-----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, R2j8yQeqqWd1X7AhPfgWkgEnReZLpmOslRgJ1dowX7q594F7T5AqQDXx4rkBw/vR 0zARmBtbXOPkjkmJcsp12g== 0000878004-04-000008.txt : 20040514 0000878004-04-000008.hdr.sgml : 20040514 20040514154759 ACCESSION NUMBER: 0000878004-04-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040514 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: 04807630 BUSINESS ADDRESS: STREET 1: 5601 MINNESOTA DR STREET 2: PO BOX 196300 CITY: ANCHORAGE STATE: AK ZIP: 99518 BUSINESS PHONE: 9075637494 10-Q 1 sec20041st10qdoc.txt SEC FORM 10Q 1ST QTR 2004 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 March 31, 2004 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes No X 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 MAY 1, 2004 NONE NONE Page Number CAUTION REGARDING FORWARD-LOOKING STATEMENTS PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 2 Balance Sheets, March 31, 2004 and December 31, 2003 3 Statements of Revenues, Expenses and Patronage Capital, Three Months Ended March 31, 2004 and 2003 5 Statements of Cash Flows, Three Months Ended March 31, 2004 and 2003 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 1 0 Item 3. Quantitative and Qualitative Disclosures About Market Risk 1 5 Item 4. Controls and Procedures 1 7 PART II OTHER INFORMATION Item 1. Legal Proceedings 1 7 Item 2. Changes in Securities and Use of Proceeds 1 8 Item 3. Defaults Upon Senior Securities 1 8 Item 4. Submission of Matters to a Vote of Security Holders 1 8 Item 5. Other Information 1 8 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) 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 March 31, 2004, follow: CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets
(Unaudited) Assets March 31, 2004 December 31, 2003 ------ -------------- ----------------- Utility plant: Electric plant in service $ 746,270,821 $ 744,260,390 Construction work in progress 14,389,313 16,560,438 ---------- ---------- 760,660,134 760,820,828 Less accumulated depreciation (296,779,411) (293,371,966) ------------- ------------- 463,880,723 467,448,862 Other property and investments, at cost: Nonutility property 3,550 3,550 Investments in associated organizations 11,389,061 11,381,796 ---------- ---------- 11,392,611 11,385,346 Current assets: Cash and cash equivalents 9,820,288 11,185,086 Cash-restricted construction funds 490,044 488,846 Special deposits 222,163 222,163 Accounts receivable, net 17,818,335 18,812,199 Fuel cost recovery 421,923 2,032,730 Materials and supplies 23,443,066 21,888,794 Prepayments 2,175,516 1,458,649 Other current assets 495,574 357,265 ------- ------- 54,886,909 56,445,732 Deferred charges 20,769,650 23,511,563 ---------- ---------- Total Assets $ 550,929,893 $ 558,791,503 ============= =============
CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets (Continued) (Unaudited) Liabilities and Equities March 31, 2004 December 31, 2003 ------------------------ -------------- ----------------- Equities and margins: Memberships $ 1,165,593 $ 1,155,818 Patronage capital 130,637,377 126,341,413 Other 6,711,607 6,718,891 --------- --------- 138,514,577 134,216,122 Long-term obligations, excluding current installments: 2001 Series A Bond payable 150,000,000 150,000,000 2002 Series A Bond payable 120,000,000 120,000,000 2002 Series B Bond payable 46,200,000 51,100,000 National Bank for Cooperatives Bonds payable 62,696,402 63,189,179 ---------- ---------- 378,896,402 384,289,179 Current liabilities: Current installments of long-term obligations 5,886,277 5,545,000 Accounts payable 3,612,555 7,676,906 Provision for rate refund 248,668 671,071 Consumer deposits 1,810,657 1,834,752 Accrued interest 1,858,086 6,165,790 Salaries, wages and benefits 5,197,909 4,886,600 Fuel 10,624,910 9,006,758 Other current liabilities 1,053,249 785,760 --------- ------- 30,292,311 36,572,637 Deferred credits 3,226,603 3,713,565 --------- --------- Total Liabilities and Equities $ 550,929,893 $ 558,791,503 ============= ============= See accompanying notes to financial statements.
CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Revenues, Expenses and Patronage Capital (Unaudited)
Three months ended March 2004 2003 ---- ---- Operating revenues $51,644,941 $50,239,007 Operating expenses: Fuel 16,389,582 11,403,893 Power production 3,442,201 2,724,933 Purchased power 3,953,490 3,337,477 Transmission 1,740,561 1,194,608 Distribution 2,578,535 2,827,302 Consumer accounts/Information expense 1,427,359 1,401,666 Administrative, general and other 5,532,271 5,249,227 Depreciation and amortization 7,046,692 7,014,978 --------- --------- Total operating expenses 42,110,691 35,154,084 Interest expense: On long-term obligations 5,441,653 5,880,594 On short-term obligations 0 11,901 Charged to construction-credit (89,432) (107,879) -------- --------- Net interest expense 5,352,221 5,784,616 --------- --------- Net operating margins 4,182,029 9,300,307 Nonoperating margins: Interest income 89,034 86,563 Other 24,901 68,135 Property gain 0 71,219 - ------ Total nonoperating margins 113,935 225,917 ------- ------- Assignable margins 4,295,964 9,526,224 --------- --------- Patronage capital at beginning of period 126,341,413 120,148,502 Retirement of capital credits and estate Payments (0) (60,208) --- -------- Patronage capital at end of period $ 130,637,377 $ 129,614,518 ============= ============= See accompanying notes to financial statements.
CHUGACH ELECTRIC ASSOCIATION, INC. Statement of Cash Flows (Unaudited)
Three months ended March 31 2004 2003 ---- ---- Cash flows from operating activities: Assignable margins $4,295,964 $9,526,224 Adjustments to reconcile assignable margins to net cash (used in) provided by operating activities: Provision for rate refund 0 (5,117,448) Depreciation and amortization 7,944,026 8,377,586 Capitalization of interest (103,907) (122,881) Property gains 0 (71,219) Other 33 55 Changes in assets and liabilities: (Increase) decrease in assets: Fuel cost recovery 1,610,807 0 Accounts receivable 993,864 8,995,215 Prepayments (716,867) (1,389,708) Materials and supplies (1,554,272) (12,942) Deferred charges, net 1,844,579 (291,603) Other (138,309) (140,514) Increase (decrease) in liabilities: Accounts payable (4,064,351) (3,479,935) Provision for rate refund (422,403) 0 Fuel payable 0 1,113,073 Consumer deposits (24,095) (17,751) Accrued interest (4,307,704) (4,385,524) Deferred credits (960,163) (638,160) Other 2,196,950 (705,670) --------- --------- Net cash provided by operating activities 6,594,152 11,638,798 Cash flows from investing activities: Extension and replacement of plant (3,374,646) (3,708,553) Investments in associated organizations (7,298) (35,413) ------- -------- Net cash used in investing activities (3,381,944) (3,743,966) Cash flows from financing activities: Short-term obligations 0 (6,081,250) Proceeds from long-term obligations 0 0 Repayments of long-term obligations (5,051,500) (4,713,670) Retirement of patronage capital 0 (60,208) Other 474,494 292,340 ------- ------- Net cash used in financing activities (4,577,006) (10,562,788) Net increase (decrease) in cash and cash equivalents (1,364,798) (2,667,956) Cash and cash equivalents at beginning of period $11,185,086 $7,284,292 - ------------------------------------------------ ----------- ---------- Cash and cash equivalents at end of period $9,820,288 $4,616,336 - ------------------------------------------ ========== ========== Supplemental disclosure of cash flow information - interest expense paid, net of $5,489,717 $10,170,140 ========== =========== 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 Electric Association, Inc. (Chugach) follows the accounting policies set forth in its audited financial statements included in Form 10-K filed with the Securities and Exchange Commission (SEC) 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 2003 financial statements to conform to the 2004 presentation. 2. Lines of credit Chugach maintains a line of credit of $20 million with CoBank, ACB (CoBank). The CoBank line of credit expires December 31, 2004, subject to renewal at the discretion of the parties. At March 31, 2004, there was no outstanding balance on this line of credit. In addition, Chugach has an annual line of credit of $50 million available at the National Rural Utilities Cooperative Finance Corporation (NRUCFC). At March 31, 2004, there was no outstanding balance on this line of credit. The NRUCFC line of credit expires October 15, 2007. 3. Legal Proceeding Matanuska Electric Association, Inc., v. Chugach Electric Association, Inc., Superior Court Case No. 3AN-99-8152 Civil This action is 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 our sale of power to Matanuska Electric Association (MEA) during that time. MEA asserted we breached that contract by failing to provide information, by failing to properly manage our long-term debt, and by failing to bring our base rate action to a joint committee before presenting it to the Regulatory Commission of Alaska (RCA). The committee is defined in the power sales contract and consists of one MEA and two Chugach board members. All of MEA's claims have been dismissed. On April 29, 2002, MEA appealed the Superior Court's decisions relating to our financial management and our failure to bring our base rate action to the joint committee before filing with the RCA to the Alaska Supreme Court. We cross-appealed the Superior Court's decision not to dismiss the financial management claim on jurisdictional and res judicata grounds. Oral argument was held April 15, 2003, before the Alaska Supreme Court. Management is uncertain as to the outcome and expects a decision very soon. 4. Critical Accounting Policies Our accounting and reporting policies comply with accounting principles generally accepted in the United States of America. 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. Critical accounting policies are those policies that management believes are the most important to the portrayal of Chugach's financial condition and results of its operations, and require management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are material to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including third parties or available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under accounting principles general accepted in the United States of America. For all of these policies management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Management has discussed the development and the selection of critical accounting policies with the Chugach Audit Committee. The following policies are considered to be critical accounting policies for the quarter ending March 31, 2004. Electric Utility Regulation Chugach is subject to regulation by the RCA. The RCA sets the rates Chugach is permitted to charge customers based on allowable costs. As a result, Chugach applies Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Through the ratemaking process, the regulators may require the inclusion of costs or revenues in periods different than when they would be recognized by a non-regulated company. This treatment may result in the deferral of expenses and the recording of related regulatory assets based on anticipated future recovery through rates or the deferral of gains or creation of liabilities and the recording of related regulatory liabilities. The application of Statement No. 71 has a further effect on Chugach's financial statements as a result of the estimates of allowable costs used in the ratemaking process. These estimates may differ from those actually incurred by the Company; therefore, the accounting estimates inherent in specific costs such as depreciation and pension and post-retirement benefits have less of a direct impact on Chugach's results of operations than they would on a non-regulated company. Management reviews the ultimate recoverability of these regulatory assets and liabilities based on applicable regulatory guidelines. However, adverse legislation and judicial or regulatory actions could materially impact the amounts of such regulatory assets and liabilities and could adversely impact Chugach's financial statements. Financial Instruments and Hedging Chugach used U.S. Treasury forward rate lock agreements to hedge expected interest rates on debt. We accounted for the agreements under Statement of Financial Accounting Standards (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, which was authorized by the RCA in Order U-01-108(26). Critical estimates also include provision for rate refunds and allowance for doubtful accounts. Actual results could differ from those estimates. 