FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,June 30, 1998
-------------------------------------------------------------------

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

For the transition period from to

Commission file number 33-42125

Chugach Electric Association, Inc.
(Exact name of registrant as specified in its charter)

Alaska 92-0014224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5601 Minnesota Drive Anchorage, Alaska 99518
(Address of principal executive offices) (Zip Code)

(907) 563-7494
(Registrant's telephone number, including area code)

None
(Former name,former address and former fiscal year,if changed since last report)

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

CLASS OUTSTANDING AT MAYAUGUST 1, 1998

NONE NONE

CHUGACH ELECTRIC ASSOCIATION, INC.

INDEX

Part I. Financial Information Page Number

Balance Sheets, March 31,June 30, 1998 (Unaudited) and December 31, 1997 3

Statements of Revenues, Expenses and Patronage Capital, Three Months
Ended March 31,June 30, 1998 and 1997 and Six Months Ended June 30, 1998
and 1997 (Unaudited) 5

Statements of Cash Flows, ThreeSix Months Ended March 31,June 30, 1998 and 1997
(Unaudited) 6

Notes to Financial Statements (Unaudited) 7

Management's Discussion and Analysis of Results of Operations and
Financial Condition (Unaudited) 8

Part II. Other Information
Item 1. Legal Proceedings 11

Item 6. Exhibits and Reports on Form 8-K 12

Signatures 13

Exhibits 14

CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets

Assets

March 31,June 30, 1998 December 31, 1997
-------------- ----------------------------- ------------
(Unaudited)

Utility plant:

Electric plant in service ................... $609,527,484$613,943,672 $625,365,803

Construction work in progress ............... 23,643,80522,846,167 24,664,395
------------ ------------

633,171,289636,789,839 650,030,198

Less accumulated depreciation ............... 218,693,938223,976,595 232,136,950
------------ ------------

Net utility plant .......... 414,477,351412,813,244 417,893,248
------------ ------------

Other property and investments, at cost:

Nonutility property ......................... 3,550 3,550

Investments in associated organizations ..... 8,003,723 7,864,271
------------ ------------

8,007,273 7,867,821
------------ ------------

Current assets:

Cash and cash equivalents ................... 8,785,54910,892,353 5,224,529

Cash - restricted construction funds ........ 409,954415,846 364,778

Special deposits ............................ 90,26491,164 151,703

Accounts receivable, net .................... 17,367,44714,138,055 23,999,138

Materials and supplies, at average cost ..... 15,598,37416,034,693 15,619,085

Prepayments ................................. 1,519,9481,221,629 558,371

Other current assets ........................ 410,641197,372 305,415
------------ ------------

Total current assets ......... 44,182,17742,991,112 46,223,019
------------ ------------

Deferred charges ................................. 14,674,98016,890,584 13,583,211
------------ ------------

$481,341,781$480,702,213 $485,567,299
------------ ------------

See accompanying notes to unaudited financial statements.

CHUGACH ELECTRIC ASSOCIATION, INC.
Balance Sheets

Liabilities and Equities

March 31,June 30, 1998 December 31, 1997
-------------------------- ------------
(Unaudited)

Equities and margins:

Memberships ................................................................................. $ 871,768883,428 $ 861,543

Patronage capital ................................... 110,529,644.................................. 111,325,582 104,800,092

Other ............................................... 3,454,032.............................................. 3,410,323 3,458,062
------------ ------------

114,855,444115,619,333 109,119,697
------------ ------------

Long-term obligations, excluding current installments:

First mortgage bonds payable ............................................... 235,101,000 240,910,000

National Bank for CooperativesCoBank bonds payable .......................................................................... 70,959,662 71,096,501
------------ ------------

306,060,662 312,006,501
------------ ------------

Current liabilities:

Notes payable ....................................... 8,500,000 --

Current installments of long-term debt and
capital leases .................................... 6,078,952.................................. 6,076,817 5,913,512

