ELECTRONICALLY FILED WITH RCA

ELECTRONICALLY FILED WITH RCA July 19, 2013 TARIFF ADVICE LETTER NO. 378-8 Regulatory Commission of Alaska 701 W. 8 th Avenue, Suite 300 Anchorage, AK 99501 Commissioners: The tariff filing described below is hereby transmitted to you for filing in compliance with the Alaska Public Utilities Regulatory Act and Sections 3 AAC 48.200-3 AAC 48.420 of the Alaska Administrative Code. This filing requests approval to incorporate a new cost element in the determination of 's ( Chugach ) Fuel and Purchased Power Cost Adjustment Factors ( FPPCA ) to reflect net revenue contributions from natural gas exchange transactions between Chugach and natural gas market participants in the Cook Inlet region using Chugach s share of Cook Inlet Natural Gas Storage Alaska ( CINGSA ). 1 Addition of this gas exchange cost element will allow Chugach to reduce retail and wholesale fuel rates to Chugach members by recognizing revenue contributions (net of costs associated with those transactions) resulting from gas exchange agreements. Chugach requests approval of the tariff sheets listed below to accomplish these purposes. TARIFF SHEET NUMBER CANCELS SHEET NUMBER SCHEDULE OR ORIGINAL REVISED ORIGINAL REVISED RULE NUMBER 94 115 th Revision 94 114 th Revision Fuel Rate 95 114 th Revision 95 115 th Revision Adjustment Process This filing will not result in the termination of an existing service, conflict with any other schedule or rate, or in any other way have an adverse impact to customers or the public. Approximately 67,000 retail customers and the wholesale classes of Homer Electric Association, Inc., Matanuska Electric Association, Inc. and the City of Seward d/b/a Seward Electric System are impacted by this filing. Chugach respectfully requests that the proposed changes contained in this filing become effective 45 days after filing. 1 As explained below, creation of another separate cost element for this particular component of the fuel cost calculation may not be necessary as the Commission has already approved calculations of gas costs and CINGSA storage as cost elements recoverable through the fuel rate adjustment process. If the Commission determines that gas exchange revenues must be separately approved as a cost element in the FPPCA, this tariff advice letter requests that approval and provides justification for that decision. 5601 Electron Drive, P.O. Box 196300 Anchorage, Alaska 99519-6300 (907) 563-7494 Fax (907) 562-0027 (800) 478-7494 www.chugachelectric.com info@chugachelectric.com

Tariff Advice No. 378-8 Page 2 of 6 Gas Exchange Agreements Over the last winter, several opportunities developed allowing Chugach to use its existing contracted natural gas supplies and gas storage rights in CINGSA to enter into gas exchange arrangements that yielded additional revenues net of additional transactional costs. From November of 2012 through April 2013, these transactions totaled approximately $0.8 million in revenues net of associated expenses. Over the last winter, these gas exchange agreements developed into a business activity that Chugach hopes will continue albeit intermittently and unpredictably. These agreements leverage Chugach s existing investments to provide offsets to the cost of electric power sold to its members. The purpose of this filing is to establish the mechanism by which Chugach assures its members receive a more immediate benefit from these transactions. Chugach s natural gas exchange agreements are part Chugach s on-going efforts to maximize the use of firm gas supply resources that it must purchase in support of its core electric power business for the benefit of its members. Access to these resources is essential to operate reliably over the long term. However, if Chugach s gas and storage supplies are adequate, Chugach may be in a position to exchange gas for a short period of time. These exchange agreements provide gas and/or storage owned or controlled by Chugach to third-parties with the requirement that same amount of gas be returned, in kind, at a later date. These gas exchange agreements may or may not occur in the future and depend on many factors (weather, usage patterns, production rates, tariff rate changes) that cannot be predicted. For this reason, the net benefit is difficult to predict over time. Nevertheless, when they occur, the exchange agreements provide an opportunity for Chugach to increase use of its firm gas supply resources (including its contractual rights to store gas) to the benefit of its native load retail and wholesale customers. The exchange agreements have no adverse impact on Chugach s ability to meet its system energy requirements. Chugach can participate in exchange activities as opportunities arise without compromising service or deliverability requirements, since initiating exchange service is discretionary which allows Chugach to maximize the beneficial use of its contract supplies and / or its share of CINGSA storage. The exchange agreements will vary somewhat but will generally follow principles similar to those described here. As outlined below, the contracts recover all of Chugach s variable costs of providing the exchange services and an equitable contribution toward O&M and fixed costs of its gas acquisition and storage costs. Variable Cost Recovery Each transaction may or may not require gas storage and will require varying amounts of gas transportation. Under the exchange agreements, the entity purchasing the service from Chugach pays direct variable costs (incremental costs) associated with the gas exchange, including transportation, and gas storage injection and withdrawal costs. All of these costs are recovered from the counterparty on a dollar-for-dollar basis.

