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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

OR

 

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

 

 

Commission file number 33-42125

 

CHUGACH ELECTRIC ASSOCIATION, INC.

(Exact name of registrant as specifies in its charter)

 

 

 

 

 

 

 

 

 

 

 

 

State of Alaska

(State or other jurisdiction of

incorporation or organization)

 

 

92-0014224

(I.R.S. Employer

Identification No.)

 

5601 Electron Drive, Anchorage, AK

(Address of principal executive offices)

 

99518

(Zip Code)

 

(907) 563-7494

(Registrant’s telephone number, including area code)

 

None

(Former name, former address, and former fiscal year if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 Yes   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer

Non-accelerated filer Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes   No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

NONE

 

 

 


 

 

 

 

 

 

 

CHUGACH ELECTRIC ASSOCIATION, INC.

TABLE OF CONTENTS

 

Caution Regarding Forward-Looking Statements 

Part I.  Financial Information 

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

Balance Sheets - as of September 30, 2014 and December 31, 2013

 

 

Statements of Operations - Three and nine months ended September 30, 2014
 and September 30, 2013

 

 

Statements of Cash Flows - Nine months ended September 30, 2014
 and September 30, 2013

 

 

Notes to Financial Statements

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31 

 

Item 4.

Controls and Procedures

32 

 

 

 

 

Part II. Other Information 

 

 

Item 1.

Legal Proceedings

33 

 

Item 1A.

Risk Factors

33 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33 

 

Item 3.

Defaults Upon Senior Securities

33 

 

Item 4.

Mine Safety Disclosures

33 

 

Item 5.

Other Information

33 

 

Item 6.

Exhibits

34 

 

 

Signatures

35 

 

 

Exhibits

36 

 

 

 

 


 

 

 

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.  It is suggested that these statements be read in conjunction with the audited financial statements for Chugach Electric Association Inc. (Chugach) for the year ended December 31, 2013, filed as part of Chugach’s annual report on Form 10-K.  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. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The unaudited financial statements and notes to the unaudited financial statements of Chugach as of and for the three and nine months ended September 30, 2014, follow.

 

 

 

2


 

Table Of Contents

 

Chugach Electric Association, Inc.

Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

September 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

Utility Plant:

 

 

 

 

 

 

Electric plant in service

 

$

1,149,698,500 

 

$

1,135,356,956 

Construction work in progress

 

 

25,023,799 

 

 

28,674,163 

Total utility plant

 

 

1,174,722,299 

 

 

1,164,031,119 

Less accumulated depreciation

 

 

(491,019,740)

 

 

(464,880,322)

Net utility plant

 

 

683,702,559 

 

 

699,150,797 

 

 

 

 

 

 

 

Other property and investments, at cost:

 

 

 

 

 

 

Nonutility property

 

 

76,889 

 

 

76,889 

Investments in associated organizations

 

 

9,853,115 

 

 

10,204,193 

Special funds

 

 

627,229 

 

 

536,546 

Restricted cash equivalents

 

 

1,956,579 

 

 

1,956,578 

Total other property and investments

 

 

12,513,812 

 

 

12,774,206 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

 

14,475,947 

 

 

4,347,163 

Special deposits

 

 

80,864 

 

 

158,265 

Restricted cash equivalents

 

 

1,250,000 

 

 

1,750,254 

Marketable securities

 

 

 

 

10,308,533 

Fuel cost under-recovery

 

 

1,410,565 

 

 

Accounts receivable, net

 

 

40,377,675 

 

 

44,633,981 

Materials and supplies

 

 

26,347,837 

 

 

25,856,395 

Fuel stock

 

 

11,942,955 

 

 

13,029,848 

Prepayments

 

 

3,312,351 

 

 

1,863,407 

Other current assets

 

 

328,394 

 

 

320,658 

Total current assets

 

 

99,526,588 

 

 

102,268,504 

 

 

 

 

 

 

 

Deferred charges, net

 

 

21,383,452 

 

 

23,990,531 

 

 

 

 

 

 

 

Total assets

 

$

817,126,411 

 

$

838,184,038 

 

 

 

 

 

 

3


 

Table Of Contents

 

Chugach Electric Association, Inc.

Balance Sheets (continued)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities, Equities and Margins

 

September 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

Equities and margins:

 

 

 

 

 

 

Memberships

 

$

1,623,889 

 

$

1,600,058 

Patronage capital

 

 

158,982,425 

 

 

162,749,889 

Other

 

 

11,469,066 

 

 

11,445,918 

Total equities and margins

 

 

172,075,380 

 

 

175,795,865 

 

 

 

 

 

 

 

Long-term obligations, excluding current installments:

 

 

 

 

 

 

Bonds payable

 

 

447,083,332 

 

 

469,499,999 

National Bank for Cooperatives note payable

 

 

24,941,165 

 

 

27,414,275 

Total long-term obligations

 

 

472,024,497 

 

 

496,914,274 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current installments of long-term obligations

 

 

24,889,777 

 

 

24,682,812 

Commercial paper

 

 

41,000,000 

 

 

30,000,000 

Accounts payable

 

 

8,590,941 

 

 

11,461,303 

Consumer deposits

 

 

4,812,619 

 

 

4,851,558 

Fuel cost over-recovery

 

 

 

 

1,635,677 

Accrued interest

 

 

933,171 

 

 

6,512,860 

Salaries, wages and benefits

 

 

9,169,869 

 

 

8,967,140 

Fuel

 

 

13,191,222 

 

 

14,834,585 

Other current liabilities

 

 

6,006,538 

 

 

4,109,128 

Total current liabilities

 

 

108,594,137 

 

 

107,055,063 

 

 

 

 

 

 

 

Deferred compensation

 

 

627,229 

 

 

536,546 

Other liabilities, non-current

 

 

1,135,733 

 

 

1,034,777 

Deferred liabilities

 

 

2,387,620 

 

 

1,776,826 

Patronage capital payable

 

 

10,360,739 

 

 

7,931,295 

Cost of removal obligation

 

 

49,921,076 

 

 

47,139,392 

 

 

 

 

 

 

 

Total liabilities, equities and margins

 

$

817,126,411 

 

$

838,184,038 

 

 

 

 

See accompanying notes to financial statements.

