Commitments And Contingencies

9 Months Ended

Sep. 30, 2011

Commitments And Contingencies

Commitments And Contingencies

9.   COMMITMENTS AND CONTINGENCIES

Generation Commitments

Chugach is in the process of developing a natural gas-fired generation plant on land owned by Chugach near its Anchorage headquarters.The SPP will be developed and owned by Chugach and ML&P as tenants in common.Chugach will own and take approximately 70 percent of the new plant's output and ML&P will own and take the remaining output.Chugach will proportionately account for its ownership in the SPP.

Chugach executed a gas turbine purchase agreement for the purchase of three gas turbines and a spare engine for maintenance purposes with GE Packaged Power, Inc. (GEPP).Chugach has also executed an owner's engineer services contract, a services contract for the shipment of the combustion turbine generators and related accessories, a steam turbine generator (STG) purchase agreement, an engineering, procurement, and construction (EPC) contract, a once through steam generator (OTSG) equipment and transportation contract and amended the contract for transportation of combustion turbine generators to include transportation of the steam turbine generator.Chugach received an air quality permit from the Alaska Department of Environmental Conservation in 2010, allowing the project to begin construction in the spring of 2011 as planned.On March 15, 2011, Chugach received its initial building permit from the Municipality of Anchorage.Chugach made payments of $77.3 million in the first nine months of 2011, with additional payments of $65.0 million expected in 2011 pursuant to its contracts associated with SPP.

Fuel Supply Contracts

Chugach has long-term fuel supply contracts from various producers at market terms.The RCA approved a gas supply contract between Chugach and ConocoPhillips Alaska, Inc. and ConocoPhillips, Inc. (collectively "COP"), effective August 21, 2009.The new contract provided gas beginning in 2010 and will terminate December 31, 2016.The total amount of gas under the contract is now estimated to be 57 BCF.The RCA approved a new long-term natural gas supply contract with Marathon Alaska Production, LLC (MAP) effective May 17, 2010.The new MAP contract provided gas beginning April 1, 2011, terminating March 31, 2013.MAP had two contract extension options that could be exercised during the first year of the initial contract.MAP extended the contract to December 31, 2013, by exercising the first contract extension on January 12, 2011, and extended the contract to December 31, 2014, by exercising the second contract extension on October 25, 2011. The total amount of gas under contract with MAP is now estimated at 37 billion cubic feet (BCF).These contracts now fill 100 percent of Chugach's unmet needs through December 2014, approximately 75 percent in 2015 and approximately 40 percent in 2016.

Legal Proceedings

Chugach has certain litigation matters and pending claims that arise in the ordinary course of Chugach's business. In the opinion of management, no individual matter or matters in the aggregate is or are likely to have a material adverse effect on Chugach's results of operations, financial condition or liquidity.

Patronage Capital Payable

In 2007, Chugach entered into an agreement with a wholesale customer to return all of its patronage capital within five years after expiration of its power sales agreement, which was related to a settlement agreement associated with the 2005 Test Year General Rate Case (Docket U-06-134).  The agreement was contingent on the RCA accepting the parties' settlement agreement in Docket U-06-134, which occurred on August 9, 2007.  The wholesale customer's patronage capital should have been classified as a liability at that time.  The wholesale customer's patronage capital was $6.5 million at December 31, 2010.  As the amount of the patronage capital was not material for any period, Chugach recorded an adjustment in the first quarter of 2011 to reclassify the amount of $6.5 million from patronage capital to patronage capital payable.