FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-31327, eff. 10-21-92)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(x) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1998

( ) 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 (I.R.S. Employer
of incorporation or organization) Identification No.)

5601 Minnesota Drive, Anchorage, Alaska 99518
Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (907) 563-7494

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act:

(Title of class)

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. /x/ Yes / / No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. N/A

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405, 17 CFR 230.405). N/A

CHUGACH ELECTRIC ASSOCIATION, INC.

1998 Form 10-K Annual Report

Table of Contents

Page
PART I

Item 1 - Business 1

Item 2 - Properties 14

Item 3 - Legal Proceedings 21

Item 4 - Submission of Matters to a Vote of Security Holders 23

PART II

Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters 23

Item 6 - Selected Financial Data 23

Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 24

Item 7A - Quantitative and Qualitative Disclosures About Market Risk 36

Item 8 - Financial Statements and Supplementary Data 37

Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 61

PART III

Item 10 - Directors and Executive Officers of the Registrant 61

Item 11 - Executive Compensation 63

Item 12 - Security Ownership of Certain Beneficial Owners and
Management 67

Item 13 - Certain Relationships and Related Transactions 67

PART IV

Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K 67

SIGNATURES 81

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

Item 1 - Business

GENERAL

Chugach is the largest electric utility in Alaska. Chugach was organized as an
Alaska not-for-profit electric cooperative in 1948 and is engaged in the
generation, transmission and distribution of electricity to approximately 69,000
metered locations in the Anchorage and upper Kenai Peninsula areas. Through an
interconnected regional electrical system, Chugach's power flows throughout
Alaska's Railbelt, a 600-mile-long area stretching from the coastline of the
southern Kenai Peninsula to the interior of the state, including Alaska's
largest cities, Anchorage and Fairbanks. On a regular basis, through its direct
service to retail customers and indirectly through its wholesale and economy
energy sales, Chugach provides some or all of the electricity used by
approximately two-thirds of Alaska's electric customers. In addition, on a
periodic basis, Chugach provides electricity to the city-core customers of
Anchorage Municipal Light & Power (AML&P).

Chugach also supplies much of the power requirements of three wholesale
customers, Matanuska Electric Association (MEA), Homer Electric Association
(Homer) and the City of Seward (Seward). Substantially all of Chugach's
currently-owned generating capacity is fueled by natural gas, which Chugach
purchases under long-term, relatively low-cost gas contracts. The remainder of
Chugach's generating resources are hydroelectric facilities. The Chugach system
includes 501.4 megawatts (MW) of installed generating capacity that is provided
by 15 solely-owned generating units, and another 11.7 MW of generating capacity
from two hydroelectric units that are owned jointly with MEA and AML&P. Chugach
operates 1,577 miles of distribution line and 402 miles of transmission line.
During 1998, Chugach sold 2.06 billion kilowatt hours (kWh) of power.

Cooperatives are business organizations that are owned by their members.
Cooperatives are designed to give groups of individuals or entities the
opportunity to serve their own needs in a particular area of business activity
and to solve their own problems in that area more
1

effectively than when acting individually. In addition, as not-for-profit
organizations, cooperatives are intended to provide services to their members at
the lowest possible cost, in part by eliminating the need to produce profits or
a return on equity. Today, cooperatives operate throughout the United States in
such diverse areas as utilities, agriculture, irrigation, insurance and credit.
All cooperatives are based upon similar principles and legal foundations. Since
members' equity is not considered an investment, a cooperative's objectives and
policies are oriented to serving member interests, rather than maximizing return
on investment.

Chugach's members are the consumers of the electricity sold by Chugach. As of
December 31, 1998, Chugach had approximately 55,500 retail members receiving
service at approximately 69,000 metered locations. The business and affairs of
Chugach are managed by the General Manager and are overseen by its seven-member
Board of Directors (the Board). Directors are elected at large by the membership
and serve three-year staggered terms. Each member is entitled to one vote. In
addition to voting for directors, members have voting rights with respect to the
sale, lease, or other disposition, except by mortgage or deed of trust, of all
or a substantial portion of Chugach's property.

Chugach customers are billed per a tariff rate, on a monthly basis for
electrical energy consumed during the preceding month. Billing rates are
approved by the APUC (see Rate Regulation and Rates).

Rates (derived from the historic cost of service basis) may generate revenues in
excess of current period costs (net operating margins and nonoperating margins)
in any year and are designated on Chugach's Statements of Revenues, Expenses and
Patronage Capital as "assignable margins." Retained assignable margins are
designated on Chugach's balance sheet as "patronage capital" that is assigned to
each member on the basis of patronage.

In furtherance of Chugach's operations as a cooperative, Chugach credits to its
members, or patrons, all amounts received from the patrons for the furnishing of
electricity in excess of Chugach's operating costs, expenses and provision for
reasonable reserves. Such excess amounts (i.e., assignable margins) are
considered capital furnished by the patrons, and are credited to their accounts
and held by Chugach until such future time as they are retired and returned
without interest. Chugach's Bylaws provide that such capital credits are to be
retired (i) upon Chugach's dissolution or liquidation after payment of all of
Chugach's outstanding indebtedness or (ii) at any earlier time if the Board of
Directors determines that Chugach's financial condition will not be thereby
impaired. At December 31, 1998, Chugach has a practice of retiring patronage
capital on a first in-first out (FIFO) basis for retail customers. At the end of
1998, Chugach had authorized for retirement all retail capital credits through
1983 and approximately one-third of 1984 retail credits. Wholesale capital
credits have been retired on a 10-year cycle pursuant to the Equity Management
Plan Settlement Agreement despite its expiration in 1995. A Settlement Agreement
(different than the aforementioned agreement) has been negotiated with Alaska
Electric Generation & Transmission Cooperative, Inc., (AEG&T/MEA/Homer) and has
been approved by the APUC. Under this agreement, wholesale capital credits
continued to be rotated on a 10-year cycle through 1998. After 1998,
2

wholesale capital credits are expected to be rotated using the retail schedule
in place at that time. In 1998, the Board authorized retirement of 1988
wholesale capital credits in the amount of $1,533,287. Approval of actual
capital credit retirements is at the discretion of the Association's Board.

As an electric cooperative, Chugach is exempt from federal income taxation under
Section 501(c)(12) of the Internal Revenue Code (Code). Alaska electric
cooperatives must pay to the State of Alaska, in lieu of state and local ad
valorem, income and excise taxes, a tax at the rate of $0.0005 per kWh of
electricity sold in the retail market during the preceding year. In addition,
Chugach collects a regulatory cost charge of $.000280 per kWh of retail
electricity sold. This charge is assessed to fund the operations of the APUC. It
is a pass-through and thus does not impact Chugach margins.

Chugach's workforce consists of approximately 348 full-time employees.
Approximately two-thirds of Chugach's employees are members of the International
Brotherhood of Electrical Workers (IBEW). Chugach has three collective
bargaining agreements with the IBEW that are currently open for negotiation.
Although each of the contracts expired 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 interest arbitration. The Union
cannot strike and Chugach cannot lockout under the continuing agreement.

Unsolicited Acquisition Proposal by Matanuska Electric Association, Inc.

In October 1998, MEA, Chugach's largest wholesale customer presented to the
Board of Chugach the unsolicited MEA proposal to acquire substantially all of
Chugach's assets in exchange for the assumption of Chugach's liabilities.
Although MEA has not provided many details of the MEA proposal, it has stated
that the generation and transmission assets of Chugach would be transferred to a
subsidiary of MEA, the assets comprising Chugach's distribution system would be
transferred to MEA itself, and Chugach's members could become members of MEA.
MEA has also stated that, at the time of the acquisition, it would borrow enough
money to defease (i.e. to purchase a pool of U.S. government-backed securities
that would generate sufficient cash flow to make scheduled debt service payments
during the remaining life of the defeased obligations) or refinance Chugach's
outstanding Series A Bonds and to refinance Chugach's outstanding CoBank bonds
plus an additional $42.5 million that would be distributed in cash to the
members of the post-acquisition MEA. On November 2, 1998, citing uncertainty
over whether MEA would be successful in its bid to acquire Chugach's assets,
Standard & Poor's Rating Service placed its single "A" rating on the Series A
Bonds on "Credit Watch with developing implications", meaning the rating may be
raised, lowered or affirmed.

After evaluating information provided by MEA and analyses of the MEA proposal
presented by Chugach's staff and independent financial advisors, the Board
rejected the MEA proposal on November 12, 1998. Thereafter, MEA withdrew the
provision of the MEA proposal which

contemplated that the Board of Directors of MEA, following the consummation of
the MEA proposal, would include minority representation from among the members
of the Board. MEA also stated that MEA's future communication on this matter
would be directed to Chugach's membership rather than the Board or Chugach's
staff and MEA began circulating a petition to gather a sufficient number of
signatures from Chugach's members to force a special meeting of Chugach's
members for the purpose of considering the MEA proposal. Under the Alaska
Electric & Telephone Cooperative Act, a special meeting of the members of
Chugach may be called by 10% of Chugach's members.

In February and March 1999, MEA issued public statements that it had received
sufficient petition signatures from Chugach members to compel the holding of a
special meeting but that it would seek an advisory vote of its own members
before submitting such signatures to Chugach. To date, MEA has not submitted any
petition signatures to Chugach and Chugach has therefore not had occasion to
initiate the formal tabulation that would be necessary to determine whether a
sufficient number of duly and validly signed petitions have been submitted and,
if so, the legal implication of such petitions with respect to the MEA proposal.

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 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 of the 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 be
compelled to approve the sale of Chugach's assets to MEA if two-thirds of
Chugach's members voting at a special meeting of the members approved the
transaction 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 a special meeting of Chugach's members will be called to
consider the MEA proposal, whether Chugach's members would approve the MEA
proposal by a supermajority vote if it were submitted at a 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 APUC. 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.

Characteristics of the Service Areas of Chugach and its Largest Customers

As indicated in the foregoing, the service areas of Chugach and its wholesale
and economy energy customers are often described collectively as the Railbelt
Region of Alaska because the three geographic areas (the Interior, Southcentral
and the Kenai Peninsula) are linked by the Alaska Railroad.

Anchorage is the trade, service and financial center for most of Alaska and
serves as a major center for many state governmental functions. Other
significant contributing factors to the Anchorage economy include a large
federal government and military presence, tourism, air and rail transportation
facilities and headquarters support for the petroleum, mining and other basic
industries located elsewhere in the state.

The Matanuska-Susitna (Mat-Su) Borough is immediately north of the Municipality
of Anchorage, centered around the communities of Palmer and Wasilla. Although
agriculture, tourism, mining and forestry are factors in the economy of the
Matanuska-Susitna Borough, the economic well-being of the area is closely tied
to that of Anchorage and many Mat-Su residents commute to jobs in Anchorage.

The Kenai Peninsula is south of Anchorage with an economy substantially
independent of the Anchorage area. The most significant basic industry on the
Kenai Peninsula is the production and processing of petroleum products from the
Cook Inlet region. Other important basic industries include tourism and fish
harvesting and processing. Principal communities on the Kenai Peninsula are
Homer, Seward, Kenai and Soldotna.

Fairbanks is the center of economic activity for the central part of the state
(known as the Interior). Fairbanks (250 air miles north of Anchorage and about
400 air miles south of Alaska's northern border) is Alaska's second largest
city. Basic economic activities in the Fairbanks region include federal and
state government and military operations, the University of Alaska, tourism and
support of natural resource development in the Interior and northern parts of
the state. Recently a major gold mine has commenced operation near Fairbanks.
The Trans-Alaska Pipeline System (crude oil) passes near Fairbanks on its route
from the North Slope oilfield.

Competition

Chugach has been active in the effort to promote customer choice in the retail
market in Anchorage. Chugach requested access over a neighboring utility's
distribution and transmission system and asked the APUC to enforce the request.
The APUC ruled that open retail competition did not yet exist in Alaska.

Chugach has also been actively supporting the customer's right to choose their
electric power supplier at the State Legislature. Virtually all Alaskan
utilities have opposed Chugach's efforts to develop competition and are striving
to maintain exclusive service territories. At this time

no bill relating to customer choice has moved out of legislative committee.

At least one electric power load aggregator is active in the Anchorage market.
The outcome of Chugach's efforts to open access over the neighboring utility's
system will impact the success and number of load aggregators operating on the
interconnected system. At this time, it is not possible to predict the impact
that load aggregators will have on Chugach's revenue.

To meet these competitive challenges, Chugach has formed a Marketing Department,
continues to operate its key account program for larger customers and is
developing new services to enhance existing customer's satisfaction.

Rate Regulation and Rates

Chugach is subject to rate regulation by the APUC. In January 1987, the APUC
adopted a simplified rate filing (SRF) procedure for use solely by electric
cooperatives. Under the SRF procedure, electric cooperatives may submit proposed
base demand and energy rate changes to the APUC for approval (either on a
quarterly or semi-annual basis) without the necessity of undergoing a formal
hearing process. The proposed rates must be approved by the Board of Directors
of the electric cooperative before they will be accepted by the APUC for
consideration.

In August 1996, the Chugach Board of Directors approved a petition to the APUC
to withdraw from the SRF process. The petition was submitted as part of Docket
U-96-37, that was opened to resolve rate disputes with Chugach's wholesale
customers. Interim-refundable rates for wholesale customers were ordered pending
resolution of the docket. In February 1997, the APUC approved a Settlement
Agreement between Chugach and AEG&T/MEA/Homer that resolved issues in the docket
and established permanent rates. As part of the Order, the Association was
required to file Cost of Service and Revenue Requirement Studies. Chugach filed
these studies in March 1997.

The APUC approved Chugach's petition to withdraw from the SRF process in July
1998. Future demand and energy rate changes will now be sought through general
rate case and other normal APUC procedures. While the formal ratemaking process
typically takes nine months to one year, it is within the APUC's authority to
authorize, after a notice period, rate changes on an interim-refundable basis.
In addition, the APUC has been willing to open limited dockets to resolve
specific issues from which expeditious decisions can often be generated.

In Order No. 18 of Docket U-96-37, at the urging of one of Chugach's wholesale
customers, the APUC ordered retroactive refunds in the approximately amount of
$1.2 million for fuel surcharge rates charged in 1995 - 1997. The Order is in
connection with Chugach's fuel and purchased power cost adjustment factors, that
are adjusted on a quarterly basis. It is Chugach's position that retroactive
refunds of quarterly surcharge revenues violate the rules against retroactive
ratemaking and constitutional due process protections. Chugach has appealed this
decision to the Superior Court for the State of Alaska. Chugach's request for
stay of the
6

Commission refund order has been granted. It is not possible at this time to
determine the outcome of this appeal.

In addition, MEA filed a separate lawsuit to force Chugach to pay the same
refund ordered by the APUC and expanded the requested refund period to include
1990 - 1994. At Chugach's request, the Superior Court has dismissed this suit.

Order No. 18 in Docket U-96-37 also resolved methodological issues in the
calculation of base rates. With this Order, the provisions of the Settlement
Agreement can be implemented. As part of the Settlement Agreement with
AEG&T/MEA/Homer, Chugach has committed that the demand and energy rate levels
established on the 1995 test year in Docket U-96-37 will remain at no higher
than those levels through 1999 and may be reduced if existing rates provide
returns higher than specified in the agreement. Chugach may be required to grant
a refund to Homer and MEA 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 were recorded at December 31, 1997 and December 31, 1998,
respectively, to accommodate certain rate adjustment clauses contained in the
Settlement Agreement. Chugach anticipates the filing of the 1996 test year
revenue requirement in March 1999.

In February 1998, Chugach and the City of Seward signed a new 10-year power
sales agreement. The new power sales agreement, which is currently before the
APUC under Docket U-98-70, contains a provision that allows Chugach to interrupt
Seward at certain times during the year. A hearing has been scheduled for March
1999 and a final decision from the APUC is expected later in the year. The APUC
has already approved the contract on an interim- refundable basis. As a result
of this new power sales agreement, revenues derived from sales to the City of
Seward will decline about $350,000 annually, which represents a 15 percent
reduction. A provision for a rate refund of $198,180 has been made to reflect
the agreed upon effective date between Chugach and the City of Seward on an
interim-refundable basis of the new contract.

The Association will continue to recover changes in its fuel and purchased power
expense levels through routine fuel surcharge filings with the APUC. See the
Fuel Surcharge section of Management's Discussion and Analysis of Financial
Condition and Results of Operations.

The Indenture of Trust, Series A, First Mortgage bonds (Indenture) dated
September 15, 1991 requires Chugach to set rates designed to yield margins for
interest (a TIER-like statistic) equal to at least 1.20 times total interest
expense. The authorized rate-setting TIER level of 1.35 has allowed Chugach to
achieve greater than the 1.20 margins for interest. In 1998, Chugach's achieved
TIER was 1.35.

