-----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, IWaLZf+ujb6McK8CsPWCq9zJblQXJt9EECA25xrcrPyitjy4IIPReAgA2K1Y0zh8 Nt1NGZZOhiu4qIxoysJ+7Q== 0000878004-99-000012.txt : 19990518 0000878004-99-000012.hdr.sgml : 19990518 ACCESSION NUMBER: 0000878004-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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-Q SEC ACT: SEC FILE NUMBER: 033-42125 FILM NUMBER: 99626034 BUSINESS ADDRESS: STREET 1: 5601 MINNESOTA DR STREET 2: PO BOX 196300 CITY: ANCHORAGE STATE: AK ZIP: 99518 BUSINESS PHONE: 9075637494 10-Q 1 FORM 10-Q CHUGACH ELECTRIC ASSOCIATION FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 ---------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 of (I.R.S. Employer incorporation or organization) Identification No.) 5601 Minnesota Drive Anchorage, Alaska 99518 (Address of principal executive offices) (Zip Code) (907) 563-7494 (Registrant's telephone number, including area code) None (Former name,former address and former fiscal year,if changed since last report) 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. Yes X . No . APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT MAY 1, 1999 NONE NONE CHUGACH ELECTRIC ASSOCIATION, INC. INDEX Page Number CAUTION REGARDING FORWARD-LOOKING STATEMENTS 3 PART I FINANCIAL INFORMATION Item 1. Financial Statements 3 Balance Sheets, March 31, 1999 (Unaudited) and December 31, 1998 4 Statements of Revenues, Expenses and Patronage Capital, Three Months Ended March 31, 1999 and 1998 (Unaudited) 6 Statements of Cash Flows, Three Months Ended March 31, 1999 and 1998 (Unaudited) 7 Notes to Financial Statements (Unaudited) 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (Unaudited) 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and reports on Form 8-K 20 Signatures 21 Exhibits 22 2 CAUTION REGARDING FORWARD-LOOKING STATEMENTS Statements in this report that do not relate to historical facts, including statements relating to future plans, events or performance, are forward-looking statements that involve risks and uncertainties. Actual results, events or performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, that speak only as of the date of this report and the accuracy of which is subject to inherent uncertainty. Chugach Electric Association, Inc. (Chugach or the Association) undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances that may occur after the date of this report or the affect of those events or circumstances on any of the forward-looking statements contained in this report. PART I FINANCIAL INFORMATION Item 1. Financial Statements The unaudited financial statements of Chugach for the quarter ended March 31, 1999 follow: 3 CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets Assets March 31, 1999 December 31, 1998 -------------- ----------------- (Unaudited) Utility plant: Electric plant in service $ 622,256,622 $ 620,216,818 Construction work in progress 24,875,332 30,405,736 ------------ ------------ 647,131,954 650,622,554 Less accumulated depreciation 233,153,441 233,981,397 ------------ ------------ Net utility plant 413,978,513 416,641,157 ------------ ------------ Other property and investments, at cost: Nonutility property 3,550 3,550 Investments in associated organizations8,357,281 8,356,364 ------------ ------------ 8,360,831 8,359,914 ------------ ------------ Current assets: Cash and cash equivalents 7,748,553 2,312,574 Cash - restricted construction fund286,669 177,366 Special deposits 121,163 121,164 Accounts receivable, net 12,881,051 17,243,266 Materials and supplies, at avera17,121,734 15,963,434 Prepayments 1,230,842 917,381 Other current assets 456,003 349,030 ------------- ------------- Total current assets39,846,015 37,084,215 ------------ ------------ Deferred charges 22,740,024 19,006,164 ------------ ------------ $ 484,925,383 $ 481,091,450 ------------ ------------
See accompanying notes to unaudited financial statements. 4 CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets Liabilities and Equities March 31, 1999 December 31, 1998 -------------- ----------------- (Unaudited) Equities and margins: Memberships $ 921,963 $ 911,253 Patronage capital 116,435,644 109,622,996 Other 3,774,162 3,489,047 ------------ ------------- 121,131,769 114,023,296 ------------ ------------ Long-term obligations, excluding current installments: First mortgage bonds payable 194,139,000 235,101,000 National Bank for Cooperatives bonds payable 113,167,339 70,816,699 ------------ ------------ 307,306,339 305,917,699 ------------ ------------ Current liabilities: Notes payable 7,500,000 - Current installments of long-term d6,359,323 6,088,802 Accounts payable 6,744,992 8,838,757 Consumer deposits 1,016,138 993,616 Accrued interest 1,335,065 6,722,325 Salaries, wages and benefits 3,640,910 3,755,837 Fuel 4,610,575 5,362,713 Other 750,780 1,318,947 ------------- ------------ Total current liabilities 31,957,783 33,080,997 ------------ ------------ Deferred credits 24,529,492 28,069,458 ------------ ------------ $ 484,925,383 $ 481,091,450 ------------ ------------
See accompanying notes to unaudited financial statements. 5 CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Revenues, Expenses and Patronage Capital Three months ended March 31 1999 1998 ---- ---- (Unaudited) Operating revenues $ 39,424,237 $ 39,024,214 ------------ ------------ Operating expenses: Production 10,763,127 11,845,378 Purchased power 1,868,522 2,237,195 Transmission 672,493 620,854 Distribution 2,014,368 2,162,668 Consumer accounts 1,028,746 988,879 Sales expense 347,238 99,358 Administrative, general and other 4,755,495 3,844,636 Depreciation and amortization 5,171,884 5,722,186 ------------ ------------ Total operating expenses 26,621,873 27,521,154 ------------ ------------ Interest: On long-term debt 5,925,943 6,379,258 Other 210,070 26,447 Charged to construction - credit (4,605) (179,765) ------------- ------------ Net interest expense 6,131,408 6,225,940 ------------ ------------ Net operating margins 6,670,956 5,277,120 ------------ ------------ Nonoperating margins: Interest income 146,350 185,344 Other 8,985 299,005 ------------- ------------ Total nonoperating margins 155,335 484,349 ------------ ------------ Assignable margins 6,826,291 5,761,469 Patronage capital at beginning of per109,622,996 104,800,092 Retirement of capital credits and estate payments (13,643) (31,917) ------------- ------------- Patronage capital at end of period $ 116,435,644 $ 110,529,644 ------------ ------------
See accompanying notes to unaudited financial statements. 6 CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Cash Flows Three months ended March 31 1999 1998 ---- ---- (Unaudited) Cash flows from operating activities: Assignable margins $ 6,826,291 $ 5,761,469 ------------ ------------ Adjustments to reconcile assignable margins to net cash provided (used) by operating activities: Depreciation and amortization 5,171,884 5,722,186 Changes in assets and liabilities: (Increase) decrease in assets: Accounts receivable 4,362,215 6,631,691 Prepayments (313,461) (961,577) Materials and supplies (1,158,300) 20,711 Deferred charges (3,733,860) (1,091,769) Other (216,277) (88,962) Increase (decrease) in liabilities: Accounts payable (2,093,765) (2,263,492) Consumer deposits 22,522 (77,532) Accrued interest (5,387,259) (5,550,755) Deferred credits (3,539,965) (334,920) Other (1,435,233) (4,454,169) ------------ ------------ Total adjustments (8,321,499) (2,448,588) ------------- ------------- Net cash provided (used) by operating activities (1,495,208) 3,312,881 Cash flows from investing activities: Extension and replacement of plant (2,509,240) (2,306,289) Investments in associated organizations (917) (139,452) ------------- ------------- Net cash used in investing activities (2,510,157) (2,445,741) ------------- ------------- Cash flows from financing activities: Short-term borrowings, net 7,500,000 8,500,000 Proceeds from long-term debt 42,500,000 - Repayments of long-term debt (40,840,838) (5,780,399) Retirement of patronage capital (13,643) (31,917) Other 295,825 6,196 ------------ ------------- Net cash provided by 9,441,344 2,693,880 ------------ ------------ financing activities Net increase in cash and cash equivalents 5,435,979 3,561,020 Cash and cash equivalents at beginning of period 2,312,574 5,224,529 ----------- ----------- Cash and cash equivalents at end of period $ 7,748,553 $ 8,785,549 ----------- -----------
See accompanying notes to unaudited financial statements. 7 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements March 31, 1999 (Unaudited) 1. Presentation of Financial Information During interim periods, Chugach follows the accounting policies set forth in its audited financial statements included in Form 10-K filed with the Securities and Exchange Commission. Users of interim financial information are encouraged to refer to the footnotes contained in Chugach's Form 10-K when reviewing interim financial results. Management believes that the accompanying interim financial statements reflect all adjustments which are necessary for a fair statement of the results of the interim period presented. All adjustments made in the accompanying interim financial statements are of a normal recurring nature. Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation. 2. Lines of Credit Chugach maintains a line of credit of $35 million with National Bank for Cooperatives (CoBank). The CoBank line of credit expires August 1, 1999 but carries an annual automatic renewal clause. At March 31, 1999 there was no outstanding balance on this line of credit. In addition, the Association has an annual line of credit of $50 million available at the National Rural Utilities Cooperative Finance Corporation (NRUCFC). At March 31, 1999, $7.5 million was outstanding on this line of credit at an interest rate of 5.90%. The NRUCFC line of credit expires October 14, 2002. 3. Change in Accounting Policy Effective January 1998, Chugach changed its accounting policy for depreciation of general plant (excluding buildings, leasehold improvements and vehicles). Under the new vintage group method the assets are amortized over their service lives and retired as a group at the end of the amortization period. The amortization periods were developed as part of the recent depreciation study update. At January 1, 1998, the affected asset group made up 2.8% of Electric Plant in Service. In conjunction with adoption of the new depreciation methodology, Chugach wrote off approximately $19 million of plant considered to be fully depreciated. Depreciation expense for the affected asset groups is estimated to be $700,000 lower annually. Buildings, leasehold improvements and vehicles will continue to be depreciated over their estimated useful lives based on rates developed in periodic depreciation studies. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Reference is made to the information contained under the caption "CAUTION REGARDING FORWARD-LOOKING STATEMENTS" at the beginning of this Report. Reference is also made to the information contained in Item 5 of Part II with respect to the Matanuska Electric Association, Inc. (MEA) proposal. For certain information concerning a Treasury rate-lock transaction entered into by Chugach in March 1999, reference is made to information appearing under the caption "Additional Information Regarding Treasury Rate-Lock" in Item 5 of Part II of this report. RESULTS OF OPERATIONS Current Year Quarter Versus Prior Year Quarter Operating revenues, which include sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues, increased by 1.0% for the quarter ended March 31, 1999 over the same quarter in 1998. The increase in revenues is primarily attributable to higher kWh sales to retail and the three wholesale customer classes. The increase in revenue also was attributable to lower fuel and purchased power costs. Retail and the wholesale demand and energy rates of Homer Electric Association, Inc. (HEA) did not change from the first quarter of 1998 to the same period in 1999. Wholesale demand and energy rates charged to MEA declined 0.20% effective November 1998. Wholesale demand and energy rates charged to Seward declined approximately 15%. In 1998, Chugach and the City of Seward signed a new ten-year power sales agreement. The new power sales agreement, which is currently before the Alaska Public Utilities Commission (APUC) under docket U-98-70, contains a provision that allows Chugach to interrupt Seward at certain times during the year. A hearing was held in March 1999 and a final decision from the APUC is pending. The APUC has already approved the contract on an interim-refundable basis. As a result of this new power sales agreement, revenues derived from sales to Seward will decline about $350,000 annually. Pursuant to a Settlement Agreement with AEG&T/MEA/Homer, Chugach may be required to grant a refund to AEG&T/MEA/Homer retroactive to January 1, 1997 (based on the 1996 test year filing). A provision for wholesale rate refund of approximately $980,000 and $993,000 was recorded at December 31, 1997 and December 1998, respectively, to accommodate certain rate adjustment clauses contained in the Settlement Agreement. Year-to-date March 1999 provisions total approximately $295,000. Determination of the final refund amounts awaits APUC approval of the 1996 test year rate filing, which was filed with the APUC in April 1999. Lower fuel prices were the primary reason for the decrease in production expense for the quarter ended March 31, 1999 compared to the same period in 1998. Purchased power expense 9 was lower for the quarter ended March 31, 1999 compared to the same period in 1998 as a result of a substantial decrease in purchases from Soldotna Unit #1 due to decreased economy energy sales and favorable fuel prices during first quarter 1999 compared to the same period last year. Transmission expenses for quarter ended March 31, 1999 were higher compared to 1998 as a result of a shift in load dispatch labor from a distribution focus in 1998 to a transmission focus in 1999. In addition, the wheeling charge for Eklutna power that had been treated as a production expense in first quarter 1998 was treated as a transmission expense in first quarter 1999. These variances were slightly offset by lower transmission line clearing costs for quarter ended March 31, 1999, compared to the same period last year. Distribution costs were lower in the first quarter of 1999 compared to 1998. This was a result of reduced substation maintenance costs due to the adoption of a reliability-centered maintenance program. Consumer accounts and sales expense increased for the quarter ended March 31, 1999. This was primarily due to increased customer service and advertising costs related to the addition of new business ventures in the first quarter of 1999. Administrative, general and other expenses increased for the three-month period ended March 31, 1999. This increase was substantially due to the costs associated with the unsolicited acquisition proposal by MEA referenced in Item 5 of Part II and the amortization of the costs related to the implementation of Year 2000 (Y2K) compliant financial software that was completed in 1998. Depreciation expense was lower for the quarter ended March 31, 1999 compared to the same period in 1998 due to an adjustment done in the first quarter of 1999 as a result of the unitization of a capital project that was completed in 1997. Interest expense decreased in the current period due to the refinancing of long-term debt during the first quarter of 1999. Other nonoperating margins were lower for the quarter ended March 31, 1999 compared to the same period in 1998. This difference was due to patronage capital credits received from CoBank in the first quarter of 1998. Financial Condition Total assets increased by 0.8% from December 31, 1998 to March 31, 1999. The increase was due primarily to an increase in cash from short-term borrowings and deferred charges. The increase in deferred charges is attributable to refinancing activities associated with the purchase of the Series A 1991 First Mortgage bonds. These increases were partially offset by the retirement of $4.2 million of fully depreciated generation plant in the first quarter. A decline in accounts receivable was caused by the payment of wholesale power bills that were accrued but not paid at December 31, 1998. Notable changes to total liabilities include the decrease in first mortgage bonds resulting from the March bond payment and Chugach's purchase of first mortgage bonds. Offsetting the decrease in first mortgage bonds was the increase in CoBank bonds resulting from the issuance of CoBank 6 in the amount of $42.5 million on March 30, 1999. Accrued interest also decreased due to the March semi-annual bond payment. Liquidity and Capital Resources Chugach has satisfied its operational and capital cash requirements primarily through internally generated funds, an annual $50 million line of credit from NRUCFC and a $35 million line of credit with CoBank. At March 31, 1999, there was no balance outstanding with CoBank; $7.5 10 million was outstanding on the NRUCFC line at March 31, 1999 which carried an interest rate of 5.90%. Capital construction in 1999 is estimated at $33.9 million. At March 31, 1999 approximately $3.78 million has been expended. Capital improvement expenditures are expected to increase in the upcoming second and third quarters as the construction season begins in April and extends into October. In 1998 Chugach negotiated a supplemental indenture (Third Supplemental Indenture of Trust) with CoBank that previously allowed up to $80 million in future bond financing. Chugach finalized an amendment to the Third Supplemental Indenture of Trust (Seventh Supplemental Indenture of Trust) that eliminated the maximum aggregate amount of bonds the Company may issue under the agreement. At March 31, 1999, Chugach had bonds in the amount of $113.6 million outstanding under this financing arrangement. The balance is comprised of a $1.01 million bond (CoBank 1) which carries an interest rate of 8.95% maturing in 2002, a $10 million bond (CoBank 2) priced at 7.76% due in 2005, a $21.5 million bond (CoBank 3), priced at 5.60%, a $23.5 million bond (CoBank 4) priced at 5.60% and a $15 million bond (CoBank 5) priced at 5.60% due in 2002, 2007 and 2012 respectively. On March 30, 1999 a $42.5 million bond (CoBank 6) was issued with a variable interest rate currently priced at 5.65%. CoBank 6 matures March 15, 2002. Principal payments on the CoBank 3 and 4 bonds commence in 2003 and continue through 2022. Additionally, Chugach has negotiated a similar supplemental indenture (Fifth Supplemental Indenture of Trust) with NRUCFC for $80 million. At March 31, 1999 there were no amounts outstanding under this financing arrangement. Chugach management continues to expect that cash flows from operations and external funding sources will be sufficient to cover operational and capital funding requirements in 1999 and thereafter. YEAR 2000 Readiness Information Chugach has recognized the need to investigate, test and remediate, if necessary, the critical systems and equipment under its control which could cause power and business disruptions in conjunction with what are collectively called Y2K dates. Chugach has an active program underway that should be completed by the summer of 1999. Chugach expects to fund its Y2K project internally and estimates it will incur between $9 and $11 million of incremental costs through March 1, 2000, associated with making the necessary modifications identified to date to applications and embedded devices. This projection includes contingencies and replacement systems that may be required. Chugach has incurred costs of approximately $8.8 million for Y2K projects through March 31, 1999, all of which has been capitalized. Chugach's Y2K Project is divided into three primary phases. The first phase is "inventory and assessment" during which applications (both internally developed and vendor supplied) and devices (in the generation plants, substations, telecommunications and facilities) are identified 11 and criticality to the business is determined. The second phase, "testing and remediation" occurs during the replacement or remediation of the systems and/or devices. The final phase is "contingency planning" during which specific backup plans will be developed for all "mission-critical" applications, devices and systems. Chugach is also participating in the Y2K activities of several organizations including the North American Electric Reliability Council (NERC), Electric Power Research Institute (EPRI) and the National Rural Electric Cooperative Association (NRECA) who are developing a network to verify the risks and costs nationally, in the State and at Chugach. Chugach's Y2K readiness program is divided along functional lines (real time and business systems) and each area is at a different point of completion. System testing at Chugach's four power plants is underway and will be complete by June 1999. In the transmission and distribution area, inventory and assessment activities are underway for the Supervisory and Control and Data Acquisition (SCADA) system, telecommunication, relaying and system protection assets. Testing and remediation are scheduled to be completed in June, 1999. Testing and remediation is between 73% and 89% complete for each of these systems. Chugach business systems Y2K readiness activities were complete by year-end 1998. General Ledger, Accounts Payable, Payroll, Materials Management, Project Costing and Human Resources subsystems to the Financial Information System were converted by the end of 1998. Additionally, the Customer Billing System was updated to be Year 2000 compliant. The total cost of these conversions was $8.7 million. Remaining, non-critical financial subsystems needing to be converted in 1999 are the Budget Preparation subsystem (to be completed by September 1, 1999) and Fixed Assets system. We are also updating our Work Management subsystems. Finally, all the hardware connected to Chugach's business systems area-wide network have been tested and found to be Y2K ready. The business systems team is currently developing contingency plans in the event of any failure. These plans will be complete by August 1999. The Purchasing Department asked every vendor for a statement regarding their Y2K readiness. All responses were due by the end of April 1999. Review of each individual vendor's response is in progress. If after review, it is determined that the vendor will not be Y2K compliant by year-end, Chugach will determine if it will continue its relationship with that vendor. This task is currently 25% complete. It is Chugach's goal that all Y2K readiness projects be complete by the summer of 1999 and no Chugach customers lose power for an extended time due to a Y2K problem. Based on the progress to date, Chugach believes the goals will be achieved. Contingency planning is in progress and currently 35% complete. The reasonably worst case scenario has not been determined at this time. Although contingency planning is by its nature speculative, the Y2K contingency plan will reduce the risk of material impacts on Chugach's operations due to Y2K problems. 