Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☒ 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.

☒ Yes ☐ No

Indicate by check mark whether 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

(Note:  The registrant is a voluntary filer and not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.  Although not subject to these filing requirements, the registrant has filed all reports that would have been required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months had the registrant been subject to such requirements.)

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 if disclosure of delinquent filers pursuant to Item 405 of RegistrationRegulation S-K (§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.  ☒

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

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

☐Yes ☒ 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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the last practicable date.date.    NONE

Energy sales are expected to remain flatslightly decline due to slow economic growth, and progress in energy efficiency and conservation,  from 2016and warmer than average temperatures due to 2020.continuing El Niño climactic conditions, which creates decreased energy use in our service territory.  We are projecting a slight rebound beginning in 2021 based on recent sales trends and assuming normal temperatures. Actual sales may vary with changing weather, end-use efficiency, and economic conditions.  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 of the assumptions could affect a change in the projected 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, 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, in the view of management, may significantly affect our consolidated financial condition, results of operations, and cash flows. This discussion is not exhaustive. You may view risks differently than we do, or there may be other risks and uncertainties which you consider important which are not discussed. These risks, whether discussed below or those unknown, could negatively affect our business operations and financial condition.  The statements below must be read together with factors discussed elsewhere in this document and in our other filings with the SEC.

Financing

On November 17, 2010,June 13, 2016, Chugach entered into a $300.0$150.0 million Unsecured senior unsecured credit facility (“Credit Agreement,Agreement”), which is used to back Chugach’s Commercial Paper Program. Effective May 4, 2012, Chugach reduced the commitment amount to $100.0 million andThe Credit Agreement will expire on June 29, 2012, amended and extended the Credit Agreement to update the pricing and extend the term. The Amended Unsecured Credit Agreement now expires on November 17, 2016.13, 2021.  Chugach is expected to continue to issue commercial paper in 2016,2019, as needed, however, the requirement for short-term borrowing has decreased.needed.  For additional information concerning our Commercial Paper Program, see “Item 8 – Financial Statements and Supplementary Data – Note 11 – Debt – Commercial Paper.”

No assurance can be given that Chugach will be able to continue to access the commercial paper market. If Chugach were unable to access that market, the Amended Unsecured Credit Agreement would be utilized to supporteffectively replace Chugach’s Commercial Paper Program. Global financial markets and economic conditions have been volatile due to a variety of factors. As a result, theThe cost of raising money in the debt capital markets could increase while the availability of funds from those markets could diminish.diminish as a result of volatile global financial markets and economic conditions.

Credit Ratings

Changes in our credit ratings could affect our ability to access capital. We maintain a rating from Standard & Poor's Rating Services (S&P)(“S&P”) and Fitch Ratings (Fitch)(“Fitch”) of "A-""A" (Stable) and "A" (Stable)(Watch Evolving), respectively. Fitch’s Watch Evolving rating is driven by Chugach’s planned purchase of ML&P, subject to regulatory approval, see “Item 8 – Financial Statements and Supplementary Data – Note 16 – ML&P Acquisition.”  S&P and Moody's currently rate our commercial paper at "A-1" and "P-2", respectively. If these agencies were to downgrade our ratings, particularly below investment grade, our commercial paper rates could increase immediately and we may be required to pay higher interest rates on financings which we need to undertake in the future, andfuture. Additionally our potential pool of investors and funding sources could decrease.

Natural disasters

Natural disasters or other catastrophic events may cause damage or disruption to our operations, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers. Our generation, transmission, distribution, corporate headquarters, information technology systems, and other critical business operations, are located near major seismic faults. Earthquakes and other catastrophic events, such as wild fires, floods, or other similar occurrences, could interrupt fuel supplies; affect demand for electricity or natural gas; cause unplanned outages or reduce generating output; damage Chugach’s assets or operations; damage the assets or operations of third parties on which Chugach relies; damage property owned by customers or others; and cause personal injury or death.  As a result, we could incur costs to purchase replacement power, to repair assets and restore service, and to compensate third parties.  Because significant recovery time could be required to resume operations, our financial condition and operating results could be materially adversely affected in the event of a major earthquake or other catastrophic event.

War, acts and threats of terrorism, sabotage, cyber security breach, natural disaster, and other significant events could adversely affect our operations

We cannot predict the impact that any future terrorist attacks sabotage, or natural disastersabotage may have on the energy industry in general, or on our business in particular. Any such event may affect our operations in unpredictable ways, such as changes in insurance markets or instability in financial markets. Furthermore, electric generation, transmission and distribution facilities could be direct targets of, or indirect casualties of, an act of terror sabotage, or cyber security breach. Thesabotage. Chugach has not experienced any disruptions or significant costs associated with intentional attacks. While Chugach has numerous programs in place to safeguard our operating systems, a physical or cyber security compromise of our facilities could adversely affect our ability to manage our facilities effectively.

Cyber security

A cyber security compromise of our business systems or facilities could adversely affect our ability to manage our facilities and operate effectively.  Data breach, system crashes and ransomware or terrorism risks are mitigated by maintaining technical systems that detect and prevent these attacks and by training employees to recognize cyber threats.  Despite these extensive internal technical and training efforts, the potential of a damaging cyber event is still a possibility. In support of RCA interest in cyber security standards Chugach is working with the other Railbelt utilities to develop a set of cyber security standards comparable to the North American Electric Reliability Corporation/Critical Infrastructure Protection (“NERC/CIP”) standards.  Chugach has not experienced any disruptions or significant costs associated with intentional attacks or unauthorized access to any of our systems.

While Chugach has numerous programs in place to safeguard our operating and business systems and the personal information of our customers and employees.employees, a cyber security compromise of our facilities could adversely affect our ability to manage our facilities and operate effectively.

Pension Plans

We participate in the Alaska Electrical Pension Fund (AEPF)(“AEPF”). The AEPF is a multiemployermulti-employer pension plan to which we make fixed, per employee contributions through our collective bargaining agreement with the IBEW, which covers our IBEW-represented workforce. We do not have control over the AEPF. Chugach receives information concerning its funding status annually. There is no contingent liability at this time. If a funding shortfall in the AEPF exists, we may incur a contingent withdrawal liability.

We also participate in the National Rural Electric Cooperative Association (NRECA)(“NRECA”) Retirement Security Plan (RS Plan)(“RS Plan”), a multi-employer defined benefit master pension plan maintained and administered by the NRECA for the benefit of its members and their employees. All employees not covered by a union agreement become participants in the RS Plan. We do not have control over the RS Plan. The RS Plan updates contribution rates on an annual basis to maintain the health of the plan under the plans rules allowed by the Employee Retirement Income Security Act (ERISA)(“ERISA”). The RS Plan’s funding status is governed by plan rules as provided by ERISA. Chugach receives information concerning its funding status biannually. The RS Plan is not subject to the Pension Protection Act of 2006 under a permanent exemption from Congress as of December 16, 2014.

On December 14, 2016 the Chugach Board of Directors approved a prepayment of $7.9 million to the NRECA Retirement Security plan. Using the low interest rate environment, this prepayment will mitigate the impact of future contribution increases and will lower annual budgetary impacts of current contributions over an 11 year term.