 

 

4


 

Table Of Contents

 

Chugach Electric Association, Inc.

Statements of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30,

 

September 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

65,677,900 

 

$

71,715,353 

 

$

212,046,091 

 

$

224,240,295 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Fuel

 

 

29,575,954 

 

 

30,838,515 

 

 

97,116,559 

 

 

101,087,834 

Production

 

 

5,735,365 

 

 

5,576,130 

 

 

16,153,611 

 

 

15,636,814 

Purchased power

 

 

3,719,885 

 

 

8,228,072 

 

 

11,891,311 

 

 

21,134,055 

Transmission

 

 

1,582,025 

 

 

1,625,767 

 

 

4,635,919 

 

 

5,084,668 

Distribution

 

 

3,568,897 

 

 

3,449,042 

 

 

10,549,766 

 

 

9,759,605 

Consumer accounts

 

 

1,448,550 

 

 

1,352,350 

 

 

4,671,669 

 

 

4,540,389 

Administrative, general and other

 

 

5,921,952 

 

 

5,638,613 

 

 

18,422,710 

 

 

17,341,352 

Depreciation and amortization

 

 

10,160,306 

 

 

10,353,195 

 

 

30,735,923 

 

 

30,397,473 

Total operating expenses

 

$

61,712,934 

 

$

67,061,684 

 

$

194,177,468 

 

$

204,982,190 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and other

 

 

5,749,622 

 

 

6,135,401 

 

 

17,454,552 

 

 

18,562,813 

Charged to construction

 

 

(126,730)

 

 

(118,609)

 

 

(327,786)

 

 

(1,196,149)

Interest expense, net

 

$

5,622,892 

 

$

6,016,792 

 

$

17,126,766 

 

$

17,366,664 

Net operating margins

 

$

(1,657,926)

 

$

(1,363,123)

 

$

741,857 

 

$

1,891,441 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonoperating margins:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

144,425 

 

 

170,125 

 

 

477,049 

 

 

513,985 

Allowance for funds used during construction

 

 

44,548 

 

 

35,523 

 

 

115,504 

 

 

113,864 

Capital credits, patronage dividends and other

 

 

(92,792)

 

 

21,155 

 

 

(33,526)

 

 

(190,578)

Total nonoperating margins

 

$

96,181 

 

$

226,803 

 

$

559,027 

 

$

437,271 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assignable margins

 

$

(1,561,745)

 

$

(1,136,320)

 

$

1,300,884 

 

$

2,328,712 

 

See accompanying notes to financial statements.

 

 

 

5

 


 

Table Of Contents

 

Chugach Electric Association, Inc.

Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

Assignable margins

$

1,300,884 

 

$

2,328,712 

 

 

 

 

 

 

Adjustments to reconcile assignable margins to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

30,735,923 

 

 

30,397,473 

Amortization and depreciation cleared to operating expenses

 

4,339,571 

 

 

4,449,114 

Allowance for funds used during construction

 

(115,504)

 

 

(113,864)

Write off of inventory, deferred charges and projects

 

857,350 

 

 

395,030 

Other

 

52,730 

 

 

192,486 

 

 

 

 

 

 

(Increase) decrease in assets:

 

 

 

 

 

Accounts receivable, net

 

3,096,257 

 

 

12,985,948 

Fuel cost under-recovery

 

(1,410,565)

 

 

Materials and supplies

 

(727,250)

 

 

(2,203,071)

Fuel stock

 

1,086,893 

 

 

(3,453,925)

Prepayments

 

(1,448,944)

 

 

(1,435,506)

Other assets

 

570,034 

 

 

(14,103,949)

Deferred charges

 

(191,605)

 

 

(173,523)

 

 

 

 

 

 

Increase (decrease) in liabilities:

 

 

 

 

 

Accounts payable

 

(1,945,120)

 

 

1,327,365 

Consumer deposits

 

(38,939)

 

 

497,071 

Fuel cost over-recovery

 

(1,635,677)

 

 

(13,525,644)

Accrued interest

 

(5,579,689)

 

 

(5,798,743)

Salaries, wages and benefits

 

202,729 

 

 

655,959 

Fuel

 

(1,643,363)

 

 

(104,914)

Other current liabilities

 

2,195,886 

 

 

1,945,230 

Deferred liabilities

 

131,530 

 

 

9,432 

Net cash provided by operating activities

 

29,833,131 

 

 

14,270,681 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Return of capital from investment in associated organizations

 

351,162 

 

 

424,484 

Investment in restricted cash equivalents

 

(116)

 

 

Investment in marketable securities

 

(217,817)

 

 

(245,316)

Proceeds from the sale of marketable securities

 

10,522,620 

 

 

Proceeds from capital grants

 

3,945,976 

 

 

Extension and replacement of plant

 

(21,288,751)

 

 

(31,913,570)

Net cash used in investing activities

 

(6,686,926)

 

 

(31,734,402)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from short-term obligations

 

22,000,000 

 

 

43,500,000 

Repayments of short-term obligations

 

(11,000,000)

 

 

(6,000,000)

Repayments of long-term obligations

 

(24,682,812)

 

 

(24,493,022)

Memberships and donations received

 

46,979 

 

 

11,909 

Retirement of patronage capital and estate payments

 

(46,348)

 

 

(31,115)

Net receipts on consumer advances for construction

 

664,760 

 

 

551,410 

Net cash (used in) provided by financing activities

 

(13,017,421)

 

 

13,539,182 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

10,128,784 

 

 

(3,924,539)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

$

4,347,163 

 

$

14,047,469 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

14,475,947 

 

$

10,122,930 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

Retirement of plant

$

3,095,344 

 

$

3,810,093 

Cost of removal obligation

$

2,781,684 

 

$

2,861,979 

Extension and replacement of plant included in accounts payable

$

2,746,962 

 

$

4,723,182 

Patronage capital retired and included in other current liabilities and patronage capital payable

$

5,022,000 

 

 

Supplemental disclosure of cash flow information - interest expense paid, net of amounts capitalized

$

21,781,066 

 

$

21,737,522 

 

 

See accompanying notes to financial statements.

