTION Remote Sites o Possibilities for relocating or discontinuing the use of the Reed substation should be considered due to the security problem. o Ownership of the old Eklutna powerhouse should be established with respect to the transfer process. o At the Palmer substation, the transformer APA has advised that MEA should be checked for damage because of the preformed a detailed inspection deformed skid. (letter of February 27, 1996) o Grounds maintenance should be performed at APA will remove brush, weeds and logs the Repeater Station. Also, the provisions (letter of February 27, 1996) for future snow removal and winter access to the MEA substation should be established with respect Future maintenance to be established to the Repeater Station. Eklutna Dam and Spillway APA will remove logs and debris (letter of February 27, 1996) o The area upstream from the spillway is heavily encumbered with floating logs and other debris. This material should be removed. 51396.ATT - 5/13/96 o There is an area of subsidence at the APA will perform the survey (letter of February 27, 1996) downstream edge of the dam crest, about two thirds of the way between the right abutment and the spillway structure. The subsidence is on the order of 2 ft to 3 ft over an area that is large enough to make this a gentle depression. We were unable to find a notation of the condition in previous reports. A survey of this area and institution of a monitoring program is suggested. o A survey program is also suggested for the road APA will perform the survey (letter of February 27, 1996) that leads from the main road to the right abutment. This survey would determine if there is a spot in the road which is lower than the crest of the dam. o A survey of the various dam monitoring APA will perform the survey (letter of February 27, 1996) monuments should also be made and compared with previous measurements. Other areas of interest for a survey are described in the detailed report. o Some means should be provided for removal of water which accumulates in the spillway outlet gate access gallery. There was standing water in this gallery at the time of the inspection. 51396.ATT - 5/13/96 o An area of standing water was noted downstream from the toe of the dam toward the outlet of the spillway channel. This condition was noted in previous reports with the comment that it was not clear whether the wet spot was related to the reservoir or originated downstream. This area should continue to be observed in future inspections, particularly when the area between the two dams is dry. o Brush and small trees were noted on the APA will remove vegetation (letter of February 27, 1996) downstream embankment and abutments of the dam. This vegetation should be removed. Intake Gate Area o The surface drainage should be improved around the intake gate silo. o It is suggested that this gate operating system be renovated and updated. o Cracks noted in the silo concrete at the level of the gate operating system should be monitored to determine if any changes are being experienced. o The steel items such as ladders, platforms, gate operator and gate operator supports should be cleaned and painted. 51396.ATT - 5/13/96 o It is suggested that the provision of a permanent power supply be considered for this structure. o The access road was washed out at the time of APA has restored the road to its original condition (letter the site visit. It is suggested that improvements of February 27, 1996) be made to permit uninterruptible vehicle access on this road, which serves the intake gate silo An upgrade has been suggested for consideration by the and the Anchorage Water District diversion Purchasing Utilities structure. Gage House for Reservoir Water Level Monitoring o The ownership of this gage house should be verified with respect to the project transfer. o The identity of the floating cable, noted during Repaired by USGS (letters of February 27, 1996 and the inspection, should be established and any March 13, 1996) necessary remedial action taken. Adit to the Power Tunnel APA will only patch the holes at the power tunnel access entrance (letter of February 27, 1996) o Remedial measures should be taken to restore access to the watertight bulkhead in the adit and to prevent unauthorized entry into this area. 51396.ATT - 5/13/96 Surge Tank o The area around the surge tank should be monitored for erosion of surface material. Corrective measures should be taken if necessary. o The inside of the surge tank should be inspected when the opportunity presents itself. o The free turning operation of the wheels on the wheeled gate should be verified to be sure that they will function under load during an emergency gate closure (previous closure operations are understood to have been with no flow). o The gate may need painting or other maintenance. There is no record of when the gate was last painted (letter of March 13, 1996) o A broken grounding strap needs to be repaired. o Restrictions related to operation at high lake level should be noted. Tailrace Channel o Obstructions caused by the presence of cables sticking up on the embankment roadway should be addressed. 51396.ATT - 5/13/96 o Confirm or adjust the values of minimum Levels not confirmed per letter of March 13, 1996 tailwater level based on project datum: 20 ft elev - one unit 21 ft elev - two units (It has been reported that all project elevations following the 1964 earthquake are 2.6 ft. to 2.9 ft. lower than those shown on the drawings. If sea level forms the basis for tailwater level, the new tailwater, based on project datum, could be higher when affected by high tides) Powerhouse o Acceptability of the sump oil separation method should be reviewed. o Redesign of the exhaust system should be APA will replace the batteries with a different type considered to avoid the present situation in (letter of February 27, 1996) which the battery room exhaust is ducted through the main control panel. Also, the potential for inadvertent passage of oil room exhaust into the control room should be reviewed. o Rehabilitation of the butterfly valves should be considered to correct leaking which has been reported to be unfixable through normal seal adjustment. 