10-K

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

FORM 10K

(Mark One)

     X         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended    December 31, 2006

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 Electron Dr., Anchorage, Alaska	99518
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code	(907) 563-7494
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
___________________________________	___________________________________
___________________________________	___________________________________

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

_____________________________________________________________________________________

(Title of class)

_____________________________________________________________________________________

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.                                                                                                                                    o Yes  x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.                                                                                                                                               x Yes  o No 

Indicate by check mark whether registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                                                                                                                            x Yes  o No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Registration S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                                                                                                                                                                                                                                                 N/A

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, (as defined in Rule 12b-2 of the Act).

Large accelerated filer o	Accelerated filer o	Non-accelerated filer x
Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Act.                                                            o Yes  x No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.                                                                                                                                                                N/A

CHUGACH ELECTRIC ASSOCIATION, INC.

2006 Form 10-K Annual Report

Table of Contents

	PART I	Page
Item 1 –	Business	3
Item 1A –	Risk Factors	11
Item 1B –	Unresolved Staff Comments	11
Item 2 –	Properties	12
Item 3 –	Legal Proceedings	19
Item 4 –	Submission of Matters to a Vote of Security Holders	23
	PART II
Item 5 –	Market for Registrant’s Common Equity, Related Stockholder
	Matters and Issuer Purchases of Equity Securities	23
Item 6 –	Selected Financial Data	24
Item 7 –	Management’s Discussion and Analysis of Financial Condition	25
	and Results of Operations
Item 7A –	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8 –	Financial Statements and Supplementary Data	44
Item 9 –	Changes in and Disagreements with Accountants on Accounting
	and Financial Disclosure	79
Item 9A –	Controls and Procedures	79
Item 9B –	Other Information	79
	PART III
Item 10 –	Directors, Executive Officers and corporate Governance	80
Item 11 –	Executive Compensation	83
Item 12 –	Security Ownership of Certain Beneficial Owners and Management
	and Related Stockholder Matters	90
Item 13 –	Certain Relationships and Related Transactions, and Director Independence	90
Item 14 –	Principal Accounting Fees and Services	91
	PART IV
Item 15 –	Exhibits and Financial Statement Schedules	92
SIGNATURES		106

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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) 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 effect of those events or circumstances on any of the forward-looking statements contained in this report, except as required by law.

PART I

Item 1 - Business

General

Chugach was organized as an Alaska electric cooperative in 1948. Cooperatives are business organizations that are owned by their members. As not-for-profit organizations (Internal Revenue Code 501 (c)(12)), cooperatives are intended to provide services to their members at cost, in part by eliminating the need to produce profits or a return on equity other than for reasonable reserves and margins. Today, cooperatives in general operate throughout the United States in such diverse areas as utilities, agriculture, irrigation, insurance and credit. All cooperatives are based upon similar principles and legal foundations. Because members’ equity is not considered an investment, a cooperative’s objectives and policies are oriented to serving member interests, rather than maximizing return on investment.

                Chugach makes its current and periodic reports available, free of charge, on its website at www.chugachelectric.com as soon as practicable after filing with the Securities and Exchange Commission (SEC). Our website provides a link to the SEC website.

 Chugach is the largest electric utility in Alaska. We are engaged in the generation, transmission and distribution of electricity to approximately 79,700 active metered locations in the Anchorage and upper Kenai Peninsula areas. Through an interconnected regional electrical system, our energy is distributed throughout Alaska’s Railbelt, a 400-mile-long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state, including Alaska’s largest cities, Anchorage and Fairbanks. Neither Chugach nor any other electric utility in Alaska has any connection to the electric grid of the mainland United States or Canada.

Chugach is a rural electric cooperative that is exempt from federal income taxation as an organization described in Section 501(c)(12) of the Internal Revenue Code (Code). Alaska electric cooperatives must pay to the State of Alaska, a gross receipts tax in lieu of state and local ad valorem, income and excise taxes, a tax at the rate of $0.0005 per kWh of electricity sold in the retail market during the preceding year. This tax is accrued monthly and remitted annually. In addition, we currently collect a regulatory cost charge of $0.000364 per kWh of retail electricity

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sold. This charge is assessed to fund the operations of the Regulatory Commission of Alaska (RCA). This tax is collected monthly and remitted to the State of Alaska quarterly. We also collect sales tax on retail electricity sold to Kenai and Whittier consumers. This tax is also collected monthly and remitted to the Kenai Peninsula Borough quarterly. These taxes are a pass-through and thus do not impact our margins.

Our workforce consists of approximately 348 full-time employees. Approximately 70% of our employees are members of the International Brotherhood of Electrical Workers (IBEW). We have three Collective Bargaining Agreements (CBA) with the IBEW, which expired on June 30, 2006. The Outside Agreement was approved by the Board of Directors in December 2006. Chugach and the union have continued to honor the prior Generation and Office and Engineering Agreements while new agreements are negotiated. We also have an agreement with Hotel Employees, Restaurant Employees (HERE), Local 878, which expired on June 30, 2006. The HERE agreement has been extended on a month-by-month basis through April 30, 2007 while current negotiations are continued. We believe our relationship with our employees is good.

Through direct service to retail customers and indirectly through wholesale and economy energy sales, we provide some or all of the electricity used by approximately two-thirds of Alaska’s electric customers. We supply much of the power requirements of three wholesale customers, Matanuska Electric Association (MEA), Homer Electric Association (HEA) and the City of Seward (Seward). We sell available generating capacity in excess of our own needs to produce electric energy for sale to Golden Valley Electric Association, Inc. (GVEA). In addition, on a periodic basis, we provide electricity to Anchorage Municipal Light & Power (AML&P). AML&P has approximately 30,000 meters.

Our members are the consumers of the electricity sold by us. As of December 31, 2006, we had 64,349 retail members receiving service at approximately 79,700 active metered locations and three major wholesale customers. No individual retail customer receives more than 5% of our power.

Our customers are billed per a tariff rate on a monthly basis for electrical power consumed during the preceding period. Billing rates are approved by the RCA (see “Rate Regulation and Rates” below).

Rates (derived on the basis of historic cost of service and margins) are established to generate revenues in excess of current period costs in any year and such excess is designated on our Statements of Revenues, Expenses and Patronage Capital as “assignable margins.” Retained assignable margins are designated on our balance sheet as “patronage capital” that is assigned to each member on the basis of patronage.

We have 530 megawatts of installed generating capacity provided by 17 generating units at our five owned power plants: Beluga Power Plant, Bernice Lake Power Plant, International Generation and Transmission Power Plant (IGT), Cooper Lake Hydroelectric Plant and Eklutna Hydroelectric Project, in which we own a 30% interest. Approximately 84% (by rated capacity) of our generating capacity is fueled by natural gas, which we purchase under long-term gas contracts. The remainder of our generating resources are hydroelectric facilities. In 2006, 90% of our power was generated from gas, and 87% of that gas-fired generation took place at Beluga. The Bradley

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Lake Hydroelectric Project provides up to 27.4 megawatts for our retail customers and up to 38.6 megawatts for our wholesale customers. For more information concerning Bradley Lake, see “Item 2 – Properties – Other Property – Bradley Lake.”  We also purchase approximately 40 megawatts from the Nikiski power plant on the Kenai Peninsula. We operate 1,657 miles of distribution line and 533 miles of transmission line, which includes 128 miles of leased transmission lines and Chugach’s share of the Eklutna transmission line. For the year ended December 31, 2006, we sold 2.8 billion kilowatt hours (kWh) of electrical power.

Customer Revenue From Sales

The following table shows the energy sales to and electric revenues from our retail, wholesale, and economy energy customers for the year ended December 31, 2006:

	MWh		2006 Revenues		Percent of Revenue
Direct retail sales:
Residential		564,969	$	79,712,079		30	%
Commercial		665,008		74,837,614		28	%
Total		1,229,977		154,549,693		58	%
Wholesale sales:
MEA		723,452		55,269,740		21	%
HEA		478,129		34,799,775		13	%
Seward		58,671		3,991,430		2	%
Total		1,260,252		94,060,945		36	%
Economy energy sales1		263,037		16,014,663		6	%
Total from sales		2,753,266		264,625,301		100	%
Miscellaneous energy revenue				2,917,412
Total energy revenues			$	267,542,713

¹ Economy sales were made to GVEA and AML&P.

Retail Customers

Service Territory

Our retail service area covers the populated areas of Anchorage (other than downtown Anchorage) as well as remote mountain areas and villages. The service area ranges from the northern Kenai Peninsula on the south, to Tyonek on the west, to Whittier on the east and to the Glenn Highway on the north.

Customers

As of December 31, 2006, we had 64,349 members being served by approximately 79,700 meters (some members are served by more than one meter). Our customers are primarily urban and suburban. The urban nature of our customer base means that we have a relatively high customer density per line mile. Higher customer density means that fixed costs can be spread over a greater number of customers. As a result of lower average costs attributable to each customer, we benefit

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from a greater stability in revenue, as compared to a less dense distribution system in which each individual customer would have a more significant impact on operating results. For the past five years no retail customer accounted for more than 5% of our revenues.

Wholesale Customers

We are the principal supplier of power to MEA, Seward and HEA under separate wholesale power contracts. For 2006, our wholesale power contracts, including the fuel component, produced $94.1 million in revenues, representing 36% of our total revenues and 46% of our total sales to customers.

MEA and HEA

We have two power sales contracts with Alaska Electric Generation & Transmission Cooperative, Inc., (AEG&T): one for firm, all-requirement sales to MEA and one for firm, partial- requirement sales to HEA. AEG&T is a generation and transmission cooperative that was formed by MEA and HEA in the mid 1980’s. Under each of these contracts, we sold power to AEG&T, for resale to MEA and HEA. On June 19, 2002, the RCA approved the request by Alaska Electric and Energy Cooperative, Inc. (AEEC) and AEG&T to transfer Certificate of Public Convenience and Necessity No. 345 to serve as the power supplier of HEA to AEEC, instead of AEG&T. HEA is the sole member of AEEC. As part of this transaction our power sales agreement was assigned to AEEC and the Nikiski dispatch agreement was assigned to HEA with certain exceptions with the remaining rights and obligations under the Dispatch Agreement being assigned to AEEC (see ensuing discussion on page 7). Chugach has not experienced a decline in revenue as a result of this transfer. Under our contracts, each of MEA and HEA is obligated to pay us for the power sold to AEG&T and AEEC even if AEG&T and AEEC do not pay.

Under the contract with AEG&T and MEA, MEA is obligated to purchase all of its electric power and energy requirements from us. MEA has the right, on advance notice given after RCA approval, to convert to a net-requirements purchaser of power, and as such MEA would be obligated to buy its needed power from us net of its power needs satisfied from any of its own or AEG&T’s resources. The notice period required for such conversion may be up to five years after RCA approval, depending on which non-Chugach resources MEA proposes to use to satisfy its power needs. MEA has not invoked this right at this time.

If MEA converts to a net-requirements purchaser under the contract, MEA cannot reduce its payment for power that it purchases from us below a certain minimum amount. MEA will be required to pay demand charges based upon the highest post-1985 historical coincident peak on the MEA system. Therefore, if MEA converts to net-requirements service, we will continue to recover all or substantially all of the fixed costs now assigned to it. Also, our revenues from energy sales to MEA would partially decline in proportion to the reduction in the energy sold, but this decline would be offset to an extent by savings in the variable costs associated with energy production.

MEA also has the right, on seven years advance notice after RCA approval, to convert to a take-or-pay purchase of a fixed amount of power, also subject to minimum payment requirements associated with prior purchases. The MEA contract is in effect through December 31, 2014. Chugach and MEA met on October 27, 2004, pursuant to Section 12(c) of the MEA/Chugach

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Power Sales Agreement. This provision requires the parties to meet no later than ten years prior to the termination date of the Agreement, to discuss a possible renewal, extension, or modification of the Agreement, as well as the desires and potential circumstances of all parties following the termination date. At that meeting and shortly thereafter by letter dated November 2, 2004, MEA communicated to Chugach that MEA does not desire to renew, extend or modify the Agreement. Further, MEA stated that it does not envision any type of firm power purchase arrangement with Chugach following expiration of the Agreement on December 31, 2014. MEA assured Chugach that it intends to continue to purchase power from Chugach in accordance with the Agreement through December 31, 2014.

During the past several years, we have had numerous disputes and engaged in substantial litigation with MEA regarding many aspects of our contractual relationship with it. For a discussion of material pending litigation between MEA and us, see “Item 3 - Legal Proceedings.”

Our contract for the benefit of HEA obligates HEA (through AEEC) to take or pay for 73 megawatts of capacity, and not less than 350,000 MWh per year. The HEA contract, as interpreted by the Alaska Public Utilities Commission (APUC), the predecessor to the RCA, limits the costs that may be included in our rates charged to HEA. The HEA contract expires on January 1, 2014. HEA’s remaining resource requirements are provided by AEEC’s Nikiski cogeneration facility and AEEC’s contract rights to receive power from the Bradley Lake hydroelectric project for the benefit of HEA. In February 1999, we entered into a dispatch agreement with AEG&T to operate the Nikiski unit as a Chugach system resource. The agreement provides that, in addition to the energy that we already sell to AEEC and HEA, we will sell energy to AEG&T equal to HEA’s residual energy requirements less its allocated share of the Bradley Lake project, up to a maximum of 320,000 MWh per year. A portion of the Nikiski unit output may be dispatched for HEA needs in excess of the sum of our contract demand plus HEA’s share of energy from the Bradley Lake project. The dispatch agreement will terminate on January 1, 2014, when our power supply contract for the benefit of HEA terminates.

Seward

                We currently provide nearly all the power needs of the City of Seward. Sales to Seward represent approximately 2.5% of Chugach’s total sales of energy (including both retail and wholesale). In February 1998, we entered into a power sales agreement (Old Contract) with Seward that allowed us to interrupt service to Seward up to 12 times per year, not to exceed seventy-two cumulative hours annually and also reduce the demand charge by 1/3 (approximately $350,000 annually). This agreement was scheduled to expire January 31, 2006. The RCA granted a four-month extension to May 31, 2006, of the old contract to allow the parties to complete negotiations on a new contract.

                Negotiations with Seward were successful and on April 14, 2006, Chugach filed a request for approval by the RCA of a proposed new power sales agreement with the City of Seward (2006 Agreement) with a nominal effective date of June 1, 2006. The proposed contract was for five years with two automatic five-year extensions unless notice of termination is given by either party and resulted in a 5 percent increase in revenues in relation to the Old Contract.

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                The 2006 Agreement is an interruptible, all-requirements/no reserves contract. It has many of the attributes of firm service, especially in the requirement that so long as Chugach has sufficient power available, it must meet Seward’s needs for power. However, service is interruptible because Chugach is under no obligation to supply or plan for generation capacity reserves to supply Seward and there is no limit on the number of times or hours per year that the supply can be interrupted.

                Counterbalancing this is the requirement that Chugach must provide power to Seward if Chugach has the power available after first meeting its obligations to its other customers for whom Chugach has an obligation to provide reserves (MEA, HEA and Chugach retail customers).

                The price under the 2006 Agreement reflects the reduced level of service because no costs of generation in excess of that needed to meet the system peak will be assigned to Seward.

                Approval of the new Agreement was contested by Chugach’s wholesale customer, MEA and Chugach’s wholesale customer HEA also intervened in the proceeding. A hearing was set to begin November 30, 2006. Chugach filed a Motion for Summary Disposition. The Motion was granted in part and citing this decision, MEA withdrew from the case.

                The remaining parties entered into a stipulation, accepted by the RCA, to allow additional RCA review of the agreement before an automatic extension of the agreement, which is permitted after the first five years of the term of the agreement. On the basis of the stipulation, the Commission cancelled the hearing and the 2006 Agreement with Seward was approved as amended.

Economy Customers

Since 1989, we have sold economy (non-firm) energy to GVEA under an agreement that expires in 2009. Under the agreement, we use available generating capacity in excess of our own needs to produce electric energy for sale to GVEA, which uses that energy to serve its own loads in place of more expensive energy that it would otherwise generate itself or purchase from other sources. We purchase gas from Marathon Oil Company (Marathon) to produce energy for sale to GVEA, and we charge GVEA a rate sufficient to recover the gas cost, the costs of incremental operations and maintenance expense resulting from increased use of our generators for GVEA, and an agreed-upon margin for each kWh sold.

In 2000, the RCA approved an amendment to our agreement with GVEA and a settlement of an inter-utility dispute. As a result, the market for economy energy sold to GVEA has now been divided into two parts. The larger part continues to be governed by a contractual priority right under our agreement with GVEA. Under this contractual priority right provision, if GVEA requires non-firm energy in sufficient quantities, we have an opportunity to sell and GVEA has a corresponding obligation to purchase two-thirds of the first 450,000 MWh and an additional 80% of the excess over 450,000 MWh of the non-firm energy that GVEA purchases each year if we are capable of producing that energy. Under the above contractual priority right provision, non-firm sales to GVEA have been 261,177 MWH, 294,054 MWh, and 206,451 MWh for 2006, 2005, and 2004, respectively. For sales not covered by the contractual priority right, no seller enjoys a contractual priority in making such sales and GVEA makes purchases from the seller offering the lowest competitive price.

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Rate Regulation and Rates

The RCA regulates our rates. We can seek changes in our base rates by filing general rate cases with the RCA. On August 10, 2002, A.S. 42.05.175 imposed timelines for RCA decisions. Among other provisions, it provided that for all dockets commenced on or after July 1, 2002, the RCA shall issue a final order not later than 15 months after a complete tariff filing is made for a tariff filing that changes the utility’s revenue requirement or rate design. It is within the RCA’s authority to authorize, after a notice period, rate changes on an interim, refundable basis. In addition, the RCA has been willing to open limited reviews of matters to resolve specific issues from which expeditious decisions can often be rendered.

The RCA has exclusive regulatory control of our retail and wholesale rates, subject to appeal to the Alaska courts. Under Alaska law, financial covenants of an Alaskan electric cooperative contained in a debt instrument will be valid and enforceable, and rates set by the RCA must be adequate to meet those covenants. Under Alaska law, a cooperative utility that is negotiating to enter into a mortgage or other debt instrument that provides for a Times Interest Earned Ratio (TIER) greater than the ratio the RCA most recently approved for that cooperative must submit the mortgage or debt instrument to the RCA before the instrument takes effect. The rate covenants contained in the instruments that govern our outstanding long-term indebtedness do not impose any greater TIER requirement than those previously approved by the RCA.

We expect to continue to recover changes in our fuel and purchased power expenses through routine fuel surcharge filings with the RCA. See “Item 7 - Management’s Discussion and Analysis - Results of Operations – Overview.”

The Amended and Restated Indenture, which became effective January 22, 2003, governs all of our outstanding bonds and requires us to set rates expected to yield margins for interest equal to at least 1.10 times total interest expense. The CoBank Master Loan Agreement also requires Chugach to establish and collect rates reasonably expected to yield margins for interest equal to at least 1.10 times total interest expense. On February 6, 2003, we received Order U-01-108(26) from the RCA, based on our 2000 test year general rate case, that revised our overall rate-making TIER from 1.35 to 1.30. For the year ended December 31, 2006, our achieved TIER was 1.41.

Our Service Areas and Local Economy

Our service areas and those of our wholesale and economy energy customers are often described collectively as the Railbelt region of Alaska because the three geographic areas (the Southcentral, the Kenai Peninsula and the Interior) are linked by the Alaska Railroad.

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

The Matanuska-Susitna Borough is immediately north of the Municipality of Anchorage, centered around the communities of Palmer and Wasilla. Although agriculture, tourism, mining

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and forestry are factors in the economy of the Matanuska-Susitna Borough, the economic well-being of the area is closely tied to that of Anchorage and many Matanuska-Susitna residents commute to jobs in Anchorage.

The Kenai Peninsula is south of Anchorage with an economy substantially independent of the Anchorage area. The most significant basic industry on the Kenai Peninsula is the production and processing of petroleum products from the Cook Inlet region. Agrium, a producer and marketer of agricultural nutrients and industrial products, located on the Kenai Peninsula, temporarily ceased operation in October of 2006, but expects to resume operation in April or May of 2007 depending on gas availability. If Agrium is unable to obtain favorably-priced additional natural gas, Agrium may be forced to permanently cease production at the Kenai facility. This loss could have a negative effect on the economy of the Kenai Peninsula. Other important basic industries include tourism and fish harvesting and processing. Principal communities on the Kenai Peninsula are Homer, Seward, Kenai and Soldotna.

Fairbanks is the center of economic activity for the central part of the state (known as the Interior). Fairbanks (250 air miles north of Anchorage and about 400 air miles south of Alaska’s northern border) is Alaska’s second largest city. Economic activities in the Fairbanks region include federal and state government and military operations, the University of Alaska, tourism and support of natural resource development in the Interior and northern parts of the state. A major gold mine operates near Fairbanks; another is being developed. The Trans-Alaska Pipeline System (which transports crude oil) passes near Fairbanks on its route from the North Slope oilfield to Valdez. Alyeska Pipeline Company, which operates the Trans-Alaska oil pipeline from Prudhoe Bay to Valdez, has its main operations base in Fairbanks.

Load Forecasts

The following table sets forth our projected load forecasts for the next five years:

Load (MWh)	2007	2008	2009	2010	2011
Retail	1,240,246	1,261,024	1,279,225	1,296,658	1,313,358
Wholesale	1,251,975	1,247,471	1,274,856	1,277,679	1,305,637
Economy	252,517	250,000	150,000	100,000	100,000
Losses	147,095	148,744	151,191	152,786	155,122
Total	2,891,833	2,907,239	2,855,272	2,827,123	2,874,117

Retail and wholesale sales are expected to increase over the next five years primarily due to economic growth resulting from continued federal and state spending, and the expansion of the Matanuska-Susitna Borough economy as it grows to meet a rapid increase in population that live in the Matanuska-Susitna Borough and work in Anchorage. Our firm energy requirements are expected to grow at an average annual compounded rate of 1.2% from 2007 to 2011, retail sales at a rate of 1.4% and wholesale sales at a rate of 1.1%. Economy energy sales beyond 2007 are reduced to a historical planning average. Long-term economy sales are difficult to project due to the uncertainty in the price of petroleum-distillate naphtha, GVEA’s primary fuel type. Economy sales are further reduced in 2009 due to the expiration of Chugach’s economy sales agreement with GVEA in 2009. These projections are based on assumptions that management believes to be reasonable as of the date the projections were made. The occurrence of a significant change in any

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of the assumptions would affect change in the sales forecast.

Item 1A – Risk Factors

                 Chugach’s consolidated financial results will be impacted by weather, the economy of our service territory, fuel availability and prices, the future direction customers may take and the decisions of regulatory agencies. Our creditworthiness will be affected by national and international monetary trends, general market conditions and the expectations of the investment community, all of which are largely beyond our control. In addition, the following statements highlight risk factors that may affect our consolidated financial condition and results of operations. The statements below must be read together with factors discussed elsewhere in this document and in our other filings with the SEC.

Fuel and Purchased Power Surcharge Mechanism

                The fuel and purchased power surcharge mechanism allows Chugach to recover its current fuel and purchased power costs and to recover under-recoveries and refund over-recoveries from prior periods with minimal regulatory lag. Chugach’s fuel surcharge rates are adjusted through quarterly filings with the Regulatory Commission of Alaska, which sets the rates on projected costs, sales and system operations for the quarter. Any under or over recovery of costs is incorporated into the following quarterly surcharge. At December 31, 2006, Chugach had over-recovered $300.6 thousand and at December 31, 2005, Chugach had under-recovered $1.8 million. To the extent the regulated fuel recovery process does not provide for the timely recovery of fuel costs, Chugach could experience a material negative impact on its cash flows.

Equipment Failures and Other External Factors

                The generation and transmission of electricity require the use of expensive and complex equipment. While we have a maintenance program in place, generating plants are subject to unplanned outages because of equipment failure. We are particularly vulnerable to this due to the advanced age of several of our gas-fired generating units. In the event of unplanned outages, we must acquire power from others at unpredictable costs in order to supply our customers and comply with our contractual agreements. The fuel and purchased power surcharge mechanism allows Chugach to reflect current purchased power cost and to recover under-recoveries and refund over-recoveries with a three-month lag. If Chugach were to materially under-recover purchased power costs due to an unplanned outage, we may seek an increase in the surcharge to recover those costs at the time of the next fuel surcharge filing. As a result, cash flow may be impacted due to the lag in payments of purchased power costs and collection of purchased power costs from customers. To the extent the regulated purchased power recovery process does not provide for the timely recovery of purchased power costs, Chugach could experience a material negative impact on its cash flows. This factor, as well as weather, interest rates, economic conditions, fuel supply and prices, are largely beyond our control, but may have a material adverse effect on our consolidated earnings, cash flows and financial position.

Item 1B – Unresolved Staff Comments

None

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Item 2 - Properties

                General

We have 530 megawatts of installed capacity consisting of 17 generating units at five power plants. These include 385.0 megawatts of operating capacity at the Beluga facility on the west side of Cook Inlet; 67.5 megawatts of power at the Bernice Lake facility on the Kenai Peninsula; 46.7 megawatts of power at IGT in Anchorage; and 19.2 megawatts at the Cooper Lake facility, which is also on the Kenai Peninsula. We also own rights to 11.7 megawatts of capacity from the two Eklutna Hydroelectric Project generating units that we jointly own with MEA and AML&P. In addition to our own generation, we purchase power from the 126 megawatt Bradley Lake hydroelectric project owned by the Alaska Energy Authority (AEA) through the Alaska Industrial Development and Export Authority. The Bradley Lake facility is operated by HEA and dispatched by us. The Beluga, Bernice Lake and International facilities are all fueled by natural gas. We own our offices and headquarters, located adjacent to IGT in Anchorage. We also lease warehouse space for some generation, transmission and distribution inventory (including a small amount of office space).

Generation Assets

We own the land and improvements comprising our generating facilities at Beluga and IGT. We also own all improvements comprising our generating plant at Bernice Lake, located on land leased from HEA. The Bernice Lake ground lease expires in 2011. We are in the process of reviewing the lease.

The Cooper Lake Hydroelectric Project is partially located on federal land. The Project is operated pursuant to a major project license granted to us by the Federal Energy Regulatory Commission (FERC) in May 1957. The current license expires in 2007. On April 22, 2005, Chugach filed its Final License Application (FLA), with FERC, seeking a 50-year license for the Project. On August 31, 2005, Chugach filed an Offer of Settlement reflecting a settlement agreement with the affected agencies, non-governmental organizations and others that resolves all major issues surrounding a new 50-year license. On February 28, 2006, FERC issued its formal acceptance of the FLA and settlement agreement for filing and notice that the FLA is ready for environmental analysis. We anticipate that a new license will be issued in the second quarter of 2007. Until that time, we will continue operation of the Project pursuant to the existing license terms and conditions.

                In 1997, we acquired a 30% interest in the Eklutna Hydroelectric Project. The plant is located on federal land pursuant to a United States Bureau of Land Management right-of-way grant issued in October 1997.

Our principal generation units are Beluga 3, 5, 6, 7 and 8. These units have a combined capacity of 345.8 MW and meet most of our load. All other units are used principally as reserve. While the Beluga turbine-generators have been in service for many years, they have been maintained in good working order with periodic upgrades. Beluga Unit 3 had a combustion inspection performed in 2004, and a hot gas path inspection in 2005. Beluga Unit 5 had a combustion inspection in 2004 and a major inspection in 2005. In 2006 Beluga Unit 5 required a

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second combustion inspection in addition to an annual inspection and a generator inspection. Beluga Unit 6 was re-powered in 2000 and had annual inspections in 2004 and 2005, and a major inspection in 2006. Beluga Unit 7 was re-powered in 2001 and had its first major inspection in 2004. Annual inspections were performed on Beluga Unit 7 in 2005 and 2006. Beluga Unit 8, a steam turbine, received routine annual inspections in 2004 and 2006, as well as a 25,000-hour inspection in 2005.

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                The following matrix depicts nomenclature, run hours for 2006 and percentages of contribution and other historical information for all Chugach generation units.

Facility		Commercial Operation Date	Nomenclature	Rating (MW)(1)	Run Hours (2006)	Percent of Total Run Hours	Percent of Time Available
Beluga Power Plant(3)
	1	1968	GE Frame 5	19.6	404.5	0.8	96.5
	2	1968	GE Frame 5	19.6	385.4	0.7	96.7
	3	1972	GE Frame 7	64.8	7,332.9	12.3	93.7
	5	1975	GE Frame 7	68.7	7,157.3	11.3	83.8
	6	1975	AP 11DM-EV	79.2	7,486.0	15.7	85.5
	7	1978	AP 11DM-EV	80.1	8,368.3	15.3	95.5
	8	1981	BBC DK021150(2)	53.0	8,025.4	14.5	91.9
Bernice Lake Power Plant				385.0
	2	1971	GE Frame 5	19.0	0.2	0.0	95.9
	3	1978	GE Frame 5	26.0	2,099.0	2.4	85.6
	4	1981	GE Frame 5	22.5	2,063.2	3.2	97.0
Cooper Lake Hydroelectric Plant				67.5
	1	1960	BBC MV 230/10	9.6	7,636.0	11.4	99.8
	2	1960	BBC MV 230/10	9.6	7,591.6	11.6	99.8
IGT Power Plant				19.2
	1	1964	GE Frame 5	14.1	132.0	0.5	94.9
	2	1965	GE Frame 5	14.1	178.4	0.3	89.2
	3	1969	Westinghouse 191G	18.5	54.2	0.1	87.1
Eklutna Hydroelectric Plant(4)				46.7
	1	1955	Newport News	5.8	N/A(5)	N/A(5)	98.37
	2	1955	Oerlikon custom	5.9	N/A(5)	N/A(5)	98.17
				11.7
				530.1	58,914.4	100.00

System Total
	(1)	Capacity rating in MW at 30 degrees Fahrenheit.
	(2)	Steam-turbine powered generator with heat provided by exhaust from natural-gas fueled Units 6 and 7 (combined-cycle).
	(3)	Beluga Unit 4 and Bernice Lake Unit 1 were retired during 1994.
	(4)	The Eklutna Hydroelectric Plant is jointly owned by Chugach, MEA and AML&P. The capacity shown is our 30% share of the plant’s output.
	(5)	Because Eklutna Hydroelectric Plant is managed by a committee of the three owners, we do not record run hours or in-commission rates.

Note: GE = General Electric, BBC = Brown Boveri Corporation, AP = Alstom Power

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Transmission and Distribution Assets

As of December 31, 2006, our transmission and distribution assets included 41 substations and 533 miles of transmission lines, which included 128 miles of leased transmission lines and Chugach’s share of the Eklutna transmission line, 924 miles of overhead distribution lines and 733 miles of underground distribution line. We own the land on which 20 of our substations are located and a portion of the right-of-way connecting our Beluga plant to Anchorage. As part of our 1997 acquisition of 30% of the Eklutna facility, we also acquired a partial interest in two substations and additional transmission facilities.

