-----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, LhNLNG0FC3ONuzBqVXRd57PZU656tWD3b5vyy4lc1hUOtjVQntLdt2EEaHBX4hmv n/xKopUAH17hhyHXp2+iJg== 0000878004-02-000019.txt : 20020814 0000878004-02-000019.hdr.sgml : 20020814 20020814132229 ACCESSION NUMBER: 0000878004-02-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHUGACH ELECTRIC ASSOCIATION INC CENTRAL INDEX KEY: 0000878004 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 920014224 STATE OF INCORPORATION: AK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-42125 FILM NUMBER: 02733829 BUSINESS ADDRESS: STREET 1: 5601 MINNESOTA DR STREET 2: PO BOX 196300 CITY: ANCHORAGE STATE: AK ZIP: 99518 BUSINESS PHONE: 9075637494 10-Q 1 sec06300210q.txt FORM 10Q FOR PERIOD ENDED JUNE 30, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - -------------------------------------------------------------------------------- FORM 10-Q - -------------------------------------------------------------------------------- X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 - -------------------------------------------------------------------------------- Commission file number 33-42125 CHUGACH ELECTRIC ASSOCIATION, INC. Incorporated pursuant to the Laws of Alaska State - -------------------------------------------------------------------------------- Internal Revenue Service - Employer Identification No. 92-0014224 5601 Minnesota Drive, Anchorage, AK 99518 (907) 563-7494 - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date. CLASS OUTSTANDING AT AUGUST 1, 2002 NONE NONE Page Number CAUTION REGARDING FORWARD-LOOKING STATEMENTS PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 2 Balance Sheets, June 30, 2002 and December 31, 2001 3 Statements of Revenues, Expenses and Patronage Capital, Three and Six Months Ended June 30, 2002 and 2001 5 Statements of Cash Flows, Six Months Ended June 30, 2002 and 2001 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 1 6 PART II OTHER INFORMATION Item 1. Legal Proceedings 1 7 Item 2. Changes in Securities and Use of Proceeds 1 7 Item 3. Defaults Upon Senior Securities 1 7 Item 4. Submission of Matters to a Vote of Security Holders 1 7 Item 5. Other Information 1 7 Item 6. Exhibits and reports on Form 8-K 1 8 Signatures 1 9 Exhibits 2 0 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 effect of those events or circumstances on any of the forward-looking statements contained in this report, except as required by law. PART I FINANCIAL INFORMATION Item 1. Financial Statements The unaudited financial statements and notes to financial statements of Chugach for the quarter ended June 30, 2002, follow: CHUGACH ELECTRIC ASSOCIATION, INC. BALANCE SHEETS
(Unaudited) Assets June 30, 2002 December 31, 2001 ------ ------------- ----------------- Utility plant Electric plant in service $725,992,916 $714,317,863 Construction work in progress 24,011,541 28,887,008 ---------- ---------- 750,004,457 743,204,871 Less accumulated depreciation (269,433,852) (261,353,177) ------------- ------------- Net utility plant 480,570,605 481,851,694 ----------- ----------- Other property and investments, at cost: Nonutility property 3,550 3,550 Investments in associated organizations 10,547,872 10,485,186 ---------- ---------- 10,551,422 10,488,736 ---------- ---------- Current assets: Cash and cash equivalents 3,779,829 3,814,767 Cash-restricted construction funds 561,698 517,871 Special deposits 242,163 222,163 Accounts receivable, net 16,844,729 22,302,400 Fuel cost recovery 1,405,553 3,591,963 Materials and supplies 23,872,758 22,822,003 Prepayments 2,451,288 627,544 Other current assets 197,430 335,753 ------- ------- Total current assets 49,355,448 54,234,464 ---------- ---------- Deferred charges 27,724,948 28,706,293 ---------- ---------- $568,202,423 $575,281,187 ============ ============ See accompanying notes to financial statements.
CHUGACH ELECTRIC ASSOCIATION, INC. BALANCE SHEETS (Continued)
(Unaudited) Liabilities and Equities June 30, 2002 December 31, 2001 ------------------------ ------------- ----------------- Equities and margins: Memberships $1,080,243 $1,059,098 Patronage capital 128,955,925 125,184,374 Other 5,432,690 5,565,234 --------- --------- 135,468,858 131,808,706 ----------- ----------- Long-term obligations, excluding current installments: First Mortgage (1991 Series A) Bond payable 0 149,310,000 2001 Series A Bond payable 150,000,000 150,000,000 2002 Series A Bond payable 120,000,000 0 2002 Series B Bond payable 60,000,000 0 National Bank for Cooperatives Bonds payable 64,134,179 65,000,000 ---------- ---------- 394,134,179 364,310,000 ----------- ----------- Current liabilities: Short-term obligations 8,000,000 11,000,000 Current installments of long-term obligations 865,821 10,409,945 Accounts payable 4,513,758 11,012,905 Consumer deposits 1,702,949 1,603,691 Accrued interest 6,352,926 7,378,058 Salaries, wages and benefits 5,121,383 4,844,819 Fuel 6,840,359 11,565,117 Other current liabilities 1,618,348 1,900,155 --------- --------- Total current liabilities 35,015,544 59,714,690 ---------- ---------- Deferred credits 3,583,842 19,447,791 --------- ---------- $568,202,423 $575,281,187 ============ ============ See accompanying notes to financial statements.
CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Revenues, Expenses and Patronage Capital (Unaudited)
Three months ended June 30 Six months ended June 30 2002 2001 2002 2001 ---- ---- ---- ---- Operating revenues $42,837,727 $39,018,695 $91,406,269 $84,214,272 Operating expenses: Fuel 11,736,690 12,204,482 24,695,979 25,903,905 Power production 3,505,628 2,928,305 6,723,941 6,773,316 Purchased power 4,812,543 2,153,516 10,007,083 3,971,251 Transmission 1,118,331 805,511 1,994,449 1,870,933 Distribution 2,596,065 2,435,425 5,224,178 4,775,595 Consumer accounts/Information expense 1,471,341 1,293,400 2,895,019 2,618,258 Sales expense 0 90,541 0 221,105 Administrative, general and other 5,025,321 4,636,545 9,974,640 9,721,309 Depreciation and amortization 6,323,088 6,240,878 12,563,706 12,305,476 --------- --------- ---------- ---------- Total operating expenses 36,589,007 32,788,603 74,078,995 68,161,148 ---------- ---------- ---------- ---------- Interest: On long-term obligations 6,090,395 6,924,727 14,132,639 13,087,314 On short-term obligations 55,544 186,557 158,792 1,091,787 Charged to construction-credit (106,888) (73,474) (256,594) (450,620) --------- -------- --------- --------- Net interest expense 6,039,051 7,037,810 14,034,837 13,728,481 --------- --------- ---------- ---------- Net operating margins 209,669 (807,718) 3,292,437 2,324,643 ------- --------- --------- --------- Nonoperating margins: Interest income 100,289 226,608 545,201 380,182 Other 21,169 49,334 268,536 229,422 ------ ------ ------- ------- Property gain (loss) 1,164 (53,323) (192,025) 1,683 ----- -------- --------- ----- Total nonoperating margins 122,622 222,619 621,712 611,287 ------- ------- ------- ------- Assignable margins 332,291 (585,099) 3,914,149 2,935,930 ======= ========= ========= ========= Patronage capital at beginning of period 128,669,206 126,376,024 125,184,374 122,925,253 ----------- ----------- ----------- ----------- Retirement of capital credits and estate Payments (45,572) (46,944) (142,598) (117,202) -------- -------- --------- --------- Patronage capital at end of period $128,955,925 $125,743,981 $128,955,925 $125,743,981 ============ ============ ============ ============ See accompanying notes to financial statements.
CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Cash Flows (Unaudited)
Six-months ended June 30 2002 2001 ---- ---- Cash flows from operating activities: Assignable margins $3,914,149 $2,935,930 ----------- ---------- Adjustments to reconcile assignable margins to net cash provided (used) by operating activities: Depreciation and amortization 12,563,706 12,305,476 Capitalization of interest (301,189) (565,068) Property (gains) losses, net (192,025) 1,683 Other 970 0 Changes in assets and liabilities: (Increase) decrease in assets: Fuel cost recovery 2,186,410 (1,190,092) Accounts receivable 5,457,671 1,833,481 Prepayments (1,823,744) (547,793) Materials and supplies (1,050,755) (156,658) Deferred charges 981,345 (3,207,358) Other 118,323 496,981 Increase (decrease) in liabilities: Accounts payable (6,499,147) (5,898,627) Consumer deposits 99,258 126,472 Accrued interest (1,025,132) 742,406 Deferred credits (16,071,442) (1,237,019) Other (4,730,002) (1,527,663) ----------- ----------- Net cash provided by (used in) operating activities (6,371,603) 4,112,151 ----------- --------- Cash flows from investing activities: Extension and replacement of plant (10,789,404) (20,896,048) Investments in associated organizations (63,656) (69,923) -------- -------- Net cash used in investing activities (10,853,060) (20,965,971) ------------ ------------ Cash flows from financing activities: Short-term obligations 8,000,000 (40,000,000) Proceeds from long-term obligations 180,000,000 150,000,000 Repayments of long-term obligations (170,719,945) (88,760,028) Retirement of patronage capital (142,598) (117,202) Other 52,268 (62,388) ------ -------- Net cash provided by financing activities 17,189,725 21,060,382 ---------- ---------- Net increase in cash and cash equivalents (34,938) 4,206,562 Cash and cash equivalents at beginning of period $3,814,767 $1,695,162 - ------------------------------------------------ ---------- ---------- Cash and cash equivalents at end of period $3,779,829 $5,901,724 - ------------------------------------------ ========== ========== Supplemental disclosure of cash flow information - interest expense paid, net of 15,059,969 12,986,075 ========== ========== amounts capitalized See accompanying notes to financial statements.
CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (Unaudited) 1. Presentation of Financial Information During interim periods, Chugach follows the accounting policies set forth in its audited financial statements included in Form 10-K filed with the Securities and Exchange Commission unless otherwise noted. Users of interim financial information are encouraged to refer to the footnotes contained in Chugach's Form 10-K when reviewing interim financial results. The accompanying unaudited interim financial statements reflect all adjustments, which are, in the opinion of management necessary for a fair statement of the results for the interim periods presented. Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation. 2. Lines of credit Chugach maintains a line of credit of $35 million with CoBank. The CoBank line of credit expires November 1, 2002, but is subject to annual renewal. At June 30, 2002, $8 million was outstanding on this line of credit at an interest rate of 3.75%. In addition, the Association has an annual line of credit of $50 million available at the National Rural Utilities Cooperative Finance Corporation (NRUCFC). At June 30, 2002, there was no outstanding balance on this line of credit. The NRUCFC line of credit expires October 14, 2002, but is subject to annual renewal. 3. Environmental Matters The Association discovered polychlorinated biphenyls (PCBs) in paint, caulk and grease at the Cooper Lake Hydroelectric plant during initial phases of a turbine overhaul. A Federal Energy Regulatory Commission (FERC) approved plan, prepared in consultation with the Environmental Protection Agency (EPA), was implemented to remediate the PCBs in the plant. As a condition of its approval of the license amendment for the overhaul project, FERC required Chugach to also investigate the presence of PCBs in Kenai Lake. A sampling plan was developed by Chugach in consultation with various agencies and approved by FERC. In 2000, Chugach sampled sediments and fish collected from Kenai Lake and other waters. While extremely low levels of PCBs were found in some sediment samples taken near the plant, no pathway from sediment to fish was established. Additional sediment sampling and analysis in this area has been completed. While the presence of PCBs in fish did not reveal amounts above background levels, Chugach has conducted additional sampling and analysis of fish in Kenai Lake and other waters and on April 1, 2002, filed its final report to FERC, which analyzed the results of the sampling. Based on these analyses, Chugach concluded that no further PCB sampling and analysis in Kenai Lake was necessary. In a letter dated June 18, 2002, the FERC informed Chugach that its review of the report supported Chugach's conclusions and agreed that Chugach was not required to conduct further PCB sampling and analysis in Kenai Lake. Management believes the costs of this work will be recoverable through rates and therefore will have no material impact on our financial condition or results of operations. The Regulatory Commission of Alaska, (RCA) has issued an order to Chugach generally allowing prudently incurred remediation costs at Cooper Lake to be recovered through rates, however, the RCA has not approved the final recovery amount in this matter and will review these costs as part of the 2000 test year rate case. 4. Legal Proceeding Matanuska Electric Association, Inc., v. Chugach Electric Association, Inc., Superior Court Case No. 3AN-99-8152 Civil This action was a claim for a breach of the Tripartite Agreement, which is the contract governing the parties' relationship for a 25-year period from 1989 through 2014 and governing the Association's sale of power to Matanuska Electric Association, Inc., (MEA) during that time. MEA asserted the Association breached that contract by failing to provide a variety of kinds of information, by failing to properly manage the Association's long-term debt, and by failing to bring its base rate action to the Joint Committee before presentation to the RCA. All of MEA's claims have been dismissed. On April 29, 2002, MEA appealed the Superior Court decisions relating to Chugach's financial management and Section 9(d) of the Power Sales Agreement relating to review of rate filings by a joint committee of MEA and Chugach board members before filing with the RCA to the Alaska Supreme Court. Management is uncertain as to the outcome but will vigorously defend the appeal. Chugach has certain additional litigation matters and pending claims that arise in the ordinary course of its business. In the opinion of management, no individual matter or the matters in the aggregate is likely to have a material adverse effect on our results of operations, financial condition or liquidity. 5. Critical Accounting Policies The preparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires that management apply accounting policies and make estimates and assumptions that affect results of operations and reported amounts of assets and liabilities in the financial statements. The following areas represent those that management believes are particularly important to the financial statements and that require the use of estimates and assumptions to describe matters that are inherently uncertain. FERC Accounting Chugach prepares its financial statements in accordance with GAAP and in conformity with the FERC's uniform system of accounts. Cost Basis Regulation Chugach is subject to regulation by the RCA. The rates that are charged by Chugach to its customers are based upon cost basis regulation reviewed and approved by this regulatory commission. Under the authority of this commission, Chugach has recorded certain regulatory assets in the amount of $16.6 million as of June 30, 2002. If Chugach's rates were no longer based upon cost basis or the probability of future collection in rates, regulation, the assets and liabilities would be written off to margins. Financial Instruments and Hedging Chugach has used U.S. Treasury forward rate lock agreements to hedge expected interest rates on debt. The Association accounted for the agreements under SFAS 80 and 71 through December 31, 2000, and SFAS 133, 138 and 71 subsequent to that date. Gains or losses are treated as regulatory assets or liabilities upon settlement. If Chugach's rates were no longer based upon cost or there was no longer the probability of future collection in rates, the assets and liabilities would be written off to margins. Based on historical regulatory treatment on previous refinancing, management believes the establishment and recovery of Chugach's regulatory assets and liabilities is appropriate. Accounting for derivatives continues to evolve through guidance issued by the Derivatives Implementation Group (DIG) of the Financial Accounting Standards Board, (FASB). To the extent that changes by the DIG modify current guidance, the accounting treatment for derivatives may change. 