-----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, S5IASMQZ5e1mb0o7IIOZz5ObFXrBYdpopBAlz0VoO/NJteJayXEk/hsPYkbxEUjH HfKo5z0/5RKFRpziA+DO3Q== 0000878004-99-000021.txt : 19990817 0000878004-99-000021.hdr.sgml : 19990817 ACCESSION NUMBER: 0000878004-99-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHUGACH ELECTRIC ASSOCIATION INC CENTRAL INDEX KEY: 0000878004 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 920014224 STATE OF INCORPORATION: AK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-42125 FILM NUMBER: 99691217 BUSINESS ADDRESS: STREET 1: 5601 MINNESOTA DR STREET 2: PO BOX 196300 CITY: ANCHORAGE STATE: AK ZIP: 99518 BUSINESS PHONE: 9075637494 10-Q 1 FORM 10-Q FOR CHUGACH ELECTRIC ASSOCIATION, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 33-42125 Chugach Electric Association, Inc. (Exact name of registrant as specified in its charter) Alaska 92-0014224 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5601 Minnesota Drive Anchorage, Alaska 99518 (Address of principal executive offices) (Zip Code) (907) 563-7494 (Registrant's telephone number, including area code) None (Former name,former address and former fiscal year,if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT AUGUST 1, 1999 NONE NONE CHUGACH ELECTRIC ASSOCIATION, INC. INDEX Page Number CAUTION REGARDING FORWARD-LOOKING STATEMENTS 3 PART I FINANCIAL INFORMATION Item 1. Financial Statements 3 Balance Sheets, June 30, 1999 (Unaudited) and December 31, 1998 4 Statements of Revenues, Expenses and Patronage Capital, Six Months Ended June 30, 1999 and 1998 (Unaudited) 6 Statements of Cash Flows, Six Months Ended June 30, 1999 and 1998 (Unaudited) 7 Notes to Financial Statements (Unaudited) 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (Unaudited) 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 Exhibits 21 2 CAUTION REGARDING FORWARD-LOOKING STATEMENTS Statements in this report that do not relate to historical facts, including statements relating to future plans, events or performance, are forward-looking statements that involve risks and uncertainties. Actual results, events or performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, that speak only as of the date of this report and the accuracy of which is subject to inherent uncertainty. Chugach Electric Association, Inc. (Chugach or the Association) undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances that may occur after the date of this report or the affect of those events or circumstances on any of the forward-looking statements contained in this report. PART I FINANCIAL INFORMATION Item 1. Financial Statements The unaudited financial statements of Chugach for the quarter ended June 30, 1999 follow: 3 CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets Assets June 30, 1999 December 31, 1998 (Unaudited) Utility plant: Electric plant in service $ 621,212,853 $ 620,216,818 Construction work in progress 30,783,053 30,405,736 651,995,906 650,622,554 Less accumulated depreciation 238,541,532 233,981,397 Net utility plant 413,454,374 416,641,157 Other property and investments, at cost: Nonutility property 3,550 3,550 Investments in associated organizations 8,357,281 8,356,364 8,360,831 8,359,914 Current assets: Cash and cash equivalents 8,748,380 2,312,574 Cash - restricted construction funds 159,720 177,366 Special deposits 122,164 121,164 Accounts receivable, net 10,447,357 17,243,266 Materials and supplies, at average cost 17,585,354 15,963,434 Prepayments 1,283,346 917,381 Other current assets 479,736 349,030 Total current assets 38,826,057 37,084,215 Deferred charges 30,667,771 19,006,164 $ 491,309,033 $ 481,091,450
See accompanying notes to unaudited financial statements. 4 CHUGACH ELECTRIC ASSOCIATION, INC. Balance Sheets Liabilities and Equities June 30, 1999 December 31, 1998 (Unaudited) Equities and margins: Memberships $ 935,023 $ 911,253 Patronage capital 115,870,695 109,622,996 Other 3,771,490 3,489,047 120,577,208 114,023,296 Long-term obligations, excluding current installments: First mortgage bonds payable 194,139,000 235,101,000 CoBank bonds payable 113,167,339 70,816,699 307,306,339 305,917,699 Current liabilities: Note Payable 10,000,000 - Current installments of long-term debt and capital leases 6,359,323 6,088,802 Accounts payable 7,403,429 8,838,757 Consumer deposits 1,053,044 993,616 Accrued interest 5,888,908 6,722,325 Salaries, wages and benefits 3,999,353 3,755,837 Fuel 3,628,511 5,362,713 Other 924,490 1,318,947 Total current liabilities 39,257,058 33,080,997 Deferred credits 24,168,428 28,069,458 $ 491,309,033 $ 481,091,450
See accompanying notes to unaudited financial statements. 5 CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Revenues, Expenses and Patronage Capital Three months ended June 30 Six months ended June 30 1999 1998 1999 1998 (Unaudited) (Unaudited) Operating revenues $ 32,307,980 $ 33,581,288 $ 71,732,217 $ 72,605,503 Operating expenses: Production 9,236,413 10,834,413 19,999,540 22,679,791 Purchased power 1,888,126 2,023,671 3,756,648 4,260,866 Transmission 989,950 655,767 1,662,444 1,276,620 Distribution 2,218,302 2,329,226 4,232,671 4,491,893 Consumer accounts 1,177,678 1,110,510 2,206,424 2,198,748 Sales Expense 371,758 - 718,995 - Administrative, general and other 5,577,579 4,101,796 10,333,073 7,946,433 Depreciation and amortization 5,574,140 5,751,095 10,746,024 11,473,281 Total operating expenses 27,033,946 26,806,478 53,655,819 54,327,632 Interest: On long-term debt 5,977,506 6,301,510 11,903,449 12,680,768 Other 147,425 43,817 357,495 70,264 Charged to construction - credit(175,925) (175,145) (180,530) (354,909) Net interest expense 5,949,006 6,170,182 12,080,414 12,396,123 Net operating margins (674,972) 604,628 5,995,984 5,881,748 Nonoperating margins: Interest income 153,403 181,461 299,753 366,806 Other 16,974 52,624 25,959 351,628 Total nonoperating margins 170,377 234,085 325,712 718,434 Assignable margins (504,595) 838,713 6,321,696 6,600,182 Patronage capital at beginning of period 116,435,644 110,529,644 109,622,996 104,800,092 Retirement of capital credits and estate payments (60,354) (42,775) (73,997) (74,692) Patronage capital at end of period $115,870,695 $111,325,582 $115,870,695 $111,325,582
See accompanying notes to unaudited financial statements. 6 CHUGACH ELECTRIC ASSOCIATION, INC. Statement of Cash Flows Six months ended June 30 1999 1998 (Unaudited) Cash flows from operating activities: Assignable margins $ 6,321,696 $ 6,600,182 Adjustments to reconcile assignable margins to net cash used in operating activities: Depreciation and amortization 10,746,024 11,473,281 Changes in assets and liabilities: (Increase) decrease in assets: Accounts receivable 6,795,909 9,861,083 Prepayments (365,965) (663,258) Materials and supplies (1,621,920) (415,608) Deferred charges (11,661,607) (3,307,373) Other (114,060) 117,515 Increase (decrease) in liabilities: Accounts payable (1,435,328) (1,969,579) Consumer deposits 59,428 (85,012) Accrued interest (833,417) (144,726) Deferred credits (3,901,030) (704,476) Other (1,885,143) (2,678,398) Total adjustments (4,217,109) 11,483,449 Net cash provided by operating activities 2,104,587 18,083,631 Cash flows from investing activities: Extension and replacement of plant (7,559,242) (6,393,276) Investments in associated organizations (917) (139,452) Net cash used in investing activities (7,560,159) (6,532,728) Cash flows from financing activities: Short-term borrowings, net 10,000,000 - Net proceeds and repayments of long-term debt 1,659,162 (5,782,534) Retirement of patronage capital (73,997) (74,692) Other 306,213 (25,853) Net cash provided by (used)in financing activities 11,891,378 (5,883,079) Net increase (decrease) in cash and cash equivalents 6,435,806 5,667,824 Cash and cash equivalents at beginning of period 2,312,574 5,224,529 Cash and cash equivalents at end of period $ 8,748,380 $ 10,892,353
See accompanying notes to unaudited financial statements. 7 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements June 30, 1999 (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. Users of interim financial information are encouraged to refer to footnotes contained in Form 10-K when reviewing interim financial results. Management believes that the accompanying interim financial statements reflect all adjustments which are necessary for a fair statement of the results of the interim period presented. All adjustments made in the accompanying interim financial statements are of a normal recurring nature. 2. Lines of Credit Chugach maintains a line of credit of $35 million with National Bank for Cooperatives(CoBank). The CoBank line of credit expires August 1, 1999, but carries an annual automatic renewal clause. At June 30, 1999, $10 million was outstanding on this line.In addition, the Association has an annual line of credit of $50 million available at the National Rural Utilities Cooperative Finance Corporation (NRUCFC).At June 30, 1999,there was no outstanding balance on this line of credit.The NRUCFC line of credit expires October 14, 2002. 3. Change in Accounting Policy Effective January 1998 Chugach changed its accounting policy for depreciation of general plant (excluding buildings, leasehold improvements and vehicles). Under the new vintage group method the assets are amortized over their service lives and retired as a group at the end of the amortization period.The amortization periods were developed as part of the recent depreciation study update. At January 1, 1998, the affected asset group made up 2.8% of Electric Plant in Service. In conjunction with adoption of the new depreciation methodology, Chugach wrote off approximately $19 million of plant considered to be fully depreciated. Depreciation expense for the affected asset groups is estimated to be $1.7 million lower annually. Buildings, leasehold improvements and vehicles will continue to be depreciated over their estimated useful lives based on rates developed in periodic depreciation studies. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) GENERAL Reference is made to the information contained under the caption "CAUTION REGARDING FORWARD-LOOKING STATEMENTS" at the beginning of this Report. Reference is also made to the information contained, and referenced, in Item 5 of Part II with respect to the Matanuska Electric Association, Inc. (MEA) proposal. RESULTS OF OPERATIONS Current Year Quarter Versus Prior Year Quarter Operating revenues, including sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues, decreased by 3.8% for the quarter ended June 30, 1999, over the same quarter in 1998. The decrease in revenues is largely attributable to lower fuel costs recovered during the second quarter 1999 versus the same period last year. Retail demand and energy rates did not change from the second quarter of 1999 compared to the same period in 1998. Wholesale demand and energy rates charged to Homer Electric Association, Inc. (Homer) and Matanuska Electric Association, Inc. (MEA) declined .30% and 4.1%, respectively, from second quarter 1998 to second quarter 1999. Pursuant to a Settlement Agreement with Alaska Electric Generation and Transmission Cooperative, Inc. (AEG&T/MEA/Homer), Chugach may be required to grant a refund to AEG&T/MEA/Homer retroactive to January 1, 1997, (based on the 1996 test year filing). A provision for wholesale rate refunds of approximately $980,000 and $993,000 was recorded at December 31, 1997 and December 31, 1998, to accommodate certain rate adjustment clauses contained in the Settlement Agreement. Year-to-date June 1999, refund provisions total approximately $460,000. Determination of the final refund amounts awaits final Regulatory Commission of Alaska (RCA) (formerly the Alaska Public Utilities Commission (APUC)) approval of the 1996 test year filing. In June 1999 the RCA approved Chugach's 1996 revenue requirement filing on an interim and refundable basis. As a result of the approval, the wholesale base demand and energy rates charged to Homer and MEA decreased 0.30% and 4.0%, respectively. In 1998, Chugach and the City of Seward signed a new ten-year power sales agreement. The new power sales agreement, that was approved by the RCA in June 1999, with a retroactive 9 effective date of September 1998 contains a provision that allows Chugach to interrupt Seward at certain times during the year. As a result of the new power sales agreement, revenues derived from sales to Seward will decline approximately $350,000 annually. Although the contract signed by the parties establishes a ten-year term, the RCA approved the contract only for a period of three years from September 11, 1998. Chugach and AEG&T entered into the Nikiski Cogeneration Plant System Use and Dispatch Agreement (Dispatch Agreement). Under the Dispatch Agreement, Chugach will operate and dispatch AEG&T's Soldotna Unit 1 generation facility that AEG&T proposes to move to Nikiski on the Kenai Peninsula. The Dispatch Agreement will allow the Unit to be used more efficiently in Chugach's operations, which in turn will promote resource conservation. The APUC approved the Dispatch Agreement effective May 14, 1999. To accommodate the Dispatch Agreement, Chugach approached its four natural gas suppliers - - Marathon Oil Company, ARCO Beluga, Inc., Chevron U.S.A. Inc., and the Municipality of Anchorage d/b/a Municipal Light & Power -- with proposed contract amendments. The amendments generally recognize the small anticipated shift in gas use from the Beluga Power Plant to the relocated generation unit. Also, the amendments to the ARCO, Chevron, and Municipal Light & Power contracts address a hypothetical situation that could reduce Chugach's gas purchases from those suppliers. The amendments give each such supplier the right to offset the reduction, by exercising an option to increase gas sales to Chugach if the situation occurs. Marathon, ARCO, and Chevron have accepted their respective amendments. Municipal Light & Power has not responded to Chugach's offer; however, its acceptance ofthe amendment is not essential to Chugach's performance under the Dispatch Agreement. TheRCA approved the contract amendments effective July 16, 1999. Power production expense was lower for the quarter ended June 30, 1999, compared to the same period in 1998. This variance is largely due to a decrease in fuel prices, in addition to the lower kWh sales mentioned above. Transmission expense was higher during second quarter 1999 versus 1998 due to increased line clearing activity and a change in the focus of substation maintenance activities from distribution in 1998 to transmission in 1999. Distribution expense decreased for the quarter ended June 30, 1999, versus the same period last year. This decrease is due to the change in substation maintenance focus mentioned above andthe adoption of a reliability-centered maintenance program in 1999. Consumer accounts and sales expense increased in second quarter 1999 versus second quarter 1998 due to the addition of new business ventures in 1999. Administrative, general, and other expenses increased for the three month period ended June 30, 1999. This increase was substantially due to the amortization of maintenance costs related to the Year 2000 (Y2K) compliant financial software that was implemented in 1998. Interest expense continued to decrease during the quarter due to the refinancing of $34.9 million of 9.14% Series A First Mortgage Bonds that occurred in the first quarter of 1999. 10 Current Year to Date Versus Prior Year to Date Operating revenues for the six-month period ended June 30, 1999, decreased relative to the same period in 1998. These lower revenues were essentially due to the same reasons outlinedin the quarter-to-date comparison section. Power production and distribution expenses decreased and transmission, consumer accounts, sales and administrative, general and other expenses increased for the six-month period ended June 30, 1999, for essentially the same reasons outlined in the quarter-to-date comparison section. Purchased power expense is lower for the six-month period ended June 30, 1999, compared to the same period last year. This variance is due to the system operating scenario that has existed in 1999. Due to the decrease in the fuel prices this year, it was proven moreeconomical to generate power at the Bernice Lake plant to ensure reliability on the Kenai Peninsula, rather than purchase power from AEG&T's Soldotna 1 plant. Depreciation expense was lower for the six-month period ended June 30, 1999, compared tothe same period last year due to an adjustment done in the first quarter 1999 as a result of theunitization of a capital project that was completed in 1997. Financial Condition Total assets increased by 2.1% from December 31, 1998 to June 30, 1999. The increase is dueprimarily to an increase in cash from short-term borrowings and deferred charges. The increase in deferred charges is largely due to project costs related to the repowering of Belugaunits 6 & 7 that is scheduled to be complete in 2004. The contract for this project was awarded to ABB Power Generation and the first milestone payment made in April 1999. Adecline in accounts receivable was primarily caused by paydowns received on the undercollected fuel surcharge balance and the payment of wholesale power bills that were accrued but not paid at December 31, 1998. Notable changes to total liabilities include an increase in notes payable due to short-term borrowings from CoBank and in increase in CoBank bonds resulting from the issuance of CoBank 6 in the amount of $42.5 million on March 30, 1999. Offsetting the increase in CoBank bonds was a decrease in first mortgagebonds resulting from the March bond payment and Chugach's purchase of first mortgage bonds. Additionally, the account payable in respect of fuel decreased due to declining fuel prices and accrued interest decreased as a result of the March semi-annual bond payment. Liquidity and Capital Resources Chugach has satisfied its operational and capital cash requirements primarily through internally generated funds, an annual $50 million line of credit from NRUCFC and a $35 million line of credit with CoBank. At June 30, 1999, Chugach had $10 million outstanding on the CoBank line of credit which carried an interest rate of 5.80%. There was no balance outstanding with NRUCFC at June 30, 1999. Capital construction in 1999 is estimated at $36.6 million. At June 30, 1999, approximately $7.6 million has been expended. Capital improvement expenditures are expected to increase in the upcoming third quarter as the construction season extends into October. 