Equipment Failures and Other External Factors

The generation and transmission of electricity requires the use of expensive and complex equipment. While we have maintenance programs for existing equipment, along with a contractual service plan in place for SPP, generating plants are subject to unplanned outages because of equipment failure or environmental disasters. In the event of unplanned outages, we must acquire power, which is not otherwise available from the fleet of Chugach generators, from other sources at unpredictable costs in order to supply our customers and comply with our contractual agreements. The fuel and purchased power rate adjustment process allows Chugach to recover current purchased power costs and to recover under-recoveries or refund over-recoveries with a three-month lag. If Chugach were to materially under-recover purchased power costs due to an unplanned outage, we would normally seek an increase in the rate adjustment to recover those costs at the time of the next quarterly fuel and purchased power rate adjustment filing. As a result, cash flows may be impacted due to the lag in payments for purchased power costs and the corresponding collection of those costs from customers. To the extent the regulatory process does not provide for the timely recovery of purchased power costs, Chugach could experience a material negative impact on its cash flows. Chugach has line of credit and commercial paper borrowing capacity to mitigate this risk.

Fuel Supply

In 2015, 86%2018, 75% of our powerelectric energy was generated from natural gas. Our primary supplierssources of natural gas are ConocoPhillipsin 2018 were Hilcorp and Hilcorp.Chugach’s 10% share of the Beluga River Unit (“BRU”). Chugach currently has gas contracts in place to fill up to 100% of Chugach’s needs through March 31, 2023. Chugach also has agreements with AIX Energy, LLC, Cook Inlet Energy (CIE)(“CIE”), and AIX Energy,Furie Operating Alaska, LLC (“Furie”), which provide a structure to purchase

supplemental gas, adding diversity in Chugach’s sources of natural gas to meet system load requirements.

On May 1, 2017, the RCA approved the Furie Agreement.   The Furie Agreement provides Chugach with both firm and non-firm gas supplies over a 16-year period, with firm purchases beginning on April 1, 2023, and ending March 31, 2033, and interruptible gas purchases available to Chugach immediately and ending on March 31, 2033.  With respect to firm purchases beginning on April 1, 2023, and ending on March 31, 2033, the Furie Agreement  provides an annual gas commitment by Furie to sell and Chugach to purchase approximately 1.8 billion cubic feet (Bcf) of gas each year, which represents approximately 20% to 25% of Chugach’s projected gas requirements during this period.  The Furie Agreement also provides Chugach with additional purchase options, on a firm and interruptible basis.  The initial price for firm gas is $7.16 per thousand cubic feet (Mcf) beginning April 1, 2023 and escalates annually rising to $7.98 per Mcf on April 1, 2032, the last year of the contract. On January 23, 2019, Furie sent a letter to Alaska Pipeline Company (“APLC”), an affiliate of ENSTAR Natural Gas Company (“ENSTAR”), declaring Force Majeure caused by a pipeline freeze up (frozen obstruction) within Furie’s undersea pipeline serving the Kitchen Lights Units platform. Following a two week period where the frozen obstruction was unsuccessfully removed, APLC/ENSTAR sent a letter to Furie on February 11, 2019 declaring Furie in default of their contract under Section 13.4(ii) of the Furie APLC/ENSTAR Gas Supply Agreement dated February 26, 2016.  APLC/ENSTAR stated that under Section 13.5 of their GSA the Parties have 20 days from the day of the letter to meet and resolve the issue or the contract may be terminated.  To Chugach’s knowledge, the dispute has not been resolved as of March 27, 2019.  Failure to resolve the pipeline freezing issue may result in a potential gas supply delivery risk associated with Furie.    

The acquisition is expected to provide gas to meet Chugach’s on-going generation requirements over an approximate 18-year period beginning in 2016. Gas associated with the acquisition is expected to provide about 15% of Chugach’s gas requirements through 2033, although actual gas quantities produced are expected to vary on a year-by-year basis.

The State of Alaska’s Department of Natural Resources (DNR)(“DNR”) published a study in September of 2015, “Updated Engineering Evaluation of Remaining Cook Inlet Gas Reserves,” to provide an estimate of Cook Inlet’s gas supply. The study estimated there are 1,183 Bcf of proved and probable reserves remaining in Cook Inlet’s legacy fields. This is higher than the 2009 DNR study estimate of 1,142 Bcf.  Effectively, Cook Inlet gas supply has slightly increased from 2009. The 2015 DNR estimate does not include reserves from a large gas field under developmentdeveloped and in production by Furie Operating Alaska, LLC (Furie) and another considered for development by BlueCrest Energy, Inc.Alaska Operating, LLC. Furie has constructed an offshore gas production platform and has achieved commercial production. The platform and other production facilities are designed for up to 200 million cubic feet (MMcf) per day. Other gas producers are actively developing gas supplies in the Cook Inlet. Chugach is encouraged with these developments but continues to explore other alternatives to diversify its portfolio.

Since 2012, Hilcorp has acquired significant oil and gas assets in the Cook Inlet and reworked those assets to increase production, and several other developers have brought new sources

The consolidation provides gas producers a single rate for shipping gas on all of the four pipelines, which makes development of gas fields anywhere on the gas pipeline system more attractive to gas producers.

A project commenced by Alaska Gasline Development Corporation (“AGDC”) is investigating a project to deliver North Slope gas to Southcentral Alaska for export. AGDC expects to complete the FERC license application and affiliates of BP, ConocoPhillips, ExxonMobil and TransCanada (together, project participants) to construct a liquefaction facility,assess gas pipeline, and gas treatment plant is underway through a pre-filing process acceptedmarkets by FERC.mid-2019. The mainline gas pipeline is expected to include off-take points to allow for the opportunity for future in-state deliveries of natural gas. TheIf the project participants are targetingmoves forward, the pipeline is expected to file a formal application with FERCbe completed in the fall of 2016. FERC authorizations for the project and commencement of construction are anticipated in the 2018-2019 timeframe, with operation in the 2024-2025 timeframe.mid 2020’s.

Cook Inlet Natural Gas Storage Alaska (CINGSA)(“CINGSA”) began service April 1, 2012. The facility ensures local utilities, including Chugach, have gas available to meet deliverability requirements during peak periods and store gas during low demand periods. The RCA approved inception rates and a tariff for the CINGSA facility on January 31, 2011, and a Firm Storage Service (FSS)(“FSS”) Agreement between the seller and Chugach in July of 2011. Injections into the facility began in 2012. Chugach's share of the capacity was 1.91.6 Bcf in 2015.2018. Chugach is entitled to withdraw gas at a rate of up to 35 million cubic feet (MMcf)31 MMcf per day.

Recovery of Fuel and Purchased Power Costs

The RCA approved inclusion of all fuel, purchased power, and transportation costs related to our current contracts in the calculation of Chugach’s fuel and purchased power adjustment process which will ensure, in advance, that costs incurred under the contracts can be recovered from Chugach’s customers. The fuel and purchased power adjustment process collects under-recoveries and refunds over-recoveries from prior periods with minimal regulatory lag. Chugach's fuel and purchased power adjustment process includes quarterly filings with the RCA, which set 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 filing. Chugach over-recovered $5.1 million and $1.5$3.4 million at December 31, 2015,2018, and 2014, respectively.had under-recovered $4.9 million at December 31, 2017. To the extent the regulated fuel and purchased power adjustment process does not provide for the timely recovery of costs, Chugach could experience a material negative impact on its cash flows. Chugach has line of credit and commercial paper borrowing capacity to mitigate this risk.

