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 June 30, 1999
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 AUGUST 1, 1999
NONE NONE
<PAGE>
CHUGACH ELECTRIC ASSOCIATION, INC.
INDEX
Page Number
CAUTION REGARDING FORWARD-LOOKING STATEMENTS 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets, June 30, 1999 (Unaudited) and December 31, 1998 4
Statements of Revenues, Expenses and Patronage Capital, Six Months Ended
June 30, 1999 and 1998 (Unaudited) 6
Statements of Cash Flows, Six Months Ended June 30, 1999 and 1998
(Unaudited) 7
Notes to Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (Unaudited) 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibits 21
<PAGE>
2
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 FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited financial statements of Chugach for the quarter ended
June 30, 1999 follow:
<PAGE>
3
CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets
Assets
<TABLE>
June 30, 1999 December 31, 1998
(Unaudited)
<S> <C> <C>
Utility plant:
Electric plant in service $ 621,212,853 $ 620,216,818
Construction work in progress 30,783,053 30,405,736
651,995,906 650,622,554
Less accumulated depreciation 238,541,532 233,981,397
Net utility plant 413,454,374 416,641,157
Other property and investments, at cost:
Nonutility property 3,550 3,550
Investments in associated organizations 8,357,281 8,356,364
8,360,831 8,359,914
Current assets:
Cash and cash equivalents 8,748,380 2,312,574
Cash - restricted construction funds 159,720 177,366
Special deposits 122,164 121,164
Accounts receivable, net 10,447,357 17,243,266
Materials and supplies, at average cost 17,585,354 15,963,434
Prepayments 1,283,346 917,381
Other current assets 479,736 349,030
Total current assets 38,826,057 37,084,215
Deferred charges 30,667,771 19,006,164
$ 491,309,033 $ 481,091,450
</TABLE>
See accompanying notes to unaudited financial statements.
4
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CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets
Liabilities and Equities
<TABLE>
June 30, 1999 December 31, 1998
(Unaudited)
<S> <C> <C>
Equities and margins:
Memberships $ 935,023 $ 911,253
Patronage capital 115,870,695 109,622,996
Other 3,771,490 3,489,047
120,577,208 114,023,296
Long-term obligations, excluding current
installments:
First mortgage bonds payable 194,139,000 235,101,000
CoBank bonds payable 113,167,339 70,816,699
307,306,339 305,917,699
Current liabilities:
Note Payable 10,000,000 -
Current installments of long-term debt and
capital leases 6,359,323 6,088,802
Accounts payable 7,403,429 8,838,757
Consumer deposits 1,053,044 993,616
Accrued interest 5,888,908 6,722,325
Salaries, wages and benefits 3,999,353 3,755,837
Fuel 3,628,511 5,362,713
Other 924,490 1,318,947
Total current liabilities 39,257,058 33,080,997
Deferred credits 24,168,428 28,069,458
$ 491,309,033 $ 481,091,450
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
5
CHUGACH ELECTRIC ASSOCIATION, INC.
Statements of Revenues, Expenses and Patronage Capital
<TABLE>
Three months ended June 30 Six months ended June 30
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenues $ 32,307,980 $ 33,581,288 $ 71,732,217 $ 72,605,503
Operating expenses:
Production 9,236,413 10,834,413 19,999,540 22,679,791
Purchased power 1,888,126 2,023,671 3,756,648 4,260,866
Transmission 989,950 655,767 1,662,444 1,276,620
Distribution 2,218,302 2,329,226 4,232,671 4,491,893
Consumer accounts 1,177,678 1,110,510 2,206,424 2,198,748
Sales Expense 371,758 - 718,995 -
Administrative,
general and other 5,577,579 4,101,796 10,333,073 7,946,433
Depreciation and
amortization 5,574,140 5,751,095 10,746,024 11,473,281
Total operating
expenses 27,033,946 26,806,478 53,655,819 54,327,632
Interest:
On long-term debt 5,977,506 6,301,510 11,903,449 12,680,768
Other 147,425 43,817 357,495 70,264
Charged to
construction - credit(175,925) (175,145) (180,530) (354,909)
Net interest
expense 5,949,006 6,170,182 12,080,414 12,396,123
Net operating margins (674,972) 604,628 5,995,984 5,881,748
Nonoperating margins:
Interest income 153,403 181,461 299,753 366,806
Other 16,974 52,624 25,959 351,628
Total nonoperating
margins 170,377 234,085 325,712 718,434
Assignable margins (504,595) 838,713 6,321,696 6,600,182
Patronage capital at
beginning of period 116,435,644 110,529,644 109,622,996 104,800,092
Retirement of capital
credits and
estate payments (60,354) (42,775) (73,997) (74,692)
Patronage capital
at end of period $115,870,695 $111,325,582 $115,870,695 $111,325,582
</TABLE>
See accompanying notes to unaudited financial statements.
6
CHUGACH ELECTRIC ASSOCIATION, INC.
Statement of Cash Flows
<TABLE>
Six months ended June 30
1999 1998
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Assignable margins $ 6,321,696 $ 6,600,182
Adjustments to reconcile assignable margins
to net cash used in operating activities:
Depreciation and amortization 10,746,024 11,473,281
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 6,795,909 9,861,083
Prepayments (365,965) (663,258)
Materials and supplies (1,621,920) (415,608)
Deferred charges (11,661,607) (3,307,373)
Other (114,060) 117,515
Increase (decrease) in liabilities:
Accounts payable (1,435,328) (1,969,579)
Consumer deposits 59,428 (85,012)
Accrued interest (833,417) (144,726)
Deferred credits (3,901,030) (704,476)
Other (1,885,143) (2,678,398)
Total adjustments (4,217,109) 11,483,449
Net cash provided by operating
activities 2,104,587 18,083,631
Cash flows from investing activities:
Extension and replacement of plant (7,559,242) (6,393,276)
Investments in associated organizations (917) (139,452)
Net cash used in investing
activities (7,560,159) (6,532,728)
Cash flows from financing activities:
Short-term borrowings, net 10,000,000 -
Net proceeds and repayments of long-term debt 1,659,162 (5,782,534)
Retirement of patronage capital (73,997) (74,692)
Other 306,213 (25,853)
Net cash provided by (used)in
financing activities 11,891,378 (5,883,079)
Net increase (decrease) in cash and
cash equivalents 6,435,806 5,667,824
Cash and cash equivalents at beginning of period 2,312,574 5,224,529
Cash and cash equivalents at end of period $ 8,748,380 $ 10,892,353
</TABLE>
See accompanying notes to unaudited financial statements.
7
<PAGE>
CHUGACH ELECTRIC ASSOCIATION, INC.
Notes to Financial Statements
June 30, 1999
(Unaudited)
1. Presentation of Financial Information
During interim periods, Chugach Electric Association, Inc. (Chugach)
follows the accounting policies set forth in its audited financial statements
included in Form 10-K filed with the Securities and Exchange Commission.
Users of interim financial information are encouraged to refer to footnotes
contained in Form 10-K when reviewing interim financial results. Management
believes that the accompanying interim financial statements reflect all
adjustments which are necessary for a fair statement of the results of the
interim period presented. All adjustments made in the accompanying interim
financial statements are of a normal recurring nature.
2. Lines of Credit
Chugach maintains a line of credit of $35 million with National Bank for
Cooperatives(CoBank). The CoBank line of credit expires August 1, 1999, but
carries an annual automatic renewal clause. At June 30, 1999, $10 million was
outstanding on this line.In addition, the Association has an annual line of
credit of $50 million available at the National Rural Utilities Cooperative
Finance Corporation (NRUCFC).At June 30, 1999,there was no outstanding balance
on this line of credit.The NRUCFC line of credit expires October 14, 2002.
3. Change in Accounting Policy
Effective January 1998 Chugach changed its accounting policy for
depreciation of general plant (excluding buildings, leasehold improvements
and vehicles). Under the new vintage group method the assets are amortized over
their service lives and retired as a group at the end of the amortization
period.The amortization periods were developed as part of the recent
depreciation study update. At January 1, 1998, the affected asset group made up
2.8% of Electric Plant in Service. In conjunction with adoption of the new
depreciation methodology, Chugach wrote off approximately $19 million of plant
considered to be fully depreciated. Depreciation expense for the affected asset
groups is estimated to be $1.7 million lower annually. Buildings, leasehold
improvements and vehicles will continue to be depreciated over their estimated
useful lives based on rates developed in periodic depreciation studies.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Unaudited)
GENERAL
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, and referenced, in Item 5 of Part II
with respect to the Matanuska Electric Association, Inc. (MEA) proposal.
RESULTS OF OPERATIONS
Current Year Quarter Versus Prior Year Quarter
Operating revenues, including sales of electric energy to retail, wholesale and
economy energy customers and other miscellaneous revenues, decreased by 3.8% for
the quarter ended June 30, 1999, over the same quarter in 1998. The decrease in
revenues is largely attributable to lower fuel costs recovered during the second
quarter 1999 versus the same period last year.
Retail demand and energy rates did not change from the second quarter of 1999
compared to the same period in 1998. Wholesale demand and energy rates charged
to Homer Electric Association, Inc. (Homer) and Matanuska Electric Association,
Inc. (MEA) declined .30% and 4.1%, respectively, from second quarter 1998 to
second quarter 1999.
Pursuant to a Settlement Agreement with Alaska Electric Generation and
Transmission Cooperative, Inc. (AEG&T/MEA/Homer), Chugach may be required to
grant a refund to AEG&T/MEA/Homer retroactive to January 1, 1997, (based on the
1996 test year filing). A provision for wholesale rate refunds of approximately
$980,000 and $993,000 was recorded at December 31, 1997 and December 31, 1998,
to accommodate certain rate adjustment clauses contained in the Settlement
Agreement. Year-to-date June 1999, refund provisions total approximately
$460,000. Determination of the final refund amounts awaits final Regulatory
Commission of Alaska (RCA) (formerly the Alaska Public Utilities Commission
(APUC)) approval of the 1996 test year filing. In June 1999 the RCA approved
Chugach's 1996 revenue requirement filing on an interim and refundable basis.
As a result of the approval, the wholesale base demand and energy rates charged
to Homer and MEA decreased 0.30% and 4.0%, respectively.
In 1998, Chugach and the City of Seward signed a new ten-year power sales
agreement. The new power sales agreement, that was approved by the RCA in
June 1999, with a retroactive
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effective date of September 1998 contains a provision that allows Chugach to
interrupt Seward at certain times during the year. As a result of the new power
sales agreement, revenues derived from sales to Seward will decline
approximately $350,000 annually. Although the contract signed by the parties
establishes a ten-year term, the RCA approved the contract only for a period of
three years from September 11, 1998.
Chugach and AEG&T entered into the Nikiski Cogeneration Plant System Use and
Dispatch Agreement (Dispatch Agreement). Under the Dispatch Agreement, Chugach
will operate and dispatch AEG&T's Soldotna Unit 1 generation facility that AEG&T
proposes to move to Nikiski on the Kenai Peninsula. The Dispatch Agreement will
allow the Unit to be used more efficiently in Chugach's operations, which in
turn will promote resource conservation. The APUC approved the Dispatch
Agreement effective May 14, 1999.
To accommodate the Dispatch Agreement, Chugach approached its four natural gas
suppliers - - Marathon Oil Company, ARCO Beluga, Inc., Chevron U.S.A. Inc., and
the Municipality of Anchorage d/b/a Municipal Light & Power -- with proposed
contract amendments. The amendments generally recognize the small anticipated
shift in gas use from the Beluga Power Plant to the relocated generation unit.
Also, the amendments to the ARCO, Chevron, and Municipal Light & Power contracts
address a hypothetical situation that could reduce Chugach's gas purchases from
those suppliers. The amendments give each such supplier the right to offset the
reduction, by exercising an option to increase gas sales to Chugach if the
situation occurs. Marathon, ARCO, and Chevron have accepted their respective
amendments. Municipal Light & Power has not responded to Chugach's offer;
however, its acceptance ofthe amendment is not essential to Chugach's
performance under the Dispatch Agreement. TheRCA approved the contract
amendments effective July 16, 1999.
Power production expense was lower for the quarter ended June 30, 1999, compared
to the same period in 1998. This variance is largely due to a decrease in fuel
prices, in addition to the lower kWh sales mentioned above. Transmission
expense was higher during second quarter 1999 versus 1998 due to increased line
clearing activity and a change in the focus of substation maintenance activities
from distribution in 1998 to transmission in 1999. Distribution expense
decreased for the quarter ended June 30, 1999, versus the same period last year.
This decrease is due to the change in substation maintenance focus mentioned
above andthe adoption of a reliability-centered maintenance program in 1999.
Consumer accounts and sales expense increased in second quarter 1999 versus
second quarter 1998 due to the addition of new business ventures in 1999.
Administrative, general, and other expenses increased for the three month period
ended June 30, 1999. This increase was substantially due to the amortization of
maintenance costs related to the Year 2000 (Y2K) compliant financial software
that was implemented in 1998.
Interest expense continued to decrease during the quarter due to the refinancing
of $34.9 million of 9.14% Series A First Mortgage Bonds that occurred in the
first quarter of 1999.
10
<PAGE>
Current Year to Date Versus Prior Year to Date
Operating revenues for the six-month period ended June 30, 1999, decreased
relative to the same period in 1998. These lower revenues were essentially due
to the same reasons outlinedin the quarter-to-date comparison section.
Power production and distribution expenses decreased and transmission, consumer
accounts, sales and administrative, general and other expenses increased for the
six-month period ended June 30, 1999, for essentially the same reasons outlined
in the quarter-to-date comparison section. Purchased power expense is lower for
the six-month period ended June 30, 1999, compared to the same period last year.
This variance is due to the system operating scenario that has existed in 1999.
Due to the decrease in the fuel prices this year, it was proven moreeconomical
to generate power at the Bernice Lake plant to ensure reliability on the Kenai
Peninsula, rather than purchase power from AEG&T's Soldotna 1 plant.
Depreciation expense was lower for the six-month period ended June 30, 1999,
compared tothe same period last year due to an adjustment done in the first
quarter 1999 as a result of theunitization of a capital project that was
completed in 1997.
Financial Condition
Total assets increased by 2.1% from December 31, 1998 to June 30, 1999. The
increase is dueprimarily to an increase in cash from short-term borrowings and
deferred charges. The increase in deferred charges is largely due to project
costs related to the repowering of Belugaunits 6 & 7 that is scheduled to be
complete in 2004. The contract for this project was awarded to ABB Power
Generation and the first milestone payment made in April 1999. Adecline in
accounts receivable was primarily caused by paydowns received on the
undercollected fuel surcharge balance and the payment of wholesale power bills
that were accrued but not paid at December 31, 1998. Notable changes to total
liabilities include an increase in notes payable due to short-term borrowings
from CoBank and in increase in CoBank bonds resulting from the issuance of
CoBank 6 in the amount of $42.5 million on March 30, 1999. Offsetting the
increase in CoBank bonds was a decrease in first mortgagebonds resulting from
the March bond payment and Chugach's purchase of first mortgage bonds.
Additionally, the account payable in respect of fuel decreased due to declining
fuel prices and accrued interest decreased as a result of the March semi-annual
bond payment.
Liquidity and Capital Resources
Chugach has satisfied its operational and capital cash requirements primarily
through internally generated funds, an annual $50 million line of credit from
NRUCFC and a $35 million line of credit with CoBank. At June 30, 1999, Chugach
had $10 million outstanding on the CoBank line of credit which carried an
interest rate of 5.80%. There was no balance outstanding with NRUCFC at
June 30, 1999.