 

 

6

 


 

TableOfContents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

 

1.

PRESENTATION OF FINANCIAL INFORMATION

 

The accompanying unaudited interim financial statements include the accounts of Chugach and have been prepared in accordance with generally accepted accounting principles for interim financial information.  Accordingly, they do not include all of the information and footnotes required by United States of America generally accepted accounting principles (U.S. GAAP) for complete financial statements.  They should be read in conjunction with Chugach’s audited financial statements for the year ended December 31, 2013, filed as part of Chugach’s annual report on Form 10-K.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The results of operations for interim periods are not necessarily indicative of the results that may be expected for an entire year or any other period.

 

2.

DESCRIPTION OF BUSINESS

 

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 two wholesale customers, Matanuska Electric Association, Inc. (MEA) and the City of Seward (Seward or SES).  Chugach provided much of the power requirements of Homer Electric Association, Inc. (HEA) through their contract expiration date of December 31, 2013.  Chugach sells available generation in excess of its own needs to Golden Valley Electric Association, Inc. (GVEA).  In addition, on a periodic basis, Chugach provides electricity to Anchorage Municipal Light & Power (ML&P).  Chugach’s retail and wholesale members are the consumers of the electricity sold.

Chugach was organized as an Alaska electric cooperative in 1948 and 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).

Chugach has three Collective Bargaining Unit Agreements (CBA) with the International Brotherhood of Electrical Workers (IBEW), representing approximately 70 percent of its workforce.  Chugach also has an agreement with the Hotel Employees and Restaurant Employees (HERE). All three IBEW CBA’s have been renewed through June 30, 2017.  The three CBA’s provide for wage increases in all years and include health and welfare premium cost sharing provisions.  The HERE contract has been renewed through June 30, 2016.  This contract provides for wage increases in all years.

 

7


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

3.

SIGNIFICANT ACCOUNTING POLICIES

a. Management Estimates

In preparing the financial statements in conformity with United States generally accepted accounting principles (GAAP), the 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.  Estimates include allowance for doubtful accounts, workers compensation, deferred charges and credits, unbilled revenue, the estimated useful life of utility plant and the cost of removal obligation.  Actual results could differ from those estimates.

b. 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 980, “Topic 980 - Regulated Operations.”  FASB ASC 980 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.  Chugach’s regulated rates are established to recover all of the specific costs of providing electric service.  In each rate filing, rates are set at levels to recover all of the specific allowable costs and those rates are then collected from retail and wholesale customers.  The regulatory assets or liabilities are then reduced as the cost or credit is reflected in earnings and rates.

c. Income Taxes

Chugach is exempt from federal income taxes under the provisions of Section 501(c)(12) of the Internal Revenue Code and for the nine month periods ended September 30, 2014 and 2013 was in compliance with that provision.  In addition, Chugach collects sales tax and is assessed gross receipts and excise taxes which are presented on a net basis in accordance with FASB ASC 605-45-50, “Topic 605 - Revenue Recognition – Subtopic 45 - Principal Agent Considerations – Section 50 - Disclosure.”

Chugach applies a more-likely-than-not recognition threshold for all tax uncertainties.  FASB ASC 740, “Topic 740 – Income Taxes,” only allows the recognition of those tax benefits that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities.  Chugach’s management reviewed Chugach’s tax positions and determined there were no outstanding or retroactive tax positions that were not highly certain of being sustained upon examination by the taxing authorities.

8

 


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

d. Accounts Receivable

Included in accounts receivable are invoiced amounts to ML&P for their proportionate share of current Southcentral Power Project (SPP) costs, which amounted to  $1.3 million and $1.8 million at September 30, 2014 and December 31, 2013, respectively.  In addition, accounts receivable includes invoiced amounts for grants to support the construction of facilities to divert water and safely transmit electricity, which amounted to $1.6 million and $2.8 million at September 30, 2014, and December 31, 2013, respectively.

e. Fuel Stock

Fuel Stock is the weighted average cost of fuel injected into the Cook Inlet Natural Gas Storage Alaska (CINGSA).  Chugach’s fuel balance in storage amounted to $11.9 million and $13.0 million at September 30, 2014, and December 31, 2013, respectively.

f. Marketable Securities

Chugach had a bond investment portfolio, which consisted of marketable securities reported at fair value with gains and losses included in earnings.  On August 12, 2014, Chugach sold its marketable securities portfolio and purchased a money market fund.

g. Restricted Cash Equivalents

At September 30, 2014, restricted cash equivalents included $3.2 million of funds on deposit for future workers compensation claims. At December 31, 2013, restricted cash equivalents included $3.2 million of funds on deposit for future workers compensation claims and $0.5  million of interim rates collected from customers and escrowed as required by the RCA.

h. Reclassifications

For the nine months ended September 30, 2014, Chugach recorded the following reclassifications for the year ended December 31, 2013:

A reclassification representing the long-term portion of funds on deposit for future workers compensation claims, included as restricted cash equivalents, previously reported as a current asset and now reported as other property and investments.  The impact of this reclassification was an increase to total other property and investments and a decrease to current assets by $2.0 million in 2013.  A reclassification representing the long-term portion of the liability for future workers compensation claims previously included as other current liabilities and now included as other liabilities, non-current.  The impact of this reclassification was an increase to other liabilities, non-current, and a decrease to current liabilities by $1.0 million in 2013.

9

 


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

4.

REGULATORY MATTERS

MEA Interim Power Sales Agreement

On August 12, 2014, MEA notified Chugach that their newly constructed power plant would not be completed by January 1, 2015. On September 30, 2014, Chugach entered into an Interim Power Sales Agreement (Agreement) to provide MEA with all demand and energy requirements on a firm basis based on existing tariff rates for a minimum one quarter period beginning on January 1, 2015, and ending on March 31, 2015

MEA anticipates that it may have some units available to pool with Chugach units to meet the combined system load of Chugach and MEA on January 1, 2015 through the term of the Agreement and desires to place these units into economic dispatch once they reach commercial operation. Chugach will purchase the pooled energy and recover the costs from its members, including MEA, through Chugach’s fuel and purchased power adjustment process. MEA will supply and deliver any and all additional gas and attendant transportation necessary for Chugach to produce electric service to MEA arising as a result of the electric services to be provided by Chugach pursuant to the Agreement.

