-----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, LQUfSbiTIN+pJDuGRe2uIP6nC+kRc7sGxlp7y9IEcXKwkXvkdpNxeNXintE3xRMs UrTUJMmkcSQI7GqixRJLWg== 0000878004-00-000012.txt : 20000403 0000878004-00-000012.hdr.sgml : 20000403 ACCESSION NUMBER: 0000878004-00-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHUGACH ELECTRIC ASSOCIATION INC CENTRAL INDEX KEY: 0000878004 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 920014224 STATE OF INCORPORATION: AK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-42125 FILM NUMBER: 589462 BUSINESS ADDRESS: STREET 1: 5601 MINNESOTA DR STREET 2: PO BOX 196300 CITY: ANCHORAGE STATE: AK ZIP: 99518 BUSINESS PHONE: 9075637494 10-K 1 FORM 10-K FOR CHUGACH ELECTRIC ASSOCIATION, INC. FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (As last amended in Rel. No. 34-31327, eff. 10-21-92) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (x)Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999 ( )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 incorporation or organization) (I.R.S. Employer Identification No.) 5601 Minnesota Drive, Anchorage, Alaska 99518 - ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (907) 563-7494 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: - -------------------------------------------------------------------------------- (Title of class) - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securites Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /x/ Yes / / No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. N/A State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. (See definition of affiliate in Rule 405, 17 CFR 230.405). N/A CHUGACH ELECTRIC ASSOCIATION, INC. 1999 Form 10-K Annual Report Table of Contents PART I Page Item 1 - Business 1 Item 2 - Properties 12 Item 3 - Legal Proceedings 18 Item 4 - Submission of Matters to a Vote of Security Holders 20 PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters 20 Item 6 - Selected Financial Data 21 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 22 Item 7A - Quantitative and Qualitative Disclosures About Market Risk 34 Item 8 - Financial Statements and Supplementary Data 36 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59 PART III Item 10 - Directors and Executive Officers of the Registrant 59 Item 11 - Executive Compensation 61 Item 12 - Security Ownership of Certain Beneficial Owners and Management 65 Item 13 - Certain Relationships and Related Transactions 65 Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 65 SIGNATURES 80 3 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 Item 1 - Business GENERAL Chugach is the largest electric utility in Alaska. Chugach was organized as an Alaska not-for-profit electric cooperative in 1948 and is engaged in the generation, transmission and distribution of electricity to approximately 71,000 metered locations in the Anchorage and upper Kenai Peninsula areas. Through an interconnected regional electrical system, Chugach's power flows throughout Alaska's Railbelt, a 600-mile-long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state, including Alaska's largest cities, Anchorage and Fairbanks. On a regular basis, through its direct service to retail customers and indirectly through its wholesale and economy energy sales, Chugach provides some or all of the electricity used by approximately two-thirds of Alaska's electric customers. In addition, on a periodic basis, Chugach provides electricity to the city-core customers of Anchorage Municipal Light & Power (AML&P). Chugach also supplies much of the power requirements of three wholesale customers, Matanuska Electric Association (MEA), Homer Electric Association (Homer) and the City of Seward (Seward). Substantially all of Chugach's currently-owned generating capacity is fueled by natural gas, which Chugach purchases under long-term, relatively low-cost gas contracts. The remainder of Chugach's generating resources are hydroelectric facilities. The Chugach system includes 501.4 megawatts (MW) of installed generating capacity that is provided by 15 solely-owned generating units, and another 11.7 MW of generating capacity from two hydroelectric units that are owned jointly with MEA and AML&P. Chugach operates 1,590 miles of distribution line and 402 miles of transmission line. During 1999, Chugach sold 2.19 billion kilowatt hours (kWh) of power. Cooperatives are business organizations that are owned by their members. Cooperatives are designed to give groups of individuals or entities the opportunity to serve their own needs in a particular area of business activity and to solve their own problems in that area more effectively than when acting individually. In addition, as not-for-profit organizations, cooperatives are intended to provide services to their members at the lowest possible cost, in part by eliminating the need to produce profits or a return on equity. Today, cooperatives operate throughout the United States in such diverse areas as utilities, agriculture, irrigation, insurance and credit. All cooperatives are based upon similar principles and legal foundations. Since members' equity is not considered an investment, a cooperative's objectives and policies are oriented to serving member interests, rather than maximizing return on investment. Chugach's members are the consumers of the electricity sold by Chugach. As of December 31, 1999, Chugach had approximately 56,858 retail members receiving service at approximately 71,000 metered locations. The business and affairs of Chugach are managed by the General Manager and are overseen by its seven-member Board of Directors (the Board). Directors are elected at large by the membership and serve three-year staggered terms. Each member is entitled to one vote. In addition to voting for directors, members have voting rights with respect to the sale, lease, or other disposition, except by mortgage or deed of trust, of all or a substantial portion of Chugach's property. Chugach customers are billed per a tariff rate on a monthly basis for electrical energy consumed during the preceding month. Billing rates are approved by the Regulatory Commission of Alaska (RCA), formerly the Alaska Public Utilities Commission (APUC) (see Rate Regulation and Rates). Rates (derived from the historic cost of service basis) may generate revenues in excess of current period costs (net operating margins and nonoperating margins) in any year and are designated on Chugach's Statements of Revenues, Expenses and Patronage Capital as "assignable margins." Retained assignable margins are designated on Chugach's balance sheet as "patronage capital" that is assigned to each member on the basis of patronage. In furtherance of Chugach's operations as a cooperative, Chugach credits to its members, or patrons, all amounts received from the patrons for the furnishing of electricity in excess of Chugach's operating costs, expenses and provision for reasonable reserves. Such excess amounts (i.e., assignable margins) are considered capital furnished by the patrons, and are credited to their accounts and held by Chugach until such future time as they are retired and returned without interest. Chugach's Bylaws provide that such capital credits are to be retired (i) upon Chugach's dissolution or liquidation after payment of all of Chugach's outstanding indebtedness or (ii) at any earlier time if the Board of Directors determines that Chugach's financial condition will not be thereby impaired. At December 31, 1999, Chugach has a practice of retiring patronage capital on a first in-first out (FIFO) basis for retail customers. At the end of 1999, Chugach had authorized for retirement all retail capital credits through 1983 and approximately two-thirds of 1984 retail credits. Prior to 1999, wholesale capital credits had been retired on a 10-year cycle pursuant to the Equity Management Plan Settlement Agreement despite its expiration in 1995. However, in 1999, there was no wholesale retirement as Chugach implemented a plan to put wholesale and retail retirements on the same schedule. Approval of actual capital credit retirements is at the discretion of the Association's Board of Directors. As an electric cooperative, Chugach is exempt from federal income taxation under Section 501(c)(12) of the Internal Revenue Code (Code). Alaska electric cooperatives must pay to the State of Alaska, in lieu of state and local ad valorem, income and excise taxes, a tax at the rate of $0.0005 per kWh of electricity sold in the retail market during the preceding year. In addition, Chugach collects a regulatory cost charge of $.000309 per kWh of retail electricity sold. This charge is assessed to fund the operations of the RCA. It is a pass-through and thus does not impact Chugach margins. Chugach's workforce consists of approximately 351 full-time employees. Approximately two-thirds of Chugach's employees are members of the International Brotherhood of Electrical Workers (IBEW). Chugach has three collective bargaining agreements with the IBEW that are currently in negotiation. Although each of the contracts expired January 31, 1998, the parties have agreed that the contracts shall continue in effect until new contracts are put in place. All outstanding issues will be decided through binding interest arbitration. The IBEW cannot strike and Chugach cannot lockout under the continuing agreement. Fact-finding before a third party fact finder/arbitrator took place in October and November, 1999, who issued her fact-finding recommendations in mid-February, 2000. An arbitration hearing occurred in March 2000 on the remaining issues, and a final decision from the arbitrator is anticipated by mid-May 2000. Characteristics of the Service Areas of Chugach and its Largest Customers - ------------------------------------------------------------------------- As indicated in the foregoing, the service areas of Chugach and its wholesale and economy energy customers are often described collectively as the Railbelt region of Alaska because the three geographic areas (the Interior, Southcentral and the Kenai Peninsula) are linked by the Alaska Railroad. Anchorage is the trade, service and financial center for most of Alaska and serves as a major center for many state governmental functions. Other significant contributing factors to the Anchorage economy include a large federal government and military presence, tourism, air and rail transportation facilities and headquarters support for the petroleum, mining and other basic industries located elsewhere in the state. The Matanuska-Susitna (Mat-Su) Borough is immediately north of the Municipality of Anchorage, centered around the communities of Palmer and Wasilla. Although agriculture, tourism, mining and forestry are factors in the economy of the Matanuska-Susitna Borough, the economic well-being of the area is closely tied to that of Anchorage and many Mat-Su residents commute to jobs in Anchorage. The Kenai Peninsula is south of Anchorage with an economy substantially independent of the Anchorage area. The most significant basic industry on the Kenai Peninsula is the production and processing of petroleum products from the Cook Inlet region. Other important basic industries include tourism and fish harvesting and processing. Principal communities on the Kenai Peninsula are Homer, Seward, Kenai and Soldotna. Fairbanks is the center of economic activity for the central part of the state (known as the Interior). Fairbanks (250 air miles north of Anchorage and about 400 air miles south of Alaska's northern border) is Alaska's second largest city. Basic economic activities in the Fairbanks region include federal and state government and military operations, the University of Alaska, tourism and support of natural resource development in the Interior and northern parts of the state. Recently a major gold mine commenced operation near Fairbanks. The Trans-Alaska Pipeline System (crude oil) passes near Fairbanks on its route from the North Slope oilfield. Competition Chugach has been active in the effort to promote customer choice in the retail market in Anchorage. Chugach requested access over a neighboring utility's distribution and transmission system and asked the APUC, now the RCA, to enforce the request. The APUC ruled that open retail competition is permitted in Alaska only after prior review and approval by the RCA. Chugach has also been actively supporting the customer's right to choose their electric power supplier at the State Legislature. Virtually all Alaskan utilities have opposed Chugach's efforts to develop competition and are striving to maintain exclusive service territories. At this time no bill relating to customer choice has moved out of legislative committee. To meet competitive challenges, Chugach has formed a Marketing Department, continues to operate its key account program for larger customers and is developing new services to enhance existing customers' satisfaction. Rate Regulation and Rates Chugach is subject to rate regulation by the Regulatory Commission of Alaska (RCA). Future demand and energy rate changes are sought through the general rate case and other normal RCA procedures. While the formal ratemaking process typically takes nine months to one year, it is within the RCA's authority to authorize, after a notice period, rate changes on an interim-refundable basis. In addition, the RCA has been willing to open limited dockets to resolve specific issues from which expeditious decisions can often be generated. In Order No. 18 of Docket U-96-37, a general rate case, at the urging of one of Chugach's wholesale customers, the RCA ordered retroactive refunds in the approximate amount of $1.2 million for fuel surcharge rates charged in 1995 - 1997. The Order is in connection with Chugach's fuel and purchased power cost adjustment factors that are adjusted on a quarterly basis. It is Chugach's position that retroactive refunds of quarterly surcharge revenues violate the rules against retroactive ratemaking and constitutional due process protections. Chugach has appealed this decision to the Superior Court for the State of Alaska. Oral arguments were heard on January 28, 2000 but no decision has been rendered. Chugach's request for stay of the Commission refund order has been granted. It is not possible at this time to determine the outcome of this appeal. Order No. 18 in Docket U-96-37 also resolved methodological issues in the calculation of base rates and allowed the provisions of the Settlement Agreement to be implemented. As part of the Settlement Agreement with AEG&T/MEA/Homer, Chugach committed that the demand and energy rate levels established on the 1995 test year in Docket U-96-37 will remain at no higher than those levels through 1999 and could be reduced if existing rates provide returns higher than specified in the agreement. Chugach is required to grant a refund to Homer and MEA retroactive to January 1, 1997 (based on the 1996 test year filing). A provision for wholesale rate refunds of approximately $980,000, $993,000 and $570,000 were recorded at December 31, 1997, December 31, 1998 and December 31, 1999, respectively, to accommodate certain rate adjustment clauses contained in the Settlement Agreement. After wholesale customer review following the procedures in the Settlement Agreement, Chugach filed the 1996 test year revenue requirement in March 1999. The demand and energy rates based on the 1996 test year were approved on an interim and refundable basis in June 1999. Chugach expects a final RCA order in the year 2000. In February 1998, Chugach and the City of Seward entered into a new power sales agreement which contains provisions allowing Chugach to interrupt service to Seward up to 12 times per year and provides for a 1/3 reduction in the demand charge (approximately $350,000 annually). The RCA approved the contract as proposed except that it shortened the term of the agreement so that it expires September 1, 2001. Chugach will attempt to renegotiate the agreement but the outcome of this effort cannot be predicted at this time. The Association will continue to recover changes in its fuel and purchased power expense levels through routine fuel surcharge filings with the RCA. See the Fuel Surcharge section of Management's Discussion and Analysis of Financial Condition and Results of Operations. The Indenture of Trust, Series A, First Mortgage bonds (Indenture) dated September 15, 1991,requires Chugach to set rates designed to yield margins-for- interest (a TIER-like statistic) equal to at least 1.20 times total interest expense. The authorized rate-setting TIER level of 1.35 has allowed Chugach to achieve greater than the 1.20 margins for interest. In 1999, Chugach's achieved TIER was 1.40. Sales to Customers The following table shows the energy sales to and electric revenues from Chugach's retail, wholesale, and economy energy customers for the year ended December 31, 1999: Energy Loads and Revenues by Class of Customer Percent of Total MWh 1999 Revenues 1999 Revenues --- ------------- -------------- Direct retail sales: Residential 513,493 $ 50,758,860 36.1% Commercial 572,475 43,298,853 30.8% --------- ----------- ----- Total 1,085,968 94,057,713 66.9% --------- ----------- ----- Wholesale sales: MEA 530,341 25,063,734 17.9% Homer 435,655 17,357,727 12.4% Seward 61,444 2,168,982 1.5% --------- ----------- ----- Total 1,027,440 44,590,443 31.8% ----------- ----------- ----- Economy Energy Sales: GVEA 76,684 1,860,960 1.3% Other 161 3,913 0.0% ------- --------- ----- Total 76,845 1,864,873 1.3% --------- ---------- ----- Total sales to customers 2,190,253 $140,513,029 100.0% ========= ============ ====== Note: 1999 Wholesale Revenues include a $569,202 provision for rate refund to accommodate certain rate adjustment clauses contained in the Settlement Agreement reached in Docket U-96-37. Retail Customers Service Territory. Chugach's retail service area covers the populated areas of Anchorage as well as remote mountain areas and villages. The service area ranges from the northern Kenai Peninsula on the South, to Tyonek on the West, to Whittier on the East and to Fort Richardson on the North. Customers. Chugach directly serves approximately 71,000 meters. There are approximately 56,858 members of Chugach (some members are served by more than one meter). Chugach's customers are primarily urban and suburban. The urban nature of Chugach's customer base means that Chugach has a relatively high customer density per line mile. Higher customer density means that fixed costs can be spread over a greater number of customers. As a result of lower average costs attributable to each customer, Chugach benefits from a greater stability in revenue, as compared to a less dense distribution system in which each individual customer would have a more significant impact on operating results. For the past five years no retail customer accounted for more than 5% of Chugach's revenues. Wholesale Customers Chugach is the principal supplier of power under wholesale power contracts with MEA, Seward and Homer. Chugach's wholesale power contracts represented $44.6 million in revenues and 46.9% of Chugach's total MWh sales to customers in 1999. MEA and Homer. Chugach's contract with AEG&T, a generation and transmission cooperative of which MEA and Homer are the only full members and AML&P is an associate member, for the benefit of MEA obligates MEA to purchase all of its electric power requirements from Chugach. Contractually, MEA has the right, subject to APUC approval, to convert to a net requirements purchaser of power from Chugach, under which MEA would be obligated to buy its needed power from Chugach, net of its power needs satisfied from any of its own or AEG&T's resources (including from the 39 MW Soldotna 1 gas-fired generating station owned by AEG&T). After conversion to net requirements under the contract, MEA cannot reduce the amount of power it purchases from Chugach below a certain minimum amount. MEA also has the right, on seven years advance notice and subject to RCA approval, to convert to a take-or-pay purchaser of a fixed amount of power. If MEA converts to net-requirements service, MEA will be required to pay demand charges based upon the highest post-1985 historical coincident peak on the MEA system. Therefore, Chugach will continue to recover fixed costs if MEA converts to net-requirements service. Also, Chugach's revenues from energy sales to MEA would decline in proportion to the reduction in the energy sold, but this decline would be largely offset by savings in the variable costs associated with energy production. The MEA contract is in effect through December 31, 2014. This contract does not protect against loss of load resulting from retail competition in MEA's distribution service territory. It is not possible at this time to estimate the potential impact on Chugach's revenues resulting from such competition. Chugach's contract with AEG&T for the benefit of Homer obligates Homer to take or pay for 73 MW of capacity (demand), and not less than 350,000 MWh (energy) per year. The Homer contract includes certain limitations on the costs that may be included in the rates charged to Homer by Chugach. The Homer contract expires on January 1, 2014. Homer's remaining resource requirements are provided by AEG&T's Soldotna 1 unit and AEG&T shares attributable to Homer from the Bradley Lake hydroelectric project. Chugach and AEG&T have signed a dispatch agreement whereby Chugach has access to all of the Soldotna 1 unit output except that which is required to supply Homer's load in excess of 73 MW. The term is for 40,000 operating hours or 10 years, whichever is first, although the term will be extended by three years if Chugach makes significant use of the unit during the last three years of the original contract term. AEG&T receives payment