6. Recent Accounting Pronouncements In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Statement No. 145 eliminates the treatment of extinguishment of debt as extraordinary and clarifies the accounting for certain sale-leaseback transactions. The provisions of Statement No. 145 are required to be applied starting with fiscal years beginning after May 15, 2002, with early adoption encouraged. The Association believes the adoption of Statement No. 145 will have no impact on its financial statements, as the costs associated with the extinguishment of debt are accounted for under the provisions of Statement No. 71, Accounting for the Effects of Certain Types of Regulation and the Association does not engage in sale-leaseback transactions. In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of Statement No. 146 are required to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Association believes the adoption of Statement No. 146 will have no impact on its financial statements. Item 2. 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. Recent Accounting Pronouncements In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Statement No. 145 eliminates the treatment of extinguishment of debt as extraordinary and clarifies the accounting for certain sale-leaseback transactions. The provisions of Statement No. 145 are required to be applied starting with fiscal years beginning after May 15, 2002, with early adoption encouraged. The Association believes the adoption of Statement No. 145 will have no impact on its financial statements, as the costs associated with the extinguishment of debt are accounted for under the provisions of Statement No. 71, Accounting for the Effects of Certain Types of Regulation and the Association does not engage in sale-leaseback transactions. In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of Statement No. 146 are required to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Association believes the adoption of Statement No. 146 will have no impact on its financial statements. Regulatory Matters Docket U-96-37 Chugach submitted its 1998 test year revenue requirement filing to the RCA in February 2001. According to an order issued by the RCA on March 15, 2002, no rate reduction or refunds were required based on our 1998 test year costs. On July 23, 2002, the RCA closed Docket U-96-37, accepting Chugach's March 22, 2002 compliance filing on the 1998 test year. This docket was originally opened in 1996 to resolve outstanding issues between Chugach and Alaska Electric Generation & Transmission (AEG&T) /Homer Electric Association, (HEA) and MEA associated with Chugach's 1995 test year revenue requirement. The docket was further extended for the adjudication of the 1996 through 1998 test period revenue requirement filings that were completed as a result of a Settlement Agreement between Chugach, AEG&T / HEA and MEA. Docket U-01-108 Chugach submitted a general rate case based on the 2000 test year to the RCA on July 10, 2001. The filing requested an overall system base rate increase of 4.0 percent on an interim basis and 6.5 percent on a permanent basis. The Commission opened Docket U-01-108 to address the issues relating to the 2000 test year period rate filing. On September 5, 2001, the RCA issued Order No. 1 in Docket U-01-108 that authorized an interim base demand and energy rate increase of 1.6 percent for retail and wholesale billings effective September 14, 2001. Chugach retail customers under the Small General Service and Lighting tariffs were exempt from the increase. On September 25, 2001, Chugach submitted a Request for Reconsideration to the RCA regarding specific adjustments to Chugach's revenue requirement contained in the Commission order. On October 25, 2001, the Commission ruled on Chugach's Request for Reconsideration, and granted an interim base demand and energy increase of 3.97 percent, or about 2.4 percentage points higher than the initial authorized increase of 1.6 percent. Chugach submitted a compliance filing implementing the Commission's Order on October 30, 2001, and the additional rate increase was effective in November 2001. The interim rate increase was based on a normalized (adjusted for recurring expenses) test year and a system ratemaking Times Interest Earned Ratio (TIER) of 1.35. As anticipated in Chugach's July 2001 original filing, on April 15, 2002, Chugach submitted a filing with the RCA to update certain known and measurable costs and savings that had occurred outside the 2000 Test Year. In the updated filing, Chugach reduced its base rate increase request from 6.5% to 5.7%, or approximately $0.9 million on a system basis. The revised filing also reflected an increase in depreciation expense of approximately $1.5 million due to the completion of the Beluga Unit 7 re-power project and a reduction in annualized interest expense due to Chugach's recent refinancing efforts of $2.4 million. In this revised filing, Chugach continues to request $11.9 million in margins, however, due to reduced interest costs, the equivalent system TIER calculation results in a TIER of 1.47. Three Intervenors filed pre-filed testimony with the Commission in July 2002 opposing various aspects of Chugach's proposal. Chugach will file its reply testimony with the Commission in October. A hearing has been scheduled for November 2002 to resolve the outstanding issues associated with the 2000 test year rate case. A final Commission order is expected in 2003. Results Of Operations Current Year Quarter Versus Prior Year Quarter In general, net margins increased due to a $998.8 thousand, or 14%, decrease in net interest expense and the interim rate increase. Operating revenues, which include sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues, increased by $3.8 million, or 10%, for the quarter ended June 30, 2002, over the same quarter in 2001. The increase in revenues was due to an interim rate increase of 3.97%, which was approved and implemented during the fourth quarter of 2001, as well as an increase in purchased power, which resulted in increased revenue collected through the fuel and purchased power surcharge mechanism. The following table represents kWh sales for the quarter ended June 30:
2002 2001 ---- ---- Customer kWh KWh Retail 259,178,470 256,048,943 Wholesale 263,894,173 212,930,291 Economy Energy 42,402,010 21,559,500 ---------- ---------- Total 565,474,653 490,538,734 =========== ===========
Retail demand and energy rates for all rate classes except small commercial and public street and highway lighting increased 3.97% in the second quarter of 2002 compared to the second quarter of 2001. Over this same period, the wholesale demand and energy rates charged to HEA and MEA also increased by 3.97%. These increases reflected the interim rate increase authorized by the RCA in 2001. Wholesale demand and energy rates charged to Seward Electric System (SES) did not change in this quarter compared to the same quarter last year. Fuel expense decreased by $467.8 thousand, or 4%, for the quarter ended June 30, 2002, compared to the same period in 2001 due to lower fuel prices. Power production expense increased by $577.3 thousand, or 20%, due to a higher level of scheduled maintenance activity in 2002, including a hot gas path inspection and a major overhaul of a Bernice Lake unit. Purchased power expense increased by $2.7 million, or 123%, due to the new contract with Nikiski, a co-generation power plant owned by AEG&T/HEA. Transmission, Distribution, Consumer accounts/Information and Sales expense did not materially change for the three-month period ended June 30, 2002. Administrative, general and other expenses increased by $388.8 thousand, or 8%, for the three-month period ended June 30, 2002, due to the combination of increased labor, information services and insurance costs. Interest on long-term debt decreased by $834.3 thousand, or 12%, due to lower interest rates. Interest charged to construction increased by $33.4 thousand, or 45%, in the second quarter of 2002 compared to the same period in 2001 due to more construction activity. Other interest expense decreased by $131.0 thousand, or 70%, from the second quarter of 2001 to the second quarter of 2002 due to lower outstanding balances on the lines of credit in the second quarter of 2002. Other nonoperating margins were $100.0 thousand, or 45%, lower for the quarter ended June 30, 2002, compared to the same period in 2001 due to funds received and invested for a month as a result of the refinancing in 2001. Current Year to Date Versus Prior Year to Date In general, net margins increased due to the increase in revenue caused by the interim rate increase implemented during the fourth quarter of 2001. Operating revenues increased by $7.2 million, or 9%, in the first six months of 2002, over the same period in 2001. The increase in revenues was due to the interim rate increase of 3.97%, which was approved and implemented during the fourth quarter of 2001. It was also due to an increase in purchased power, which resulted in increased revenue collected through the fuel and purchased power surcharge mechanism. The following table represents kWh sales for the six months ended June 30:
2002 2001 ---- ---- Customer kWh KWh Retail 572,506,030 557,910,584 Wholesale 562,334,692 491,780,205 Economy Energy 45,706,900 44,132,770 ---------- ---------- Total 1,180,547,622 1,093,823,559 ============= =============
Fuel expense decreased by $1.2 million, or 5%, for six months ended June 30, 2002, compared to the same period in 2001 due to less fuel used and lower fuel prices. Power production expense did not materially change for the six-month period ended June 30, 2002. Purchased power expense increased by $6.0 million, or 152%, due to the new contract with Nikiski, a co-generation power plant owned by Alaska Electric Generation & Transmission (AEG&T) (HEA). Distribution expense increased $448.6 thousand, or 9%, due to additional right-of-way clearing associated with a major project in Beluga/Tyonek, which caused a more than normal quantity of miles cleared. Transmission, Consumer accounts/Information, Sales expense and Administrative, general and other did not materially change for the six-month period ended June 30, 2002. Interest on long-term debt increased by $1.0 million, or 8%, due to additional debt associated with the 2002 refinancing. Interest charged to construction decreased by $194.0 thousand, or 43%, in the six months ended June 30, 2002 compared to the same period in 2001 due to less construction activity. Other interest expense decreased by $933.0 thousand, or 85%, due to lower outstanding balances on the lines of credit. Other nonoperating margins did not materially change in the first six months of 2002 compared to the same period in 2001. Financial Condition Total assets decreased $7.1 million, or 1%, from December 31, 2001 to June 30, 2002. The decrease was due to a $5.5 million, or 24%, decrease in accounts receivable caused by the payment of wholesale power invoices that were accrued but not paid at December 31, 2001. It was also due to a $2.2 million, or 61%, decrease in fuel cost recovery from the collection of the prior quarter's fuel cost adjustment. Deferred charges decreased by $981 thousand, or 3%, largely due to normal monthly amortization of deferred charges. The decreases were offset by a $1.8 million, or 291%, increase in prepayments caused by the prepayment of rotors for Beluga units 6 and 7 that are due to be installed in 2003 and 2004. Notable changes to total liabilities include a $30.7 million, or 8%, increase in long-term obligations associated with the 2002 refinancing. This increase was offset by a $3 million, or 27%, decrease in short-term obligations, as well as a $10.4 million, or 100%, decrease in current installments of long-term obligations due to the final payment of the 1991 Series A Bond due 2002 and the $5 million payment of the first installment of CoBank 5. There was also a $6.5 million, or 59%, decrease in accounts payable caused by the payment of invoices that were accrued at December 31, 2001. There was also a $1.0 million, or 14%, decrease in accrued interest due to lower interest rates on our debt after the 2002 refinancing, as well as a $4.7 million, or 41%, decrease in fuel payable caused by lower fuel prices in the first and second quarter of 2002. Deferred credits decreased $15.9 million, or 82%, due to the reclassification of the gain associated with the 1991 Series A Bond due 2022 that was refinanced in the first quarter of 2002. Liquidity and Capital Resources Chugach has satisfied its operational and capital cash requirements primarily through internally generated funds, an annual $50 million line of credit from NRUCFC and a $35 million line of credit with CoBank. At June 30, 2002, there was no outstanding balance with NRUCFC. At June 30, 2002, there was $8 million outstanding under the CoBank line of credit, which carried an interest rate of 3.75%. Chugach has negotiated a supplemental indenture (Seventh Supplemental Indenture of Trust) that eliminated the maximum aggregate amounts of bonds the Association may issue under the CoBank agreement. At June 30, 2002, Chugach had the following bonds outstanding under this financing arrangement.
Interest rate at June Principal Payment Bond Principal balance 30, 2002 Maturity Date Dates CoBank 2 $10,000,000 7.76% 2005 2005 CoBank 3 $21,500,000 5.60% 2022 2003 - 2022 CoBank 4 $23,500,000 5.60% 2022 2003 - 2022 CoBank 5 $10,000,000 5.60% 2012 2002 - 2012 Total $65,000,000
Capital construction in 2002 is estimated at $32.8 million. At June 30, 2002, approximately $10.8 million had been expended. Capital improvement expenditures are expected to increase in the upcoming third quarter as the construction season began in April and extends into October. Chugach management continues to expect that cash flows from operations and external funding sources will be sufficient to cover operational and capital funding requirements in 2002 and thereafter. Outlook In the recent past Chugach has been active at the Alaska Legislature in support of the customer's right to choose their electric power provider. Virtually all Alaska utilities opposed Chugach's efforts to develop competition and no movement in that direction currently exists. Chugach intends to maintain a readiness for competition and to build organizational experience and expertise in competitive-type business to the degree possible. Chugach reorganized in June 2002 when the longstanding Chief Financial Officer, (CFO) accepted the General Manager position. The Association now has four senior vice-president level organizational entities: CFO (Finance and Accounting), Energy Supply, Power Delivery and Administration. A Chief of Staff position was also created and staffed by in-house senior management. We believe this structure will better facilitate the organization's ability to effectively manage future challenges including competition. Environmental Matters Compliance with Environmental Standards Chugach's operations are subject to certain federal, state and local environmental laws that Chugach monitors to ensure compliance. The costs associated with environmental compliance are included as a component of both the operating and capital budget processes. Chugach accrues for costs associated with environmental remediation obligations when such costs are probable and reasonably estimable. Environmental Matters The Association discovered polychlorinated biphenyls (PCBs) in paint, caulk and grease at the Cooper Lake Hydroelectric plant during initial phases of a turbine overhaul. A Federal Energy Regulatory Commission (FERC) approved plan, prepared in consultation with the Environmental Protection Agency (EPA), was implemented to remediate the PCBs in the plant. As a condition of its approval of the license amendment for the overhaul project, FERC required Chugach to also investigate the presence of PCBs in Kenai Lake. A sampling plan was developed by Chugach in consultation with various agencies and approved by FERC. In 2000, Chugach sampled sediments and fish collected from Kenai Lake and other waters. While extremely low levels of PCBs were found in some sediment samples taken near the plant, no pathway from sediment to fish was established. Additional sediment sampling and analysis in this area has been completed. While the presence of PCBs in fish did not reveal amounts above background levels, Chugach has conducted additional sampling and analysis of fish in Kenai Lake and other waters and on April 1, 2002, filed its final report to FERC, which analyzed the results of the sampling. Based on these analyses, Chugach concluded that no further PCB sampling and analysis in Kenai Lake was necessary. In a letter dated June 18, 2002, the FERC informed Chugach that its review of the report supported Chugach's conclusions and agreed that Chugach was not required to conduct further PCB sampling and analysis in Kenai Lake. Management believes the costs of this work will be recoverable through rates and therefore will have no material impact on our financial condition or results of operations. The RCA has issued an order to Chugach generally allowing prudently incurred remediation costs at Cooper Lake to be recovered through rates, however, the RCA has not approved the final recovery amount in this matter and will review these costs as part of the 2000 test year rate case. Item 3. Quantitative and Qualitative Disclosures About Market Risk Chugach is exposed to a variety of risks, including changes in interest rates and changes in commodity prices due to repricing mechanisms inherent in gas supply contracts. In the normal course of our business, we manage our 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 June 30, 2002, except for the 2002 Series B Bond, which carries a variable interest rate and is re-priced every 28 days, all of our outstanding long-term obligations were at fixed interest rates with varying maturity dates. The Auction Rate Bond bore interest at 1.97% from the date of original delivery to and through February 27, 2002. The following table provides information regarding subsequent auction dates and rates. Auction Date Interest Rate February 27, 2002 2.00% March 27, 2002 2.00% April 27, 2002 1.97% May 22, 2002 1.97% June 19, 2002 1.95% July 17, 2002 1.90% The following table provides information regarding cash flows for principal payments on total debt by maturity date (dollars in thousands) as of June 30, 2002.