Many substations and a substantial number of our transmission and distribution rights-of-way are subject to federal or state permits and licenses. Under a federal license and a permit from the United States Forest Service, we operate the Quartz Creek transmission substation, substations at Hope, Summit Lake and Daves Creek, and transmission lines over all federal lands between Cooper Lake on the Kenai Peninsula and Anchorage. Long-term permits from the Alaska Division of Lands and the Alaska Railroad Corporation govern much of the rest of our transmission system outside the Anchorage area. Within the Anchorage area, we operate our University substation and several major transmission lines pursuant to long-term rights-of-way grants from the U.S. Department of the Interior, Bureau of Land Management, and transmission and distribution lines have been constructed across privately owned lands via easements and across public rights-of-way and waterways pursuant to authority granted by the appropriate governmental entity.

Title

Under the Amended and Restated Indenture, all of Chugach’s bonds are general unsecured and unsubordinated obligations. Chugach is prohibited from creating or permitting to exist any mortgage, lien, pledge, security interest or encumbrance on our properties and assets (other than those arising by operation of law) to secure the repayment of borrowed money or the obligation to pay the deferred purchase price of property unless we equally and ratably secure all bonds subject to the Amended and Restated Indenture, except that we may incur secured indebtedness in an amount not to exceed $5 million or enter into sale and leaseback or similar agreements.

Many of our properties are burdened by easements, plat restrictions, mineral reservation, water rights and similar title exceptions common to the area or customarily reserved in conveyances from federal or state governmental entities, and by additional minor title encumbrances and defects. We do not believe that any of these title defects will materially impair the use of our properties in the operation of our business.

Under the Alaska Electric and Telephone Cooperative Act, we possess the power of eminent domain for the purpose and in the manner provided by Alaska condemnation laws for acquiring private property for public use.

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Other Property

Bradley Lake. We are a participant in the Bradley Lake hydroelectric project, which is a 126 megawatt rated capacity hydroelectric facility near Homer on the southern end of the Kenai Peninsula that was placed into service in September 1991. The project is nominally scheduled below 90 megawatts to minimize losses and ensure system stability. We have a 30.4% (27.4 megawatts as currently operated) share in the Bradley Lake project’s output, and take Seward’s and MEA’s shares which we net bill to them, for a total of 45% of the project’s capacity. We are obligated to pay 30.4% of the annual project costs regardless of project output.

The project was financed and built by AEA through grants from the State of Alaska and the issuance of $166 million principal amount of revenue bonds supported by power sales agreements with six electric utilities that share the output from the facility (AML&P, HEA and MEA (through AEG&T and AEEC), GVEA, Seward and us). The participating utilities have entered into take-or-pay power sales agreements under which AEA has sold percentage shares of the project capacity and the utilities have agreed to pay a like percentage of annual costs of the project (including ownership, operation and maintenance costs, debt-service costs and amounts required to maintain established reserves). By contract, we also provide transmission and related services to all of the participants in the Bradley Lake project.

The length of our Bradley Lake power sales agreement is fifty years from the date of commercial operation of the facility (September 1991) or when the revenue bond principal is repaid, whichever is the longer. The agreement may be renewed for successive forty-year periods or for the useful life of the project, whichever is shorter. We believe that our maximum annual liability for our take-or-pay obligations is approximately $5.0 million. We believe that so long as this project produces power taken by us for our use that this expense will be recoverable through the fuel and purchased power surcharge mechanism. The share of Bradley Lake indebtedness for which we are responsible is approximately $39 million. Upon the default of a participant, and subject to certain other conditions, AEA is entitled to increase each participant’s share of costs and output pro rata, to the extent necessary to compensate for the failure of the defaulting participant to pay its share, provided that no participant’s percentage share is increased by more than 25%.

Eklutna.  We purchased a 30% undivided interest in the Eklutna Hydroelectric Project from the federal government in 1997. MEA owns 17% of the Eklutna Hydroelectric Project. The power MEA purchases from the Eklutna Hydroelectric Project is pooled with our purchases and sold back to MEA to be used in meeting MEA’s overall power requirements. AML&P owns the remaining 53% undivided interest in the Eklutna Hydroelectric Project.

Fuel Supply

For 2006, 90% of our power was generated from gas, and 87% of that gas-fired generation took place at Beluga.

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Our primary sources of natural gas are the Beluga River Field producers (ConocoPhillips Alaska, Inc., AML&P, Chevron) and Marathon. ConocoPhillips, AML&P and Chevron each own one-third of the gas produced from the Beluga River Field and in 2006 provided approximately equal shares of the Beluga gas. We have approximately 228 billion cubic feet (BCF) of remaining gas committed to us from Marathon and the Beluga River Field producers (including Period 3 gas). We currently use approximately 27 BCF of natural gas per year for firm service. We estimate that our contract gas will last 4 to 12 years. Under almost all circumstances the deliverability supplied under our contracts is sufficient to meet all the needs of the Beluga Plant.

                Beluga River Field Producers

We have similar requirements contracts with each of ConocoPhillips, AML&P and Chevron that were executed in April 1989, superseding contracts that had been in place since 1973. Each of the contracts with the Beluga River Field producers provides for delivery of gas on different terms in three different periods. Period 1 related to the delivery of gas previously committed by the respective producer under the 1973 contracts and ended in June 1996.

During Period 2, which began in June 1996 and continues until the earlier of the delivery of 180 BCF of natural gas or December 31, 2013, we are entitled to take delivery of up to 180 BCF of natural gas (60 BCF per Beluga River Field producer). During this period, we are required to take 60% of our total fuel requirements at Beluga from the three Beluga River Field producers, exclusive of gas purchased at Beluga under the Marathon contract for use in making sales to GVEA or certain other wholesale purchasers. The price for gas during this period under the ConocoPhillips and AML&P contracts is approximately 88% of the price of gas under the Marathon contract (described below) ($4.3946 per thousand cubic feet (MCF) on January 1, 2007), plus taxes. The price during this period under the Chevron contract is approximately 110% of the price of gas under the Marathon contract (described below) ($5.4933 per MCF on January 1, 2007), plus taxes.

During Period 3 under the Beluga River Field producers’ contracts, which begins on the earlier of December 31, 2013, or the end of Period 2 (approximately November 2011), we may become entitled to take delivery of up to 120 BCF of natural gas (40 BCF per producer). Whether any gas will be taken in Period 3, and the price and take requirements with respect thereto, are to be determined in good faith negotiation prior to November 2007. Chugach is currently exploring sources for future supplies of natural gas.

Marathon

                We entered into a requirements contract with Marathon in September 1988 for an initial commitment of 215 BCF. The contract expires on the earlier of December 31, 2015, or the date on which Marathon has delivered to us a volume of gas in total, which equals or exceeds 215 BCF, which we currently expect to occur by mid-2010. The base price for gas under the Marathon contract is $1.35 per MCF, adjusted quarterly to reflect the percentage change between the preceding twelve-month period and a base period in the average closing prices of New York Mercantile Exchange (NYMEX) Light, Sweet Crude Oil Futures, the Producer Price Index for

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natural gas, and the Consumer Price Index for heating fuel oil. The price on January 1, 2007, exclusive of taxes, was $4.9939 per MCF.

Under the terms of the Marathon contract, Marathon generally provides the gas required for sales to GVEA, all of our requirements at Bernice Lake, International and Nikiski and 40% of the requirements at Beluga, not related to sales to GVEA. Marathon also has a right of first refusal to provide additional gas under any sales agreements that we may enter into with electric utilities we do not currently serve. The terms of the Marathon contract also gave Marathon a right to provide additional volumes in the period following depletion of the initial commitment of 215 BCF. On June 13, 2001, we were notified that Marathon would not commit to supply any additional volumes under the contract. Chugach and Marathon are currently negotiating for a new contract to supply additional volumes.

                ENSTAR

ENSTAR Natural Gas Company (ENSTAR) has a tariff to transport our gas purchased from the Beluga River Field producers or Marathon on a firm basis to our IGT Power Plant at a transportation rate of $0.63 per MCF. The agreement contains a fixed monthly charge of $2,840 for firm service.

Environmental Matters

                General

                Chugach’s operations are subject to certain federal, state and local environmental laws and regulations, which seek to limit air, water and other pollution and regulate hazardous or toxic waste disposal. While we monitor these laws and regulations to ensure compliance, they frequently change and often become more restrictive. When this occurs, the costs of our compliance generally increase.

We include costs associated with environmental compliance in both our operating and capital budgets. We accrue for costs associated with environmental remediation obligations when those costs are probable and reasonably estimable. We do not anticipate that environmental related expenditures will have a material effect on our results of operations or financial condition. We cannot, however, predict the nature, extent or cost of new laws or regulations relating to environmental matters.

The Clean Air Act and Environmental Protection Agency (EPA) regulations under the act (the “Clean Air Act”) establish ambient air quality standards and limit the emission of many air pollutants. Some Clean Air Act programs that regulate electric utilities, notably the Title IV “acid rain” requirements, do not apply to facilities located in Alaska. The EPA’s anticipated regulations to limit mercury emissions from fossil-fired steam-electric generating facilities, are not expected to materially impact Chugach because our thermal power plants burn exclusively natural gas.

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New Clean Air Act regulations impacting electric utilities may result from future events or may result from new regulatory programs that may be established to address problems such as global warming. While we cannot predict whether any new regulation would occur or its limitation, it is possible that new laws or regulations could increase our capital and operating costs. We have obtained or applied for all Clean Air Act permits currently required for the operation of our generating facilities.

Chugach recently was notified of the Alaska Department of Environmental Conservation’s tentative finding that two Beluga River turbines may be subject to a federal Clean Air Act requirement to install Best Available Retrofit Technology (“BART”) to reduce visibility impairment in national parks and wilderness areas. The Department has requested comments on its tentative finding. Chugach believes that none of its generating units are subject to the BART requirement, and intends to file comments documenting that contention. Should the Department reach a final decision that the Beluga turbines are subject to the BART requirement, the Department would proceed to impose new emission limits based on the best system of emission reduction achievable, taking into account the cost of compliance, the visibility improvement that would result from the use of such technology, and other factors. Over the next 12 months the Department will develop regulations to implement the BART requirement. The financial impact of these regulations will depend on a series of decisions, beginning with the Department’s threshold determination of whether the two Beluga River turbines are subject to the BART requirement.

Chugach is subject to numerous other environmental statutes including the Clean Water Act, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Endangered Species Act, and the Comprehensive Environmental Response, Compensation and Liability Act and to the regulations implementing these statutes. We do not believe that compliance with these statutes and regulations to date has had a material impact on our financial condition or results of operation. However, new laws or regulations, implementation of final regulations or changes in or new interpretations of these laws or regulations could result in significant additional capital or operating expenses.

Item 3 - Legal Proceedings

Matanuska Electric Association, Inc., v. Chugach Electric Association, Inc., Superior Court Case No. 3AN-99-8152 Civil

In this action filed in 1999, MEA alleged that Chugach breached the Power Sales Agreement under which Chugach is obligated to sell MEA power for 25 years, from 1989 through 2014. MEA asserted that Chugach failed to provide it certain information, failed to properly manage Chugach’s long-term debt, and failed to bring Chugach’s base rate action to a Joint Committee before presenting it to the RCA. All of MEA’s claims were dismissed by the Superior Court.

On April 29, 2002, MEA appealed to the Alaska Supreme Court the Superior Court’s dismissal of its claims related to Chugach’s financial management and Chugach’s decision not to bring its base rate action to the Joint Committee before filing with the RCA. Chugach cross-

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appealed the Superior Court’s decision not to also dismiss the financial management claim on jurisprudential and res judicata grounds. The Alaska Supreme Court, on October 8, 2004, upheld Chugach’s right to not bring its base rate action to the Joint Committee before filing with the RCA. But the Court rejected Chugach’s cross-appeal and reversed the Superior Court’s decision dismissing MEA’s financial management claim. The Supreme Court remanded that claim to the Superior Court for further proceedings.

On January 24, 2005, Chugach filed for summary judgment on that claim asserting that in the 2000 Test Year rate case the RCA had fully reviewed and decided the prudency of Chugach’s financial management. In a decision dated August 22, 2005, the Superior Court granted Chugach’s summary judgment motion, finding that the RCA had adjudicated the question of Chugach’s financial management and that its decision should be given res judicata effect. The Superior Court also found that the RCA had exercised its primary jurisdiction in reviewing Chugach’s financial management, and that its decision should be given deference.

The Superior Court entered final judgment on November 10, 2005, after which Chugach sought its costs and fees. On December 14, 2005, the Superior Court entered judgment awarding Chugach fees and costs from MEA in the amount of $104,732, which has not, as yet, been recorded in the financial statements.

On December 9, 2005, MEA appealed to the Alaska Supreme Court the Superior Court’s grant of summary judgment. On December 23, 2005, Chugach cross-appealed the Superior Court’s failure to also grant summary judgment based on the doctrine of collateral estoppel.

On February 16, 2007, the Alaska Supreme Court issued a unanimous opinion affirming the Superior Court’s grant of summary judgment in favor of Chugach on the question of whether Chugach’s actions with regard to its use of the rate lock were consistent with prudent utility practices and sound financial management. The Supreme Court held that these issues had previously been put before and decided by the RCA. The Court stated the RCA had 1) noted Chugach’s use of financial advisors and the Chugach Board’s use of an independent consultant before entering into the rate lock; 2) found that it was reasonable for Chugach to be concerned about the risk or rising interest rates, and this warranted the use of the hedging mechanism; and held that the RCA’s determination that Chugach’s actions were reasonable was essential to the RCA’s decision to allow Chugach to recover rate lock expenses by amortizing them. The Supreme Court held that because the issues were vigorously contested before the RCA, it is fair to apply the doctrine of collateral estoppel to the question whether Chugach complied with prudent utility practice and concluded that the Superior Court’s grant of summary judgment was appropriate based on collateral estoppel grounds.

Chugach’s will now seek payment from MEA for Chugach’s recoverable costs and attorney’s fees of approximately $115,300.

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Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., Superior Court Case No. 3AN-04-11776 Civil

On October 12, 2004, MEA filed suit in Superior Court alleging that Chugach had violated its bylaws in allocating margins (capital credits) during the years 1998 through 2003. The margins Chugach earns each year are allocated to the customers who contributed them and are booked as capital credits to those customers’ accounts. Capital credits are eventually repatriated to customers at the discretion of the board of directors, typically many years after the margins are earned.

On February 17, 2006, MEA filed a Motion to File an Amended Complaint and an Amended Complaint in this case. The proposed Amended Complaint was identical to MEA’s initial Complaint except for changes made to accommodate one new claim. The new claim challenges Chugach’s failure to provide MEA with a capital credit allocation for 2004.

In this suit, MEA asked the Court to hold that Chugach breached its bylaws in the manner in which it allocated capital credits in 1998 through 2004. MEA also asked the Court to enjoin Chugach to re-calculate MEA’s capital credits applying MEA’s interpretation of Chugach’s bylaws and in accordance with what MEA referred to as “generally accepted accounting practices for nonprofit cooperatives and cooperative principles”. The suit also sought damages in an unspecified amount to compensate MEA for the alleged breach of contract.

On December 8, 2006, the Court granted Chugach summary judgment dismissing six of the eight claims MEA alleged. The Court did not allow MEA to amend its complaint to add its new claim involving Chugach’s 2004 capital credit allocations, which meant that only two of MEA’s claims survived. On December 27, 2006, MEA agreed to dismiss its remaining two claims, release any claims it might have based on Chugach’s capital credit allocations for the years 1998 – 2004 and abandon its right to appeal the Court’s summary judgment decisions. In exchange, Chugach agreed to release its right to recover any of the attorney’s fees and costs it incurred in defending the case.

Matanuska Electric Association, Inc. v. State of Alaska, Regulatory Commission of Alaska, Superior Court Case No. 3AN-06-8243 Civil

On May 17, 2006, MEA appealed and on May 30, 2006, Homer Electric Association, Inc., (HEA) cross appealed the RCA’s decision in Commission Docket No. U-04-102, see “Results of Operations – Docket No. U-04-102 (Revision to Current Depreciation Rates).” On appeal, MEA claims the Commission’s decision dated January 10, 2006, to authorize Chugach to implement new depreciation rates as of January 1, 2005 constituted illegal retroactive ratemaking. MEA also contends that the Commission’s reliance on avoidance of regulatory lag as a basis for its decision was improper. HEA’s points on appeal challenge several decisions by the Commission on estimated lives of General Plant on the ground that there is not substantial evidence in the record to support such a decision. HEA and MEA both challenge the discovery rulings of the Commission. Chugach will join the State of Alaska in defending the Commission’s rulings. No briefing schedule has been set.

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The ultimate resolution of this matter is not currently determinable. In the opinion of management, an adverse outcome is not likely to have a material adverse effect on Chugach’s results of operations, financial condition or liquidity. No reserves have been established for this matter.

Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., Superior Court Case No. 3PA-06-1295 Civil

On May 17, 2006, MEA filed suit against Chugach in Superior Court asserting three claims. In this action, MEA contends that by publishing unbundled financial statements Chugach has in effect stated that MEA owes Chugach a debt. Chugach denies having made statements to this effect. Unbundled financial statements are an analytic tool developed by Chugach that separate the financial statements into two business units consisting of the Generation and Transmission (G&T) and the Distribution functions of the company. The unbundled financial statements reflect the operating results of each separate entity. Statements of Revenues, Expenses and Patronage Capital, Balance Sheets and Statements of Cash Flows are prepared monthly for each business unit. MEA’s action is based on the result of Chugach’s financial analysis showing intercompany receivable/payable entries on the unbundled balance sheets.

The first of MEA’s claims is that it is entitled to declaratory judgment to the effect that MEA does not owe a debt to Chugach or to Chugach’s Distribution function. Second, MEA claims that Chugach has breached its Bylaws and the Power Sales Agreement under which Chugach is obligated to sell MEA power and by publishing its unbundled financial analysis and seeks a declaration that Chugach’s actions violate the Bylaws and the Power Sales Agreement. MEA also asks for an injunction against further assertions, which Chugach denies having made, that MEA owes Chugach or Chugach’s Distribution function a debt. Finally, MEA seeks damages, including punitive damages, to punish Chugach and deter it from continuing to publish the analysis.

                Chugach moved to dismiss the first (declaratory judgment) and third (defamation) counts of the complaint. Following oral argument, the court denied Chugach’s motion to dismiss the declaratory judgment claim and granted Chugach’s motion to dismiss the defamation claim.

                With respect to the declaratory judgment claim, the court indicated that it needed to look beyond the pleadings to determine whether Chugach’s publications suggest that MEA owes a substantial debt to Chugach. Trial is currently scheduled for June 2007.

                The ultimate resolution of this matter is not determinable. In the opinion of management, an adverse outcome is not likely to have a material adverse effect on Chugach’s results of operations, financial condition or liquidity. No reserves have been established for this matter.

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Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., Superior Court Case No. 3PA-06-1591 Civil

                On August 7, 2006, MEA served Chugach with a Summons and Complaint requesting the Court grant MEA declaratory judgment, breach of contract and costs and attorney fees. MEA sought a declaratory judgment that Chugach has wrongfully refused to grant MEA access to the books and records of the cooperative in violation of state statute, common law and Chugach bylaws. MEA also alleged that by refusing to grant access to these records, Chugach has breached its bylaws on which MEA bases a breach of contract claim against Chugach. Chugach answered MEA’s complaint denying these allegations. MEA filed a motion for summary judgment, requesting entry of an order declaring that Chugach has wrongfully denied MEA’s records request; Chugach has cross-moved for summary judgment based on the fact that MEA has never presented Chugach with a sufficient demand and that Chugach has never denied MEA access to any records to which it is entitled. On March 7, 2007, the court issued an ordering requiring Chugach, within 30 days of the Order, to identify and make available to MEA for inspection and copying all books and records relevant to MEA’s request. The Court further ordered that the parties work out a reasonable time and place for MEA’s review and copying of these records. Chugach is presently considering its options with regard to this Order.

The ultimate resolution of this matter is not currently determinable. In the opinion of management, an adverse outcome is not likely to have a material adverse effect on Chugach’s results of operations, financial condition or liquidity.

Chugach has certain additional litigation matters and pending claims that arise in the ordinary course of Chugach’s business. In the opinion of management, no individual matter or the matters in the aggregate is likely to have a material adverse effect on Chugach’s results of operations, financial condition or liquidity.

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

Not Applicable

PART II

Item 5 - Market for Registrant’s
Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities

Not Applicable

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Item 6 - Selected Financial Data

The following tables present selected historical information relating to financial condition and results of operations for the years ended December 31:

Balance Sheet Data		2006		2005		2004		2003		2002
Electric plant, net:
In service	$	439,268,514	$	435,474,237	$	442,552,526	$	453,706,406	$	450,480,385
Construction work in   Progress		20,254,298		32,505,401		25,278,388		16,560,438		20,224,302
Electric plant, net		459,522,812		467,979,638		467,830,914		470,266,844		470,704,687
Other assets		103,517,336		97,155,862		91,523,673		88,524,659		99,510,187
Total assets	$	563,040,148	$	565,135,500	$	559,354,587	$	558,791,503	$	570,214,874
Capitalization:
Long-term debt		350,803,530		364,532,099		363,357,786		384,289,179		389,834,179
Equities and margins		150,716,100		145,039,152		138,998,799		134,216,122		127,477,895
Total capitalization		501,519,630		509,571,251	$	502,356,585	$	518,505,301	$	517,312,074
Summary Operations Data
Operating revenues	$	267,542,713	$	225,697,349	$	201,246,615	$	184,032,413	$	171,944,918
Operating expenses		234,969,329		194,823,965		173,340,037		156,153,029		149,369,936
Interest expense, net		24,010,874		22,586,054		21,491,865		22,710,828		26,230,825
Amortization of gain   on refinancing		0		0		0		0		188,082
Net operating margins		8,562,510		8,287,330		6,414,713		5,168,556		(3,467,761	)
Nonoperating margins		1,476,549		1,227,401		1,187,743		1,084,564		1,451,611
Assignable margins	$	10,039,059	$	9,514,731	$	7,602,456	$	6,253,120	$	(2,016,150	)

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

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. We undertake 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 prospectus or the effect of those events or circumstances on any of the forward-looking statements contained herein, except as required by law.

Results of Operations

                Overview

Margins.  We operate on a not-for-profit basis and, accordingly, seek only to generate revenues sufficient to pay operating and maintenance costs, the cost of purchased power, capital expenditures, depreciation and principal and interest on our indebtedness and to provide for reserves. These amounts are referred to as “margins.” Patronage capital, the retained margins of our members, constitutes our principal equity.

                 Times Interest Earned Ratio  (TIER). Alaska electric cooperatives generally set their rates on the basis of TIER. TIER is determined by dividing the sum of assignable margins plus long-term interest expense (excluding capitalized interest) by long-term interest expense (excluding capitalized interest). Chugach’s authorized TIER for rate-making purposes on a system basis is 1.30, which was ordered by the RCA in Order U-01-108(26). Chugach’s achieved TIER since 2004 has exceeded the ratemaking TIER. During those years, Chugach’s overall achieved TIER reflects load growth and cost control. In addition Chugach’s achieved TIER reflects non-operating margins that are not generated by electric rates. We manage our business with a view toward achieving a TIER of 1.20 or greater. We achieved TIERs for the past five years as follows:

Year	TIER
2006	1.41
2005	1.42
2004	1.35
2003	1.27
2002	0.92*

* The 2002 TIER was adversely affected by Order U-01-108(26) we received on February 6, 2003, from the RCA. See “Management’s Discussion and Analysis – Results of Operations – Overview – Rate Regulation and Rates.”

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         Rate Regulation and Rates. Our rates are made up of two components: “base rates” and “fuel surcharge rates.” “Base rates” are composed of fixed and variable charges in connection with all components of providing electricity. “Fuel surcharge” rates take into account the rise and fall of fuel and purchased power costs and ensure collection of fuel and purchased power costs above the base component included in the base energy rate. The RCA approves the amounts paid by our wholesale and retail customers under base rates and approves the quarterly fuel surcharge filing authorizing rate changes in the fuel surcharge calculations. In addition, a Regulatory Cost Charge (RCC) is assessed on each retail customer invoice to fund Chugach’s share of the RCA’s budget. The RCC tax is revised annually by the RCA.

Base Rates. We recover operating and maintenance and other non-fuel and purchased power costs through our base rates established through an order of the RCA following a general rate case, where we propose a rate increase or decrease for each class of customer based on our costs to service those classes during a recent year referred to as a test year. The RCA may authorize, after a notice period, rate changes on an interim and refundable basis.

                There were no base rate changes for our retail and wholesale customers in 2006, 2005 and 2004.

      Docket No. U-04-102 (Revision to Current Depreciation Rates) 

                In 2004, Chugach implemented new depreciation rates based on an update of the 1999 Depreciation Study utilizing Electric Plant in Service balances as of December 31, 2002. The 2002 Depreciation Study resulted in an increase to 2004 depreciation expense, which was not material to the financial statements. The 2002 Depreciation Study was submitted to the RCA for approval on November 19, 2004, resulting in the RCA opening a docket to review the proposed new rates. Chugach, however, implemented the new rates effective January 1, 2004. Chugach did not request a change in electric rates charged to customers based on the proposed revisions to depreciation rates.

                On March 9, 2005, the RCA ruled in Order No. 2 that depreciation rates may not be implemented without prior approval of the RCA.

                On September 21, 2005, the RCA issued Order No. 8 requiring Chugach to adjust its underlying 2004 financial records to reflect the results as if Chugach had not implemented unapproved rates. In November of 2005, Chugach reversed the 2004 depreciation expense and depreciation reserves that were previously recorded using the 2002 Depreciation Study rates and calculated 2004 depreciation expense for all categories of plant using the 1999 Depreciation Study rates as approved by the RCA in Docket U-01-108. The adjustment was not material to Chugach’s financial statements.

                In Order No. 9 dated January 10, 2006, the RCA ruled substantially in Chugach’s favor approving the 2002 Depreciation Study with certain changes to the proposed depreciation rates. The main effect of this decision is to allow Chugach to revise its depreciation rates effective as of January 1, 2005.

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                Because Chugach did not request changes to the electric rates charged to our customers based on the proposed new depreciation rates, there was no immediate electric rate impact.

                Wholesale customers MEA and HEA were active in the proceeding. Subsequently, MEA filed an appeal of the RCA’s decision in Superior Court, see “Item 3 – Legal Proceedings – Matanuska Electric Association, Inc. v. State of Alaska, Regulatory Commission of Alaska, Superior Court Case No. 3AN-06-8243 Civil.”

      Seward Contract request for review and approval

                We currently provide nearly all the power needs of the City of Seward. Sales to Seward represent approximately 2.5% of Chugach’s total sales of energy (including both retail and wholesale). In February 1998, we entered into a power sales agreement (Old Contract) with Seward that allowed us to interrupt service to Seward up to 12 times per year, not to exceed seventy-two cumulative hours annually and also reduce the demand charge by 1/3 (approximately $350,000 annually). This agreement was scheduled to expire January 31, 2006. The RCA granted a four-month extension to May 31, 2006, of the old contract to allow the parties to complete negotiations on a new contract.

                Negotiations with Seward were successful and on April 14, 2006, Chugach filed a request for approval by the RCA of a proposed new power sales agreement with the City of Seward (2006 Agreement) with a nominal effective date of June 1, 2006. The proposed contract was for five years with two automatic five-year extensions unless notice of termination is given by either party and resulted in a 5 percent increase in revenues in relation to the Old Contract.

                The 2006 Agreement is an interruptible, all-requirements/no reserves contract. It has many of the attributes of firm service, especially in the requirement that so long as Chugach has sufficient power available, it must meet Seward’s needs for power. However, service is interruptible because Chugach is under no obligation to supply or plan for generation capacity reserves to supply Seward and there is no limit on the number of times or hours per year that the supply can be interrupted.

                Counterbalancing this is the requirement that Chugach must provide power to Seward if Chugach has the power available after first meeting its obligations to its other customers for whom Chugach has an obligation to provide reserves (MEA, HEA and Chugach retail customers).

                The price under the 2006 Agreement reflects the reduced level of service because no costs of generation in excess of that needed to meet the system peak will be assigned to Seward.

                Approval of the new Agreement was contested by Chugach’s wholesale customer, MEA and Chugach’s wholesale customer HEA also intervened in the proceeding. A hearing was set to begin November 30, 2006. Chugach filed a Motion for Summary Disposition. The Motion was granted in part and citing this decision, MEA withdrew from the case.

                The remaining parties entered into a stipulation, accepted by the RCA, to allow additional RCA review of the agreement before an automatic extension of the agreement which is permitted

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after the first five years of the term of the agreement. On the basis of the stipulation, the Commission cancelled the hearing and the 2006 Agreement with Seward was approved as amended.

       Docket No. U-06-134 (2005 Test Year General Rate Case)

                On September 27, 2006, the Chugach Board of Directors authorized and instructed management to file a general rate case with the RCA. On September 29, 2006, Chugach filed a general rate case based on a 2005 test year and requesting a revenue increase of $10.6 million for the Generation and Transmission (G&T) function and a revenue decrease of $7.8 million for the Distribution function. Overall revenues are proposed to increase $2.8 million.

                Chugach expects the case to be fully adjudicated by January 1, 2008, assuming no appeals or other delay in the regulatory process.

                The Commission permitted intervention from Chugach’s wholesale customers and the Regulatory Affairs and Public Advocacy (RAPA) section within the Attorney General’s office of the State of Alaska. It also permitted intervention of a single Chugach retail member.

                A scheduling order was issued on January 23, establishing a hearing schedule to adjudicate the case and discovery from the intervenors in the case has been on-going since mid December 2006. The hearing is currently scheduled to occur in August 2007.

Fuel Surcharge.  We pass fuel and purchased power costs above base amounts included in the base rate directly to our wholesale and retail customers through the fuel surcharge mechanism. Changes in fuel and purchase power costs are primarily due to fuel price adjustment mechanisms in our gas-supply contracts based on natural gas, crude oil and fuel oil indexed price changes. We pass these costs directly to our retail and wholesale customers. The fuel surcharge is approved on a quarterly basis by the RCA. There are no limitations on the number or amount of fuel surcharge rate changes. Increases in our fuel and purchased power costs result in increased revenues while decreases in these costs result in lower revenues. Therefore, revenue from the fuel surcharge normally does not impact margins.

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Years ended December 31, 2006, compared to the years ended December 31, 2005, and December 31, 2004

                Margins

Our margins for the years ended December 31 were as follows:

	2006		2005		2004
Net Operating Margins	$	8,562,510	$	8,287,330	$	6,414,713
Non-Operating Margins	$	1,476,549	$	1,227,401	$	1,187,743
Assignable Margins	$	10,039,059	$	9,514,731	$	7,602,456

The increase in assignable margins in 2006 of $524.3 thousand, or 5.5%, was due primarily to increased retail and wholesale kWh sales offset in part by non-operating expenses, including administrative, general and interest expense. The increase in assignable margins in 2005 of $1.9 million, or 25%, was due primarily to increased sales offset in part by higher operating expenses and a decrease in transmission and administrative and general expense.

