CHUGACH ELECTRIC ASSOCIATION, INC. ANCHORAGE, ALASKA AUDIT AND FINANCE COMMITTEE MEETING AGENDA

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1 CHUGACH ELECTRIC ASSOCIATION, INC. ANCHORAGE, ALASKA AUDIT AND FINANCE COMMITTEE MEETING AGENDA Sisi Cooper, Chair Jim Henderson, Vice Chair Harry T. Crawford, Jr. Bettina Chastain Janet Reiser May 11, :30 p.m. Chugach Board Room I. CALL TO ORDER II. III. IV. A. Roll Call APPROVAL OF THE AGENDA* APPROVAL OF THE MINUTES* A. March 16, 2016 (Portades) PERSONS TO BE HEARD A. Wholesale Customer and Member Comments V. CEO REPORTS AND CORRESPONDENCE A. 1 st Quarter 2016 Financial Statements and Variance Report (Harris/Curran) B. 1 st Quarter 2016 Operating Budget Status Report (Curran) C. 1 st Quarter 2016 Capital Tracking Report (Curran) D. 1 st Quarter 2016 Contract Status Report (Vecera) E. IRS Form 990 (Curran) F. Fitch Ratings Update (Highers) VI. VII. VIII. NEW BUSINESS* (scheduled) A. 1 st Quarter 2016 Financial Presentation (Harris) EXECUTIVE SESSION* (scheduled) A. Financial Matters i. KPMG - 1 st Quarter 2016 Review ii. March 31, 2016, SEC Form 10Q Review iii Tax Services iv. Beluga River Unit (BRU) Financing NEW BUSINESS* (continued) B. March 31, 2016, SEC Form 10Q Filing* (Curran) C. Approval of 2016 Tax Services* (Highers) * Denotes Action Items ** Denotes Possible Action Items 5/2/2016 9:04:55 AM 1

2 D. Beluga River Unit (BRU) Financing* (Highers) IX. DIRECTOR COMMENTS X. ADJOURNMENT* * Denotes Action Items ** Denotes Possible Action Items 5/2/2016 9:04:55 AM 2

3 CHUGACH ELECTRIC ASSOCIATION, INC. Anchorage, Alaska March 16, 2016 Wednesday 3:30 p.m. AUDIT AND FINANCE COMMITTEE MEETING Recording Secretary: Divina Portades I. CALL TO ORDER Chair Cooper called the Audit and Finance Committee meeting to order at 3:32 p.m. in the boardroom of Chugach Electric Association, Inc., 5601 Electron Drive, Anchorage, Alaska. A. Roll Call Committee Members Present: Sisi Cooper, Chair Jim Henderson, Vice Chair Harry Crawford, Director Bettina Chastain, Director (via teleconference) Janet Reiser, Director Other Board Member Present: Susan Reeves, Director (via teleconference at 3:56 p.m.) Guests and Staff in Attendance: Brad Evans Arden Quezon-Vicente Paul Risse Mark Johnson Kathy Harris Tyler Andrews Ron Vecera Renee Curran Jody Wolfe Julie Hasquet Daniel Mitchell, KPMG Sherri Highers Bill Bernier Phil Steyer Dwight Dial Elizabeth Stuart, KPMG II. III. IV. APPROVAL OF THE AGENDA Director Crawford moved and Director Henderson seconded the motion to approve the agenda. The motion passed unanimously. APPROVAL OF THE MINUTES Director Crawford moved and Director Henderson seconded the motion to approve the March 1, 2016, Audit and Finance Committee Meeting minutes. The motion passed unanimously. PERSONS TO BE HEARD A. Wholesale Customer and Member Comments None DRAFT - Audit and Finance Committee Meeting Minutes March 16, 2016 Page 1 of 4 3

4 V. CEO REPORTS AND CORRESPONDENCE A Year-End Financial Statements and Variance Report (Harris/Curran) The 2015 Year-End Financial Statements and the Variance Report were provided in the meeting packet. B. 4 th Quarter 2015 Capital Tracking Report (Curran) The 4 th Quarter 2015 Capital Tracking Report was provided in the meeting packet. C. 4 th Quarter 2015 Operating Budget Status Report (Curran) The 4 th Quarter 2015 Operating Budget Status Report was provided in the meeting packet. D. 4 th Quarter 2015 Contract Status Report (Vecera) The 4 th Quarter 2015 Contract Status Report was provided in the meeting packet. VI. VII. NEW BUSINESS A Year-End Financial Information (Harris) Kathy Harris, Manager, General Accounting, discussed the 2015 Year-End Financial Information and Sheri Highers, Chief Financial Officer responded to questions from the Committee. EXECUTIVE SESSION A. Strategic Planning i. Review and Accept the 2015 Independent Audited Financial Statements ii. December 31, 2015 SEC Form 10K Review iii. Independent Auditor Services Discussion B. Financial Planning i. Renewal of Commercial Paper Backstop Facility At 3:46 p.m., Director Chastain moved and Director Crawford seconded the motion that pursuant to Alaska Statute (c)(1), the Audit and Finance Committee go into executive session to discuss financial matters, the immediate knowledge of which would clearly have an adverse effect on the finances of the cooperative as it relates to: the 2015 Independent Audited Financial Statements; a review of the December 31, 2015 Securities and Exchange Commission Form 10-K; a discussion on independent auditor services; and, the renewal of a commercial paper backstop facility. The motion passed unanimously. Director Reeves joined via teleconference at 3:56 p.m. The meeting reconvened in open session at 5:53 p.m. VIII. NEW BUSINESS B. Accept the 2015 Independent Audited Financial Statements* (KPMG) Director Crawford moved and Director Chastain seconded the motion that the Audit and Finance Committee recommend the Board of Directors approve the DRAFT - Audit and Finance Committee Meeting Minutes March 16, 2016 Page 2 of 4 4