The Agreement is subject to RCA approval and was filed with the RCA on October 8, 2014.

Fire Island Wind Project

On October 10, 2011, the RCA issued an order approving Chugach’s request for assurance of cost recovery associated with a new power purchase agreement (PPA) between Chugach and Fire Island Wind, LLC (FIW), a special purpose entity wholly-owned by Cook Inlet Region, Inc.

Associated with the approval of the PPA, Chugach submitted project status reports on March 31, 2012, June 29, 2012, October 31, 2012, and January 16, 2013.  On January 30, 2014, Chugach submitted a status report regarding FIW integration and a cost reimbursement agreement related to possible impacts to an interconnected utility as a result of the project.  On July 25, 2014, the RCA issued Order No. 4 approving Chugach’s request to file its next status update by September 30, 2014.    

Chugach filed a status report with the RCA on September 26, 2014.  In the filing, Chugach informed the RCA that it had received notification from ML&P that they believe no further proceedings on this matter are necessary.  ML&P indicated that fluctuations from the wind project are impacting system frequency but the attendant costs associated with quantifying the impacts likely exceed the attendant benefit.  ML&P reserved the right to open this issue at a later time.  In the filing, Chugach indicated that it will continue to evaluate the potential impact of the Fire Island Wind Project on the grid and requested that the RCA accept the status report on the integration and cost reimbursement issues and close the docket.

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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

First Amendment to the Gas Sale and Purchase Agreement with Hilcorp

On July 31, 2014, Chugach filed the First Amendment to the Gas Sale and Purchase Agreement (Amendment) between Hilcorp Alaska, LLC (Hilcorp) and Chugach for gas delivery from February 1, 2015, through March 31, 2019, for RCA review and approval. The RCA approved the original Gas Sale and Purchase Agreement between Hilcorp and Chugach in September 2013, which provided up to 100 percent of Chugach’s unmet gas needs from January 1, 2015, through March 31, 2018.  The Amendment extends the contractual term for firm deliverability by one year and expands the time horizon for non-firm purchases.  Specifically, the Amendment provides a firm gas supply for a significant portion of Chugach’s gas supply needs from April 1, 2018, through March 31, 2019, and gives Chugach the right to purchase additional portions of its firm gas supply needs, if requested.  The Amendment also provides a non-firm gas supply for deliveries through March 2019, if Chugach needs the gas and Hilcorp is willing to sell the gas.

Chugach received notification on September 11, 2014, that the Amendment was approved by the RCA.  The RCA also approved Chugach’s request to recover gas costs incurred under the Amendment through its fuel and purchased power cost adjustment mechanism.

2013 General Rate Case

To reflect revenue and cost changes resulting from the expiration of HEA’s wholesale contract, Chugach submitted its 2013 Test Year General Rate Case to the RCA on November 19, 2013, to increase system base rate revenues by $16.0 million, or approximately 12.5 percent on total retail, MEA, and Seward base rate revenues of $127.4 million.  On January 2, 2014, the RCA approved the submitted rates on an interim and refundable basis.  Retail rates were effective January 2, 2014, and wholesale rate changes were effective February 1, 2014, for purchases beginning January 1, 2014.  The increase, net of both base rate increases and fuel savings, to Chugach retail end-users is approximately 6 percent.

On April 18, 2014, Chugach submitted an update to its 2013 general rate case to reflect the final results contained in Chugach’s compliance filing in the 2012 general rate case that was submitted to the RCA on April 14, 2014.  The update reflects final rate design changes contained in the 2012 rate case.  On May 30, 2014, the RCA issued Order No. 3 approving Chugach’s motion and update to retail and wholesale base rates effective with the first billing cycle in June 2014.  There was no impact to the system revenue requirement contained in the 2013 Test Year General Rate Case filing.

Chugach and the parties to the docket entered into a stipulation resolving revenue requirement and cost of service matters contained in the case.  The stipulation was filed with the RCA on October 16, 2014, and requires Chugach to issue refunds totaling $1.1 million (annualized) for service provided beginning January 2014, with an expected financial impact to Chugach of approximately $0.2 million on an annual basis.  The stipulation contained a provision that Chugach be permitted to create a regulatory asset for approximately $0.9 million of storm-related costs and be permitted to recover $0.2 million per year over the next five years.    On November 13, 2014, the RCA accepted the stipulation.

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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

The RCA vacated the previously scheduled hearing on revenue requirement and cost of service matters.  Evidentiary hearings on transmission and ancillary services began the last week of October 2014 and concluded the first week of November.  The RCA indicated that a final order in this case will be issued by February 12, 2015.

2012 General Rate Case

To reflect cost changes resulting from commercial operation of SPP, Chugach submitted a general rate case to the RCA on December 21, 2012, to increase system base rate revenues by $30.0 million, or approximately 26 percent, on total base rate revenues of $115.0 million.  The proposed rates became effective on an interim and refundable basis beginning in February of 2013.  In a separate filing, Chugach adjusted fuel rates to reflect efficiency improvements associated with the commercial operation of SPP and made these reduced fuel rates effective at the same time as the requested general rate case increases.  This allowed the interim base rate increases to be synchronized with expected reductions in fuel cost recovery rates.

The filing also requested approval of a major expansion of Chugach’s operating tariff to include both firm and non-firm transmission wheeling service and attendant ancillary services in support of third-party transactions on the Chugach system.  The main purpose of the expansion is to accommodate anticipated wheeling services after expiration of the HEA and MEA wholesale customer contracts.

Chugach engaged in discussions with the intervening parties to resolve the outstanding issues in the case.  The RCA accepted stipulations that resolved the majority of the issues in the case.  Chugach filed reply testimony on October 23, 2013, which proposed changes to its rate increase request, including a downward adjustment to its system revenue requirement by $0.2 million, which represented a 0.1 percent reduction to its system base rate revenue requirement of $143.0 million.