for variable operating and maintenance costs plus a margin for energy produced by the unit. Chugach obtained use of the unit output while AEG&T retained ownership costs and responsibility. In 1999, Chugach used 62,208 MWh from the Soldotna unit. In October 1998, the Chugach Board of Directors authorized the General Manager to enter into a revised dispatch agreement with Homer and AEG&T. Under the agreement, Homer and AEG&T will relocate the Soldotna 1 unit to a UNOCAL fertilizer production facility near Nikiski, Alaska in the Homer service area and install equipment to produce process steam using heat recovery from the turbine. The dispatch agreement allows Chugach to economically incorporate the unit into Chugach's generation and transmission system and will ensure that Homer purchases all energy available under the existing power supply contract. Gas will be provided by UNOCAL to meet Homer loads in excess of 73 MW and may provide a portion of the fuel for Homer loads in excess of the minimum energy takes. The new dispatch agreement will replace the existing agreement when the unit is relocated and will terminate coincident with the Homer power supply contract in 2014. Seward. Chugach currently provides all the firm power needs of Seward. A new contract with Seward, with an interruptible provision, was approved by the APUC, now the RCA, and sales to Seward amounted to 2.8% of Chugach's MWh sales to customers in 1999. Economy Customers Golden Valley Electric Association. Under the terms of Chugach's agreement with Golden Valley Electric Association (GVEA), GVEA is obligated, under certain circumstances, to purchase, if available from Chugach, its non-firm energy needs until 2008. Sales under this agreement accounted for 3.5% of Chugach's 1999 MWh sales. Chugach and GVEA have entered into a tentative pooling agreement whereby the resources of both utilities would be dispatched on a common basis to reduce constraints on when non-firm energy would be available to GVEA. Construction of a coal-fired generation facility at Healy (Healy Clean Coal Project)(HCCP)), funded from a United States Department of Energy grant under the Clean Coal Technology III Demonstration Program, is complete. This facility completed testing in 1999 and has produced up to 50 MW of coal-fired power but is shut down pending a contract dispute between GVEA and its owner. It is not known when or if the plant will go into commercial operation. GVEA reduced its purchases of non-firm energy from Chugach by taking firm power from HCCP. Chugach's management does not believe that such a reduction will have a material adverse effect on Chugach. The Ft. Knox gold mine, near Fairbanks, with a load of 30-35 MW began operation during the last quarter of 1996. FUEL SUPPLY In 1999, 86% of Chugach's power was generated from gas, and 90% of that gas-fired generation took place at Beluga. Chugach's three sources of natural gas are (1) the Beluga River Field producers [ARCO Alaska, Inc. (ARCO), AML&P (old Shell) and Chevron USA Inc. (Chevron)], (2) Marathon Oil Company (Marathon) and (3) ENSTAR Natural Gas Company (ENSTAR). ARCO, AML&P and Chevron each own one-third of the gas produced from the Beluga River Field and in 1999 provided approximately equal shares of the Beluga gas. Chugach has approximately 406 billion cubic feet (BCF) of gas committed to it from the Beluga River Field producers and Marathon. Chugach currently uses about 20 BCF of natural gas per year for firm service. Chugach believes that this usage will remain fairly constant and estimates that its current contract gas will last 15 to 19 years. In 1996, Shell sold its interests in the Beluga River Field to AML&P and AML&P assumed Shell's contractual obligations to sell natural gas to Chugach. Chugach believes that this transfer will have no material effect on the delivery of Beluga gas to Chugach. The delivered price for Chugach's fuel supply is lower than that available to other generators in the interconnected Railbelt. AML&P burns natural gas purchased from the Beluga River Field producers and transported by ENSTAR. Chugach has a transportation contract with ENSTAR to transport Chugach gas purchased from Marathon or the Beluga River Producers to the Soldotna (AEG&T) and/or International Power plants (International). The rate for firm transportation is $0.63 per MCF and the rate for interruptible transportation is $0.30 per MCF. There is a minimum monthly bill of $2,600. The primary reasons that Chugach's fuel supply has a lower delivered price than that available to other generators are (i) Chugach purchases its gas directly from producers rather than from gas utilities and (ii) Chugach's power plants are located in close proximity to gas fields so that there are insignificant transportation costs included in the price of the fuel. AML&P currently depends on ENSTAR to transport all of the gas it uses. The ENSTAR tariff rate for this service is $105,000 per month plus $0.28 per MCF. GVEA uses both coal-fired and oil-fired generators. Because of the high cost of fuel oil, GVEA is normally an importer of lower cost power from the south. Beluga River Field Producers Chugach has similar requirements contracts with each of ARCO, AML&P (old Shell) and Chevron that were executed in April 1989, superseding contracts that had been in place since 1973. Each of the contracts with the Beluga River Field producers provides for delivery of gas on different terms in three different periods. Period 1 related to the delivery of gas previously committed by the respective producer under the 1973 contracts terminated in June 1996. The maximum deliverability under the Beluga and Marathon contracts is in excess of the peak winter demand requirements of the Beluga plant and allows for increased deliverability should Chugach's combined-cycle plant be out of service. During Period 2, which began in June 1996 and continues until the earlier of the delivery of 180 BCF of natural gas or December 31, 2013, Chugach is entitled to take delivery of up to 180 BCF of natural gas (60 BCF per Beluga River Field producer). During this period, Chugach is required to take 60% of its total fuel requirements at Beluga from the three Beluga River Field producers, exclusive of gas purchased at Beluga under the Marathon contract for use in making sales to GVEA or certain other wholesale purchasers. The price for gas during this period under the ARCO and AML&P (old Shell) contracts is approximately 88% (or $1.12 per MCF on December 31, 1999) of the price of gas under the Marathon contract (described below), plus taxes. The price during this period under the Chevron contract is approximately 110% (or $1.40 per MCF on December 31, 1999) of the price of gas under the Marathon contract (described below), plus taxes. During Period 3 under the Beluga River Field producers' contracts, which begins at the earlier of December 31, 2013 or the end of Period 2, Chugach may become entitled to take delivery of up to 120 BCF of natural gas (40 BCF per producer). Whether any gas will be taken in Period 3, and the price and take requirements with respect thereto, are to be determined in the future based upon then-current market conditions. Chugach also has supplemental, annually renewable contracts with the Beluga River Field producers to supply supplemental gas (for peak periods of energy usage) if they have it available in excess of the amounts guaranteed in the basic contracts. The supplemental gas contracts raise the daily deliverability of gas to an aggregate of 85,200 MCF per day from the Beluga River Field producers. The base price of the gas under these contracts is the same as the base price under the Marathon contract described below, plus taxes. Marathon Chugach entered into a requirements contract with Marathon in September 1988 for an initial commitment of 215 BCF. The contract expires December 31, 2015, or, if earlier, the date on which Marathon has delivered to Chugach a volume of gas in total which equals or exceeds the total volume of gas that Marathon is required to sell and deliver to Chugach under the agreement. The base price for gas under the Marathon contract is $1.35 per MCF, adjusted quarterly to reflect the percentage change between the preceding twelve-month period and a base period in the average prices of West Texas Intermediate Crude Oil (a benchmark of the Light Sweet Crude Oil Futures Index), the Producer Price Index for natural gas, and the Consumer Price Index for heating fuel oil. The price on December 31, 1999, exclusive of taxes was $1.27 per MCF. Under the terms of the Marathon contract, Marathon generally provides the primary supply of gas required for sales to GVEA, all of Chugach's requirements at Bernice Lake and 40% of the requirements at Beluga. Marathon also has a right of first refusal to provide additional gas under any sales agreements that Chugach may enter into with electric utilities that Chugach does not currently serve. ENSTAR Natural Gas Company Chugach and ENSTAR signed a transportation agreement in December 1992 that was approved by the APUC in January 1993, whereby ENSTAR would transport Chugach's gas purchased from the Beluga producers or Marathon on a firm basis to both Chugach's International Power Plant and AEG&T's Soldotna 1 Power Plant at a transportation rate of $0.63 per MCF. In addition, ENSTAR agreed to transport gas on an interruptible basis for off-system sales at a rate of $0.30 per MCF. The agreement contains a minimum monthly bill of $2,600 for firm service. Chugach holds a reservation to receive its gas requirements at International Power Plant from ENSTAR under a tariff approved by the APUC in the event that the transportation agreement is subsequently canceled. Under the currently suspended tariff, ENSTAR is obligated to supply all of the gas Chugach desires at a price approved by the APUC. There would be a monthly minimum bill of $10,465, but no requirement to actually use any gas at the International Power Plant. The current delivered price under the tariff is $2.53 per MCF. COMPLIANCE WITH ENVIRONMENTAL STANDARDS Chugach's operations are subject to certain Federal, State and local environmental laws which 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. REFINANCINGS On September 19, 1991, Chugach issued $314,000,000 of First Mortgage Bonds, 1991 Series A, for purposes of repaying existing debt to the Federal Financing Bank (FFB) and the Rural Electrification Administration (REA), (now Rural Utilities Services (RUS)). Pursuant to Section 311 of the Rural Electrification Act, Chugach was permitted to prepay the REA debt at a discounted rate of approximately 9%, resulting in a discount of approximately $45,000,000. The gain on prepayment of the REA debt has been deferred and Chugach obtained permission from the APUC to flow through the benefit to consumers through lower rates in the future. The original issuance consisted of bonds in the amount of $52,000,000 due in 2002 bearing interest at 8.08% (Series A 2002 Bonds) and bonds in the amount of $262,000,000 due in 2022 and bearing interest at 9.14% (Series A 2022 Bonds). Interest is payable semiannually on March 15 and September 15. The Series A 2002 Bonds are subject to annual sinking fund redemption at 100% of the principal amount thereof that commenced March 15, 1993. The Series A 2022 Bonds are subject to annual sinking fund redemption at 100% of the principal amount thereof commencing March 15, 2003. The Series A 2002 Bonds are not subject to optional redemption. The Series A 2022 Bonds are redeemable at the option of Chugach on any interest payment date at an initial redemption price of 109.14% of the principal amount thereof declining ratably to par on March 15, 2012. The Indenture prohibits outstanding short-term indebtedness (other than trade payables) in excess of 15% of Chugach's net utility plant and limits certain cash investments to specific securities. Chugach has reacquired $79,190,000 of the Series A 2022 bonds since December 1995 leaving a remaining outstanding balance of $182,810,000 at December 31, 1999. In March, 2000 Chugach reacquired an additional $8,500,000 of the Series A 2022 bonds leaving a remaining outstanding balance of $174,310,000. Chugach has negotiated a supplemental indenture (Third Supplemental Indenture of Trust) with CoBank which previously allowed up to $80 million in future bond financing. In 1998 Chugach finalized an amendment to the Third Supplemental Indenture of Trust (Seventh Supplemental Indenture of Trust) that eliminates the maximum aggregate amount of bonds the company may issue under the agreement. At December 31, 1999, Chugach had bonds in the amount of $143.3 million outstanding under this financing arrangement. The balance is comprised of an $817 thousand bond (CoBank 1) that 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%, a $15 million bond (CoBank 5) priced at 5.60% due in 2002, 2007 and 2012, a $42.5 million bond (CoBank 6) carrying a variable interest rate (6.88% at December 31, 1999) and a $30 million bond (CoBank 7) also carrying a variable interest rate (6.85% at December 31, 1999). 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 National Rural Utilities Cooperative Finance Corporation (NRUCFC) for $80 million. At December 31, 1998, there were no amounts outstanding under this financing arrangement. 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 market interest rates in anticipation of refinancing Chugach's Series A Bonds Due 2022 on their first call date (March 15, 2002). As of September 30, 1999, the aggregate principal amount of Series A Bonds due 2022 was $182,810,000. 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. Item 2 - Properties SYSTEM ASSETS General Chugach has 513.1 MW of installed capacity consisting of 17 generating units at five power plants. These include 365.6 MW of operating capacity at Beluga on the west side of Cook Inlet; 70.0 MW of power at Bernice Lake on the Kenai Peninsula; 48.6 MW of power at International Power Plant in Anchorage; and 17.2 MW at Cooper Lake, which is also on the Kenai Peninsula. Chugach also has 11.7 MW of capacity from the two Eklutna hydroelectric plant generating units owned jointly with MEA and AML&P. In addition to its own generation, Chugach purchases power from the 90 MW Bradley Lake hydroelectric project owned by the Alaska Energy Authority (AEA) through Alaska Industrial Development and Export Authority (AIDEA). Bradley Lake is operated by Homer and dispatched by Chugach. The Beluga, Bernice Lake and International facilities are all fueled by natural gas. Chugach owns its offices and headquarters, located adjacent to its International Power Plant in Anchorage, in fee simple. Warehouse space for some generation, transmission and distribution inventory (including a small amount of office space) is leased from an independent party not directly affiliated with Chugach. Generation Assets Chugach owns the land and improvements comprising its generating facilities at Beluga and International. It also owns all improvements comprising its generating plant at Bernice Lake, that is located on land originally leased from Chevron Oil Company now owned by Homer, and its generating plant at Cooper Lake, that is located on federal land pursuant to a major project license (Federal License) granted to Chugach by the Federal Power Commission in 1957. The Bernice Lake ground lease expires in 2011 and the federal license for the Cooper Lake facility expires in 2007. The management of Chugach has no reason to believe that it will not be able to renew the Federal License or the Bernice Lake ground lease if desirable. In 1997, Chugach acquired a partial interest in the Eklutna Hydroelectric Project. The plant is located on federal land pursuant to a United States Bureau of Land Management (BLM) right-of-way grant issued in October 1997. The following table lists specifics of the generating facilities of Chugach: Facility Type of Fuel Rated Capacity (1) Commercial Operation Date - -------- ------------ ------------------ ------------------------- Beluga Power Plant: Unit 1 Natural Gas 15.7 1968 Unit 2 Natural Gas 15.7 1968 Unit 3 Natural Gas 64.7 1972 Unit 5 Natural Gas 66.5 1975 Unit 6 Natural Gas 74.0 1975 Unit 7 Natural Gas 74.0 1978 Unit 8 Steam (2) 55.0 1981 ----- 365.6 Bernice Lake PowerPlant: Unit 2 Natural Gas 19.0 1971 Unit 3 Natural Gas 25.5 1978 Unit 4 Natural Gas 25.5 1981 ----- 70.0 International Power Plant: Unit 1 Natural Gas 15.0 1964 Unit 2 Natural Gas 15.1 1965 Unit 3 Natural Gas 18.5 1969 ----- 48.6 Cooper Lake Hydroelectric Plant: Unit 1 Hydroelectric 8.6 1960 Unit 2 Hydroelectric 8.6 1960 ----- Eklutna Hydroelectric Plant 17.2 (4): Unit 1 Hydroelectric 5.8 1955 Unit 2 Hydroelectric 5.9 1955 ---- 11.7 Total units 17 513.1 -- ----- (1) Capacity rating in MW at 30 degrees Fahrenheit. (2) Steam-turbine powered generator with heat provided by exhaust from natural-gas fueled Units 6 and 7 (combined-cycle). (3) Beluga Unit 4 and Bernice Lake Unit 1 were retired during 1994. (4) The Eklutna Hydroelectric Plant is jointly owned by Chugach, MEA and AML&P. The capacity shown is Chugach's 30% share of the plant's maximum output. Transmission and Distribution Assets As of December 31, 1999, Chugach's transmission and distribution assets included 39 substations and 402 miles of transmission lines, 931 miles of overhead distribution lines and 659 miles of underground distribution line. Chugach owns the land on which 21 of its substations are located and a portion of the right-of-way connecting its Beluga plant to Anchorage. In the 1997 Eklutna acquisition, Chugach also acquired a partial interest in two substations and additional transmission facilities. Many substations and a substantial number of Chugach's transmission and distribution rights-of-way are the subject of federal or state permits and licenses. Under the federal license and a permit from the United States Forest Service, Chugach operates its Quartz Creek transmission substation, substations at Hope, Summit Lake and Daves Creek, and transmission lines over all federal lands between Cooper Lake on the Kenai Peninsula and Anchorage. Long-term permits from the Alaska Division of Lands and the Alaska Railroad Corporation govern much of the rest of Chugach's transmission system outside the Anchorage area. Within the Anchorage area, Chugach operates its University Substation and several major transmission lines pursuant to long-term rights-of-way grants from the BLM, and transmission and distribution lines have been constructed across privately-owned lands pursuant to easements across public rights-of-way and waterways pursuant to authority granted by the appropriate governmental entity. Title Substantially all of the properties and assets of Chugach, including generation, transmission and distribution properties, but excluding all excepted property, are pledged to secure repayment of the Series A Bonds and all other bonds that may be issued under the Indenture. The Indenture defines excepted property to include, among other things, cash on hand, instruments and certain securities (other than those required to be deposited with the Trustee under the terms of the Indenture), patents and transportation equipment (including vehicles, vessels and barges), leases for an original term of less than five years, certain non-assignable permits, licenses and contractual rights, property located outside the State of Alaska and not used in connection with Chugach's generation, transmission and distribution system and other property in which a security interest cannot legally be perfected. The lien of the Indenture is subject to certain permitted encumbrances that the Indenture defines to include certain identified restrictions, exceptions, reservations, conditions and limitations existing on the date of the Indenture, reservations in U.S. patents, nondelinquent or contested tax liens, local easements, leases and reservations and liens for nondelinquent rent or wages. The lien of the Indenture is also subject to the lien in favor of the Trustee to recover amounts owing to the Trustee under the Indenture. In addition to the Indenture, many of Chugach's properties are burdened by easements, plat restrictions, mineral reservation, water rights and similar title exceptions common to the area or customarily reserved in conveyances from federal or state governmental entities, and to additional minor title encumbrances and defects. In the opinion of Chugach's General Counsel, none of these title defects will materially impair the use of its properties in the operation of its business. In addition, a lawsuit was filed against the State of Alaska in which the plaintiffs allege that the manner in which the State administered and disposed of certain lands violates the Alaska Mental Health Enabling Act. One of Chugach's substations and its right-of-way across State lands were potentially subject to the plaintiffs' claims. The suit has been settled and Chugach is in the process of determining whether any of Chugach's interests must be perfected through the Mental Health Trust Land Office Unit. Chugach's management believes that perfection of Chugach's interest, should that be necessary, will not materially affect Chugach's financial position, results of operations or cash flows. Chugach operates its Bernice Lake facility on lands originally leased from Chevron Oil Company (fee interest now owned by Homer) pursuant to a lease that is scheduled to expire in 2011. Chugach also operates several terminal connection sites and a substation under long-term or renewable leases from the State of Alaska and private parties. In addition, as discussed above, a substantial number of Chugach's transmission and distribution rights-of-way, and several distribution substations, are the subject of federal or state permits and