5 2015 Independent Audited Financial Statements of Chugach Electric Association, Inc. and footnotes as presented by KPMG and management. This motion was rescinded due to motion read was incorrect. No objections were made. Director Crawford moved and Director Chastain seconded the motion that the Audit and Finance Committee recommend the Board of Directors approve the 2015 Independent Audited Financial Statements of Chugach Electric Association, Inc. and footnotes as presented by KPMG and management. The motion passed unanimously. C. December 31, 2015 SEC Form 10K Filing* (Curran) Director Chastain moved and Director Crawford seconded the motion that the Audit and Finance Committee recommend to the Board of Directors that management file the Securities and Exchange Commission Form 10K by the due date incorporating any amendments to the document which will be reviewed and approved by KPMG. Ms. Stuart and Ms. Highers will immediately inform the Board, in writing, of any material or significant changes. The motion passed unanimously. D. Renewal of Commercial Paper Backstop Facility* (Highers) Director Crawford moved and Director Chastain seconded the motion that the Audit and Finance Committee recommend the Board of Directors authorize the Chief Executive Officer (CEO) to negotiate fees and finalize the terms and conditions of the renewal of Chugach s Commercial Paper Backstop Facility as discussed in executive session. The agreement will remain confidential until finalized. After lengthy discussion, Chair Cooper called for a vote. Directors Chastain, Crawford and Chair Cooper voted yes and Director Henderson abstained, the motion passes. E. Retention and Pre-Approval for FY2016 Audit Services** (KPMG) Director Chastain moved and Director Henderson seconded the motion that the Audit and Finance Committee recommend the Board of Directors approve the retention of KPMG for audit and tax services for FY2016 in accordance with the fees outlined in KPMG s three (3) year contract. The motion passed unanimously. F. Approve Retention and Fees for the 401(k) Plan Audit* (KPMG) Director Crawford moved and Director Henderson seconded the motion that the Audit and Finance Committee recommend the Board of Directors approve the retention and fees of KPMG, LLP for 401(k) audit services as discussed. The motion passed unanimously. IX. DIRECTOR COMMENTS Comments were made at this time. DRAFT - Audit and Finance Committee Meeting Minutes March 16, 2016 Page 3 of 4 5

6 X. ADJOURNMENT At 6:11 p.m., Director Crawford moved and Director Chastain seconded the motion to adjourn. The motion passed unanimously. DRAFT - Audit and Finance Committee Meeting Minutes March 16, 2016 Page 4 of 4 6

7 FINANCIAL REPORT MARCH 2016 STATEMENT OF OPERATIONS MTD MTD MTD CATEGORY ACTUAL BUDGET VARIANCE Operating Revenue and Patronage Capital $ 15,772,254 $ 17,344,082 $ (1,571,828) Fuel and Purchased Power Expense 5,181,002 6,317,924 (1,136,922) Power Production Expense 1,371,804 1,515,683 (143,879) Transmission Expense 483, ,022 (171,230) Distribution Expense 1,050,714 1,162,195 (111,481) Customer Expense 586, ,315 34,665 Administrative, General and Other 1,759,645 2,170,872 (411,227) Depreciation & Amortization Expense 2,869,918 2,860,185 9,733 Interest Expense, Net 1,775,615 1,744,574 31,041 Total Cost of Electric Service $ 15,079,470 $ 16,978,770 $ (1,899,300) Patronage Capital & Operating Margins $ 692,784 $ 365,312 $ 327,472 Non-Operating Margins - Interest 27,865 24,854 3,011 Allowance for Funds Used During Construction 12,763 14,738 (1,975) Non-Operating Margins - Other Patronage Capital or Margins $ 733,812 $ 404,904 $ 328,908 Total Cost of Electric Service (MTD Actual) Interest Expense, Net 12% Depreciation & Amortization 19% Fuel & Purchased Power 34% Admin, General and Other 12% Distribution 7% Power Production 9% Customer 4% Transmission 3% 7 CHUGACH ELECTRIC ASSOCIATION 1

8 FINANCIAL REPORT MARCH 2016 BALANCE SHEET ASSETS & OTHER DEBITS 03/31/16 12/31/15 Total Utility Plant in Service 1,131,827,669 1,128,474,292 Construction Work in Progress 16,377,052 15,601,374 Total Utility Plant $ 1,148,204,721 $ 1,144,075,666 Accum. Prov. for Depreciation/Amortization (476,738,753) (469,199,226) Net Utility Plant $ 671,465,968 $ 674,876,440 Nonutility Property - Net 76,889 76,889 Investment in Assoc. Organizations 9,317,355 9,635,519 Special Funds 5,344, ,913 Restricted Cash Equivalents 1,855,094 1,705,760 Total Other Property & Investments $ 16,593,760 $ 12,182,081 Cash 14,306,906 15,626,919 Special Deposits/Restricted Cash 1,068,593 1,217,883 Accounts Receivable - Net 25,658,982 28,232,930 Materials and Supplies, Fuel Stock 33,949,092 34,674,725 Prepayments 2,873,946 1,466,301 Other Current & Accrued Assets 342, ,079 Total Current & Accrued Assets $ 78,199,567 $ 81,443,837 Deferred Debits 16,420,316 16,564,275 Total Assets & Other Debits $ 782,679,611 $ 785,066, Total Utility Plant (YTD) $1,148,204,721 Generation 37% Transmission 27% CWIP 1% Distribution 29% General & Other 6% LIABILITIES & OTHER CREDITS 03/31/16 12/31/15 Memberships 1,667,979 1,661,744 Pat. Capital, Margins & Equities 182,585, ,975,637 Total Margins & Equities $ 184,253,920 $ 181,637, Construction Work in Progress (YTD) $16,377,052 Long-Term Debt - Bonds 405,249, ,666,665 Long-Term Debt - Other 20,834,341 22,241,852 Unamortized Debt Issuance Costs (2,846,190) (2,928,378) Total Long-Term Debt $ 423,238,149 $ 445,980,139 Notes Payable 67,233,819 44,115,980 Accounts Payable 9,162,154 9,701,088 Consumer Deposits 4,803,439 5,000,684 Other Current & Accrued Liabilities 26,261,187 31,330,344 Total Current & Accrued Liabilities $ 107,460,599 $ 90,148,096 Deferred Compensation 784, ,913 Other Liabilities, Non-Current 1,737,253 1,555,329 Deferred Liabilities 1,376,125 1,802,389 Patronage Capital Payable 11,108,071 11,108,071 Cost of Removal Obligation 52,721,072 52,071,315 Total Liabilities & Other Credits $ 782,679,611 $ 785,066,633 General Plant 11% Generation 4% Transmission 10% Distribution 75% 8 CHUGACH ELECTRIC ASSOCIATION 2