Tariff Advice No. 378-8 Page 3 of 6 Transaction and Fixed Cost Recovery Chugach also requires that its exchange counterparties pay some form of a negotiated fixed contract fee per contract plus a fee per Mcf of gas exchanged. These costs more than defray the transactional costs of these exchanges. The remainder of the revenue can be viewed as a contribution toward Chugach s CINGSA related capacity costs. The excess Chugach charges (in the exchange fee and the per mcf charges) above its costs assure that each exchange transaction provides an additional contribution above Chugach s costs. In this manner, Chugach receives financial contributions from third parties that help defray those costs without compromising firm electric service levels needed to meet Chugach deliverability requirements for its system electric loads. As an example, an exchange invoice may include the following components: Description Amount Ratemaking Treatment Gas Storage Use Fee $70,000 CINGSA cost reduction (FPPCA) Gas Transportation Cost $5,000 Direct cost recovery CINGSA Injection Fee $2,000 Direct cost recovery CINGSA Withdrawal Charge $50,000 Direct cost recovery Exchange Fee $45,000 Base rates 2 Total $172,000 The gas storage use fee is treated as a contribution (credit) against storage costs recovered through the FPPCA process that, in this example, would reduce Chugach s monthly capacity cost by $70,000. The attendant storage transaction fees (transportation, injection and withdrawal) are paid directly to Chugach on a dollar-for-dollar basis. The exchange fee is a negotiated rate between Chugach and the exchange customer. Conceptually, the gas exchange agreements are generally similar to Chugach s economy energy transactions in that the entity purchasing exchange service pays for the external variable costs (gas transmission, and CINGSA injection and withdrawal costs, including lost and unaccounted for gas and fuel gas, associated with the transaction). The negotiated exchange fee provides compensation for non-fuel related impacts associated with the transaction. Based on this similarity, Chugach proposes that the FPPCA presentation of information for gas exchanges be similar to that used for economy energy sales transactions. Chugach will reduce the gas exchange revenues to be refunded through the FPPCA by the actual amounts paid for the external variable costs (gas transmission and CINGSA injection and withdrawal costs). Chugach will present invoices and journal entries showing payments received from gas exchange counterparties in support of this netting. The amount of revenue remaining after netting the above amounts will be refunded to customers through the FPPCA in the first quarter after the receipt of the any gas exchange revenues. 2 Considered for normalization in base rate setting process.