easements. Under the Alaska Electric and Telephone Cooperative Act, Chugach is given the power of eminent domain for the purpose and in the manner provided by Alaska condemnation laws for acquiring private property for public use. Other Assets Bradley Lake. Chugach is a participant in the Bradley Lake Hydroelectric Project (Bradley Lake), which is a 90 MW hydroelectric facility near Homer on the southern end of the Kenai Peninsula that was placed into service in September 1991. The project was financed and built by AEA through grants from the State of Alaska and the issuance of $166 million principal amount of revenue bonds supported by power sales agreements with six electric utilities that will share the output from the facility (Chugach, AML&P, Homer and MEA (through AEG&T), GVEA and Seward). Effective August 12, 1993, AEA became part of the Alaska Industrial Development and Export Authority (AIDEA). Chugach and the other participating utilities have entered into take-or-pay power sales agreements under which AEA has sold percentage shares of the project capacity and the utilities have agreed to pay a like percentage of annual costs of the project (including ownership, operation and maintenance costs, debt-service costs and amounts required to maintain established reserves). Under these take-or-pay power sales agreements, the purchasing utilities have agreed to pay all project costs from the date of commercial operation even if no energy is produced. Chugach has a 27.4 MW or 30.4% share in Bradley Lake, and takes Seward's and MEA's shares which it net bills to them, for a total of 45% of the project's capacity. The length of the agreement is fifty years from the date of commercialization or when the revenue bond principal is repaid, whichever is the longer. Chugach believes that, under a worst-case scenario, it could be faced with annual expenditures of approximately $4.1 million as a result of its Bradley Lake take-or-pay obligations. Chugach believes that this expense would be recoverable through the fuel surcharge ratemaking process. The share of debt service for which the Association is responsible is approximately $46,000,000 plus interest. In December 1997, $59,485,000 of the Power Revenue Bonds, Third Series and $47,710,000 of the Power Revenue Bonds, Fourth Series were refinanced under a forward refunding arrangement. The true interest cost of the new bonds decreased to 5.611% for the Third Series bonds and 6.06% for the Fourth Series bonds from 7.295% and 7.235%, respectively. This refunding produced a net present value saving to the participating utilities of approximately $8,500,000. The Association's share of these savings will be approximately $1,600,000. In January 1999, $28,910,000 of the Power Revenue Bonds, Fifth Series, were refinanced under a forward refunding arrangement. The true interest cost of the new bonds decreased to 5.25%. This produced a Net Present Value savings to the participating utilities of approximately $2,875,000. The Association's share of these savings will be approximately $546,000. In April 1999, AEA issued $59,485,000 of Power Revenue Refunding Bonds, Third Series, for the purpose of refunding $59,110,000 of the First Series Bonds. The refunded First Series Bonds were called on July 1, 1999. The refunding resulted in aggregate debt service payments over the next nineteen years in a total amount approximately $9,500,000 less than the debt service payments which would be due on the refunded bonds. There was an economic gain of approximately $5,900,000. Economic gain is calculated as the net difference between the present value of the old debt service requirements and the present value of the new debt service requirements, discounted at the effective interest rate and adjusted for additional cash paid. In April 1999, AEA issued $30,640,000 of Power Revenue Refunding Bonds, Fifth Series, for the purpose of refunding $28,910,000 of the First Series Bonds. The refunded First Series Bonds were called on July 1, 1999. The refunding resulted in aggregate debt service payments over the next twenty-three years in a total amount approximately $4,400,000 less than the debt service payments which would be due on the refunded bonds. There was an economic gain of approximately $2,900,000. The Association's share of these savings will be approximately $546,000. Chugach also provides transmission and related services as a wheeling agent (one who dispatches and transmits power of third parties over its own system) for all of the participants in the project. Upon the default of a participant, and subject to certain other conditions, AEA is entitled to increase each participant's share of costs pro rata, to the extent necessary to compensate for the failure of another participant to pay its share, provided that no participant's percentage share is increased by more than 25%. Chugach and AEG&T have also negotiated a Bradley Lake Scheduling Agreement whereby Chugach schedules AEG&T/Homer's share of the Bradley Lake project for the benefit of the Chugach system. AEG&T continues to pay its Bradley Lake costs and receives credit for the Bradley Lake energy generated for Homer. Chugach pays a fixed annual fee of $112,000 to AEG&T for these scheduling rights. This agreement allows Chugach to improve the efficiency of its generating resources through better hydrothermal coordination. Eklutna. Chugach purchased a 30% undivided interest in the Eklutna Hydroelectric Project from the federal government. MEA purchased a 17% undivided interest in the Eklutna Project. The power MEA purchases from Eklutna is pooled with Chugach's purchases and sold back to MEA to be used in meeting MEA's overall power requirements. AML&P purchased the remaining 53% undivided interest in the Eklutna Project.Transfer of ownership occurred on October 2, 1997, in accordance with a transition plan. Chugach believes that the cost of power from the Eklutna Project will be less than it would have been under continued federal ownership. Item 3 - Legal Proceedings LITIGATION Matanuska Electric Association, Inc. v. Chugach Electric Association U-98-180 - ----------------------------------------------------------------------------- On December 2, 1998, MEA filed a complaint with what is now the Regulatory Commission of Alaska (RCA): In the Matter of the Formal Complaint filed by MATANUSKA ELECTRIC ASSOCIATION, INC. Against CHUGACH ELECTRIC ASSOCIATION, INC., U-98-180. MEA alleged in its complaint that Chugach has engaged in "unreasonable management practices" in the management of its Series A Bonds. The complaint asks the RCA to issue an order instituting an investigation into the reasonableness and propriety of the continuing decision of Chugach not to defease such Bonds, which investigation would include convening a public hearing to take evidence as to whether Chugach's decision not to defease the Bonds constitutes an unreasonable management decision, and awarding MEA such additional relief as the RCA may find just and equitable. Chugach 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 the Bonds would not be prudent. The answer also asserts that the RCA should not open an investigation on the grounds that MEA's allegations do not implicate the kinds of mangement decisions into which it is appropriate for the RCA to inquire. MEA filed a reply to Chugach's answer in which it relied on new factual allegations not contained in the complaint. Each party has filed additional motions regarding the pleadings of the other party. The RCA has not yet ruled on any of those motions. Chugach filed a motion for summary disposition of MEA's complaint on January 14, 2000. Chugach argued that its management of its long-term debt has been recognized by the financial marketplace as being sound, that its handling of its Bonds (i.e., entering into a rate-lock) is demonstrably superior to defeasance, that the investigation MEA seeks would be costly and prejudicial to Chugach, and that MEA has failed to make the showing necessary to justify investigating Chugach's financial management. MEA filed its opposition on February 15, 2000, in which it argued that defeasance is a superior tactic for managing Chugach's long-term debt and that the rate-lock was a suspect financial management tactic that the RCA should examine closely. On March 6, 2000, Chugach filed its reply to MEA's opposition. It argued that MEA has not disputed Chugach's showing that the rate-lock is superior to defeasance, and that MEA's confusion about the terms and effect of the rate-lock does not constitute the `good cause' necessary to justify an investigation. The RCA has taken no action in this matter, although its predecessor, the Alaska Public Utilities Commission, did convene an informal status conference on April 30, 1999. If the RCA 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 should the case proceed. Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc. 3AN-99-8152 CI - -------------------------------------------------------------------------------- On July 7, 1999, MEA filed a complaint against Chugach in the above referenced matter in Alaska Superior Court in Anchorage. In its complaint, MEA asserted that Chugach has violated the Power Supply Agreement between the parties, state statutes and its own bylaws in failing to provide MEA with information about several different matters that MEA asserts could affect the cost of power MEA purchases from Chugach. MEA also asserted that Chugach violated the Power Supply Agreement in its management of its long-term bonded indebtedness. On September 9, 1999, Chugach filed a motion requesting the dismissal of the portion of MEA's claim seeking to recover damages for Chugach's alleged financial mismanagement. In its motion to dismiss, Chugach asserted that MEA's claim regarding Chugach's alleged financial mismanagement is essentially the same as MEA's financial mismanagement claim in U-98-180, referenced above. MEA opposed Chugach's motion to dismiss asserting that its financial mismanagement claim in this action is different from its claim before the RCA, because in this case it seeks monetary damages for past losses, while in its action before the RCA it seeks to force Chugach to change its future financial management practices. Thereafter, Chugach answered MEA's complaint, on November 3, 1999, and replied to MEA's opposition to Chugach's motion to dismiss. After oral argument on Chugach's motion to dismiss on November 17, 1999, the court entered an order on December 21, 1999, in which it denied Chugach's motion. MEA filed a corrected Second Amended Complaint on February 8, 2000, in which it added a new claim. MEA asked for an order directing that Chugach be required to present its general rate case filing to the Joint Rate Committee prior to presenting it to the RCA. Chugach did not oppose MEA's request to amend its Complaint a second time, and on February 29, 2000, the court granted MEA's motion to amend. Chugach filed its answer to MEA's Second Amended Complaint on or about March 10, 2000, and specifically denied MEA's assertion that it never responded to MEA's correspondence regarding bringing its general rate case before the Joint Rate Committee and opposed the relief MEA requested. Also, the parties conducted a scheduling conference on February 29, 2000, and set a trial date of April 2, 2001. Discovery has now commenced. Because of the preliminary nature of the case, Chugach has not been able to estimate the costs of its participation. Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc. 3AN-99-10830 CI - -------------------------------------------------------------------------------- On October 13, 1999, Chugach filed a complaint against MEA in Alaska Superior Court in Anchorage. In it, Chugach asked the court to enforce the APUC and RCA orders obligating MEA to pay Chugach for MEA's pro rata share (approximately 20%) of Chugach's Fuel and Purchased Power Cost Adjustment (FPPCA) attributable to an $839,000 tax liability Chugach incurred in connection with its supply contract with Marathon Oil Company. On October 22, 1999, Chugach filed a motion for a preliminary injunction in the same case asking the court to enjoin MEA's attempt to have the question of its liability for Chugach's FPPCA attributable to the Marathon tax liability submitted to an arbitrator. On November 16, 1999, Chugach filed a motion for summary judgment on the question of whether the RCA's orders should be enforced against MEA, which by agreement of the parties subsumed the motion for preliminary injunction. On December 8, 1999, MEA opposed that motion and filed a cross motion contesting the enforceability of the RCA's orders and asserting that it should not have to pay its share of the Marathon tax liability because Chugach failed to comply with provisions of the parties' Power Supply Agreement. The parties have exchanged responsive briefs and the issue is now set for oral argument on April 18, 2000. The parties anticipate that the court's ruling on the pending motion and cross-motion for summary judgment will dispose of this claim. Item 4 - Submission of Matters to a Vote of Security Holders Not Applicable PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters Not Applicable Item 6 - Selected Financial Data The following tables present selected historical information relating to financial condition and results of operations over the past five years: Balance Sheet Data 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Plant net: In service $ 398,544,496 $ 386,235,421 $ 393,228,853 $ 400,052,837 $ 391,200,269 Construction work in progress 47,257,296 30,405,736 24,664,395 19,826,957 27,068,964 ----------- ----------- ------------ ------------ ------------ Electric plant, net 445,801,792 416,641,157 417,893,248 419,879,794 418,269,233 Other assets 72,553,745 64,450,293 67,674,051 62,608,636 66,521,090 ------------ ------------ ------------ ------------ ------------ Total assets $518,355,537 $481,091,450 $485,567,299 $482,488,430 $484,790,323 ============= ============= ============== ============= ============ Capitalization: Long-term debt 337,150,295 305,917,699 312,006,501 307,905,847 305,641,703 Capital leases - - - - - Equities and margins 122,524,645 114,023,296 109,119,697 104,477,942 99,230,550 ----------- ----------- ----------- ----------- ----------- Total capitalization $459,674,940 $419,940,995 $421,126,198 $412,383,789 $404,872,253 ============= ============= ============= ============= ============= Summary Operations Data Operating revenues 142,644,327 141,825,373 143,947,730 134,876,668 129,379,308 Operating expenses 110,456,886 110,737,441 113,070,990 100,913,804 95,920,361 Interest expense 25,228,001 26,011,392 26,661,510 27,052,186 27,207,648 Amortization of gain on refinancing 1,092,620 1,542,723 1,577,149 1,703,136 2,150,476 ----------- ----------- ----------- ----------- ----------- Net operating margins 8,052,060 6,619,263 5,792,379 8,613,814 8,401,775 Nonoperating margins 1,615,374 2,111,141 1,762,018 1,217,557 604,418 ----------- ----------- ----------- ----------- ------------ Assignable margins $9,667,434 $8,730,404 $7,554,397 $9,831,371 $9,006,193 =============== ============== =============== =============== ===============
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 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 1 with respect to the MEA proposal. RESULTS OF OPERATIONS Chugach operates on a not-for-profit basis and, accordingly, seeks only to generate revenues sufficient to pay operating and maintenance costs, the cost of purchased power, capital expenditures, depreciation and principal and interest on all indebtedness of Chugach and to provide for the establishment of reasonable margins and reserves. Revenues in excess of current period costs (net operating margins and nonoperating margins) in any year are designated on Chugach's Statements of Revenues, Expenses and Patronage Capital as assignable margins. Retained assignable margins are designated on Chugach's balance sheet as patronage capital, which is assigned to each member on the basis of patronage. This patronage capital constitutes the principal equity of Chugach. Revenues Operating revenues include sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues. In 1999, operating revenues were approximately .58% higher than 1998. This was attributable to increased sales to GVEA due to operating problems with the Healy Clean Coal Plant, as well as increased kWh sales across the board due to colder weather. A total of $2,553,047 has been recorded in the provision for rate refund account since 1997. This provision was recorded in response to Docket U-96-37 which was opened by the APUC to resolve certain rate disputes with the wholesale customers. At December 31, 1999, Docket U-96-37 had not been closed. Retail demand and energy rates did not change in 1999 while demand and energy rates charged to MEA and Homer decreased due to the approval of the 1996 test year filing on an interim and refundable basis. Seward's demand and energy rates remained unchanged. In 1998 operating revenues were approximately 1.5% lower than 1997. This decrease was largely attributable to lower sales to Homer due to economy energy purchases from AML&P. Also, economy energy sales to GVEA decreased due to the Healy Clean Coal Plant testing activity in 1998. Retail demand and energy rates did not change in 1998 while demand and energy rates charged to MEA decreased slightly. Demand and energy rates to Homer remained unchanged while Seward's demand and energy rates dropped by 15%. Revenues and power sold were as follows for the years ended December 31: Year MWh sold Operating revenues - ---- -------- ------------------ 1999 2,190,253 $ 142,644,327 1998 2,055,963 141,825,373 1997 2,269,453 143,947,730 Chugach makes economy sales primarily to GVEA. These sales commenced in 1988 and have contributed to a portion of Chugach's growth in operating revenues. Chugach does not take such economy sales into consideration in its long-range resource planning process because these sales are non-firm sales that depend on GVEA's need for additional power and Chugach's available generating capacity at the time. In 1999, economy sales to GVEA constituted approximately 1.32% of Chugach's sales revenues. This increase from previous year's Economy Energy sales is due primarily to operating problems with the HCCP, increasing the need for GVEA to make economy power purchases. The impact of inflation on Chugach's revenues falls into two rate categories as follows: Fuel Surcharge Fuel and purchased power costs are passed directly to Chugach's wholesale and retail customers through a fuel and purchased power adjustment factor (fuel surcharge). Changes in these costs due to inflation or other market conditions are passed directly to Chugach's retail and wholesale customers which results in either a direct increase or decrease to Chugach's system revenues. The fuel adjustment factor is currently approved on a quarterly basis by the RCA. There are no limitations on surcharge rate changes. Increases in Chugach's fuel and purchased power costs result in increased revenues while decreases in costs result in lower revenues. Revenue from the fuel adjustment charge normally does not impact margins. At the urging of one of Chugach's wholesale customers, in Order No. 18 of Docket U-96-37, the APUC ordered retroactive refunds in the approximate amount of $1.2 million for fuel surcharge rates charged in 1995 - 1997. The order is in connection with Chugach's fuel and purchased power cost adjustment factors that are adjusted on a quarterly basis. It is Chugach's position that retroactive refunds of quarterly surcharge revenues violate the rules against retroactive ratemaking and constitutional due process protections. Chugach has appealed this decision to the Superior Court for the State of Alaska. Chugach's request for stay of the Commission refund order has been granted. It is not possible at this time to determine the outcome of this appeal. In 1999, Chugach's wholesale customers challenged the calculation of the annual update to the G&T loss factor. As a result, the RCA has made Chugach's surcharges interim and refundable since July 1, 1999. The RCA issued Order No. 2 on March 16, 2000, accepting Chugach's proposed revised calculation of line losses and ordered the new figure to be applied July 1, 1999. MEA has also challenged the recovery of a State of Alaska back-tax assessment against Marathon Oil Company, which, following the contract between Chugach and Marathon, is to be paid by Chugach. Despite repeated RCA approval of the recovery of this cost, MEA continues to dispute this finding on procedural grounds and has withheld partial payments of its monthly invoices. Chugach has undertaken court intervention to recover these payments. General Rate Filing Operating and maintenance and other non-fuel and purchased power costs are recovered through a general rate case process or through other normal RCA procedures. While the formal ratemaking process typically takes nine months to one year, it is within the RCA's authority to authorize, after a notice period, rate changes on an interim and refundable basis. In addition, the RCA has been willing to open limited dockets to resolve specific issues from which expeditious decisions can often be generated. Chugach's annual base rate changes, excluding fuel and purchased power cost adjustments, for retail and wholesale classes for the years 1997 through 1999 were as follows: 1999 1998 1997 ---- ---- ---- Retail 0.00% 0.00% 0.00% Wholesale: Homer (0.30%)1 0.00% 0.00% MEA (3.80%)1 (0.20%) (0.80%) Seward (0.00%) (15.00%)2 0.00% 1 Interim refundable rates pursuant to Settlement Agreement. 