11 In 1998 Chugach negotiated a supplemental indenture (Seventh Supplemental Indenture of Trust) with CoBank that previously allowed up to $80 million in future bond financing. Chugach finalized an amendment to the Third Supplemental Indenture of Trust (Seventh Supplemental Indenture of Trust) that eliminated the maximum aggregate amount of bonds the Company may issue under the agreement. At June 30, 1999, Chugach had bonds in the amount of $113.6 million outstanding under this financing arrangement. The balance is comprised of a $1.01 million bond (CoBank 1) which carries an interest rate of 8.95% maturing in 2002, a $10 million bond (CoBank 2) priced at 7.76% due in 2005, a $21.5 million bond (CoBank 3), currently priced at 5.60% (repriced periodically), a $23.5 million bond (CoBank 4) currently priced at 5.60% (also repriced periodically), a $15 million bond (CoBank 5) currently priced at 5.60% (also repriced periodically) due in 2002, 2007 and 2012 and a $42.5 million bond (CoBank 6) carrying a variable interest rate currently priced at 6.05% (as of July 1999). CoBank 6 matures March 15, 2002. Principal payments on the CoBank 3 and 4 bonds commence in 2003 and continue through 2022. Additionally, Chugach has negotiated a similar supplemental indenture (Fifth Supplemental Indenture of Trust) with NRUCFC for $80 million. At June 30, 1999, there were no amounts outstanding under this financing arrangement. On March 17, 1999, Chugach entered into a Treasury rate-lock transaction with Lehman Brothers Financial Products Inc. (Lehman Brothers) for the purpose of taking advantage of favorable current market interest rates in anticipation of refinancing Chugach's Series A Bonds Due 2022 on their first call date (March 15, 2002). Under the Treasury rate-lock contract,Chugach will receive a lump-sum payment from Lehman Brothers on March 15, 2002, if the yield on 10- or 30-year Treasury bonds as of mid-February 2002, exceeds a specified target level (5.653% and 5.838%, respectively). Conversely, Chugach will on the same date be required to make a payment to Lehman Brothers if the yield on the 10- or 30-year Treasury bonds falls below its stated target yield. The amount of the payment will increase as the difference between the actual yield and the target yield increases. For each basis point (0.01% per annum) by which the yield on 10-year or 30-year Treasury bonds deviates from the stated target level, Chugach will receive (if the Treasury yield exceeds the target yield) or make (if the Treasury yield falls short of the target yield) a payment equal to the product obtained by multiplying (i) the amount of deviation (expressed in basis points) by (ii) the changes in the prices of $196 million (in the case of 10-year Treasury bonds) and $18.7 million (in the case of the 30-year Treasury bonds) of Treasury bonds, given a one basis point change in their respective yields (determined with reference to the Bloomberg Financial Market's Government Yield Analysis Page). In this way, Chugach intends that higher interest costs resulting from increases in market interest rates prior to refinancing of Chugach's long-term debt would be mitigated by a lump-sum, up-front payment to Chugach at the time of the refinancing. Chugach management continues to expect that cash flows from operations and external funding sources will be sufficient to cover operational and capital funding requirements in 1999 and thereafter. 12 YEAR 2000 Readiness Information Chugach has recognized the need to investigate, test and remediate, if necessar , the critical systems and equipment under its control which could cause power and business disruptions in conjunction with what are collectively called Y2K dates. Chugach has an active program underway that should be completed by the fall of 1999. Chugach expects to fund its Y2K project internally and estimates it will incur between $10 and $11 million of incremental costs through March 1, 2000, associated with making the necessary modifications identified to date to applications and embedded devices. This projection includes contingencies and replacement systems that may be required. Chugach has incurred costs of approximately $9.8 million for Y2K projects through June 30, 1999. Of this total, $9.5 million was expended in business system Y2K conversions, all of which has been capitalized. Another $233,000 was expended on real time system Y2K inventory and assessment activities, all of which has been expensed. Chugach's Y2K readiness project is divided along functional lines (real time and business systems) and each area is at a different point of completion. Chugach's real time system Y2K Project is divided into three primary phases. The first phase is "inventory and assessment" during which applications (both internally developed and vendor supplied) and devices (in th generation plants, substations, telecommunications and facilities) are identified and criticality to the business is determined. The second phase, "testing and remediation" occurs during the replacement or remediation of the systems and/or devices. The final phase is "contingency planning" during which specific backup plans will be developedfor all "mission critical" applications,devices and systems. Chugach is also participating in the Y2K activities of several organizations including the North American Electric Reliability Council (NERC), Electric Power Research Institute (EPRI) and the National Rural Electric Cooperative Association (NRECA) who are developing a network to verify the risks and costs nationally, in the State and at Chugach. System testing at Chugach's four power plants is complete. In the transmission and distribution area, inventory and assessment activities are underway for the Supervisory and Control and Data Acquisition (SCADA) system, telecommunication, relaying and system protection assets. Testing and remediation is 95% complete for each of these systems. Chugach business systems Y2K readiness activities were substantially complete by year-end 1998. General Ledger, Accounts Payable, Payroll, Materials Management, Project Costing and Human Resources subsystems to the Financial Information System were converted by the end of 1998. Additionally, the Customer Billing System was updated to be Year 2000 compliant. The remaining, non-critical financial subsystem needing to be converted in 1999 is the Budget Preparation subsystem (to be completed by September 1, 1999). Chugach is also updating the Work Management subsystems. Finally, all the hardware connected to Chugach's business systems area-wide network have been tested and found to be Y2K ready. 13 The business systems team has developed contingency plans in the event of any failure. These plans are being reviewed by third party software vendors to ensure plan viability. Each contingency plan includes on-site vendor representation at December 31, 1999. The Purchasing Department asked every vendor for a statement regarding their Y2K readiness. All responses were due by the end of April 1999. Review of each individual vendor's response is in progress. If after review, it is determined that the vendor will not be Y2K compliant by year-end, Chugach will determine if it will continue its relationship with that vendor. This task is currently 40% complete and is scheduled for completion in August, 1999. It is Chugach's goal that all Y2K readiness projects be complete by the summer of 1999 and no Chugach customers lose power for an extended time due to a Y2K problem. Based on the progress to date, Chugach believes the goals will be achieved. Contingency planning is in progress and currently 45% complete for the real time systems. The reasonably worst case scenario has not been determined at this time Although contingency planning is by its nature speculative, the Y2K contingency plan will reduce the risk of material impacts on Chugach's operations due to Y2K problems. OUTLOOK Nationwide, the electric utility industry is entering a period of unprecedented competition. Electric utilities in Alaska will not be immune from these competitive forces. Chugach has taken several steps to be more effectively positioned to meet the challenge of a competitive market for electricity. Chugach participates in national benchmarking projects to improve system operations. The most recent studies have focused on mailroom operations, remittance processing, new service connections, system reliability and power production. As a result of these studies, Chugach has been able to make these processes more efficient which has led to lower costs. The Association is committed to continue reviewing all areas of its operations and to serve its customers in a way that maintains high reliability while containing the cost of electricity. In addition to participation in benchmarking studies, Chugach has also implemented strategic alliances in the purchasing and warehousing areas. These alliances are designed to improve efficiency and thus, contribute to lower operating costs. In 1997, Chugach was able to lower inventory unit costs, increase inventory turns and decrease project cost by furnishing materials to contractors as a direct result of these strategic alliances. Chugach will continue to explore other areas for strategic alliance opportunities. During 1998, Chugach updated its strategic plan. In this plan, priority issues are identified that are critical to the Company's success. Updated key result area targets were developed thattrack the most important measures of Chugach's performance. Chugach has been active at the State Legislature in support of the customer's right to choose their electric power supplier. Virtually all Alaskan utilities have opposed Chugach's efforts to develop competition and are attempting to create exclusive service territories. At this time 14 no bill relating to customer choice has moved out of legislative committee. Thus, it is not possible to predict the outcome of this legislative process. In 1997 Chugach made organizational changes in preparation for competition. Recognizing that the new marketplace will probably be "unbundled" along the functional lines of generation, transmission and distribution, and retail services, Chugach's organizational structure reflects these functions. Operating with three divisions: Finance and Energy Supply, Transmission and Distribution Network Services, and Retail Services, Chugach has positioned itself to meet competition in the electric industry. Chugach's Marketing Department continues to operate a key account program for larger customers and is developing new services to enhance existing customers' satisfaction. Chugach commenced operation as an internet service provider (ISP) in February 1999. Also in 1999 Chugach began selling spare microwave bandwidth to industrial customers. Chugach has three collective bargaining agreements with the International Brotherhood of Electrical Workers (IBEW) that are currently open for negotiation. Although each of the contracts had an expiration date of January 31, 1998, the parties have agreed that the contracts shall continue in effect until new contracts are put in place. If the parties cannot agree on the terms of new agreements, all outstanding issues will be decided through binding interest arbitration. The IBEW cannot strike and Chugach cannot lockout under the continuing agreement. As of June 30, 1999, negotiations of all three agreements was ongoing. The parties began preparing for fact finding before a third party arbitrator, which is scheduled for October and November, 1999 on remaining open issues. If the parties remain unable to agree, an arbitration hearing is scheduled for February, 2000. ENVIRONMENTAL MATTERS Compliance with Environmental Standards Chugach's operations are subject to certain federal, state and local environmental laws that Chugach monitors to ensure compliance. The costs associated with environmental compliance are included as a component of both the operating and capital budget processes. Chugach accrues for costs associated with environmental remediation obligations when such costs are probable and reasonably estimable. Environmental Matters Reference is made to Part II, Item 1 for discussion of the status of the Standard Steel Salvage Yard Site litigation. Item 3. Quantitative and Qualitative Disclosures About Market Risk Chugach is exposed to a variety of risks, including changes in interest rates and changes in commodity prices due to repricing mechanisms inherent in gas supply contracts. In the normal course of its business, Chugach manages its exposure to these risks as described below. Chugach does not engage in trading market risk sensitive instruments for speculative purposes, 15 nor are any derivative instruments outstanding at June 30, 1999. Chugach does not hold or issue derivative financial instruments for trading purposes. Chugach has a single derivative financial instrument - a Treasury Rate Lock (as more fully described on page 12 of this 10-Q). Interest rate risk - As of June 30, 1999, except for CoBank 6 which carries a variable interest rate that is periodically repriced, Chugach's outstanding borrowings from CoBank were at fixed interest rates with varying maturity dates. At maturity, these bonds can be repriced and a new maturity date established. The following table provides information regarding cash flows and related weighted average interest rates by expected maturity dates for Chugach's debt obligations (dollars in thousands): Fair 1999 2000 2001 2002 2003 Thereafter Total Value Long-term debt, including current portion $ 143 $6,37 $6,430 $52,910 $5,907 $241,904 $313,666 $333,665
Commodity price risk - Chugach's gas contracts provide for adjustments to gas prices based on fluctuations of certain commodity prices and indices. Purchased power costs are passed directly to Chugach's wholesale and retail customers through a fuel surcharge, therefore, fluctuations in the price paid for gas pursuant to long-term gas supply contracts does not normally impact margins. The fuel surcharge mechanism mitigates the commodity price risk related to market fluctuations in the price of purchased power. PART II OTHER INFORMATION Item 1. Legal Proceedings Standard Steel Salvage Yard Site (the Site) The full investigation and cleanup (remedial action) of the Site was substantially completed as of September 30, 1998. A relatively minor amount of additional Site work and additional reporting will be performed in 1999 to complete the remedial action. Although the costs of the 1999 work as well as the total oversight costs of EPA and other federal agencies are not yet known, Chugach has pre-funded these costs and, based on estimates for 1999, it is not anticipated that Chugach will be required to make any further payments relating to the remedial action at the Site. Four of Chugach's insurance carriers have been paying, under a reservation of rights, Chugach's costs of defense for the Site. By agreement dated May 15, 1998, these four insurance carriers agreed to pay the majority of Chugach's costs relating to the Site, including investigation and remedial action costs, EPA oversight costs and attorneys' fees. This settlement preserves Chugach's potential claim for natural resource damages and is anticipated to result in Chugach paying no more than $500,000 for all Site costs. Management believes that the latter amount would be fully recoverable in rates and therefore would have no impact 16 on Chugach's financial condition or results of operations. Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc. U-98-180 Reference is made to Item 5 (Other Information) with respect to the unsolicited acquisition proposal by MEA. On December 2, 1998, MEA filed a complaint with the RCA. In the Matter of the Formal Complaint filed by MATANUSKA ELECTRIC ASSOCIATION, INC. Against CHUGACH ELECTRIC ASSOCIATION, INC., U-98-180. MEA alleges that Chugach has engaged in "unreasonable management practices" in the management of the Series A Bonds. The complaint asks the RCA to issue an order instituting an investigation into the reasonableness and propriety of the continuing decision of Chugach not to defease such Bonds, which order would include convening a public hearing to take evidence as to whether Chugach's decision not to defease said Bonds constitutes an unreasonable management decision, and awarding MEA such additional relief as the RCA may find just and equitable. Chugach has filed an answer denying the material allegations of MEA's complaint, asserting that its management of the Series A Bonds has been reasonable and sound, and contending that defeasance of such Bonds would not be a prudent course of action. The answer also asserts that the RCA should not open an investigation on the grounds that MEA's allegations do not implicate the kinds of management decision into which it is appropriate for the RCA to inquire. MEA has filed a reply to Chugach's answer, which Chugach has moved to strike on the basis that such reply asserts new claims going beyond the core allegations in the complaint relating to Chugach's decision not to defease the Series A Bonds and relies on new factual allegations not contained in the complaint. Each party has filed additional motions regarding the pleadings of the other party. The APUC took no action in this matter except to convene an informal status conference on April 30, 1999. If the RCA authorizes an investigation, Chugach will vigorously defend its financial management. Because of the preliminary nature of the case, Chugach has not been able to estimate the costs of its participation should the case proceed. Reference is made to the information (which is incorporated by reference herein) set forth under Item 5 of the Form 8-K filed by Chugach on July 28, 1999, (the "July 1999 8-K") with respect to (among other matters) a complaint filed by MEA against Chugach in Anchorage Superior Court. The caption on that case is Matanuska Electric Association, Inc. v. Chugach Electric Association Inc., Case No. 3AN-99-8152C. On July 26, 1999, MEA amended its complaint and filed a motion for preliminary injunction in that action seeking a court order requiring Chugach to (a) immediately advise its members that the ballots distributed on or about July 23, 1999, in connection with the special meeting of members that Chugach has called for November 18, 1999 to consider and vote on MEA's unsolicited proposal to acquire the assets and assume the liabilities of Chugach (the "MEA Proposal") are void (see Item 5 of Part II of this Report), and (b) issue a new ballot package after the August 24, 1999 public hearing which Chugach has scheduled in connection with the special membership meeting, pursuant to procedures to be negotiated with MEA. The Court heard arguments on MEA'smotion on August 6, 1999. In a bench ruling the same day, the Court denied all relief sought by MEA. It required only that Chugach modify for this meeting its standard voting procedure to allow members who have voted to change their vote by requesting and returning by mail a replacement ballot by Chugach's established deadline of 12:00 p.m., November 15, 1999, orby voting in person at the special meeting, with the last dated vote being counted. 