5. New Accounting Standards In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Many of those instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements. The remaining provisions of this Statement are consistent with FASB's proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares depending on the nature of the relationship established between the holder and the issuer. While FASB still plans to revise that definition through an amendment to Concepts Statement 6, FASB decided to defer issuing that amendment until it has concluded its deliberations on the next phase of this project. That next phase will deal with certain compound financial instruments including puttable shares, convertible bonds, and dual-indexed financial instruments. Chugach implemented SFAS No. 150 effective January 1, 2004, and management does not anticipate any material impacts to the 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. Regulatory Matters Docket U-01-108 Chugach filed a general rate case on July 10, 2001, based on the 2000 test year expenses. 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 in the revenue requirement on a system basis. Three intervenors participated in the rate case. A hearing was held in November and December of 2002. Between February 6, 2003, and January 27, 2004, the RCA issued Order Nos. 26 through 38 containing various rulings on Chugach's rate case. As compared to prior-approved permanent rates, Chugach's final approved rates on a system basis increased 0.07 percent, consisting of an increase of 3.5 percent to retail customers and a decrease of 7.9 percent to wholesale customers. These results were implemented on November 10, 2003. Payment of Refunds On November 10, 2003, Chugach issued refunds in the following amounts, pursuant to Superior Court Order dated October 31, 2003, for demand and energy usage between September 2001 and September 2003: HEA $1,762,774 MEA $2,901,290 Seward $ 103,307 Chugach issued additional refund amounts totaling $70,894 to HEA and $162,015 to MEA on December 29, 2003, for refund adjustments related to Chugach's pre-refinancing activity that took place in February 2002. On May 12, 2004, the RCA issued Order No. 39 establishing a term and interest rate on refunds paid by Chugach to its wholesale customers reflecting interest on the original refund amounts. Preliminary calculations result in interest payments of less than $100 thousand. Chugach issued refunds totaling $0.6 million to its Small General Service class between March 19 and April 19, 2004, for customer bills rendered between January 31, 2003, and November 10, 2003. A final report documenting the Small General Service refund process was submitted to the RCA on April 26, 2004. Appeal of RCA Orders Chugach filed timely appeals of RCA Orders 26, 30 and 33. In its Appellant's brief dated February 18, 2004, Chugach asserted that the RCA's orders contained three errors: o The split TIER decision unduly discriminates against retail customers; o Interest expense was allocated on the basis of plant associated with G&T and Distribution rather than on the basis of debt associated with each function; and o Chugach is entitled to include all of its interest expense in rates and the RCA's offset for Interest During Construction was not justified because nearly all of the plant that produced the IDC was in service by the time the new rate went into effect. Expected responses from MEA, HEA, and Seward to Chugach's Appellants brief are due on May 20, 2004. Chugach's wholesale customer, MEA, also appealed the RCA's orders. In its Appellant's brief, MEA argued that the RCA's decision to normalize Chugach's variable rate debt at 3.8 percent and to authorize the corresponding interest expense constitutes error based on the historic rates prevailing for Chugach's variable rate debt. Chugach will file an Appellees brief in response on May 20, 2004. Results Of Operations Current Year Quarter Versus Prior Year Quarter Assignable margins decreased by $5.2 million, or 55.0%, for the quarter ending March 30, 2004, over the same quarter in 2003 primarily due to a $5.2 million reversal recorded in March of 2003 of a $7.1 million provision for rate refund recorded in 2002. There was also an increase in power production and transmission expense although these expenses were offset by a decrease in distribution and net interest expense described as follows: Operating revenues, which include sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues, increased by $1.4 million, or 2.8%, for the quarter ending March 31, 2004, over the same quarter in 2003, which included the $5.2 million provision for rate refund reversal discussed above. The increase in revenues would have been $6.6 million, or 14.7%, if the provision for rate refund recorded in 2003 was excluded. The increase in revenues, adjusted for the $5.2 million provision reversal, was due to increased kWh sales and an increase in fuel prices, resulting in a 40% increase in revenue collected through the fuel surcharge cost recovery mechanism for the three-month period ended March 31, 2004, over the same period in 2003. The following table represents kWh sales for the quarter ending March 31: % 2004 2003 Change ---- ---- ------ Customer kWh kWh Retail 332,954,124 310,612,397 7% Wholesale 310,766,791 291,100,159 7% Economy Energy 59,846,760 59,193,690 1% ---------- ---------- Total 703,567,675 660,906,246 Retail demand and energy rates increased 0.24% in the first quarter of 2004 compared to the first quarter of 2003 due to RCA Order No. 33 in Docket U-01-108. Wholesale demand and energy rates charged to HEA decreased by 10.9%, while MEA's rates decreased 12.4% due to the same order. Demand and energy rates charged to Seward Electric System (SES) also decreased 9.9% due to Order 33. Fuel expense increased by $5.0 million, or 43.7%, for the quarter ending March 31, 2004, compared to the same period in 2003 due to higher fuel prices. Power production expense also increased $717.3 thousand, or 26.3%, for the three months ending March 31, 2004, compared to the same period in 2003 due to an expense adjustment to a previously capitalized maintenance project and to increased maintenance expense at Beluga in the first quarter of 2004. Purchased power expense also increased $616.0 thousand, or 18.5%, due to a six-week outage of the Nikiski power plant during 2003, returning to a normal purchase schedule in 2004. Transmission expense increased by $546.0 thousand, or 45.7%, and distribution expense decreased $248.8 thousand, or 8.8%, due primarily to the timing of transmission maintenance being performed in the first quarter of 2004 while distribution maintenance will be performed later in the year. Consumer accounts/information and administrative, general and other expenses did not materially change for the three-month period ending March 31, 2004. Interest on long-term debt decreased by $438.9 thousand, or 7.5%, due to lower interest rates. Interest charged to construction decreased by $18.4 thousand, or 17.1%, in the first quarter of 2004 compared to the same period in 2003 due to lower interest rates and less construction work in progress. Other interest expense decreased by $11.9 thousand, or 100.0%, from the first quarter of 2003 due to decreased borrowing on the CoBank line of credit in the first quarter of 2004. Other non-operating margins decreased by $112.0 thousand, or 49.6%, for the quarter ending March 31, 2004, compared to the same period in 2003, due primarily to the decrease in property gain from several gain on disposals of property in 2003 and due to lower interest rates on allowance for funds used during construction (AFUDC) in the first quarter of 2004. Financial Condition Total assets decreased $7.9 million, or 1.4%, from December 31, 2003, to March 31, 2004. The decrease was due in part to a $3.6 million, or 0.7%, decrease in net plant, caused by the $3.4 million, or 1%, increase in accumulated depreciation due to a quarter of depreciation, which was offset by the retirement and replacement of transmission and distribution substation equipment. The decrease in total assets was also due to a $1.4 million, or 12.2%, decrease in cash and cash equivalents and a $993.9 thousand, or 5.3%, decrease in accounts receivable caused by the collection on receivables that were accrued but not paid at December 31, 2003. The decrease was also due to a $1.6 million, or 79.2%, decrease in fuel cost recovery caused by the collection of the previous quarters fuel cost through the fuel surcharge mechanism. The decrease was also due to a $2.7 million, or 11.7%, decrease in deferred charges caused by the first quarter's amortization of deferred projects and the transfer of software implementation costs from deferred charges to general plant. These decreases were offset by a $1.6 million, or 7.1%, increase in materials and supplies caused by the purchase of generation inventory items in preparation of scheduled maintenance projects and a $716.9 thousand, or 49.2%, increase in prepayments caused by the annual renewal of insurance policies for 2004. Notable changes to total liabilities and equities include a $5.4 million, or 1.4%, decrease in long-term obligations caused by the installment payments of the 2002 Series B Bond and the CoBank 3 Bond. Accounts payable also decreased $4.1 million, or 52.9%, caused by the payment of invoices that were accrued at December 31, 2003. There was also a $4.3 million, or 69.9%, decrease in accrued interest caused by the semi-annual interest payment on the 2001 and 2002 Series A Bonds in the first quarter. These decreases were offset by a $4.3 million, or 3.2%, increase in patronage capital due to the margins generated in the first quarter of 2004, as well as a $1.6 million, or 18.0%, increase in fuel due to higher fuel prices. 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 $20 million line of credit with CoBank. At March 31, 2004, there was no outstanding balance with NRUCFC or CoBank. Chugach also has a term loan facility with CoBank. Loans made under this facility are evidenced by promissory notes governed by the Master Loan Agreement, which became effective on January 22, 2003. At March 31, 2004, Chugach had the following promissory notes outstanding under this facility:
Interest rate at March Principal Payment Promissory Note Principal balance 31, 2004 Maturity Date Dates --------------- ----------------- -------- ------------- ----- CoBank 2 $10,000,000 7.76% 2005 2005 CoBank 3 $20,634,830 2.50% 2022 2003 - 2022 CoBank 4 $23,047,849 2.50% 2022 2003 - 2022 CoBank 5 $10,000,000 2.50% 2012 2002 - 2012 Total $63,682,679
On January 22, 2003, Chugach and CoBank finalized a new Master Loan Agreement pursuant to the existing term loan facility that was converted from secured to unsecured debt and the obligations represented by the outstanding bonds held by CoBank were converted into promissory notes governed by the new Master Loan Agreement. Chugach's existing mortgage indenture was replaced in its entirety by an Amended and Restated Indenture dated April 1, 2001. All liens and security interests imposed under the indenture were terminated and all outstanding Chugach bonds (including New Bonds of 2001 Series A, 2002 Series A and 2002 Series B) became unsecured obligations governed by the terms of the Amended and Restated Indenture. Capital construction in 2004 is estimated at $32.7 million. At March 31, 2004, approximately $3.4 million had been expended. Capital improvement expenditures are expected to increase in the upcoming second quarter as the construction season begins. 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 2004 and thereafter. Outlook Chugach is currently investigating future resource needs. An Integrated Resource Plan (IRP) is being developed to study a variety of scenarios that includes the possibility of operating without one or more of our current wholesale customers. On March 17, 2004, the Chugach Board of Directors authorized the Chief Executive Officer (CEO) or his designee to enter into a Joint Action Agency Agreement (JAA). The JAA will provide a structure that will allow railbelt utilities to work together in developing the capability to own and operate power projects jointly, as well as to receive and operate state-owned facilities. 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. Cooper Lake Chugach discovered polychlorinated biphenyls (PCBs) in paint, caulk and grease at the Cooper Lake Hydroelectric plant during initial phases of a turbine overhaul. A FERC- approved plan, prepared in consultation with the Environmental Protection Agency (EPA), was implemented to remediate the PCBs in the plant. In an order in Chugach's general rate case, Order U-01-108(26), the RCA permitted the costs associated with the overhaul and the PCB remediation to be recovered through rates. 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 The following table provides information regarding auction dates and rates in 2004. Auction Date Interest Rate January 28, 2004 1.12% February 25, 2004 1.09% March 24, 2004 1.10% April 21, 2004 1.11% The following table provides information regarding cash flows for principal payments on total debt by maturity date (dollars in thousands) as of March 31, 2004.