Non-operating margins include interest income, allowance for funds used in construction, capital credits and patronage capital allocations. Non-operating margins increased $249.1 thousand, or 20.3% in 2006 from 2005 due primarily to an increase in interest income caused by a higher than average cash balance during the year and higher interest rates. Non-operating margins did not materially change in 2005 from 2004.

Revenues

Operating revenues include sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues. In 2006, operating revenues were $41.8 million, or 18.5% higher than in 2005 due to increased retail and wholesale kWh sales as well as higher fuel costs recovered in revenue through the fuel surcharge mechanism. Retail sales did not significantly change from 2005, however, total retail revenues increased due to higher fuel costs recovered in revenue through the fuel surcharge mechanism. With regard to wholesale revenues, actual sales to MEA increased due to increased economic activity while sales to Seward decreased due to an avalanche, which cut the 69 kW line, that required Seward to rely on its own generation in the first quarter of 2006. HEA revenue increased due to increased fuel costs recovered in revenue through the fuel surcharge mechanism. Economy energy sales decreased in 2006 from 2005 primarily due to GVEA purchasing less from Chugach due to periodic unavailability of our units.

In 2005, operating revenues were $24.5 million, or 12%, higher than in 2004 due to increased sales and higher fuel costs recovered in revenue through the fuel surcharge mechanism. Retail sales did not significantly change from 2004, however, total retail revenues increased due to higher fuel costs recovered in revenue through the fuel surcharge mechanism. With regard to wholesale revenues, actual sales increased due to increased job growth and continued state and federal spending, which generated additional economic activity, as well as higher fuel costs recovered in revenue through the fuel surcharge mechanism. Economy energy sales were $5.2

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million, or 59%, higher in 2005 than in 2004 due to higher fuel prices. GVEA purchases power from Chugach when fuel oil prices are high because it is more economical for GVEA to purchase from Chugach, rather than generate its own.

Based on the results of fixed and variable cost recovery established in Chugach’s last rate case, wholesale sales to MEA, HEA and SES contributed approximately $25 million, $24 million and $24 million to Chugach’s fixed costs for the years ended December 31, 2006, 2005 and 2004, respectively. The following table shows the base rate sales revenue and fuel and purchased power revenue by customer class that is included in revenue for the years ended December 31, 2006, 2005 and 2004.

	Base Rate Sales Revenue							Fuel and Purchased Power Revenue							Total Revenue
	2006		2005		% Variance			2006		2005		% Variance			2006		2005		% Variance
Retail
Residential	$	49.8	$	47.1		5.8	%	$	29.9	$	21.7		37.6	%	$	79.7	$	68.8		15.8	%
Small Commercial	$	8.8	$	8.4		5.2	%	$	6.2	$	4.5		38.2	%	$	15.0	$	12.9		16.7	%
Large Commercial	$	29.6	$	29.3		0.9	%	$	28.8	$	20.8		38.7	%	$	58.4	$	50.1		16.6	%
Lighting	$	1.3	$	1.3		(1.0	%)	$	0.1	$	0.1		0.0	%	$	1.4	$	1.4		(0.9	%)
Total Retail	$	89.5	$	86.1		4.0	%	$	65.0	$	47.1		38.1	%	$	154.5	$	133.2		16.0	%
Wholesale
HEA	$	10.3	$	10.3		(0.5	%)	$	24.5	$	18.4		33.3	%	$	34.8	$	28.7		21.2	%
MEA	$	19.1	$	18.3		4.4	%	$	36.1	$	25.1		44.3	%	$	55.3	$	43.4		27.5	%
SES	$	1.1	$	1.0		6.8	%	$	2.9	$	2.3		26.6	%	$	4.0	$	3.3		20.6	%
Total Wholesale	$	30.5	$	29.7		2.8	%	$	63.6	$	45.7		39.0	%	$	94.1	$	75.4		24.8	%
Economy Sales	$	4.0	$	4.4		(8.0	%)	$	12.0	$	9.7		n/a		$	16.0	$	14.1		13.6	%
Miscellaneous	$	2.9	$	3.0		(3.5	%)	$	0.0	$	0.0		n/a		$	2.9	$	3.0		(3.5	%)
Total Revenue	$	126.9	$	123.1		3.1	%	$	140.6	$	102.6		37.1	%	$	267.5	$	225.7		18.5	%

The following table shows the base rate sales revenue and fuel and purchased power revenue by customer class that is included in revenue for the years ended December 31, 2005, and 2004.

	Base Rate Sales Revenue							Fuel and Purchased Power Revenue							Total Revenue
	2005		2004		% Variance			2005		2004		% Variance			2005		2004		% Variance
Retail
Residential	$	47.1	$	47.9		(1.7	%)	$	21.7	$	17.7		22.8	%	$	68.8	$	65.6		4.9	%
Small Commercial	$	8.4	$	8.3		1.0	%	$	4.5	$	3.6		24.6	%	$	12.9	$	11.9		8.0	%
Large Commercial	$	29.3	$	29.3		0.0	%	$	20.8	$	16.5		25.9	%	$	50.1	$	45.8		9.4	%
Lighting	$	1.3	$	1.3		0.0	%	$	0.1	$	0.1		(0.0	%)	$	1.4	$	1.4		0.9	%
Total Retail	$	86.1	$	86.8		(0.7	%)	$	47.1	$	37.9		24.3	%	$	133.2	$	124.7		6.8	%
Wholesale
HEA	$	10.3	$	10.2		1.2	%	$	18.4	$	14.6		25.9	%	$	28.7	$	24.8		15.8	%
MEA	$	18.3	$	17.3		5.7	%	$	25.1	$	19.8		26.5	%	$	43.4	$	37.1		16.9	%
SES	$	1.0	$	1.0		2.3	%	$	2.3	$	1.9		21.2	%	$	3.3	$	2.9		14.1	%
Total Wholesale	$	29.7	$	28.5		3.6	%	$	45.7	$	36.3		26.3	%	$	75.4	$	64.8		16.3	%
Economy Sales	$	4.4	$	3.0		44.9	%	$	9.7	$	5.9		n/a		$	14.1	$	8.9		58.4	%
Miscellaneous	$	3.0	$	2.8		6.4	%	$	0.0	$	0.0		n/a		$	3.0	$	2.8		8.0	%
Total Revenue	$	123.1	$	121.1		1.6	%	$	102.6	$	80.1		28.0	%	$	225.7	$	201.2		12.1	%

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The major components of our operating revenue for the year ending December 31 were as follows:

	2006		2006		2005		2005		2004		2004
	Sales (kWh)		Revenue		Sales (kWh)		Revenue		Sales (kWh)		Revenue
Retail		1,229,977	$	154,549,693		1,216,808	$	133,180,178		1,225,049	$	124,736,765
Wholesale
HEA		478,129		34,799,775		499,510		28,718,393		477,256		24,790,344
MEA		723,452		55,269,740		688,885		43,363,549		658,208		37,164,894
Seward		58,671		3,991,430		63,353		3,309,570		62,176		2,850,001
Economy energy		263,037		16,014,663		294,129		14,101,797		206,835		8,867,625
Other		N/A		2,917,412		N/A		3,023,862		N/A		2,836,986
Total revenue		2,753,266	$	267,542,713		2,762,685	$	225,697,349		2,629,524	$	201,246,615

We make economy sales to GVEA. These sales commenced in 1989 and have contributed to our growth in operating revenues. We do not take such economy sales into consideration in our long-range resource planning process because these sales are non-firm sales that depend on GVEA’s need for additional energy and our available generating capacity at the time. In 2006, 2005, and 2004, economy sales to GVEA constituted approximately 6.0%, 6.0%, and 5.0%, respectively, of our sales revenues. The decrease in economy sales in 2006 from 2005 was due to GVEA purchasing less from Chugach due to periodic unavailability of our units. The increase in economy sales in 2005 from 2004 was due to GVEA’s higher fuel costs than Chugach’s, which made it more economical for GVEA to purchase power from Chugach rather than generate its own.

                Expenses

The major components of our operating expenses for the years ended December 31 were as follows:

	2006		2005		2004
Fuel	$	120,280,509	$	84,776,131	$	64,113,474
Power production		15,050,338		15,005,786		15,378,858
Purchased power		25,979,919		23,664,412		20,579,992
Transmission		6,283,845		5,847,648		6,526,684
Distribution		12,134,087		11,780,502		11,723,316
Consumer accounts		4,982,313		5,227,478		5,308,353
Administrative, general and other		21,728,555		20,272,291		21,719,908
Depreciation		28,529,763		28,249,717		27,989,452
Total operating expenses	$	234,969,329	$	194,823,965	$	173,340,037

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Fuel

Chugach recognizes actual fuel expense. Fuel expense increased by $35.5 million, or 41.9%, in 2006 from 2005 due to higher fuel prices as well as higher volume purchases. In 2006, Chugach used 27,006,822 MCF of fuel at an average effective price of $4.74 per MCF. Fuel expense increased by $20.7 million, or 32%, in 2005 from 2004 due to the same reasons discussed above. In 2005, Chugach used 26,728,140 MCF of fuel at an average effective price of $3.50 per MCF. In 2004, Chugach used 25,024,954 MCF of fuel at an average effective price of $2.56 per MCF.

Power Production

Power production expense did not materially change in 2006 from 2005. Power production expense did not materially change in 2005 from 2004.

                Purchased Power

Purchased power costs increased by $2.3 million, or 9.8%, in 2006 from 2005 due to higher fuel costs. In 2006, Chugach purchased 475,909 MWH of energy at an average effective price of 5.19 cents per kWh. Purchased power costs increased $3.1 million, or 15%, in 2005 from 2004 due to higher fuel costs. In 2005, Chugach purchased 560,376 MWH of energy at an average effective price of 4.03 cents per kWh. In 2004, Chugach purchased 581,103 MWH of energy at an average effective price of 3.36 cents per kWh.

Transmission

Transmission expense increased $436.2 thousand, or 7.5%, in 2006 from 2005 due to an increase in transmission substation maintenance performed in 2006. Transmission expense decreased $679.0 thousand, or 10%, in 2005 from 2004 due to a decrease in transmission substation maintenance performed in 2005.

Distribution

Distribution expense increased $353.6 thousand, or 3.0%, primarily due to an increase in labor associated with substation, overhead line and street light maintenance and a new labor contract. Distribution expense did not materially change in 2005 from 2004.

Consumer Accounts

Consumer accounts expense decreased by $245.2 thousand, or 4.7%, in 2006 from 2005 primarily due to a decrease in professional services associated with television safety advertising. Consumer accounts expense did not materially change in 2005 from 2004.

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Administrative, General and Other

Administrative, general and other expenses increased $1.5 million, or 7.2%, in 2006 from 2005 due primarily to a $1.6 million write-off of obsolete inventory and cancelled projects as well as a $950.9 thousand increase in injuries and damages primarily due to an accrual for an insurance claim. The increases were offset by a $1.0 million decrease in labor as a result of retirements and unfilled positions in 2006 compared to 2005.

Administrative, general and other expenses decreased $1.4 million, or 7%, in 2005 from 2004 due primarily to a $463.2 thousand decrease in labor due to several vacant positions and an $851.6 thousand decrease in workers compensation claims charged to the administrative, general and other expense category and a $241.9 thousand decrease in property insurance, due in part to a membership credit Chugach received upon renewal. These decreases, however, were offset by a $419.2 thousand increase in Operations and technical support and legal professional services. Operations and technical support’s increase was due to network security, testing and benchmarking expenses and legal department’s professional services increase was due to expenses associated with labor relations, the Joint Action Agency and the 2002 Depreciation study.

Depreciation

Depreciation expense did not materially change in 2006 from 2005. We use remaining life rates set forth in the most recent depreciation study. In 2003 an update of the 1999 Depreciation Study was completed utilizing Electric Plant in Service balances as of December 31, 2002. The RCA approved the study with certain changes to the proposed depreciation rates. Chugach revised its depreciation rates effective January 1, 2005, to reflect the new depreciation rates. The impact on Chugach’s financial statements to depreciation expense was a decrease of $1.0 million, however, this was offset by the increase in depreciation expense due to the closeout of several projects. Therefore, depreciation expense did not vary materially in 2005 from 2004.

Interest

Interest on long-term obligations increased by $1.1 million, or 4.6%, in 2006 from 2005 due to higher variable interest rates. Interest on long-term obligations increased by $1.4 million, or 6%, in 2005 from 2004 due to higher variable interest rates.

Interest on short-term borrowing decreased $46.6 thousand, or 100%, in 2006 from 2005 due to the line of credit not being utilized during 2006. Interest on short-term borrowing increased $46.6 thousand, or 100%, in 2005 from 2004 due to the use of the line of credit in the first quarter of 2005.

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Interest charged to construction decreased $395.9 thousand, or 46.9%, in 2006 from 2005 due to a lower balance in Construction Work In Progress (CWIP), as well as the early completion of the Beluga Unit 6 C inspection.

Interest charged to construction increased by $352.4 thousand, or 72%, in 2005 from 2004 due to a higher average balance in CWIP caused by the continued construction of the South Anchorage Substation project. Net interest expense includes interest on long-term obligations and short-term obligations, reduced by interest charged to construction.

Patronage Capital (Equity)

The following table summarizes our patronage capital and total equity position for the years ended December 31:

	2006			2005			2004
Patronage capital at beginning of year	$	136,185,378		$	130,750,269		$	126,341,413
Retirement of capital credits		(5,106,817	)		(4,079,622	)		(3,193,600	)
Assignable margins		10,039,059			9,514,731			7,602,456
Patronage capital at end of year		141,117,620			136,185,378			130,750,269
Other equity1		9,598,480			8,853,774			8,248,530
Total equity at end of year	$	150,716,100		$	145,039,152		$	138,998,799

¹ Other equity includes memberships, donated capital and gain on capital credit retirements.

We credit to our members all amounts received from them for the furnishing of electricity in excess of our operating costs, expenses and provision for reasonable reserves. These excess amounts (i.e., assignable margins) are considered capital furnished by the members, and are credited to their accounts and held by us until such future time as they are retired and returned without interest. Approval of distributions of these amounts to members, also known as capital credits, is at the discretion of our Board of Directors. We currently have a practice of retiring patronage capital on a first-in, first-out basis for retail customers. The Board of Directors may also return capital credits to former members and estates who have requested early retirements at discounted rates under a discounted capital credits retirement plan authorized by the Board in September 2002. Chugach retired $5,106,817, $4,079,622, and $3,193,600 in capital credits for the years ended December 31, 2006, 2005, and 2004, respectively. Prior to 2000, wholesale capital credits had been retired on a 10-year cycle pursuant to an approved capital credit retirement program, which was contained in the Chugach business plan. However, in 2000 we implemented a plan to return the capital credits of wholesale and retail customers on a 15-year rotation.

The Amended and Restated Indenture prohibits us from making any distributions, payment or retirement of patronage capital to our customers if an event of default under the Amended and Restated Indenture exists. Otherwise, we may make distributions to our members in each year equal to the lesser of 5% of our patronage capital or 50% of assignable margins for the prior fiscal year. This restriction does not apply if, after the distribution, our aggregate equities and margins as of the end of the immediately preceding fiscal quarter are equal to at least 30% of our total

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liabilities and equities and margins.

                Under our Master Loan Agreement with CoBank, Chugach is prohibited from making any distribution of patronage capital to Chugach’s customers if an event of default under the Master Loan Agreement exists. Otherwise, Chugach may make distributions to Chugach’s members in each year equal to the lesser of 5% of Chugach’s patronage capital or 50% of assignable margins for the prior fiscal year. This restriction does not apply if, after the distribution, Chugach’s aggregate equities and margins as of the end of the immediately preceding fiscal quarter are equal to at least 30% of Chugach’s total liabilities and equities and margins.

The table below sets forth a five-year summary of anticipated capital credit retirements based on 50% of prior year’s margins retirement criteria:

Year Ending	Total
2007	$5,000,000
2008	$4,500,000
2009	$4,000,000
2010	$4,500,000
2011	$5,000,000

               Changes in Financial Condition

                Assets

Total assets decreased $2.1 million, or 0.4%, from December 31, 2005, to December 31, 2006. The decrease was due in part to an $8.5 million, or 1.8%, decrease in net utility plant due to depreciation expense in excess of extension and replacement of plant. Fuel cost under-recovery decreased $1.8 million, or 100%, due to over-collection for prior quarter’s fuel cost, which created a payable instead of a receivable at year end as well as a $805.7 thousand, or 7.6%, decrease in cash and cash equivalents. These decreases were offset by a $5.5 million, or 20%, increase in accounts receivable due to higher fuel costs being billed through the fuel surcharge mechanism, and a $1.6 million, or 6.8%, increase in materials and supplies due to the purchase of inventory items associated with generation and distribution in preparation for scheduled maintenance in 2007. The decreases were also offset by a $2.2 million, or 11.4%, increase in deferred charges related to the addition of the Beluga Gas Compression project.

Liabilities

Total liabilities decreased by $7.3 million, or 1.8%, in 2006 as compared to 2005. Major contributors to this change include a $13.7 million, or 3.8%, decrease in long-term obligations due to the principal payments made on CoBank 2, 3 and 4 and the 2002 Series B bonds. Also, fuel payable decreased by $2.0 million due to the timing of fuel payments made it 2006 as compared to those made in 2005. Other notable changes to total liabilities in 2006 as compared to 2005 include a $1.1 million, or 35.5%, increase in other current liabilities primarily due to an increase in State and Municipal Undergrounding Ordinance charges. Accruals for accounts payable amounted to $710 thousand, or 7.4%, increase due to invoices received but not paid at

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December 31, 2006. Accruals for potential adjustments to salaries, wages and benefits increased liabilities by $648 thousand, or 12.1%, at year-end 2006.

Equities and Margins

                Total margins and equities increased $5.7 million, or 3.9%, in 2006 as compared to 2005 due to a $4.9 million, 3.6%, net increase in patronage capital ($10.0 million increase in margins coupled with a $5.1 million retirement of Retail Capital Credits). Other contributors to this increase included a $697 thousand, or 9.2%, increase in other margins and equities attributed to addition of unclaimed capital credits from the 2005 retirement of patronage capital and $350.7 thousand of discounted capital credits retained as inactive members chose to take early retirement of their patronage from Chugach.

Inflation

We do not believe that inflation has a significant effect on our operations.

                Contractual Obligations and Commercial Commitments

The following are Chugach’s contractual and commercial commitments as of December 31, 2006:

Contractual cash obligations:               (In thousands)  

Payments Due By Period

	Total		2007		2008-2009		2010-2011		Thereafter
Long-term debt	$	364,532	$	13,729	$	19,004	$	168,640	$	163,159
Long-term interest expense1		139,282		23,828		43,040		40,800		31,614
Short-term debt2		0		0		0		0		0
Bradley Lake3		59,901		3,730		7,427		7,390		41,354
Capital Credit Retirements4		23,000		5,000		8,500		9,500		0
Total	$	586,715	$	46,287	$	77,971	$	226,330	$	236,127

¹ Long-term interest expense includes estimated fixed and variable rates. The variable rates are forecasted using actual December 31, 2006 rates for CoBank 3, 4 and 5 and the 2002 Series B bonds. For further discussion on interest expense see footnote 8 in the accompanying “Notes to Financial Statements

² At December 31, 2006, Chugach had $58 million in lines of credit available with various financial institutions, which fund capital requirements. At December 31, 2006, there was no outstanding balance on the lines of credit, therefore, the available borrowing capacity under these lines of credit was $58 million.

³  Estimated annual cost

⁴ Anticipated capital credit retirements for the next five years. All capital credit retirements require Board approval.

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                Purchase obligations:

Chugach is a participant and has a 30.4% share in the Bradley Lake hydroelectric project (See “Item 2-Properties-Other Property-Bradley Lake.”) This contract runs through 2041. We have agreed to pay a like percentage of annual costs of the project, which has averaged $4 million over the past five years. We believe these costs, adjusted for inflation, reasonably reflect anticipated future project costs.

Our primary sources of natural gas are the Beluga River Field producers and Marathon Oil Company (See “Item 2-Properties-Fuel Supply-Beluga River Field Producers/Marathon.”) We have contracts with each of these producers with varying expiration dates that generally require us to purchase from them all of our fuel requirements for our Beluga plant. The current phase of these contracts expires in mid-2011 based on current gas volume takes. Our fuel costs vary due to the impact of the energy future indices used to index the price of fuel and are inherently difficult to predict. We pass fuel costs directly to our wholesale and retail customers through the fuel surcharge mechanism (See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Fuel Surcharge.”)

                Liquidity And Capital Resources

                We satisfy our operational and capital cash requirements primarily through internally generated funds, a $50 million line of credit from National Rural Utilities Cooperative Finance Corporation (NRUCFC), which will expire October 15, 2007, and a $7.5 million line of credit with CoBank, ACB (CoBank), which expires October 31, 2007, subject to renewal at the discretion of the parties. Chugach had maintained a $20 million line of credit with CoBank. On October 27, 2005, Chugach reduced the line of credit to $7.5 million due to a decrease in short-term borrowing projections. Management intends to extend both the NRUCFC and CoBank lines of credit in 2007 for substantially the same borrowing capacities. At December 31, 2006, there was no outstanding balance with CFC or CoBank and it was not utilized during 2006.

                Principal maturities and sinking fund payments of our outstanding indebtedness at December 31, 2006 are set forth below:

Year Ending December 31	Sinking Fund Requirements		Principal maturities		Total
2007	$	5,500,000	$	8,228,569	$	13,728,569
2008		5,900,000		3,340,725		9,240,725
2009		6,300,000		3,463,358		9,763,358
2010		6,700,000		3,097,157		9,797,157
2011		157,100,000		1,743,149		158,843,149
Thereafter		129,500,000		33,659,141		163,159,141
	$	311,000,000	$	53,532,099	$	364,532,099

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                During 2006 we spent approximately $19.4 million on capital-construction projects, net of reimbursements, which includes interest capitalized during construction. We develop five-year capital improvement plans that are updated every year. Our capital improvement requirements are based on long-range plans and other supporting studies and are executed through the five-year capital improvement program. Set forth below is an estimate of capital expenditures for the years 2007 through 2011 as contained in the Capital Improvement Plan (CIP), which was approved on December 19, 2006:

Year	Estimated Expenditures
2007	$  39.5 million
2008	$  24.6 million
2009	$  14.7 million
2010	$  24.5 million
2011	$  14.1 million

We expect that cash flows from operations and external funding sources will be sufficient to cover operational and capital funding requirements in 2007.

Outlook

Chugach faces several challenges in 2007 as we move towards procuring new, more efficient power generation facilities. The choice facing Chugach is whether to build and own the new generation or purchase power from another entity. In any event, it is clear this new generation is needed to fulfill current as well as future needs. Our current generating fleet is aging and less fuel-efficient than newer technology. Savings will be realized in decreased maintenance of plant and increased fuel efficiency. The Chugach board of directors will deliberate this important step and reach a conclusion early in 2007.

Procuring a new long-term natural gas supply is also in the forefront of Chugach planning in 2007. Negotiations are currently underway with several natural gas producers with negotiations targeted for a November 2007 conclusion. A close eye will be kept on the progress of a potential North Slope natural gas pipeline being constructed in 2007.

A decision on the general rate case based on the 2005 test year is anticipated at the end of or shortly following year-end 2007. A successful conclusion to this rate action will mean more equitable electric rates being charged to Generation and Transmission (G& T) customers and Distribution (D) customers in the future. It will also mean a more balanced return being realized by the G&T side of Chugach’s business.

                Ratings

Our bond ratings with Moody’s Investors Service, Fitch Investor Service and Standard & Poors Ratings Services remained unchanged in 2006 at A2, A- Stable and A- Stable, respectively.

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                Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance-sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources.

                Critical Accounting Policies

Our accounting and reporting policies comply with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires that management apply accounting policies and make estimates and assumptions that affect results of operations and reported amounts of assets and liabilities in the financial statements. Significant accounting policies are described in Note 1 to the financial statements (See “Item 8 -Financial Statements and Supplementary Data.”). Critical accounting policies are those policies that management believes are the most important to the portrayal of Chugach’s financial condition and results of its operations, and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including third parties or available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under GAAP. For all of these policies management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Management has discussed the development and the selection of critical accounting policies with Chugach’s Audit Committee. The following policies are considered to be critical accounting policies for the year ended December 31, 2006.

Electric Utility Regulation

Chugach is subject to regulation by the RCA. The RCA sets the rates Chugach is permitted to charge customers based on allowable costs. As a result, Chugach applies Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS 71). Through the ratemaking process, the regulators may require the inclusion of costs or revenues in periods different than when they would be recognized by a non-regulated company. This treatment may result in the deferral of expenses and the recording of related regulatory assets based on anticipated future recovery through rates or the deferral of gains or creation of liabilities and the recording of related regulatory liabilities. The application of Statement No. 71 has a further effect on Chugach’s financial statements as a result of the estimates of allowable costs used in the ratemaking process. These estimates may differ from those actually incurred by the Company; therefore, the accounting estimates inherent in specific costs such as depreciation and pension and post-retirement benefits have less of a direct impact on Chugach’s results of operations than they would on a non-regulated company. As reflected in

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Note 1 to the financial statements under “Deferred Charges and Credits”, significant regulatory assets and liabilities have been recorded. Management reviews the ultimate recoverability of these regulatory assets and liabilities based on applicable regulatory guidelines. However, adverse legislation and judicial or regulatory actions could materially impact the amounts of such regulatory assets and liabilities and could adversely impact Chugach’s financial statements.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We base our estimates on the aging of our accounts receivable balances, historical bad debt reserves, historical percent of retail revenue that has been deemed uncollectible, changes in our collections process and regulatory requirements. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be required. If their financial condition improves, allowances may be reduced. Such allowance changes could have a material effect on our consolidated financial condition and results of operations.

Estimated Useful Life of Utility Plant

                We determine the estimated useful life of utility plant based on a depreciation study that is completed every three years and approved by the RCA.

New Accounting Standards

                Implementation of Staff Accounting Bulletin 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”

                In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 was issued in order to eliminate the diversity in practice surrounding how public companies quantify financial statement misstatements. SAB 108 requires an entity to quantify misstatements using a balance sheet and income-statement approach and to evaluate whether either approach results in an error that is material in light of relevant quantitative and qualitative factors.

                We completed our analysis and adopted SAB 108 as of January 1, 2006. Implementation of SAB 108 did not have a material impact on our results of operations, financial position, and cashflows.

SFAS 155 “Accounting for Certain Hybrid Instruments”

                In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Standard “(SFAS”) No. 155, “Accounting for Certain Hybrid Instruments”, which is an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement No. 125.” SFAS No. 155

40

allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. The Statement also establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation and clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. Chugach will begin application of SFAS No. 155 on January 1, 2007, and does not expect it to have a material affect on our results of operations, financial position, and cash flows.

                SFAS 156 “Accounting for Servicing of Financial Assets”

                In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140.” SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in specific situations. Additionally, the servicing asset or servicing liability is initially measured at fair value; however, an entity may elect the “amortization method” or “fair value method” for subsequent balance sheet reporting periods. Chugach will begin application of SFAS No. 156 on January 1, 2007, and does not expect it to have a material affect on our results of operations, financial position, and cash flows.

                SFAS 157 “Fair Value Measurements”

                In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. In addition, this statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement applies when other accounting pronouncements require fair value measurement; it does not require new fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Chugach will begin application of SFAS No. 157 on January 1, 2008, and does not expect it to have a material affect on our results of operations, financial position, and cash flows.

                SFAS 158 “Employers” Accounting for Defined Pension and Other Postretirement Plans

                In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans.” SFAS No. 158 requires an employer to recognize in its statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation. Employers must also recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period.

                The Statement is effective for public entities for fiscal years ending after December 15, 2006 (December 31, 2006 financial statements for public entities with a calendar year end), and for nonpublic entities for fiscal years ending after June 15, 2007.

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                Chugach maintains only multi-employer plans and a defined contribution plan and adoption of this statement did not have a material effect on our results of operations or financial condition.

                FSP AUG AIR-1 “Accounting for Planned Major Maintenance Activities”

                In September 2006, the FASB issued FASB Staff Position (“FSP”) AUG AIR-1, “Accounting for Planned Major Maintenance Activities.” FSP AUG AIR-1 prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods. The Staff Position is effective for fiscal years beginning after December 31, 2006. Chugach is currently evaluating the impact this Staff Position may have on our results of operations or financial condition. Chugach does not accrue in advance for planned major maintenance activities.

Item 7A - Quantitative and Qualitative Disclosures About Market Risk

Chugach is exposed to a variety of risks, including changes in interest rates and changes in commodity prices due to repricing mechanisms inherent in gas supply contracts. In the normal course of our business, we manage our exposure to these risks as described below. We do not engage in trading market risk-sensitive instruments for speculative purposes.

Interest Rate Risk

The following table provides information regarding cash flows for principal payments on total debt by maturity date (dollars in thousands) as of December 31, 2006:

Total Debt1	2007			2008			2009			2010			2011			Thereafter			Total			Fair Value
Fixed rate	$	2,000		$	2,000		$	2,000		$	1,500		$	150,000		$	120,000		$	277,500		$	288,579
Average interest rate		5.50	%		5.50	%		5.50	%		5.50	%		6.55	%		6.20	%		6.37	%
Annual interest expense	$	17,628		$	17,518		$	17,405		$	17,297		$	17,265		$	8,668
Variable rate	$	11,729		$	7,241		$	7,763		$	8,297		$	8,843		$	43,159		$	87,032		$	87,032
Average interest rate		6.05	%		5.56	%		5.57	%		5.55	%		5.57	%		6.41	%		6.05	%

¹ Includes current portion

Chugach is exposed to market risk from changes in interest rates. A 100 basis-point change (up or down) would increase or decrease our interest expense by approximately $870,320, based on $87,032,000 of variable debt outstanding at December 31, 2006.

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Commodity Price Risk

Chugach’s gas contracts provide for adjustments to gas prices based on fluctuations of certain commodity prices and indices. Because purchased power costs are passed directly to our wholesale and retail customers through a fuel surcharge mechanism, fluctuations in the price paid for gas pursuant to long-term gas supply contracts does not normally impact margins.

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Item 8 – Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors
Chugach Electric Association, Inc.

We have audited the accompanying balance sheets of Chugach Electric Association, Inc. as of December 31, 2006 and 2005, and the related statements of operations, changes in equities and margins , and cash flows for each of the years in the three-year period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chugach Electric Association, Inc. as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLC

March 9, 2007
Anchorage, Alaska

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Chugach Electric Association, Inc.
Balance Sheets
December 31, 2006 and 2005

Assets	2006			2005
Utility Plant (notes 1d, 3, 11 and 12):
Electric plant in service	$	787,005,028		$	762,859,198
Construction work in progress		20,254,298			32,505,401
Total utility plant		807,259,326			795,364,599
Less accumulated depreciation		(347,736,514	)		(327,384,961	)
Net utility plant		459,522,812			467,979,638
Other property and investments, at cost:
Nonutility property		24,461			24,461
Investments in associated organizations (note 4)		11,888,530			11,883,053
Total other property and investments		11,912,991			11,907,514
Current assets:
Cash and cash equivalents, including repurchase agreements           of $10,496,037 in 2006 and $11,446,907 in 2005		9,844,914			10,650,594
Special deposits		206,191			216,191
Fuel cost under-recovery (note 1o)		0			1,781,833
Accounts receivable, less provision for doubtful accounts           of $586,221 in 2006 and $398,321 in 2005		32,899,571			27,436,278
Materials and supplies		25,424,493			23,809,691
Prepayments		1,487,966			1,801,104
Other current assets		280,562			282,939
Total current assets		70,143,697			65,978,630
Deferred charges, net (notes 5 and 13)		21,460,648			19,269,718
Total assets	$	563,040,148		$	565,135,500

See accompanying notes to financial statements.