Accounts payable .................................... 4,774,742................................... 5,068,655 7,038,234

Consumer deposits ................................... 960,709.................................. 953,229 1,038,241

Accrued interest .................................... 1,353,580................................... 6,759,609 6,904,335

Salaries, wages and benefits ........................ 3,683,589....................... 3,954,857 3,655,101

Fuel ................................................ 3,521,187............................................... 4,896,417 6,611,415

Other ............................................... 1,907,882.............................................. 2,037,153 3,300,310
------------ ------------

Total current liabilities ............. 30,780,641............ 29,746,737 34,461,148
------------ ------------

Deferred credits ......................................... 29,645,034........................................ 29,275,481 29,979,953
------------ ------------

$481,341,781$480,702,213 $485,567,299
------------ ------------

See accompanying notes to unaudited financial statements.

CHUGACH ELECTRIC ASSOCIATION, INC.

Statements of Revenues, Expenses and Patronage Capital

Three months ended March 31June 30 Six months ended June 30
------------------------------ -----------------------------

1998 1997 1998 1997
------------- ------------- ------------- -------------

(Unaudited) (Unaudited)
Operating revenues ............................................... $ 39,024,21433,581,288 $ 38,510,33931,111,608 $ 72,605,503 $ 69,621,947
------------- ------------- ------------- -------------

Operating expenses:

Production ........................... 11,845,378 9,843,528.......................... 10,834,413 11,205,134 22,679,791 21,048,662

Purchased power ...................... 2,237,195 3,957,693..................... 2,023,671 3,359,048 4,260,866 7,316,740

Transmission ......................... 620,854 929,679........................ 655,767 824,501 1,276,620 1,754,180

Distribution ......................... 2,162,668 1,963,501........................ 2,329,226 2,184,632 4,491,893 4,148,133

Consumer accounts .................... 1,088,237 1,270,375................... 1,110,510 1,177,788 2,198,748 2,448,163

Administrative, general and other .... 3,844,636 3,097,740... 4,101,796 3,526,867 7,946,433 6,624,607

Depreciation and amortization ........ 5,722,186 5,271,803....... 5,751,095 5,278,641 11,473,281 10,550,444
------------- ------------- ------------- -------------

Total operating expenses ..... 27,521,154 26,334,319.... 26,806,478 27,556,611 54,327,632 53,890,929
------------- ------------- ------------- -------------

Interest:

On long-term debt .................... 6,379,258 6,336,161................... 6,301,510 6,164,506 12,680,768 12,500,667

Other ................................ 26,447 60,988............................... 43,817 261,849 70,264 322,838

Charged to construction - credit ..... (179,765) (172,039).... (175,145) (110,436) (354,909) (282,475)
------------- ------------- ------------- -------------

Net interest expense ......... 6,225,940 6,225,110........ 6,170,182 6,315,919 12,396,123 12,541,030
------------- ------------- ------------- -------------

Net operating margins ........ 5,277,120 5,950,910....... 604,628 (2,760,922) 5,881,748 3,189,988
------------- ------------- ------------- -------------

Nonoperating margins:

Interest income ...................... 185,344 148,628..................... 181,461 189,201 366,806 337,828

Other ................................ 299,005 78,599............................... 52,624 16,137 351,628 94,736
------------- ------------- ------------- -------------

Total nonoperating margins ... 484,349 227,227.. 234,085 205,338 718,434 432,564
------------- ------------- ------------- -------------

Assignable margins ........... 5,761,469 6,178,137.......... 838,713 (2,555,584) 6,600,182 3,622,552

Patronage capital at beginning of
period .................................. 110,529,644 106,786,331 104,800,092 100,685,517

Retirement of capital credits and
estate payments ........................ (31,917) (77,323)....................... (42,775) (25,026) (74,692) (102,348)
------------- ------------- ------------- -------------

Patronage capital at end of period ............... $ 110,529,644111,325,582 $ 106,786,331104,205,721 $ 111,325,582 $ 104,205,721
------------- ------------- ------------- -------------

See accompanying notes to unaudited financial statements.