9 FINANCIAL REPORT MARCH 2016 COMPARATIVE FINANCIAL REPORT STATEMENT OF OPERATIONS CURRENT YTD ACTUAL TO BUDGET VARIANCE YTD YTD YTD CATEGORY ACTUAL BUDGET VARIANCE Operating Revenue and Patronage Capital $ 50,250,135 $ 54,775,183 $ (4,525,048) Fuel and Purchased Power Expense 17,838,165 20,957,934 (3,119,769) Power Production Expense 3,848,269 4,316,801 (468,532) Transmission Expense 1,376,867 1,911,470 (534,603) Distribution Expense 3,345,943 3,437,019 (91,076) Customer Expense 1,632,213 1,650,803 (18,590) Administrative, General and Other 5,829,967 6,150,007 (320,040) Depreciation & Amortization Expense 8,487,648 8,580,576 (92,928) Interest Expense, Net 5,385,211 5,312,238 72,973 Total Cost of Electric Service $ 47,744,283 $ 52,316,848 $ (4,572,565) Patronage Capital & Operating Margins $ 2,505,852 $ 2,458,335 $ 47,517 Non-Operating Margins - Interest 81,116 74,562 6,554 Allowance Funds Used During Const. 40,762 44,214 (3,452) Non-Operating Margins - Other 1,200-1,200 Patronage Capital or Margins $ 2,628,930 $ 2,577,111 $ 51,819 MFI/I TIER Total Cost of Electric Service (YTD Actual) Depreciation & Amortization 18% Interest Expense, Net 11% Fuel & Purchased Power 38% Admin, General and Other 12% Distribution 7% Power Production 8% Customer 3% Transmission 3% 9 CHUGACH ELECTRIC ASSOCIATION 3

10 FINANCIAL REPORT MARCH 2016 COMPARATIVE FINANCIAL REPORT STATEMENT OF OPERATIONS CURRENT TO PRIOR YTD ACTUAL YTD YTD CATEGORY ACTUAL ACTUAL Operating Revenue and Patronage Capital $ 50,250,135 $ 74,973,117 Fuel and Purchased Power Expense 17,838,165 36,438,599 Power Production Expense 3,848,269 4,567,682 Transmission Expense 1,376,867 1,563,682 Distribution Expense 3,345,943 3,250,564 Customer Expense 1,632,213 1,541,591 Administrative, General and Other 5,829,967 6,095,346 Depreciation and Amortization Expense 8,487,648 9,993,812 Interest Expense, Net 5,385,211 5,589,373 Total Cost of Electric Service $ 47,744,283 $ 69,040,649 Patronage Capital & Operating Margins $ 2,505,852 $ 5,932,468 Non-Operating Margins - Interest 81,116 68,097 Allowance for Funds Used During Construction 40,762 44,965 Non-Operating Margins - Other 1,200 1,200 Patronage Capital or Margins $ 2,628,930 $ 6,046,730 MFI/I TIER Cost of Electric Service (YTD) (in millions) CHUGACH ELECTRIC ASSOCIATION 4

11 FINANCIAL REPORT MARCH 2016 FUNCTIONAL STATEMENT OF OPERATIONS MARCH 31, YTD YTD YTD YTD CATEGORY TOTAL GEN TRANS DIST Operating Revenues $ 50,250,135 $ 31,622,039 $ 4,604,946 $ 14,023,150 Fuel 13,888,937 13,888, Production 3,848,269 3,848, Purchased Power 3,949,228 3,949, Transmission 1,376, ,376,867 0 Distribution 3,345, ,345,943 Customer 1,632, ,632,213 Administrative, General and Other 5,829,967 1,583, ,532 3,483,186 Depreciation and Amortization 8,487,648 4,872,229 1,009,697 2,605,722 Interest Expense, Net 5,385,211 3,270,769 1,166, ,452 Total Cost of Electric Service $ 47,744,283 $ 31,412,681 $ 4,317,086 $ 12,014,516 Patronage Capital & Operating Margins $ 2,505,852 $ 209,358 $ 287,860 $ 2,008,634 Interest Income 81,116 36,022 12,970 32,124 Allowance Funds Used During Const. 40,762 20,421 1,313 19,028 Capital Credits, Patronage Dividends, Other 1, Patronage Capital or Margins $ 2,628,930 $ 266,168 $ 302,302 $ 2,060,460 Total Cost of Electric Service Transmission 9% Distribution 25% Generation 66% 11 CHUGACH ELECTRIC ASSOCIATION 5