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Chugach Electric Association, Inc.
Balance Sheets (continued)
December 31, 2006 and 2005

Liabilities, Equities and Margins	2006		2005
Equities and margins (notes 6 and 7):
Memberships	$	1,297,633	$	1,250,398
Patronage capital		141,117,620		136,185,378
Other		8,300,847		7,603,376
Total equities and margins		150,716,100		145,039,152
Long-term obligations, excluding current installments (notes 8 and 9):
Bonds payable		305,500,000		311,000,000
National Bank for Cooperatives promissory notes payable		45,303,530		53,532,099
Total long-term obligations		350,803,530		364,532,099
Current liabilities:
Current installments of long-term obligations (notes 8 and 9)		13,728,569		8,325,687
Accounts payable		10,308,668		9,598,958
Consumer deposits		2,217,613		1,980,285
Fuel cost over-recovery (note 1o)		300,567		0
Accrued interest		6,364,100		6,360,652
Salaries, wages and benefits		6,021,473		5,373,496
Fuel		16,158,783		18,123,139
Other current liabilities		4,112,020		3,035,915
Total current liabilities		59,211,793		52,798,132
Deferred credits (note 5)		2,308,725		2,766,117
Total liabilities, equities and margins	$	563,040,148	$	565,135,500

See accompanying notes to financial statements.

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Chugach Electric Association, Inc.
Statements of Operations
Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Operating revenues (notes 1n, 2 and 13)	$	267,542,713		$	225,697,349		$	201,246,615
Operating expenses:
Fuel (note 13)		120,280,509			84,776,131			64,113,474
Power production (note 1o)		15,050,338			15,005,786			15,378,858
Purchased power		25,979,919			23,664,412			20,579,992
Transmission		6,283,845			5,847,648			6,526,684
Distribution		12,134,087			11,780,502			11,723,316
Consumer accounts		4,982,313			5,227,478			5,308,353
Administrative, general and other		21,728,555			20,272,291			21,719,908
Depreciation		28,529,763			28,249,717			27,989,452
Total operating expenses		234,969,329			194,823,965			173,340,037
Interest expense:
On long-term obligations		24,459,852			23,384,316			21,984,371
On short-term obligations		0			46,649			0
Charged to construction-credit		(448,978	)		(844,911	)		(492,506	)
Net interest expense		24,010,874			22,586,054			21,491,865
Net operating margins		8,562,510			8,287,330			6,414,713
Nonoperating margins:
Interest income		879,481			560,418			453,606
Capital credits, patronage dividends and other		597,068			666,983			734,137
Total nonoperating margins		1,476,549			1,227,401			1,187,743
Assignable margins	$	10,039,059		$	9,514,731		$	7,602,456

See accompanying notes to financial statements.

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Chugach Electric Association, Inc.
Statements of Changes in Equities and Margins
Years Ended December 31, 2006, 2005 and 2004

	Memberships		Other Equities and Margins		Patronage Capital			Total
Balance, January 1, 2004	$	1,155,818	$	6,718,891	$	126,341,413		$	134,216,122
Assignable margins		0		0		7,602,456			7,602,456
Retirement of capital credits		0		0		(3,193,600	)		(3,193,600	)
Unclaimed capital credit retirements		0		261,111		0			261,111
Memberships and donations received		46,720		65,990		0			112,710
Balance, December 31, 2004		1,202,538		7,045,992		130,750,269			138,998,799
Assignable margins		0		0		9,514,731			9,514,731
Retirement of capital credits		0		0		(4,079,622	)		(4,079,622	)
Unclaimed capital credit retirements		0		282,479		0			282,479
Memberships and donations received		47,860		274,905		0			322,765
Balance, December 31, 2005		1,250,398		7,603,376		136,185,378			145,039,152
Assignable margins		0		0		10,039,059			10,039,059
Retirement of capital credits		0		0		(5,106,817	)		(5,106,817	)
Unclaimed capital credit retirements		0		346,821		0			346,821
Memberships and donations received		47,235		350,650		0			397,885
Balance, December 31, 2006	$	1,297,633	$	8,300,847	$	141,117,620		$	150,716,100

See accompanying notes to financial statements.

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Chugach Electric Association, Inc.
Statements of Cash Flows
Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Cash flows from operating activities:
Assignable margins	$	10,039,059		$	9,514,731		$	7,602,456
Adjustments to reconcile assignable margins to net cash provided by operating activities:
Depreciation and amortization		31,494,702			30,341,574			31,586,948
Capitalized interest		(1,328,459	)		(993,499	)		(571,013	)
Property (gains) losses, net		(13,919	)		57,202			(11,190	)
Write-off of deferred charges		406,239			0			217,665
Investments in associated organizations		(108,989	)		(114,596	)		(386,661	)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable		(5,463,293	)		(3,695,895	)		(4,928,184	)
Fuel cost under-recovery		1,781,833			(1,781,833	)		2,032,730
Materials and supplies		(1,614,802	)		(118,182	)		(1,802,715	)
Prepayments		313,138			(995,434	)		652,979
Special deposits/other		115,889			(21,824	)		102,122
Deferred charges		(4,873,727	)		(810,692	)		(854,481	)
Increase (decrease) in liabilities:
Accounts payable		709,710			1,114,809			213,266
Provision for rate refund		0			0			(671,071	)
Consumer deposits		237,328			32,774			112,759
Fuel cost over-recovery		300,567			(2,714,345	)		2,714,345
Accrued interest		3,448			158,883			35,979
Salaries, wages and benefits		647,977			(157,244	)		644,140
Fuel		(1,964,356	)		5,203,516			3,912,865
Other liabilities		1,076,105			2,213,492			630,640
Deferred credits		(264,655	)		(143,138	)		(92,314	)
Net cash provided by operating activities		31,493,795			37,090,299			41,141,265
Investing activities:
Extension and replacement of plant		(19,418,940	)		(27,462,144	)		(27,810,212	)
Net cash used in investing activities		(19,418,940	)		(27,462,144	)		(27,810,212	)
Financing activities:
Net transfer of restricted construction funds		0			0			488,846
Repayments of long-term obligations		(8,325,687	)		(6,431,393	)		(10,545,000	)
Memberships and donations received		744,706			605,244			373,821
Retirement of patronage capital and estate payments		(5,106,817	)		(4,079,622	)		(3,193,600	)
Net receipts of consumer advances for construction		(192,737	)		463,206			(1,175,202	)
Net cash used in financing activities		(12,880,535	)		(9,442,565	)		(14,051,135	)
Net changes in cash and cash equivalents		(805,680	)		185,590			(720,082	)
Cash and cash equivalents at beginning of period	$	10,650,594		$	10,465,004		$	11,185,086
Cash and cash equivalents at end of period	$	9,844,914		$	10,650,594		$	10,465,004
Supplemental disclosure of non-cash investing and financing       activities Retirement of plant	$	8,240,458		$	6,980,227		$	15,419,893
Supplemental disclosure of cash flow information - interest      expense paid, excluding  amounts capitalized	$	24,086,565		$	22,427,171		$	21,354,036

See accompanying notes to financial statements.

49

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(1)	Description of Business and Significant Accounting Policies
	a. Description of Business
	Chugach Electric Association, Inc., (Chugach) is the largest electric utility in Alaska. Chugach is engaged in the generation, transmission and distribution of electricity to directly serve retail customers in the Anchorage and upper Kenai Peninsula areas. Through an interconnected regional electrical system, Chugach’s power flows throughout Alaska’s Railbelt, a 400-mile-long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state, including Alaska’s largest cities, Anchorage and Fairbanks.
	Chugach also supplies much of the power requirements of three wholesale customers, Matanuska Electric Association, Inc. (MEA), Homer Electric Association, Inc. (HEA) and the City of Seward (Seward). Chugach’s members are the consumers of the electricity sold.
	Chugach operates on a not-for-profit basis and, accordingly, seeks only to generate revenues sufficient to pay operating and maintenance costs, the cost of purchased power, capital expenditures, depreciation, and principal and interest on all indebtedness and to provide for reserves. Chugach is subject to the regulatory authority of the Regulatory Commission of Alaska (RCA).
	b. Management Estimates
	In preparing the financial statements, management of Chugach is required to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the reporting period. Critical estimates include allowance for doubtful accounts and the estimated useful life of utility plant. Actual results could differ from those estimates.
	c. Regulation
	The accounting records of Chugach conform to the Uniform System of Accounts as prescribed by the Federal Energy Regulatory Commission (FERC). Chugach meets the criteria, and accordingly, follows the accounting and reporting requirements of Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS 71).
	SFAS No. 71 provides for the recognition of regulatory assets and liabilities as allowed by regulators for costs or credits that are reflected in current rates or are considered probable of being included in future rates. The regulatory assets or liabilities are then relieved as the cost or credit is reflected in rates.

50

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(1)	Description of Business and Significant Accounting Policies (continued)
	d. Utility Plant and Depreciation
	Additions to electric plant in service are recorded at original cost of contracted services, direct labor and materials, indirect overhead charges and capitalized interest. For property replaced or retired, the book value of the property, plus removal cost, less salvage, is charged to accumulated provision for depreciation. Renewals and betterments are capitalized, while maintenance and repairs are charged to expense as incurred. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), utility plant is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
	Depreciation and amortization rates have been applied on a straight-line basis and at December 31 are as follows:

	Annual Depreciation Rate Ranges
	2005-2006			2004
Steam production plant	2.55%	–	3.24%	2.55%	–	2.80%
Hydraulic production plant	1.63%	–	2.94%	0.04%	–	1.56%
Other production plant	3.32%	–	9.81%	2.67%	–	7.62%
Transmission plant	1.72%	–	5.26%	1.50%	–	4.24%
Distribution plant	2.10%	–	9.98%	2.13%	–	9.22%
General plant	2.23%	–	27.25%	2.21%	–	20.40%
Other	2.75%	–	2.75%	2.35%	–	2.75%

Chugach uses remaining life rates set forth in the most recent depreciation study. In 2004, Chugach implemented new depreciation rates based on an update of the 1999 Depreciation Study utilizing Electric Plant in Service balances as of December 31, 2002. In an order dated January 10, 2006, the RCA approved the study with certain changes to the proposed depreciation rates and allowed Chugach to revise its depreciation rates effective January 1, 2005 to reflect the new depreciation rates. The impact on Chugach’s financial statements for the year ended December 31, 2005 was a decrease of $1,000,000 to depreciation expense with a corresponding increase to assignable margins.

51

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(1)	Description of Business and Significant Accounting Policies (continued)
	e. Capitalized Interest
	Allowance for funds used during construction (AFUDC) and interest charged to construction - credit (IDC) are the estimated costs during the period of construction of equity and borrowed funds. AFUDC is a non-cash credit, which represents the estimated cost of funds used to finance the construction of utility plant. AFUDC is applied to all projects during construction. AFUDC includes the net cost of borrowed funds and a rate of return on other funds when used and is recovered through rates as utility plant is depreciated. Chugach capitalized such funds at the weighted average rate (adjusted monthly) of 6.1% in 2006, 5.0% during 2005, and 4.6% during 2004.
	f. Investments in Associated Organizations
	The loan agreements with CoBank and NRUCFC require as a condition of the extension of credit, that an equity ownership position be established by all borrowers. Chugach’s equity ownership in these organizations is approximately 1%. These investments are non-marketable and accounted for at cost.
	g. Fair Value of Financial Instruments
	SFAS No. 107, Disclosures About the Fair Value of Financial Instruments (SFAS 107), requires disclosure of the fair value of certain on and off balance sheet financial instruments for which it is practicable to estimate that value. The following methods are used to estimate the fair value of financial instruments:

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

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

Long-term obligations - the fair value is estimated based on the quoted market price for same or similar issues (notes 8 and 9).

h. Financial Instruments and Hedging

Chugach used U.S. Treasury forward rate lock agreements to hedge expected interest rates on the February 2002 debt re-financings. Chugach accounted for the agreements under SFAS 133. For rate-making purposes, Chugach did not adjust rates for gains and losses prior to settlement, and the loss on settlement will be an adjustment to rates over the lives of the associated debt. This rate-making treatment was approved by the RCA in Order U-01-108(26). Accordingly, the unrealized loss was not recorded and was treated as a regulatory asset upon settlement (note 5). At December 31, 2006, the regulatory asset associated with the rate lock agreements was $2,861,530.

52

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(1)	Description of Business and Significant Accounting Policies (continued)
	i. Cash and Cash Equivalents
	For purposes of the statement of cash flows, Chugach considers all highly liquid debt instruments with a maturity of three months or less upon acquisition by Chugach to be cash equivalents.
	j. Accounts Receivable
	Trade accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is management’s best estimate of the amount of probable credit losses in existing accounts receivable. Chugach determines the allowance based on its historical write-off experience and current economic conditions. Chugach reviews its allowance for doubtful accounts monthly. Past due balances over 90 days in a specified amount are reviewed individually for collectibility. All other balances are reviewed in aggregate. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Chugach does not have any off–balance-sheet credit exposure related to its customers.
	k. Materials and Supplies
	Materials and supplies are stated at average cost.
	l. Deferred Charges and Credits
	In accordance with SFAS 71, Chugach’s financial statements reflect regulatory assets and liabilities. Continued accounting under SFAS 71 requires that certain criteria be met. Management believes Chugach’s operations currently satisfy these criteria. However, if events or circumstances should change so the criteria are not met, the write off of regulatory assets and liabilities could have a material effect on the financial position and results of operations. Deferred charges, representing regulatory assets, are amortized to operating expense over the period allowed for rate-making purposes.
	Deferred credits, representing regulatory liabilities, are amortized to operating expense over the period allowed for rate-making purposes. It also includes nonrefundable contributions in aid of construction, which are credited to the associated cost of construction of property units. Refundable contributions in aid of construction are held in deferred credits pending their return or other disposition.

53

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(1)	Description of Business and Significant Accounting Policies (continued)
	m. Patronage Capital
	Revenues in excess of current period costs (net operating margins and nonoperating margins) in any year are designated on Chugach’s statement of revenues and expenses as assignable margins. These excess amounts (i.e. assignable margins) are considered capital furnished by the members, and are credited to their accounts and held by Chugach until such future time as they are retired and returned without interest at the discretion of the Board of Directors. Retained assignable margins are designated on Chugach’s balance sheet as patronage capital. This patronage capital constitutes the principal equity of Chugach. The Board of Directors may also approve the return of capital to former members and estates who request early retirements at discounted rates under a discounted capital credits retirement plan authorized by the Board in September 2002.
	n. Operating Revenues
	Revenues are recognized upon delivery of electricity. Operating revenues are based on billing rates authorized by the RCA, which are applied to customers’ usage of electricity. Chugach’s rates are established, in part, on test period sales levels that reflect actual operating results. Chugach calculates unbilled revenue at the end of each month to insure the recognition of a full year’s revenue. Chugach accrued $9,346,702 and $6,231,072 of unbilled retail revenue at December 31, 2006 and 2005, respectively. Wholesale revenue is recorded from metered locations on a calendar month end basis, so no accrual is made. Chugach’s tariffs include provisions for the flow through of gas costs according to existing gas supply contracts, as well as purchased power costs.
	o. Fuel and Purchased Power Costs
	The expenses associated with electric services include fuel used to generate electricity and power purchased from others. Chugach is authorized by the RCA to recover fuel and purchased power costs through the fuel surcharge mechanism, which is adjusted quarterly to reflect increases and decreases of such costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered through rates. Fuel costs were over-recovered by $300,567 in 2006 and under-recovered by $1,781,833 in 2005. Total fuel and purchased power costs in 2006, 2005, and 2004 were $146,260,428, $108,440,543, and $84,693,466, respectively.
	p. Environmental Remediation Costs
	Chugach accrues for losses and establishes a liability associated with environmental remediation obligations when such losses are probable and can be reasonably estimated. Such accruals are adjusted as further information develops or circumstances change. Estimates of future costs for environmental remediation obligations are not discounted to

54

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(1)	Description of Business and Significant Accounting Policies (continued)
	their present value.  However, various remediation costs may be recoverable through rates and accounted for as a regulatory asset.
	q. Income Taxes
	Chugach is exempt from federal income taxes under the provisions of Section 501(c)(12) of the Internal Revenue Code, except for unrelated business income. For the years ended December 31, 2006, 2005 and 2004, Chugach received no unrelated business income.
	r. Implementation of Staff Accounting Bulletin 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”
	In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 was issued in order to eliminate the diversity in practice surrounding how public companies quantify financial statement misstatements. SAB 108 requires an entity to quantify misstatements using a balance sheet and income-statement approach and to evaluate whether either approach results in an error that is material in light of relevant quantitative and qualitative factors.
	We completed our analysis and adopted SAB 108 as of January 1, 2006. Implementation of SAB 108 did not have a material impact on our results of operations, financial position, and cashflows.
	s. Recently Issued Accounting Pronouncements

SFAS 155 “Accounting for Certain Hybrid Instruments”

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Standard “(SFAS”) No. 155, “Accounting for Certain Hybrid Instruments”, which is an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement No. 125.” SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. The Statement also establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation and clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. Chugach will begin application of SFAS No. 155 on January 1, 2007, and does not expect it to have a material affect on our results of operations, financial position, and cash flows.

55

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(1)	Description of Business and Significant Accounting Policies (continued)
	SFAS 156 “Accounting for Servicing of Financial Assets”
	In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140.” SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in specific situations. Additionally, the servicing asset or servicing liability is initially measured at fair value; however, an entity may elect the “amortization method” or “fair value method” for subsequent balance sheet reporting periods. Chugach will begin application of SFAS No. 156 on January 1, 2007, and does not expect it to have a material affect on our results of operations, financial position, and cash flows.
	SFAS 157 “Fair Value Measurements”
	In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. In addition, this statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement applies when other accounting pronouncements require fair value measurement; it does not require new fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Chugach will begin application of SFAS No. 157 on January 1, 2008, and does not expect it to have a material affect on our results of operations, financial position, and cash flows.
	SFAS 158 “Employers’ Accounting for Defined Pension and Other Postretirement Plans
	In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans.” SFAS No. 158 requires an employer to recognize in its statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation. Employers must also recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period.
	The Statement is effective for public entities for fiscal years ending after December 15, 2006 (December 31, 2006 financial statements for public entities with a calendar year end), and for nonpublic entities for fiscal years ending after June 15, 2007.
	Chugach maintains only multi-employer plans and a defined contribution plan and adoption of this statement did not have a material effect on our results of operations or financial condition.

56

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(1)	Description of Business and Significant Accounting Policies (continued)
	FSP AUG AIR-1 “Accounting for Planned Major Maintenance Activities”

	In September 2006, the FASB issued FASB Staff Position (“FSP”) AUG AIR-1, “Accounting for Planned Major Maintenance Activities.” FSP AUG AIR-1 prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods. The Staff Position is effective for fiscal years beginning after December 31, 2006. Chugach is currently evaluating the impact this Staff Position may have on our results of operations or financial condition. Chugach does not accrue in advance for planned major maintenance activities.
(2)	Regulatory Matters
	Revision to Current Depreciation Rates (Docket No. U-04-102)

In 2004, Chugach implemented new depreciation rates based on an update of the 1999 Depreciation Study utilizing Electric Plant in Service balances as of December 31, 2002. The 2002 Depreciation Study resulted in an increase to 2004 depreciation expense, which was not material to the financial statements. The 2002 Depreciation Study was submitted to the RCA for approval on November 19, 2004, resulting in the RCA opening a docket to review the proposed new rates. Chugach, however, implemented the new rates effective January 1, 2004. Chugach did not request a change in electric rates charged to customers based on the proposed revisions to depreciation rates.

On March 9, 2005, the RCA ruled in Order No. 2 that depreciation rates may not be implemented without prior approval of the RCA.

On September 21, 2005, the RCA issued Order No. 8 requiring Chugach to adjust its underlying 2004 financial records to reflect the results as if Chugach had not implemented unapproved rates. In November of 2005, Chugach reversed the 2004 depreciation expense and depreciation reserves that were previously recorded using the 2002 Depreciation Study rates and calculated 2004 depreciation expense for all categories of plant using the 1999 Depreciation Study rates as approved by the RCA in Docket U-01-108. The adjustment was not material to Chugach’s financial statements.

In Order No. 9 dated January 10, 2006, the RCA ruled substantially in Chugach’s favor approving the 2002 Depreciation Study with certain changes to the proposed depreciation rates. The main effect of this decision is to allow Chugach to revise its depreciation rates effective as of January 1, 2005.

Because Chugach did not request changes to the electric rates charged to our customers based on the proposed new depreciation rates, there was no immediate electric rate impact.

57

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(2)	Regulatory Matters (continued)
	Wholesale customers MEA and HEA were active in the proceeding. Subsequently, MEA filed an appeal of the RCA’s decision in Superior Court, see “Footnote 13, Commitments, Contingencies and Concentrations – Legal Proceedings – Matanuska Electric Association, Inc. v. State of Alaska, Regulatory Commission of Alaska, Superior Court Case No. 3AN-06-8243 Civil.”

Seward Contract request for review and approval

We currently provide nearly all the power needs of the City of Seward. Sales to Seward represent approximately 2.5% of Chugach’s total sales of energy (including both retail and wholesale). In February 1998, we entered into a power sales agreement (Old Contract) with Seward that allowed us to interrupt service to Seward up to 12 times per year, not to exceed seventy-two cumulative hours annually and also reduce the demand charge by 1/3 (approximately $350,000 annually). This agreement was scheduled to expire January 31, 2006. The RCA granted a four-month extension to May 31, 2006, of the old contract to allow the parties to complete negotiations on a new contract.

Negotiations with Seward were successful and on April 14, 2006, Chugach filed a request for approval by the RCA of a proposed new power sales agreement with the City of Seward (2006 Agreement) with a nominal effective date of June 1, 2006. The proposed contract was for five years with two automatic five-year extensions unless notice of termination is given by either party and resulted in a 5 percent increase in revenues in relation to the Old Contract.

The 2006 Agreement is an interruptible, all-requirements/no reserves contract. It has many of the attributes of firm service, especially in the requirement that so long as Chugach has sufficient power available, it must meet Seward’s needs for power. However, service is interruptible because Chugach is under no obligation to supply or plan for generation capacity reserves to supply Seward and there is no limit on the number of times or hours per year that the supply can be interrupted.

Counterbalancing this is the requirement that Chugach must provide power to Seward if Chugach has the power available after first meeting its obligations to its other customers for whom Chugach has an obligation to provide reserves (MEA, HEA and Chugach retail customers).

The price under the 2006 Agreement reflects the reduced level of service because no costs of generation in excess of that needed to meet the system peak will be assigned to Seward.

Approval of the new Agreement was contested by Chugach’s wholesale customer, MEA and Chugach’s wholesale customer HEA also intervened in the proceeding. A hearing was set to begin November 30, 2006. Chugach filed a Motion for Summary Disposition. The Motion was granted in part and citing this decision, MEA withdrew from the case.

58

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(2)	Regulatory Matters (continued)
	The remaining parties entered into a stipulation, accepted by the RCA, to allow additional RCA review of the agreement before an automatic extension of the agreement which is permitted after the first five years of the term of the agreement. On the basis of the stipulation, the Commission cancelled the hearing and the 2006 Agreement with Seward was approved as amended.

2005 Test Year General Rate Case (Docket No. U-06-134)

On September 27, 2006, the Chugach Board of Directors authorized and instructed management to file a general rate case with the RCA. On September 29, 2006, Chugach filed a general rate case based on a 2005 test year and requesting a revenue increase of $10.6 million for the Generation and Transmission (G&T) function and a revenue decrease of $7.8 million for the Distribution function. Overall revenues are proposed to increase $2.8 million.

Chugach expects the case to be fully adjudicated by January 1, 2008, assuming no appeals or other delay in the regulatory process.

The Commission permitted intervention from Chugach’s wholesale customers and the Regulatory Affairs and Public Advocacy (RAPA) section within the Attorney General’s office of the State of Alaska. It also permitted intervention of a single Chugach retail member.

A scheduling order was issued on January 23, establishing a hearing schedule to adjudicate the case and discovery from the intervenors in the case has been on-going since mid December 2006. The hearing is currently scheduled to occur in August 2007.

59

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(3)	Utility Plant
	Major classes of utility plant as of December 31 are as follows:

	2006		2005
Electric plant in service:
Steam production plant	$	60,462,671	$	60,462,671
Hydraulic production plant		20,257,091		20,241,725
Other production plant		124,371,318		132,990,991
Transmission plant		232,654,766		226,544,759
Distribution plant		219,453,660		219,597,822
General plant		50,267,742		52,606,167
Unclassified electric plant in service		72,773,888		43,651,171
Other		6,763,892		6,763,892
Total electric plant in service		787,005,028		762,859,198
Construction work in progress		20,254,298		32,505,401
Total electric plant in service and        construction work in progress	$	807,259,326	$	795,364,599

	Unclassified electric plant in service consists of complete unclassified general plant, generation, transmission and distribution projects. Depreciation of unclassified electric plant in service has been included in functional plant depreciation accounts in accordance with the anticipated eventual classification of the plant investment.
(4)	Investments in Associated Organizations
	Investments in associated organizations include the following at December 31:

	2006		2005
National Rural Utilities Cooperative Finance Corporation (NRUCFC)	$	6,095,980	$	6,095,980
National Bank for Cooperatives (CoBank)		5,738,181		5,628,192
NRUCFC capital term certificates		40,693		41,677
Other		13,676		117,204
Total Investments in Associated Organizations	$	11,888,530	$	11,883,053

60

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(4)	Investments in Associated Organizations (continued)
	The Farm Credit Administration, CoBank’s federal regulators, requires minimum capital adequacy standards for all Farm Credit System institutions. CoBank’s loan agreements require, as a condition of the extension of credit, that an equity ownership position be established by all borrowers. Chugach’s investment in NRUCFC similarly was required by Chugach’s financing arrangements with NRUCFC.
(5)	Deferred Charges and Credits

Deferred Charges

Deferred charges, or regulatory assets, net of amortization, consisted of the following at December 31:

	2006		2005
Debt issuance and reacquisition costs	$	7,804,354	$	9,392,807
Refurbishment of transmission equipment		197,531		206,791
Computer software and conversion		429,037		330,946
Studies		6,216,638		5,758,382
Beluga Gas Compression		3,797,000		171,378
Fuel supply negotiations		215,037		233,314
Major overhaul of steam generating unit		1,111,867		1,503,192
Environmental matters and other		211,505		149,879
Other regulatory deferred charges		1,477,679		1,523,029
Total deferred charges	$	21,460,648	$	19,269,718

At December 31, 2006 and 2005, $10,658,620 and $6,383,202, respectively, of total deferred charges represent regulatory assets in progress and are not currently being amortized, however, Chugach expects recovery, as well as a recovery period determination in the future. The majority of these charges represent costs associated with the Cooper Lake Power Plant FERC re-licensing effort and the Beluga gas compression project. Over/under recovered fuel costs is not included in Deferred Charges or Deferred Credits.

61

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(5)	Deferred Charges and Credits (continued)
	Deferred Credits
	Deferred credits, or regulatory liabilities, at December 31 consisted of the following:

	2006		2005
Refundable consumer advances for construction	$	1,623,538	$	1,816,275
Estimated initial installation costs for transformers and meters		104,696		436,786
Post retirement benefit obligation		558,900		480,900
Other		21,591		32,156
Total deferred credits	$	2,308,725	$	2,766,117

(6)	Patronage Capital
	Chugach has an approved capital credit retirement policy, which is contained in the Chugach Financial Management Plan. This establishes, in general, a plan to return the capital credits of wholesale and retail customers based on the members’ proportionate contribution to Chugach’s assignable margins on an approximately 15-year rotation. At December 31, 2006, Chugach had $141,117,620 of patronage capital (net of capital credits retired in 2006), which included $121,318,975 of patronage capital that had been assigned and $19,798,645 of patronage capital to be assigned to its members. Approval of actual capital credit retirements is at the discretion of Chugach’s Board of Directors. Chugach records a liability when the retirements are approved by the Board of Directors. The Amended and Restated Indenture prohibits Chugach from making any distribution of patronage capital to Chugach’s customers in the event of default under the Amended and Restated Indenture exists (note 8).
	Capital credits retired were $5,106,817, $4,079,622, and $3,193,600 for the years ended December 31, 2006, 2005, and 2004, respectively. The outstanding liability for capital credits authorized but not paid was $1,322,577 and $1,194,146 at December 31, 2006 and 2005, respectively.

62

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(6)	Patronage Capital (continued)
	Following is a five-year summary of anticipated capital credit retirements:

Year ending December 31, 2006	Total
2007	$	5,000,000
2008	$	4,500,000
2009	$	4,000,000
2010	$	4,500,000
2011	$	5,000,000

(7)	Other Equities
	A summary of other equities at December 31 follows:

	2006		2005
Nonoperating margins, prior to 1967	$	23,625	$	23,625
Donated capital		878,923		532,103
Unclaimed capital credit retirement*		7,398,299		7,047,648
Total other equities	$	8,300,847	$	7,603,376

* Represents unclaimed capital credits that have met all requirements of section 34.45.200 of Alaska’s unclaimed property law and has therefore reverted to Chugach

63

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(8)      Debt

Long-term obligations at December 31 are as follows:

	2006		2005
CoBank 2, 5.50% fixed rate note maturing in 2010, with interest and principal payable monthly; unsecured	$	7,500,000	$	9,500,000
CoBank 3 and 4, 6.72% variable rate notes maturing in 2022, with interest payable monthly and principal due annually beginning in 2003; unsecured		41,032,099		42,157,786
CoBank 5, 6.72% variable rate note, with interest payable monthly and principal due in 2007; unsecured		5,000,000		5,000,000
2001 Series A Bond of 6.55%, maturing in 2011, with interest payable semi-annually March 15 and September 15; unsecured		150,000,000		150,000,000
2002 Series A Bond of 6.20%, maturing in 2012, with interest payable semi-annually February 1 and August 1; unsecured		120,000,000		120,000,000
2002 Series B Bond of a rate set for 28-day auction periods, maturing in 2012, with interest payable monthly and principal due annually; unsecured		41,000,000		46,200,000
Total long-term obligations	$	364,532,099	$	372,857,786
Less current installments		13,728,569		8,325,687
Long-term obligations, excluding current installments	$	350,803,530	$	364,532,099

Covenants

Chugach is required to comply with all covenants set forth in the Amended and Restated Indenture, dated April 1, 2001, which became effective January 22, 2003. The indenture initially governing the outstanding CoBank, 2001 Series A, 2002 Series A and 2002 Series B bonds, provided that the bonds were secured by a mortgage on substantially all of Chugach’s assets so long as any amounts were outstanding to CoBank on bonds issued under the indenture. Upon the retirement of the then outstanding bonds on January 22, 2003, the 2001 Series A, 2002 Series A and 2002 Series B bonds (the Bonds) became subject to the Amended and Restated Indenture pursuant to which the Bonds became unsecured obligations of Chugach.