CHUGACH ELECTRIC ASSOCIATION, INC.
StatementsStatement of Cash Flows
ThreeSix months ended March 31June 30

1998 1997
----------------------- ------------

(Unaudited)

Cash flows from operating activities:

Assignable margins ........................................................................................................................ $ 5,761,4696,600,182 $ 6,178,137
-----------3,622,552
------------ ------------

Adjustments to reconcile assignable margins to net cash provided (used) byused in operating
activities:

Depreciation and amortization ............................................ 5,722,186 5,271,803.............................................. 11,473,281 10,550,444

Changes in assets and liabilities:
(Increase) decrease in assets:

Accounts receivable .................................................... 6,631,691 (1,025,850)...................................................... 9,861,083 2,595,783

Prepayments ............................................................ (961,577) (749,262).............................................................. (663,258) (529,275)

Materials and supplies ................................................. 20,711 79,261................................................... (415,608) 150,915

Deferred charges ....................................................... (1,091,769) (237,676)......................................................... (3,307,373) (376,008)

Other .................................................................. (88,962) 705,687.................................................................... 117,515 1,839,486

Increase (decrease) in liabilities:
Accounts payable ....................................................... (2,263,492) (1,683,615)......................................................... (1,969,579) (2,114,066)

Consumer deposits ...................................................... (77,532) (6,966)........................................................ (85,012) (18,307)

Accrued interest ....................................................... (5,550,755) (5,740,375)......................................................... (144,726) (197,846)

Deferred credits ....................................................... (334,920) (678,665)......................................................... (704,476) (1,702,283)

Other .................................................................. (4,454,169) (3,279,301)
-----------.................................................................... (2,678,398) (3,601,441)
------------ ------------

Total adjustments ................................................ (2,448,588) (7,344,959)
-----------.................................................. 11,483,449 6,597,402
------------ ------------

Net cash provided (used) by operating
activities ........................................... 3,312,881 (1,166,822)........................................................ 18,083,631 10,219,954

Cash flows from investing activities:
Extension and replacement of plant ........................................... (2,306,289) (2,953,950)............................................. (6,393,276) (6,982,248)

Investments in associated organizations .............................................................................. (139,452) 20,913
----------------------- ------------

Net cash used in investing activities ............................ (2,445,741) (2,933,037)
-----------.............................. (6,532,728) (6,961,335)
------------ ------------

Cash flows from financing activities:

Short-term borrowings, net ................................................... 8,500,000 14,529,600..................................................... -- 5,250,000

Repayments of long-term debt ................................................. (5,780,399) (5,825,239)................................................... (5,782,534) (10,829,721)

Retirement of patronage capital .............................................. (31,917) (77,323)................................................ (74,692) (102,348)

Other ........................................................................ 6,196 (64,603)
-----------.......................................................................... (25,853) (60,512)
------------ ------------

Net cash providedused by financing activities ........................................... 2,693,880 8,562,435
-----------.............................. (5,883,079) (5,742,581)
------------ ------------

Net increase (decrease) in cash and
cash equivalents ............................................... 3,561,020 4,462,576................................................. 5,667,824 (2,483,962)

Cash and cash equivalents at beginning of period .................................................................. 5,224,529 5,419,819
----------------------- ------------

Cash and cash equivalents at end of period .............................................................................. $ 8,785,54910,892,353 $ 9,882,395
-----------2,935,857
------------ ------------

See accompanying notes to unaudited financial statements.

CHUGACH ELECTRIC ASSOCIATION, INC.

Notes to Financial Statements

March 31,June 30, 1998

(Unaudited)

1. Presentation of Financial Information
During interim periods, Chugach Electric Association, Inc. (Chugach)
follows the accounting policies set forth in its audited financial
statements included in Form 10-K filed with the Securities and Exchange
Commission. Users of interim financial information are encouraged to refer
to footnotes contained in Form 10-K when reviewing interim financial
results. Management believes that the accompanying interim financial
statements reflect all adjustments which are necessary for a fair statement
of the results of the interim period presented. All adjustments made in the
accompanying interim financial statements are of a normal recurring nature.