2 Reflects interruptible power sales contract Expenses Chugach's operating expenses for the years ended December 31, 1999, 1998 and 1997 were as follows: Year Operating expenses ---- ------------------ 1999 $110,456,886 1998 $110,737,441 1997 $113,070,990 Operating expenses for 1999 were 0.25% lower than 1998. Operating expenses for 1998 were 2.1% lower than 1997. The reasons for the significant operating expense variances follow: Year ended December 31, 1999, compared to the year ended December 31, 1998 -------------------------------------------------------------------------- Production expense decreased in 1999 from 1998. There were no substantial variances in total actual operating and maintenance expenses between 1999 and 1998, however, the decrease in fuel expense from $34.5 million in 1998 to $29.6 million in 1999 is a result of an average 16.0% decrease in fuel prices from 1998 to 1999. Transmission expense increased in 1999 from 1998 due to unanticipated transmission line repairs, Y2K preparation and testing and overhead line maintenance activity as a result of outages early in 1999. Distribution expense increased in 1999 from 1998 due primarily to the increased outage activity that occurred early in 1999. Sales expense increased in 1999 compared to 1998. The slight variance is due to positions in the Marketing Department that were vacant in 1998, but filled in 1999. Administrative and General expense increased from 1998 to 1999. The $5.2 million increase from 1998 is the result of an increase in software amortization expense, increased maintenance costs of the Y2K compliant software implementation completed in 1998, additional expenses associated with Chugach's ancilliary businesses, and multiple insurance settlements paid in 1999. In addition, general plant maintenance expenses were higher due to multiple projects completed in 1999. Depreciation expense decreased from 1998 to 1999. This variance was due to adjustments made in 1999 for the over-amortization of general plant and the unitization of the 1997 Beluga Unit #5 overhaul. Year ended December 31, 1998, compared to the year ended December 31, 1997 -------------------------------------------------------------------------- Production expense decreased in 1998 over 1997. Due to significantly reduced economy energy sales, there was a substantial decrease in the consumption of fuel at Beluga. This, however, was offset by increased fuel costs for Bernice Lake due to decreased power purchases from Soldotna 1. Purchased power expense decreased in 1998 over 1997. This was due primarily to the decreased purchases from Soldotna 1. In addition, to promote system stability and avoid possible outages, there were unusual purchases made from AML&P in 1997 while maintenance was being performed on the transmission lines between Beluga and Anchorage. Consumer accounts expense decreased in 1998 from 1997. This was due to the reclassification of expenses to the added financial category Sales Expense. Administrative and General expense increased in 1998 from 1997. This was caused by an update in the amount of common information services costs allocated to this category. Depreciation expense increased in 1998 from 1997 due to the over-amortization of general plant. Other interest expense decreased in 1998 from 1997. This was caused by converting a portion of short-term borrowings to long term debt which caused lower average outstanding balance on the short-term lines of credit throughout the year. Margins Chugach's assignable margins for the years ended December 31, 1999, 1998 and 1997, were as follows: Period Net operating margins Nonoperating margins Assignable margins ------ --------------------- -------------------- ------------------ 1999 $ 8,052,060 $ 1,615,374 $ 9,667,434 1998 $ 6,619,263 $ 2,111,141 $ 8,730,404 1997 $ 5,792,379 $ 1,762,018 $ 7,554,397
Nonoperating margins decreased in 1999 over 1998. The primary contributor to the decrease from 1998 is the gain on the sale of a surplus compressor rotor to Golden Valley Electric Association, Inc. in 1998. The variance is also due to higher than anticipated patronage capital from CoBank but is offset by a decrease in interest earnings as a result of decreased borrowing activity. Nonoperating margins increased in 1998 over 1997. This increase was caused mostly by an increase in patronage capital allocation from CoBank in 1998 versus 1997. Patronage Capital (Equity) Chugach's patronage capital and total equity have shown steady growth, both in dollars and as a percentage of capitalization. The following table summarizes Chugach's patronage capital and total equity position since 1997: 1999 1998 1997 ---- ---- ---- Patronage capital at beginning of year $109,622,996 $104,800,092 $100,685,517 Retirement of capital credits and estate Payments (1,954,949) (3,907,500) (3,439,822) Assignable margins 9,667,434 8,730,404 7,554,397 ------------ ------------ ------------ Patronage capital at end of year 117,335,481 109,622,996 104,800,092 Other equity 5,189,164 4,400,300 4,319,605 ------------ ------------ ------------ Total equity $122,524,645 $114,023,296 $109,119,697 ============ ============ ============
The Indenture includes a covenant restricting the distribution of patronage capital to members. Chugach cannot distribute patronage capital to members if 1) an event of default exists or 2) the aggregate amount of patronage capital distribution exceeds the sum of $7,000,000 plus 35 percent of the aggregate assignable margins earned after December 31, 1990. Times Interest Earned Ratio (TIER) Alaska electric cooperatives generally set rates on the basis of TIER. TIER is determined by dividing the sum of assignable margins plus long-term interest expense (excluding capitalized interest) by long-term interest expense. Beginning in 1989, Chugach's Board of Directors approved an Equity Management Plan that established a schedule for building Chugach's equity. Since then Chugach has managed its business with a view toward achieving a TIER of 1.25 or greater. Chugach's achieved TIERs for the past five years were as follows: Period TIER 1999 1.40 1998 1.35 1997 1.30 1996 1.39 1995 1.34 The Indenture requires Chugach to establish rates reasonably expected to yield margins for interest (MFI) equal to at least 1.20 times total interest expense. Margins for interest are defined as net margins plus interest charges and accruals for federal income and other taxes imposed on income after deduction of interest charges for such period, however, the amount of nonoperating margins included in assignable margins shall not exceed 50% of assignable margins. Chugach's achieved MFI/I for the past five years are not materially different from the TIER calculations shown above. The Indenture requires that Chugach achieve such a 1.20 ratio for any 12 consecutive month period of the last 18 months before issuing additional Bonds (other than additional Bonds issued based on deposited cash and, under certain circumstances, retirement of Bonds). MATERIAL CHANGES IN FINANCIAL CONDITION Chugach maintained a stable asset base from 1998 to 1999. Notable changes among the components include an increase in cash (and cash equivalents) due to a retail prepayment promotion, which began in November 1999, as well as an increase in accounts payable. Notable changes to other liabilities include: a higher balance in other liabilities due to increased fuel and purchased power payables caused by increased economy energy sales to GVEA; and the decrease in deferred credits resulting from the annual amortization of the original refinancing gain. LIQUIDITY AND CAPITAL RESOURCES Chugach satisfies its operational and capital cash requirements through internally generated funds, a $50 million line of credit with the NRUCFC and a $35 million line of credit with CoBank. At December 31, 1999, no balance was outstanding on the NRUCFC line. The NRUCFC line of credit expires October 14, 2002. At December 31, 1999, no amount was outstanding on the CoBank line. The CoBank line of credit expires August 1, 2000, but carries an annual automatic renewal clause. Chugach's capital improvement requirements are based on long-range plans and other supporting studies and are executed through a five-year construction work plan. Five-year work plans are fully developed and updated every year. Shown below is an estimate of capital expenditures for the years 2000 through 2004: 2000 $32.2 million 2001 33.6 million 2002 27.6 million 2003 33.4 million 2004 34.5 million Following is a five-year summary of anticipated capital credit retirements: Year ending Wholesale Retail Total - ----------- --------- ------ ----- 2000 0 3,750,000 3,750,000 2001 0 4,004,000 4,004,000 2002 0 9,499,000 9,499,000 2003 0 5,399,000 5,399,000 2004 1,359,000 5,383,000 6,742,000 Chugach's outstanding long-term obligations at December 31, 1999 are as follows: First mortgage bonds of 8.08% maturing in 2002 and 9.14% maturing in 2022 with interest payable semiannually March 15 and September 15: 8.08% $ 17,396,000 9.14% 182,810,000 CoBank 8.95% bond maturing in 2002, with interest payable monthly and principal due semi-annually 816,700 CoBank 7.76% bond maturing in 2005, with interest payable monthly 10,000,000 CoBank 5.60% bonds maturing 2022, with interest payable monthly 45,000,000 CoBank 5.60% bonds maturing in 2002, 2007 and 2012 with interest payable monthly 15,000,000 CoBank 6.88% bonds maturing in 2002, with interest payable monthly 42,500,000 CoBank 6.85% bonds maturing in 2002, with interest payable monthly 30,000,000 ------------- Total long-term obligations 343,522,700 Less current installments 6,372,405 ------------- Long-term obligations, excluding Current installments $337,150,295 ============ Maturities of Long-term Obligations Long-term obligations at December 31, 1999, mature as follows: Year ending Sinking Fund Requirements Principal maturities Total December 31 First mortgage CoBank bonds Mortgage bonds 2000 6,067,000 305,405 3,372,405 2001 6,097,000 333,350 6,430,350 2002 5,232,000 77,677,944 82,909,944 2003 5,041,000 865,821 5,906,821 2004 5,502,000 945,000 6,447,000 Thereafter 172,267,000 63,189,180 235,456,180 ------------ ---------- ----------- $200,206,000 $143,316,700 $343,522,700 ============ ============ ============ On September 19, 1991, Chugach issued $314 million of First Mortgage Bonds, 1991 Series A, for purposes of repaying existing debt to the FFB and the REA. Pursuant to Section 311 of the Rural Electrification Act, Chugach was permitted to prepay the REA debt at a discounted rate of approximately 9%, resulting in a discount of approximately $45 million. The gain on prepayment was deferred at December 31, 1991, because Chugach expected to pass the benefit of the gain through to ratepayers prospectively in the form of lower rates. In April 1992, Chugach received formal approval from the APUC to defer the gain and amortize it into income over the life of the bonds. Annual amortization for 1999 was $1.2 million and for 1998 and 1997 was $1.7 million. Chugach has negotiated a supplemental indenture (Third Supplemental Indenture of Trust) with CoBank that previously allowed up to $80 million in future bond financing. In 1997 Chugach finalized an amendment to the Third Supplemental Indenture of Trust (Seventh Supplemental Indenture of Trust) that eliminates the maximum aggregate amount of bonds the company may issue under the agreement. At December 31, 1999, Chugach had bonds in the amount of $143.6 million outstanding under this financing arrangement. The balance is comprised of a $1.1 million bond (CoBank 1) that 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%, a $15 million bond (CoBank 5) priced at 5.60% due in 2002, 2007 and 2012 and a $42.5 million bond (CoBank 6) carrying a variable interest rate currently priced at 7.10% (as of March 2000) and a $30 million bond (CoBank 7) carrying a variable interest rate currently priced at 7.18% (as of March 2000) both due in March, 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 December 31, 1999, there were no amounts outstanding under this financing arrangement. Chugach management expects that cash flows from operations and external funding sources will be sufficient to cover operational and capital funding requirements in 2000 and thereafter. YEAR 2000 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 "Year 2000" dates. Chugach completed Year 2000 conversion and remediation efforts. No adverse impacts to service were experienced at year end. ENVIRONMENTAL MATTERS Compliance with Environmental Standards Chugach's operations are subject to certain federal, state and local environmental laws which 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. Standard Steel Salvage Yard Site The remedial action at the Standard Steel Metals Salvage Yard Superfund Site has been completed. However, EPA will not approve a certificate of completion for the Site until its final oversight cost bill for the remedial action has been paid. The Standard Steel PRP Group (of which Chugach is a member) anticipates receiving and paying EPA's final oversight cost bill in the Spring of 2000. Presently, it is anticipated that the PRP Group will have sufficient funds on account to pay the oversight cost bill in full without an additional assessment of its members. Additional costs will also be incurred in the future for groundwater monitoring and operation and maintenance of the cleanup remedy. The PRP Group is in the process of estimating these costs and providing for their payment out of the funds already on account. Therefore, it is not anticipated that the Company will have to make any further payments related to the remedial action at the Site. In fact, Chugach will likely receive a refund from the PRP Group once the final costs are known. If any additional costs are incurred in addition to those already paid to the PRP Group and not covered by Chugach's settlement with its insurers, Chugach management believes that they would be fully recoverable in rates and therefore would have no impact on Chugach's financial condition or results of operations. OUTLOOK Nationwide, the electric utility industry is entering a period of unprecedented competition. Electric utilities in Alaska will not be immune from these competitive forces. Chugach has taken several steps to be more effectively positioned to meet the challenge of a competitive market for electricity. Chugach participates in national benchmarking projects to improve system operations. 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 new 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 IBEW that have reached impasse and have gone to an arbitrator for resolution. 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. The Union cannot strike and Chugach cannot lockout under the continuing agreement. Item 7A - 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 re-pricing mechanisms inherent in gas supply contracts as described on page 10 under the heading "Marathon". 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. Interest rate risk - As of December 31, 1999, except for CoBank 6 and 7, which carry variable interest rates that are periodically re-priced, Chugach's outstanding borrowings were at fixed interest rates with varying maturity dates. 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 2000 2001 2002 2003 2004 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ----- ----- Long-term debt, including current portion $6,372 $6,430 $82,910 $5,907 $6,447 $235,456 $343,522 $354,534
Chugach is exposed to market risk from changes in interest rates. To manage this exposure, Chugach entered into a Treasury rate-lock transaction in anticipation of refinancing the Series A Bonds due 2022 on the call date, March 15, 2002. The agreement specifies that Chugach will receive a payment from the counter-party in February 2002 if the yield on 10 year ($196,000,000 notional amount) or 30 year ($18,700,000 notional amount) Treasury bonds exceeds specified target levels of 5.653% and 5.838%, respectively, as of that date. At December 31, 1999, the fair value of this agreement approximated $13,000,000. A 10 basis point change in the yield would change the fair value of the agreement as follows: - -------------------------------------------------------------------------------- Notional Amount Change in Fair Value - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- $ 18,700,000 $ 213,000 - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- $ 196,000,000 $ 1,308,000 - ----------------------------------- -------------------------------------------- Commodity price risk - As described on page 10 under the heading "Marathon", Chugach's gas contracts provide for adjustments to gas prices based on fluctuations of certain commodity prices and indices. As described on page 23 under the heading "Fuel Surcharge", 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. Item 8 - Financial Statements and Supplementary Data December 31, 1999 and 1998 Independent Auditors' Report The Board of Directors Chugach Electric Association, Inc.: We have audited the accompanying balance sheets of Chugach Electric Association, Inc. as of December 31, 1999 and 1998, and the related statements of revenues, expenses and patronage capital and cash flows for each of the years in the three-year period ended December 31, 1999. These financial statements are the responsibility of the Association's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chugach Electric Association, Inc. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Anchorage, Alaska February 25, 2000 CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets December 31, 1999 and 1998 Assets 1999 1998 ------ ---- ---- Utility plant (notes 2, 6, 13 and 14): Electric plant in service $ 641,627,328 $ 620,216,818 Construction work in progress 47,257,296 30,405,736 ---------- ------------ 688,884,624 650,622,554 Less accumulated depreciation 243,082,832 233,981,397 ----------- ------------ Net utility plant 445,801,792 416,641,157 ----------- ------------ Other property and investments, at cost: Nonutility property 413,515 3,550 Investments in associated organizations (note 3) 8,946,861 8,356,364 --------- ------------ 9,360,376 8,359,914 --------- ------------ Current assets: Cash and cash equivalents, including Repurchase agreements of $6,574,457 in 1999 and $4,153,475 in 1998 4,110,030 2,312,574 Cash-restricted construction funds 538,404 177,366 Special deposits 182,164 121,164 Accounts receivable, less provision for doubtful accounts of $389,223 in 1999 and $447,908 in 1998 17,911,749 17,243,266 Materials and supplies 17,180,136 15,963,434 Prepayments 861,947 917,381 Other current assets 341,702 349,030 ---------- ---------- Total current assets 41,126,132 37,084,215 ---------- ----------- Deferred charges (notes 9 and 15) 22,067,237 19,006,164 ---------- ----------- $ 518,355,537 $ 481,091,450 ============= =============
See accompanying notes to financial statements. CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets, Continued December 31, 1999 and 1998 Liabilities 1999 1998 ----------- ---- ---- Equities and margins (note 11): Memberships $ 960,808 $ 911,253 Patronage capital (note 4) 117,335,481 109,622,996 Other (note 5) 4,228,356 3,489,047 ------------ ------------ 122,524,645 114,023,296 ------------ ------------ Long-term obligations, excluding current installments (notes 6, 7 and 11): First mortgage bonds payable 194,139,000 235,101,000 National Bank for Cooperatives bonds Payable 143,011,295 70,816,699 ------------- ------------ 337,150,295 305,917,699 ------------ ------------ Current liabilities: Current installments of long-term debt and capital leases (notes 6, 7 and 11) 6,372,405 6,088,802 Accounts payable 9,508,851 8,838,757 Consumer deposits 1,059,677 993,616 Accrued interest 6,066,114 6,722,325 Salaries, wages and benefits 4,053,228 3,755,837 Fuel 4,381,304 5,362,713 Other 2,527,798 1,318,947 ------------ ------------ Total current liabilities 33,969,377 33,080,997 ------------ ------------ Deferred credits (note 12) 24,711,220 28,069,458 ------------ ------------ $518,355,537 $ 481,091,450 ============ =============
See accompanying notes to financial statements. CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Revenues, Expenses and Patronage Capital Years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ---- ---- ---- Operating revenues $ 142,644,327 $ 141,825,373 $ 143,947,730 ------------ ------------ ------------ Operating expenses: Production 40,301,607 45,261,450 45,879,337 Purchased power 8,581,979 8,462,835 14,033,282 Transmission 3,813,438 2,771,652 3,378,540 Distribution 9,400,618 8,876,890 8,640,443 Consumer accounts 4,387,421 4,177,980 4,955,838 Sales expense 1,227,908 1,125,410 - Administrative, general and other 22,892,479 17,592,829 15,071,966 Depreciation 19,851,436 22,468,395 21,111,584 ------------ ------------ ------------ Total operating expenses 110,456,886 110,737,441 113,070,990 ------------ ------------ ------------ Interest: On long-term debt 24,137,593 25,159,660 24,942,281 Charged to construction - credit (1,000,246) (821,137) (629,764) On short-term debt 998,034 130,146 771,844 ------------- ------------- ------------ Net interest 24,135,381 24,468,669 25,084,361 ------------ ------------ ------------ Net operating margins 8,052,060 6,619,263 5,792,379 Nonoperating margins: Interest income 592,208 711,155 632,191 Other 1,003,029 1,050,899 520,414 Property gain (loss) 20,137 349,087 609,413 ----------- ------------ ------------ Assignable margins 9,667,434 8,730,404 7,554,397 Patronage capital at beginning of year 109,622,996 104,800,092 100,685,517 Retirement of capital credits and estate payments (note 4) (1,954,949) (3,907,500) (3,439,822) ----------- ------------ ------------ Patronage capital at end of year $117,335,481 $109,622,996 $104,800,092 ============ ============ ============