Chugach is also required to comply with the Master Loan Agreement, which covers the CoBank 2, 3, 4 and 5 promissory notes, between Chugach and CoBank dated December 27, 2002, pursuant to which CoBank and Chugach replaced the CoBank 2, 3, 4 and 5 bonds

64

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(8)	Debt (continued)
	issued to CoBank with the above stated unsecured promissory notes not governed by the indenture. CoBank returned the old CoBank bonds to Chugach on January 22, 2003.
	The CoBank Master Loan Agreement requires Chugach to establish and collect electric rates reasonably expected to yield margins for interest equal to at least 1.10 times interest expense.
	Security
	On January 22, 2003, the Bonds became general unsecured and unsubordinated obligations. Under the Amended and Restated Indenture, Chugach is prohibited from creating or permitting to exist any mortgage, lien, pledge, security interest or encumbrance on Chugach’s properties and assets (other than those arising by operation of law) to secure the repayment of borrowed money or the obligation to pay the deferred purchase price of property unless Chugach equally and ratably secures the Bonds subject to the Amended and Restated Indenture, except that Chugach may incur secured indebtedness in an amount not to exceed $5 million or enter into sale and leaseback or similar agreements.
	Rates
	The Amended and Restated Indenture requires Chugach, subject to any necessary regulatory approval, to establish and collect rates reasonably expected to yield margins for interest equal to at least 1.10 times total interest expense. The CoBank Master Loan Agreement also requires Chugach to establish and collect rates reasonably expected to yield margins for interest equal to at least 1.10 times interest expense. Margins for interest generally consist of Chugach’s assignable margins plus total interest expense. If there occurs any material change in the circumstances contemplated at the time rates were most recently reviewed, the Amended and Restated Indenture requires Chugach to seek appropriate adjustments to those rates so that they would generate revenues reasonably expected to yield margins for interest equal to at least 1.10 times interest charges.
	Distributions to Members
	The Amended and Restated Indenture prohibits Chugach from making any distribution of patronage capital to Chugach’s customers if an event of default under the Amended and Restated Indenture exists. Otherwise, Chugach may make distributions to Chugach’s members in each year equal to the lesser of 5% of Chugach’s patronage capital or 50% of assignable margins for the prior fiscal year. This restriction does not apply if, after the distribution, Chugach’s aggregate equities and margins as of the end of the immediately preceding fiscal quarter are equal to at least 30% of Chugach’s total liabilities and equities and margins.

65

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(8)	Debt (continued)
	Maturities of Long-term Obligations
	Long-term obligations at December 31, 2006, mature as follows:

Year ending December 31	Sinking Fund Requirements		Sinking Fund Requirements		Sinking Fund Requirements		Principal Maturities		Total
	2001 Series A Bonds		2002 Series A Bonds		2002 Series B Bonds		CoBank Promissory Notes
2007		0		0		5,500,000		8,228,569		13,728,569
2008		0		0		5,900,000		3,340,725		9,240,725
2009		0		0		6,300,000		3,463,358		9,763,358
2010		0		0		6,700,000		3,097,157		9,797,157
2011		150,000,000		0		7,100,000		1,743,149		158,843,149
Thereafter		0		120,000,000		9,500,000		33,659,141		163,159,141
	$	150,000,000	$	120,000,000	$	41,000,000	$	53,532,099	$	364,532,099

Short-term obligations

Chugach had maintained a $20,000,000 line of credit with CoBank, ACB (CoBank). On October 25, 2005, Chugach reduced the line of credit to $7.5 million due to a decrease in short-term borrowing projections. On October 18, 2006, the Board of Directors approved a resolution to renew this line of credit. The CoBank line of credit expires October 31, 2007, subject to annual renewal at the discretion of the parties. Chugach did not utilize this line of credit in 2006.  Chugach utilized this line of credit in March of 2005, however, the balance was subsequently paid back in the same month. At December 31, 2006 and 2005, there was no outstanding balance on this line of credit. The borrowing rate is calculated using the CoBank Base Rate on the first business day of the week plus 3%. The average borrowing rate for 2006 and 2005 was 6.51% and 4.86%, respectively. In addition, Chugach had an annual line of credit of $50,000,000 available at December 31, 2006 and 2005, with NRUCFC. Chugach did not utilize this line of credit in 2006 or 2005. At December 31, 2006 and 2005, there was no outstanding balance on this line of credit. The borrowing rate is calculated using the total rate per annum as may be fixed by CFC and will not exceed the Prevailing Prime Rate, plus one percent per annum. At December 31, 2006 and 2005, the borrowing rate would have been 7.15% and 6.10%, respectively. The NRUCFC line of credit expires October 15, 2007.

66

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(8)	Debt (continued)
	Refinancing
	On August 31, 2005, Chugach refinanced its $10 million promissory note (CoBank 2) with CoBank. The new $10,000,000, 5.50% fixed rate promissory note will mature September 20, 2010 and contains consecutive monthly installment payments commencing October 20, 2005.
	2002 Series B Bonds
	The 2002 Series B Bonds (the “Auction Rate Bonds”) will mature on February 1, 2012. The applicable interest rate for any 28-day auction period is the term rate established by the auction agent based on the terms of the auction. The Auction Rate Bonds may be converted, in Chugach’s discretion, to a daily, seven-day, 35-day, three-month or a semi-annual period or a flexible auction period. The Auction Rate Bonds are not subject to redemption at the option of the bondholders under any circumstances. Chugach may elect to redeem the bonds and Chugach is required to redeem the bonds in pre-established incremental amounts over time through a sinking fund. The Auction Rate Bonds are subject to a remarketing agreement on a best efforts basis, however in the event of unsuccessful remarketing, the bonds are returned to the bondholders and continue as auction rate bonds subject to a maximum auction rate (15%). Under no circumstances would Chugach be obligated to pay off the Bonds in the event of an unsuccessful remarketing effort. Chugach has not provided any protection to the bondholders in the event of an unsuccessful remarketing, therefore, Chugach has classified the Bonds as long-term, with the exception of the mandatory sinking fund payment due in 2007. Chugach has not experienced an unsuccessful auction since the bonds have been outstanding. The average interest rate for the 2002 Series B Bonds in 2006, 2005, and 2004 was 5.07%, 3.42%, and 1.58%, respectively.

67

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(8)	Debt (continued)
	The following table provides information regarding auction dates and rates in 2006:

Auction Date	Interest Rate
January 25, 2006	4.49%
February 22, 2006	4.55%
March 22, 2006	4.69%
April 19, 2006	4.80%
May 17, 2006	5.05%
June 14, 2006	5.18%
July 12, 2006	5.35%
August 9, 2006	5.35%
September 6, 2006	5.29%
October 4, 2006	5.31%
November 1, 2006	5.30%
November 29, 2006	5.29%
December 27, 2006	5.31%

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

	2006				2005
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term obligations (including current installments)	$	364,532	$	375,611	$	372,858	$	390,927

	Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions.
(10)	Employee Benefit Plans

Pension Plans

Pension benefits for substantially all union employees are provided through the Alaska Electrical Pension Trust Fund and the Alaska Hotel, Restaurant and Camp Employees Health and Welfare and Pension Trust Fund, multi-employer plans. Chugach pays an hourly amount per eligible union employee pursuant to the collective bargaining unit agreements. In these master, multi-employer plans, the accumulated benefits and plan assets are not determined or allocated separately to the individual employer.

68

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(10)	Employee Benefit Plans (continued)
	The costs for the union plans were approximately $2.5 million, $2.4 million, and $2.5 million in 2006, 2005, and 2004, respectively. Chugach has no responsibility for any unfunded benefit obligation of the Plan at this time.
	Pension benefits for non-union employees are provided by the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program, a multi-employer plan. Chugach makes annual contributions to the pension plan equal to the amounts accrued for pension expense. Chugach contributed $1.6 million, $1.8 million, and $1.6 million in 2006, 2005, and 2004, respectively, to the NRECA plan. Chugach has no responsibility for any unfunded benefit obligation of the Plan at this time.

Health and Welfare Plans

Health and welfare benefits for union employees are provided through the Alaska Electrical Health and Welfare Trust and the Alaska Hotel, Restaurant and Camp Employees Health and Welfare and Pension Trust Fund. Chugach participates in multi-employer plans that provide substantially all union workers with health care and other welfare benefits during their employment with Chugach. Chugach pays a defined amount per union employee pursuant to collective bargaining unit agreements. Amounts charged to benefit costs and contributed to the health and welfare plans for these benefits for the years ending December 31, 2006, 2005, and 2004 were $2.9 million, $3.0 million, and $2.9 million respectively.

Chugach participates in a multi-employer plan through the Group Benefits Program of NRECA for non-union employees. Amounts charged to benefit cost and contributed to this Plan for those benefits for the years ended December 31, 2006, 2005, and 2004 totaled $2.0 million, $2.0 million, and $2.0 million respectively.

Money Purchase Pension Plan

Chugach participates in a multi-employer defined contribution money purchase pension plan covering some employees who are covered by a collective bargaining agreement. Contributions to the Plan are made based on a percentage of each employee’s compensation. Contributions to the money purchase pension plan for the years ending December 31, 2006, 2005, and 2004 were $85.4 thousand, $80.7 thousand, and $90.1 thousand, respectively.

 401(k) Plan

Chugach has a defined contribution 401(k) retirement plan which covers substantially all employees who have completed ninety days of continuous service during a twelve month period.

69

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(10)	Employee Benefit Plans (continued)
	Employees who elect to participate may contribute up to the Internal Revenue Service’s maximum of $15,000, $14,000, and $13,000 in 2006, 2005, and 2004 respectively. Chugach does not make contributions to the plan.

(11)	Bradley Lake Hydroelectric Project
	Chugach is a participant in the Bradley Lake Hydroelectric Project (Bradley Lake). Bradley Lake was built and financed by the Alaska Energy Authority (AEA) through State of Alaska grants and $166,000,000 of revenue bonds. Chugach and other participating utilities have entered into take-or-pay power sales agreements under which shares of the project capacity have been purchased and the participants have agreed to pay a like percentage of annual costs of the project (including ownership, operation and maintenance costs, debt service costs and amounts required to maintain established reserves). Under these take-or-pay power sales agreements, the participants have agreed to pay all project costs from the date of commercial operation even if no energy is produced. Chugach has a 30.4% share of the project’s capacity. The share of debt service exclusive of interest, for which Chugach has guaranteed, is approximately $39,000,000. Under a worst-case scenario, Chugach could be faced with annual expenditures of approximately $5.0 million as a result of Chugach’s Bradley Lake take-or-pay obligations. Management believes that such expenditures, if any, would be recoverable through the fuel surcharge  ratemaking process. Upon the default of a Bradley Lake participant, and subject to certain other conditions, AEA, through Alaska Industrial Development and Export Authority, is entitled to increase each participant’s share of costs pro rata, to the extent necessary to compensate for the failure of another participant to pay its share, provided that no participant’s percentage share is increased by more than 25%.
	The following represents information with respect to Bradley Lake at June 30, 2006 (the most recent date for which information is available). Chugach’s share of expenses was $4,219,321 in 2006, $4,993,670 in 2005, and $4,205,657 in 2004 and is included in purchased power in the accompanying financial statements.

(In thousands)	Total		Proportionate Share
Plant in service	$	211,182	$	64,199
Long-term debt		121,182		36,839
Interest expense		8,274		2,515

Other electric plant represents Chugach’s share of a Bradley Lake transmission line financed internally and Electric Plant Held for Future Use.

70

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(12)	Eklutna Hydroelectric Project
	During October 1997, the ownership of the Eklutna Hydroelectric Project formally transferred from the Alaska Power Administration to the participating utilities. This group, including their corresponding interest in the project, consists of Chugach (30%), MEA (16.7%) and Anchorage Municipal Light & Power (AML&P) (53.3%).
	Plant in service in 2006 includes $2,644,397, net of accumulated depreciation of $608,495, which represents Chugach’s share of the Eklutna Hydroelectric Plant. In 2005 plant in service included $2,616,854, net of accumulated depreciation of $525,457. Chugach and AML&P jointly operate the facility. Each participant contributes their proportionate share for operation, maintenance and capital improvement costs to the plant, as well as to the transmission line between Anchorage and the plant. Under net billing arrangements, Chugach then reimburses MEA for their share of the costs. Chugach’s share of expenses was $591,903, $476,739, and $784,264 in 2006, 2005, and 2004, respectively and is included in power production and depreciation in the accompanying financial statements. Chugach provides personnel for the daily operation and maintenance of the power plant. ML&P performs major maintenance at the plant. Chugach personnel perform daily plant inspections, meter reading, monthly report preparation, and other activities as required.

(13) Commitments, Contingencies and Concentrations

Contingencies

Chugach is a participant in various legal actions, rate disputes, personnel matters and claims both for and against Chugach’s interests. Management believes the outcome of any such matters will not materially impact Chugach’s financial condition, results of operations or liquidity.

Long-Term Fuel Supply Contracts

Chugach has entered into long-term fuel supply contracts from various producers at market terms. The current contracts will expire at the end of the currently committed volumes or the contract expiration dates of 2015 and 2025. The committed 215 BCF for the 2015 contract should be used by late 2010 or early 2011. The currently committed 180 BCF for the 2025 contract should also be used by early 2011, however, there is an additional 120 BCF reserved if satisfactory terms and conditions can be negotiated. In 2006, 90% of our power was generated from gas, while in 2005, 88% and in 2004, 86% of our power was generated from gas. Of that gas-fired generation, in 2006 87% took place at Beluga, while in 2005 and 2004, 86% of gas-fired generation took place at Beluga.

71

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(13)	Commitments, Contingencies and Concentrations
	Fuel is purchased directly from Marathon Oil Company, ChevronTexaco, ML&P and ConocoPhillips. The following represents the cost of fuel purchased from these vendors as a percentage of total fuel costs for the years ended December 31:

	2006		2005		2004
Marathon Oil Company	49.2	%	48.8	%	48.8	%
Chevron Texaco	19.4	%	19.5	%	19.5	%
Municipal Light & Power (ML&P)	15.7	%	15.8	%	15.8	%
ConocoPhillips	15.7	%	15.8	%	15.8	%

Concentrations

Approximately 70% of Chugach’s employees are represented by the International Brotherhood of Electrical Workers (IBEW). Chugach has three Collective Bargaining Unit Agreements (CBA) with the IBEW, which expired on June 30, 2006. The Outside Agreement was approved by the Board of Directors in December 2006. Chugach and the union have continued to honor the prior Generation and Office and Engineering Agreements while new agreements are negotiated.

Chugach is the principal supplier of power under long-term wholesale power contracts with MEA and HEA. These contracts represented $90.1 million or 34.1% of operating revenues in 2006, $72.1 million or 32.4% in 2005, and $62.0 million or 31.2% in 2004. The HEA contract expires January 1, 2014, and the MEA contract expires December 31, 2014. All rates are established by the RCA.

Legal Proceedings

Matanuska Electric Association, Inc., v. Chugach Electric Association, Inc., Superior Court Case No. 3AN-99-8152 Civil

In this action filed in 1999, MEA alleged that Chugach breached the Power Sales Agreement under which Chugach is obligated to sell MEA power for 25 years, from 1989 through 2014. MEA asserted that Chugach failed to provide it certain information, failed to properly manage Chugach’s long-term debt, and failed to bring Chugach’s base rate action to a Joint Committee before presenting it to the RCA. All of MEA’s claims were dismissed by the Superior Court.

On April 29, 2002, MEA appealed to the Alaska Supreme Court the Superior Court’s dismissal of its claims related to Chugach’s financial management and Chugach’s decision not to bring its base rate action to the Joint Committee before filing with the RCA.

72

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(13)	Commitments, Contingencies and Concentrations (continued)
	Chugach cross-appealed the Superior Court’s decision not to also dismiss the financial management claim on jurisprudential and res judicata grounds. The Alaska Supreme Court, on October 8,  upheld Chugach’s right to not bring its base rate action to the Joint Committee before filing with the RCA. But the Court rejected Chugach’s cross-appeal and reversed the Superior Court’s decision dismissing MEA’s financial management claim. The Supreme Court remanded that claim to the Superior Court for further proceedings.
	On January 24, 2005, Chugach filed for summary judgment on that claim asserting that in the 2000 Test Year rate case the RCA had fully reviewed and decided the prudency of Chugach’s financial management. In a decision dated August 22, 2005, the Superior Court granted Chugach’s summary judgment motion, finding that the RCA had adjudicated the question of Chugach’s financial management and that its decision should be given res judicata effect. The Superior Court also found that the RCA had exercised its primary jurisdiction in reviewing Chugach’s financial management, and that its decision should be given deference.
	The Superior Court entered final judgment on November 10, 2005, after which Chugach sought to recover its costs and fees. On December 14, 2005, the Superior Court entered judgment awarding Chugach fees and costs from MEA in the amount of $104,732, which has not, as yet, been recorded in the financial statements.
	On December 9, 2005, MEA appealed to the Alaska Supreme Court the Superior Court’s grant of summary judgment. On December 23, 2005, Chugach cross-appealed the Superior Court’s failure to also grant summary judgment based on the doctrine of collateral estoppel. On February 16, 2007, the Alaska Supreme Court issued a unanimous opinion affirming the Superior Court’s grant of summary judgment in favor of Chugach on the issue of whether Chugach’s actions with regard to its use of the rate lock were consistent with prudent utility practices and sound financial management. Chugach will be seeking to collect on the judgment awarded by the Superior Court which, adding allowed costs, attorneys’ fees and post judgment interest, will be approximately $116,000.
	Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., Superior Court Case No. 3AN-04-11776 Civil
	On October 12, 2004, MEA filed suit in Superior Court alleging that Chugach had violated its bylaws in allocating margins (capital credits) during the years 1998 through 2003. The margins Chugach earns each year are allocated to the customers who contributed them and are booked as capital credits to those customers’ accounts. Capital credits are eventually repatriated to customers at the discretion of the board of directors, typically many years after the margins are earned.

73

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(13)	Commitments, Contingencies and Concentrations (continued)
	On February 17, 2006, MEA filed a Motion to File an Amended Complaint and an Amended Complaint in this case. The proposed Amended Complaint was identical to MEA’s initial Complaint except for changes made to accommodate one new claim.
	The new claim challenges Chugach’s failure to provide MEA with a capital credit allocation for 2004.
	In this suit, MEA asked the Court to hold that Chugach breached its bylaws in the manner in which it allocated capital credits in 1998 through 2004. MEA also asked the Court to enjoin Chugach to re-calculate MEA’s capital credits applying MEA’s interpretation of Chugach’s bylaws and in accordance with what MEA refered to as “generally accepted accounting practices for nonprofit cooperatives and cooperative principles”. The suit also sought damages in an unspecified amount to compensate MEA for the alleged breach of contract.
	On December 8, 2006, the Court granted Chugach summary judgment dismissing six of the eight claims MEA alleged. The Court did not allow MEA to amend its complaint to add its new claim involving Chugach’s 2004 capital credit allocations, which meant that only two of MEA’s claims survived. On December 27, 2006, MEA agreed to dismiss its remaining two claims, release any claims it might have based on Chugach’s capital credit allocations for the years 1998 – 2004 and abandon its right to appeal the Court’s summary judgment decisions. In exchange, Chugach agreed to release its right to recover any of the attorneys fees and costs it incurred in defending the case.
	Matanuska Electric Association, Inc. v. State of Alaska, Regulatory Commission of Alaska, Superior Court Case No. 3AN-06-8243 Civil
	On May 17, 2006, MEA appealed and on May 30, 2006, Homer Electric Association, Inc., (HEA) cross appealed the RCA’s decision in Commission Docket No. U-04-102, see “Footnote 2, Regulatory Matters – Docket No. U-04-102 (Revision to Current Depreciation Rates).” On appeal, MEA claims the Commission’s decision dated January 10, 2006, to authorize Chugach to implement new depreciation rates as of January 1, 2005 constituted illegal retroactive ratemaking. MEA also contends that the Commission’s reliance on avoidance of regulatory lag as a basis for its decision was improper. HEA’s points on appeal challenge several decisions by the Commission on estimated lives of General Plant on the ground that there is not substantial evidence in the record to support such a decision. HEA and MEA both challenge the discovery rulings of the Commission. Chugach will join the State of Alaska in defending the Commission’s rulings. No briefing schedule has been set.

74

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(13)	Commitments, Contingencies and Concentrations (continued)
	The ultimate resolution of this matter is not currently determinable. In the opinion of management, an adverse outcome is not likely to have a material adverse effect on Chugach’s results of operations, financial condition or liquidity. No reserves have been established for this matter.
	Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., Superior Court Case No. 3PA-06-1295 Civil
	On May 17, 2006, MEA filed suit against Chugach in Superior Court asserting three claims. In this action, MEA contends that by publishing unbundled financial statements Chugach has in effect stated that MEA owes Chugach a debt. Chugach denies having made statements to this effect.
	Unbundled financial statements are an analytic tool developed by Chugach that separate the financial statements into two business units consisting of the Generation and Transmission (G&T) and the Distribution functions of the company. The unbundled financial statements reflect the operating results of each separate entity. Statements of Revenues, Expenses and Patronage Capital, Balance Sheets and Statements of Cash Flows are prepared monthly for each business unit. MEA’s action is based on the result of Chugach’s financial analysis showing intercompany receivable/payable entries on unbundled balance sheets.
	The first of MEA’s claims is that it is entitled to declaratory judgment to the effect that MEA does not owe a debt to Chugach or to Chugach’s Distribution function. Second, MEA claims that Chugach has breached its Bylaws and the Power Sales Agreement under which Chugach is obligated to sell MEA power and by publishing its unbundled financial analysis and seeks a declaration that Chugach’s actions violate Bylaws and the Power Sales Agreement. MEA’s third claim alleges that Chugach’s published assertions regarding the underperformance of its G&T function defamed MEA. In its request for relief, MEA also asks for an injunction against further assertions, which Chugach denies having made, that MEA owes Chugach or Chugach’s Distribution function a debt. Finally, MEA seeks damages, including punitive damages, to punish Chugach and deter it from continuing to publish the analysis.
	Chugach moved to dismiss the first (declaratory judgment) and third (defamation) counts of the complaint. Following oral argument, the court denied Chugach’s motion to dismiss the declaratory judgment claim and granted Chugach’s motion to dismiss the defamation claim.
	With respect to the declaratory judgment claim, the court indicated that it needed to look beyond the pleadings to determine whether Chugach’s publications suggest that MEA owes a substantial debt to Chugach. Trial is currently scheduled for June 2007.
	The ultimate resolution of this matter is not determinable. In the opinion or management, an adverse outcome is not likely to have a material adverse effect on Chugach’s results of

75

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(13)	Commitments, Contingencies and Concentrations (continued)
	operations, financial condition or liquidity. No reserves have been established for this matter.
	Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., Superior Court Case No. 3PA-06-1591 Civil
	On August 7, 2006, MEA served Chugach with a Summons and Complaint requesting the Court grant MEA declaratory judgment, breach of contract and costs and attorney fees. MEA seeks a declaratory judgment that Chugach has wrongfully refused to grant MEA access to the books and records of the cooperative in violation of state statute, common law and Chugach bylaws. MEA also alleges that by refusing to grant access to these records, Chugach has breached its bylaws on which MEA bases a breach of contract claim against Chugach. MEA has filed a motion for summary judgment, requesting entry of an order declaring that Chugach has wrongfully denied MEA’s records request; Chugach has cross-moved for summary judgment based on the fact that MEA has never presented Chugach with a sufficient demand and that Chugach has never denied MEA access to any records to which it is entitled. In its Complaint, MEA asks the Court to (1) grant it access to, and the right to inspect and copy, unspecified Chugach records, and (2) order Chugach to cooperate in facilitating MEA’s inspection and copying of the same. Chugach has answered MEA’s complaint. MEA filed a motion for summary judgment in Claim I (that Chugach has denied MEA access to Chugach records permitted under Alaska Statute, common law and Chugach’s Bylaws) and Claim II (that Chugach has breached its contractual duties to MEA under the Bylaws). Chugach filed an opposition to MEA’s motion and a cross motion for summary judgment. MEA filed its reply/opposition and Chugach filed its reply/opposition.
	The ultimate resolution of this matter is not currently determinable. In the opinion of management, an adverse outcome is not likely to have a material adverse effect on Chugach’s results of operations, financial condition or liquidity.
	Chugach has certain additional litigation matters and pending claims that arise in the ordinary course of Chugach’s business. In the opinion of management, no individual matter or the matters in the aggregate is likely to have a material adverse effect on Chugach’s results of operations, financial condition or liquidity.
	Regulatory Cost Charge
	In 1992 the State of Alaska Legislature passed legislation authorizing the Department of Revenue to collect a Regulatory Cost Charge from utilities in order to fund the governing regulatory commission, which is currently the RCA. The tax is assessed on all retail consumers and is based on kilowatt-hour (kWh) consumption. The tax is collected monthly and remitted to the State of Alaska quarterly. The Regulatory Cost Charge has changed

76

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(13)	Commitments, Contingencies and Concentrations (continued)
	since its inception (November 1992) from an initial rate of $0.000626 per kWh to the current rate of $0.000364, effective September 1, 2006. The tax is reported on a net basis and the tax is not included in revenue or expense.
	Sales Tax
	Chugach collects sales tax on retail electricity sold to Kenai and Whittier consumers. The tax is collected monthly and remitted to the Kenai Peninsula Borough quarterly. Sales tax is reported on a net basis and the tax is not included in revenue or expense.
	Gross Receipts Tax
	Chugach pays to the State of Alaska a gross receipts tax in lieu of state and local ad valorem, income and excise taxes on electricity sold in the retail market. The tax is accrued monthly and remitted annually. The tax is reported on a net basis and the tax is not included in revenue.
	Excise taxes
	Excise taxes on Chugach fuel purchases are paid directly to our gas producers and are recorded under “Fuel” in Chugach’s financial statements and are not directly passed through to our consumers.
	Underground Compliance Charge
	In 2005 the Anchorage Municipal Assembly adopted an ordinance to require utilities to convert overhead distribution lines to underground. To comply with the ordinance, Chugach must invest two percent of gross retail revenue in the Municipality of Anchorage annually in moving existing distribution overhead lines underground. Consistent with a State of Alaska undergrounding requirement, Chugach is permitted to amend its rates by adding a 2% surcharge to its member’s bills to recover the actual costs of the program. The rate amendments are not subject to RCA review or approval. Chugach implemented the surcharge in June 2005. Chugach had collected $2,044,001 and $1,064,058 from its retail members for this surcharge at December 31, 2006 and December 31, 2005, respectively.

77

Chugach Electric Association, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

(14) Quarterly Results of Operations (unaudited)

	2006 Quarter Ended
	Dec. 31		Sept. 30			June 30		March 31
Operating Revenue	$	77,164,939	$	63,243,634		$	60,248,547	$	66,885,593
Operating Expense		67,830,660		57,365,207			53,802,570		55,970,892
Net Interest		6,006,091		6,073,345			6,011,147		5,920,291
Net Operating Margins		3,328,188		(194,918	)		434,830		4,994,410
Non-Operating Margins		689,713		312,975			279,597		194,263
Assignable Margins	$	4,017,902	$	118,057		$	714,427	$	5,188,673

	2005 Quarter Ended
	Dec. 31		Sept. 30			June 30		March 31
Operating Revenue	$	63,847,123	$	54,323,791		$	50,314,401	$	57,212,034
Operating Expense		53,773,333		49,766,632			44,308,718		46,975,282
Net Interest		5,753,831		5,748,482			5,597,536		5,486,205
Net Operating Margins		4,319,959		(1,191,323	)		408,147		4,750,547
Non-Operating Margins		706,961		196,363			166,942		157,135
Assignable Margins	$	5,026,920	$	(994,960	)	$	575,089	$	4,907,682

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

None

Item 9A – Controls and Procedures  

Evaluation of Controls and Procedures

                As of the end of the period covered by this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our chief executive officer (CEO) and chief financial officer (CFO) supervised and participated in this evaluation. Based on this evaluation, our CEO and CFO each concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic reports to the SEC. The design of any system of controls is based in part upon various assumptions about the likelihood of future events, and there can be no assurance that any of our plans, products, services or procedures will succeed in achieving their intended goals under future conditions. In addition, there have been no significant changes in our internal controls or in other factors known to management that could significantly affect our internal controls subsequent to our most recent evaluation.

Internal Control Over Financial Reporting

Chugach is in the process of implementing the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires our management to assess the effectiveness of our internal controls over financial reporting and include an assertion in our annual report as to the effectiveness of our controls. In addition, our independent registered public accounting firm, KPMG LLP, will be required to attest to whether our assessment of the effectiveness of our internal controls over financial reporting is fairly stated in all material respects and separately report on whether it believes Chugach maintained, in all material respects, effective internal controls over financial reporting as of December 31, 2008. Chugach is in the process of performing the system and process documentation, evaluation and testing required for management to make this assessment and for KPMG LLP to provide its attestation report. This process will continue to require significant amounts of management time and resources. In the course of evaluation and testing, management may identify deficiencies that will need to be addressed and remediated.

Item 9B – Other Information

On January 26, 2006, Chugach gave notice as provided in Section 14(b) of the Alaska Railbelt Energy Authority of its withdrawal from the Joint Action Agency Agreement Relating to the Alaska Railbelt Energy Authority (AREA) dated as of August 1, 2005 (Agreement) and the AREA effective January 27, 2006. The Chugach Board of Directors passed a resolution at their March 14, 2007 meeting rejoining the AREA Joint Action Agency.

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PART III

Item 10 – Directors, Executive Officers and Corporate Governance

Chugach operates under the direction of a Board of Directors that is elected at large by our membership. Day-to-day business and affairs are administered by the Chief Executive Officer. Our seven-member Board of Directors sets policy and provides direction to the Chief Executive Officer. No member of the Board of Directors is an employee of the company nor does any member of the Board of Directors have a material relationship with the company. Therefore, the Chugach board of Directors has determined that all members are independent.

Identification of Directors

Jeff Lipscomb, 56, was elected director in April 2000 and re-elected in 2003 and 2006. Mr. Lipscomb is a professional mechanical engineer and project management consultant. He is the principal and owner of JWL Engineering. He currently serves as Chairman of the Board as well as Chairman of the Operations Committee. He currently serves as Trustee and Chair of the Audit Committee of the Northwest Public Power Association. Mr. Lipscomb’s current term ends in April 2009.