Tariff Advice No. 378-8 Page 4 of 6 Eligibility for Inclusion in FPPCA Alaska Administrative Code 3AAC 52.502(a) permits utilities to add cost elements for recovery through the quarterly fuel and purchased power cost recovery mechanism outside a general rate case process provided: 1) The cost element is subject to change at a rate that would cause financial harm to the utility if the costs were recovered exclusively in base rates; 2) The costs are beyond the control of the utility; and, 3) The costs are easily verifiable. Chugach believes the net revenues from gas exchanges meet these standards. However, Chugach does not believe separate approval is required by Alaska Administrative Code 3AAC 52.502(a) because the Commission has already approved recovery of gas costs and CINGSA storage and related costs as cost elements recoverable through the fuel and purchased power rate adjustment process. 3 Recognition of the gas exchange benefits that are associated with Chugach s gas costs recognizes the benefits in the same manner that the costs associated with these gas supply components are recovered and therefore should not require separate approval as an additional cost element. On this basis, gas exchange revenues can reasonably be included as part of the previously approved fuel cost and fuel storage cost elements. In the event that the Commission requires separate approval of net revenues from exchange agreements as a separate cost element, the proposed tariff changes meet the standards of these regulations for inclusion in Chugach s quarterly FPPCA. 1. Cost Element Subject to Change at a Rate that Would Cause Financial Harm to the Utility Chugach s cost of natural gas, gas transmission and gas storage are recognized as likely to vary widely from month-to-month. Certainly at the outset, the revenues from the exchanges are unknowns. The exchange transactions rely on availability of gas and storage that, for a variety of reasons, may not be available in the future. Chugach may determine that the gas and/or storage is needed for its native load based on the usage from season to season. Prospective exchange counterparties may find other ways to meet their gas supply needs without exchange agreements with Chugach. Including revenues into a test year to be used in a revenue requirement calculation would be risky due to the very unpredictable nature of the need for exchange. This would put Chugach at risk of under-recovery if the transactions in the Test Year were not realized during the period traditional base rates were in effect. Similarly, Chugach s customers would be deprived of the opportunity to benefit from proceeds of the exchanges if they were in excess of a Test Year value. Chugach s production margins contained in its June 2012 general rate case total approximately $1.5 million, based on a Commission-authorized Times Interest Earned Ratio of 1.10. As noted earlier, the net benefit to Chugach from the gas exchanges from the Fall of 2012 through 2013 is projected to be a savings of about $0.8 million. The variability of gas exchange costs could have a material impact on margins if gas exchange revenues were imputed as an offset to costs in calculating base rates. The extent of the impact would depend on the variability in exchanges 3 Chugach s FPPCA calculation already includes a cost element for recovery of natural gas storage costs associated with Chugach s participation in CINGSA. This cost element was approved for recovery by the Commission in Letter Order L1200192 (under Tariff Advice No. 340-8) in which the Commission approved the underlying methodology for the recovery of such costs through Chugach s fuel and purchased power rate adjustment process.

Tariff Advice No. 378-8 Page 5 of 6 described above that may be incurred during any given period in relation to the cost levels included in base rates. 2. Costs are Beyond the Control of the Utility The decision to enter into gas exchanges is subject to Chugach s needs during the period of the proposed exchange and initiating gas exchanges is discretionary to Chugach. There is no way of knowing what level of exchanges, if any, will occur in the future. One can imagine that there may be many variables that might cause one of Chugach s counterparties to decide whether to exchange gas or engage in some alternate option. The factors (e.g. weather, gas production rates, usage patterns) that may affect these contingent revenues are beyond Chugach s control. 3. Costs are Easily Verifiable All amounts paid to Chugach will be calculated and presented to the Commission. Verification of exchange revenues will be similar to what Chugach currently uses in support of other fuel and purchased power calculations. The supporting invoices validating the exchanges, including the number of Mcf exchanged will be provided to the Commission in each quarterly filing when a transaction takes place. In this manner, at the time expenditures directly associated with natural gas compression are actually expensed on Chugach s accounting system, Chugach will include the credit for exchange revenues with each quarterly filing which is reviewed and subject to approval by the Commission. Tariff Changes Tariff Sheet Nos. 94 and 95: Updated to reflect the addition of new line items entitled, Gas Exchange Contributions in the determination of Chugach s quarterly fuel rates. Conclusion Chugach would like to initiate the FPPCA gas exchange net revenue pass through as soon as it is approved by the Commission. In this manner, Chugach is able to maximize the use of its gas supply and storage capabilities for the immediate benefit to its retail and wholesale members. For questions relating to the gas exchange agreements, please contact Mark Fouts, Director, Corporate Planning and Analysis at 907-762-4417 or mark_fouts@chugachelectric.com. For questions regarding Chugach s proposed ratemaking treatment of the transactions, please contact Arthur Miller in Chugach s Regulatory Affairs and Pricing Department at 907-762-4758 or arthur_miller@chugachelectric.com.