Fair Total Debt* 2004 2005 2006 2007 Thereafter Total Value - ----------- ---- ---- ---- ---- ---------- ----- ----- Fixed rate $0 $10,000 $0 $0 $270,000 $280,000 $319,240 Average interest rate 0.00% 7.76% 0.00% 0.00% 6.39% 6.44% Variable rate $494 $5,931 $6,326 $11,729 $80,304 $104,783 $104,783 Average interest rate 2.50% 1.36% 1.36% 1.85% 1.89% 1.82% * 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. Item 4. Controls and Procedures As of the end of the period covered by this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our principal executive (CEO) and principal financial officer (CFO) supervised and participated in this evaluation. Based on this evaluation, our CEO and CFO each concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic reports to the Securities and Exchange Commission. The design of any system of controls is based in part upon various assumptions about the likelihood of future events, and there can be no assurance that any of our plans, products, services or procedures will succeed in achieving their intended goals under future conditions. In addition, there have been no significant changes in our internal controls or in other factors known to management that could significantly affect our internal controls subsequent to our most recent evaluation. We have found no facts that would require us to take any corrective actions with regard to significant deficiencies or material weaknesses. 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 is 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 our sale of power to MEA during that time. MEA asserted we breached that contract by failing to provide information, by failing to properly manage our long-term debt, and by failing to bring our base rate action to a Joint Committee before presenting it to the RCA. The committee is defined in the power sales contract and consists of one MEA and two Chugach board members. All of MEA's claims have been dismissed. On April 29, 2002, MEA appealed the Superior Court's decisions relating to our financial management and our failure to bring our base rate action to the joint committee before filing with the RCA to the Alaska Supreme Court. We cross-appealed the Superior Court's decision not to dismiss the financial management claim on jurisdictional and res judicata grounds. Oral argument was held April 15, 2003, before the Alaska Supreme Court. Management is uncertain as to the outcome and expects a decision very soon. 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 At the Chugach annual membership meeting held on April 29, 2004, the following amendment to the Bylaws was passed: Term limits: The term limit that restricted a director to serving three consecutive three-year terms was eliminated. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Bylaws of the Registrant (as amended April 29, 2004). Employment Agreement between the Registrant and Evan J. Griffith dated effective April 21, 2004. Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: No reports on Form 8-K were filed for the quarter ended March 31, 2004. 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 Chief Executive Officer Date: May 14, 2004 By: /s/ Michael R. Cunningham Michael R. Cunningham Chief Financial Officer Date: May 14, 2004 EXHIBITS Listed below are the exhibits, which are filed as part of this Report:
Exhibit Number Description 3.2 Bylaws of the Registrant (as amended April 29, 2004) 10.52 Employment Agreement between the Registrant and Evan J. Griffith dated effective April 21, 2004. 31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-10.52 2 sec20041st10q1052.txt EVAN J. GRIFFITH'S EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEEMENT 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 Chief Executive Officer 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 Chief Executive Officer, and Griffith hereby accepts such employment upon the terms and conditions hereinafter set forth. 2. Duties. a. Griffith shall serve as Chugach's Chief Executive Officer 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 Chief Executive Officer, Appendix A hereto; (ii.) Board Policy 107, Board of Directors - Chief Executive Officer Relationship, Appendix B hereto; (iii.) Board Policy 118, Delegation of Certain of the Secretary's and Treasurer's Duties to the Chief Executive Officer, Appendix C hereto; and (iv.) Chief Executive Officer 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, 2006 with a one year option wherein either party may elect to renegotiate the agreement or do nothing, in which case the option year is in effect through March 31, 2007 (the "Initial Term"), thereafter this contract shall continue unless and until such time as (i) either party hereto notifies the other, upon sixty (60) days prior written notice, that this Employment Agreement will be terminated at the end of the current annual term or the later expiration of such sixty day notice period, or (ii) Griffith's employment is otherwise terminated pursuant to paragraph 10 hereof (the "Extended Term") (the Initial Term, together with the Extended Term, if any, being referred to herein as the "Employment 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-Eight Thousand, Severn Hundred Eighteen Dollars ($188,718 as adjusted for CPI) (the " Base Salary"). The Base Salary shall, subject to the modifications contained in the Performance Appraisal/Bonus Program section contained below, 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 of 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. (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 as corrected for CPI in accordance with paragraph 4.a). (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 defer portions 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 (i.e., 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 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 thirty (30) days' prior written notice to Chugach's Board of Directors, whereupon Chugach's employment of Griffith shall terminate at the end of the thirty (30) 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, Inc. Evan J. Griffith, Jr. P.O. Box 196300 7745 Hiland Road Anchorage, AK 99519-6300 Eagle River, AK 99577 Facsimile: (907) 762-4688 Facsimile: Attention: Chairman of Board of Directors (907) 562-6994 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: Chairman Date: April 27, 2004 EVAN J. GRIFFITH, JR. /s/ Evan J. Griffith Date: May 5, 2004 CHUGACH ELECTRIC ASSOCIATION, INC. BOARD POLICY: 106 Date: June 18, 2003 DELEGATIONS OF AUTHORITY FROM THE BOARD OF DIRECTORS TO THE CHIEF EXECUTIVE OFFICER I. OBJECTIVE To define the delegations of authority from the Board of Directors to the Chief Executive Officer to enable adequate direction of the operations of the Association and to report to the Board on the results achieved. II. CONTENT A. Planning 1. Policies To formulate with his/her staff, as appropriate, the Board policies to be recommended to a committee of the Board for their consideration and to participate with the Board Operations Committee and the Board in the development of Board policies. To formulate, in consultation with the Board of Directors and staff, the Operating Policies of the Association. Such policies shall be reviewed by the Chief Executive Officer as periodically necessary and a report made to the Board or a Board Committee. 2. Objectives To develop, in consultation with the Board of Directors and staff, goals and objectives of the Association for presentation to and approval by the Board of Directors. To review annually these goals and objectives, as well as the results achieved. 3. Short-Range and Long-Range Plans a. To conduct studies, with staff and outside consultants if necessary, and recommend to the Board of Directors short-range and long-range plans, including plans in such areas as power supply, power requirements and load forecasts, need for generation and transmission facilities, procurement of fuel, financing, energy management and marketing, member and public relations, materials management, construction, etc., and to report to the Board on results achieved compared to such plans. 4. Membership Meetings To develop, with staff, plans for annual and other meetings of the Members and to make appropriate recommendations to the Board of Directors. 5. Annual Work Plans and Budgets To formulate, with staff, annual work plans and budgets for the Association and recommend them to the Board for their consideration and approval and to provide detailed reports monthly on revenue, expenses and other results compared to such plans. 6. Legislation To analyze and determine with staff, state and federal legislative and regulatory matters to be proposed, supported, or opposed consistent with established Board policy. Reports will be submitted to the Board on a regular basis. 7. Retail and Wholesale Rates and Service Rules and Regulations To periodically study and analyze the Association's retail and wholesale rates and service rules and regulations and make appropriate recommendations to the Board. B. Organization 1. Organizational Structure a. To periodically review activities of the Association and to determine, with staff, the organizational structure best suited to carry out the overall objectives of the Association, within the limitations of the budget and Board Policy and priorities. b. To determine, with the appropriate staff members, the need for additional positions, the transfer, reassignment, or elimination of present positions, and to effect such changes, provided they are within the limitations of the personnel costs of the approved budget. Reports should be made annually to the Board, or a committee of the Board, on the number of positions by organizational units as compared to previous years. 2. Selection of Personnel a. To develop or approve standards and qualifications for use in recruitment, transfer and promotion of personnel. Such standards and qualifications should meet all federal and state legal requirements. b. To hire, transfer, promote, and terminate personnel. 3. Training a. To ensure that the Association staff is trained in accordance with the requirements of their positions. b. To initiate and promote, through staff, appropriate management, professional and technical training programs for all personnel within the limitations of the approved budget and Board policy, including sending personnel to appropriate training programs outside the organization. 4. Performance Appraisals a. To appraise, at least annually, the performance of the immediate staff and to counsel with them and assist them to develop and improve. b. To ensure that an annual performance appraisal program is established and carried out for all personnel. 5. Position Descriptions To ensure that written position descriptions and job specifications are prepared and reviewed annually for all personnel. Such completed descriptions will not require Board approval. 6. Fringe Benefits To administer or approve activities and actions with respect to vacations, holidays, sick leave and other fringe benefit programs for the employed personnel within established policies, within the limitations of the budget, and as provided in collective bargaining agreements. A report shall be presented annually to the Board or a committee of the Board describing the various benefits and the employee and employer contribution, if any, and what percent fringes are of payroll. 7. Overtime To ensure that overtime is controlled and to report annually to the Board on overtime as a percent of payroll compared to previous years and the results of the efforts to control this expense. 8. Consultants To select and retain consultants, other than the firm performing the independent financial audit. The selection of any consultants working in areas which affect the functions of the Board requires the approval of the Board. 9. Wage and Salary Administration a. To develop a systematic wage and salary plan for non-bargaining unit employees and present it to the appropriate committee of the Board of Directors for its review and for them to make an appropriate recommendation to the Board regarding its approval. b. To determine all salary adjustments, except the Chief Executive Officer's, within the Board-approved wage and salary plan and policy and within the limitations of the budget. A report is to be provided to the Board annually on the administration of the wage and salary plan. c. To evaluate new positions and reevaluate existing positions. If their responsibilities and authorities substantially change, and if appropriate, place these positions in the Board-approved wage and salary plan. d. To conduct labor surveys, as necessary, to determine wages and salaries paid for comparable jobs in the area in which the Association recruits personnel, and make recommendations to a committee of the Board of Directors on any revisions required in the wage and salary plan for non-bargaining unit employees, taking into account the financial condition of the Association. 10. Labor Relations a. To negotiate bargaining unit contracts and make appropriate recommendations to the Board. b. To administer the approved labor contracts and see that appropriate managers and supervisors understand the provisions of the contracts and their administration. 11. Employee Relations To ensure that two-way communication between employees and management is established providing opportunities for feedback and employee involvement and participation as appropriate. C. Operations 1. Overall Administration a. To direct and manage the day-to-day operations and activities of the Association in accordance with the policies of the Board of Directors and in accordance with all contracts and lending institution policies and procedures, as well as applicable federal, state and local laws. b. To delegate appropriate authority to immediate staff and authorize further delegation of authority to any level of management with full recognition that the Chief Executive Officer cannot be relieved of overall responsibility or any portion of accountability. c. To designate an appropriate person to serve as Acting Chief Executive Officer in the absence of the Chief Executive Officer. d. To ensure that staff advice and assistance is available to the Board of Directors and its committees. e. To accept invitations to participate in or designate other staff members to participate in national, state and local meetings which further the best interest of the Association, within the limitations of Board policy and the approved budget. Participation by the Chief Executive Officer in such activities which requires considerable time over a sustained period requires approval of the Board. f. To determine the transportation needs of the Association, with the understanding that the number of company-owned or leased cars individually assigned to employees will be minimized, and a pool of company-owned or leased cars will be utilized, and both activities will be accomplished in the most economical and practical extent possible. Such company-owned or leased cars shall be used only for trips that are primarily official business. g. To serve as the authorized spokesperson for the Association on major issues impacting the Association and to keep the Board up to date and well informed on such issues. 2. Membership Services To direct appropriate and efficient membership services in such areas as, but not necessarily confined to, public and member relations, load management, energy conservation, marketing communications, and research. 3. Legislation a. To develop and carry out, consistent with Board policy 121, a legislative program furthering the Association's objectives and policies. Such a program will include, but not be limited to, research, preparation of testimony, presentation of testimony before appropriate committees, consultation with members of Congress, the state legislature, and state and federal administrative and regulatory agencies. b. To participate with allied groups to obtain their increased understanding and support of the Association's legislative and regulatory objectives and programs. 4. Financial a. To administer the approved budget, including approval of non-budgeted items or budget changes of not more than $1,000,000 or all non-budgeted items which, in his or her judgment, are vital to effect unanticipated emergency maintenance or repairs. Non-budgeted items or budget changes exceeding $500,000 must be reported to the Board of Directors. b. To invest or reinvest funds, cash investments when due, and cash government bonds when, and if, necessary to protect the Association's cash position, and to carry out an effective cash management program. c. To authorize and approve the travel expenses of personnel, except the Chief Executive Officer's, on company business within the limitations of the budget and within established policy. All such expenses shall be supported by itemized expense accounts with receipts attached, as appropriate. Expenses of the Chief Executive Officer will be approved by the Chairman of the Board or the Treasurer of the Board prior to payment. d. To approve accounting systems, procedures, statistics and types of reports necessary for sound financial management of the Association, and to meet the requirements of lending and regulatory agencies and for necessary control, information required by the Board of Directors. e. To purchase all equipment, vehicles, hardware, furniture, materials, and supplies within the limitations of the budget and Board policy. All purchases shall comply with applicable Association bylaws, policies and procedures. All purchases of major equipment or large quantities of materials for generation, transmission and substations shall be via competitive bids when feasible. f. To negotiate and approve contracts for construction in accordance with applicable Association procedures. Contracts in excess of $1,000,000 (net to the Association) shall be submitted to the Board for approval. g. To approve purchase orders and contracts, including cumulative changes, if $1,000,000 or less (net to the Association) for previously Board-approved projects and report on all active purchase orders and contracts over $250,000 (gross) each quarter. Purchase orders and contracts exceeding $1,000,000 (net to the Association) will be brought to the Board for approval prior to any commitments or expenditures being made. h. To approve change orders on purchase orders and contracts previously Board-approved, if the cumulative value of the changes is less than 15% of the original value. Change orders exceeding 15% of the original Board approved contract value or which cause the original value to exceed $1,000,000 (net to the Assocation) will be brought to the Board for approval prior to any commitments or expenditures being made. i. To determine insurance coverages required for effective risk management and to negotiate purchase of such coverages within the limitations of the budget and Board policy. j. To authorize individual memberships in civic clubs and organizations and company memberships in local organizations in which membership would be helpful and to authorize payment of dues by the Association within the limitations of the budget and established Board policy. k. To ensure that an internal auditing function is in place to carry out necessary studies with reports to the Board by the Chief Executive Officer on the results of such studies as appropriate. l. After authorization of a bond issuance by the Board, to ensure that the documentation necessary for the issuance of bonds is prepared, and to carry out negotiations with financing institutions for the sale of such bonds striving to achieve the lowest cost financing and to obtain approvals as are necessary for the sale thereof. m. Subject to Subsections (f) and (g) above: To negotiate and execute all documents relating to the purchase, use, sale, lease, or other transactions affecting real property, to exercise the power of eminent domain to acquire for projects described in an approved budget property which the Association has been unable to obtain by negotiation; to execute and deliver all environmental studies and reports; to make application for all permits relating to the operations of the Association; to design, route and determine the site for all facilities within the limitations of Board policy and the budget. n. To perform all acts necessary or incidental to the management of the operations of the Association, unless such acts are specifically reserved to the Board pursuant to law, the Association's articles of incorporation and bylaws, or Board policies. 