Capital construction in 1999 is estimated at $36.6 million. At June 30, 1999,
approximately $7.6 million has been expended. Capital improvement expenditures
are expected to increase in the upcoming third quarter as the construction
season extends into October.
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In 1998 Chugach negotiated a supplemental indenture (Seventh Supplemental
Indenture of Trust) with CoBank that previously allowed up to $80 million in
future bond financing. Chugach finalized an amendment to the Third Supplemental
Indenture of Trust (Seventh Supplemental Indenture of Trust) that eliminated the
maximum aggregate amount of bonds the Company may issue under the agreement.
At June 30, 1999, Chugach had bonds in the amount of $113.6 million outstanding
under this financing arrangement. The balance is comprised of a $1.01 million
bond (CoBank 1) which carries an interest rate of 8.95% maturing in 2002, a $10
million bond (CoBank 2) priced at 7.76% due in 2005, a $21.5 million bond
(CoBank 3), currently priced at 5.60% (repriced periodically), a $23.5 million
bond (CoBank 4) currently priced at 5.60% (also repriced periodically), a $15
million bond (CoBank 5) currently priced at 5.60% (also repriced periodically)
due in 2002, 2007 and 2012 and a $42.5 million bond (CoBank 6) carrying a
variable interest rate currently priced at 6.05% (as of July 1999). CoBank 6
matures March 15, 2002. 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 June 30, 1999, there were no amounts outstanding
under this financing arrangement.
On March 17, 1999, Chugach entered into a Treasury rate-lock transaction with
Lehman Brothers Financial Products Inc. (Lehman Brothers) for the purpose of
taking advantage of favorable current market interest rates in anticipation of
refinancing Chugach's Series A Bonds Due 2022 on their first call date
(March 15, 2002). Under the Treasury rate-lock contract,Chugach will receive a
lump-sum payment from Lehman Brothers on March 15, 2002, if the yield on 10- or
30-year Treasury bonds as of mid-February 2002, exceeds a specified target level
(5.653% and 5.838%, respectively). Conversely, Chugach will on the same date be
required to make a payment to Lehman Brothers if the yield on the 10- or 30-year
Treasury bonds falls below its stated target yield. The amount of the payment
will increase as the difference between the actual yield and the target yield
increases. For each basis point (0.01% per annum) by which the yield on 10-year
or 30-year Treasury bonds deviates from the stated target level, Chugach will
receive (if the Treasury yield exceeds the target yield) or make (if the
Treasury yield falls short of the target yield) a payment equal to the product
obtained by multiplying (i) the amount of deviation (expressed in basis points)
by (ii) the changes in the prices of $196 million (in the case of 10-year
Treasury bonds) and $18.7 million (in the case of the 30-year Treasury bonds) of
Treasury bonds, given a one basis point change in their respective yields
(determined with reference to the Bloomberg Financial Market's Government Yield
Analysis Page). In this way, Chugach intends that higher interest costs
resulting from increases in market interest rates prior to refinancing of
Chugach's long-term debt would be mitigated by a lump-sum, up-front payment to
Chugach at the time of the refinancing.
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 1999 and thereafter.
12
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YEAR 2000
Readiness Information
Chugach has recognized the need to investigate, test and remediate, if necessar
, the critical systems and equipment under its control which could cause power
and business disruptions in conjunction with what are collectively called Y2K
dates. Chugach has an active program underway that should be completed by the
fall of 1999.
Chugach expects to fund its Y2K project internally and estimates it will incur
between $10 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 $9.8 million for Y2K projects through June 30, 1999. Of this
total, $9.5 million was expended in business system Y2K conversions, all of
which has been capitalized. Another $233,000 was expended on real time system
Y2K inventory and assessment activities, all of which has been expensed.
Chugach's Y2K readiness project is divided along functional lines (real time and
business systems) and each area is at a different point of completion.
Chugach's real time system 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 th 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 developedfor 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.
System testing at Chugach's four power plants is complete. 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 is 95% complete
for each of these systems.
Chugach business systems Y2K readiness activities were substantially 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 remaining, non-critical
financial subsystem needing to be converted in 1999 is the Budget Preparation
subsystem (to be completed by September 1, 1999). Chugach is also updating the
Work Management subsystems. Finally, all the hardware connected to Chugach's
business systems area-wide network have been tested and found to be Y2K ready.
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The business systems team has developed contingency plans in the event of any
failure. These plans are being reviewed by third party software vendors to
ensure plan viability. Each contingency plan includes on-site vendor
representation at December 31, 1999.
The Purchasing Department asked every vendor for a statement regarding their Y2K
readiness. All responses were due by the end of April 1999. Review of each
individual vendor's response is in progress. If after review, it is determined
that the vendor will not be Y2K compliant by year-end, Chugach will determine if
it will continue its relationship with that vendor. This task is currently 40%
complete and is scheduled for completion in August, 1999.
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.
Contingency planning is in progress and currently 45% complete for the real time
systems. 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.
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 strategic plan. In this plan, priority issues
are identified that are critical to the Company's success. Updated key result
area targets were developed thattrack 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
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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 customers' 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 International
Brotherhood of Electrical Workers (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 binding
interest arbitration. The IBEW cannot strike and Chugach cannot lockout under
the continuing agreement. As of June 30, 1999, negotiations of all three
agreements was ongoing. The parties began preparing for fact finding before a
third party arbitrator, which is scheduled for October and November, 1999 on
remaining open issues. If the parties remain unable to agree, an arbitration
hearing is scheduled for February, 2000.
ENVIRONMENTAL MATTERS
Compliance with Environmental Standards
Chugach's operations are subject to certain federal, state and local
environmental laws that 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.
Environmental Matters
Reference is made to Part II, Item 1 for discussion of the status of the
Standard Steel Salvage Yard Site litigation.
Item 3. 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. 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,
15
<PAGE>
nor are any derivative instruments outstanding at June 30, 1999.
Chugach does not hold or issue derivative financial instruments for trading
purposes. Chugach has a single derivative financial instrument - a Treasury
Rate Lock (as more fully described on page 12 of this 10-Q).
Interest rate risk - As of June 30, 1999, except for CoBank 6 which carries a
variable interest rate that is periodically repriced, Chugach's outstanding
borrowings from CoBank were at fixed interest rates with varying maturity dates.
At maturity, these bonds can be repriced and a new maturity date established.
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):
<TABLE>
Fair
<S> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 Thereafter Total Value
Long-term debt,
including current portion $ 143 $6,37 $6,430 $52,910 $5,907 $241,904 $313,666 $333,665
</TABLE>
Commodity price risk - Chugach's gas contracts provide for adjustments to gas
prices based on fluctuations of certain commodity prices and indices.
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.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Standard Steel Salvage Yard Site (the 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
16
<PAGE>
on Chugach's financial condition or results of operations.
Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.
U-98-180
Reference is made to Item 5 (Other Information) with respect to the unsolicited
acquisition proposal by MEA. On December 2, 1998, MEA filed a complaint with
the RCA. In the Matter of the Formal Complaint filed by MATANUSKA ELECTRIC
ASSOCIATION, INC. Against CHUGACH ELECTRIC ASSOCIATION, INC., U-98-180. MEA
alleges that Chugach has engaged in "unreasonable management practices" in the
management of the Series A Bonds. The complaint asks the RCA 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 RCA 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 RCA should not
open an investigation on the grounds that MEA's allegations do not implicate the
kinds of management decision into which it is appropriate for the RCA 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 filed additional motions regarding the pleadings
of the other party.
The APUC took no action in this matter except to convene an informal status
conference on April 30, 1999. If the RCA 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 costs of its
participation should the case proceed.
Reference is made to the information (which is incorporated by reference herein)
set forth under Item 5 of the Form 8-K filed by Chugach on July 28, 1999,
(the "July 1999 8-K") with respect to (among other matters) a complaint filed by
MEA against Chugach in Anchorage Superior Court. The caption on that case is
Matanuska Electric Association, Inc. v. Chugach Electric Association Inc.,
Case No. 3AN-99-8152C. On July 26, 1999, MEA amended its complaint and filed a
motion for preliminary injunction in that action seeking a court order
requiring Chugach to (a) immediately advise its members that the ballots
distributed on or about July 23, 1999, in connection with the special meeting of
members that Chugach has called for November 18, 1999 to consider and vote on
MEA's unsolicited proposal to acquire the assets and assume the liabilities of
Chugach (the "MEA Proposal") are void (see Item 5 of Part II of this Report),
and (b) issue a new ballot package after the August 24, 1999 public hearing
which Chugach has scheduled in connection with the special membership meeting,
pursuant to procedures to be negotiated with MEA. The Court heard arguments on
MEA'smotion on August 6, 1999. In a bench ruling the same day, the Court denied
all relief sought by MEA. It required only that Chugach modify for this meeting
its standard voting procedure to allow members who have voted to change their
vote by requesting and returning by mail a replacement ballot by Chugach's
established deadline of 12:00 p.m., November 15, 1999, orby voting in person at
the special meeting, with the last dated vote being counted.
17
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Unsolicited Acquisition Proposal by Matanuska Electric Association, Inc.
Reference is made to the information (which is incorporated by reference herein)
set forth, with respect to the above captioned matter, in (a) Item 5 of the
July 1999 8-K and (b) Item 1 of Part II of this Report.
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 of Directors of Chugach ("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
ofthe 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 becompelled to approve the sale of Chugach's assets to MEA
under the MEA proposal if two-thirds of Chugach's members voting at the
scheduled special meeting of the members approved the ballot proposal (which is
set forth under Item 5 of the July 1999 8-K) 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 Chugach's members will approve the MEA proposal by the
required supermajority vote at the scheduled 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 RCA.
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.
18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Nikiski Cogeneration Plant System Use and Dispatch Agreement between
Chugach Electric Association, Inc. and Alaska Electric Generation and
Transmission Cooperative, Inc.
Agreement for the Sale and Purchase of Electric Power and Energy
between Chugach Electric Association, Inc. and the City of Seward
Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas
between Chugach Electric Association, Inc. and ARCO Beluga, Inc.
Amendatory Agreement No. 5 To Agreement for the Sale and Purchase of
Natural Gas between Chugach Electric Association, Inc. and Marathon
Oil Company
Amendment No. 3 To Agreement for the Sale and Purchase of Natural Gas
between Chugach Electric Association, Inc. and Chevron U.S.A. Inc.
Financial Data Schedule
(b) Reports on Form 8-K:
Reference is made to the July 1999 8-K (as defined in Item 3 of Part
II of this report), which discussed the special meeting of members
scheduled by Chugach for November 18, 1999, to consider and vote on
the MEA proposal, the public hearing scheduled by Chugach for August
24, 1999, in connection with the special meeting, and other
matters related to MEA including certain litigation filed by MEA.
19
<PAGE>
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: August 13, 1999
By: /s/ Evan J. Griffith, Jr.
Evan J. Griffith, Jr.
Executive Manager, Finance & Energy Supply
Date: August 13, 1999
20
<PAGE>
EXHIBITS
Listed below are the exhibits which are filed as part of this Report:
<TABLE>
<S> <C> <C>
Exhibit
number Description Page
10.70 Nikiski Cogeneration Plant System Use and Dispatch Agreement
between Chugach Electric Association, Inc. and Alaska Electric
Generation and Transmission Cooperative, Inc. 22
10.71 Agreement for the Sale and Purchase of Electric Power and
Energy between Chugach Electric Association, Inc. and the City
of Seward 44
10.72 Amendment No. 2 to Agreement for the Sale and Purchase of
Natural Gas between Chugach Electric Association, Inc. and
ARCO Beluga, Inc. 67
10.73 Amendatory Agreement No. 5 To Agreement for the Sale and
Purchase of Natural Gas between Chugach Electric Association,
Inc. and Marathon Oil Company 75
10.74 Amendment No. 3 To Agreement for the Sale and Purchase of
Natural Gas between Chugach Electric Association, Inc. and
Chevron U.S.A. Inc. 80
27 Financial Data Schedule **
</TABLE>
** Filed Electronically
<PAGE>
NIKISKI COGENERATION PLANT SYSTEM USE AND DISPATCH AGREEMENT
Page 1
NIKISKI COGENERATION PLANT SYSTEM USE
AND
DISPATCH AGREEMENT
Parties: Alaska Electric Generation and Transmission Cooperative, Inc.
Chugach Electric Association, Inc.
<PAGE>
NIKISKI COGENERATION PLANT SYSTEM USE AND DISPATCH AGREEMENT
08/11/99 Page 7
NIKISKI COGENERATION PLANT SYSTEM USE
AND DISPATCH AGREEMENT
Article I. Purpose
1.1 The Nikiski Cogeneration Plant System Use and Dispatch
Agreement has three broad purposes; first, to ensure that
Nikiski Cogeneration Plant electrical power is dispatched to
meet the essential purpose of providing additional capacity
for the HEA system when needed, second, provide for the
economic operation of the Unit by placing it in continuous,
full load operation and to make the power available for
Chugach system use and third to grant to Chugach the right
to provide dispatch service for disposition of the Unit.
Article Il. Parties
2.1 The Parties to this Agreement are Chugach Electric
Association, Inc. (Chugach), an Alaska non-profit electric
cooperative membership corporation with offices at 5601
Minnesota Drive, P.O. Box 196300, Anchorage, Alaska
99519-6300, and Alaska Electric Generation and Transmission,
Inc. (AEG&T), the mailing address of which is 3977 Lake
Street, Homer, Alaska 99603.
Article Ill. Recitals
3.1 Chugach owns and operates electric generation, transmission
and distribution facilities;
3.2 Chugach owns and operates a remote control system to control
its facilities known as a supervisory control and data
acquisition system (SCADA);
3.3 AEG&T, whose members include Homer Electric Association, Inc.
(HEA), is a Generation and Transmission Cooperative which both
owns and operates generation facilities and purchases power
from Chugach in order to supply the power requirements of
of AEG&Ts members:
3.4 AEG&T supplies power to HEA which AEG&T purchases from Chugach
through a take-or-pay Agreement for Sale of Electric Power
and Energy which currently provides for the sale and purchase
of 73 MW of capacity with the minimum associated energy of not
less than 350,000 MWH per year;
3.5 AEG&T currently owns and operates a General Electric Frame 6
gas turbine power plant known as the Soldotna No. 1 Plant,
equipped with its own remote terminal unit (RTU) which is
compatible with Chugach's SCADA equipment;
3.6 AEG&T will move the generator and turbine from the Soldotna
No. 1 Plant, to the agricultural products plant owned by Kenai
Fertilizer Company LLC (KFC), which is located near Nikiski,
Alaska all in general accordance with agreements between AEG&T
and KFC to develop the "Nikiski Cogeneration Plant"(the Unit);
3.7 Economic operation of the Unit will be enhanced by base load
operation;
3.8 The parties have determined that Chugach can operate the Unit
as a Chugach system resource (subject to conditions specified
in this agreement), and that such operation is of benefit to
Chugach, AEG&T and HEA, and Chugach is willing to do so;
3.9 Base load operation of the Unit as a Chugach system resource,
as provided for in this
agreement, will allow AEG&T/HEA to economically purchase
energy requirements from Chugach in excess of the current HEA
obligations;
3.10 Base load operation of the Unit will also eliminate the need
for Chugach to operate its Bernice Lake facility to provide
reliability under normal operating conditions, thereby
maintaining the current level of electric service reliability
to the Kenai Peninsula at a reduced cost to Chugach and its
wholesale customers;
3.11 AEG&T desires to maximize the economic benefits to AEG&T of
owning the Unit by entering into this Agreement to secure
necessary dispatch services to reliably dispatch the Unit,
and make available the Unit for operation as an integral part
of the Interconnected System;
3.12 Chugach desires to supply the dispatch services, and AEG&T
desires to obtain those services from Chugach under the terms
and conditions of this Agreement;
3.13 AEG&T and Chugach desire to have the Unit available for the
Interconnected System use as outlined in this Agreement;
3.14 All Parties intend that AEG&T shall remain the owner of the
Unit and that AEG&T shall remain responsible for the Unit in
all respects consistent with that ownership, including but
not limited to responsibility for all operations,
maintenance, debt, and repairs.
