COMMITMENTS AND CONTINGENCIES

Concentrations

Approximately 70 percent of Chugach’s employees are members of the International Brotherhood of Electrical Workers (IBEW). Chugach has three Collective Bargaining Unit Agreements (CBA) with the IBEW. Chugach also has an agreement with the Hotel Employees and Restaurant Employees (HERE). All three IBEW CBA’s have been renewed through June 30, 2017. The HERE contract has been renewed through June 30, 2016.

Chugach is the principal supplier of power under a wholesale power contract with MEA and was the principal supplier of power under a wholesale power contract with HEA until December 31, 2013. These contracts, including the fuel component, represented $103.1 million, or 34 percent, of sales revenue in 2013. The MEA contract represented $35.9 million, or 25 percent, of sales revenue in the first half of 2014, and expires December 31, 2014. All rates are established by the RCA.

Commitments

Fuel Supply Contracts

Chugach has fuel supply contracts from various producers at market terms. A gas supply contract between Chugach and ConocoPhillips Alaska, Inc. and ConocoPhillips, Inc. (collectively “ConocoPhillips”), was approved by the RCA effective August 21, 2009. The new contract provided gas beginning in 2010 and will terminate December 31, 2016. The total amount of gas under the contract is estimated to be 60 Bcf. The RCA approved a new natural gas supply contract with Marathon Alaska Production, LLC (MAP) effective May 17, 2010. This contract included two contract extensions that were exercised in 2011 and will terminate December 31, 2014. Effective February 1, 2013, this gas purchase agreement was assigned to Hilcorp, who purchased MAP’s assets in Cook Inlet. Chugach entered into another gas contract with Hilcorp effective July 1, 2013. The total amount of gas under the contracts is now estimated up to 57.6 Bcf. These contracts fill 100 percent of Chugach’s needs through March 31, 2018. All of the production is expected to come from Cook Inlet, Alaska.

The terms of the ConocoPhillips and Hilcorp agreements require Chugach to manage the natural gas transportation over the connecting pipeline systems. Chugach has gas transportation agreements with ENSTAR Natural Gas Company (ENSTAR) and Hilcorp.

Patronage Capital

In 2007, Chugach entered into an agreement with HEA to return all of its patronage capital within five years after expiration of its power sales agreement, which was related to a settlement agreement associated with the 2005 Test Year General Rate Case (Docket U-06-134). HEA’s patronage capital was $7.9 million at June 30, 2014, and at December 31, 2013, and is classified as patronage capital payable on Chugach’s Balance Sheet.

In December of 2013, the Board resumed its capital credit retirement program returning approximately $1.6 million, net of HEA’s allocation, and authorized $5.3 million in May of 2014. In an agreement reached in May of 2014 with MEA, capital credits retired to MEA of $2.3 million are classified as patronage capital payable on Chugach’s Balance Sheet at June 30, 2014.

Economy Energy Sales

On October 5, 2012, Chugach and GVEA finalized arrangements for Chugach to provide economy energy to GVEA until March of 2015. Sales will be made under the terms and conditions of Chugach’s economy energy sales tariff. The price to GVEA will include the cost of fuel, variable operations and maintenance expense, wheeling charges and a margin. Chugach has also entered into specific gas supply arrangements to make economy energy sales to GVEA. Sales revenue to GVEA amounted to $21.9 million and $18.5 million in the first half of 2014 and 2013, respectively.

Legal Proceedings

Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., Superior Court Case No. 3PA-13-1006 Civil

On May 14, 2013, MEA served Chugach with a Summons and Complaint in the above referenced case. Chugach filed its Answer to the Complaint on June 21, 2013. With its Complaint, MEA fundamentally asked that Chugach be required to repatriate MEA’s capital credits on the same basis as it promised, in a 2007 settlement, that it would repatriate HEA capital credits. After significant discussions, the parties reached an agreement to settle this litigation. The Superior Court issued an order dismissing the case without prejudice on June 5, 2014.

The margins Chugach earns each year are allocated back to the customers who contribute them and are recorded as capital credits to those customers’ accounts. Capital credits are eventually repatriated to customers at the discretion of Chugach’s Board of Directors, typically many years after the margins are earned. With this litigation, MEA sought to accelerate the return of its capital credits.

Chugach has certain other litigation matters and pending claims that arise in the ordinary course of Chugach’s business. In the opinion of management, none of these other matters, individually, or in the aggregate, is or are likely to have a material adverse effect on Chugach’s results of operations, financial condition or cash flows.