12 FINANCIAL REPORT MARCH MWh Sales (MTD) (In Thousands) Retail 2015 Actual 2016 Actual 2016 Budget Seward Year MWh Retail Sales Comparison (YTD) (In Thousands) Retail Budget 12 CHUGACH ELECTRIC ASSOCIATION 6

13 FINANCIAL REPORT MARCH Year MWh Sales to Seward Comparison (YTD) (In Thousands) Seward Budget 13 CHUGACH ELECTRIC ASSOCIATION 7

14 FINANCIAL REPORT MARCH MFI/I and TIER (YTD) MFI/I TIER Equity Ratio (YTD) 35.00% 30.00% 27.64% 28.89% 30.33% 25.00% 23.96% 25.63% 20.00% 15.00% 10.00% 5.00% 0.00% CHUGACH ELECTRIC ASSOCIATION 8

15 VARIANCE REPORT MARCH 2016 ENERGY SALES (kwh) YTD Actual YTD Budget Retail Energy Sales 297,176, ,196,905 Wholesale Energy Sales 15,218,221 15,621,221 Total Firm Energy Sales 312,394, ,818,126 Firm energy sales totaled 312,394,484 kwh, which were 4.1% under budget. Retail energy sales were under budget 4.2% and wholesale energy sales were under budget by 2.6%, primarily due to warmer than anticipated weather. ENERGY REVENUE (in millions) YTD Actual YTD Budget Retail Revenue $ 47.5 $ 52.1 Wholesale Revenue Total Firm Revenue Other Operating Revenue Total Revenue $ 50.2 $ 54.8 Revenue from firm sales totaled $48.7 million compared to $53.5 million in the budget. Firm revenue was lower than expected due to lower retail energy sales and lower fuel and purchased power costs recovered in revenue through the fuel and purchased power adjustment process Other operating revenue includes late fees, pole rental, wheeling, microwave and miscellaneous service and other electric revenue. Other operating revenue totaled $1.5 million compared to $1.3 million in the budget, primarily due to higher than anticipated wheeling and miscellaneous revenue. FUEL AND PURCHASED POWER (in millions) YTD Actual YTD Budget Fuel $ 13.9 $ 16.9 Purchased Power Total $ 17.9 $ 21.0 Fuel expense includes fuel, storage and transportation costs and was $13.9 million compared to $16.9 million projected in the budget. This variance was due to a lower than anticipated fuel price and lower storage and transportation costs. Actual fuel purchased for production was 2,195,866 MCF at an average effective delivered price of $5.82 per MCF, compared to 2,297,753 MCF in the budget at an average effective delivered price of $6.71 per MCF. CHUGACH ELECTRIC ASSOCIATION 9 15

16 VARIANCE REPORT MARCH 2016 Purchased power expense represents energy purchased from Bradley Lake, Fire Island, and other utilities as needed, as well as costs associated with dispatching. Purchased power expense was $4.0 million compared to $4.1 million in the budget. This variance was primarily due to a refund from the Alaska Energy Authority for the Alaska Intertie transmission line for Energy purchased was 49,271 MWh at an average effective price of 6.88 cents per kwh compared to 40,841 MWh budgeted at an average effective price of 8.27 cents per kwh. POWER PRODUCTION (in millions) YTD Actual YTD Budget Total Power Production $ 3.8 $ 4.3 Power production operating and maintenance expense was $3.8 million compared to $4.3 million in the budget, primarily due to lower maintenance costs associated with the Southcentral Power Plant (SPP). TRANSMISSION OPERATIONS AND MAINTENANCE (in millions) YTD Actual YTD Budget Total Transmission $ 1.4 $ 1.9 Transmission operations and maintenance expense was $1.4 million compared to $1.9 million in the budget, primarily due to lower than anticipated substation and system control labor due to changes in scheduled maintenance, and a shift from transmission to distribution maintenance. Clearing activities were also lower than anticipated. DISTRIBUTION OPERATIONS AND MAINTENANCE (in millions) YTD Actual YTD Budget Total Distribution $ 3.3 $ 3.4 Distribution operations and maintenance expense was $3.3 million compared to $3.4 million in the budget. Distribution labor was higher than budgeted due to a shift from transmission to distribution maintenance and higher than anticipated maintenance performed to date, however, this variance was more than offset by lower than anticipated vegetation control expenses. CONSUMER ACCOUNTS / CUSTOMER INFORMATION (in millions) YTD Actual YTD Budget Total Consumer / Customer Information $ 1.6 $ 1.6 Consumer accounts and customer information expense was $1.6 million compared to $1.6 million in the budget with no significant variance. CHUGACH ELECTRIC ASSOCIATION 10 16

17 VARIANCE REPORT MARCH 2016 ADMINISTRATIVE, GENERAL AND OTHER (in millions) YTD Actual YTD Budget Administrative, General and Other $ 5.8 $ 6.2 Administrative, general and other expense includes tax, donations, other deductions associated with preliminary survey and investigation charges of projects, and obsolete inventory write-offs that are not attributable to operating or maintenance accounts. Administrative, general and other expense was $5.8 million compared to $6.2 million in the budget, primarily due to lower than anticipated expenses associated with legal and strategic initiatives. SUMMARY Depreciation, interest, and interest during construction expense totaled $13.9 million compared to $13.9 million in the budget, with no significant variance. All of the foregoing expenses resulted in total cost of electric service of $47.7 million compared to $52.3 million in the budget. Non-operating margins include allowance for funds used during construction (AFUDC), capital credit and patronage capital allocations, extraordinary items, and interest income. Non-operating margins totaled $123.1 thousand compared to $118.8 thousand in the budget, with no significant variance. The net result of revenue and expenses was margins of $2.6 million compared to projected margins of $2.6 million in the budget. The current forecast projects year-end margins of $5.2 million and an MFI/I of CHUGACH ELECTRIC ASSOCIATION 11 17