12 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. The most recent studies have focused on mailroom operations, remittance processing, new service connections, system reliability and power production. 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 high reliability while containing the cost of electricity. 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. In 1997, Chugach was able to lower inventory unit costs, increase inventory turns and decrease project cost by furnishing materials to contractors as a direct result of these strategic alliances. Chugach will continue to explore other areas for strategic alliance opportunities. During 1998, Chugach updated its strategic plan. In this plan, priority issues are identified that are critical to the Company's success. Updated key result area targets were developed that track the most important measures of Chugach's performance. Chugach has been active at the State Legislature in support of the customer's right to choose their electric power supplier. Virtually all Alaskan utilities have opposed Chugach's efforts to develop competition and are attempting to create exclusive service territories. At this time no bill relating to customer choice has moved out of legislative committee. Thus, it is not possible to predict the outcome of this legislative process. In 1997 Chugach made organizational changes in preparation for competition. Recognizing that the new marketplace will probably be "unbundled" along the functional lines of generation, transmission and distribution, and retail services, Chugach's organizational structure reflects these functions. Operating with three divisions: Finance and Energy Supply, Transmission and Distribution Network Services, and Retail Services, Chugach has positioned itself to meet competition in the electric industry. Chugach's Marketing Department continues to operate a key account program for larger customers and is developing new services to enhance existing customers' satisfaction. Chugach commenced operation as an internet service provider (ISP) in February 1999. Also in 1999, Chugach began selling spare microwave bandwidth to industrial customers. Chugach has three collective bargaining agreements with the International Brotherhood of Electrical Workers (IBEW) that are currently open for negotiation. Although each of the contracts had an expiration date of January 31, 1998, the parties have agreed that the contracts shall continue in effect until new contracts are put in place. If the parties cannot agree on the terms of new agreements, all outstanding issues will 13 be decided through binding interest arbitration. The IBEW cannot strike and Chugach cannot lockout under the continuing agreement. ENVIRONMENTAL MATTERS Compliance with Environmental Standards Chugach's operations are subject to certain federal, state and local environmental laws that Chugach monitors to ensure compliance. The costs associated with environmental compliance are included as a component of both the operating and capital budget processes. Chugach accrues for costs associated with environmental remediation obligations when such costs are probable and reasonably estimable. Environmental Matters Refer to Part II, Item 1 for an update on the status of the Standard Steel Salvage Yard Site litigation. Item 3. Quantitative and Qualitative Disclosures About Market Risk Chugach is exposed to a variety of risks, including changes in interest rates and changes in commodity prices due to repricing mechanisms inherent in gas supply contracts. In the normal course of its business, Chugach manages its exposure to these risks as described below. Chugach does not engage in trading market risk sensitive instruments for speculative purposes, nor are any derivative instruments outstanding at March 31, 1999. Chugach does not hold or issue derivative financial instruments for trading purposes. Chugach uses derivative financial instruments to manage its exposure to fluctuations in interest rates. Neither the aggregate value of these financial instruments nor the market risk posed by them is material to the Company. Interest rate risk - As of March 31, 1999, except for CoBank 6 which carries a variable interest rate that is periodically repriced, Chugach's outstanding borrowings were at fixed interest rates. The following table provides information regarding cash flows and related weighted average interest rates by expected maturity dates for Chugach's debt obligations (dollars in thousands): Fair 1999 2000 2001 2002 2003 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ----- ------ Long-term debt, including current portion $ 143 $6,372 $6,430 $52,910 $5,907 $241,904 $313,666 $340,895
Commodity price risk - Chugach's gas contracts provide for adjustments to gas prices based on fluctuations of certain commodity prices and indices. Purchased power costs are passed directly to Chugach's wholesale and retail customers through a fuel surcharge, therefore, fluctuations in the price paid for gas pursuant to long-term gas supply contracts does not normally impact margins. The fuel surcharge mechanism mitigates the commodity price risk related to market fluctuations in the price of purchased power. 14 15 PART II OTHER INFORMATION Item 1. Legal Proceedings Standard Steel Salvage Yard Site (the Site) The full investigation and cleanup (remedial action) of the Site was substantially completed as of September 30, 1998. A relatively minor amount of additional Site work and additional reporting will be performed in 1999 to complete the remedial action. Although the costs of the 1999 work as well as the total oversight costs of EPA and other federal agencies are not yet known, Chugach has pre-funded these costs and, based on estimates for 1999, it is not anticipated that Chugach will be required to make any further payments relating to the remedial action at the Site. Four of Chugach's insurance carriers have been paying, under a reservation of rights, Chugach's costs of defense for the Site. By agreement dated May 15, 1998, these four insurance carriers agreed to pay the majority of Chugach's costs relating to the Site, including investigation and remedial action costs, EPA oversight costs and attorneys' fees. This settlement preserves Chugach's potential claim for natural resource damages and is anticipated to result in Chugach paying no more than $500,000 for all Site costs. Management believes that the latter amount would be fully recoverable in rates and therefore would have no impact on Chugach's financial condition or results of operations. Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc. U-98-180 Reference is made to Item 5 (Other Information) with respect to the unsolicited acquisition proposal by MEA. On December 2, 1998, MEA filed a complaint with the APUC. In the Matter of the Formal Complaint filed by MATANUSKA ELECTRIC ASSOCIATION, INC. Against CHUGACH ELECTRIC ASSOCIATION, INC., U-98-180. MEA alleges that Chugach has engaged in "unreasonable management practices" in the management of the Series A Bonds. The complaint asks the APUC to issue an order instituting an investigation into the reasonableness and propriety of the continuing decision of Chugach not to defease such Bonds, which order would include convening a public hearing to take evidence as to whether Chugach's decision not to defease said Bonds constitutes an unreasonable management decision, and awarding MEA such additional relief as the APUC may find just and equitable. Chugach has filed an answer denying the material allegations of MEA's complaint, asserting that its management of the Series A Bonds has been reasonable and sound, and contending that defeasance of such Bonds would not be a prudent course of action. The answer also asserts that the APUC should not open an investigation on the grounds that MEA's allegations do not implicate the kinds of management decision into which it is appropriate for the APUC to inquire. MEA has filed a reply to Chugach's answer, which Chugach has moved to strike on the basis that such reply asserts new claims going beyond the core allegations in the complaint relating to Chugach's decision not to defease the Series A Bonds and relies on new factual allegations not contained in the complaint. Each party has filed additional motions regarding the pleadings of the other party. 16 To date, the APUC has not taken any action in this matter except to convene an informal status conference on April 30, 1999. If the APUC authorizes an investigation, Chugach will vigorously defend its financial management. Because of the preliminary nature of the case, Chugach has not been able to estimate the costs of its participation in the case should the case proceed. Item 2. Changes in Securities and Use of Proceeds Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Additional Information Regarding Treasury Rate-Lock On March 17, 1999, Chugach entered into a Treasury rate-lock transaction with Lehman Brothers Financial Products Inc. (Lehman Brothers) for the purpose of taking advantage of favorable current market interest rates in anticipation of refinancing Chugach's Series A Bonds Due 2022 on their first call date (March 15, 2002). Under the Treasury rate-lock contract, Chugach will receive a lump-sum payment from Lehman Brothers on March 15, 2002, if the yield on 10- or 30-year Treasury bonds as of mid-February, 2002, exceeds a specified target level (5.653% and 5.838%, respectively). Conversely, Chugach will on the same date be required to make a payment to Lehman Brothers. If the yield on the 10- or 30-year Treasury bonds falls below its stated target yield. The amount of the payment will increase as the difference between the actual yield and the target yield increases. For each basis point (0.01% per annum) by which the yield on 10-year or 30-year Treasury bonds deviates from the stated target level, Chugach will receive (if the Treasury yield exceeds the target yield) or make (if the Treasury yield falls short of the target yield) a payment equal to the product obtained by multiplying (i) the amount of deviation (expressed in basis points) by (ii) the changes in the prices of $196 million (in the case of 10-year Treasury bonds) and $18.7 million (in the case of the 30-year Treasury bonds) of Treasury bonds, given a one basis point change in their respective yields (determined with reference to the Bloomberg Financial Market's Government Yield Analysis Page). In this way, Chugach intends that higher interest costs resulting from increases in market interest rates prior to refinancing of Chugach's long-term debt would be mitigated by a lump-sum, up-front payment to Chugach at the time of the refinancing. Unsolicited Acquisition Proposal by Matanuska Electric Association, Inc. In October 1998, MEA, Chugach's largest wholesale customer, presented to the Board of Directors of Chugach (the Board) an unsolicited proposal (the MEA Proposal) to acquire 17 substantially all of Chugach's assets in exchange for the assumption of Chugach's liabilities. Although MEA has not provided many details of the MEA Proposal, it has stated that the generation and transmission assets of Chugach would be transferred to a subsidiary of MEA, the assets comprising Chugach's distribution system would be transferred to MEA itself, and Chugach's members would become members of MEA. MEA has also stated that, at the time of the acquisition, it would borrow enough money to defease (i.e. to purchase a pool of U.S. government or U.S. government-backed securities that would generate sufficient cash flow to make scheduled debt service payments during the remaining life of the defeased obligations) or refinance Chugach's outstanding Series A Bonds and to repay Chugach's outstanding CoBank bonds plus an additional $42.5 million that would be distributed in cash to the members of the post-acquisition MEA. On November 2, 1998, citing uncertainty over whether MEA would be successful in its bid to acquire Chugach's assets, Standard & Poor's Rating Service placed its single "A" rating on the Series A Bonds on "Credit Watch with developing implications", meaning the rating may be raised, lowered or affirmed. After evaluating information provided by MEA and analyses of the MEA Proposal presented by Chugach's staff and independent financial advisors, on November 12, 1998, the Board rejected the MEA Proposal. Thereafter, MEA withdrew the provision of the MEA Proposal which contemplated that the Board of Directors of MEA, following the consummation of the MEA Proposal, would include minority representation from among the members of the Board. MEA also stated that MEA's future communications on this matter would be directed to Chugach's membership rather than the Board or Chugach's staff and MEA began circulating petitions to gather a sufficient number of signatures from Chugach's members to force a special meeting of Chugach's members for the purpose of considering the MEA Proposal. Under the Alaska Electric & Telephone Cooperative Act, a special meeting of the members of Chugach may be called by 10% of Chugach's members. On April 28, 1999, MEA delivered documents to Chugach which MEA stated, in its transmittal letter, constituted petitions requesting a special meeting of the members of Chugach for the purpose identified in the petitions. The form of petition used by MEA in soliciting sufficient signatures from Chugach members to meet the 10% test referred to above states that the petition requests a special meeting of the members of Chugach to be held at the earliest possible date to consider and vote upon the sale of all or substantially all of the assets of Chugach to a wholly-owned subsidiary of MEA; that a summary of the proposed sale was printed on the back of the petition; and that the official ballot to be used in conjunction with the special meeting shall set forth the terms and conditions of the sale as specified by the Board of Directors of MEA. The form of official ballot that MEA intends to seek to have Chugach send to its members has not to date been furnished to Chugach. The summary of the proposed sale printed on the back of the petition reads (in relevant part) as follows: 18 "Summary of Proposed Sale of the Assets of Chugach Electric Association, Inc. 1. Chugach Electric Association, Inc. (CEA) will sell all of its assets to a wholly owned subsidiary of Matanuska Electric Association, Inc. (MEA), which will pay for these assets by assuming all of CEA's liabilities, including CEA's responsibility to pay capital credits to its members. 2. Concurrently with the sale of CEA's assets, MEA's subsidiary will sell all of the distribution assets it acquires from CEA to MEA. As partial consideration for the purchase of these assets, MEA will assume the responsibility to pay the capital credits of CEA's former members. 3. All of CEA's current members will be eligible to become members of MEA. 4. All terms and conditions of the proposed sale are contingent on compliance with all statutory and regulatory requirements of the State of Alaska, including approval of the Alaska Public Utilities Commission." In response to MEA's April 28, 1999 letter and enclosures referred to above, Chugach advised MEA on April 29, 1999 that, in light of the pendency of an advisory vote of MEA's members on the MEA proposal scheduled for that day, Chugach did not think it would be prudent to incur any costs or utilize any resources in connection with the documents delivered to Chugach. In addition, Chugach advised MEA that: (i) whatever the outcome of the MEA members' advisory vote, and whatever MEA decided to do in light of it, it remained Chugach's position that the MEA proposal is fundamentally flawed and not in the best interests of Chugach members; and (ii) as discussed below, it remains Chugach's position that the proposed acquisition cannot legally be accomplished without the approval of Chugach's Board of Directors. In addition, Chugach advised MEA that, while Chugach does not agree that MEA or any other member of Chugach has the ability to dictate ballot language, it was necessary for MEA to provide its specific proposed ballot language as well as the information that Chugach had requested about the MEA proposal in earlier correspondence, in order for Chugach to make decisions on whether to call a special meeting, and if so, on other issues related to such a meeting. In addition, Chugach notified MEA that the petitions were being held by Chugach's contractor for signature verification action if and when such action became appropriate and that, if and when the signatures were verified, the petitions would be treated as having been received by Chugach on April 28, 1999. At the annual meeting of members of Chugach held on April 29, 1999, the members, among other things, approved an amendment to the bylaws of Chugach which limits the amount of time in which petitions may be gathered for the purpose of requesting a special meeting of members. Under this amendment, such signatures must be collected within one consecutive 90 calendar day time period and the Board of Directors shall establish such policies as may be necessary and convenient to ensure compliance with this limit. The amended text of the bylaws of Chugach, reflecting this amendment as well as certain other amendments approved by members at the April 29, 1999 meeting, is filed as Exhibit 3 (ii) of this report and is incorporated herein by reference. 19 According to information publicly released by MEA, at its annual meeting of members held on April 29, 1999, its members voted in favor of "the MEA Board of Directors continuing to prepare MEA for deregulation and competition through the acquisition of Chugach" by a vote of 4,915 to 3,485, or 59% to 41%, and members also voted 5,776 to 2,472, or 70% to 30%, in favor of increasing the number of directors on MEA's Board through a districting process if MEA successfully acquires Chugach. Both of these votes were stated on the ballot to be advisory. The MEA annual meeting was recessed pending the outcome of an election on whether to recall the Board of MEA, in accordance with a ruling of the Alaska Supreme Court. Alaska law prohibits Chugach from disposing of a substantial portion of its assets unless the disposition is approved by a majority of the members of Chugach and by at least two-thirds of those actually voting on the proposal, except that the Board may authorize Chugach to sell its assets to another cooperative if the transaction is approved by a majority of those voting in an election in which a much smaller percentage of the membership votes and the purchaser expressly agrees to assume Chugach's obligations under collective bargaining agreements. MEA has taken the position that the Board would be compelled to approve the sale of Chugach's assets to MEA if two-thirds of Chugach's members voting at a special meeting of the members approved the transaction and those voting in favor of the transaction constituted a majority of all of the members. Chugach believes that, although member approval clearly is a prerequisite to any sale to MEA, no such sale could legally occur unless the Board also approves the sale in the exercise of its independent judgment. It is unclear whether a special meeting of Chugach's members will be called to consider the MEA Proposal, whether Chugach's members would approve the MEA Proposal by a supermajority vote if it were submitted at a special meeting of members, what legal effect (if any) approval by a supermajority of Chugach's members would have in light of the rejection of the MEA Proposal by the Board, and whether any acquisition - even if approved by Chugach - would be approved by the APUC. It is, therefore, not possible to determine at this time the outcome of the MEA Proposal. However, in view of numerous uncertainties associated with the consummation of the MEA Proposal, including those referred to above, Chugach believes that there is not a material likelihood that the MEA Proposal will be consummated. Accordingly, while Chugach has publicly stated its belief that the consummation of the MEA Proposal (including the additional borrowing that would be associated therewith) would adversely affect the financial condition, results of operations, capital resources and liquidity of Chugach, Chugach does not believe that there is a material likelihood that these consequences will occur. On May 6, 1999, MEA responded, by letter, to Chugach's letter of April 29, 1999. MEA's letter stated (among other things) that: (i) MEA considers its members to have advised it that it should continue its efforts to prepare MEA for deregulation and competition through the acquisition of Chugach; (ii) MEA agrees to Chugach's suggestion to hold in abeyance until after May 25, 1999, the counting of the petitions turned in by MEA, under Chugach's assurance that they would be treated as having been received by Chugach on April 28, 1999; (iii) following the recall election relating to the MEA Board, MEA will present Chugach with additional information requested by Chugach on the special meeting of Chugach's members being sought by MEA; and (iv) MEA suggests that the Board of MEA and Chugach engage in dialogue with regard to a possible combination of the two organizations on a non-adversarial basis. 