Fair Total Debt* 2002 2003 2004 2005 2006 Thereafter Total Value - ----------- ---- ---- ---- ---- ---- ---------- ----- ----- Fixed rate $0 $866 $945 $11,031 $1,126 $321,032 $335,000 $349,106 Average interest rate -- 5.60% 5.60% 7.56% 5.60% 6.27% 6.30% Variable rate $8,000 $0 $0 $0 $0 $60,000 $68,000 $68,000 Average interest rate 3.75% -- -- -- -- 1.95% 2.16% * Includes current portion
Commodity Price Risk Chugach's gas contracts provide for adjustments to gas prices based on fluctuations of certain commodity prices and indices. Because purchased power costs are passed directly to our wholesale and retail customers through a fuel surcharge, fluctuations in the price paid for gas pursuant to long-term gas supply contracts do not normally impact margins. The fuel surcharge mechanism mitigates the commodity price risk related to market fluctuations in the price of purchased power. PART II OTHER INFORMATION Item 1. Legal Proceedings Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc. Superior Court Case No. 3AN-99-8152 Civil This action was a claim for a breach of the Tripartite Agreement, which is the contract governing the parties' relationship for a 25-year period from 1989 through 2014 and governing the Company's sale of power to MEA during that time. MEA asserted the Company breached that contract by failing to provide a variety of kinds of information, by failing to properly manage the Company's long-term debt, and by failing to bring its base rate action to the Joint Committee before presentation to the RCA. All of MEA's claims have been dismissed. On April 29, 2002, MEA appealed the Superior Court decisions relating to Chugach's financial management and Section 9(d) of the Power Sales Agreement relating to review of rate filings by a joint committee of MEA and Chugach board members before filing with the RCA to the Alaska Supreme Court. Management is uncertain as to the outcome but will vigorously defend the appeal. Chugach has certain additional litigation matters and pending claims that arise in the ordinary course of its business. In the opinion of management, no individual matter or the matters in the aggregate is likely to have a material adverse effect on our results of operations, financial condition or liquidity. Item 2. Changes in Securities and Use of Proceeds Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information On August 12, 2002, MEA filed a request with the RCA asking that Chugach's Certificate of Public Convenience and Necessity (CPCN) be amended to eliminate retail service and requesting that the retail services portion of the CPCN be included in MEA's CPCN. The RCA has not determined whether it will hear the request. Management is of the opinion that the request has no merit and it is very unlikely that the requested change in the certificate will be approved. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Employment Agreement between the Registrant and Evan J. Griffith dated effective May 1, 2002. Certification of Principal Executive Officer Certification of Principal Financial Officer (b) Reports on Form 8-K: No reports on Form 8-K were filed for the quarter ended June 30, 2002. Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/Evan J. Griffith Evan J. Griffith General Manager Date: August 13, 2002 By: /s/Michael R. Cunningham Michael R. Cunningham Chief Financial Officer Date: August 13, 2002 Exhibits Listed below are the exhibits, which are filed as part of this Report:
Exhibit Number Description Page 10.52 Employment Agreement between the Registrant and Evan J. Griffith dated effective May 1, 2002 21 99.1 Certification of Principal Executive Officer 32 99.2 Certification of Principal Financial Officer 33
EX-10.52 2 secexhibit1052.txt EMPLOYMENT AGREEMENT-EVAN J. GRIFFITH THIS EMPLOYMENT AGREEMENT is entered into by and between Evan J. Griffith, Jr. ("Griffith") and Chugach Electric Association, Inc. an Alaska electrical cooperative association headquartered in Anchorage, Alaska ("Chugach" or "Employer"), to be effective on and as of May 1, 2002. WITNESSETH: WHEREAS, Chugach is engaged in the business of production, transmission and distribution of electricity in Alaska; WHEREAS, Griffith has skills and experience in electric utility management generally and with the business and technology associated with the production, transmission and distribution of electricity; and WHEREAS, Chugach desires to obtain Griffith's services as the General Manager of its Business, and Griffith desires to be employed in that position by Chugach; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties hereto agree as follows: 1. Employment. Chugach hereby employs Griffith as its General Manager, and Griffith hereby accepts such employment upon the terms and conditions hereinafter set forth. 2. Duties. a. Griffith shall serve as Chugach's General Manager and shall perform his services as such within the framework of Chugach's Bylaws, policies, procedures and goals as Chugach's Board of Directors shall from time to time determine, including but not limited to the following: (i) Board Policy 106, Delegations of Authority from the Board of Directors to the General Manager, Appendix A hereto; (ii) Board Policy 107, Board of Directors- General Manager Relationship, Appendix B hereto; (iii) Board Policy 118, Delegation of Certain of the Secretary's and Treasurer's Duties to the General Manager, Appendix C hereto; and (iv) General Manager Position Description, Appendix D hereto. In such capacity, Griffith (i) shall exercise general supervisory responsibility and management authority over Chugach and all of its controlled affiliates and (ii) shall perform such other duties commensurate with his position as may be assigned to him from time to time by the Chugach Board of Directors. b. Griffith shall devote substantially all his business time, attention and energies to the performance of his duties and functions under this Employment Agreement and shall not during the term of his employment hereunder be engaged in any other substantial business activity for gain, profit or other pecuniary advantage. Griffith shall faithfully, loyally and diligently perform his assigned duties and functions and shall not engage in any activities whatsoever that conflict with his obligations to Chugach during the term of his employment hereunder. Notwithstanding the foregoing, nothing in the foregoing shall be construed so as to limit or prohibit personal investments by Griffith; provided that such investments shall not amount to a controlling interest in any entity (other than trusts, limited partnerships or other entities adopted by Griffith for estate planning purposes). Griffith also agrees that he will not participate in any political activity that will or may reflect adversely upon Chugach without obtaining the prior consent of Chugach's Board of Directors. c. Chugach shall furnish Griffith with an office and other facilities at Chugach's headquarters location and services that are suitable to his position and adequate for the performance of his duties and functions hereunder. 3. Term. The term of this Employment Agreement shall commence on the date hereof (the "Commencement Date") and, unless terminated earlier pursuant to paragraph 10 hereof, shall continue through March 31, 2004 (the "Initial Term"). If neither party gives written notice to the other party of non-renewal of this Employment Agreement not less than sixty (60) days prior to March 31, 2004, this Employment Agreement shall continue in full force and effect for subsequent one-year terms (the "Extended Term(s)")(the Initial Term, together with the Extended Terms, if any, being referred to herein as the "Employment Term"), provided, however, that either party may give written notice of non-renewal to the other party not less than sixty (60) days prior to the anniversary date of any Extended Term, in which case this Employment Agreement shall terminate on that anniversary date without further action by the parties. This Employment Agreement also is subject to termination pursuant to paragraph 10 hereof during any Extended Term. 4. Compensation. Chugach shall pay to Griffith, in consideration of and as compensation for the services agreed to be rendered by Griffith hereunder, the following: a. Base Salary. During the Employment Term, Chugach shall pay to Griffith an annual salary of One Hundred Eighty-five Thousand Dollars ($185,000) (the "Base Salary"). The Base Salary, subject to the modifications contained in the Performance Appraisal/Bonus Program section contained below, shall be adjusted annually each January based upon the Anchorage CPI-U (July statistic) published by the Bureau of Labor Statistics. The Base Salary shall be payable in accordance with Chugach's normal payroll schedule, less withholdings required by law or