51396.ATT - 5/13/96 o Greaseless wicket gate bearings should be considered for installation on the turbines. o A thin walled section of cooling water pipe, Two sections have been patched. APA will correct the last noted in the Bureau of Reclamation Inspection section this year (letter of February 27, 1996) Report, should be replaced. o The cable trays presently have 1/4 inch asbestos flexboard underneath the cables. Other arrangements should be established so that this asbestos material can be removed. o The immobility of the transformers on their APA will add restraints (letter of February 27, 1996) rails should be verified to prevent damaging movement in the event of an earthquake. o Consideration should be given to more conventional distribution methods of supplying power to the Government Camp. EKLUTNA TO PALMER TRANSMISSION LINE o On Structure 8/7, a broken bell should be APA will be responding to these issues during the normal replaced in the right insulator string maintenance program (letter of March 13, 1996) o On Structure 10/5, two broken bells in the APA will be responding to these issues during the normal center insulator string and one broken maintenance program (letter of March 13, 1996) bell in each of the outside strings should be replaced. 51396.ATT - 5/13/96 o Vibration on the center phase between APA will be responding to these issues during the normal structures 7/1-7/2 should be addressed maintenance program (letter of March 13, 1996) o Remedial measures or changes should be APA has no plans for any major work in this area considered at three areas on the line that (letter of February 27, 1996) are subject to damage, as described in the detailed report (avalanche zone between 3/7 and 3/8, old Knik River bridge, and the Matanuska River crossing between 9/3 and 10/3) o The out of plumb condition of the insulator APA has no plans for any major work in this area strings should be addressed at structures (letter of February 27, 1996) 8/7, 8/8, 9/1 and 9/2 o Excess brush and trees should be removed from APA has no plans for any major work in this area the rights of way as described in the detailed (letter of February 27, 1996) report o Structure 10/4 should be made plumb APA has no plans for any major work in this area (letter of February 27, 1996) TRANSMISSION LINE FROM EKLUTNA TO ANCHORAGE o Deterioration of the cross arm at Structure 18 APA will be responding to these issues under the should be addressed normal maintenance program (letter of March 13, 1996) o Broken bells, as described in the detailed APA will be responding to these issues under the report, should be replaced normal maintenance program (letter of March 13, 1996) 51396.ATT - 5/13/96 o Excess brush and trees should be monitored for APA will be responding to these issues under the timely removal as described in the detailed normal maintenance program (letter of March 13, 1996) report MISCELLANEOUS APA will provide the original drawings. You should be - ------------- aware that APA presently has a surveying contract under way to make an as-built plan of the entire transmission line. o Plan and profile of each transmission line o Land and Land rights data for: This will be compiled as part of transition activities (letter of March 13, 1996) 1. The power plant and associated structures including the tailrace channel 2. The substations and switchyard 3. The transmission line rights-of-way and access to the rights-of-way 4. Other properties to be transferred o List of all outstanding contracts and This has been provided to Tim McConnel (and other purchasers) commitments including informal agreements: as part of transition activities (letter of March 13, 1996) For example, it is understood that APA has an understanding that the Fish Hatchery may use some storage areas in the Eklutna warehouse. It is also understood that APA sometimes provides road maintenance and snow removal services in the park area. Such agreements and understandings should be listed. o List of vehicles and other on road and off road This will be compiled as part of transition activities equipment (letter of March 13, 1996) o List of all major items of spare parts and spare This will be compiled as part of transition activities equipment (letter of March 13, 1996) o List of physically separated sites that are to APA is collecting this and will provide this as be included in the transfer, such as the power part of the transition process (letter of March 13, 1996) plant itself, the USGS station house, the repeaters station, storage yards, transmission line and substations. 51396.ATT - 5/13/96
c:\1-Patty\Eklutna\Transpln\Exhibt-D.doc EXHIBIT D The Eklutna Asset List comprises: 1. Eklutna Project Personal Property in 8 pages 2. Eklutna Property Inventory, Major Equipment, in 7 pages 3. Eklutna Project Furniture Inventory in 4 Pages The Eklutna Purchasers Asset Lists of Utility owned items on Eklutna Project sites: 1. CEA Inventory Letter of May 22, 1996 in 2 pages 2. MEA Inventory Letter of April 1, 1996 in 2 pages 3. ML&P Inventory Letter of April 24, 1996 in 2 pages TOTAL PAGES 25 Item APA Number Item Description Serial No. QTY Location Condition Number 1 1966 Allis Chalmers Dozer 6606 1 ea Warehouse Fair 8410.6 2 1993 John Deere Dozer T045OGF795714 1 ea Warehouse Good 382 3 1994 Ford Dump Truck IFDXK84EXRVA26419 1 ea Warehouse Good 48761 4 1962 Studebaker Dump Truck 7E40A 1 ea Warehouse Fair 48766 5 1960 2-1/2 Ton Boom Truck 140285 1 ea Warehouse Fair 48768 6 1957 Caterpillar Motor Grader 8T21663 1 ea Warehouse Fair 48769 7 1987 Ford 555B Backhoe C771016 1 ea Warehouse Good 23 8 Thiokol Rangemaster 67B9370 1 ea Yard Fair 5122.1A 9 1988 Jeep Cherokee IJCML77IOJTI57056 1 ea Garage Good 48777 10 1989 Chevy Pickup 2GCEK2ZXKI 194266 1 ea Power Plant Good 48762 11 1988 Chevy Pickup IGCDK14H4JE124133 1 ea Power Plant Good 48776 12 1994 Chevy Pickup IGCEK14H2PE224566 1 ea Power Plant Good 48770 13 1994 Chevy I -Ton/Snow Plow IGDHK34K9PE563972 1 ea Garage Good 48758 14 1985 Dodge Pickup IB7HW14HXFS657165 1 ea Warehouse Fair 48765 15 1984 Dodge Line Truck 187KW34W2ES311402 1 ea Warehouse Fair 48767 16 Stihl Chainsaw 227850872 1 ea Warehouse Good 331 17 Stihl Chainsaw 227850894 1 ea Warehouse Good 332 18 Stihl Chainsaw 227850861 1 ea Warehouse Good 330 19 Stihl Chainsaw 227850901 1 ea Warehouse