FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
--------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-42125
Chugach Electric Association, Inc.
(Exact name of registrant as specified in its charter)
Alaska 92-0014224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5601 Minnesota Drive Anchorage, Alaska 99518
(Address of principal executive offices) (Zip Code)
(907) 563-7494
(Registrant's telephone number, including area code)
None
(Former name,former address and former fiscal year,if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 1, 1997
NONE NONE
<PAGE>
CHUGACH ELECTRIC ASSOCIATION, INC.
INDEX
Part I. Financial Information Page Number
Balance Sheets, September 30, 1997 (Unaudited) and December 31, 1996 3
Statements of Revenues, Expenses and Patronage Capital, Three-Months Ended
September 30, 1997 and 1996 and Nine-Months Ended September 30, 1997 and
1996 (Unaudited) 5
Statements of Cash Flows, Nine-Months Ended September 30, 1997 and 1996
(Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Unaudited) 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 14
Exhibits - Index 15
Exhibits 16
2
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CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets
Assets
<TABLE>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
Utility plant:
Electric plant in service ................... $621,958,299 $615,464,060
Construction work in progress ............... 21,034,867 19,826,957
------------ ------------
642,993,166 635,291,017
Less accumulated depreciation ............... 227,130,101 215,411,223
------------ ------------
Net utility plant .......... 415,863,065 419,879,794
------------ ------------
Other property and investments, at cost:
Nonutility property ......................... 3,550 3,550
Investments in associated organizations ..... 7,630,011 7,647,189
Restricted cash - margins from economy
energy sales, all repurchase agreements .. -- 1,599,239
------------ ------------
7,633,561 9,249,978
------------ ------------
Current assets:
Cash and cash equivalents ................... 4,159,350 5,419,819
Cash - restricted construction funds ........ 1,058,698 1,371,386
Special deposits ............................ 89,232 89,232
Accounts receivable, net .................... 13,928,261 15,369,883
Materials and supplies, at average cost ..... 15,726,693 16,187,592
Prepayments ................................. 947,374 694,257
Other current assets ........................ 314,814 294,380
------------ ------------
Total current assets ......... 36,224,422 39,426,549
------------ ------------
Deferred charges ................................. 14,916,008 13,932,109
------------ ------------
$474,637,056 $482,488,430
------------ ------------
</TABLE>
See accompanying notes to unaudited financial statements.
3
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CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets
Liabilities and Equities
<TABLE>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
Equities and margins:
Memberships ..................................... $ 849,603 $ 812,748
Patronage capital ............................... 103,972,639 100,685,517
Other ........................................... 2,898,152 2,979,677
------------ ------------
107,720,394 104,477,942
------------ ------------
Long-term obligations, excluding current installments:
First mortgage bonds payable .................... 240,910,000 251,553,000
CoBank bonds payable ............................ 56,096,501 56,352,847
------------ ------------
297,006,501 307,905,847
------------ ------------
Current liabilities:
Note(s) payable ................................. 15,114,578 2,750,000
Current installments of long-term debt and
capital leases ............................... 5,916,760 5,971,752
Accounts payable ................................ 4,316,319 5,178,161
Consumer deposits ............................... 1,010,853 1,066,906
Accrued interest ................................ 1,307,780 7,076,388
Salaries, wages and benefits .................... 3,707,782 3,583,422
Fuel ............................................ 4,579,483 6,047,574
Other ........................................... 2,821,558 5,012,191
------------ ------------
Total current liabilities ......... 38,775,113 36,686,394
------------ ------------
Deferred credits ..................................... 31,135,048 33,418,247
------------ ------------
$474,637,056 $482,488,430
------------ ------------
</TABLE>
See accompanying notes to unaudited financial statements.
4
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CHUGACH ELECTRIC ASSOCIATION, INC.
Statements of Revenues, Expenses and Patronage Capital
<TABLE>
Three-months Nine-months
ended September 30 ended September 30
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenues ..................... $ 34,108,328 $ 31,187,058 $ 103,730,273 $ 97,529,513
------------- ------------- ------------- -------------
Operating expenses:
Production ........................ 12,393,918 9,642,575 33,442,580 26,340,626
Purchased power ................... 3,189,539 2,671,658 10,506,279 7,590,852
Transmission ...................... 739,453 971,775 2,493,633 2,558,468
Distribution ...................... 2,140,995 1,957,063 6,289,128 6,788,497
Consumer accounts ................. 1,218,388 1,714,338 3,666,551 5,283,576
Administrative, general and other . 3,206,901 3,073,386 9,831,506 9,746,665
Depreciation and amortization ..... 5,174,526 5,217,446 15,724,970 15,454,996
------------- ------------- ------------- -------------
Total operating expenses .. 28,063,720 25,248,241 81,954,647 73,763,680
------------- ------------- ------------- -------------
Interest:
On long-term debt ................... 6,170,693 5,998,474 18,671,360 18,685,241
Other ............................... 292,655 376,545 615,493 877,380
Charged to construction - credit .... (150,914) (153,418) (433,389) (391,513)
------------- ------------- ------------- -------------
Net interest expense ...... 6,312,434 6,221,601 18,853,464 19,171,108
------------- ------------- ------------- -------------
Net operating margins ..... (267,826) (282,784) 2,922,162 4,594,725
------------- ------------- ------------- -------------
Nonoperating margins:
Interest income ................... 124,820 180,726 462,648 571,869
Other ............................. 39,492 89,546 134,228 144,037
------------- ------------- ------------- -------------
Total non-operating margins 164,312 270,272 596,876 715,906
------------- ------------- ------------- -------------
Assignable margins ........ (103,514) (12,512) 3,519,038 5,310,631
Patronage capital at beginning of period 104,205,721 100,660,740 100,685,517 95,421,358
Retirement of capital credits and
estate payments ..................... (129,568) (49,030) (231,916) (132,791)
------------- ------------- ------------- -------------
Patronage capital at end of period ..... $ 103,972,639 $ 100,599,198 $ 103,972,639 $ 100,599,198
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to unaudited financial statements.
