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 September 30, 1998
--------------------------------------
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 NOVEMBER 1, 1998
NONE NONE
CHUGACH ELECTRIC ASSOCIATION, INC.
INDEX
Part I. Financial Information Page Number
Balance Sheets, September 30, 1998 (Unaudited) and December 31, 1997 3
Statements of Revenues, Expenses and Patronage Capital, Three-Months Ended
September 30, 1998 and 1997 and Nine-Months Ended September 30, 1998 and
1997 (Unaudited) 5
Statements of Cash Flows, Nine-Months Ended September 30, 1998 and 1997
(Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Unaudited) 8
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibits - Index 15
Exhibits 16
2
CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets
Assets
September 30, 1998 December 31, 1997
------------ ------------
(Unaudited)
Utility plant:
Electric plant in service ................ $617,967,293 $625,365,803
Construction work in progress ............ 24,368,237 24,664,395
------------ ------------
642,335,530 650,030,198
Less accumulated depreciation ............ 229,533,708 232,136,950
------------ ------------
Net utility plant ....... 412,801,822 417,893,248
------------ ------------
Other property and investments, at cost:
Nonutility property ...................... 3,550 3,550
Investments in associated organizations .. 8,004,271 7,864,271
------------ ------------
8,007,821 7,867,821
------------ ------------
Current assets:
Cash and cash equivalents ................ 5,872,319 5,224,529
Cash - restricted construction funds ..... 248,403 364,778
Special deposits ......................... 91,164 151,703
Accounts receivable, net ................. 14,396,003 23,999,138
Materials and supplies, at average cost .. 16,709,778 15,619,085
Prepayments .............................. 1,512,457 558,371
Other current assets ..................... 333,067 305,415
------------ ------------
Total current assets ...... 39,163,191 46,223,019
------------ ------------
Deferred charges .............................. 17,855,977 13,583,211
------------ ------------
$477,828,811 $485,567,299
------------ ------------
See accompanying notes to unaudited financial statements.
3
CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets
Liabilities and Equities
September 30, 1998 December 31, 1997
------------ ------------
(Unaudited)
Equities and margins:
Memberships ......................................... $ 897,963 $ 861,543
Patronage capital ................................... 111,069,106 104,800,092
Other ............................................... 3,385,678 3,458,062
------------ ------------
115,352,747 109,119,697
------------ ------------
Long-term obligations, excluding current installments:
First mortgage bonds payable ........................ 235,101,000 240,910,000
CoBank bonds payable ................................ 70,816,699 71,096,501
------------ ------------
305,917,699 312,006,501
------------ ------------
Current liabilities:
Notes Payable ....................................... 5,000,000 --
Current installments of long-term debt and
capital leases ................................... 6,088,802 5,913,512
Accounts payable .................................... 5,513,024 7,038,234
Consumer deposits ................................... 946,892 1,038,241
Accrued interest .................................... 1,327,795 6,904,335
Salaries, wages and benefits ........................ 3,960,020 3,655,101
Fuel ................................................ 4,229,422 6,611,415
Other ............................................... 810,542 3,300,310
------------ ------------
Total current liabilities ............. 27,876,497 34,461,148
------------ ------------
Deferred credits ......................................... 28,681,868 29,979,953
------------ ------------
$477,828,811 $485,567,299
------------ ------------
See accompanying notes to unaudited financial statements.
4
CHUGACH ELECTRIC ASSOCIATION, INC.