Good 333 20 Homelite Chainsaw 8LI4907AI 1 ea Warehouse Fair 116 21 Homelite Chainsaw HK2230297 1 ea Warehouse Fair 117 22 Homelite Chainsaw HK2190954 1 ea Warehouse Fair 118 23 Homelite Chainsaw 7E2772322 1 ea Warehouse Fair 6625.27 24 Onan-Generator 25C815072 1 ea Warehouse Fair 3375.9 25 Onan Generator 3375.8 1 ea Warehouse Fair 3375.8 26 Johnson Outboard Motor 1188798 1 ea Warehouse Fair 5055.1 27 Lawn Mower - Wheeler 228270 1 ea Warehouse Good 7 28 Lawn Mower - Toro T 236 1 ea Warehouse Fair N/A 29 Riding Lawn Mower - Sears 3264 1 ea Garage Fair 4445.5 30 Lawn Rake 60102 1 ea Warehouse Poor 945.1 31 Water Pump 1456266 1 ea Warehouse Fair 5940.4 32 Hydraulic Line Press 75L2286 1 ea Warehouse Fair 5770.1 33 Hydraulic Pump 2718809 1 ea Warehouse Fair N/A 34 Snow Blower - MTD 3146IOE000 1 ea Warehouse Good 381 35 Homelite Weed Eater HJ3350430 1 ea Warehouse Good 112 36 Lincoln Welder/Generator 3451173 1 ea Warehouse Fair 8920.2B 37 Thiokol Range Master 1 ea Yard Fair N/A 38 Capstan Hoist 280097 1 ea Warehouse Fair 3850.17 39 1985 Wisconsin Tilting Trailer IW91SC205F1008162 1 ea Yard Good N/A 40 Shaper Cincinnati 1 ea Machine Shop Good N/A 41 Turret Milling Machine 1011 505367 1 ea Machine Shop Good N/A 42 Lathe Model #957 1 ea Machine Shop Good N/A 43 Metal Cutting Band Saw Model 8C-W 6540581 1 ea Machine Shop Good N/A 44 Bench Grinder Model #508 1338 1 ea Machine Shop Good 3490.1 45 Lincoln Welder A320510 1 ea Machine Shop Good 8920.2 46 Pipe threader (Ridgid) 396385 1 ea Machine Shop Good 14 47 Black & Decker 10" Bench Saw 1 ea Machine Shop Good N/A 48 Hinsey Bench Grinder 210422 1 ea Machine Shop Fair N/A 49 14" Chop Saw 110037 9309 1 ea Machine Shop Good N/A 50 Cincinnati Drill Press 1 ea Machine Shop Good N/A 51 LeBlond 10' Lathe 1 ea Machine Shop Good N/A 52 Manley Hand Press 1 ea Machine Shop Good N/A 53 Miller CP-300 Welder 1 ea Machine Shop Good N/A 54 HotPoint Clothes Dryer 1 ea Machine Shop Fair N/A 55 Norge Clothes Washer 1 ea Machine Shop Fair 8865.2 56 Kleen-Flo Parts Washer 606284 1 ea Machine Shop Good N/A 57 Pyrotronics Fire Alarm System System 3 1 ea Machine Shop Good N/A 58 Radionics Security Alarm System 1 ea Machine Shop Good N/A 59 HomeMade Sand Blaster 1 ea Machine Shop Good N/A 60 National Champion Oil Furnace 541920 1 ea Machine Shop Fair 21 61 PMG Bearing Puller 1 ea Machine Shop Fair N/A 62 Jet Pump Profile for turning jet pump nozzles 1 ea Machine Shop Fair N/A 63 Oxygen & Acetylene Bottles, Torch & Cart 1 ea Machine Shop Good N/A 64 Vacuum Pump & Motor 1 ea Machine Shop Good N/A 65 2200 lb Portable Crane Hoist (OTC) 1 ea Generator Floor Good N/A 66 Puller 22007 1 ea Second Level Floor Good N/A 67 23 lb Weights for Tightwire readings 4 ea Second Level Floor Fair N/A 68 Portable Oil Press Pump, Oil Filtering System 1 ea Oil Room Good N/A 69 Aluminum Ladder for Draft Tube 1 ea Third Level Good N/A 70 Wicket Gate Stans 1 ea Third Level Fair N/A 71 30 for Hvd Jack 47353 6 ea Third Level Fair 5770.3 72 10 to Track Jack 2 ea Third Level Fair N/A 73 Screw Jacks 3 ea Third Level Fair N/A 74 60 ton Portable Hyd 3-in stroke 1 ea Third Level Good N/A 75 10,000 Pst Air Hyd Pump 1 ea Third Level Good N/A 76 20 ton Portable Hyd Ram 1-3/4 in stroke 1 ea Third Level Good N/A 77 20 ton Portable Hyd Ram 3 in stroke 1 ea Third Level Good N/A 78 Hand Portapower Pump 1 ea Third Level Good N/A 79 Portable Oil Furnace with Day Tank 1 ea Third Level Fair N/A 80 Assorted Hand Tools 1 ea Machine Shop OfficeFair N/A 81 Hand Tools 1 ea Machine Shop Fair N/A 82 Assorted Slings, Cables, Eye Bolts, Metric Wrenches, S Hook Generator Floor Good N/A 83 Deck Hatch Eyebolts, Shackles Generator Floor Good N/A 84 Push Button Cord for Stop Log Hoist Generator Floor Good N/A 85 Snugging Wrenches 1" drive sockets Second Level Fair N/A 86 Assorted Spanner Wrenches, Lifting Eye Bolt, Open End Wren Second Level Fair N/A 87 Hatch Lifting Eye Bolt Second Level Good N/A 88 Assorted Allen Wrenches, Open-end Wrenches Second Level Fair N/A 89 Spare Parts: Gov Lube Pump & PMG's Second Level Good N/A 90 Spare Parts: Flyball Prerun Tester Second Level Good N/A 91 lnnertube for Butterfly Valve Second Level Fair N/A 92 Turbine Nut Remover for Porta-Power Second Level Fair N/A 93 Turbine Nut Spanner Wrench, Manhole Door Wrench Third Level Fair N/A 94 1 in electric Impact Wrench 1 ea Third Level Good N/A 95 120V AC to 12V DC Light Transformer w/Drop Light 1 ea Third Level Good N/A 96 449 V electric heater 1 ea Third Level Fair N/A 97 Generator Rotor Floor-mount with Bolts 1 ea Third Level Good N/A 98 Generator Rotor Lifting Device 1 ea Third Level Good N/A 99 Runner Shaft Lifting Device 1 ea Third Level Good N/A 100 Floor-mount Hyd Press Rotors 1 ea Third Level Fair N/A 101 Partial Spools ACSR 8 ea Warehouse Good N/A 102 Full Spools ACSR 3 ea Warehouse Good N/A 103 X Braces 25 ea Warehouse Used N/A 104 1O" Suspension Insulators 500 ea Warehouse Used N/A 105 7 1/2" Phase Hangers 21 ea Warehouse Used N/A 106 8" Phase Hangers 64 ea Warehouse Used N/A 107 9 1/2" Phase Hangers 117 ea Warehouse Used N/A 108 11" Phase Hangers 21 ea Warehouse Used N/A 109 1O' Cross Arms 2 ea Warehouse Used N/A 110 25'Cross Arms 6 ea Warehouse Good N/A 111 Boxes Pole Toppers 11 ea Warehouse Good N/A 112 Boxes Aluminum Armor Rod 5 ea Warehouse Good N/A 113 Box Guy Guards 1 ea Warehouse Good N/A 114 Boxes Crossplates Anchors 2 ea Warehouse Good N/A 115 Guy Anchor Rods 24 ea Warehouse Good N/A 116 Vibration Dampers 15 ea Warehouse Used N/A 117 3 Bolt Guy Clamps 120 ea Warehouse Used N/A 118 4 Bolt Guy Clamps 45 ea Warehouse Used N/A 119 3/4" X 2 1/2" Cone Head Bolts 100 ea Warehouse Used N/A 120 Miscellaneous Lag Bolts 75 ea Warehouse Used N/A 121 Square Washers 5/8' Hole 600 ea Warehouse Used N/A 122 Square Washers 1/2" Hole 350 ea Warehouse Used N/A 123 3" X 3" Curved Washers 25 ea Warehouse Used N/A 124 1/2" Lock Washers 100 ea Warehouse Used N/A 125 5/8" Lock Washers 300 ea Warehouse Used N/A 126 3/4" Lock Washers 75 ea Warehouse Used N/A 127 7/8" Lock Washers 150 ea Warehouse Used N/A 128 5/8" Hex Palnuts 150 ea Warehouse Used N/A 129 1/2" Sqaure Lock Nuts 75 ea Warehouse Used N/A 130 5/8" Square Lock Nuts 250 ea Warehouse Used N/A 131 3/4" Square Lock Nuts 200 ea Warehouse Used N/A 132 7/8" Square Lock Nuts 25 ea Warehouse Used N/A 