authorized by Griffith. b. Performance Appraisal/Bonus Program. Chugach and Griffith agree that Griffith's total compensation under this Employment Agreement shall be tied directly to his performance. Accordingly, the parties agree that Griffith and Chugach's Board of Directors, by mutual agreement, shall by January 31 of each year develop reasonable objectives ("stated objectives") by which to measure Griffith's performance for the upcoming year. Each year in January, the parties shall then review the agreed upon stated objectives for the past year and determine whether Griffith has met or failed to meet the stated objectives. (i) Bonus for Meeting or Exceeding Stated Objectives. In the event that Griffith meets or exceeds the stated objectives, he shall be entitled to a bonus of up to twenty percent (20%) of his Base Salary. The exact percentage of the bonus ("bonus amount") shall be at the discretion of the Board of Directors in consideration of the level of goal achievement including both quantitative and qualitative measures of merit. Payment of any bonus under this program shall be considered compensation for purposes of retirement plan credits. (ii) Salary Reduction for Failing to Meet Stated Objectives. In the event that the Board of Directors determines that Griffith has substantially failed to meet the stated objectives, the Board of Directors is entitled to reduce Griffith's Base Salary for the upcoming year by an amount not to exceed ten percent (10%) of the previous year's Base Salary. The precise amount of the salary reduction shall be at the discretion of the Board of Directors in consideration of the extent of Griffith's failure to meet the stated objectives and taking into account any mitigating factors outside of Griffith's control which substantially affected his ability to meet the stated objectives. (iii) Reversion to Base Salary After Reduction for Failure to Meet Stated Objectives. In the event Griffith's base salary is reduced for failure to meet the stated objectives, his salary shall revert to the previous year's Base Salary in January of the next year (e.g., 2002 - Base Salary of $185,000. Failure to meet 2002 goals results in a reduction of 2003 Base Salary to $170,000. In January 2004, the Base Salary shall revert to $185,000 prior to any adjustments based upon CPI or failure to meet stated goals for previous year). (iv) Future Deferred Compensation Plans. In the event that the Board of Directors adopts and makes available a new deferred compensation plan during the Employment Term under which eligible employees may deferportions of their income (and thereby defer tax liability associated with that income), Griffith shall be entitled to participate in such plan(s) to the extent that he is eligible to do so. If the plan permits, Griffith may defer some or all of the bonus amounts, leave or other compensation payable to him pursuant to this Employment Agreement. c. Use of Company Vehicles. During the Employment Term, Griffith shall be permitted to use Chugach vehicles on company business on a de minimus basis. Griffith shall not be entitled to a company vehicle for personal use. 5. Benefits. During the Employment Term, Griffith shall be entitled to participate in all group health, pension, 401(k), 457 and other benefit plans maintained by Chugach and provided to its salaried administrative personnel, on the same terms as apply to participation therein by such personnel generally (except as otherwise provided herein). Further, during the Employment Term, Griffith shall be entitled to participate in all fringe benefit programs and shall receive all perquisites if and to the extent that Chugach's Board of Directors establishes and makes such benefits and perquisites available to its salaried administrative personnel generally, including, but not limited to, Employer-paid long-term disability insurance and life insurance coverage. 6. Expenses. During the Employment Term, Chugach shall reimburse Griffith for all reasonable travel, entertainment and other business expenses incurred or paid by Griffith in performing his duties and functions hereunder, subject to Griffith's accounting for and reporting such expenses pursuant to applicable Chugach policies. 7. Holidays, Sick Leave and Annual Leave. Griffith shall be entitled to such holidays, sick leave and annual leave as are provided to its salaried administrative personnel generally, which paid time off work shall continue to accrue at the same rate(s) as Griffith accrued holidays, sick leave and annual leave as an Executive Manager. For example, Griffith shall continue to accrue annual leave at the rate of 9.23 hours per pay period (e.g., at the rate of 30 days per year). Griffith shall carry over to this Employment Agreement all annual leave previously accrued as of the Commencement Date of this Employment Agreement, provided, however, that all such carried over annual leave shall be valued at Griffith's rate of compensation as Executive Manager immediately prior to the Commencement Date. Additionally, Griffith shall either use or cash out annual leave that accrues to his account after the Commencement Date so that he does not add more than six (6) weeks of annual leave to his pre-Commencement Date annual leave balance. Chugach agrees to reconsider this six-week cap on additions to Griffith's annual leave balance if Griffith is unable to take leave for business-related reasons. Griffith shall be entitled to such vacations, taken at such time or times, as Griffith shall determine in his reasonable discretion, consistent with the performance of Griffith's obligations hereunder and the direction of Chugach's Board of Directors. 8. Non-Competition. During the Employment Term and for a period of one (1) year thereafter, Griffith shall not enter into or participate in any business competitive to the business carried on by Chugach in Southcentral Alaska or at such additional locations, if any, outside Southcentral Alaska at which Chugach conducts business. (This paragraph 8 does not apply to a Termination Other Than For Cause pursuant to paragraph 10(b) hereof.) As used herein, the term "business competitive to the business carried on by Chugach" means any business that involves the production, transmission or distribution of electricity, and the words "Southcentral Alaska" mean a business conducted in whole or in part within the boundaries of the Municipality of Anchorage, the Kenai Peninsula Borough, or the Matanuska-Susitna Borough. The provisions of this paragraph 8 shall survive the expiration and/or termination of this Employment Agreement. If a court of competent jurisdiction should declare any or all of this provision unenforceable because of any unreasonable restriction of duration and/or geographical area, then such court shall have the express authority to reform this provision to provide for reasonable restrictions and/or to grant Chugach such other relief, at law or in equity, as are reasonably necessary to protect its interests. 9. Confidential Information. During the Employment Term and for so long thereafter as the information remains confidential, Griffith will not use for his own advantage or disclose to any unauthorized person any confidential information relating to the business operations or properties of Chugach and any affiliate of Chugach. Upon the expiration or termination of the Employment Term, upon Chugach's request, Griffith will surrender and deliver to Chugach all documents and information of every kind relating to or connected with Chugach and its affiliates. As used herein "confidential information" means all information, whether written or oral, tangible or intangible, of a private, secret, proprietary or confidential nature, of or concerning Chugach and its business and operations, including without limitation, any trade-secrets or know-how, computer software programs in both source code and object code, information regarding any product or service, development, technology, technique, process or methodology, any sales, promotional or marketing plans, programs, techniques, practices or strategies, any expansion or acquisition plans, any operational and management guidelines, any cost, pricing or other financial data or projections, and any other information which is to be treated as confidential because of any duty of confidentiality owed by Chugach to any third party or any other information that Chugach shall, in the ordinary course of its business, possess or use and not release externally without restriction on use or disclosure. The foregoing confidential information provision shall not apply to information which: (i) is or becomes publicly known through no wrongful act of Griffith, (ii) is rightfully received from any third party without restriction and without breach by Griffith of this Employment Agreement; or (iii) is independently developed by Griffith after the term of his employment hereunder or is independently developed by a competitor of Chugach at any time. The provisions of this paragraph 9 shall survive the expiration and/or termination of this Employment Agreement. 