Statements of Revenues, Expenses and Patronage Capital
Three-months Nine-months
ended September 30 ended September 30
1998 1997 1998 1997
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
Operating revenues .......................$ 31,831,077 $ 34,108,328 $ 104,436,580 $ 103,730,273
------------- ------------- ------------- -------------
Operating expenses:
Production .......................... 10,243,578 12,393,918 32,923,370 33,442,580
Purchased power ..................... 2,368,196 3,189,539 6,629,062 10,506,279
Transmission ........................ 785,280 739,453 2,061,900 2,493,633
Distribution ........................ 2,145,969 2,140,995 6,637,862 6,289,128
Consumer accounts ................... 1,299,098 1,218,388 3,497,845 3,666,551
Administrative, general and other ... 3,889,817 3,206,901 11,836,249 9,831,506
Depreciation and amortization ....... 5,774,401 5,174,526 17,247,681 15,724,970
------------- ------------- ------------- -------------
Total operating expenses .... 26,506,339 28,063,720 80,833,969 81,954,647
------------- ------------- ------------- -------------
Interest:
On long-term debt ..................... 6,304,386 6,170,693 18,985,155 18,671,360
Other ................................. 14,778 292,655 85,042 615,493
Charged to construction - credit ...... (206,054) (150,914) (560,963) (433,389)
------------- ------------- ------------- -------------
Net interest expense ........ 6,113,110 6,312,434 18,509,234 18,853,464
------------- ------------- ------------- -------------
Net operating margins ....... (788,372) (267,826) 5,093,377 2,922,162
------------- ------------- ------------- -------------
Nonoperating margins:
Interest income ..................... 194,594 124,820 561,399 462,648
Other ............................... 373,238 39,492 724,866 134,228
------------- ------------- ------------- -------------
Total non-operating margins . 567,832 164,312 1,286,265 596,876
------------- ------------- ------------- -------------
Assignable margins .......... (220,540) (103,514) 6,379,642 3,519,038
Patronage capital at beginning of period . 111,325,582 104,205,721 104,800,092 100,685,517
Retirement of capital credits and
estate payments ....................... (35,936) (129,568) (110,628) (231,916)
------------- ------------- ------------- -------------
Patronage capital at end of period .......$ 111,069,106 $ 103,972,639 $ 111,069,106 $ 103,972,639
------------- ------------- ------------- -------------
See accompanying notes to unaudited financial statements.
5
CHUGACH ELECTRIC ASSOCIATION, INC.
Statements of Cash Flows
Nine-months ended September 30
1998 1997
------------ ------------
(Unaudited)
Cash flows from operating activities:
Assignable margins ............................................................$ 6,379,642 $ 3,519,038
------------ ------------
Adjustments to reconcile assignable margins to net cash provided by operating
activities:
Depreciation and amortization ............................................. 17,247,681 15,724,970
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable, net ................................................ 9,603,135 1,441,622
Materials and supplies .................................................. (1,090,693) 460,899
Deferred charges ........................................................ (4,272,766) (983,898)
Prepayments ............................................................. (954,085) (253,117)
Other ................................................................... 149,263 1,891,493
Increase (decrease) in liabilities:
Accounts payable ........................................................ (1,525,210) (861,842)
Accrued interest ........................................................ (5,576,540) (5,768,607)
Deferred credits ........................................................ (1,298,088) (2,283,200)
Consumer deposits, net .................................................. (91,349) (56,052)
Other ................................................................... (4,566,841) (3,534,366)
------------ ------------
Total adjustments ............................................ 7,624,507 5,777,902
------------ ------------
Net cash provided by operating activities .................... 14,004,149 9,296,940
------------ ------------
Cash flows from investing activities:
Extension and replacement of plant ............................................ (12,156,256) (11,708,241)
Investments in associated organizations ....................................... (140,000) 17,177
------------ ------------
Net cash used in investing activities ........................ (12,296,256) (11,691,064)
------------ ------------
Cash flows from financing activities:
Repayments of long-term debt .................................................. (5,913,512) (10,954,338)
Retirement of patronage capital ............................................... (110,628) (231,916)
Short-term borrowings, net .................................................... 5,000,000 12,364,578
Other ......................................................................... (35,963) (44,669)
------------ ------------
Net cash provided by (used) in financing activities .......... (1,060,103) 1,133,655
------------ ------------
Net increase (decrease) in cash and cash
equivalents ................................................ 647,790 (1,260,469)
Cash and cash equivalents at beginning of period ................................. 5,224,529 5,419,819
------------ ------------
Cash and cash equivalents at end of period .......................................$ 5,872,319 $ 4,159,350
------------ ------------
See accompanying notes to unaudited financial statements.
6
CHUGACH ELECTRIC ASSOCIATION, INC.
Notes to Financial Statements
September 30, 1998
(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 September 30, 1998, there
was a balance of $5 million outstanding at an interest rate of 6.65%. In
addition, the Association has an annual line of credit of $50 million
available at the National Rural Utilities Cooperative Finance Corporation
(NRUCFC). At September 30, 1998 there were no amounts outstanding. 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
$700,000 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.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Results of Operations
Current Year Quarter Versus Prior Year Quarter
Operating revenues, which include sales of electric energy to retail, wholesale
and economy energy customers and other miscellaneous revenues, decreased by 6.7%
for the quarter ended September 30, 1998 from the same quarter in 1997. The
decrease in revenues is largely attributable to lower fuel costs that resulted
in a lower level of revenue recorded through the fuel surcharge mechanism. Lower
retail kWh sales also contributed to the decrease. These impacts more than
offset higher wholesale kWh sales in the third quarter of 1998.