133 1/2" Square Nuts 75 ea Warehouse Used N/A 134 5/8" Square Nuts 250 ea Warehouse Used N/A 135 3/4" Square Nuts 200 ea Warehouse Used N/A 136 7/8" Square Nuts 100 ea Warehouse Used N/A 137 7/8" Square Nuts 100 ea Warehouse Used N/A 138 2" X 5/8" Bolts 50 ea Warehouse Used N/A 139 6" X 5/8" Bolts 300 ea Warehouse Used N/A 140 13" X 7/8" Boks 80 ea Warehouse Used N/A 141 11" X 5/8" Bolts 18 ea Warehouse Used N/A 142 13" X 7/8" Bolts 36 ea Warehouse Used N/A 143 Serving Sleeves 150 ea Warehouse Used N/A 144 Deadend Straps 48 ea Warehouse Used N/A 145 4 Section Pole Band Assemblies 12 ea Warehouse Used N/A 146 3 Section Pole Band Assemblies 22 ea Warehouse Used N/A 147 9" Extension Links 45 ea Warehouse Used N/A 148 3""U"Bolts 60 ea Warehouse Used N/A 149 Extended Parallel Groove Clamps 22 ea Warehouse Used N/A 150 Offset Guy Clamps 6 ea Warehouse Used N/A 151 3" X 10" Extension Links 90 ea Warehouse Used N/A 152 Aluminum ACSR "T" Connectors 10 ea Warehouse Used N/A 163 5" Chain Shackles 4 ea Warehouse Used N/A 154 Ball Eyes - Round 4 ea. Warehouse Used N/A 155 Hot Line Strain Clamps - Steel 2 ea Warehouse Used N/A 156 Yoke sets - double Strain 2 ea Warehouse Used N/A 157 3" Galvanized Staples I bx Warehouse Used N/A 158 15" X 7/8" Bolts 98 ea Warehouse Used N/A 159 17" X 7/8" Bolts 38 ea Warehouse Used N/A 160 21" X 7/8" Threaded Rod 44 ea Warehouse Used N/A 161 7" X 7/8" Threaded Rod 32 ea Warehouse Used N/A 162 9" X 3/4" Threaded Rod 10 ea Warehouse Used N/A 163 9" X 7/8" Threaded Rod 10 ea Warehouse Used N/A 164 9" X 1/2" Double Arming Bolts 64 ea Warehouse Used N/A 165 ACSR Spices 69 ea Warehouse Good N/A 166 Suspension Clamps 80 ea Warehouse Used NIA 167 Ball Hooks 50 ea Warehouse Used N/A 168 Ball Clevises 14 ea Warehouse Used N/A 169 Oval Ball Eyes 50 ea Warehouse Used N/A 170 Socket Eyes 200 ea Warehouse Used N/A 171 Twisted Shackles 100 ea Warehouse Used N/A 172 "Y" Clevis Eyes 3 ea Warehouse Used N/A 173 Turn Buckles 8 ea Warehouse Used N/A 174 Rod Ground Clamps 10 ea Warehouse Used N/A 175 Straight Line Strain Clamps - Aluminum 5 ea Warehouse Used N/A 176 Guy Hooks 32 ea Warehouse Used N/A 177 Cross Arm Plates 180 ea Warehouse Used N/A 178 Monitor, TV 19" T6GOI 1789 1 ea Office Good 4 179 Recorder, VCR B6500616 1 ea Office Good 5 180 Monitor, Service 2787 1 ea Warehouse Good 9 181 Weedeater 1216 1 ea Warehouse Good 8 182 Crane, Mobile Lifting 0612POO017 1 ea Warehouse Good 102 183 Video Cam 8MM 215700 1 ea Office Good 303 184 Microwave Oven 1 ea Office Good 305 185 Radio Transceiver Portable 251581 1 ea Office Good 321 186 Radio Transceiver Portable 251733 1 ea Office Good 322 187 Radio Transceiver Portable 251730 1 ea Office Good 323 188 Radio Transceiver Portable 251732 1 ea Office Good 324 189 Radio Mobile w/charger C17002 1 ea Office Good 325 190 Radio Mobile w/charger C20041 1 ea Office Good 326 191 Radio Mobile w/charger C3 034 1 ea Office Good 327 192 Radio Hand Held Portable w/charger EPU 4142A 223931 1 ea Office Good 335 193 Radio Hand Held Portable EPU-4142A-225904 1 ea Office Good 336 194 Canon Telefax WBLO9376 1 ea Office Good 338 195 Copier, Monroe Office Copier 1 ea Office Good 383 196 Binoculars 1 ea Office Good 560.5 197 Blueprint Machine 7394 1 ea Garage Good 680.2 198 Camera 35 MM 1 ea Office Good 1155.2 199 Freezer, Upright 1 ea Office Good 2800.4 200 Freezer, Chest 42MO551WW-1053528 1 ea Office Good 3260 201 Radio Transceiver, Walki-Talkie 738160847 1 ea Office Good 6036.36 202 Radio Transceiver, Walki-Talkie 738161047 1 ea Good 6036.38 203 Radio, Transceiver, Walki-Talkie 841377501 1 ea Good 6036.47 204 Radio, Transceiver, Walki-Talkie 843225402 1 ea Good 6036.48 205 Table Radial-Arm Saw 107112 1 ea Good 6625.14 206 Table Saw KSSSFN-349 1 ea Good 6625.23 207 Chain Saw 200530067 1 ea Warehouse Good 6625.25 208 Chain Saw 35431879 1 ea Warehouse Good 6625.26A 209 BandSaw 80754 1 ea Warehouse Good 6625.29 210 Trlr Diesel Tank AV-255119 1 ea Good 8450.8 211 Welder & Generator Combo AC-225-S 1 ea Warehouse 8920.3A 212 Welder High Frequency 8326 1 ea Warehouse Good 8920.6 213 Wrench, Electric Impact ASL 13941 1 ea Warehouse Good 89902 214 215 216
EKLUTNA PROPERTY INVENTORY TRANSFORMER ROOM 2-EA POWER TRANSFORMERS - Tierney Electrical Manufacturing Co. - Enclosure Type-1 - KVA - 300 - PH=3 - H2 - 60 - Pri. Volts - 7200 - Sec. Volts - 408/277 - Ser. # 188-6 (SS Buss #2) - Ser. # 188-5 (SS Buss #1) 2-EA STATION SERVICE DISCONNECT - Elseco Switchgear Electric Service Engineering Co. - DS 115 & DS 215 2-EA SINGLE-PHASE TRANSFORMER (Lightening) - 60 cy 50 KVA - Volts 480 to 120/240 - Class A-A - Type DB - Ser. #63033 (KCD) - Ser. #63034 (KCC) 4-EA AIR CURRENT BREAKER - GE - Type AM - 13.8-250-1 - KV - 13. 8 - Amps - 2000 - Interrupting KVA - 22,000 - Ser. #376A355-25-4 (112) - Ser. #376A355-25-1 (212) - Ser. #376A355-25-5 (118) - Ser. #376A355-25-3 (218) GENERATOR ROOM 2-EA SUMP PUMP MOTOR - GE - Model 5K324XA11A - H.P. 7.5 - Nema Class B - Type K - Code G - Frame - 324PH - 60 cy-3 PH - Volts - 220/440 - FL Speed @ 60 cy - 1160 - FL AmP @ 60 cy - 21.1/10.6 - SER. # RHJ6877121 (#1) - SER. # SSSFJ6793973 2 -EA TRANSFORMER - GE - Dry Type - Indoor - 3-phase - 60 Hz - Class AA - Model # 9T26G3106 - kVA - 200 - Hv - 6900 - LV - 260 - SER. # DX 2-EA REGULATOR - GE - 1C-7932 - CAT - O55O2XO798701 - Elem - 228B9856 - ASM - 228B9864 - Outl. - 228B9852 2-EA GENERATOR 1-EA OVERHEAD CRANE - Ederer - 40-ton BATTERY ROOM 1 -EA UPS - Best Power Systems 1-EA EXTERNAL BYPASS SW - Best - BYE1OO-MBB-1 - Volts - 277 - Cont. AMPS - 80 - Max Amps - 100 - 1 Ph 60 Hz 2-EA AIR COMP. MOTOR - Peerless electric Co. - 15 HP - 1450/1750 RPM - 40(degree)C - 3 pH - 208-220/440 Volts - 50/60 Cy - 38/19 Amps - Frame - P326 - SER. #LD11287 (#2) - SER. #LD12306 (#2) 2 EA BATTERY CHARGER -Exide -Model SCRF 130-3-100L -Input volts - 480 AC -Input Amps-28 -pH 3 60 Hz -DC Amps 100 DC Volts 130 -Cell No. 60 -Type Cell - Lead -(A) SER. # 85256-1/7150-1 MG -(B) SER. # 85256-1/7150-2 MG 60-EA BATTERIES - Exide - Norm.Cap. - 320 Amp HR - CAT # 74431 1 -EA WATER STILL -Barnstead -SER. # 54839 -PH 1 -Volts 110 -Amps 12 -Watts 1300 -60 Cy -Cap. Gal./Hr - 1/2 -Mfg. Cat. No. EL 1/2 OIL ROOM l-EA OIL PUMP MOTOR -GE -Model SK225D70 -HP 3 -Type K -Code J -Fr. 225 -PH 3 -Volts 220/440 -60 Cy -FL Amps 8.45/4.23 -FL