On March 14, 2014, the RCA issued Order No. 16 affirming the acceptance of the stipulations entered among the parties in the case.  In the order, the RCA approved Chugach’s requested ratemaking treatment of select transmission facilities on its system.  On April 14, 2014, Chugach submitted its compliance filing to Order No. 16, including updated rate calculations and tariffs reflecting the results of the stipulations and the RCA order, and its retail refund plan for energy sales between February and December of 2013.

On May 30, 2014, the RCA issued Order No. 17 approving Chugach’s final rates and refund plan.  As a result of the RCA order, Chugach began issuing refunds of approximately $165,000, with the first billing cycle in July of 2014.

On September 3, 2014, Chugach submitted its compliance filing to the RCA pursuant to Docket U-13-007(17).  Chugach notified the RCA that it completed the issuance of required refunds.

The RCA issued Order No. 18 on September 16, 2014, and closed the docket.

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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

Interruptible Storage Service Agreement:  CINGSA

On October 11, 2013, Chugach executed a standardized Interruptible Storage Service Agreement (“ISS Agreement”) under which Chugach agreed to take non-firm service under the CINGSA tariff from October 14, 2013, through March 31, 2016.  This signed agreement was submitted to the RCA by CINGSA on October 18, 2013.

On January 7, 2014, Chugach submitted a filing to the RCA requesting approval to recover costs associated with the ISS Agreement from CINGSA.  Chugach estimates the recurring costs associated with the CINGSA ISS Agreement to amount to approximately $0.4 million or less, annually.  The RCA issued a letter order on March 21, 2014, approving Chugach’s request to recover these costs through its fuel and purchased power rate adjustment process.

 

5.

DEBT

Lines of credit

Chugach maintains a $50.0 million line of credit with National Rural Utilities Cooperative Finance Corporation (NRUCFC).  Chugach did not utilize this line of credit in the nine months ended September 30, 2014.  In addition, Chugach did not utilize this line of credit during 2013 and had no outstanding balance at December 31, 2013.  The borrowing rate is calculated using the total rate per annum and may be fixed by NRUCFC. The borrowing rate was 2.90 percent at September 30, 2014, and December 31, 2013.  The NRUCFC Revolving Line Of Credit Agreement requires that Chugach, for each 12-month period, for a period of at least five consecutive days, pay down the entire outstanding principal balance.  The NRUCFC line of credit expires October 12, 2017.  This line of credit is immediately available for unconditional borrowing.

Commercial Paper

On November 17, 2010, Chugach entered into a $300.0 million Unsecured Credit Agreement, which is used to back Chugach’s Commercial Paper Program.  Effective May 4, 2012, Chugach reduced the commitment amount to $100.0 million and on June 29, 2012, amended and extended the Credit Agreement to update the pricing and extend the term.  The pricing includes an all-in drawn spread of one month London Interbank Offered Rate (LIBOR) plus 107.5 basis points, along with a 17.5 basis points facility fee (based on an A- unsecured debt rating).  The Amended Unsecured Credit Agreement expires on November 17, 2016.  The participating banks include NRUCFC, KeyBank National Association, Bank of America, N.A., Bank of Montreal, CoBank and Chang Hwa Commercial Bank, Ltd., Los Angeles Branch.  The commercial paper can be repriced between one day and 270 days.  Chugach is expected to continue to issue commercial paper in 2014, as needed.  Chugach had $41.0 million and $30.0 million of commercial paper outstanding at September 30, 2014, and December 31, 2013, respectively.

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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

The following table provides information regarding average commercial paper balances outstanding for the quarters ended September 30, 2014 and 2013 (dollars in millions), as well as corresponding weighted average interest rates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

Average Balance

 

Weighted Average Interest Rate

 

Average Balance

 

Weighted Average Interest Rate

$

30.6

 

0.19 

%

 

$

36.8

 

0.22 

%

 

Term Loan

Chugach has a term loan facility with CoBank.  Loans made under this facility are evidenced by the 2011 CoBank Note, which is governed by the Amended and Restated Master Loan Agreement dated January 19, 2011, and secured by the Second Amended and Restated Indenture (the Indenture).  Chugach had $27.4 million and $29.7 million outstanding with CoBank at September 30, 2014, and December 31, 2013, respectively.

 

6.

RECENT ACCOUNTING PRONOUNCEMENTS

ASC Update 2014-09 “Revenue from Contracts with Customers (Topic 606)

In May of 2014, the FASB issued ASC Update 2014-09, “Revenue from Contracts with Customers (Topic 606).”  ASC Update 2014-09 provides guidance for the recognition, measurement and disclosure of revenue related to the transfer of promised goods or services to customers.  This update is effective for fiscal years beginning after December 15, 2016, for which early application is prohibited.  Chugach will begin application of ASC 2014-09 on January 1, 2017.  Chugach is evaluating the effect on its results of operations, financial position, and cash flows.

 

7.

FAIR VALUES OF ASSETS AND LIABILITIES

Fair Value Hierarchy

In accordance with FASB ASC 820, Chugach groups its financial assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active exchange markets, such as the New York Stock Exchange.  Level 1 also includes United States Treasury and federal agency securities, which are traded by dealers or brokers in active markets.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market.  These unobservable assumptions reflect Chugach’s estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Chugach had a Level 1 bond investment portfolio, which consisted of marketable securities reported at fair value with gains and losses included in earnings.  On August 12, 2014, Chugach sold the bond portfolio and purchased a money market fund.  At December 31, 2013, the bond portfolio had a balance of $10,308,533 measured at fair value on a recurring basis.

 

 

Chugach had no Level 2 or Level 3 assets or liabilities measured at fair value on a recurring basis.  Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions.  The fair value of cash and cash equivalents, accounts receivable and payable, and other short-term monetary assets and liabilities approximate carrying value due to their short-term nature.

Fair Value of Financial Instruments

The estimated fair values (in thousands) of the long-term obligations included in the financial statements at September 30, 2014, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying Value

 

Fair Value

Long-term obligations (including current installments)

$

496,914 

 

$

510,922 

Level 1 measurement was used to determine the fair value of the 2011 and 2012 Series A Bonds.  Level 2 measurements were used to determine all other long-term obligations.

 

8.