20 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Bylaws of the Registrant (as amended April 29, 1999). Confirmation for U.S. dollar Treasury rate-lock transaction to be subject to 1992 Master Agreement, dated March 17, 1999, between Lehman Brothers Financial Products Inc.and Chugach Electric Association, Inc Closing documents dated March 30, 1999 First Mortgage Bond, CoBank Series (CoBank-6), Due March 15, 2002 pursuant to the Third Supplemental Indenture of Trust Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed for the quarter ended March 31, 1999. 21 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/ Eugene N. Bjornstad Eugene N. Bjornstad, General Manager Date: May 13, 1999 By: /s/ Evan J. Griffith, Jr. Evan J. Griffith, Jr. Executive Manager, Finance & Energy Supply Date: May 13, 1999 22 EXHIBITS Listed below are the exhibits which are filed as part of this Report: Exhibit number Description Page 3 (ii) Bylaws of the Registrant (as amended April 29, 1999). 23 10.68 Confirmation for U.S. dollar Treasury rate-lock 39 transaction to be subject to 1992 Master Agreement, dated March 17, 1999 between Lehman Brothers Financial Products Inc. and Chugach Electric Association, Inc. 10.69 Closing documents dated March 30, 1999 First Mortgage 43 Bond,CoBank Series (CoBank-6), Due March 15, 2002 pursuant to the Third Supplemental Indenture of Trust 27 Financial Data Schedule ** ** Filed Electronically 23 EX-3.2 2 BYLAWS OF THE REGISTRANT(AS AMENDED APRIL 29,1999) Chugach Electric Association, Inc. is a cooperative owned by its more than 55,000 members. These bylaws are the framework of the organization. As a member, you are entitled to vote for the directors who oversee Chugach. Directors are elected each spring in conjunction with the cooperative's annual meeting. At the same time, members vote on any proposed changes to these bylaws. Proposed bylaw amendments may be submitted to: Bylaws Committee c/o Chugach General Counsel P. O. Box 196300 5601 Minnesota Drive Anchorage, Alaska 99519-6300 Visit Chugach Electric's home page on the Internet at www.chugachelectric.com CHUGACH ELECTRIC ASSOCIATION, INC. BYLAWS (As Amended April 29, 1999) TABLE OF CONTENTS ARTICLE I MEMBERSHIP Page Section 1 Requirements for Membership......................................................................................1 Section 2 Membership Certificates..........................................................................................1 Section 3 Joint Membership.................................................................................................1 Section 4 Conversion of Membership.........................................................................................2 Section 5 Membership and Service Connection Fees...........................................................................2 Section 6 Purchase of Electric Energy......................................................................................2 Section 7 Termination of Membership........................................................................................3 ARTICLE II RIGHTS AND LIABILITIES OF MEMBERS Section 1 Property Interest of Members.....................................................................................3 Section 2 Non-liability for Debts of the Association.......................................................................4 ARTICLE III MEMBERS, MEETINGS AND ELEC TIONS Section 1 Annual Meeting...................................................................................................4 Section 2 Special Meetings.................................................................................................4 Section 3 Notice of Members' Meetings......................................................................................5 Section 4 Waiver of Notice.................................................................................................5 Section 5 Quorum...........................................................................................................5 Section 6 Voting...........................................................................................................5 Section 7 Order of Business................................................................................................6 Section 8 Elections and Election Committee.................................................................................7 ARTICLE IV DIRECTORS Section 1 General Powers.................................................................................................. 9 Section 2 Election and Tenure of Office....................................................................................9 Section 3 Qualifications..................................................................................................10 Section 4 Nominations.................................................................................................... 11 Section 5 General Manager and Financial Advisor...........................................................................12 Section 6 Policy, Rules and Regulations...................................................................................12 Section 7 Removal of Directors by Members.................................................................................12 Section 8 Vacancies.......................................................................................................13 Section 9 Compensation....................................................................................................13 ARTICLE V MEETINGS OF DIRECTORS Section 1 Regular Meeting ................................................................................................14 Section 2 Special Meetings ...............................................................................................14 Section 3 Quorum .........................................................................................................14 Section 4 Director Attendance ............................................................................................15 Section 5 Membership Attendance ..........................................................................................15 Section 6 Minutes ........................................................................................................16 Section 7 Telephonic Board Meetings.......................................................................................16 ARTICLE VI OFFICERS Section 1 Number .........................................................................................................16 Section 2 Election and Term of Office ....................................................................................16 Section 3 Removal of Officers and Agents by Directors...................................................................................................17 Section 4 President.......................................................................................................17 Section 5 Vice-President .................................................................................................18 Section 6 Secretary ......................................................................................................18 Section 7 Treasurer ......................................................................................................18 Section 8 Delegation of Duties ...........................................................................................19 Section 9 Bonds of Officers...............................................................................................19 Section 10 Budget .........................................................................................................19 Section 11 Reports.........................................................................................................19 ARTICLE VII PATRONAGE CAPITAL Section 1 Patronage Capital ..............................................................................................19 ARTICLE VIII FISCAL MANAGEMENT AND ACCOUNTING Section 1 Revenues and Expenditures ......................................................................................21 Section 2 Accounting System and Reports ..................................................................................21 Section 3 Disclosure .....................................................................................................21 ARTICLE IX DISPOSITION OF PROPERTY Section 1 Disposition of Property ........................................................................................22 ARTICLE X SEAL ...........................................................................................................22 ARTICLE XI FINANCIAL TRANSACTIONS Section 1 Contracts ......................................................................................................22 Section 2 Checks, Drafts, etc. ...........................................................................................22 Section 3 Deposits .......................................................................................................23 Section 4 Fiscal Year ....................................................................................................23 Section 5 Full and Open Competitive Bidding...............................................................................23 ARTICLE XII MISCELLANEOUS Section 1 Membership in Other Organizations...............................................................................23 Section 2 Waiver of Notice................................................................................................23 Section 3 Interpretation..................................................................................................24 ARTICLE XIII AMENDMENTS Section 1 Notice..........................................................................................................24 Section 2 Bylaws Committee................................................................................................24 ARTICLE XIV ADVISORY COUNCIL Section 1 Member Advisory Council.........................................................................................24 Section 2 General Duties..................................................................................................24 ARTICLE XV STANDING AND AD HOC COMMITTEES Section 1 General.........................................................................................................25 Section 2 Compensation....................................................................................................25 Section 3 Terms...........................................................................................................25 Section 4 Membership......................................................................................................25 Section 5 Vacancy.........................................................................................................26 ARTICLE XVI INDEMNIFICATION ................................................................................................26 ARTICLE XVII MEMBER ACCESS TO INFORMATION Section 1 Access Rights...................................................................................................26 Section 2 Charges.........................................................................................................27 Section 3 Policies and Procedures.........................................................................................27
CHUGACH ELECTRIC ASSOCIATION, INC. BYLAWS ARTICLE I MEMBERSHIP SECTION 1. Requirements for Membership. Any person, firm, association, corporation, or body politic, or subdivision thereof, shall become a member of CHUGACH ELECTRIC ASSOCIATION, INC. by: (a) Making a written application for membership therein; (b) Agreeing to purchase from the Association electric energy as hereinafter specified; (c) Agreeing to comply with, and be bound by, the articles of incorporation and bylaws of the Association, and any rules and regulations adopted by its board of directors; and (d) Paying the membership fee hereinafter specified. No person may hold more than one membership in the Association, and no membership in the Association shall be transferable, except as provided in these bylaws. SECTION 2. Membership Certificates. Repealed April 30, 1998. SECTION 3. Joint Membership. A husband and wife may apply for a joint membership and, subject to the compliance with the requirements set forth in Section 1 of this Article, may be accepted for such membership. The term "member" as used in these bylaws shall be deemed to include a husband and wife holding a joint membership, and any provisions relating to the rights and liabilities of membership shall apply equally with respect to the holders of a joint membership. Without limiting the generality of the foregoing, the effect of the hereinafter specified actions by, or in respect to, the holders of a joint membership shall be as follows: (a) The presence at a meeting of either or both shall be regarded as the presence of one member and shall have the effect of constituting a joint waiver of notice of the meeting; (b) The vote of either separately, or both jointly, shall constitute one joint vote; (c) A waiver of notice signed by either or both shall constitute a joint waiver; (d) Notice to either shall constitute notice to both; (e) Expulsion of either shall terminate the joint membership; (f) Withdrawal of either shall terminate the joint membership; (g) Either, but not both, may be elected or appointed as an officer or director, provided that both meet the qualifications for such office. SECTION 4. Conversion of Membership. (a) A membership may be converted to a joint membership upon the written request of the holder thereof, and the agreement by such holder to comply with the articles of incorporation, bylaws, and rules and regulations adopted by the board of directors. The membership shall be reissued by the Association in such manner as shall indicate the changed membership status. (b) Upon the death of a married member the surviving spouse shall succeed to the membership. The membership shall be reissued in such manner as shall indicate the changed membership status; provided, however, that the estate of the deceased shall not be released from any debts due the Association. SECTION 5. Membership and Service Connection Fees. The non-refundable membership fee shall be five dollars. Payment of the membership fee and completion of a membership application are conditions of service. The board of directors may also, as a condition of service, require the payment of a consumer deposit or the furnishing of other acceptable security. SECTION 6. Purchase of Electric Energy. Each member may, as soon as electric energy shall be available, purchase from the Association all electric energy purchased for use on the premises specified in his application for membership, unless the member is an electric public utility purchasing electric energy for resale. Each member shall pay monthly at rates which shall from time to time be fixed by the board of directors. The board of directors may limit the amount of electric energy which the Association shall be required to furnish to its member(s). Each member shall pay to the Association such minimum amount per month, regardless of the electric energy consumed, as shall be fixed by the board of directors from time to time. Each member shall also pay all amounts owed by him to the Association as and when the same shall become due and payable. Production or use of electric energy on such premises, regardless of the source thereof, by means of facilities which shall be interconnected with the Association's facilities, shall be subject to appropriate regulations as shall be fixed from time to time by the Association. SECTION 7. Termination of Membership. (a) Any member of the Association may withdraw from membership with written notice. Additionally, the board, by at least a two- thirds vote of all members of the board, may expel any member who fails to comply with Association regulations. Members subject to expulsion will be contacted in writing by the Association and will have ten (10) days to comply with Association regulations. An expelled member may be reinstated by a majority vote of the board or by a vote of the members at any annual or special meeting. The board may also cancel membership if the member: 1) has not purchased electric energy for six (6) months; 2) has had a disconnect order active for thirty (30) days without signing a reconnect order; or 3) has been disconnected because of nonpayment of electric energy debts to the Association provided that this delinquency has continued for at least thirty (30) days after termination of service. (b) Upon the withdrawal, death, cessation of existence or expulsion of a member, the membership of such member shall thereupon terminate, except as provided in Article 1, Section 4. Termination of membership in any manner shall not release a member or his estate from any debts due the Association. ARTICLE II RIGHTS AND LIABILITIES OF MEMBERS SECTION 1. Property Interest of Members. Upon dissolution, after paying, or discharging, or adequately providing for the payment or discharge of all its debts, obligations and liabilities, other than those to patrons arising by reason of their patronage, the Association shall distribute any remaining sums, first to patrons for the pro rata return of all amounts standing to their credit by reason of their patronage, and second, to members for the pro rata repayment of membership fees. Any sums then remaining shall be distributed among its members and former members in proportion to their patronage, except as participation in such distribution may have been legally waived. In the event of the lawful liquidation, through transfer or sale of all the property and assets of the Association, the proceeds of such liquidation, transfer or sale shall be distributed in the same manner as hereinabove provided for in the case of dissolution. SECTION 2. Non-liability for Debts of the Association. The private property of the members shall be exempt from execution or other liability for the debts of the Association, and no members shall be liable or responsible for any debts or liabilities of the Association. ARTICLE III MEMBERS, MEETINGS AND ELECTIONS SECTION 1. Annual Meeting. The annual meeting of the members shall be held on such convenient date, on or after the 1st day of April, and on or before the 1st day of May of each year, at such place or building in the Municipality of Anchorage, State of Alaska, as shall be designated by the board of directors in the notice of meeting, for the purpose of electing directors, passing upon reports for the previous fiscal year, and transacting such other business as may come before the meeting. Failure to hold the annual meeting at the designated time shall not work a forfeiture or dissolution of the Association. SECTION 2. Special Meetings. Special meetings of the members may be called by resolution of the board of directors, or upon a written request signed by any four directors to the president, or by a written request made to the president and signed by not less than ten percent (10%) of the members. The resolution and request shall specify the purpose of the meeting. Signatures for a request of a special meeting by members shall be collected within one consecutive ninety (90) calendar day time period and the board of directors shall establish such policies as may be necessary and convenient to ensure compliance with this limit. It shall thereupon be the duty of the secretary to cause notice of such meeting to be given as hereinafter provided. Special meetings of the members may be held at any place within the