17 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 Unsolicited Acquisition Proposal by Matanuska Electric Association, Inc. Reference is made to the information (which is incorporated by reference herein) set forth, with respect to the above captioned matter, in (a) Item 5 of the July 1999 8-K and (b) Item 1 of Part II of this Report. Alaska law prohibits Chugach from disposing of a substantial portion of its assets unless the disposition is approved by a majority of the members of Chugach and by at least two-thirds of those actually voting on the proposal, except that the Board of Directors of Chugach ("the Board") may authorize Chugach to sell its assets to another cooperative if the transaction is approved by a majority of those voting in an election in which a much smaller percentage ofthe membership votes and the purchaser expressly agrees to assume Chugach's obligations under collective bargaining agreements. MEA has taken the position that the Board would becompelled to approve the sale of Chugach's assets to MEA under the MEA proposal if two-thirds of Chugach's members voting at the scheduled special meeting of the members approved the ballot proposal (which is set forth under Item 5 of the July 1999 8-K) and those voting in favor of the transaction constituted a majority of all of the members. Chugach believes that, although member approval clearly is a prerequisite to any sale to MEA, no such sale could legally occur unless the Board also approves the sale in the exercise of its independent judgment. It is unclear whether Chugach's members will approve the MEA proposal by the required supermajority vote at the scheduled special meeting of members, what legal effect (if any) approval by a supermajority of Chugach's members would have in light of the rejection of the MEA proposal by the Board, and whether any acquisition - even if approved by Chugach - would be approved by the RCA. It is, therefore, not possible to determine at this time the outcome of the MEA proposal. However, in view of numerous uncertainties associated with the consummation of the MEA proposal, including those referred to above, Chugach believes that there is not a material likelihood that the MEA proposal will be consummated. Accordingly, while Chugach has publicly stated its belief that the consummation of the MEA proposal (including the additional borrowing that would be associated therewith) would adversely affect the financial condition, results of operations, capital resources and liquidity of Chugach, Chugach does not believe that there is a material likelihood that these consequences will occur. 18 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Nikiski Cogeneration Plant System Use and Dispatch Agreement between Chugach Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. Agreement for the Sale and Purchase of Electric Power and Energy between Chugach Electric Association, Inc. and the City of Seward Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between Chugach Electric Association, Inc. and ARCO Beluga, Inc. Amendatory Agreement No. 5 To Agreement for the Sale and Purchase of Natural Gas between Chugach Electric Association, Inc. and Marathon Oil Company Amendment No. 3 To Agreement for the Sale and Purchase of Natural Gas between Chugach Electric Association, Inc. and Chevron U.S.A. Inc. Financial Data Schedule (b) Reports on Form 8-K: Reference is made to the July 1999 8-K (as defined in Item 3 of Part II of this report), which discussed the special meeting of members scheduled by Chugach for November 18, 1999, to consider and vote on the MEA proposal, the public hearing scheduled by Chugach for August 24, 1999, in connection with the special meeting, and other matters related to MEA including certain litigation filed by MEA. 19 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/ Eugene N. Bjornstad Eugene N. Bjornstad, General Manager Date: August 13, 1999 By: /s/ Evan J. Griffith, Jr. Evan J. Griffith, Jr. Executive Manager, Finance & Energy Supply Date: August 13, 1999 20 EXHIBITS Listed below are the exhibits which are filed as part of this Report: Exhibit number Description Page 10.70 Nikiski Cogeneration Plant System Use and Dispatch Agreement between Chugach Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. 22 10.71 Agreement for the Sale and Purchase of Electric Power and Energy between Chugach Electric Association, Inc. and the City of Seward 44 10.72 Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between Chugach Electric Association, Inc. and ARCO Beluga, Inc. 67 10.73 Amendatory Agreement No. 5 To Agreement for the Sale and Purchase of Natural Gas between Chugach Electric Association, Inc. and Marathon Oil Company 75 10.74 Amendment No. 3 To Agreement for the Sale and Purchase of Natural Gas between Chugach Electric Association, Inc. and Chevron U.S.A. Inc. 80 27 Financial Data Schedule **
** Filed Electronically EX-10.70 2 NIKISKI COGEN. AND DISPATCH AGREEMENT NIKISKI COGENERATION PLANT SYSTEM USE AND DISPATCH AGREEMENT Page 1 NIKISKI COGENERATION PLANT SYSTEM USE AND DISPATCH AGREEMENT Parties: Alaska Electric Generation and Transmission Cooperative, Inc. Chugach Electric Association, Inc. NIKISKI COGENERATION PLANT SYSTEM USE AND DISPATCH AGREEMENT 08/11/99 Page 7 NIKISKI COGENERATION PLANT SYSTEM USE AND DISPATCH AGREEMENT Article I. Purpose 1.1 The Nikiski Cogeneration Plant System Use and Dispatch Agreement has three broad purposes; first, to ensure that Nikiski Cogeneration Plant electrical power is dispatched to meet the essential purpose of providing additional capacity for the HEA system when needed, second, provide for the economic operation of the Unit by placing it in continuous, full load operation and to make the power available for Chugach system use and third to grant to Chugach the right to provide dispatch service for disposition of the Unit. Article Il. Parties 2.1 The Parties to this Agreement are Chugach Electric Association, Inc. (Chugach), an Alaska non-profit electric cooperative membership corporation with offices at 5601 Minnesota Drive, P.O. Box 196300, Anchorage, Alaska 99519-6300, and Alaska Electric Generation and Transmission, Inc. (AEG&T), the mailing address of which is 3977 Lake Street, Homer, Alaska 99603. Article Ill. Recitals 3.1 Chugach owns and operates electric generation, transmission and distribution facilities; 3.2 Chugach owns and operates a remote control system to control its facilities known as a supervisory control and data acquisition system (SCADA); 3.3 AEG&T, whose members include Homer Electric Association, Inc. (HEA), is a Generation and Transmission Cooperative which both owns and operates generation facilities and purchases power from Chugach in order to supply the power requirements of of AEG&Ts members: 3.4 AEG&T supplies power to HEA which AEG&T purchases from Chugach through a take-or-pay Agreement for Sale of Electric Power and Energy which currently provides for the sale and purchase of 73 MW of capacity with the minimum associated energy of not less than 350,000 MWH per year; 3.5 AEG&T currently owns and operates a General Electric Frame 6 gas turbine power plant known as the Soldotna No. 1 Plant, equipped with its own remote terminal unit (RTU) which is compatible with Chugach's SCADA equipment; 3.6 AEG&T will move the generator and turbine from the Soldotna No. 1 Plant, to the agricultural products plant owned by Kenai Fertilizer Company LLC (KFC), which is located near Nikiski, Alaska all in general accordance with agreements between AEG&T and KFC to develop the "Nikiski Cogeneration Plant"(the Unit); 3.7 Economic operation of the Unit will be enhanced by base load operation; 3.8 The parties have determined that Chugach can operate the Unit as a Chugach system resource (subject to conditions specified in this agreement), and that such operation is of benefit to Chugach, AEG&T and HEA, and Chugach is willing to do so; 3.9 Base load operation of the Unit as a Chugach system resource, as provided for in this agreement, will allow AEG&T/HEA to economically purchase energy requirements from Chugach in excess of the current HEA obligations; 3.10 Base load operation of the Unit will also eliminate the need for Chugach to operate its Bernice Lake facility to provide reliability under normal operating conditions, thereby maintaining the current level of electric service reliability to the Kenai Peninsula at a reduced cost to Chugach and its wholesale customers; 3.11 AEG&T desires to maximize the economic benefits to AEG&T of owning the Unit by entering into this Agreement to secure necessary dispatch services to reliably dispatch the Unit, and make available the Unit for operation as an integral part of the Interconnected System; 3.12 Chugach desires to supply the dispatch services, and AEG&T desires to obtain those services from Chugach under the terms and conditions of this Agreement; 3.13 AEG&T and Chugach desire to have the Unit available for the Interconnected System use as outlined in this Agreement; 3.14 All Parties intend that AEG&T shall remain the owner of the Unit and that AEG&T shall remain responsible for the Unit in all respects consistent with that ownership, including but not limited to responsibility for all operations, maintenance, debt, and repairs. Article IV. Definitions AEG&T Fuel: The quantity of fuel consumed by the Unit to provide for AEG&T Use. AEG&T Use: Operation of the Unit whether initiated by Chugach or requested by HEA or AEG&T, to provide capacity and energy to HEA in excess of the capacity required to be purchased and sold under the Chugach Wholesale Power Agreement, or in lieu of any portion of such capacity as Chugach may be unable or unwilling to supply. Agreement: This Nikiski Cogeneration Plant System Use and Dispatch Agreement. Banked Fuel: A quantity of natural gas fuel equal to the difference between (a) the quantities of HEA Fuel and AEG&T Fuel estimated for the preceding year in accordance with Section 7.9(b), and (b) the actual quantities of AEG&T Fuel and HEA Fuel which AEG&T had the right under this Agreement to supply for such year. Base Load: Operation of the Unit at a steady level as close to the maximum capacity (MW) of the Unit as possible without violating any Unit operating restrictions. Chugach Unit Fuel Price: The price paid by Chugach under the terms of the Marathon Contract for natural gas delivered to its Bernice Lake facility, until the supply available under the Marathon Contract is exhausted, and then, the highest of (a) the average price then paid for natural gas by Chugach, less transportation charges, (b) the average price of natural gas delivered to the Chugach Beluga facility, or (c) the current price charged by Chugach to AEG&T for natural gas supplied pursuant to Section 9.2(b)(2). Chugach Use: Dispatch of the Unit initiated by Chugach for any and all Chugach power commitments to retail and wholesale consumers including AEG&T and HEA. Chugach Use includes operation for resale to Homer Electric Association under the terms of the Chugach Wholesale Power Agreement. Chugach Wholesale Power Agreement: The Agreement for Sale of Electric Power and Energy between Chugach, AEG&T and HEA, bearing signatures dated September 1985. Date of Commercial Operation: The date when HEA in the exercise of reasonable professional judgment declares the Unit to be commercially operable. Effective Date: The date on which this Agreement is last executed by all parties, subject to Chugach obtaining gas contract amendments acceptable to Chugach from Marathon, ARCO, Chevron and (if necessary) ML&P and any required Jurisdictional Reviews. HEA Fuel: HEA Fuel as the term is defined in section 7.9(b)(ii) of this Agreement, but in no event less than zero. Interconnected System: The entire interconnected generation, transmission, and distribution system in the Railbelt Region of Alaska. Jurisdictional Reviews: The approval in writing of any governmental entity, regulatory body, or lender, the approval of which is required at the time in order for this Agreement or any amendment or modification thereof to become effective. KFC: The Kenai Fertilizer Company LLC, an Alaska Limited Liability Company, or any successor entity. KFC Agreement: An agreement entered into between KFC and AEG&T in connection with the construction or operation and maintenance of the Unit. KFC Plant: The agricultural products plant near Nikiski, Alaska operated by KFC and formerly known as the Unocal Plant. Marathon Contract: The Agreement for the Sale and Purchase of Natural Gas between Chugach and Marathon Oil Company dated September 26, 1988. Operation and Maintenance (or O&M) Services: Those activities, whether performed on-site or off-site of a generating unit, including, but not limited to, routine acquisition of consumables, facility upkeep, inspections, overhauls, replacements, and record keeping associated with retention of continuous operating availability, timely completion of repairs, and prudent oversight of generating assets. Output of the Unit: The total electrical energy produced by the Unit at any given time. Point of Interconnection: The 115 kV side of the Units step-up transformer. Regular Working Hours: The hours between 8:00 a.m. and 5:00 p.m., Monday through Friday, except State legal holidays. SCADA System: A computerized control and telecommunications system which includes computer hardware and software, sensing equipment, telecommunications equipment, and all associated equipment and facilities. SCADA is an acronym for Supervisory Control and Data Acquisition. Spin: The portion of generation capacity related to base load capability, when the Unit is in operation and synchronized with the transmission network that is in excess of the Output of the Unit. Unit: That portion of the Nikiski cogeneration plant which consists of a General Electric Frame 6 simple cycle combustion turbine, generator and switchyard including step-up transformer. All other terms not specifically defined herein shall have those definitions as listed in the Alaska Intertie Agreement dated December 23, 1985, among The Alaska Power Authority (now known as Alaska Energy Authority), ML&P, Chugach, GVEA, AEG&T, and others, as amended from time to time. Article V. Term 5.1 This Agreement shall become effective on the Effective Date and shall terminate concurrently with the Chugach Wholesale Power Agreement; provided, that this Agreement may be extended at any time by the written consent of the parties. Article VI. Scope of Services 6.1 Chugach shall provide the dispatching services under this Agreement in the following order of priority: a) AEG&T Use; b) Chugach Use; c) The reserves which AEG&T may be obligated to provide, if any. 6.2 During the term of this agreement, Chugach will Base Load the Unit when it is made available by AEG&T. The only exceptions are a) When the Unit is operated for an AEG&T Use (priority 6.1.a);. b) When the Kenai Peninsula is islanded due to the loss of all interconnected transmission lines, the Unit load may be reduced to 30 MW or other mutually agreed upon value, until such time as the Kenai Peninsula is again interconnected with the Interconnected System; c) When Bradley Lake is experiencing spill and transmission constraints cannot handle full output of both Bradley Lake and the Unit, Unit output will be reduced or AEG&T will direct the HEA/AEG&T share of Bradley Lake be reduced accordingly; d) During system emergencies such as gas supply emergencies, volcanic activity, or Kenai Peninsula transmission system outages, Unit output will be reduced at the reasonable discretion of the dispatcher until a mutually acceptable operating level can be determined; and e) As the parties may establish by written agreement. It is expected that Chugach will operate the Unit approximately 8000 hours per year at the declared capability of the Unit, as defined in the Alaska Intertie Agreement. 6.3 Unit availability for any use will be limited by scheduled and unscheduled maintenance, only. AEG&T will use its best efforts to minimize scheduled and unscheduled downtime in a manner consistent with continuous duty of the Unit. 6.4 When the Unit operates for AEG&T Use exclusively, Chugach will be allocated all spin in excess of that required by AEG&T. In the event Chugach does not choose to acquire the spin, AEG&T is free to market the spin to others. 6.5 Operating Restrictions for the Unit are: a) Normal Use: Unit minimum load 6 MW Unit minimum up time none Start up restrictions none b) Emergency Use: Unit minimum load minimum controllable Unit minimum up time none Start up restrictions none c) At any time, AEG&T reserves the right to restrict Unit operations and/or generated output levels to less than rated for reasons of safety or operational status. AEG&T will exert best efforts to take timely actions required to correct the cause of the restriction. d) If AEG&T adopts operating restrictions less restrictive than those listed in Section 6.5(a) for any unit disposition covered by AEG&T Use other than serving HEA load, then the same operating restrictions shall replace those in Section 6.5(a). 6.6 This Agreement does not obligate Chugach to provide any sales of electrical power and energy to AEG&T for service to HEA in excess of Chugach's obligation under the Chugach Wholesale Power Agreement. Article VII. Other Rights and Obligations 7.1 The parties agree to interface their telecommunications systems at the Bernice Lake PoweR Plant; specifically, at the Chugach Main Distribution Frame terminal strip in the Chugach telecommunications building. AEG&T shall maintain a suitable telecommunications link between Bernice Lake Power Plant and the Unit. AEG&T shall maintain a communication system with the necessary interfaces to interconnect with the Chugach microwave system and shall be solely responsible for the costs associated with the maintenance of the equipment owned by AEG&T. The use of both parties' communication systems will be as a single system. However, no payment shall be due either party for use of its communication system by the other provided the use is part of the services contemplated by this Agreement. 7.2 Chugach shall allow AEG&T to maintain an existing eight (8) foot diameter antenna at the 135-foot elevation of Chugach's telecommunications tower at Bernice Lake Power Plant. Chugach shall supply 120 Volt A-C power to a circuit breaker in a panel in Chugach's telecommunication building for use by AEG&T as a power supply for AEG&T's telecommunications equipment. Chugach shall allow AEG&T to maintain an existing telecommunications building within the vicinity of the base of the tower and utilize the existing telecommunications electrical ground. 7.3 AEG&T shall maintain at its own expense all of the remote terminal units (RTU's), telemetering equipment, or any other equipment on its system that is necessary for Chugach to operate and control the Unit using Chugach's existing equipment. Such equipment shall be compatible and suitable for interfacing with the Chugach SCADA system. 7.4 AEG&T shall classify all of the alarms on its SCADA system under one (1) of the following four(4) classifications 1. Alarm Priority 1--Unit Trip 2. Alarm Priority 2--Trip Possible 3. Alarm Priority 3--Alarm-No Trip 4. Alarm Priority 4--Start Inhibit Chugach shall display these alarms at the Chugach Power Control Center through the Chugach SCADA system. 