Sales to Customers

The following table shows the energy sales to and electric revenues from
Chugach's retail, wholesale, and economy energy customers for the year ended
December 31, 1998:

Energy Loads and Revenues by Class of Customer

Percent of Total
MWh 1998 Revenues 1998 Revenues

Direct retail sales:
Residential 487,622 $ 49,892,878 35.6%
Commercial 551,609 43,310,657 30.9%
Total 1,039,231 93,203,535 66.5%

Wholesale sales:
MEA 506,137 25,203,274 18.0%
Homer 403,398 18,225,576 13.0%
Seward 58,643 2,284,408 1.6%
Total 968,178 45,713,258 32.6%

Economy Energy Sales:
GVEA 46,322 1,288,077 0.9%
Other 2,232 50,648 0.0%
Total 48,554 1,338,725 0.9%

Total sales to customers 2,055,963 $140,255,518 100.0%

Note: 1998 Wholesale Revenues include a $1,201,636 provision for rate refund to
accommodate certain rate adjustment clauses contained in the Settlement
Agreement reached in Docket U-96-37.

Retail Customers

Service Territory. Chugach's retail service area covers the populated areas of
Anchorage as well as remote mountain areas and villages. The service area ranges
from the northern Kenai Peninsula on the South, to Tyonek on the West, to
Whittier on the East and to Fort Richardson on the North.

Customers. Chugach directly serves approximately 69,000 meters. There are
approximately 55,500 members of Chugach (some members are served by more than
one meter). Chugach's customers are primarily urban and suburban. The urban
nature of Chugach's customer base means that Chugach has a relatively high
customer density per line mile. Higher customer density means that fixed costs
can be spread over a greater number of customers. As a result of lower average
costs attributable to each customer, Chugach benefits from a greater stability
in revenue, as compared to a less dense distribution system in which each
individual customer would have a more significant impact on operating results.
For the past five years no retail customer accounted for more than 5% of
Chugach's revenues.

Wholesale Customers

Chugach is the principal supplier of power under wholesale power contracts with
MEA, Seward and Homer. Chugach's wholesale power contracts represented $45.7
million in revenues and 47.1% of Chugach's total MWh sales to customers in 1998.

MEA and Homer. Chugach's contract with AEG&T (a generation and transmission
cooperative of which MEA and Homer are the only full members; AML&P is an
associate member) for the benefit of MEA obligates MEA to purchase all of its
electric power requirements from Chugach. Contractually, MEA has the right,
subject to APUC approval, to convert to a net requirements purchaser of power
from Chugach, under which MEA would be obligated to buy its needed power from
Chugach, net of its power needs satisfied from any of its own or AEG&T's
resources (including from the 39 MW Soldotna 1 gas-fired generating station
owned by AEG&T).

After conversion to net requirements under the contract, MEA cannot reduce the
amount of power it purchases from Chugach below a certain minimum amount. MEA
also has the right, on seven years advance notice and subject to APUC approval,
to convert to a take-or-pay purchaser of a fixed amount of power. If MEA
converts to net requirements service, MEA will be required to pay demand charges
based upon the highest post-1985 historical coincident peak on the MEA system.
Therefore, Chugach will continue to recover fixed costs if MEA converts to
net-requirements service. Also, Chugach's revenues from energy sales to MEA
would decline in proportion to the reduction in the energy sold, but this
decline would be largely offset by savings in the variable costs associated with
energy production. The MEA contract is in effect through December 31, 2014. This
contract does not protect against loss of load resulting from retail competition
in MEA's distribution service territory. It is not possible at this time to
estimate the potential impact on Chugach's revenues resulting from such
competition.

Chugach's contract with AEG&T for the benefit of Homer obligates Homer to take
or pay for 73 MW of capacity (demand), and not less than 350,000 MWh (energy)
per year. The Homer contract includes certain limitations on the costs that may
be included in the rates charged to Homer by Chugach. The Homer contract expires
on January 1, 2014. Homer's remaining resource requirements are provided by
AEG&T's Soldotna unit and AEG&T shares attributable to Homer from the Bradley
Lake hydroelectric project. Chugach and AEG&T have signed a dispatch agreement
whereby Chugach has access to all of the Soldotna unit output except that which
is required to supply Homer's load in excess of 73 MW. The term is for 40,000
operating hours or 10 years, whichever is first, although the term will be
extended by three years if Chugach makes significant use of the unit during the
last three years of the original contract term. AEG&T receives payment for
variable operating and maintenance costs plus a margin for energy produced by
the unit. Chugach obtained use of the unit output while AEG&T retained ownership
costs and responsibility. In 1998, Chugach used 41,222 MWh from the Soldotna
unit.

In October 1998 the Chugach Board authorized the General Manager to enter into a
revised dispatch agreement with Homer and AEG&T. Under the agreement, Homer and
AEG&T anticipate relocating the Soldotna Unit to a Unocal fertilizer production
facility near Nikiski, Alaska within the Homer service area and installing
equipment to produce process steam using heat recovery from the turbine. The
dispatch agreement, subject to pending amendments to existing fuel supply
arrangements, allows Chugach to economically incorporate the unit into Chugach's
generation and transmission system and will ensure that Homer purchases all
energy available under the existing power supply contract. Gas will be provided
by Unocal to meet Homer loads in excess of 73 MW and may provide a portion of
the fuel for Homer loads in excess of the minimum energy takes. The new dispatch
agreement will replace the existing agreement when the unit is relocated and
will terminate coincident with the Homer power supply contract in 2024.

Seward. Chugach currently provides all the firm power needs of Seward. A new
contract with Seward, with an interruptible provision, is awaiting approval by
the APUC. In 1998, sales to Seward amounted to 2.9% of Chugach's MWh sales to
customers.

Economy Customers

Golden Valley Electric Association. Under the terms of Chugach's agreement with
Golden Valley Electric Association (GVEA), GVEA is obligated, under certain
circumstances, to purchase, if available from Chugach, its non-firm energy needs
until 2008. Sales under this agreement accounted for 2.25% of Chugach's 1998 MWh
sales. Chugach and GVEA have entered into a tentative pooling agreement whereby
the resources of both utilities would be dispatched on a common basis to reduce
constraints on when non-firm energy would be available to GVEA. Construction of
a coal-fired generation facility at Healy (Healy II), funded from a United
States Department of Energy grant under the Clean Coal Technology III
Demonstration Program, is complete. This facility began testing in early 1998
and has produced up to 50 MW of coal-fired power. GVEA reduced its purchases of
non-firm energy from Chugach by taking firm power from Healy II. Chugach's
management does not believe that such a reduction will have a material adverse
effect on Chugach. The Ft. Knox gold mine, near Fairbanks, with an anticipated
load of 30-35 MW began operation during the last quarter of 1996.

FUEL SUPPLY

In 1998, 84% of Chugach's power was generated from gas, and 91% of that
gas-fired generation took place at Beluga.

Chugach's three sources of natural gas are (1) the Beluga River Field producers
[ARCO Alaska, Inc. (ARCO), AML&P (old Shell) and Chevron USA Inc. (Chevron)],
(2) Marathon Oil Company (Marathon) and (3) ENSTAR Natural Gas Company (ENSTAR).
ARCO, AML&P and Chevron each own one-third of the gas produced from the Beluga
River Field and in 1998 provided approximately equal shares of the Beluga gas.
Chugach has

approximately 427 billion cubic feet (BCF) of gas committed to it from the
Beluga River Field producers and Marathon. Chugach currently uses about 20 BCF
of natural gas per year for firm service. Chugach believes that this usage will
remain fairly constant and estimates that its current contract gas will last 15
to 19 years. In 1996, Shell sold its interests in the Beluga River Field to
AML&P and AML&P assumed Shell's contractual obligations to sell natural gas to
Chugach. Chugach believes that this transfer will have no material effect on the
delivery of Beluga gas to Chugach.

The delivered price for Chugach's fuel supply is lower than that available to
other generators in the interconnected Railbelt. AML&P burns natural gas
purchased from the Beluga River Field producers and transported by ENSTAR.
Chugach has a transportation contract with ENSTAR to transport Chugach gas
purchased from Marathon or the Beluga River Producers to the Soldotna (AEG&T)
and/or International Power plants (International). The rate for firm
transportation is $0.63 per MCF and the rate for interruptible transportation is
$0.30 per MCF. There is a minimum monthly bill of $2,600. The primary reasons
that Chugach's fuel supply has a lower delivered price than that available to
other generators are (i) Chugach purchases its gas directly from producers
rather than from gas utilities and (ii) Chugach's power plants are located in
close proximity to gas fields so that there are insignificant transportation
costs included in the price of the fuel. AML&P currently depends on ENSTAR to
transport all of the gas it uses. The ENSTAR tariff rate for this service is
$105,000 per month plus $0.28 per MCF.

GVEA uses both coal-fired and oil-fired generators. Because of the high cost of
fuel oil, GVEA is normally an importer of lower cost power from the south.

Beluga River Field Producers

Chugach has similar requirements contracts with each of ARCO, ML&P (old Shell)
and Chevron that were executed in April 1989, superseding contracts that had
been in place since 1973. Each of the contracts with the Beluga River Field
producers provides for delivery of gas on different terms in three different
periods. Period 1 related to the delivery of gas previously committed by the
respective producer under the 1973 contracts terminated in June 1996. The
maximum deliverability under the Beluga and Marathon contracts is in excess of
the peak winter demand requirements of the Beluga plant and allows for increased
deliverability should Chugach's combined-cycle plant be out of service.

During Period 2, which began in June 1996 and continues until the earlier of the
delivery of 180 BCF of natural gas or December 31, 2013, Chugach is entitled to
take delivery of up to 180 BCF of natural gas (60 BCF per Beluga River Field
producer). During this period, Chugach is required to take 60% of its total fuel
requirements at Beluga from the three Beluga River Field producers, exclusive of
gas purchased at Beluga under the Marathon contract for use in making sales to
GVEA or certain other wholesale purchasers. The price for gas during this period
under the ARCO and AML&P (old Shell) contracts is approximately 88% (or $1.35
per MCF on December 31, 1998) of the price of gas under the Marathon contract
(described

below), plus taxes. The price during this period under the Chevron contract is
approximately 110% (or $1.68 per MCF on December 31, 1998) of the price of gas
under the Marathon contract (described below), plus taxes.

During Period 3 under the Beluga River Field producers' contracts, which begins
at the earlier of December 31, 2013 or the end of Period 2, Chugach may become
entitled to take delivery of up to 120 BCF of natural gas (40 BCF per producer).
Whether any gas will be taken in Period 3, and the price and take requirements
with respect thereto, are to be determined in the future based upon then-current
market conditions.

Chugach also has supplemental, annually renewable contracts with the Beluga
River Field producers to supply supplemental gas (for peak periods of energy
usage) if they have it available in excess of the amounts guaranteed in the
basic contracts. The supplemental gas contracts raise the daily deliverability
of gas to an aggregate of 85,200 MCF per day from the Beluga River Field
producers. The base price of the gas under these contracts is the same as the
base price under the Marathon contract described below, plus taxes.

Marathon

Chugach entered into a requirements contract with Marathon in September 1988 for
an initial commitment of 215 BCF. The contract expires December 31, 2015 or, if
earlier, the date on which Marathon has delivered to Chugach a volume of gas in
total which equals or exceeds the total volume of gas that Marathon is required
to sell and deliver to Chugach under the agreement. The base price for gas under
the Marathon contract is $1.35 per MCF, adjusted quarterly to reflect the
percentage change between the preceding twelve-month period and a base period in
the average prices of West Texas Intermediate Crude Oil (a benchmark of the
Light Sweet Crude Oil Futures Index), the Producer Price Index for natural gas,
and the Consumer Price Index for heating fuel oil. The price on December 31,
1998, exclusive of taxes was $1.53 per MCF.

Under the terms of the Marathon contract, Marathon generally provides the
primary supply of gas required for sales to GVEA, all of Chugach's requirements
at Bernice Lake and 40% of the requirements at Beluga. Marathon also has a right
of first refusal to provide additional gas under any sales agreements that
Chugach may enter into with electric utilities that Chugach does not currently
serve.

ENSTAR Natural Gas Company

Chugach and ENSTAR signed a transportation agreement in December 1992 that was
approved by the APUC in January 1993, whereby ENSTAR would transport Chugach's
gas purchased from the Beluga producers or Marathon on a firm basis to both
Chugach's International Power Plant and AEG&T's Soldotna Power Plant at a
transportation rate of $0.63 per MCF. In addition, ENSTAR agreed to transport
gas on an interruptible basis for off-system sales at a rate of $0.30 per MCF.
The agreement contains a minimum monthly bill of $2,600 for firm

service.

Chugach holds a reservation to receive its gas requirements at International
Power Plant from ENSTAR under a tariff approved by the APUC in the event that
the transportation agreement is subsequently canceled. Under the currently
suspended tariff, ENSTAR is obligated to supply all of the gas Chugach desires
at a price approved by the APUC. There would be a monthly minimum bill of
$10,465, but no requirement to actually use any gas at International. The
current delivered price under the tariff is $2.53 per MCF.

COMPLIANCE WITH ENVIRONMENTAL STANDARDS

Chugach's operations are subject to certain Federal, State and local
environmental laws which 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.

REFINANCINGS

On September 19, 1991, Chugach issued $314,000,000 of First Mortgage Bonds, 1991
Series A, for purposes of repaying existing debt to the Federal Financing Bank
(FFB) and the Rural Electrification Administration (REA), (now Rural Utilities
Services (RUS)). Pursuant to Section 311 of the Rural Electrification Act,
Chugach was permitted to prepay the REA debt at a discounted rate of
approximately 9%, resulting in a discount of approximately $45,000,000. The gain
on prepayment of the REA debt has been deferred and Chugach has obtained
permission from the APUC to flow through the benefit to consumers through lower
rates in the future.

The original issuance consisted of bonds in the amount of $52,000,000 due in
2002 bearing interest at 8.08% (Series A 2002 Bonds) and bonds in the amount of
$262,000,000 due in 2022 and bearing interest at 9.14% (Series A 2022 Bonds).
Interest is payable semiannually on March 15 and September 15. The Series A 2002
Bonds are subject to annual sinking fund redemption at 100% of the principal
amount thereof that commenced March 15, 1993. The Series A 2022 Bonds are
subject to annual sinking fund redemption at 100% of the principal amount
thereof commencing March 15, 2003. The Series A 2002 Bonds are not subject to
optional redemption. The Series A 2022 Bonds are redeemable at the option of
Chugach on any interest payment date at an initial redemption price of 109.14%
of the principal amount thereof declining ratably to par on March 15, 2012. The
Indenture prohibits outstanding short-term indebtedness (other than trade
payables) in excess of 15% of Chugach's net utility plant and limits certain
cash investments to specific securities. Chugach has reacquired $44,295,000 of
the Series A 2022 bonds since December 1995 leaving a remaining balance of
13

$217,705,000 at December 31, 1998. In February 1999, Chugach reacquired an
additional $34,895,000 of the Series A 2022 bonds leaving a remaining
outstanding balance of $182,810,000.

Chugach has negotiated a supplemental indenture (Third Supplemental Indenture of
Trust) with CoBank which previously allowed up to $80 million in future bond
financing. In 1998 Chugach finalized an amendment to the Third Supplemental
Indenture of Trust (Seventh Supplemental Indenture of Trust) that eliminates the
maximum aggregate amount of bonds the company may issue under the agreement. At
December 31, 1998, Chugach had bonds in the amount of $71.1 million outstanding
under this financing arrangement. The balance is comprised of a $1.4 million
bond (CoBank 1) that 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), priced at 5.60%, a $23.5 million bond (CoBank 4) priced at 5.60%,
and a $15 million bond (CoBank 5) priced at 5.60% in 2002, 2007 and 2012.
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 National Rural Utilities
Cooperative Finance Corporation (NRUCFC) for $80 million. At December 31, 1998
there were no amounts outstanding under this financing arrangement.

On March 17, 1999, Chugach entered into a Treasury Rate Lock Transaction with
Lehman Brothers on $183 million of its Series A (2022) bonds at an all-in-rate
of 5.679%. This "hedge" will insure the savings that could be achieved by
refinancing these bonds in today's relatively low interest rate market at the
call date in 2002. This transaction requires no payments until the settlement
date of mid-February 2002 when a comparison of then-current rates with the hedge
rate will define the payment scenario. Settlement payments are calculated on the
basis of the Dollar Value of a Basis Point (DVBP) determined from Bloomberg's
Financial Market Government Yield Analysis times 10,000. At settlement (in
2002), if the market interest rates are above the 5.679% transaction rate,
Lehman Brother pays Chugach the difference between the current rate and 5.679%
times DVBP. If the current rates are lower, Chugach pays Lehman Brothers under
the same mathematics.