10. Termination. a. Termination for Cause. Chugach may terminate Griffith's employment for "cause" immediately upon written notice to Griffith, provided, however, that Griffith has been given ten (10) days written notice of cause for termination and has failed to, or is unable to, cure such cause within that time. Such notice shall specify in reasonable detail the nature of the cause. For purposes of this Employment Agreement, "cause" means a business-related reason that is not arbitrary, capricious or illegal and which is based on facts (i) supported by substantial evidence and (ii) reasonably believed by the Board of Directors to be true. Examples of "cause" for termination of employment are provided in Chugach Operating Policy 013 dated September 19, 2001, and are incorporated herein by reference to the extent they are consistent with this Employment Agreement. In the event of the involuntary termination of his employment for cause, Griffith shall not be entitled to receive any compensation hereunder other than his Base Salary and employee benefits and leave as accrued through the effective date of such termination. Griffith's obligations under Paragraphs 8 and 9 shall continue under the terms and conditions of this Employment Agreement. b. Termination Other Than for Cause. Chugach shall have the right to terminate Griffith's employment for any reason, upon thirty (30) days prior written notice to Griffith, whereupon Griffith's employment pursuant to this Employment Agreement shall terminate as of the effective date of termination. In the event of the involuntary termination of his employment other than for cause, Griffith shall be entitled to receive: (i) his Base Salary, bonus amount, leave and employee benefits as accrued through the effective date of such termination; (ii) an amount equal to Griffith's Base Salary and benefits for a period equal to five (5) months following the effective date of termination; and (iii) a pro-rata portion of the bonus amount for that period. Griffith will be entitled to receive the aforementioned amounts in this Paragraph 10(b), if and only if Griffith signs a valid general release of all claims against Chugach in a form provided by Chugach. All payments shall be made at normal Chugach payroll periods, less withholdings required by law, unless otherwise mutually agreed to in writing by Griffith and Chugach. Griffith's obligations under Paragraph 9 shall continue under the terms and conditions of this Employment Agreement. c. Voluntary Termination. Griffith may voluntarily terminate his employment under this Agreement at any time upon sixty (60) days' prior written notice to Chugach's Board of Directors, whereupon Chugach's employment of Griffith shall terminate at the end of the sixty (60) day notice period. In the event of Griffith's voluntary termination of employment, he shall not be entitled to receive any compensation hereunder other than his Annual Salary and employee benefits as accrued through the effective date of such termination. Griffith's obligations under Paragraphs 8 and 9 shall continue under the terms and conditions of this Employment Agreement. d. Death or Disability. Griffith's employment pursuant to this Agreement shall terminate automatically on the date of Griffith's death or disability. Upon Griffith's death or disability, no compensation shall be payable to Griffith under this Agreement except for Griffith's Base Salary, bonus amount and employee benefits as accrued through the date of his death or disability, whichever is applicable, including any employee benefits payable in the event of Griffith's death or disability, whichever is applicable. For purposes of this Employment Agreement, Griffith shall be deemed to be disabled (as medically determined by an independent physician), if for a period of at least three (3) consecutive months he is unable to perform the essential functions of his position with Chugach, with or without reasonable accommodation. For purposes of this Agreement, if Griffith's employment terminates by reason of his disability, his employment termination date shall be deemed to be the last day of the three (3) month period described in this paragraph. e. Excess Parachute Payment. In the event that Chugach treats any portion of Griffith's payments or benefits hereunder as an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code ("Code") or any comparable provision of state or local tax law, or it is otherwise asserted (including on an audit of either Chugach or Griffith) that any portion of such payments or benefits is such an "excess parachute payment," Chugach shall prior to the date on which any amount of excise tax (or penalty or interest) must be paid in respect thereof, promptly make an additional lump sum payment in cash to Griffith in an amount sufficient, after giving effect to all federal, state and other taxes and charges (including interest and penalties, if any) with respect to such payment to make Griffith whole for all taxes (including withholding and social security taxes) imposed under Section 4999 of the Code, or any comparable provision of state or local tax law, with respect to the "excess parachute payment" and all associated interest and penalty amounts. Griffith shall cooperate in all reasonable respects with Chugach to attempt to minimize any such tax liability. f. Miscellaneous. In the event of any termination or attempted termination hereof: (i) if multiple events, occurrences or circumstances are asserted as bases for such termination or attempted termination, the event, occurrence or circumstance that is earliest in time, and any termination or attempted termination found to be proper hereunder based thereon, shall take precedence over the others; (ii) no termination of this Employment Agreement shall relieve or release either party from liability hereunder based on any breach of the terms hereof by such party occurring prior to the Termination Date; and (iii) the terms of this Employment Agreement relevant to performance or satisfaction of any obligation hereunder expressly remaining to be performed or satisfied in whole or in part at the Termination Date shall continue in force until such full performance or satisfaction has been accomplished and otherwise neither party hereto shall have any other or further remaining obligations to other party hereunder. g. No Set-off; No Duty of Mitigation. There shall be no right of setoff or counterclaim, in respect of any actual or alleged claim, debt or obligation, against any payments or benefits required to be made or provided to Griffith hereunder (including, without limitation, pursuant to subparagraphs 10(a) and 10(b)). In the event of any termination of Griffith's employment under this paragraph 10, Griffith shall be under no obligation to seek other employment and shall be entitled to all payments or benefits required to be made or provided to Griffith hereunder, without any duty of mitigation of damages and regardless of any other employment obtained by Griffith. 11. Injunctive Relief. It is agreed that the services of Griffith are unique and that any breach or threatened breach by Griffith of any provision of this Employment Agreement cannot be remedied solely by damages. Accordingly, in the event of a breach by Griffith of his obligations under this Employment Agreement, Chugach shall be entitled to seek and obtain interim restraints and permanent injunctive relief, restraining Griffith and any business, firm, partnership, individual, corporation or entity participating in such breach or attempted breach. Nothing herein, however, shall be construed as prohibiting Chugach from pursuing any other remedies available at law or in equity for such breach or threatened breach, including the recovery of damages and the termination of the services of Griffith. 