5. Control a. Operations To submit periodic and special reports to the Board of Directors on conformity of operations with approved policies and programs and recommend any revisions requiring Board approval and to direct any remedial action required. b. Finances To submit periodic and special financial reports to the Board to keep them informed of the Association's financial position and conformance to financial plans and forecasts, and to see that all persons having access to cash or responsible for purchasing of materials are properly bonded in accordance with all requirements of the lending agencies. c. Budgets To report monthly to the Board on revenues and expenditures compared to budget. To recommend any revisions required, and to direct any necessary remedial action. d. Annual Financial Audit To participate with the Board in the review, with the auditor present, of the annual financial audit and management letter. To direct any remedial action required and to ensure that the management letter, along with the Audit Report, is sent to each Board member prior to the meeting at which they are to be discussed. e. Materials Management 1. To determine the amount of, and establish proper control of, all physical inventories to minimize investment in inventories needed to meet operating and construction needs. 2. To ensure that a system is established to accurately account for all materials used. f. Member Complaints To submit periodically to the Board of Directors an analysis of Member complaints and to take any corrective action required or to recommend appropriate revisions in Board policy. g. Reliability of Service To submit annually to the Board a report on service reliability and any remedial action taken. h. Availability of Power Supply To report periodically to the Board on load growth compared to availability of power and to recommend plans to meet anticipated growth to ensure an adequate and reliable supply for the Member at the lower possible costs consistent with sound business and management practices. i. Power Costs To continually study power costs compared to projections and to recommend to the Board, as far in advance as possible, any changes in power costs necessary to maintain financial strength and stability and to meet all requirements of lending and regulatory agencies. j. Loss Control To ensure that a loss control program is carried out to minimize and control losses due to accidents, environmental hazards and other risks. k. Member Meetings To report to the Board on the effectiveness of annual and other member meetings with recommendations on improvements which can be made. III. RESPONSIBILITY A. The Chief Executive Officer shall report to the Board periodically on how these delegations are being carried out. Further delegations to the Chief Executive Officer may be made as required. The Chief Executive Officer may delegate any of the foregoing authorities to the Acting Chief Executive Officer or other staff and the Acting Chief Executive Officer may act in any or all of these responsibility areas in the absence of and when designated to act for the Chief Executive Officer. The Chief Executive Officer is solely responsible for and accountable to the Board for the foregoing delegations of responsibility. B. The Board of Directors is responsible for approving any changes in the delegations to the Chief Executive Officer . The Chairman of the Board shall be responsible for ensuring that the performance of the Chief Executive Officer is appraised each year by the Operations Committee of the Board and that a written report is made to the full Board on or before the second Board meeting in March of each year, but no later than April 23, on the results of such appraisal, including a recommendation on a salary adjustment when appropriate, and that the results of such appraisal are discussed with the Chief Executive Officer. Date Approved: June 18, 2003 Attested: /s/ Patricia B. Jasper Secretary of the Board CHUGACH ELECTRIC ASSOCIATION, INC. BOARD POLICY: 107 Date: June 18, 2003 BOARD OF DIRECTORS - CHIEF EXECUTIVE OFFICER RELATIONSHIP I. OBJECTIVE To establish the policy governing the basic relationship between the Board of Directors and the Chief Executive Officer, including the principles involving the delegation of authority. II. CONTENT The Board of Directors of the Association recognizes, establishes, and maintains the following guidelines in their relationship with the Chief Executive Officer: A. It is recognized that good management is the most important factor in the success of the Association. This includes a strong and effective Board, Chief Executive Officer and staff, as well as dedicated and capable employees. In exercising its responsibilities, the Board of Directors reserve their authority to establish policies, approve plans and programs and delegate authority to their Chief Executive Officer, except those that are by law, the Articles of Incorporation and Bylaws, conferred upon or reserved to the members. B. The Board of Directors recognize their responsibility and their need to establish policies, approve plans and programs, appraise results achieved and delegate authority to the Chief Executive Officer to execute and carry out their plans, programs and policies. The Chief Executive Officer shall, among other things, be responsible for the hiring of capable personnel within the limitations of Board policy and budget constraints, determining compensation within the approved wage and salary plan and policy, training, supervising and terminating if necessary. C. All policies of the Board of Directors shall be adopted at regular or special Board meetings acting collectively as a Board. The Chief Executive Officer is delegated the responsibility of carrying out such policies and reporting back to the Board on the results achieved. D. The Board recognizes that should any Director undertake in private conversation with others to make commitments for the Board of Directors, unless directed officially by the Board, that Director becomes involved in a serious breach of policy that might disrupt the entire organization. The Board member shall be subject to reprimand from his or her fellow Board members should he/she attempt to make commitments unofficially for the Board. E. The Board of Directors shall refrain as individuals from discussing management and personnel problems with personnel of the Association. The Board of Directors, in consultation with the Chief Executive Officer, may confer with key personnel at regular or special meetings of the Board. F. The "flow" of authority for the management of the Association shall be through the Board of Directors to the Chief Executive Officer. The Board of Directors shall require full, complete and timely information from the Chief Executive Officer concerning pertinent matters in connection with the management of the Association as set forth in Board Policies. G. The Board of Directors recognize that efficient management of the Association can exist only through mutual understanding and complete cooperation between the Board of Directors and the Chief Executive Officer. The Chief Executive Officer is expected to produce results and give an account to the Board of Directors for his or her stewardship. His or her performance cannot be of the best unless he or she is given latitude to exercise independent judgment in executing policies of the Board of Directors. The Board of Directors acknowledges that obligation and gives the Chief Executive Officer that latitude of judgment and discretion, and expects faithful performance in carrying out all of the policies of the Board of Directors. H. The Board of Directors recognize their responsibility for the employment of a Chief Executive Officer, and further, the additional responsibility for a systematic annual appraisal, no later than April 23 each year, of the Chief Executive Officer's performance in order that growth, development and effective improvements are encouraged. I. The Chief Executive Officer may only be terminated in accordance with the contract between the Chief Executive Officer and the Board. III. RESPONSIBILITIES A. The Chairman of the Board shall be responsible for bringing the attention of the Board members to non-adherence to this policy. B. The Board of Directors shall be responsible for seeing that the performance of the Chief Executive Officer is appraised each year by the Operations Committee, which will make a written report to the full Board on or before the second Board meeting in March of each year, but no later than April 23, including a recommendation on a salary adjustment when appropriate. Once reviewed with the Board, a written report should be made to the Chief Executive Officer and discussed with him or her. Date Approved: June 18, 2003 Attested: /s/ Patricia B. Jasper Secretary of the Board CHUGACH ELECTRIC ASSOCIATION, INC. BOARD POLICY: 118 Date: June 18, 2003 DELEGATION OF CERTAIN OF THE SECRETARY OF THE BOARD'S AND TREASURER OF THE BOARD'S DUTIES TO THE CHIEF EXECUTIVE OFFICER I. OBJECTIVE: To specify certain duties of the Secretary of the Board and the Treasurer of the Board which are delegated to the Chief Executive Officer, and to supplement the Chief Executive Officer's title accordingly. II. CONTENT: Article VI, Section 8 of the Association's bylaws provides that the Board may delegate one or more of the duties of the Secretary of the Board and/or of the Treasurer of the Board to others. By this policy the Board specifies the duties so delegated and establishes certain standards and conditions governing these delegations: A. The duties hereinafter specified are delegated to the Chief Executive Officer. The Chief Executive Officer may further delegate these duties to his/her staff, but he/she shall not be relieved of full accountability for their proper execution. B. Certain of the Secretary of the Board's duties as set forth in Article VI, Section 6 of the Association's bylaws are so delegated as described below: 1. Recording the minutes of the board or member meetings. However, if the Secretary of the Board is present at such meetings, this shall be done under his/her supervision and direction, and the Secretary of the Board shall be responsible for their accuracy and shall sign them after they are duly approved. 2. Giving notice of board or member meetings. However, if the Secretary of the Board so desires, the Secretary of the Board shall approve the form and wording of any notice of a special board or member meeting, in which case such notice shall be sent over his/her name as Secretary of the Board. The Chief Executive Officer shall notify the Secretary of the Board that such a notice is to be given so as to afford him/her an opportunity to exercise the prerogative above stated. 3. Serving as custodian of the Association's records and its official seal. The Secretary of the Board shall, however, affix or personally supervise the affixing of the official seal to any document if so required by law or board resolution. 4. Keeping a register of the names and addresses of all members. 5. Signing the membership certificates, but only if the Board has authorized such signing by his/her facsimile signature. 6. Having general charge of the Association's books in which a record of the members is kept. 7. Keeping on file copies of the Association's Articles of Incorporation and Bylaws and being responsible for furnishing copies thereof to members upon their request. 8. In general, performing all duties incident to the office of Secretary of the Board, and such other duties as from time to time may be assigned by the Board of Directors. C. Certain of the Treasurer of the Board's duties as set forth in Article VI, Section 7 of the Association's bylaws are delegated to the Chief Executive Officer as described below: 1. Being in charge and having custody of, and being responsible for, all funds and securities of the Association. However, the Chief Executive Officer's duties, responsibilities and authorities in this respect may be limited or conditioned as otherwise resolved by the Board, either from time to time or by separate policy governing the subject. 2. Receiving, receipting, depositing and investing monies received by the Association. However, the Chief Executive Officer's duties, responsibilities and authorities with respect to deposit institutions and investments shall be within the limitations of Board policy. 3. In general, performing all the duties incident to the office of Treasurer of the Board and such other duties as from time to time may be assigned by the Board of Directors. D. The Chief Executive Officer shall also have the titles of Assistant Secretary of the Board and Assistant Treasurer of the Board, but these titles need not be stated on the Association's stationery or other identifying papers, ink stamps, documents, etc., except when appropriate in the execution of the duties herein delegated. III. RESPONSIBILITIES: It shall be the responsibility of the Board of Directors to administer this policy. Date Approved: June 18, 2003 Attested: /s/ Patricia B. Jasper Secretary of the Board CHUGACH ELECTRIC ASSOCIATION, INC. Anchorage, AK Position Description CHIEF EXECUTIVE OFFICER I. SUMMARY The Chief Executive Officer develops a vision and the corresponding business plans for meeting the future challenges and opportunities facing the Association. Subject to approval by the Association's Board of Directors, the Chief Executive Officer prepares and implements the approved business plans and policies of the Association through effective leadership, management, delegation and other means. The Chief Executive Officer manages, administers and coordinates the business activities and operations of the Association accordingly. The Chief Executive Officer reports to the Board and advises the Board regarding all aspects of the operations and activities of the Association. In carrying out the responsibility for the overall success of the Association, the Chief Executive Officer is responsible for the selection of key executives; delegates authority to responsible executives and holds them accountable for agreed-upon results; establishes and monitors appropriate controls and performance measures; maintains an organizational structure and operating climate which encourages all employees to perform effectively; and continually reassesses plans and goals to determine their pertinence under varying conditions. II REPORTING RELATIONSHIPS A. Reports to: Board of Directors B. Supervises: Executive Assistant to the General Manager Sr. Vice President, Power Delivery & Chief of Staff Sr. Vice President, Energy Supply Sr. Vice President, Administration Chief Financial Officer Vice President, Human Resources General Counsel C. Subject to the terms of employment agreement(s) entered into by the Board of Directors and the Chief Executive Officer, if any, the Chief Executive Officer serves the Association at the pleasure of the Board of Directors. The Chief Executive Officer carries out the delegations of the board, the board policies and other assignments as directed by the board in managing the operations of the Association. III. IMPORTANT SKILLS A. INNOVATION AND ADAPTABILITY. The Chief Executive Officer should be able to function effectively within the framework of a cooperative non-profit utility mission statement, while acting with some of the attributes of an investor owned utility. The Chief Executive Officer should be innovative; i.e., the Chief Executive Officer should have the ability to "think outside of the box" in finding effective solutions to the challenges and opportunities facing the Association. The Chief Executive Officer should be able to quickly adapt to changing circumstances with a high degree of tolerance for the stress caused by conflicting organizational, personnel and societal constraints. The Chief Executive Officer should have the ability to perform under pressure. B. LEADERSHIP SKILLS. The Chief Executive Officer should have outstanding leadership skills. The Chief Executive Officer should excel in motivating, guiding and training employees to achieve the Association's