Regulatory

Our baseChugach’s billing rates are approved by the RCA.RCA and Chugach filed its June 2014 Test Year General Rate Case on February 13, 2015,is required to reflect revenuesubmit filings to the RCA for approval before any rate changes can be implemented.  Chugach is currently a participant in the SRF process for adjustments to base demand and cost changes resulting from the expiration of MEA’s interimenergy rates for Chugach retail customers and wholesale contract. On May 1, 2015, the proposed rates became effective oncustomer, Seward. SRF is an interim and refundable basis for Chugach’s remaining customers. During January of 2016, Chugach reached a settlement with the Attorney General forexpedited base rate adjustment process available to electric cooperatives in the State of Alaska, with filings made either on a quarterly or semi-annual basis. Chugach is a participant on a quarterly filing schedule basis. While there is no limitation on decreases, base rate increases under SRF are limited to 8% in a 12-month period and filed20% in a 36-month period.  Chugach is also permitted to cease participation under the resulting stipulation with the RCASRF process and adjust rates through general rate case filings, which do not have limitations on January 21, 2016,rate adjustments.  For more information see “Item“Item 8 –- Financial Statements and Supplementary Data – Note 5 – Regulatory Matters – June 2014 Test Year GeneralSimplified Rate Case.Filings.”

To the extent the RCA does not allow for the recovery of our costs associated with our current or anticipated rate cases, Chugach could experience a material negative impact on its results of operations, financial position and cash flows.

Accounting Standards or Practices

We cannot predict the impact that future changes in accounting standards or practices may have on public companies in general, the energy industry or our operations specifically. New accounting standards could be issued that could change the way we record revenues, expenses, assets and liabilities. These changes in accounting standards could adversely affect our reported earnings or could increase reported liabilities.

Green HouseGreenhouse Gas Regulations, Carbon Emission and Climate Change

Uncertainty remains regardingPower plants are one of the impactslargest sources of carbon emissions in the United States. Impacts of potential regulations regarding greenhouse gases (GHG)(“GHG”), carbon emissions, and climate change on Chugach’s operations. The United Statesoperations remain uncertain as political momentum changed with the 2016 presidential election.  An Executive Order promoting energy independence and economic growth was issued on March 28, 2017, by the President instructing the Environmental Protection Agency (EPA) is moving(“EPA”) to review the Clean Power Plan.  On August 21, 2018 the EPA moved forward with regulations that seekthe Affordable Clean Energy (“ACE”) proposed regulation rule which would establish emission guidelines for states to limit carbondevelop plans to address GHG emissions infrom existing coal-fired power plants. The ACE rule would replace the United States.2015 Clean Power plants are the single largest source of carbon emissions in the United States. On August 3, 2015,Plan (“CPP”), which the EPA released the final 111(d) regulation aimed at reducing emissions of carbon dioxide (CO₂) from existing power plants. Alaska is not boundhas proposed to repeal because it exceeded EPA authority.  The CPP was stayed by the 111(d) regulation, however Alaska may be required to comply at some future date. On February 9, 2016 the U.S. Supreme Court issued a stay onand has never gone into effect.  The comment period for the proposed ACE rule has closed and the EPA 111(d) regulations until the DC Circuit decides the case, or until the disposition of a petitionis currently reviewing and responding to the Supreme Court oncomments received.  When the issue. final rule is promulgated it is certain to face legal challenge.

The EPA 111(d)proposed Affordable Clean Energy regulation, in its current form, is not expected to have a material effect on Chugach’s financial condition, results of operations, or cash flows.

Additional costs related to a GHG tax or cap and trade program, if enacted by the U.S. Congress, or other regulatory action, could affect the relative cost of the energy Chugach produces. 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 or applied for all Clean Air Act permits currently required for the operation of generating facilities.

Other Environmental Regulations

Since January 1, 2007, transformer manufacturers have been required to meet the DOE efficiency levels as defined by the Energy Act of 2005 (Energy Act) for all “Distribution Transformers.” As of January 1, 2016, the specific efficiency levels are increasing from the original “TP1” levels to the new “DOE-2016” levels. The Energy Act mandates specific types of low voltage dry-type transformers manufactured and sold in the USA to have efficiencies as defined by the 10 CFR Part 431 standard when loaded to 35% of maximum capacity. Chugach is in the process of evaluating our transformer specifications and will make modifications as necessary with our alliance transformer manufacturers to ensure DOE-2016 is met. At this time a small increase in capital costs is anticipated along with a reduction in energy losses.

Chugach is currently required to comply with numerous federal, state and local laws and regulations relating to the protection of the environment. While we believe Chugach has obtained all material environmental-related approvals currently required to own and operate our facilities, Chugach may incur significant additional costs because of compliance with these requirements in addition to costs related to any costs of compliance with laws or regulations relating to GHG or carbon emissions. Failure to comply with environmental laws and regulations could have a material effect on Chugach, including potential civil or criminal liability and the imposition of fines or expenditures of funds to bring our facilities into compliance. Delay in obtaining, or failure to obtain and maintain in effect any environmental approvals, or the delay or failure to satisfy any applicable environmental regulatory requirements related to the operation of our existing facilities could result in significant additional costs to Chugach and a material adverse impact to Chugach’s results of operations, financial condition, and cash flows.

Aging Plant

Some of our facilities were constructed over 30 years ago and, as a result, may require significant capital expenditures to maintain efficiency and reliability. As plant equipment ages, the potential for operational issues such as unscheduled outages increases which could negatively impact our cost of electric service. With the addition of the SPP generating facility, which began operation in 2013, we are able to significantly reduce the reliance on some of the older facilities. The older units are used for peaking, and, in the future, may be primarily used as a reserve. Mitigating the aging risk is Chugach’s experienced work force, extensive maintenance program, and predictive maintenance measures.  Also mitigating the risk of significant unanticipated capital expenditures associated with generation maintenance is a long-term service agreement smoothing major maintenance costs for our largest power producer, SPP.  Additionally, we are working to establish the Power Pooling and Joint Dispatch Agreement which will allow us to buy power from other utilities if it is more efficient and economical than generating power on our own.  If approved, the acquisition of ML&P will improve the efficiency and economics of power generation through the joint dispatch of the acquired ML&P generating assets.

Distributed Generation

Distributed generation technologies, such as combined heat and power, solar cells, micro turbines, fuel cells, batteries, and wind turbines currently exist or are in development. Significant technological advancements or positive perceptions regarding the environmentally friendly benefits of self-generation and distributed energy technologies could lead to the adoption of these technologies by our members. Increased adoption of these technologies by our members could reduce demand for electricity and the pool of customers from whom we recover fixed costs. This could have a negative impact on our business, financial condition, or cost of electric service.

Constraints on Transmission

We currently experience occasional constraints on our transmission system and those of other utilities used to transmit energy from our remote generators to loads due to periodic maintenance activities, equipment failures and other system conditions. We manage these constraints using alternative generation dispatch and energy purchasing patterns. The long-term solution for reducing transmission constraints include purchasing additional wheeling service from other utilities, or construction of additional transmission lines which would require significant capital expenditures.

Construction of new transmission lines presents numerous challenges. Environmental, state and local permitting processes can result in significant inefficiencies and delays in construction. These issues are unavoidable and are addressed through long-term planning. We typically begin planning new transmission at least 10 years in advance of the need and foster and participate in regional and interregional transmission planning and cost allocation discussions with neighboring transmission providers. In the event that we are unable to complete construction of planned transmission expansion, we must rely on purchases of electric power, which could put increased pressure on electric rates.

Counterparties

We rely on other entities in the production of power and supply of fuel and therefore, we are exposed to the risk that these counterparties may default in performance of their obligations to us. As a 70% owner in SPP, a 30% owner in the Eklutna Hydroelectric Project, and a 10% owner in the Beluga River Unit (“BRU”), we rely upon the other owners to fulfill their contractual and financial obligations. Additionally we rely on numerous other entities with whom we have purchased power agreements. Failure of our counterparties to perform their obligations could increase the cost of electric service we provide to our members as we, for example, may be forced to enter into alternative contractual arrangements or purchase energy or natural gas at prices that may exceed the prices previously agreed upon with the defaulting counterparty.