Item 2 - Properties

SYSTEM ASSETS

General

Chugach has 513.1 MW of installed capacity consisting of 17 generating units at
five power plants. These include 365.6 MW of operating capacity at Beluga on the
west side of Cook Inlet; 70.0 MW of power at Bernice Lake on the Kenai
Peninsula; 48.6 MW of power at International Station in Anchorage; and 17.2 MW
at Cooper Lake, which is also on the Kenai Peninsula. Chugach also has 11.7 MW
of capacity from the two Eklutna hydroelectric plant generating units owned
jointly with MEA and AML&P. In addition to its own generation,

Chugach purchases power from the 90 MW Bradley Lake hydroelectric project owned
by the Alaska Energy Authority (AEA) through Alaska Industrial Development and
Export Authority (AIDEA). Bradley Lake is operated by Homer and dispatched by
Chugach. The Beluga, Bernice Lake and International facilities are all fueled by
natural gas. Chugach owns its offices and headquarters, located adjacent to its
International Station in Anchorage, in fee simple. Warehouse space for some
generation, transmission and distribution inventory (including a small amount of
office space) is leased from an independent party not directly affiliated with
Chugach.

Generation Assets

Chugach owns the land and improvements comprising its generating facilities at
Beluga and International. It also owns all improvements comprising its
generating plant at Bernice Lake, that is located on land originally leased from
Chevron Oil Company now owned by Homer, and its generating plant at Cooper Lake,
that is located on federal land pursuant to a major project license (Federal
License) granted to Chugach by the Federal Power Commission in 1957. The Bernice
Lake ground lease expires in 2011 and the Federal License for the Cooper Lake
facility expires in 2007. The management of Chugach has no reason to believe
that it will not be able to renew the Federal License or the Bernice Lake ground
lease if desirable.

In 1997, Chugach acquired a partial interest in the Eklutna Hydroelectric
Project. The plant is located on federal land pursuant to a United States Bureau
of Land Management (BLM) right-of-way grant issued in October 1997.

The following table lists specifics of the generating facilities of Chugach:
Commercial
Facility Type of Fuel Rated Capacity (1) Operation Date

Beluga Power Plant:

Unit 1 Natural Gas 15.7 1968

Unit 2 Natural Gas 15.7 1968

Unit 3 Natural Gas 64.7 1972

Unit 5 Natural Gas 66.5 1975

Unit 6 Natural Gas 74.0 1975

Unit 7 Natural Gas 74.0 1978

Unit 8 Steam (2) 55.0 1981

365.6

Bernice Lake Power
Plant:

Unit 2 Natural Gas 19.0 1971

Unit 3 Natural Gas 25.5 1978

Unit 4 Natural Gas 25.5 1981

70.0

International
Generating Station:

Unit 1 Natural Gas 15.0 1964

Unit 2 Natural Gas 15.1 1965

Unit 3 Natural Gas 18.5 1969

48.6

Cooper Lake
Hydroelectric Plant:

Unit 1 Hydroelectric 8.6 1960

Unit 2 Hydroelectric 8.6 1960

Eklutna Hydroelectric 17.2
Plant (4):

Unit 1 Hydroelectric 5.8 1955

Unit 2 Hydroelectric 5.9 1955

11.7

Total units 17 513.1

(1) Capacity rating in MW at 30 degrees Fahrenheit.
(2) Steam turbine-powered generator with heat provided by exhaust from
natural-gas fueled Units 6 and 7 (combined-cycle).
(3) Beluga Unit 4 and Bernice Lake Unit 1 were retired during 1994.
(4) The Eklutna Hydroelectric Plant is jointly owned by Chugach, MEA and AML&P.
The capacity shown is Chugach's 30% share of the plant's maximum output.

Transmission and Distribution Assets

As of December 31, 1998, Chugach's transmission and distribution assets included
39 substations and 402 miles of transmission lines, 931 miles of overhead
distribution lines and 647 miles of underground distribution line. Chugach owns
the land on which 21 of its substations are located and a portion of the
right-of-way connecting its Beluga plant to Anchorage. In the 1997 Eklutna
acquisition, Chugach also acquired a partial interest in two substations and
additional transmission facilities.

Many substations and a substantial number of Chugach's transmission and
distribution rights-of-way are the subject of federal or state permits and
licenses. Under the Federal License and a permit from the United States Forest
Service, Chugach operates its Quartz Creek transmission substation, substations
at Hope, Summit Lake and Daves Creek, and transmission lines over all federal
lands between Cooper Lake on the Kenai Peninsula and Anchorage. Long-term
permits from the Alaska Division of Lands and the Alaska Railroad Corporation
govern much of the rest of Chugach's transmission system outside the Anchorage
area. Within the Anchorage area, Chugach operates its University Substation and
several major transmission lines pursuant to long-term rights-of-way grants from
the BLM, and transmission and distribution lines have been constructed across
privately-owned lands pursuant to easements across public rights-of-way and
waterways pursuant to authority granted by the appropriate governmental entity.

Title

Substantially all of the properties and assets of Chugach, including generation,
transmission and distribution properties, but excluding all excepted property,
are pledged to secure repayment of the Series A Bonds and all other bonds that
may be issued under the Indenture. The Indenture defines excepted property to
include, among other things, cash on hand, instruments and certain securities
(other than those required to be deposited with the Trustee under the terms of
the Indenture), patents and transportation equipment (including vehicles,
vessels and barges), leases for an original term of less than five years,
certain non-assignable permits, licenses and contractual rights, property
located outside the State of Alaska and not used in connection with Chugach's
generation, transmission and distribution system and other property in which a
security interest cannot legally be perfected. The lien of the Indenture is
subject to certain permitted encumbrances that the Indenture defines to include
certain identified restrictions, exceptions, reservations, conditions and
limitations existing on the date of the Indenture, reservations in U.S. patents,
nondelinquent or contested tax liens, local easements, leases and reservations
and liens for nondelinquent rent or wages. The lien of the Indenture is also
subject to the lien in favor of the Trustee to recover amounts owing to the
Trustee under the Indenture.

In addition to the Indenture, many of Chugach's properties are burdened by
easements, plat restrictions, mineral reservation, water rights and similar
title exceptions common to the area or customarily reserved in conveyances from
federal or state governmental entities, and to

additional minor title encumbrances and defects. In the opinion of Chugach's
General Counsel, none of these title defects will materially impair the use of
its properties in the operation of its business.

In addition, a lawsuit was filed against the State of Alaska in which the
plaintiffs allege that the manner in which the State administered and disposed
of certain lands violates the Alaska Mental Health Enabling Act. One of
Chugach's substations and its right-of-way across State lands may be subject to
the plaintiffs' claims. Chugach's management believes that such claims will not
materially affect Chugach's financial position, results of operations or cash
flows.

Chugach operates its Bernice Lake facility on lands originally leased from
Chevron Oil Company (fee interest now owned by Homer) pursuant to a lease that
is scheduled to expire in 2011. Chugach also operates several terminal
connection sites and a substation under long-term or renewable leases from the
State of Alaska and private parties. In addition, as discussed above, a
substantial number of Chugach's transmission and distribution rights-of-way, and
several distribution substations, are the subject of federal or state permits
and easements.

Under the Alaska Cooperative Act, Chugach is given the power of eminent domain
for the purpose and in the manner provided by Alaska condemnation laws for
acquiring private property for public use.

Other Assets

Bradley Lake. Chugach is a participant in the Bradley Lake Hydroelectric Project
(Bradley Lake), which is a 90 MW hydroelectric facility near Homer on the
southern end of the Kenai Peninsula that was placed into service in September
1991. The project was financed and built by AEA through grants from the State of
Alaska and the issuance of $166 million principal amount of revenue bonds
supported by power sales agreements with six electric utilities that will share
the output from the facility (Chugach, AML&P, Homer and MEA (through AEG&T),
GVEA and Seward). Effective August 12, 1993, AEA became part of the Alaska
Industrial Development and Export Authority (AIDEA). Chugach and the other
participating utilities have entered into take-or-pay power sales agreements
under which AEA has sold percentage shares of the project capacity and the
utilities 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 purchasing utilities have agreed to pay all project
costs from the date of commercial operation even if no energy is produced.

Chugach has a 27.4 MW or 30.4% share in Bradley Lake, and takes Seward's and
MEA's shares which it net bills to them, for a total of 45% of the project's
capacity.

The length of the agreement is fifty years from the date of commercialization or
when the revenue bond principal is repaid, whichever is the longer. Chugach
believes that, under a worst-case scenario, it could be faced with annual
expenditures of approximately $4.1 million as a result of its Bradley Lake
take-or-pay obligations. Chugach believes that this expense would be recoverable
through the fuel surcharge ratemaking process. The share of debt service for
which the Association is responsible is approximately $46,000,000 plus interest.

In December 1997, $59,485,000 of the Power Revenue Bonds, Third Series and
$47,710,000 of the Power Revenue Bonds, Fourth Series were refinanced under a
forward refunding arrangement. The true interest cost of the new bonds decreased
to 5.611% for the Third Series bonds and 6.06% for the Fourth Series bonds from
7.295% and 7.235%, respectively. This refunding produced a net present value
saving to the participating utilities of approximately $8,500,000. The
Association's share of these savings will be approximately $1,600,000.

In January 1999, $28,910,000 of the Power Revenue Bonds, Fifth Series, were
refinanced under a forward refunding arrangement. The true interest cost of the
new bonds decreased to 5.25%. This produced a Net Present Value savings to the
participating utilities of approximately $2,875,000. The Association's share of
these savings will be approximately $546,000.

Chugach also provides transmission and related services as a wheeling agent (one
who dispatches and transmits power of third parties over its own system) for all
of the participants in the project. Upon the default of a 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%.

Chugach and AEG&T have also negotiated a Bradley Lake Scheduling Agreement
whereby Chugach schedules AEG&T/Homer's share of the Bradley Lake project for
the benefit of the Chugach system. AEG&T continues to pay its Bradley Lake costs
and receives credit for the Bradley Lake energy generated for Homer. Chugach
pays a fixed annual fee of $112,000 to AEG&T for these scheduling rights. This
agreement allows Chugach to improve the efficiency of its generating resources
through better hydrothermal coordination.

Eklutna. Chugach purchased a 30% undivided interest in the Eklutna Hydroelectric
Project from the federal government. MEA purchased a 17% undivided interest in
the Eklutna Project. The power MEA purchases from Eklutna is pooled with
Chugach's purchases and sold back to MEA to be used in meeting MEA's overall
power requirements. AML&P purchased the remaining 53% undivided interest in the
Eklutna Project. Transfer of ownership occurred on October 2, 1997 in accordance
with a transition plan. Chugach believes that the cost of power from the Eklutna
Project will be less than it would have been under continued federal ownership.

Item 3 - Legal Proceedings

LITIGATION

Standard Steel Salvage Yard 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 on Chugach's financial condition or results of operations.

Matanuska Electric Association, Inc. v. Chugach Electric Association U-98-180

Reference is made to Item 1 with respect to the MEA proposal and certain
contractual relationships between Chugach and MEA. On December 2, 1998, MEA
filed a complaint with the APUC. In the Matter of the Formal Complaint filed by
MATANUSKA ELECTRIC ASSOCIATION, INC. Against CHUGACH ELECTRIC ASSOCIATION, Inc.,
U-98-180. MEA's complaint alleges that Chugach has engaged in "unreasonable
management practices" in the management of the Series A Bonds. The complaint
asks the APUC 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 APUC 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 APUC should not open an investigation on the ground that MEA's allegations
do not implicate the kinds of management decisions into which it is appropriate
for the APUC 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
21

filed additional motions regarding the pleadings of the other party.

To date, the APUC has not rendered any decision on any aspect of the case. If
the APUC 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 cost of its participation in the case, should the
case proceed.

Item 4 - Submission of Matters to a Vote of Security Holders

Not Applicable

PART II

Item 5 - Market for Registrant's
Common Equity and Related Stockholder Matters

Not Applicable

Item 6 - Selected Financial Data

The following tables present selected historical information relating to
financial condition and results of operations over the past five years:

Balance Sheet Data 1998 1997 1996 1995 1994

Plant net:
In service .................. $386,235,421 $393,228,853 $400,052,837 $391,200,269 $ 390,969,561

Construction work in
progress .................. 30,405,736 24,664,395 19,826,957 27,068,964 22,795,657

Electric plant, net ...... 416,641,157 417,893,248 419,879,794 418,269,233 413,765,218

Other assets ................ 64,450,293 67,674,051 62,608,636 66,521,090 65,559,620

Total assets ............. $481,091,450 $485,567,299 $482,488,430 $484,790,323 $ 479,324,838

Capitalization:
Long-term debt .............. 305,917,699 312,006,501 307,905,847 305,641,703 303,675,870

Capital leases .............. -- -- -- -- 131,582

Equities and margins ........ 114,023,296 109,119,697 104,477,942 99,230,550 94,579,059

Total capitalization ....$ 419,940,995 $421,126,198 $412,383,789 $404,872,253 $ 398,386,511

Summary Operations Data

Operating revenues ............. 141,825,373 143,947,730 134,876,668 129,379,308 130,912,171

Operating expenses ............. 110,737,441 113,070,990 100,913,804 95,920,361 90,151,993

Interest expense ............... 26,011,392 26,661,510 27,052,186 27,207,648 27,508,928

Amortization of gain on
refinancing .................. 1,542,723 1,577,149 1,703,136 2,150,476 1,926,212

Net operating margins ..... 6,619,263 5,792,379 8,613,814 8,401,775 15,177,462

Nonoperating margins ........... 2,111,141 1,762,018 1,217,557 604,418 (249,028)

Assignable margins ........ $ 8,730,404 $ 7,554,397 $ 9,831,371 $ 9,006,193 $ 14,928,434

Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations

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 in Item 1 with respect to the MEA
proposal.

RESULTS OF OPERATIONS

Chugach operates on a not-for-profit basis and, accordingly, seeks only to
generate revenues sufficient to pay operating and maintenance costs, the cost of
purchased power, capital expenditures, depreciation and principal and interest
on all indebtedness of Chugach and to provide for the establishment of
reasonable margins and reserves. Revenues in excess of current period costs (net
operating margins and nonoperating margins) in any year are designated on
Chugach's Statements of Revenues, Expenses and Patronage Capital as assignable
margins. Retained assignable margins are designated on Chugach's balance sheet
as patronage capital, which is assigned to each member on the basis of
patronage. This patronage capital constitutes the principal equity of Chugach.

Revenues

Operating revenues include sales of electric energy to retail, wholesale and
economy energy customers and other miscellaneous revenues. In 1998, operating
revenues were approximately 1.5% lower than 1997. This decrease was largely
attributable to lower sales to Homer due to economy energy purchases from AML&P.
Also, economy energy sales to GVEA decreased due to the Healy Clean Coal Plant
testing activity in 1998. A total of $2,181,024 has been recorded in the
provision for rate refund account since 1997. This provision was recorded in
response to Docket U-96-37 which was opened by the APUC to resolve certain rate
disputes with the wholesale customers. At December 31, 1998, Docket U-96-37 had
not been closed. In addition, under the terms of a renegotiated power sales
agreement with Seward they may be entitled to a refund. A provision for that
rate refund was also included in the 1998 total provision. Retail demand and
energy rates did not change in 1998 while demand and energy rates charged to MEA
decreased slightly. Demand and energy rates to Homer remain unchanged. Seward's
demand and energy rates dropped 15%. In 1997 operating revenues were
approximately 6.7% higher than 1996. This increase was largely attributable to
higher sales to retail and two wholesale customer classes. Higher fuel costs
also contributed to the increase since fuel and purchased power costs are passed
directly to customers through a fuel and purchased power adjustment factor.
Retail demand and energy rates did not change in 1997 while demand and energy
rates charged to MEA decreased slightly. Demand and energy rates to Homer and
Seward did not change in 1997. Revenues and power sold were as follows for the
years ended December 31:

Year MWh sold Operating revenues

1998 2,055,963 $ 141,825,373

1997 2,269,453 143,947,730

1996 2,215,842 134,876,668

Chugach makes economy sales primarily to GVEA. These sales commenced in 1988 and
have contributed to a portion of Chugach's growth in operating revenues. Chugach
does not take such economy sales into consideration in its long-range resource
planning process because these sales are non-firm sales that depend on GVEA's
need for additional power and Chugach's available generating capacity at the
time. In 1998, economy sales to GVEA constituted approximately .92% of Chugach's
sales revenues. This decrease from previous year's Economy Energy sales is due
primarily to the Healy Clean Coal Project (HCCP) entering testing in mid-1998,
decreasing the need for GVEA to make economy power purchases.

The impact of inflation on Chugach's revenues falls into two rate categories as
follows:

Fuel Surcharge

Fuel and purchased power costs are passed directly to Chugach's wholesale and
retail customers through a fuel and purchased power adjustment factor (fuel
surcharge). Changes in these costs due to inflation or other market conditions
are passed directly to Chugach's retail and wholesale customers, which results
in either a direct increase or decrease to Chugach's system revenues. The fuel
adjustment factor is currently approved on a quarterly basis by the APUC. There
are no limitations on surcharge rate changes. Increases in Chugach's fuel and
purchased power costs result in increased revenues while decreases in costs
result in lower revenues. Revenue from the fuel adjustment charge normally does
not impact margins.