7.5 Chugach shall follow the Notification Procedures set forth in Exhibit C. 7.6 AEG&T shall install and maintain any additional metering as described in Exhibit B. Such metering shall be of the type and quality needed to provide Chugach with the information necessary to accomplish the monitoring, controlling, recording, and reporting functions as outlined in Exhibit A. Chugach shall not be required to add facilities on AEG&Ts side of the Point of Interconnection. No new facilities related to the provision of services under this Agreement will be added by either party to its generation and transmission system without proper metering. Upon the construction or addition of any such new facilities the parties will negotiate and prepare appropriate modifications to Exhibit B. 7.7 AEG&T is solely responsible for providing adequate system protection for the Unit, including all protection required for remote operations. 7.8 Operations and Maintenance: a) The Parties agree to jointly plan annual maintenance activities and schedules for generation facilities located on the Kenai Peninsula, and involve each other immediately when a need to change schedules is identified. b) AEG&T/HEA agrees to call on Chugach support when in-house resources are insufficient to perform O&M work, and utilize Chugach's expertise to provide technical and management O&M Services when needed. Such support shall be requested in advance of undertaking such O&M Services, and scheduled and coordinated to the maximum extent possible. Upon receipt by Chugach of a request for O&M Services from AEG&T/HEA, Chugach will provide a cost estimate for the requested services and Chugach will not provide the services until AEG&T/HEA has considered the cost estimate and authorized Chugach to proceed. This Section 7.8(b) does not preclude AEG&T/HEA from enlisting specified technical support and assistance from suppliers of equipment associated with the Unit, such as General Electric field engineers. c) Should AEG&T elect to contract for the O&M Services for the Unit other than with HEA, Chugach shall be given the first right of refusal to provide such O&M Services. If AEG&T requests an estimate, Chugach shall have 30 days to provide an estimate for provision of such services. Chugach shall have 30 days to match any bid or contract offer being considered by the AEG&T board. If the Chugach estimate is accepted, or if Chugach offers to match any bid or contract, then Chugach shall be awarded the O&M Services contract. d) Any rights of Chugach or obligations of HEA under this section 7.8 of this agreement are subject to AEG&Ts agreement with KFC for performance of the operation and maintenance of the Unit. Any such agreement will be appended to this Agreement as Exhibit D. 7.9 Fuel Supply: a) Except as herein provided Chugach will use its reasonabl best efforts, to the extent tha natural gas is available under Chugachs existing and replacement natural gas contracts, to provide all natural gas fuel required to operate the Unit. If Chugach at any time determines that for whatever reason it may not be able to deliver fuel to the Unit, it will immediately so advise AEG&T. For Chugach gas delivered to the KFC Plant at meter no.106 connecting the KFC Plant to the Cook Inlet Gas Gathering System or meter no. 414 connecting the KFC Plant to the Kenai Pipeline System, AEG&T will provide transportation of the fuel to the Unit at no additional cost. b) Notwithstanding the foregoing, AEG&T shall have the option to supply a portion of the fuel for the Unit in an amount up to (i) the AEG&T Fuel plus (ii) the quantity of fuel calculated on an annual basis as follows (the HEA Fuel) HEA Fuel (in mcf/year) = E (A-B) + F, where as to the year D A = Total MWh purchased by AEG&T under the Chugach Wholesale Power Agreement B = 350,000 MWh D = Total MWh generated by the Unit for Chugach Use (measured at the Units 13.8 kV bus) E = Total fuel (in mcf) used in the Unit for Chugach Use. F = Banked Fuel. Prior to the beginning of each calendar year AEG&T will provide Chugach with an operating plan, including an estimate of the quantity of HEA Fuel and the AEG&T Fuel for that year. Chugach will cooperate in providing AEG&T with information necessary to make such estimate. In calculating the estimate, the values for A, D and E will be based upon the operating plan for the year. Except where this formula is used for projections, actual data will be used based on the most recent calendar year. c) During each hour that the Unit is operated for AEG&T Use, AEG&T shall have the right to provide all fuel requirements associated with that use. d) During each hour that the Unit is operated for Chugach Use, AEG&T shall have the right to provide a portion of the fuel to the Unit in an amount up to the estimated HEA Fuel for the year divided by the expected hours of Unit operation during the year for Chugach Use, and Chugach will utilize such amount, or any lesser amount as AEG&T may direct in accordance with this Agreement. Prior to the first day of each month AEG&T will notify Chugach as to the percentage of the HEA Fuel and AEG&T Fuel that AEG&T will provide to the Unit and Chugach will schedule the fuel deliveries to the Unit accordingly. AEG&T will be entitled to utilize any such lesser notification period the Cook Inlet gas industry may afford for gas balancing. 7.10 Purchase of Power: In addition to its 350,000 MWh purchase obligation under the Chugach Wholesale Power Agreement, AEG&T will purchase from Chugach in each calendar year after the Date of Commercial Operation a quantity of energy (MWh) equal to HEAs residual energy (MWh) requirements less the quantity of energy (MWh) received by AEG&T as HEAs allocated share under the Bradley Lake Hydroelectric Project Agreement for the Sale and Purchase of Electric Power and less the quantity of energy (MWh) generated for AEG&T Use; provided, that the quantity of energy which AEG&T shall be committed to purchase pursuant to this provision for its residual energy requirements shall not exceed 320,000 MWh per year. AEG&Ts purchase obligation under this provision shall commence on the Date of Commercial Operation. Residual energ is that energy used by HEA which is above the 350,000 MWh purchase obligation under the Chugach wholesale power agreement but does not include any energy supplied from capacity used to supply demand in excess of 73 MW on the Chugach system. Article VIII. Energy Accounting and Power Factor 8.1 The Chugach Dispatcher shall maintain records of the Unit output between Chugach Use and AEG&T Use and keep running accounts of the energy use for the Unit. 8.2 Chugach shall dispatch the Unit within the limitations established by AEG&T from time to time. Article IX. Compensation, Billing and Payment 9.1 All rights and costs of ownership of the Unit will remain with AEG&T except as explicitly stated in this Agreement. 9.2 Chugach will pay compensation to AEG&T for use of the Unit monthly as follows: a) Chugach Use: For Chugach Use, Chugach shall pay AEG&T monthly compensation ("C") equal to the cost of operation and maintenance expense ("O") plus the value of HEA Fuel actually delivered and consumed on site ("V") which is expressed in the following formula: C = O + V Where: "C" is the compensation in dollars paid to AEG&T. "O" shall be $5.00/MWh multiplied by the monthly MWh electrical Output of the Unit for Chugach Use, as measured at the 13.8 kV meter, multiplied by "A", below. A shall be an adjustment for inflation, to be applied for each calendar year beginning on January 1, 1999. "A" shall be calculated as follows A = .2(1+ppi) + .8(1+cpi) Where ppi is the percentage change, expressed as a decimal, in the Producer Price Index of Metals Commodities as published by the Bureau of Labor Statistics of the United States Department of Labor, for the month ending on January 31 of the year in which the adjustment is made, as compared with such index for the month ending January 31 of the year preceding the date of the adjustment; and cpi is the percentage change, expressed as a decimal, in the U.S. Consumer Price Index for Urban Wage Earners and Clerical Workers published by the Bureau of Labor Statistics of the United States Department of Labor, for the month ending on January 31 of the year in which the adjustment is made, as compared with such index for the month ending Januar 31 of the year preceding the date of the adjustment. "V" is the value of the quantity of HEA Fuel provided by AEG&T and consumed by the Unit during the month. The value will be based upon the Chugach Unit Fuel Price in effect during the month, provided, however, that if AEG&T provides HEA Fuel in addition to that quantity initially committed under the terms of the KFC Agreement and the price (including transportation costs) paid by HEA to the supplier is less than the Chugach Unit Fuel Price, then the value of the additional volume supplied shall be the Chugach Unit Fuel Price less one-half of the difference between the price paid by AEG&T and the Chugach Unit Fuel Price. b) AEG&T Use: For AEG&T Use, AEG&T shall pay Chugach: 1. for dispatch services a daily dispatch rate of $350 for each day or part of a day during which the Unit is dispatched for AEG&T Use except that the payment is waived if Chugach either uses the spin of the Unit or jointly utilizes the energy Output of the Unit during any part of that day; and 2. for all fuel and transportation costs incurred by Chugach in the AEG&T Use. Chugach shall invoice these as separately itemized charges to AEG&T. c) Allocation of fuel costs between simultaneous Uses: For AEG&T Use where Chugach utilizes the spin but does not generate any energy, 100% of the fuel costs are allocated to AEG&T. When energy as measured at the Units 13.8 kV bus is being produced simultaneously for AEG&T Use and Chugach Use then the fuel costs will be divided in proportion to the energy being produced for each use. 9.3 Within ten days after the end of each month, Chugach shall provide AEG&T with an accounting of the use of the Unit for the previous month showing the total energy and fuel use by the type of operation. In such accounting, Chugach may designate certain items as being estimated due to the unavailability of final underlying data, in which event adjustments to the correct amounts, when amounts are determined, shall be included in an accounting for a subsequent month. This accounting shall be the basis for the Unit billing by AEG&T. 9.4 Payment by Chugach shall be due in AEG&T's office by the 15th day after mailing of the bill. Payment shall be mailed or direct deposit to AEG&T. Amounts not received on or before the due date shall be payable with interest accrued at the rate of 1 percent per month compounded monthly from the due date to the date of payment. 9.5 In the event any portion of any bill is disputed, the disputed amount may be paid or may be withheld. In either event, Chugach shall provide AEG&T a detailed written explanation of why the amount is in dispute. If the disputed portion is paid and later found to be not owed, AEG&T shall refund to Chugach the disputed portion plus interest on a monthly basis at the statutory interest rate to the date the refund check is mailed by AEG&T. If the disputed portion is withheld and later found to be owed, Chugach shall pay the disputed portion to AEG&T plus interest on a monthly basis at the statutory interest rate from the due date of payment to the date the refund check is mailed by Chugach. Article X. Emergencies and Problems 10.1 Chugach shall make best efforts to continue to provide dispatch services in accordance with this Agreement during SCADA, communication or other outages. 10.2 AEG&T shall maintain and supply Chugach an up-to-date list of personnel authorized to receive any information which Chugach is obligated to supply to AEG&T under this Agreement such that the Chugach dispatcher at all times will be able to reach personnel designated by AEG&T to receive the information. Article XI. Liability and Indemnity 11.1 Regardless of fault or causation, each party shall assume all responsibility and hold the other party harmless from and defend the other party against all claims for injury or damage of any sort arising out of the operation of this Agreement to persons or property on its respective side of the Point of Interconnection. Chugach shall not be liable for any lost revenue or other damages suffered by AEG&T or any other entity or person as a result of any act, or failure to act, on the part of Chugach under this Agreement, except that Chugach agrees that it will be responsible for injury to AEG&T caused intentionally by Chugach or through Chugach's gross negligence, and except that Chugach shall indemnify AEG&T against any premium or penalty charges for which HEA may become liable pursuant to the terms of Paragraph 5.4 of the Chugach Wholesale Power Agreement if Chugach dispatched the excess power through inadvertence or willful disregard of the dispatch instructions received from AEG&T for AEG&T Use. This indemnity provision shall not apply to a willful breach of this Agreement by either party. Article XII. Uncontrollable Forces 12.1 An uncontrollable force shall mean an act of God, act or omission of government, failure of or threat of failure of facility, unscheduled maintenance and repair, labor or material shortage, strike, lockout, or other industrial disturbances, act of the public enemy, war, blockade, insurrection, riot, epidemic, landslide, avalanche, earthquake, fire, storm, lightning, flood, washout, civil disturbance, restraint by court order or public authority, action or non-action by or inability to obtain necessary authorization or approval from any governmental agency or authority, and any other act or omission similar to the kind herein enumerated. Strikes, lockouts, and other labor disturbances shall be considered uncontrollable forces and nothing in this Agreement shall require either party to settle a labor dispute against its best judgement. Each of these matters enumerated constitutes an uncontrollable force to the extent that it is not within the reasonable control of affected party, and to the extent that such party by the exercise of due diligence is unable to overcome it. In the event either party, by reason of an uncontrollable force, is rendered unable, wholly or in part, to perform its obligations under this Agreement, then upon such party giving notice and particulars of such uncontrollable force, its obligation to perform (other than the obligation to pay money shall be suspended during the continuance of any inability so caused, but for no longer period, and the effects of such cause shall, so far as possible, be remedied with all reasonable speed. The affected party shall not be responsible for its delay in performance under this Agreement during delays caused by an uncontrollable force, nor shall such uncontrollable force give rise to claims for damages or constitute default. However, should an Uncontrollable Force continuously prevent performance by either party of substantially all of its obligations under this Agreement for a period of more than one year, the Agreement is voidable at the option of either party upon 30 days written notice to the other party. Article XIII. Severability If any provision of this Agreement shall be finally adjudicated by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Agreement shall be invalid or unenforceable as to future obligations but shall not operate to extinguish obligations (such as payment obligations) already accrued. Article XIV. Termination 14.1 In the event of a material breach of this Agreement, either party may give written notice to the other. If a material breach is not cured within thirty (30) days after the breaching party receives notice of the breach, the non-breaching party may, at its option, terminate the Agreement without incurring liability therefor, bring an action for specific performance, or exercise any other contract remedy. All liabilities arising under this Agreement prior to termination shall be and are hereby preserved. 14.2 This Agreement shall terminate twenty-four months from the Effective Date, unless prior to said date AEG&T shall have commenced relocating the generator and turbine from the Soldotna No. 1 Plant to the KFC Plant near Nikiski, Alaska Article XV. Miscellaneous Provisions 15.1 Right of First Refusal: Chugach shall have a right of first refusal to purchase, lease, rent or in any other way acquire AEG&Ts rights in the Unit or any portion of the electrical output or capacity of the Unit. The Right of First Refusal will be retained by Chugach over the life of the Agreement. The Right of First Refusal shall not apply to a disposition by AEG&T to HEA. The Parties intend that this Right of First Refusal not impede future efforts by AEG&T to dispose of the Unit or its output while offering Chugach a genuine and full first right of refusal to purchase the Unit or its electrical output. Accordingly, Chugach shall promptly respond (no later than 90 days) after notification by AEG&T of a proposed disposition of the Unit or its output regardless of whether the proposal resulted from negotiations with a third party, a competitive bid process or otherwise. Notification by AEG&T of the proposed disposition of the Unit or its output shall include disclosure of all information reasonably necessary to allow Chugach to fully evaluate the proposal and to prepare a responsive proposal. If Chugach's proposal is substantially similar to and of equal or greater value to AEG&T as that described by AEG&T, Chugach's proposal shall be accepted by AEG&T. 15.2 Grant of Option: AEG&T grants to Chugach an option to purchase the electricity generated by steam produced by or in conjunction with the operation of the Unit. The terms of the option are as follows. a) Notice. AEG&T will notify Chugach in writing of the availability of the electricity not less than six months nor more than thirty-six months before the date of commercial production of electricity using the steam produced by the heat recovery steam generator installed in conjunction with construction of the Unit. The notice will describe the amount of electricity to be produced and the process for its production. b) Right to Option. Chugach shall have six months from the date of the notice within which to exercise the option. c) Exercise. The option will be exercised by delivery to AEG&T of a written notice by Chugach within the foregoing period specifying the amount of electric output for which it intended to take or pay. d) Terms. The purchase price for the electricity shall be an amount equal to the average thermal generation cost for the Chugach system, adjusted quarterly in accordance with the most recently filed fuel surcharge applications, or computed in similar fashion as that last submitted, plus an operation and maintenance component computed on the same basis as the "O" component of compensation defined under the terms of Section 9.2 a) of this Agreement. e) Delivery. AEG&T will deliver the electricity to Chugach at the Point of Interconnection. Chugach will be obligated to pay only for electricity delivered. f) Expiration. If not exercised within the time period set forth above the option will expire and be of no further force and effect with respect to the electricity produced in accordance with the notice, but not with respect to any subsequent additional production. If exercised, the rights acquired and obligations assumed under the option shall terminate upon the termination of this Agreement. 