Speed 1725 -#ZK17054 GOVERNOR CABINET 2-EA INDUCTION MOTOR - Fairbank Morse - 10 HP - 3 PH - 60 Cy - 220/440 Volts - 28/14 Amps - S.F. 1.15 - Code G - Type QZK- FR RS326 - # F208018 (U-1) - # F208019 (U-2) TURBINE ROOM 2-EA AC LUBE OIL PUMP MOTOR -BROWN & SHARPE MFG. CO. -3 PH 60 cy -Type PA -FR: H56SP -HP 1/2 -Volts - 208-220/440 -Amps - l.6/.8 - RPM - 1725/1425 - SER. # CZ4726 (U-1) - SER. # AS9225 (U-2) - SER. # AS9213 (Spare) 2-EA DC LUBE OIL PUMP MOTOR - Brown & Sharpe Mfg . Co. - Type - DM - FR: HJ6SSP - HP- 112 - Volts 125 - AMPS 4.1 - RPM 1725 - SER. # AW2985 (U-2) - SER. # AW2986 (U-1) - SER. # DP5299 (Spare) 2-EA GROUNDING TRANSFORMER JET PUMP ROOM 2-EA LIMITORQUE - Limitorque Corp. - SMC - 041 - Order # 10967501 - Duty - 5 min. -SER. # M058356 (U-2) -SER. # M058357 (U-1) 2-EA DC MOTOR - RELIANCE -Type - T -HP - 33 -Arm. volts - 125 -AMPS - 3.6 -Field volts - 125 - AMP - .4- FR - FY56 - RPM - 1900 - Duty - 5 min - ID # W7800783M-RN (U-1) - ID # W7800783M-RN (U-2) WATER ROOM 1-EA FIRE WATER PUMP MOTOR - Fairbanks Morse - HP 30 - 3-ph - 60 cy - RPM - 3505 - Volts - 220/440 - AMPS - 72/36 - sf - l.l5 - Code - F- Type - Q2K - FR - RW3645 - SER. # F230825 CONTROL ROOM 3-EA AIR CIRCUIT BREAKER -Roller-Smith - Type - RS25A - Volts - 600 - 60 Cy - Frame - 600 AMPS - Int. AMP - 25,000 - Overload AMP - 400 AMP - SER. # 39165 Al (022) - SER. # 39165 A2 (033) - SER. # 39165 B1 (012) BUTTERFLY CONTROL CABINETS 2-EA PUMP MOTOR - Reliance Electric - Type - ML - FR - 284 - HP - 5 - RMP - 1200 - Volts - 230/460 - AMPS - 26/8 - SER. # 85707 (U-2) - SER. # 8S706 (U-1) TURBINE ROOM 2-EA JACKING PUMP MOTOR - Oerlikon - RPM - 645 - Volts - 460 - HP - 1.8 - 3 PH - SER. # 878000L01.2 (U-2) - SER. # 878000L01.l (U-1) SWITCHYARD 2-EA TRANSFORMERS - Hevi-Duty Electric - KVA 20000 - Class 0A - Rise 65(degree)C - KVA 25000 Class FA - Rise 65(degree)C - HVV - 115000 GRD Y - LV - 6600 DELTA -3 PH -Impedance 10.74 cy at 20000 kVA -YR. of MFG - 1995 - SER. # GM 931037 (KW2A) - SER. # GM 931036 (KW1A) MACHINE SHOP l-EA TRANSFORMER - Dry Type - 3 PH - High Voltage - 480 - Low Voltage - 208y/l20 - 60 Hz - CRT #223-3234 - kVA - 75 - SER. # J8201-A ROOF 2-EA POWER CIRCUIT BREAKERS - ABB - Type - 121 PA 40-12B - Max Volts - 121 kV - Short Circuit Current - 40KA - Freq - 60 Hz - Cont. Current - 1200 AMPS - Interrupting Time - 3 cy - SER. # 000901-02 (462) - SER. # 000901-01 (362) Item APA Number Item Description Serial No. QTY Location Condition Number - ----------------------------------------------------------------------------------------------------------------------------------- 1 Metal Desks 2 ea Bob's Office Fair N/A 2 Chairs 3 ea Bob's Office Worn N/A 3 Van Seat 1 ea Bob's Office N/A N/A 4 File Cabinet 1 ea Bob's Office Fair N/A 5 Metal Desks 2 ea Bill's Office Fair N/A 6 Storage Cabinets 1 ea Bill's Office Fair N/A 7 Tables 2 ea Control Room Good N/A 8 Chairs 2 ea Control Room Good N/A 9 Metal Desk 1 ea Control Room Good N/A 10 File Cabinet 2 ea Control Room Fair N/A 11 Storage Cabinet 1 ea Control Room Fair N/A 12 Storage Cabinet 3 ea Transformer Room Fair N/A 13 File Cabinet 5 ea Transformer Room Fair N/A 14 Shelf Units 4 ea Transformer Room Fair N/A 15 Blueprint Storage Cabinets 5 ea Transformer Room Fair N/A 16 Tables 2 ea Transformer Room Fair N/A 17 Roll-out Storage Unit 1 ea Transformer Room Fair N/A 18 Metal Desk 1 ea Transformer Room Fair N/A 19 Blueprint Storage Rack 1 ea Transformer Room Good N/A 20 Stool 1 ea Transformer Room Fair N/A 21 Roll-out Stand 1 ea Transformer Room Fair N/A 22 Shelving Units 2 ea Powerhouse Basement Fair N/A 23 Chair 1 ea Powerhouse Governor Level Fair N/A 24 Work Bench 1 ea Powerhouse Governor Level Poor N/A 25 Storage Cabinet 1 ea Powerhouse Governor Level Fair N/A 26 Shelf Unit 1 ea Powerhouse Governor Level Fair N/A 27 Locker 1 ea Powerhouse Governor Level Fair N/A 28 Locker 14 ea Powerhouse High Bay Fair N/A 29 Storage Cabinet 1 ea Powerhouse High Bay Fair N/A 30 Display Cabinet 1 ea Vestibule Good N/A 31 Work Bench 1 ea Machine Shop Poor N/A 32 Multiple Drawer Storage 4 ea Machine Shop Fair N/A 33 Storage Cabinets 4 ea Machine Shop Fair N/A 34 Storage Bins 1 ea Machine Shop Fair N/A 35 Flammable Storage Cabinets 2 ea Machine Shop Good N/A 36 File Cabinets 13 ea Office Good N/A 37 Storage Cabinets 2 ea Office Good N/A 38 Blueprint Storage Cabinets 10 ea Office Good N/A 39 Bookcases 9 ea Office Good N/A 40 Roll-out Shelf Unit 1 ea Office Good N/A 41 Tables 9 ea Office Good N/A 42 Metal Desks 3 ea Office Good N/A 43 Crendenza 1 ea Office Good N/A 44 Telephone tables 2 ea Office Fair N/A 45 Television Stand 1 ea Office Good N/A 46 Computer Center 1 ea Office Good N/A 47 Shelf Unit 1 ea Office Good N/A 48 Work Bench 1 ea Office Poor N/A 49 Stool 1 ea Office Fair N/A 50 Step Stool 1 ea Office Fair N/A 51 Safe 1 ea Office Fair N/A 52 Chairs 14 ea Office Fair N/A 53 Metal Desk 1 ea Garage Fair N/A 54 Bookcases 1 ea Garage Fair N/A 55 Chair 1 ea Garage Fair N/A 56 Fie Cabinet 1 ea Garage Fair N/A 57 Flammable Storage Cabinet 1 ea Garage Good N/A 58 Work Bench 1 ea Garage Poor N/A 59 Multiple Drawer Storage Cabinet 3 ea Garage Fair N/A 60 Shelving Units 4 ea Garage Fair N/A 61 Storage Cabinet 1 ea Garage Fair N/A 62 Metal Shelving Units 60 ea Warehouse Fair N/A 63 Metal circular Shelf Bin 1 ea Warehouse Fair N/A 64 Storage Cabinet 1 ea Warehouse Fair N/A 65 Flammable Storage Cabinet 2 ea Warehouse Fair N/A 66 Tables 4 ea Warehouse Fair N/A 67 Drafting Tables 2 ea Warehouse Fair N/A 66 File Cabinet 1 ea Warehouse Good N/A 69 Chairs 3 ea Warehouse Fair N/A 70 Metal Desks 1 ea Warehouse Fair N/A 71 Wood Storage Bin Unit 2 ea Warehouse Fair N/A 72 N/A 73 Zenith 386-25 Computer ZBV-3629-GK 1 ea Office Good 83 74 IBM 286 Computer 5170 1 ea Warehouse Poor N/A 75 ADS 486 DX66 9405133001 1 ea Office Good 339 76 IBM 8088 5150 1 ea Warehouse Good 310 77 Zenith 386- Lap Top ZTC3034-MO 1 ea Office Good N/A 78 COMPUADD 386 516403 1 ea Office Good 254 79 Zenith ZCM-1490-Z 941NCO368NOM 1 ea Warehouse Good N/A 80 Zenith ZCM- I 490-Z 944ND0164NOM 1 ea Warehouse Good N/A 81 ADS RE 1450 US9405133002 1 ea Office Good N/A 82 IBM 478117 1 ea Warehouse Good N/A 83 Okidata 93 DM Printer 10333294 1 ea Office Good 311 84 Epson FX1050 Printer OE11020765 1 ea Warehouse Good N/A 85 Citizen Premier 35 Printer 6XI25215 1 ea Warehouse Good 308 86 HP LazerJet IIIP FANB327377 1 ea Office Good 179