See accompanying notes to financial statements. CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Cash Flows Years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ---- ---- ---- Cash flows from operating activities: Assignable margins $9,667,434 $8,730,404 $7,554,397 Adjustments to reconcile assignable margins to net cash provided by operating activities: Depreciation and amortization 23,563,805 24,605,760 23,532,263 Capitalized interest (1,151,720) (1,081,394) (799,999) Property (gains) losses and obsolete inventory write-off 242 (349,087) (609,413) Other (221) 60,734 (241,317) Changes in assets and liabilities: (Increase) decrease in assets: Special deposits (61,000) 30,540 (62,471) Accounts receivable (668,483) 6,755,872 (8,629,254) Prepayments 55,434 (359,010) 135,886 Materials and supplies, net (1,216,702) (344,349) 568,507 Deferred charges (14,179,418) (7,898,240) (2,299,547) Other assets 7,328 (43,615) (11,035) Increase (decrease) in liabilities: Accounts payable 670,093 1,800,524 1,860,074 Accrued interest (656,211) (182,010) (172,052) Deferred credits (2,973,944) (1,829,112) (755,366) Consumer deposits, net 66,061 (44,625) (28,665) Other liabilities 524,833 (3,129,329) (1,076,365) ------------ ----------- ----------- Total adjustments 3,980,097 17,992,659 11,411,246 ----------- ---------- ---------- Net cash provided by operating activities 13,647,531 26,723,063 18,965,643 ---------- ---------- ---------- Cash flows from investing activities: Extension and replacement of plant (40,864,582) (19,447,902) (17,487,859) (Increase) decrease in investments in associated (590,276) (552,827) 24,235 -------------- -------------- --------------- organizations Net cash (used) in investing activities (41,454,858) (20,000,729) (17,463,624) ------------ ------------ ------------ Cash flows from financing activities: Transfer of restricted construction funds (361,038) 187,412 1,006,608 Net decrease in notes payable 0 0 (2,750,000) Proceeds from long-term debt 72,500,000 0 15,000,000 Repayments of long-term debt (40,983,801) (5,913,512) (10,957,586) Memberships and donations received 788,865 80,695 527,179 Retirement of patronage capital (1,954,949) (3,907,500) (3,439,822) Net refunds of consumer advances for construction (384,294) (81,384) (1,083,688) ----------- ------------- ----------- Net cash used by financing activities 29,604,783 (9,634,289) (1,697,309) ---------- ----------- ----------- Net increase in cash and cash equivalents 1,797,456 (2,911,955) (195,290) Cash and cash equivalents at beginning of year $ 2,312,574 $ 5,224,529 $ 5,419,819 - ---------------------------------------------- ----------- ----------- ----------- Cash and cash equivalents at end of year $ 4,110,030 $ 2,312,574 $5,224,529 - ---------------------------------------- =========== =========== ========== Supplemental disclosure of cash flow information - interest expense paid, net of amounts capitalized 24,791,592 24,650,680 25,256,413 ========== ========== ==========
See accompanying notes to financial statements. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements December 31, 1999 and 1998 (1) Description of Business and Summary of Significant Accounting Policies Description of Business Chugach Electric Association, Inc. (Association or Chugach) is the largest electric utility in Alaska. The Association is engaged in the generation, transmission and distribution of electricity to directly served retail customers in the Anchorage and upper Kenai Peninsula areas. Through an interconnected regional electrical system, Chugach's power flows throughout Alaska's Railbelt, a 400-mile-long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state, including Alaska's largest cities, Anchorage and Fairbanks. Chugach also supplies much of the power requirements of three wholesale customers, Matanuska Electric Association (MEA), Homer Electric Association (Homer) and the City of Seward (Seward). The Association operates on a not-for-profit basis and, accordingly, seeks only to generate revenues sufficient to pay operating and maintenance costs, the cost of purchased power, capital expenditures, depreciation, and principal and interest on all indebtedness and to provide for reasonable margins and reserves. The Association is subject to the regulatory authority of the Regulatory Commission of Alaska (RCA), (formerly the Alaska Public Utilities Commission (APUC)). Management Estimates In preparing the financial statements, management of the Association is required to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the reporting period. Actual results could differ from those estimates. Regulation The accounting records of the Association conform to the Uniform System of Accounts as prescribed by the Federal Energy Regulatory Commission. The Association meets the criteria, and accordingly, follows the accounting and reporting requirements of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS 71). Revenues in excess of current period costs (net operating margins and nonoperating margins) in any year are designated on the Association's statement of revenues and expenses as assignable margins. Retained assignable margins are designated on the Association's balance sheet as patronage capital, which is assigned to each member on the basis of patronage. This patronage capital constitutes the principal equity of the Association. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements In July 1997, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) reached a consensus on EITF 97-4 "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71 and No. 101." This issue discusses when an enterprise should stop applying SFAS 71 to the separable portion of its business whose product or service pricing is being deregulated and how a company should account for its stranded costs after it has discontinued the application of SFAS 71. It also provides guidance with respect to the evaluation of regulatory assets and liabilities and concluded that these items should be determined on the basis of where in the business the regulated cash flows to realize and settle them will be derived. The Association's current method of accounting is consistent with the EITF. The Association performs an annual evaluation of the requirements of SFAS 71 and related exposures. Reclassifications Certain reclassifications have been made to the 1997 and 1998 financial statements to conform to the 1999 presentation. Plant Additions and Retirements Additions to electric plant in service are recorded at original cost of contracted services, direct labor and materials, and indirect overhead charges. For property replaced or retired, the average unit cost of the property unit, plus removal cost, less salvage, is charged to accumulated provision for depreciation. The cost of replacement is added to electric plant. Operating Revenues Operating revenues are based on billing rates authorized by the RCA which are applied to customers' usage of electricity. Included in operating revenue are billings rendered to customers adjusted for differences in meter read dates from year to year. The Association's tariffs include provisions for the flow through of gas cost increases pursuant to existing gas supply contracts. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements In August 1996, the Board of Directors approved a petition to the APUC to withdraw from the Simplified Rate Filing (SRF) process. This petition was submitted to the APUC as part of Docket U-96-37, which was opened to resolve rate disputes with two of Chugach's wholesale customers (AEG&T/MEA/Homer). Interim-refundable rates for AEG&T/MEA/Homer were ordered pending resolution of the docket. In February 1997, the APUC approved a Settlement Agreement between Chugach and AEG&T/MEA/Homer resolving issues in the docket and establishing permanent rates. As part of the APUC order, the Association was required to file Cost of Service and Revenue Requirement Studies. These studies were filed in March 1997. The APUC approved Chugach's withdrawal from SRF in July 1998. Rate changes will be applied for through general rate case and other normal APUC procedures. At December 31, 1999, Docket U-96-37 had not been closed. A provision for a wholesale rate refund of $2,553,047 to AEG&T/MEA/Homer was recorded at December 31, 1999 to accommodate certain rate adjustment clauses contained in the Settlement Agreement. In 1998 a new power sales agreement was negotiated between Chugach and Seward. The new contract was filed with the APUC and approved on an interim-refundable basis effective September 11, 1998 by an order dated October 12, 1998. The APUC specifically postponed a decision on whether to allow the reduced rates under the contract to be effective as of March 1, 1998 as the parties had agreed in the contract. In a subsequent order issued June 14, 1999 the RCA made the interim refundable rates permanent effective September 11, 1998 and did not allow the request to make the rates effective March 1, 1998. In October 1998 Marathon Oil Company, one of Chugach's natural gas suppliers, notified Chugach that it had reached a settlement with the State of Alaska regarding additional excise and royalty taxes for the period 1989 through 1998. In accordance with the purchase contract, Chugach would be responsible for these additional taxes. The RCA approved Chugach's plan to recover this over 12 months through the Fuel Surcharge mechanism except for the retail portion in the amount of $436,778 that was written-off at December 31, 1998. Recovery of this expense began in rates on April 1, 1999. Despite RCA approval and subsequent re-confirmation by the RCA, MEA has refused to pay the portion of its monthly bill it considers to be recovery of the Marathon tax. Investments in Associated Organizations Investments in associated organizations represent capital requirements as part of financing arrangements. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements The Association has the intent and ability to hold these investments to maturity, and accordingly has elected to account for them at cost under SFAS 115. Deferred Charges and Credits Deferred charges, representing regulatory assets, are amortized to operating expense over the period allowed for rate-making purposes, generally five years. Nonrefundable contributions in aid of construction are credited to the associated cost of construction of property units. Refundable contributions in aid of construction are held in deferred credits pending their return or other disposition. Depreciation and Amortization Depreciation and amortization rates have been applied on a straight-line basis and at December 31, 1999 are as follows: Rate (%) Steam production plant 2.70 - 2.96 Hydraulic production plant 1.33 - 2.88 Other production plant 3.34 - 6.50 Transmission plant 1.85 - 5.37 Distribution plant 2.10 - 4.55 General plant 2.22 - 20.00 Other 1.88 - 2.75 In 1997 an update of the Depreciation Study was completed utilizing Electric Plant in Service balances as of December 31, 1995. Depreciation rates developed in that Study were implemented in January, 1998. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements Capitalized Interest Allowance for funds used during construction and interest charged to construction - credit are the estimated costs during the period of construction of equity and borrowed funds used for construction purposes. The Association capitalized such funds at the average rate (adjusted monthly) of 7.4% during 1999 and 8.3% during 1998 and 1997. Cash and Cash Equivalents For purposes of the statement of cash flows, the Association considers all highly liquid debt instruments with a maturity of three months or less upon acquisition by the Association (excluding restricted cash and investments) to be cash equivalents. Materials and Supplies Materials and supplies are stated at the lower of cost or market and valued at average cost. Fair Value of Financial Instruments Statement of Financial Accounting Standards 107, Disclosures About the Fair Value of Financial Instruments, requires disclosure of the fair value of certain on and off balance sheet financial instruments for which it is practicable to estimate that value. The following methods are used to estimate the fair value of financial instruments: Cash and cash equivalents and restricted cash - the carrying amount approximates fair value because of the short maturity of those instruments. Investments in associated organizations - the carrying amount approximates fair value because of limited marketability and current market interest rates which approximate interest rates on the investments. Consumer deposits - the carrying amount approximates fair value because of the short refunding term. Long-term obligations - the fair value is estimated based on the quoted market price for same or similar issues (note 7). Financial Instruments and Hedging The Association uses interest rate swap and forward rate lock agreements to manage interest costs and the risk associated with changing interest rates. As interest rates change, the differential paid or received is recognized in interest expense of the period. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements Environmental Remediation Costs The Association accrues for losses associated with environmental remediation obligations when such losses are probable and can be reasonably estimated. Such accruals are adjusted as further information develops or circumstances change. Estimates of future costs for environmental remediation obligations are not discounted to their present value. 2) Utility Plant Summary Major classes of electric plant as of December 31 are as follows: 1999 1998 ---- ---- Electric plant in service: Steam production plant $60,392,869 $60,392,869 Hydraulic production plant 8,798,695 8,798,695 Other production plant 104,925,446 109,153,064 Transmission plant 211,881,174 191,960,788 Distribution plant 162,365,836 156,976,983 General plant 47,704,821 44,782,572 Unclassified electric plant in service 38,834,298 41,598,712 Equipment under capital lease 56,323 56,323 Other 6,667,866 6,496,812 ------------- ------------- Total electric plant in service 641,627,328 620,216,818 Construction work in progress 47,257,296 30,405,736 ------------ ------------ Total electric plant in service and construction work in progress $688,884,624 $650,622,554 ============ ============
Depreciation of unclassified electric plant in service has been included in functional plant depreciation accounts in accordance with the anticipated eventual classification of the plant investment. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (3) Investments in Associated Organizations Investments in associated organizations include the following at December 31: 1999 1998 ---- ---- National Rural Utilities Cooperative Finance Corporation (NRUCFC) $ 6,095,980 $ 6,095,980 National Bank for Cooperatives (CoBank) 2,708,200 2,117,924 NRUCFC capital term certificates 32,300 32,300 Other 110,381 110,160 --------- --------- $8,946,861 $8,356,364 ========== ==========
The Farm Credit Administration, CoBank's federal regulators, requires minimum capital adequacy standards for all Farm Credit System institutions. CoBank's loan agreements require, as a condition of the extension of credit, that an equity ownership position be established by all borrowers. The Association's investment in NRUCFC similarly was required by its financing arrangements with NRUCFC. The investments in NRUCFC and CoBank mature at various dates through 2020 and bear interest at rates ranging from 3% to 5%. (4) Patronage Capital The Association has approved an Equity Management Plan which established in general, a ten-year (for wholesale customers) and twenty-year (for retail customers) capital credit retirement of patronage capital, based on the members' proportionate contribution to Association assignable margins. At December 31, 1999, out of the total of $117,335,481 patronage capital, the Association had assigned $108,605,077 of such patronage capital (net of capital credit retirements). Approval of actual capital credit retirements is at the discretion of the Association's Board of Directors. In December 1997, the Board of Directors authorized the retirement of $1,859,730 of retail capital credits representing the remaining 1983 patronage capital. The Board of Directors also authorized the retirement of 1987 wholesale capital credits in the amount of $1,205,510 in December 1997. A special wholesale capital credit retirement of $88,818, representing wholesale margins from 1985, was authorized in December 1997. In December 1998 the Board of Directors authorized the retirement of $2,208,997 of retail capital credits representing the balance of 1984 retail distribution patronage. The Board also authorized the retirement of $1,533,287 of wholesale patronage for 1988. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements In November 1999 the Board of Directors authorized the retirement of $1,766,000 of retail patronage for 1984. Following is a five-year summary of anticipated capital credit retirements: Year ending Wholesale Retail Total ----------- --------- ------ ----- 2000 - 3,750,000 3,750,000 2001 - 4,004,000 4,004,000 2002 - 9,499,000 9,449,000 2003 - 5,399,000 5,399,000 2004 1,359,000 5,383,000 6,742,000
(5) Other Equities A summary of other equities at December 31 follows: 1999 1998 ---- ---- Nonoperating margins, prior to 1967 $ 23,625 $ 23,625 Donated capital 183,907 184,581 Unredeemed capital credit retirement 4,020,824 3,280,841 ---------- ---------- $4,228,356 $3,489,047 ========== ==========
CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (6) Long-term Obligations Long-term obligations at December 31 are as follows: 1999 1998 ---- ---- First mortgage bonds of 8.08% maturing in 2002 and 9.14% maturing in 2022 with interest payable semiannually March 15 and September 15: 8.08% $ 17,396,000 $ 23,205,000 9.14% 182,810,000 217,705,000 CoBank 8.95% bond maturing in 2002, with interest payable monthly and principal due semi-annually 816,700 1,096,501 CoBank 7.76% bond maturing in 2005, with interest payable monthly 10,000,000 10,000,000 CoBank 5.60% bonds maturing 2022, with interest payable monthly 45,000,000 45,000,000 CoBank 5.60% bonds maturing in 2002, 2007 and 2012 with interest payable monthly 15,000,000 15,000,000 CoBank 6.88% bonds maturing in 2002, with interest payable monthly 42,500,000 0 CoBank 6.85% bonds maturing in 2002, with interest payable monthly 30,000,000 0 ------------- ------------- Total long-term obligations 343,522,700 312,006,501 Less current installments 6,372,405 6,088,802 ------------- ------------- Long-term obligations, excluding Current installments $337,150,295 $305,917,699 ============ ============