In 1997, Chugach experienced higher than anticipated fuel and purchased power
costs that were considered unusual and transitory in nature. In an effort to
maintain overall price stability, Chugach requested and was granted a waiver by
the APUC to leave fuel surcharge rates at the computed second quarter 1997 level
through the fourth quarter 1997. Routine quarterly adjustments resumed January
1, 1998 and undercollected fuel and purchased power costs over this period were
recovered throughout 1998.

At the urging of one of Chugach's wholesale customers, in Order No. 18 of Docket
U-96- 37, the APUC ordered retroactive refunds in the approximate amount of $1.2
million for fuel surcharge rates charged in 1995 - 1997. The order is in
connection with Chugach's fuel and purchased power cost adjustment factors, that
are adjusted on a quarterly basis. It is Chugach's position that retroactive
refunds of quarterly surcharge revenues violate the rules against retroactive
ratemaking and constitutional due process protections. Chugach

has appealed this decision to the Superior Court for the State of Alaska.
Chugach's request for stay of the Commission refund order has been granted. It
is not possible at this time to determine the outcome of this appeal.

Simplified Rate Filing

Since 1989 operating and maintenance costs and other nonfuel and purchased power
costs have been recouped through a Simplified Rate Filing (SRF) process that
enabled Chugach to raise its electric prices up to 8% over a cumulative
twelve-month period or up to 20% over a cumulative thirty-six month period,
subject to APUC approval.

In August 1996, the Board of Directors approved a petition to the APUC to
withdraw from the SRF process. This petition was submitted to the APUC as part
of Docket U-96-37, that was opened to resolve rate disputes with Chugach's
wholesale customers. Interim- refundable rates for wholesale customers were
ordered pending resolution of the docket. In February 1997, the APUC approved a
Settlement Agreement between Chugach and AEG&T/MEA/Homer that resolved issues in
the docket and established permanent rates. As part of the APUC Order, the
Association was required to file Cost of Service and Revenue Requirement
Studies. These studies were filed in March 1997.

Chugach's annual base rate changes (excluding fuel adjustments) for retail and
wholesale classes for the years 1996 through 1998 were as follows:

1998 1997 1996

Retail 0.00% 0.00% 0.00%

Wholesale:
Homer 0.00% 0.00% 5.32%
MEA (0.20%) (0.80%) 2.46%
Seward (15.00%) 0.00% 2.46%

Expenses

Chugach's operating expenses for the years ended December 31, 1998, 1997 and
1996 were as follows:

Year Operating expenses

1998 $110,737,441

1997 $113,070,990

1996 100,913,804

Operating expenses for 1998 were 2.1% lower than 1997. Operating expenses for
1997 were 12.0% higher than 1996. The reasons for the significant operating
expense variances follow:

Year ended December 31, 1998 compared to the year ended December 31, 1997

Production expense decreased in 1998 from 1997. There was a substantial decrease
in the consumption of fuel at Beluga due to a 13.0% reduction in output from
1997 to 1998. This was a result of significantly reduced economy energy sales.
This decrease was offset slightly by increased fuel costs for Bernice Lake due
to decreased power purchases from Soldotna Unit #1. In 1998, it proved to be
more economical to run our own units at Bernice Lake to increase reliability on
the Kenai Peninsula, rather than purchase power from Soldotna Unit #1, as was
done in 1997.

Purchased power expense decreased 40% in 1998 from 1997 due primarily to the
previously mentioned decreased purchases from Soldotna Unit #1. In addition,
there were unusual purchases made from AML&P in 1997 while maintenance was being
performed on the transmission lines between Beluga and Anchorage. This was done
to promote the system stability and avoid possible outages.

Transmission expense decreased in 1998 from 1997 due to the unanticipated cost
of clearing the right-of-way from Quartz Creek substation to the Soldotna and
Bernice Lake substations in 1997.

In preparation for competition and with the addition of new business ventures at
Chugach, Sales Expense as a financial category was added in 1998. At December
31, 1998, $1,125,410 had been charged to Sales Expense for advertising and
marketing of Chugach services.

Administrative and General expense increased from 1997 to 1998. This was caused
by an update in the amount of common information services costs allocated to
this category.

Year ended December 31, 1997 compared to the year ended December 31, 1996

Production expense increased in 1997 over 1996. Higher fuel prices and higher
fuel consumption (due to the increase in kWh sales) were the major causes of
this increase. As previously reported, Chugach has completed the transition to
Period 2 under the long-term fuel supply contracts and fuel costs now result
from market-based prices (See Fuel Supply in Item 1).

Purchased power expense increased in 1997 over 1996. This was substantially due
to the system operating scenario throughout 1997 wherein Chugach purchased power
from AEG&T's Soldotna 1 plant to ensure system reliability on the Kenai
Peninsula.

Consumer accounts expense decreased in 1997 from 1996. The majority of this
decrease was due to a lower level of common information services costs being
allocated to this function.

Other interest expense decreased in 1997 from 1996. This was caused by a lower
average outstanding balance on the short-term lines of credit throughout the
year.

Margins

Chugach's assignable margins for the years ended December 31, 1998, 1997 and
1996 were as follows:

Period Net operating margins Nonoperating margins Assignable margins

1998 $ 6,619,263 $ 2,111,141 $ 8,730,404

1997 $ 5,792,379 $ 1,762,018 $ 7,554,397

1996 $ 8,613,814 $ 1,217,557 $ 9,831,371

Nonoperating margins increased in 1998 over 1997. This increase was caused
mostly by an increase in patronage capital allocation from CoBank in 1998 versus
1997.

Nonoperating margins increased in 1997 over 1996. This increase was caused by a
gain recorded on the sale of a generator hot gas case that had been held in
inventory.

Patronage Capital (Equity)

Chugach's patronage capital and total equity have shown steady growth, both in
dollars and as a percentage of capitalization. The following table summarizes
Chugach's patronage capital and total equity position since 1996:

1998 1997 1996

Patronage capital at beginning of year . $ 104,800,092 $ 100,685,517 $ 95,421,358

Retirement of capital credits and estate
payments ............................ (3,907,500) (3,439,822) (4,567,212)

Assignable margins ..................... 8,730,404 7,554,397 9,831,371

Patronage capital at end of year ....... 109,622,996 104,800,092 100,685,517

Other equity ........................... 4,400,300 4,319,605 3,792,425

Total equity ........... $ 114,023,296 $ 109,119,697 $ 104,477,942

The Indenture includes a covenant restricting the distribution of patronage
capital to members. Chugach cannot distribute patronage capital to members if 1)
an event of default exists or 2) the aggregate amount of patronage capital
distribution exceeds the sum of $7,000,000 plus 35 percent of the aggregate
assignable margins earned after December 31, 1990.

Times Interest Earned Ratio (TIER)

Alaska electric cooperatives generally set rates on the basis of TIER. TIER is
determined by dividing the sum of assignable margins plus long-term interest
expense (excluding capitalized interest) by long-term interest expense.
Beginning in 1989, Chugach's Board of Directors approved an Equity Management
Plan that established a schedule for building Chugach's equity. Since then
Chugach has managed its business with a view toward achieving a TIER of 1.25 or
greater. Chugach's achieved TIERs for the past five years were as follows:

Period TIER

1998 1.35
1997 1.30
1996 1.39
1995 1.34
1994 1.58

The Indenture requires Chugach to establish rates reasonably expected to yield
margins for interest (MFI) equal to at least 1.20 times total interest expense
(I), where margins for interest are defined as net margins plus interest charges
and accruals for federal income and other taxes imposed on income after
deduction of interest charges for such period, provided that the amount of
nonoperating margins included in assignable margins shall not exceed 50% of

assignable margins. Chugach's achieved MFI/I for the past five years are not
materially different from the TIER calculations shown above.

The Indenture requires that Chugach achieve such a 1.20 ratio for any 12
consecutive month period of the last 18 months before issuing additional Bonds
(other than additional Bonds issued based on deposited cash and, under certain
circumstances, retirement of Bonds).

MATERIAL CHANGES IN FINANCIAL CONDITION

Chugach maintained a stable asset base from 1997 to 1998. Notable changes among
the components include: a decrease in cash (and cash equivalents) due to the
paydown of the outstanding balance on the CoBank line of credit; an increase in
Construction Work in Progress (CWP) due to increased construction activity and a
decrease in accounts receivable due to the substantial decrease in economy
energy sales to GVEA, as explained previously; and the decrease in the
uncollected reimbursements from the Standard Steel matter.

Notable changes to other liabilities include: a lower balance in other
liabilities due to decreased fuel and purchased power payables caused by
decreased economy energy sales to GVEA; and the decrease in deferred credits
resulting from the annual amortization of the original refinancing gain.

LIQUIDITY AND CAPITAL RESOURCES

Chugach satisfies its operational and capital cash requirements through
internally generated funds, a $50 million line of credit with the NRUCFC and a
$35 million line of credit with CoBank.

At December 31, 1998, no balance was outstanding on the NRUCFC line. The NRUCFC
line of credit expires October 14, 2002. At December 31, 1998, no amount was
outstanding on the CoBank line. The CoBank line of credit expires August 1,
1999, but carries an annual automatic renewal clause.

Chugach's capital improvement requirements are based on long-range plans and
other supporting studies and are executed through a five-year construction work
plan.

Five-year work plans are fully developed and updated every year. Shown below is
an estimate of capital expenditures for the years 1999 through 2002:

1999 $33.9 million

2000 34.1 million

2001 23.7 million

2002 28.2 million

2003 33.7 million

Following is a five-year summary of anticipated capital credit retirements:

Year ending Wholesale Retail Total

1999 0 1,766,000 1,766,000

2000 0 1,380,000 1,380,000

2001 0 1,293,000 1,293,000

2002 0 1,307,000 1,307,000

2003 0 1,241,000 1,241,000

Chugach's outstanding long-term obligations at December 31, 1998 are as follows:

First mortgage bonds of 8.08% maturing in
2002 and 9.14% maturing in 2022, with
interest payable semiannually March 15
and September 15:
8.08% $ 23,205,000

9.14% 217,705,000

CoBank 8.95% bond maturing in 2002,
with interest payable monthly and
principal due semi-annually 1,096,501

CoBank 7.76% bond maturing in 2005,
with interest payable monthly 10,000,000

CoBank 5.60% bonds maturing 2022, with
interest payable monthly 45,000,000

CoBank 5.60% bonds maturing in 2002,
2007 and 2012 with interest payable
monthly 15,000,000

Total long-term obligations 312,006,501

Less current installments 6,088,802

Long-term obligations, excluding
current installments $ 305,917,699

Maturities of Long-term Obligations

Long-term obligations at December 31, 1998 mature as follows:

Sinking Fund Principal
Year ending Requirements maturities
December 31
Total

First mortgage CoBank
bonds mortgage bonds

1999 5,809,000 279,802 6,088,802

2000 6,067,000 305,405 6,372,405

2001 6,097,000 333,350 6,430,350

2002 5,232,000 5,177,944 10,409,944

2003 5,041,000 865,821 5,906,821

Thereafter 212,664,000 64,134,179 276,798,179

$ 240,910,000 $ 71,096,501 $ 312,006,501

On September 19, 1991, Chugach issued $314 million of First Mortgage Bonds, 1991
Series A, for purposes of repaying existing debt to the FFB and the REA.
Pursuant to Section 311 of the Rural Electrification Act, Chugach was permitted
to prepay the REA debt at a discounted rate of approximately 9%, resulting in a
discount of approximately $45 million. The gain on prepayment was deferred at
December 31, 1991 because Chugach expected to pass the benefit of the gain
through to ratepayers prospectively in the form of lower rates. In April 1992,
Chugach received formal approval from the APUC to defer the gain and amortize it
into income over the life of the bonds. Annual amortization for 1998 and 1997
was $1.7 million and for 1996 was $1.85 million.

Chugach has negotiated a supplemental indenture (Third Supplemental Indenture of
Trust) with CoBank that previously allowed up to $80 million in future bond
financing. In 1997 Chugach finalized an amendment to the Third Supplemental
Indenture of Trust (Seventh Supplemental Indenture of Trust) that eliminates the
maximum aggregate amount of bonds the company may issue under the agreement. At
December 31, 1998, Chugach had bonds in the amount of $71.1 million outstanding
under this financing arrangement. The balance is comprised of a $1.4 million
bond (CoBank 1) that 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), priced at 5.60%, a $23.5 million bond (CoBank 4) priced at 5.60% and
a $15 million bond (CoBank 5) priced at 5.60% due in 2002, 2007 and 2012.
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 December 31, 1998 there were no amounts outstanding under this financing

arrangement.

Chugach management expects that cash flows from operations and external funding
sources will be sufficient to cover operational and capital funding requirements
in 1999 and thereafter.

YEAR 2000

Readiness Information

Chugach has recognized the need to investigate, test and remediate if necessary
the critical systems and equipment under its control which could cause power and
business disruptions in conjunction with what are collectively called "Year
2000" (Y2K) dates. Chugach has an active program underway that should be
completed by the summer of 1999.

Chugach expects to fund its Y2K project internally and estimates it will incur
between $9 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 $7.7 million for Y2K projects through December 31, 1998, all of
which has been capitalized.

Chugach's 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 the 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
developed for 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.

Chugach's Y2K readiness program is divided along functional lines (real time and
business systems) and each area is at a different point of completion. System
testing at Chugach's four power plants is underway and will be complete by June
1999. 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 are scheduled to be completed in June, 1999.

Chugach business systems Y2K readiness activities were 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 total

cost of these conversions was $7.7 million. Remaining, non-critical financial
subsystems needing to be converted in 1999 are the Budget Preparation subsystem
and Fixed Assets system. We are also updating our Work Management subsystems.
Finally, all the hardware connected to Chugach's business systems wide area
network have been tested and found to be problem free.

The business systems team is currently developing contingency plans in the event
of any failure. These plans will be ready by August 1999.

The Purchasing Department asked every vendor for a statement regarding their
preparedness. All responses are due by the end of April 1999. If, after review
of the individual vendor's response, it is determined that the vendor will not
be Y2K compliant by year-end, Chugach will determine if it is worthwhile to
continue the relationship with that vendor.

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.

Since contingency planning is in progress, 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.

ENVIRONMENTAL MATTERS

Compliance with Environmental Standards

Standard Steel Salvage Yard 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.

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 new strategic plan. In this plan, priority
issues are identified that are critical to the company's success. Updated key
result area targets were developed that track 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 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 customer's 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 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 interest arbitration. The Union cannot strike and Chugach cannot lockout
under the continuing agreement.

Item 7A - 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 as described on page 12 under the heading "Marathon". 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, nor are any derivative instruments
outstanding at December 31, 1998.

Interest rate risk - As of December 31, 1998, Chugach's outstanding borrowings
were at fixed interest rates. 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 $6,089 $6,372 $6,430 $10,410 $5,907 $276,798 $312,006 $349,353

Commodity price risk - As described on page 12 under the heading "Marathon",
Chugach's gas contracts provide for adjustments to gas prices based on
fluctuations of certain commodity prices and indices. As described on page 24
under the heading "Fuel Surcharge", 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.

Item 8 - Financial Statements and Supplementary Data

December 31, 1998 and 1997

Independent Auditors' Report

The Board of Directors
Chugach Electric Association, Inc.:

We have audited the accompanying balance sheets of Chugach Electric Association,
Inc. as of December 31, 1998 and 1997, and the related statements of revenues,
expenses and patronage capital and cash flows for each of the years in the
three-year period ended December 31, 1998. These financial statements are the
responsibility of the Association's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chugach Electric Association,
Inc. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.

Anchorage, Alaska /s/ KPMG LLP
February 26, 1999

CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets
December 31, 1998 and 1997

Assets 1998 1997
------------ ------------
Utility plant (notes 2, 13 and 14):

Electric plant in service ............... $620,216,818 $625,365,803

Construction work in progress ........... 30,405,736 24,664,395
------------ ------------
650,622,554 650,030,198

Less accumulated depreciation ........... 233,981,397 232,136,950
------------ -----------
Net utility plant ..... 416,641,157 417,893,248
------------ -----------
Other property and investments, at cost:

Nonutility property ..................... 3,550 3,550

Investments in associated organizations
(note 3) ............................. 8,356,364 7,864,271
------------ -----------

8,359,914 7,867,821
------------ -----------
Current assets:

Cash and cash equivalents, including
repurchase agreements of $4,153,475 in
1998 and $6,351,291 in 1997 .......... 2,312,574 5,224,529

Cash - restricted construction funds .... 177,366 364,778

Special deposits ........................ 121,164 151,703

Accounts receivable, less provision for
doubtful accounts of $447,908 in 1998
and $368,029 in 1997 ................. 17,243,266 23,999,138

Materials and supplies .................. 15,963,434 15,619,085

Prepayments ............................. 917,381 558,371

Other current assets .................... 349,030 305,415
------------ ------------
Total current assets .... 37,084,215 46,223,019
------------ ------------
Deferred charges (notes 9 and 15) ............ 19,006,164 13,583,211
------------ ------------
$481,091,450 $485,567,299
------------ ------------

See accompanying notes to financial statements.

CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets, Continued
December 31, 1998 and 1997

Liabilities 1998 1997
------------ -------------
Equities and margins (note 11):

Memberships .............................. $ 911,253 $ 861,543

Patronage capital (note 4) ............... 109,622,996 104,800,092

Other (note 5) ........................... 3,489,047 3,458,062
------------ -------------
114,023,296 109,119,697
------------ -------------
Long-term obligations, excluding current
installments (notes 6, 7 and 11):

First mortgage bonds payable ............. 235,101,000 240,910,000

National Bank for Cooperatives bonds
payable ................................. 70,816,699 71,096,501
------------ ------------
305,917,699 312,006,501
------------ ------------
Current liabilities:

Current installments of long-term debt and
capital leases (notes 6, 7 and 11) .... 6,088,802 5,913,512

Accounts payable ......................... 8,838,757 7,038,234

Consumer deposits ........................ 993,616 1,038,241

Accrued interest ......................... 6,722,325 6,904,335

Salaries, wages and benefits ............. 3,755,837 3,655,101

Fuel ..................................... 5,362,713 6,611,415

Other (note 15) .......................... 1,318,947 3,300,310
------------- ------------
Total current liabilities . 33,080,997 34,461,148
------------- ------------
Deferred credits (note 12) .................... 28,069,458 29,979,953
------------- ------------
$481,091,450 $485,567,299
------------- ------------

See accompanying notes to financial statements.

CHUGACH ELECTRIC ASSOCIATION, INC.
Statements of Revenues, Expenses and Patronage Capital
Years ended December 31, 1998, 1997 and 1996

1998 1997 1996
------------- ------------- -------------
Operating revenues ................... $ 141,825,373 $ 143,947,730 $ 134,876,668
------------- ------------- -------------

Operating expenses:

Production ...................... 45,261,450 45,879,337 37,066,444

Purchased power ................. 8,462,835 14,033,282 10,024,483

Transmission .................... 2,771,652 3,378,540 3,667,039

Distribution .................... 8,876,890 8,640,443 8,789,683

Consumer accounts ............... 4,177,980 4,955,838 6,978,856

Sales expense ................... 1,125,410 -- --

Administrative, general and other 17,592,829 15,071,966 13,713,690

Depreciation .................... 22,468,395 21,111,584 20,673,609
------------- ------------- -------------
Total operating expenses 110,737,441 113,070,990 100,913,804
------------- ------------- -------------

Interest:

On long-term debt ............... 25,159,660 24,942,281 25,029,257

Charged to construction - credit (821,137) (629,764) (616,090)

On short-term debt .............. 130,146 771,844 935,883
------------- ------------- -------------
Net interest ............ 24,468,669 25,084,361 25,349,050
------------- ------------- -------------
Net operating margins ... 6,619,263 5,792,379 8,613,814

Nonoperating margins:

Interest income ................. 711,155 632,191 695,699

Other ........................... 1,050,899 520,414 566,908

Property gain (loss) ............ 349,087 609,413 (45,050)
------------- ------------- -------------
Assignable margins ....... 8,730,404 7,554,397 9,831,371

Patronage capital at beginning of year 104,800,092 100,685,517 95,421,358

Retirement of capital credits and
estate payments (note 4) .......... (3,907,500) (3,439,822) (4,567,212)
------------- -------------- -------------
Patronage capital at end of year ..... $ 109,622,996 $ 104,800,092 $ 100,685,517
------------- -------------- -------------

See accompanying notes to financial statements.

CHUGACH ELECTRIC ASSOCIATION, INC.
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996

1998 1997 1996
------------ ------------ ------------
Cash flows from operating activities:
Assignable margins ..................................... $ 8,730,404 $ 7,554,397 $ 9,831,371
------------ ------------ ------------
Adjustments to reconcile assignable margins to
net cash provided by operating activities:
Depreciation and amortization .......................... 24,605,760 23,532,263 23,221,162

Capitalized interest ................................... (1,081,394) (799,999) (809,302)

Property (gains) losses and obsolete inventory write-off (349,087) (609,413) 45,050

Other .................................................. 60,734 (241,317) (265,643)

Changes in assets and liabilities:
(Increase) decrease in assets:
Special deposits .................................. 30,540 (62,471) 8,557

Accounts receivable ............................... 6,755,872 (8,629,254) 1,738,940

Prepayments ....................................... (359,010) 135,886 (19,140)

Materials and supplies, net ....................... (344,349) 568,507 2,311,191

Deferred charges .................................. (7,898,240) (2,299,547) (4,581,795)

Other ............................................. (43,615) (11,035) 117,829

Increase (decrease) in liabilities:
Accounts payable .................................. 1,800,524 1,860,074 (1,481,316)

Accrued interest .................................. (182,010) (172,052) (976,398)

Deferred credits .................................. (1,829,112) (755,366) (8,023,874)

Consumer deposits, net ............................ (44,625) (28,665) (52,150)

Other ............................................. (3,129,329) (1,076,365) 5,956,463
------------- ------------- ------------
Total adjustments ............................ 17,992,659 11,411,246 17,189,574
------------- ------------- ------------
Net cash provided by operating
activities ................................. 26,723,063 18,965,643 27,020,945
------------- ------------- ------------
Cash flows from investing activities:

Extension and replacement of plant ..................... (19,447,902) (17,487,859) (20,605,093)

(Increase) decrease in investments in associated
organizations .......................................... (552,827) 24,235 132,261
------------- ------------- ------------
Net cash (used) in investing activities ...... (20,000,729) (17,463,624) (20,472,832)
------------- ------------- ------------
Cash flows from financing activities:

Transfer of restricted construction funds .............. 187,412 1,006,608 (1,371,386)

Net decrease in notes payable .......................... -- (2,750,000) (5,250,000)

Proceeds from long-term debt ........................... -- 15,000,000 45,000,000

Repayments of long-term debt ........................... (5,913,512) (10,957,586) (42,429,853)

Memberships and donations received (refunded) .......... 80,695 527,179 (16,768)

Retirement of patronage capital ........................ (3,907,500) (3,439,822) (4,567,212)

Increase in (refunds) and transfers of consumer advances
for construction ..................................... (81,384) (1,083,688) 1,627,442
-------------- ------------- --------------
Net cash used by financing
activities ................................ (9,634,289) (1,697,309) (7,007,777)
-------------- ------------- --------------
Net decrease in cash and cash
equivalents ............................... (2,911,955) (195,290) (459,664)

Cash and cash equivalents at beginning of year .............. 5,224,529 5,419,819 5,879,483
-------------- ------------- --------------
Cash and cash equivalents at end of year .................... $ 2,312,574 $ 5,224,529 $ 5,419,819
-------------- ------------- --------------

Supplemental disclosure of cash flow information - $ 24,650,680 $ 25,256,413 $ 26,325,449
interest expense paid, net of amounts capitalized -------------- ------------- --------------

See accompanying notes to financial statements.

CHUGACH ELECTRIC ASSOCIATION, INC.
Notes to Financial Statements

December 31, 1998 and 1997

(1) Description of Business and Summary of Significant Accounting Policies
Description of Business

Chugach Electric Association, Inc. (Association or Chugach) is the largest
electric utility in Alaska. The Association is engaged in the generation,
transmission and distribution of electricity to directly served retail customers
in the Anchorage and upper Kenai Peninsula areas. Through an interconnected
regional electrical system, Chugach's power flows throughout Alaska's Railbelt,
a 400-mile-long area stretching from the coastline of the southern Kenai
Peninsula to the interior of the state, including Alaska's largest cities,
Anchorage and Fairbanks.

Chugach also supplies much of the power requirements of three wholesale
customers, Matanuska Electric Association (MEA), Homer Electric Association
(Homer) and the City of Seward (Seward).

The Association operates on a not-for-profit basis and, accordingly, seeks only
to generate revenues sufficient to pay operating and maintenance costs, the cost
of purchased power, capital expenditures, depreciation, and principal and
interest on all indebtedness and to provide for reasonable margins and reserves.
The Association is subject to the regulatory authority of the Alaska Public
Utilities Commission (APUC).

Management Estimates

In preparing the financial statements, management of the Association is required
to make estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
date of the balance sheet and revenues and expenses for the reporting period.
Actual results could differ from those estimates.

Regulation

The accounting records of the Association conform to the Uniform System of
Accounts as prescribed by the Federal Energy Regulatory Commission. The
Association meets the criteria, and accordingly, follows the accounting and
reporting requirements of Statement of Financial Accounting Standards No. 71,
Accounting for the Effects of Certain Types of Regulation (SFAS 71). Revenues in
excess of current period costs (net operating margins and nonoperating margins)
in any year are designated on the Association's statement of revenues and
expenses as assignable margins. Retained assignable margins are designated on
the Association's balance sheet as patronage capital, which is assigned to each
member on the basis of patronage. This patronage capital constitutes the
principal equity of the Association.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

In July 1997, the Financial Accounting Standards Board (FASB) Emerging Issues
Task Force (EITF) reached a consensus on EITF 97-4 "Deregulation of the Pricing
of Electricity - Issues Related to the Application of FASB Statements No. 71 and
No. 101." This issue discusses when an enterprise should stop applying SFAS 71
to the separable portion of its business whose product or service pricing is
being deregulated and how a company should account for its stranded costs after
it has discontinued the application of SFAS 71. It also provides guidance with
respect to the evaluation of regulatory assets and liabilities and concluded
that these items should be determined on the basis of where in the business the
regulated cash flows to realize and settle them will be derived. The
Association's current method of accounting is consistent with the EITF.

The Association performs an annual evaluation of the requirements of SFAS 71 and
related exposures.

Reclassifications

Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the 1998 presentation.

Plant Additions and Retirements

Additions to electric plant in service are recorded at original cost of
contracted services, direct labor and materials, and indirect overhead charges.
For property replaced or retired, the average unit cost of the property unit,
plus removal cost, less salvage, is charged to accumulated provision for
depreciation. The cost of replacement is added to electric plant.

Operating Revenues

Operating revenues are based on billing rates authorized by the APUC which are
applied to customers' usage of electricity. Included in operating revenue are
billings rendered to customers adjusted for differences in meter read dates from
year to year. The Association's tariffs include provisions for the flow through
of gas cost increases pursuant to existing gas supply contracts.

In 1997, Chugach experienced higher than anticipated fuel and purchased power
costs that were considered unusual and transitory in nature. In an effort to
maintain overall price stability, Chugach requested and was granted a waiver by
the APUC to leave fuel surcharge rates at the computed second quarter 1997 level
through the fourth quarter 1997. Further, Chugach elected to forego collection
of approximately $3,500,000 of fuel

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

and purchased power costs (representing cumulative uncollected fuel surcharge
through May 1997). Routine quarterly adjustments were resumed and fuel surcharge
rates increased effective January 1998. Undercollected fuel and purchased power
costs were recovered throughout 1998 under a plan approved by the APUC.

In August 1996, the Board of Directors approved a petition to the APUC to
withdraw from the Simplified Rate Filing (SRF) process. This petition was
submitted to the APUC as part of Docket U-96-37, which was opened to resolve
rate disputes with two of Chugach's wholesale customers (AEG&T/MEA/Homer).
Interim-refundable rates for AEG&T/MEA/Homer were ordered pending resolution of
the docket. In February 1997, the APUC approved a Settlement Agreement between
Chugach and AEG&T/MEA/Homer resolving issues in the docket and establishing
permanent rates. As part of the APUC order, the Association was required to file
Cost of Service and Revenue Requirement Studies. These studies were filed in
March 1997. The APUC approved Chugach's withdrawal from SRF in July 1998. Rate
changes will be applied for through general rate case and other normal APUC
procedures. At December 31, 1998, Docket U-96-37 had not been closed. A
provision for a wholesale rate refund of $1,983,845 to AEG&T/MEA/Homer was
recorded at December 31, 1998 to accommodate certain rate adjustment clauses
contained in the Settlement Agreement.

In 1998 a new power sales agreement was negotiated between Chugach and Seward.
The new contract was filed with the APUC and approved on an interim-refundable
basis by an order dated October 12, 1998. The APUC specifically postponed a
decision on whether to allow the reduced rates under the contract to be
effective as of March 1, 1998 as the parties had agreed in the contract. At
December 31, 1998 a provision for the potential rate refund of $198,180 to
Seward was recorded to allow for this possible refund obligation.

In October 1998 Marathon Oil Company, one of Chugach's natural gas suppliers,
notified Chugach that it had reached a settlement with the State of Alaska
regarding additional excise and royalty taxes for the period 1989 through 1998.
In accordance with the purchase contract, Chugach would be responsible for these
additional taxes. At December 31, 1998, $834,058 was recorded to accommodate
this reimbursement. Chugach intends to recover this over 12 months through the
Fuel Surcharge mechanism in 1999 except for the retail portion in the amount of
$436,778 that was written-off at December 31, 1998.

Investments in Associated Organizations

Investments in associated organizations represent capital requirements as part
of financing arrangements.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

The Association has the intent and ability to hold these investments to
maturity, and accordingly has elected to account for them at cost under SFAS
115.

Deferred Charges and Credits

Deferred charges, representing regulatory assets, are amortized to operating
expense over the period allowed for rate-making purposes, generally five years.

Nonrefundable contributions in aid of construction are credited to the
associated cost of construction of property units. Refundable contributions in
aid of construction are held in deferred credits pending their return or other
disposition.

Depreciation and Amortization

Depreciation and amortization rates have been applied on a straight-line basis
and at December 31, 1998 are as follows:

Rate (%)

Steam production plant 2.70 - 2.96

Hydraulic production plant 1.33 - 2.88

Other production plant 3.34 - 6.50

Transmission plant 1.85 - 5.37

Distribution plant 2.10 - 4.55

General plant 2.22 - 20.00

Other 1.88 - 2.75

In 1997 an update of the Depreciation Study was completed utilizing Electric
Plant in Service balances as of December 31, 1995. Depreciation rates developed
in that Study were implemented in January, 1998. As part of the implementation
of this Study, Chugach converted from depreciating to amortizing general plant,
excluding buildings and vehicles. Under this methodology, general plant is
capitalized in the same manner, however, retirements are recorded when a vintage
is fully amortized rather than as the units are removed from service. No
phase-in of rates is required by the APUC.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

Implementation of the new depreciation rates and amortization of general plant
in 1998 caused depreciation expense to be $1,154,084 less as calculated on the
1998 plant balances than it would have been if the new rates had not been
implemented.

Capitalized Interest

Allowance for funds used during construction and interest charged to
construction - credit are the estimated costs during the period of construction
of equity and borrowed funds used for construction purposes. The Association
capitalized such funds at the average rate (adjusted monthly) of 8.3% during
1998 and 1997 and 8.6% during 1996.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Association considers all
highly liquid debt instruments with a maturity of three months or less upon
acquisition by the Association (excluding restricted cash and investments) to be
cash equivalents.

Materials and Supplies

Materials and supplies are stated at the lower of cost or market and valued at
average cost.

Fair Value of Financial Instruments

Statement of Financial Accounting Standards 107, Disclosures About the Fair
Value of Financial Instruments, requires disclosure of the fair value of certain
on and off balance sheet financial instruments for which it is practicable to
estimate that value. The following methods are used to estimate the fair value
of financial instruments:

Cash and cash equivalents and restricted cash - the carrying amount approximates
fair value because of the short maturity of those instruments.

Investments in associated organizations - the carrying amount approximates fair
value because of limited marketability and current market interest rates which
approximate interest rates on the investments.

Consumer deposits - the carrying amount approximates fair value because of the
short refunding term.

Long-term obligations - the fair value is estimated based on the quoted market
price for same or similar issues (note 7).

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

Environmental Remediation Costs

The Association accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Such
accruals are adjusted as further information develops or circumstances change.
Estimates of future costs for environmental remediation obligations are not
discounted to their present value.

2) Utility Plant Summary

Major classes of electric plant as of December 31 are as follows:

1998 1997
------------ ------------
Electric plant in service:
Steam production plant ................ $ 60,392,869 $ 60,392,869

Hydraulic production plant ............ 8,798,695 8,798,695

Other production plant ................ 109,153,064 108,067,665

Transmission plant .................... 191,960,788 191,960,788

Distribution plant .................... 156,976,983 151,076,058

General plant ......................... 44,782,572 62,575,576

Unclassified electric plant in service 41,598,712 35,941,017

Equipment under capital lease ......... 56,323 56,323

Other ................................. 6,496,812 6,496,812
------------ ------------
Total electric plant in service ... 620,216,818 625,365,803

Construction work in progress ............ 30,405,736 24,664,395
------------ ------------
Total electric plant in service and
construction work in progress ... $650,622,554 $650,030,198
------------ ------------

Depreciation of unclassified electric plant in service has been included in
functional plant depreciation accounts in accordance with the anticipated
eventual classification of the plant investment.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

(3) Investments in Associated Organizations

Investments in associated organizations include the following at December 31:

1998 1997
----------- -----------
National Rural Utilities Cooperative Finance
Corporation (NRUCFC) $ 6,095,980 $ 6,095,980

National Bank for Cooperatives (CoBank) 2,117,924 1,565,097

NRUCFC capital term certificates 32,300 32,300

Other 110,160 170,894
----------- -----------
$ 8,356,364 $ 7,864,271
----------- -----------

The Farm Credit Administration, CoBank's federal regulators, requires minimum
capital adequacy standards for all Farm Credit System institutions. CoBank's
loan agreements require, as a condition of the extension of credit, that an
equity ownership position be established by all borrowers. The Association's
investment in NRUCFC similarly was required by its financing arrangements with
NRUCFC. The investments in NRUCFC and CoBank mature at various dates through
2020 and bear interest at rates ranging from 3% to 5%.