Article IV. Definitions
AEG&T Fuel: The quantity of fuel consumed by the Unit to provide for AEG&T
Use.
AEG&T Use: Operation of the Unit whether initiated by Chugach or requested by
HEA or AEG&T, to provide capacity and energy to HEA in excess of the
capacity required to be purchased and sold under the Chugach
Wholesale Power Agreement, or in lieu of any portion of such
capacity as Chugach may be unable or unwilling to supply.
Agreement: This Nikiski Cogeneration Plant System Use and Dispatch Agreement.
Banked Fuel: A quantity of natural gas fuel equal to the difference between (a)
the quantities of HEA Fuel and AEG&T Fuel estimated for the
preceding year in accordance with Section 7.9(b), and (b) the
actual quantities of AEG&T Fuel and HEA Fuel which AEG&T had the
right under this Agreement to supply for such year.
Base Load: Operation of the Unit at a steady level as close to the maximum
capacity (MW) of the Unit as possible without violating any Unit
operating restrictions.
Chugach Unit Fuel Price: The price paid by Chugach under the terms of the
Marathon Contract for natural gas delivered to its
Bernice Lake facility, until the supply available
under the Marathon Contract is exhausted, and
then, the highest of (a) the average price then paid
for natural gas by Chugach, less transportation
charges, (b) the average price of natural gas
delivered to the Chugach Beluga facility, or (c) the
current price charged by Chugach to AEG&T for natural
gas supplied pursuant to Section 9.2(b)(2).
Chugach Use: Dispatch of the Unit initiated by Chugach for any and all Chugach
power commitments to retail and wholesale consumers including
AEG&T and HEA. Chugach Use includes operation for resale to
Homer Electric Association under the terms of the Chugach
Wholesale Power Agreement.
Chugach Wholesale Power Agreement: The Agreement for Sale of Electric Power
and Energy between Chugach, AEG&T and HEA,
bearing signatures dated September 1985.
Date of Commercial Operation: The date when HEA in the exercise of reasonable
professional judgment declares the Unit to be
commercially operable.
Effective Date: The date on which this Agreement is last executed by all
parties, subject to Chugach obtaining gas contract amendments
acceptable to Chugach from Marathon, ARCO, Chevron and
(if necessary) ML&P and any required Jurisdictional Reviews.
HEA Fuel: HEA Fuel as the term is defined in section 7.9(b)(ii) of this
Agreement, but in no event less than zero.
Interconnected System: The entire interconnected generation, transmission, and
distribution system in the Railbelt Region of Alaska.
Jurisdictional Reviews: The approval in writing of any governmental entity,
regulatory body, or lender, the approval of which is
required at the time in order for this Agreement or any
amendment or modification thereof to become effective.
KFC: The Kenai Fertilizer Company LLC, an Alaska Limited Liability Company, or
any successor entity.
KFC Agreement: An agreement entered into between KFC and AEG&T in connection
with the construction or operation and maintenance of the Unit.
KFC Plant: The agricultural products plant near Nikiski, Alaska operated by KFC
and formerly known as the Unocal Plant.
Marathon Contract: The Agreement for the Sale and Purchase of Natural Gas
between Chugach and Marathon Oil Company dated September
26, 1988.
Operation and Maintenance (or O&M) Services: Those activities, whether
performed on-site or off-site of
a generating unit, including,
but not limited to, routine
acquisition of consumables,
facility upkeep, inspections,
overhauls, replacements, and
record keeping associated with
retention of continuous
operating availability,
timely completion of repairs,
and prudent oversight of
generating assets.
Output of the Unit: The total electrical energy produced by the Unit at any
given time.
Point of Interconnection: The 115 kV side of the Units step-up transformer.
Regular Working Hours: The hours between 8:00 a.m. and 5:00 p.m., Monday
through Friday, except State legal holidays.
SCADA System: A computerized control and telecommunications system which
includes computer hardware and software, sensing equipment,
telecommunications equipment, and all associated equipment and
facilities. SCADA is an acronym for Supervisory Control and Data
Acquisition.
Spin: The portion of generation capacity related to base load capability, when
the Unit is in operation and synchronized with the transmission network
that is in excess of the Output of the Unit.
Unit: That portion of the Nikiski cogeneration plant which consists of a
General Electric Frame 6 simple cycle combustion turbine, generator and
switchyard including step-up transformer.
All other terms not specifically defined herein shall have those definitions as
listed in the Alaska Intertie Agreement dated December 23, 1985, among The
Alaska Power Authority (now known as Alaska Energy Authority), ML&P, Chugach,
GVEA, AEG&T, and others, as amended from time to time.
Article V. Term
5.1 This Agreement shall become effective on the Effective Date
and shall terminate concurrently with the Chugach Wholesale
Power Agreement; provided, that this Agreement may be extended
at any time by the written consent of the parties.
Article VI. Scope of Services
6.1 Chugach shall provide the dispatching services under this
Agreement in the following order of priority:
a) AEG&T Use;
b) Chugach Use;
c) The reserves which AEG&T may be obligated to provide,
if any.
6.2 During the term of this agreement, Chugach will Base Load the
Unit when it is made available by AEG&T. The only exceptions
are
a) When the Unit is operated for an AEG&T Use
(priority 6.1.a);.
b) When the Kenai Peninsula is islanded due to the loss of
all interconnected transmission lines, the Unit load may
be reduced to 30 MW or other mutually agreed upon value,
until such time as the Kenai Peninsula is again
interconnected with the Interconnected System;
c) When Bradley Lake is experiencing spill and transmission
constraints cannot handle full output of both Bradley
Lake and the Unit, Unit output will be reduced or AEG&T
will direct the HEA/AEG&T share of Bradley Lake be
reduced accordingly;
d) During system emergencies such as gas supply emergencies,
volcanic activity, or Kenai Peninsula transmission system
outages, Unit output will be reduced at the reasonable
discretion of the dispatcher until a mutually acceptable
operating level can be determined;
and
e) As the parties may establish by written agreement.
It is expected that Chugach will operate the Unit
approximately 8000 hours per year at the declared capability
of the Unit, as defined in the Alaska Intertie Agreement.
6.3 Unit availability for any use will be limited by scheduled
and unscheduled maintenance, only. AEG&T will use its best
efforts to minimize scheduled and unscheduled downtime in a
manner consistent with continuous duty of the Unit.
6.4 When the Unit operates for AEG&T Use exclusively, Chugach
will be allocated all spin in excess of that required by
AEG&T. In the event Chugach does not choose to acquire the
spin, AEG&T is free to market the spin to others.
6.5 Operating Restrictions for the Unit are:
a) Normal Use:
Unit minimum load 6 MW
Unit minimum up time none
Start up restrictions none
b) Emergency Use:
Unit minimum load minimum
controllable
Unit minimum up time none
Start up restrictions none
c) At any time, AEG&T reserves the right to restrict
Unit operations and/or generated output levels to
less than rated for reasons of safety or operational
status. AEG&T will exert best efforts to take timely
actions required to correct the cause of the
restriction.
d) If AEG&T adopts operating restrictions less
restrictive than those listed in Section 6.5(a) for
any unit disposition covered by AEG&T Use other than
serving HEA load, then the same operating
restrictions shall replace those in Section 6.5(a).
6.6 This Agreement does not obligate Chugach to provide any sales
of electrical power and energy to AEG&T for service to HEA in
excess of Chugach's obligation under the Chugach Wholesale
Power Agreement.
Article VII. Other Rights and Obligations
7.1 The parties agree to interface their telecommunications
systems at the Bernice Lake PoweR Plant; specifically, at the
Chugach Main Distribution Frame terminal strip in the Chugach
telecommunications building. AEG&T shall maintain a suitable
telecommunications link between Bernice Lake Power Plant and
the Unit. AEG&T shall maintain a communication system with
the necessary interfaces to interconnect with the Chugach
microwave system and shall be solely responsible for the costs
associated with the maintenance of the equipment owned by
AEG&T. The use of both parties' communication systems will be
as a single system. However, no payment shall be due either
party for use of its communication system by the other
provided the use is part of the services contemplated by this
Agreement.
7.2 Chugach shall allow AEG&T to maintain an existing eight (8)
foot diameter antenna at the 135-foot elevation of Chugach's
telecommunications tower at Bernice Lake Power Plant. Chugach
shall supply 120 Volt A-C power to a circuit breaker in a
panel in Chugach's telecommunication building for use by AEG&T
as a power supply for AEG&T's telecommunications equipment.
Chugach shall allow AEG&T to maintain an existing
telecommunications building within the vicinity of the base of
the tower and utilize the existing telecommunications
electrical ground.
7.3 AEG&T shall maintain at its own expense all of the remote
terminal units (RTU's), telemetering equipment, or any other
equipment on its system that is necessary for Chugach to
operate and control the Unit using Chugach's existing
equipment. Such equipment shall be compatible and
suitable for interfacing with the Chugach SCADA system.
7.4 AEG&T shall classify all of the alarms on its SCADA system
under one (1) of the following four(4) classifications
1. Alarm Priority 1--Unit Trip
2. Alarm Priority 2--Trip Possible
3. Alarm Priority 3--Alarm-No Trip
4. Alarm Priority 4--Start Inhibit
Chugach shall display these alarms at the Chugach Power
Control Center through the Chugach SCADA system.
7.5 Chugach shall follow the Notification Procedures set forth in
Exhibit C.
7.6 AEG&T shall install and maintain any additional metering as
described in Exhibit B. Such metering shall be of the type and
quality needed to provide Chugach with the information
necessary to accomplish the monitoring, controlling,
recording, and reporting functions as outlined in Exhibit A.
Chugach shall not be required to add facilities on AEG&Ts
side of the Point of Interconnection. No new facilities
related to the provision of services under this Agreement will
be added by either party to its generation and transmission
system without proper metering. Upon the construction or
addition of any such new facilities the parties will
negotiate and prepare appropriate modifications to Exhibit B.
7.7 AEG&T is solely responsible for providing adequate system
protection for the Unit, including all protection required for
remote operations.
7.8 Operations and Maintenance:
a) The Parties agree to jointly plan annual maintenance
activities and schedules for generation facilities
located on the Kenai Peninsula, and involve each other
immediately when a need to change schedules is
identified.
b) AEG&T/HEA agrees to call on Chugach support when in-house
resources are insufficient to perform O&M work, and
utilize Chugach's expertise to provide technical and
management O&M Services when needed. Such support shall
be requested in advance of undertaking such O&M Services,
and scheduled and coordinated to the maximum extent
possible. Upon receipt by Chugach of a request for O&M
Services from AEG&T/HEA, Chugach will provide a cost
estimate for the requested services and Chugach will not
provide the services until AEG&T/HEA has considered the
cost estimate and authorized Chugach to proceed. This
Section 7.8(b) does not preclude AEG&T/HEA from enlisting
specified technical support and assistance from
suppliers of equipment associated with the Unit, such as
General Electric field engineers.
c) Should AEG&T elect to contract for the O&M Services for
the Unit other than with HEA, Chugach shall be given the
first right of refusal to provide such O&M Services. If
AEG&T requests an estimate, Chugach shall have 30 days to
provide an estimate for provision of such services.
Chugach shall have 30 days to match any bid or contract
offer being considered by the AEG&T board. If the
Chugach estimate is accepted, or if Chugach offers
to match any bid or contract, then Chugach shall be
awarded the O&M Services contract.
d) Any rights of Chugach or obligations of HEA under this
section 7.8 of this agreement are subject to AEG&Ts
agreement with KFC for performance of the operation and
maintenance of the Unit. Any such agreement will be
appended to this Agreement as Exhibit D.
7.9 Fuel Supply:
a) Except as herein provided Chugach will use its reasonabl
best efforts, to the extent tha natural gas is available
under Chugachs existing and replacement natural gas
contracts, to provide all natural gas fuel required to
operate the Unit. If Chugach at any time determines that
for whatever reason it may not be able to deliver fuel to
the Unit, it will immediately so advise AEG&T. For
Chugach gas delivered to the KFC Plant at meter no.106
connecting the KFC Plant to the Cook Inlet Gas Gathering
System or meter no. 414 connecting the KFC Plant to the
Kenai Pipeline System, AEG&T will provide transportation
of the fuel to the Unit at no additional cost.
b) Notwithstanding the foregoing, AEG&T shall have the
option to supply a portion of the fuel for the Unit in an
amount up to (i) the AEG&T Fuel plus (ii) the quantity of
fuel calculated on an annual basis as follows
(the HEA Fuel)
HEA Fuel (in mcf/year) = E (A-B) + F, where as to
the year D
A = Total MWh purchased by
AEG&T under the Chugach
Wholesale Power Agreement
B = 350,000 MWh
D = Total MWh generated by the
Unit for Chugach Use
(measured at the Units
13.8 kV bus)
E = Total fuel (in mcf) used in
the Unit for Chugach Use.
F = Banked Fuel.
Prior to the beginning of each calendar year AEG&T will
provide Chugach with an operating plan, including an
estimate of the quantity of HEA Fuel and the AEG&T Fuel
for that year. Chugach will cooperate in providing AEG&T
with information necessary to make such estimate. In
calculating the estimate, the values for A, D and E
will be based upon the operating plan for the year.
Except where this formula is used for projections, actual
data will be used based on the most recent calendar year.
c) During each hour that the Unit is operated for AEG&T Use,
AEG&T shall have the right to provide all fuel
requirements associated with that use.
d) During each hour that the Unit is operated for Chugach
Use, AEG&T shall have the right to provide a portion of
the fuel to the Unit in an amount up to the estimated HEA
Fuel for the year divided by the expected hours of Unit
operation during the year for Chugach Use, and Chugach
will utilize such amount, or any lesser amount as AEG&T
may direct in accordance with this Agreement. Prior to
the first day of each month AEG&T will notify Chugach as
to the percentage of the HEA Fuel and AEG&T Fuel that
AEG&T will provide to the Unit and Chugach will schedule
the fuel deliveries to the Unit accordingly. AEG&T will
be entitled to utilize any such lesser notification
period the Cook Inlet gas industry may afford for gas
balancing.
7.10 Purchase of Power: In addition to its 350,000 MWh purchase
obligation under the Chugach Wholesale Power Agreement, AEG&T
will purchase from Chugach in each calendar year after the
Date of Commercial Operation a quantity of energy (MWh) equal
to HEAs residual energy (MWh) requirements less the quantity
of energy (MWh) received by AEG&T as HEAs allocated share
under the Bradley Lake Hydroelectric Project Agreement for the
Sale and Purchase of Electric Power
and less the quantity of energy (MWh) generated for AEG&T Use;
provided, that the quantity of energy which AEG&T shall be
committed to purchase pursuant to this provision for its
residual energy requirements shall not exceed 320,000 MWh per
year. AEG&Ts purchase obligation under this provision shall
commence on the Date of Commercial Operation. Residual energ
is that energy used by HEA which is above the 350,000 MWh
purchase obligation under the Chugach wholesale power
agreement but does not include any energy supplied from
capacity used to supply demand in excess of 73 MW on the
Chugach system.
<PAGE>
Article VIII. Energy Accounting and Power Factor
8.1 The Chugach Dispatcher shall maintain records of the Unit
output between Chugach Use and AEG&T Use and keep running
accounts of the energy use for the Unit.