The following is an inventory of Chugach owned equipment at the Anchorage Substation: - - One (1) 115kV circuit breaker, Westinghouse Breaker #2400 - - Four (4) 115kV capacitor voltage transformers, Trench Electric Each transformer is mounted on a steel support structure CEA #'s PT 125 PT 126 PT 127 PT 128 - - Two (2) 115kV disconnect switches, Royal/Powerdyne Mounted on wood pole structure Switch #'s S2901 and S2801 - - Three guyed poles terminating 115kV line from University Substation - - Three guyed poles terminating 115kV line from Eklutna Power Plant - - Satellite receiver antenna, Truetime Mounted on wood pole adjacent control building The following equipment is located inside the control building: - - One (1) RTU cabinet - - One (1) slip-link cabinet - - One (1) Relay panel containing relays, switches, meters, and satellite clock receiver Relay panel designation: "CEA 115kV Line to University" - - One (1) AC distribution panel and meterbase with meter Panel designation: Panel DHD PAGE 2 OF 2 Chugach also owns the following equipment at the Eklutna Generation Plant: - - One (1) Harris-Westronic D-20 SCADA Remote Terminal Unit (RTU) and a slip link cabinet mounted on the adjacent wall. This equipment is located downstairs below the control room in approximate vicinity of the State of Alaska microwave equipment. Sincerely, Concur: /s/ Jim K. Topolski Jim K. Topolski /s/ Michael V. Dillon Manager, Land Services Michael V. Dillon General Foreman, APA April 1, 1996 Mr. Jim Hall, Projects Manager P.O. Box 2929 Palmer, AK 99645 Dear Jim: The following is the result of our area inventory on March 28, 1996: On this date Jim Hall, Matanuska Electric Association (MEA) and Michael V. Dillon, Alaska Power Administration (APA) toured the listed facilities. Ownership of various equipment at these facilities was established and mutually agreed upon. In some cases it is better to indicate by exception the equipment owned by one or the other organization. PALMER SUBSTATION All APA owned except: Breaker B627 - MEA Station Service Transformer 3237 - MEA DOW TAP Disconnect Switch #365 - APA Disconnect Switch #371 - MEA EKLUTNA POWER PLANT All APA except: RTU - MEA 4 ea 833 kVA Single Phase 6600-7200 Transformers- MEA 3 installed (Camp Line) - MEA 1 Spare - MEA REED SUBSTATION All MEA except: High Side Dead End - APA 781 Disc SW - APA 760 GND SW - APA 115 kV Fuses - APA Property and fence - APA PIPPLE TAP MEA - RTU house and all contents including the DC supply for the switch motor operators Take Off Structure APA - 561 Disc SW 560 GND SW 571 Disc SW 570 GND SW Motor Operators for 561 and 571 Dead End Structures Property and fence BRIGGS TAP All MEA except: 1271 Disc SW less motor operator- APA 1261 Disc SW manual Op only- APA Property and fence- APA CEA: Power Pot 115 kV 50 kVA Sincerely, /s/ Michael V. Dillon Michael V. Dillon General Foreman cc: Nick French, APA Tim McConnell, AML&P CONCUR: CONCUR: /s/ Michael V. Dillon 4-1-96 /s/ James D. Hall 4-1-96 Michael V. Dillon Date Jim Hall Date General Foreman Projects Manager ML&P Inventory of Property at Eklutna April 24, 1996 ANCHORAGE SUBSTATION YARD: o Two (2) pilot wire protection cabinets, Lloyd Controls o One (1) three-phase 115 kV oil circuit breaker, type V,Allis Chalmers, Breaker #1162 o One (1) Switching structure and attached switches and insulators o Switches One (1) ABS 1163 One (1) ABS 1161 One (1) GND Switch 1160 One (1) By Pass Switch 1169 o Three (3) Potential transformers, three-phase, low side o Six (6) line poles (dead end) and insulators ANCHORAGE SUBSTATION CONTROL BUILDING: o One (1) Center panel left side Quantum Watt Hour Meter #84878233, KVA & KVAR inand-out o Center panel right side ML&P Three (3) Amp Meter Two (2) Volt Meter One (1) Synch Scope and Control Switches o ML&P RTU relays for APA South line: Two (2) phase zone timers One (1) KD11 (phase-to-ground) ANCHORAGE SUBSTATION CONTROL BUILDING (continued): o Panel 6R: Relays for APA south line: Two (2) phase zone timers One (1) Inst. overcurrent relay One (1) pilot wire relay o Panel 9R: Two (2) Timers One (1) Instantaneous fault Detection Three (3) Synch Check Relays One (1) Pilot Wire Relay One (1) KD 10 relay Two (2) Phase zone timers One (1) Instantaneous fault detector Three (3) Synch check relays o Back Wall One (1) 19" Rack One (1) Granger Radio Equipment o One (1) ML&P Padmounted Transformer #5217 7200V/120/240V o One (1) ML&P Station Service Meter Miscellaneous Antennas on pole adjacent to control building EKLUTNA PLANT: o One (1) ML&P RTU o Dunstan Controller and computer equipment for AGC/SCADA As inventoried on April 24, 1996, by: /s/ Tim McConnell /s/ Michael V. Dillon Timothy F. McConnell Michael V. Dillon Manager, Power Management, ML&P Eklutna General Foreman, APA EXHIBIT E Eklutna Purchasers Manner of Acting, Functional Responsibilities, and Staffing PREAMBLE: The following is the general delineation of responsibilities for the Eklutna Project under ownership and operation of the Eklutna Purchasers and will provide for efficient management during normal and contingency operation. The Eklutna Purchasers expect these responsibilities will normally be carried out by the utility so assigned in this Exhibit F. Any Purchaser desiring to contract out or transfer between Eklutna Purchasers the performance of its responsibilities as designated in this Exhibit E shall first obtain approval for the change from APA and an operating committee (herein later defined as the Eklutna Operating Committee) which will be established prior to the Transition Date. The Parties intend to execute detailed transition agreements prior to the Transition Date. (A) Manner of Acting. (1) Transition Period. A transition period commencing on the Transition Date and concluding on the Transaction Date is anticipated to enable the Eklutna Purchasers to become familiar with the skills and work load necessary for prudent operation of the Eklutna Project. During that time, the current staff, now employed by APA, who may be offered employment by the Eklutna Purchasers and who may accept such offers will serve in the capacities described below, and the costs associated with their work on the Eklutna