(4) Patronage Capital

The Association has approved an Equity Management Plan which established in
general, a ten-year (for wholesale customers) and twenty-year (for retail
customers) capital credit retirement of patronage capital, based on the members'
proportionate contribution to Association assignable margins. At December 31,
1998, out of the total of $109,622,996 patronage capital, the Association had
assigned $100,892,591 of such patronage capital (net of capital credit
retirements). Approval of actual capital credit retirements is at the discretion
of the Association's Board of Directors. In November 1996, the Board of
Directors approved the retirement of $1,868,785 of retail capital credits
representing 50 percent of the 1983 retail patronage. In December 1996, the
Board of Directors authorized the retirement of $2,135,078 of wholesale capital
credits from 1986 resulting in an authorized 1996 distribution of $4,003,863. A
special return of wholesale capital credits in the amount of $392,136 was
authorized by the Board of Directors under the terms of APUC Docket U-92-10. In
December 1997, the Board of Directors authorized the retirement of $1,859,730 of
retail capital credits representing the remaining 1983 patronage capital. The
Board of Directors also authorized the retirement of 1987

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

wholesale capital credits in the amount of $1,205,510 in December 1997. A
special wholesale capital credit retirement of $88,818, representing wholesale
margins from 1985, was authorized in December 1997.

In December 1998 the Board of Directors authorized the retirement of $2,208,997
of retail capital credits representing the balance of 1984 retail distribution
patronage. The Board also authorized the retirement of $1,533,287 of wholesale
patronage for 1988.

Following is a five-year summary of anticipated capital credit retirements:

Year ending Wholesale Retail Total

1999 - 1,766,000 1,766,000

2000 - 1,380,000 1,380,000

2001 - 1,293,000 1,293,000

2002 - 1,307,000 1,307,000

2003 - 1,241,000 1,241,000

(5) Other Equities

A summary of other equities at December 31 follows:

1998 1997
------------ -------------
Nonoperating margins, prior to 1967 $ 23,625 $ 23,625

Donated capital 184,581 186,199

Unredeemed capital credit retirement 3,280,841 3,248,238
------------ -------------
$ 3,489,047 $ 3,458,062
------------ -------------

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

(6) Long-term Obligations

Long-term obligations at December 31 are as follows:

1998 1997
------------ ------------
First mortgage bonds of 8.08% maturing in
2002 and 9.14% maturing in 2022 with
interest payable semiannually March 15
and September 15:
8.08% $ 23,205,000 $ 28,848,000

9.14% 217,705,000 217,705,000

CoBank 8.95% bond maturing in 2002,
with interest payable monthly and
principal due semi-annually ........... 1,096,501 1,352,847

CoBank 7.76% bond maturing in 2005,
with interest payable monthly ......... 10,000,000 10,000,000

CoBank 5.60% bonds maturing 2022, with
interest payable monthly .............. 45,000,000 45,000,000

CoBank 5.60% bonds maturing in 2002,
2007 and 2012 with interest payable
monthly ............................... 15,000,000 15,000,000

Capital lease for computer equipment at
an interest rate of 9.10% with monthly
payments of approximately
$1,700 through July 1998 .............. -- 14,166
------------ ------------
Total long-term obligations ....... 312,006,501 317,920,013

Less current installments ............... 6,088,802 5,913,512
------------ ------------
Long-term obligations, excluding
current installments ............ $305,917,699 $312,006,501
------------ ------------

Substantially all assets are pledged as collateral for the long-term
obligations.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

Maturities of Long-term Obligations

Long-term obligations at December 31, 1998 mature as follows:

Sinking Fund Principal
Year ending Requirements maturities
December 31
Total

First mortgage CoBank
bonds mortgage bonds

1999 5,809,000 279,802 6,088,802

2000 6,067,000 305,405 6,372,405

2001 6,097,000 333,350 6,430,350

2002 5,232,000 5,177,944 10,409,944

2003 5,041,000 865,821 5,906,821

Thereafter 212,664,000 64,134,179 276,798,179
------------- ------------ -------------
$ 240,910,000 $ 71,096,501 $ 312,006,501
------------- ------------ -------------

Lines of Credit

The Association had an annual line of credit of $35,000,000 in 1998 and 1997
available with CoBank. The CoBank line of credit expires August 1, 1999 but
carries an annual automatic renewal clause. At December 31, 1998 and 1997, there
was no outstanding balance on this line of credit. In addition, the Association
had an annual line of credit of $50,000,000 available at December 31, 1998 and
1997 with NRUCFC. At December 31, 1998 and 1997 there was no outstanding balance
on this line of credit. The NRUCFC line of credit expires October 14, 2002.

Refinancing

On September 19, 1991, Chugach issued $314,000,000 of First Mortgage Bonds, 1991
Series A (Bonds), for purposes of repaying existing debt to the Federal
Financing Bank and the Rural Electrification Administration (now Rural Utilities
Services). Pursuant to Section 311 of the Rural Electrification Act, Chugach was
permitted to prepay the REA debt at a discounted rate of approximately 9%,
resulting in a discount of approximately $45,000,000 (note 12).

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

The bonds maturing in 2002 (Series A 2002 Bonds) are subject to annual sinking
fund redemption at 100% of the principal amount thereof which commenced March
15, 1993. The bonds maturing in 2022 (Series A 2022 Bonds) are subject to annual
sinking fund redemption at 100% of the principal amount thereof commencing March
15, 2003. The Series A 2002 Bonds are not subject to optional redemption. The
Series A 2022 Bonds are redeemable at the option of Chugach on any interest
payment date at an initial redemption price commencing in 2002 of 109.140% of
the principal amount thereof declining ratably to par on March 15, 2012. The
Bonds are secured by a first lien on substantially all of Chugach's assets. The
Indenture prohibits outstanding short-term indebtedness (other than trade
payables) in excess of 15% of Chugach's net utility plant and limits certain
cash investments to specific securities.

In February 1996, Chugach reacquired $2,445,000 of the Series A 2022 Bonds at a
premium of 117.5000. Total transaction cost, including accrued interest and
premium, was $2,970,334.

In March 1996, Chugach reacquired $13,150,000 of the Series A 2022 Bonds at a
premium of 115.3750. Total transaction cost, including accrued interest and
premium, was $15,762,752.

In June 1996, Chugach reacquired $20,000,000 of the Series A 2022 Bonds at a
premium of 109.3750. Total transaction cost, including accrued interest and
premium was $22,347,233.

In September 1996, Chugach reacquired $1,200,000 of the Series A 2022 Bonds at a
premium of 108.5280. Total transaction cost, including accrued interest and
premium, was $1,356,567.

In April 1997, Chugach reacquired $5,000,000 of the Series A 2022 Bonds at a
premium of 109.7500. Total transaction cost, including accrued interest and
premium, was $5,510,350.

In February 1999, Chugach reacquired $11,000,000 of the Series A 2022 Bonds at a
premium of 117.05. Total transaction cost, including accrued interest and
premium, was $13,322,344.

In February 1999, Chugach reacquired $14,000,000 of the Series A 2022 Bonds at a
premium of 116.25. Total transaction cost, including accrued interest and
premium, was $16,868,592.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

In February 1999, Chugach reacquired $9,895,000 of the Series A 2022 Bonds at a
premium of 116.75. Total transaction cost, including accrued interest and
premium, was $11,974,467.

(7) Fair Value of Financial Instruments

The estimated fair values (in thousands) of the long-term obligations included
in the financial statements at December 31 are as follows:

1998 1997
---- ----
Carrying Fair Carrying Fair
Value Value Value Value

Long-term obligations
(including current installments) $312,007 $349,353 $317,920 $352,755

Fair value estimates are dependent upon subjective assumptions and involve
significant uncertainties resulting in variability in estimates with changes in
assumptions.

(8) Employee Benefits

Pension benefits for substantially all employees are provided through the Alaska
Electrical Trust and Alaska Hotel, Restaurant and Camp Employees Health and
Welfare Trust Funds (union employees) and the National Rural Electric
Cooperative Association (NRECA) Retirement and Security Program (nonunion
employees). The Association makes annual contributions to the plans equal to the
amounts accrued for pension expense. For the union plans, the Association pays a
contractual hourly amount per union employee which is based on total plan costs
for all employees of all employers participating in the plan. In these master,
multiple-employer plans, the accumulated benefits and plan assets are not
determined or allocated separately to the individual employer. Pension costs for
union plans were approximately $1,805,000 in 1998, $1,810,000 in 1997 and
$1,889,000 in 1996. For several years, NRECA did not require contributions to
the plan; consequently, no pension cost was incurred. In 1996 a moratorium was
in effect from January through September. From October through December 1996,
$266,000 was contributed to the NRECA plan. In 1997 approximately $601,000 was
contributed to the NRECA plan as the moratorium was not in effect. In 1998
approximately $813,000 was contributed to the NRECA plan for the full year.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

(9) Deferred Charges

Deferred charges consisted of the following at December 31:

1998 1997
------------ ------------
Debt issuance and reacquisition costs $ 3,838,237 $ 4,006,295

Refurbishment of transmission equipment 271,605 280,864

Computer software and conversion 11,104,406 5,596,222

Studies 2,253,165 1,162,416

Business venture studies 72,961 -

Fuel supply negotiations 392,325 415,042

Major overhaul of steam generating unit 632,411 837,517

Other (note 15) 441,054 1,284,855
------------ ------------
$ 19,006,164 $ 13,583,211
------------ ------------

(10) Income Taxes

The Association is exempt from federal income taxes under the provisions of
Section 501(c)(12) of the Internal Revenue Code, except for unrelated business
income. For the years ending December 31, 1998, 1997 and 1996 the Association
received no unrelated business income.

(11) Return of Capital

Under provisions of its long-term debt agreements, the Association is not
directly or indirectly permitted to declare or pay any dividend or make any
payments, distributions or retirements of patronage capital to members if an
event of default exists with respect to its bonds (event of default), if payment
of such distribution would result in an event of default, or if the aggregate
amount expended for all distributions on and after September 26, 1991 exceeds
the sum of $7,000,000 plus 35% of the aggregate assignable margins (whether or
not such assignable margins have since been allocated to members) of the
Association earned after December 31, 1990 (or, in the case such aggregate shall
be a deficit, minus 100% of such deficit). The Association may declare and make
distributions at any time if, after giving effect thereto, the Association's
aggregate margins and equities as of the end of the most recent fiscal quarter
would be not less than 45% of the Association's total liabilities and equities
as of the date of the distribution. The Association does not anticipate that
this provision will limit the anticipated capital credit retirements described
in note 4.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

(12) Deferred Credits

Deferred credits at December 31 consisted of the following:

1998 1997
------------ ------------
Regulatory liability - unamortized gain on
reacquired debt $ 25,796,171 $ 27,477,114

Refundable consumer advances for
construction 1,739,618 1,821,002

Estimated initial installation costs for
transformers and meters 277,969 364,941

Post retirement benefit obligation 255,700 255,700

Other - 61,196
------------- -------------
$ 28,069,458 $ 29,979,953
------------- -------------

In conjunction with the refinancing described in note 6, the Association
recognized a gain of approximately $45,000,000. The APUC permitted the
Association to flow through the gain to consumers in the form of reduced rates
over a period equal to the life of the bonds using the effective interest
method; consequently, the gain has been deferred for financial reporting
purposes as required by SFAS 71. Approximately $1,700,000 of the deferred gain
was amortized annually in 1998 and 1997. Approximately $1,850,000 of the
deferred gain was amortized in 1996.

(13) Bradley Lake Hydroelectric Project

The Association 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 $166,000,000 of revenue
bonds. The Association 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. The Association has a 30.4% share of the project's capacity.
The share of debt service exclusive of interest, for which the Association is
responsible is approximately $46,000,000. Under a worst case scenario, the
Association could be faced with annual expenditures of approximately $4.1
million as a result of its Bradley Lake

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

take-or-pay obligations. Management believes that such expenditures, if any,
would be recoverable through the fuel surcharge ratemaking process. Upon the
default of a Bradley Lake participant, and subject to certain other conditions,
AEA, through Alaska Industrial Development and Export Authority, 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%.

In December 1997, $59,485,000 of the Power Revenue Bonds, Third Series and
$47,710,000 of the Power Revenue Bonds, Fourth Series were refinanced under a
forward refunding arrangement. The true interest cost of the new bonds decreased
to 5.611% for the Third Series bonds and 6.06% for the Fourth Series bonds from
7.295% and 7.235%, respectively. This refunding produced a Net Present Value
saving to the participating utilities of approximately $8,500,000. The
Association's share of these savings will be approximately $1,600,000.

In January 1999, $28,910,000 of the Power Revenue bonds, Fifth Series were
refinanced under a forward refunding arrangement. The true interest cost of the
new bonds decreased to 5.25%. This produced a Net Present Value savings to the
participating utilities of approximately $2,875,000. The Association's share of
these savings will be approximately $546,000.

The following represents information with respect to Bradley Lake at June 30,
1998 (the most recent date for which information is available). The
Association's share of expenses were $4,112,292 in 1998, $3,981,624 in 1997 and
$3,957,930 in 1996 and are included in purchased power in the accompanying
financial statements.

Other electric plant in service of $6,496,812 represents the Association's share
of a Bradley Lake transmission line financed internally and the Association's
share of the Eklutna Hydroelectric Project, purchased in 1997.

Proportionate
Total share

Plant in service $ 306,841,084 $ 93,279,690

Accumulated depreciation (46,617,088) (14,171,595)

Interest expense 11,169,754 3,395,605

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

(14) Eklutna Hydroelectric Project

During October 1997, the ownership of the Eklutna Hydroelectric Project formally
transferred from the Alaska Power Administration to the participating utilities.
This group consists of the Association along with Matanuska Electric Association
(MEA) and Municipal Light and Power (AML&P).

Other electric plant in service includes $1,785,900 representing the
Association's share of the Eklutna Hydroelectric Plant. This balance will be
amortized over the estimated life of the facility. During the transition phase
and after the transfer of ownership, Chugach, MEA and AML&P have jointly
operated the facility. Each participant contributes their proportionate share
for operations and maintenance costs. Under net billing arrangements, Chugach
then reimburses MEA for their share of the costs. Prior to the transfer of
ownership, these costs were recorded as purchased power expenses; after the
transfer these costs were recorded as power production expenses. In 1998, the
Association charged $253,207 to various expense categories representing
Chugach's share of Eklutna operations.

(15) Commitments and Contingencies

Construction

The Association is engaged in a continuous construction program. Management
estimates that approximately $34,000,000 will be spent on the construction
program in 1999.

Contingencies

The Association is a participant in various legal actions, claims and unasserted
claims, both for and against its interests. Management believes that the outcome
of any such matters will not materially impact the Association's financial
condition, results of operations or liquidity.

Standard Steel Salvage Yard Site

A cost recovery action was filed in Federal District Court on December 27, 1991
by the United States against the Association and six other Potentially
Responsible Parties seeking reimbursement of removal and response action costs
incurred by the United States Environmental Protection Agency ("EPA") at the
Standard Steel and Metals Salvage Yard Superfund Site in Anchorage, Alaska.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

Four of Chugach's insurance carriers have been paying, under a reservation of
rights, the defense costs for the Site. By agreement dated May 15, 1998, these
four insurance carriers agreed to pay the majority of the Company's cost
relating to the Site, including investigation and remedial action 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 the Company's
financial condition.

Unsolicited Acquisition Proposal by Matanuska Electric Association, Inc.

In October 1998, MEA, Chugach's largest wholesale customer presented to the
Board of Directors of Chugach (the Board) an unsolicited proposal (the MEA
Proposal) to acquire substantially all of Chugach's assets in exchange for the
assumption of Chugach's liabilities. Although MEA has not provided many details
of the MEA Proposal, it has stated that the generation and transmission assets
of Chugach would be transferred to a subsidiary of MEA, the assets comprising
Chugach's distribution system would be transferred to MEA itself, and Chugach'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 (i.e. to purchase a
pool of U.S. government of U.S. government-backed securities that would generate
sufficient cash flow to make scheduled debt service payments during the
remaining life of the defeased obligations) or refinance Chugach's outstanding
Series A Bonds and to repay Chugach's outstanding CoBank bonds plus an
additional $42.5 million that would be distributed in cash to the members of the
post- acquisition MEA. On November 2, 1998, citing uncertainty over whether MEA
would be successful in its bid to acquire Chugach's assets, Standard & Poor's
Rating Service placed its single "A" rating on the Series A Bonds on "Credit
Watch with developing implications", meaning the rating may be raised, lowered
or affirmed.