As previously reported, in 1997 Chugach experienced higher than anticipated fuel
and purchased power costs. As a result, in an effort to maintain overall price
stability, some fuel and purchased power costs were not collected and the fuel
surcharge rate was not adjusted to reflect the higher costs. Effective January
1998, routine quarterly adjustments to the fuel surcharge mechanism have
resumed. Additionally, the remaining undercollected amounts from 1997 are being
recovered throughout 1998 under a plan approved by the Alaska Public Utilities
Commission (APUC). At September 30, 1998, fuel prices have stabilized and are
expected to continue to decline.
Retail and wholesale demand and energy rates did not change from the third
quarter of 1997 to the same period in 1998.
A decline in revenue from economy energy sales also contributed to the decrease
in total operating revenues.
Pursuant to a Settlement Agreement with 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 refund of
approximately $1 million was still recorded at September 30, 1998 to accommodate
certain rate adjustment clauses contained in the Settlement Agreement.
Additional wholesale refunds are expected for 1998 purchases, estimates of which
have been accrued at September 30, 1998. The APUC has issued Order No. 18 in
Docket U-96-37 which resolved methodological issues in the calculation of base
rates. Chugach has made a compliance filing with revised base rates. With this
order, the provisions of the Settlement Agreement can be implemented and refund
amounts for 1997 and 1998 will be determined. Final resolution is expected in
the first quarter of 1999.
Chugach's fuel and purchased power cost adjustment factors, which are adjusted
on a quarterly basis, may be adjusted retroactively by the APUC resulting in
refunds on a retroactive basis, due to concerns expressed by one of Chugach's
wholesale customers. It is Chugach's position that retroactive refunds of
quarterly surcharge revenues would violate the rule against
8
retroactive ratemaking. In Order No. 18 of Docket U-96-37, the APUC ordered
retroactive refunds for fuel surcharge rates charged in 1995 - 1997. Chugach has
appealed this decision to the Superior Court for the State of Alaska. MEA
opposed Chugach's request to stay this APUC action. The Superior Court denied
Chugach's request for stay at this time pending a ruling on MEA's motion to
amend to add MEA as a party to the appeal. Chugach will renew its request for
stay. In addition, MEA has separately filed suit to force Chugach to pay the
refund ordered by the APUC and expanded the requested refund period to include
1990 - 1994. It is not possible at this time to determine the outcome of this
suit.
Lower fuel prices were the major cause for the decrease in power production
expense for the quarter ended September 30, 1998. Purchased power expense was
also lower for the quarter ended September 30, 1998 compared to the same period
in 1997. This variance was substantially due to the system-operating scenario
that existed during the third quarter of 1997. Chugach purchased power from
AEG&T's Soldotna 1 plant to ensure reliability on the Kenai Peninsula.
Additionally, all hydroelectric plant outputs were significantly lower than the
forecasted levels due to reduced lake levels. This system-operating scenario did
not exist during the third quarter of 1998, which explains the decrease.
Administrative, general and other expenses increased for the quarter ended
September 30, 1998. The majority of this increase was due to a higher level of
common information services costs being allocated to this function.
Other interest expense decreased in the current period due to a lower average
outstanding balance on the short-term lines of credit.
Other non-operating margins increased for the quarter ended September 30, 1998
due to a gain recorded on the sale of equipment.
Current Year to Date Versus Prior Year to Date
Operating revenues for the nine-month period ended September 30, 1998 increased
slightly relative to the same period in 1997. Higher kWh sales to retail and two
of the three wholesale customers were the major causes for this increase. This
more than offset a decline in fuel surcharge revenue caused by lower fuel costs
and lower revenues from economy energy sales.
Purchased power decreased and administrative, general and other expenses
increased for the nine-month period ended September 30, 1998 for essentially the
same reasons outlined in the quarter-to-date comparison section. Transmission
expense was lower for the period due mostly to station equipment maintenance
activities being focused on distribution substations in 1998 versus transmission
substations in 1997. Additionally, transmission line clearing expense was higher
in 1997 than the current period, which further contributed to the overall
decrease.
Other interest expense decreased for the nine-months ended September 30, 1998
for the same reason outlined above in the analysis of the quarter-to-quarter
variance.