5
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CHUGACH ELECTRIC ASSOCIATION, INC.
Statements of Cash Flows
<TABLE>
Nine-months ended September 30
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Assignable margins .......................................................... $ 3,519,038 $ 5,310,631
------------ ------------
Adjustments to reconcile assignable margins to net cash provided by operating
activities:
Depreciation and amortization ........................................... 15,724,970 15,454,996
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable, net .............................................. 1,441,622 3,497,868
Materials and supplies ................................................ 460,899 (1,747,304)
Deferred charges ...................................................... (983,898) 228,629
Prepayments ........................................................... (253,117) (923,489)
Other ................................................................. 1,891,493 20,084
Increase (decrease) in liabilities:
Accounts payable ...................................................... (861,842) (2,981,715)
Accrued interest ...................................................... (5,768,607) (6,756,232)
Deferred credits ...................................................... (2,283,200) (7,540,755)
Consumer deposits, net ................................................ (56,052) (54,501)
Other ................................................................. (3,534,366) 4,266,957
------------ ------------
Total adjustments .......................................... 5,777,902 3,464,538
------------ ------------
Net cash provided by operating activities .................. 9,296,940 8,775,169
------------ ------------
Cash flows from investing activities:
Extension and replacement of plant .......................................... (11,708,241) (11,659,088)
Investments in associated organizations ..................................... 17,177 94,503
------------ ------------
Net cash used in investing activities ...................... (11,691,064) (11,564,585)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt ................................................ -- 23,500,000
Repayments of long-term debt ................................................ (10,954,338) (20,900,496)
Retirement of patronage capital ............................................. (231,916) (132,791)
Short-term borrowings, net .................................................. 12,364,578 (2,500,000)
Other ....................................................................... (44,669) (43,647)
------------ ------------
Net cash provided by (used) in financing activities ........ 1,133,655 (76,934)
------------ ------------
Net decrease in cash and cash equivalents .................. (1,260,469) (2,866,350)
Cash and cash equivalents at beginning of period ............................... 5,419,819 5,879,483
------------ ------------
Cash and cash equivalents at end of period ..................................... $ 4,159,350 $ 3,013,133
------------ ------------
</TABLE>
See accompanying notes to unaudited financial statements.
6
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CHUGACH ELECTRIC ASSOCIATION, INC.
Notes to Financial Statements
September 30, 1997
(Unaudited)
1. Presentation of Financial Information
During interim periods, Chugach Electric Association, Inc. (Chugach)
follows the accounting policies set forth in its audited financial
statements included in Form 10-K filed with the Securities and Exchange
Commission. Users of interim financial information are encouraged to refer
to footnotes contained in Form 10-K when reviewing interim financial
results. Management believes that the accompanying interim financial
statements reflect all adjustments that are necessary for a fair statement
of the results of the interim period presented. All adjustments made in the
accompanying interim financial statements are of a normal recurring nature.
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 presentation.
2. Lines of Credit
Chugach maintains a line of credit of $35 million with CoBank. The CoBank
line of credit expires August 1, 1998 but contains an automatic renewal
clause. At September 30, 1997, $15,114,578 was outstanding at an interest
rate of 6.65%. In addition, the Association has an annual line of credit of
$50 million available at the National Rural Utilities Cooperative Finance
Corporation (NRUCFC). At September 30, 1997, there was no outstanding
balance. The NRUCFC line of credit expires November 1, 2002.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Results of Operations
Current Year Quarter Versus Prior Year Quarter
Operating revenues, which include sales of electric energy to retail, wholesale
and economy energy customers and other miscellaneous revenues, increased by 9.4%
for the quarter ended September 30, 1997 over the same quarter in 1996. The
increase in revenues is largely attributable to higher kWh sales to retail and
two of the three wholesale customer classes.
While fuel surcharge rates were higher in the third quarter of 1997 over those
in the same quarter of 1996, revenues were also impacted by Chugach's decision
to request a waiver from passing through fuel cost increases under its fuel
surcharge cost recovery mechanism. These increases would have been for fuel
surcharge rates effective in the third and fourth quarters of 1997. Chugach
believes that these increases were the result of unusual and transitory
occurrences that have resulted in higher fuel prices. Furthermore, Chugach
continues to believe that its natural gas prices are stabilizing and will
decline from current levels in 1998. The APUC has approved Chugach's waiver
request to leave surcharge rates at existing levels through the fourth quarter
1997. The decision to forgo the increases was made in an effort to maintain
overall price stability. As a result, Chugach did not collect approximately $3.5
million, which would have been a component of revenues in 1997. This amount
represented cumulative uncollected fuel surcharge amounts through May 1997.
Chugach anticipates that its fuel surcharge rates will increase effective
January 1998. A portion of the fuel surcharge adjustments continue to be
recorded as a component of revenue at existing (i.e. unadjusted) surcharge rate
levels. Pending finalization of a plan to recover these fuel surcharge amounts,
Chugach has reserved a portion of the fuel surcharge balancing account and has
not recorded a portion of the adjustments as a component of revenue. Chugach
continues to evaluate the amount and timing of recovery of these uncollected
fuel surcharge amounts and intends to recover a portion of such amounts in
future periods.