Certain reclassifications have been made to the 1997 financial statements
to conform to the 1998 presentation.

2. Lines of Credit
Chugach maintains a line of credit of $35 million with National Bank for
Cooperatives (CoBank). The CoBank line of credit expires August 1, 19981999 but
carries an annual automatic renewal clause. At March 31,June 30, 1998, $8.5 million
was outstanding at an interest rate of 6.65%.there were no
amounts outstanding. In addition, the Association has an annual line of
credit of $50 million available at the National Rural Utilities Cooperative
Finance Corporation (NRUCFC). At March 31,June 30, 1998, there was no outstanding
balance on this line of credit. The NRUCFC line of credit expires October
14, 2002.

3. Change in Accounting Policy
Effective January 1998, Chugach changed its accounting policy for
depreciation of general plant (excluding buildings, leasehold improvements
and vehicles). Under the new vintage group method the assets are amortized
over their service lives and retired as a group at the end of the
amortization period. The amortization periods were developed as part of the
recent depreciation study update. At January 1, 1998, the affected asset
group made up 2.8% of Electric Plant in Service. In conjunction with
adoption of the new depreciation methodology, Chugach wrote off
approximately $19 million of plant considered to be fully depreciated.
Depreciation expense for the affected asset groups is estimated to be
$700,000 lower annually. Buildings, leasehold improvements and vehicles
will continue to be depreciated over their estimated useful lives based on
rates developed in periodic depreciation studies.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)

RESULTS OF OPERATIONSResults of Operations

Current Year Quarter Versus Prior Year Quarter

Operating revenues, which include sales of electric energy to retail, wholesale
and economy energy customers and other miscellaneous revenues, increased by 1.3%7.9%
for the quarter ended March 31,June 30, 1998 over the same quarter in 1997. The increase
in revenues is largely attributable to higher kWh sales to retail and two of the
three wholesalewholesales customer classes. A higher level of revenue recorded through
the fuel surcharge mechanism in 1998 also contributed to the increase in
operating revenue. The reason for this variance is further explained below.

As previously reported, in 1997 Chugach experienced higher than anticipated fuel
and purchased power costs. As a result, in an effort to maintain overall price
stability, some fuel and purchased power costs were not collectedwritten-off and the fuel
surcharge rate was not adjusted to reflect the higher costs. Effective January
1998, routine quarterly adjustments to the fuel surcharge mechanism have
resumed.
Additionally, the remaining undercollected amounts from 1997 are being recovered
throughout 1998 under a plan approved by the APUC.Alaska Public Utilities Commission
(APUC). At March 31,June 30, 1998, fuel prices appear to have stabilized and are expected to
decline for the remainder of 1998.

Retail and wholesale demand and energy rates did not change from the firstsecond
quarter of 1997 to the same period in 1998.

Wholesale demand and energy rates charged to MEA were
decreased slightly effective February 1997. The impact of higher kWh salesfactors mentioned above more than offset thisa decline in revenue from economy
energy sales. This decrease was due to Golden Valley Electric Association's
(GVEA) Healy coal plant coming on-line in the second quarter of 1998. This
resulted in a reduction of non-firm purchases by GVEA which explains the
decrease in rates. Demand and energy rates to Homer and Seward
did not change.revenues.

Pursuant to a Settlement Agreement with AEG&T/MEA/Homer, Chugach may be required
to grant a refund to AEG&T/MEA/Homer retroactive to January 1, 1997 (based on
the 1996 test year filing). A provision for wholesale rate refund of
approximately $1 million (for the 12 months of 1997) was still recorded at March 31,June
30, 1998 to accommodate certain rate adjustment clauses contained in the
Settlement Agreement. Additional wholesale refunds are expected for 1998
purchases. Determination of the finalwholesale refund amountamounts still awaits ana final
APUC order in Docket U-96-37. HigherIt is not possible to predict when the APUC will
issue this order.