8.2 Chugach shall dispatch the Unit within the limitations
established by AEG&T from time to time.
Article IX. Compensation, Billing and Payment
9.1 All rights and costs of ownership of the Unit will remain with
AEG&T except as explicitly stated in this Agreement.
9.2 Chugach will pay compensation to AEG&T for use of the Unit
monthly as follows:
a) Chugach Use: For Chugach Use, Chugach shall pay AEG&T
monthly compensation ("C") equal to the cost of
operation and maintenance expense ("O") plus the
value of HEA Fuel actually delivered and consumed on
site ("V") which is expressed in the following
formula:
C = O + V
Where:
"C" is the compensation in dollars paid to AEG&T.
"O" shall be $5.00/MWh multiplied by the monthly MWh
electrical Output of the Unit for Chugach Use, as
measured at the 13.8 kV meter, multiplied by "A",
below.
A shall be an adjustment for inflation, to be
applied for each calendar year beginning on January
1, 1999. "A" shall be calculated as follows
A = .2(1+ppi) + .8(1+cpi)
Where
ppi is the percentage change, expressed as a
decimal, in the Producer Price Index of Metals
Commodities as published by the Bureau of Labor
Statistics of the United States Department of Labor,
for the month ending on January 31 of the year in
which the adjustment is made, as compared with such
index for the month ending January 31 of the
year preceding the date of the adjustment; and
cpi is the percentage change, expressed as a
decimal, in the U.S. Consumer Price Index for Urban
Wage Earners and Clerical Workers published by the
Bureau of Labor Statistics of the United States
Department of Labor, for the month ending on January
31 of the year in which the adjustment is made, as
compared with such index for the month ending Januar
31 of the year preceding the date of the adjustment.
"V" is the value of the quantity of HEA Fuel provided
by AEG&T and consumed by the Unit during the month.
The value will be based upon the Chugach Unit Fuel
Price in effect during the month, provided, however,
that if AEG&T provides HEA Fuel in addition to that
quantity initially committed under the terms of the
KFC Agreement and the price (including
transportation costs) paid by HEA to the supplier is
less than the Chugach Unit Fuel Price, then the value
of the additional volume supplied shall be the
Chugach Unit Fuel Price less one-half of the
difference between the price paid by
AEG&T and the Chugach Unit Fuel Price.
b) AEG&T Use: For AEG&T Use, AEG&T shall pay Chugach:
1. for dispatch services a daily dispatch rate
of $350 for each day or part of a day during
which the Unit is dispatched for AEG&T Use
except that the payment is waived if Chugach
either uses the spin of the Unit or jointly
utilizes the energy Output of the Unit
during any part of that day; and
2. for all fuel and transportation costs
incurred by Chugach in the AEG&T Use.
Chugach shall invoice these as separately itemized
charges to AEG&T.
c) Allocation of fuel costs between simultaneous Uses:
For AEG&T Use where Chugach utilizes the spin but
does not generate any energy, 100% of the fuel costs
are allocated to AEG&T.
When energy as measured at the Units 13.8 kV bus is
being produced simultaneously for AEG&T Use and
Chugach Use then the fuel costs will be divided in
proportion to the energy being produced for each use.
9.3 Within ten days after the end of each month, Chugach shall
provide AEG&T with an accounting of the use of the Unit for
the previous month showing the total energy and fuel use by
the type of operation. In such accounting, Chugach may
designate certain items as being estimated due to the
unavailability of final underlying data, in which event
adjustments to the correct amounts, when amounts are
determined, shall be included in an accounting for a
subsequent month. This accounting shall be the basis for the
Unit billing by AEG&T.
9.4 Payment by Chugach shall be due in AEG&T's office by the 15th
day after mailing of the bill. Payment shall be mailed or
direct deposit to AEG&T. Amounts not received on or before
the due date shall be payable with interest accrued at the
rate of 1 percent per month compounded monthly from the due
date to the date of payment.
9.5 In the event any portion of any bill is disputed, the disputed
amount may be paid or may be withheld. In either event,
Chugach shall provide AEG&T a detailed written explanation of
why the amount is in dispute. If the disputed portion is paid
and later found to be not owed, AEG&T shall refund to Chugach
the disputed portion plus interest on a monthly basis at the
statutory interest rate to the date the refund check is mailed
by AEG&T. If the disputed portion is withheld and later found
to be owed, Chugach shall pay the disputed portion to AEG&T
plus interest on a monthly basis at the statutory interest
rate from the due date of payment to the date the refund check
is mailed by Chugach.
Article X. Emergencies and Problems
10.1 Chugach shall make best efforts to continue to provide
dispatch services in accordance with this Agreement during
SCADA, communication or other outages.
10.2 AEG&T shall maintain and supply Chugach an up-to-date list of
personnel authorized to receive any information which Chugach
is obligated to supply to AEG&T under this Agreement such that
the Chugach dispatcher at all times will be able to reach
personnel designated by AEG&T to receive the information.
Article XI. Liability and Indemnity
11.1 Regardless of fault or causation, each party shall assume all
responsibility and hold the other party harmless from and
defend the other party against all claims for injury or
damage of any sort arising out of the operation of this
Agreement to persons or property on its respective side of
the Point of Interconnection. Chugach shall not be liable
for any lost revenue or other damages suffered by AEG&T or
any other entity or person as a result of any act, or failure
to act, on the part of Chugach under this Agreement, except
that Chugach agrees that it will be responsible for injury to
AEG&T caused intentionally by Chugach or through Chugach's
gross negligence, and except that Chugach shall indemnify
AEG&T against any premium or penalty charges for which HEA
may become liable pursuant to the terms of Paragraph 5.4 of
the Chugach Wholesale Power Agreement if Chugach dispatched
the excess power through inadvertence or willful disregard of
the dispatch instructions received from AEG&T for AEG&T Use.
This indemnity provision shall not apply to a willful breach
of this Agreement by either party.
<PAGE>
Article XII. Uncontrollable Forces
12.1 An uncontrollable force shall mean an act of God, act or
omission of government, failure of or threat of failure of
facility, unscheduled maintenance and repair, labor or
material shortage, strike, lockout, or other industrial
disturbances, act of the public enemy, war, blockade,
insurrection, riot, epidemic, landslide, avalanche,
earthquake, fire, storm, lightning, flood, washout, civil
disturbance, restraint by court order or public authority,
action or non-action by or inability to obtain necessary
authorization or approval from any governmental agency or
authority, and any other act or omission similar to the kind
herein enumerated. Strikes, lockouts, and other labor
disturbances shall be considered uncontrollable forces and
nothing in this Agreement shall require either party to settle
a labor dispute against its best judgement.
Each of these matters enumerated constitutes an uncontrollable
force to the extent that it is not within the reasonable
control of affected party, and to the extent that such party
by the exercise of due diligence is unable to overcome it.
In the event either party, by reason of an uncontrollable
force, is rendered unable, wholly or in part, to perform its
obligations under this Agreement, then upon such party giving
notice and particulars of such uncontrollable force, its
obligation to perform (other than the obligation to pay money
shall be suspended during the continuance of any inability so
caused, but for no longer period, and the effects of such
cause shall, so far as possible, be remedied with all
reasonable speed. The affected party shall not be responsible
for its delay in performance under this Agreement during
delays caused by an uncontrollable force, nor shall such
uncontrollable force give rise to claims for damages or
constitute default.
However, should an Uncontrollable Force continuously prevent
performance by either party of substantially all of its
obligations under this Agreement for a period of more than one
year, the Agreement is voidable at the option of either party
upon 30 days written notice to the other party.
Article XIII. Severability
If any provision of this Agreement shall be finally
adjudicated by a court of competent jurisdiction to be invalid
or unenforceable, the remainder of the Agreement shall be
invalid or unenforceable as to future obligations but shall
not operate to extinguish obligations (such as payment
obligations) already accrued.
Article XIV. Termination
14.1 In the event of a material breach of this Agreement,
either party may give written notice to the other. If a
material breach is not cured within thirty (30) days after
the breaching party receives notice of the breach, the
non-breaching party may, at its option, terminate the
Agreement without incurring liability therefor, bring an
action for specific performance, or exercise any other
contract remedy. All liabilities arising under this
Agreement prior to termination shall be and are hereby
preserved.
14.2 This Agreement shall terminate twenty-four months from the
Effective Date, unless prior to said date AEG&T shall have
commenced relocating the generator and turbine from the
Soldotna No. 1 Plant to the KFC Plant near Nikiski, Alaska
Article XV. Miscellaneous Provisions
15.1 Right of First Refusal: Chugach shall have a right of first
refusal to purchase, lease, rent or in any other way acquire
AEG&Ts rights in the Unit or any portion of the electrical
output or capacity of the Unit. The Right of First Refusal
will be retained by Chugach over the life of the Agreement.
The Right of First Refusal shall not apply to a disposition by
AEG&T to HEA.
The Parties intend that this Right of First Refusal not impede
future efforts by AEG&T to dispose of the Unit or its output
while offering Chugach a genuine and full first right of
refusal to purchase the Unit or its electrical output.
Accordingly, Chugach shall promptly respond (no later than 90
days) after notification by AEG&T of a proposed disposition of
the Unit or its output regardless of whether the proposal
resulted from negotiations with a third party, a competitive
bid process or otherwise. Notification by AEG&T of the
proposed disposition of the Unit or its output shall include
disclosure of all information reasonably necessary to allow
Chugach to fully evaluate the proposal and to prepare a
responsive proposal. If Chugach's proposal is substantially
similar to and of equal or greater value to AEG&T as that
described by AEG&T, Chugach's proposal shall be accepted by
AEG&T.
15.2 Grant of Option: AEG&T grants to Chugach an option to
purchase the electricity generated by steam produced by or in
conjunction with the operation of the Unit. The terms of the
option are as follows.
a) Notice. AEG&T will notify Chugach in writing of the
availability of the electricity not less than six months
nor more than thirty-six months before the date of
commercial production of electricity using the steam
produced by the heat recovery steam generator installed
in conjunction with construction of the Unit. The notice
will describe the amount of electricity to be produced
and the process for its production.
b) Right to Option. Chugach shall have six months from the
date of the notice within which to exercise the option.
c) Exercise. The option will be exercised by delivery to
AEG&T of a written notice by Chugach within the foregoing
period specifying the amount of electric output for which
it intended to take or pay.
d) Terms. The purchase price for the electricity shall be
an amount equal to the average thermal generation cost
for the Chugach system, adjusted quarterly in accordance
with the most recently filed fuel surcharge applications,
or computed in similar fashion as that last submitted,
plus an operation and maintenance component computed on
the same basis as the "O" component of compensation
defined under the terms of Section 9.2 a) of this
Agreement.
e) Delivery. AEG&T will deliver the electricity to Chugach
at the Point of Interconnection. Chugach will be
obligated to pay only for electricity delivered.
f) Expiration. If not exercised within the time period set
forth above the option will expire and be of no further
force and effect with respect to the electricity produced
in accordance with the notice, but not with respect to
any subsequent additional production. If exercised, the
rights acquired and obligations assumed under the option
shall terminate upon the termination of this Agreement.
15.3 Assignment: No party shall assign this Agreement, or any part
thereof, without notice to, and consent in writing by, the
other party; provided that such consent shall not be
unreasonably withheld.
15.4 No Third Party Beneficiaries: The provisions of this
Agreement shall not create any rights in favor of any person,
corporation, or association not a participant in this
Agreement, and the obligations herein assumed are solely for
the use and benefit of the participants to this Agreement.
15.5 Notice: Except as otherwise provided herein whenever notice
or communication is provided or required to be given by either
party to the other, such notice or communication shall be in
writing and transmitted by certified United States Mail,
return receipt requested, or by personal delivery, or by
telegraph. All such written communication directed at Chugach
shall be sent to:
Executive Manager Finance & Energy Supply or
Manager of Dispatch
Chugach Electric Association, Inc.
P.O. Box 196300
Anchorage, Alaska 99519-6300
or by personal delivery to:
Executive Manager Finance & Energy Supply or
Manager of Dispatch
Chugach Electric Association, Inc.
5601 Minnesota Drive
Anchorage, Alaska 99518-1074
All such written communication directed to AEG&T shall be sent
to
General Manager
HEA
P. O. Box 169
Homer, Alaska 99603
15.6 Entire Agreement: The terms of this Agreement and any
provisions adopted by reference or otherwise incorporated into
this Agreement, including Exhibits A, B, and C, set forth the
full intent of the parties regarding the matters covered by
this Agreement. Neither party is relying on or may rely on
any written or oral collateral, prior, or contemporaneous
agreements, assurances, representations, or warranties not set
forth in this Agreement. No modifications of this Agreement
shall be implied in law or equity, nor may any part hereof be
terminated, amended, supplemented, waived or modified except
by instrument in writing signed by both parties.
15.7 Future Agreements: This Agreement shall not preclude future
agreements on leasing, capacity sale or other ownership or
operating agreements by and among Chugach, AEG&T and HEA.
15.8 Dispatch Agreement: The Soldotna One System Use and Dispatch
Agreement is terminated as of the date AEG&T reasonably
declares that the Soldotna No. 1 Plant has been decommissioned
incident to the construction of the Unit.
15.9 Waiver: Any waiver at any time by a party of its rights with
respect to a default under this Agreement or with respect to
any other matter arising in connection with the Agreement
shall not be deemed a waiver with respect to any other default
or matter.
Any delay short of the statutory period of limitations in
asserting or enforcing a right shall not be deemed a waiver of
such right.
Date: 2-12-99
ALASKA ELECTRIC GENERATION
AND TRANSMISSION COOPERATIVE, INC.
By: /s/ N L Story
N.L. Story
General Manager
Date: Feb 9, 1999
CHUGACH ELECTRIC ASSOCIATION, INC.
By: /s/ Eugene N. Bjornstad
Eugene N. Bjornstad
General Manager
<PAGE>
EXHIBIT A
DISPATCH FUNCTIONS AND REPORTS
1. Chugach shall provide the services required to accomplish the remote
starting, loading, monitoring, unloading and stopping of the Unit over
the SCADA system. The Unit shall be base loaded in accordance
with Section 6.2, except during emergencies when unit operation shall
be coordinated through the Chugach Dispatch Center. As outlined in
Exhibit A, Chugach shall record the operations of the Unit and transmit
such information to AEG&T on a monthly basis.
2. Whenever the Chugach SCADA system indicates that the HEA load exceeds
the Contract Capacity in the Chugach Wholesale Power Agreement plus
HEAs share of Bradley Lake capacity or when directed by HEA,
Chugach will allocate a portion of the Unit output to AEG&T Use. The
portion allocated to AEG&T Use shall equal the amount of MWs required
to meet HEAs load plus reserves, if any, that is not being
purchased under the Chugach Wholesale Power Agreement or from Bradley
Lake. Any output not allocated to AEG&T Use shall be Chugach Use.
If Bradley Lake capacity is not available as defined in the
Bradley Lake Scheduling Agreement, then unless directed
otherwise by HEA, AEG&T Use shall equal the amount of MWs
required to meet HEAs load plus reserves, if any, that are
not being purchased under the Chugach Wholesale Power
Agreement.
If neither Bradley Lake capacity as defined in the Bradley
Lake Scheduling Agreement nor Unit capacity are available and
the HEA load exceeds the Contract Capacity in the Chugach
Wholesale Power Agreement, then unless HEA schedules some
other resource to meet HEAs load, the additional HEA load
will be supplied by Chugach under the Excess Capacity
provisions of the Chugach Wholesale Power Agreement.