Bruce Davison, 58, was appointed to the Board of Directors in June 1997 to fill a vacancy, elected to the board in 1998 and re-elected in 2001 and 2004. Prior to his appointment, he served two years on our Bylaws Committee. He currently serves as Vice Chairman of the Board and also serves on the board’s Operations, Finance, and Audit Committees. He is an attorney and professional engineer. Mr. Davison has served the maximum of three-three year terms upon expiration of his current term in April 2007.

Dave Cottrell, 59, was elected to the board in 2001 and re-elected in 2004. He currently serves as Treasurer of the Board and chair’s the board’s Finance and Audit committees. Mr. Cottrell is a founding member and past managing partner of Mikunda Cottrell & Co., Certified Public Accountants. He is currently the president and managing director of Mikunda, Cottrell, Accountants and Consultants. Mr. Cottrell currently serves on the Alaska Power Authority (APA) Board of Directors. Mr. Cottrell’s current term expires in April 2007. He is currently running for re-election.

Jim Nordlund, 54, was elected to the board in 2006. Mr. Nordlund is a self-employed homebuilder and general contractor with Nordlund Carpentry. He is a former Alaska state legislator and Alaska State Director of Public Assistance. He currently serves as Secretary of the board and also serves on the board’s Operations, Finance and Audit committees. Mr. Nordlund’s current term expires in April 2009.

Alan Christopherson, P.E., 54, was elected to the board in 2005. He is a Principal Civil Engineer, Senior Partner and Treasurer with the consulting civil engineering firm, PND Engineers, Inc. Mr. Christopherson currently serves on the Operations Committee. He

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previously served as Chairman of the Board in 2005 and chaired the 2006 Joint Rates Committee. Mr. Christopherson’s current term expires in April 2008.

Uwe Kalenka, 62, was elected to the board in 2005 and serves on the board’s Finance and Audit Committees. He is a self-employed property manager. Mr. Kalenka’s current term expires in April 2008.

Elizabeth Vazquez, 55, was elected to the board in 2005. She is an attorney with the State of Alaska. She currently serves on the board’s Finance and Audit committees. She previously served as Treasurer and as chair of the Finance Committee. Mrs. Vazquez’s current term expires in April 2008.

Identification of Executive Officers

William R. Stewart, 60, was appointed Chief Executive Officer on July 1, 2006. Prior to that appointment, Mr. Stewart had served as Interim-Chief Executive Officer since September 3, 2005 and General Manager, Corporate Services Division since January 31, 2005. Prior to that appointment he had served as Sr. Vice President, Administration since June 5, 2002. Prior to that, he had served as Executive Manager, Retail Services since a June 1, 1997 reorganization. Prior to that, he was Executive Manager, Administration from July 1987 to June 1, 1997. He was Division Director of Administration from January 1984 to July 1987 and Staff Assistant to the General Manager of Chugach from November 1982 to January 1984. He has been employed at Chugach since 1969.

Lee D. Thibert, 51, was appointed Sr. Vice President, Power Delivery in a March 20, 2006, reorganization. Prior to that appointment he had served as General Manager, Distribution Division since January 31, 2005. Prior to that appointment he had served as Sr. Vice President, Power Delivery since June 3, 2002. Prior to that, he served as Executive Manager, Transmission & Distribution Network Services after a June 1, 1997 reorganization. Prior to that, he was Executive Manager, Operating Divisions from June of 1994. Before moving up to the Executive Manager position, he served as Director of Operations from May 1987.

Michael R. Cunningham, 57, was appointed Chief Financial Officer on June 5, 2002. Prior to that appointment he served as Controller since 1986. Prior to that he was Budget Analyst and Manager of Accounting since beginning his Chugach employment in 1982. Prior to his Chugach employment, Mr. Cunningham spent 15 years in various capacities with Pacific Northwest Bell Telephone Company.

Brad W. Evans, 52, was appointed Sr. Vice President, Power Supply in a March 20, 2006, reorganization. Prior to that appointment he served as General Manager, G&T Division since January 31, 2005. Prior to that appointment he had served as Sr. Vice President, Energy Supply since June 5, 2002. Prior to that, he had served as Director of Energy Supply since February 26, 2001. Prior to his current Chugach employment, Mr. Evans served as Manager, System Dispatch for Golden Valley Electric Association.

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Audit Committee Financial Expert

Chugach is a cooperative and each board member must be a member of the cooperative. The Board of Directors relies on the advice of all members of the Finance and Audit Committees, therefore the Board of Directors has not formally designated an Audit Committee financial expert.

Identification of the Audit Committee

Chugach Board Policy No. 127, “Audit Committee Charter,” defines the Audit Committee as follows:

The Audit Committee shall be comprised of three or more directors as determined by the Board. Unless otherwise determined by the Board, the members of the Board Finance Committee shall be the members of the Audit Committee. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Association or an outside consultant or other programs. The Committee may also retain the services of a qualified account professional with auditing expertise to assist it in the performance of its responsibilities.

The Board shall appoint member of the Committee. Unless a Chair is designated by the Board, the members of the Committee may appoint their own Chair by majority vote.

                         Members of the 2006 Audit Committee are:

Director Dave Cottrell, Chair

Director Bruce Davison

Director Elizabeth Vazquez

                The disclosure required by §240.10A-3(d) regarding exemption from the listing standards for the audit committees is not applicable to the Chugach Audit Committee.

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Item 11 - Executive Compensation

Compensation Discussion and Analysis

In 1986, National Rural Electric Cooperative Association (NRECA) developed the COMPensate wage and salary plan to provide its members with a systematic and standardized method to evaluate jobs in their specific cooperative, grade them, compare wages and salaries with those in similar electric utility systems and in the external marketplace and then create and apply statistically determined, equitable pay scales. In 1988, the Chugach Board of Directors approved implementation of NRECA’s COMPensate wage and salary plan for non-bargaining unit employees with the objective of establishing wages and salaries for non-bargaining unit employees that would attract and retain qualified personnel and encourage their superior performance, growth and development.

Each year the regression analysis/compensation model is updated with current salary survey values to insure that the ranges reflect fair market value. The overall change to the salary ranges reflects market changes to the midpoint of the salary ranges and creates an opportunity for but not a guarantee of salary increases. Salary increases are not automatic and are based on performance. Salary increases are awarded to non-represented employees annually based on individual performance and their compa-ratio. The compa-ratio indicates where an individual’s annual salary is in relationship to the mid-point of their salary grade. The mid-point represents the market value of the individual position. Any changes to the COMPensate wage and salary plan for Chugach are approved by the Chugach Board of Directors.

CEO Bill Stewart’s Employment Agreement provides for a Discretionary Performance-Based Bonus Program (Ref. Exhibit 10.54). The Agreement at paragraph 4.b states “The Board of Directors may, in its sole discretion, establish annual or other performance-based objectives for Stewart and assign fixed dollar amount or percentage of Base Salary bonuses for the successful achievement of those objectives. The stated objective(s) will be set forth in Appendix D hereto, to be updated from time to time as the Board sees fit. For each objective met, Stewart will be awarded the bonus associated with that objective.” Paragraph 4.b of the Agreement further provides that “such bonus payments to Stewart, if any, are not considered compensation under any of the retirement plans offered by Chugach and therefore will not be considered in determining Stewart’s retirement benefits.”

For 2006, the following five goals were set for the CEO by the Board of Directors with 5% of base salary linked to the success of each goal:

1.	Restructure rates between G&T and Distribution functions to correct debt structure and properly allocate interest expense while updating depreciation schedules and cost of service.
2.	The Chugach Board of Directors passed a resolution on September 15th 2004, that directed the CEO to undertake all necessary steps to craft a plan to create a single-owner

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G&T organization that would hold all Chugach assets, contractual arrangements and associated debt. A three-part plan was developed and presented to the BOD on March 8, 2005. To date, Chugach staff has completed all steps in part A that functionally unbundles the organizations finances without a change in corporate structure. The next step is to determine whether organizational restructuring and financial unbundling meets the needs of the Association or if we need to evaluate the feasibility and necessity of proceeding with a separate corporate structure.

3.	Aging generation and high fuel prices have significantly increased G&T rates to customers. Of the near-term options, coal has a significant hurdle due to high initial capital costs and gas turbines have the uncertain future of dwindling gas supply and volatility of market-based (Henry Hub) prices. Other options such as wind, geo-thermal, tidal and hydroelectric are under investigation but likely will not meet near or mid-term needs (5 to 10 years).
4.	All three IBEW contracts (Office & Engineering, Outside Plant and Generation Plant0 and the Culinary Union (HERE) terminate on June 30, 2006. A substantial effort will be required by both management and bargaining unit personnel to work toward a win/win result.
5.	Chugach has gas contracts with the Beluga Producers (Conoco Phillips, Chevron, ML&P) and Marathon Oil Company. Gas volumes from all these contracts will run out by approximately 2011. Chugach has an additional 120 Bcf of additional volumes committed from the Beluga Producers (40 Bcf each) but not priced. Based on Current use (25 Bcf per year). Chugach is obligated to initiate negotiations with Conoco Phillips, ML&P and Chevron by January 1, 2007, and agree upon terms by January 1, 2008.

The Board of Directors approved the performance evaluation for CEO Bill Stewart on February 21, 2007, which resulted in a 15% bonus in accordance with Appendix D of his Employment Agreement.

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Cash Compensation

                The following table sets forth all remuneration paid by us for the fiscal year ending December 31, 2006, to each of our four executive officers, each of whose total cash and cash equivalent compensation exceeded $100,000 for 2006, and for all such executive officers as a group:

Summary Compensation Table

Name	Year	Salary		Bonus		Non-Equity Incentive Plan Compensation		Change in Pension Value and Nonqualified Deferred Compensation Earnings		Total
William R. Stewart, Chief Executive Officer	2006	$	248,071	$	33,000	$	0	$	60,454	$	341,525
Lee D. Thibert, Sr. Vice President, Power Delivery	2006	$	170,692	$	0	$	0	$	70,874	$	241,566
Michael R. Cunningham, Chief Financial Officer	2006	$	155,829	$	0	$	0	$	111,532	$	267,361
Bradley W. Evans, Sr. Vice President, Power Supply	2006	$	151,252	$	0	$	0	$	37,674	$	188,926

Grants of Plan-Based Awards

                The following table sets forth the estimated future non-equity incentive plan awards for CEO Bill Stewart based on the five goals discussed in “Item 11 - Executive Compensation, Compensation Discussion and Analysis:”

Estimated Future Payouts Under Non-Equity Incentive Plan Awards Table

Name	Grant Date	Threshold		Target		Maximum
William R. Stewart, Chief Executive Officer	2/21/07	$	11,000	$	33,000	$	55,000

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Compensation Pursuant to Plans

                We have elected to participate in the National Rural Electric Cooperative Association (NRECA) Retirement Security Plan (the “Plan”), a multiple employer defined benefit master pension plan maintained and administered by the NRECA for the benefit of its members and their employees. The Plan is intended to be a qualified pension plan under Section 401(a) of the Code. All our employees not covered by a union agreement become participants in the Plan on the first day of the month following completion of one year of eligibility service. An employee is credited with one year of eligibility service if he or she completes 1,000 hours of service either in his or her first twelve consecutive months of employment or in any calendar year for us or certain other employers in rural electrification (related employers). Pension benefits vest at the rate of 10% for each of the first four years of vesting service and become fully vested and nonforfeitable on the earlier of the date a participant has five years of vesting service or the date the participant attains age fifty-five while employed by us or a related employer. A participant is credited with one year of vesting service for each calendar year in which he or she performs at least one hour of service for us or a related employer. Pension benefits are generally paid upon the participant’s retirement or death. A participant may also elect to receive pension benefits while still employed by us if he or she has reached his normal retirement date by completing thirty years of benefit service (defined below) or, if earlier, by attaining age sixty-two. A participant may elect to receive actuarially reduced early retirement pension benefits before his or her normal retirement date provided he or she has attained age fifty-five.

                Pension benefits paid in normal form are paid monthly for the remaining lifetime of the participant. Unless an actuarially equivalent optional form of benefit payment to the participant is elected, upon the death of a participant the participant’s surviving spouse will receive pension benefits for life equal to 50% of the participant’s benefit. The annual amount of a participant’s pension benefit and the resulting monthly payments the participant receives under the normal form of payment are based on the number of his or her years of participation in the Plan (benefit service) and the highest five-year average of the annual rate of his or her base salary during the last ten years of his or her participation in the Plan (final average salary). Annual compensation in excess of $200,000, as adjusted by the Internal Revenue Service for cost of living increases, is disregarded after January 1, 1989. The participant’s annual pension benefit at his or her normal retirement date is equal to the product of his or her years of benefit service times final average salary times 2%. In 1998, NRECA notified us that there were employees whose pension benefits from NRECA’s Retirement & Security Program would be reduced because of limitations on retirement benefits payable under Section 401(a)(17) or 415 of the Code. NRECA made available a Pension Restoration Severance Pay Plan and a Pension Restoration Deferred Compensation Plan for cooperatives to adopt in order to make employees whole for their lost benefits. In May 1998, we adopted both of these plans to protect the benefits of current and future employees whose pension benefits would be reduced because of these limitations.

                On October 16, 2002, the Board of Directors authorized an amendment to the Plan with an effective date of November 1, 2002. Under the amended Plan, the retirement benefit payable to any Participant whose retirement is postponed beyond his or her Normal Retirement Date shall

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be computed as of the Participant’s actual retirement date. The retirement benefit payable to any Participant under the 30-Year Plan shall be computed as of the first day of the month in which the Participant’s actual retirement date occurs.

                Benefit service as of December 31, 2006 that is taken into account under the Plan for the executive officers is shown below with the assumptions for calculation of the present value of accumulated benefits.

Pension Benefits Table

Name	Plan	Number of Credited Years of Service		Present Value of Accumulated Benefit		Payments/ Conversions During Last Fiscal Year
William R. Stewart1, Chief Executive Officer	Retirement Security		4.17	$	174,776	$	0
	Pension Restoration Severance Pay Plan		0.00	$	0	$	279,054	1
Lee D. Thibert, Sr. Vice President, Power Delivery	Retirement Security		18.58	$	462,997	$	0
Michael R. Cunningham, Chief Financial Officer	Retirement Security		23.08	$	682,107	$	0
Bradley W. Evans, Sr. Vice President, Power Supply	Retirement Security		5.83	$	141,278	$	0

¹ Under the Plan in effect prior to November 1, 2002, Mr. Stewart had 30 years of service as of April 1, 2000, and was no longer eligible to receive contributions on his behalf to the Plan. Under the terms of the amendment to the Plan, approved by the Board of Directors on October 16, 2002, Mr. Stewart was re-enrolled effective November 1, 2002. The $279,054 payment was not paid directly to Mr. Stewart in 2006. Rather, it was converted to a defined contribution retirement plan from a defined benefit retirement plan.

It is assumed that participants retire at the earlier of age 62 or 30 years of benefit service and elect a lump sum benefit.

                Lump sum amounts are calculated using the 30-year Treasury rate, which was 4.73% for 2006 and the required IRS mortality table for lump sum payments. The lump sum is then discounted at 5.75% interest only with no mortality assumed from age 62 back to December 31, 2006.

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                Deferred Compensation

Chugach adopted NRECA’s unfunded Deferred Compensation Program (the Program) to allow highly compensated employees who elect to participate in the Program to defer a portion of their current compensation and avoid paying tax on the deferrals until received. As a non-qualified plan under Internal Revenue Code 457(b), NRECA’s Deferred Compensation Plan is not subject to non-discrimination testing. The Program is designed to help decrease current taxable income, take advantage of tax deferred compounding and set aside additional money for retirement. The money is accessible only upon separation of service, disability or death (in which case it is paid to the designated beneficiary). The distribution is taxable as income in the year received.

Deferred compensation accounts are established for the individual employees, however, they are considered to be owned by Chugach until a distribution is made. Deferred compensation plan assets would be subject to creditors’ demands in the case of bankruptcy. Deferred compensation assets are invested with Homestead Funds, a family of no-load mutual funds. Homestead Funds’ investment managers, RE Advisers, is a wholly-owned subsidiary of NRECA. Each participant in the Program determines the investment fund or funds into which their accounts are invested. The amounts credited to the deferred compensation account, including gains and losses, are retained by Chugach until the entire amount credited to the account has been distributed to the Participant or to the Participant’s beneficiary.

Deferred Compensation Table

Name	Executive Contributions in last FY		Registrant Contributions/ Conversions in last FY		Aggregate Earnings in last FY		Aggregate Withdrawals/ Distributions		Aggregate balance at FYE
William R. Stewart1, Chief Executive Officer	$	0	$	279,054	$	23,313	$	0	$	302,367
Michael R. Cunningham, Chief Financial Officer	$	17,796	$	0	$	1,970	$	0	$	57,560

¹ Registrant contribution of $279,054 was not contributed directly by Chugach, but instead was converted from a defined benefit retirement plan to a defined contribution severance pay plan, not subject to Internal Revenue section 457.

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                Director Compensation

Directors are compensated for their services at the rate of $200 per board meeting or other meeting at which they are representing the Association in an official capacity within the State of Alaska, and $250 per day when attending meetings or training outside of the State, including each day of travel, plus reimbursement of reasonable out of pocket expenses, up to a maximum of 70 meetings per year for a director and 85 meetings per year for the Chairman.

The following table sets forth the dollar amounts of all fees paid in cash by us for the fiscal year ending December 31, 2006 to each of our board members:

Director Compensation Table

Name	Fees Paid In Cash
Jeffrey W. Lipscomb, Chairman and Director	$	10,650
Bruce Davison, Vice-Chairman and Director	$	6,000
David Cottrell, Treasurer and Director	$	9,800
Jim Nordlund, Secretary and Director	$	7,900
Alan Christopherson, Director	$	9,600
Uwe Kalenka, Director	$	15,450
Elizabeth Vazquez, Director	$	13,350

Potential Termination Payments

Pursuant to a Chugach Operating Policy, non-represented employees, including the executive officers except the Chief Executive Officer, who are terminated by Chugach for reasons unrelated to employee performance are entitled to severance pay for each year or partial year of service as follows: two weeks for each year of service to a maximum of twenty (26) weeks for thirteen (13) years or more of service. If the CEO is terminated without cause during the term, or any extension thereof, of his Employment Agreement with Chugach he is entitled to his base salary and all benefits that he would have received pursuant to the Agreement had his employment not been terminated through the then remaining term of the Agreement. (Ref. Exhibit 10.54)

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The following is a list of the estimated severance payments that would be made to each of the four executive officers in the case of termination not related to employee performance:

Potential Termination Payments Table

Name	Estimated Severance Payment
William R. Stewart, Chief Executive Officer	$	790,397
Lee D. Thibert, Sr. Vice President, Power Delivery	$	84,282
Michael R. Cunningham, Chief Financial Officer	$	75,005
Bradley W. Evans, Sr. Vice President, Power Supply	$	34,618

Code of Ethics

Chugach developed a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and any person performing similar functions. The code of ethics was finalized June 16, 2004. It is also posted on Chugach’s website at www.chugachelectric.com.

Item 12 - Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters

Not Applicable

Item 13 - Certain Relationships and Related Transactions, and Director Independence

Not Applicable

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Item 14 – Principal Accounting Fees and Services

The Audit Committee of the Board of Directors retained KPMG LLP as the independent certified public accountants for Chugach during the fiscal year ended December 31, 2006.

Fees and Services

KPMG LLP has provided certain audit, audit-related, tax and non-audit services, the fees for which are as follows:

	2006		2005
Audit services and quarterly reviews	$	122,962	$	104,753
Audit-related services (Single audit and employee benefit plans)	$	45,150	$	18,050
Non-audit services:
Tax consulting and return preparation	$	3,250	$	2,375

The Audit Committee of the Board of Directors has a policy to pre-approve all services to be provided by Chugach’s independent public accountants. All services from KPMG LLP for fiscal years ended December 31, 2006 and 2005 were approved by the Audit Committee.

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PART IV

Item 15 – Exhibits and Financial Statement Schedules

	Page
Financial Statements
Included in Part II of this Report:
Report of Independent Registered Public Accounting Firm		44
Balance Sheets, December 31, 2006 and 2005		45-46
Statements of Operations,
Years ended December 31, 2006, 2005 and 2004		47
Statements of Changes in Equities and Margins,
Years ended December 31, 2006, 2005 and 2004		48
Statements of Cash Flows,
Years ended December 31, 2006, 2005 and 2004		49
Notes to Financial Statements		50-78
Financial Statement Schedules
Included in Part IV of this Report:
Report of Independent Registered Public Accounting Firm		93
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 2006, 2005 and 2004		94
Other schedules are omitted as they are not required or are not applicable, or the required information is shown in the applicable financial statements or notes thereto.

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Report of Independent Registered Public Accounting Firm

The Board of Directors
Chugach Electric Association, Inc.

Under date of March 9, 2007, we reported on the balance sheets of Chugach Electric Association, Inc. (the Company) as of December 31, 2006 and 2005, and the related statements of operations, changes in equities and margins and cash flows for each of the years in the three-year period ended December 31, 2006. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule of Valuation and Qualifying Accounts. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

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

/s/ KPMG LLP

Anchorage, Alaska
March 9, 2007

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Schedule II

CHUGACH ELECTRIC ASSOCIATION, INC.

Valuation and Qualifying Accounts

	Balance at Beginning Of year			Charged To costs And expenses			Deductions			Balance at end of year
Allowance for doubtful accounts:
Activity for year ended:
December 31, 2006		(398,321	)		(44,942	)		(142,958	)		(586,221	)
December 31, 2005		(364,261	)		(270,713	)		236,653			(398,321	)
December 31, 2004		(273,793	)		(202,533	)		112,065			(364,261	)

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EXHIBITS

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

Exhibit Number	Description
3.1	Articles of Incorporation of the Registrant. (13)
3.2	Bylaws of the Registrant. (18)
4.11	Tenth Supplemental Indenture of Trust between the Registrant and U.S. Bank Trust National Association dated April 1, 2001. (11)
4.12	Eleventh Supplemental Indenture of Trust between the Registrant and U.S. Bank Trust National Association. (14)
4.13	Amended and Restated Indenture between the Registrant and U.S. Bank Trust National Association dated April 1, 2001. (11)
4.14	Form of 2001 Series A Bond due 2011. (11)
4.15	Form of 2002 Series A Bond due 2012. (14)
4.16	Form of 2002 Series B Bond due 2012. (14)
10.1	Wholesale Power Agreement between the Registrant and the City of Seward. (1)
10.2	Joint Use Agreement between the Registrant and the City of Seward dated effective as of September 11, 1998. (1)
10.3	Net Billing Agreement among the Registrant and the City of Seward dated effective as of September 11, 1998. (1)
10.4	Agreement for the Sale and Purchase of Electric Power and Energy between the Registrant and the City of Seward dated effective as of September 11, 1998. (8)
10.4.1	Amendment No. 1 to Agreement for the Sale and Purchase of Electric Power and Energy between the Registrant and the City of Seward dated effective as of July 9, 2001. (13)
10.5	Agreement for Sale of Electric Power and Energy by and among the Registrant, Homer Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated September 27, 1985. (1)

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10.5.1	Assignment of Agreement for Sale of Electric Power and Energy by and among the Registrant, Homer Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated June 30, 2003. (19)
10.6	Modified Agreement for the Sale and Purchase of Electric Power and Energy by and among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated effective as of January 30, 1989. (1)
10.6.1	First Amendment to Modified Agreement for the Sale and Purchase of Electric Power and Energy by and among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated effective as of February 10, 1995. (1)
10.6.2	Net Billing Agreement by and among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated December 16, 1987. (1)
10.7	Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc. dated May 18, 1988. (1)
10.7.1	Amendatory Agreement No. 1 to Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc., dated December 14, 1989. (11)
10.7.2	Letter Agreement dated January 18, 1996 between the Registrant and Golden Valley Electric Association, Inc., amending the Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc. (11)
10.7.3	Amendatory Agreement No. 2 to Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc., dated February 8, 1999. (11)
10.7.4	Settlement Agreement by and among the Registrant, Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Anchorage Municipal Light and Power dated May 6, 1999. (11)
10.8	Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. dated April 21, 1989. (1)
10.8.1	Amendment No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc., dated August 1, 1990. (1)
10.8.2	Letter Agreement dated April 23, 1999, regarding the Registrant’s consent to the assignment to ARCO Beluga, Inc. of the Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. (11)

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10.8.3	Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Beluga, Inc., dated May 6, 1999. (8)
10.9	Agreement for the Sale and Purchase of Supplemental Natural Gas between the Registrant and ARCO Alaska, Inc. dated October 3, 1991. (1)
10.10	Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company dated September 26, 1988. (1)
10.10.1	Letter Agreement dated September 26, 1988 between the Registrant and Marathon Oil Company, amending the Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company. (1)
10.10.2	Amendatory Agreement No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated effective as of February 21, 1990. (1)
10.10.3	Amendatory Agreement No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated effective as of February 21, 1990. (1)
10.10.4	Amendatory Agreement No. 3 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated January 28, 1991. (1)
10.10.5	Amendatory Agreement No. 4 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated October 6, 1993. (11)
10.10.6	Letter Agreement dated January 18, 1996 between the Registrant and Marathon Oil Company, amending the Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company. (11)
10.10.7	Amendatory Agreement No. 5 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated May 24, 1999. (8)
10.11	Agreement for the Sale and Purchase of Natural Gas between the Registrant and Shell Western E&P Inc. dated April 25, 1989. (1)
10.11.1	Amendatory Agreement No. 1 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc., dated October 1, 1989. (1)
10.11.2	Amendment No. 2 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc., dated June 20, 1990. (1)
10.11.3	Amendatory Agreement No. 3 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc. dated October 14, 1996. (1)

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10.12	Agreement for the Sale and Purchase of Supplemental Natural Gas between the Registrant and Shell Western E&P Inc. dated November 2, 1990. (1)
10.13	Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc. dated April 27, 1989 (including Attachment No. 1 thereto dated December 20, 1989). (1)
10.13.2	Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc., dated June 7, 1990. (1)
10.13.3	Amendment No. 3 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron U.S.A. Inc., dated May 26, 1999. (8)
10.14	Agreement for the Sale and Purchase of Supplemental Natural Gas between the Registrant and Chevron USA, Inc. dated September 25, 1990. (1)
10.15	Alaska Intertie Agreement between Alaska Power Authority, Municipality of Anchorage, the Registrant, City of Fairbanks, Alaska Municipal Utilities System, Golden Valley Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated December 23, 1985. (1)
10.16	Addendum No. 1 to the Alaska Intertie Agreement-Reserve Capacity and Operating Reserve Responsibility dated December 23, 1985. (1)
10.17	Memorandum of Understanding Regarding Intertie Upgrades among Alaska Energy Authority, the Registrant, Golden Valley Electric Association, Inc., Homer Electric Association, Inc., Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power, and the City of Seward d/b/a Seward Electric System dated March 21, 1990. (1)
10.18	Amendment No. 1 to the Alaska Intertie Agreement-Insurance and Liability dated March 28, 1991. (11)
10.19	Intertie Grant Agreement between the Registrant, Golden Valley Electric Association, Inc., Fairbanks Municipal Utility System, Anchorage Municipal Light and Power, Alaska Electric Generation and Transmission Cooperative, Inc. (on behalf of Matanuska Electric Association, Inc. and Homer Electric Association, Inc.), City of Seward, the State of Alaska, Department of Administration and Alaska Industrial Development and Export Authority dated August 17, 1993. (1)

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10.20	Grant Transfer and Delegation Agreement between the Registrant and Golden Valley Electric Association, Inc., Fairbanks Municipal Utility System, Anchorage Municipal Light and Power, Alaska Electric Generation and Transmission Cooperative, Inc., Matanuska Electric Association, Inc., Homer Electric Association, Inc., Seward, the State of Alaska, Department of Administration, and AMEA dated November 5, 1993. (1)
10.21	1993 Alaska Intertie Project Participants Agreement by and among Alaska Power Authority, Municipality of Anchorage, the Registrant, City of Fairbanks, Alaska Municipal Utilities System, Golden Valley Electric Association, Inc., Alaska Electric Generation and Transmission Cooperative, Inc., City of Seward d/b/a Seward Electric System, Homer Electric Association, Inc. and Matanuska Electric Association, Inc. dated January 24, 1994. (11)
10.22	Amendment No. 1 to the 1993 Alaska Intertie Project Participants Agreement dated December 10, 1999. (11)
10.23	Grant Administration Agreement by and among the Registrant, Alaska Industrial Development and Export Authority, Golden Valley Electric Association, Inc., Fairbanks Municipal Utilities System, Anchorage Municipal Light & Power, Alaska Electric Generation and Transmission Cooperative, Inc. (on behalf of Homer Electric Association, Inc. and Matanuska Electric Association, Inc.) and City of Seward dated August 30, 1994. (11)
10.24	Bradley Lake Agreement for the Sale and Purchase of Electric Power by and among the Registrant, the Alaska Power Authority, Golden Valley Electric Association, Inc., the Municipality of Anchorage, the City of Seward, the Alaska Electric Generation and Transmission Cooperative, Inc., Homer Electric Association, Inc. and Matanuska Electric Association Inc. dated December 8, 1987. (1)
10.24.1	Partial Assignment of Bradley Lake Hydroelectric Project Agreement for the Sale and Purchase of Electric Power by and among the Registrant, the Alaska Power Authority, Golden Valley Electric Association, Inc., the Municipality of Anchorage, the City of Seward, the Alaska Electric Generation and Transmission Cooperative, Inc., Homer Electric Association, Inc. and Matanuska Electric Association Inc. dated June 30, 2003. (19)
10.25	Agreement for the Wheeling of Electric Power and for Related Services by and among the Registrant, Homer Electric Association, Inc., Golden Valley Electric Association, Inc., Matanuska Electric Association, Inc., the Municipality of Anchorage, Inc. d/b/a Municipal Light and Power, the City of Seward d/b/a Seward Electric System and Alaska Electric Generation and Transmission Cooperative, Inc. dated December 8, 1987. (1)

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10.25.1	Partial Assignment of Bradley Lake Hydroelectric Project Agreement for the Wheeling of Electric Power and for Related Services by and among the Registrant, Homer Electric Association, Inc., Golden Valley Electric Association, Inc., Matanuska Electric Association, Inc., the Municipality of Anchorage, Inc. d/b/a Municipal Light and Power, the City of Seward d/b/a Seward Electric System and Alaska Electric Generation and Transmission Cooperative, Inc. dated June 30, 2003. (19)
10.26	Transmission Sharing Agreement by and among the Registrant, Homer Electric Association, Inc., Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Municipal Light and Power. (1)
10.27	Amendment to Agreement for Sale of Transmission Capability by and among the Registrant, Homer Electric Association, Inc., Alaska Electric Generation and Transmission Cooperative, Inc., Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Municipal Light and Power dated March 7, 1989. (1)
10.28	Bradley Lake Hydroelectric Agreement for the Dispatch of Electric Power and for Related Services between the Registrant and the Alaska Energy Authority dated February 19, 1992. (1)
10.29	Agreement for Bradley Lake Resource Scheduling by and among the Registrant, Homer Electric Association, Inc. and the Alaska Electric Generation and Transmission Cooperative, Inc. dated September 29, 1992. (1)
10.29.1	Assignment of Agreement for Bradley Lake Resource Scheduling by and among the Registrant, Homer Electric Association, Inc. and the Alaska Electric Generation and Transmission Cooperative, Inc. dated June 30, 2003. (19)
10.30	Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power dated December 2, 1983. (1)
10.30.1	Addendum No. 1 to Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power dated August 8, 1984. (1)
10.30.2	Amendment No. 1 to Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power dated November 28, 1984. (1)
10.31	Gas Transportation Agreement by and among the Registrant, Alaska Pipeline Company and ENSTAR Natural Gas Company dated December 7, 1992. (1)
10.32	Eklutna Purchase Agreement by and among the Registrant, Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power and Alaska Power Administration. (1)

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10.33	Eklutna Hydroelectric Project Closing Documents dated October 2, 1997. (3)
10.34	Settlement Agreement by and among the Registrant, Homer Electric Association, Inc., Matanuska Electric Association, Inc., the City of Seward and Alaska Electric Generation and Transmission Cooperative, Inc., resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan and Loan Covenant Disputes, dated effective as of February 3, 1993. (1)
10.35	First Amendment to “Settlement Agreement Resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan and Loan Covenant Disputes” in APUC Docket U-92-10 between the Registrant, Matanuska Electric Association, Inc., Homer Electric Association, Inc. and the Alaska Electric Generation and Transmission Cooperative, Inc. dated March 1993. (1)
10.36	Agreement by and among the Registrant, Municipality of Anchorage d/b/a Anchorage Municipal Light and Power, Matanuska Electric Association, Inc., U.S. Fish and Wildlife Service, National Marine Fisheries Service, Alaska Energy Authority and the State of Alaska re: the Eklutna and Snettisham Hydroelectric Projects. (1)
10.37	Daves Creek Substation Agreement between the Registrant and the Alaska Energy Authority dated March 13, 1992. (1)
10.38	Settlement Agreement between the Registrant and Intervenor Wholesale Customers in APUC Docket U-93-15 dated September 1993 regarding depreciation of submarine cables. (1)
10.39	Nikiski Cogeneration Plant System Use and Dispatch Agreement between the Registrant and Alaska Electric Generation and Transmission Cooperative, Inc. dated February 12, 1999. (8)
10.39.1	Second Amendment to the Nikiski Cogeneration Plant System Use and Dispatch Agreement between the Registrant and Alaska Electric Generation and Transmission Cooperative, Inc. dated June 1, 2001. (13)
10.39.2	Assignment of Nikiski Cogeneration Plant System Use and Dispatch Agreement between the Registrant and Alaska Electric Generation and Transmission Cooperative, Inc. dated June 30, 2003. (19)
10.40	Lease Amendment between the Registrant and Standard Oil Company of California dated June 1, 1975. (1)
10.41	Lease Amendment between the Registrant and Chevron USA, Inc. dated September 1, 1985. (1)

101

10.42	First Amended and Restated Joint Action Agency Agreement Relating To The Alaska Railbelt Energy Authority among the Registrant, Anchorage Municipal Light & Power (AML&P) and Golden Valley Electric Association, Inc. (GVEA) dated August 1, 2005. (22)
10.44	Line of Credit Agreement and Promissory Note between the Registrant and the National Bank for Cooperatives dated May 5, 1993. (1)
10.44.1	Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives dated March 11, 1994. (1)
10.44.2	Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives and amended and restated Promissory Note dated April 18, 1994. (1)
10.44.3	Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives dated May 1, 1995. (1)
10.44.4	Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives dated May 15, 1995. (1)
10.44.5	Amendment to Line of Credit Agreement between the Registrant and CoBank, ACB dated September 30, 2000. (10)
10.44.6	Amendment to Line of Credit Agreement between the Registrant and CoBank, ACB dated December 27, 2002. (18)
10.44.7	Promissory Note and Consolidating Committed Resolving Credit Supplement between the Registrant and CoBank, ACB dated May 3, 2005. (22)
10.45.1	Master Loan Agreement between the Registrant and CoBank, ACB dated December 27, 2002. (17)
10.45.2	Promissory Note and Consolidating Term Loan Supplement between the Registrant and CoBank, ACB dated December 27, 2002. (17)
10.45.3	Master Loan Agreement between the Registrant and CoBank, ACB dated May 3, 2005 (22)
10.45.4	Promissory Note and Supplement between the Registrant and CoBank, ACB dated August 24, 2005. (23)
10.45.5	Amended and Restated Promissory Note and Committed Revolving Credit Supplement between the Registrant and CoBank, ACB dated September 12, 2006.