Other non-operating margins were higher in 1998 than in 1997 due to the
aforementioned gain on the sale of equipment and patronage capital credits
received from CoBank.
9
Financial Condition
Total assets declined by 1.6% from December 31, 1997 to September 30, 1998. The
decrease is due primarily to lower balances in the electric plant accounts. A
decrease in accounts receivable also contributed to the overall decrease. The
lower balances in the electric plant accounts were caused by the adoption of a
new method of accounting for the general plant asset class. Beginning in January
of 1998, general plant assets were amortized by account classification instead
of being depreciated on an individual asset basis. Adoption of this method
resulted in the write-off (to accumulated depreciation) of general plant assets
that were acquired prior to the beginning of the amortization periods. The
seasonal decline in accounts receivable and paydowns received on the
undercollected fuel surcharge balance were the primary causes of the lower
accounts receivable balance at September 30, 1998. These decreases were offset
somewhat by a higher deferred debit balance caused in large part by project
costs related to the Year 2000 information systems conversion project. Notable
changes to total liabilities include the decrease in First Mortgage bonds
payable resulting from the March bond payment and the decrease in accrued
interest resulting from the September bond payment. These changes were offset
somewhat by the draw on the CoBank line of credit in the third quarter.
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 September 30, 1998,
Chugach had $5 million outstanding with CoBank that carried an interest rate of
6.65%. There were no amounts outstanding on the NRUCFC line at September 30,
1998.
Capital construction in 1998 is estimated at $28 million. At September 30, 1998
approximately $12.2 million has been expended.
Chugach has negotiated a supplemental indenture (Third Supplemental Indenture of
Trust) with CoBank that previously allowed up to $80 million in future bond
financing. Chugach amended the Third Supplemental Indenture of Trust (with the
Seventh Supplemental Indenture of Trust) that eliminated the maximum aggregate
amount of bonds the company may issue under the agreement. At September 30,
1998, Chugach had bonds in the amount of $71.1 million outstanding under this
financing arrangement. The balance is comprised of a $1.1 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), a $23.5
million bond (CoBank 4) and a $15 million bond (CoBank 5) due in 2002, 2007 and
2012. The rates on CoBank 3, 4 and 5 were recently fixed at 5.60% for five
years. Prior to this, the bonds had been subject to periodic repricing.
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 September 30, 1998 there were no amounts outstanding under this financing
arrangement.
As previously reported, Chugach has reacquired $44.3 million of its Series A
2022 bonds. This strategy has been in response to the favorable long-term
interest rate environment.
10
Chugach will continue to explore similar reacquisition transactions if market
conditions warrant such action. Except for any further reacquisitions of its
bonds (and any similar future refinancings), Chugach does not anticipate
issuance of additional long-term debt in 1998.
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 1998 and thereafter.
Year 2000
Chugach has considered the impact of Year 2000 issues on its computer systems
and applications and developed a remediation plan. Chugach's consideration
included not only financial information systems but also applications in
operational areas and the impact of interaction with suppliers, customers and
vendors where appropriate. Conversion activities are in process and the
Association expects conversion and testing to be completed by August 1999.
Chugach expects that completion of the project will result in additional
expenditures of approximately $1.0 million.
Outlook, Update
As previously reported, Chugach has been extensively involved in the effort to
introduce retail customer choice for electric service in Anchorage. After
several customers in a neighboring utility's service area formally asked Chugach
to provide their power, Chugach requested access over the other utility's
distribution and transmission system and asked the APUC to enforce this request.
The APUC recently denied Chugach's request on the grounds that Chugach must
first request an expansion of the geographic area described in its Certificate
of Public Convenience and Necessity in order to become authorized to serve in
the neighboring utility's service territory and gain access over the other
utility's system. This ruling has the effect of reinforcing the exclusive
service territory concept. The APUC is currently considering whether it will
assess costs, damages or other sanctions for Chugach's activities to promote
retail customer choice. Chugach is currently reviewing its options including the
possibility of an appeal and filing to expand its service territory to include
other areas contiguous to its existing geographically described service
territory. However, a final determination has not been made.
Chugach has also been active at the State legislative level in support of the
customer's right to choose their retail electric power supplier. While no
legislation was passed during this year's legislative session, a joint committee
was formed to study the issue and report when the new session convenes in early
January 1999. The public hearing and testimony process is currently underway.
The Joint Committee, with cooperation of the APUC has undertaken to commission a
study of retail competition. It is still not possible, however, to predict the
outcome of this process.