Tariff Advice No. 378-8 Page 6 of 6 Sincerely, CHUGACH ELECTRIC ASSOCIATION, INC. Lee D. Thibert Senior Vice President, Strategic Planning and Corporate Affairs P.O. Box 196300 5601 Electron Drive Anchorage, AK 99519-6300 Telephone: (907) 762-4747 Facsimile: (907) 762-4514 Lee_Thibert@chugachelectric.com Attachments cc: Carrie Buckley, Homer Electric Association, Inc. (electronically) John Foutz, City of Seward (certified mail and electronically) Don Zoerb, Matanuska Electric Association, Inc. (certified mail and electronically)

RCA No.: 8 115 th Revision Sheet No. 94 Canceling 114 th Revision Sheet No. 94 FUEL AND PURCHASED POWER ADJUSTMENT FACTORS AT G&T e.1. Fuel Adjustment Factor: Predicted costs for the quarter beginning July 1, 2013: Description Total Retail HEA MEA SES Fuel Expense Beluga - ConocoPhillips $4,165,899 $1,949,772 $891,311 $1,207,816 $117,000 Beluga - Hilcorp $8,570,965 $4,011,482 $1,833,792 $2,484,975 $240,717 Beluga Hilcorp (2015-2018) $0 $0 ---- ---- $0 Beluga - Chugach Hilcorp Agreement $5,016,265 $2,347,770 $1,073,250 $1,454,363 $140,882 Bernice - ConocoPhillips $0 $0 $0 $0 $0 IGT - ConocoPhillips $323,043 $151,194 $69,116 $93,660 $9,073 IGT Hilcorp (2015-2018) $0 $0 ---- ---- $0 Nikiski - ConocoPhillips $3,842,089 $1,798,219 $822,030 $1,113,935 $107,906 SPP - ConocoPhillips $2,452,179 $1,147,697 $524,653 $710,959 $68,870 SPP - Hilcorp $5,503,769 $2,575,937 $1,177,553 $1,595,704 $154,574 SPP Hilcorp (2015-2018) $0 $0 ---- ---- $0 CINGSA - Capacity and Withdrawal Fees $1,635,125 $765,290 $349,841 $474,071 $45,923 CINGSA - Gas Withdrawn $1,405,137 $657,648 $300,635 $407,391 $39,463 Gas Transportation $2,248,765 $1,052,493 $481,132 $651,983 $63,157 Total Fuel and Transportation Expense $35,163,235 $16,457,501 $7,523,315 $10,194,855 $987,564 Less Credits Economy Fuel / Transportation Costs ($6,357,227) ($2,975,382) ($1,360,154) ($1,843,147) ($178,544) Economy Margins ($889,330) ($416,235) ($190,276) ($257,843) ($24,977) Gas Exchange Contributions $0 $0 $0 $0 $0 Wheeling Revenue ($324,853) ($152,041) ($69,504) ($94,184) ($9,124) Subtotal ($7,571,410) ($3,543,658) ($1,619,933) ($2,195,174) ($212,644) N Net Fuel Expense $27,591,825 $12,913,843 $5,903,381 $7,999,681 $774,920 Generation & Purchases (MWh) 592,438.5 283,394.8 116,484.8 175,553.3 17,005.6 Cost per MWh at Generation $46.57 $45.57 $50.68 $45.57 $45.57 Projected Balances as of July 1, 2013 ($4,726,474) ($1,668,900) ($424,365) ($2,633,208) $0 Fuel Expense to be Recovered at G&T $22,865,352 $11,244,943 $5,479,016 $5,366,472 $774,920 Predicted Sales at G&T (MWh) 575,440.0 275,263.5 113,142.6 170,516.3 16,517.7 Fuel Adjustment Factor per kwh at G&T $0.03974 $0.04085 $0.04843 $0.03147 ----* * Not calculated. Seward is billed for actual fuel and purchased power costs on a monthly basis. Tariff Advice No.: 378-8 Effective: September 3, 2013 Issued by: P.O. Box 196300, Anchorage, Alaska 99519-6300 By: Title: Chief Executive Officer Bradley W. Evans