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10.47	Line of Credit Agreement between the Registrant and the National Rural Utilities Cooperative Finance Corporation dated October 15, 2002. (17)
10.52	Employment Agreement between the Registrant and Evan J. Griffith dated effective April 21, 2004. (20)
10.53	First Amended Memorandum of Agreement between the Registrant and William R. Stewart dated effective March 17, 2006.
10.54	Employment Agreement between the Registrant and William R. Stewart dated effective July 1, 2006. (24)
14	Code of Ethics for Senior Financial Officers of the Registrant dated effective June 16, 2004. (21)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	(1) Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K dated December 31, 1996.
	(2) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated September 30, 1997.
	(3) Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K dated December 31, 1997.
	(4) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated March 31, 1998.
	(5) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated June 30, 1998.
	(6) Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K dated December 31, 1998.

103

(7) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated March 31, 1999.

(8) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated June 30, 1999.

(9) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated March 31, 2000.

(10) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated September 30, 2000.

(11) Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (File No. 333-57400) dated March 22, 2001.

(12) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated March 31, 2001.

(13) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated June 30, 2001.

(14) Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (File No. 333-75840) dated December 21, 2001.

(15) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated June 30, 2002.

(17) Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K dated December 31, 2002.

(18) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated March 31, 2003.

(19) Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K dated December 31, 2003.

(20) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated March 31, 2004.

(21) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated June 30, 2004.

(22) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated June 30, 2005.

104

(23) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated September 30, 2005.

(24) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated September 30, 2006.

105

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 28, 2007.

CHUGACH ELECTRIC ASSOCIATION, INC.
By:	/s/ William R. Stewart
	William R. Stewart, Chief Executive Officer
Date:	March 28, 2007

106

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 28, 2007, by the following persons on behalf of the registrant in the capacities indicated:

/s/ William R. Stewart
William R. Stewart	Chief Executive Officer
	(Principal Executive Officer)
/s/ Lee D. Thibert
Lee D. Thibert	Sr. Vice President, Power Delivery
/s/ Michael R. Cunningham
Michael R. Cunningham	Chief Financial Officer
	(Principal Financial Officer)
	(Principal Accounting Officer)
/s/ Bradley W. Evans
Bradley W. Evans	Sr. Vice President, Power Supply
/s/ Jeffrey Lipscomb
Jeffrey Lipscomb	Director & Chairman of the Board
Bruce Davison	Director & Vice-Chairman of the Board
/s/ David Cottrell
David Cottrell	Director & Treasurer of the Board
/s/ James Nordlund
James Nordlund	Director & Secretary of the Board
/s/ Alan Christopherson
Alan Christopherson	Director
/s/ Elizabeth Vazquez
Elizabeth Vazquez	Director
Uwe Kalenka	Director

107

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

Chugach has not made an Annual Report to securities holders for 2006 and will not make such a report after the filing of this Form 10-K. As a consequence, no copies of any such report will be furnished to the Securities and Exchange Commission.

108

EX-10.45

Exhibit 10.45

P.O. Box 5110
Denver, Colorado 80217
5500 South Quebec Street
Greenwood Village, Colorado 80111
Phone: (303) 740-4000
Fax: (303) 740-4002

November 7, 2006

Mr. Michael R. Cunningham, Chief Financial Officer
Chugach Electric Association, Inc.
P.O. Box 196300
Anchorage, Alaska 99519-6300

RE: Chugach Electric Association, Inc.
CIF: # 22020105

Dear Mr. Cunningham:

Enclosed for your files are copies of the following fully executed loan documents:

1. Amended and Restated Promissory Note and Committed Revolving Credit Supplement No. RI0214S01A

As always, thank you for choosing CoBank!

Sincerely,

Jennita Foley
Closing/ Booking Specialist, CoBank, ACB
Enclosures

Loan No. RI0214S01B

AMENDED AND RESTATED PROMISSORY NOTE AND
COMMITTED REVOLVING CREDIT SUPPLEMENT

          THIS AMENDED AND RESTATED PROMISSORY NOTE AND SUPPLEMENT (this “Promissory Note and Supplement”) to the Master Loan Agreement (the “MLA”) dated as of May 3, 2005, is entered into as of September 12, 2006 between CHUGACH ELECTRIC ASSOCIATION, INC., Anchorage, Alaska, an Alaska cooperative association (the “Company”) and CoBANK, ACB, a federally chartered instrumentality of the United States (“CoBank”).

BACKGROUND

          The Company and CoBank are parties to an Amended and Restated Promissory Note and Committed Revolving Credit Supplement No. RI0214S01A dated as of September 2, 2005 in the original principal amount of $7,500,000.00 (as amended, the “Existing Promissory Note and Supplement”). The Company and CoBank now desire to amend and restate the Existing Promissory Note and Supplement. The execution of this Promissory Note and Supplement shall not constitute a novation of the indebtedness outstanding under the Existing Promissory Note and Supplement. For valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Company and CoBank hereby agree that the Existing Promissory Note and Supplement shall be amended and restated in its entirety to read as follows:

          SECTION 1. The Revolving Credit Facility. On the terms and conditions set forth in the MLA and this Promissory Note and Supplement, CoBank agrees to make loans to the Company during the period set forth below in an aggregate principal amount not to exceed $7,500,000.00 at any one time outstanding (the “Commitment”). Within the limits of the Commitment, the Company may borrow, repay and re-borrow.

          SECTION 2. Purpose. The purpose of the Commitment is to finance the operating needs of the Company and to fund interim capital expenditures.

          SECTION 3. Term. The term of the Commitment shall be from the date hereof, up to and including October 31, 2007, or such later date as CoBank may, in its sole discretion, authorize in writing.

          SECTION 4. Interest. The Company agrees to pay interest on the unpaid balance of the loan(s) in accordance with one or more of the following interest rate options, as selected by the Company:

                 (A) Weekly Quoted Variable Rate. At a rate per annum equal at all times to the rate of interest established by CoBank on the first Business Day of each week. The rate established by CoBank may not exceed the CoBank Base Rate (as hereinafter defined) on that day plus 3% and shall be effective until the first Business Day of the next week. Each change in the rate shall be applicable to all balances subject to this option and information about the then current rate shall be made available upon telephonic request. For purposes hereof, the CoBank Base Rate shall mean the rate of interest established by CoBank from time to time as its CoBank Base Rate, which Rate is intended by CoBank to be a reference rate and not its lowest rate. The CoBank Base Rate will change on the date established by CoBank as the effective date of any change therein.

Amended and Restated Promissory Note and Committed	-2-
Revolving Credit Supplement RI0214S01B
CHUGACH ELECTRIC ASSOCIATION, INC.
Anchorage, Alaska

          (B) Quoted Rate Option. At a fixed rate per annum to be quoted by CoBank in its sole discretion in each instance. Under this option, rates may be fixed on such balances and for such periods, as may be agreeable to CoBank in its sole discretion in each instance, provided that: (1) the minimum fixed period shall be 30 days; (2) amounts may be fixed in increments of $100,000.00 or multiples thereof; and (3) the maximum number of fixes in place at any one time shall be 5.

The Company shall select the applicable rate option at the time it requests a loan hereunder and may, subject to the limitations set forth above, elect to convert balances bearing interest at the variable rate option to one of the fixed rate options. Upon the expiration of any fixed rate period, interest shall automatically accrue at the variable rate option unless the amount fixed is repaid or fixed for an additional period in accordance with the terms hereof. Notwithstanding the foregoing, rates may not be fixed for periods expiring after the maturity date of the loans. All elections provided for herein shall be made telephonically or in writing and must be received by 12:00 Noon Company’s local time. Interest shall be calculated on the actual number of days each loan is outstanding on the basis of a year consisting of 360 days and shall be payable monthly in arrears by the 20th day of the following month or on such other day in such month as CoBank shall require in a written notice to the Company.

          SECTION 5. Commitment Fee. In consideration of the Commitment, the Company agrees to pay to CoBank a commitment fee on the average daily unused portion of the Commitment at the rate of 1/8 of 1% per annum (calculated on a 360 day basis), payable monthly in arrears by the 20th day following each month. Such fee shall be payable for each month (or portion thereof) occurring during the original or any extended term of the Commitment.

          SECTION 6. Promissory Note. The Company promises to repay the unpaid principal balance of the loans on the last day of the term of the Commitment, as the term may be extended from time to time. In addition to the above, the Company promises to pay interest on the unpaid principal balance of the loans at the times and in accordance with the provisions set forth above.

          SECTION 7.  Letters of Credit. In addition to loans, the Company may utilize, if agreeable to CoBank in its sole discretion in each instance, the Commitment to open irrevocable letters of credit for its account. Each letter of credit will be issued within a reasonable period of time after CoBank’s receipt of a duly completed and executed copy of CoBank’s then current form of Application and Reimbursement Agreement, or, if applicable, in accordance with the terms of any CoTrade Agreement between the parties, and shall reduce the amount available under the Commitment by the maximum amount capable of being drawn thereunder. Any draw under any letter of credit issued hereunder shall be deemed a loan under the Commitment and shall be paid in accordance with this Promissory Note and Supplement. Each letter of credit must be in form and content acceptable to CoBank and must expire no later than the maturity date of the Commitment.

          SECTION 8. Security. Except for CoBank’s statutory first lien on all equity that the Company may now own or hereafter acquire or be allocated in CoBank, the Company’s obligations hereunder shall be unsecured.

Amended and Restated Promissory Note and Committed	-3-
Revolving Credit Supplement RI0214S01B
CHUGACH ELECTRIC ASSOCIATION, INC.
Anchorage, Alaska

          IN WITNESS WHEREOF, the parties have caused this Promissory Note and Supplement to the MLA to be executed by their duly authorized officers as of the date shown above.

CoBANK, ACB		CHUGACH ELECTRIC ASSOCIATION, INC.
By:		By:
Title:	Assistant Corporate Secretary	Title:	CFO

EX-10.54

Exhibit 10.54

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into by and between William R. Stewart (“Stewart”) and Chugach Electric Association, Inc., an Alaska electrical cooperative association headquartered in Anchorage, Alaska (“Chugach” or “Employer”), retroactive as of July 1, 2006.

          WITNESSETH:

          WHEREAS, Chugach is engaged in the business of production, transmission and distribution of electricity in Alaska;

          WHEREAS, Stewart has skills and experience in electric utility management generally and with the business and technology associated with the production, transmission and distribution of electricity; and

          WHEREAS, Chugach desires to obtain Stewart’s services as the Chief Executive Officer of its business, and Stewart desires to be employed in that position by Chugach;

          NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties hereto agree as follows:

          1.          Employment. Chugach hereby employs Stewart as its Chief Executive Officer, and Stewart hereby accepts such employment upon the terms and conditions hereinafter set forth.

          2.            Duties.

                         a.      Stewart shall serve as Chugach’s Chief Executive Officer and shall perform his services as such within the framework of Chugach’s Bylaws, policies, procedures and goals as Chugach’s Board of Directors shall from time to time determine, including but not limited to the following:

                                 (i)            Board Policy 106, Delegations of Authority from the Board of Directors to the Chief Executive Officer, Appendix A hereto;

                                 (ii)          Board Policy 107, Board of Directors - Chief Executive Officer Relationship, Appendix B hereto; and

                                 (iii)         Board Policy 118, Delegation of Certain of the Secretary’s and Treasurer’s Duties to the Chief Executive Officer, Appendix C hereto.

In such capacity, Stewart (i) shall exercise general supervisory responsibility and management authority over Chugach and all of its controlled affiliates and (ii) shall

EMPLOYMENT AGREEMENT - 1

perform such other duties commensurate with his position as may be assigned to him from time to time by the Chugach Board of Directors.

                    b.           Stewart shall devote substantially all his business time, attention and energies to the performance of his duties and functions under this Agreement and shall not during the term of his employment hereunder be engaged in any other substantial business activity for gain, profit or other pecuniary advantage. Stewart shall faithfully, loyally and diligently perform his assigned duties and functions and shall not engage in any activities whatsoever that conflict with his obligations to Chugach during the term of his employment hereunder. Notwithstanding the foregoing, nothing in the foregoing shall be construed so as to limit or prohibit personal investments by Stewart; provided that such investments shall not amount to a controlling interest in any entity (other than trusts, limited partnerships or other entities adopted by Stewart for estate planning purposes). Stewart also agrees that he will not participate in any political activity that will or may reflect adversely upon Chugach without obtaining the prior consent of Chugach’s Board of Directors.

                    c.           Chugach shall furnish Stewart with an office and other facilities at Chugach’s headquarters location and services that are suitable to his position and adequate for the performance of his duties and functions hereunder

          3.         Term of the Agreement. The term of this Agreement shall be for a period of three (3) years commencing retroactively on July 1, 2006. This Agreement may be extended by mutual written agreement of the parties reached on or before July 1, 2008, for a minimum of a one (1) year term, and thereafter for additional terms of one or more years on mutual written agreement reached not less than twelve (12) months prior to expiration of the then remaining term. Notwithstanding the foregoing, this Agreement will automatically be extended for successive one-year terms if the Board of Directors does not take formal action otherwise on or before July 1, 2008, and annually thereafter, or unless terminated as provided in Section 10 of this Agreement.

          4.         Compensation. Chugach shall pay to Stewart, in consideration of and as compensation for the services agreed to be rendered by Stewart hereunder, the following:

                      a.           Salary. During the first year of this Agreement (July 1, 2006 - June 30, 2007), Chugach shall pay to Stewart an annual salary of Two Hundred Twenty Thousand Dollars ($220,000 US) (the “Base Salary”), payable in regular installments on Chugach’s normal paydays, less withholdings required by law and as authorized by Stewart. On each July 1 anniversary date thereafter, the Base Salary shall be adjusted based upon the percentage increase, if any, in the then most current semi-annual Anchorage CPI-U index published by the U.S. Bureau of Labor Statistics. The Base Salary shall not be decreased due to any reduction in the CPI-U index.

EMPLOYMENT AGREEMENT - 2

                    b.           Discretionary Performance-Based Bonus Program. The Board of Directors may, in its sole discretion, establish annual or other performance-based objectives for Stewart and assign fixed dollar amount or percentage of Base Salary bonuses for the successful achievement of those objectives. The stated objective(s) will be set forth in Appendix D hereto, to be updated from time to time as the Board sees fit. For each objective met, Stewart will be awarded the bonus associated with that objective, said payment(s) to be made within thirty (30) days of the Board’s determination, less withholdings required by law or as authorized by Stewart. The parties acknowledge that such bonus payments to Stewart, if any, are not considered compensation under any of retirement plans offered by Chugach and therefore will not be considered in determining Stewart’s retirement benefits.

                    c.           Use of Company Vehicles. During the Employment Term, Stewart shall be permitted to use Chugach vehicles on company business on a de minimus basis. Stewart shall not be entitled to a company vehicle for personal use.

          5.         Chugach-Provided Benefits. During the term of this Agreement and if available then, Stewart shall be entitled to participate in all group health, pension, 401(k), deferred compensation plans and other benefit plans maintained by Chugach and provided to its salaried administrative personnel, on the same terms as apply to participation therein by such personnel generally (except as otherwise provided herein). Further, during the term of this Agreement, Stewart shall be entitled to participate in all fringe benefit programs and shall receive all perquisites if and to the extent that Chugach’s Board of Directors establishes and makes such benefits and perquisites available to its salaried administrative personnel generally, including, but not limited to, Employer-paid long-term disability insurance and life insurance coverage.

          6.         Holidays, Sick Leave and Annual Leave. Stewart shall be entitled to such holidays, sick leave and annual leave as are provided to Chugach’s salaried administrative personnel generally.

          7.        Expenses. During the term of this Agreement, Chugach shall reimburse Stewart for all reasonable travel, entertainment and other business expenses incurred or paid by Stewart in performing his duties and functions hereunder, subject to Stewart’s accounting for and reporting such expenses pursuant to applicable Chugach policies.

          8.         Non-Competition. During the term of this Agreement, during any extension thereof, and for a period of six (6) months after termination of this Agreement, Stewart shall not enter into or participate in any business competitive to the business carried on by Chugach in Southcentral Alaska or at such additional locations, if any, outside Southcentral Alaska at which Chugach conducts business. As used herein, the term “business competitive to the business carried on by

EMPLOYMENT AGREEMENT - - 3

Chugach” means any business that involves the production, transmission or distribution of electricity, and the words “Southcentral Alaska” mean a business conducted in whole or in part within the boundaries of the Municipality of Anchorage, the Kenai Peninsula Borough, or the Matanuska-Susitna Borough. The provisions of this paragraph 8 shall survive the expiration and/or termination of this Agreement. If a court of competent jurisdiction or arbitrator, as the case may be, should declare any or all of this provision unenforceable because of any unreasonable restriction of duration and/or geographical area, then such court or arbitrator shall have the express authority to reform this provision to provide for reasonable restrictions and/or to grant Chugach such other relief, at law or in equity, as is reasonably necessary to protect its interests.

          9.           Confidential Information. During the term of this Agreement and for so long thereafter as the information remains confidential, Stewart will not use for his own advantage or disclose to any unauthorized person any confidential information relating to the business operations or properties of Chugach and any affiliate of Chugach. Upon the expiration or termination of this Agreement, upon Chugach’s request, Stewart will surrender and deliver to Chugach all documents and information of every kind relating to or connected with Chugach and its affiliates. As used herein “confidential information” means all information, whether written or oral, tangible or intangible, of a private, secret, proprietary or confidential nature, of or concerning Chugach and its business and operations, including without limitation, any trade-secrets or know-how, computer software programs in both source code and object code, information regarding any product or service, development, technology, technique, process or methodology, any sales, promotional or marketing plans, programs, techniques, practices or strategies, any expansion or acquisition plans, any operational and management guidelines, any cost, pricing or other financial data or projections, and any other information which is to be treated as confidential because of any duty of confidentiality owed by Chugach to any third party or any other information that Chugach shall, in the ordinary course of its business, possess or use and not release externally without restriction on use or disclosure. The foregoing confidential information provision shall not apply to information which: (i) is or becomes publicly known through no wrongful act of Stewart, (ii) is rightfully received from any third party without restriction and without breach by Stewart of this Agreement; or (iii) is independently developed by Stewart after the term of his employment hereunder or is independently developed by a competitor of Chugach at any time. The provisions of this paragraph 9 shall survive the expiration and/or termination of this Agreement.

          10.          Termination.

                         a.           Termination for Cause. Chugach may terminate Stewart’s employment for “cause” immediately upon written notice to Stewart, provided, however, that Stewart has been given ten (10) days written notice of cause for termination and has failed to, or is unable to, cure such cause within that time. Such

EMPLOYMENT AGREEMENT - 4

notice shall specify in reasonable detail the acts or omissions that constitute cause for termination. For purposes of this Agreement, “cause” means a business-related reason that is not arbitrary, capricious or illegal and which is based on facts (i) supported by substantial evidence and (ii) reasonably believed by the Board of Directors to be true. Examples of “cause” for termination of employment are provided in Chugach Operating Policy 013 dated September 19, 2001, and are incorporated herein by reference to the extent they are consistent with this Agreement. In the event of the involuntary termination of his employment for cause, Stewart shall not be entitled to receive any compensation hereunder other than his Salary and employee benefits and leave as accrued through the effective date of such termination. Stewart’s obligations under Paragraphs 8 and 9 shall continue under the terms and conditions of this Agreement.

                    b.       Termination Without Cause. Chugach may terminate Stewart’s employment without cause at any time during the term of this Agreement or any extension thereof, provided however, that Chugach shall continue to pay Stewart his Base Salary and shall provide him all benefits that he would have received had his employment not been terminated then, said payments and benefits to continue without interruption through the end of the then remaining term of this Agreement.

                    c.       Voluntary Termination. Stewart may voluntarily terminate his employment under this Agreement at any time upon sixty (60) days’ prior written notice to Chugach’s Board of Directors, whereupon Chugach’s employment of Stewart shall terminate at the end of the sixty (60) day notice period. In the event of Stewart’s voluntary termination of employment, he shall not be entitled to receive any compensation hereunder other than his Salary and employee benefits as accrued through the effective date of such termination. Stewart’s obligations under Paragraphs 8 and 9 shall continue under the terms and conditions of this Agreement.

                    d.       Disability. Chugach may terminate Stewart’s employment after having established Stewart’s Disability, subject to applicable state and/or federal law. For purposes of this Agreement, “Disability” means a physical or mental disability which impairs Stewart’s ability to substantially perform his duties under this Agreement and which results in Stewart becoming eligible for long-term disability benefits under Chugach’s long-term disability plan (or, if Chugach has no such plan in effect, which impairs Stewart’s ability to substantially perform his duties under this Agreement for a period of 180 consecutive days). Stewart shall be entitled to the compensation and benefits provided for under this Agreement for (i) any period during the term of this Agreement and prior to the establishment of Stewart’s Disability during which Stewart is unable to work due to a physical or mental disability, or (ii) any period of Disability which is prior to Stewart’s termination of employment pursuant to this paragraph.

EMPLOYMENT AGREEMENT - 5

                    e.       Death. This Agreement shall automatically terminate the day after Stewart’s death if it has not already terminated prior to that date.

                    f.       Miscellaneous. In the event of any termination or attempted termination hereof: (i) if multiple events, occurrences or circumstances are asserted as bases for such termination or attempted termination, the event, occurrence or circumstance that is earliest in time, and any termination or attempted termination found to be proper hereunder based thereon, shall take precedence over the others; (ii) no termination of this Agreement shall relieve or release either party from liability hereunder based on any breach of the terms hereof by such party occurring prior to the termination date; and (iii) the terms of this Agreement relevant to performance or satisfaction of any obligation hereunder expressly remaining to be performed or satisfied in whole or in part at the termination date shall continue in force until such full performance or satisfaction has been accomplished and otherwise neither party hereto shall have any other or further remaining obligations to the other party hereunder.

                    g.       No Set-off; No Duty of Mitigation. There shall be no right of setoff or counterclaim, in respect of any actual or alleged claim, debt or obligation, against any payments or benefits required to be made or provided to Stewart hereunder, including, without limitation, pursuant to subparagraph 10(b). In the event of any termination of Stewart’s employment under subparagraph 10(b), Stewart shall be under no obligation to seek other employment and shall be entitled to all payments or benefits required to be made or provided to Stewart hereunder, without any duty of mitigation of damages and regardless of any other employment obtained by Stewart.

          11.     Injunctive Relief. It is agreed that the services of Stewart are unique and that any breach or threatened breach by Stewart of any provision of this Agreement cannot’ be remedied solely by damages. Accordingly, in the event of a breach by Stewart of his obligations under this Agreement, Chugach shall be entitled to seek and obtain interim restraints and permanent injunctive relief, restraining Stewart and any business, firm, partnership, individual, corporation or entity participating in such breach or attempted breach. Nothing herein, however, shall be construed as prohibiting either party from seeking injunctive relief to require resolution of disputes or controversies arising out of or relating to this Agreement to be resolved pursuant to paragraph 12 below.

          12.     Arbitration. Any dispute or controversy arising out of or relating to this Agreement or any claimed breach hereof shall be resolved, at the request of either party, by a private arbitration proceeding. The request for arbitration shall be made in writing no later than thirty (30) days after the alleged act or omission on which it is based. The arbitration proceeding shall be conducted pursuant to the Alaska Revised Uniform Arbitration Act, AS 09.43.300 – 09.43.595 (the “Act”) and the most current version of the employment arbitration rules published by the dispute

EMPLOYMENT AGREEMENT - 6

resolution organization whose services are used by these parties (the “Arbitration Rules”), each of which is incorporated herein by this reference to the extent that the Act and the Arbitration Rules are consistent with this Agreement. The arbitrator shall be an impartial arbitrator qualified to serve in accordance with the Arbitration Rules. The arbitrator shall be selected by mutual agreement of the parties. If the parties are unable to agree to a mutually acceptable arbitrator within twenty-one (21) days of the request for arbitration, Chugach shall select an impartial dispute resolution organization to provide the parties a list of seven (7) arbitrators. After a coin toss to determine who makes the first strike, the parties shall strike names from the list alternately until the name of one arbitrator remains. That arbitrator shall be deemed mutually acceptable to both parties unless the arbitrator is unavailable, in which case the last arbitrator whose name was struck shall be deemed acceptable to the parties, and so on. The arbitration hearing shall be held in Anchorage, Alaska, or in such other place as may be mutually agreed upon by the parties, at a time and location determined by the arbitrator. Within thirty (30) days of the close of the arbitration hearing, the arbitrator shall hand down a written decision and award. The decision shall explain the basis for the arbitrator’s award. The arbitrator shall have authority to interpret and enforce this Agreement, but shall not have authority to alter, amend or supersede any provision of this Agreement. The decision and award shall be final and binding on the parties, subject only to such appeal rights as are available under the Act. Either party may seek entry of judgment upon such decision and award in any court having jurisdiction over the parties. The expenses of the arbitration proceeding shall be borne by Chugach. Each party shall pay for and bear the cost of its own experts, witnesses and legal counsel in such arbitration proceeding.

          13.     Indemnification.

                    a.       Chugach shall indemnify Stewart (as a “protected person”) to the fullest extent permitted by AS 10.25.145 (the terms of which are incorporated herein by this reference) against all costs, expenses, liabilities and losses (including, without limitation, attorneys’ fees, judgments, penalties and amounts paid in settlement) reasonably incurred by Stewart in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative in which Stewart is made, or is threatened to be made, a party to or a witness in such action, suit or proceeding by reason of the fact that he is or was an officer or agent of Chugach or of any of Chugach’s controlled affiliates or is or was serving as an officer, trustee, agent or fiduciary of any other entity at the request of Chugach (a “Proceeding”).

                    b.       Chugach shall advance to Stewart all reasonable costs and expenses incurred by him in connection with a Proceeding within twenty (20) days after receipt by Chugach of a written request for such advance, accompanied by an itemized list of the actual or anticipated costs and expenses and Stewart’s written undertaking to repay to Chugach on demand the amount of such advance if it shall ultimately be determined that Stewart is not entitled to be indemnified against such

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costs and expenses. Stewart shall periodically account to Chugach for all such costs and expenses incurred by Stewart in connection with his defense of the Proceeding.

                    c.     The indemnification provided to Stewart hereunder is in addition to, and not in lieu of, any additional indemnification to which he may be entitled pursuant to Chugach’s Certificate of Incorporation or Bylaws, any insurance maintained by Chugach from time to time providing coverage to Stewart and other officers and directors of Chugach, or any separate written agreement with Stewart. The provisions of this paragraph 13 shall survive any termination of this Agreement.