Chugach's fuel prices were againand purchased power cost adjustment factors, which are adjusted
on a quarterly basis, may be adjusted retroactively by the major cause forAPUC resulting in
refunds on a retroactive basis, due to concerns expressed by one of Chugach's
wholesale customers. It is Chugach's position that retroactive refunds of
quarterly surcharge revenues would violate the increaserule against retroactive
ratemaking. The amount of any additional refunds associated with this issue is
also dependent upon a final APUC order in production
expense for the quarter ended March 31, 1998 versus the same period in 1997.
Additionally, the rate stabilization fund and the submarine cable reserve were
fully amortized as offsets to fuel expense during 1997. There were no similar
offsets in 1998. As previously reported, Chugach has completed the transition
into Period 2 under the long-term fuel supply contracts. Fuel costs now result
from market-based prices.Docket U-96-37.

Purchased power expense was lower for the quarter ended March 31,June 30, 1998 compared
to the same period in 1997. This variance was substantially due to the system-operatingsystem
operating scenario that existed during the firstsecond quarter of 1997. Chugach
purchased power from AEG&T's Soldotna 1 plant to ensure reliability on the Kenai
Peninsula. In addition, purchasesAdditionally, all hydroelectric plant outputs were made from
Anchorage Municipal Light & Power during maintenance on one of Chugach's
transmission lines fromsignificantly
lower than the Beluga power plant.forecasted levels due to reduced lake levels. This 8

system-operatingsystem
operating scenario did not exist during the firstsecond quarter of 1998 which
explains the decrease in purchased power expense.decrease. Transmission expense was also lower for the quarter ended
March 31,June 30, 1998 from the same period in 1997. Conversely,
distribution expenses were higher in the first quarterThe majority of 1998 compared to 1997.
These variances were primarily attributed to overhead line andthis decrease was
caused by station equipment maintenance activities being focused on the transmission
systemsubstations in 1997 and theversus distribution systemsubstations in 1998. Consumer accountsTransmission line
clearing expense decreasedwas higher in 1997 than the current period which further
contributed to the overall decrease. Administrative, general and other expenses
increased for the quarter ended March 31,June 30, 1998. The majority of this decreaseincrease was
due to a higher level of common information services costs being allocated to
this function.

Other interest expense decreased in the current period due to a lower average
outstanding balance on the short-term lines of credit.

Current Year to Date Versus Prior Year to Date

Operating revenues for the six-month period ended June 30, 1998 increased
relative to the same period in 1997. These higher revenues were essentially due
to the same reasons outlined in the quarter-to-date comparison section.

Purchased power and transmission expense decreased and administrative, general
and other expenses increased for the six-month period ended June 30, 1998 for
essentially the same reasons outlined in the quarter-to-date comparison section.
Consumer accounts expense decreased during the period due mostly to a lower
level of common information services costs being allocated to this function.
This decrease was offset somewhat by the addition of sales expense to the
consumer accounts expense category partially reflecting the impactaddition of
Chugach's newly formed Marketing Department.

Administrative, general and other expenses
increased for the three-month period ended March 31, 1998. This increase was
substantially due to a higher level of common information services costs being
allocated to this function.

Other interest expense decreased for the six-months ended June 30, 1998 for the
same reason outlined above in the current period due to a lower average
outstanding balance onanalysis of the short-term line of credit.

Other nonoperating margins were higher for the quarter ended March 31, 1998
compared to the same period in 1997. This difference was due mostly to patronage
capital credits received from CoBank.quarter-to-quarter variance.