18 VARIANCE REPORT MARCH APPROVED AMENDED YTD REVISED CATEGORY BUDGET BUDGET ACTUALS FORECAST Operating Revenue and Patronage Capital $ 207,018,295 $ 207,327,124 $ 50,250,135 $ 202,802,076 Fuel and Purchased Power Expense 77,477,708 78,784,171 17,838,165 75,664,402 1 Power Production Expense 17,795,694 17,795,694 3,848,269 17,579,053 2 Transmission Expense 7,503,845 7,503,845 1,376,867 7,259,196 2 Distribution Expense 13,665,449 13,665,449 3,345,943 13,436,337 2 Customer Expense 6,616,496 6,616,496 1,632,213 6,616,496 Administrative, General & Other 23,905,360 23,661,809 5,829,967 22,819,254 2 Depreciation and Amortization Expense 34,329,423 34,329,423 8,487,648 34,229,423 2 Interest Expense, Net 20,602,073 20,602,073 5,385,211 20,675,046 1 Total Cost of Electric Service $ 201,896,048 $ 202,958,960 $ 47,744,283 $ 198,279,207 Patronage Capital & Operating Margins $ 5,122,247 $ 4,368,164 $ 2,505,852 $ 4,522,869 Non-Operating Margins - Interest 298, ,238 81,116 $ 304,792 Allowance for Funds Used During Construction 176, ,849 40,762 $ 173,397 Non-Operating Margins - Other - - 1,200 $ 1,200 Other Capital Credits and Patronage Dividends 235, ,915 - $ 235,915 Patronage Capital or Margins $ 5,833,249 $ 5,079,166 $ 2,628,930 $ 5,238,173 MFI/I TIER Forecast based on 3 months actual and 9 months forecast COMPARATIVE FINANCIAL REPORT STATEMENT OF OPERATIONS YEAR-END FORECAST 2 Forecast has been adjusted to reflect known and measurable changes CHUGACH ELECTRIC ASSOCIATION 12

19 CHUGACH ELECTRIC ASSOCIATION, INC. Anchorage, Alaska April 18, 2016 TO: FROM: SUBJECT: Sherri L. Highers, CFO Renee Curran, Manager, Budget and Financial Reporting 1 st Quarter 2016 Operating Budget Status Report The Operating Budget Status Report on page 2 reflects budget adjustment for the first quarter of 2016 and is outlined below. A. To revise base revenue and gross revenue tax expense as a result of the 2014 General Rate Case settlement and anticipated SRF rates, as well as fuel and purchased power revenue and expense to remove the CINGSA found gas credit and to reclassify additional wheeling revenue. The foregoing budget adjustments had a $754,083 negative impact on the 2016 Operating Budget. 19

20 CHUGACH ELECTRIC ASSOCIATION, INC. OPERATING BUDGET STATUS REPORT 1ST QUARTER APPROVED BUDGET AMENDED CATEGORY BUDGET REVISIONS BUDGET REVENUES: TOTAL REVENUE $207,018,295 $308,829 A $207,327,124 EXPENSES: FUEL EXPENSE 61,880,749 1,306,463 A 63,187,212 POWER PRODUCTION EXPENSE 17,795, ,795,694 COST OF PURCHASED POWER 15,596, ,596,959 TRANSMISSION EXPENSE 7,503, ,503,845 DISTRIBUTION EXPENSE-OPERATIONS 5,808, ,808,921 DISTRIBUTION EXPENSE-MAINTENANCE 7,856, ,856,528 CONSUMER ACCOUNTS EXPENSE 6,208, ,208,714 CUSTOMER SERVICE/INFO EXPENSE 407, ,782 SALES EXPENSE ADMINISTRATIVE/GENERAL EXPENSE 22,610, ,610,810 TOTAL OPERATIONS/MAINTENANCE EXPENSE $145,670,002 $1,306,463 $146,976,465 DEPRECIATION/AMORTIZATION EXPENSE 34,329, ,329,423 TAX EXPENSE-OTHER 794,550 (243,551) A 550,999 INTEREST ON DEBT 21,132, ,132,621 INTEREST ON CONSTRUCTION-CREDIT (530,548) 0 (530,548) OTHER DEDUCTIONS 500, ,000 TOTAL COST OF ELECTRIC SERVICE $201,896,048 $1,062,912 $202,958,960 PATRONAGE CAPITAL/OPERATING MARGINS $5,122,247 ($754,083) $4,368,164 NON-OPERATING MARGINS-INTEREST 298, ,238 ALLOWANCE FUNDS USED DURING CONST. 176, ,849 NON-OPERATING MARGINS-OTHER GENER./TRANS. CAPITAL CREDITS OTHER CAPITAL CREDITS/DIVIDENDS 235, ,915 EXTRAORDINARY ITEMS PATRONAGE CAPITAL OR MARGINS $5,833,249 ($754,083) $5,079,166 MFI/I