3. Chugach shall remotely operate the Unit over the SCADA and
telecommunications systems. This operation shall include:
(a) Issuing start commands;
(b) Synchronizing the Unit;
(c) Monitoring alarms;
(d) Limiting Unit operations in response to SCADA alarms;
(e) Adhering to Unit loading limits established by AEG&T;
(g) Adhering to rate of change limitations for generation as
established by AEG&T;
(i) Shutdown and opening generator breaker;
(j) Stopping the unit;
(k) Tripping the Unit in the event SCADA information dictates this
action;
(1) Observing the Notification Procedures set forth in Exhibit "C".
4. Chugach shall record and maintain logs and records of the Unit
operation and shall provide upon request such logs and records to AEG&T
within one (1) week.
These logs and records shall include the following:
(a) Scheduled hours of operation, scheduled loading by use
category, and average load on an hourly basis;
(b) Actual hours of operation, type of and average load on an
hourly basis;
(c) Available operating data, such as: voltage, amperes, VARS,
frequency, watts, power factor, gas flow, temperatures,
breaker positions, and accumulated MWH, MVARH, and MMCF/DAY as
provided by the SCADA system or similar data recorded manually
when the SCADA system is inoperative; and
(d) Alarms and observed or reported deviations from normal Unit
operating parameters.
<PAGE>
EXHIBIT B
METERING LOCATIONS
Consistent with provisions of the "Agreement for Sale of Electric Power and
Energy and Lease of Facilities," Addendum 1, metering shall be provided at the
following locations:
I. At the Soldotna Substation:
115-kV Line from Soldotna Substation to Quartz Creek Substation.
115-kV Line from Soldotna Substation to Bernice Lake Substation.
69-kV Line from Soldotna Substation to Quartz Creek Substation.
69-kV Line from Soldotna Substation to Bernice Lake Substation.
II. At the Unit:
Unit Generator Output at the 13.8 kV bus.
Unit Generator Gas Usage at the intake manifold.
Unit Station Service at the 480 Volt bus.
<PAGE>
EXHIBIT C
NOTIFICATION PROCEDURES
Chugach will perform the respective notification procedures for each alarm
category set forth below:
A. Alarm Priority 1--Unit Trip
Chugach shall contact the Unit Power Plant Specialist (PPS)
immediately. All control systems will be reset to allow restart of the
Unit if conditions causing the trip are known by the Unit PPS and have
been rectified. If the alarm occurs outside Regular Working Hours,
Chugach shall contact the PPS in the manner and order of preference as
designated by AEG&T. If the PPS cannot be contacted, Chugach shall
contact the person designated as AEG&T's standby contact and advise him
of the situation. Chugach shall attempt to restart the Unit after the
control has been reset and clearance has been received from the
Unit PPS.
B. Alarm Priority 2--Trip Possible
Chugach shall contact the Unit PPS immediately. If the alarm occurs
outside Regular Working Hours,
Chugach shall contact the Unit PPS in the manner and order of
preference as designated by AEG&T. If the PPS cannot be contacted,
Chugach shall contact the person designated as the AEG&T standby
contact and advise him of the situation. After investigation, the Unit
PPS may impose operational restrictions on the unit until the situation
can be rectified.
C. Alarm Priority 3--Alarm-No Trip:
If the Unit is in operation, Chugach shall contact the Unit PPS
immediately. If the Unit is shut down, Chugach shall contact the Unit
PPS within 24 hours. If the alarm occurs outside Regular Working
Hours, Chugach shall contact the PPS in the manner and order of
preference as designated by AEG&T. If the PPS cannot be contacted,
Chugach shall contact the person designated as AEG&T's standby contact
and advise him of the situation. After investigation, the Unit PPS may
impose operational restrictions on the unit until the situation can be
rectified.
D. Alarm Priority 4--Start Inhibit
If the unit is in operation, Chugach shall contact the PPS immediately.
If the unit is shut down, Chugach shall contact the Unit PPS within 24
hours, or since these alarms are start inhibits, when first aware of a
need to start up the Unit, whichever comes first. If the alarm occurs
outside Regular Working Hours, Chugach shall contact the PPS in the
manner and order of preference as designated by
AEG&T. If the PPS cannot be contacted, Chugach shall contact the
person designated as AEG&T's standby contact and advise him of the
situation.
<PAGE>
AGREEMENT FOR THE SALE AND PURCHASE OF
ELECTRIC POWER AND ENERGY
between
CHUGACH ELECTRIC ASSOCIATION, INC.
and the
CITY OF SEWARD
SECTION 1. PARTIES
1. The parties to this Agreement are CHUGACH ELECTRIC
ASSOCIATION, INC. (Chugach) , an Alaska non-profit electric cooperative
corporation, having its offices at Anchorage, Alaska; and City of Seward,
Seward Electric Utilities Division (Seward) having its offices at Seward,
Alaska.
SECTION 2. RECITALS
2(a). Chugach has furnished electric power and energy to Seward
under various contractual arrangements since July 1, 1961. Seward now receives
electric power and energy under a Wholesale Power Agreement signed by Seward
September 27, 1984, as amended by signature of Seward dated June 25, 1985.
2(b). Except as specifically provided herein, this Agreement
supersedes any previous agreement and any rights and obligations of the parties
under the existing agreement or any amendment thereof. All rights and
obligations under any previous wholesale power agreement or any previous
arrangements between Seward and Chugach are hereby terminated.
1
<PAGE>
2(c). This Agreement recognizes and is intended to operate in
conjunction with the Bradley Lake Hydroelectric Project Agreement for the Sale
and Purchase of Electric Power (and related agreements) and the 1993 Alaska
Intertie Project Participants Agreement (and related agreements) to which both
Seward and Chugach are Parties.
2(d). Seward now has and, for the term of this Agreement, will
retain the capability to generate or otherwise supply and deliver all of its own
Electric Power sufficient to meet all of its system requirements. The Parties
recognize that there may be times when the entire load may not be able to be
served by Sewards generators, but the load can be managed such that it is
within the capability of Sewards generators or is supplied by other generators
not owned by Seward.
SECTION 3. AGREEMENT
3(a). Sale And Purchase Of Electric Power. Chugach agrees to sell
and deliver, and Seward agrees to purchase and receive, all of its electric
power and energy requirements from Chugach subject to the following terms and
conditions.
3(b). System Sale. The power which Chugach is obligated to sell
under this Agreement is power generated by and/or purchased and transmitted over
Chugach's Generation and Transmission System. Thus, this sale is a system sale
supported by the resources of Chugach's entire Generation and Transmission
System, and not a resource sale supported by specific, distinct and
identifiable generating units and transmission facilities included within that
System.
3(c). Limited interruptibility. On request of Chugach and for the
period specified by Chugach, Seward will provide generation for all of its
system requirements allowing Chugach to completely interrupt service to Seward
load. Seward will perform this obligation on two hours notice. Seward will
perform this obligation up to 12 times per calendar year and will meet its own
2
<PAGE>
power requirements for up to a total of 72 hours per calendar year. In return
for Seward agreeing to this interruptibility, Chugach will provide electric
power and energy under this Agreement at the special Available Capacity Rate
described in Section 4, below. For purposes of this Section 3(c), notice shall
be made by calling the emergency services dispatcher for the City of Seward at
(907) 224-3338, or such other number as the parties may from time to time agree
upon in writing. Outages required for maintenance of Chugach facilities shall
be included within the 12 times or 72 hours per year limit. Outages required
for maintenance of Seward facilities shall not be included within the 12
times or 72 hours per year limit. Chugach will pay Seward $0.0658 per kWh for
the labor and maintenance costs plus $0.0616 times A/1.06 for fuel costs, where
A is the cost per gallon for fuel under Sewards current agreement for fuel
supply for those hours in excess of 72 hours per year, if any, should the
scheduled interruptions requested by Chugach be extended beyond the 72 hour
limit. $1.06 per gallon is the delivered price for 1997. In the absence of an
annual agreement for fuel, the price will be the average price paid during the
previous 6 months. Interruptions scheduled under this Section 3(c) shall not be
for less than 2 hours.
3(d). Delivery Points. Chugach shall deliver all power under this
Agreement at Daves Creek Substation and near the Lawing Substation at
approximately mile 25 of the Seward Highway. Chugach shall have no
responsibility for transmission and distribution beyond these Points of
Delivery.
3(e). Resale Of Chugach Power Prohibited; Limit On Amount Of Power
Actually Taken.
In consideration of Chugach's willingness to supply power under this
Agreement on an average cost basis, Seward agrees that (1) all electric power
delivered under this Agreement shall be used to serve Seward's retail electric
loads as ultimate consumers and end-users of the power, and
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(2) no power taken under this Agreement may or will be resold to any other
entity or otherwise used or disposed of, by contractual agreement or otherwise,
in any other manner or for any other purpose. To assist in enforcing this
provision, the parties agree that at no time will Seward take, and at no time
will Chugach be obligated to supply, capacity or energy under this Agreement in
amounts in excess of the then-existing Seward system demand or requirement for
capacity and energy. Nothing contained in this Section 3(e) shall preclude
Seward from using power supplied hereunder to meet its retail electric loads
while engaging in contemporaneous off-system sales of capacity or energy
available to Seward from its own or other sources.
3(f). Joint Use Agreement and Net Billing for Bradley Lake Power.
The Parties recognize the existence of the Joint Use Agreement and the Net
Billing Agreement for Bradley Lake Power, attached hereto as Attachments A and
B, respectively and agree that these agreements shall continue in effect.
SECTION 4. RATES AND BILLING
4(a). General Ratemaking Provision. The rates and charges
applicable under this Agreement shall be established, and shall be revised from
time to time, in accordance with (1) the substantive ratemaking principles set
forth herein, and (2) the ratemaking procedures set forth herein.
This Agreement and rates proposed hereunder shall be submitted to the Alaska
Public Utilities Commission for approval. The schedule of initial rates under
this agreement are set forth in Attachment C to this Agreement and are effective
until January 31, 2002 (four years from the effective date). No later than
January 31, 2001, the Parties shall begin good faith negotiations to revise the
rates as needed and in accordance with the principles in this Section 4. In the
event the Parties are unable to agree, either party may give notice of early
termination of this agreement to be
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effective 12 months after the date of notice, or sooner at the option of Chugach
but in no event sooner than January 31, 2002. During this period after notice
of early termination, the prices established under Attachment C will continue in
effect.
4(b). Substantive Ratemaking Principles. All rates and charges
applicable under this Agreement shall be consistent with the terms and
conditions of this Agreement and with all other lawful contractual obligations
of Chugach. Such rates and charges shall be based on allocations of costs
designed to ensure that Chugach's total revenue requirement, including, but not
limited to generation, transmission, ratemaking margins, fuel and purchased
power expenses is divided fairly and appropriately between Chugach's bulk power
supply, generation, transmission, distribution and retail functions, so that no
function will significantly or persistently cross-subsidize the other.
Chugach shall pass through directly and Seward shall pay Chugach average fuel
and purchased power expenses associated with the energy it receives on a monthly
basis.
4(c). Ratemaking procedures. Chugach shall supply and be paid
for electric capacity and energy under this Agreement on a total requirements
basis subject to a reduction of the annual allocated demand charge by 1/3 to
reflect the value to Chugach of the interruptibility to which Seward has
committed. The following ratemaking and billing provisions shall apply:
(1) Allocation of demand-related costs. Demand-related
costs (together with customer-specific costs) will be allocated to
Seward for ratemaking purposes in accordance with a methodology that is
consistent with the fairness principles set forth in Section 4(b) of
this Agreement and will be based on Total System Demand.
(2) Computation of demand charges. To establish demand
charges (expressed in dollars per kilowatt/month) for the sale of
electric capacity, the Seward demand allocator
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(which shall be determined by Sewards proportionate contribution to
the overall system peak) shall be reduced by 1/3 so that the demand-
related costs allocated to Seward pursuantto Section 4(c)(1) above for
any given rate year are reduced by 1/3 and then divided by the sum of
Sewards actual peak demand on the Chugach system in kilowatts for each
month of the test year used for ratemaking purposes.
(3) Billing demand and payment for capacity. Sewards
billing demand in each month shall be Sewards actual peak demand on
the Chugach system for that month. Provided that at least two hours
prior notice is given to Seward prior to the beginning of an
interruption request, if the request is not honored at the time
requested, Seward will pay penalties as outlined herein. If an
interruption request is not honored at the time requested, Seward will
pay to Chugach $5,000. If the request is not honored within the first
half hour of the time requested, an additional $2,500 shall be paid by
Seward. If Seward does not interrupt within 1 hour of the requested
time, it shall pay an additional $2,500. This will result in a penalty
of $10,000 if Seward does not interrupt within one hour after the
requested interruption time. Thereafter, Seward shall pay an
additional $1,000 for each one-half hour during which it does not
interrupt service after the initially requested interruption. At the
time of the interruption request, Chugach shall provide Seward with a
specific time for the end of the interruption which ending time may be
changed at the sole discretion of Chugach on one hour notice. If
Seward fails to interrupt prior to the time the interruption is
scheduled to terminate, it shall pay the penalties described above but
the interruption request shall not count as one of the twelve
interruptions allowed to Chugach under Section 3(c) of this Agreement
provided that Chugach does not request interruption again sooner than 8
hours after the
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termination time of the most recent interruption request. The maximum
cumulative penalties per calendar year for failure to interrupt on
request shall not exceed $360,000.
(4) Payment for energy. Chugach will charge and be paid
for energy for each monthly billing period in an amount equal to
Chugach's then-applicable energy charge (excluding fuel and purchased
power expenses) multiplied by Seward's total system energy
requirements for that month, which energy requirements shall be metered
at the Points of Delivery. Actual fuel and purchased power costs will
be paid in accordance with Attachment C. Fuel and purchased power
costs will be reduced by 67% of economy energy sales margins and
wheeling revenues which would otherwise have been assigned to Seward in
the fuel surcharge process based on Sewards proportionate share of the
total system firm sales on the Chugach system.
(5) Customer Charge. Chugach will charge and be paid a
monthly amount equal to the then applicable customer charge multiplied
by the number of delivery meters.
(6) Good Faith. The Parties agree to operate their
systems in good faith to provide the interruptibility contemplated by
this Agreement in order to accomplish the purpose of allowing Chugach
flexibility in operating its system while providing Seward with
reduced costs deriving from its ability to interrupt service from
Chugach. Chugach agrees not to request interruptions for the sole
purpose of increasing the penalty specified in Section 4(c)(3) but is
otherwise permitted to request interruptions in good faith for any
other reason and regardless of whether actual benefit results to
Chugach from the interruption.
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4(d). Billing. Seward shall pay bills within 15 days of receipt.
In the event any portion of any bill is disputed, pending resolution of the
billing dispute, the undisputed portion of each bill shall be paid to Chugach in
timely fashion pending resolution of the disputed amount.
4(e). Margins (capital credits). Seward shall be entitled to an
allocation of margins (capital credits) based on Sewards contribution to
Chugach electric margins.
SECTION 5. TERM
5(a). Effective date. This Agreement shall become effective March
1, 1998. This Agreement and any amendments thereto shall become effective only
upon obtaining the written approval of the Alaska Public Utility Commission.
5(b). Duration. This Agreement shall continue in force through
January 31, 2008 (Expiration Date) except if terminated earlier pursuant to
Section 4(a).
5(c). Amendments. This Agreement may be amended or extended at any
time by the written consent of all parties hereto, but all amendments hereto,
including termination prior to the expiration of the term hereof, will not
become effective until approved in writing by the Commission.
SECTION 6. PROVISIONS RELATING TO ELECTRICAL SERVICE
6(a). Capacity To Be Made Available. Except when prevented by an
Uncontrollable Force, or when Chugach has requested Seward to provide for its
requirements from its own resources pursuant to Section 3(c) of this Agreement,
Chugach shall make electric capacity continuously available to Seward at the
Point of Delivery in the amount of Seward's total demand for electric
capacity.