ENVIRONMENTAL MATTERS

The Clean Air Act and Environmental Protection Agency (EPA) regulations under the Clean Air Act establish ambient air quality standards and limit the emission of many air pollutants.  New Clean Air Act regulations impacting electric utilities may result from future events or new regulatory programs.  On June 2, 2014, the EPA released a proposed regulation aimed at reducing emissions of carbon dioxide (CO2) from existing power plants that provide electricity for utility customers.  In the draft rule, the EPA took the approach of making individual states responsible for the development and implementation of plans to reduce the rate of CO2 emissions from the power sector.  A final rule is expected in June 2015, with State plans due to the EPA in June 2016.  Chugach is subject to this proposed regulation, in its current form, and does not expect it to have a material effect on its results of operations, financial position, and cash flows.  While Chugach cannot predict the implementation of any additional new law or regulation, or the limitations thereof, it is possible that new laws or regulations could increase capital and operating costs.  Chugach has obtained Clean Air Act permits currently required for the operation of generating facilities.

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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

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.  Chugach does not believe that compliance with these statutes and regulations to date has had a material impact on its financial condition, results of operation or cash flows.  However, the implementation of any additional new law or regulation, or the limitations thereof, or changes in or new interpretations of laws or regulations could result in significant additional capital or operating expenses.  Chugach monitors proposed new regulations and existing regulation changes through industry associations and professional organizations.

 

9.

COMMITMENTS AND CONTINGENCIES

Concentrations

Approximately 70 percent of Chugach’s employees are members of the IBEW.  Chugach has three CBA’s with the IBEW.  Chugach also has an agreement with the HERE.  All three IBEW CBA’s have been renewed through June 30, 2017.  The HERE contract has been renewed through June 30, 2016.  

Chugach is the principal supplier of power under a wholesale power contract with MEA and was the principal supplier of power under a wholesale power contract with HEA until December 31, 2013.  These contracts, including the fuel component, represented $103.1 million, or 34 percent, of sales revenue in 2013.  The contracts with MEA represented $51.3 million, or 25 percent, of sales revenue through September 30, 2014, and expire March 31, 2015.  All rates are established by the RCA.

Commitments

Fuel Supply Contracts 

Chugach has fuel supply contracts from various producers at market terms.  A gas supply contract between Chugach and ConocoPhillips Alaska, Inc. and ConocoPhillips, Inc. (collectively “ConocoPhillips”), was approved by the RCA effective August 21, 2009.  The new contract provided gas beginning in 2010 and will terminate December 31, 2016.  The total amount of gas under the contract is estimated to be 60 Bcf.  The RCA approved a new natural gas supply contract with Marathon Alaska Production, LLC (MAP) effective May 17, 2010. This contract included two contract extensions that were exercised in 2011 and will terminate December 31, 2014.  Effective February 1, 2013, this gas purchase agreement was assigned to Hilcorp, who purchased MAP’s assets in Cook Inlet.  Chugach entered into another gas contract with Hilcorp effective July 1, 2013.  The total amount of gas under the contracts is now estimated up to 57.6 Bcf.  On September 15, 2014, the RCA approved an amendment to the Hilcorp gas purchase agreement extending gas delivery and subsequently filling 100 percent of Chugach’s needs through March 31, 2019All of the production is expected to come from Cook Inlet, Alaska.

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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

The terms of the ConocoPhillips and Hilcorp agreements require Chugach to manage the natural gas transportation over the connecting pipeline systems.  Chugach has gas transportation agreements with ENSTAR Natural Gas Company (ENSTAR) and Hilcorp.

Patronage Capital

In 2007, Chugach entered into an agreement with HEA to return all of its patronage capital within five years after expiration of its power sales agreement, which was related to a settlement agreement associated with the 2005 Test Year General Rate Case (Docket U-06-134).  HEA’s patronage capital was $7.9 million at September 30, 2014, and December 31, 2013, and is classified as patronage capital payable on Chugach’s Balance Sheet.

In December of 2013, the Board resumed its capital credit retirement program returning approximately $1.6 million, net of HEA’s allocation, and authorized $5.3 million in May of 2014.  In an agreement reached in May of 2014 with MEA, capital credits retired to MEA of $2.4 million are classified as patronage capital payable on Chugach’s Balance Sheet at September 30, 2014.

Economy Energy Sales

On October 5, 2012, Chugach and GVEA finalized arrangements for Chugach to provide economy energy to GVEA through March of 2015. Sales will be made under the terms and conditions of Chugach’s economy energy sales tariff.  The price to GVEA will include the cost of fuel, variable operations and maintenance expense, wheeling charges and a margin.  Chugach has also entered into specific gas supply arrangements to make economy energy sales to GVEA.  Sales revenue to GVEA amounted to $32.0 million and $27.3 million in the  nine months ended September 30, 2014 and 2013, respectively.

Legal Proceedings

Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., Superior Court Case No. 3PA-13-1006 Civil

On May 14, 2013, MEA served Chugach with a Summons and Complaint in the above referenced case.  Chugach filed its Answer to the Complaint on June 21, 2013.  With its Complaint, MEA fundamentally asked that Chugach be required to repatriate MEA’s capital credits on the same basis as it promised, in a 2007 settlement, that it would repatriate HEA capital credits.  After significant discussions, the parties reached an agreement to settle this litigation.  The Superior Court issued an order dismissing the case without prejudice on June 5, 2014.

The margins Chugach earns each year are allocated back to the customers who contribute them and are recorded as capital credits to those customers’ accounts.  Capital credits are eventually repatriated to customers at the discretion of Chugach’s Board of Directors, typically many years after the margins are earned.  With this litigation, MEA sought to accelerate the return of its capital credits.

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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Financial Statements

September 30, 2014 and 2013

Chugach has certain other litigation matters and pending claims that arise in the ordinary course of Chugach’s business.  In the opinion of management, none of these other matters, individually, or in the aggregate, is or are likely to have a material adverse effect on Chugach’s results of operations, financial condition or cash flows.

 

 

18

 


 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

               CONDITION AND RESULTS OF OPERATIONS

 

Reference is made to the information contained under the caption “CAUTION REGARDING FORWARD-LOOKING STATEMENTS” at the beginning of this report.

 

RESULTS OF OPERATIONS

 

Current Year Quarter versus Prior Year Quarter

Assignable margins decreased $0.4 million, or 37.4%, during the third quarter of 2014 compared to the same quarter in 2013, due primarily to lower operating revenue.