Retail demand and energy rates did not change from the third quarter of 1996 to
the same period in 1997. As previously reported, effective in February 1997, the
wholesale rate classes were split into three classes compared to the previous
two. The classes are now MEA, Seward and Homer (previously, Seward was combined
with MEA). Wholesale demand and energy rates charged to MEA were decreased
slightly effective February 1997. The impact of higher kWh sales and the fuel
surcharge revenue more than offset this decrease in rates. Demand and energy
rates to Homer and Seward did not change.
Pursuant to a Settlement Agreement between Chugach and AEG&T/MEA/Homer,
Chugach may be required to grant a refund to AEG&T/MEA/Homer retroactive to
January 1, 1997 (based on the 1996 test year filing). The amount of this
potential refund is not known at this time.
8
<PAGE>
Higher fuel consumption due the increase in kWh sales and higher fuel prices
were again the major cause for the increase in production expense for the
quarter ended September 30, 1997 compared to the same period in 1996. As
previously reported, Chugach has completed the transition into Period 2 of the
long-term fuel supply contracts. Fuel costs now result from market-based prices.
Purchased power expense was higher for the quarter ended September 30, 1997
compared to the same period in 1996. This variance was substantially due to the
system operating scenario that existed during the third quarter of 1997. Chugach
purchased power from AEG&T's Soldotna 1 plant to ensure reliability on the Kenai
Peninsula. Transmission expense was lower for the quarter ended September 30,
1997 from the same period in 1996. The majority of this decrease was caused by
lower overhead line maintenance expense related to transmission right-of-way
clearing activities. Consumer accounts expense decreased for the quarter ended
September 30, 1997. 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 the current period due to a lower average
outstanding balance on the short-term line of credit.
Current Year to Date Versus Prior Year to Date
Operating revenues for the nine-month period ended September 30, 1997 increased
relative to the same period in 1996. These higher revenues were essentially due
to the same reasons outlined in the quarter-to-date comparison section.
Production and purchased power increased and consumer accounts expense decreased
for the nine-month period ended September 30, 1997 for essentially the same
reasons outlined in the quarter-to-date comparison section.
Other interest expense decreased for the nine-months ended September 30, 1997
for the same reason outlined above in the analysis of the quarter-to-quarter
variance.
Financial Condition
Total assets declined by 1.6% from December 31, 1996 to September 30, 1997. The
decrease is due primarily to the lower balance in net utility plant. This lower
balance was caused by the higher accumulated depreciation reserve resulting from
the implementation of higher depreciation rates (the phase-in of updated
depreciation rates was completed in 1996). Restricted cash from economy energy
margins was returned to customers as an offset to the fuel surcharge mechanism
and the seasonal decline in accounts receivable also contributed to the overall
decrease in total assets. Notable changes to total liabilities include the
decrease in First Mortgage bonds payable resulting from the March bond payment
and the reacquisition of another $5 million of the Series A 2022 bonds during
the second quarter. Accrued interest also decreased due to the September bond
payment. In addition, Chugach made a draw on the CoBank line of credit to make
the September semi-annual bond payment. This combined with the $5 million
reacquisition explains the increase in the notes payable balance at September
30, 1997. Chugach plans to refinance $15 million of the balance on the CoBank
line of credit into a long-term bond under the Third Supplemental Indenture.
9
<PAGE>
Liquidity and Capital Resources
Chugach has satisfied its operational and capital cash requirements primarily
through internally generated funds, an annual $50 million line of credit from
National Rural Utilities Cooperative Finance Corporation (NRUCFC) and a $35
million line of credit with CoBank. At September 30, 1997, Chugach had $15.1
million outstanding with CoBank, which carried an interest rate of 6.65%. There
were no amounts outstanding on the NRUCFC line at September 30, 1997.
Capital construction in 1997 is estimated at $19.8 million. At September 30,
1997 approximately $11.7 million has been expended.
Chugach has negotiated a supplemental indenture (Third Supplemental Indenture of
Trust) with CoBank which previously allowed up to $80 million in future bond
financing. Recently 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
September 30, 1997, Chugach had bonds in the amount of $56.4 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), currently priced at 6.75% (repriced periodically) and a $23.5
million bond (CoBank 4) currently priced at 6.75% (also repriced periodically).
Principal payments on the CoBank 3 and 4 bonds commence in 2003 and continue
through 2022. Chugach plans to convert $15 million of the balance outstanding on
the CoBank line of credit to a bond (CoBank 5) with terms similar to CoBank 3
and 4 above. Additionally, Chugach has negotiated a similar supplemental
indenture (Fifth Supplemental Indenture of Trust) with NRUCFC for $80 million.
At September 30, 1997 there were no amounts outstanding under this financing
arrangement.
As previously reported, Chugach has reacquired $44.3 million of its Series A
2022 bonds. This strategy has been in response to the favorable long-term
interest rate environment. Chugach will continue to explore similar
reacquisition transactions if market conditions warrant such action. Except for
CoBank 5, or any further reacquisitions of its bonds (and any similar future
refinancings), Chugach does not anticipate issuance of additional long-term debt
in 1997.
Chugach management continues to expect that cash flows from operations and
external funding sources will be sufficient to cover operational and capital
funding requirements in 1997 and thereafter.
Chugach's current ratios (total current assets divided by current liabilities)
at December 31, 1996 and September 30, 1997 were as follows:
Current Ratio
December 31, 1996 1.07
September 30, 1997 .93
10
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As noted above, Chugach plans to convert $15 million of the balance on the
CoBank line of credit into a long-term bond under the Third Supplemental
Indenture. Reclassifying the $15 million from short-term liabilities results in
a current ratio of 1.52.