15.3 Assignment: No party shall assign this Agreement, or any part thereof, without notice to, and consent in writing by, the other party; provided that such consent shall not be unreasonably withheld. 15.4 No Third Party Beneficiaries: The provisions of this Agreement shall not create any rights in favor of any person, corporation, or association not a participant in this Agreement, and the obligations herein assumed are solely for the use and benefit of the participants to this Agreement. 15.5 Notice: Except as otherwise provided herein whenever notice or communication is provided or required to be given by either party to the other, such notice or communication shall be in writing and transmitted by certified United States Mail, return receipt requested, or by personal delivery, or by telegraph. All such written communication directed at Chugach shall be sent to: Executive Manager Finance & Energy Supply or Manager of Dispatch Chugach Electric Association, Inc. P.O. Box 196300 Anchorage, Alaska 99519-6300 or by personal delivery to: Executive Manager Finance & Energy Supply or Manager of Dispatch Chugach Electric Association, Inc. 5601 Minnesota Drive Anchorage, Alaska 99518-1074 All such written communication directed to AEG&T shall be sent to General Manager HEA P. O. Box 169 Homer, Alaska 99603 15.6 Entire Agreement: The terms of this Agreement and any provisions adopted by reference or otherwise incorporated into this Agreement, including Exhibits A, B, and C, set forth the full intent of the parties regarding the matters covered by this Agreement. Neither party is relying on or may rely on any written or oral collateral, prior, or contemporaneous agreements, assurances, representations, or warranties not set forth in this Agreement. No modifications of this Agreement shall be implied in law or equity, nor may any part hereof be terminated, amended, supplemented, waived or modified except by instrument in writing signed by both parties. 15.7 Future Agreements: This Agreement shall not preclude future agreements on leasing, capacity sale or other ownership or operating agreements by and among Chugach, AEG&T and HEA. 15.8 Dispatch Agreement: The Soldotna One System Use and Dispatch Agreement is terminated as of the date AEG&T reasonably declares that the Soldotna No. 1 Plant has been decommissioned incident to the construction of the Unit. 15.9 Waiver: Any waiver at any time by a party of its rights with respect to a default under this Agreement or with respect to any other matter arising in connection with the Agreement shall not be deemed a waiver with respect to any other default or matter. Any delay short of the statutory period of limitations in asserting or enforcing a right shall not be deemed a waiver of such right. Date: 2-12-99 ALASKA ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE, INC. By: /s/ N L Story N.L. Story General Manager Date: Feb 9, 1999 CHUGACH ELECTRIC ASSOCIATION, INC. By: /s/ Eugene N. Bjornstad Eugene N. Bjornstad General Manager EXHIBIT A DISPATCH FUNCTIONS AND REPORTS 1. Chugach shall provide the services required to accomplish the remote starting, loading, monitoring, unloading and stopping of the Unit over the SCADA system. The Unit shall be base loaded in accordance with Section 6.2, except during emergencies when unit operation shall be coordinated through the Chugach Dispatch Center. As outlined in Exhibit A, Chugach shall record the operations of the Unit and transmit such information to AEG&T on a monthly basis. 2. Whenever the Chugach SCADA system indicates that the HEA load exceeds the Contract Capacity in the Chugach Wholesale Power Agreement plus HEAs share of Bradley Lake capacity or when directed by HEA, Chugach will allocate a portion of the Unit output to AEG&T Use. The portion allocated to AEG&T Use shall equal the amount of MWs required to meet HEAs load plus reserves, if any, that is not being purchased under the Chugach Wholesale Power Agreement or from Bradley Lake. Any output not allocated to AEG&T Use shall be Chugach Use. If Bradley Lake capacity is not available as defined in the Bradley Lake Scheduling Agreement, then unless directed otherwise by HEA, AEG&T Use shall equal the amount of MWs required to meet HEAs load plus reserves, if any, that are not being purchased under the Chugach Wholesale Power Agreement. If neither Bradley Lake capacity as defined in the Bradley Lake Scheduling Agreement nor Unit capacity are available and the HEA load exceeds the Contract Capacity in the Chugach Wholesale Power Agreement, then unless HEA schedules some other resource to meet HEAs load, the additional HEA load will be supplied by Chugach under the Excess Capacity provisions of the Chugach Wholesale Power Agreement. 3. Chugach shall remotely operate the Unit over the SCADA and telecommunications systems. This operation shall include: (a) Issuing start commands; (b) Synchronizing the Unit; (c) Monitoring alarms; (d) Limiting Unit operations in response to SCADA alarms; (e) Adhering to Unit loading limits established by AEG&T; (g) Adhering to rate of change limitations for generation as established by AEG&T; (i) Shutdown and opening generator breaker; (j) Stopping the unit; (k) Tripping the Unit in the event SCADA information dictates this action; (1) Observing the Notification Procedures set forth in Exhibit "C". 4. Chugach shall record and maintain logs and records of the Unit operation and shall provide upon request such logs and records to AEG&T within one (1) week. These logs and records shall include the following: (a) Scheduled hours of operation, scheduled loading by use category, and average load on an hourly basis; (b) Actual hours of operation, type of and average load on an hourly basis; (c) Available operating data, such as: voltage, amperes, VARS, frequency, watts, power factor, gas flow, temperatures, breaker positions, and accumulated MWH, MVARH, and MMCF/DAY as provided by the SCADA system or similar data recorded manually when the SCADA system is inoperative; and (d) Alarms and observed or reported deviations from normal Unit operating parameters. EXHIBIT B METERING LOCATIONS Consistent with provisions of the "Agreement for Sale of Electric Power and Energy and Lease of Facilities," Addendum 1, metering shall be provided at the following locations: I. At the Soldotna Substation: 115-kV Line from Soldotna Substation to Quartz Creek Substation. 115-kV Line from Soldotna Substation to Bernice Lake Substation. 69-kV Line from Soldotna Substation to Quartz Creek Substation. 69-kV Line from Soldotna Substation to Bernice Lake Substation. II. At the Unit: Unit Generator Output at the 13.8 kV bus. Unit Generator Gas Usage at the intake manifold. Unit Station Service at the 480 Volt bus. EXHIBIT C NOTIFICATION PROCEDURES Chugach will perform the respective notification procedures for each alarm category set forth below: A. Alarm Priority 1--Unit Trip Chugach shall contact the Unit Power Plant Specialist (PPS) immediately. All control systems will be reset to allow restart of the Unit if conditions causing the trip are known by the Unit PPS and have been rectified. If the alarm occurs outside Regular Working Hours, Chugach shall contact the PPS in the manner and order of preference as designated by AEG&T. If the PPS cannot be contacted, Chugach shall contact the person designated as AEG&T's standby contact and advise him of the situation. Chugach shall attempt to restart the Unit after the control has been reset and clearance has been received from the Unit PPS. B. Alarm Priority 2--Trip Possible Chugach shall contact the Unit PPS immediately. If the alarm occurs outside Regular Working Hours, Chugach shall contact the Unit PPS in the manner and order of preference as designated by AEG&T. If the PPS cannot be contacted, Chugach shall contact the person designated as the AEG&T standby contact and advise him of the situation. After investigation, the Unit PPS may impose operational restrictions on the unit until the situation can be rectified. C. Alarm Priority 3--Alarm-No Trip: If the Unit is in operation, Chugach shall contact the Unit PPS immediately. If the Unit is shut down, Chugach shall contact the Unit PPS within 24 hours. If the alarm occurs outside Regular Working Hours, Chugach shall contact the PPS in the manner and order of preference as designated by AEG&T. If the PPS cannot be contacted, Chugach shall contact the person designated as AEG&T's standby contact and advise him of the situation. After investigation, the Unit PPS may impose operational restrictions on the unit until the situation can be rectified. D. Alarm Priority 4--Start Inhibit If the unit is in operation, Chugach shall contact the PPS immediately. If the unit is shut down, Chugach shall contact the Unit PPS within 24 hours, or since these alarms are start inhibits, when first aware of a need to start up the Unit, whichever comes first. If the alarm occurs outside Regular Working Hours, Chugach shall contact the PPS in the manner and order of preference as designated by AEG&T. If the PPS cannot be contacted, Chugach shall contact the person designated as AEG&T's standby contact and advise him of the situation. EX-10.71 3 SEWARD/ CHUGACH POWER SALES AGREEMENT AGREEMENT FOR THE SALE AND PURCHASE OF ELECTRIC POWER AND ENERGY between CHUGACH ELECTRIC ASSOCIATION, INC. and the CITY OF SEWARD SECTION 1. PARTIES 1. The parties to this Agreement are CHUGACH ELECTRIC ASSOCIATION, INC. (Chugach) , an Alaska non-profit electric cooperative corporation, having its offices at Anchorage, Alaska; and City of Seward, Seward Electric Utilities Division (Seward) having its offices at Seward, Alaska. SECTION 2. RECITALS 2(a). Chugach has furnished electric power and energy to Seward under various contractual arrangements since July 1, 1961. Seward now receives electric power and energy under a Wholesale Power Agreement signed by Seward September 27, 1984, as amended by signature of Seward dated June 25, 1985. 2(b). Except as specifically provided herein, this Agreement supersedes any previous agreement and any rights and obligations of the parties under the existing agreement or any amendment thereof. All rights and obligations under any previous wholesale power agreement or any previous arrangements between Seward and Chugach are hereby terminated. 1 2(c). This Agreement recognizes and is intended to operate in conjunction with the Bradley Lake Hydroelectric Project Agreement for the Sale and Purchase of Electric Power (and related agreements) and the 1993 Alaska Intertie Project Participants Agreement (and related agreements) to which both Seward and Chugach are Parties. 2(d). Seward now has and, for the term of this Agreement, will retain the capability to generate or otherwise supply and deliver all of its own Electric Power sufficient to meet all of its system requirements. The Parties recognize that there may be times when the entire load may not be able to be served by Sewards generators, but the load can be managed such that it is within the capability of Sewards generators or is supplied by other generators not owned by Seward. SECTION 3. AGREEMENT 3(a). Sale And Purchase Of Electric Power. Chugach agrees to sell and deliver, and Seward agrees to purchase and receive, all of its electric power and energy requirements from Chugach subject to the following terms and conditions. 3(b). System Sale. The power which Chugach is obligated to sell under this Agreement is power generated by and/or purchased and transmitted over Chugach's Generation and Transmission System. Thus, this sale is a system sale supported by the resources of Chugach's entire Generation and Transmission System, and not a resource sale supported by specific, distinct and identifiable generating units and transmission facilities included within that System. 3(c). Limited interruptibility. On request of Chugach and for the period specified by Chugach, Seward will provide generation for all of its system requirements allowing Chugach to completely interrupt service to Seward load. Seward will perform this obligation on two hours notice. Seward will perform this obligation up to 12 times per calendar year and will meet its own 2 power requirements for up to a total of 72 hours per calendar year. In return for Seward agreeing to this interruptibility, Chugach will provide electric power and energy under this Agreement at the special Available Capacity Rate described in Section 4, below. For purposes of this Section 3(c), notice shall be made by calling the emergency services dispatcher for the City of Seward at (907) 224-3338, or such other number as the parties may from time to time agree upon in writing. Outages required for maintenance of Chugach facilities shall be included within the 12 times or 72 hours per year limit. Outages required for maintenance of Seward facilities shall not be included within the 12 times or 72 hours per year limit. Chugach will pay Seward $0.0658 per kWh for the labor and maintenance costs plus $0.0616 times A/1.06 for fuel costs, where A is the cost per gallon for fuel under Sewards current agreement for fuel supply for those hours in excess of 72 hours per year, if any, should the scheduled interruptions requested by Chugach be extended beyond the 72 hour limit. $1.06 per gallon is the delivered price for 1997. In the absence of an annual agreement for fuel, the price will be the average price paid during the previous 6 months. Interruptions scheduled under this Section 3(c) shall not be for less than 2 hours. 3(d). Delivery Points. Chugach shall deliver all power under this Agreement at Daves Creek Substation and near the Lawing Substation at approximately mile 25 of the Seward Highway. Chugach shall have no responsibility for transmission and distribution beyond these Points of Delivery. 3(e). Resale Of Chugach Power Prohibited; Limit On Amount Of Power Actually Taken. In consideration of Chugach's willingness to supply power under this Agreement on an average cost basis, Seward agrees that (1) all electric power delivered under this Agreement shall be used to serve Seward's retail electric loads as ultimate consumers and end-users of the power, and 3 (2) no power taken under this Agreement may or will be resold to any other entity or otherwise used or disposed of, by contractual agreement or otherwise, in any other manner or for any other purpose. To assist in enforcing this provision, the parties agree that at no time will Seward take, and at no time will Chugach be obligated to supply, capacity or energy under this Agreement in amounts in excess of the then-existing Seward system demand or requirement for capacity and energy. Nothing contained in this Section 3(e) shall preclude Seward from using power supplied hereunder to meet its retail electric loads while engaging in contemporaneous off-system sales of capacity or energy available to Seward from its own or other sources. 3(f). Joint Use Agreement and Net Billing for Bradley Lake Power. The Parties recognize the existence of the Joint Use Agreement and the Net Billing Agreement for Bradley Lake Power, attached hereto as Attachments A and B, respectively and agree that these agreements shall continue in effect. SECTION 4. RATES AND BILLING 4(a). General Ratemaking Provision. The rates and charges applicable under this Agreement shall be established, and shall be revised from time to time, in accordance with (1) the substantive ratemaking principles set forth herein, and (2) the ratemaking procedures set forth herein. This Agreement and rates proposed hereunder shall be submitted to the Alaska Public Utilities Commission for approval. The schedule of initial rates under this agreement are set forth in Attachment C to this Agreement and are effective until January 31, 2002 (four years from the effective date). No later than January 31, 2001, the Parties shall begin good faith negotiations to revise the rates as needed and in accordance with the principles in this Section 4. In the event the Parties are unable to agree, either party may give notice of early termination of this agreement to be 4 effective 12 months after the date of notice, or sooner at the option of Chugach but in no event sooner than January 31, 2002. During this period after notice of early termination, the prices established under Attachment C will continue in effect. 4(b). Substantive Ratemaking Principles. All rates and charges applicable under this Agreement shall be consistent with the terms and conditions of this Agreement and with all other lawful contractual obligations of Chugach. Such rates and charges shall be based on allocations of costs designed to ensure that Chugach's total revenue requirement, including, but not limited to generation, transmission, ratemaking margins, fuel and purchased power expenses is divided fairly and appropriately between Chugach's bulk power supply, generation, transmission, distribution and retail functions, so that no function will significantly or persistently cross-subsidize the other. Chugach shall pass through directly and Seward shall pay Chugach average fuel and purchased power expenses associated with the energy it receives on a monthly basis. 