Substantially all assets are pledged as collateral for the long-term obligations. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements Maturities of Long-term Obligations Long-term obligations at December 31, 1999 mature as follows: Year ending Sinking Fund Requirements Principal maturities Total December 31 First mortgage CoBank bonds mortgage bonds 2000 6,067,000 305,405 6,372,405 2001 6,097,000 333,350 6,430,350 2002 5,232,000 77,677,944 82,909,944 2003 5,041,000 865,821 5,906,821 2004 5,502,000 945,000 6,447,000 Thereafter 172,267,000 63,189,180 235,456,180 ------------ ---------- ----------- $200,206,000 $143,316,700 $343,522,700 ============ ============ ============ Lines of Credit The Association had an annual line of credit of $35,000,000 in 1999 and 1998 available with CoBank. The CoBank line of credit expires August 1, 2000 but carries an annual automatic renewal clause. At December 31, 1999 and 1998, there was no outstanding balance on this line of credit. In addition, the Association had an annual line of credit of $50,000,000 available at December 31, 1999 and 1998 with NRUCFC. At December 31, 1999 and 1998 there was no outstanding balance on this line of credit. The NRUCFC line of credit expires October 14, 2002. Refinancing On September 19, 1991, Chugach issued $314,000,000 of First Mortgage Bonds, 1991 Series A (Bonds), for purposes of repaying existing debt to the Federal Financing Bank and the Rural Electrification Administration (now Rural Utilities Services). Pursuant to Section 311 of the Rural Electrification Act, Chugach was permitted to prepay the REA debt at a discounted rate of approximately 9%, resulting in a discount of approximately $45,000,000 (note 12). CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements The bonds maturing in 2002 (Series A 2002 Bonds) are subject to annual sinking fund redemption at 100% of the principal amount thereof which commenced March 15, 1993. The bonds maturing in 2022 (Series A 2022 Bonds) are subject to annual sinking fund redemption at 100% of the principal amount thereof commencing March 15, 2003. The Series A 2002 Bonds are not subject to optional redemption. The Series A 2022 Bonds are redeemable at the option of Chugach on any interest payment date at an initial redemption price commencing in 2002 of 109.140% of the principal amount thereof declining ratably to par on March 15, 2012. The Bonds are secured by a first lien on substantially all of Chugach's assets. The Indenture prohibits outstanding short-term indebtedness (other than trade payables) in excess of 15% of Chugach's net utility plant and limits certain cash investments to specific securities. In April 1997, Chugach reacquired $5,000,000 of the Series A 2022 Bonds at a premium of 109.7500. Total transaction cost, including accrued interest and premium, was $5,510,350. In February 1999, Chugach reacquired $11,000,000 of the Series A 2022 Bonds at a premium of 117.05. Total transaction cost, including accrued interest and premium, was $13,322,344. In February 1999, Chugach reacquired $14,000,000 of the Series A 2022 Bonds at a premium of 116.25. Total transaction cost, including accrued interest and premium, was $16,868,592. In February 1999, Chugach reaquired $9,895,000 of the Series A 2022 Bonds at a premium of 116.75. Total transaction cost, including accrued interest and premium, was $11,974,467. In March 2000, Chugach reaquired $8,500,000 of the Series A 2022 Bonds at a premium of 104.00. Total transaction cost, including accrued interest and premium, was $9,215,502. 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 market interest rates in anticipation of refinancing Chugach's Series A Bonds due 2022 on their call date (March 15, 2002). As of December 31, 1999, the aggregate principal amount of Series A Bonds due 2022 was $182,810,000. 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 fair value of the treasury rate lock agreement at December 31, 1999 approximated $13,000,000. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (7) Fair Value of Financial Instruments The estimated fair values (in thousands) of the long-term obligations included in the financial statements at December 31 are as follows: 1999 1998 ---- ---- Carrying Fair Carrying Fair Value Value Value Value Long-term obligations (including current installments) $343,523 $354,534 $312,007 $349,353 Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions. (8) Employee Benefits Pension benefits for substantially all employees are provided through the Alaska Electrical Trust and Alaska Hotel, Restaurant and Camp Employees Health and Welfare Trust Funds (union employees) and the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program (nonunion employees). The Association makes annual contributions to the plans equal to the amounts accrued for pension expense. For the union plans, the Association pays a contractual hourly amount per union employee which is based on total plan costs for all employees of all employers participating in the plan. In these master, multiple-employer plans, the accumulated benefits and plan assets are not determined or allocated separately to the individual employer. Pension costs for union plans were approximately $1,832,000 in 1999, $1,805,000 in 1998 and $1,810,000 in 1997. For several years, NRECA did not require contributions to the plan; consequently, no pension cost was incurred. In 1996 a moratorium was in effect from January through September. In 1997 approximately $601,000 was contributed to the NRECA plan. In 1998 approximately $813,000 was contributed to the NRECA plan for the full year. In 1999 approximately $868,000 was contributed to the NRECA plan for the full year. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (9) Deferred Charges Deferred charges consisted of the following at December 31: 1999 1998 ---- ---- Debt issuance and reacquisition costs $ 6,196,555 $ 3,838,237 Refurbishment of transmission equipment 262,346 271,605 Computer software and conversion 12,186,272 11,104,406 Studies 1,880,734 2,253,165 Business venture studies 273,660 72,961 Fuel supply negotiations 369,609 392,325 Major overhaul of steam generating unit 427,305 632,411 Environmental matters and other (note 1 470,756 441,054 ---------- ---------- $22,067,237 $19,006,164 (10) Income Taxes The Association is exempt from federal income taxes under the provisions of Section 501(c)(12) of the Internal Revenue Code, except for unrelated business income. For the years ending December 31, 1999, 1998 and 1997 the Association received no unrelated business income. (11) Return of Capital Under provisions of its long-term debt agreements, the Association is not directly or indirectly permitted to declare or pay any dividend or make any payments, distributions or retirements of patronage capital to members if an event of default exists with respect to its bonds (event of default), if payment of such distribution would result in an event of default, or if the aggregate amount expended for all distributions on and after September 26, 1991 exceeds the sum of $7,000,000 plus 35% of the aggregate assignable margins (whether or not such assignable margins have since been allocated to members) of the Association earned after December 31, 1990 (or, in the case such aggregate shall be a deficit, minus 100% of such deficit). The Association may declare and make distributions at any time if, after giving effect thereto, the Association's aggregate margins and equities as of the end of the most recent fiscal quarter would be not less than 45% of the Association's total liabilities and equities as of the date of the distribution. The Association does not anticipate that this provision will limit the anticipated capital credit retirements described in note 4. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (12) Deferred Credits Deferred credits at December 31 consisted of the following: 1999 1998 ---- ---- Regulatory liability - unamortized gain on reacquired debt $ 21,271,412 $ 25,796,171 Refundable consumer advances for Construction 2,123,913 1,739,618 Estimated initial installation costs for Transformers and meters 272,554 277,969 Post retirement benefit obligation 286,200 255,700 New business venture 46,185 0 Other 710,956 0 ------------- ------------------ $24,711,220 $28,069,458 =========== =========== In conjunction with the refinancing described in note 6, the Association recognized a gain of approximately $45,000,000. The APUC permitted the Association to flow through the gain to consumers in the form of reduced rates over a period equal to the life of the bonds using the effective interest method; consequently, the gain has been deferred for financial reporting purposes as required by SFAS 71. Approximately $1,215,000 of the deferred gain was amortized in 1999. Approximately $1,700,000 of the deferred gain was amortized annually in 1998 and 1997. (13) Bradley Lake Hydroelectric Project The Association is a participant in the Bradley Lake Hydroelectric Project (Bradley Lake). Bradley Lake was built and financed by the Alaska Energy Authority (AEA) through State of Alaska grants and $166,000,000 of revenue bonds. The Association and other participating utilities have entered into take-or-pay power sales agreements under which shares of the project capacity have been purchased and the participants have agreed to pay a like percentage of annual costs of the project (including ownership, operation and maintenance costs, debt service costs and amounts required to maintain established reserves). Under these take-or-pay power sales agreements, the participants have agreed to pay all project costs from the date of commercial operation even if no energy is produced. The Association has a 30.4% share of the project's capacity. The share of debt service exclusive of interest, for which the Association is responsible is approximately $46,000,000. Under a worst case scenario, the Association could be faced with annual CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements expenditures of approximately $4.1 million as a result of its Bradley Lake take-or-pay obligations. Management believes that such expenditures, if any, would be recoverable through the fuel surcharge ratemaking process. Upon the default of a Bradley Lake participant, and subject to certain other conditions, AEA, through Alaska Industrial Development and Export Authority, is entitled to increase each participant's share of costs pro rata, to the extent necessary to compensate for the failure of another participant to pay its share, provided that no participant's percentage share is increased by more than 25%. On April 6, 1999, AEA issued $59,485,000 of Power Revenue Refunding Bonds, Third Series, for the purpose of refunding $59,110,000 of the First Series Bonds. The refunded First Series Bonds were called on July 1, 1999. The refunding resulted in aggregate debt service payments over the next nineteen years in a total amount approximately $9,500,000 less than the debt service payments which would be due on the refunded bonds. There was an economic gain of approximately $5,900,000. Economic gain is calculated as the net difference between the present value of the old debt service requirements and the present value of the new debt service requirements, discounted at the effective interest rate and adjusted for additional cash paid. On April 13, 1999, AEA issued $30,640,000 of Power Revenue Refunding Bonds, Fifth Series, for the purpose of refunding $28,910,000 of the First Series Bonds. The refunded First Series Bonds were called on July 1, 1999. The refunding resulted in aggregate debt service payments over the next twenty-three years in a total amount approximately $4,400,000 less than the debt service payments which would be due on the refunded bonds. There was an economic gain of approximately $2,900,000. The Association's share of these savings will be approximately $546,000. The following represents information with respect to Bradley Lake at June 30, 1999 (the most recent date for which information is available). The Association's share of expenses were $3,902,737 in 1999, $4,112,292 in 1998 and $3,981,624 in 1997 and are included in purchased power in the accompanying financial statements. Other electric plant in service of $6,667,866 represents the Association's share of a Bradley Lake transmission line financed internally and the Association's share of the Eklutna Hydroelectric Project, purchased in 1997. Total Proportionate Share Plant in service $ 306,872,387 $ 93,289,206 Accumulated depreciation (53,593,915) (16,292,550) Interest expense 10,538,354 3,203,660 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (14) Eklutna Hydroelectric Project During October 1997, the ownership of the Eklutna Hydroelectric Project formally transferred from the Alaska Power Administration to the participating utilities. This group consists of the Association along with Matanuska Electric Association (MEA) and Municipal Light and Power (AML&P). Other electric plant in service includes $1,956,954 representing the Association's share of the Eklutna Hydroelectric Plant. This balance will be amortized over the estimated life of the facility. During the transition phase and after the transfer of ownership, Chugach, MEA and AML&P have jointly operated the facility. Each participant contributes their proportionate share for operations and maintenance costs. Under net billing arrangements, Chugach then reimburses MEA for their share of the costs. Prior to the transfer of ownership, these costs were recorded as purchased power expenses; after the transfer these costs were recorded as power production expenses. In 1999, the Association charged $246,080 to various expense categories representing Chugach's share of Eklutna operations. (15) Commitments and Contingencies Construction The Association is engaged in a continuous construction program. Management estimates that approximately $32,000,000 will be spent on the construction program in 2000. Contingencies The Association is a participant in various legal actions, claims and unasserted claims, both for and against its interests. Management believes that the outcome of any such matters will not materially impact the Association's financial condition, results of operations or liquidity. Standard Steel Salvage Yard Site A cost recovery action was filed in Federal District Court on December 27, 1991 by the United States against the Association and six other Potentially Responsible Parties seeking reimbursement of removal and response action costs incurred by the United States Environmental Protection Agency ("EPA") at the Standard Steel and Metals Salvage Yard Superfund Site in Anchorage, Alaska. The site work and reporting required to complete the remedial action have been done. Although the total oversight costs of EPA and other federal agencies is not yet known, Chugach has prefunded these costs and believes that sufficient funds remain in the account to pay these costs and the on-going future site CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements monitoring costs. Chugach's total costs for the site not reimbursed by its insurers will not exceed $500,000. Management believes that this amount is fully recoverable in rates and therefore would have no impact on Chugach's financial condition or results of operations. Unsolicited Acquisition Proposal by Matanuska Electric Association, Inc. In October 1998, Matanuska Electric Association (MEA), Chugach's largest wholesale customer, presented to the Board of Directors of Chugach (the Board) an unsolicited proposal (the MEA Proposal) to acquire substantially all of Chugach's assets in exchange for the assumption of Chugach's liabilities. 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. Subsequently, MEA gathered 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 (AETCA), a special meeting may be called by 10% of Chugach's members. Chugach held the special meeting to consider the MEA Proposal on November 18, 1999. Of the 14,492 ballots received and validated, 13,156 were cast against the MEA proposal and 1,336 (9.2%) were cast in favor. The proposal therefore fell far short of the approximately 27,500 members (including at least 2/3 of the members actually voting) that would have had to vote in favor of the MEA Proposal in order for the members to register their approval under Chugach's bylaws and the AETCA. Year 2000 Conversion 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 "Year 2000" dates. Chugach completed Year 2000 conversion and remediation efforts. No adverse impacts to service were experienced at year end. Regulatory Cost Charge In 1992 the State of Alaska Legislature passed legislation authorizing the Department of Revenue to collect a regulatory cost charge from utilities in order to fund the APUC. The tax is assessed on all retail consumers and is based on kilowatt hour (kWh) consumption. The Regulatory Cost Charge has decreased since its inception (November 1992) from an initial rate of $.000626 per kWh to the current rate of $.000309, effective October 1, 1999. CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (16) Segment Reporting During 1998, Chugach adopted the Financial Accounting Standards Board Statement No. 131, Disclosures About Segments of an Enterprise and Related Information, which establishes standards for reporting information about a company's operating segments. The Association had divided its operations into two reportable segments: Energy and Internet service. The energy segment derives its revenues from sales of electricity to residential, commercial and wholesale customers, while the Internet segment derives its revenues from provision of residential and commercial internet services and products. The reporting segments follow the same accounting policies used for the Association's financial statements and described in the summary of significant accounting policies. Management evaluates a segment's performance based upon profit or loss from operations. Jointly used assets are allocated by percentage of reportable segment usage and centrally incurred costs are allocated using factors developed by the Association, which are patterned upon usage. The Internet segment began operations during 1998, the results of which are immaterial to the financial statements. The following is a tabulation of business segment information for the year ended December 31, 1999: Operating Revenues Internet 374,296 Energy 142,270,031 ----------- Total operating revenues 142,644,327 =========== Assignable Margins Internet -1,293,388 Energy 10,960,822 ------------ Total assignable margins 9,667,434 ============= Assets Internet 564,477 Energy 517,791,060 ----------- Total assets 518,355,537 =========== Capital Expenditures Internet 508,082 Energy 36,756,005 ------------ Total capital expenditures 39,264,087 ============ Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10 - Directors and Executive Officers of the Registrant MANAGEMENT Executives Chugach operates under the direction of a Board of Directors that is elected at large by its membership. Day-to-day business and affairs are administered by the General Manager. Chugach's seven-member Board of Directors sets policy and provides direction to the General Manager. The following table sets forth certain information with respect to the executive management of Chugach: Name Age Position held - ---- --- ------------- Eugene N. Bjornstad 62 General Manager Lee D. Thibert 44 Executive Manager, Transmission & Distribution Network Services Evan J. Griffith, Jr. 58 Executive Manager, Finance & Energy Supply William R. Stewart 53 Executive Manager, Retail Services
Eugene N. Bjornstad was appointed General Manager of Chugach June 22, 1994. Prior to that he served as Acting General Manager from March 28, 1994, until his permanent appointment. He joined Chugach in 1983 and served as Executive Manager, Operating Divisions from 1988 to 1994. Lee D. Thibert, in a reorganization on June 1, 1997, was appointed Executive Manager, Transmission & Distribution Network Services. Prior to that he was Executive Manager, Operating Divisions from June of 1994. Before moving up to the Executive Manager position, he served as Director of Operations from June 1987. Evan J. Griffith, Jr. was Executive Manager, Finance & Planning of Chugach from August 1989 to June 1997. In the June 1, 1997 reorganization he assumed the position of Executive Manager, Finance and Energy Supply. Prior to coming to Chugach, he was Budget/Program Analyst for the Anchorage Municipal Assembly from August 1984 to August 1989. William R. Stewart was Executive Manager, Administration of Chugach from July 1987 to June 1, 1997 when he assumed the duty as Executive Manager, Retail Services in a reorganization of functions. He was Division Director of Administration of Chugach from January 1984 to July 1987 and Staff Assistant to the General Manager of Chugach from November 1982 to January 1984. He has been employed at Chugach since 1969. Board of Directors Christopher Birch - President. Chris Birch, 49, is a professional engineer employed by the Alaska Department of Transportation and Public Facilities. He was appointed to the Board to fill a vacated seat in October 1996 and was elected to that seat in April 1997. He served as Secretary from April 1997 to April 1998. He became President in April 1999. Pat Jasper - Vice President. Pat Jasper, 70, is a small business owner and has been a computer programmer and systems analyst. She was originally elected to the Board in April 1995 to fill a one-year term, and served as Secretary to April 1996. She was re-elected in April 1996 and served as Vice President until April 1997 when she became President. In April 1999, she relinquished the President position to be Vice President again. Bruce Davison - Secretary. Bruce Davison, 51, was appointed to the Association's Board of Directors in June of 1997. Prior to his appointment, Mr. Davison served two years on the Chugach Electric Association Bylaws Committee. Mr. Davison is a 25-year Alaska resident and a partner in the law firm of Davison & Davison, Inc. He became Secretary in April 1998. Mary Minder - Treasurer. Mary Minder, 60, was elected to the Board in April 1995 and served as Treasurer until April 1996 when she became Secretary. In April 1997, she was again elected Treasurer and serves in that same capacity today. Ms. Minder is a realtor and associate real estate broker. Elizabeth Page "Pat" Kennedy - Director. Pat Kennedy, 61, was President of Chugach from April 1994 to April 1995. Ms. Kennedy has served on the board since 1993 and was Secretary from April 1993 to April 1994. She is an attorney who has been licensed to practice law since 1976 and has been in private practice since 1990. Raymond A. "Ray" Kreig - Director. Ray Kreig, 53, is president of R.A. Kreig & Associates, a consulting firm specializing in land and site assessment. He is a professional civil engineer and geologist. Mr. Kreig was elected to the board in April 1994 and was President from April 1995 to April 1997. H.A. "Red" Boucher - Director. Red Boucher, 70, owns a consulting firm, is president of another telecommunication firm and hosts a weekly statewide TV show. He has held many elected offices including Lieutenant Governor of Alaska. He was elected to the board in April 1999. Item 11 - Executive Compensation CASH COMPENSATION The following table sets forth all remuneration paid by Chugach for the calendar years ended December 31, 1999, 1998 and 1997 with respect to each of the four executive officers of Chugach, all of whose total cash and cash equivalent compensation exceeded $100,000, and for all such executive officers as a group: Name Principal Position Year Salary ---- ------------------ ---- ------ Eugene N. Bjornstad General Manager 1999 $204,948 1998 200,423 1997 164,482 Lee D. Thibert Executive Manager, Transmission & Distribution Network Services 1999 136,147 1998 125,880 1997 125,626 Evan J. Griffith, Jr. Executive Manager, Finance & Energy Supply 1999 147,897 1998 134,934 1997 126,866 William R. Stewart Executive Manager, Retail Services 1999 150,133 1998 143,943 1997 142,213