Financial Condition

Total assets declined by 0.9%1.0% from December 31, 1997 to March 31,June 30, 1998. The
decrease is due primarily to lower balances in the electric plant accounts. A
declinedecrease in accounts receivable also contributed to the overall decrease. The
lower balances in the electric plant accounts were caused by the adoption of a
new method of accounting for depreciation of the general plant asset class. Beginning in January
of 1998, general plant assets were amortized by account classification instead
of being depreciated on an individual asset basis. Adoption of this method
resulted in the write-off (to accumulated depreciation) of general plant assets
that were acquired prior to the beginning of the amortization periods. The
decline in accounts receivable was primarily caused by paydowns received on the
undercollected fuel surcharge balance and reimbursements received related to the
Standard Steel matter. These decreases were offset somewhat by a higher deferred
debit balance caused in large part by project costs related to the Year 2000

information systems conversion project. Notable changes to total liabilities
include the decrease in First Mortgagefirst mortgage bonds payable resulting from the March
bond payment and the $8.5 million draw on the CoBank line of
credit. Accrued interest also decreasedlower balance in accounts payable due largely to the March semi-annual bond
payment.timing
of payments to contractors.

Liquidity and Capital Resources

Chugach has satisfied its operational and capital cash requirements primarily
through internally generated funds, an annual $50 million line of credit from
NRUCFC and a $35 million line of credit with CoBank. At March 31,June 30, 1998, Chugach
had $8.5 millionno amounts outstanding with CoBank, which carried an interest rate of
6.65%. ThereCoBank. Additionally, there were no amounts
outstanding on the NRUCFC line at March 31,June 30, 1998.

Capital construction in 1998 is estimated at $28 million. At March 31,June 30, 1998
approximately $2.3$6.4 million has been expended. Capital improvement expenditures
are expected to increase 9

in the upcoming second and third quartersquarter as the construction season beginsbegan
in April and extends into October.

Chugach has negotiated a supplemental indenture (Third Supplemental Indenture of
Trust) with CoBank that previously allowed up to $80 million in future bond
financing. Chugach finalized an amendment toamended the Third Supplemental Indenture of Trust (Seventh(with the
Seventh Supplemental Indenture of Trust) that eliminated the maximum aggregate
amount of bonds the company may issue under the agreement. At March
31,June 30, 1998,
Chugach had bonds in the amount of $71.2 million outstanding under this
financing arrangement. The balance is comprised of a $1.2 million bond (CoBank
1) which carries an interest rate of 8.95% maturing in 2002, a $10 million bond
(CoBank 2) priced at 7.76% due in 2005, a $21.5 million bond (CoBank 3),
currently priced at 6.65% (repriced periodically), a $23.5 million bond (CoBank
4) currently priced at 6.65% (also repriced periodically), and a $15 million bond
(CoBank 5) currently priced at 6.65% (also repriced periodically) due in 2002,
2007 and 2012. Principal payments on the CoBank 3 and 4 bonds commence in 2003
and continue through 2022. Additionally, Chugach has negotiated a similar
supplemental indenture (Fifth Supplemental Indenture of Trust) with NRUCFC for
$80 million. At March 31,June 30, 1998 there were no amounts outstanding under this
financing arrangement.

As previously reported, Chugach has reacquired $44.3 million of its Series A
2022 bonds. This strategy has been in response to the favorable long-term
interest rate environment. Chugach will continue to explore similar
reacquisition transactions if market conditions warrant such action. Except for
any further reacquisitions of its bonds (and any similar future refinancings),
Chugach does not anticipate issuance of additional long-term debt in 1998.

Chugach management continues to expect that cash flows from operations and
external funding sources will be sufficient to cover operational and capital
funding requirements in 1998 and thereafter.

Year 2000

Chugach has considered the impact of Year 2000 issues on its computer systems
and applications and developed a remediation plan. Chugach's consideration
included not only financial information systems but applications in operational
areas and the impact of interaction with suppliers, customers and vendors where
appropriate. Conversion activities are in process and the Association expects
conversion and testing to be completed by April 1999. Chugach expects that
completion of the project will result in additional expenditures of
approximately $2.0 million.