Operating revenues, which include sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues, decreased $6.0 million, or 8.4%, in the third quarter of 2014 compared to the same quarter in 2013.  This decrease was due primarily to lower fuel and purchased power expense recovered through the fuel and purchased power surcharge process and lower firm kilowatt hours (kWh) sales, which was somewhat offset by higher economy energy sales.

Overall, retail revenue increased $1.4 million, or 3.9%, in the third quarter of 2014 compared to the same quarter in 2013.  Base revenue increased due to an increase in rates charged to retail customers as a result of Chugach’s 2013 Test Year General Rate Case, which was somewhat offset by lower retail kWh sales caused by warmer weather.

Overall, wholesale revenue decreased $9.2 million, or 35.5%, in the third quarter of 2014 compared to the same quarter in 2013, due primarily to the expiration of HEA’s wholesale contract.  This was somewhat offset by higher base demand and energy rates, as a result of Chugach’s 2013 Test Year General Rate Case, collected from Chugach’s two remaining wholesale customers. 

Economy energy revenue increased $1.3 million, or 14.8%, in the third quarter of 2014 compared to the same period in 2013 due to increased sales to GVEA as a result of minimum purchase contract terms causing an increase in sales in 2014.

Other operating revenue, which includes late fees, pole rental, wheeling, microwave and miscellaneous service revenue, increased $0.5 million, or 45.5%, in the third quarter of 2014 compared to the same period in 2013.  This increase was due primarily to higher wheeling revenue associated with sales to GVEA.

Based on the results of fixed and variable cost recovery established in Chugach’s last rate case, wholesale sales to MEA and Seward contributed approximately $5.9 million to Chugach’s fixed costs for the quarter ended September 30, 2014.  Wholesale sales to HEA, MEA and Seward contributed approximately $8.3 million for the quarter ended September 30, 2013.

19

 


 

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 quarters ended September 30, 2014 and 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base Rate Sales Revenue

Fuel and Purchased Power Revenue

Total Revenue

 

 

2014

 

2013

 

% Variance

 

2014

 

2013

 

% Variance

 

2014

 

2013

 

% Variance

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

12.0 

 

$

11.1 

 

8.1 

%

 

$

5.7 

 

$

6.1 

 

(6.6 

%)

 

$

17.7 

 

$

17.2 

 

2.9 

%

Small Commercial

 

$

2.2 

 

$

2.0 

 

10.0 

%

 

$

1.3 

 

$

1.4 

 

(7.1 

%)

 

$

3.5 

 

$

3.4 

 

2.9 

%

Large Commercial

 

$

9.1 

 

$

8.2 

 

11.0 

%

 

$

6.5 

 

$

6.7 

 

(3.0 

%)

 

$

15.6 

 

$

14.9 

 

4.7 

%

Lighting

 

$

0.4 

 

$

0.3 

 

33.3 

%

 

$

0.1 

 

$

0.1 

 

0.0 

%

 

$

0.5 

 

$

0.4 

 

25.0 

%

Total Retail

 

$

23.7 

 

$

21.6 

 

9.7 

%

 

$

13.6 

 

$

14.3 

 

(4.9 

%)

 

$

37.3 

 

$

35.9 

 

3.9 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HEA

 

$

0.0 

 

$

4.3 

 

(100.0 

%)

 

$

0.0 

 

$

5.8 

 

(100.0 

%)

 

$

0.0 

 

$

10.1 

 

(100.0 

%)

MEA

 

$

7.5 

 

$

5.9 

 

27.1 

%

 

$

7.8 

 

$

8.6 

 

(9.3 

%)

 

$

15.3 

 

$

14.5 

 

5.5 

%

SES

 

$

0.6 

 

$

0.5 

 

20.0 

%

 

$

0.8 

 

$

0.8 

 

(0.0 

%)

 

$

1.4 

 

$

1.3 

 

7.7 

%

Total Wholesale

 

$

8.1 

 

$

10.7 

 

(24.3 

%)

 

$

8.6 

 

$

15.2 

 

(43.4 

%)

 

$

16.7 

 

$

25.9 

 

(35.5 

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economy

 

$

0.7 

 

$

0.6 

 

16.7 

%

 

$

9.4 

 

$

8.2 

 

14.6 

%

 

$

10.1 

 

$

8.8 

 

14.8 

%

Miscellaneous

 

$

0.4 

 

$

0.6 

 

(33.3 

%)

 

$

1.2 

 

$

0.5 

 

140.0 

%

 

$

1.6 

 

$

1.1 

 

45.5 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

$

32.9 

 

$

33.5 

 

(1.8 

%)

 

$

32.8 

 

$

38.2 

 

(14.1 

%)

 

$

65.7 

 

$

71.7 

 

(8.4 

%)

The following table summarizes kWh sales for the quarters ended September 30:

 

 

 

 

 

 

Customer

 

2014
kWh

 

2013
kWh

 

 

 

 

 

Retail

 

261,368,484 

 

265,563,078 

Wholesale

 

187,208,239 

 

314,655,088 

Economy Energy

 

93,523,000 

 

77,909,000 

Total

 

542,099,723 

 

658,127,166 

Base rates charged to retail and wholesale customers in the third quarter of 2014 include base rate changes effective January 3, 2014, and February 1, 2014, and updated in June of 2014, as a result of Chugach’s 2013 Test Year General Rate Case filed with the RCA in November of 2013.  Effectively, base rates increased 11.5% to retail customers and 19.3% and 13.8% to wholesale customers MEA and Seward, respectively, in the third quarter of 2014 compared to the same period in 2013.

Total operating expenses decreased $5.3 million, or 8.0%, in the third quarter of 2014 from the same quarter in 2013.

Fuel expense did not materially change in the third quarter of 2014 compared to the same quarter in 2013A decrease in natural gas used and lower transportation costs was somewhat offset by an increase in the average effective delivered price.  In the third quarter of 2014, Chugach used 4,654,017 MCF of fuel at an average effective delivered price of $6.05 per MCF.  In the third quarter of 2013, Chugach used 4,829,658 MCF of fuel at an average effective delivered price of $6.03 per MCF.