4(c). Ratemaking procedures. Chugach shall supply and be paid for electric capacity and energy under this Agreement on a total requirements basis subject to a reduction of the annual allocated demand charge by 1/3 to reflect the value to Chugach of the interruptibility to which Seward has committed. The following ratemaking and billing provisions shall apply: (1) Allocation of demand-related costs. Demand-related costs (together with customer-specific costs) will be allocated to Seward for ratemaking purposes in accordance with a methodology that is consistent with the fairness principles set forth in Section 4(b) of this Agreement and will be based on Total System Demand. (2) Computation of demand charges. To establish demand charges (expressed in dollars per kilowatt/month) for the sale of electric capacity, the Seward demand allocator 5 (which shall be determined by Sewards proportionate contribution to the overall system peak) shall be reduced by 1/3 so that the demand- related costs allocated to Seward pursuantto Section 4(c)(1) above for any given rate year are reduced by 1/3 and then divided by the sum of Sewards actual peak demand on the Chugach system in kilowatts for each month of the test year used for ratemaking purposes. (3) Billing demand and payment for capacity. Sewards billing demand in each month shall be Sewards actual peak demand on the Chugach system for that month. Provided that at least two hours prior notice is given to Seward prior to the beginning of an interruption request, if the request is not honored at the time requested, Seward will pay penalties as outlined herein. If an interruption request is not honored at the time requested, Seward will pay to Chugach $5,000. If the request is not honored within the first half hour of the time requested, an additional $2,500 shall be paid by Seward. If Seward does not interrupt within 1 hour of the requested time, it shall pay an additional $2,500. This will result in a penalty of $10,000 if Seward does not interrupt within one hour after the requested interruption time. Thereafter, Seward shall pay an additional $1,000 for each one-half hour during which it does not interrupt service after the initially requested interruption. At the time of the interruption request, Chugach shall provide Seward with a specific time for the end of the interruption which ending time may be changed at the sole discretion of Chugach on one hour notice. If Seward fails to interrupt prior to the time the interruption is scheduled to terminate, it shall pay the penalties described above but the interruption request shall not count as one of the twelve interruptions allowed to Chugach under Section 3(c) of this Agreement provided that Chugach does not request interruption again sooner than 8 hours after the 6 termination time of the most recent interruption request. The maximum cumulative penalties per calendar year for failure to interrupt on request shall not exceed $360,000. (4) Payment for energy. Chugach will charge and be paid for energy for each monthly billing period in an amount equal to Chugach's then-applicable energy charge (excluding fuel and purchased power expenses) multiplied by Seward's total system energy requirements for that month, which energy requirements shall be metered at the Points of Delivery. Actual fuel and purchased power costs will be paid in accordance with Attachment C. Fuel and purchased power costs will be reduced by 67% of economy energy sales margins and wheeling revenues which would otherwise have been assigned to Seward in the fuel surcharge process based on Sewards proportionate share of the total system firm sales on the Chugach system. (5) Customer Charge. Chugach will charge and be paid a monthly amount equal to the then applicable customer charge multiplied by the number of delivery meters. (6) Good Faith. The Parties agree to operate their systems in good faith to provide the interruptibility contemplated by this Agreement in order to accomplish the purpose of allowing Chugach flexibility in operating its system while providing Seward with reduced costs deriving from its ability to interrupt service from Chugach. Chugach agrees not to request interruptions for the sole purpose of increasing the penalty specified in Section 4(c)(3) but is otherwise permitted to request interruptions in good faith for any other reason and regardless of whether actual benefit results to Chugach from the interruption. 7 4(d). Billing. Seward shall pay bills within 15 days of receipt. In the event any portion of any bill is disputed, pending resolution of the billing dispute, the undisputed portion of each bill shall be paid to Chugach in timely fashion pending resolution of the disputed amount. 4(e). Margins (capital credits). Seward shall be entitled to an allocation of margins (capital credits) based on Sewards contribution to Chugach electric margins. SECTION 5. TERM 5(a). Effective date. This Agreement shall become effective March 1, 1998. This Agreement and any amendments thereto shall become effective only upon obtaining the written approval of the Alaska Public Utility Commission. 5(b). Duration. This Agreement shall continue in force through January 31, 2008 (Expiration Date) except if terminated earlier pursuant to Section 4(a). 5(c). Amendments. This Agreement may be amended or extended at any time by the written consent of all parties hereto, but all amendments hereto, including termination prior to the expiration of the term hereof, will not become effective until approved in writing by the Commission. SECTION 6. PROVISIONS RELATING TO ELECTRICAL SERVICE 6(a). Capacity To Be Made Available. Except when prevented by an Uncontrollable Force, or when Chugach has requested Seward to provide for its requirements from its own resources pursuant to Section 3(c) of this Agreement, Chugach shall make electric capacity continuously available to Seward at the Point of Delivery in the amount of Seward's total demand for electric capacity. 6(b). Restoration Of Service. In the case of a partial or total loss of service to Seward 8 as a result of problems encountered on the Chugach system, Chugach will extend its reasonable best efforts to restore service in a prompt and non-discriminatory manner. 6(c). No Duty To Third Parties. This Agreement shall not create on the part of Seward or Chugach any legal duty owed to the retail customers of any party or to other wholesale or wheeling customers of Chugach, including without limitation, any legal duty to maintain continuity of Electric Power service to other parties or customers. Nothing in the foregoing sentence shall limit the rights afforded Chugach or Seward under this Agreement. 6(d). Prudent Utility Practice. All parties shall at all times design, construct, maintain, operate, and repair their respective facilities and equipment in accordance with Prudent Utility Practice and standards in order to prevent, minimize, or correct any failures or partial failures of such facilities or equipment. Seward shall design, construct, operate, maintain, and repair its facilities in accordance with Prudent Utility Practice and shall meet the following constraints: (1) Impairment of Service. Seward's load shall not cause sine-wave distortion or large short-interval demand that will impair service or cause interference with telephone, television, other facilities or other utilities' customers. (2) Deviation from Phase Balance. Seward's load shall not result in a deviation from phase balance of more than ten (10) percent at any time. (3) Power Factor. Seward and Chugach shall each supply their own VAR requirements, as measured at the Point of Delivery, to correct any power factor problems on their respective sides of the Point of Delivery. Seward must maintain a minimum power factor equal to or in excess of 95 percent.. Failure to meet this power factor requirement will result in charges for reactive power. For each percent of power factor below 95%, Seward 9 shall pay an additional 1% of its demand charge as computed under Section 4(c)(2). 6(e). Reserves. (1) Chugach will maintain its own power generation Reserves, including those necessary to support sales made pursuant to this Agreement, but Chugach will neither maintain nor provide Reserves to support, under this Agreement, the generating units of Seward. (2) In order to avoid damage to or additional demands on Chugach's system, Seward agrees that it will take care at all times it is operating its generation in parallel with Chugachs generation to maintain sufficient spinning Reserves (or demonstrably equivalent automatic load shedding devices) to support any and all of their own generation. (3) Notwithstanding the foregoing, the parties recognize and agree that the provision of emergency capacity and/or energy to one another pursuant to the terms of agreements other than this Agreement does not represent, for purposes of this Agreement, an unauthorized use of or reliance on one another's power generation Reserves, (4) Chugach will plan its system to accommodate Seward loads taking into account the provisions in Section 3(c) of this Agreement relating to limited interruptibility. 6(f). Voltage. The Electric Power provided hereunder shall be three-phase, alternating current, at the nominal voltages set forth in Attachment C attached hereto plus or minus 5% under normal conditions and plus or minus 10% under emergency conditions. All parties shall endeavor to maintain proper phase voltage balance on their respective systems. If a problem with voltage occurs, all parties will use their reasonable best efforts to correct such problems. 6(g). Frequency. Chugach will use its reasonable best efforts to maintain its system 10 frequency at 60 hertz averaged over each twenty-four hour period. SECTION 7. METERING 7. Each party shall (1) make or provide for biennial tests and inspections of all its meters and recorders used for billing purposes in this Agreement in order to maintain a commercial standard of accuracy, (2) restore to a condition of accuracy any meters found to be inadequate, and (3) advise the other parties promptly of the results of any such test which shows any inaccuracy more than 0.5 percent slow or fast. Each party shall be permitted to have representatives present at such tests and inspections. Each party shall notify the other party at least one (1) week in advance of the tests and inspections. Each party shall make or provide for additional tests of its meters and recorders at the request of another party and in the presence of representatives of the requesting party or parties. The cost of any additional test requested by such party or parties shall be borne by the party owning the equipment if such test shows a meter or recorder is inaccurate by more than 0.5 percent slow or fast. In the event that the result of such tests shows a meter registering in excess of 0.5 percent either above or below the current registration, then the readings of such meter previously taken for billing purposes shall be corrected according to the percentage of inaccuracy so found for the known or estimated period of such error, but no such correction shall extend beyond ninety (90) days previous to the day on which the inaccuracy is discovered by such test. For any period that a meter should fail to register, or its registration should be so erratic as to be meaningless for billing purposes, the bill for power and energy shall be based upon records from check meters, if available and tested for accuracy, or otherwise upon the best available data. 11 SECTION 8. GOOD FAITH PERFORMANCE OF RIGHTS AND OBLIGATIONS 8. Each party to this Agreement covenants and agrees to act in good faith under this Agreement and the terms cited herein and perform in a manner consistent with Prudent Utility Practice. The Parties recognize that the Limited Interruptibility feature under Section 3(c) of this Agreement will require and the Parties agree to coordinate closely on matters relating to service interruptions for maintenance or other reasons. SECTION 9. FORCE MAJEURE 9. In the event any party, by reason of an Uncontrollable Force, is rendered unable, wholly or in part, to perform its obligations under this Agreement (other than its obligations to pay money), then upon said party giving notice and particulars of such Uncontrollable Force, its obligation to perform shall be suspended or correspondingly reduced during the continuance of any inability so caused, but in no greater amount than required by the Uncontrollable Force and for no longer period, and the effects of such cause shall, so far as possible, be remedied with all reasonable and prompt dispatch. The affected party shall not be responsible for its delay in performance under this Agreement during delays caused by an Uncontrollable Force. Seward shall be responsible for meeting its own power supply needs either from its own resources or from other purchases when Chugach power is unavailable by reason of an Uncontrollable Force. SECTION 10 RESPONSIBILITY FOR POWER SUPPLY AND DELIVERY 10(a). Responsibility Of Parties. Except as provided in Sections 10(b) and 10(c), each party shall assume responsibility on its respective side of the Points of Delivery for the electric service supplied and/or taken, as well as for maintenance of any apparatus used in connection therewith. Regardless of the foregoing and of the location of any Point of Delivery or metering point, however, 12 each party shall be responsible for maintaining and operating its own facilities unless (1) a different division of responsibilities is agreed upon in writing by the parties, or (2) a different division of responsibilities in specific emergency circumstances is agreed upon orally or in writing by the parties. 10(b). Indemnification. Each party shall, as to all actions taken relevant to this Agreement, indemnify and hold harmless the other party, its directors, officers, and employees, against all loss, damage, legal expense and liability to third persons arising from any injury to, or death of, persons or injury to property to the extent caused by any negligent act or omission of the indemnifying party, or its directors, officers, or employees. 10(c). Notice, Defense And Settlement Of Legal Proceeding. (1) If any legal proceeding shall be instituted, or any claim or demand made, against any party hereto (hereinafter called the "Indemnified party") with respect to which the other party (hereinafter called the 'Indemnifying party") may be liable hereunder, the Indemnified party shall give prompt written notice thereof, within thirty days thereof by certified mail, return receipt requested, and promptly deliver a true copy of any summons or other process, pleading or notice to the Indemnifying party. (2) In any action in which there is no reasonable possibility of joint liability of any parties to this Agreement, the Indemnifying party shall have the absolute right, at its sole expense and without the consent of the Indemnified party, to defend and settle any such legal proceeding, claim or demand. However, the Indemnifying party shall give notice, if possible, to the Indemnified party of any proposed settlement. In no event shall the participation of the Indemnified party in the defense and settlement of any legal proceeding, claim or demand, interfere with or alter the Indemnifying party's absolute right to control the defense and/or 13 settlement of the legal proceeding, claim or demand. The Indemnified party may, if it sees fit, participate in defense of any such legal proceeding, at its own expense. (3) Where joint liability of both parties to this Agreement is a reasonable possibility, no party which has exposure to joint liability shall be limited in their participation in the action. (4) If the Indemnified party, without the prior consent of the Indemnifying party (which consent, if requested, shall not be unreasonably withheld), makes any settlement with respect to any such legal proceeding, claim or demand, the Indemnifying party shall be discharged of any liability hereunder with respect thereto. (5) The Indemnifying party shall pay all reasonable costs incurred by the Indemnified party in any successful enforcement of thi indemnity. SECTION 11. INSURANCE 11. Each party agrees to use its best efforts to obtain and maintain in full force and effect during the term of this Agreement, adequate insurance with responsible insurers as may be required by law. SECTION 12. WAIVER 12. Any waiver at any time by any party to this Agreement of its rights with respect to any default of the other party hereto, or with respect to any other matter arising in connection with this Agreement, shall not be considered a waiver with respect to any prior or subsequent default, right or matter. 14 SECTION 13. SEVERABILITY 13. The provisions of this Agreement are not intended to be considered in isolation and each such provision represents a portion of the consideration agreed upon among the parties for each other provision of this Agreement. The parties believe that it would be impossible, in general, to invalidate or sever any particular provision of this Agreement without working a potentially great hardship on one or the other of the parties, and without denying one or more of the parties of important, bargained-for consideration. If, after this Agreement has become effective, any article, paragraph, clause or provision of this Agreement shall be finally adjudicated by a court of competent jurisdiction or a regulatory agency with jurisdiction over the parties to be invalid or unenforceable, or if any administrative agency with authority over the parties shall require changes to this Agreement, then the parties shall in good faith meet promptly to negotiate lawful amendments or modifications to this Agreement that will effectuate the original intent of this Agreement and return the parties as nearly as possible to the position that each would have enjoyed in the absence of such judicial, regulatory, or administrative action. SECTION 14. SUCCESSORS AND ASSIGNS 14(a). Assignment Generally. This Agreement and all of the terms and provisions hereof shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto, save that no assignment or other transfer of this Agreement or any interest hereunder by any party hereto shall be effective without the prior written consent of all of the other parties (which consent shall not be unreasonably withheld), and said assignee must, in the commercially reasonable opinion of the other parties, be financially capable of assuming such obligations. Chugach agrees not to sell or otherwise dispose of its Generation and Transmission System (or any portion thereof which 15 is needed to permit performance of this Agreement) to any entity that refuses to assume or is unable to perform Chugach's obligations under this Agreement. 14(b). Assignment to secured Lenders. Notwithstanding the provisions of subsection 13(a), any party hereto may assign this Agreement, together with all of its rights and obligations thereunder, (A) to or in trust for any secured lenders of such party, for the purpose of securing obligations for borrowed money, or (B) pursuant to the exercise by any such secured lender of any of the rights, powers or privileges provided for by the mortgages or other security instruments of such party for borrowed money; provided, that no such assignment shall in any way relieve such party of any obligations hereunder. No such secured lender shall, as a result of such assignment or the subsequent exercise of its rights with respect to this Agreement under any mortgage, deed of trust or other security instrument, be construed to have assumed, or otherwise to have become personally liable for, the assignor's obligations hereunder, but such secured lender's ability to exercise the rights of its assignor hereunder shall be subject to performance of the assignor's corresponding obligations under this Agreement. In the event any such secured lender exercises any of its rights, powers or privileges with respect to this Agreement under said mortgages or other security agreements, such secured lender may thereafter assign this Agreement, together with all the rights and obligations thereunder, to any entity authorized and able to perform the obligations under this Agreement, which entity shall succeed to all the rights and assume all the obligations of the borrower-assignor under this Agreement. Prior to the exercise by any secured lender of any rights or remedies under any mortgages or security agreements with respect to this Agreement, such secured lender shall give the parties hereto reasonable notice that it intends to exercise such rights and remedies. 