Directors of Chugach are compensated for their services in the amount of $100 per board meeting attended (including committee meetings) up to a maximum of seventy meetings per year for a director and eighty-five meetings per year for the President. Upon termination, Mr. Bjornstad's employment agreement provides that he may receive an amount equal to his salary for the remaining term of his employment agreement (which number shall not be less than six months) plus any accrued annual leave or other compensation then due as of the effective date of the notice of termination. COMPENSATION PURSUANT TO PLANS Chugach has elected to participate in the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program (Plan), a multiple employer defined benefit master pension plan maintained and administered by the NRECA for the benefit of its members and their employees. The Plan is intended to be a qualified pension plan under Section 401(a) of the Code. All employees of Chugach not covered by a union agreement become participants in the Plan on the first day of the month following completion of one year of eligibility service. An employee is credited with one year of eligibility service if he completes 1,000 hours of service either in his first twelve consecutive months of employment or in any calendar year for Chugach or certain other employers in rural electrification (related employers). Pension benefits vest at the rate of 10% for each of the first four years of vesting service and become fully vested and nonforfeitable on the earlier of the date a participant has five years of vesting service or the date the participant attains age fifty-five while employed by Chugach or a related employer. A participant is credited with one year of vesting service for each calendar year in which he performs at least one hour of service for Chugach or a related employer. Pension benefits are generally paid upon the participant's retirement or death. A participant may also elect to receive pension benefits while still employed by Chugach if he has reached his normal retirement date by completing thirty years of benefit service (as hereinafter defined) or, if earlier, by attaining age sixty-two. A participant may elect to receive actuarially reduced early retirement pension benefits before his normal retirement date provided he has attained age fifty-five. Pension benefits paid in normal form are paid monthly for the remaining lifetime of the participant. Unless an actuarially equivalent optional form of benefit payment to the participant is elected, upon the death of a participant the participant's surviving spouse will receive pension benefits for life equal to 50% of the participant's benefit. The annual amount of a participant's pension benefit and the resulting monthly payments the participant receives under the normal form of payment are based on the number of his years of participation in the Plan (benefit service) and the highest five-year average of the annual rate of his base salary during the last ten years of his participation in the Plan (final average salary). Annual compensation in excess of $200,000, as adjusted by the Internal Revenue Service for cost of living increases, is disregarded after January 1, 1989. The participant's annual pension benefit at his normal retirement date is equal to the product of his years of benefit service (up to thirty) times final average salary times 2%. In 1998, NRECA notified the Association that there were employees whose pension benefits from NRECA's Retirement & Security Program would be reduced because of limitations on retirement benefits payable under Section 401(a)(17) or 415 of the Internal Revenue Code of 1986, as amended. NRECA made available a Pension Restoration Severance Pay Plan and a Pension Restoration Deferred Compensation Plan for cooperatives to adopt in order to make employees whole for their lost benefits. Adopting these plans would allow Chugach to protect the benefits of current and future employees whose pension benefits would be reduced because of these limitations. On May 6, 1998, the Association adopted the NRECA Pension Restoration Severance Pay Plan and the Pension Restoration Deferred Compensation Plan and amended its NRECA Retirement & Security Program accordingly. The following table sets forth the estimated annual pension benefit payable at normal retirement date for participants in the specified final average salary and years of benefit service categories: Final Years of benefit service Average Salary 15 20 25 30 35 -- -- -- -- -- $ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 75,000 150,000 45,000 60,000 75,000 90,000 90,000 The annual pension benefits indicated above are the joint and surviving spouse life annuity amounts payable by the Plan, and they are not subject to any deduction for Social Security or other offset amounts. Benefit service as of December 31, 1999 taken into account under the Plan for the executive officers is shown below. Base salary for 1999 taken into account under the Plan for purposes of determining final average salary is also included. Name Principal Position Benefit Service Covered Compensation Eugene N. Bjornstad General Manager 15.7 $ 156,021 Lee D. Thibert Executive Manager, T&D Network 11.7 122,242 Services Evan J. Griffith, Jr. Executive Manager, Finance & 9.4 123,968 Energy Supply William R. Stewart Executive Manager, Retail Services 29.9 123,968
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The NRECA's COMPensate Wage and Salary Plan was developed in 1986 by NRECA to provide its members with a systematic and standardized method of evaluating jobs in each cooperative by grading them and comparing wages and salaries within similar rural electric systems, as well as the external market-place, and then creating and applying statistically determined equitable pay scales. In 1988 the Chugach Board approved implementation of NRECA's COMPensate Wage and Salary Plan for all non-bargaining unit employees of the Association. The Plan was adopted by the Board in 1989 and is administered in accordance with the COMPensate guidelines. This Plan was last updated and approved by the Board in 1996 and further updated by the General Manager in 1997 to adjust the Alaskan differential for all management salaries from 20% to 15%. The Chugach Board has directed that this Plan will be updated annually although the update does not guarantee an adjustment to the salary ranges. The General Manager annually conducts a performance appraisal for each of the Executive Managers. Since 1994, the General Manager has had an Employment Agreement with the Chugach Board of Directors. The Operations committee of the Board of Directors appraises annually the performance of the General Manager and makes a written report to the Board prior to April 24 of each year. The General Manager's performance for 1999 will be determined based on the criteria outlined in the Employment Agreement between Chugach and Eugene N. Bjornstad dated July 6, 1994 and amended February 25, 1998 (filed as Exhibit 10.60.1 in the March 31, 1998 Form 10-Q). Item 12 - Security Ownership of Certain Beneficial Owners and Management Not Applicable Item 13 - Certain Relationships and Related Transactions Not Applicable PART IV Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K Page Financial Statements Included in Part IV of this Report: Independent Auditors' Report 36 Balance Sheets, December 31, 1999 and 1998 37-38 Statements of Revenues, Expenses and Patronage Capital, Years ended December 31, 1999, 1998 and 1997 39 Statements of Cash Flows, Years ended December 31, 1999, 1998 and 1997 40 Notes to Financial Statements 41-58 Financial Statement Schedules Included in Part IV of this Report: Independent Auditors' Report 66 Schedule II - Valuation and Qualifying Accounts, Years ended December 31, 1999, 1998 and 1997 67 Other schedules are omitted as they are not required or are not applicable, or the required information is shown in the applicable financial statements or notes thereto. Independent Auditors' Report The Board of Directors Chugach Electric Association, Inc.: Under the date of February 25, 2000, we reported on the balance sheets of Chugach Electric Association, Inc. as of December 31, 1999 and 1998 and the related statements of revenues, expenses and patronage capital and cash flows for each of the years in the three-year period ended December 31, 1999 which are included in Part II of the Company's Annual Report on Form 10-K. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule listed in the index to Item 14 of the Company's 1999 Annual Report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion such schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Anchorage, Alaska February 25, 2000 Schedule II CHUGACH ELECTRIC ASSOCIATION, INC. Valuation and Qualifying Accounts Balance at Charged Balance beginning To costs at end of year And expenses Deductions of year ------- ------------- ---------- ------- Allowance for doubtful accounts: Activity for year ended: December 31, 1999 $(447,908) $(733,494) $792,179 $(389,223) December 31, 1998 (368,029) $(697,181) $617,302 $(447,908) December 31, 1997 (367,085) (618,379) 617,435 (368,029)
EXHIBITS Listed below are the exhibits which are filed as part of this Report: Exhibit Description Page ----------- ---- Number *********3.1 Articles of Incorporation of the Registrant (as amended April 29, 1999) ******3.2 Bylaws of the Registrant (as amended April 30, 1998) *4.1 Trust Indenture, dated as of September 15, 1991, Between the Registrant and Security Pacific Bank Washington, N.A., Trustee (Including forms of bonds) *4.2 First Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle- First National Bank dated March 17, 1993 *4.3 Second Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle- First National Bank dated May 19, 1994 *4.4 Third Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle- First National Bank dated June 29, 1994 *4.4.1 Closing Documents dated November 30, 1994, First Mortgage Bond, CoBank Series (CoBank-1), Due March 15, 2002 pursuant to the Third Supple- mental Indenture of Trust dated June 29, 1994 *4.4.2 Closing documents dated August 31, 1995 First Mortgage Bond, CoBank Series (CoBank-2), due August 31, 2005 pursuant to the Third Supplemental Indenture of Trust *4.4.3 Closing documents dated April 30, 1996 First Mortgage Bond, CoBank Series (CoBank-3), due March 15, 2022 pursuant to the Third Supplemental Indenture of Trust *4.4.4 Closing documents dated September 30, 1996 First Mortgage Bond, CoBank Series (CoBank-4), Due June 15, 2022 pursuant to the Third Supplemental Indenture of Trust Exhibit number Description Page ****4.4.5 Closing documents dated November 26, 1997 First Mortgage Bond, CoBank Series (CoBank-5), Due June 15, 2012 pursuant to the Third Supplemental Indenture of Trust *********4.4.6 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 4.4.7 Closing documents dated December 20, 1999 First Mortgage Bond, CoBank Series (CoBank-7), Due March 15, 2002 pursuant to the Third 82 Supplemental Indenture of Trust *4.5 Fourth Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle-First National Bank dated March 1, 1995 *4.6 Fifth Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle-First National Bank dated September 6, 1995 *4.7 Sixth Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle-First National Bank dated April 3, 1996 ***4.8 Seventh Supplemental Indenture of Trust by and among Chugach Electric Association, Inc. and Seattle-First National Bank dated June 1, 1997 *****4.9 Eighth Supplemental Indenture of Trust dated as of February 4, 1998, by and between Chugach Electric Association, Inc. and Security Pacific Bank Washington, N.A. *10.1 Joint Use Agreement between the City of Seward and the Registrant *10.2 Wholesale Power Agreement between the City of Seward and the Registrant *10.3 Agreement for Sale of Electric Power and Energy between Homer Electric Association, Inc., Alaska Electric Generation and Transmission Association, Inc. and the Registrant *10.4 Modified Agreement for the Sale and Purchase of Electric Power and Energy between Matanuska Electric Association, Inc., Alaska Electric Generation and Transmission Association, Inc. and the Registrant Exhibit Description Page ----------- ---- number *10.4.1 First Amendment to Modified Agreement for the Sale and Purchase of Electric Power and Energy dated April 5, 1989 by and among Chugach Electric Association, Inc., Matanuska Electric Association, Inc. and Alaska Electric Generation & Trans- mission Cooperative, Inc. *10.5 Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. *10.6 Amendment No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. *10.7 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company *10.8 Amendatory Agreement No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company *10.9 Amendatory Agreement No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company *10.10 Amendatory Agreement No. 3 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company *10.11 Letter of Understanding between the Registrant and Marathon Oil Company *10.12 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Shell Western E&P Inc. *10.13 Amendatory Agreement No. 1 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc. *10.14 Amendment No. 2 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc. *10.14.1 Amendment No. 3 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc. *10.15 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc. Exhibit Description Page ----------- ---- number *10.17 Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc. *10.18 Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc. *10.19 Alaska Intertie Agreement between Alaska Power Authority, Municipality of Anchorage, the Registrant, City of Fairbanks, Alaska Municipal Utilities System, Golden Valley Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. *10.20 Memorandum of Understanding Regarding Intertie Upgrades among Alaska Energy Authority, the Registrant, Golden Valley Electric Association, Inc., Homer Electric Association, Inc., Matanuska Electric Association, Inc., Municipality of Anchorage dba Municipal Light and Power, and the City of Seward d/b/a Seward Electric System *10.21 Addendum No. 1 to the Alaska Intertie Agreement-- Reserve Capacity and Operating Reserve Responsibility *10.22 Bradley Lake Agreement for the Sale and Purchase of Electric Power between the Alaska Power Authority, Golden Valley Electric Association, Inc., the Municipality of Anchorage, the City of Seward, the Alaska Electric Generation & Transmission Cooperative, Inc., Homer Electric Association, Inc., Matanuska Electric Association Inc. and the Registrant *10.23 Agreement for the Wheeling of Electric Power and for Related Services by and among the Registrant, Homer Electric Association, Inc., Golden Valley Electric Association, Inc., Matanuska Electric Association, Inc., the Municipality of Anchorage, Inc. dba Municipal Light & Power, the City of Seward dba Seward Electric System and Alaska Electric Generation and Transmission Cooperative, Inc. *10.24 Transmission Sharing Agreement by and among Homer Electric Association, Inc., the Registrant, Golden Valley Electric Association, Inc., and the Municipality of Anchorage d/b/a Municipal Light and Power Exhibit number Description Page *10.25 Amendment to Agreement for Sale of Transmission Capability among Homer Electric Association, Inc., Alaska Electric Generation and Transmission Cooperative, Inc., the Registrant, Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Municipal Light and Power *10.26 Net Billing Agreement among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. *10.27 Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power *10.28 Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power Addendum No. 1 *10.29 Amendment No. 1 to Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power *10.30 Agreement between the Registrant and Chevron USA, Inc. for the Sale and Purchase of Supplemental Natural Gas *10.31 Agreement between the Registrant and Shell Western E&P Inc. for the Sale and Purchase of Supplemental Natural Gas *10.32 Agreement between the Registrant and ARCO Alaska, Inc. for the Sale and Purchase of Supplemental Natural Gas *10.33 Eklutna Purchase Agreement among the Registrant, Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power and Alaska Power Administration *10.33.1 Amendment No. 1 to Eklutna Purchase Agreement among the Registrant, Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power and Alaska Power Administration *10.33.2 Eklutna Purchase Agreement Amendment No. 2 effective June 14, 1993 between Chugach, MEA, AML&P and the Alaska Power Administration Exhibit Description Page ----------- ---- number *10.33.3 Eklutna Hydroelectric Project Transition Plan, by and among the Registrant; The United States of America d/b/a Alaska Power Administration, a unit of the Department of Energy; the Municipality of Anchorage d/b/a Municipal Light & Power; and Matanuska Electric Association, Inc. *10.34 University Substation 1991 Improvements Contract between the Registrant and Alcan Electrical and Engineering, Inc. *10.35 Camp Facilities Replacement Contract between the Registrant and Baugh Construction and Engineering Company *10.36 Lease Amendment between Standard Oil Company of California and the Registrant *10.37 Lease Amendment between Chevron USA, Inc. and the Registrant *10.38 Settlement Agreement among the Registrant, Homer Electric Association, Inc., Matanuska Electric Association, Inc., the City of Seward and Alaska Electric Generation and Transmission Cooperative, Inc. resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan, and Loan Covenant Disputes *10.38.1 First Amendment to "Settlement Agreement Resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan and Loan Covenant Disputes" in APUC Docket U-92-10 between Chugach and MEA, Homer and AEG&T dated March 1993 *10.39 Loan Agreement between the National Bank for Cooperatives (formerly Spokane Bank for Cooperatives) and the Registrant, as amended *10.40 Amendment dated September 13, 1991 to Loan Agreement between the National Bank for Cooperatives and the Registrant *10.41 Form of Commitment Letter to be entered into between the National Bank for Cooperatives and Registrant Exhibit number Description Page *10.42 Agreement between the Municipality of Anchorage d/b/a Anchorage Municipal Light and Power, Chugach Electric Association, Inc., Matanuska Electric Association, Inc., U.S. Fish and Wildlife Service, National Marine Fisheries Service, Alaska Energy Authority, and the State of Alaska Relative to the Eklutna and Snettisham Hydroelectric Projects *10.43 Bradley Lake Hydroelectric Agreement for the Dispatch of Electric Power and for Related Services by and among Chugach Electric Association, Inc. and the Alaska Energy Authority *10.44 Net Billing Agreement among Chugach Electric Association, Inc. and the City of Seward *10.45 Soldotna One System Use and Dispatch Agreement by and among Alaska Electric Generation and Transmission Cooperative, Inc. and Chugach Electric Association, Inc. *10.46 Agreement for Bradley Lake Resource Scheduling between Chugach, Homer Electric Association, Inc. and the Alaska Electric Generation and Transmission Cooperative, Inc. dated September 29, 1992 *10.47 Gas Transportation Agreement between Chugach, Alaska Pipeline Company and ENSTAR Natural Gas Company dated December 7, 1992 *10.48 Daves Creek Substation Agreement between Chugach and the Alaska Energy Authority dated March 13, 1992 *10.49 Memorandum of Agreement between Chugach and AEG&T dated April 27, 1993 regarding Interest Expense Allocator *10.50 Settlement Agreement between Chugach and Intervenor Wholesale Customers in APUC Docket U-93-15 dated September 1993 regarding depreciation of submarine cables *10.52 Twenty Five Million Dollar Line of Credit Agreement and Promissory Note between Chugach and National Bank for Cooperatives Exhibit number Description Page *10.52.1 Amendment to Line of Credit Agreement between Chugach and National Bank for Cooperatives dated March 11, 1994 *10.52.2 Amendment to Line of Credit Agreement between Chugach and National Bank for Cooperatives and amended and restated Promissory Note (thirty-five million dollars) dated April 18, 1994 *10.52.3 Amendment to Line of Credit Agreement between Chugach and National Bank for Cooperatives (thirty-five million dollars) dated May 1, 1995 *10.52.4 Amendment to Line of Credit Agreement between Chugach and National Bank for Cooperatives (thirty-five million dollars) dated May 15, 1995 *10.53 Bill of Sale between Chugach and Cook Inlet Tug & Barge Co. for the barge SUSITNA dated March 1, 1993 *10.54 Intertie Grant Agreement between Chugach and GVEA, FMUS, AML&P, AEG&T, MEA, Homer, Seward, the State of Alaska, Department of Administration, and AIDEA dated October 26, 1993 *10.55 Grant Transfer and Delegation Agreement between Chugach and GVEA, FMUS, AML&P, AEG&T, MEA, Homer, Seward, the State of Alaska, Department of Administration, and AIDEA dated November 5, 1993 *10.56 Letter of Understanding between Chugach and IBEW dated January 6, 1993 regarding the Outside Plant Personnel Agreement *10.57 Letter of Understanding between Chugach and IBEW dated January 6, 1993 regarding the Office and Engineering Agreement *10.58 Letter of Understanding between Chugach and IBEW dated January 6, 1993 regarding the Generation Plant Personnel Agreement *10.59 Eklutna Power Sales Contract No. 85-79AP10004 between Chugach and Alaska Power Administration dated October 13, 1979 Exhibit number Description Page ------ ----------- ---- *10.59.1 Contract Modification No. 1 to Contract No. 85-79AP10004 between Chugach and the Alaska Power Administration dated October 19, 1988 extending the Eklutna Power Sales Agreement *10.59.2 Amendment to Exhibit E of Modification No. 1 to Contract No. 85-79AP10004 between Chugach and Alaska Power Administration dated October 29, 1993 regarding the Eklutna Power Sales Agreement *10.59.3 Contract Modification No. 2 to Contract No. 85-79AP10004 between Chugach and the Alaska Power Administration dated November 9, 1993 extending the Eklutna Power Sales Agreement *10.60 Employment Agreement by and among Chugach Electric Association, Inc. and Eugene N. Bjornstad dated July 6, 1994 *****10.60.1 Amendment to Employment Agreement by and among Chugach Electric Association, Inc. and Eugene N. Bjornstad dated February 25, 1998 *10.61 United States Department of Energy, Alaska Power Administration, Eklutna Project, Contract No. DE-SC85-95AP10042 for Electric Service to Chugach Electric Association, Inc., Matanuska Electric Association, Inc. and Municipality of Anchorage dba Municipal Light & Power dated December 29, 1994 *10.62 Hotel Employees & Restaurant Employees Union agreement covering terms and conditions of employment - Beluga Power Plant Culinary Employees dated the 2nd day of March, 1995 ***10.63 National Bank for Cooperatives (CoBank) Credit Agreement dated June 22, 1994 ***10.63.1 Amendment No. 1 to National Bank for Cooperatives (CoBank) Credit Agreement dated June 1, 1997 ****10.64 Eklutna Hydroelectric Project Closing Documents dated October 2, 1997 ****10.65 Fifty Million Dollar Line of Credit Agreement between Chugach and the National Rural Utilities Cooperative Finance Corporation executed October 22, 1997 Exhibit Number Description Page ********10.66 Contract of Sale PC25TM Model C Fuel Cell Power Plants between ONSI Corporation ("Seller") and Chugach Electric Association, Inc. ("Buyer") dated April 24, 1998 ********10.67 International Swap Dealers Association, Inc. (ISDA) Master Agreement dated as of March 17, 1999 between Lehman Brothers Financial Products Inc. and Chugach Electric Association, Inc. *********10.68 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. **********10.70 Nikiski Corporation Plant System Use and Dispatch Agreement between Chugach Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. **********10.71 Agreement for the Sale and Purchase of Electric Power and Energy between Chugach Electric Association, Inc. and the City of Seward **********10.72 Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between Chugach Electric Association, Inc. and ARCO Beluga, Inc. **********10.73 Amendatory Agreement No. 5 to Agreement for the Sale and Purchase of Natural Gas between Chugach Electric Association, Inc. and Marathon Oil Company **********10.74 Amendment No. 3 to Agreement for the Sale and Purchase of Natural Gas between Chugach Electric Association, Inc. and Chevron U.S.A. Inc. 12.1 N/A 19.0 Administrative Order on Consent for Remedial Investigation/Feasibility Study between Chugach and the United States Environmental Protection Agency dated September 23, 1992 *19.1 Proposed Partial Consent Decree in Standard Steel Superfund Site matter *19.2 Partial Consent Decree in Standard Steel Superfund Site matter Exhibit Description Page ----------- ---- Number *****19.3 Memorandum of Agreement by and among Chugach Electric Association, Inc. and Admiral Insurance Company Alaska, Alaska National Insurance Company, Nationwide Mutual Insurance Company and Providence Washington Insurance Company relating to Chugach's PRP obligations at the Standard Steel Superfund Site dated February 3, 1998 *****19.4 CERCLA Remedial Design and Remedial Action Consent Decree in the Standard Steel Superfund Site matter dated January 24, 1998 ******19.5 Settlement Agreement dated the 15th day of May 1998 by and between Nationwide Mutual Insurance Company, Alaska National Insurance Company, Providence Washington Insurance Company and Admiral Insurance Company and Chugach Electric Association, Inc. 27 Financial Data Schedule (filed electronically)