Outlook
The competitive marketplace for the electric utility industry continues to
evolve. In recognition of this, Chugach is involved in national benchmarking
studies to improve system operations, has implemented strategic alliances with
key suppliers and has made significant progress in completing its new strategic
plan. Chugach is also involved in efforts to introduce competition at the retail
level in Anchorage. Several customers in another utility's service area formally
asked Chugach to provide their electric power. In response, Chugach has
requested access over the other utility's distribution and transmission system
and has asked the APUC to enforce this request. It is not known at this time how
the APUC will rule on this filing.
In addition, Chugach recently commenced negotiations for new labor
agreements with its employees represented by IBEW Local 1547. Chugach hopes to
craft new agreements with the Union that are beneficial to all involved parties
and ensure the organization's continued success in this increasingly competitive
marketplace. In the event that agreement is not reached on specific issues, they
will be decided through binding interest arbitration.
Environmental Matters
Refer to Part II, Item 1 for an update on the status of the Standard Steel
Salvage Yard Site litigation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Standard Steel Salvage Yard Site
As previously reported in the 10-Q for the period ending June 30, 1997, a cost
recovery action was filed in Federal District Court on December 27, 1991 by the
United States against Chugach and six other Potentially Responsible Parties
(PRPs) seeking reimbursement of removal and response action costs (Past Response
Costs) incurred by US EPA at the Standard Steel and Metals Salvage Yard
Superfund Site in Anchorage, Alaska (Site). The six other PRPs named in the
action are the Alaska Railroad, Westinghouse Electric Corporation, Sears,
Roebuck and Co., Montgomery Ward & Co., J.C. Penney Company, Inc. and
Bridgestone/Firestone, Inc. In December, 1996, Chugach, the other named PRPs and
certain federal agency PRPs (Federal PRPs) entered into a Partial Consent
Decree. Under the Partial Consent Decree, Chugach and the other parties settled
claims for Past Response Costs as well as investigation and other costs incurred
with respect to the Site through December 1996. The Partial Consent Decree,
however, did not settle Chugach's liability for future costs of designing and
performing the cleanup at the Site (Future Costs).
11
<PAGE>
Although the Partial Consent Decree does not settle Chugach's or the other
private PRPs' liability for Future Costs, the Partial Consent Decree does bind
the Federal PRPs and the Alaska Railroad to pay an aggregate share of 64% of
Future Costs. Chugach and the five other private PRPs have reached a separate
settlement to divide the remaining 36% of Future Costs among themselves. Under
that settlement, Chugach's percentage share of liability for Future Costs will
equal 14.89%. The private PRPs' agreement to perform remedial design and
remedial action (RD/RA) at the Site is memorialized in a new Consent Decree
(RD/RA Decree) that was executed by the private PRPs and the United States and
was lodged with the Federal District Court on October 8, 1997. The RD/RA Decree
contains the scope of work for the RD/RA as well as settlement terms, including
EPA's covenant not to sue Chugach and the other private PRPs for Future Costs
once the RD/RA is completed.
The estimate of Future Costs of RD/RA at the Site, as determined by Chugach's
consultants based on cost estimates contained in the FS report, ranges from
$5,231,200 to $6,619,800. The RD/RA Decree contains a cost estimate, as
determined by EPA and including a 50% cost overrun contingency, of $8,400,000.
Chugach's share of these estimated RD/RA expenses would range from approximately
$778,926 to $1,250,760. These amounts are only estimates, however, and the
actual, full scope of the S/S cleanup at the Site will not be known, and the
projected costs associated with the remedy cannot be refined, until EPA approves
remedial design documents.
Under the RD/RA Decree, Chugach and the other PRPs are required to reimburse the
United States for EPA oversight costs and DOJ enforcement costs relating to the
RD/RA. Those costs have been estimated by the United States to equal
approximately $676,000. Chugach's share of these estimated oversight and
enforcement costs would equal $100,656. In addition, one of the private PRPs,
Montgomery Ward, recently filed for bankruptcy protection and did not execute
the RD/RA Consent Decree. As a result, Chugach will be paying an additional sum
equal to Chugach's percentage share of Montgomery Ward's share of Future Costs.
This additional sum is estimated to be approximately $12,600 given current
estimates of Future Costs, EPA oversight costs and DOJ enforcement costs.
Based on the above estimates, the total amount that may be paid by Chugach under
the RD/RA Decree ranges from approximately $892,182 to $1,364,016. These
amounts, particularly the projected EPA oversight costs, are only estimates and
are subject to change. In addition, the RD/RA Decree contains reservation of
rights allowing EPA to seek further response actions and payments from the PRPs
under certain circumstances, including for costs associated with alleged natural
resource damages. At this time, no claims have been made pertaining to alleged
natural resource damages and no prediction can be made whether EPA will request
activities through its reservation of rights under the RD/RA Decree.
Four of Chugach's insurance carriers have agreed under a reservation of rights
to pay, and currently are paying, Chugach's costs of defense for the Site. The
carriers have reserved their rights regarding indemnification of Chugach for
response costs. Management believes that all past and future costs incurred for
response, removal, investigation and cleanup of the Site would be fully
recoverable in rates or covered by insurance and therefore would have no impact
on Chugach's financial condition or results of operations.
12
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Items 2, 3, 4 and 5
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Seventh Supplemental Indenture of Trust by and among Chugach
Electric Association,Inc. and Seattle-First National Bank dated
June 1, 1997.
National Bank for Cooperatives (CoBank) Credit Agreement dated June
22, 1994.
Amendment No. 1 to National Bank for Cooperatives (CoBank) Credit
Agreement dated June 1, 1997.
Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ended September 30,
1997.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHUGACH ELECTRIC ASSOCIATION, INC.
By: /s/ Eugene N. Bjornstad
Eugene N. Bjornstad, General Manager
Date: November 13, 1997
By: /s/ Evan J. Griffith, Jr.
Evan J. Griffith, Jr.
Executive Manager, Finance & Energy Supply
Date: November 13, 1997
14
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EXHIBITS
Listed below are the exhibits which are filed as part of this Report:
Exhibit
number Description Page
4.8 Seventh Supplemental Indenture of Trust by and among Chugach
Electric Association, Inc. and Seattle-First National Bank dated
June 1, 1997. 16
10.63 National Bank for Cooperatives (CoBank) Credit Agreement dated
June 22, 1994. 24
10.63.1 Amendment No. 1 to National Bank for Cooperatives (CoBank) Credit
Agreement dated June 1, 1997. 27
27 Financial Data Schedule. **
** Filed Electronically
15
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SEVENTH SUPPLEMENTAL INDENTURE OF TRUST
(Modifying Terms of Third Supplemental Indenture
Establishing First Mortgage Bonds, CoBank Series)
THIS SEVENTH SUPPLEMENTAL INDENTURE OF TRUST, dated as of June 1, 1997,
is amendatory and supplemental to that certain Indenture of Trust dated
September 15, 1991 (the "Original Indenture"), by and between CHUGACH ELECTRIC
ASSOCIATION, INC., an Alaska electric cooperative (the "Company"), and SECURITY
PACIFIC BANK WASHINGTON, N.A., a national banking association, recorded
September 25, 1991, under the following recording numbers:
Recording District Recording Number, Book and Page
Anchorage 91-040327 (Book 2195, Page 178)
Kenai 91-7151 (Book 389, Page 637)
Palmer 91-011276 (Book 663, Page 167)
Seward 91-1051 (Book 62,251)
Valdez 91-0738 (Book 114, Page 233)
The Original Indenture was amended by those, First, Second, Third,
Fourth, Fifth and Sixth Supplemental Indentures, dated as of March 17, 1993, May
19, 1994, June 29, 1994, March 1, 1995, September 6, 1995, and April 3, 1996,
respectively, and recorded as follows:
SEVENTH SUPPLEMENTAL
INDENTURE OF TRUST - Page 1
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<TABLE>
<S> <C> <C> <C>
RECORDING SUPPLEMENTAL RECORDING NUMBER, BOOK AND RECORDING DATE
DISTRICT INDENTURE PAGE
Anchorage First 93-014587 (Book 2394, Page 638) March 30, 1993
Second 94-036094 (Book 2656, Page 313) May 23, 1994
Third 94-046579 (Book 2678, Page 629) July 11, 1994
Fourth 95-015010 (Book 2772, Page 604) March 31, 1995
Fifth 96-006182 (Book 2886, Page 853) February 12, 1996
Sixth 96-028052 (Book 2936, Page 602) June 10, 1996
Kenai First 94-3630 (Book 441, Page 841) April 27, 1994
Second 94-4844 (Book 444, Page 348) May 31, 1994
Third 94-6354 (Book 447, Page 238) July 11, 1994
Fourth 95-0383 (Book 461, Page 299) April 10, 1995
Fifth 96-1826 (Book 480, Page 485) March 12, 1996
Sixth 96-4713 (Book 486, Page 796) June 18, 1996
Palmer First 94-6629 (Book 763, Page 279) April 26, 1994
Second 94-008794 (Book 768, Page 219) May 27, 1994
Third 94-011249 (Book 773, Page 460) July 11, 1994
Fourth 95-003739 (Book 800, Page 693) April 4, 1995
Fifth 96-003374 (Book 840, Page 390) March 12, 1996
Sixth 96-008674 (Book 852, Page 453) June 18, 1996
Seward First 94-562 (Book 72, Page 239) April 29, 1994
Second 94-0832 (Book 72, Page 786) June 2, 1994
Third 94-1091 (Book 73, Page 283) July 12, 1994
Fourth 95-0392 (Book 76, Page 575) April 4, 1995
Fifth 96-0301 (Book 80, Page 589) February 29, 1996
Sixth 96-0853 (Book 81, Page 859) June 19, 1996
Valdez First 94-0604 (Book 122, Page 677) April 27, 1994
Second 94-0767 (Book 122, Page 967) May 31, 1994
Third 94-0971 (Book 123, Page 269) July 11, 1994
Fourth 95-0383 (Book 126, Page 214) April 10, 1995
Fifth 96-0158 (Book 128, Page 435) February 28, 1996
Sixth 96-0550 (Book 129, Page 361) June 19, 1996
</TABLE>
SEVENTH SUPPLEMENTAL
INDENTURE OF TRUST - Page 2
<PAGE>
The Original Indenture, as amended by the First, Second, Third, Fourth,
Fifth and Sixth Supplemental Indentures, is referred to herein as the
"Indenture." All capitalized terms used and not otherwise defined in this
Seventh Supplemental Indenture shall have the meanings assigned to those terms
in the Indenture, except where the context clearly indicates otherwise.
The Indenture secures payment of the principal of (and premium, if any)
and interest on the Outstanding Secured Bonds (as defined in the Indenture) and
the performance of the covenants contained in such Outstanding Secured Bonds and
the Indenture.
Pursuant to the Indenture, the Company did grant, bargain, sell, alien,
remise, release, convey, assign, transfer, mortgage, hypothecate, pledge, set
over and confirm to Security Pacific Bank Washington, N.A., as Trustee, all
property, rights, privileges and franchises of the Company of every kind and
description, real, personal or mixed, tangible and intangible, whether then
owned or thereafter acquired by the Company, except any Excepted Property (as
defined in the Indenture), and granted a security interest therein for the
purposes therein expressed.