ML&P Acquisition

In December 2017, the Mayor of Anchorage, Alaska, announced plans to place a proposition on the April 3, 2018 municipal ballot allowing the voters to authorize the sale of ML&P to Chugach. The proposition was approved by Anchorage voters 65.08% to 34.92% per the certified election results.  Chugach and the Municipality of Anchorage (“MOA”) negotiated final sales agreements and associated documents.  The sale of ML&P was approved by the Anchorage Assembly on December 4, 2018 and the Chugach Board of Directors gave its final approval on December 19, 2018.  The agreements and associated documents were executed on December 28, 2018.  For more information concerning the potential ML&P Acquisition, see “Item 8 – Financial Statements and Supplementary Data – Note 16 – ML&P Acquisition.”  There are many risks associated with the proposed acquisition including, but not limited to, regulatory approvals, incurrence of substantial debt, interest rate risk, realization of expected benefits and savings, etc., which could have a negative impact on our business, financial condition, or cost of electric service.

Interest Rates

Chugach is exposed to a variety of risks, including changes in interest rates.  The interest rates on future borrowings could be significantly higher than interest rates on our existing debt.  This could have a negative impact on our business, financial condition, or cost of electric service.

Legal Proceedings

Chugach has certain litigation matters and pending claims that arise in the ordinary course of business as discussed under “Item 3 – Legal Proceedings.” We cannot predict the outcome of any current or future legal proceedings. Our business, financial condition, and results of operations could be materially adversely affected by unfavorable resolution or adverse results of legal matters.

These factors, as well as weather interest rates and economic conditions, are largely beyond our control, but may have a material adverse effect on our earnings, cash flows and financial position.

Item 1B – Unresolved Staff Comments

None

Item 2 – Properties

General

During 2015,As of December 31, 2018, we had 602.7531.2 MW of installed capacity consisting of 1816 generating units at five power plants. These included 385.0332.0 MW of operating capacity at the Beluga facility on the west side of Cook Inlet; 140.1 MW at SPP in Anchorage (representing our share of generation capacity of the facility which we own jointly own with ML&P; 46.7&P); 28.2 MW at IGT in Anchorage; and 19.2 MW at the Cooper Lake facility, which is on the Kenai Peninsula. We also own rights to 11.7 MW of capacity from the two Eklutna Hydroelectric Project generating units that we jointly own with MEA and ML&P. In April of 2015, Beluga Unit 8 was retired representing 53.0 MW of capacity. In August of 2015, IGT Unit 3 was retired representing 18.5 MW of capacity. Therefore, we had 531.2 MW of installed capacity consisting of 16 generating units at December 31, 2015.

In addition to our own generation, we purchased power from the 120 MW Bradley Lake Hydroelectric Project, which is owned by the Alaska Energy Authority (AEA)(“AEA”), operated by HEA and dispatched by Chugach, and MEA’s newly constructed 171 MW EGS, which is also dispatched by Chugach. In 2015, weEklutna Generation Station (“EGS”), and ML&P’s 120 MW George M. Sullivan Plant 2A. We also purchased power from FIW.

The Beluga, IGT and SPP facilities are all fueled by natural gas. We own our offices and headquarters, located adjacent to IGT and SPP 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, IGT and SPP.  Our principal generation assets are in two plants, Beluga and SPP. With SPP in operation, the Beluga units are occasionally used for peaking, but areand in the future, may be primarily used as reserve. While the Beluga turbine-generators have been in service for many years, they have been maintained in good working order with scheduled inspections and periodic upgrades. All Beluga units are inspected annually with combustion and hot gas path parts replaced according to their condition or as recommended by the manufacturer. Units 3 and 5 are most often run for peak demand.  In 2018, Unit 6 had a3 received major maintenance consistent with original equipment manufacturer (“OEM”) requirements for the gas turbine. Additionally, Unit 3’s generator received significant maintenance including generator testing, rotor removal and inspection, in 2010, in which many of the major components were replaced with new or refurbished parts, and since has had annual inspections through 2015. During the 2012 annual inspection, combustion components nearing end of life were also replaced. Beluga Unit 7 had a major inspection in 2012, in which many of the major components were replaced with new or refurbished parts, and since has had annual inspections through 2015. Beluga Unit 8, a steam turbine generator, also had a major inspection in 2012, and had annual inspections through 2014. In April of 2015, Beluga Unit 8 was retired.stator re-wedge.

On February 1, 2013, SPP began commercial operation, furnishingcontributing 200.2 MW of capacity provided by 4 generating units. Chugach owns and takes approximately 70% of this plant’s outputplant and ML&P owns and takes the remaining 30%. Chugach proportionately accounts for its ownership inEach owner takes a proportionate share of power from SPP. Our principal generation units at SPP are Units 10, 11, 12, and 13. Throughout 2015 and 2014,Since the units have been in commercial operation, SPP units have received preventative maintenance inspections consistent with original equipment manufacturer (OEM) recommendations. In each year, theOEM recommendations through 2018. The gas turbine generators of Units 11, 12, and 13 receivedreceive two internal combustion system inspections each and one full package inspection. Theinspection annually.  In 2018, Unit 1211 gas turbine was replaced with a new spare gas turbine. The removed gas turbine was sent to the OEM repair depot for a complete overhaul and will be prepared for another full cycle of operation by thereturned in 2019. Unit 10 steam turbine received a scheduled inspection consistent with OEM and Chugach technicians, under our contractual service agreement. The turbine will then be staged at the power plant awaiting the next engine rotation.specifications. All three steam-generating boilers were internally inspected as well as hydrotested in accordance with OEM recommendations.

The Cooper Lake Hydroelectric Project is partially located on federal lands. Chugach owns, operates and maintains the Cooper Lake project pursuantsubject to a 50-year license granted to us by FERC in August of 2007. As part of the relicensing process, therea relicensing settlement agreement

(“RSA”) was a negotiated Relicensing Settlement Agreement (RSA) entered into in August of 2005. A requirement of theThe RSA required Chugach to establish a flow regime in Cooper Creek below the Cooper Lake Dam.Dam; designed to replace colder water flowing into the Cooper Creek drainage from Stetson Creek with warmer Cooper Lake water. This project included a Stetson Creek Diversion (Dam), Pipeline (Conveyance System) and Cooper Lake Outlet Works. The project was designed to replace colder water flowing into the Cooper Creek drainage with warmer Cooper Lake water. Project construction began in 2013 and was completed in July of 2015.

The two generating units at Cooper Lake, Units 1 and 2, have a combined capacity of 19.2 MW. Both units were taken out of service for annual maintenance in OctoberAugust of 20152017 and 2014. The 2014 annual maintenance included generator testing and inspection2018.  In September 2018 dredging activities began to remove accumulated sediment from the CLPP Tailrace structure.  After several decades of solid material build-up in the tailrace structure, dredging is required to ensure the continued operation of the power plant as mandated by the OEM.FERC Engineering Guidelines.  The material was stockpiled upland and is awaiting regulatory approval to determine final disposition of the dredged materials.  Project completion is expected after winter thaw in 2019. 

The Eklutna Hydroelectric Project is located on federal land pursuantsubject to a United States Bureau of Land Management right-of-way grant issued in October of 1997. The facility is jointly owned, operated and maintained by Chugach, (30%), MEA, (17%) and ML&P (53%). The facility is operated by Chugachwith ownership shares of 30%, 17%, and maintained jointly by Chugach and ML&P.53%, respectively. Chugach owns rights to 11.7 MW of capacity from the two Eklutna Hydroelectric Project generating units.