Municipality of Anchorage specified in the notice of the special meeting. SECTION 3. Notice of Members' Meetings. Written notice stating the place, day and hour and agenda of the annual meeting shall be delivered by mail to each member not less than thirty (30) or more than sixty (60) days before the date of the meeting. Notice of a special meeting of the members, including but not limited to a meeting where a merger or dissolution of the Association, or sale, transfer or other disposal of all or a substantial portion of the assets of the Association is to be voted on, shall be delivered, together with notice of the purpose for which the meeting is called, not less than ninety (90) or more than 120 days before the date of the meeting, with notice of a public hearing on the proposed action to be held not less than sixty (60) days before the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the member at his address as it appears on the records of the Association, with postage thereon prepaid. The failure of any member to receive notice of an annual or special meeting of the members shall not invalidate any action which may be taken by the members at any such meeting. SECTION 4. Waiver of Notice. Repealed April 23, 1986. SECTION 5. Quorum. Fifty (50) members present in person shall constitute a quorum for a regular or special meeting of the members. No business shall be conducted at a regular or special meeting of the members lacking a quorum, except for counting marked ballots as specified in this Article III, Section 8(d) and announcing the results thereof. If less than a quorum is present at any meeting of the members, a majority of those present may adjourn the meeting to another date and time no later than 90 days after the adjourned meeting at a place within the Municipality of Anchorage, provided that the Secretary shall notify all members of the date, time and place of such adjourned meeting by delivering notice thereof no later than ten days in advance of such meeting. SECTION 6. Voting. (a) Each member who has purchased electric energy or receives other services from the Association within the six months preceding the record date of the election shall be entitled to only one vote upon each matter submitted to a vote at a meeting of the members. All questions shall be decided by a vote of a majority of the members voting thereon in person, except as otherwise provided by law, the articles of incorporation, or these bylaws. (b) A non-natural member may designate an individual to vote on its behalf, in accordance with the member's own procedures. The election committee may require the designated individual to submit satisfactory written proof of his designation, prior to his voting. (c) Members may vote by a mailed official ballot on all matters on which a vote of the members is required or permitted under these bylaws. (d) A minimum of five hundred valid ballots must be cast by mail or in person to constitute a valid election of directors or to approve amendments to the bylaws. Directors shall be elected by the plurality vote of the members. A minimum of five hundred ballots must be cast to constitute a valid removal of a director or directors. See Article IV, Sections 7 and 8. (e) An affirmative vote by ballot of at least 10 percent of the number of members as of the date of the notice of the election is required to authorize disposition of all or a substantial portion of the Association's property to another cooperative, pursuant to Article IX, Section (1)(b). (f) A merger of the Association must be approved by a majority of those members voting, but in no event can the affirmative vote be less than 10 percent of the number of members, as of the date of notice of the election. (g) An affirmative vote by ballot of not less than the majority of the number of members as of the date of the notice of the election is required to authorize the Association to sell, lease, or otherwise dispose of all or a substantial portion of the Association's property, as provided in Article IX, Section 1(b). SECTION 7. Order of Business. (a) The order of business at the annual meeting of the members and, insofar as possible, at all other meetings of the members, shall be essentially as follows: 1) Report on the number of members present in person in order to determine the existence of a quorum. 2) Reading of the notice of the meeting and proof of the due publication or mailing thereof. 3) Reading of unapproved minutes of previous meetings of the members, making technical changes only to the minutes, and approval thereof. 4) Presentation and consideration of reports of officers, directors and committees. 5) Election of directors. 6) Unfinished business. 7) New business. 8) Adjournment. (b) Proposed amendments to the bylaws upon which voting is being conducted by ballot may be discussed at the annual meeting, but shall not be treated as being before the annual meeting for action, other than passage or defeat of the proposed amendments. They may not be further amended or tabled by action of the annual meeting. SECTION 8. Elections and Election Committee. (a) At the beginning of each calendar year, and not less than ninety (90) days prior to the annual meeting, the board of directors shall appoint an election committee, as provided for in Article XV of these bylaws. The committee shall consist of the master election judge, who shall chair the committee, and not more than twelve election judges. This committee shall have the responsibility for conducting all voting by secret ballot during the calendar year. The election committee shall devise such procedures, and adopt such rules and regulations, subject to the approval of the board of directors, as may be reasonably necessary or convenient to the discharge of the election committee's responsibilities. These responsibilities shall include, but are not limited to (1) the registration of members at the annual or special meeting, and (2) the obligation of insuring the fairness, impartiality, confidentiality, and integrity of the voting process. The master election judge and election judges shall be selected from the Association membership, with consideration for geographical representation. In case of a vacancy, the board of directors shall appoint an Association member to complete the unexpired term of the committee member. (b) The election committee shall cause the preparation of an official ballot containing the names of the candidates for the office of director and the proposed bylaw amendments. The ballot shall be designed with the position of names of the candidates changed as many times as there are candidates. As nearly as possible, an equal number of ballots shall be printed after each change. In making the changes of position, the name of the candidate shall be taken and placed at the bottom and the column moved up so that the name that before was second is first after the change. After the ballots are printed, they shall be placed in separate stacks, one stack for each change of position. The ballots shall then be gathered by taking one from each stack, the intention being that every other ballot in the accumulated stack of ballots shall have the names of the candidates in a different position. The ballot shall also include a brief description concerning the number of offices to be filled at the election and the time, place, and method of voting. At least thirty (30) days prior to the meeting, an official ballot shall be mailed by the secretary to each member with 1) a statement of the number of directors' seats to be filled, 2) the candidates' names and election statements, 3) an explanation of any other matters to be voted on by mail, the proposed changes to the bylaws, with the Bylaws Committee's comments and 4) a report covering the calendar year immediately preceding the annual meeting prepared by the General Manager setting forth the attendance record of directors at regular and special board meetings, together with a summary setting forth the agenda business items voted and the vote of each director. The candidates' statements: 1) Shall specify whether the candidate was nominated by the Nominating Committee or by petition. 2) Shall specify whether the candidate is: (i) A member, officer, director, or employee of any union local currently acting as a bargaining agent for Association employees. (ii) A person who has within the last two years had a financial interest in a bid, proposal, project, or contract with Chugach. (iii) A spouse, child, brother, sister, parent, stepparent, stepchild or stepsibling of: a) any person included in subparagraph (i) or (ii) above or b) an employee of the Association. 3) May include a photograph of the candidate, and a statement not to exceed 200 words. The election committee shall procure a post office box where all ballots shall be received. (c) Mailed ballots, to be valid, must be received in the designated post office box by 12:00 Noon three (3) calendar days prior to the annual meeting or special meeting. In lieu of casting a ballot by mail, a member may register a vote by special ballot at the meeting. (d) The election committee shall make proper arrangements to secure all ballots before, during, and following the election. Marked ballots shall be counted as soon after the close of balloting as may be reasonable under the circumstances. The results thereof will be announced as soon as the count is completed. Marked ballots will be retained and secured for a period of ninety (90) days following the election, after which time they may be destroyed. (e) The election committee may employ such additional election clerks as may be required to register members at the annual or special meeting, to assist in the counting of the ballots and otherwise to ensure the efficient management of the meeting and balloting. Each candidate for the office of director may have a representative present during all times that ballots are being counted. The decision of a majority of the election committee shall be conclusive with respect to the eligibility of any person to vote and the validity of any ballot cast. (f) A recount of votes cast for a director's seat may only be requested by a candidate in that election. A request for a recount must be made in writing and received by the Election Committee within 10 days of the close of balloting. The recount will be done in the same manner as and by the same entity that performed the original vote count. If the recount indicates that the candidate requesting the recount has lost the election by more than 1 percent of the total votes cast, then the cost of the recount shall be borne by the candidate. If the recount indicates that the candidate requesting the recount has either won a seat or lost by a margin of 1 percent or less, then the cost of the recount shall be borne by the Association. A group of 10 or more members who voted in that election may request a recount of the ballots for a bylaws change or ballot question. A request for a recount must be made in writing and received by the Election Committee within 10 days of the close of balloting. The same provision for payment of the costs as provided above shall prevail, with the voters who requested the recount paying for the recount if the margin is greater than 1 percent, and the Association bearing the expense if the margin is 1 percent or less. (g) In the event of a tie for an election of a director, a bylaws change or a ballot question, a recount of the ballots shall be done. The Association shall bear the cost of recounts in the event of a tie. If the recount confirms the existence of a tie, then a run-off election shall be conducted by mail within 60 days of the date the results of the recount are certified. The form and content of the ballots shall comply with this Article III, Section 8(b). The run-off election shall be conducted by the Election Committee. The provisions of this Article III, Section 8(d), (e) and (f) shall apply. ARTICLE IV DIRECTORS SECTION 1. General Powers. The management of the business and the affairs of the Association shall be vested in a board of seven directors who shall exercise all of the powers of the Association, except such as are by law, the articles of incorporation, or by these bylaws conferred upon or reserved to the members. SECTION 2. Election and Tenure of Office. The persons named as directors in the articles of incorporation shall compose the board of directors until their successors shall have been elected and shall have qualified. Directors shall be elected by secret ballot either mailed or cast in person at annual or special meetings of the membership, by and from the members, to serve for a three-year term, not to exceed three consecutive three year terms, until their successors shall have been elected and qualify, provided that the directors elected to fill vacancies as provided in Article IV, Section 8 of these bylaws, shall serve only for the unexpired portion of the term vacated. Where the terms to be filled are of different lengths, the longest term shall be given to the director receiving the most votes. If the size of the board is subsequently increased, the initial terms of the directors to fill the newly created seat or seats shall be scheduled so that, as nearly as possible, an equal number of terms expire each year. At each annual or special meeting, members shall be elected to fill the seats on the board which become vacant as contemplated by Article IV, Section 8 of these bylaws. SECTION 3. Qualifications. (a) A person shall be eligible to serve as a director, who: 1) Has been a member and bona fide resident in the area served by the Association for 12 continuous months before appointment to the board, or the notice of the election; 2) Is not in any way employed by a competing enterprise, however, an employee of the Municipality of Anchorage who is not directly employed by Municipal Light and Power is eligible to serve if he or she has no fiduciary duties which in any way pertain to Municipal Light and Power; 3) Does not have a financial interest in a competing enterprise; 4) Is not a supplier, contractor, consultant, or other entity which does business with the Association or a person with more than a 10% ownership interest in a supplier, contractor, consultant, or other entity which does business with the Association, except for providers whose annual business with the Association does not exceed $25,000; 5) Is not an employee of the Association nor a member, officer, director, nor employee of any union local currently acting as a bargaining agent for Association employees; 6) Is not a person living in the same household with and financially interdependent upon any person included in paragraphs 2, 3, 4, and 5, above; and 7) Maintains i) his or her membership, ii) bona fide residency in the area served by the Association, and iii) a minimum of 12 continuous months of bona fide residency in the area served by the Association throughout his or her term of office. (b) An individual who is the authorized representative of a non-natural entity (corporation, association or partnership, for example) which itself is qualified under subsection (a) may become or remain a director if he is qualified under subsections (a)(1), (2), (3), (4), (5), (6) and (7). If the individual or the non- natural member fails to meet the prescribed qualifications, or if the non-natural member changes its authorized representative, the individual shall become subject to removal under subsection (c), and the director's position shall become vacant, without power of appointment by the non-natural member. (c) Upon establishment of the fact that a director is holding office in violation of any of the foregoing provisions including the disclosure provisions of Article III, Section 8(b), subsection (2), the board of directors shall remove such director from office unless the basis for disqualification is remedied within thirty (30) days of notice of disqualification by the board of directors. (d) Directors are ineligible for employment by the Association for a period of two (2) years after their term has expired. (e)"Bona fide resident" is hereby defined to mean: 1) a person whose primary residence is in the area served by the Association, and who actually lives at this primary residence with the intention to remain there permanently or indefinitely and 2) a non-natural entity who chooses as their authorized representative a person who is a "bona fide resident" as defined in 1). "Primary residence" shall mean the residence that is the chief or main residence of the person and where the person actually lives for the most substantial portion of the year. "Intention" shall mean the unequivocal intention of the person as evidenced by that person's acts and words and by the circumstances. Nothing contained in this section shall affect in any manner whatsoever the validity of any action taken at any meeting of the board of directors. SECTION 4. Nominations. (a) Nominating Committee. It shall be the duty of the board of directors to appoint, not less than one hundred and twenty days before the dates of a meeting of the members at which directors are to be elected, a committee on nominations, as provided for in Article XV of these bylaws. The committee shall consist of not less than five nor more than seven members, who shall be selected from different sections of the service area of the Association as to insure equitable representation. No member of the board of directors may serve on such committee. The committee shall seek qualified candidates, as well as screen potential nominees. Public notice for nominations shall be given ninety days prior to the meeting. The committee, keeping in mind the principle of geographical representation, shall approve, prepare and post at the principal office of the Association, at least seventy days before the meeting, a list of nominations for directors, which may include a greater number of candidates than are to be elected. (b) Petition. Any fifty or more members, acting together, may make other nominations by petition not less than sixty days prior to the election, and the secretary shall post such nominations at the same place where the list of nominations made by the committee is posted. SECTION 5. General Manager and Financial Advisor. The board of directors may appoint the following: (a) General Manager. The general manager may be but shall not be required to be a member of the Association. The general manager, together with such other staff, agents and employees as he may select shall perform such duties and shall exercise such authority as the board of directors may from time to time vest in him. (b) Financial Advisor. The Board, at its sole discretion, may engage the services of a financial advisor, which may be used to advise on any and all fiscal matters. The financial advisor shall report to the board. SECTION 6. Policy, Rules and Regulations. The board of directors shall have the power to make, adopt and enforce such policy, rules and regulations, not inconsistent with law, the articles of incorporation, or these bylaws, as it may deem advisable for the management of the affairs and business of the Association, for the protection of its investment, and for the interest and welfare of the members thereof. Such policy statements, rules and regulations shall be in writing and shall be made available for review by the members. SECTION 7. Removal of Directors by Members. Any member may bring charges against a director and, by filing with the secretary such charges in writing, together with a petition signed by at least 300 members, request the removal of such director by reason thereof, provided, however, that the signatures of members shall be acceptable only when affixed to a sheet on which the petition therein is fully set forth; and, provided further, that the person who solicited the signatures affixed to such petition shall acknowledge thereon before a person authorized to take acknowledgments of deeds that he had read the petition and the said charges against such director to each of the members prior to the latter subscribing their names thereto. Signatures shall be collected within one consecutive ninety (90) calendar day time period. Such director shall be informed in writing of the charges at least ten days prior to a meeting of the members at which the charges are to be considered, and shall have an opportunity at the meeting to be heard in person, or by counsel, and to present evidence in respect to the charges; and the person or persons bringing the charges against him shall have the same opportunity. This meeting shall occur before ballots are sent to members for voting by mail. The question of the removal of such director shall be considered and voted upon at a meeting of the members conducted in accordance with procedures established for regular annual membership meetings. A minimum of five hundred valid ballots must be cast with a majority in favor of removal for such removal to be effective. SECTION 8. Vacancies. Any vacancy occurring in the board shall be filled by the affirmative vote of the majority of the remaining directors, and the member so appointed to the board shall serve until his successor has been elected. At such election following the existence of such vacancy, the members shall elect one of their number to serve as director during the unexpired portion of the term vacated, subject, however to provisions of Article IV, Section 2, 