The purpose of the First, Second, Fourth, Fifth and Sixth Supplemental
Indenture was to confirm the Company's intention that certain real property
(described in the respective Supplemental Indentures) acquired by the Company
after the date of the Original Indenture be subjected to the lien of the
Indenture, and to confirm the substitution of Seattle-First National Bank
(successor by merger to the original Trustee, Security Pacific Bank Washington,
N.A.) as Trustee under the Indenture. The purpose of the Third Supplemental
Indenture was to establish a new series of bonds to be designated First Mortgage
Bonds, CoBank Series, to be issued to the National Bank for Cooperatives
pursuant to the terms of a Credit Agreement between the Company and the National
Bank for Cooperatives. The National Bank for Cooperatives was subsequently
merged into CoBank, ACB ("CoBank"), which has thereby succeeded to the interests
of the National Bank for Cooperatives under such Credit Agreement and all
outstanding CoBank Bonds.
As a result of the acquisition by First Trust National Association, a
national banking association, of the trust business of Bank of America NW, N.A.
(formerly known as Seattle-First National Bank), First Trust National
Association has succeeded to the interest of the Trustee under the Indenture.
Contemporaneously with execution of this Seventh Supplemental
Indenture, the Company and CoBank have amended the terms of the Credit Agreement
between them to remove the limitation on the maximum aggregate principal amount
that may be advanced by CoBank to the Company thereunder. The purpose of this
Seventh Supplemental Indenture is to amend the terms of the Third Supplemental
Indenture establishing the First Mortgage Bonds, CoBank Series, to eliminate the
maximum aggregate amount of bonds of such series the Company may issue.
SEVENTH SUPPLEMENTAL
INDENTURE OF TRUST - Page 3
<PAGE>
Amendments. The Third Supplemental Indenture of Trust dated June 29, 1994, is
hereby amended as follows:
In Article 1 (General Provisions and Definitions), on page 3, the
definition of "Maturity Date" is deleted in its entirety.
On page 4, the second sentence of Section 2.01 (Terms of the
CoBank Bonds) is deleted in its entirety.
In Section 2.01 (Terms of CoBank Bonds), clause (A) (Variable
Rate Option) on page 5 is amended in its entirety to read as
follows:
(A) Variable Rate Option. Except as provided below,
the unpaid principal balance of each CoBank Bond
shall bear interest at a rate per annum equal to the
rate of interest established by CoBank on the first
Business Day of each week. The rate established by
CoBank may not exceed CoBank's National Variable Rate
on that day plus 1/4 of 1% per annum and shall be
effective until the first Business Day of the next
week. Each change in the rate shall be applicable to
all balances subject to this Variable Rate Option and
information about the then current rate shall be made
available upon telephonic request.
In Section 2.01 (Terms of CoBank Bonds), in clause (B) (Fixed
Rate Option) on page 5, the phrase "five (5) days" is
substituted for the phrase "thirty (30) days".
In Section 2.02 (Form of CoBank Bonds), on page 7, in the last
sentence of the first paragraph of the text of the form of
reverse of CoBank Bonds, the phrase "limited in aggregate
principal amount to the Maximum Amount (as defined below) at
any one time outstanding" is deleted.
In Section 2.02 (Form of CoBank Bonds) clause (A) (Variable Rate
Option) on page 8 is amended in its entirety to read as
follows:
(A) Variable Rate Option. Except as provided below,
the unpaid principal balance of this CoBank Bond
shall bear interest at a rate per annum equal to the
rate of interest established by CoBank on the first
Business Day of each week. The rate established by
CoBank may not exceed CoBank's National Variable Rate
on that day plus 1/4 of 1% per annum and shall be
effective until the first Business Day of the next
week. Each change in the rate shall be applicable to
all balances subject to this Variable Rate Option and
information about the then current rate shall be made
available upon telephonic request.
SEVENTH SUPPLEMENTAL
INDENTURE OF TRUST - Page 4
<PAGE>
In Section 2.02 (Form of CoBank Bonds), in clause (B) (Fixed Rate
Option) on page 8, the phrase "five (5) days" is substituted
for the phrase "thirty (30) days".
In Section 2.02 (Form of CoBank Bonds), on page 10, the
definition of "Maximum Amount" is deleted in its entirety.
In Section 2.02 (Form of CoBank Bonds), on page 10, clause (B) of
the definition of "Redemption Premium" is amended in its
entirety to read as follows:
(B) the amount of interest that CoBank would earn if
such portion were reinvested for the remaining fixed
rate period in U.S. Treasury obligations having a
weighted average life approximately equal to the
weighted average life of the balance being prepaid.
All references to the National Bank for Cooperatives shall be
deemed to be references to CoBank, ACB, successor by merger to
the National Bank for Cooperatives.
Ratification. Except as expressly amended by this Seventh Supplemental
Indenture, the Indenture is in all respects ratified and confirmed and
all the terms, provisions and conditions of the Indenture shall remain
in full force and effect, and this Seventh Supplemental Indenture shall
be deemed to be a part of the Indenture.
Counterparts. This Seventh Supplemental Indenture may be executed in any number
of counterparts, each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Execution Date. Although this Seventh Supplemental Indenture is dated for
convenience and for the purpose of reference as of June 1, 1997, the
actual date or dates of execution by the Company and by the Trustee are
as indicated by their respective acknowledgments hereto annexed.