The following matrix depicts nomenclature, run hours for 2015,2018, percentages of contribution and other historical information for all Chugach generation units.



Transmission and Distribution Assets

As of December 31, 2015,2018, our transmission and distribution assets included 4243 substations and 407437 miles of transmission lines, which included Chugach’s share of the Eklutna transmission line, 897891 miles of overhead distribution lines and 809839 miles of underground distribution line. We own the land on which 2425 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 Hydroelectric Project, we also acquired a partial interest in two substations and additional transmission facilities.

Most of Chugach’s generation sites and many of its substation sites are on Chugach-owned lands. The rights for the sites not on Chugach-owned lands are as follows: the Postmark and Point Woronzof Substations, and the East Terminal Site (N/S runway)(North - South Runway) are under rights fromauthorized by the State of Alaska Department of Transportation and Public Facilities/Facilities, Ted Stevens Anchorage International Airport; the East Terminal Site (6 mile)(Six Mile) is under rights from the Matanuska-Susitna Borough;Joint Base Elmendorf-Richardson; the West Terminal Site is under rights fromauthorized by the Army/Air Force;Matanuska-Susitna Borough; the University Substation is on State of Alaska land under rights from the Federal Bureau of Land Management; the Hope and Daves Creek Substations are under rights fromauthorized by the State;State of Alaska; the Portage Substation is under rightshas a permit from the Alaska Railroad Corporation (ARRC)(“ARRC”); the Summit Lake Substation isand Microwave Site are on State land under rights fromrecently conveyed to the United States Forest Service;Kenai Peninsula Borough; the Dowling and Raspberry Substations are on Municipality of Anchorage land under rights from the State;State of Alaska; and, the Indian Substation will be under rights from theis authorized by FERC License, until a permit is issued by Chugach State Park upon approval.Park. The Cooper Lake Power Plant, Quartz Creek Substation, and the 69kV transmission line between them are operated under a federal license.the FERC License. Most of Chugach’s transmission, sub-transmission and distribution lines are either on public lands under rights from the federal, state, municipal, borough oragencies, ARRC, or on private lands via easements.

Title

On January 20, 2011, Chugach and the indenture trustee entered into the Indenture, granting a lien on substantially all of Chugach’s assets to secure Chugach’s long-term debt. Assets that are generally not subject to the lien of the Indenture include cash (other than cash deposited with the indenture trustee); instruments and securities; patents, trademarks, licenses and other intellectual property; vehicles and other movable equipment; inventory and consumable materials and supplies; office furniture, equipment and supplies; computer equipment and software; office leases; other leasehold interests for an original term of less than five years; contracts (other than power sales agreements with members having an original term exceeding three years, certain contracts specifically identified in the Indenture, and other contracts relating to the ownership, operation or maintenance of generation, transmission or distribution facilities); non-assignable permits, licenses and other contract rights; timber and minerals separated from land; electricity, gas, steam, water and other products generated, produced or purchased; other property in which a security interest cannot legally be perfected by the filing of a Uniform Commercial Code financing statement, and certain parcels of real property specifically excepted from the lien of the Indenture. The lien of the Indenture may be subject to various permitted encumbrances that include matters existing on the date of the Indenture or the date on which property is later acquired; reservations in United States patents; non-delinquent or contested taxes, assessments and contractors’ liens; and various leases, rights-of-way, easements, covenants, conditions, restrictions, reservations, licenses and permits that do not materially impair Chugach’s use of the mortgaged property in the conduct of Chugach’s business.

Many of Chugach’s properties are burdened by easements, plat restrictions, mineral reservation, water rights and similar title exceptions common to the area or customarily reserved in conveyances from federal or state governmental entities, and 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 State of Alaska condemnation laws for acquiring private property for public use.

Other Property

Bradley Lake.  Lake

We are a participant in the Bradley Lake Hydroelectric Project, which is a 120 MW 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 MW to minimize losses and ensure system stability. We have a 30.4% (27.4 MW as currently operated) share in the Bradley Lake project’s output, and currently take Seward’s share which we net bill to them, for a total of 31.4% 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 $166.0 million principal amount of revenue bonds supported by power sales agreements with six electric utilities that share the output from the facility (ML&P, HEA and MEA (through Alaska Electric Generation & Transmission Cooperative, Inc. (“AEG&T&T”) and AEEC)Alaska Electric and Energy Cooperative, Inc. (“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 term of our Bradley Lake power sales agreement is 50 years from the date of commercial operation of the facility (September of 1991) or when the revenue bond principal is repaid, whichever is the longer. The agreement may be renewed for successive forty-year40-year periods or for the useful life of the project, whichever is shorter. 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 adjustment process. The share of Bradley Lake indebtedness for which we are responsible is approximately $21.6$13.4 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 output, 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%. Upon default, Chugach could be faced with annual expenditures of approximately $5.7$6.3 million as a result of Chugach’s Bradley Lake take-or-pay obligations.

The State of Alaska provided an initial grant for work onBattle Creek Diversion Project (“Project”) is a project to divertincrease water fromavailable for generation by constructing a diversion on the West Fork of Upper Battle Creek into Bradley Lake. The project is being managed by the Alaska Energy Authority. Diverting a portion of Battle Creek intoto divert flows to Bradley Lake, is currently estimated to increaseincreasing annual energy output by an estimated 37,000 MWh. Chugach would be entitled to 30.4% ofThe Bradley Lake Project Management Committee (“BPMC”) approved the additional energy produced.

project October 13, 2017, as amended December

1, 2017, and December 6, 2017.  The Project cost is estimated at $47.2 million and the BPMC approved financing on December 6, 2017.  Construction began in the spring of 2018 and is anticipated to be completed in the fall of 2020.  Not all Bradley Lake purchasers are participating in the development and resulting benefits of the Project at this time, although they have reserved their ability to participate in the Project at a later date.  Chugach would be entitled to 39.38% of the additional energy produced if no additional participants elect to join. The share of Battle Creek indebtedness for which we are responsible is approximately $16.2 million.  

Eklutna.  

Along with two other utilities, Chugach purchased the Eklutna Hydroelectric Project from the Federal Government in 1997. Ownership was transferred from the DOE’sDepartment of Energy’s (“DOE”) Alaska Power Administration jointly to Chugach (30%), MEA (17%) and ML&P (53%). Through

Beluga River Unit (“BRU”)

On April 30, 2015, the power MEA purchased22, 2016, Chugach commenced receiving gas from the Eklutna Hydroelectric Project was pooledBRU as a Working Interest Owner (“WIO”) of the gas production field. Chugach acquired a 10% working interest in the BRU by jointly purchasing, in partnership with Chugach’s purchasesML&P, ConocoPhillips’ 1/3 Working Interest Ownership of the BRU.  In 2018, Chugach received 1.2 Bcf from the BRU field at the field’s delivery meter as a WIO for Chugach native use in thermal generation at a weighted average transfer price of $4.42 per Mcf.

In 2017 Chugach received 1.4 Bcf from the BRU field at the field’s delivery meter as a WIO. Of that gas volume received Chugach allocated gas deliveries of 875 MMcf to the ConocoPhillips-ENSTAR contract (average price of $7.57 per Mcf) and sold back to MEA to be used to meet MEA’s overall power requirements.retained 506 MMcf for Chugach native use in thermal generation, which had a weighted average transfer price of $4.64 per Mcf.