After evaluating information provided by MEA and analyses of the MEA Proposal
presented by Chugach's staff and independent financial advisors, on November 12,
1998, the Board rejected the MEA Proposal. Thereafter, MEA withdrew the
provision of the MEA Proposal which contemplated that the Board of Directors of
MEA, following the consummation of the MEA Proposal, would include minority
representation from among the members of the Board. MEA also stated that MEA's
future communication on this matter would be directed to Chugach's membership
rather than the Board or Chugach's staff and MEA began circulating a petition to
gather a sufficient number of signatures from Chugach's members to force a
special meeting of Chugach's members for the purpose of considering the MEA
Proposal. Under the Alaska Electric & Telephone Cooperative Act, a special
meeting of the members of Chugach may be called by 10% of Chugach's members.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

In February 1999, MEA issued public statements that it had received sufficient
petition signatures from Chugach members to compel the holding of a special
meeting but that it would seek an advisory vote of its own members before
submitting such signatures.

To date, MEA has not submitted any purported petition signatures to Chugach and
Chugach has therefore not had occasion to initiate the formal tabulation that
would be necessary to determine whether a sufficient number of duly and validly
signed petitions have been submitted and, if so, the legal implication of such
petitions with respect to the MEA Proposal.

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 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 of the 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 be
compelled to approve the sale of Chugach's assets to MEA if two-thirds of
Chugach's members voting at a special meeting of the members approved the
transaction 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 a special meeting of Chugach's members will be called to
consider the MEA Proposal, whether Chugach's members would approve the MEA
Proposal by a supermajority vote if it were submitted at a 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 APUC. 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.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

Year 2000 Conversion

Chugach has recognized the need to investigate, test and remediate if necessary
the critical systems and equipment under its control which could cause power and
business disruptions in conjunction with what are collectively called "Year
2000" dates. Chugach has an active program underway to do just that. It is
expected that Chugach's Y2K efforts will be completed by the summer of 1999.

Regulatory Cost Charge

In 1992 the State of Alaska Legislature passed legislation authorizing the
Department of Revenue to collect a regulatory cost charge from utilities in
order to fund the APUC. The tax is assessed on all retail consumers and is based
on kilowatt hour (kWh) consumption. The Regulatory Cost Charge has decreased
since its inception (November 1992) from an initial rate of $.000626 per kWh to
the current rate of $.000280, effective January 1, 1998.

Item 9 - Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure

None

PART III

Item 10 - Directors and Executive Officers of the Registrant

MANAGEMENT

Executives

Chugach operates under the direction of a Board of Directors that is elected at
large by its membership. Day-to-day business and affairs are administered by the
General Manager. Chugach's seven-member Board of Directors sets policy and
provides direction to the General Manager. The following table sets forth
certain information with respect to the executive management of Chugach:

Name Age Position held

Eugene N. Bjornstad 61 General Manager

Lee D. Thibert 43 Executive Manager, Transmission &
Distribution Network Services

Evan J. Griffith, Jr. 57 Executive Manager, Finance &
Energy Supply
William R. Stewart 52 Executive Manager, Retail Services

Eugene N. Bjornstad was appointed General Manager of Chugach June 22, 1994.
Prior to that he served as Acting General Manager from March 28, 1994 until his
permanent appointment. He joined Chugach in 1983 and served as Executive
Manager, Operating Divisions from 1988 to 1994.

Lee D. Thibert, in a reorganization on June 1, 1997, was appointed Executive
Manager, Transmission & Distribution Network Services. Prior to that he was
Executive Manager, Operating Divisions from June of 1994. Before moving up to
the Executive Manager position, he served as Director of Operations from June
1987.

Evan J. Griffith, Jr. was Executive Manager, Finance and Planning of Chugach
from August 1989 to June1997. In the June 1, 1997 reorganization he assumed
the position of Executive Manager, Finance and Energy Supply. Prior to
coming to Chugach, he was Budget/Program Analyst for the Anchorage Municipal
Assembly from August 1984 to August 1989.

William R. Stewart was Executive Manager, Administration of Chugach from July
1987 to June 1, 1997 when he assumed the duty as Executive Manager, Retail
Services in a reorganization of functions. He was Division Director of
Administration of Chugach from January 1984 to July 1987 and Staff Assistant to
the General Manager of Chugach from November 1982 to January 1984. He has been
employed at Chugach since 1969.

Board of Directors

Pat Jasper - President. Pat Jasper, 69, is a small business owner and has been a
computer programmer and systems analyst. She was originally elected to the Board
in April 1995 to fill a one-year term, and served as Secretary to April 1996.
She was re-elected in April 1996 and served as Vice President until April 1997
when she became President.

Christopher Birch - Vice President. Chris Birch, 48, is a professional engineer
employed by the Alaska Department of Transportation and Public Facilities. He
was appointed to the Board to fill a vacated seat in October 1996 and was
elected to that seat in April 1997. He served as Secretary from April 1997 to
April 1998.

Bruce Davison - Secretary. Bruce Davison, 50, was appointed to the Association's
Board of Directors in June of 1997. Prior to his appointment, Mr. Davison served
two years on the Chugach Electric Association Bylaws Committee. Mr. Davison is a
25-year Alaska resident and a partner in the law firm of Davison & Davison, Inc.
He became Secretary in April 1998.

Mary Minder - Treasurer. Mary Minder, 59, was elected to the Board in April 1995
and served as Treasurer until April 1996 when she became Secretary. In April
1997, she was again elected Treasurer and serves in that same capacity today.
Ms. Minder is a realtor and associate real estate broker.

Elizabeth Page "Pat" Kennedy - Director. Pat Kennedy, 60, was President of
Chugach from April 1994 to April 1995. Ms. Kennedy has served on the board since
1993 and was Secretary from April 1993 to April 1994. She is an attorney who has
been licensed to practice law since 1976 and has been in private practice since
1990.

Raymond A. "Ray" Kreig - Director. Ray Kreig, 52, is president of R.A. Kreig &
Associates, a consulting firm specializing in land and site assessment. He is a
professional civil engineer and geologist. Mr. Kreig was elected to the board in
April 1994 and was President from April 1995 to April 1997.

Ed Granger - Director. Ed Granger, 64, is a retired professional engineer
working in real estate. He was elected to the board in 1991. He resigned in
March 1994, one month before his first term expired. He was reappointed to the
Board to fill the remaining term of another resigned director in June 1995 and
was re-elected in April 1996. He served as Vice President from April 1997 to
April 1998. Mr. Granger again resigned his board seat in December 1998 due to
the press of personal business. His seat was not filled.

Item 11 - Executive Compensation

CASH COMPENSATION

The following table sets forth all remuneration paid by Chugach for the calendar
years ended December 31, 1998, 1997 and 1996 with respect to each of the four
executive officers of Chugach, all of whose total cash and cash equivalent
compensation exceeded $100,000, and for all such executive officers as a group:

Name Principal Position Year Salary

Eugene N. Bjornstad General Manager 1998 $200,423

1997 164,482

1996 167,296

Lee D. Thibert Executive Manager, 1998 125,880
Transmission & Distribution
Network Services 1997 125,626

1996 118,562

Evan J. Griffith, Jr. Executive Manager, Finance & 1998 134,934
Energy Supply
1997 126,866

1996 137,434

William R. Stewart Executive Manager, Retail 1998 143,943
Services
1997 142,213

1996 134,393

Directors of Chugach are compensated for their services in the amount of $100
per board meeting attended (including committee meetings) up to a maximum of
seventy meetings per year for a director and eighty-five meetings per year for
the President. Upon termination, Mr. Bjornstad's employment agreement provides
that he may receive an amount equal to his salary for the remaining term of his
employment agreement (which number shall not be less than six months) plus any
accrued annual leave or other compensation then due as of the effective date of
the notice of termination.

COMPENSATION PURSUANT TO PLANS

Chugach has elected to participate in the National Rural Electric Cooperative
Association (NRECA) Retirement and Security Program (Plan), a multiple employer
defined benefit master pension plan maintained and administered by the NRECA for
the benefit of its members and their employees. The Plan is intended to be a
qualified pension plan under Section 401(a) of the Code. All employees of
Chugach not covered by a union agreement become participants

in the Plan on the first day of the month following completion of one year of
eligibility service. An employee is credited with one year of eligibility
service if he completes 1,000 hours of service either in his first twelve
consecutive months of employment or in any calendar year for Chugach or certain
other employers in rural electrification (related employers). Pension benefits
vest at the rate of 10% for each of the first four years of vesting service and
become fully vested and nonforfeitable on the earlier of the date a participant
has five years of vesting service or the date the participant attains age
fifty-five while employed by Chugach or a related employer. A participant is
credited with one year of vesting service for each calendar year in which he
performs at least one hour of service for Chugach or a related employer. Pension
benefits are generally paid upon the participant's retirement or death. A
participant may also elect to receive pension benefits while still employed by
Chugach if he has reached his normal retirement date by completing thirty years
of benefit service (as hereinafter defined) or, if earlier, by attaining age
sixty-two. A participant may elect to receive actuarially reduced early
retirement pension benefits before his normal retirement date provided he has
attained age fifty-five.

Pension benefits paid in normal form are paid monthly for the remaining lifetime
of the participant. Unless an actuarially equivalent optional form of benefit
payment to the participant is elected, upon the death of a participant the
participant's surviving spouse will receive pension benefits for life equal to
50% of the participant's benefit. The annual amount of a participant's pension
benefit and the resulting monthly payments the participant receives under the
normal form of payment are based on the number of his years of participation in
the Plan (benefit service) and the highest five-year average of the annual rate
of his base salary during the last ten years of his participation in the Plan
(final average salary). Annual compensation in excess of $200,000, as adjusted
by the Internal Revenue Service for cost of living increases, is disregarded
after January 1, 1989. The participant's annual pension benefit at his normal
retirement date is equal to the product of his years of benefit service (up to
thirty) times final average salary times 2%.

In 1998, NRECA notified the Association that there were employees whose pension
benefits from NRECA's Retirement & Security Program would be reduced because of
limitations on retirement benefits payable under Section 401(a)(17) or 415 of
the Internal Revenue Code of 1986, as amended. NRECA made available a Pension
Restoration Severance Pay Plan and a Pension Restoration Deferred Compensation
Plan for cooperatives to adopt in order to make employees whole for their lost
benefits. Adopting these plans would allow Chugach to protect the benefits of
current and future employees whose pension benefits would be reduced because of
these limitations. On May 6, 1998, the Association adopted the NRECA Pension
Restoration Severance Pay Plan and the Pension Restoration Deferred Compensation
Plan and amended its NRECA Retirement & Security Program accordingly.

The following table sets forth the estimated annual pension benefit payable at
normal retirement date for participants in the specified final average salary
and years of benefit service categories:

Final Years of benefit service
Average
Salary

15 20 25 30 35

$ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 75,000

150,000 45,000 60,000 75,000 90,000 90,000

The annual pension benefits indicated above are the joint and surviving spouse
life annuity amounts payable by the Plan, and they are not subject to any
deduction for Social Security or other offset amounts.

Benefit service as of December 31, 1998 taken into account under the Plan for
the executive officers is shown below. Base salary for 1998 taken into account
under the Plan for purposes of determining final average salary is also
included.

Benefit Covered
Name Principal Position Service Compensation

Eugene N. Bjornstad General Manager 14.7 $ 156,021

Lee D. Thibert Executive Manager, T&D 10.7 122,242
Network Services

Evan J. Griffith, Jr. Executive Manager, 8.4 123,968
Finance & Energy Supply

William R. Stewart Executive Manager, Retail 28.9 123,968
Services

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The NRECA's COMPensate Wage and Salary Plan was developed in 1986 by NRECA to
provide its members with a systematic and standardized method of evaluating jobs
in each cooperative by grading them and comparing wages and salaries within
similar rural electric systems, as well as the external market-place, and then
creating and applying statistically determined equitable pay scales. In 1988 the
Chugach Board approved implementation of NRECA's COMPensate Wage and Salary Plan
for all non-bargaining unit employees of the Association. The Plan was adopted
by the Board in 1989 and is administered in accordance with the COMPensate
guidelines. This Plan was last updated and approved by the Board in 1996 and
further updated by the General Manager in 1997 to adjust the Alaskan
differential for all management salaries from 20% to 15%. The Chugach Board has
directed that this Plan

will be updated annually although the update does not guarantee an adjustment to
the salary ranges. The General Manager annually conducts a performance appraisal
for each of the Executive Managers.

Since 1994, the General Manager has had an Employment Agreement with the Chugach
Board of Directors. The Operations committee of the Board of Directors appraises
annually the performance of the General Manager and makes a written report to
the Board prior to April 24 of each year. The General Manager's performance for
1998 will be determined based on the criteria outlined in the Employment
Agreement between Chugach and Eugene N. Bjornstad dated July 6, 1994 and amended
February 25, 1998 (filed as Exhibit 10.60.1 in the March 31, 1998 Form 10-Q).

Item 12 - Security Ownership of
Certain Beneficial Owners and Management

Not Applicable

Item 13 - Certain Relationships and Related Transactions

Not Applicable

PART IV

Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K

Page

Financial Statements

Included in Part IV of this Report:
Independent Auditors' Report 37
Balance Sheets, December 31, 1998 and 1997 38
Statements of Revenues, Expenses and Patronage Capital,
Years ended December 31, 1998, 1997 and 1996 40
Statements of Cash Flows,
Years ended December 31, 1998, 1997 and 1996 41
Notes to Financial Statements 42-60

Financial Statement Schedules

Included in Part IV of this Report:
Independent Auditors' Report 68
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1998, 1997 and 1996 69

Other schedules are omitted as they are not required or are not applicable, or
the required information is shown in the applicable financial statements or
notes thereto.

Independent Auditors' Report

The Board of Directors
Chugach Electric Association, Inc.:

Under the date of February 26, 1999, we reported on the balance sheets of
Chugach Electric Association, Inc. as of December 31, 1998 and 1997 and the
related statements of revenues, expenses and patronage capital and cash flows
for each of the years in the three-year period ended December 31, 1998 which are
included in Part II of the Company's Annual Report on Form 10-K. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedule listed in the index to Item 14 of the
Company's 1998 Annual Report on Form 10-K. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.

In our opinion such schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

/s/ KPMG LLP
Anchorage, Alaska
February 26, 1999

68
Schedule II

CHUGACH ELECTRIC ASSOCIATION, INC.

Valuation and Qualifying Accounts

Balance at Charged Balance
beginning to costs at end
of year and expenses Deductions of year

Allowance for doubtful accounts:

Activity for year ended:

December 31, 1998 $(368,029) $(697,181) $617,302 $(447,908)

December 31, 1997 (367,085) (618,379) 617,435 (368,029)

December 31, 1996 (436,083) (566,844) 635,842 (367,085)

EXHIBITS

Listed below are the exhibits which are filed as part of this Report:

Exhibit Description Page
Number

******3.1 Articles of Incorporation of the Registrant (as amended
April 30, 1998)

******3.2 Bylaws of the Registrant (as amended April 30, 1998)

*4.1 Trust Indenture, dated as of September 15, 1991,
between the Registrant and Security Pacific
Bank Washington, N.A., Trustee (Including forms
of bonds)

*4.2 First Supplemental Indenture of Trust by and among
Chugach Electric Association, Inc. and Seattle-
First National Bank dated March 17, 1993

*4.3 Second Supplemental Indenture of Trust by and among
Chugach Electric Association, Inc. and Seattle-
First National Bank dated May 19, 1994

*4.4 Third Supplemental Indenture of Trust by and among
Chugach Electric Association, Inc. and Seattle-
First National Bank

*4.4.1 Closing Documents dated November 30, 1994, First
Mortgage Bond, CoBank Series (CoBank-1), Due
March 15, 2002 pursuant to the Third Supple-
mental Indenture of Trust dated June 29, 1994

*4.4.2 Closing documents dated August 31, 1995 First
Mortgage Bond, CoBank Series (CoBank-2), due
August 31, 2005 pursuant to the Third
Supplemental Indenture of Trust

*4.4.3 Closing documents dated April 30, 1996 First
Mortgage Bond, CoBank Series (CoBank-3), due
March 15, 2022 pursuant to the Third
Supplemental Indenture of Trust

*4.4.4 Closing documents dated September 30, 1996 First
Mortgage Bond, CoBank Series (CoBank-4), Due
June 15, 2022 pursuant to the Third Supplemental
Indenture of Trust

****4.4.5 Closing documents dated November 26, 1997 First
Mortgage Bond, CoBank Series (CoBank-5), Due
June 15, 2012 pursuant to the Third Supplemental
Indenture of Trust

Exhibit
number Description Page

*4.5 Fourth Supplemental Indenture of Trust by and among
Chugach Electric Association, Inc. and Seattle-First
National Bank dated March 1, 1995

*4.6 Fifth Supplemental Indenture of Trust by and among
Chugach Electric Association, Inc. and Seattle-First
National Bank dated September 6, 1995

*4.7 Sixth Supplemental Indenture of Trust by and among
Chugach Electric Association, Inc. and Seattle-First
National Bank dated April 3, 1996

***4.8 Seventh Supplemental Indenture of Trust by and
among Chugach Electric Association, Inc. and
Seattle-First National Bank dated June 1, 1997

*****4.9 Eighth Supplemental Indenture of Trust dated as of
February 4, 1998, by and between Chugach
Electric Association, Inc. and Security Pacific Bank
Washington, N.A.