Project shall be paid by the Eklutna Purchasers in proportion to their respective Eklutna Project shares. Should those offered employment choose not to remain, their function(s) shall continue to be performed by the Purchasing Utility(s) responsible for those functions as that Utility determines and with the approval of the Eklutna Operating Committee (EOC). (2) Post Transaction Date Period. The Eklutna Purchasers agree that unless modified by the double majority voting provisions set forth in Section (A)(3) below, division of responsibilities set forth in this Exhibit E will form the basis for operations subsequent to the Transaction Date. (3) Eklutna Operating Committee (EOC). The EOC consisting of one representative from each of CEA, MEA, and ML&P shall be formed for the management of the Eklutna Project. The EOC shall manage the Eklutna Project as authorized by APA and as agreed to by the Parties, commencing on the Transition Date. The EOC shall meet at least quarterly or more often at the request of any member with the first meeting to be held not later than June 30, 1996. The Chairman of the EOC shall be the ML&P representative until the end of the calendar year 1997. The Chairmanship thereafter shall rotate among the Eklutna Purchasers at the first meeting of each calendar year in the following order: CEA, MEA, and ML&P. Decisions of the EOC will be by double majority (a vote of two of the three Eklutna Purchasers whose shares total at least 51% of the Eklutna Project shares) unless otherwise agreed to by the Eklutna Purchasers in the Ownership and Operating Agreement to be executed by and among the Eklutna Purchasers not later than one year prior to the Transaction Date or at such time as otherwise agreed to by the Eklutna Purchasers. During the Transition Period, decisions by the EOC will be advisory in nature to APA unless specific authority is granted to the EOC by APA under mutually agreeable terms. (4) Responsibilities of the EOC. Responsibilities of the EOC shall include: (a) Prompt and Effective Oversight.The prompt and effective attention of the EOC shall be given to major maintenance and operating concerns or other conditions interfering with the safe and efficient operation of the Eklutna Project. (b) The EOC shall ensure preparation of: (i) An Eklutna Project Budget; (ii)An Eklutna Project Status Report for distribution to each Eklutna Purchaser (and to APA prior to the Transaction Date) that will include monthly summaries, by each Eklutna Purchaser, of Eklutna Project energy, capacity, and wheeling schedules (to include losses and inadvertent power flows); (iii) A monthly revenue report; (iv)Reliability and scheduling occurrences causing significant power quality or scheduling deviations to the Eklutna Purchasers; (v) Status report of EOC action items; (vi)An annual energy allocation for each of the EklutnaPurchasers prior to each water year; and (vii) Notification of any known limiting factors through the following quarter that would constrain any capacity or energy (including any transmission constraints). (B) Functional Responsibilities. Duties and responsibilities may be revised and clarified under the terms of the Ownership and Operating Agreement to be executed prior to the Transaction Date or by action of the EOC. The functional responsibilities for the administration, operation, and maintenance of the Eklutna Project are as follows: (1) Operation of the Eklutna Plant and Switchyard. MEA will operate the Eklutna Plant and Switchyard. CEA and ML&P will provide advice and assistance to MEA as requested by MEA or the EOC. The operator's duties, to the extent authorized by the Eklutna Project operating budget or as otherwise funded shall include: (a) Providing on-site personnel as required to meet the needs of the Eklutna Project as determined by the EOC and the Eklutna Project operating budget; (b) Bringing to the attention of the Eklutna Project Maintenance Superintendent or the EOC required Eklutna Project work essential to the safe and prudent operation of the Plant and Switchyard; and (c) Coordinating the daily activities pursuant to these responsibilities with the ML&P Dispatch Center. The ML&P Dispatch Center shall have supervisory control over all switching functions and generator loading. (2) Maintenance of the Eklutna Plant and Switchyard. ML&P will maintain the Plant and Switchyard. ML&P's general duties, to the extent authorized by the Eklutna Project operating budget or as otherwise funded shall include: (a) Maintaining the Plant and Switchyard, including SCADA and communication equipment, to meet the needs of the Eklutna Purchasers as determined by the EOC and the Eklutna operating budget; and (b) Providing a qualified and designated Eklutna Project Maintenance Superintendent who shall be responsible for: (i) Developing a daily maintenance schedule for the Eklutna Plant in coordination with the operating utility's management, and as approved by the EOC; (ii)Developing and implementing the preventive maintenance plans for the Eklutna Project as approved by APA and the EOC; and (iii)Overseeing, on behalf of the EOC, all Eklutna Project maintenance in progress, with authority to suspend or modify such work as required to comply with the schedules and plans approved by APA and the EOC; (iv)Bringing to the attention of the EOC required Eklutna Project work essential to the safe and prudent operation and maintenance of the Plant and Switchyard and performing or causing to be performed such required Eklutna Project work; (v) Preparation of preliminary annual budget estimates for the Eklutna Project for submittal to MEA; and (vi)Other Eklutna Project duties as assigned by ML&P pursuant to the above responsibilities, and with the concurrence of the EOC. (3) Dispatch of the Eklutna Project. ML&P will dispatch the Eklutna Project. ML&P's general duties, to the extent authorized by the Eklutna Project operating budget or as otherwise funded shall include: (a) Scheduling and dispatching plant capacity and energy to meet the needs of the Eklutna Purchasers in accordance with procedures established by the EOC, and under the ML&P automatic generation control (AGC) system. This will include the collection of SCADA data and other information sufficient to record