Fuel Supply

In 2015, 86%2018, 75% of our powerelectric energy was generated from natural gas. Total gas purchased in 2015and produced during 2018 was approximately 148.4 Bcf. In 2015, our sources of natural gas for firm sales were primarily divided among contracts with two major oil and gas companies. All of the production came from Cook Inlet, Alaska. ConocoPhillips under their currentThe contract provided 62% of gas supplied for generation, whilewith Hilcorp provided 32%. The current86%, Chugach’s 10% share of the Beluga River Unit gas contract with ConocoPhillips began providing gas in 2010field provided 13%, and will expire December 31, 2016.minor purchases from Furie provided the balance. The current gas contract with Hilcorp began providing gas in 2011 and will expire March 31, 2023. ConocoPhillipsThe BRU and Hilcorp, together, fill 100% of Chugach’s firm needs through March 31, 2023. Gas to provide economy energy sales to GVEA was supplied by aThe gas supply arrangement with Hilcorp through March of 2015.

ConocoPhillips

Chugach entered into a contract with ConocoPhillips in 2009, which started providing gas January 1, 2010,Furie currently provides Chugach with additional purchase options, on a firm and interruptible basis, and will terminate Decemberprovide both firm and non-firm gas supplies beginning on April 1, 2023 and ending March 31, 2016. The total amount of gas under the contract is currently estimated to be 60 Bcf.

The gas supplied by ConocoPhillips under the contract is separated into two volume tranches for pricing purposes. “Firm Fixed Quantity” gas meets a portion of Chugach’s base load requirements, while “Firm Variable Quantity” gas meets peaking needs. All of the gas purchased under the contract is now firm fixed since firm variable gas was not provided by the contract after December 31, 2013. The dividing line between firm fixed and firm variable volumes was calculated based on a methodology that involved using a multiplier and the simple average of Chugach’s average daily volumes for the 30 lowest volume days during the last calendar year. The ConocoPhillips contract during 2015 had a fixed volume delivery of 17,000 thousand cubic feet (Mcf) per day at the Firm Fixed Quantity price.

Pricing for firm fixed gas will be based on the average of five Lower 48 natural gas production areas. The contract price is calculated on a quarterly basis as the trailing average of the simple daily average of the Platts Gas Daily midpoint prices for each “flow day” in these market areas during the last quarter.2033. 

Hilcorp

Chugach entered into a contract with Marathon Alaska Production (MAP) in 2010,Hilcorp to provide gas beginning AprilJanuary 1, 2011,2015, and through Decembermultiple amendments, now extends through March 31, 2014, which included two contract extension options that were exercised in 2011. Effective February 1, 2013, this contract was assigned to Hilcorp who purchased MAP’s assets in Cook Inlet.2023. The total amount of gas under contract is currently estimated to be 4060 Bcf. Pricing for the 20152018 term of the Hilcorp contract was set at $7.13 per Mcf. Pricing for the 2016 term is $7.42averaged $7.54 per Mcf.

Furie Agreement

On October 1, 2012,March 16, 2017, Chugach entered intosubmitted a request to the RCA for approval of the agreement entitled, “Firm and Interruptible Gas SalesSale and Purchase Agreement between Furie Operating Alaska, LLC and Chugach Electric Association, Inc.” (“Furie Agreement”) dated March 3, 2017. As part of the filing, Chugach requested RCA approval to recover both firm and interruptible purchases under the agreement and all attendant transportation and storage costs through its quarterly fuel and purchased power cost adjustment process.

The Furie Agreement provides Chugach with Hilcorp forboth firm and non-firm gas supplies over a 16-year period, with firm purchases beginning on April 1, 2023, and ending March 31, 2033, and interruptible gas purchases available to Chugach immediately and ending on March 31, 2033. With respect to the firm purchases, the Furie Agreement provides an annual gas commitment by Furie to sell and Chugach to purchase approximately 1.8 Bcf of gas each year, which represents approximately 20% to 25% of Chugach’s projected gas requirements during this period. The Furie Agreement also provides Chugach with an effective period ofadditional purchase options, on a firm and interruptible basis. The initial price for firm gas is $7.16 per Mcf beginning April 1, 2013,2023 and escalates annually rising to $7.98 per Mcf on April 1, 2032, the last year of the Furie Agreement.

On May 1, 2017, the RCA approved the Furie Agreement. The RCA also approved recovery of costs associated with the Furie Agreement through March 31, 2015. This agreement was intended for Chugach to produce economy energy for GVEA. GVEA reimbursed Chugach for theits fuel and purchased power cost of gas related to economy energy sales.adjustment process.

Glacier Oil and Gas Corporation / Cook Inlet Energy, LLC (“CIE”)

Glacier Oil and Gas Corporation retained holdings of Miller Energy Resources Ltd, including the subsidiary CIE, following bankruptcy proceedings in 2016.  Chugach entered into a Gas Sale and Purchase Agreement (GSPA)(“GSPA”) with CIE in 2013, to supply gas from April 1, 2014, through March 31, 2018, with an option to extend for an additional five years by mutual agreement during the term of the GSPA. In an extension letter agreement dated February 17, 2017, both parties agreed to extend the term of the agreement until March 31, 2023. The GSPA with CIE provides Chugach with an opportunity to diversify its gas supply portfolio, and minimize its current dependence on the gas agreements in place with two vendors. The gas that may be purchased under the GSPA with CIE is not required, however it introduces a new pricing mechanism.

The GSPA identifies and defines two types of gas purchases. Base Gasgas is defined by the volume of gas purchased on a firm or interruptible basis at an agreed delivery rate. Pricing for base gas purchases ranges from $6.12 to $7.31 per Mcf. Swing Gasgas is gas sold to Chugach at a delivery rate in excess of the applicable Base Gasbase gas agreed delivery rate. Pricing for swing gas purchases ranges from $7.65 to $9.14 per Mcf.

AIX Energy, LLC

Chugach entered into a contract with AIX Energy, LLC (AIX)(“AIX”) in 2014, to supply gas from March 1, 2015, through February 29, 2016. This agreement capscapped the price of gas at $6.24 per Mcf and the total volume at 300,000 Mcf. In anticipation of this agreement’s expiration, Chugach entered into another gas sale and purchase agreement with AIX in November of 2015, to provide gas beginning April 1, 2016, through March 31, 2023, with the option to extend to March 31, 2029. The AIX agreements provide flexibility in both the purchase price and volumes and allow Chugach to further diversify its gas supply portfolio, with no minimum purchase requirements.

Municipality of Anchorage, dba Municipal Light and Power

Chugach entered into a contract with Municipality of Anchorage, DBA Municipal Light and Power (“ML&P”) in 2016, to supply gas beginning June 6, 2016, and expired March 31, 2017. This agreement capped the price of gas at $5.75 per Mcf and the total volume at 500,000 Mcf. The ML&P agreement provided Chugach the ability to further diversify its gas supply portfolio, with no minimum purchase requirements.

Natural Gas Transportation Contracts

The terms of the ConocoPhillips and Hilcorp agreements requireagreement requires Chugach to transport gas. Chugach took over the transportation obligation for natural gas shipments for gas supplied under its contracts on October 1, 2010. The following information summarizes the transportation obligations for Chugach:

ENSTAR (Alaska Pipeline Company)

ENSTAR Natural Gas Company (ENSTAR)(“ENSTAR”) has a tariff to transport our gas purchased from gas suppliers on a firm basis to our IGT Power Plant and SPP at a transportation rate of $0.6311 per Mcf. The agreement contains a fixed monthly customer charge of $2,600 for firm service.facilities.

Chugach and ENSTAR entered into a Firm Transportation Service Agreement on May 21, 2012, to provide for the transportation of gas to SPP. The agreement commenced on August 1, 2012, and remains in effect until canceled upon a 12-month written notice by either party. The agreement sets a contracted peak demand of 36,300 Mcf per day.