RCA No. 8 114 th Revision Sheet No. 95 Canceling 113 th Revision Sheet No. 95 FUEL AND PURCHASED POWER COST ADJUSTMENT FACTORS f.1. Actual fuel costs for the quarter ending March 31, 2013 Description Total Retail HEA MEA SES Fuel Adjustment Factor Balance as of December 31, 2012 ($12,776,254) ($5,644,254) ($2,640,548) ($4,491,451) $0 Fuel Balance for Quarter Ending March 31, 2013 Fuel Expense Beluga - ConocoPhillips $4,734,435 $2,199,284 $937,970 $1,481,826 $115,355 Beluga - Hilcorp $13,247,707 $6,154,868 $2,620,548 $4,148,637 $323,654 Beluga Hilcorp (2015-2018) $0 $0 ---- ---- $0 Beluga - Chugach Hilcorp Agreement $4,577,190 $2,137,076 $888,385 $1,437,334 $114,396 Bernice - ConocoPhillips $440,445 $205,128 $85,978 $138,370 $10,969 IGT - ConocoPhillips $753,921 $349,319 $151,152 $235,385 $18,066 IGT Hilcorp (2015-2018) $0 $0 ---- ---- $0 Nikiski - ConocoPhillips $2,640,208 $1,226,354 $523,323 $826,250 $64,281 SPP - ConocoPhillips $2,127,982 $990,926 $416,841 $667,564 $52,651 SPP - Hilcorp $5,339,870 $2,487,257 $1,044,715 $1,675,562 $132,335 SPP Hilcorp (2015-2018) $0 $0 ---- ---- Emergency Generator Fuel $0 $0 $0 $0 $0 CINGSA - Capacity and Withdrawal Fees $1,756,934 $817,535 $345,270 $550,840 $43,289 CINGSA - Gas Withdrawn $1,134,485 $525,209 $227,620 $354,442 $27,215 Gas Transportation $1,816,226 $844,122 $358,645 $568,979 $44,480 Adjustment $142,694 $65,824 $29,117 $44,414 $3,339 Total Fuel and Transportation Expense $38,712,097 $18,002,903 $7,629,563 $12,129,603 $950,028 Less Credits Economy Fuel / Transportation Costs ($7,116,047) ($3,315,379) ($1,391,664) ($2,232,644) ($176,360) Economy Margins ($1,154,014) ($538,281) ($224,510) ($362,427) ($28,795) Gas Exchange Contributions $0 $0 $0 $0 $0 Renewable Energy Certificates $0 $0 ---- ---- ---- Wheeling Revenue ($372,485) ($173,296) ($73,242) ($116,775) ($9,172) Subtotal ($8,642,546) ($4,026,956) ($1,689,416) ($2,711,847) ($214,327) N Net Fuel Expense $30,069,551 $13,975,947 $5,940,147 $9,417,756 $735,701 Generation & Purchases (MWh) 692,565.5 336,909.9 123,207.0 215,562.2 16,886.4 Cost per MWh at Generation $43.42 $41.48 $48.21 $43.69 $43.57 Total Fuel Cost Recovery $25,307,939 $11,427,088 $4,837,460 $8,307,691 $735,701 Quarter Balance $4,761,612 $2,548,859 $1,102,687 $1,110,066 $0 Tariff Advice No.: 378-8 Effective: September 3, 2013 Issued by: P.O. Box 196300, Anchorage, Alaska 99519-6300 By: Bradley W. Evans Title: Chief Executive Officer