objectives. Among other things, the Chief Executive Officer should have the ability to convey to staff the Chief Executive Officer's vision for the growth and success of the Association as well as its policies and objectives in order to maximize attainment of those policies and objectives. C. TEAM-BUILIDING SKILLS. The Chief Executive Officer should possess strong team-building and team-management skills. The Chief Executive Officer should have the ability to effectively delegate decision-making authority to subordinates. D. GOAL-SETTING SKILLS. The Chief Executive Officer should have the ability to translate, develop and establish goals compatible with general courses of direction set by the Board of Directors. The Chief Executive Officer should have the ability to establish specific short and long-range targets that are achievable and realistic in the Alaska business climate in which the Association operates. E. LABOR RELATIONS SKILLS. The Chief Executive Officer should have a good understanding of the principles of human resource management and labor relations administration, including employee motivation, collective bargaining and contract administration. The Chief Executive Officer should have the ability to deal effectively with sometimes adversarial labor relations situations. F. OTHER SKILLS. The Chief Executive Officer should have strong skills in the areas of management, written and oral communications, government relations, financial analysis, business law and strategic planning. The Chief Executive Officer should be a good public speaker. The Chief Executive Officer should have the ability to earn and maintain the support and confidence of a broad range of constituents including local and national utilities, local businesses, members/owners and employees. Among other things, the Chief Executive Officer should have the ability to recognize and take advantage of growth and development opportunities for the Association. IV. IMPORTANT EXPERIENCE A. EDUCATION. BA/BS degree required; advanced degree preferred. Additional advanced training in engineering, finance, accounting, statistics and economics relating to utility management is highly desirable. B. INDUSTRY EXPERIENCE. Fifteen years experience in management in the electric utility industry, including at least five years senior management experience is preferred. The Chief Executive Officer should understand generation, transmission and distribution of electric power. Knowledge of the Alaska electrical utility industry is highly desirable. Alternatively, other management experience outside the electric utility industry may be considered if the candidate has truly outstanding skills in the areas of leadership, team building, goal setting and labor relations. C. MANAGEMENT EXPERIENCE. The Chief Executive Officer should have substantial experience in the areas of organizational management, board relations, government relations, labor relations, human resource management, finance and marketing. The Chief Executive Officer must have a proven record of career success and major accomplishments with current or former employers. D. COMMUNITY EXPERIENCE. The Chief Executive Officer should be well rounded and involved in the community. The Chief Executive Officer should bring to this position substantial prior leadership experience in civic, charitable or community organizations. V. ESSENTIAL JOB FUNCTIONS - INTERNAL RELATIONSHIPS 1. Conducts studies, with staff and outside consultants if necessary, and recommends to the board of directors short-range and long-range plans, including plans in such areas as power supply, power requirements and load forecasts, need for generation and transmission facilities, procurement of fuel, financing, energy management and marketing, member and public relations. 2. Develops, in consultation with the Board of Directors and staff, goals and objectives of the Association for presentation to and approval by the Board of Directors. 3. Formulates with his/her staff, as appropriate, the Board policies to be recommended to a committee of the Board for their consideration and participates with the Board Operations Committee and the Board in the development of Board policies. Formulates, in conjunction with staff, the Operating Polices of the Association. 4. Consults and advises the board on matters pertaining to policies, plans, programs, the need for facilities, financing and operating requirements and other areas. Keeps the Board fully informed on the end results of the operations and carries out approved policies, plans and programs. Seeks advice and obtains necessary approvals. 5. With the President of the board, prepares the agenda for the Board and Board Committee Meetings and guides deliberations of those bodies. 6. Establishes and maintains a sound plan of organization that will provide the proper framework for accomplishing the Association's mission and objectives. 7. Develops, generates and maintains team spirit and enthusiasm throughout the organization by appropriate delegation, communication, recognition of accomplishments, job enrichment, training and development, counseling and by advancement according to merit, interest and ability. 8. Delegates to key executives authority and responsibility for attaining objectives and for implementing approved policies. 9. Establishes effective controls that will measure the performance of key executives. 10. Develops positive labor-management relations and formulates policies and strategies for collective bargaining. 11. Provides for a constant review of the Association's operating performance in such areas as generating unit efficiency and availability, system operations, load and sales trends, revenue, construction projects, preservation and utilization of assets and work force productivity. 12. Oversees the fiscal affairs of the Association, including composition of the capital structure, financing arrangements and margin requirements. 13. Creates within the organization, through personal leadership, a sense of commitment and an environment conducive to obtaining the best efforts of all employees. 14. Ensures the continuing visibility of the Association through a program of executive development and management succession planning at all key levels in the Association. 15. Keeps abreast of current issues and concerns of Chugach members/owners. 16. Encourages staff and employees to recognize and accept responsibilities to the Association's members/owners. Conducts and implements programs to promote the efficient use of electric energy. VI. ESSENTIAL JOB FUNCTIONS - EXTERNAL RELATIONSHIPS 1. Serves as the key representative for the Association promoting the Association's programs and services, area economic development, providing information and education to the members/owners, the public, civic, charitable and community organizations and city and state government. Resolves problems and develops effective working relationships. 2. Stays abreast of important local, statewide and national issues. 3. Participates in meetings outside of the Association and serves on committees, and carries out other activities, which represent the best interest of the Association. 4. Members/Owners: Maintains open channels of communication with the membership, resolves problems, and keeps member-owners informed about Association ideals, objectives policies and progress. 5. Auditors, Consultants and Vendors: Obtains advice and assistance from the Association's auditors, consultants and vendors. Reviews and evaluates their services. 6. Alaska Power Association (APA): Maintains relationships and participates in various programs that are beneficial to the Association. 7. National Rural Electric Cooperative Association (NRECA): Obtains advice and assistance from NRECA. Participates in various programs. 8. Banks and Investment Brokers: Establishes and evaluates services provided by the Association's banks and investment brokers. Negotiates contracts and fees for services. 9. General Public and Community Organizations: Represents the Association at public and at civic, charitable and community functions and projects. 10. Regulatory Commission of Alaska: Maintains an effective working relationship with the Regulatory Commission of Alaska. 11. Other Utilities: Maintains effective working relationships with other utilities, including wholesale customers of the Association. 12. Elected Representatives: Maintains effective relationships with local, state and national elected representatives. Accepted by: /s/ Evan J. Griffith Date: May 5, 2004 Chief Executive Officer Approved by: /s/ Bruce E. Davison Date: April 27, 2004 Board of Directors Reviewed by: /s/ Mary Tesch Date: April 26, 2004 Vice President, Human Resources EX-31 3 sec20041st10q311.txt CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Evan J. Griffith, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Chugach Electric Association, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 14, 2004 /s/ Evan J. Griffith Evan J. Griffith Chief Executive Officer EX-31 4 sec20041st10q312.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael R. Cunningham, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Chugach Electric Association, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 14, 2004 /s/ Michael R. Cunningham Michael R. Cunningham Chief Financial Officer EX-32 5 sec20041st10q321.txt CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with this quarterly report of Chugach Electric Association, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2004, I, Evan J. Griffith, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (a) This quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) The information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 14, 2004 /s/ Evan J. Griffith Evan J. Griffith Chief Executive Officer EX-32 6 sec20041st10q322.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with this quarterly report of Chugach Electric Association, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2004, I, Michael R. Cunningham, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (a) This quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) The information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 14, 2004 /s/ Michael R. Cunningham Michael R. Cunningham Chief Financial Officer EX-3.2 7 sec20041st10q.txt BYLAWS OF CHUGACH ELECTRIC ASSOCIATION, INC. CHUGACH ELECTRIC ASSOCIATION, INC. BYLAWS (As Amended April 29, 2004) CHUGACH ELECTRIC ASSOCIATION, INC. BYLAWS ARTICLE I MEMBERSHIP SECTION 1. Requirements for Membership. Any person or other legally recognized entity, body politic, or subdivision thereof, shall become a member of CHUGACH ELECTRIC ASSOCIATION, INC. by: (a) Making a written application for membership therein; (b) Agreeing to purchase from the Association electric energy as hereinafter specified; (c) Agreeing to comply with, and be bound by, the articles of incorporation and bylaws of the Association, and any rules and regulations adopted by its board of directors; and (d) Paying the membership fee hereinafter specified. No person or entity may hold more than one membership in the Association, and no membership in the Association shall be transferable, except as provided in these bylaws. SECTION 2. Membership Certificates. Repealed April 30, 1998. SECTION 3. Joint Membership. A husband and wife may apply for a joint membership and, subject to the compliance with the requirements set forth in Section 1 of this Article, may be accepted for such membership. The term "member" as used in these bylaws shall be deemed to include a husband and wife holding a joint membership, and any provisions relating to the rights and liabilities of membership shall apply equally with respect to the holders of a joint membership. Without limiting the generality of the foregoing, the effect of the hereinafter specified actions by, or in respect to, the holders of a joint membership shall be as follows: (a) The presence at a meeting of either or both shall be regarded as the presence of one member and shall have the effect of constituting a joint waiver of notice of the meeting; (b) The vote of either separately, or both jointly, shall constitute one joint vote; (c) A waiver of notice signed by either or both shall constitute a joint waiver; (d) Notice to either shall constitute notice to both; (e) Expulsion of either shall terminate the joint membership; (f) Withdrawal of either shall terminate the joint membership; (g) Either, but not both, may be elected or appointed as an officer or director, provided that both meet the qualifications for such office. SECTION 4. Conversion of Membership. (a) A membership may be converted to a joint membership upon the written request of the holder thereof, and the agreement by such holder to comply with the articles of incorporation, bylaws, and rules and regulations adopted by the board of directors. The membership shall be reissued by the Association in such manner as shall indicate the changed membership status. (b) Upon the death of a married member the surviving spouse shall succeed to the membership. The membership shall be reissued in such manner as shall indicate the changed membership status; provided, however, that the estate of the deceased shall not be released from any debts due the Association. SECTION 5. Membership and Service Connection Fees. The non-refundable membership fee shall be five dollars. Payment of the membership fee and completion of a membership application are conditions of service. The board of directors may also, as a condition of service, require the payment of a consumer deposit or the furnishing of other acceptable security. SECTION 6. Purchase of Electric Energy. Each member may, as soon as electric energy shall be available, purchase from the Association all electric energy purchased for use on the premises specified in his application for membership, unless the member is an electric public utility purchasing electric energy for resale. Each member shall pay monthly at rates which shall from time to time be fixed by the board of directors. The board of directors may limit the amount of electric energy which the Association shall be required to furnish to its member(s). Each member shall pay to the Association such minimum amount per month, regardless of the electric energy consumed, as shall be fixed by the board of directors from time to time. Each member shall also pay all amounts owed by him to the Association as and when the same shall become due and payable. Production or use of electric energy on such premises, regardless of the source thereof, by means of facilities which shall be interconnected with the Association's facilities, shall be subject to appropriate regulations as shall be fixed from time to time by the Association. SECTION 7. Termination of Membership. (a) Any member of the Association may withdraw from membership with written notice. Additionally, the Association may expel any member who fails to comply with the Association's tariff and policies provided such policies are consistent with state law and applicable regulatory orders. Members subject to expulsion will be contacted in writing by the Association and will have ten (10) days to comply with the Association's tariff and policies. An expelled member may be reinstated by complying with the Association's tariff and policies. The Association may also cancel membership if the member: 1) has had a disconnect order active for thirty (30) days without signing a reconnect order; or 2) has been disconnected because of nonpayment of electric energy debts to the Association provided that this delinquency has continued for at least thirty (30) days after termination of service. (b) Upon the withdrawal, death, cessation of existence or expulsion of a member, the membership of such member shall thereupon terminate, except as provided in Article 1, Section 4. Termination of membership in any manner shall not release a member or his estate from any debts due the Association. ARTICLE II RIGHTS AND LIABILITIES OF MEMBERS SECTION 1. Property Interest of Members. Upon dissolution, after paying, or discharging, or adequately providing for the payment or discharge of all its debts, obligations and liabilities, other than those to patrons arising by reason of their patronage, the Association shall distribute any remaining sums, first to patrons for the pro rata return of all amounts standing to their credit by reason of their patronage, and second, to members for the pro rata repayment of membership fees. Any sums then remaining shall be distributed among its members and former members in proportion to their patronage, except as participation in such distribution may have been legally waived. In the event of the lawful liquidation, through transfer or sale of all the property and assets of the Association, the proceeds of such liquidation, transfer or sale shall be distributed in the same manner as hereinabove provided for in the case of dissolution. SECTION 2. Non-liability for Debts of the Association. The private property of the members shall be exempt from execution or other liability for the debts of the Association, and no members shall be liable or responsible for any debts or liabilities of the Association. ARTICLE III MEMBERS, MEETINGS AND ELECTIONS SECTION 1. Annual Meeting. The annual meeting of the members shall be held on such convenient date, on or after the 1st day of April, and on or before the 1st day of May of each year, at such place or building in the Municipality of Anchorage, State of Alaska, as shall be designated by the board of directors in the notice of meeting, for the purpose of electing directors, passing upon reports for the previous fiscal year, and transacting such other business as may come before the meeting. Failure to hold the annual meeting at the designated time shall not work a forfeiture or dissolution of the Association. SECTION 2. Special Meetings. Special meetings of the members may be called by resolution of the board of directors, or upon a written request signed by any four directors to the chairman of the board, or by a written request made to the chairman of the board and signed by not less than ten percent (10%) of the members. The resolution or request shall specify the purpose of the meeting. All signatures for a request of a special meeting by members shall be collected within the single ninety (90) calendar day period immediately preceding the date on which signed requests are first presented to the Association, and the board of directors shall establish such policies as may be necessary and convenient to ensure compliance with this provision. It shall thereupon be the duty of the secretary of the board to cause notice of such meeting to be given as hereinafter provided. Special meetings of the members may be held at any place within the Municipality of Anchorage specified in the notice of the special meeting. SECTION 3. Notice of Members' Meetings. Written notice stating the place, day and hour and agenda of the annual meeting shall be delivered to each member not less than thirty (30) or more than sixty (60) days before the date of the meeting. Notice of a special meeting of the members, including but not limited to a meeting where a merger or dissolution of the Association, or sale, lease, or other disposition of more than fifteen percent (15%) of the Association's total assets, less depreciation, as reflected on the books of the Association at the time of the transaction, shall be delivered, together with notice of the purpose for which the meeting is called, not less than ninety (90) or more than one hundred twenty (120) days before the date of the meeting, with notice of a public hearing on the proposed action to be held not less than sixty (60) days before the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the member at his address as it appears on the records of the Association, with postage thereon prepaid. The failure of any member to receive notice of an annual or special meeting of the members shall not invalidate any action which may be taken by the members at any such meeting. SECTION 4. Waiver of Notice. Repealed April 23, 1986. SECTION 5. Quorum. Seven and one-half percent (7 1/2%) of all members of the Association voting, including at least fifty (50) members present in person, shall constitute a quorum for a regular or special meeting of the members. No business shall be conducted at a regular or special meeting of the members lacking a quorum, except for counting marked ballots as specified in this Article III, Section 9(d) and announcing the results thereof. If a quorum is lacking with respect to any meeting of the members, a majority of those present in person may adjourn the meeting to another date and time no later than forty five (45) days after the adjourned meeting at a place within the Municipality of Anchorage, provided that the secretary of the board shall notify all members of the date, time and place of such meeting by delivering notice thereof no later than ten (10) days in advance of such meeting. At such meeting, the only business that may be conducted is business that could lawfully have been conducted at the originally scheduled meeting. SECTION 6. Voting. (a) Only members who have purchased electric energy or received other services from the Association within the six (6) months preceding the record date of the election shall be entitled to vote. Each such member shall have only one vote upon each matter submitted to a vote at a meeting of the members. (b) A non-natural member may designate an individual to vote on its behalf, in accordance with the member's own procedures. The election committee may require the designated individual to submit satisfactory written proof of his designation, prior to his voting. (c) Members may vote by official ballot on all matters on which a vote of the members is required or permitted under these bylaws. Voting may be in person, by mail, or by such other means as allowed by law and as established by the Association. (d) Except as otherwise required by law, the articles of incorporation, or these bylaws, all questions to be submitted to a vote of the members shall be decided by a vote of a majority of the members voting thereon at a meeting with respect to which a quorum exists. For purposes of these bylaws, a ballot validly returned by the deadline for return of ballots shall be considered to be a vote at the meeting to which it relates. (e) Directors shall be elected by the plurality vote of the members voting at a meeting with respect to which a quorum exists. Action to amend these bylaws or to remove a director pursuant to Article IV, Sections 7 and 8 of these bylaws may be taken only by the affirmative vote of a majority of those members voting at a meeting with respect to which a quorum exists. (f) Any sale, lease, or other disposition of more than fifteen percent (15%) of the Association's total assets, less depreciation, as reflected on the books of the Association at the time of the transaction, must be approved by the members pursuant to the provisions of Article IX, Section 1 of these bylaws. (g) A merger of the Association with any other cooperative, or with any other entity to the extent permitted by applicable law, must be approved by the affirmative vote of members constituting two-thirds (2/3) of the members voting at a meeting with respect to which a quorum exists. SECTION 7. Record Date. To determine the members entitled to notice of a meeting of the members or to vote on a matter that is to be submitted to a vote of the members, or for any other proper purpose, the board of directors may fix a date that occurs no more than thirty (30) days before the date of notice or distribution of ballots as the record date for the determination. If a record date is not fixed for the determination of members entitled to notice of a meeting or to vote on a matter, the date on which notice of the meeting is first transmitted shall be the record date. When a determination of members entitled to vote at a meeting is made, the determination applies until the meeting is adjourned sine die (without assigning a date for a future meeting). To determine whether a person is a member for purposes of deciding whether a sufficient number of members have signed a petition to hold a special meeting of members for any purpose, the board of directors may fix a record date that occurs no more than thirty (30) days before the date on which petitions are first received by the Association. The record date fixed for the original meeting shall be the record date for the adjourned meeting under Article III, Section 5. SECTION 8. Order of Business. (a) The order of business at the annual meeting of the members and, insofar as possible, at all other meetings of the members, shall be essentially as follows: 1) Report on the number of members present in person in order to determine the existence of a quorum. 2) Reading of the notice of the meeting and proof of the due publication thereof. 3) Reading of unapproved minutes of previous meetings of the members, making technical changes only to the minutes, and approval thereof. 4) Presentation and consideration of reports of officers, directors and committees. 5) Election of directors. 6) Unfinished business. 7) New business. 8) Adjournment. (b) Proposed amendments to the bylaws upon which voting is being conducted by ballot may be discussed at the annual meeting, but shall not be treated as being before the annual meeting for action, other than passage or defeat of the proposed amendments. They may not be further amended or tabled by action of the annual meeting. SECTION 9. Elections and Election Committee. (a) At the beginning of each calendar year, and not less than ninety (90) days prior to the annual meeting, the board of directors shall appoint an election committee, as provided for in Article XV of these bylaws. The committee shall consist of the master election judge, who shall chair the committee, and not more than twelve election judges. This committee shall have the responsibility for conducting all voting by secret ballot during the calendar year. The election committee shall devise such procedures, and adopt such rules and regulations, subject to the approval of the board of directors, as may be reasonably necessary or convenient to the discharge of the election committee's responsibilities. These responsibilities shall include, but are not limited to (1) the registration of members at the annual or special meeting, and (2) the obligation of insuring the fairness, impartiality, confidentiality, and integrity of the voting process. The master election judge and election judges shall be selected from the Association membership, with consideration for geographical representation. In case of a vacancy, the board of directors shall appoint an Association member to complete the unexpired term of the committee member. (b) The election committee shall cause the preparation of an official ballot containing the names of the candidates for the office of director and the proposed bylaw amendments. The ballot shall be designed with the position of names of the candidates changed as many times as there are candidates. As nearly as possible, an equal number of ballots shall be printed after each change. In making the changes of position, the name of the candidate shall be taken and placed at the bottom and the column moved up so that the name that before was second is first after the change. After the ballots are printed, they shall be placed in separate stacks, one stack for each change of position. The ballots shall then be gathered by taking one from each stack, the intention being that every other ballot in the accumulated stack of ballots shall have the names of the candidates in a different position. The ballot shall also include a brief description concerning the number of offices to be filled at the election and the time, place, and method of voting. At least thirty (30) days prior to the meeting, an official ballot shall be transmitted by the secretary of the board to each member with 1) a statement of the number of directors' seats to be filled, 2) the candidates' names and election statements, 3) an explanation of any other matters to be voted on by ballot, the proposed changes to the bylaws, with the Bylaws Committee's comments and 4) a report covering the calendar year immediately preceding the annual meeting prepared by the Chief Executive Officer setting forth the attendance record of directors at regular and special board meetings, together with a summary setting forth the agenda business items voted and the vote of each director. The candidates' statements: 1) Shall specify whether the candidate was nominated by the Nominating Committee or by petition. 2) Shall specify whether the candidate is: (i) A member, officer, director, or employee of any union local currently acting as a bargaining agent for Association employees. (ii) A person who has within the last two years had a financial interest in a bid, proposal, project, or contract with Chugach. (iii) A spouse, child, brother, sister, parent, stepparent, stepchild or stepsibling of: a) any person included in subparagraph (i) or (ii) above or b) an employee of the Association. 3) May include a photograph of the candidate, and a statement not to exceed 200 words. The election committee shall procure a post office box where all mail ballots shall be received. (c) A member may vote in person at the annual or special meeting or by such other means as allowed by law and established by the Association. All ballots not cast in person must be received by the Association or its designee by 12:00 Noon three (3) calendar days prior to the annual or special meeting. (d) The election committee shall make proper arrangements to secure all ballots before, during, and following the election. Marked ballots shall be counted as soon after the close of balloting as may be reasonable under the circumstances. The results thereof will be announced as soon as the count is completed. Marked ballots will be retained and secured for a period of ninety (90) days following the election, after which time they may be destroyed. (e) The election committee may employ such additional election clerks as may be required to register members at the annual or special meeting, to assist in the counting of the ballots and otherwise to ensure the efficient management of the meeting and balloting. Each candidate for the office of director may have a representative present during all times that ballots are being counted. The decision of a majority of the election committee shall be conclusive with respect to the eligibility of any person to vote and the validity of any ballot cast. (f) A recount of votes cast for a director's seat may only be requested by a candidate in that election. A request for a recount must be made in writing and received by the Election Committee within 10 days of the close of balloting. The recount will be done in the same manner as and by the same entity that performed the original vote count. If the recount indicates that the candidate requesting the recount has lost the election by more than 1 percent of the total votes cast, then the cost of the recount shall be borne by the candidate. If the recount indicates that the candidate requesting the recount has either won a seat or lost by a margin of 1 percent or less, then the cost of the recount shall be borne by the Association. A group of 10 or more members who voted in that election may request a recount of the ballots for a bylaws change or ballot question. A request for a recount must be made in writing and received by the Election Committee within 10 days of the close of balloting. The same provision for payment of the costs as provided above shall prevail, with the voters who requested the recount paying for the recount if the margin is greater than 1 percent, and the Association bearing the expense if the margin is 1 percent or less. (g) In the event of a tie for an election of a director, a bylaws change or a ballot question, a recount of the ballots shall be done. The Association shall bear the cost of recounts in the event of a tie. If the recount confirms the existence of a tie, then a run-off election shall be conducted by mail and by such other means as may be established by the Association within 60 days of the date the results of the recount are certified. The form and content of the ballots shall comply with this Article III, Section 9(b). The run-off election shall be conducted by the Election Committee. The provisions of this Article III, Section 9(d), (e) and (f) shall apply. ARTICLE IV DIRECTORS SECTION 1. General Powers. The management of the business and the affairs of the Association shall be vested in a board of seven (7) directors who shall exercise all of the powers of the Association, except such as are by law, the articles of incorporation, or by these bylaws conferred upon or reserved to the members. SECTION 2. Election and Tenure of Office. The persons named as directors in the articles of incorporation shall compose the board of directors until their successors shall have been elected and shall have qualified. Directors shall be elected by secret ballot either mailed or cast in person at annual or special meetings of the membership, by and from the members, to serve for a three-year term, until their successors shall have been elected and qualify, provided that the terms of directors shall be staggered so that one-third of the directors, or a number as close to one-third as possible, shall be elected each year. The directors elected to fill vacancies as provided in Article IV, Section 8 of these bylaws, shall serve only for the unexpired portion of the term vacated. Where the remaining unexpired terms to be filled are of different lengths, the longest term shall be given to the director receiving the most votes. If the size of the board is subsequently increased, the initial terms of the directors to fill the newly created seat or seats shall be scheduled so that, as nearly as possible, an equal number of terms expire each year. At each annual or special meeting, members shall be elected to fill the seats on the board which become vacant as contemplated by Article IV, Section 8 of these bylaws. SECTION 3. Qualifications. (a) A person shall be eligible to serve as a director, who: 1) Has been a member and bona fide resident in the area served by the Association for 12 continuous months before appointment to the board, or the notice of the election; 2) Is not in any way employed by a competing enterprise, however, an employee of the Municipality of Anchorage who is not directly employed by Municipal Light and Power is eligible to serve if he or she has no fiduciary duties which in any way pertain to Municipal Light and Power; 3) Does not have a financial interest in a competing enterprise; 4) Is not a supplier, contractor, consultant, or other entity which does business with the Association or a person with more than a 10% ownership interest in a supplier, contractor, consultant, or other entity which does business with the Association, except for providers whose annual business with the Association does not exceed $25,000; 5) Is not an employee of the Association nor a member, officer, director, nor employee of any union local currently acting as a bargaining agent for Association employees; 6) Is not a person living in the same household with and financially interdependent upon any person included in paragraphs 2, 3, 4, and 5, above; and 7) Maintains i) his or her membership, ii) bona fide residency in the area served by the Association, and iii) a minimum of 12 continuous months of bona fide residency in the area served by the Association throughout his or her term of office. (b) An individual who is the authorized representative of a non-natural entity (corporation, association or partnership, for example) which itself is qualified under subsection (a) may become or remain a director if he is qualified under subsections (a)(1), (2), (3), (4), (5), (6) and (7). If the individual or the non-natural member fails to meet the prescribed qualifications, or if the non-natural member changes its authorized representative, the individual shall become subject to removal under subsection (c), and the director's position shall become vacant, without power of appointment by the non-natural member. (c) Upon establishment of the fact that a director is holding office in violation of any of the foregoing provisions including the disclosure provisions of Article III, Section 9(b), subsection (2), the board of directors shall remove such director from office unless the basis for disqualification is remedied within thirty (30) days of