Harvest Alaska, LLC Pipeline System

Marathon Oil Company sold its share of its subsidiary pipeline company Marathon Pipe Line Company as part of a Cook Inlet asset divestiture effective February 1, 2013, to Hilcorp. Hilcorp now operates four major gas pipelines through Harvest Alaska, LLC, in the Cook Inlet basin, including the Kenai-Nikiski Pipeline (KNPL)(“KNPL”), the Beluga Pipeline (BPL)(“BPL”), the Cook Inlet Gas Gathering System (CIGGS)(“CIGGS”) and the Kenai-Kachemak Pipeline (KKPL)(“KKPL”). Chugach has entered into tariff agreements to ship gas on the KNPL, BPL and CIGGS. Effective August 1, 2013, Chugach entered into a special contract with KNPL for Firm Service capacity over the Kenai Pipeline Junction (KPL) compressor of 35,000 Mcf per month for the movement of gas to its Beluga power plant at a firm capacity rate of $2.13 per Mcf. This agreement ended effective October 31, 2014.

On November 1, 2014, the RCA approved consolidation of these four pipelines into a single pipeline, the KBPL.Kenai-Beluga Pipeline (“KBPL”). Chugach has entered into tariff agreements to ship gas on the KBPL.

Environmental Matters

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 includeChugach includes 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.estimated. 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.

Since January 1, 2007, transformer manufacturers have been required to meet the DOE efficiency levels as defined by the Energy Act for all “Distribution Transformers.” As of January 1, 2016, the specific efficiency levels are increasing from the original “TP1” levels to the new “DOE-2016” levels. The Energy Act mandates specific types of low voltage dry-type transformers manufactured and sold in the USA to have efficiencies as defined by the 10 CFR Part 431 standard when loaded to 35% of maximum capacity. Chugach is in the process of evaluating our transformer specifications and will make modifications as necessary with our alliance transformer manufacturers to ensure DOE-2016 is met. At this time a small increase in capital costs is anticipated along with a reduction in energy losses.

The Clean Air Act and EPAEnvironmental 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. An Executive Order promoting energy independence and economic growth was issued on March 28, 2017, by the President instructing the EPA to review the Clean Power Plan.  On August 3, 2015,21, 2018 the EPA releasedmoved forward with the final 111(d)Affordable Clean Energy (“ACE”) proposed regulation language aimed at reducingrule which would establish emission guidelines for states to develop plans to address GHG emissions of CO₂ from existing coal-fired power plants that provide electricity for utility customers. Inplants. The ACE rule would replace the final rule, the EPA took the approach of making the individual states responsible for the development and implementation of plans to reduce the rate of CO₂ emissions from the power sector. The EPA has initially applied the final rule to 47 of the contiguous states. At this time Alaska, Hawaii, Vermont, Washington D.C. and two U.S. territories are not bound by the regulation. Alaska may be required to comply at some2015 Clean

future date. On February 9, 2016Power Plan (“CPP”), which EPA has proposed to repeal because it exceeded EPA authority.  The CPP was stayed by the U.S. Supreme Court issued a stay onand has never gone into effect.  The comment period for the proposed ACE rule has closed and the EPA 111(d) regulations until the DC Circuit decides the case, or until the disposition of a petitionis currently reviewing and responding to the Supreme Court oncomments received. When the issue.final rule is promulgated it is certain to face legal challenge.  The EPA 111(d)proposed Affordable Clean Energy regulation, in its current form, is not expected to have a material effect on Chugach’s financial condition, results of operations, or 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 or applied for all Clean Air Act permits currently required for the operation of generating facilities.

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 limitationthe 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.

Item 3 – Legal Proceedings

Chugach has certain 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.

Item 4 – Mine Safety Disclosures

Not Applicable

PART II

Item 5 – Market for Registrant's Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities

Not Applicable

Item 6 – Selected Financial Data



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



1 Equity ratio equals equities and margins divided by the sum of our long-term debt and equities and margins.

2 Margins for interest ratio equals the sum of long and short-term interest expense and assignable margins divided by the sum of long and short-term interest expense, excluding amounts capitalized.

IItemtem 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 report 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 fuel and 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(“TIER”).  Alaska electric cooperatives generally set their rates on the basis of TIER, which is a debt service coverage approach to ratemaking. 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 long-term interest expense for the years ended December 31, 2015, 20142018, 2017 and 20132016 was $21,811,573, $22,820,866,$20,583,923, $21,424,095 and $24,378,162,$21,168,967, respectively. Chugach’s authorized TIER for ratemaking purposes on a system basis iswas 1.30 through July 4, 2016, which was established by the RCA in order U-01-08(26) on January 31, 2003. The increase in 2013Pursuant to RCA order U-15-081(8), Chugach’s authorized TIER for ratemaking purposes on a system basis was caused by the recognition of the gain on the sale of the Bernice Lake Power Plant. The higher TIER in 2011 was dueincreased to certain debt classified as short-term, which was replaced with long-term debt in 2012.1.35 effective July 5, 2016.

Chugach’s achieved TIER includes nonoperating margins that are not generated by electric rates. We manage our business with a view towards achieving our authorized TIER (currently 1.30)established at 1.35) averaged over a 5-year period. For further discussion on factors that contribute to TIER results, see “Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Year ended December 31, 2015,2018, compared to the year ended December 31, 2014,2017, and the year ended December 31, 20142017 compared to the year ended December 31, 20132016 – Expenses.”  We achieved TIERs for the past five years as follows:

Rate Regulation and Rates.  Our electric rates are made up of two primary components: “base rates” and “fuel and purchased power rates.” Base rates provide recovery of fixed and variable costs (excluding fuel and purchased power) related to providing electric service. Fuelservice, while fuel and purchased power rates provide recovery of fuel and purchased power costs.

The RCA approves both base rates and fuel and purchased power recovery rates paid by our retail and wholesale customers.

Base Rates.  Chugach’s base rates, whether set under a general rate case or an SRF, are established to allow the continued recovery of our specific costs of providing electric service. In each rate filing, rates are set at levels to recover all of our specific allowable costs, other than fuel and purchased power, and those rates are then collected from our retail and wholesale customers. Under SRF, base rate increases are limited to 8% over a 12-month period and 20% over a 36-month period. Chugach is still permitted to submit general rate case filings while participating in the SRF process. However,In general, during these periods, rate adjustments under SRF would temporarily cease. The RCA may authorize, after a notice period, rate changes on an interim and refundable basis.

In 2018, Chugach resumed thesubmitted quarterly SRF filing process, after receiving approval from the RCA,filings which resulted in the fourth quartera demand and energy rate increase of 2010.

On0.3% to retail and a decrease of 0.2% to Seward effective May 1, 2015,2018; an increase of 1.8%  and 2.9% for retail customers and Seward, respectively, effective August 1, 2018; an increase of 2.7% and 1.5% for retail customers and Seward, respectively, effective November 1, 2018; an increase to demand and energy rates of 0.6% and 3.3% for retail customers and Seward, respectively, effective February 1, 2019; and an increase to demand and energy rates of 1.0% for retail customers and 0.1% for Seward, effective May 1, 2019.

In 2017, Chugach submitted quarterly SRF filings which resulted in a 3.0% decrease to system demand and energy rates effective July 1, 2017, and an increase of 1.9% for rates effective November 1, 2017.