6(b). Restoration Of Service. In the case of a partial or total
loss of service to Seward
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as a result of problems encountered on the Chugach system, Chugach will extend
its reasonable best efforts to restore service in a prompt and
non-discriminatory manner.
6(c). No Duty To Third Parties. This Agreement shall not create
on the part of Seward or Chugach any legal duty owed to the retail customers of
any party or to other wholesale or wheeling customers of Chugach, including
without limitation, any legal duty to maintain continuity of Electric Power
service to other parties or customers. Nothing in the foregoing sentence shall
limit the rights afforded Chugach or Seward under this Agreement.
6(d). Prudent Utility Practice. All parties shall at all times
design, construct, maintain, operate, and repair their respective facilities and
equipment in accordance with Prudent Utility Practice and standards in order to
prevent, minimize, or correct any failures or partial failures of such
facilities or equipment. Seward shall design, construct, operate, maintain, and
repair its facilities in accordance with Prudent Utility Practice and shall
meet the following constraints:
(1) Impairment of Service. Seward's load shall not
cause sine-wave distortion or large short-interval demand that will
impair service or cause interference with telephone, television, other
facilities or other utilities' customers.
(2) Deviation from Phase Balance. Seward's load
shall not result in a deviation from phase balance of more than ten
(10) percent at any time.
(3) Power Factor. Seward and Chugach shall each
supply their own VAR requirements, as measured at the Point of
Delivery, to correct any power factor problems on their respective
sides of the Point of Delivery. Seward must maintain a minimum power
factor equal to or in excess of 95 percent.. Failure to meet this
power factor requirement will result in charges for reactive power.
For each percent of power factor below 95%, Seward
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shall pay an additional 1% of its demand charge as computed under
Section 4(c)(2).
6(e). Reserves.
(1) Chugach will maintain its own power generation
Reserves, including those necessary to support sales made pursuant to
this Agreement, but Chugach will neither maintain nor provide Reserves
to support, under this Agreement, the generating units of Seward.
(2) In order to avoid damage to or additional demands on
Chugach's system, Seward agrees that it will take care at all times it
is operating its generation in parallel with Chugachs generation to
maintain sufficient spinning Reserves (or demonstrably equivalent
automatic load shedding devices) to support any and all of their own
generation.
(3) Notwithstanding the foregoing, the parties recognize
and agree that the provision of emergency capacity and/or energy to one
another pursuant to the terms of agreements other than this Agreement
does not represent, for purposes of this Agreement, an unauthorized
use of or reliance on one another's power generation Reserves,
(4) Chugach will plan its system to accommodate Seward
loads taking into account the provisions in Section 3(c) of this
Agreement relating to limited interruptibility.
6(f). Voltage. The Electric Power provided hereunder shall be
three-phase, alternating current, at the nominal voltages set forth in
Attachment C attached hereto plus or minus 5% under normal conditions and plus
or minus 10% under emergency conditions. All parties shall endeavor to maintain
proper phase voltage balance on their respective systems. If a problem with
voltage occurs, all parties will use their reasonable best efforts to correct
such problems.
6(g). Frequency. Chugach will use its reasonable best efforts to
maintain its system
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frequency at 60 hertz averaged over each twenty-four hour period.
SECTION 7. METERING
7. Each party shall (1) make or provide for biennial tests and
inspections of all its meters and recorders used for billing purposes in this
Agreement in order to maintain a commercial standard of accuracy, (2) restore to
a condition of accuracy any meters found to be inadequate, and (3) advise
the other parties promptly of the results of any such test which shows any
inaccuracy more than 0.5 percent slow or fast. Each party shall be permitted to
have representatives present at such tests and inspections. Each party shall
notify the other party at least one (1) week in advance of the tests and
inspections. Each party shall make or provide for additional tests of its
meters and recorders at the request of another party and in the presence of
representatives of the requesting party or parties. The cost of any additional
test requested by such party or parties shall be borne by the party owning the
equipment if such test shows a meter or recorder is inaccurate by more than 0.5
percent slow or fast. In the event that the result of such tests shows a meter
registering in excess of 0.5 percent either above or below the current
registration, then the readings of such meter previously taken for billing
purposes shall be corrected according to the percentage of inaccuracy so found
for the known or estimated period of such error, but no such correction shall
extend beyond ninety (90) days previous to the day on which the inaccuracy is
discovered by such test. For any period that a meter should fail to register,
or its registration should be so erratic as to be meaningless for billing
purposes, the bill for power and energy shall be based upon records from check
meters, if available and tested for accuracy, or otherwise upon the best
available data.
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SECTION 8. GOOD FAITH PERFORMANCE OF RIGHTS AND OBLIGATIONS
8. Each party to this Agreement covenants and agrees to act in
good faith under this Agreement and the terms cited herein and perform in a
manner consistent with Prudent Utility Practice. The Parties recognize that the
Limited Interruptibility feature under Section 3(c) of this Agreement will
require and the Parties agree to coordinate closely on matters relating to
service interruptions for maintenance or other reasons.
SECTION 9. FORCE MAJEURE
9. In the event any party, by reason of an Uncontrollable Force,
is rendered unable, wholly or in part, to perform its obligations under this
Agreement (other than its obligations to pay money), then upon said party giving
notice and particulars of such Uncontrollable Force, its obligation to perform
shall be suspended or correspondingly reduced during the continuance of any
inability so caused, but in no greater amount than required by the
Uncontrollable Force and for no longer period, and the effects of such cause
shall, so far as possible, be remedied with all reasonable and prompt dispatch.
The affected party shall not be responsible for its delay in performance under
this Agreement during delays caused by an Uncontrollable Force. Seward shall be
responsible for meeting its own power supply needs either from its own
resources or from other purchases when Chugach power is unavailable by reason of
an Uncontrollable Force.
SECTION 10 RESPONSIBILITY FOR POWER SUPPLY AND DELIVERY
10(a). Responsibility Of Parties. Except as provided in Sections
10(b) and 10(c), each party shall assume responsibility on its respective side
of the Points of Delivery for the electric service supplied and/or taken, as
well as for maintenance of any apparatus used in connection therewith.
Regardless of the foregoing and of the location of any Point of Delivery or
metering point, however,
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each party shall be responsible for maintaining and operating its own facilities
unless (1) a different division of responsibilities is agreed upon in writing
by the parties, or (2) a different division of responsibilities in specific
emergency circumstances is agreed upon orally or in writing by the parties.
10(b). Indemnification. Each party shall, as to all actions taken
relevant to this Agreement, indemnify and hold harmless the other party, its
directors, officers, and employees, against all loss, damage, legal expense and
liability to third persons arising from any injury to, or death of, persons
or injury to property to the extent caused by any negligent act or omission of
the indemnifying party, or its directors, officers, or employees.
10(c). Notice, Defense And Settlement Of Legal Proceeding.
(1) If any legal proceeding shall be instituted, or any
claim or demand made, against any party hereto (hereinafter called the
"Indemnified party") with respect to which the other party
(hereinafter called the 'Indemnifying party") may be liable hereunder,
the Indemnified party shall give prompt written notice thereof, within
thirty days thereof by certified mail, return receipt requested, and
promptly deliver a true copy of any summons or other process, pleading
or notice to the Indemnifying party.
(2) In any action in which there is no reasonable
possibility of joint liability of any parties to this Agreement, the
Indemnifying party shall have the absolute right, at its sole
expense and without the consent of the Indemnified party, to defend and
settle any such legal proceeding, claim or demand. However, the
Indemnifying party shall give notice, if possible, to the Indemnified
party of any proposed settlement. In no event shall the participation
of the Indemnified party in the defense and settlement of any legal
proceeding, claim or demand, interfere with or alter the Indemnifying
party's absolute right to control the defense and/or
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settlement of the legal proceeding, claim or demand. The Indemnified
party may, if it sees fit, participate in defense of any such legal
proceeding, at its own expense.
(3) Where joint liability of both parties to this
Agreement is a reasonable possibility, no party which has exposure to
joint liability shall be limited in their participation in the action.
(4) If the Indemnified party, without the prior consent
of the Indemnifying party (which consent, if requested, shall not be
unreasonably withheld), makes any settlement with respect to any such
legal proceeding, claim or demand, the Indemnifying party shall be
discharged of any liability hereunder with respect thereto.
(5) The Indemnifying party shall pay all reasonable costs
incurred by the Indemnified party in any successful enforcement of thi
indemnity.
SECTION 11. INSURANCE
11. Each party agrees to use its best efforts to obtain and
maintain in full force and effect during the term of this Agreement, adequate
insurance with responsible insurers as may be required by law.
SECTION 12. WAIVER
12. Any waiver at any time by any party to this Agreement of its
rights with respect to any default of the other party hereto, or with respect to
any other matter arising in connection with this Agreement, shall not be
considered a waiver with respect to any prior or subsequent default, right or
matter.
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SECTION 13. SEVERABILITY
13. The provisions of this Agreement are not intended to be
considered in isolation and each such provision represents a portion of the
consideration agreed upon among the parties for each other provision of this
Agreement. The parties believe that it would be impossible, in general, to
invalidate or sever any particular provision of this Agreement without working a
potentially great hardship on one or the other of the parties, and without
denying one or more of the parties of important, bargained-for consideration.
If, after this Agreement has become effective, any article, paragraph, clause or
provision of this Agreement shall be finally adjudicated by a court of
competent jurisdiction or a regulatory agency with jurisdiction over the parties
to be invalid or unenforceable, or if any administrative agency with authority
over the parties shall require changes to this Agreement, then the parties shall
in good faith meet promptly to negotiate lawful amendments or modifications to
this Agreement that will effectuate the original intent of this Agreement and
return the parties as nearly as possible to the position that each would have
enjoyed in the absence of such judicial, regulatory, or administrative action.
SECTION 14. SUCCESSORS AND ASSIGNS
14(a). Assignment Generally. This Agreement and all of the terms
and provisions hereof shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto, save that no assignment
or other transfer of this Agreement or any interest hereunder by any party
hereto shall be effective without the prior written consent of all of the other
parties (which consent shall not be unreasonably withheld), and said assignee
must, in the commercially reasonable opinion of the other parties, be
financially capable of assuming such obligations. Chugach agrees not
to sell or otherwise dispose of its Generation and Transmission System (or any
portion thereof which
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is needed to permit performance of this Agreement) to any entity that refuses to
assume or is unable to perform Chugach's obligations under this Agreement.
14(b). Assignment to secured Lenders. Notwithstanding the
provisions of subsection 13(a), any party hereto may assign this Agreement,
together with all of its rights and obligations thereunder, (A) to or in trust
for any secured lenders of such party, for the purpose of securing obligations
for borrowed money, or (B) pursuant to the exercise by any such secured lender
of any of the rights, powers or privileges provided for by the mortgages or
other security instruments of such party for borrowed money; provided, that no
such assignment shall in any way relieve such party of any obligations
hereunder. No such secured lender shall, as a result of such assignment or the
subsequent exercise of its rights with respect to this Agreement under any
mortgage, deed of trust or other security instrument, be construed to have
assumed, or otherwise to have become personally liable for, the assignor's
obligations hereunder, but such secured lender's ability to exercise the rights
of its assignor hereunder shall be subject to performance of the assignor's
corresponding obligations under this Agreement. In the event any such secured
lender exercises any of its rights, powers or privileges with respect to this
Agreement under said mortgages or other security agreements, such secured lender
may thereafter assign this Agreement, together with all the rights and
obligations thereunder, to any entity authorized and able to perform the
obligations under this Agreement, which entity shall succeed to all the rights
and assume all the obligations of the borrower-assignor under this Agreement.
Prior to the exercise by any secured lender of any rights or remedies under any
mortgages or security agreements with respect to this Agreement, such secured
lender shall give the parties hereto reasonable notice that it intends to
exercise such rights and remedies.
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SECTION 15. NOTICES
15. Except as to notice of interruption provided in Section 3(c),
any notice or demand required by this Agreement to be given to any party shall
be effective when it is received by such party, and in computing any period of
time from such notice or demand, such period shall commence at 12:01 p.m.
prevailing time at the place of receipt on the date of receipt of such notice or
demand. Whenever this Agreement calls for notice or demand (unless otherwise
specifically provided), or notification by any party is necessary, the same
shall be in writing directed to the General Managers of the other parties.
Should telephone notice be necessary, it shall be directed to the General
Managers or to a designated or otherwise appropriate subordinate. The
designation of the name to which any such notice or demand shall be directed may
be changed at any time and from time to time by either party by giving notice
as provided above.
SECTION 16. DEFAULT AND DISPUTE RESOLUTION
16(a). Notice of Default. Upon failure of any party to perform
any obligation hereunder, the party or parties to whom such performance is due
shall make demand in writing upon the defaulting party. If such failure, other
than a failure to pay Chugach when such payment is due, is not cured within
thirty (30) days from the date of such demand it shall constitute a default at
the expiration of such period. Chugach's bills to Seward shall constitute
written demands for payment for purposes of this Section and Seward shall be
considered to be in immediate default of their payment obligations if such bills
are not fully paid within 10 days after they are due.
16(b). Performance Pending Resolution Of Dispute. Pending
resolution of any dispute, each party shall continue to perform its obligations
under this Agreement, including the obligations to deliver and receive electric
power and the obligation to pay bills submitted by Chugach for such
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power. All parties shall be entitled to seek immediate judicial enforcement of
this continued performance obligation notwithstanding the existence of a
dispute. Application for such enforcement shall be made to the Superior Court
for the State of Alaska, in Anchorage.
16(c). Consultation To Resolve Disputes. After notice is
delivered and before default occurs under Section 16(a) the parties shall in
good faith endeavor to meet promptly and to resolve any dispute through good
faith negotiation. If a party has met its obligation of good faith under this
Section 16(c), and if the dispute has not been resolved before default occurs,
than that party shall be entitled at any time thereafter to seek immediate
judicial enforcement of this Agreement in the Superior Court for the State of
Alaska, in Anchorage, by bringing any suit, action or proceeding, at law or in
equity, including without limitation mandamus, injunction, damages and action
for specific performance, as may be necessary or appropriate to enforce any
covenant, agreement or obligation of this Agreement.
16(d). Remedies Cumulative. No remedy conferred upon or reserved
to the parties hereto is intended to be exclusive of any other remedy available
hereunder or now or hereafter existing at law, in equity, by statute or
otherwise, but each and every such remedy shall be cumulative and shall be in
addition to every other such remedy. The pursuit by either party of any
specific remedy shall not be deemed to be an election of that remedy to the
exclusion of any other, whether provided hereunder or by law, equity or statute.
SECTION 17. RIGHT OF ACCESS AND REMOVAL
17. Each party will have access to the premises, facilities, or
property of the other party at all reasonable times for any purpose necessary or
appropriate to the performance of this Agreement. Upon termination of this
Agreement in accordance with the provisions hereof, each party
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will remove any property or equipment which it may have installed on the
premises of the other party for any purposes hereunder. Seward shall provide
Chugach with access to existing metering or allow Chugach to install any
metering and equipment necessary or convenient to allow Chugach to track
Sewards load and generation during periods of interruption of service from
Chugach.
SECTION 18. APPLICABLE LAW
18. The parties agree that the interpretation and application of
this Agreement shall be governed by the laws of the State of Alaska.
SECTION 19. MODIFICATION
19. No modification of this Agreement shall be valid unless it is
in writing and signed by all parties hereto, and approved by all appropriate
regulatory and administrative agencies or bodies.