Outlook Update

As previously reported, Chugach has been extensively involved in the effort to
introduce customer choice for electric service in Anchorage. After several
customers in a neighboring utility's service area asked Chugach to provide their
power, Chugach requested access over the other utility's distribution and
transmission system and asked the APUC to enforce this request.

The APUC recently denied Chugach's request to gain access over the other
utility's system. Chugach is currently reviewing its options including the
possibility of an appeal.

Chugach has also been active at the State legislative level in support of the
customer's right to choose their electric power supplier. While no legislation
was passed during this year's legislative session, a joint committee was formed
to study the issue and report when the new session convenes in early January
1999. The public hearing and testimony process is currently underway. It is
still not possible, however, to predict the outcome of this process.

Environmental Matters

Refer to Part II, Item 1 for an update on the status of the Standard Steel
Salvage Yard Site litigation.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Standard Steel Salvage Yard Site

A cost recovery action was filed in Federal District Court on December 27, 1991
by the United States against Chugach and six other Potentially Responsible
Parties (PRPs) seeking reimbursement of removal and response action costs (Past
Response Costs) incurred by US EPA at the Standard Steel and Metals Salvage Yard
Superfund Site in Anchorage, Alaska (Site). The six other PRPs named in the
action are the Alaska Railroad, Westinghouse Electric Corporation, Sears,
Roebuck and Co., Montgomery Ward & Co., J.C. Penney Company, Inc. and
Bridgestone/Firestone, Inc. In December, 1996, Chugach, the other named PRPs and
certain federal agency PRPs (Federal PRPs) entered into a Partial Consent
Decree. Under the Partial Consent Decree, Chugach and the other parties settled
claims for Past Response Costs as well as investigation and other costs incurred
with respect to the Site through December 1996. The Partial Consent Decree,
however, did not settle Chugach's liability for future costs of designing and
performing the cleanup at the Site (Future Costs).

Although the Partial Consent Decree did not settle Chugach's or the other
private PRPs' liability for Future Costs, the Partial Consent Decree binds the
Federal PRPs and the Alaska Railroad to pay an aggregate share of 64% of Future
Costs. Chugach and the five other private PRPs have reached a separate
settlement to divide the remaining 36% of Future Costs among themselves. Under
that settlement, Chugach's percentage share of liability for Future Costs will
equal 14.89%. The private PRPs' agreement to perform remedial design and
remedial action (RD/RA) at the Site is memorialized in a new Consent Decree
(RD/RA Decree) that was entered by the Federal District Court in January 1998.
The RD/RA Decree contains the scope of work for the RD/RA as well as settlement
terms, including EPA's covenant not to sue Chugach and the other private PRPs
for Future Costs once the RD/RA is completed.

The estimate of Future Costs of RD/RA at the Site, as determined by Chugach's
consultants based on cost estimates contained in the FS report, ranges from
$5,231,200 to $6,619,800. The RD/RA Decree contains a cost estimate, as
determined by EPA and including a 50% cost

overrun contingency, of $8,400,000. Chugach's share of these estimated RD/RA
expenses would range from approximately $778,926 to $1,250,760. Based on recent
bid documents for the remedial action, it seems unlikely that the RD/RA will
cost as much as EPA's high-end estimate. These amounts are only estimates,
however, and cannot be definitively known until the RD/RA work at the Site is
completed in late 1998 or 1999.

Under the RD/RA Decree, Chugach and the other PRPs are required to reimburse the
United States for EPA oversight costs and DOJ enforcement costs relating to the
RD/RA. Those costs have been estimated by the United States to equal
approximately $676,000. Chugach's share of these estimated oversight and
enforcement costs would equal $100,656. In addition, one of the private PRPs,
Montgomery Ward, recently filed for bankruptcy protection and did not execute
the RD/RA Consent Decree. As a result, Chugach will be paying an additional sum
equal to Chugach's percentage share of Montgomery Ward's share of Future Costs.
This additional sum is estimated to be approximately $12,600 given current
estimates of Future Costs, EPA oversight costs and DOJ enforcement costs.