On August 15, 2016, base demand and energy rates increased approximately 22.0%4.2% to ChugachChugach’s retail customers. Effective June 1, 2015, base demandcustomers and energy rates increased 16.9% towholesale customer, Seward. These changes were the result of Chugach’s June 2014 Test Year General Rate Case, see “Item 8 – Financial Statements and Supplementary Data – Note 5 – Regulatory Matters – June 2014 Test Year General Rate Case.”

On January 3, 2014, base demand and energy rates increased 11.5% to Chugach retail customers. Effective February 1, 2014, base demand and energy rates increased 19.3% and 13.8% to MEA and Seward, respectively. These changes were the result of Chugach’s 2013 Test Year General Rate Case, see “Item 8 – Financial Statements and Supplementary Data – Note 5 – Regulatory Matters – 2013 General Rate Case.”

On February 6, 2013, base demand and energy rates increased 26%, 40%, 35% and 20% to HEA, MEA, Seward and Chugach retail customers, respectively. These changes were the result of Chugach’s 2012 Test Year General Rate Case.SRF.

Fuel and Purchased Power Rates.We recover    Chugach recovers fuel and purchased power costs directly from ourretail and wholesale and retail customers through the fuel and purchased power rate adjustment process. Changes in fuel and purchased power costs are primarily due to fixed price or fuel price adjustment processes in our gas-supply contracts. Other factors, including generation unit availability also impact fuel and purchased power recovery rate levels. The fuel and purchased power adjustment is approved on a quarterly basis by the RCA. There are no limitations on the number or amount of fuel and purchased power recovery 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 and purchased power adjustment process does not impact margins. We recognizeChugach recognizes differences between projected recoverable fuel and purchased power costs and amounts actually recovered through rates. The fuel cost under/over recovery on ourthe balance sheet representrepresents the net accumulation of any under- or over-collection of fuel and purchased power costs. A fuel cost under-recovery will appear as an asset on our balance sheet and will be collected from our members in subsequent periods. Conversely, a fuel cost over-recovery will appear as a liability on ourthe balance sheet and will be refunded to our members in subsequent periods.

Petition to Increase TIER

On January 15, 2019, Chugach submitted a Petition to the RCA requesting to increase its system target TIER from 1.35 to 1.55. If approved, and assuming no other changes on the system, this change would increase annual margins by approximately $4.0 million. Chugach expects a decision on this request in July 2019.

Year ended December 31, 2015,2018, compared to the year ended December 31, 2014,2017, and the year ended December 31, 20142017, compared to the year ended December 31, 20132016

Margins

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



Net operating margins were $0.4 million, or 8.5% less in 2018 from 2017, primarily due to lower operating revenue as a result of lower energy sales.  Additionally, there were no sales of BRU gas in 2018 compared to 2017 due to the expiration of the gas sales contract on December 31, 2017.  Net operating margins did not materially change in 20152017 from 2014. The increase in net operating margins in 2014 from 2013 of $2.4 million, or 73.9%, was primarily due to a decrease in depreciation expense associated with Beluga Unit 8 assets, and a decrease in net interest, and was somewhat offset by a decrease in revenue.2016.

Nonoperating margins include interest income, Allowance for Funds Used During Construction (AFUDC)(“AFUDC”), capital credits and patronage capital allocations and other. Nonoperating margins decreased $0.2 million, or 30.8%, in 2018 from 2017, primarily due to the change in value on marketable securities.  The decreaseincrease in nonoperating margins in 2015 over 20142017 from 2016 was primarily due to lowerincreased interest income as a result ofand dividends associated with marketable securities sold in August of 2014. Nonoperating margins decreased in 2014 over 2013 primarily due by the recognition of the gain on the sale of the Bernice Lake Power Plant on December 31, 2013.securities.

Revenues

Operating revenues include sales of electric energy to retail, wholesale and economy energy customers and other miscellaneous revenues. In 2015,2018, operating revenues were $64.9$22.4 million, or 23.1%10.0% lower than 2014.2017.  The decrease was primarily due to lower wholesale revenue caused by the expiration of the MEA wholesale contract, which was somewhat offset by higher rates charged to our remaining customers as a result of Chugach’s 2014 Test Year Rate Case. Lower economy energy sales as a result of the expiration of the GVEA contract, also contributed to this decrease.

In 2014, operating revenuesand lower fuel costs recovered in revenue.  Additionally, there were $24.0 million, or 7.9% lower than 2013. The decrease was primarily due to lower wholesale revenue caused by the expiration of the HEA wholesale contract, which was somewhat offset by higher rates charged to both retail and wholesale customers as a result of Chugach’s 2013 Test Year Rate Case.

Retail revenue increased $7.8 million, or 4.8%,no gas sales in 2015 from 2014. Base revenue increased due to an increase in rates charged to retail customers as a result of Chugach’s June 2014 Test Year General Rate Case. Retail revenue increased $7.1 million, or 4.6%, in 2014 from 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 energy sales caused by warmer weather. 

Wholesale revenue decreased $44.6 million, or 59.1%, in 2015 from 2014, primarily2018 due to the expiration of MEA’s wholesale contract. the gas sales contract on December 31, 2017.   In 2017, operating revenues were $27.0 million, or 13.7% higher than 2016. The increase was primarily due to higher fuel and purchased power expense recovered in revenue and higher economy energy sales and wheeling.

Retail revenue decreased $10.2 million, or 5.1% in 2018 from 2017 primarily due to lower energy sales and lower fuel costs recovered in revenue.  Retail revenue increased $17.3 million, or 9.6%, in 2017 from 2016 primarily due to increased fuel and purchased power costs recovered in revenue. 

Wholesale revenue decreased $32.5$0.7 million, or 30.1%,11.9% in 20142018 from 2013, primarily2017, due to the expiration of HEA’s wholesale contract.decreased energy sales and lower fuel costs recovered in revenue.  Wholesale revenue increased $0.9 million, or 18.0% in 2017 from 2016, due to increased fuel and purchased power costs recovered in revenue. 

Occasionally, Chugach sells available generation, in excess of its own needs, to other electric utilities as economy energy sales.  Economy revenue decreased $4.3 million in 2018 from 2017, as there were almost no economy energy sales in 2018.  Economy revenue increased $3.0 million in 2017 from 2016 due to increased sales to GVEA, MEA, and HEA. 

Miscellaneous revenue decreased $7.2 million, or 43.9%, primarily due to the expiration of the gas sales contract with ENSTAR at the end of 2017, which resulted in no gas sales in 2018.  Additionally, there were fewer wheeling sales in 2018 compared to 2017, resulting in lower miscellaneous revenue earned in 2018.  Miscellaneous revenue increased $5.8 million or 54.7%, in 2017 from 2016 primarily due to sales of natural gas to ENSTAR as a result of Chugach’s investment in the BRU in April 2016. Additional wheeling revenue from GVEA and MEA, in 2017, also contributed to the increase.

Based on the results of fixed and variable cost recovery established in Chugach’s rate filings, wholesale sales to MEASeward contributed approximately $9.5$1.3 million, $26.2$1.4 million, and $22.8$1.3 million towards fixed costs for the years ended December 31, 2015, 20142018, 2017, and 2013,2016, respectively.  Wholesale sales to Seward contributed approximately $1.3 million for the years ended December 31, 2015, and 2014 and $1.2 million for the year ended December 31, 2013. Wholesale sales to HEA contributed approximately $11.5 million for the year ended December 31, 2013.

The following table shows base rate sales revenue and fuel and purchased power revenue by customer class included in revenue for the years ended December 31, 2015, and 2014.



The followingSee “Item 8 – Financial Statements and Supplementary Data – Note 17– Revenue From Contracts with Customers,” for a table showsshowing 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, 2014,2018, 2017, and 2013.2016.