3 and 4 of these bylaws. SECTION 9. Compensation. (a) Directors shall not receive any salary for their services as directors, except that, by resolution of the board of directors, a fixed fee and expenses of attendance, if any, may be allowed for attendance at each meeting of the board of directors, or a meeting of a committee thereof, or when a director is otherwise representing the Association in an official capacity. No attendance other than regular or special board meetings shall be reimbursed unless authorized in advance by the majority vote of the board. The fixed fee shall not exceed $100.00 per meeting, and a director may not be compensated for more than two regular board meetings per month, and an additional 12 special board meetings per year. The total compensated meetings shall not exceed 70 meetings per year for a director, and 85 meetings per year for the president. The Association may not provide health insurance for directors or their families, or insurance for risks except those incurred in their capacity as directors. (b) Directors' expense reimbursement requests shall be reviewed and approved by the majority vote of the board. Directors may not receive salaries for their services as directors, and, except in emergencies, shall not receive salaries for their services in any other capacity without the approval of the members. ARTICLE V MEETINGS OF DIRECTORS SECTION 1. Regular Meeting. A regular meeting of the board of directors shall be held without notice immediately after, and at the same place as, the annual meeting of the members. A regular meeting of the board of directors shall also be held monthly at such time and place in the Municipality of Anchorage, State of Alaska, as the board of directors may provide by resolution. Such regular monthly meetings may be held without notice other than such resolution fixing the time and place thereof except that the board shall cause notice of the selection of the time and place of the regular meetings to be given to the members promptly after it is selected. SECTION 2. Special Meetings. Special Meetings of the board of directors may be called by the president, or by any three directors, and it shall thereupon be the duty of the secretary to cause notice of such meetings to be given as hereinafter provided. The president of the directors calling the meeting shall fix the time and place, which shall be in the Municipality of Anchorage, State of Alaska, for the holding of the meeting. Written notice of the time, place and purpose of any special meetings of the board of directors shall be delivered to each director not less than three days previous thereto, either personally or by mail, by or at the direction of the secretary, or upon default in duty by the secretary, by the president or the directors calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the director at his address as it appears on the records of the Association, with postage thereon prepaid. SECTION 3. Quorum. A majority of the board of directors shall constitute a quorum; provided, that if less than a majority of the directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time; and provided further, that the secretary shall notify any absent directors of the time and place of such adjourned meeting. The act of the majority of the directors present at the meeting at which a quorum is present shall be the act of the board of directors. Each director present shall vote or abstain on each motion. Each director shall disclose any financial interest of the director or of a member of the director's immediate family in a matter before the board. SECTION 4. Director Attendance. If a director is absent from three consecutive regular board meetings or four regular board meetings, whether consecutive or not, or from 25% of all meetings, including regular and special meetings, board workshops, and committee meetings, in either of the two six month periods described below, the director shall be deemed to have resigned from the board of directors, and the vacancy thereby resulting will be filled as provided in Article IV, Section 8, of these bylaws. For purposes of compliance with this bylaw, attendance will be evaluated for two separate six month periods beginning May 1st and November 1st of each year. A director who is absent on Association business, including reasonable travel time to and from such business, shall not be counted absent, provided such travel and absence was approved in advance by the board. For purposes of this Section, an absence shall not be counted if it is excused by a vote of a majority of the members of the board not requesting the excuse at the next regular or special board meeting. However, no more than two absences per director may be excused by the board in either 6- month period. SECTION 5. Membership Attendance. (a) Regular meetings, special meetings and work sessions shall be open to all Association members. The notice of such meeting and an agenda shall be posted in a conspicuous place in the public places of business of the Association not later than three days prior to the meeting. The board of directors shall adopt a policy establishing additional means of providing public notice of meetings. (b) No closed or executive sessions shall be held except to discuss: 1) Matters the immediate knowledge of which would clearly have an adverse effect on the Association's finances; 2) Subjects that tend to prejudice the reputation and character of a person; however, that person may request a public discussion; 3) Matters discussed with an attorney for the Association, the immediate knowledge of which could have an adverse effect on the Association's legal position. SECTION 6. Minutes. Minutes will be kept for all regular and special meetings and shall include each director's vote on each matter voted upon by the board of directors. Copies of the minutes shall promptly be given to Association members upon request. The board of directors may prescribe a reasonable fee for such copies provided such fee shall not exceed the actual labor and material costs of reproduction. An electronic recording of all regular and special meetings shall also be made and kept for at least one year; Association members may request a transcription of the tape upon payment of the cost of transcription by a court reporter service; members shall also be permitted to listen to such tapes at the headquarters building. SECTION 7. Telephonic Board Meetings. For the purpose of the holding of any regular or special meeting, the Board of Directors can validly conduct such meeting by communicating with each other by means of conference telephones or similar communications equipment as allowed by law. Telephonic attendance by directors shall be permitted without limitation if the director is unable to attend in person due to Association business provided the absence was approved in advance by the board as provided under Article V, Section 4. Telephonic attendance for reasons other than Association business shall be limited to 25% of the meetings by any one director for the 6-month period beginning May 1 and the 6- month period beginning November 1. For attendance evaluation, a director is deemed absent from each meeting where the telephonic attendance limit was exceeded. The amendments to this Bylaw will take effect May 1, 1997. ARTICLE VI OFFICERS SECTION 1. Number. The officers of the Association shall be a president, vice-president, secretary and treasurer, and such other officers as may be determined by the board of directors from time to time. The offices of secretary and treasurer may be held by the same person. SECTION 2. Election and Term of Office. The officers shall be elected annually by ballot, by and from the board of directors, at the meeting of the board of directors held immediately after the annual meeting of the members. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until the first meeting of the board of directors following the next succeeding annual meeting of the members, or until his successor shall have been elected and shall have qualified. A vacancy in any office shall be filled by the board of directors for the unexpired portion of the term. SECTION 3. Removal of Officers and Agents by Directors. Any officer or agent elected or appointed by the board of directors may be removed by the board of directors whenever in its judgement the best interests of the Association will be served thereby. In addition, any member of the Association may bring charges against an officer and, by filing with the secretary such charges in writing, together with a petition signed by at least a sufficient number of members to constitute a quorum as defined in Section 5, Article III, may request the removal of such officer by reason thereof; provided, however, that the signatures of the members shall be acceptable only when affixed to a sheet on which petition therein is fully set forth; and provided further, that the person who solicited the signature affixed to such petition shall acknowledge thereon before a person authorized to take acknowledgments of deeds that he had read the petition and the said charges against such officer to each of the members prior to the latter subscribing their names thereto. The officer against whom such charges have been brought shall be informed in writing of the charges at least ten days prior to the board meeting at which the charges are to be considered and shall have an opportunity at the meeting to be heard in person, or by counsel, and to present evidence in respect of the charges; and the person or persons bringing the charges against him shall have the same opportunity. In the event the board does not remove the officer, the question of his removal shall be considered and voted upon at the next meeting of the members. SECTION 4. President. The president shall: (a) Be the principal executive officer of the Association and, unless otherwise determined by the members or the board of directors, shall preside at all meetings of the members and the board of directors; (b) Sign any deeds, mortgages, deeds of trust, notes, bonds, contracts or other instruments authorized by the board of directors to be executed, except in cases in which the signing and execution thereof shall be expressly delegated by the board of directors or these bylaws to some other officer or agent of the Association, or shall be required by law to be otherwise signed or executed; and (c) In general, perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. SECTION 5. Vice-President. In the absence of the president, or in the event of his inability or refusal to act, the vice-president shall perform the duties of the president, and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the president. The vice-president shall also perform such duties as from time to time may be assigned to him by the board of directors. SECTION 6. Secretary. The secretary shall be responsible for: (a) Keeping the minutes of the meetings of the members and of the board of directors; (b) Seeing that all notices are given in accordance with these bylaws, or as required by law; (c) The safekeeping of the corporate records and seal of the Association, and affixing the seal of the Association to all documents, the execution of which on behalf of the Association under its seal is duly authorized in accordance with the provisions of these bylaws; (d) Keeping a register of the names and post office addresses of all members; (e) Keeping on file at all times a complete copy of the articles of incorporation and bylaws of the Association containing all amendments thereto, which copy shall always be open to the inspection of any members, and at the expense of the Association, forwarding a copy of the bylaws and of all amendments thereto to each member on request; and (f) In general, performing all duties incident to the office of secretary, and such other duties as from time to time may be assigned by the board of directors. SECTION 7. Treasurer. The treasurer shall be responsible for: (a) Custody of all funds and securities of the Association; (b) The receipt of, and the issuance of receipts for, all moneys due and payable to the Association, and for the deposit of all such moneys in the name of the Association in such bank or banks as shall be selected in accordance with the provisions of these bylaws; and (c) In general, performing all the duties incident to the office of treasurer and such other duties as from time to time may be assigned by the board of directors. SECTION 8. Delegation of Duties. In the absence of an officer, or in the event of his inability or refusal to act, the board of directors will appoint one of their number to perform the duties of his office; provided that the offices of president and vice-president may not be combined with any other office; and, provided further, nothing herein shall limit the right and duty of the vice-president to perform the duties of the president in the event that the president is absent, is unable to act, or refuses to act. The board of directors may provide for the delegation of one or more of the duties of the secretary and treasurer. SECTION 9. Bonds of Officers. The treasurer, and any other officer or agent of the Association charged with responsibility for the custody of any of its funds or property, shall give bond in such sum, and with such surety, as the board of directors shall determine. The board of directors, in its discretion, may also require any other officer, agent or employee of the Association to give bond in such amount and with such surety as it shall determine. SECTION 10. Budget. The Board of Directors shall review, revise and approve an annual operating budget prior to each fiscal year. SECTION 11. Reports. The officers of the Association shall submit, at each annual meeting of the members, reports covering the business of the Association for the previous fiscal year. Such reports shall set forth the condition of the Association at the close of such fiscal year. ARTICLE VII PATRONAGE CAPITAL SECTION 1. Patronage Capital. The Association shall at all times be operated on a cooperative, nonprofit basis for the mutual benefit of its patrons. The Association's operations shall be so conducted that all patrons, members and non-members alike, will through their patronage furnish capital for the Association, subject to the provisions for sinking funds and reserves as provided by Article VIII of these bylaws. In order to induce patronage and to assure that the Association will operate on a nonprofit basis, the Association is obliged to account on a patronage basis to all its patrons, members and non-members alike, for all amounts received from the furnishing of electric energy in excess of operating costs and expenses properly chargeable against the furnishing of electric energy. All such amounts in excess of operating costs and expenses are received with the understanding that they are furnished by the patrons, members and non-members alike, as capital. The Association is obligated to pay all such amounts in excess of operating costs and expenses to the patrons by credits to a capital account for each patron. The books and records of the Association shall be set up and kept in such a manner that at the end of each fiscal year the amount of capital, if any, so furnished by each patron, is clearly reflected and credited in an appropriate record to the capital account of each patron, and the Association shall within a reasonable time after the close of the fiscal year notify each patron of the amount of capital so credited to his account. All such amounts credited to the capital account of any patron shall have the same status as though they had been paid to the patron in cash in pursuance of a legal obligation to do so, and the patron had then furnished the Association corresponding amounts for capital. In the event of dissolution or liquidation of the Association, after all outstanding indebtedness of the Association shall have been paid, outstanding capital credits shall be retired without priority on a pro rata basis before any payments are made on account of property rights of members. If, at any time prior to dissolution or liquidation, the board of directors shall determine that the financial condition of the Association will not be impaired thereby, the capital then credited to patrons' accounts may be retired in full or in part, according to policies adopted by the board. Capital credited to the account of each patron shall be assignable only on the books of the Association pursuant to written instructions from the assignor, and only to successors in interest or successors in occupancy in all or a part of such patron's premises served by the Association, unless the board of directors, acting under policies of general application, shall determine otherwise. All other amounts received by the Association from its operations in excess of costs and expenses shall, insofar as permitted by law, be: (a) Used to offset any losses incurred during the current or any prior fiscal year; and (b) To the extent not needed for that purpose, allocated to its patrons on a patronage basis, and any amount so allocated shall be included as part of the capital credited to the accounts of patrons, as herein provided. Notwithstanding any other provisions of these bylaws, the board of directors, at its discretion, shall have the power at any time, upon the death of any patron, if the legal representative of his estate shall request in writing that the capital credited to any such patron be retired prior to the time such capital would otherwise be retired under the provisions of these bylaws, to retire capital credited to any such patron immediately upon such terms and conditions as the board of directors, acting under policies of general application, and the legal representative of such patron's estate shall agree upon, provided, however, that the financial condition of the Association will not be impaired thereby. ARTICLE VIII FISCAL MANAGEMENT AND ACCOUNTING SECTION 1. Revenues and Expenditures. The board of directors shall adopt and maintain a system of accounting for receipts and expenditures in conformance with the laws of the United States and of the State of Alaska applicable to cooperative associations and corporations, which system shall at all times provide the proper reserves for payments of interest and principal on outstanding indebtedness, reserves for taxes, insurance, depreciation, replacement of capital plant and facilities, and such other reserves and accounts as the board of directors shall deem proper. SECTION 2. Accounting System and Reports. The accounting system adopted and maintained by the board of directors shall conform to such rules and regulations applicable to accounting systems, their establishment and operation, and which may be established by any applicable laws, rules and regulations of the United States, the State of Alaska, or any regulatory agency thereof of competent jurisdiction. The board of directors shall also, after the close of each fiscal year, cause to be made a full, complete and independent audit of the accounts, books, and financial conditions of the Association as of the end of each fiscal year. A reasonably comprehensive and easily understood summary of the audit report shall be submitted to the members prior to each annual meeting. SECTION 3. Disclosure. Repealed April 25, 1996. ARTICLE IX DISPOSITION OF PROPERTY SECTION 1. Disposition of Property. (a) The board of directors shall have full power and authority to authorize the execution and delivery of a mortgage or mortgages, or a deed or deeds of trust, of any and all of the property, rights, privileges, licenses, franchises and permits of the Association, whether acquired or to be acquired, and wherever situated, as well as the revenues therefrom, all upon such terms and conditions as the board of directors shall determine, to secure any indebtedness of the Association. (b) The Association may not sell, lease, or otherwise dispose of all or a substantial portion of the Association's property unless such sale, lease, or other disposition is authorized by the affirmative vote of not less than the majority of all the members of the cooperative. However, the board of directors may sell, lease, or otherwise dispose of all or a substantial portion of its property to another cooperative, if authorized by a majority of those members of the Association voting, but in no event can the affirmative vote be less than 10% of the members as of the date of notice of the election. ARTICLE X SEAL The corporate seal of the Association shall be in the form of a circle and shall have inscribed thereon the name of the Association and the words "Corporate Seal, State of Alaska." ARTICLE XI FINANCIAL TRANSACTIONS SECTION 1. Contracts. Except as otherwise provided in these bylaws, the board of directors may authorize any officer or officers, agent or agents, to enter into any contract, or execute and deliver any instrument, in the name and on behalf of the Association, and such authority may be general or confined to specific instances. SECTION 2. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, and all notes, bonds or other evidences of indebtedness issued in the name of the Association, shall be signed by such officer or officers, agent or agents, employee or employees of the Association, and in such manner, as shall from time to time be determined by resolution of the board of directors. SECTION 3. Deposits. All funds of the Association shall be deposited from time to time to the credit of the Association in such bank or banks as the board of directors may select. SECTION 4. Fiscal Year. The fiscal year of the Association shall begin on the first day of January of each year and shall end on the thirty-first day of December of the same year. SECTION 5. Full and Open Competitive Bidding. It is deemed to be in the best interest of the Association: to encourage and require full and open competitive bidding of contracts; to take affirmative steps to insure that the Association selects the lowest responsible bidder for its requirements from among the broadest range of suppliers qualified by expertise and resources; and to insure that responsible bidders are not excluded. These requirements shall not apply in emergency matters, to professional service contracts, or (in the discretion of the Association) to contracts reasonably expected to be less than $50,000. The Directors shall require a review of the Association's bidding procedures and qualifications and shall take such actions as may be in the best interests of the Association as determined herein. Within thirty (30) months of the passage of this Section 5, the Board of Directors shall have fully implemented the provisions of this Section 5. ARTICLE XII MISCELLANEOUS SECTION 1. Membership in Other Organizations. The Association may, with the approval of the Board of Directors, become a partner, member, shareholder or holder of any other interest in any entity engaging in any lawful business. SECTION 2. Waiver of Notice. Any member or director may waive in writing any notice of a meeting required to be given by these bylaws. The attendance of a member or director at any meeting shall constitute a waiver of notice of the meeting, unless the person participates in the meeting solely for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened. SECTION 3. Interpretation. Wherever the masculine gender is used in these bylaws it shall be construed also to refer to the feminine. ARTICLE XIII AMENDMENTS SECTION 1. Notice. These bylaws may be altered, amended or repealed by the members at any regular or special meeting, or by ballot as provided for in Article III, Section 8, provided the notice of such meeting shall have contained a copy of the proposed alteration, amendment or repeal. Notice to the membership shall be given ninety days prior to the annual meeting election for submission of recommended bylaw changes. SECTION 2. Bylaws Committee. It shall be the duty of the board of directors to appoint, not later than December 15th of each year, members to a committee on bylaws, as provided in Article XV of these bylaws. The committee shall consist of not less than five nor more than seven members, who shall be selected from different sections of the service area of the Association so as to insure equitable representation. No member of the board of directors may serve on such a committee. The committee shall review the bylaws of the Association, consider any recommendations for revisions thereof which may be made by the board of directors or any member, and report their recommendations concerning the bylaws to the annual membership meeting. Nothing herein shall be interpreted to limit the authority of the board of directors to propose changes in the bylaws, or the right of the members to call a special meeting for any proper purpose pursuant to Article III, Section 2, herein. ARTICLE XIV ADVISORY COUNCIL SECTION 1. Member Advisory Council. The board of directors shall create and establish a Member Advisory Council to advise the board. SECTION 2. General Duties. It shall be the duty of the board of directors to appoint members to the advisory council, as provided in Article XV. Members shall be selected from different sections of the service area to the Association so as to insure equitable representation. ARTICLE XV STANDING AND AD HOC COMMITTEES SECTION 1. General. This section shall apply to standing and ad hoc committees which may from time to time be appointed by the board. Standing committees include: the Election Committee, as provided for in Article III, Section 8; the Nominating Committee, as provided for in Article IV, Section 4; the Bylaws Committee, as provided for in Article XIII, Section 2; and the Member Advisory Council, as provided for in Article XIV. SECTION 2. Compensation. Members of standing and ad hoc committees shall receive no compensation or gratuity for their participation in the affairs of the Association. SECTION 3. Terms. The terms of standing committee members shall be for no more than three (3) years and be staggered so that, as nearly as possible, one-third shall expire each year. SECTION 4. Membership. In order to be fairly representative of the Association's diverse membership, it is preferable that standing and ad hoc committees be comprised of members who reflect that diversity. Toward that end, the selection process shall include consideration of the member's occupation, education, experience, geographical area in which service is provided by the Association, and type of service provided by the Association. A person is eligible to serve on such committees provided that such person is not: (a) an employee or director of the Association; (b) a director, officer or employee of any union local currently acting as a bargaining agent for Association employees; (c) a person employed by a competing enterprise, however, an employee of the Municipality of Anchorage who is not directly employed by Municipal Light and Power is eligible to serve if he or she has no fiduciary duties which in any way pertain to Municipal Light and Power; (d) a person having a financial interest in a competing enterprise; (e) a supplier, contractor, consultant or other entity which does business with the Association or a person with more than a 20% ownership interest in a supplier, contractor, consultant or other entity which does business with the Association except for providers whose actual business with the Association does not exceed $50,000; or (f) a person living in the same household with and financially interdependent upon any of the persons listed in (a) through (e), above. SECTION 5. Vacancy. In the case of a vacancy, the board of directors shall appoint an Association member in accordance with the provisions of this Article to complete the unexpired term of a committee member. ARTICLE XVI INDEMNIFICATION The Association shall indemnify and defend directors, officers, employees or agents of the Association who are, or are threatened to be made, parties to civil, criminal or administrative proceedings, for expenses (including attorneys' fees), judgments, fines and settlements, actually and reasonably incurred, if the acts complained of were performed within the scope of the director's, officer's, employee's or agent's duties, and the director, officer, employee or agent acted in good faith and in a manner he reasonably believed should be in, or not opposed to, the best interests of the Association, and, with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The Association may purchase and maintain insurance to provide for such indemnification and defense. ARTICLE XVII MEMBER ACCESS TO INFORMATION SECTION 1. Access Rights. The rights of the members to examine and make copies of the books and records of the Association at a reasonable time and for a proper purpose in accordance with Alaska Statutes shall not be infringed. The following information is deemed to be requested for a proper purpose without any showing whatsoever and shall be made available to members on request of a member. (a) Names and mailing addresses of Association members when requested by a candidate running for election to the Association Board; (b) Salary, title, job classification and position description, benefits, leave accrued and cashed-in, and hours worked, but not employee name, for each employee position in the Association; (c) Collective bargaining agreements of any kind to which the Association is a party; (d) Published information which shall include: 1) Documents provided to any regulatory authority including, but not limited to Alaska Public Utilities Commission (APUC), Federal Energy Regulatory Commission (FERC) and Securities and Exchange Commission (SEC) filings, 2) Documents provided in open session to the Board of Directors or Association committees, including but not limited to budget documents, feasibility studies, audits or cost effectiveness studies, correspondence between the Association and third parties and minutes of Board of Directors or Association committee meetings. SECTION 2. Charges. The Association may charge no more than the actual incremental cost of producing the above information. SECTION 3. Policies and Procedures. Nothing in this Article XVII prevents the Association from allowing for additional disclosure of Association information or from developing other rules for disclosure and payment therefor by policy or procedure provided that the policy or procedure shall in no way restrict the disclosure required in this Article XVII. EX-10.68 3 CONFIRMATION FOR U.S. DOLLAR TREASURY RATE-LOCK CONFIRMATION FOR U.S. DOLLAR TREASURY RATE-LOCK TRANSACTION TO BE SUBJECT TO 1992 MASTER AGREEMENT TO: Chugach Electric Association, Inc. 5601 Minnesota Drive Anchorage, AK 99519-6300 ATTN: Evan J. Griffith, Jr. FAX: (907) 762-4514 FROM: Lehman Brothers Financial Products Inc. (the "Treasury Rate-Lock Provider") DATE: March 17, 1999 Our Reference No. _________________ The purpose of this letter agreement is to confirm the terms and conditions of the treasury rate lock transaction ("Treasury Rate Lock Transaction") entered into between us on the Trade Date specified below. This letter agreement constitutes a "Confirmation" as referred to in the 1992 Master Agreement specified below. 1. The definitions and provisions contained in the 1991 ISDA Definitions as published by the International Swaps and Derivatives Association, Inc. (the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. Each party represents and warrants to the other that (i) it is duly authorized to enter into this Treasury Rate Lock Transaction and to perform its obligations hereunderand (ii) the person executing this Confirmation is duly authorized to execute and deliver it. 2. This Confirmation supplements, forms part of, and is subject to, the 1992 Master Agreement dated as of March 17, 1999 (including the related Schedule thereto (the "Schedule")) as amended and supplemented from time to time (the "Agreement"), between Chugach Electric Association, Inc. ("Counterparty") and the undersigned Treasury Rate-Lock Provider. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. The terms of the Treasury Rate-Lock Transaction to which this Confirmation relates are as follows: Notional Amount: 10 year U.S. Treasury: $196,000,000 30 year U.S. Treasury: $18,700,000 Trade Date: March 17, 1999 Relavant Time: If the Transaction terminates on February 13, 2002, the "Relevant Time" will be 1:00 PM New York Time. Base Treasury Securities: As of the Determination Date, the then current 10 year and 30 year U.S.Treasury Bond Base Treasury Rates: For each Base Treasury Security: the yield to maturity of such Base Treasury Security on the Determination Date (at the Relevant Time) as shown on the Bloomberg Yield Analysis page (street convention) If this page is no longer available, then the Telerate 500 (offer price) on the Determination Date and at the Relevant Time shall be used. Dollar Value of an .01: ("DVBP") As of the Determination Date, the change in the U.S. dollar price of one million dollars of the Base Treasury Securities underlying the Treasury Lock Transaction given a one basis point (.01%) change in their respective yields to maturity, determined separately for each Base Treasury Security. The dollar amount per one million face value will be determined by multiplying the relevant Dollar Value of an .01 field on Bloomberg Financial Market's Government Yield Analysis Page on the Determination Date at the Relevant Time by 10,000. If no Dollar Value of an .01 for the Base Treasury Securities is available on the Bloomberg Financial Market's Government Yield Analysis Page (for either (or both) Base Treasury Securities), the Treasury Rate-Lock Provider shall determine the Dollar Value of an .01 for the affected Base Treasury Security (ies) on the Determination Date and at the Relevant Time on a basis consistent with the manner in which it would determine the Dollar Value of an .01 for a transaction in which it held no financial interest. Determination Date: On or before (as determined by Chugach Electric Association, Inc.) February 13, 2002. Locked-In Treasury Rates: 10 year: 5.653% 30 year: 5.838% Early Termination: This agreement shall be subject to early termination (other than upon the occurrence of an Early Termination Date under Section 6 of the ISDA Master Agreement) only at the option of Chugach Electric Association, Inc., upon at least one New York Banking Day's notice. Any notice of termination sent after 5:00 PM New York Time shall be deemed to have been sent on the next succeeding New York Banking Day. New York Banking Day: Any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. Payment Date: The first New York Banking Day 30 days after the Determination Date (or, if an Early Termination Event occurs, the date provided in Section 6(d)(ii) of the Agreement). Adjustment Amount: If the Determination Date is February 13, 2002, the Adjustment Amount will be determined as follows: 1) multiply (a) the DVBP for 10 year Treasury Bonds, times (b) the Notional Amount applicable to 10 year Treasury Bonds (expressed in millions of dollars), times (c) the difference in basis points of yield between the relevant Base Treasury Rate and Locked-In Treasury Rate (expressed as a positive number if the relevant Base Treasury Rate exceeds the relevant Locked-In Treasury Rate and as a negative number otherwise); 2) multiply (a) the DVBP for 30 year Treasury Bonds, times (b) the Notional Amount applicable to 30 year Treasury Bonds (expressed in millions of dollars), times (c) the difference in basis points of yield between the relevant Base Treasury Rate and Locked-In Treasury Rate (expressed as a positive number if the relevant Base Treasury Rate exceeds the relevant Locked-In Treasury Rate and as a negative number otherwise); and 3) add the results of the preceding calculations. If the total is a negative number, the absolute value of that number is the Adjustment Amount, and shall be paid by Chugach to the Counterparty. If the total is a positive number, that number is the Adjustment Amount, and shall be paid by the Counterparty to Chugach. If the total is zero, then no payment shall be made by or to any party. If the Determination Date is any date before February 13, 2002 (for any reason whatsoever), the Adjustment Amount shall be determined in accordance with Part 4(d) of the Schedule. Payment of Adjustment Amount: Payment of the Adjustment Amount will be made on the Payment Date. Assignment: No assignment without the prior written consent of the other party except as permitted by Section 7 of the ISDA Master Agreement and except as provided in the Schedule under the heading "Credit Assignment Event". Governing Law: New York. Payment Instructions: Chugach Electric Association, Inc.:as from time to time provided in writing by Chugach Electric Association, Inc. Treasury Rate-Lock Provider: as from time to time provided in writing by the Treasury Rate- Lock Provider. Placement Fee: Each of Chugach Electric Association, Inc. and the Treasury Rate-Lock Provider acknowledges that the Treasury Rate-Lock Provider is paying Feld Winters a fee of $1,386,116.00 in connection with the parties' entry into the Treasury Rate-Lock Transaction Each of the parties represents to the other as follows: Its entry into the Treasury Rate-Lock Transaction has been duly authorized by all necessary corporate action and does not violate any law applicable to it or the terms of any agreement to which it is a party; It is not relying on the other party in connection with its decision to enter into the Treasury Rate-Lock Transaction; and the other party is not acting as an advisor to or fiduciary of such party in connection with the Treasury Rate-Lock Transaction, regardless of whether the other party has provided, or provides, it with market information or the other party's views with respect to any aspect of the Treasury Rate-Lock Transaction; It understands the risks of the Treasury Rate-Lock Transaction and any legal, regulatory, tax, accounting and economic consequences resulting therefrom; It has determined, based upon its own judgment and upon any advice received from such of its own professional advisors as it has deemed necessary to consult in connection with the Treasury Rate-Lock Transaction, that entering into the Treasury Rate-Lock Transaction is appropriate for it in light of its financial capabilities and objectives; and This Confirmation, when executed and delivered by such party, will constitute a legal, valid and binding obligation of such party, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law). Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within three (3) Business Days by returning via telecopier an executed copy of this Confirmation to the attention of Sean Largotta. Failure to respond within such period shall not affect the validity or enforceability of this letter agreement, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, LEHMAN BROTHERS FINANCIAL PRODUCTS INC. By: /s/Sherri Venokur Authorized Signatory Confirmed as of the date first written above: CHUGACH ELECTRIC ASSOCIATION, INC. By:/s/ Evan J. Griffith, Jr. Evan J. Griffith, Jr. Authorized Signatory EX-10.69 4 COBANK6 CLOSING DOCUMENTS DATED MARCH 30, 1999 March 19, 1999 Ms. Diana Woodard, CCTS Relationship Specialist US Bank - Corporate Trust Services 601 Union Street, Suite 2120 Seattle, WA 98101 Subject: Request for Execution and Delivery of CoBank-6 Bond Dear Ms. Woodard: Enclosed are the following original documents, including attachments, in connection with the CoBank-6 bond in the amount of $42,500,000: Opinion of Counsel, Board Resolution, First Mortgage Bond, Certificate as to Bondable Additions No. 6, Available Margins Certificate, and Officers Certificate. I have also enclosed a set of these documents for your files. Please execute the bond anddeliver it to the attention of John McFarlane at CoBank, P.O. Box 5110, Denver, Colorado 80217. Would you also please provide Chugach a copy of the executed bond for our files. Thank you for your assistance in this transaction. Sincerely, /s/ Evan J. Griffith, Jr. Evan J. Griffith, Jr. Executive Manager, Finance & Energy Supply Enclosures March 19, 1999 U.S.Bank Trust, National Association 601 Union Street, Suite 2120 Seattle, Washington 98101 Attention: Diana Woodard Re: Opinion of Counsel and Title Evidence in connection with issuance of First Mortgage Bond, CoBank Series Ladies and Gentlemen: This letter constitutes the opinion of General Counsel for Chugach Electric Association, Inc.