(13) Bradley Lake Hydroelectric Project

Chugach is a participant in the Bradley Lake Hydroelectric Project (Bradley Lake). Bradley Lake was built and financed by the Alaska Energy Authority (AEA) through State of Alaska grants and $166.0 million of revenue bonds. Chugach and other participating utilities have entered into take‑or‑pay power sales agreements under which shares of the project capacity have been purchased and the participants have agreed to pay a like percentage of annual costs of the project (including ownership, operation and maintenance costs, debt service costs and amounts required to maintain established reserves). Under these take‑or‑pay power sales agreements, the participants have agreed to pay all project costs from the date of commercial operation even if no energy is produced. Chugach has a 30.4 percent share, or 27.4 megawatts as currently operated, of the project’s capacity. The share of Bradley Lake indebtedness for which we are responsible is approximately $28.7 million. Upon the default of a Bradley Lake participant, and subject to certain other conditions, AEA is entitled to increase each participant’s share of costs pro rata, to the extent necessary to compensate for the failure of another participant to pay its share, provided that no participant’s percentage share is increased by more than 25 percent. Upon default, Chugach could be faced with annual expenditures of approximately $5.1 million as a result of Chugach’s Bradley Lake take-or-pay obligations. Management believes that such expenditures, if any, would be recoverable through the fuel recovery process.

On July 1, 2010, AEA issued $28.8 million of Power Revenue Refunding Bonds, Sixth Series, for purposes of refunding $30.6 million of the Fifth Series Bonds. The refunded Fifth Series Bonds were called on August 2, 2010. The refunding resulted in aggregate debt service payments over the next eleven years in a total amount approximately $3.3 million less than the debt service payments which would have been due on the refunded bonds. Refunding the Fifth Series Bonds resulted in an economic gain of approximately $2.4 million. Chugach’s share of these savings will be approximately $0.7 million, which represents the reduction in debt-service costs recorded as purchased power expense.

The State of Alaska has provided grants for a project to divert water from Battle Creek into Bradley Lake. The project is being managed by the Alaska Energy Authority and pending financing, could be completed in 2014. Based on stream flow measurements from 1991 through 1993, diverting a portion of Battle Creek into Bradley Lake has the potential to increase annual energy output up to 40,000 MWh. Chugach would be entitled to 30.4 percent of the additional energy produced.

(13) Bradley Lake Hydroelectric Project (continued)

The following represents information with respect to Bradley Lake at June 30, 2012 (the most recent date for which information is available). Chugach's share of expenses was $4,223,784 in 2012, $4,643,641 in 2011, and $5,120,958 in 2010 and is included in purchased power in the accompanying financial statements.


(In thousands)	Total	Proportionate Share
Plant in service	$181,587	$55,202
Long-term debt	87,607	26,633
Interest expense	5,032	1,530

Chugach's share of a Bradley Lake transmission line financed internally is included in Other Electric Plant.