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23 CHUGACH ELECTRIC ASSOCIATION CAPITAL PROJECT TRACKING REPORT As of March 31, 2016 Estimate Actuals Variance CIP Ref # Project Name 1 SYSTEM IMPROVEMENT PROJECTS Reliability Hane Substation E & E BOD Project Approval Date Estimate Revisions to Estimate Revised Estimate Spending to Date Forecast to Completion Total Estimated Completion Cost Total Estimated Cost vs. Revised Estimate Project Amount % Completion Comments 11/18/2014 $10,900,000 $0 $10,900,000 $7,554,515 $3,345,485 $10,900,000 $0 100% 70% Construction of electrical facilities is underway and should be completed by July. Commissioning will follow in the third quarter of 2016 with closeout to be completed by the end of the year Hane Distribution Substation Feeders E & E Retirements & Replacements Advanced Metering Infrastructure (AMI) Implementation I , E & I Agency Mandated Dowling Substation Upgrade 34.5kV Overhead to Underground E , E & E /17/2015 $1,279,000 $0 $1,279,000 $760,756 $518,244 $1,279,000 $0 100% 65% Phase 1 of the Hane Substation Feeder project brought a new circuit up Lake Otis and is 90% complete. Phase 2 will occur in 2016 in conjunction with the substation completion, energizing the new feeders from the substation and tying into the existing infrastructure along O Malley Road. 3/17/2015 $14,050,000 $0 $14,050,000 $5,161,133 $8,888,867 $14,050,000 $0 100% 37% 16,480 meters have been exchanged to date. Mass meter exchanges will begin in April targeting Indian, Bird Creek, Girdwood, Portage, Hope, Whittier, Cooper Landing, and Moose Pass. The RF Mesh network will be completed in April and May. 9/30/2014 $3,050,000 $0 $3,050,000 $2,589,606 $25,000 $2,614,606 ($435,394) 86% 99% The project is substantially complete. Closeout is underway and should be completed in the second quarter. Lower than anticipated material costs combined with slightly lower labor and design costs has resulted in the project coming in under budget. Totals $29,279,000 $0 1 Report tracks projects with costs exceeding $1M. $29,279,000 $16,066,010 $12,777,596 $28,843,606 ($435,394) 98.5% 68% 23

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52 Chugach Electric Association, Inc. Anchorage Alaska April 28, 2016 TO: FROM: SUBJECT: Brad Evans, Chief Executive Officer Sherri Highers, Chief Financial Officer, VP of Finance and Administration Fitch Ratings On April 20, 2016, Fitch Ratings assigned an A rating on Chugach s implied senior unsecured obligations. This rating is Fitch s current opinion of the creditworthiness of Chugach s unsecured obligations, or the relative ability of Chugach to meet its financial unsecured commitments. In addition, Fitch affirmed the A rating on Chugach s implied senior secured obligations. Key rating drivers included supportive rate actions, a more streamlined ratemaking approach, a growing number of local gas providers, commercial operation of the highly efficient SPP, state support for the development of alternative fueled projects and solid, satisfactory financial performance. 52

53 FITCH RATES CHUGACH ELECTRIC ASSOCIATION, AK'S UNSECURED OBLIGATIONS 'A'; OUTLOOK STABLE Fitch Ratings-San Francisco-20 April 2016: Fitch Ratings has assigned a 'A' rating on Chugach Electric Association, Alaska's (Chugach) implied senior unsecured obligations. In addition, Fitch affirms the 'A' rating on Chugach's implied senior secured obligations. The Rating Outlook is Stable. SECURITY The implied senior unsecured obligations are payable from the cooperative's net revenues. The implied senior secured obligations are secured by a lien on substantially all of Chugach's assets. KEY RATING DRIVERS RETAIL ELECTRICITY PROVIDER: Chugach is Alaska's largest electricity provider, serving a retail customer base in and around the more heavily populated cities of Anchorage and the northern Kenai Peninsula areas. Wholesale sales, which previously made up a substantial portion of total energy sales, are expected to be relatively modest following the expiration of wholesale contracts. RATE REGULATION: Chugach is subject to rate regulation by the Regulatory Commission of Alaska (RCA), but has benefited in recent years from supportive rate actions by the commission and a more streamlined ratemaking approach. Average retail rates are competitive. NATURAL GAS DEPENDENT: Chugach relies extensively on a single fuel, natural gas, to power its units. While this creates greater risk, a growing number of local gas providers, commercial operation of the highly efficient Southcentral Power Project (SPP) and state support for the development of alternative fueled projects, is viewed favorably. SATISFACTORY FINANCIAL PERFORMANCE: Chugach preserved its satisfactory financial metrics for the rating despite the planned loss of its two largest customers-- the Matanuska and Homer Electric Associations -- when their wholesale power contracts expired in 2014 and In 2015, Fitch-calculated debt service coverage was at 1.46 times (x) and days cash on hand increased modestly to 38 days. RATING SENSITIVITIES LESS SUPPORTIVE RATE RECOVERY: Less favorable rate recovery allowed by the Regulatory Commission of Alaska (RCA) could have an adverse effect on the financial margins and rating of Chugach Electric Association. CREDIT PROFILE Chugach is the largest electric utility in Alaska currently providing electric service to 83,383 service locations (68,543 members) in the Anchorage and northern Kenai Peninsula areas. 53