all wheeling over Eklutna Project transmission lines; and (b) Directing and controlling all switching, tagging and clearance activities for the Eklutna Project; and (c) Honoring each Eklutna Purchaser's scheduling requests to the extent possible within the operating guidelines established by the EOC. (4) Transmission Line and Substation Operation, Maintenance, and Repair. (a) Facilities. As directed by the EOC and within the limitations of the Eklutna Project operating budget, CEA, ML&P, and MEA will be responsible for the operation, maintenance, and repair of the transmission segments and substations as follows: (i) CEA--for the dual circuits on steel towers from Fossil Creek to the tap behind the Totem Theater in accordance with its May 1, 1980, agreement with APA; (ii)ML&P--for the tap and lines from the above CEA maintained circuit to the Anchorage Substation, and the Anchorage Substation; and (iii) MEA--for all remaining Eklutna Project transmission lines, the Palmer and Reed Substations, and the Wasilla radio relay site. (iv)All costs for construction, operation, or maintenance of taps and facilities owned individually by ML&P, CEA, and MEA will be borne by that respective utility and not considered an Eklutna Project cost. (b) Maintenance Activities. Transmission line and substation maintenance shall be performed in accordance with the plans approved by the EOC. As directed by the EOC and within the limitations of the Eklutna Project operating budget, the daily activities pursuant to these responsibilities shall be coordinated with the Eklutna Project Dispatcher in accordance with procedures approved by the EOC. General duties, to the extent authorized by the Eklutna Project operating budget or as otherwise funded shall include: (i) Maintaining Eklutna Project transmission lines and Eklutna Project substations so as to meet the needs of the Eklutna Purchasers; and (ii)Bringing to the attention of the EOC required Eklutna Project work essential to the safe and prudent operation and maintenance of the Eklutna Project transmission lines and Eklutna Project substation equipment, and performing or causing to be performed such required Eklutna Project work to the extent existing obligations require or funds are made available for such work. (5) Dam Maintenance and Inspections. As directed by the EOC and within the limitations of the Eklutna Project operating budget, CEA is responsible for advising the EOC on dam and waterway maintenance to include penstock, tailrace, and embankments, for ensuring required safety inspections are completed as may be prudent or required, and for bringing to the attention of the EOC such required Eklutna Project work on and along the waterways necessary to ensure safe and efficient operation of the Eklutna Project. The daily activities pursuant to these responsibilities shall be coordinated with the Eklutna Project Maintenance Superintendent and the Eklutna Project Dispatcher. (6) Environmental Regulatory Compliance. CEA is responsible for advising the EOC on required procedures, inspections, and other actions required to ensure compliance with environmental mandates. General duties shall include periodic inspection of Eklutna Project related operations and review and coordination with APA of Eklutna Project environmental requirements. (7) Fleet Maintenance. MEA has the responsibility for fleet maintenance, and shall take title to the titled vehicles subject to the rights of the other Eklutna Purchasers on the Transaction Date. The daily activities pursuant to these responsibilities shall be coordinated with the Eklutna Project Maintenance Superintendent. (8) Annual Budgeting, Billing, and Accounting. MEA will prepare the annual budget estimates; customary financial reports; billings for Eklutna Project Power, wheeling, and other benefits; other reports now being accomplished by the APA administrative staff at the Eklutna Plant; and other tasks as may be requested by the EOC. The Eklutna Project Maintenance Superintendent will provide preliminary Eklutna Project cost estimates for the annual budget to MEA to begin the annual budget process. MEA will also be responsible for billing the Eklutna Purchasers for all advanced costs and for payment of same, subject to cash management procedures established by the EOC. Each utility shall submit its requested reimbursement items to MEA for payment on a monthly basis. During the transition period, APA will calculate billing per the Power Sales Contract, and will submit a single combined monthly bill to the Eklutna Purchasers. (9) Purchasing. Individual Eklutna Project invoices for tools, equipment, supplies, and contract services up to $2,000 may be approved by each utility pursuant to its responsibilities as described herein, but may not exceed a quarterly limit as prescribed by the EOC in its annual operating budget. All contracts or payment of invoices for more than $2,000 will normally require EOC approval, but this is not intended to constrain or delay necessary purchases to meet an emergency. (10) Right-of-Way Authority. Right-of-way authority for third party requests will remain the responsibility of APA until such time as it is transferred to the Eklutna Purchasers. (C) Staffing. Beginning on the Transition Date, the Eklutna Purchasers anticipate the following APA employees shall, effective on the Transition Date, become employees of the utilities as follows. Planned Eklutna Project Staff Assignments For The Transition Period: Mike Dillon Eklutna Project Maintenance Superintendent to ML&P Amerilis Foster Administrative Assistant to MEA Bill Murphy Maintenance Mechanic to MEA Bob Plumley Plant Mechanic to MEA John Rivera Plant Electrician to MEA Terms and conditions of employment shall be developed as soon as practicable to enable a smooth transition to operation of the Eklutna Project by the Eklutna Purchasers. EX-27 4 FDS -- 12/31/96 10-K CHUGACH ELECTRIC ASSOCIATION
5 12-MOS DEC-31-1996 JAN-1-1996 DEC-31-1996 7,597,751 0 15,736,968 (367,085) 16,187,592 40,233,095 635,291,017 (215,411,223) 483,294,976 37,492,940 307,905,847 0 0 0 104,477,942 483,294,976 $134,876,668 $134,876,668 0 100,913,804 0 0 25,349,050 9,831,371 0 9,831,371 0 0 0 9,831,371 0 0
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