12. Arbitration. Any dispute or controversy arising out of or relating to this Employment Agreement or any claimed breach hereof shall be resolved, at the request of either party, by a private arbitration proceeding. The arbitration proceeding shall be conducted pursuant to the Alaska Uniform Arbitration Act, AS 09.43.010 -- 09.43.180 (the "Act") and the Model Employment Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association ("AAA"), each of which is incorporated herein by this reference to the extent that the Act and the Arbitration Rules are consistent with this Employment Agreement. The arbitrator shall be an impartial arbitrator qualified to serve in accordance with the Arbitration Rules. The arbitrator shall be selected by mutual agreement of the parties. If the parties are unable to agree to a mutually acceptable arbitrator within twenty-one (21) days of the request for arbitration, Chugach shall request that the AAA submit a list of seven (7) arbitrators. After a coin toss to determine who makes the first strike, the parties shall strike names from the AAA list alternately until the name of one arbitrator remains. That arbitrator shall be deemed mutually acceptable to both parties unless the arbitrator is unavailable, in which case the last arbitrator whose name was struck shall be deemed acceptable to the parties, and so on. The arbitration hearing shall be held in Anchorage, Alaska, or in such other place as may be mutually agreed upon by the parties, at a time and location determined by the arbitrator. Within thirty (30) days of the close of the arbitration hearing, the arbitrator shall hand down a written decision and award. The decision shall explain the basis for the arbitrator's award. The arbitrator shall have authority to interpret and enforce this Employment Agreement, but shall not have authority to alter, amend or supercede any provision of this Employment Agreement. The decision and award shall be final and binding on the parties, subject only to such appeal rights as are available under the Act. Either party may seek entry of judgment upon such decision and award in any court having jurisdiction over the parties. The expenses of the arbitration proceeding shall be borne by Chugach. Each party shall pay for and bear the cost of its own experts, witnesses and legal counsel in such arbitration proceeding. 13. Indemnification. a. Chugach shall indemnify Griffith (as a "protected person") to the fullest extent permitted by AS 10.25.145 (the terms of which are incorporated herein by this reference) against all costs, expenses, liabilities and losses (including, without limitation, attorneys' fees, judgments, penalties and amounts paid in settlement) reasonably incurred by Griffith in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative in which Griffith is made, or is threatened to be made, a party to or a witness in such action, suit or proceeding by reason of the fact that he is or was an officer or agent of Chugach or of any of Chugach's controlled affiliates or is or was serving as an officer, trustee, agent or fiduciary of any other entity at the request of Chugach (a "Proceeding"). b. Chugach shall advance to Griffith all reasonable costs and expenses incurred by him in connection with a Proceeding within twenty (20) days after receipt by Chugach of a written request for such advance, accompanied by an itemized list of the actual or anticipated costs and expenses and Griffith's written undertaking to repay to Chugach on demand the amount of such advance if it shall ultimately be determined that Griffith is not entitled to be indemnified against such costs and expenses. Griffith shall periodically account to Chugach for all such costs and expenses incurred by Griffith in connection with his defense of the Proceeding. c. The indemnification provided to Griffith hereunder is in addition to, and not in lieu of, any additional indemnification to which he may be entitled pursuant to Chugach's Certificate of Incorporation or Bylaws, any insurance maintained by Chugach from time to time providing coverage to Griffith and other officers and directors of Chugach, or any separate written agreement with Griffith. The provisions of this paragraph 13 shall survive any termination of this Employment Agreement. 14. Amendment and Modification. This Employment Agreement contains the entire agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, arrangements or understandings between the parties hereto with respect to the subject matter hereof, whether written or oral. Subject to applicable law and upon the consent of Chugach's Board of Directors, this Employment Agreement may be amended, modified and supplemented by written agreement of Chugach and Griffith with respect to any of the terms contained herein. 15. Waiver of Compliance. Any failure of either party to comply with any obligation, covenant, agreement or condition on its part contained herein may be expressly waived in writing by the other party, but such waiver or failure to insist upon strict compliance shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Employment Agreement requires or permits consent by or on behalf of any party, such consent shall be given in writing. 16. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, sent by registered or certified U.S. Mail, postage prepaid, commercial overnight courier service or transmitted by facsimile and shall be deemed served or delivered to the addressee at the address for such notice specified below when hand delivered, upon confirmation of sending when sent by fax, on the day after being sent when sent by overnight delivery or five (5) days after having been mailed, certified or registered, with postage prepaid: If to Chugach: If to Griffith: -------------- -------------- Chugach Electric Association, Evan J. Griffith, Jr. Inc. HC 85, Box 9242 P.O. Box 196300 Eagle River, AK 99577 Anchorage, AK 99519-6300 Facsimile: (907) 762-4688 Facsimile: Attention: Chairman of Board of Directors or, in the case of either such party, to such substitute address as such party may designate from time to time for purposes of notices to be given to such party hereunder, which substitute address shall be designated as such in a written notice given to the other party addressed as aforesaid. 17. Assignment. This Employment Agreement shall inure to the benefit of Griffith and Chugach and be binding upon the successors and general assigns of Employer. This Employment Agreement shall not be assignable, except to the extent set forth in paragraph 20. 18. Enforceability. In the event it is determined that this Employment Agreement is unenforceable in any respect, it is the mutual intent of the parties that it be construed to apply and be enforceable to the maximum extent permitted by applicable law. 19. Applicable Law. This Employment Agreement shall be construed and enforced in accordance with the laws applicable to contracts executed, delivered and fully to be performed in the State of Alaska. 20. Beneficiaries: Executive's Representative. Griffith shall be entitled to select (and to change, from time to time, except to the extent prohibited under any applicable law) a beneficiary or beneficiaries to receive any payments, distributions or benefits to be made or distributed hereunder upon or following Griffith's death. Any such designation shall be made by written notice to Chugach. In the event of Griffith's death or of a judicial determination of Griffith's incompetence, references in this Employment Agreement to Griffith shall be deemed, as appropriate, to refer to his designated beneficiary, to his estate or to his executor or personal representative ("Griffith's Representative") solely for the purpose of providing a clear mechanism for the exercise of Griffith's rights hereunder in the case of Griffith's death or disability. IN WITNESS WHEREOF, the parties have executed this Employment Agreement to be effective on and as of the day and year first above written. CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/ Bruce E. Davison Name: Bruce E. Davison Title: President, Board of Directors /s/ Evan J. Griffith EX-99.1 3 secexhibit991.txt CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Form 10Q of Chugach Electric Association, Inc. for the quarter ended June 30, 2002, I, Evan J. Griffith, General Manager of Chugach Electric Association, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) such Form 10Q for the quarter ended June 30, 2002 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in such Form 10Q for the quarter ended June 30, 2002 fairly presents, in all material respects, the financial condition and results of operations of Chugach Electric Association, Inc. August 13, 2002 /s/ Evan J. Griffith --------------- Evan J. Griffith General Manager EX-99.2 4 secexhibit992.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Form 10Q of Chugach Electric Association, Inc. for the quarter ended June 30, 2002, I, Michael R. Cunningham, Chief Financial Officer of Chugach Electric Association, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) such Form 10Q for the quarter ended June 30, 2002 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in such Form 10Q for the quarter ended June 30, 2002 fairly presents, in all material respects, the financial condition and results of operations of Chugach Electric Association, Inc. August 13, 2002 /s/ Michael R. Cunningham --------------- Michael R. Cunningham Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----