54 Chugach is on an interconnected regional electrical system, a 400-mile long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state. AMPLE GENERATION Chugach's generation portfolio totals about MW of installed capacity, consisting of 16 generating units that include a combination of base-load and peaking natural-gas units and hydroelectric power. The utility also purchases power from hydro, natural gas-fired, and wind resources. Chugach has an ownership interest in the SPP, a MW combined cycle natural gas-fired generation plant that went into commercial operation on February 1, Chugach has a 70% ownership interest is SPP with the remaining 30% owned by Anchorage Municipal Light & Power (ML&P; electric revenue bonds rated 'A+' by Fitch Ratings). SPP has performed well in its initial years of operation and Chugach stands to benefit from the plant's high efficiency that will lower the fuel surcharge for customers and extend the cooperative's gas supplies. NATURAL GAS DEPENDENT Chugach is heavily reliant on natural gas at approximately 87% (rated capacity) of the company's generating capacity. While medium term supplies appear to be sufficient, the cooperative's heavy reliance on a single fuel source remains a risk to the system's operational and financial profile. Chugach's gas supply needs are expected to be met through 2023 under existing contracts with ConocoPhilips and Hilcorp. Additional gas supplies are expected to be secured through Chugach's and ML&P's proposed purchase of ConocoPhilip's share of the Beluga River Gas Field. Ownership of the entire Beluga River Field after the acquisition would include ML&P at 57% and Chugach at 10%. The purchase would cost approximately $45.6 million for Chugach, which is expected to be debt-financed and repaid through the utility's fuel and purchased power cost adjuster, if approved by the RCA. The RCA is expected to make a final decision on the proposed purchase in the near term. If approved, the Beluga River Field is expected to provide approximately 15% of the utility's gas requirements from 2018 through 2033 at an annual savings of $2-$3 million. RATE REGULATION Chugach is subject to wholesale and retail rate regulation by the RCA. Chugach's relationship with RCA has shown improvement in recent years. More supportive rate decisions and the implementation of the Simplified Rate Filing (SRF) process by the RCA demonstrate a better working environment between the two parties. Rate regulation adds a level of credit complexity and can reduce a utility's financial flexibility. However, the current relationship is viewed as supportive by Fitch. Chugach's retail rates are competitive relative to other Railbelt utilities in Alaska. SOLID FINANCIALS Chugach is legally required to maintain margins for interest coverage of 1.10x (in each fiscal year) pursuant to the bond indenture. However, actual financial performance has historically exceeded this minimum and the cooperative budgets for 1.25x margins coverage of interest. The RCA publicly prescribes interest coverage of 1.30x. In 2015, the cooperative earned operating revenues of $216 million, net margins of $6.5 million, and Fitch-calculated debt service coverage of 1.46x. 54

55 The 10-year financial forecast assumes a gradual moderation of net margins, which will require Chugach to work with the RCA to achieve its financial targets. While TIER remains a meaningful benchmark, Chugach believes that DSC will be more appropriate in the future and a better benchmark to use, subject to RCA approval. DSC is expected to exceed 1.50x by Based on known projects, annual capital expenditures are expected to remain relatively small. The current financial forecast assumes approximately $17 million of capital expenditures per year, not including the proposed gas field purchase. Chugach expects to fund the majority of its future capital costs with internal funds, grants, municipal reimbursements and customer contributions. Contact: Primary Analyst Matthew Reilly, CFA Director Fitch Ratings, Inc. 650 California St, 4th Floor San Francisco, CA Secondary Analyst Dennis Pidherny Managing Director Committee Chairperson Kathy Masterson Senior Director Media Relations: Sandro Scenga, New York, Tel: , sandro.scenga@fitchratings.com. Additional information is available at ' Applicable Criteria Revenue-Supported Rating Criteria (pub. 16 Jun 2014) U.S. Public Power Rating Criteria (pub. 18 May 2015) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD 55

56 ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. 56

57 CHUGACH ELECTRIC ASSOCIATION, INC. March 2016 Financial Information May 11,

58 March 2016 Financial Information MWH Sales Margin Comparison Statement of Operations Balance Sheet Statements of Cash Flows 2 58

59 5 Year Retail MWh Sales Comparison (March YTD) (In Thousands) Retail Budget 3 59

60 5 Year Seward MWh Sales Comparison (March YTD) (In Thousands) Seward Budget 4 60

61 Margin Comparison (YTD) 5 Year Average to Current Year 6.0 Margin Comparison (YTD) 5.0 (In Millions) Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec 5-Year Average 2016 Actual 5 61

62 Comparative Statement of Operations March YTD 2016 CATEGORY ACTUAL BUDGET VARIANCE Operating Revenues $ 50,250,135 $ 54,775,183 $ (4,525,048) Fuel 13,888,937 16,891,372 (3,002,435) Production 3,848,269 4,316,801 (468,532) Purchased Power 3,949,228 4,066,562 (117,334) Transmission 1,376,867 1,911,470 (534,603) Distribution 3,345,943 3,437,019 (91,076) Customer 1,632,213 1,650,803 (18,590) Administrative, General and Other 5,829,967 6,150,007 (320,040) Depreciation and Amortization 8,487,648 8,580,576 (92,928) Total Operating Expenses $ 42,359,072 $ 47,004,610 $ (4,645,538) Interest Expense, Long-Term and Other 5,483,764 5,444,877 38,887 Interest Charged to Construction (98,553) (132,639) 34,086 Net Interest Expense $ 5,385,211 $ 5,312,238 $ 72,973 Net Operating Margins $ 2,505,852 $ 2,458,335 $ 47,517 Interest Income 81,116 74,562 6,554 Allowance Funds Used During Const. 40,762 44,214 (3,452) Capital Credits, Patronage Dividends, Other 1, ,200 Patronage Capital or Margins $ 2,628,930 $ 2,577,111 $ 51,