          14.     Amendment and Modification. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, arrangements or understandings between the parties hereto with respect to the subject matter hereof, whether written or oral, including but not limited to the parties’ Memorandum of Agreement in Principle and the agreements under which Stewart served as Chugach’s interim Chief Executive Officer. Subject to applicable law and upon the consent of Chugach’s Board of Directors, this Agreement may be amended, modified and supplemented by written agreement of Chugach and Stewart with respect to any of the terms contained herein.

          15.     Waiver of Compliance. Any failure of either party to comply with any obligation, covenant, agreement or condition on its part contained herein may be expressly waived in writing by the other party, but such waiver or failure to insist upon strict compliance shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party, such consent shall be given in writing.

          16.     Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, sent by registered or certified U.S. Mail, postage prepaid, commercial overnight courier service or transmitted by facsimile and shall be deemed served or delivered to the addressee at the address for such notice specified below when hand delivered, upon confirmation of sending when sent by fax, on the day after being sent when sent by overnight delivery or five (5) days after having been mailed, certified or registered, with postage prepaid:

If to Chugach:	If to Stewart:
Chugach Electric Association, Inc. P.O. Box 196300 Anchorage, AK 99519-6300	William R. Stewart 3200 Discovery Bay Drive Anchorage, AK 99515

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Facsimile: (907) 762-4688	Facsimile:
Attention: Chairman of Board of
Directors

or, in the case of either such party, to such substitute address as such party may designate from time to time for purposes of notices to be given to such party hereunder, which substitute address shall be designated as such in a written notice given to the other party addressed as aforesaid.

          17.     Assignment. This Agreement shall inure to the benefit of Stewart and Chugach and be binding upon the successors and general assigns of Employer. This Agreement shall not be assignable by either party except to the extent set forth in paragraph 20.

          18.     Enforceability. In the event it is determined that this Agreement is unenforceable in any respect, it is the mutual intent of the parties that it be construed to apply and be enforceable to the maximum extent permitted by applicable law.

          19.     Applicable Law. This Agreement shall be construed and enforced in accordance with the laws applicable to contracts executed, delivered and fully to be performed in the State of Alaska.

          20.     Beneficiaries: Executive’s Representative. Stewart shall be entitled to select (and to change, from time to time, except to the extent prohibited under any applicable law) a beneficiary or beneficiaries to receive any payments, distributions or benefits to be made or distributed hereunder upon or following Stewart’s death. Any such designation shall be made by written notice to Chugach. In the event of Stewart’s death or of a judicial determination of Stewart’s incompetence, references in this Agreement to Stewart shall be deemed, as appropriate, to refer to his designated beneficiary, to his estate or to his executor or personal representative (“Stewart’s Representative”) solely for the purpose of providing a clear mechanism for the exercise of Stewart’s rights hereunder in the case of Stewart’s death or disability.

//
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          IN WITNESS WHEREOF, the parties have executed this Agreement to be effective on and as of the day and year first above written.

CHUGACH ELECTRIC ASSOCIATION, INC.
By:
Name: JEFF LIPSCOMB
Title:  CHAIRMAN OF THE BOARD
WILLIAM R. STEWART

94714v1 23681-77

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APPENDIX A

CHUGACH ELECTRIC ASSOCIATION, INC.

BOARD POLICY: 106 Date: June 18, 2003

DELEGATIONS OF AUTHORITY
FROM THE BOARD OF DIRECTORS TO
THE CHIEF EXECUTIVE OFFICER

I.	OBJECTIVE
	To define the delegations of authority from the Board of Directors to the Chief Executive Officer to enable adequate direction of the operations of the Association and to report to the Board on the results achieved.
II.	CONTENT
	A.	Planning
		1.	Policies
			To formulate with his/her staff, as appropriate, the Board policies to be recommended to a committee of the Board for their consideration and to participate with the Board Operations Committee and the Board in the development of Board policies. To formulate, in consultation with the Board of Directors and staff, the Operating Policies of the Association. Such policies shall be reviewed by the Chief Executive Officer as periodically necessary and a report made to the Board or a Board Committee.
		2.	Objectives
			To develop, in consultation with the Board of Directors and staff, goals and objectives of the Association for presentation to and approval by the Board of Directors. To review annually these goals and objectives, as well as the results achieved.
		3.	Short-Range and Long-Range Plans
			a.	To conduct studies, with staff and outside consultants if necessary, and recommend to the Board of Directors short-range and long-range plans, including plans in such areas as power supply, power requirements and load forecasts, need for generation and transmission facilities, procurement of fuel, financing, energy

BOARD POLICY: 106				PAGE: 2
				management and marketing, member and public relations, materials management, construction, etc., and to report to the Board on results achieved compared to such plans.
		4.	Membership Meetings
			To develop, with staff, plans for annual and other meetings of the Members and to make appropriate recommendations to the Board of Directors.
		5.	Annual Work Plans and Budgets
			To formulate, with staff, annual work plans and budgets for the Association and recommend them to the Board for their consideration and approval and to provide detailed reports monthly on revenue, expenses and other results compared to such plans.
		6.	Legislation
			To analyze and determine with staff, state and federal legislative and regulatory matters to be proposed, supported, or opposed consistent with established Board policy. Reports will be submitted to the Board on a regular basis.
		7.	Retail and Wholesale Rates and Service Rules and Regulations
			To periodically study and analyze the Association’s retail and wholesale rates and service rules and regulations and make appropriate recommendations to the Board.
	B.	Organization
		1.	Organizational Structure
			a.	To periodically review activities of the Association and to determine, with staff, the organizational structure best suited to carry out the overall objectives of the Association, within the limitations of the budget and Board Policy and priorities.
			b.	To determine, with the appropriate staff members, the need for additional positions, the transfer, reassignment, or elimination of present positions, and to effect such changes, provided they are within the limitations of the personnel costs of the approved budget. Reports should be made annually to the Board, or a committee of the Board, on the number of positions by organizational units as compared to previous years.

BOARD POLICY: 106 PAGE: 3        

2.	Selection of Personnel
	a.	To develop or approve standards and qualifications for use in recruitment, transfer and promotion of personnel. Such standards and qualifications should meet all federal and state legal requirements.
	b.	To hire, transfer, promote, and terminate personnel.
3.	Training
	a.	To ensure that the Association staff is trained in accordance with the requirements of their positions.
	b.	To initiate and promote, through staff, appropriate management, professional and technical training programs for all personnel within the limitations of the approved budget and Board policy, including sending personnel to appropriate training programs outside the organization.
4.	Performance Appraisals
	a.	To appraise, at least annually, the performance of the immediate staff and to counsel with them and assist them to develop and improve.
	b.	To ensure that an annual performance appraisal program is established and carried out for all personnel.
5.	Position Descriptions
	To ensure that written position descriptions and job specifications are prepared and reviewed annually for all personnel. Such completed descriptions will not require Board approval.
6.	Fringe Benefits
	To administer or approve activities and actions with respect to vacations, holidays, sick leave and other fringe benefit programs for the employed personnel within established policies, within the limitations of the budget, and as provided in collective bargaining agreements. A report shall be presented annually to the Board or a committee of the Board describing the various benefits and the employee and employer contribution, if any, and what percent fringes are of payroll.

BOARD POLICY: 106 PAGE: 4        

7.	Overtime
	To ensure that overtime is controlled and to report annually to the Board on overtime as a percent of payroll compared to previous years and the results of the efforts to control this expense.
8.	Consultants
	To select and retain consultants, other than the firm performing the independent financial audit. The selection of any consultants working in areas which affect the functions of the Board requires the approval of the Board.
9.	Wage and Salary Administration
	a.	To develop a systematic wage and salary plan for non-bargaining unit employees and present it to the appropriate committee of the Board of Directors for its review and for them to make an appropriate recommendation to the Board regarding its approval.
	b.	To determine all salary adjustments, except the Chief Executive Officer’s, within the Board-approved wage and salary plan and policy and within the limitations of the budget. A report is to be provided to the Board annually on the administration of the wage and salary plan.
	c.	To evaluate new positions and reevaluate existing positions. If their responsibilities and authorities substantially change, and if appropriate, place these positions in the Board-approved wage and salary plan.
	d.	To conduct labor surveys, as necessary, to determine wages and salaries paid for comparable jobs in the area in which the Association recruits personnel, and make recommendations to a committee of the Board of Directors on any revisions required in the wage and salary plan for non-bargaining unit employees, taking into account the financial condition of the Association.
10.	Labor Relations
	a.	To negotiate bargaining unit contracts and make appropriate recommendations to the Board.
	b.	To administer the approved labor contracts and see that appropriate managers and supervisors understand the provisions of the contracts and their administration.

BOARD POLICY: 106 PAGE: 5        

	11.	Employee Relations
		To ensure that two-way communication between employees and management is established providing opportunities for feedback and employee involvement and participation as appropriate.
C.	Operations
	1.	Overall Administration
		a.	To direct and manage the day-to-day operations and activities of the Association in accordance with the policies of the Board of Directors and in accordance with all contracts and lending institution policies and procedures, as well as applicable federal, state and local laws.
		b.	To delegate appropriate authority to immediate staff and authorize further delegation of authority to any level of management with full recognition that the Chief Executive Officer cannot be relieved of overall responsibility or any portion of accountability.
		c.	To designate an appropriate person to serve as Acting Chief Executive Officer in the absence of the Chief Executive Officer.
		d.	To ensure that staff advice and assistance is available to the Board of Directors and its committees.
		e.	To accept invitations to participate in or designate other staff members to participate in national, state and local meetings which further the best interest of the Association, within the limitations of Board policy and the approved budget. Participation by the Chief Executive Officer in such activities which requires considerable time over a sustained period requires approval of the Board.
		f.	To determine the transportation needs of the Association, with the understanding that the number of company-owned or leased cars individually assigned to employees will be minimized, and a pool of company-owned or leased cars will be utilized, and both activities will be accomplished in the most economical and practical extent possible. Such company-owned or leased cars shall be used only for trips that are primarily official business.
		g.	To serve as the authorized spokesperson for the Association on major issues impacting the Association and to keep the Board up to date and well informed on such issues.

BOARD POLICY: 106 PAGE: 6        

2.	Membership Services
	To direct appropriate and efficient membership services in such areas as, but not necessarily confined to, public and member relations, load management, energy conservation, marketing communications, and research.
3.	Legislation
	a.	To develop and carry out, consistent with Board policy 121, a legislative program furthering the Association’s objectives and policies. Such a program will include, but not be limited to, research, preparation of testimony, presentation of testimony before appropriate committees, consultation with members of Congress, the state legislature, and state and federal administrative and regulatory agencies.
	b.	To participate with allied groups to obtain their increased understanding and support of the Association’s legislative and regulatory objectives and programs.
4.	Financial
	a.	To administer the approved budget, including approval of non-budgeted items or budget changes of not more than $1,000,000 or all non-budgeted items which, in his or her judgment, are vital to effect unanticipated emergency maintenance or repairs. Non-budgeted items or budget changes exceeding $500,000 must be reported to the Board of Directors.
	b.	To invest or reinvest funds, cash investments when due, and cash government bonds when, and if, necessary to protect the Association’s cash position, and to carry out an effective cash management program.
	c.	To authorize and approve the travel expenses of personnel, except the Chief Executive Officer’s, on company business within the limitations of the budget and within established policy. All such expenses shall be supported by itemized expense accounts with receipts attached, as appropriate. Expenses of the Chief Executive Officer will be approved by the Chairman of the Board or the Treasurer of the Board prior to payment.
	d.	To approve accounting systems, procedures, statistics and types of reports necessary for sound financial management of the Association, and to meet the requirements of lending and regulatory agencies and for necessary control, information required by the

BOARD POLICY: 106 PAGE: 7        

	Board of Directors.
e.	To purchase all equipment, vehicles, hardware, furniture, materials, and supplies within the limitations of the budget and Board policy. All purchases shall comply with applicable Association bylaws, policies and procedures. All purchases of major equipment or large quantities of materials for generation, transmission and substations shall be via competitive bids when feasible.
f.	To negotiate and approve contracts for construction in accordance with applicable Association procedures. Contracts in excess of $1,000,000 (net to the Association) shall be submitted to the Board for approval.
g.	To approve purchase orders and contracts, including cumulative changes, if $1,000,000 or less (net to the Association) for previously Board-approved projects and report on all active purchase orders and contracts over $250,000 (gross) each quarter. Purchase orders and contracts exceeding $1,000,000 (net to the Association) will be brought to the Board for approval prior to any commitments or expenditures being made.
h.	To approve change orders on purchase orders and contracts previously Board-approved, if the cumulative value of the changes is less than 15% of the original value. Change orders exceeding 15% of the original Board approved contract value or which cause the original value to exceed $1,000,000 (net to the Assocation) will be brought to the Board for approval prior to any commitments or expenditures being made.
i.	To determine insurance coverages required for effective risk management and to negotiate purchase of such coverages within the limitations of the budget and Board policy.
j.	To authorize individual memberships in civic clubs and organizations and company memberships in local organizations in which membership would be helpful and to authorize payment of dues by the Association within the limitations of the budget and established Board policy.
k.	To ensure that an internal auditing function is in place to carry out necessary studies with reports to the Board by the Chief Executive Officer on the results of such studies as appropriate.
l.	After authorization of a bond issuance by the Board, to ensure that the documentation necessary for the issuance of bonds is prepared,

BOARD POLICY: 106 PAGE: 8        

		and to carry out negotiations with financing institutions for the sale of such bonds striving to achieve the lowest cost financing and to obtain approvals as are necessary for the sale thereof.
	m.	Subject to Subsections (f) and (g) above: To negotiate and execute all documents relating to the purchase, use, sale, lease, or other transactions affecting real property, to exercise the power of eminent domain to acquire for projects described in an approved budget property which the Association has been unable to obtain by negotiation; to execute and deliver all environmental studies and reports; to make application for all permits relating to the operations of the Association; to design, route and determine the site for all facilities within the limitations of Board policy and the budget.
	n.	To perform all acts necessary or incidental to the management of the operations of the Association, unless such acts are specifically reserved to the Board pursuant to law, the Association’s articles of incorporation and bylaws, or Board policies.
5.	Control
	a.	Operations
		To submit periodic and special reports to the Board of Directors on conformity of operations with approved policies and programs and recommend any revisions requiring Board approval and to direct any remedial action required.
	b.	Finances
		To submit periodic and special financial reports to the Board to keep them informed of the Association’s financial position and conformance to financial plans and forecasts, and to see that all persons having access to cash or responsible for purchasing of materials are properly bonded in accordance with all requirements of the lending agencies.
	c.	Budgets
		To report monthly to the Board on revenues and expenditures compared to budget. To recommend any revisions required, and to direct any necessary remedial action.
	d.	Annual Financial Audit
		To participate with the Board in the review, with the auditor present,

BOARD POLICY: 106 PAGE: 9        

	of the annual financial audit and management letter. To direct any remedial action required and to ensure that the management letter, along with the Audit Report, is sent to each Board member prior to the meeting at which they are to be discussed.
e.	Materials Management
	1.	To determine the amount of, and establish proper control of, all physical inventories to minimize investment in inventories needed to meet operating and construction needs.
	2.	To ensure that a system is established to accurately account for all materials used.
f.	Member Complaints
	To submit periodically to the Board of Directors an analysis of Member complaints and to take any corrective action required or to recommend appropriate revisions in Board policy.
g.	Reliability of Service
	To submit annually to the Board a report on service reliability and any remedial action taken.
h.	Availability of Power Supply
	To report periodically to the Board on load growth compared to availability of power and to recommend plans to meet anticipated growth to ensure an adequate and reliable supply for the Member at the lower possible costs consistent with sound business and management practices.
i.	Power Costs
	To continually study power costs compared to projections and to recommend to the Board, as far in advance as possible, any changes in power costs necessary to maintain financial strength and stability and to meet all requirements of lending and regulatory agencies.
j.	Loss Control
	To ensure that a loss control program is carried out to minimize and control losses due to accidents, environmental hazards and other risks.

BOARD POLICY: 106 PAGE: 10        

			k.	Member Meetings
				To report to the Board on the effectiveness of annual and other member meetings with recommendations on improvements which can be made.
III.	RESPONSIBILITY
	A.	The Chief Executive Officer shall report to the Board periodically on how these delegations are being carried out. Further delegations to the Chief Executive Officer may be made as required.
		The Chief Executive Officer may delegate any of the foregoing authorities to the Acting Chief Executive Officer or other staff and the Acting Chief Executive Officer may act in any or all of these responsibility areas in the absence of and when designated to act for the Chief Executive Officer. The Chief Executive Officer is solely responsible for and accountable to the Board for the foregoing delegations of responsibility.
	B.	The Board of Directors is responsible for approving any changes in the delegations to the Chief Executive Officer.
		The Chairman of the Board shall be responsible for ensuring that the performance of the Chief Executive Officer is appraised each year by the Operations Committee of the Board and that a written report is made to the full Board on or before the second Board meeting in March of each year, but no later than April 23, on the results of such appraisal, including a recommendation on a salary adjustment when appropriate, and that the results of such appraisal are discussed with the Chief Executive Officer.

Date Approved:	18 June’ 03	Attested:
			Secretary of the Board

BP: 106

APPENDIX B

CHUGACH ELECTRIC ASSOCIATION, INC.

BOARD POLICY: 118 Date: June 18, 2003

DELEGATION OF CERTAIN OF THE SECRETARY OF THE BOARD’S AND
TREASURER OF THE BOARD’S DUTIES TO THE CHIEF EXECUTIVE OFFICER

I.	OBJECTIVE:
	To specify certain duties of the Secretary of the Board and the Treasurer of the Board which are delegated to the Chief Executive Officer, and to supplement the Chief Executive Officer’s title accordingly.
II.	CONTENT:
	Article VI, Section 8 of the Association’s bylaws provides that the Board may delegate one or more of the duties of the Secretary of the Board and/or of the Treasurer of the Board to others. By this policy the Board specifies the duties so delegated and establishes certain standards and conditions governing these delegations:

A.	The duties hereinafter specified are delegated to the Chief Executive Officer. The Chief Executive Officer may further delegate these duties to his/her staff, but he/she shall not be relieved of full accountability for their proper execution.
B.	Certain of the Secretary of the Board’s duties as set forth in Article VI, Section 6 of the Association’s bylaws are so delegated as described below:

1.

Recording the minutes of the board or member meetings. However, if the Secretary of the Board is present at such meetings, this shall be done under his/her supervision and direction, and the Secretary of the Board shall be responsible for their accuracy and shall sign them after they are duly approved.

2.

Giving notice of board or member meetings. However, if the Secretary of the Board so desires, the Secretary of the Board shall approve the form and wording of any notice of a special board or member meeting, in which case such notice shall be sent over his/her name as Secretary of the Board. The Chief Executive Officer shall notify the Secretary of the Board that such a notice is to be given so as to afford him/her an opportunity to exercise the prerogative above stated.

BOARD POLICY: 118 PAGE 2        

	3.	Serving as custodian of the Association’s records and its official seal. The Secretary of the Board shall, however, affix or personally supervise the affixing of the official seal to any document if so required by law or board resolution.
	4.	Keeping a register of the names and addresses of all members.
	5.	Signing the membership certificates, but only if the Board has authorized such signing by his/her facsimile signature.
	6.	Having general charge of the Association’s books in which a record of the members is kept.
	7.	Keeping on file copies of the Association’s Articles of Incorporation and Bylaws and being responsible for furnishing copies thereof to members upon their request.
	8.	In general, performing all duties incident to the office of Secretary of the Board, and such other duties as from time to time may be assigned by the Board of Directors.
C.	Certain of the Treasurer of the Board’s duties as set forth in Article VI, Section 7 of the Association’s bylaws are delegated to the Chief Executive Officer as described below:
	1.	Being in charge and having custody of, and being responsible for, all funds and securities of the Association. However, the Chief Executive Officer’s duties, responsibilities and authorities in this respect may be limited or conditioned as otherwise resolved by the Board, either from time to time or by separate policy governing the subject.
	2.	Receiving, receipting, depositing and investing monies received by the Association. However, the Chief Executive Officer’s duties, responsibilities and authorities with respect to deposit institutions and investments shall be within the limitations of Board policy.
	3.	In general, performing all the duties incident to the office of Treasurer of the Board and such other duties as from time to time may be assigned by the Board of Directors.

BOARD POLICY: 118 PAGE 3        

	D.	The Chief Executive Officer shall also have the titles of Assistant Secretary of the Board and Assistant Treasurer of the Board, but these titles need not be stated on the Association’s stationery or other identifying papers, ink stamps, documents, etc., except when appropriate in the execution of the duties herein delegated.
III.	RESPONSIBILITIES:
	It shall be the responsibility of the Board of Directors to administer this policy.

Date Approved:	18 June’ 03	Attested:
			Secretary of the Board
BP: 118

APPENDIX C

CHUGACH ELECTRIC ASSOCIATION, INC.

BOARD POLICY: 107 DATE: June 18, 2003

BOARD OF DIRECTORS - CHIEF EXECUTIVE OFFICER RELATIONSHIP

I.	OBJECTIVE
	To establish the policy governing the basic relationship between the Board of Directors and the Chief Executive Officer, including the principles involving the delegation of authority.
II.	CONTENT
	The Board of Directors of the Association recognizes, establishes, and maintains the following guidelines in their relationship with the Chief Executive Officer:

A.	It is recognized that good management is the most important factor in the success of the Association. This includes a strong and effective Board, Chief Executive Officer and staff, as well as dedicated and capable employees. In exercising its responsibilities, the Board of Directors reserve their authority to establish policies, approve plans and programs and delegate authority to their Chief Executive Officer, except those that are by law, the Articles of Incorporation and Bylaws, conferred upon or reserved to the members.
B.	The Board of Directors recognize their responsibility and their need to establish policies, approve plans and programs, appraise results achieved and delegate authority to the Chief Executive Officer to execute and carry out their plans, programs and policies. The Chief Executive Officer shall, among other things, be responsible for the hiring of capable personnel within the limitations of Board policy and budget constraints, determining compensation within the approved wage and salary plan and policy, training, supervising and terminating if necessary.
C.	All policies of the Board of Directors shall be adopted at regular or special Board meetings acting collectively as a Board. The Chief Executive Officer is delegated the responsibility of carrying out such policies and reporting back to the Board on the results achieved.
D.	The Board recognizes that should any Director undertake in private conversation with others to make commitments for the Board of Directors, unless directed officially by the Board, that Director becomes involved in a serious breach of policy that might disrupt the entire organization. The Board member shall be subject to reprimand from his or her fellow Board members should he/she attempt to make commitments unofficially for the Board.

	E.	The Board of Directors shall refrain as individuals from discussing management and personnel problems with personnel of the Association. The Board of Directors, in consultation with the Chief Executive Officer, may confer with key personnel at regular or special meetings of the Board.
	F.	The “flow” of authority for the management of the Association shall be through the Board of Directors to the Chief Executive Officer. The Board of Directors shall require full, complete and timely information from the Chief Executive Officer concerning pertinent matters in connection with the management of the Association as set forth in Board Policies.
	G.	The Board of Directors recognize that efficient management of the Association can exist only through mutual understanding and complete cooperation between the Board of Directors and the Chief Executive Officer. The Chief Executive Officer is expected to produce results and give an account to the Board of Directors for his or her stewardship. His or her performance cannot be of the best unless he or she is given latitude to exercise independent judgment in executing policies of the Board of Directors. The Board of Directors acknowledges that obligation and gives the Chief Executive Officer that latitude of judgment and discretion, and expects faithful performance in carrying out all of the policies of the Board of Directors.
	H.	The Board of Directors recognize their responsibility for the employment of a Chief Executive Officer, and further, the additional responsibility for a systematic annual appraisal, no later than April 23 each year, of the Chief Executive Officer’s performance in order that growth, development and effective improvements are encouraged.
	I.	The Chief Executive Officer may only be terminated in accordance with the contract between the Chief Executive Officer and the Board.
III.	RESPONSIBILITIES
	A.	The Chairman of the Board shall be responsible for bringing the attention of the Board members to non-adherence to this policy.
	B.	The Board of Directors shall be responsible for seeing that the performance of the Chief Executive Officer is appraised each year by the Operations Committee, which will make a written report to the full Board on or before the second Board meeting in March of each year, but no later than April 23, including a recommendation on a salary adjustment when appropriate. Once reviewed with the Board, a written report should be made to the Chief Executive Officer and discussed with him or her.

Date Approved:	18 June’ 03	Attested:
			Secretary of the Board
BP: 107

APPENDIX D
PERFORMANCE-BASED BONUS PROGRAM

TO:	William R. Stewart, Chief Executive Officer
FROM:	Board of Directors
TIMEFRAME:	July 1, 2006 through June 30, 2007

	Stated Objective		Criteria for Measuring Success in Meeting Stated Objective	Percentage of Base Salary Linked to Success
1.	Rate Review			5%
	Restructure rates between G&T and Distribution Functions to correct debt structure and properly allocate interest expense while updating depreciation schedules and cost of service.	A. B. C. D.	Preliminary rate case outline to Chugach Board by 7/20/06 for direction to prepare a rate case. Preliminary rate case results to MEA Joint Committee process, as well as HEA, SES and RAPA by 8/1/06. Board approval of rate case filing at 9/20/06 Board meeting. File rate case with RCA by 9/30/06.
2.	Single-Member G&T Update			5%
	The Chugach Board of Directors passed a resolution on September 15th 2004, that directed the CEO to undertake all necessary steps to craft a plan to create a single-owner G&T organization that would hold all Chugach assets, contractual arrangements, and associated debt. A three-part plan was developed and presented to the BOD on March 8, 2005. To date, Chugach staff has completed all steps in part A that functionally unbundles the organizations finances without a change in corporate structure. The next step is to determine whether organizational restructuring and financial unbundling meets the needs of the Association or if we need to evaluate the feasibility and necessity of proceeding with a separate corporate structure.	A.	Evaluate feasibility and necessity of proceeding with separate corporate structure by June 30, 2006. Provide recommendation to BOD on whether Chugach should proceed with Steps B and C of the overall plan at the July strategic planning session.

	Stated Objective		Criteria for Measuring Success in Meeting Stated Objective	Percentage of Base Salary Linked to Success
3.	Make Decision on Future Generation			5%
	Aging generation and high fuel prices have significantly increased G&T rates to customers. Of the near-term options, coal has a significant hurdle due to high initial capital costs and gas turbines have the uncertain future of dwindling gas supply and volatility of market-based (Henry Hub) prices. Other options such as wind, geo-thermal, tidal and hydroelectric are under investigation, but likely will not meet near or mid-term needs (5 to 10 years).	A. B. C.	Complete coal plant and gas plant development options by September 1, 2006. Provide recommendation to Board of Directors by October 2007. Fire Island Complete study of issues raised by the FAA and report to the Board on results in August (contingent on FAA providing results in time) Participate as an MOU partner in activity led by others System integration study (GVEA) Wind studies/Corp of Engineers 404 permit work/RFP development and issuance (ML&P, pending release of additional Denali Commission funds)
4.	Negotiate Labor Contract with Represented Employees			5%
	All three IBEW contracts (Office & Engineering, Outside Plant and Generation Plant) and the Culinary Union (HERE) terminate on June 30, 2006. A substantial effort will be required by both management and bargaining unit personnel to work toward a win/win result.	A. B. C.	Establish goals and objectives for each agreement. Identify negotiating teams for each agreement. Provide monthly updates to the Board of Directors.

	Stated Objective		Criteria for Measuring Success in Meeting Stated Objective	Percentage of Base Salary Linked to Success
5.	Investigate and negotiate fuel options to meet Chugach’s short, medium and long-term needs.			5%
	Chugach has gas contracts with the Beluga Producers (Conoco Phillips, Chevron, ML&P) and Marathon Oil Company. Gas volumes from all these contracts will run out by approximately 2011. Chugach has an additional 120Bcf of additional volumes committed from the Beluga Producers (40 Bcf each) but not priced. Based on current use (25 Bcf per year), Chugach is obligated to initiate negotiations with Conoco Phillips, ML&P and Chevron by January 1, 2007 and agree upon terms by January 1, 2008.	A. B. C. D. E. F.	Begin negotiating with Conoco Phillips, Chevron and ML&P for Period 3 Volumes Begin negotiating with Marathon for follow-on volumes and potential volumes for sales to GVEA Investigate fuel-hedging strategies to mitigate market volatility with singer market indices Investigate alternative fuel options to diversify fuel sources and mitigate potential gas shortages and volatile market pricing. Participate with other gas users and producers to investigate alternatives such as LNG import and availability to new gas supplies within Alaska Provide regular confidential updates to the Board of Directors

EX-31.1

Exhbit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Certification Pursuant to 18 U.S.C. Section 1350 (Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002)

 I, William R. Stewart, certify that:

1.        I have reviewed this annual report on Form 10-K of Chugach Electric Association, Inc.;

2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Chugach, and we have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Chugach is made known to us, particularly during the period in which this annual report is being prepared;
b)	evaluated the effectiveness of our disclosure controls and procedures and presented in this report our conclusions about the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in our internal control over financial reporting that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting; and

5. The other certifying officers and I have disclosed, based on our most recent evaluation, to our auditors and the audit committee of our Board of Directors:

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the our ability to record, process, summarize and report financial data and have identified for our auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in our internal controls.

Date: March 28, 2007	/s/ William R. Stewart
	William R. Stewart
	Chief Executive Officer
	Principal Executive Officer

EX-31.2

Exhbit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Certification Pursuant to 18 U.S.C. Section 1350 (Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002)

 I, Michael R. Cunningham, certify that:

1.	I have reviewed this annual report on Form 10-K of Chugach Electric Association, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Chugach, and we have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Chugach is made known to us, particularly during the period in which this annual report is being prepared;
b)	evaluated the effectiveness of our disclosure controls and procedures and presented in this report our conclusions about the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in our internal control over financial reporting that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting; and

5. The other certifying officers and I have disclosed, based on our most recent evaluation, to our auditors and the audit committee of our Board of Directors:

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the our ability to record, process, summarize and report financial data and have identified for our auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in our internal controls.

Date: March 28, 2007	/s/ Michael R. Cunningham
	Michael R. Cunningham
	Chief Financial Officer
	Principal Financial Officer

EX-32.1

Exhbit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Certification Pursuant to 18 U.S.C. Section 1350 (Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002)

In connection with the annual report on Form 10-K of Chugach Electric Association, Inc. (the “Company”) for the year ended December 31, 2006, as filed with the Securities and Exchange Commission (the “Report”), I, William R. Stewart, Chief Executive Officer and Principal Executive Officer of the Company, hereby certify as the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: March 28, 2007	/s/ William R. Stewart
	William R. Stewart
	Chief Executive Officer
	Principal Executive Officer

EX-32.2

Exhbit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Certification Pursuant to 18 U.S.C. Section 1350 (Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002)

In connection with the annual report on Form 10-K of Chugach Electric Association, Inc. (the “Company”) for the year ended December 31, 2006, as filed with the Securities and Exchange Commission (the “Report”), I, Michael R. Cunningham, Chief Financial Officer and Principal Financial Officer of the Company, hereby certify as the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: March 28, 2007	/s/ Michael R. Cunningham
	Michael R. Cunningham
	Chief Financial Officer
	Principal Financial Officer