Based on the above estimates, the total amount that may be owed by Chugach under
the RD/RA Decree ranges from approximately $892,182 to $1,364,016. These
amounts, particularly the projected EPA oversight costs, are only estimates and
are subject to change, although, in light of recent bid documents, Chugach does
not anticipate that the costs will reach the high-end estimate. In addition, the
RD/RA Decree contains reservation of rights allowing EPA to seek further
response actions and payments from the PRPs under certain circumstances,
including for costs associated with alleged natural resource damages. At this
time, no claims have been made pertaining to alleged natural resource damages
and no prediction can be made whether EPA will request activities through its
reservation of rights under the RD/RA Decree.

Four of Chugach's insurance carriers have been paying, under a reservation of
rights, Chugach's costs of defense for the Site. The carriers reserved their
rights regarding indemnification of Chugach for response costs. In February
1998, Chugach reached an agreement in principle with these four insurance
carriers pursuant to which the carriers will pay the majority of Chugach's costs
relating to the Site, including Past Costs, Future Costs, and attorney's fees.
This settlement preserves Chugach's potential claim for natural resource damages
and is anticipated to result in Chugach paying no more than $500,000 for all
Site costs. Management believes that the latter amount would be fully
recoverable in rates and therefore would have no impact on Chugach's financial
condition or results of operations.

Items 2, 3, 4 and 5

Not applicableApplicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Eighth Supplemental IndentureArticles of Trust dated asIncorporation of February 4, 1998,by
and between Chugach Electric Association, Inc. and Security Pacific
Bank Washington, N.A.

Amendment to Employment Agreement by and among Chugach Electric
Association, Inc. and Eugene N. Bjornstad dated February 25, 1998.

Memorandumthe Registrant (as amended April 30,
1998).

Bylaws of Agreement by and among Chugach Electric Association,
Inc. and Admiral Insurance Company Alaska, Alaska National Insurance
Company, Nationwide Mutual Insurance Company and Providence Washington
Insurance Company relating to Chugach's PRP obligations at the Standard Steel Superfund Site dated February 3, 1998.

CERCLA Remedial Design and Remedial Action Consent Decree in the
Standard Steel Superfund Site matter dated January 24, 1998.Registrant (as amended April 30, 1998).

Financial Data ScheduleSchedule.

(b) Reports on Form 8-K:

No reports on Form 8-K were filed for the quarter ended March 31,June 30, 1998.

1213

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CHUGACH ELECTRIC ASSOCIATION, INC.

By: /s//s/ Eugene N. Bjornstad
Eugene N. Bjornstad, General Manager

Date: May 15,August 13, 1998

By: /s//s/ Evan J. Griffith, Jr.
Evan J. Griffith, Jr.
Executive Manager, Finance & Energy Supply

Date: May 15,August 13, 1998

1314

EXHIBITS

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

Exhibit
number Description Page

4.9 Eighth Supplemental Indenture3.1 Articles of Trust dated asIncorporation of February 4,
1998, by and between Chugach Electric Association, Inc. and
Security Pacific Bank Washington, N.A. 15

10.60.1 Amendment to Employment Agreement by and among Chugach
Electric Association, Inc. and Eugene N. Bjornstad dated
February 25, 1998.the Registrant (as amended April 30,
1998). 16

3.2 Bylaws of the Registrant (as amended April 30, 1998). 21

19.3 Memorandum of Agreement by and among Chugach Electric
Association, Inc. and Admiral Insurance Company Alaska, Alaska
National Insurance Company, Nationwide Mutual Insurance
Company and Providence Washington Insurance Company
relating to Chugach's PRP obligations at the Standard Steel
Superfund Site dated February 3, 1998. 22

19.4 CERCLA Remedial Design and Remedial Action Consent Decree
in the Standard Steel Superfund Site matter dated January 24,
1998. 25

27 Financial Data Schedule **

** Filed Electronically