("Chugach") pursuant to Sections 5.01C, 5.01E, 5.02(5), 5.02(6), 5.02(7) and 5.03D of the Indenture of Trust dated as of September 15, 1991 between Chugach and U.S.Bank Trust, National Association, successor-in-interest to First Trust National Association, successor-in-interest to Security Pacific Bank Washington, N.A., as Trustee (the "Trustee") (as amended by the First, Second, Third, Fourth, Fifth, Sixth, Seventh and Eighth Supplemental Indentures thereto, dated March 17, 1993, May 19, 1994, June 29, 1994, March 1, 1995, September 6, 1995, April 3, 1996, June 1, 1997, and February 4, 1998 respectively, the "Indenture of Trust") and the terms used in this opinion shall have the meanings established therein. I have based my opinion on my review of the following records and documents associated with the issuance of a First Mortgage Bond, CoBank Series, No. CoBank-6, in the original principal amount of $42,500,000 Dollars (the "Bond") pursuant to the Third Supplemental Indenture of Trust dated June 29, 1994 as amended by the Seventh Supplemental Indenture of Trust dated as of June 1, 1997 (the "CoBank Supplemental Indenture"), which review is in my opinion sufficient to enable me to express an informed opinion on the matters discussed in this letter: The Bond; Indenture of Trust; Credit Agreement between Chugach and National Bank for Cooperatives (predecessor to CoBank, ACB)("CoBank") dated June 22, 1994 as amended by Amendment No. 1 to National Bank for Cooperatives Credit Agreement dated June 1, 1997; U.S. Bank, N.A., as Trustee March 19, 1999 Page 2 Board Resolution dated March 19, 1999, authorizing the issuance of a First Mortgage Bond to CoBank pursuant to the CoBank Supplemental Indenture; Officers' Certificate dated March 19, 1999, signed by the General Manager and the Executive Manager, Finance and Planning; Available Margins Certificate dated March 19, 1999; Certificate as to Bondable Additions No. 6 dated March 19, 1999; The articles of incorporation of Chugach (including all amendments thereto); and The bylaws of Chugach as in effect on the date hereof. Based on my review of the above records and my knowledge of Chugach as General Counsel, I am of the opinion that: (1) no tax, recording or filing law requirements apply to the issuance of the Bond; (2) no authorization, approval or consent by any Federal, state or other governmental regulatory agency is required for the issuance of the Bond; (3) all conditions precedent provided for in the Indenture of Trust relating to the authentication and delivery of the Bond to CoBank have been complied with; (4) the Bond, when executed by Chugach and authenticated and delivered by the Trustee and when issued by Chugach will be the legal, valid and binding obligation of Chugach enforceablein accordance with its terms and the terms of the Indenture of Trust (subject to bankruptcy,insolvency, fraudulent transfer, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equity principles) and entitled to the benefits of and secured by the lien of the Indenture of Trust equally and ratably with all other Outstanding Secured Bonds; (5) none of the Trust Estate is subject to any Prior Lien other than Prior Liens permitted by Section 14.06 of the Indenture of Trust; (6) Except as noted below, no instruments, other than the Indenture of Trust, are necessary to vest in the Trustee as a part of the Trust Estate all right, title and interest of Chugach in and to all Property Additions to which the Certificate as to Bondable Additions refers. Chugach will prepare a Supplemental Indenture of Trust, the purpose of which is to provide record notice of U.S. Bank, N.A., as Trustee March 19, 1999 Page 3 the application of the lien of the Indenture to two parcels of real property acquired January 31, 1999 and February 1, 1999 for $7,500 each. Chugach intends to submit the Supplemental Indenture ofTrust and a resolution approving it to its Board of Directors during 1999. Chugach will record it inthe necessary Recording Districts after execution. In addition, Chugach sold a parcel of real property December 23, 1998 for $9,920 for which it will seek release from the lien of the Indenture; (7) with respect to all Property Additions to which the Certificate as to Bondable Additions refers that are located or constructed on, over or under public highways, rivers, waters or other public property, Chugach has the lawful right under permits or franchises granted by a governmental body having jurisdiction in the premises or by law to maintain and operate such Property Additions for an unlimited, indeterminate or indefinite period of time or for the period, if any, specified in such permit, franchise or law, and to remove such property at the expiration of the period covered by such permit, franchise or law, or the terms of such permit, franchise or law require any public authority having the right to take over such property to pay fair consideration therefor. (8) Chugach has corporate power to own and operate all Property Additions to which the Certificate as to Bondable Additions refers; (9) the Indenture of Trust is a lien upon all Property Additions described in the Certificate as to Bondable Additions (except such as have been Retired) free and clear of any Prior Liens except to the extent otherwise provided in Section 6.02D(2) of the Indenture of Trust; (10) the documents which have been or are herewith delivered to the Trustee conform to the requirements of the Indenture of Trust for an Application for the authentication and delivery of the Bond and, upon the basis of the Application, all conditions precedent provided for in the Indenture of Trust relating to authentication and delivery of the Bond have been complied with; (11) Chugach has title to the Property Additions described in the Certificate as to Bondable Additions (except as have been Retired), free and clear of any Prior Liens (except to the extent otherwise permitted by the proviso to Section 6.02D(2) of the Indenture of Trust and except for Permitted Encumbrances), and Chugach has duly obtained any easements or rights-of-way which are described in the Certificate as to Bondable Additions, subject only to Permitted Encumbrances; and, (12) to the extent Chugach's Application for authentication and delivery of the Bond is based on satisfaction of the conditions described in Section 5.03 of the Indenture of Trust, the evidence of repurchase of Bonds that has been delivered to the Trustee conforms to the requirements of the Indenture of Trust and, upon the basis of the relevant Application, the conditions precedent to authentication and delivery of the Bond under Article Five of the Indenture of Trust have been satisfied. U.S. Bank, N.A., as Trustee March 19, 1999 Page 4 Pursuant to the definition of "Title Evidence" contained in Section 1.01 of the Indenture of Trust, each of the foregoing opinions to the effect that Chugach has title to any portion of the Trust Estate shall be deemed to be an opinion only that Chugach has such title as in my opinion is satisfactory for the use thereof in connection with its operations and is qualified by and subject to any irregularity or deficiency in the record evidence of title which, in my opinion, can be cured by proceedings within the power of Chugach or does not substantially impair the usefulness of such property for the purposes of Chugach. This opinion is limited to the federal laws of the United States of America and the laws of the State of Alaska, and I disclaim any opinion as to the laws of any other jurisdiction. This opinion is rendered to you in connection with the issuance of the Bond and is solely for your benefit. This opinion may not be relied upon by any other person, firm, corporation or other entity without my prior written consent. I disclaim any obligation to advise you of any change of law that occurs, or any facts of which I become aware, after the date of this opinion. Sincerely, CHUGACH ELECTRIC ASSOCIATION, INC. /s/ Donald W. Edwards Donald W. Edwards General Counsel I:\cobnk425.ltr WHEREAS, the Board of Directors has previously approved and Chugach Electric Association, Inc. ("Chugach") has entered into a Third Supplemental Indenture of Trust dated as of June 29, 1994 between Chugach and Seattle-First National Bank ("Third Supplemental Indenture") amending and supplementing that Indenture of Trust dated as of September 15, 1991 (as heretofore amended, the "Indenture") and establishing a new series of bonds to be designated First Mortgage Bonds, CoBank Series, to be issued to Cobank, ACB (successor by merger to National Bank for Cooperatives ("CoBank") pursuant to a Credit Agreement dated June 22, 1994, as amended by Amendment No. 1 to National Bank for Cooperatives Credit Agreement dated June 1, 1997, from time to time to secure advances made by CoBank, and the Third Supplemental Indenture has been amended by the Seventh Supplemental Indenture of Trust dated as of June 1, 1997 (the Third Supplemental Indenture as so amended, the "CoBank Supplemental Indenture"); WHEREAS, it is in the best interest of Chugach for the Board of Directors to authorize the issuance of a bond to CoBank under the CoBank Supplemental Indenture for the purpose of securing indebtedness for $42,500,000.00. NOW THEREFORE BE IT RESOLVED, that the Board of Directors hereby requests the authentication and delivery of a First Mortgage Bond, CoBank Series (designated CoBank-6), in the principal amount of $42,500,000.00, under Sections 5.02 and 5.03 of the Indenture; BE IT FURTHER RESOLVED, that the President, Vice President, Treasurer, Secretary, General Manager and Executive Managers of Chugach, or any of them (the "Officers and Managers") are and each of them hereby is, authorized, empowered and directed, for and on behalf of Chugach, to execute and deliver, 1) the First Mortgage Bond, CoBank Series, No. CoBank-6, in the amount of $42,500,000.00, to bear interest at the CoBank Fixed Rate Option in substantially the form attached hereto, and 2) any Company Request, Application, Company Order or other document or instrument that such person deems necessary or desirable in connection with the issuance of such bond; BE IT FURTHER RESOLVED, that the execution by such Officers and Managers of the said Bond, instrument or other document and the doing by them of any act in connection with the foregoing matters shall conclusively establish their authority therefor from Chugach. CERTIFICATION I, Pat Jasper, do hereby certify that I am President of Chugach Electric Association, Inc., an electric non-profit cooperative membership corporation organized and existing under the laws of the State of Alaska; that the foregoing is a complete and correct copy of a resolution adopted at a meeting of the Board of Directors of this corporation, duly and properly called and held on the 17th day of March, 1999, that a quorum was present at the meeting; that the resolution is set forth in the minutes of the meeting and has not been rescinded or modified. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of this corporation this 19th day of March, 1999. (SEAL) /s/ Patricia B. Jasper President THIS FIRST MORTGAGE BOND, CoBANK SERIES, HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACT OR IN RELIANCE UPON AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT. Chugach Electric Association, Inc. First Mortgage Bond, CoBank Series, Due 3/15/2002 No. CoBank-6 $42,500,000.00 Chugach Electric Association, Inc., an Alaska electric cooperative (herein called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CoBank (the "Lender"), or registered assigns, (1) the principal sum of $42,500,000.00 Dollars, (2) interest (computed on the basis of a 360 day year) thereon, from the date of issuance, at the rate or rates hereafter provided for, which interest shall be payable on each Regular Interest Payment Date with respect to the principal balance Outstanding from time to time during the calendar month most recently ended prior to such Regular Interest Payment Date, and (3) a Redemption Premium in the amounts (if any) hereinafter provided. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture described on the reverse hereof, be paid to the Person in whose name this Bond (or one or more predecessor Bonds) is registered at the close of business on the Regular Record Date (as defined below) for such interest. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof shall be given to Holders of Bonds of this series not less than 10 days prior to such Special Record Date. Payments of the principal of (and premium, if any) and interest on this Bond shall be made to the Holder hereof by wire transfer of immediately available funds. Wire transfers will be made to ABA #307088754 for advice to and credit of CoBank (or to such other account as the Holder hereof may designate by notice) and shall be in time to be received prior to 1:00 p.m., Alaska time, on the date each payment is due. This Bond will mature on the dates stated above. Interest only shall be due until the first Principal Payment Date. The principal amount of this Bond shall be repaid in accordance with the following amortization schedule: Date 03/15/2002 Principal Amount Due $42,500,000 Reference is hereby made to the further provisions of this Bond set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Bond shall not be entitled to any benefit under the Indenture or be valid or obligatory for anypurpose. IN WITNESS WHEREOF, the Company has caused this Bond to be duly executed. Dated: March 19, 1999 CHUGACH ELECTRIC ASSOCIATION, INC. Attest:/s/ Patricia B. Jasper By:/s/ Eugene N. Bjornstad President Authorized Officer This Bond is one of a duly authorized issue of Bonds of the Company designated as its "First Mortgage Bonds" (herein called the "Bonds"), issued and to be issued in one or more series under, all equally and ratably secured by, an Indenture of Trust, dated as of September 15, 1991, (herein together with the First Supplemental Indenture of Trust, dated as of March 17, 1993, the Second Supplemental Indenture of Trust dated as of May 19, 1994, the Third Supplemental Indenture of Trust dated as of June 29, 1994, the Fourth Supplemental Indenture of Trust dated as of March 1, 1995, the Fifth Supplemental Indenture of Trust dated as of September 6, 1995, the Sixth Supplemental Indenture of Trust dated as of April 3, 1996, the Seventh Supplemental Indenture of Trust dated as of June 1, 1997, and the Eighth Supplemental Indenture of Trust dated as of February 4, 1998, called the "Indenture"), between the Company and U.S.Bank Trust, National Association (successor-in-interest to First Trust National Association, successor-in-interest to Security Pacific Bank Washington, N.A.), as trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture reference is hereby made for a statement of the description of the properties thereby mortgaged, pledged and assigned, the nature and extent of the security and the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Bonds and of the terms upon which the Bonds are, and are to be, authenticated and delivered. This Bond is one of the series and maturity designated on the face hereof. This Bond is subject to redemption at any time, upon at least twenty (20) Business Days (as hereinafter defined) notice to the Holder hereof, as a whole or in part in multiples of $1,000, at the election of the Company, at a Redemption Price equal to 100% of the principal amount being redeemed plus the Redemption Premium (as defined below), if any, with respect to the principal amount hereof being redeemed, together with accrued interest to the Redemption Date on the principal amount being redeemed, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holder of this Bond, or one or more Predecessor Bonds, of record at the close of business on the relevant Record Dates. The Company has selected the Fixed Rate Option set forth in (B) below for an initial period of 30 days at an interest rate of ______ % per annum: (A) Variable Rate Option. Except as provided below, the unpaid principal balance of this CoBank Bond shall bear interest at a rate per annum equal at all times to the National Variable Rate (as hereinafter defined) plus 25 basis points. For purposes hereof, the National Variable Rate shall mean the rate of interest established by CoBank from time to time as its National Variable Rate. The National Variable Rate is intended by CoBank to be a reference rate, and CoBank may charge other borrowers rates at, above, or below that rate. Any change in the National Variable Rate shall take effect on the date established by CoBank as the effective date of such change, and CoBank agrees to notify the Company promptly after any change in the rate. (B) Fixed Rate Option. From time to time at the request of the Company, the rate of interest charged on this CoBank Bond may be fixed at a rate to be quoted by CoBank in its sole and absolute discretion. Under this option, individual amounts may be fixed for periods ranging from thirty (30) days to the life of the CoBank Bond, and the minimum aggregate principal amount of CoBank Bonds on which the interest rate may be fixed at any one time shall be $100,000. However, rates may only be fixed for periods which expire on a Business Day, and shall take into account repayments of principal in accordance with the amortization schedule. Upon the expiration of any fixed rate period, interest shall automatically accrue at the rate set forth in (A) above, unless the amount fixed is repaid or the Company fixes the rate for an additional period. Until the principal hereof is completely repaid whether by reason of maturity or redemption, interest on this Bond not theretofore paid shall be payable, in arrears, on each Interest Payment Date with respect to the principal balance outstanding from time to time during the Interest Period to which such Interest Payment date relates. Interest shall be calculated on the actual number of days this Bond is outstanding on the basis of a year consisting of 360 days. In calculating interest, the first day of each period for which interest is calculated shall be included and the day on which interest is paid shall be excluded. If prior to maturity of this Bond the Company fails to make any payment required to be made hereunder or under the terms of the Credit Agreement, then at the Holder's option in each instance, such payment shall bear interest from the date due to the date such amount is paid in full at the Default Rate (as hereafter defined). After maturity, whether by reason of acceleration or otherwise, the entire indebtedness under this Bond shall automatically bear interest at the Default Rate. All interest provided for in this provision shall be payable on demand. If an Event of Default with respect to the Bonds shall occur and be continuing, the principal of the Bonds may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of Bonds under the Indenture at any time by the Company with the consent of the Holders of a majority in aggregate principal amount of Bonds of all series at the time outstanding affected by such modification. The Indenture also contains provisions permitting the Holders of a majority in principal amount of Bonds at the time Outstanding, on behalf of the Holders of all Bonds to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Bond shall be conclusive and binding upon such Holder and upon all future Holders of this Bond and of any bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Bond. No reference herein to the Indenture and no provisions of this Bond or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Bond at the times, places and rates, and in the coin or currency, herein provided. Pursuant to Section 34.20.160 of the Alaska Statutes, notice is hereby given that the Company is personally obligated and fully liable for the amount due under this Bond and the Holder of this Bond has the right to sue on this Bond and obtain a personal judgment against the Company for satisfaction of the amount due hereunder either before or after a judicial foreclosure of the lien of the Indenture under Sections 09.45.170 through 09.45.220 of Alaska Statutes. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Bond is registrable in the Bond Register. Upon surrender of this Bond for registration of transfer at the office or agency of the company in Anchorage, Alaska, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Bond Registrar duly executed by the Holder hereof or the Holder's attorney duly authorized in writing, one or more new Bonds of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Bonds of this series are issuable only in registered form without coupons in denomination of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Bonds of this series are exchangeable for a like aggregate principal amount of Bonds of this series of a different authorized denomination, but of the same maturity and interest rate or interest rate formula, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Bond for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Bond is registered as the owner hereof for all purposes, whether or not this Bond is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. As used herein, the term: "Business Day" means any day on which CoBank and the Trustee are open for business. "CoBank" means CoBank, ACB (as successor to National Bank for Cooperatives by virtue of merger). "CoBank Bond" means a First Mortgage Bond, CoBank Series. "Credit Agreement" means that Credit Agreement secured hereby dated as of June 22, 1994, as amended by Amendment No. 1 to National Bank for Cooperatives Credit Agreement dated June 1, 1997 between CoBank and the Company, as the same may be amended from time to time, or such other Credit Agreement as may hereafter exist between CoBank and the Company relating to the issuance of CoBank Bonds. "Default Rate" means 4% per annum in excess of the rate or rates that would otherwise be in effect. "Interest Payment Date" with respect to any CoBank Bond means a Regular Interest Payment Date with respect to such Bond. "Interest Period" means a calendar month. "Maturity Date" with respect to this CoBank Bond means the due date set forth on the face hereof. "National Variable Rate" shall mean the rate of interest established by CoBank from time to time as its National Variable Rate. The National Variable Rate is intended by CoBank to be a reference rate, and CoBank may charge other borrowers rates at, above, or below that rate. "Principal Payment Date" with respect to this CoBank Bond means each date on which a payment of principal is required to be made on this CoBank Bond pursuant to the amortization schedule set forth on the face hereof. "Redemption Premium" with respect to this CoBank Bond means the premium due upon the redemption or repricing of any portion of this CoBank Bond then subject to a fixed rate of interest calculated by CoBank in accordance with its methodology and equal to the present value of the difference between: (A) the amount of interest which would have accrued on such portion during the remainder of the applicable fixed rate period; less (B) the amount of interest that CoBank would earn if such portion were reinvested for the remaining fixed rate period in U.S. Treasury obligations having a weighted average life approximately equal to the remaining fixed rate period. For the purpose of calculating present value, the discount rate will be the rate of interest accruing on the U.S. Treasury obligations selected in (B) above. "Regular Interest Payment Date" with respect to this CoBank Bond means the 20th day of each calendar month. "Regular Record Date" for the payment of interest on this CoBank Bond payable, and punctually paid or duly provided