16 SECTION 15. NOTICES 15. Except as to notice of interruption provided in Section 3(c), any notice or demand required by this Agreement to be given to any party shall be effective when it is received by such party, and in computing any period of time from such notice or demand, such period shall commence at 12:01 p.m. prevailing time at the place of receipt on the date of receipt of such notice or demand. Whenever this Agreement calls for notice or demand (unless otherwise specifically provided), or notification by any party is necessary, the same shall be in writing directed to the General Managers of the other parties. Should telephone notice be necessary, it shall be directed to the General Managers or to a designated or otherwise appropriate subordinate. The designation of the name to which any such notice or demand shall be directed may be changed at any time and from time to time by either party by giving notice as provided above. SECTION 16. DEFAULT AND DISPUTE RESOLUTION 16(a). Notice of Default. Upon failure of any party to perform any obligation hereunder, the party or parties to whom such performance is due shall make demand in writing upon the defaulting party. If such failure, other than a failure to pay Chugach when such payment is due, is not cured within thirty (30) days from the date of such demand it shall constitute a default at the expiration of such period. Chugach's bills to Seward shall constitute written demands for payment for purposes of this Section and Seward shall be considered to be in immediate default of their payment obligations if such bills are not fully paid within 10 days after they are due. 16(b). Performance Pending Resolution Of Dispute. Pending resolution of any dispute, each party shall continue to perform its obligations under this Agreement, including the obligations to deliver and receive electric power and the obligation to pay bills submitted by Chugach for such 17 power. All parties shall be entitled to seek immediate judicial enforcement of this continued performance obligation notwithstanding the existence of a dispute. Application for such enforcement shall be made to the Superior Court for the State of Alaska, in Anchorage. 16(c). Consultation To Resolve Disputes. After notice is delivered and before default occurs under Section 16(a) the parties shall in good faith endeavor to meet promptly and to resolve any dispute through good faith negotiation. If a party has met its obligation of good faith under this Section 16(c), and if the dispute has not been resolved before default occurs, than that party shall be entitled at any time thereafter to seek immediate judicial enforcement of this Agreement in the Superior Court for the State of Alaska, in Anchorage, by bringing any suit, action or proceeding, at law or in equity, including without limitation mandamus, injunction, damages and action for specific performance, as may be necessary or appropriate to enforce any covenant, agreement or obligation of this Agreement. 16(d). Remedies Cumulative. No remedy conferred upon or reserved to the parties hereto is intended to be exclusive of any other remedy available hereunder or now or hereafter existing at law, in equity, by statute or otherwise, but each and every such remedy shall be cumulative and shall be in addition to every other such remedy. The pursuit by either party of any specific remedy shall not be deemed to be an election of that remedy to the exclusion of any other, whether provided hereunder or by law, equity or statute. SECTION 17. RIGHT OF ACCESS AND REMOVAL 17. Each party will have access to the premises, facilities, or property of the other party at all reasonable times for any purpose necessary or appropriate to the performance of this Agreement. Upon termination of this Agreement in accordance with the provisions hereof, each party 18 will remove any property or equipment which it may have installed on the premises of the other party for any purposes hereunder. Seward shall provide Chugach with access to existing metering or allow Chugach to install any metering and equipment necessary or convenient to allow Chugach to track Sewards load and generation during periods of interruption of service from Chugach. SECTION 18. APPLICABLE LAW 18. The parties agree that the interpretation and application of this Agreement shall be governed by the laws of the State of Alaska. SECTION 19. MODIFICATION 19. No modification of this Agreement shall be valid unless it is in writing and signed by all parties hereto, and approved by all appropriate regulatory and administrative agencies or bodies. SECTION 20. SECTION HEADINGS 20. The section headings in this Agreement are for convenience only, and do not purport to and shall not be deemed to define, limit or extend the scope or intent of the section to which they pertain. SECTION 21. MUTUAL COVENANTS AND WARRANTIES 21. Each party covenants and warrants to the other parties that it (1) has the legal authority and ability to enter into and perform, and (2) will at all times maintain the practical and financial ability to perform this Agreement and each obligation assumed by such party under this Agreement. 19 SECTION 22. APPROVAL OF THE COMMISSION 22. This Agreement does not take effect without the prior approval of the Alaska Public Utilities Commission and is at all times subject to revisions by the Commission. SECTION 23. DEFINITIONS The following terms, when used in the Agreement and Exhibits hereto, shall have the meanings specified. 23(a). Agreement. This Agreement for the Sale and Purchase of Electric Power and Energy. 23(b). Electric Power or Power, Electric energy or electric capacity, or both. Where the context of this Agreement requires a distinction, electric energy is expressed in kilowatt-hours (kWh) or megawatt hours (MWh), and electric capacity is expressed in kilowatts (kW) or megawatts (MW). 23(c). Generation and Transmission System. All existing and future facilities (whether or not operable, and whether or not operating) used by Chugach for generation and transmission of electric power, including, in addition to physical generation and transmission facilities and facilities associated with the provision of fuel for electric power generation, Chugach's rights and obligations to obtain (by purchase, wheeling, or otherwise) electric power generated by other entities or fuel for the generation of electric power by Chugach, to the extent that the costs of such facilities and rights are allowably included in the rates charged to Chugach's retail consumers. 23(d). Prudent Utility Practice. At a particular time any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry at such time, or which in the exercise of reasonable judgment in light of facts known at such time, could have been expected to accomplish the desired results at the lowest reasonable cost consistent with good business 20 practices, reliability, safety and reasonable expedition. Prudent Utility Practice is not required to be the optimum practice, method or act to the exclusion of all others, but rather to be a spectrum of possible practices, methods or acts which could have been expected to accomplish the desired result at the lowest reasonable cost consistent with reliability, safety and expedition. Prudent Utility Practice includes due regard for manufacturer's warranties and the requirements of governmental agencies of competent jurisdiction and shall apply not only to functional parts of the parties' generation, transmission, and distribution facilities, but also to appropriate structures, landscaping, painting, signs, lighting and other facilities. 23(e). Reserves. Electric Power needed to avert shortages of capacity and/or energy for the benefit of retail or wholesale consumers that a utility system is obligated to serve and which is available to that system either from facilities or from purchases or other arrangements which such system is contractually entitled to rely upon for such purposes. 23(f). Total System Demand. The Seward demand (regardless of whether Seward is receiving power from Chugach or its own generation) registered during that 15-minute interval for each month in which the sum of (1) the demands metered at the delivery points described in Section 3(d) and (2) the demands on all Seward generation is greatest for that month. Seward shall permit Chugach to install, or cause to be installed, suitable metering and registration equipment on its facilities. 23(g). Uncontrollable Force. Any cause beyond the control of a party hereto and which by the exercise of due diligence that party is unable to prevent or overcome, including but not limited to an act of God, fire, flood, volcano, earthquake, explosion, sabotage, an act of the public enemy, civil or military authority, including court orders, injunctions and orders of governmental agencies 21 of competent jurisdiction, insurrection or riot, an act of the elements, failure of equipment, or the inability to obtain or ship equipment or materials because of the effect of similar causes on carriers or shippers. Strikes, lockouts, and other labor disturbances shall be considered Uncontrollable Forces, and nothing in this Agreement shall require either party to settle a labor dispute against its best judgment; provided, that during any labor dispute all parties shall make all reasonable efforts under the circumstances, including, to the extent permitted by law, the use of replacement personnel and/or management personnel and/or other personnel under the provisions of a mutual aid agreement, to ensure, if possible, the continued ability of the parties to produce, deliver, receive, and distribute the Electric Power that is the subject matter of this Agreement. CITY OF SEWARD CHUGACH ELECTRIC ASSOCIATION, INC. By /s/ Rick L. Gifford By /s/ Eugene N. Bjornstad Title Acting City Manager Title General Manager Date 2/11/98 Date February 3, 1998 I:\wp61\don\1998\ses46.wpd ATTEST /s/ Patrick Reilly Patrick Reilly, City Clerk 22 Attachment C Rates During Initial Agreement Period Effective through January 31, 2002, Sewards rates shall be as follows: Customer Charge: $150 per month per meter Demand Charge: $7.61 per kW per month Energy Charge: $0.00459 per kWh Fuel Charge: Actual fuel and purchased power expense. This amount will be billed on a lagging basis. For example, a January invoice will include actual fuel and purchased power expenses incurred for the energy used in the month of November. The parties will determine Sewards share of the under recovery remaining in the fuel surchargebalancing account as of December 31, 1997 which Seward will be permitted to pay in equal monthly installments through the end of 1998. EX-10.72 4 AMENDMENT 2 ARCO GAS SALES CONTRACT (continued from previous page) 9 AMENDMENT NO. 2 TO AGREEMENT FOR THE SALE AND PURCHASE OF NATURAL GAS between CHUGACH ELECTRIC ASSOCIATION INC. and ARCO BELUGA, INC. dated April 21, 1989 WHEREAS, Chugach Electric Association, Inc. (Chugach) and ARCO Alaska, Inc. entered into an Agreement for the Sale and Purchase of Natural Gas (Agreement) dated April 21, 1989, which Agreement provides for the sale and delivery of gas by ARCO Alaska, Inc. to Chugachs gas-fueled generation facilities located on the west side of Cook Inlet, Alaska (Beluga Station); WHEREAS, on August 1, 1990, Chugach and ARCO Alaska, Inc. entered into Amendment No. 1 to the Agreement; WHEREAS, the Agreement has been assigned by ARCO Alaska, Inc. to ARCO Beluga, Inc. (ARCO) effective December 27, 1996; WHEREAS, Homer Electric Association, Inc. (HEA) and Alaska Electric Generation and Transmission, Inc. (AEG&T) have proposed to relocate the Soldotna Unit 1 generation facility to the Alaska Nitrogen Products, LLC (ammonia production facility) (Facility) that is located on the east side of Cook Inlet, Alaska, near Nikiski on the Kenai Peninsula; WHEREAS, to Chugachs knowledge, HEAs and AEG&Ts purpose for proposing to relocate the Soldotna Unit 1 generation facility would not be to displace ARCOs gas sales and deliveries to the Beluga Station under the Agreement; WHEREAS, the relocated generation facility would be operated under a dispatch agreement with Chugach (Dispatch Agreement) and would be known as the Nikiski Cogeneration Project (Nikiski Project); WHEREAS, the portion of the generation capability of the Nikiski Project that Chugach obtains under the Dispatch Agreement would become part of Chugachs generation facilities; WHEREAS, it is possible that ammonia production could cease at the Facility, which in turn could stop the use of steam at the Facility for process purposes; WHEREAS, it is also possible that steam formerly used at the Facility for process purposes could be used to generate electricity, if equipment were installed at the Nikiski Project that permitted such use; WHEREAS, if Chugach were to obtain steam-produced electricity from the Nikiski Project, the electricity so obtained could displace a portion of the electric power generated at Chugachs gas-fueled generation facilities; WHEREAS, although it is unlikely that the above-described contingencies will all occur, the potential exists that, if Chugach obtains steam-produced electricity from the Nikiski Project, a reduction in gas deliveries under the Agreement could occur; WHEREAS, the parties desire to enter into an arrangement by which, if the above- described contingencies do occur, ARCO may exercise an option to sell and deliver gas under the Agreement in addition to gas otherwise sold thereunder; WHEREAS, Chugach and ARCO desire to further amend the Agreement for the benefit of the parties and to accomplish the above-stated objectives; NOW, THEREFORE, the parties agree as follows: 1. Unless otherwise provided herein, all references in this Amendment to Sections, Subsections, or Exhibits mean such Section, Subsection, or Exhibit contained or referenced in the Agreement. 2. This Amendment will take effect upon the following consents and approvals: a) written consent by Marathon Oil Company (Marathon) to the Amendment, and b) approval of the Amendment by the Alaska Public Utilities Commission (APUC). 3. The following conditions precedent must be satisfied in full before the parties have rights and obligations under the Amendment: A. Commercial ammonia production ceases at the Facility, and the Facility stops using steam for process purposes; and B. Equipment is installed at the Nikiski Project that permits electricity to be generated by steam; and C. Chugach obtains steam-produced electricity from the Nikiski Project. 4. If the conditions listed in Paragraph 3, above, have been satisfied in full, ARCO may exercise an option (Option) to sell and deliver gas to Chugach at the Beluga Station (Nikiski-Displaced Gas) based on the procedure and formula described in this Amendment. The price of gas sold under the Option shall be the price specified in Section VIII. The Nikiski-Displaced Gas will be considered gas sold under the Agreement in addition to gas otherwise sold thereunder. 5. Chugach shall promptly notify ARCO under Section XII(i) when the conditions listed in Paragraph 3, above, have been satisfied in full. ARCO may then exercise its Option as follows: On or before thirty (30) days (Option Deadline) from the date that ARCO receives Chugachs notice under this Paragraph 5, ARCO shall notify Chugach under Section XII(i) that ARCO chooses to sell and deliver Nikiski- Displaced Gas at the Beluga Station. The Options effective date will be the date Chugach receives ARCOs notice. ARCO will be considered to have declined to exercise the Option if ARCO does not fully and timely exercise the Option by the Option Deadline as provided in this Paragraph 5 and in Section XII(i). 6. Provided that ARCO has exercised its Option, the quantity of Nikiski- Displaced Gas that ARCO shall sell and deliver under this Amendment will be determined as follows: Chugach shall first calculate the generation capacity from steam production (Steam Capacity) that is available in megawatts (MW) from the Nikiski Project as of the effective date of the Option. Chugach shall then calculate the total generation capacity (Total Capacity) that is available in MW from the Nikiski Project as of the effective date of the Option. The Total Capacity will be the sum of: a) the capacity in MW represented by the Soldotna Unit 1 alone; b) the capacity in MW added to the Nikiski Project from sources other than steam production capability; and c) the Steam Capacity. The percentage incremental capacity increase that is attributable to steam production capability at the Nikiski Project, i.e. Steam Capacity divided by Total Capacity, will be expressed as a percentage carried out to the first decimal point (Steam Percentage). The quantity of Nikiski-Displaced Gas that ARCO shall sell and deliver under this Amendment will be the product of the following: a Steam Multiplier, multiplied by the Steam Percentage, multiplied by the gas used as fuel for Chugachs portion of the capability and output of the Nikiski Project. The Steam Multiplier is Twenty Percent (20%), subject however to modification under Paragraph 8, below. 7. ARCO and Chugach recognize that Chevron U.S.A. Inc. (Chevron) and the Municipality of Anchorage d/b/a Municipal Light & Power (ML&P) also sell and deliver gas to Chugach at the Beluga Station under Agreements for the Sale and Purchase of Natural Gas dated April 27, 1989 and April 25, 1989, respectively, as later amended (respectively, the Chevron Agreement and the ML&P Agreement). Chevron and ML&P are referred to in this Amendment as the Remaining Beluga Producers. ARCO and Chugach further recognize that Chugach has offered the same options under the same terms to the Remaining Beluga Producers (Corresponding Options) as the Option that Chugach has offered ARCO under this Amendment. 8. If ARCO exercises its Option, then after the Remaining Beluga Producers have notified Chugach whether they exercise or decline to exercise the Corresponding Options, Chugach shall promptly notify ARCO under Section XII(i) if a Remaining Beluga Producer has declined to exercise its Corresponding Option. If a Remaining Beluga Producer has so declined, ARCO may then amend its Option by exercising a Revised Option as follows: On or before thirty (30) days (Revised Option Deadline) from the date that ARCO receives Chugachs notice under this Paragraph 8, ARCO shall notify Chugach under Section XII(i) that Nikiski-Displaced Gas will be calculated using a Steam Multiplier that ARCO shall specify in its notice and that is between Twenty Percent (20%) and Thirty Percent (30%), inclusive (if one Remaining Beluga Producer has declined to exercise its Corresponding Option), or between Twenty Percent (20%) and Sixty Percent (60%), inclusive (if both Remaining Beluga Producers have declined to exercise their Corresponding Options). The Revised Options effective date will be the Options effective date, retroactive to such date. ARCO will be considered to have declined to exercise its Revised Option, and shall continue to sell Nikiski-Displaced Gas that is calculated using a Steam Multiplier of Twenty Percent (20%), if ARCO does not fully and timely exercise the Revised Option by the Revised Option Deadline as provided in this Paragraph 8 and in Section XII(i). 