63 Total Operating and Interest Expense March YTD

64 Comparative Balance Sheet, Assets & Other Debits March 2016 & December 2015 ASSETS & OTHER DEBITS 03/31/16 12/31/15 CHANGE Electric Plant in Service 1,131,827,669 1,128,474,292 3,353,377 Construction Work in Progress 16,377,052 15,601, ,678 Total Utility Plant $ 1,148,204,721 $ 1,144,075,666 $ 4,129,055 Accumulated Depreciation (476,738,753) (469,199,226) (7,539,527) Net Utility Plant $ 671,465,968 $ 674,876,440 $ (3,410,472) Nonutility Property 76,889 76,889 0 Investment in Assoc. Organizations 9,317,355 9,635,519 (318,164) Special Funds 5,344, ,913 4,580,509 Restricted Cash Equivalents 1,855,094 1,705, ,334 Total Other Property & Investments $ 16,593,760 $ 12,182,081 $ 4,411,679 Cash and Cash Equivalents 14,306,906 15,626,919 (1,320,013) Special Deposits/Restricted Cash 1,068,593 1,217,883 (149,290) Accounts Receivable - Net 25,658,982 28,232,930 (2,573,948) Materials and Supplies, Fuel Stock 33,949,092 34,674,725 (725,633) Prepayments 2,873,946 1,466,301 1,407,645 Other Current & Accrued Assets 342, , ,969 Total Current Assets $ 78,199,567 $ 81,443,837 $ (3,244,270) Deferred Charges, Net 16,420,316 16,564,275 (143,959) Total Assets $ 782,679,611 $ 785,066,633 $ (2,387,022) 8 64

65 Comparative Balance Sheet, Liabilities & Other Credits March 2016 & December 2015 LIABILITIES & OTHER CREDITS 03/31/16 12/31/15 CHANGE Memberships 1,667,979 1,661,744 6,235 Patronage Capital 170,050, ,447,781 2,602,495 Other 12,535,665 12,527,856 7,809 Total Equities and Margins $ 184,253,920 $ 181,637,381 $ 2,616,539 Bonds Payable 405,249, ,666,665 (21,416,667) National Bank for Cooperatives 20,834,341 22,241,852 (1,407,511) Unamortized Debt Issuance Costs (2,846,190) (2,928,378) 82,188 Total Long-Term Obligations $ 423,238,149 $ 445,980,139 $ (22,741,990) Current Installments of Long-Term Obligations 24,233,819 24,115, ,839 Commercial Paper 43,000,000 20,000,000 23,000,000 Accounts Payable 9,162,154 9,701,088 (538,934) Consumer Deposits 4,803,439 5,000,684 (197,245) Other Current & Accrued Liabilities 26,261,187 31,330,344 (5,069,157) Total Current Liabilities $ 107,460,599 $ 90,148,096 $ 17,312,503 Deferred Compensation 784, ,913 20,509 Other Liabilities, Non-Current 1,737,253 1,555, ,924 Deferred Liabilities 1,376,125 1,802,389 (426,264) Patronage Capital Payable 11,108,071 11,108,071 0 Cost of Removal Obligation 52,721,072 52,071, ,757 Total Liabilities, Equities and Margins $ 782,679,611 $ 785,066,633 $ (2,387,022) 9 65

66 Statements of Cash Flows March 2016 and March /31/16 03/31/15 1. Cash flows from operating activities: Assignable margins $ 2,628,930 $ 6,046,730 Adjustments to reconcile assignable margins to net cash provided (used) by operating activities: Depreciation and amortization 9,618,490 11,086,710 Allowance for funds used during construction (40,762) (44,965) Other 112,223 65,228 Decrease in assets 1,522,951 1,648,209 Decrease in liabilities (4,991,559) (5,496,337) Net cash provided by operating activities: $ 8,850,273 $ 13,305, Cash flows from investing activities: Return of capital from investments in associated organizations 318, ,420 Investment in restricted cash equivalents (44) 0 Investment in special funds (4,560,000) 0 Proceeds from capital grants 114, ,950 Extension and replacement of plant (7,326,570) (5,011,952) Net cash used in investing activities: $ (11,453,675) $ (3,813,582) 3. Cash flows from financing activities: Proceeds from short-term obligations 23,000,000 9,000,000 Repayments of long-term obligations (22,706,339) (22,598,264) Patronage capital / Other 989, ,124 Net cash (used in) provided by financing activities: $ 1,283,389 $ (12,625,140) Net increase decrease in cash and cash equivalents (1,320,013) (3,133,147) 4. Cash & cash equivalents at beginning of period $ 15,626,919 $ 16,364, Cash & cash equivalents at end of period $ 14,306,906 $ 13,231,

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183 CHUGACH ELECTRIC ASSOCIATION, INC. Anchorage, Alaska AUDIT AND FINANCE COMMITTEE MEETING AGENDA ITEM SUMMARY May 11, 2016 ACTION REQUIRED AGENDA ITEM NO. VIII.B. X Information Only Motion Resolution Executive Session Other TOPIC March 31, 2016, SEC Form 10Q Filing DISCUSSION The 10Q as reviewed in executive session. MOTION Move that the Audit and Finance Committee recommend management file the Securities and Exchange Commission Form 10Q by the due date incorporating any amendments to the document which will be reviewed and approved by KPMG. Ms. Stuart and Ms. Highers will immediately inform the Board, in writing, of any material or significant changes. 183

184 CHUGACH ELECTRIC ASSOCIATION, INC. Anchorage, Alaska AUDIT AND FINANCE COMMITTEE MEETING AGENDA ITEM SUMMARY May 11, 2016 ACTION REQUIRED AGENDA ITEM NO. VIII.C. X Information Only Motion Resolution Executive Session Other TOPIC Retention and Pre-Approval of KPMG for FY2016 Tax Services DISCUSSION KPMG provides tax services which includes the preparation and filing of the Form 990 and assistance with various tax related projects. In accordance with Public Company Accounting Oversight Board Rule 3525 (Audit Committee Pre-approval of Non-audit Services Related to Internal Control Over Financial Reporting) we are seeking Audit and Finance Committee pre-approval to retain KPMG for FY2016 tax services. MOTION Move that the Audit and Finance Committee recommend the Board of Directors approve the retention of KPMG for tax services for FY

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