20

 


 

Production expense did not materially change in the third quarter of 2014 compared to the same quarter in 2013.

Purchased power expense decreased $4.5 million, or 54.8%, in the third quarter of 2014 compared to the same quarter in 2013, due primarily to a decrease in purchases required as a result of the expiration of HEA’s wholesale contract, as well as a lower average effective price.  In the third quarter of 2014, Chugach purchased 73,310 megawatt hours (MWh) of energy at an average effective price of 4.24 cents per kWh.  In the third quarter of 2013, Chugach purchased 138,078 MWh of energy at an average effective price of 5.51 cents per kWh.

Transmission expense did not materially change in the third quarter of 2014 compared to the same quarter in 2013.

Distribution expense did not materially change in the third quarter of 2014 compared to the same quarter in 2013.

Consumer accounts increased $0.1 million, or 7.1%, in the third quarter of 2014 compared to the same quarter in 2013, due primarily to a shift in costs associated with connects and disconnects from distribution to consumer accounts.

Administrative, general and other expense did not materially change in the third quarter of 2014 compared to the same quarter of 2013. 

Depreciation and amortization expense did not materially change in the third quarter of 2014 compared to the same quarter in 2013.

Interest on long-term and other debt decreased $0.4 million, or 6.3%, in the third quarter of 2014 compared to the same quarter in 2013.  The decrease reflects the principal payments made on long-term debt.

Interest charged to construction did not materially change in the third quarter of 2014 compared to the same quarter in 2013.

Non-operating margins did not materially change in the third quarter of 2014 compared to the same quarter in 2013.

 

Current Year to Date versus Prior Year to Date

Operating revenues, which include sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues, decreased $12.2 million, or 5.4%, in the nine months ended September 30, 2014, compared to the same period in 2013.

Overall, retail revenue increased $6.1 million, or 5.3%, in the nine months ended September 30, 2014, compared to the same period in 2013.  Base revenue increased due to an increase in rates charged to retail customers as a result of Chugach’s 2013 Test Year General Rate Case, which was somewhat offset by lower retail kWh sales caused by warmer weather.

21

 


 

Wholesale revenue decreased $24.7 million, or 31.0%, in the nine months ended September 30, 2014, compared to the same period in 2013, due primarily to the expiration of HEA’s wholesale contract. 

Economy energy revenue increased $4.7 million, or 17.2%, in the nine months ended September 30, 2014, compared to the same period in 2013 due to increased sales to GVEA as a result of minimum purchase contract terms causing an increase in sales in 2014.

Other operating revenue, which includes late fees, pole rental, wheeling, microwave and miscellaneous service revenue, increased $1.8 million, or 58.1%, in the nine months ended September 30, 2014, compared to the same period in 2013.  This increase was due primarily to higher wheeling revenue associated with sales to GVEA.

Based on the results of fixed and variable cost recovery established in Chugach’s last rate case, wholesale sales to MEA and Seward contributed approximately $19.9 million to Chugach’s fixed costs for the nine months ended September 30, 2014.  Wholesale sales to HEA, MEA and Seward contributed approximately $25.5 million for the nine months ended September 30, 2013.

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 nine months ended September 30, 2014 and 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base Rate Sales Revenue

Fuel and Purchased Power Revenue

Total Revenue

 

 

2014

 

2013

 

% Variance

 

2014

 

2013

 

% Variance

 

2014

 

2013

 

% Variance

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

39.7 

 

$

36.5 

 

8.8 

%

 

$

20.1 

 

$

20.8 

 

(3.4 

%)

 

$

59.8 

 

$

57.3 

 

4.4 

%

Small Commercial

 

$

7.0 

 

$

6.3 

 

11.1 

%

 

$

4.7 

 

$

4.8 

 

(2.1 

%)

 

$

11.7 

 

$

11.1 

 

5.4 

%

Large Commercial

 

$

27.2 

 

$

24.3 

 

11.9 

%

 

$

20.1 

 

$

20.2 

 

(0.5 

%)

 

$

47.3 

 

$

44.5 

 

6.3 

%

Lighting

 

$

1.2 

 

$

1.0 

 

20.0 

%

 

$

0.2 

 

$

0.2 

 

0.0 

%

 

$

1.4 

 

$

1.2 

 

16.7 

%

Total Retail

 

$

75.1 

 

$

68.1 

 

10.3 

%

 

$

45.1 

 

$

46.0 

 

(2.0 

%)

 

$

120.2 

 

$

114.1 

 

5.3 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HEA

 

$

0.0 

 

$

11.6 

 

(100.0 

%)

 

$

0.0 

 

$

17.0 

 

(100.0 

%)

 

$

0.0 

 

$

28.6 

 

(100.0 

%)

MEA

 

$

24.8 

 

$

19.8 

 

25.3 

%

 

$

26.4 

 

$

27.6 

 

(4.3 

%)

 

$

51.2 

 

$

47.4 

 

8.0 

%

SES

 

$

1.5 

 

$

1.3 

 

15.4 

%

 

$

2.3 

 

$

2.4 

 

(4.2 

%)

 

$

3.8 

 

$

3.7 

 

2.7 

%

Total Wholesale

 

$

26.3 

 

$

32.7 

 

(19.6 

%)

 

$

28.7 

 

$

47.0 

 

(38.9 

%)

 

$

55.0 

 

$

79.7 

 

(31.0 

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economy

 

$

2.3 

 

$

2.0 

 

15.0 

%

 

$

29.7 

 

$

25.3 

 

17.4 

%

 

$

32.0 

 

$

27.3 

 

17.2 

%

Miscellaneous

 

$

1.2 

 

$

1.6 

 

(25.0 

%)

 

$

3.7 

 

$

1.5 

 

146.7 

%

 

$

4.9 

 

$

3.1 

 

58.1 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

$

104.9 

 

$

104.4 

 

0.5 

%

 

$

107.2 

 

$

119.8 

 

(10.5 

%)

 

$

212.1 

 

$

224.2 

 

(5.4 

%)

 

22

 


 

The following table summarizes kWh sales for the nine months ended September 30:

 

 

 

 

 

 

Customer