*10.1 Joint Use Agreement between the City of Seward and
the Registrant

*10.2 Wholesale Power Agreement between the City of
Seward and the Registrant

*10.3 Agreement for Sale of Electric Power and Energy
between Homer Electric Association, Inc., Alaska
Electric Generation and Transmission Association,
Inc. and the Registrant

*10.4 Modified Agreement for the Sale and Purchase of
Electric Power and Energy between Matanuska
Electric Association, Inc., Alaska Electric
Generation and Transmission Association, Inc.
and the Registrant

*10.4.1 First Amendment to Modified Agreement for the Sale
and Purchase of Electric Power and Energy dated
April 5, 1989 by and among Chugach Electric
Association, Inc., Matanuska Electric Association,
Inc. and Alaska Electric Generation & Trans-
mission Cooperative, Inc.

*10.5 Agreement for the Sale and Purchase of Natural Gas
between the Registrant and ARCO Alaska, Inc.

Exhibit
number Description Page

*10.6 Amendment No. 1 to Agreement for the Sale and
Purchase of Natural Gas between the Registrant
and ARCO Alaska, Inc.

*10.7 Agreement for the Sale and Purchase of Natural Gas
between the Registrant and Marathon Oil Company

*10.8 Amendatory Agreement No. 1 to Agreement for the
Sale and Purchase of Natural Gas between the
Registrant and Marathon Oil Company

*10.9 Amendatory Agreement No. 2 to Agreement for the
Sale and Purchase of Natural Gas between the
Registrant and Marathon Oil Company

*10.10 Amendatory Agreement No. 3 to Agreement for the
Sale and Purchase of Natural Gas between the
Registrant and Marathon Oil Company

*10.11 Letter of Understanding between the Registrant and
Marathon Oil Company

*10.12 Agreement for the Sale and Purchase of Natural Gas
between the Registrant and Shell Western E&P Inc.

*10.13 Amendatory Agreement No. 1 to the Agreement for the
Sale of Natural Gas between the Registrant and
Shell Western E&P Inc.

*10.14 Amendment No. 2 to the Agreement for the Sale of
Natural Gas between the Registrant and Shell
Western E&P Inc.

*10.14.1 Amendment No. 3 to the Agreement for the Sale of
Natural Gas between the Registrant and Shell
Western E&P Inc.

*10.15 Agreement for the Sale and Purchase of Natural Gas
between the Registrant and Chevron USA Inc.

*10.16 Letter of Understanding to the Agreement for the Sale
and Purchase of Natural Gas between the
Registrant and Chevron USA Inc.

*10.17 Amendment No. 2 to Agreement for the Sale and
Purchase of Natural Gas between the Registrant
and Chevron USA Inc.

*10.18 Nonfirm Energy Agreement between the Registrant and
Golden Valley Electric Association, Inc.

Exhibit
number Description Page

*10.19 Alaska Intertie Agreement between Alaska Power
Authority, Municipality of Anchorage, the
Registrant, City of Fairbanks, Alaska Municipal
Utilities System, Golden Valley Electric
Association, Inc. and Alaska Electric Generation
and Transmission Cooperative, Inc.

*10.20 Memorandum of Understanding Regarding Intertie
Upgrades among Alaska Energy Authority, the
Registrant, Golden Valley Electric Association,
Inc., Homer Electric Association, Inc., Matanuska
Electric Association, Inc., Municipality of
Anchorage dba Municipal Light and Power, and
the City of Seward d/b/a Seward Electric System

*10.21 Addendum No. 1 to the Alaska Intertie Agreement--
Reserve Capacity and Operating Reserve
Responsibility

*10.22 Bradley Lake Agreement for the Sale and Purchase of
Electric Power between the Alaska Power
Authority, Golden Valley Electric Association, Inc.,
the Municipality of Anchorage, the City of Seward,
the Alaska Electric Generation & Transmission
Cooperative, Inc., Homer Electric Association, Inc.,
Matanuska Electric Association Inc. and the
Registrant

*10.23 Agreement for the Wheeling of Electric Power and for
Related Services by and among the Registrant,
Homer Electric Association, Inc., Golden Valley
Electric Association, Inc., Matanuska Electric
Association, Inc., the Municipality of Anchorage,
Inc. dba Municipal Light & Power, the City of
Seward dba Seward Electric System and Alaska
Electric Generation and Transmission Cooperative,
Inc.

*10.24 Transmission Sharing Agreement by and among Homer
Electric Association, Inc., the Registrant, Golden
Valley Electric Association, Inc., and the
Municipality of Anchorage d/b/a Municipal Light
and Power

Exhibit
number Description Page

*10.25 Amendment to Agreement for Sale of Transmission
Capability among Homer Electric Association, Inc.,
Alaska Electric Generation and Transmission
Cooperative, Inc., the Registrant, Golden Valley
Electric Association, Inc. and the Municipality of
Anchorage d/b/a Municipal Light and Power

*10.26 Net Billing Agreement among the Registrant,
Matanuska Electric Association, Inc. and Alaska
Electric Generation and Transmission Cooperative,
Inc.

*10.27 Interconnection Agreement between the Registrant and
Municipality of Anchorage Municipal Light and
Power

*10.28 Interconnection Agreement between the Registrant and
Municipality of Anchorage Municipal Light and
Power Addendum No. 1

*10.29 Amendment No. 1 to Interconnection Agreement
between the Registrant and Municipality of
Anchorage Municipal Light and Power

*10.30 Agreement between the Registrant and Chevron USA,
Inc. for the Sale and Purchase of Supplemental
Natural Gas

*10.31 Agreement between the Registrant and Shell Western
E&P Inc. for the Sale and Purchase of
Supplemental Natural Gas

*10.32 Agreement between the Registrant and ARCO Alaska,
Inc. for the Sale and Purchase of Supplemental
Natural Gas

*10.33 Eklutna Purchase Agreement among the Registrant,
Matanuska Electric Association, Inc., Municipality
of Anchorage d/b/a Municipal Light and Power and
Alaska Power Administration

*10.33.1 Amendment No. 1 to Eklutna Purchase Agreement
among the Registrant, Matanuska Electric
Association, Inc., Municipality of Anchorage d/b/a
Municipal Light and Power and Alaska Power
Administration

*10.33.2 Eklutna Purchase Agreement Amendment No. 2
effective June 14, 1993 between Chugach, MEA,
AML&P and the Alaska Power Administration

Exhibit
number Description Page

*10.33.3 Eklutna Hydroelectric Project Transition Plan, by and
among the Registrant; The United States of
America d/b/a Alaska Power Administration, a unit
of the Department of Energy; the Municipality of
Anchorage d/b/a Municipal Light & Power; and
Matanuska Electric Association, Inc.

*10.34 University Substation 1991 Improvements Contract
between the Registrant and Alcan Electrical and
Engineering, Inc.

*10.35 Camp Facilities Replacement Contract between the
Registrant and Baugh Construction and
Engineering Company

*10.36 Lease Amendment between Standard Oil Company of
California and the Registrant

*10.37 Lease Amendment between Chevron USA, Inc. and the
Registrant

*10.38 Settlement Agreement among the Registrant, Homer
Electric Association, Inc., Matanuska Electric
Association, Inc., the City of Seward and Alaska
Electric Generation and Transmission Cooperative,
Inc. resolving G&T TIER Level, Equity Level,
Capital Credits, Equity Management Plan, and
Loan Covenant Disputes

*10.38.1 First Amendment to "Settlement Agreement Resolving
G&T TIER Level, Equity Level, Capital Credits,
Equity Management Plan and Loan Covenant
Disputes" in APUC Docket U-92-10 between
Chugach and MEA, Homer and AEG&T dated
March 1993

*10.39 Loan Agreement between the National Bank for
Cooperatives (formerly Spokane Bank for
Cooperatives) and the Registrant, as amended

*10.40 Amendment dated September 13, 1991 to Loan
Agreement between the National Bank for
Cooperatives and the Registrant

*10.41 Form of Commitment Letter to be entered into between
the National Bank for Cooperatives and Registrant

Exhibit
number Description Page

*10.42 Agreement between the Municipality of Anchorage
d/b/a Anchorage Municipal Light and Power,
Chugach Electric Association, Inc., Matanuska
Electric Association, Inc., U.S. Fish and Wildlife
Service, National Marine Fisheries Service, Alaska
Energy Authority, and the State of Alaska Relative
to the Eklutna and Snettisham Hydroelectric
Projects

*10.43 Bradley Lake Hydroelectric Agreement for the
Dispatch of Electric Power and for Related
Services by and among Chugach Electric
Association, Inc. and the Alaska Energy Authority

*10.44 Net Billing Agreement among Chugach Electric
Association, Inc. and the City of Seward

*10.45 Soldotna One System Use and Dispatch Agreement by
and among Alaska Electric Generation and
Transmission Cooperative, Inc. and Chugach
Electric Association, Inc.

*10.46 Agreement for Bradley Lake Resource Scheduling
between Chugach, Homer Electric Association, Inc.
and the Alaska Electric Generation and
Transmission Cooperative, Inc. dated September
29, 1992

*10.47 Gas Transportation Agreement between Chugach,
Alaska Pipeline Company and ENSTAR Natural
Gas Company dated December 7, 1992

*10.48 Daves Creek Substation Agreement between Chugach
and the Alaska Energy Authority dated March 13,
1992

*10.49 Memorandum of Agreement between Chugach and
AEG&T dated April 27, 1993 regarding Interest
Expense Allocator

*10.50 Settlement Agreement between Chugach and Intervenor
Wholesale Customers in APUC Docket U-93-15
dated September 1993 regarding depreciation of
submarine cables

*10.52 Twenty Five Million Dollar Line of Credit Agreement
and Promissory Note between Chugach and
National Bank for Cooperatives

Exhibit
number Description Page

*10.52.1 Amendment to Line of Credit Agreement between
Chugach and National Bank for Cooperatives dated
March 11, 1994

*10.52.2 Amendment to Line of Credit Agreement between
Chugach and National Bank for Cooperatives and
amended and restated Promissory Note (thirty-five
million dollars) dated April 18, 1994

*10.52.3 Amendment to Line of Credit Agreement between
Chugach and National Bank for Cooperatives
(thirty-five million dollars) dated May 1, 1995

*10.52.4 Amendment to Line of Credit Agreement between
Chugach and National Bank for Cooperatives
(thirty-five million dollars) dated May 15, 1995

*10.53 Bill of Sale between Chugach and Cook Inlet Tug &
Barge Co. for the barge SUSITNA dated March 1,
1993

*10.54 Intertie Grant Agreement between Chugach and
GVEA, FMUS, AML&P, AEG&T, MEA, Homer,
Seward, the State of Alaska, Department of
Administration, and AIDEA dated October 26,
1993

*10.55 Grant Transfer and Delegation Agreement between
Chugach and GVEA, FMUS, AML&P, AEG&T,
MEA, Homer, Seward, the State of Alaska,
Department of Administration, and AIDEA dated
November 5, 1993

*10.56 Letter of Understanding between Chugach and IBEW
dated January 6, 1993 regarding the Outside Plant
Personnel Agreement

*10.57 Letter of Understanding between Chugach and IBEW
dated January 6, 1993 regarding the Office and
Engineering Agreement

*10.58 Letter of Understanding between Chugach and IBEW
dated January 6, 1993 regarding the Generation
Plant Personnel Agreement

*10.59 Eklutna Power Sales Contract No. 85-79AP10004
between Chugach and Alaska Power
Administration dated October 13, 1979

Exhibit
number Description Page

*10.59.1 Contract Modification No. 1 to Contract No.
85-79AP10004 between Chugach and the Alaska
Power Administration dated October 19, 1988
extending the Eklutna Power Sales Agreement

*10.59.2 Amendment to Exhibit E of Modification No. 1 to
Contract No. 85-79AP10004 between Chugach
and Alaska Power Administration dated October
29, 1993 regarding the Eklutna Power Sales
Agreement

*10.59.3 Contract Modification No. 2 to Contract No.
85-79AP10004 between Chugach and the Alaska
Power Administration dated November 9, 1993
extending the Eklutna Power Sales Agreement

*10.60 Employment Agreement by and among Chugach
Electric Association, Inc. and Eugene N.
Bjornstad dated July 6, 1994

*****10.60.1 Amendment to Employment Agreement by and
among Chugach Electric Association, Inc. and
Eugene N. Bjornstad dated February 25, 1998

*10.61 United States Department of Energy, Alaska Power
Administration, Eklutna Project, Contract No.
DE-SC85-95AP10042 for Electric Service to
Chugach Electric Association, Inc., Matanuska
Electric Association, Inc. and Municipality of
Anchorage dba Municipal Light & Power dated
December 29, 1994

*10.62 Hotel Employees & Restaurant Employees Union
agreement covering terms and conditions of
employment - Beluga Power Plant Culinary
Employees dated the 2nd day of March, 1995

***10.63 National Bank for Cooperatives (CoBank) Credit
Agreement dated June 22, 1994

***10.63.1 Amendment No. 1 to National Bank for
Cooperatives (CoBank) Credit Agreement dated
June 1, 1997

****10.64 Eklutna Hydroelectric Project Closing Documents
dated October 2, 1997

****10.65 Fifty Million Dollar Line of Credit Agreement
between Chugach and the National Rural Utilities
Cooperative Finance Corporation executed
October 22, 1997

Exhibit
number Page

10.66 Contract of Sale PC25TM Model C Fuel Cell Power
Plants between ONSI Corporation ("Seller") and
Chugach Electric Association, Inc. ("Buyer")
dated April 24, 1998 83

10.67 International Swap Dealers Association, Inc. (ISDA)
Master Agreement dated as of March 17, 1999
between Lehman Brothers Financial Products
Inc. and Chugach Electric Association, Inc. 97

12.1 N/A

*19.0 Administrative Order on Consent for Remedial
Investigation/Feasibility Study between Chugach
and the United States Environmental Protection
Agency dated September 23, 1992

*19.1 Proposed Partial Consent Decree in Standard Steel
Superfund Site matter

*19.2 Partial Consent Decree in Standard Steel Superfund
Site matter

*****19.3 Memorandum of Agreement by and among Chugach
Electric Association, Inc. and Admiral Insurance
Company Alaska, Alaska National Insurance
Company, Nationwide Mutual Insurance
Company and Providence Washington Insurance
Company relating to Chugach's PRP obligations
at the Standard Steel Superfund Site dated
February 3, 1998

*****19.4 CERCLA Remedial Design and Remedial Action
Consent Decree in the Standard Steel Superfund
Site matter dated January 24, 1998

******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.

27 Financial Data Schedule (filed electronically)

* Previously referred to in the Registrant's Annual Report on Form 10-K dated
December 31, 1996.
** Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q dated June 30, 1997.

*** Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q dated September 30, 1997.

**** Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K dated December 31, 1997

***** Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q dated March 31, 1998

****** Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q dated June 30, 1998

******* Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q dated September 30, 1998

REPORTS ON FORM 8-K

The Company was not required to file any report on Form 8-K for the year ended
December 31, 1998.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 30, 1999.

CHUGACH ELECTRIC ASSOCIATION, INC.

By: /s/ Eugene N. Bjornstad
Eugene N. Bjornstad, General Manager

Date: March 30, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated March 30, 1999:

/s/ Eugene N. Bjornstad
Eugene N. Bjornstad General Manager

/s/ Lee D. Thibert
Lee D. Thibert Executive Manager, T&D Network Services

/s/ Evan J. Griffith, Jr.
Evan J. Griffith, Jr. Executive Manager, Finance & Energy
Supply (principal financial officer)
/s/ William R. Stewart
William R. Stewart Executive Manager, Retail Services

/s/ Michael R. Cunningham
Michael R. Cunningham Controller
(principal accounting officer)
/s/ Patricia B. Jasper
Patricia B. Jasper President and Director
(principal executive officer)
/s/ Christopher Birch
Christopher Birch Vice President and Director

/s/ Bruce E. Davison
Bruce E. Davison Secretary and Director

/s/ Mary Minder
Mary Minder Treasurer and Director

/s/ Raymond A. Kreig
Raymond A. Kreig Director

/s/ Elizabeth P. Kennedy
Elizabeth P. Kennedy Director

Supplemental information to be furnished with reports filed pursuant to Section
15(d) of the Act by registrants which have not registered securities pursuant to
Section 12, of the Act:

Chugach has not made an Annual Report to securities holders for 1998 and will
not make such a report after the filing of this Form 10-K. As a consequence, no
copies of any such report will be furnished to the Securities and Exchange
Commission.