9. If the Steam Capacity or Total Capacity at the Nikiski Project changes after ARCO exercises its Option and (if applicable) its Revised Option, then retroactive to the effective date of the change in the Steam Capacity or Total Capacity, Chugach shall recalculate the Steam Capacity, Total Capacity, and Steam Percentage for purposes of determining the quantity of Nikiski- Displaced Gas that ARCO shall sell and deliver under this Amendment. 10. After ARCO exercises its Option and (if applicable) its Revised Option, the sale and delivery of Nikiski-Displaced Gas shall continue through the earlier of a) the termination of the Dispatch Agreement, or b) the end of Period #2 as defined in the Agreement. 11. By agreeing to this Amendment, ARCO consents to Chugach obtaining steam-produced electricity from the Nikiski Project under the circumstances described in this Amendment, should Chugach choose at its discretion to obtain such electricity. 12. By agreeing to this Amendment, and except as provided in this Amendment, neither ARCO nor Chugach waives, modifies, or prejudices any right or obligation that may be available to it, at any time. This Amendment has no precedential effect. It does not commit either party to further amend the Agreement or to enter into other contractual arrangements. Nor does this Amendment commit either party to take a a certain position in discussions or negotiations, either with the other party or with any other entity. 13. Except for the foregoing amendments, all other terms and conditions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, Chugach and ARCO have caused this Amendment No. 2 to be executed by their authorized representatives. Chugach Electric ARCO Beluga, Inc. Association, Inc. By: /s/Eugene N. Bjornstad By: /s/ M. W. Wheatall Its: General Manager Its: Vice President Date: May 6, 1999 Date: 5/4/99 Tal99022.AAI.Amd2 08/12/99 1:07 PM EX-10.73 5 AMENDMENT 5 MARATHON/ CHUGACH GAS PURCHASE AGREEME (continued from previous page) 1 AMENDATORY AGREEMENT NO. 5 TO AGREEMENT FOR THE SALE AND PURCHASE OF NATURAL GAS between CHUGACH ELECTRIC ASSOCIATION, INC. AND MARATHON OIL COMPANY dated September 26, 1988 WHEREAS, Chugach Electric Association, Inc. (Chugach) and Marathon Oil Company (Marathon) entered into an Agreement for the Sale and Purchase of Natural Gas (Agreement) dated September 26, 1988; WHEREAS, the Agreement has heretofore been amended four times; and WHEREAS, Chugach and Marathon desire to modify further the Agreement for the benefit of both parties; NOW, THEREFORE, in consideration of the promises and mutual agreements herein contained, the parties do covenant and agree as follows: Section A. The definition of Bernice Lake Power Plant in Section 14(h) of the Agreement shall include but not be limited to Chugachs portion of the capability and output of the Nikiski cogeneration facility, which facility consists in part of a forty megawatt (40 MW) gas-fired generating unit owned by Alaska Electric Generation & Transmission, Inc. (AEG&T) and located on the east side of Cook Inlet, Alaska near Nikiski on the Kenai Peninsula. Section B. If and to the extent that Marathon supplies gas to Chugach from the Swanson River Field for use by Chugach as fuel for Chugachs portion of the capability and output of the Nikiski cogeneration facility owned by AEG&T, then the Agreement shall be modified in the following respects for any such Swanson River Field gas: (1) For purposes of Section 7(b) of the Agreement and Section 2(b)(5) of Exhibit F of the Agreement, the upper limit of the acceptable range for the heating value of Swanson River Field gas shall be 1090 (rather than 1050) Btu per cubic foot, expressed at 14.65 pounds per square inch absolute, 60 degrees Fahrenheit (dry basis). (2) Section 3 (Gas Quality) of Exhibit F of the Agreement shall be modified as follows for Swanson River Field gas: As a non-operator of the Swanson River Field and gas storage reservoir, Marathon can not guarantee the quality of the gas delivered to Chugach from this location. However, Marathon will endeavor to provide Chugach on a monthly basis with an analysis provided by the Operator of the Swanson River gas field and storage reservoir. (3) Section 3 (Gas Pressure) of Exhibit F of the Agreement shall be modified as follows for Swanson River Field gas: Gas shall be delivered to Chugach at a pressure of not less than four hundred (400) pounds per square inch gauge and not more than one thousand (1000) pounds per square inch gauge. Gas shall be delivered to UNOCALs facility at a pressure within this stated range or at the pressure required at the inlet of the UNOCAL facility. Section C. Chugach and Marathon recognize the possibility that the steam output of the Nikiski cogeneration facility may, in some circumstances, cease being used as process steam in the production of ammonia and may instead be harnessed for the production of electric power. Chugach and Marathon also recognize that if this occurs, and if Chugach (rather than some other entity) obtains such steam-generated electric power, then such steam-generated electric power will in effect displace electric power that Chugach would otherwise produce by operating Chugachs gas-fired generators at Beluga. As a result of its existing contractual obligations to the Beluga River Field Producers, Chugach has offered to the Beluga River Field Producers gas contract amendments under which, in such circumstances, each individual Beluga River Field Producer could elect to increase its sales of gas to Chugach at Beluga in order to offset the reduction in such sales that would otherwise result from Chugach obtaining such steam-generated electric power. If and to the extent that any or all of the Beluga River Field Producers accept(s) such contract amendments and, in the circumstances contemplated by such amendments, such Producer(s) does/do in fact elect to so increase its/their sales of gas to Chugach at Beluga, then (1) Chugachs purchases of gas from Marathon at Beluga will be reduced by the total amount of such increased sales, and (2) Chugach will continue to purchase from Marathon all the gas used as fuel for Chugachs portion of the capability and output of the Nikiski cogeneration facility. Section D. Chugach will not, without Marathons advance written consent, exercise its option granted by AEG&T to obtain from steam-powered generation at the Nikiski cogeneration facility more energy than that which can reasonably be produced by a 12 megawatt steam-powered generator; provided, that if Chugach demonstrates that, in the circumstances then existing and expected, Chugach can obtain more than 12 megawatts from such steam-powered generation without reducing Marathons net sales of gas to Chugach, then Marathon shall not unreasonably withhold such consent. Section E. For purposes of Section D, above, Chugach shall determine the effect of steam-powered generation at the Nikiski cogeneration facility upon Marathons net sales of gas to Chugach, as follows: Chugach shall notify Marathon if Chugach desires to obtain more energy from such generation than that which can reasonably be produced by a 12 megawatt steam-powered generator. The notice shall further state (1) the total volume of gas delivered to Chugach by Marathon under the Agreement during the twelve (12) full calendar months ended April 30, 1999, as reflected in Marathons invoices for those months (Base Gas); (2) Chugachs estimate for Marathons Share of Chugachs Total Gas Requirements under the Agreement during the twelve (12) full calendar months beginning the first day of the month after Chugachs notice, assuming that Chugach were to obtain more energy during such period from steam-powered generation at the Nikiski cogeneration facility than that which can reasonably be produced by a 12 megawatt steam-powered generator (Estimated Gas); and (3) Chugachs basis for the calculations and estimates in the notice. If the Estimated Gas minus the Base Gas is zero or a positive number, then Marathon shall not unreasonably withhold its consent as provided in Section D, above. Section F. This Amendment will become effective upon approval by the Alaska Public Utilities Commission. Section G. Except for the foregoing amendments, all other terms and conditions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, Chugach and Marathon have caused this Amendatory Agreement No. 5 to be executed by their authorized representatives. Chugach Electric Association, Inc. Marathon Oil Company By: /s/Eugene N. Bjornstad By: /s/ R.G. Becker Its: General Manager Its: Vice President Date: May 19, 1999 Date:May 24, 1999 EX-10.74 6 CHEVRON/ CHUGACH GAS PURCHASE AMENDMENT (continued from previous page) 1 AMENDMENT NO. 3 TO AGREEMENT FOR THE SALE AND PURCHASE OF NATURAL GAS between CHUGACH ELECTRIC ASSOCIATION INC. and CHEVRON U.S.A. INC. dated April 27, 1989 WHEREAS, Chugach Electric Association, Inc. ("Chugach") and Chevron U.S.A., Inc. ("Chevron") entered into an Agreement for the Sale and Purchase of Natural Ga ("Agreement") dated April 27, 1989, which Agreement provides for the sale and delivery of gas by Chevron to Chugachs gas-fueled generation facilities located on the west side of Cook Inlet, Alaska ("Beluga Station"); WHEREAS, Homer Electric Association, Inc. ("HEA") and Alaska Electric Generation and Transmission, Inc. ("AEG&T") have proposed to relocate the Soldotna Unit 1 generation facility to the Alaska Nitrogen Products, LLC (ammonia production facility) ("Facility") that is located on the east side of Cook Inlet, Alaska, near Nikiski on the Kenai Peninsula; WHEREAS, to Chugachs knowledge, HEA's and AEG&T's purpose for proposing to relocate the Soldotna Unit 1 generation facility would not be to displace Chevrons gas sales and deliveries to the Beluga Station under the Agreement; WHEREAS, the relocated generation facility would be operated under a dispatch agreement with Chugach ("Dispatch Agreement") and would be known as the Nikiski Cogeneration Project ("Nikiski Project"); WHEREAS, the portion of the generation capability of the Nikiski Project that Chugach obtains under the Dispatch Agreement would become part of Chugach's generation facilities; WHEREAS, it is possible that ammonia production could cease at the Facility, which in turn could stop the use of steam at the Facility for process purposes; WHEREAS, it is also possible that steam formerly used at the Facility for process purposes could be used to generate electricity, if equipment were installed at the Nikiski Project that permitted such use; WHEREAS, if Chugach were to obtain steam-produced electricity from the Nikiski Project, the electricity so obtained could displace a portion of the electric power generated at Chugachs gas-fueled generation facilities; WHEREAS, although it is unlikely that the above-described contingencies will all occur, the potential exists that, if Chugach obtains steam-produced electricity from the Nikiski Project, a reduction in gas deliveries under the Agreement could occur; WHEREAS, the parties desire to enter into an arrangement by which, if the above- described contingencies do occur, Chevron may exercise an option to sell and deliver gas under the Agreement in addition to gas otherwise sold thereunder; WHEREAS, the Agreement has heretofore been twice amended; WHEREAS, Chugach and Chevron desire to further amend the Agreement for the benefit of the parties and to accomplish the above-stated objectives; NOW, THEREFORE, the parties agree as follows: 1. Unless otherwise provided herein, all references in this Amendment to Sections, Subsections, or Exhibits mean such Section, Subsection, or Exhibit contained or referenced in the Agreement. 2. This Amendment will take effect upon approval by the Alaska Public Utilities Commission ("APUC"). 3. The following conditions precedent must be satisfied in full before the parties have rights and obligations under the Amendment: A. Commercial ammonia production ceases at the Facility, and the Facility stops using steam for process purposes; and B. Equipment is installed at the Nikiski Project that permits electricity to be generated by steam; and C. Chugach obtains steam-produced electricity from the Nikiski Project. 4. If the conditions listed in Paragraph 3, above, have been satisfied in full, Chevron may exercise an option ("Option") to sell and deliver gas to Chugach at the Beluga Station ("Nikiski-Displaced Gas") based on the procedure and formula described in this Amendment. The price of gas sold under the Option shall be the price specified in Section 7. The Nikiski-Displaced Gas will be considered gas sold under the Agreement in addition to gas otherwise sold thereunder. 5. Chugach shall promptly notify Chevron under Section 11(i) when the conditions listed in Paragraph 3, above, have been satisfied in full. Chevron may then exercise its Option as follows: On or before thirty (30) days ("Option Deadline") from the date that Chevron receives Chugach's notice under this Paragraph 5, Chevron shall notify Chugach under Section 11(i) that Chevron chooses to sell and deliver Nikiski-Displaced Gas at the Beluga Station. The Option's effective date will be the date Chugach receives Chevron's notice. Chevron will be considered to have declined to exercise the Option if Chevron does not fully and timely exercise the Option by the Option Deadline as provided in this Paragraph 5 and in Section 11(i). 6. Provided that Chevron has exercised its Option, the quantity of Nikiski- Displaced Gas that Chevron shall sell and deliver under this Amendment will be determined as follows: Chugach shall first calculate the generation capacity from steam production ("Steam Capacity") that is available in megawatts ("MW") from the Nikiski Project as of the effective date of the Option.Chugach shall then calculate the total generation capacity ("Total Capacity") that is available in MW from the Nikiski Project as of the effective date of the Option. The Total Capacity will be the sum of: a) the capacity in MW represented by the Soldotna Unit 1 alone; b) the capacity in MW added to the Nikiski Project from sources other than steam production capability; and c) the Steam Capacity. The percentage incremental capacity increase that is attributable to steam production capability at the Nikiski Project, i.e. Steam Capacity divided by Total Capacity, will be expressed as a percentage carried out to the first decimal point ("Steam Percentage"). The quantity of Nikiski-Displaced Gas that Chevron shall sell and deliver under this Amendment will be the product of the following: a Steam Multiplier, multiplied by the Steam Percentage, multiplied by the gas used as fuel for Chugach's portion of the capability and output of the Nikiski Project. The Steam Multiplier is Twenty Percent (20%), subject however to modification under Paragraph 8, below. 7. Chevron and Chugach recognize that ARCO Alaska, Inc. ("ARCO") and the Municipality of Anchorage d/b/a Municipal Light & Power ("ML&P") also sell and deliver gas to Chugach at the Beluga Station under Agreements for the Sale and Purchase of Natural Gas dated April 21, 1989 and April 25, 1989, respectively, as later amended (respectively, the "ARCO Agreement" and the "ML&P Agreement"). ARCO and ML&P are referred to in this Amendment as the Remaining Beluga Producers. Chevron and Chugach further recognize that Chugach has offered the same options under the same terms to the Remaining Beluga Producers ("Corresponding Options") as the Option that Chugach has offered Chevron under this Amendment. 8. If Chevron exercises its Option, then after the Remaining Beluga Producers have notified Chugach whether they exercise or decline to exercise the Corresponding Options, Chugach shall promptly notify Chevron under Section 11(i) if a Remaining Beluga Producer has declined to exercise its Corresponding Option. If a Remaining Beluga Producer has so declined, Chevron may then amend its Option by exercising a Revised Option as follows: On or before thirty (30) days ("Revised Option Deadline") from the date that Chevron receives Chugach's notice under this Paragraph 8, Chevron shall notify Chugach under Section 11(i) that Nikiski-Displaced Gas will be calculated using a Steam Multiplier that Chevron shall specify in its notice and that is between Twenty Percent (20%) and Thirty Percent (30%), inclusive (if one Remaining Beluga Producer has declined to exercise its Corresponding Option), or between Twenty Percent (20%) and Sixty Percent (60%), inclusive (if both Remaining Beluga Producers have declined to exercise their Corresponding Options). The Revised Option's effective date will be the Options effective date, retroactive to such date. Chevron will be considered to have declined to exercise its Revised Option, and shall continue to sell Nikiski-Displaced Gas that is calculated using a Steam Multiplier of Twenty Percent (20%), if Chevron does not fully and timely exercise the Revised Option by the Revised Option Deadline as provided in this Paragraph 8 and in Section 11(i). 9. If the Steam Capacity or Total Capacity at the Nikiski Project changes after Chevron exercises its Option and (if applicable) its Revised Option, then retroactive to the effective date of the change in the Steam Capacity or Total Capacity, Chugach shall recalculate the Steam Capacity, Total Capacity, and Steam Percentage for purposes of determining the quantity of Nikiski-Displaced Gas that Chevron shall sell and deliver under this Amendment. 10. After Chevron exercises its Option and (if applicable) its Revised Option, the sale and delivery of Nikiski-Displaced Gas shall continue through the earlier of a) the termination of the Dispatch Agreement, or b) the end of Period #2 as defined in the Agreement. 11. By agreeing to this Amendment, Chevron consents to Chugach obtaining steam-produced electricity from the Nikiski Project under the circumstances described in this Amendment, should Chugach choose at its discretion to obtain such electricity. 12. By agreeing to this Amendment, and except as provided in this Amendment, neither Chevron nor Chugach waives, modifies, or prejudices any right or obligation that may be available to it, at any time. This Amendment has no precedential effect. It does not commit either party to further amend the Agreement or to enter into other contractual arrangements. Nor does this Amendment commit either party to take a a certain position in discussions or negotiations, either with the other party or with any other entity. 13. Except for the foregoing amendments, all other terms and conditions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, Chugach and Chevron have caused this Amendment No. 3 to be executed by their authorized representatives. Chugach Electric Association, Inc. Chevron U.S.A. Inc. By: /s/Eugene N. Bjornstad By: /s/ D. T. Berlin Its: General Manager Its: Attorney-In-Fact Date: May 24, 1999 Date: 5-26-99 EX-27 7 FDS -- 6/30/99 10Q CHUGACH ELECTRIC ASSOCIATION
5 6-MOS DEC-31-1999 JAN-1-1999 JUN-30-1999 8,908,100 0 11,985,330 791,300 17,585,354 38,826,057 651,995,906 (238,541,532) 491,309,033 39,257,058 307,306,339 0 0 0 120,577,208 491,309,033 71,732,217 71,732,217 0 53,655,819 0 0 12,080,414 6,321,696 0 6,321,696 0 0 0 6,321,696 0 0
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