notice of disqualification by the board of directors. (d) Directors are ineligible for employment by the Association for a period of two (2) years after their term has expired. (e) "Bona fide resident" is hereby defined to mean: 1) a person whose primary residence is in the area served by the Association, and who actually lives at this primary residence with the intention to remain there permanently or indefinitely and 2) a non-natural entity who chooses as their authorized representative a person who is a "bona fide resident" as defined in 1). "Primary residence" shall mean the residence that is the chief or main residence of the person and where the person actually lives for the most substantial portion of the year. "Intention" shall mean the unequivocal intention of the person as evidenced by that person's acts and words and by the circumstances. Nothing contained in this section shall affect in any manner whatsoever the validity of any action taken at any meeting of the board of directors. SECTION 4. Nominations. (a) Nominating Committee. It shall be the duty of the board of directors to appoint, not less than one hundred and twenty days before the dates of a meeting of the members at which directors are to be elected, a committee on nominations, as provided for in Article XV of these bylaws. The committee shall consist of not less than five nor more than seven members, who shall be selected from different sections of the service area of the Association as to insure equitable representation. No member of the board of directors may serve on such committee. The committee shall seek qualified candidates, as well as screen potential nominees. Public notice for nominations shall be given ninety days prior to the meeting. The committee, keeping in mind the principle of geographical representation, shall approve, prepare and post at the principal office of the Association, at least seventy days before the meeting, a list of nominations for directors, which may include a greater number of candidates than are to be elected. (b) Petition. Any fifty or more members, acting together, may make other nominations by petition not less than sixty days prior to the election, and the secretary of the board shall post such nominations at the same place where the list of nominations made by the committee is posted. SECTION 5. Chief Executive Officer and Financial Advisor. The board of directors may appoint the following: (a) Chief Executive Officer. The Chief Executive Officer may be but shall not be required to be a member of the Association. The Chief Executive Officer shall, together with such other staff, agents and employees as he may select, including such non-statutory officers as he shall appoint, perform such duties and shall exercise such authority as the board of directors may from time to time vest in him. (b) Financial Advisor. The Board, at its sole discretion, may engage the services of a financial advisor, which may be used to advise on any and all fiscal matters. The financial advisor shall report to the board. SECTION 6. Policy, Rules and Regulations. The board of directors shall have the power to make, adopt and enforce such policy, rules and regulations, not inconsistent with law, the articles of incorporation, or these bylaws, as it may deem advisable for the management of the affairs and business of the Association, for the protection of its investment, and for the interest and welfare of the members thereof. Such policy statements, rules and regulations shall be in writing and shall be made available for review by the members. SECTION 7. Removal of Directors by Members. Any member may bring charges against a director to remove such director for cause. "Cause" means that the director has committed an act or omission materially and adversely affecting the business of the Association, which amounts to criminal conduct, fraud, gross negligence, failure to perform prescribed duties, or gross misconduct in office. The charging member shall bring charges by filing with the secretary of the board such charges in writing, together with a petition signed by at least two percent (2%) of members which requests the removal of such director by reason of the charges. The charges set forth in the petition must specifically allege grounds which, if true, would constitute cause for removal. The signatures of members on the petition shall be acceptable only when affixed to a sheet on which the petition and the relevant charges are fully set forth; and, provided further, that the person who solicited the signatures affixed to such petition shall acknowledge thereon before a person authorized to take acknowledgments of deeds that he had read the petition and the said charges against such director to each of the members prior to the latter subscribing their names thereto. All signatures on petitions to remove a director shall be collected within the single ninety (90) calendar day period immediately preceding the date on which petitions are first presented to the Association, and the board of directors shall establish such policies as may be necessary and convenient to ensure compliance with this provision. A director who is the subject of such charges shall be informed in writing of the charges promptly upon receipt of such petitions by the Association. The director shall have an opportunity at a special hearing on the proposed removal, to be heard in person, or by counsel, and to present evidence in respect to the charges, and the member or members bringing the charges against the director shall have the same opportunity. This special hearing to present evidence and testimony shall occur before ballots are transmitted to members for voting in connection with the special meeting at which the question of removal shall be considered and voted upon by the members. The question of the removal of such director shall be considered and voted upon at a meeting of the members conducted in accordance with procedures established for regular annual membership meetings. The question of removal shall be decided by the vote of a majority of the members voting thereon at a meeting with respect to which a quorum exists. SECTION 8. Vacancies. Any vacancy occurring in the board shall be filled by the affirmative vote of the majority of the remaining directors, and the member so appointed to the board shall serve until his successor has been elected. At such election following the existence of such vacancy, the members shall elect one of their number to serve as director during the unexpired portion of the term vacated, subject, however to provisions of Article IV, Section 2, 3 and 4 of these bylaws. SECTION 9. Compensation. (a) Directors shall not receive any salary for their services as directors, except that, by resolution of the board of directors, a fixed fee and expenses of attendance, if any, may be allowed for each day of attendance at each meeting of the board of directors, or a meeting of a committee thereof, or when a director is otherwise representing the Association in an official capacity and for each day of necessary travel to and from a meeting of the Board or other meeting while officially representing the Association. No attendance other than regular or special board or committee meetings shall be reimbursed unless authorized in advance by the majority vote of the board. A director may not be compensated for more than two regular board meetings per month, and an additional 12 special board meetings per year. The total compensated meetings shall not exceed 70 meetings per year for a director, and 85 meetings per year for the chairman of the board. The Association may not provide health insurance for directors or their families, or insurance for risks except those incurred in their capacity as directors. (b) Directors' expense reimbursement requests shall be reviewed and approved by the majority vote of the board. Directors may not receive salaries for their services as directors, and, except in emergencies, shall not receive salaries for their services in any other capacity without the approval of the members. ARTICLE V MEETINGS OF DIRECTORS SECTION 1. Regular Meeting. A regular meeting of the board of directors shall be held without notice immediately after, and at the same place as, the annual meeting of the members. A regular meeting of the board of directors shall also be held monthly at such time and place in the Municipality of Anchorage, State of Alaska, as the board of directors may provide by resolution. Such regular monthly meetings may be held without notice other than such resolution fixing the time and place thereof except that the board shall cause notice of the selection of the time and place of the regular meetings to be given to the members promptly after it is selected. SECTION 2. Special Meetings. Special meetings of the board of directors may be called by the chairman of the board, or by any three directors, and it shall thereupon be the duty of the secretary of the board to cause notice of such meetings to be given as hereinafter provided. The chairman of the board or the directors calling the meeting shall fix the time and place, which shall be in the Municipality of Anchorage, State of Alaska, for the holding of the meeting. Written notice of the time, place and purpose of any special meetings of the board of directors shall be delivered to each director not less than three days previous thereto, by or at the direction of the secretary of the board, or upon default in duty by the secretary of the board, by the chairman of the board or the directors calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the director at his address as it appears on the records of the Association, with postage thereon prepaid. SECTION 3. Quorum. A majority of the board of directors shall constitute a quorum; provided, that if less than a majority of the directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time; and provided further, that the secretary of the board shall notify any absent directors of the time and place of such adjourned meeting. The act of the majority of the directors present at the meeting at which a quorum is present shall be the act of the board of directors. Each director present shall vote or abstain on each motion. Each director shall disclose any financial interest of the director or of a member of the director's immediate family in a matter before the board. SECTION 4. Director Attendance. If a director is absent from three consecutive regular board meetings or four regular board meetings, whether consecutive or not, or from 25% of all meetings, including regular and special meetings, board workshops, and committee meetings, in either of the two six month periods described below, the director shall be deemed to have resigned from the board of directors, and the vacancy thereby resulting will be filled as provided in Article IV, Section 8, of these bylaws. For purposes of compliance with this bylaw, attendance will be evaluated for two separate six month periods beginning May 1st and November 1st of each year. A director who is absent on Association business, including reasonable travel time to and from such business, shall not be counted absent, provided such travel and absence was approved in advance by the board. For purposes of this Section, an absence shall not be counted if it is excused by a vote of a majority of the members of the board not requesting the excuse at the next regular or special board meeting. However, no more than two absences per director may be excused by the board in either 6-month period. SECTION 5. Membership Attendance. (a) Regular meetings, special meetings and work sessions shall be open to all Association members. The notice of such meeting and an agenda shall be posted in a conspicuous place in the public places of business of the Association not later than three days prior to the meeting. The board of directors shall adopt a policy establishing additional means of providing public notice of meetings. (b) No closed or executive sessions shall be held except to discuss: 1) Matters the immediate knowledge of which would clearly have an adverse effect on the Association's finances; 2) Subjects that tend to prejudice the reputation and character of a person; however, that person may request a public discussion; 3) Matters discussed with an attorney for the Association, the immediate knowledge of which could have an adverse effect on the Association's legal position. SECTION 6. Minutes. Minutes will be kept for all regular and special meetings and shall include each director's vote on each matter voted upon by the board of directors. Copies of the minutes shall promptly be given to Association members upon request. The board of directors may prescribe a reasonable fee for such copies provided such fee shall not exceed the actual labor and material costs of reproduction. An electronic recording of all regular and special meetings shall also be made and kept for at least one year; Association members may request a transcription of the tape upon payment of the cost of transcription by a court reporter service; members shall also be permitted to listen to such tapes at the headquarters building. SECTION 7. Telephonic Board Meetings. For the purpose of the holding of any regular or special meeting, the Board of Directors can validly conduct such meeting by communicating with each other by means of conference telephones or similar communications equipment as allowed by law. Telephonic attendance by directors shall be permitted without limitation if the director is unable to attend in person due to Association business provided the absence was approved in advance by the board as provided under Article V, Section 4. Telephonic attendance for reasons other than Association business shall be limited to 25% of the meetings by any one director for the 6-month period beginning May 1 and the 6-month period beginning November 1. For attendance evaluation, a director is deemed absent from each meeting where the telephonic attendance limit was exceeded. The amendments to this Bylaw will take effect May 1, 1997. ARTICLE VI OFFICERS SECTION 1. Number. The officers of the Association shall be a chairman of the board, vice-chairman of the board, secretary of the board and treasurer of the board, and such other officers as may be determined by the board of directors from time to time. The offices of secretary of the board and treasurer of the board may be held by the same person. SECTION 2. Election and Term of Office. The officers shall be elected annually by ballot, by and from the board of directors, at the meeting of the board of directors held immediately after the annual meeting of the members. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until the first meeting of the board of directors following the next succeeding annual meeting of the members, or until his successor shall have been elected and shall have qualified. A vacancy in any office shall be filled by the board of directors for the unexpired portion of the term. SECTION 3. Removal of Officers and Agents by Directors. Any officer or agent elected or appointed by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the Association will be served thereby. SECTION 4. Chairman of the Board. The chairman of the board shall: (a) Be the principal executive officer of the Association and, unless otherwise determined by the members or the board of directors, shall preside at all meetings of the members and the board of directors; (b) Sign any deeds, mortgages, deeds of trust, notes, bonds, contracts or other instruments authorized by the board of directors to be executed, except in cases in which the signing and execution thereof shall be expressly delegated by the board of directors or these bylaws to some other officer or agent of the Association, or shall be required by law to be otherwise signed or executed; and (c) In general, perform all duties incident to the office of chairman of the board and such other duties as may be prescribed by the board of directors from time to time. SECTION 5. Vice-Chairman of the Board. In the absence of the chairman of the board, or in the event of his inability or refusal to act, the vice-chairman of the board shall perform the duties of the chairman of the board, and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the chairman of the board. The vice-chairman of the board shall also perform such duties as from time to time may be assigned to him by the board of directors. SECTION 6. Secretary of the Board. The secretary of the board shall be responsible for: (a) Keeping the minutes of the meetings of the members and of the board of directors; (b) Seeing that all notices are given in accordance with these bylaws, or as required by law; (c) The safekeeping of the corporate records and seal of the Association, and affixing the seal of the Association to all documents, the execution of which on behalf of the Association under its seal is duly authorized in accordance with the provisions of these bylaws; (d) Keeping a register of the names and post office addresses of all members; (e) Keeping on file at all times a complete copy of the articles of incorporation and bylaws of the Association containing all amendments thereto, which copy shall always be open to the inspection of any members, and at the expense of the Association, forwarding a copy of the bylaws and of all amendments thereto to each member on request; and (f) In general, performing all duties incident to the office of secretary of the board, and such other duties as from time to time may be assigned by the board of directors. SECTION 7. Treasurer of the Board. The treasurer of the board shall be responsible for: (a) Custody of all funds and securities of the Association; (b) The receipt of, and the issuance of receipts for, all moneys due and payable to the Association, and for the deposit of all such moneys in the name of the Association in such bank or banks as shall be selected in accordance with the provisions of these bylaws; and (c) In general, performing all the duties incident to the office of treasurer of the board and such other duties as from time to time may be assigned by the board of directors. SECTION 8. Delegation of Duties. In the absence of an officer, or in the event of his inability or refusal to act, the board of directors will appoint one of their