SEVENTH SUPPLEMENTAL
INDENTURE OF TRUST - Page 5
<PAGE>
CHUGACH ELECTRIC ASSOCIATION, INC.,
an Alaska electric cooperative
By /s/ Eugene N. Bjornstad
Title: General Manager
FIRST TRUST NATIONAL ASSOCIATION,
a national banking association
By /s/ Michael A. Jones
Title: Assistant Vice President
CoBank, ACB,
a _____________________________
By /s/ John B. McFarlane
Title: Vice President
SEVENTH SUPPLEMENTAL
INDENTURE OF TRUST - Page 6
<PAGE>
STATE OF ALASKA )
) ss.
THIRD JUDICIAL DISTRICT )
The foregoing instrument was acknowledged before me this 11 th day of
July, 1997, by Eugene N. Bjornstad, the General Manager of CHUGACH ELECTRIC
ASSOCIATION, INC., an Alaska electric cooperative, on behalf of the cooperative.
/s/ Denise R. Withers
(Signature of person taking
the acknowledgment), Notary
Public in and for Alaska.
My commission expires
4/8/99.
(seal)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Michael A.
Jones, is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Assistant Vice President of FIRST TRUST
NATIONAL ASSOCIATION, to be the free and voluntary act and deed of said national
banking association, for the uses and purposes therein mentioned.
Given under my hand and official seal this 25th day of August, 1997.
/s/ Linda E. Houston
Print name: Linda E. Houston
NOTARY PUBLIC in and for the State of
Washington, residing at Federal Way, WA
My appointment expires 9/26/98
My commission expires 9/26/98.
(seal)
SEVENTH SUPPLEMENTAL
INDENTURE OF TRUST - Page 7
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
I certify that I know or have satisfactory evidence that John B.
McFarlane, is the person who appeared before me, and said person acknowledged
that he signed this instrument, on oath stated that he was authorized to execute
the instrument and acknowledged it as the Vice President of COBANK, ACB, to be
the free and voluntary act and deed of said association, for the uses and
purposes therein mentioned.
Given under my hand and official seal this 28th day of July, 1997.
/s/ Kendra M. Bullock
Kendra M. Bullock
NOTARY PUBLIC in and for
the State of Colorado,
residing at 5799 S. Orleans
St, Aurora, CO 80015 My
appointment expires
5/7/2000.
(seal)
SEVENTH SUPPLEMENTAL
INDENTURE OF TRUST - Page 8
<PAGE>
Loan No. TO122
NATIONAL BANK FOR COOPERATIVES
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made and entered into as of
this 22nd day of June, 1994, by and between the NATIONAL BANK FOR COOPERATIVES
("CoBank") and CHUGACH ELECTRIC ASSOCIATION, INC., an Alaska electric
cooperative (the "Company").
RECITALS
WHEREAS, this Agreement is entered into in conjunction with the Third
Supplemental Indenture ("Third Supplement") to the Indenture of Trust dated as
of September 15, 1991 (the " 1991 Trust Indenture"), as amended by a First
Supplemental Indenture and a Second Supplemental Indenture thereto (the entirety
of which shall be referred to &-, the "Original Indenture"), and all terms
capitalized herein which are not otherwise defined shall have the meaning given
in the Third Supplement or the Original Indenture; and
WHEREAS, from time to time CoBank may make advances in consideration of the
issuance to it of CoBank Bonds, the amount, interest rate or rates and maturity
of which shall have been agreed upon between the parties;
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
SECTION 1. The Maximum Amount. On the terms and conditions of this
Agreement, CoBank may fund, by means of one or more advances, CoBank Bonds in
the principal amount not to exceed $80,000,000 (the "Maximum Amount") at any one
time outstanding.
SECTION 2. Purpose. The purpose of the Loan is for general corporate
purposes, including' but not limited to repaying any unsecured lines of credit,
and the Company agrees to use the proceeds of the Loan for those purposes only.
SECTION 3. Availability. Upon the receipt by CoBank of one or more CoBank
Bonds, advances will be made available to fund such Bond or Bonds on any day on
which CoBank and the Trustee are open for business (a "Business Day") upon the
telephonic or written request of an authorized employee of the Company. Requests
for advances must be received by CoBank no later than 12:00 noon, Mountain time,
on the day the advance is desired. Unless otherwise agreed, all advances will be
made available by wire transfer of immediately available funds. Wire transfers
will be made to such account or accounts as the Company may authorize from time
to time on forms supplied by CoBank. In making advances on telephonic request,
CoBank shall be entitled to rely on (and shall incur no liability to the Company
in acting upon) any request made by a person identifying himself or herself as
one of the persons authorized by the Company to request advances hereunder.
<PAGE>
SECTION 4. CoBank Bonds. The Company's obligation to repay the advances
shall be evidenced by First Mortgage Bonds, CoBank Series, issued pursuant to
the Original Indenture and the Third Supplement thereto.
SECTION 5. Capitalization. The Company agrees to purchase such equity in
CoBank as CoBank may from time to time require in accordance with its bylaws and
capital plan; provided, however, that CoBank may not require the Company to
purchase equity in CoBank in an amount greater than 13% of the portion of
CoBank's five year average risk adjusted asset base attributable to loans made
by CoBank to the Company. All such equity which the Company may now own or
hereafter acquire or be allocated in CoBank shall be subject to a statutory
first lien in favor of CoBank to secure any indebtedness of the Company to
CoBank. In connection with the foregoing, the Company hereby acknowledges
receipt, prior to the execution of this Agreement, of CoBank's bylaws, a written
description of the terms and conditions under which the equity is issued,
CoBank's Loan-Based Capital Plan, CoBank's most recent annual report, and if
more recent than CoBank's latest annual report, its latest quarterly report.