Environmental Matters
Refer to Part II, Item 1 for an update on the status of the Standard Steel
Salvage Yard Site litigation.
11
Other Matters
The Association has received an unsolicited proposal from its largest wholesale
customer, Matanuska Electric Association, Inc. (MEA), under which MEA would
acquire substantially all of the assets of the Association in exchange for the
assumption of substantially all of the Association's liabilities.
Representatives of MEA presented a basic outline of the proposal to the
Association without prior notice to the Association, at a joint meeting of the
board of directors of both companies held on October 12, 1998. The Association
has not been provided certain additional information it has requested from MEA,
so the Association's understanding of MEA's proposal is necessarily limited to
the information presented at that joint board meeting and in statements made by
MEA to its members, the public and the media. Under the proposal as the
Association currently understands it, the generation and transmission assets of
the Association would be transferred to a subsidiary of MEA, the assets
comprising the Association's distribution system would be transferred to MEA
itself, and the Association's members would become members of MEA. MEA has also
stated that, at the time of the acquisition, it would borrow enough money to
defease the Association's outstanding 1991 First Mortgage Bonds (i.e., to
purchase a pool of U.S. government or U.S. government-backed securities that
would generate sufficient cash flow to make scheduled debt service payments
during the remaining life of those bonds) and to repay its outstanding CoBank
bonds, plus an additional $42.5 million that would be distributed in cash (at
the rate of $500 per member) to all of the members of the combined organization.
On November 2, citing uncertainty over whether MEA will be successful in its bid
to acquire the Association's assets, Standard & Poor's rating service placed its
single-"A" rating on the Association's 1991 Series A Bonds on "CreditWatch with
developing implications," meaning the rating may be raised, lowered or affirmed.
The Association has engaged independent financial advisers to assist the board
in its evaluation of the MEA proposal. The board of directors of the Association
discussed the MEA proposal at executive sessions on October 21, November 4 and
November 12. After evaluating information provided by MEA and analyses of the
MEA proposal presented by the Association's staff and independent financial
advisers, the board rejected the MEA proposal in an open meeting immediately
following the conclusion of its November 12 executive session. The board has
expressed its continuing intention to consider other opportunities available to
the Association and its continuing willingness to consider any additional
information that may be supplied by MEA. However, in a letter to the Association
dated November 4, 1998, MEA's general manager stated that MEA's future
communications on this matter would be directed to the Association's membership
rather than the board of directors or staff, and that MEA would pursue the
matter through a petition process, presumably to gather sufficient signatures
from the Association's members to force a special meeting of the members for the
purpose of considering the MEA proposal. Alaska law prohibits the Association
from disposing of a substantial portion of its assets unless the disposition is
approved by a majority of the members of the Association and by at least
two-thirds of those actually voting on the proposal, except that the board may
authorize the Association 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 of the membership votes and the purchaser expressly
agrees to assume the Association's obligations under existing collective
bargaining agreements. MEA has taken the position that the board of directors
would be compelled to approve the sale if two-thirds of the members voting
approve the transaction and those voting in favor of the transaction constitute
a majority of all of the Association's members. The
12
Association believes that, although member approval is a legal prerequisite to
the proposed sale to MEA, the sale can not legally occur unless the
Association's board of directors also approves the sale in the exercise of its
independent judgment.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Standard Steel Salvage Yard Site
The history of the cost recovery action, settlement, site investigation and
cleanup activities relating to this Site is set forth in the 10-Q for the period
ending June 30, 1998. 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 on Chugach's financial condition or results of operations.
Items 2, 3, 4 and 5
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Settlement Agreement dated the 15th day of May 1998 by and
between Nationwide Mutual Insurance Company, Alaska National
Insurance Company, Providence Washington Insurance Company and
Admiral Insurance Company and Chugach Electric Association, Inc.
Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ended
September 30, 1998.
13
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: November 16, 1998
By: /s/ Evan J. Griffith, Jr.
Evan J. Griffith, Jr.
Executive Manager, Finance & Energy Supply
Date: November 16, 1998
14
EXHIBITS
Listed below are the exhibits which are filed as part of this Report:
Exhibit
number Description Page
19.5 Settlement Agreement dated the 15th day of May 1998 by and
between Nationwide Mutual Insurance Company, Alaska National
Insurance Company, Providence Washington Insurance Company
and Admiral Insurance Company and Chugach Electric
Association, Inc. 16
27 Financial Data Schedule. **
** Filed Electronically
15