SECTION 20. SECTION HEADINGS
20. The section headings in this Agreement are for convenience
only, and do not purport to and shall not be deemed to define, limit or extend
the scope or intent of the section to which they pertain.
SECTION 21. MUTUAL COVENANTS AND WARRANTIES
21. Each party covenants and warrants to the other parties that it
(1) has the legal authority and ability to enter into and perform, and (2) will
at all times maintain the practical and financial ability to perform this
Agreement and each obligation assumed by such party under this Agreement.
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SECTION 22. APPROVAL OF THE COMMISSION
22. This Agreement does not take effect without the prior approval
of the Alaska Public Utilities Commission and is at all times subject to
revisions by the Commission.
SECTION 23. DEFINITIONS
The following terms, when used in the Agreement and Exhibits hereto,
shall have the meanings specified.
23(a). Agreement. This Agreement for the Sale and Purchase of
Electric Power and Energy.
23(b). Electric Power or Power, Electric energy or electric capacity,
or both. Where the context of this Agreement requires a distinction,
electric energy is expressed in kilowatt-hours (kWh) or megawatt hours (MWh),
and electric capacity is expressed in kilowatts (kW) or megawatts (MW).
23(c). Generation and Transmission System. All existing and
future facilities (whether or not operable, and whether or not operating) used
by Chugach for generation and transmission of electric power, including, in
addition to physical generation and transmission facilities and facilities
associated with the provision of fuel for electric power generation, Chugach's
rights and obligations to obtain (by purchase, wheeling, or otherwise) electric
power generated by other entities or fuel for the generation of electric power
by Chugach, to the extent that the costs of such facilities and rights
are allowably included in the rates charged to Chugach's retail consumers.
23(d). Prudent Utility Practice. At a particular time any of the
practices, methods and acts engaged in or approved by a significant portion of
the electric utility industry at such time, or which in the exercise of
reasonable judgment in light of facts known at such time, could have been
expected to accomplish the desired results at the lowest reasonable cost
consistent with good business
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practices, reliability, safety and reasonable expedition. Prudent Utility
Practice is not required to be the optimum practice, method or act to the
exclusion of all others, but rather to be a spectrum of possible practices,
methods or acts which could have been expected to accomplish the desired result
at the lowest reasonable cost consistent with reliability, safety and
expedition. Prudent Utility Practice includes due regard for manufacturer's
warranties and the requirements of governmental agencies of competent
jurisdiction and shall apply not only to functional parts of the parties'
generation, transmission, and distribution facilities, but also to appropriate
structures, landscaping, painting, signs, lighting and other facilities.
23(e). Reserves. Electric Power needed to avert shortages of
capacity and/or energy for the benefit of retail or wholesale consumers that a
utility system is obligated to serve and which is available to that system
either from facilities or from purchases or other arrangements which such
system is contractually entitled to rely upon for such purposes.
23(f). Total System Demand. The Seward demand (regardless of
whether Seward is receiving power from Chugach or its own generation) registered
during that 15-minute interval for each month in which the sum of (1) the
demands metered at the delivery points described in Section 3(d) and (2) the
demands on all Seward generation is greatest for that month. Seward shall permit
Chugach to install, or cause to be installed, suitable metering and registration
equipment on its facilities.
23(g). Uncontrollable Force. Any cause beyond the control of a
party hereto and which by the exercise of due diligence that party is unable to
prevent or overcome, including but not limited to an act of God, fire, flood,
volcano, earthquake, explosion, sabotage, an act of the public enemy,
civil or military authority, including court orders, injunctions and orders of
governmental agencies
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of competent jurisdiction, insurrection or riot, an act of the elements, failure
of equipment, or the inability to obtain or ship equipment or materials because
of the effect of similar causes on carriers or shippers. Strikes, lockouts, and
other labor disturbances shall be considered Uncontrollable Forces, and nothing
in this Agreement shall require either party to settle a labor dispute against
its best judgment; provided, that during any labor dispute all parties shall
make all reasonable efforts under the circumstances, including, to the extent
permitted by law, the use of replacement personnel and/or management personnel
and/or other personnel under the provisions of a mutual aid agreement, to
ensure, if possible, the continued ability of the parties to produce, deliver,
receive, and distribute the Electric Power that is the subject matter of this
Agreement.
CITY OF SEWARD CHUGACH ELECTRIC ASSOCIATION, INC.
By /s/ Rick L. Gifford By /s/ Eugene N. Bjornstad
Title Acting City Manager Title General Manager
Date 2/11/98 Date February 3, 1998
I:\wp61\don\1998\ses46.wpd
ATTEST
/s/ Patrick Reilly
Patrick Reilly, City Clerk
22
<PAGE>
Attachment C
Rates During Initial Agreement Period
Effective through January 31, 2002, Sewards rates shall be as follows:
Customer Charge: $150 per month per meter
Demand Charge: $7.61 per kW per month
Energy Charge: $0.00459 per kWh
Fuel Charge: Actual fuel and purchased power expense.
This amount will be billed on a lagging
basis. For example, a January invoice will
include actual fuel and purchased power
expenses incurred for the energy used in the
month of November.
The parties will determine Sewards share of the under recovery remaining in the
fuel surchargebalancing account as of December 31, 1997 which Seward will be
permitted to pay in equal monthly installments through the end of 1998.
<PAGE>
(continued from previous page)
9
AMENDMENT NO. 2
TO
AGREEMENT FOR THE SALE AND PURCHASE OF NATURAL GAS
between
CHUGACH ELECTRIC ASSOCIATION INC.
and
ARCO BELUGA, INC.
dated April 21, 1989
WHEREAS, Chugach Electric Association, Inc. (Chugach) and ARCO Alaska,
Inc. entered into an Agreement for the Sale and Purchase of Natural Gas
(Agreement) dated April 21, 1989, which Agreement provides for the sale and
delivery of gas by ARCO Alaska, Inc. to Chugachs gas-fueled generation
facilities located on the west side of Cook Inlet, Alaska (Beluga Station);
WHEREAS, on August 1, 1990, Chugach and ARCO Alaska, Inc. entered into
Amendment No. 1 to the Agreement;
WHEREAS, the Agreement has been assigned by ARCO Alaska, Inc. to ARCO
Beluga, Inc. (ARCO) effective December 27, 1996;
WHEREAS, Homer Electric Association, Inc. (HEA) and Alaska Electric
Generation and Transmission, Inc. (AEG&T) have proposed to relocate the
Soldotna Unit 1 generation facility to the Alaska Nitrogen Products, LLC
(ammonia production facility) (Facility) that is located on the east side of
Cook Inlet, Alaska, near Nikiski on the Kenai Peninsula;
WHEREAS, to Chugachs knowledge, HEAs and AEG&Ts purpose for
proposing to relocate the Soldotna Unit 1 generation facility would not be to
displace ARCOs gas sales and deliveries to the Beluga Station under the
Agreement;
WHEREAS, the relocated generation facility would be operated under a
dispatch agreement with Chugach (Dispatch Agreement) and would be known as the
Nikiski Cogeneration Project (Nikiski Project);
WHEREAS, the portion of the generation capability of the Nikiski
Project that Chugach obtains under the Dispatch Agreement would become part of
Chugachs generation facilities;
WHEREAS, it is possible that ammonia production could cease at the
Facility,
which in turn could stop the use of steam at the Facility for process purposes;
WHEREAS, it is also possible that steam formerly used at the Facility
for process purposes could be used to generate electricity, if equipment were
installed at the Nikiski Project that permitted such use;
WHEREAS, if Chugach were to obtain steam-produced electricity from the
Nikiski Project, the electricity so obtained could displace a portion of the
electric power generated at Chugachs gas-fueled generation facilities;
WHEREAS, although it is unlikely that the above-described contingencies
will all occur, the potential exists that, if Chugach obtains steam-produced
electricity from the Nikiski Project, a reduction in gas deliveries under the
Agreement could occur;
WHEREAS, the parties desire to enter into an arrangement by which, if
the above- described contingencies do occur, ARCO may exercise an option to sell
and deliver gas under the Agreement in addition to gas otherwise sold
thereunder;
WHEREAS, Chugach and ARCO desire to further amend the
Agreement for the benefit of the parties and to accomplish the above-stated
objectives;
NOW, THEREFORE, the parties agree as follows:
1. Unless otherwise provided herein, all references in this
Amendment to Sections, Subsections, or Exhibits mean such Section, Subsection,
or Exhibit contained or referenced in the Agreement.
2. This Amendment will take effect upon the following consents
and approvals: a) written consent by Marathon Oil Company (Marathon) to the
Amendment, and b) approval of the Amendment by the Alaska Public Utilities
Commission (APUC).
3. The following conditions precedent must be satisfied in full
before the parties have rights and obligations under the Amendment:
A. Commercial ammonia production ceases at the Facility,
and the Facility stops using steam for process purposes; and
B. Equipment is installed at the Nikiski Project that
permits electricity to be generated by steam; and
C. Chugach obtains steam-produced electricity from the
Nikiski Project.
4. If the conditions listed in Paragraph 3, above, have been
satisfied in full, ARCO may exercise an option (Option) to sell and deliver
gas to Chugach at the Beluga Station (Nikiski-Displaced Gas) based on the
procedure and formula described in this Amendment. The price of gas sold under
the Option shall be the price specified in Section VIII. The Nikiski-Displaced
Gas will be considered gas sold under the Agreement in addition to gas otherwise
sold thereunder.
5. Chugach shall promptly notify ARCO under Section XII(i) when
the conditions listed in Paragraph 3, above, have been satisfied in full. ARCO
may then exercise its Option as follows: On or before thirty (30) days
(Option Deadline) from the date that ARCO receives Chugachs notice under this
Paragraph 5, ARCO shall notify Chugach under Section XII(i) that ARCO chooses to
sell and deliver Nikiski- Displaced Gas at the Beluga Station. The Options
effective date will be the date Chugach receives ARCOs notice. ARCO will be
considered to have declined to exercise the Option if ARCO does not fully and
timely exercise the Option by the Option Deadline as provided in this Paragraph
5 and in Section XII(i).
6. Provided that ARCO has exercised its Option, the quantity of
Nikiski- Displaced Gas that ARCO shall sell and deliver under this Amendment
will be determined as follows: Chugach shall first calculate the generation
capacity from steam production (Steam Capacity) that is available in megawatts
(MW) from the Nikiski Project as of the effective date of the Option. Chugach
shall then calculate the total generation capacity (Total Capacity) that is
available in MW from the Nikiski Project as of the effective date of the Option.
The Total Capacity will be the sum of: a) the capacity in MW represented by
the Soldotna Unit 1 alone; b) the capacity in MW added to the Nikiski Project
from sources other than steam production capability; and c) the Steam Capacity.
The percentage incremental capacity increase that is attributable to steam
production capability at the Nikiski Project, i.e. Steam Capacity divided by
Total Capacity, will be expressed as a percentage carried out to the first
decimal point (Steam Percentage). The quantity of Nikiski-Displaced Gas that
ARCO shall sell and deliver under this Amendment will be the product of the
following: a Steam Multiplier, multiplied by the Steam Percentage, multiplied
by the gas used as fuel for Chugachs portion of the capability and output of the
Nikiski Project. The Steam Multiplier is Twenty Percent (20%), subject however
to modification under Paragraph 8, below.
7. ARCO and Chugach recognize that Chevron U.S.A. Inc. (Chevron)
and the Municipality of Anchorage d/b/a Municipal Light & Power (ML&P) also sell
and deliver gas to Chugach at the Beluga Station under Agreements for the Sale
and Purchase of Natural Gas dated April 27, 1989 and April 25, 1989,
respectively, as later amended (respectively, the Chevron Agreement and the
ML&P Agreement). Chevron and ML&P are referred to in this Amendment as the
Remaining Beluga Producers. ARCO and Chugach further recognize that Chugach has
offered the same options under the same terms to the Remaining Beluga Producers
(Corresponding Options) as the Option that Chugach has offered ARCO under this
Amendment.
8. If ARCO exercises its Option, then after the Remaining Beluga
Producers have notified Chugach whether they exercise or decline to exercise the
Corresponding Options, Chugach shall promptly notify ARCO under Section XII(i)
if a Remaining Beluga Producer has declined to exercise its Corresponding
Option. If a Remaining Beluga Producer has so declined, ARCO may then amend its
Option by exercising a Revised Option as follows: On or before thirty (30)
days (Revised Option Deadline) from the date that ARCO receives Chugachs notice
under this Paragraph 8, ARCO shall notify Chugach under Section XII(i) that
Nikiski-Displaced Gas will be calculated using a Steam Multiplier that ARCO
shall specify in its notice and that is between Twenty Percent (20%) and Thirty
Percent (30%), inclusive (if one Remaining Beluga Producer has declined to
exercise its Corresponding Option), or between Twenty Percent (20%) and Sixty
Percent (60%), inclusive (if both Remaining Beluga Producers have declined to
exercise their Corresponding Options). The Revised Options effective date will
be the Options effective date, retroactive to such date. ARCO will be
considered to have declined to exercise its Revised Option, and shall continue
to sell Nikiski-Displaced Gas that is calculated using a Steam Multiplier of
Twenty Percent (20%), if ARCO does not fully and timely exercise the Revised
Option by the Revised Option Deadline as provided in this Paragraph 8 and in
Section XII(i).
9. If the Steam Capacity or Total Capacity at the Nikiski Project
changes after ARCO exercises its Option and (if applicable) its Revised Option,
then retroactive to the effective date of the change in the Steam Capacity or
Total Capacity, Chugach shall recalculate the Steam Capacity, Total Capacity,
and Steam Percentage for purposes of determining the quantity of Nikiski-
Displaced Gas that ARCO shall sell and deliver under this Amendment.
10. After ARCO exercises its Option and (if applicable) its
Revised Option, the sale and delivery of Nikiski-Displaced Gas shall continue
through the earlier of a) the termination of the Dispatch Agreement, or b) the
end of Period #2 as defined in the Agreement.
11. By agreeing to this Amendment, ARCO consents to Chugach
obtaining steam-produced electricity from the Nikiski Project under the
circumstances described in this Amendment, should Chugach choose at its
discretion to obtain such electricity.
12. By agreeing to this Amendment, and except as provided in this
Amendment, neither ARCO nor Chugach waives, modifies, or prejudices any right or
obligation that may be available to it, at any time. This Amendment has no
precedential effect. It does not commit either party to further amend the
Agreement or to enter into other contractual arrangements. Nor does this
Amendment commit either party to take a a certain position in discussions or
negotiations, either with the other party or with any other entity.
13. Except for the foregoing amendments, all other terms and conditions of
the Agreement remain in full force and effect.
IN WITNESS WHEREOF, Chugach and ARCO have caused this Amendment
No. 2 to be executed by their authorized representatives.
Chugach Electric ARCO Beluga, Inc.
Association, Inc.
By: /s/Eugene N. Bjornstad By: /s/ M. W. Wheatall
Its: General Manager Its: Vice President
Date: May 6, 1999 Date: 5/4/99
Tal99022.AAI.Amd2
08/12/99 1:07 PM
(continued from previous page)
1
AMENDATORY AGREEMENT NO. 5
TO
AGREEMENT FOR THE SALE AND PURCHASE OF NATURAL GAS
between
CHUGACH ELECTRIC ASSOCIATION, INC.