SECTION 6. Security. The Company's obligations hereunder and under all
instruments and documents contemplated hereby shall be secured by a first
priority lien (subject only to exceptions permitted under the Original Indenture
or otherwise approved in writing by CoBank) pursuant to the Original Indenture.
SECTION 7. Notices. All notices hereunder shall be in writing and shall be
deemed to be duly given upon delivery, if delivered by "Express Mail," overnight
courier, messenger or other form of hand delivery or sent by telegram or
facsimile transmission (with receipt confirmed), or three days after mailing if
sent by certified or registered mail, to the parties at the following addresses
(or such other address for a party as shall be specified by like notice):
If to CoBank, as follows: If to the Company, as follows:
National Bank for Cooperatives Chugach Electric Association, Inc.
Post Office Box 5110 5601 Minnesota Drive
Denver, Colorado 80217 Post Office Box 196300
Anchorage, AK 99519-6300
Attn: Western Division Attn: Joe Griffith
Rural Utility Banking Group
Fax No: (303) 740-4002 Fax No: (907) 562-0027
SECTION 8. Costs and Expenses. To the extent allowed by law, the Company
agrees to pay to CoBank, on demand, all out-of-pocket costs and expenses
incurred by CoBank (including, without limitation, the reasonable fees and
expenses of counsel retained by CoBank) in connection with the enforcement of
CoBank's rights under CoBank Bonds, and the Trust Indenture after an Event of
Default (the "Loan Documents").
<PAGE>
SECTION 9. Effectiveness and Severability. This Agreement shall continue in
effect until all indebtedness and obligations of the Company hereunder and under
all other Loan Documents shall have been repaid or the Commitment shall expire,
whichever is later. Any provision of the Loan Documents which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or thereof.
SECTION 10. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Company and CoBank and their respective
successors and assigns, except that the Company may not assign or transfer its
rights or obligations hereunder without the prior written consent of CoBank.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date shown above.
NATIONAL BANK FOR COOPERATIVES CHUGACH ELECTRIC ASSOCIATION, INC.
By: /s/ Larry E. Brutlag By: /s/ Eugene N. Bjornstad
Title: SVP Title: General Manager
<PAGE>
AMENDMENT NO. 1
TO
NATIONAL BANK FOR COOPERATIVES CREDIT AGREEMENT
This Amendment No. 1 to National Bank for Cooperatives Credit Agreement
dated as of June 1, 1997, is by and between CHUGACH ELECTRIC ASSOCIATION, INC.,
an Alaska electric cooperative (the "Company"), and CoBank, ACB ("CoBank"). The
Company and CoBank (successor to the National Bank for Cooperatives by virtue of
merger) are parties to that National Bank for Cooperatives Credit Agreement
dated as of June 22, 1994 (the "Credit Agreement"), pursuant to which CoBank (or
its predecessor) has made, and intends to continue to make, advances to the
Company in consideration of the issuance by the Company to CoBank of the
Company's First Mortgage Bonds, CoBank Series ("CoBank Bonds"). The parties wish
to amend the Credit Agreement to eliminate the maximum principal amount that may
be advanced by CoBank to the Company thereunder.
The Company and CoBank therefore agree as follows:
A. Removal of Maximum Amount. Section 1 of the Credit Agreement is hereby
amended by deleting the phrase "in the principal amount not to exceed
$80,000,000 (the "Maximum Amount") at any one time outstanding."
B. Covenant to Disclose. CoBank hereby covenants to Chugach that, prior to
its negotiation or other transfer of any of the CoBank Bonds issued to CoBank
prior to the date hereof, it shall notify the proposed holder or transferee in
writing that, notwithstanding the statement on the reverse side of such CoBank
Bonds to the effect that the aggregate principal amount of the CoBank Bonds at
any time outstanding is limited to $80,000,000, such limitation on the maximum
aggregate principal amount of the CoBank Bonds at any time outstanding has been
removed by this Amendment No. 1 and by the Seventh Supplemental Indenture of
Trust dated as of the date hereof.
C. Ratification. Except as expressly amended by this Amendment No. 1, the
Credit Agreement is in all respects ratified and confirmed and all the terms,
provisions and conditions of the Indenture shall remain in full force and
effect, and this Amendment No. 1 shall be deemed to be a part of the Credit
Agreement.
1
<PAGE>
D. Counterparts. This Amendment No. 1 may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed to be
an original, and all such counterparts shall together constitute but one and the
same instrument.
Company: CHUGACH ELECTRIC ASSOCIATION, INC.,
an Alaska electric cooperative
By /s/ Eugene N. Bjornstad
Title: General Manager
CoBank: CoBank, ACB,
a _____________________________
By /s/ John B. McFarlane
Title: Vice President
2
<PAGE>
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,218,048
<SECURITIES> 0
<RECEIVABLES> 14,439,691
<ALLOWANCES> (511,430)
<INVENTORY> 15,726,693
<CURRENT-ASSETS> 36,224,422
<PP&E> 642,993,166
<DEPRECIATION> (227,130,101)
<TOTAL-ASSETS> 474,637,056
<CURRENT-LIABILITIES> 38,775,113
<BONDS> 297,006,501
0
0
<COMMON> 0
<OTHER-SE> 107,720,394
<TOTAL-LIABILITY-AND-EQUITY> 474,637,056
<SALES> $103,730,273
<TOTAL-REVENUES> $103,730,273
<CGS> 0
<TOTAL-COSTS> 81,954,647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,853,464
<INCOME-PRETAX> 3,519,038
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<NET-INCOME> 3,519,038
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