* Previously referred to in the Registrant's Annual Report on Form 10-K dated December 31, 1996. ** Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated June 30, 1997. *** Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated September 30, 1997. **** Previously filed as an exhibit to the Registrant's Annual Report on Form 10-K dated December 31, 1997 ***** Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated March 31, 1998 ****** Previously filed as an exhibit to the Registrants Quarterly Report on Form 10-Q dated June 30, 1998 ******* Previously filed as an exhibit to the Registrants Quarterly Report on Form 10-Q dated September 30, 1998 ******** Previously filed as an exhibit to the Registrants Annual Report on Form 10-K dated December 31, 1998 ********* Previously filed as an exhibit to the Registrants Quarterly Report on Form 10-Q dated March 31, 1999 ********** Previously filed as an exhibit to the Registrants Quarterly Report on Form 10-Q dated June 30, 1999 REPORTS ON FORM 8-K Reference is made to the November 1999 8-K, which discussed the outcome of the special meeting of members that was held by Chugach on November 18, 1999, to consider and vote on the MEA proposal and the November 17, 1999 response to the petitions to remove five of its seven directors from office. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 2000. CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/ Eugene N. Bjornstad Eugene N. Bjornstad, General Manager Date: March 30, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated March 30, 2000: /s/ Eugene N. Bjornstad Eugene N. Bjornstad General Manager /s/ Lee D. Thibert Lee D. Thibert Executive Manager, T&D Network Services /s/ Evan J. Griffith, Jr. Evan J. Griffith, Jr. Executive Manager, Finance & Energy Supply (Principal financial officer) /s/ William R. Stewart William R. Stewart Executive Manager, Retail Services /s/ Michael R. Cunningham Michael R. Cunningham Controller (Principal accounting officer) /s/ Chris Birch Chris Birch President and Director (Principal executive officer) /s/ Patricia Jasper Patricia Jasper Vice President and Director /s/ Bruce E. Davison Bruce E. Davison Secretary and Director /s/ Mary Minder Mary Minder Treasurer and Director /s/ H.A. "Red" Boucher H.A. "Red" Boucher Director /s/ Pat Kennedy Pat Kennedy Director /s/ Ray Kreig Ray Kreig Director Supplemental information to be furnished with reports filed pursuant to Section 15(d) of the Act by registrants which have not registered securities pursuant to Section 12, of the Act: Chugach has not made an Annual Report to securities holders for 1999 and will not make such a report after the filing of this Form 10-K. As a consequence, no copies of any such report will be furnished to the Securities and Exchange Commission. EX-4.4.7 2 COBANK 7 CLOSING DOCUMENTS DATED DECEMBER 20, 1999 December 16, 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-7 Bond Dear Ms. Woodard: Enclosed are the following original documents, including attachments, in connection with the CoBank-7 bond in the amount of $30,000,000: Opinion of Counsel, Board Resolution, First Mortgage Bond, Certificate as to Bondable Additions No. 7, Available Margins Certificate, and Officers Certificate. I have also enclosed a set of these documents for your files. Please execute the bond and deliver 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 Bond/letter December 16, 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-7, in the original principal amount of $30,000,000 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; Board Resolution dated December 15, 1999, authorizing the issuance of a First Mortgage Bond to CoBank pursuant to the CoBank Supplemental Indenture; Officers' Certificate dated December 16, 1999, signed by the General Manager and the Executive Manager, Finance and Planning; Available Margins Certificate dated December 16, 1999; Certificate as to Bondable Additions No. 7 dated December 16, 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 enforceable in 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 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 of Trust and a resolution approving it to its Board of Directors early in 2000. Chugach will record it in the 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. 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 CHUGACH ELECTRIC ASSOCIATION, INC. ANCHORAGE, ALASKA RESOLUTION 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 $30,000,000.00. 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- 7), in the principal amount of $30,000,000.00, under Section 5.02 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-7, in the amount of $30,000,000.00, 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, Bruce Davison, do hereby certify that I am Secretary 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 15th day of December, 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 15th day of December, 1999. /s/ Bruce Davison Secretary 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-7 $30,000,000.00 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 $30,000,000.00 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 $30,000,000 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 any purpose. IN WITNESS WHEREOF, the Company has caused this Bond to be duly executed. Dated: December 16, 1999 CHUGACH ELECTRIC ASSOCIATION, INC. Attest: /s/ Chris Birch 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 Ehl Authorized Signatory CERTIFICATE AS TO BONDABLE ADDITIONS NO. 7 (Re Application for Authentication and Delivery of Bond CoBank-7) 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, 7 and 8 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"), and in connection with the Company's request for authentication and delivery of an additional Bond No. CoBank-7, 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 (January 31, 1999) 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 $62,626,562 (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 February 1, 1999 through November 30, 1999, is $16,676,164. 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 January 31, 1999, through November30, 1999, is $9,499,044. (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 $7,177,120, 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 $69,803,682. (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 $30,000,000 x 110% = $33,000,000. (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 $36,803,682. (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. 7 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. 6)........................... $62,626,562 ---------- 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 February 1, 1999 through November 30, 1999 (none of which has been certified in any previous Certificate as to Bondable Additions). $16,676,164 ---------- 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 $ 9,499,044 ---------- 4.. The sum of the credits against Retirements...................................................... $ 0 ---------- 5.. The net amount of Retirements to be deducted........................... $ 9,499,044 ---------- 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........................................................ $ 7,177,120 ---------- Then add item 1 and item 6 to produce item 7: 7.. Total Bondable additions available for the action applied for.......... $69,803,682 Deduct item 8 from item 7 to produce item 9: $33,000,000 8.. Bondable Additions now being used...................................... 9. Balance of Bondable Additions to remain after the action applied for. . $36,803,682 ----------
Dated December 16, 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. ATTACHMENT 1 TO CERTIFICATE AS TO BONDABLE ADDITIONS NO. 7 NET CHANGES TO ELECTRIC PLANT FOR THE PERIOD FEBRUARY 1, 1999 THROUGH NOVEMBER 30, 1999 02/01/1999 02/01/1999 ADJ FOR GEN PLANT 01/31/1999 11/30/1999 11/30/1999 CONVERSION TO 11/30/1999 ACCOUNT DESCRIPTION BALANCE ADDITIO RETIREMENTS AMORTIZATION (1) BALANCE PRODUCTION PLANT 31100 626 00 2101 STM - STRC & IMPR/BELUGA./OTHR/G&A. 7,349,213 0 0 0 7,349,213 31200 626 00 2101 STM - BLR PLT EQP/BELUGA./OTHR/G&A. 24,850,704 0 0 0 24,850,704 31400 626 00 2101 STM - TURBOGENR../BELUGA./OTHR/G&A. 20,716,146 0 0 0 20,716,146 31500 626 00 2101 STM - ACC ELEC EQ/BELUGA./OTHR/G&A. 6,932,778 0 0 0 6,932,778 31600 626 00 2101 STM -MISC PWR PLT/BELUGA./OTHR/G&A. 544,029 0 0 0 544,029 33100 621 00 2101 HYD - STRC & IMPR/GENERAL/OTHR/G&A. 690,040 0 0 0 690,040 33200 621 00 2101 HYD - RESV-DM-WW./GENERAL/OTHR/G&A. 5,698,534 0 0 0 5,698,534 33300 621 00 2101 HYD - WTWL-TR-GN./GENERAL/OTHR/G&A. 1,047,402 0 0 0 1,047,402 33400 621 00 2101 HYD - ACC ELEC EQ/GENERAL/OTHR/G&A. 371,914 0 0 0 371,914 33500 621 00 2101 HYD - MISC PW PLT/GENERAL/OTHR/G&A. 97,706 0 0 0 97,706 33600 621 00 2101 HYD - RESV-DM-WW./GENERAL/OTHR/G&A. 893,099 0 0 0 893,099 34000 626 00 2101 OTH - LAND&RIGHTS/BELUGA./OTHR/G&A. 422,664 0 0 0 422,664 34100 622 00 2101 OTH - STRC & IMPR/INTNATL/OTHR/G&A. 346,045 0 0 0 346,045 34100 624 00 2101 OTH - STRC & IMPR/BERNLKE/OTHR/G&A. 1,778,752 0 0 0 1,778,752 34100 626 00 2101 OTH - STRC & IMPR/BELUGA./OTHR/G&A. 20,862,174 0 0 0 20,862,174 34200 622 00 2101 OTH - FL HLDR-PRS/INTNATL/OTHR/G&A. 152,868 0 0 0 152,868 34200 624 00 2101 OTH - FL HLDR-PRS/BERNLKE/OTHR/G&A. 471,850 0 0 0 471,850 34200 626 00 2101 OTH - FL HLDR-PRS/BELUGA./OTHR/G&A. 3,040,258 0 0 0 3,040,258 34300 622 00 2101 OTH - PRIME MOVER/INTNATL/OTHR/G&A. 3,647,259 0 0 0 3,647,259 34300 624 00 2101 OTH - PRIME MOVER/BERNLKE/OTHR/G&A. 8,862,659 0 0 0 8,862,659 34300 626 00 2101 OTH - PRIME MOVER/BELUGA./OTHR/G&A. 50,413,829 3,030,963 7,258,677 0 46,186,115 34400 622 00 2101 OTH - GENERATORS./INTNATL/OTHR/G&A. 779,742 0 0 0 779,742 34400 624 00 2101 OTH - GENERATORS./BERNLKE/OTHR/G&A. 2,643,899 0 0 0 2,643,899 34400 626 00 2101 OTH - GENERATORS./BELUGA./OTHR/G&A. 8,941,743 0 0 0 8,941,743 34500 622 00 2101 OTH - ACC ELEC EQ/INTNATL/OTHR/G&A. 459,888 0 0 0 459,888 34500 624 00 2101 OTH - ACC ELEC EQ/BERNLKE/OTHR/G&A. 784,574 0 0 0 784,574 34500 626 00 2101 OTH - ACC ELEC EQ/BELUGA./OTHR/G&A. 3,661,137 0 0 0 3,661,137 34600 622 00 2101 OTH -MISC PWR PLT/INTNATL/OTHR/G&A. 19,465 0 0 0 19,465 34600 624 00 2101 OTH -MISC PWR PLT/BERNLKE/OTHR/G&A. 1,539 0 0 0 1,539 34600 626 00 2101 OTH -MISC PWR PLT/BELUGA./OTHR/G&A. 1,862,815 0 0 0 1,862,815 TOTAL PRODUCTION PLANT 178,344,725 3,030,963 7,258,677 0 174,117,011 TRANSMISSION PLANT 35000 000 00 2101 TRN - LD & LDRITS/GENERAL/OTHR/G&A. 454,983 0 0 0 454,983 35200 000 00 2101 TRN - STRC & IMPR/GENERAL/OTHR/G&A. 847,631 0 0 0 847,631 35200 626 00 2101 TRN - STRC & IMPR/BELUGA./OTHR/G&A. 428,664 0 0 0 428,664 35300 000 00 2101 TRN - STATION EQP/GENERAL/OTHR/G&A. 31,514,118 0 0 0 31,514,118 35300 304 00 2101 TRN - STATION EQP/LDSRVMT/OTHR/G&A. 196,977 0 0 0 196,977 35300 626 00 2101 TRN - STATION EQP/BELUGA./OTHR/G&A. 38,649,029 0 0 0 38,649,029 35400 000 00 2101 TRN - TWR & FXTRS/GENERAL/OTHR/G&A. 5,378,824 0 0 0 5,378,824 35400 626 00 2101 TRN - TWR & FXTRS/BELUGA./OTHR/G&A. 26,890,112 615,608 313,007 0 27,192,712 35500 000 00 2101 TRN - POLES & FIX/GENERAL/OTHR/G&A. 8,962,166 6,126,238 685,605 0 14,402,800 35500 626 00 2101 TRN - POLES & FIX/BELUGA./OTHR/G&A. 1,074,661 0 0 0 1,074,661 35600 000 00 2101 TRN -OH CND & DVS/GENERAL/OTHR/G&A. 6,481,748 2,717,489 460,806 0 8,738,431 35600 626 00 2101 TRN -OH CND & DVS/BELUGA./OTHR/G&A. 7,836,678 54,512 10,792 0 7,880,398 35700 000 00 2101 TRN - UG CONDUIT./GENERAL/OTHR/G&A. 2,152,235 0 0 0 2,152,235 35800 000 00 2101 TRN - UG CND & DV/GENERAL/OTHR/G&A. 6,093,269 0 0 0 6,093,269 35800 328 00 2101 TRN - UG CND & DV/NSUBCBL/OTHR/G&A. 40,700,570 0 0 0 40,700,570 35800 329 00 2101 TRN - UG CND & DV/SSUBCBL/OTHR/G&A. 14,295,122 0 0 0 14,295,122 35900 626 00 2101 TRN-RDS & TRL-BLG/BELUGA./OTHR/G&A. 4,000 0 0 0 4,000 TOTAL TRANSMISSION PLANT 191,960,787 9,513,847 1,470,210 0 200,004,424 DISTRIBUTION PLANT 36000 000 00 2101 DIS - LD & LDRITS/GENERAL/OTHR/G&A. 818,541 0 0 0 818,541 36100 000 00 2101 DIS - STRUC & IMP/GENERAL/OTHR/G&A. 1,817,354 0 0 0 1,817,354 36200 000 00 2101 DIS - STATION EQP/GENERAL/OTHR/G&A. 18,820,231 0 0 0 18,820,231 36400 000 00 2101 DIS - POLES-TW&FX/GENERAL/OTHR/G&A. 16,488,566 104,299 13,422 0 16,579,443 36500 000 00 2101 DIS - OH CND & DV/GENERAL/OTHR/G&A. 9,917,205 35,048 6,029 0 9,946,224 36600 000 00 2101 DIS - UG CONDUIT./GENERAL/OTHR/G&A. 11,546,683 918,396 0 0 12,465,079 36700 000 00 2101 DIS - UG CND & DV/GENERAL/OTHR/G&A. 37,485,391 930,530 54,454 0 38,361,467 36800 000 00 2101 DIS - LINE TRNSFR/GENERAL/OTHR/G&A. 21,308,855 935,075 125,414 0 22,118,516 36900 000 00 2101 DIS - SERVICES.../GENERAL/OTHR/G&A. 23,218,635 119,598 14,766 0 23,323,467 37000 000 00 2101 DIS - METERS...../GENERAL/OTHR/G&A. 7,154,194 285,497 540,296 0 6,899,395 37100 000 00 2101 DIS-INSTL CUS PRM/GENERAL/OTHR/G&A. 331,356 0 0 0 331,356 37300 000 00 2101 DIS-ST LTS & SIGN/GENERAL/OTHR/G&A. 8,135,034 1,689 369 0 8,136,354 TOTAL DISTRIBUTION PLANT 157,042,045 3,330,131 754,749 0 159,617,427 GENERAL PLANT 38900 000 00 2101 GEN - LD & LDRITS/GENERAL/OTHR/G&A. 127,063 0 0 0 127,063 38910 000 00 2101 GEN - LD IMPROVMT/GENERAL/OTHR/G&A. 65,097 0 0 0 65,097 39000 000 00 2101 GEN - STRC & IMPR/GENERAL/OTHR/G&A. 19,170,160 56768 0 0 19,226,928 39000 310 00 2101 GEN - STRC & IMPR/LSHLDIM/OTHR/G&A. 214,009 0 15408 0 198,601 39000 311 00 2101 GEN - STRC & IMPR/S&VSTRU/OTHR/G&A. 89,605 0 0 0 89,605 39100 000 00 2101 GEN-OFC FURN & EQ/GENERAL/OTHR/G&A. 1,158,190 134,039 0 0 1,292,229 39100 321 00 2101 GEN-OFC FURN & EQ/DPEQUIP/OTHR/G&A. 2,846,446 300,678 0 214,543 3,361,667 39200 000 00 2101 GEN - TRANSP EQMT/GENERAL/OTHR/G&A. 5,112,990 504,871 258,062 0 5,359,799 39200 323 00 2101 GEN - TRANSP EQMT/GENTRAN/OTHR/G&A. 140,193 23,595 0 116,598 39200 326 00 2101 GEN - TRANSP EQMT/DISTRIB/OTHR/G&A. 44,855 0 0 0 44,855 39300 000 00 2101 GEN - STORES EQMT/GENERAL/OTHR/G&A. 1,145,485 18,752 0 5,203 1,169,440 39400 000 00 2101 GEN -TL-SHP & GAR/GENERAL/OTHR/G&A. 1,335,586 43,818 0 25,950 1,405,355 39500 000 00 2101 GEN - LAB EQUIPMT/GENERAL/OTHR/G&A. 2,123,082 172,571 0 1,603 2,297,256 39600 000 00 2101 GEN - PWR OP EQMT/GENERAL/OTHR/G&A. 1,266,295 13,866 0 0 1,280,161 39600 323 00 2101 GEN - PWR OP EQMT/GENTRAN/OTHR/G&A. 803,827 0 0 0 803,827 39800 000 00 2101 GEN - MISC EQUIPT/GENERAL/OTHR/G&A. 901,516 20,152 0 19,721 941,389 TOTAL GENERAL PLANT 36,544,399 1,265,515 297,065 267,020 37,779,870 COMMUNICATION PLANT 39700 000 00 2101 GEN - COMM EQUIPT/GENERAL/OTHR/G&A. 2,188,143 50,513 30,004 2,268,660 39700 330 00 2101 GEN - COMM EQUIPT/MICROWV/OTHR/G&A. 1,393,119 0 477,921 1,871,040 39700 331 00 2101 GEN - COMM EQUIPT/SCADA../OTHR/G&A. 2,438,365 0 26,836 2,465,201 39700 333 00 2101 GEN - COMM EQUIPT/TELESYS/OTHR/G&A. 1,434,311 24,084 5,626 1,464,021 39700 338 00 2101 GEN - COMM EQUIPT/ORSCADA/OTHR/G&A. 32,175 0 70,320 102,495 TOTAL COMMUNICATION PLANT 7,486,113 74,597 0 610,708 8,171,417 TOTAL PLANT 571,378,069 17,215,053 9,780,701 877,728 579,690,149 LESS EXCLUDABLE PLANT 39200 000 00 2101 GEN - TRANSP EQMT/GENERAL/OTHR/G&A. 5,112,990 504,871 258,062 0 5,359,799 39200 323 00 2101 GEN - TRANSP EQMT/GENTRAN/OTHR/G&A. 140,193 23,595 0 116,598 39200 326 00 2101 GEN - TRANSP EQMT/DISTRIB/OTHR/G&A. 44,855 0 0 0 44,855 39600 000 00 2101 GEN - PWR OP EQMT/GENERAL/OTHR/G&A. 1,266,295 13,866 0 0 1,280,161 39600 323 00 2101 GEN - PWR OP EQMT/GENTRAN/OTHR/G&A. 803,827 0 0 0 803,827 39800 000 00 2101 GEN - MISC EQUIPT/GENERAL/OTHR/G&A. 901,516 20,152 0 19,721 941,389 TOTAL EXCLUDABLE PLANT 8,269,676 538,889 281,657 19,721 8,546,629 TOTAL INCLUDABLE PLANT 563,108,393 16,676,164 9,499,044 858,007 571,143,520
Chugach Electric Association, Inc. Available Margins Certificate Eugene N. Bjornstad, General Manager; Evan J. Griffith, Jr., Executive Manager, Finance and Energy Supply (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 the calendar 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, 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") 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: December 16, 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 Page 1 of 1 Available Margins CoBank 7 Plus: Adjusted Long Term Short Term Total CoBank Bond Interest Adjusted 12 month Month Ending Margins Interest Expense Interest Expense Interest Expense at 6.45% per Expense MFI/ I MFI/ I - ------------ ------- ---------------- ---------------- ---------------- ------------- ------- ------ ------ annum April, 1998 562,552 2,096,600 33,550 2,130,150 161,250 2,291,400 1.2455 May, 1998 -363,277 2,105,539 10,267 2,115,806 161,250 2,277,056 0.8405 June, 1998 639,439 2,099,371 0 2,099,371 161,250 2,260,621 1.2829 July, 1998 -1,557,225 2,105,539 0 2,105,539 161,250 2,266,789 0.3130 August, 1998 742,991 2,105,539 0 2,105,539 161,250 2,266,789 1.3278 September, 1998 593,694 2,093,309 14,778 2,108,087 161,250 2,269,337 1.2616 October, 1998 279,300 2,071,029 25,028 2,096,057 161,250 2,257,307 1.1237 November, 1998 1,823,297 2,053,196 12,875 2,066,071 161,250 2,227,321 1.8186 1.1502 December, 1998 248,165 2,050,280 7,201 2,057,481 161,250 2,218,731 1.1118 1.1460 January, 1999 2,921,817 2,052,849 0 2,052,849 161,250 2,214,099 2.3196 1.2612 February, 1999 1,845,656 2,033,617 7,719 2,041,336 161,250 2,202,586 1.8379 1.3126 March, 1999 2,058,818 1,839,477 202,351 2,041,828 161,250 2,203,078 1.9345 1.3634 April, 1999 -694,560 1,977,385 36,370 2,013,755 161,250 2,175,005 0.6807 1.3124 May, 1999 551,246 2,005,026 62,137 2,067,163 161,250 2,228,413 1.2474 1.3078 June, 1999 -361,281 1,995,096 48,918 2,044,014 161,250 2,205,264 0.8362 1.2768 July, 1999 -630,832 2,018,189 51,750 2,069,939 161,250 2,231,189 0.7173 1.2419 August, 1999 244,158 2,047,929 70,444 2,118,373 161,250 2,279,623 1.1071 1.2339 September, 1999 591,091 2,015,777 109,764 2,125,541 161,250 2,286,791 1.2585 1.2353 October, 1999 -76,403 2,033,202 138,257 2,171,459 161,250 2,332,709 0.9672 1.2206
Chugach Electric Association, Inc. Officers' Certificate Eugene N. Bjornstad, General Manager, and Evan J. Griffith, Jr., Executive Manager, Finance and Energy Supply 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-7 ("CoBank-7 Bond") in the principal amount of $30,000,000.00, 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: December 16, 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 Principal Financial Officer Page 1 of 1 EX-27 3 FDS -- 12/31/99 10-K CHUGACH ELECTRIC ASSOCIATION
5 12-MOS DEC-31-1999 JAN-1-1999 DEC-31-1999 4,648,434 0 18,120,217 389,223 17,180,136 41,126,132 688,884,624 (243,082,832) 518,355,537 33,969,377 337,150,295 0 0 0 122,524,645 518,355,537 142,644,327 142,644,327 0 110,456,886 0 0 24,135,381 9,667,434 0 9,667,434 0 0 0 9,667,434 0 0
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