AND
MARATHON OIL COMPANY
dated September 26, 1988
WHEREAS, Chugach Electric Association, Inc. (Chugach) and Marathon
Oil Company (Marathon) entered into an Agreement for the Sale and Purchase of
Natural Gas (Agreement) dated September 26, 1988;
WHEREAS, the Agreement has heretofore been amended four times; and
WHEREAS, Chugach and Marathon desire to modify further the Agreement
for the benefit of both parties;
NOW, THEREFORE, in consideration of the promises and mutual
agreements herein contained, the parties do covenant and agree as follows:
Section A. The definition of Bernice Lake Power Plant in Section
14(h) of the Agreement shall include but not be limited to Chugachs portion of
the capability and output of the Nikiski cogeneration facility, which
facility consists in part of a forty megawatt (40 MW) gas-fired generating
unit owned by Alaska Electric Generation & Transmission, Inc. (AEG&T)
and located on the east side of Cook Inlet, Alaska near Nikiski on the
Kenai Peninsula.
Section B. If and to the extent that Marathon supplies gas to Chugach
from the Swanson River Field for use by Chugach as fuel for Chugachs portion
of the capability and output of the Nikiski cogeneration facility owned by
AEG&T, then the Agreement shall be modified in the following respects for
any such Swanson River Field gas:
(1) For purposes of Section 7(b) of the Agreement and
Section 2(b)(5) of Exhibit F of the Agreement, the upper limit of
the acceptable range for the heating value of Swanson River Field
gas shall be 1090 (rather than 1050) Btu per cubic foot, expressed at
14.65 pounds per square inch absolute, 60 degrees Fahrenheit
(dry basis).
(2) Section 3 (Gas Quality) of Exhibit F of the
Agreement shall be modified as follows for
Swanson River Field gas: As a non-operator of the Swanson River
Field and gas storage reservoir, Marathon can not guarantee the
quality of the gas delivered to Chugach from this location.
However, Marathon will endeavor to provide Chugach on a monthly
basis with an analysis provided by the Operator of the Swanson River
gas field and storage reservoir.
(3) Section 3 (Gas Pressure) of Exhibit F of the Agreement
shall be modified as follows for Swanson River Field gas: Gas shall
be delivered to Chugach at a pressure of not less than four hundred
(400) pounds per square inch gauge and not more than one thousand
(1000) pounds per square inch gauge. Gas shall be delivered to
UNOCALs facility at a pressure within this stated range or at the
pressure required at the inlet of the UNOCAL facility.
Section C. Chugach and Marathon recognize the possibility that
the steam output of the Nikiski cogeneration facility may, in some
circumstances, cease being used as process steam in the production of ammonia
and may instead be harnessed for the production of electric power. Chugach
and Marathon also recognize that if this occurs, and if Chugach (rather than
some other entity) obtains such steam-generated electric power, then
such steam-generated electric power will in effect displace electric power
that Chugach would otherwise produce by operating Chugachs gas-fired
generators at Beluga. As a result of its existing contractual obligations to
the Beluga River Field Producers, Chugach has offered to the Beluga River Field
Producers gas contract amendments under which, in such circumstances, each
individual Beluga River Field Producer could elect to increase its sales
of gas to Chugach at Beluga in order to offset the reduction in such sales
that would otherwise result from Chugach obtaining such steam-generated
electric power. If and to the extent that any or all of the Beluga River
Field Producers accept(s) such contract amendments and, in the circumstances
contemplated by such amendments, such Producer(s) does/do in fact elect to
so increase its/their sales of gas to Chugach at Beluga, then (1)
Chugachs purchases of gas from Marathon at Beluga will be reduced by the
total amount of such increased sales, and (2) Chugach will continue to
purchase from Marathon all the gas used as fuel for Chugachs portion of the
capability and output of the Nikiski cogeneration facility.
Section D. Chugach will not, without Marathons advance written
consent, exercise its option granted by AEG&T to obtain from steam-powered
generation at the Nikiski cogeneration facility more energy than that which
can reasonably be produced by a 12 megawatt steam-powered generator; provided,
that if Chugach demonstrates that, in the circumstances then existing and
expected, Chugach can obtain more than 12 megawatts from such
steam-powered generation without reducing Marathons net sales of gas to
Chugach, then Marathon shall not unreasonably withhold such consent.
Section E. For purposes of Section D, above, Chugach shall
determine the effect of steam-powered generation at the Nikiski cogeneration
facility upon Marathons net sales of gas to Chugach, as follows: Chugach
shall notify Marathon if Chugach desires to obtain more energy from
such generation than that which can reasonably be produced by a 12 megawatt
steam-powered generator. The notice shall further state (1) the total
volume of gas delivered to Chugach by Marathon under the Agreement during the
twelve (12) full calendar months ended April 30, 1999, as reflected in
Marathons invoices for those months (Base Gas); (2) Chugachs estimate
for Marathons Share of Chugachs Total Gas Requirements under the Agreement
during the twelve (12) full calendar months beginning the first day of the
month after Chugachs notice, assuming that Chugach were to obtain more
energy during such period from steam-powered generation at the Nikiski
cogeneration facility than that which can reasonably be produced by a 12
megawatt steam-powered generator (Estimated Gas); and (3) Chugachs basis
for the calculations and estimates in the notice. If the Estimated Gas
minus the Base Gas is zero or a positive number, then Marathon shall not
unreasonably withhold its consent as provided in Section D, above.
Section F. This Amendment will become effective upon approval by the
Alaska Public Utilities Commission.
Section G. Except for the foregoing amendments, all other terms and
conditions of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, Chugach and Marathon have caused this
Amendatory Agreement No. 5 to be executed by their authorized representatives.
Chugach Electric Association, Inc. Marathon Oil Company
By: /s/Eugene N. Bjornstad By: /s/ R.G. Becker
Its: General Manager Its: Vice President
Date: May 19, 1999 Date:May 24, 1999
(continued from previous page)
1
AMENDMENT NO. 3
TO
AGREEMENT FOR THE SALE AND PURCHASE OF NATURAL GAS
between
CHUGACH ELECTRIC ASSOCIATION INC.
and
CHEVRON U.S.A. INC.
dated April 27, 1989
WHEREAS, Chugach Electric Association, Inc. ("Chugach") and Chevron
U.S.A., Inc. ("Chevron") entered into an Agreement for the Sale and Purchase of
Natural Ga ("Agreement") dated April 27, 1989, which Agreement provides for the
sale and delivery of gas by Chevron to Chugachs gas-fueled generation
facilities located on the west side of Cook Inlet, Alaska ("Beluga Station");
WHEREAS, Homer Electric Association, Inc. ("HEA") and Alaska Electric
Generation and Transmission, Inc. ("AEG&T") have proposed to relocate the
Soldotna Unit 1 generation facility to the Alaska Nitrogen Products, LLC
(ammonia production facility) ("Facility") that is located on the east side of
Cook Inlet, Alaska, near Nikiski on the Kenai Peninsula;
WHEREAS, to Chugachs knowledge, HEA's and AEG&T's purpose for
proposing to relocate the Soldotna Unit 1 generation facility would not be to
displace Chevrons gas sales and deliveries to the Beluga Station under the
Agreement;
WHEREAS, the relocated generation facility would be operated under a
dispatch agreement with Chugach ("Dispatch Agreement") and would be known as the
Nikiski Cogeneration Project ("Nikiski Project");
WHEREAS, the portion of the generation capability of the Nikiski
Project that Chugach obtains under the Dispatch Agreement would become part of
Chugach's generation facilities;
WHEREAS, it is possible that ammonia production could cease at the
Facility, which in turn could stop the use of steam at the Facility for process
purposes;
WHEREAS, it is also possible that steam formerly used at the Facility
for process purposes could be used to generate electricity, if equipment were
installed at the Nikiski Project that permitted such use;
WHEREAS, if Chugach were to obtain steam-produced electricity from the
Nikiski Project, the electricity so obtained could displace a portion of the
electric power generated at Chugachs gas-fueled generation facilities;
WHEREAS, although it is unlikely that the above-described contingencies
will all occur, the potential exists that, if Chugach obtains steam-produced
electricity from the Nikiski Project, a reduction in gas deliveries under the
Agreement could occur;
WHEREAS, the parties desire to enter into an arrangement by which, if
the above- described contingencies do occur, Chevron may exercise an option to
sell and deliver gas under the Agreement in addition to gas otherwise sold
thereunder;
WHEREAS, the Agreement has heretofore been twice amended;
WHEREAS, Chugach and Chevron desire to further amend the Agreement for
the benefit of the parties and to accomplish the above-stated objectives;
NOW, THEREFORE, the parties agree as follows:
1. Unless otherwise provided herein, all references in this
Amendment to Sections, Subsections, or Exhibits mean such Section, Subsection,
or Exhibit contained or referenced in the Agreement.
2. This Amendment will take effect upon approval by the Alaska
Public Utilities Commission ("APUC").
3. The following conditions precedent must be satisfied in full
before the parties have rights and obligations under the Amendment:
A. Commercial ammonia production ceases at the Facility,
and the Facility stops using steam for process purposes; and
<PAGE>
B. Equipment is installed at the Nikiski Project that
permits electricity to be generated by steam; and
C. Chugach obtains steam-produced electricity from the
Nikiski Project.
4. If the conditions listed in Paragraph 3, above, have been
satisfied in full, Chevron may exercise an option ("Option") to sell and deliver
gas to Chugach at the Beluga Station ("Nikiski-Displaced Gas") based on the
procedure and formula described in this Amendment. The price of gas sold under
the Option shall be the price specified in Section 7. The Nikiski-Displaced Gas
will be considered gas sold under the Agreement in addition to gas otherwise
sold thereunder.
5. Chugach shall promptly notify Chevron under Section 11(i) when
the conditions listed in Paragraph 3, above, have been satisfied in full.
Chevron may then exercise its Option as follows: On or before thirty (30) days
("Option Deadline") from the date that Chevron receives Chugach's notice under
this Paragraph 5, Chevron shall notify Chugach under Section 11(i) that Chevron
chooses to sell and deliver Nikiski-Displaced Gas at the Beluga Station. The
Option's effective date will be the date Chugach receives Chevron's notice.
Chevron will be considered to have declined to exercise the Option if Chevron
does not fully and timely exercise the Option by the Option Deadline as provided
in this Paragraph 5 and in Section 11(i).
6. Provided that Chevron has exercised its Option, the quantity
of Nikiski- Displaced Gas that Chevron shall sell and deliver under this
Amendment will be determined as follows: Chugach shall first calculate the
generation capacity from steam production ("Steam Capacity") that is available
in megawatts ("MW") from the Nikiski Project as of the effective date of the
Option.Chugach shall then calculate the total generation capacity
("Total Capacity") that is available in MW from the Nikiski Project as of the
effective date of the Option. The Total Capacity will be the sum of: a) the
capacity in MW represented by the Soldotna Unit 1 alone; b) the capacity in MW
added to the Nikiski Project from sources other than steam production
capability; and c) the Steam Capacity. The percentage incremental capacity
increase that is attributable to steam production capability at the Nikiski
Project, i.e. Steam Capacity divided by Total Capacity, will be expressed as a
percentage carried out to the first decimal point ("Steam Percentage"). The
quantity of Nikiski-Displaced Gas that Chevron shall sell and deliver under this
Amendment will be the product of the following: a Steam Multiplier, multiplied
by the Steam Percentage, multiplied by the gas used as fuel for Chugach's
portion of the capability and output of the Nikiski Project. The Steam
Multiplier is Twenty Percent (20%), subject however to modification under
Paragraph 8, below.
7. Chevron and Chugach recognize that ARCO Alaska, Inc. ("ARCO")
and the Municipality of Anchorage d/b/a Municipal Light & Power ("ML&P") also
sell and deliver gas to Chugach at the Beluga Station under Agreements for the
Sale and Purchase of Natural Gas dated April 21, 1989 and April 25, 1989,
respectively, as later amended (respectively, the "ARCO Agreement" and the "ML&P
Agreement"). ARCO and ML&P are referred to in this Amendment as the Remaining
Beluga Producers. Chevron and Chugach further recognize that Chugach has
offered the same options under the same terms to the Remaining Beluga Producers
("Corresponding Options") as the Option that Chugach has offered Chevron under
this Amendment.
8. If Chevron exercises its Option, then after the Remaining
Beluga Producers have notified Chugach whether they exercise or decline to
exercise the Corresponding Options, Chugach shall promptly notify Chevron under
Section 11(i) if a Remaining Beluga Producer has declined to exercise its
Corresponding Option. If a Remaining Beluga Producer has so declined, Chevron
may then amend its Option by exercising a Revised Option as follows: On or
before thirty (30) days ("Revised Option Deadline") from the date that Chevron
receives Chugach's notice under this Paragraph 8, Chevron shall notify Chugach
under Section 11(i) that Nikiski-Displaced Gas will be calculated using a Steam
Multiplier that Chevron shall specify in its notice and that is between
Twenty Percent (20%) and Thirty Percent (30%), inclusive (if one Remaining
Beluga Producer has declined to exercise its Corresponding Option), or between
Twenty Percent (20%) and Sixty Percent (60%), inclusive (if both Remaining
Beluga Producers have declined to exercise their Corresponding Options). The
Revised Option's effective date will be the Options effective date, retroactive
to such date. Chevron will be considered to have declined to exercise its
Revised Option, and shall continue to sell Nikiski-Displaced Gas that is
calculated using a Steam Multiplier of Twenty Percent (20%), if Chevron does not
fully and timely exercise the Revised Option by the Revised Option
Deadline as provided in this Paragraph 8 and in Section 11(i).
9. If the Steam Capacity or Total Capacity at the Nikiski Project
changes after Chevron exercises its Option and (if applicable) its Revised
Option, then retroactive to the effective date of the change in the Steam
Capacity or Total Capacity, Chugach shall recalculate the Steam Capacity, Total
Capacity, and Steam Percentage for purposes of determining the quantity of
Nikiski-Displaced Gas that Chevron shall sell and deliver under this Amendment.
10. After Chevron exercises its Option and (if applicable) its
Revised Option, the sale and delivery of Nikiski-Displaced Gas shall continue
through the earlier of a) the termination of the Dispatch Agreement, or b) the
end of Period #2 as defined in the Agreement.
11. By agreeing to this Amendment, Chevron consents to Chugach
obtaining steam-produced electricity from the Nikiski Project under the
circumstances described in this Amendment, should Chugach choose at its
discretion to obtain such electricity.
12. By agreeing to this Amendment, and except as provided in this
Amendment, neither Chevron nor Chugach waives, modifies, or prejudices any right
or obligation that may be available to it, at any time. This Amendment has no
precedential effect. It does not commit either party to further amend the
Agreement or to enter into other contractual arrangements. Nor does this
Amendment commit either party to take a a certain position in discussions or
negotiations, either with the other party or with any other entity.
13. Except for the foregoing amendments, all other terms and
conditions of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, Chugach and Chevron have caused this Amendment
No. 3 to be executed by their authorized representatives.
Chugach Electric Association, Inc. Chevron U.S.A. Inc.
By: /s/Eugene N. Bjornstad By: /s/ D. T. Berlin
Its: General Manager Its: Attorney-In-Fact
Date: May 24, 1999 Date: 5-26-99
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,908,100
<SECURITIES> 0
<RECEIVABLES> 11,985,330
<ALLOWANCES> 791,300
<INVENTORY> 17,585,354
<CURRENT-ASSETS> 38,826,057
<PP&E> 651,995,906
<DEPRECIATION> (238,541,532)
<TOTAL-ASSETS> 491,309,033
<CURRENT-LIABILITIES> 39,257,058
<BONDS> 307,306,339
0
0
<COMMON> 0
<OTHER-SE> 120,577,208
<TOTAL-LIABILITY-AND-EQUITY> 491,309,033
<SALES> 71,732,217
<TOTAL-REVENUES> 71,732,217
<CGS> 0
<TOTAL-COSTS> 53,655,819
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,080,414
<INCOME-PRETAX> 6,321,696
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,321,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,321,696
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