for, on any Interest Payment Date means the last day (whether or not a Business Day) of the calendar month next preceding such Interest Payment Date. All other capitalized terms used in this Bond shall have the meanings assigned to them in the Indenture. TRUSTEE'S CERTIFICATE OF AUTHENTICATION FOR CoBANK BONDS This is one of the Bonds of the series designated therein referred to in the within-mentioned Indenture. U.S.BANK TRUST, National Association, as Trustee By:/s/ Dawnita Brown Authorized Signatory CERTIFICATE AS TO BONDABLE ADDITIONS NO. 6 (Re Application for Authentication and Delivery of Bond CoBank-6) Pursuant to Section 5.02 of the Indenture of Trust dated as of September 15, 1991 from Chugach Electric Association, Inc. (the "Company") to Security Pacific Bank Washington, N.A., as trustee, as modified and supplemented by Supplemental Indentures No. 1, 2, 3, 4, 5, 6 and 7 thereto dated March 17, 1993, May 19, 1994, June 29, 1994, March 1, 1995, September 6, 1995, April 3, 1996 and June 1, 1997, respectively (the "Indenture"), and in connection with the Company's request for authentication and delivery of an additional Bond No. CoBank-6, the undersigned hereby make this Certificate of Bondable Additions. Capitalized terms not otherwise defined herein have the meanings assigned to them in the Indenture. (a) The balance of Bondable Additions stated in item 9 of the most recent (September 30, 1997) Summary of Certificate as to Bondable Additions heretofore filed with the Trustee as the balance of Bondable Additions to remain after the action then applied for, is $59,412,585 (item 1 in the Summary of Certificate as to Bondable Additions set forth below (the "Summary")). (b) The Amount (item 2 in the Summary) of Property Additions, not described in any previous Certificate as to Bondable Additions, acquired during the period from October 1, 1997 through January 31, 1999, is $16,045,300. Such Property Additions are described in reasonable detail on Attachment 1 hereto, and: i) have not been included in any previous Certificate as to Bondable Additions; ii) do not include Acquired Facilities or assets acquired and paid for in whole or in part through the transfer or delivery of securities or other property; and iii) are listed in Attachment 1 at Cost, which in the opinion of the undersigned is equal to their Fair Value to the Company. (c) The aggregate amount (item 3 in the Summary) of all Retirements during the period from October 1, 1997, through January 31, 1999, is $4,465,823. (d) There are no credits (item 4 of the Summary) against Retirements. (e) The excess (item 6 in the Summary) of the Amount of Property Additions shown in (b) above (item 2 of the Summary) over the net amount of Retirements (item 5 of the Summary) is $11,579,477, which is the amount of the net Bondable Additions now being certified. (f) The sum (item 7 of the Summary) of the amount shown pursuant to clause (a) above (item 1) and the net amount of Bondable Additions now being certified shown in clause (e) (item 6) above is $70,992,062. (g) The total amount (item 8 in the Summary) of Bondable Additions being used in connection with authentication and delivery of the additional Bond whose authentication and delivery are now being applied for under Section 5.02 of the Indenture is calculated as the bonds currently being applied for times 110% or $42,500,000 x 110% = $46,750,000. (h) The balance (item 9 in the Summary) of the Bondable Additions that will remain after the granting of the Application now being made is $24,242,062. (i) With respect to the Property Additions described in this Certificate: i) such Property Additions are desirable in the conduct of the business of the Company; ii) the allocation of the Cost to the Company of such Property Additions to each account is, in the opinion of the undersigned, proper; and iii) the balance of the Bondable Additions to remain after the action applied for plus the Cost to the Company or the Fair Value to the Company, whichever is less, of uncertified Property Additions is at least equal to the aggregate amount of uncertified Retirements. (j) The allowances or charges (if any) for interest, taxes, engineering, legal expenses, superintendence, insurance, casualties and other items during construction (or in connection with the acquisition of Property Additions) which are included in the Cost to the Company of such of the Property Additions described in this Certificate as were constructed or acquired by or for the Company have been charged and are properly chargeable to fixed plant accounts in accordance with Accounting Requirements and are, in the opinion of the signers, proper in respect of the Property Additions specified; (k) No portion of the Cost to the Company of the Property Additions described in this Certificate should properly have been charged to maintenance or repairs and no expenditures are included in this Certificate which under Accounting Requirements are not properly chargeable to fixed plant accounts. (l) The terms used in this Certificate which are defined in the Indenture are used as defined in the Indenture. Summary of Certificate as to Bondable Additions No. 6 The undersigned certify the following to be a true summary of this Certificate: Start with: 1. The balance of Bondable Additions remaining after the action applied for in the previous Certificate (Certificate No.5)......................................................$59,412,585 Then take the new gross Property Additions as shown in item 2 below: 2. Amount of additional Property Additions now certified, being the Amount of all or some Property Additions in the period from October 1, 1997 through January 31, 1999 (none of which has been certified in any previous Certificate as to Bondable Additions).........................................$16,045,300 Then determine the deductions for Retirements by deducting item 4 below from item 3 below to produce item 5: 3. The aggregate amount of all Retirements.....................$ 4,465,823 4. The sum of the credits against Retirements..........................................................$0 5. The net amount of Retirements to be deducted....................................................$ 4,465,823 Then determine the net Bondable Additions now being certified by deducting item 5 from item 2 to produce item 6: 6. Net Bondable Additions now being certified...................................................$11,579,477 Then add item 1 and item 6 to produce item 7: 7. Total Bondable additions available for the action applied for......................................$70,992,062 Deduct item 8 from item 7 to produce item 9: 8. Bondable Additions now being used...........................$46,750,000 9. Balance of Bondable Additions to remain after the action applied for. . . . . ......................$24,242,062 Dated March 19, 1999 /s/Michael R. Cunningham Michael R. Cunningham Title: Principal Accounting Officer (Accountant) /s/Evan J. Griffith, Jr. Evan J. Griffith, Jr. Title: Principal Financial Officer /s/ Eugene N. Bjornstad Eugene N. Bjornstad Title: General Manager (Engineer) Chugach Electric Association, Inc. Available Margins Certificate Eugene N. Bjornstad, General Manager; Evan J. Griffith, Jr., Executive Manager, Finance and Planning (Principal Financial Officer); and Michael R. Cunningham, Controller (Principal Accounting Officer) of Chugach Electric Association, Inc. each hereby certifies that (1) the Margins for Interest for any 12 consecutive calendar months during the period of 18 calendar months immediately preceding the first day of thecalendar month in which this application for authentication and delivery of Additional Bonds under Section 5.02 of the Indenture described below is made are not less than 1.20 times the Interest Charges during such 12-month period; (2) the sum of (i) Margins for Interest for any 12 consecutive calendar months during the period of 18 calendar months immediately preceding the first day of the calendar month in which this Application for authentication and delivery of additional Bonds under Section 5.02 is made and (ii) Incremental Interest with respect to such 12-month period, is not less than 1.20 times the sum of Interest Charges during such 12-month period plus Incremental Interest with respect to such 12-month period; and (3) the Margins for Interest have been calculated in accordance with the definition contained in Section 1.01 of that Indenture of Trust dated September 15, 1991 (as heretofore amended by the First, Second, Third, Fourth, Fifth, Sixth and Seventh Supplemental Indentures, thereto dated March 17, 1993, May 19, 1994, June 29, 1994 and March 1, 1995, September 6, 1995, April 3, 1996 and June 1, 1997 respectively (the "Indenture") and such calculations are set forth in the Attachment 1 hereto. Capitalized terms used herein shall have the meanings assigned to them in the Indenture. IN WITNESS WHEREOF, we have hereunto signed our names. Dated: March 19, 1999 /s/ Eugene N. Bjornstad /s/ Michael R. Cunningham Eugene N. Bjornstad Michael R. Cunningham Title: General Manager Title: Controller Principal Accounting Officer /s/ Evan J. Griffith, Jr. Evan J. Griffith, Jr. Title: Executive Manager, Finance and Energy Supply Principal Financial Officer AVAILABLE MARGINS COBANK 6 Plus: CoBank Bond Adjusted L/T S/T Tot. at 5.75% Interest Adjusted 12 month Month Margins Int. Exp. Int. Exp Int.Exp. per yr. Expense MFI/ I MFI/ I Ending July, 1997 -1,354,990 2,059,097 193,733 2,252,830 201,250 2,454,080 0.4479 August, 1,001,234 2,059,085 43,905 2,102,990 201,250 2,304,240 1.4345 1997 September, 250,242 2,052,511 55,016 2,107,527 201,250 2,308,777 1.1084 1997 October, 264,390 2,060,074 86,552 2,146,626 201,250 2,347,876 1.1126 1997 November, 3,173,572 2,068,776 69,800 2,138,576 201,250 2,339,826 2.3563 1997 December, 597,397 2,142,071 0 2,142,071 201,250 2,343,321 1.2549 1997 January, 2,422,415 2,141,703 0 2,141,703 201,250 2,342,953 2.0339 1998 February, 1,314,188 2,115,570 0 2,115,570 201,250 2,316,820 1.5672 1998 March, 2,024,866 2,121,985 26,447 2,148,432 201,250 2,349,682 1.8618 1998 April, 562,552 2,096,600 33,550 2,130,150 201,250 2,331,400 1.2413 1998 May, 1998 -363,277 2,105,539 10,267 2,115,806 201,250 2,317,056 0.8432 1.3841 June, 1998 639,439 2,099,371 0 2,099,371 201,250 2,300,621 1.2779 1.3754 July, 1998 -1,557,225 2,105,539 0 2,105,539 201,250 2,306,789 0.3249 1.3701 August, 742,991 2,105,539 0 2,105,539 201,250 2,306,789 1.3221 1.3608 1998 September, 593,694 2,093,309 14,778 2,108,087 201,250 2,309,337 1.2571 1.3731 1998 October, 279,300 2,071,029 25,028 2,096,057 201,250 2,297,307 1.1216 1.3743 1998 November, 1,823,297 2,053,196 12,875 2,066,071 201,250 2,267,321 1.8042 1.3267 1998 December, 248,165 2,050,280 7,201 2,057,481 201,250 2,258,731 1.1099 1.3151 1998 January, 2,921,817 2,052,849 0 2,052,849 201,250 2,254,099 2.2962 1.3342 1999
Chugach Electric Association, Inc. Officers' Certificate Eugene N. Bjornstad, General Manager, and Evan J. Griffith, Jr., Executive Manager, Finance and Planning of Chugach Electric Association, Inc. ("Chugach") each hereby certifies that: 1) he has read the conditions and covenants and definitions related thereto in the Indenture of Trust dated as of September 15, 1991 (as heretofore amended, the "Trust Indenture"); 2) the below opinions are based on the above review and on his knowledge of Chugach in the above capacity; 3) he has, in his opinion, made such examination or investigation as is necessary to enable him to express an informed opinion as to the opinions expressed below; and 4) in accordance with Sections 5.01 B and 5.03 C of the Trust Indenture: (i) No Event of Default exists; (ii) None of the Trust Estate is subject to any Prior Lien other than Prior Liens permitted by Section 14.06 of the Trust Indenture; (iii) In his opinion, all conditions precedent provided for in the Trust Indenture relating to the authentication and delivery of the First Mortgage Bond, CoBank Series No. CoBank-6 ("CoBank-6 Bond") in the principal amount of $42,500,000.00, have been complied with; Capitalized terms not otherwise defined in this Certificate have the meanings assigned to them in the Trust Indenture. IN WITNESS WHEREOF, we have hereunto signed our names. Dated: March 19, 1999 /s/ Eugene N. Bjornstad Eugene N. Bjornstad Title: General Manager /s/ Evan J. Griffith,Jr. Evan J. Griffith, Jr. Title: Executive Manager Finance and Energy Supply Page 1 of 1 Principal Financial Officer CHUGACH ELECTRIC ASSOCIATION, INC. ATTACHMENT 1 TO CERTIFICATE AS TO BONDABLE ADDITIONS NO. 6 NET CHANGES TO ELECTRIC PLANT FOR THE PERIOD OCTOBER, 1997 THROUGH JANUARY, 1999 10/01/97 10/01/97 ADJ FOR GEN PLANT BALANCE 01/31/99 01/31/99 CONVERSION 1/31/99 TO ACCOUNT DESCRIPTION 9/30/97 ADDITIONS RETIREMENTS BALANCE AMORTIZATION (1) - ---------------------------------------------------------------------------------------------------------------------------- PRODUCTION PLANT 31100 626 STM - STRC & IMPR/BELUGA./OTHR/G&A. 7,349,213 0 0 0 7,349,213 31200 626 STM - BLR PLT EQP/BELUGA./OTHR/G&A. 24,850,704 0 0 0 24,850,704 31400 626 STM - TURBOGENR../BELUGA./OTHR/G&A. 20,716,146 0 0 0 20,716,146 31500 626 STM - ACC ELEC EQ/BELUGA./OTHR/G&A. 6,932,778 0 0 0 6,932,778 31600 626 STM -MISC PWR PLT/BELUGA./OTHR/G&A. 544,029 0 0 0 544,029 33100 621 HYD - STRC & IMPR/GENERAL/OTHR/G&A. 690,040 0 0 0 690,040 33200 621 HYD - RESV-DM-WW./GENERAL/OTHR/G&A. 5,698,534 0 0 0 5,698,534 33300 621 HYD - WTWL-TR-GN./GENERAL/OTHR/G&A. 1,047,402 0 0 0 1,047,402 33400 621 HYD - ACC ELEC EQ/GENERAL/OTHR/G&A. 371,914 0 0 0 371,914 33500 621 HYD - MISC PW PLT/GENERAL/OTHR/G&A. 97,706 0 0 0 97,706 33600 621 HYD - RESV-DM-WW./GENERAL/OTHR/G&A. 893,099 0 0 0 893,099 34000 626 OTH - LAND&RIGHTS/BELUGA./OTHR/G&A. 422,664 0 0 0 422,664 34100 622 OTH - STRC & IMPR/INTNATL/OTHR/G&A. 346,045 0 0 0 346,045 34100 624 OTH - STRC & IMPR/BERNLKE/OTHR/G&A. 1,778,752 0 0 0 1,778,752 34100 626 OTH - STRC & IMPR/BELUGA./OTHR/G&A. 20,862,174 0 0 0 20,862,174 34200 622 OTH - FL HLDR-PRS/INTNATL/OTHR/G&A. 152,868 0 0 0 152,868 34200 624 OTH - FL HLDR-PRS/BERNLKE/OTHR/G&A. 471,850 0 0 0 471,850 34200 626 OTH - FL HLDR-PRS/BELUGA./OTHR/G&A. 3,040,258 0 0 0 3,040,258 34300 622 OTH - PRIME MOVER/INTNATL/OTHR/G&A. 3,647,259 0 0 0 3,647,259 34300 624 OTH - PRIME MOVER/BERNLKE/OTHR/G&A. 8,862,659 0 0 0 8,862,659 34300 626 OTH - PRIME MOVER/BELUGA./OTHR/G&A. 49,308,663 3,826,541 2,721,375 0 50,413,829 34400 622 OTH - GENERATORS./INTNATL/OTHR/G&A. 779,742 0 0 0 779,742 34400 624 OTH - GENERATORS./BERNLKE/OTHR/G&A. 2,643,899 0 0 0 2,643,899 34400 626 OTH - GENERATORS./BELUGA./OTHR/G&A. 8,941,743 0 0 0 8,941,743 34500 622 OTH - ACC ELEC EQ/INTNATL/OTHR/G&A. 479,560 7,789 27,461 0 459,888 34500 624 OTH - ACC ELEC EQ/BERNLKE/OTHR/G&A. 784,574 0 0 0 784,574 34500 626 OTH - ACC ELEC EQ/BELUGA./OTHR/G&A. 3,661,137 0 0 0 3,661,137 34600 622 OTH -MISC PWR PLT/INTNATL/OTHR/G&A. 19,465 0 0 0 19,465 34600 624 OTH -MISC PWR PLT/BERNLKE/OTHR/G&A. 1,539 0 0 0 1,539 34600 626 OTH -MISC PWR PLT/BELUGA./OTHR/G&A. 1,862,815 0 0 0 1,862,815 ========================================================================= TOTAL 177,259,231 3,834,330 2,748,836 0 178,344,725 PRODUCTION PLANT ========================================================================= TRANSMISSION PLANT 35000 000 TRN - LD & LDRITS/GENERAL/OTHR/G&A. 454,983 0 0 0 454,983 35200 000 TRN - STRC & IMPR/GENERAL/OTHR/G&A. 847,631 0 0 0 847,631 35200 626 TRN - STRC & IMPR/BELUGA./OTHR/G&A. 428,664 0 0 0 428,664 35300 000 TRN - STATION EQP/GENERAL/OTHR/G&A. 31,514,118 0 0 0 31,514,118 35300 304 TRN - STATION EQP/LDSRVMT/OTHR/G&A. 196,977 0 0 0 196,977 35300 626 TRN - STATION EQP/BELUGA./OTHR/G&A. 38,649,029 0 0 0 38,649,029 35400 000 TRN - TWR & FXTRS/GENERAL/OTHR/G&A. 5,378,824 0 0 0 5,378,824 35400 626 TRN - TWR & FXTRS/BELUGA./OTHR/G&A. 26,890,112 0 0 0 26,890,112 35500 000 TRN - POLES & FIX/GENERAL/OTHR/G&A. 8,953,051 9,479 364 0 8,962,166 35500 626 TRN - POLES & FIX/BELUGA./OTHR/G&A. 1,074,661 0 0 0 1,074,661 35600 000 TRN -OH CND & DVS/GENERAL/OTHR/G&A. 6,477,186 5,633 1,071 0 6,481,748 35600 626 TRN -OH CND & DVS/BELUGA./OTHR/G&A. 7,836,678 0 0 0 7,836,678 35700 000 TRN - UG CONDUIT./GENERAL/OTHR/G&A. 2,152,235 0 0 0 2,152,235 35800 000 TRN - UG CND & DV/GENERAL/OTHR/G&A. 6,093,269 0 0 0 6,093,269 35800 328 TRN - UG CND & DV/NSUBCBL/OTHR/G&A. 40,700,570 0 0 0 40,700,570 35800 329 TRN - UG CND & DV/SSUBCBL/OTHR/G&A. 14,295,122 0 0 0 14,295,122 35900 626 TRN-RDS & TRL-BLG/BELUGA./OTHR/G&A. 4,000 0 0 0 4,000 ========================================================================= TOTAL 191,947,110 15,112 1,435 0 191,960,787 TRANSMISSION PLANT ========================================================================= DISTRIBUTION PLANT 36000 000 DIS - LD & LDRITS/GENERAL/OTHR/G&A. 805,759 12,782 0 0 818,541 36100 000 DIS - STRUC & IMP/GENERAL/OTHR/G&A. 1,817,354 0 0 0 1,817,354 36200 000 DIS - STATION EQP/GENERAL/OTHR/G&A. 18,995,342 0 175,111 0 18,820,231 36400 000 DIS - POLES-TW&FX/GENERAL/OTHR/G&A. 15,828,326 766,568 106,328 0 16,488,566 36500 000 DIS - OH CND & DV/GENERAL/OTHR/G&A. 9,593,180 411,473 87,448 0 9,917,205 36600 000 DIS - UG CONDUIT./GENERAL/OTHR/G&A. 9,194,175 2,352,796 288 0 11,546,683 36700 000 DIS - UG CND & DV/GENERAL/OTHR/G&A. 35,962,270 1,971,469 448,348 0 37,485,391 36800 000 DIS - LINE TRNSFR/GENERAL/OTHR/G&A. 20,065,088 1,511,423 267,656 0 21,308,855 36900 000 DIS - SERVICES.../GENERAL/OTHR/G&A. 20,281,602 3,236,907 299,874 0 23,218,635 37000 000 DIS - METERS...../GENERAL/OTHR/G&A. 6,858,288 529,752 233,846 0 7,154,194 37100 000 DIS-INSTL CUS PRM/GENERAL/OTHR/G&A. 331,356 0 0 0 331,356 37300 000 DIS-ST LTS & SIGN/GENERAL/OTHR/G&A. 8,058,451 102,461 25,878 0 8,135,034 ========================================================================= TOTAL 147,791,191 10,895,631 1,644,777 0 157,042,045 DISTRIBUTION PLANT ========================================================================= GENERAL PLANT 38900 000 GEN - LD & LDRITS/GENERAL/OTHR/G&A. 127,063 0 0 0 127,063 38910 000 GEN - LD IMPROVMT/GENERAL/OTHR/G&A. 65,097 0 0 0 65,097 39000 000 GEN - STRC & IMPR/GENERAL/OTHR/G&A. 19,231,916 6,197 67,953 0 19,170,160 39000 310 GEN - STRC & IMPR/LSHLDIM/OTHR/G&A. 198,601 15,408 0 0 214,009 39000 311 GEN - STRC & IMPR/S&VSTRU/OTHR/G&A. 89,605 0 0 0 89,605 39100 000 GEN-OFC FURN & EQ/GENERAL/OTHR/G&A. 1,964,146 182,322 0 988,278 1,158,190 39100 321 GEN-OFC FURN & EQ/DPEQUIP/OTHR/G&A. 5,142,151 752,294 0 3,047,999 2,846,446 39200 000 GEN - TRANSP EQMT/GENERAL/OTHR/G&A. 4,964,321 507,153 173,436 0 5,298,038 39300 000 GEN - STORES EQMT/GENERAL/OTHR/G&A. 1,204,354 684 0 59,553 1,145,485 39400 000 GEN -TL-SHP & GAR/GENERAL/OTHR/G&A. 1,352,526 106,733 0 123,673 1,335,586 39500 000 GEN - LAB EQUIPMT/GENERAL/OTHR/G&A. 2,137,280 118,139 0 132,337 2,123,082 39600 000 GEN - PWR OP EQMT/GENERAL/OTHR/G&A. 1,252,293 44,532 30,530 0 1,266,295 39600 323 GEN - PWR OP EQMT/GENTRAN/OTHR/G&A. 804,423 0 596 0 803,827 39800 000 GEN - MISC EQUIPT/GENERAL/OTHR/G&A. 1,195,480 29,248 0 323,212 901,516 ========================================================================= TOTAL 39,729,256 1,762,710 272,515 4,675,052 36,544,399 GENERAL PLANT ========================================================================= COMMUNICATION PLANT 39700 000 GEN - COMM EQUIPT/GENERAL/OTHR/G&A. 2,818,613 98,539 0 728,686 2,188,466 39700 330 GEN - COMM EQUIPT/MICROWV/OTHR/G&A. 6,535,561 2,822 2822 5,142,442 1,393,119 39700 331 GEN - COMM EQUIPT/SCADA../OTHR/G&A. 3,021,229 17,412 0 600,276 2,438,365 39700 333 GEN - COMM EQUIPT/TELESYS/OTHR/G&A. 1,442,324 0 0 8,013 1,434,311 39700 338 GEN - COMM EQUIPT/ORSCADA/OTHR/G&A. 8,875,262 0 0 8,843,087 32,175 ========================================================================= TOTAL 22,692,989 118,773 2,822 15,322,504 7,486,436 COMMUNICATION PLANT ========================================================================= TOTAL 579,419,777 16,626,556 4,670,385 19,997,556 571,378,392 PLANT ========================================================================= LESS EXCLUDABLE PLANT 39200 000 GEN - TRANSP EQMT/GENERAL/OTHR/G&A. 4,964,321 507,153 173,436 0 5,298,038 39600 000 GEN - PWR OP EQMT/GENERAL/OTHR/G&A. 1,252,293 44,532 30,530 0 1,266,295 39600 323 GEN - PWR OP EQMT/GENTRAN/OTHR/G&A. 804,423 0 596 0 803,827 39800 000 GEN - MISC EQUIPT/GENERAL/OTHR/G&A. 1,195,480 29,248 0 323,212 901,516 ========================================================================= TOTAL 8,216,517 580,933 204,562 323,212 8,269,676 EXCLUDABLE PLANT ========================================================================= TOTAL 571,203,260 16,045,623 4,465,823 19,674,344 563,108,716 INCLUDABLE PLANT =========================================================================
(1) Reductions in book values of property recorded in the Company's fixed plant accounts due to change in accounting policy from depreciation to amortization of certain general plant accounts. These reductions are not considered Retirements in accordance with the definition of Retirements on page 22 of the Indenture of Trust dated as of September 15, 1991. EX-27 5 FDS -- 3/31/99 10-Q CHUGACH ELECTRIC ASSOCIATION
5 3-MOS DEC-31-1999 JAN-1-1999 MAR-31-1999 8,035,222 0 14,009,952 (556,801) 17,121,734 39,846,015 647,131,954 (233,153,441) 484,925,383 31,957,783 307,306,339 0 0 0 121,131,769 484,925,383 39,424,237 39,424,237 0 26,621,873 0 0 6,131,408 6,670,956 0 6,670,956 0 0 0 6,670,956 0 0
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