number to perform the duties of his office; provided that the offices of chairman of the board and vice-chairman of the board may not be combined with any other office; and, provided further, nothing herein shall limit the right and duty of the vice-chairman of the board to perform the duties of the chairman of the board in the event that the chairman of the board is absent, is unable to act, or refuses to act. The board of directors may provide for the delegation of one or more of the duties of the secretary of the board and treasurer of the board. SECTION 9. Bonds of Officers. The treasurer of the board, and any other officer or agent of the Association charged with responsibility for the custody of any of its funds or property, shall give bond or be covered by insurance procured by the Association in such sum, and with such surety, as the board of directors shall determine. The board of directors, in its discretion, may also require any other officer, agent or employee of the Association to give bond or be covered by insurance procured by the Association in such amount and with such surety as it shall determine. SECTION 10. Budget. The Board of Directors shall review, revise and approve an annual operating budget prior to each fiscal year. SECTION 11. Reports. The officers of the Association shall submit, at each annual meeting of the members, reports covering the business of the Association for the previous fiscal year. Such reports shall set forth the condition of the Association at the close of such fiscal year. ARTICLE VII PATRONAGE CAPITAL SECTION 1. Patronage Capital. The Association shall at all times be operated on a cooperative, nonprofit basis for the mutual benefit of its patrons. The Association's operations shall be so conducted that all patrons, members and non-members alike, will through their patronage furnish capital for the Association, subject to the provisions for sinking funds and reserves as provided by Article VIII of these bylaws. In order to induce patronage and to assure that the Association will operate on a nonprofit basis, the Association is obliged to account on a patronage basis to all its patrons, members and non-members alike, for all amounts received from the furnishing of electric energy in excess of operating costs and expenses properly chargeable against the furnishing of electric energy. All such amounts in excess of operating costs and expenses are received with the understanding that they are furnished by the patrons, members and non-members alike, as capital. The Association is obligated to pay all such amounts in excess of operating costs and expenses to the patrons by credits to a capital account for each patron. The books and records of the Association shall be set up and kept in such a manner that at the end of each fiscal year the amount of capital, if any, so furnished by each patron, is clearly reflected and credited in an appropriate record to the capital account of each patron, and the Association shall within a reasonable time after the close of the fiscal year notify each patron of the amount of capital so credited to his account. All such amounts credited to the capital account of any patron shall have the same status as though they had been paid to the patron in cash in pursuance of a legal obligation to do so, and the patron had then furnished the Association corresponding amounts for capital. In the event of dissolution or liquidation of the Association, after all outstanding indebtedness of the Association shall have been paid, outstanding capital credits shall be retired without priority on a pro rata basis before any payments are made on account of property rights of members. If, at any time prior to dissolution or liquidation, the board of directors shall determine that the financial condition of the Association will not be impaired thereby, the capital then credited to patrons' accounts may be retired in full or in part, according to policies adopted by the board. Capital credited to the account of each patron shall be assignable only on the books of the Association pursuant to written instructions from the assignor, and only to successors in interest or successors in occupancy in all or a part of such patron's premises served by the Association, unless the board of directors, acting under policies of general application, shall determine otherwise. All other amounts received by the Association from its operations in excess of costs and expenses shall, insofar as permitted by law, be: (a) Used to offset any losses incurred during the current or any prior fiscal year; and (b) To the extent not needed for that purpose, allocated to its patrons on a patronage basis, and any amount so allocated shall be included as part of the capital credited to the accounts of patrons, as herein provided. Notwithstanding any other provisions of these bylaws, the board of directors, at its discretion, shall have the power at any time, upon the death of any patron, if the legal representative of his estate shall request in writing that the capital credited to any such patron be retired prior to the time such capital would otherwise be retired under the provisions of these bylaws, to retire capital credited to any such patron immediately upon such terms and conditions as the board of directors, acting under policies of general application, and the legal representative of such patron's estate shall agree upon, provided, however, that the financial condition of the Association will not be impaired thereby. ARTICLE VIII FISCAL MANAGEMENT AND ACCOUNTING SECTION 1. Revenues and Expenditures. The board of directors shall adopt and maintain a system of accounting for receipts and expenditures in conformance with the laws of the United States and of the State of Alaska applicable to cooperative associations and corporations, which system shall at all times provide the proper reserves for payments of interest and principal on outstanding indebtedness, reserves for taxes, insurance, depreciation, replacement of capital plant and facilities, and such other reserves and accounts as the board of directors shall deem proper. SECTION 2. Accounting System and Reports. The accounting system adopted and maintained by the board of directors shall conform to such rules and regulations applicable to accounting systems, their establishment and operation, and which may be established by any applicable laws, rules and regulations of the United States, the State of Alaska, or any regulatory agency thereof of competent jurisdiction. The board of directors shall also, after the close of each fiscal year, cause to be made a full, complete and independent audit of the accounts, books, and financial conditions of the Association as of the end of each fiscal year. A reasonably comprehensive and easily understood summary of the audit report shall be submitted to the members prior to each annual meeting. SECTION 3. Disclosure. Repealed April 25, 1996. ARTICLE IX DISPOSITION OF PROPERTY SECTION 1. Disposition of Property. (a) The board of directors shall have full power and authority to authorize the disposition of property of the Association, or to authorize the execution and delivery of a mortgage or mortgages, or a deed or deeds of trust, of any and all of the property, rights, privileges, licenses, franchises and permits of the Association, whether acquired or to be acquired, and wherever situated, as well as the revenues therefrom, all upon such terms and conditions as the board of directors shall determine, to secure any indebtedness of the Association. (b) The sale, lease, or other disposition of more than fifteen percent (15%) of the Association's total assets, less depreciation, as reflected on the books of the Association at the time of the transaction, must also be approved by the affirmative vote of members constituting not less than two-thirds (2/3) of the members voting where the number of members voting to approve the transaction also constitutes a majority of all of the members of the Association, except that if such a disposition is to another cooperative or to the State of Alaska pursuant to Alaska Statutes Section 10.25.400, such disposition must also be approved by a majority of those members voting on the issue in an election in which at least ten percent (10%) of the members vote. ARTICLE X SEAL The corporate seal of the Association shall be in the form of a circle and shall have inscribed thereon the name of the Association and the words "Corporate Seal, State of Alaska." ARTICLE XI FINANCIAL TRANSACTIONS SECTION 1. Contracts. Except as otherwise provided in these bylaws, the board of directors may authorize any officer or officers, agent or agents, to enter into any contract, or execute and deliver any instrument, in the name and on behalf of the Association, and such authority may be general or confined to specific instances. SECTION 2. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, and all notes, bonds or other evidences of indebtedness issued in the name of the Association, shall be signed by such officer or officers, agent or agents, employee or employees of the Association, and in such manner, as shall from time to time be determined by resolution of the board of directors. SECTION 3. Deposits. All funds of the Association shall be deposited from time to time to the credit of the Association in such bank or banks as the board of directors may select. SECTION 4. Fiscal Year. The fiscal year of the Association shall begin on the first day of January of each year and shall end on the thirty-first day of December of the same year. SECTION 5. Full and Open Competitive Bidding. It is deemed to be in the best interest of the Association: to encourage and require full and open competitive bidding of contracts; to take affirmative steps to insure that the Association selects the lowest responsible bidder for its requirements from among the broadest range of suppliers qualified by expertise and resources; and to insure that responsible bidders are not excluded. These requirements shall not apply in emergency matters, to professional service contracts, or (in the discretion of the Association) to contracts reasonably expected to be less than $50,000. The Directors shall require a review of the Association's bidding procedures and qualifications and shall take such actions as may be in the best interests of the Association as determined herein. Within thirty (30) months of the passage of this Section 5, the Board of Directors shall have fully implemented the provisions of this Section 5. ARTICLE XII MISCELLANEOUS SECTION 1. Membership in Other Organizations. The Association may, with the approval of the Board of Directors, become a partner, member, shareholder or holder of any other interest in any entity engaging in any lawful business. SECTION 2. Waiver of Notice. Any member or director may waive in writing any notice of a meeting required to be given by these bylaws. The attendance of a member or director at any meeting shall constitute a waiver of notice of the meeting, unless the person participates in the meeting solely for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened. SECTION 3. Interpretation. Wherever the masculine gender is used in these bylaws it shall be construed also to refer to the feminine. ARTICLE XIII AMENDMENTS SECTION 1. Notice. These bylaws may be altered, amended or repealed by the members at any regular or special meeting, or by ballot as provided for in Article III, Section 9, provided the notice of such meeting shall have contained a copy of the proposed alteration, amendment or repeal. Notice to the membership shall be given ninety days prior to the annual meeting election for submission of recommended bylaw changes. SECTION 2. Bylaws Committee. It shall be the duty of the board of directors to appoint, not later than December 15th of each year, members to a committee on bylaws, as provided in Article XV of these bylaws. The committee shall consist of not less than five nor more than seven members, who shall be selected from different sections of the service area of the Association so as to insure equitable representation. No member of the board of directors may serve on such a committee. The committee shall review the bylaws of the Association, consider any recommendations for revisions thereof which may be made by the board of directors or any member, and report their recommendations concerning the bylaws to the annual membership meeting. Nothing herein shall be interpreted to limit the authority of the board of directors to propose changes in the bylaws, or the right of the members to call a special meeting for any proper purpose pursuant to Article III, Section 2, herein. ARTICLE XIV ADVISORY COUNCIL SECTION 1. Member Advisory Council. The board of directors shall create and establish a Member Advisory Council to advise the board. SECTION 2. General Duties. It shall be the duty of the board of directors to appoint members to the advisory council, as provided in Article XV. Members shall be selected from different sections of the service area to the Association so as to insure equitable representation. ARTICLE XV STANDING AND AD HOC COMMITTEES SECTION 1. General. This section shall apply to standing and ad hoc committees which may from time to time be appointed by the board. Standing committees include: the Election Committee, as provided for in Article III, Section 9; the Nominating Committee, as provided for in Article IV, Section 4; the Bylaws Committee, as provided for in Article XIII, Section 2; and the Member Advisory Council, as provided for in Article XIV. SECTION 2. Compensation. Members of standing and ad hoc committees shall receive no compensation or gratuity for their participation in the affairs of the Association. SECTION 3. Terms. The terms of standing committee members shall be for no more than three (3) years and be staggered so that, as nearly as possible, one-third shall expire each year. SECTION 4. Membership. In order to be fairly representative of the Association's diverse membership, it is preferable that standing and ad hoc committees be comprised of members who reflect that diversity. Toward that end, the selection process shall include consideration of the member's occupation, education, experience, geographical area in which service is provided by the Association, and type of service provided by the Association. A person is eligible to serve on such committees provided that such person is not: (a) an employee or director of the Association; (b) a director, officer or employee of any union local currently acting as a bargaining agent for Association employees; (c) a person employed by a competing enterprise, however, an employee of the Municipality of Anchorage who is not directly employed by Municipal Light and Power is eligible to serve if he or she has no fiduciary duties which in any way pertain to Municipal Light and Power; (d) a person having a financial interest in a competing enterprise; (e) a supplier, contractor, consultant or other entity which does business with the Association or a person with more than a 20% ownership interest in a supplier, contractor, consultant or other entity which does business with the Association except for providers whose actual business with the Association does not exceed $50,000; or (f) a person living in the same household with and financially interdependent upon any of the persons listed in (a) through (e), above. SECTION 5. Vacancy. In the case of a vacancy, the board of directors shall appoint an Association member in accordance with the provisions of this Article to complete the unexpired term of a committee member. ARTICLE XVI INDEMNIFICATION The Association shall indemnify and defend directors, officers, employees or agents of the Association who are, or are threatened to be made, parties to civil, criminal or administrative proceedings, for expenses (including attorneys' fees), judgments, fines and settlements, actually and reasonably incurred, if the acts complained of were performed within the scope of the director's, officer's, employee's or agent's duties, and the director, officer, employee or agent acted in good faith and in a manner he reasonably believed should be in, or not opposed to, the best interests of the Association, and, with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The Association may purchase and maintain insurance to provide for such indemnification and defense. ARTICLE XVII MEMBER ACCESS TO INFORMATION SECTION 1. Access Rights. The rights of the members to examine and make copies of the books and records of the Association at a reasonable time and for a proper purpose in accordance with Alaska Statutes shall not be infringed. The following information is deemed to be requested for a proper purpose without any showing whatsoever and shall be made available to members on request of a member: (a) Names and mailing addresses of Association members when requested by a candidate running for election to the Association Board; (b) Salary, title, job classification and position description, benefits, leave accrued and cashed-in, and hours worked, but not employee name, for each employee position in the Association; (c) Collective bargaining agreements of any kind to which the Association is a party; (d) Published information which shall include: 1) Documents provided to any regulatory authority including, but not limited to the Regulatory Commission of Alaska (RCA), Federal Energy Regulatory Commission (FERC) and Securities and Exchange Commission (SEC) filings; 2) Documents provided in open session to the Board of Directors or Association committees, including but not limited to budget documents, feasibility studies, audits or cost effectiveness studies, correspondence between the Association and third parties and minutes of Board of Directors or Association committee meetings. SECTION 2. Charges. The Association may charge no more than the actual incremental cost of producing the above information. SECTION 3. Policies and Procedures. Nothing in this Article XVII prevents the Association from allowing for additional disclosure of Association information or from developing other rules for disclosure and payment therefor by policy or procedure provided that the policy or procedure shall in no way restrict the disclosure required in this Article XVII. -----END PRIVACY-ENHANCED MESSAGE-----