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Chugach Electric Association
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-12-28 Enter Agreement
8-K 2018-11-29
8-K 2018-10-25 Exhibits
8-K 2018-07-26
8-K 2018-06-21
8-K 2018-05-24 Amend Bylaw, Exhibits
8-K 2018-04-26
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VSTM Verastem 0
VOC VOC Energy Trust 0
SAEX Saexploration Holdings 0
SNY Sanofi 0
VISI Volt Information Sciences 0
VII Vicon Industries 0
GNUS Genius Brands 0
RSPI RespireRx Pharmaceuticals 0
C004 2018-09-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 5. Other Information
EX-31.1 c004-20180930xex31_1.htm
EX-31.2 c004-20180930xex31_2.htm
EX-32.1 c004-20180930xex32_1.htm
EX-32.2 c004-20180930xex32_2.htm

Chugach Electric Association Earnings 2018-09-30

C004 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 c004-20180930x10q.htm 10-Q 20180930 10Q Q3



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q



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

For the quarterly period ended September 30, 2018

OR

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



Commission file number 33-42125

CHUGACH ELECTRIC ASSOCIATION, INC.

(Exact name of registrant as specifies in its charter)





 

 

 

 

 

 

 

 

 

State of Alaska

(State or other jurisdiction of

incorporation or organization)

92-0014224

(I.R.S. Employer

Identification No.)

5601 Electron Drive, Anchorage, AK

(Address of principal executive offices)

99518

(Zip Code)

(907) 563-7494

(Registrant’s telephone number, including area code)

None

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

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

Yes  No

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  No

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



 

 

 

 



 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company



 

 

Emerging growth company



 

 

 

 



 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Yes  No

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

NONE

 

 


 



CHUGACH ELECTRIC ASSOCIATION, INC.

TABLE OF CONTENTS





 

 

 



Caution Regarding Forward-Looking Statements

Part I. Financial Information

 



Item 1.

Financial Statements (unaudited)



 

Consolidated Balance Sheets - as of September 30, 2018, and December 31, 2017



 

Consolidated Statements of Operations Three and nine months ended September 30, 2018, and September 30, 2017



 

Consolidated Statements of Cash Flows - Nine months ended September 30, 2018, and September 30, 2017



 

Notes to Financial Statements



Item 2.

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

27 



Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39 



Item 4.

Controls and Procedures

40 



 

 

 

Part II. Other Information

 



Item 1.

Legal Proceedings

40 



Item 1A.

Risk Factors

41 



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41 



Item 3.

Defaults Upon Senior Securities

41 



Item 4.

Mine Safety Disclosures

41 



Item 5.

Other Information

41 



Item 6.

Exhibits

42 



 

Signatures

43 







 

 


 





CAUTION REGARDING FORWARD-LOOKING STATEMENTS



Statements in this report that do not relate to historical facts, including statements relating to future plans, events or performance, are forward-looking statements that involve risks and uncertainties.  Actual results, events or performance may differ materially.  Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this report and the accuracy of which is subject to inherent uncertainty.  It is suggested that these statements be read in conjunction with the audited financial statements for Chugach Electric Association Inc. (Chugach) for the year ended December 31, 2017, filed as part of Chugach’s annual report on Form 10-K.  Chugach undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances that may occur after the date of this report or the effect of those events or circumstances on any of the forward-looking statements contained in this report, except as required by law.



PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



The unaudited financial statements and notes to the unaudited financial statements of Chugach as of and for the quarter ended September 30, 2018, follow.





 

2


 

Table Of Contents

 

Chugach Electric Association, Inc.

Consolidated Balance Sheets

(Unaudited)





























 

 

 

 

 

 



 

 

 

 

 

 

Assets

 

September 30, 2018

 

December 31, 2017



 

 

 

 

 

 

Utility plant:

 

 

 

 

 

 

Electric plant in service

 

$

1,212,367,485 

 

$

1,205,092,224 

Construction work in progress

 

 

19,235,244 

 

 

17,952,573 

Total utility plant

 

 

1,231,602,729 

 

 

1,223,044,797 

Less accumulated depreciation

 

 

(525,130,638)

 

 

(515,496,312)

Net utility plant

 

 

706,472,091 

 

 

707,548,485 



 

 

 

 

 

 

Other property and investments, at cost:

 

 

 

 

 

 

Nonutility property

 

 

76,889 

 

 

76,889 

Investments in associated organizations

 

 

8,566,395 

 

 

8,980,410 

Special funds

 

 

1,893,788 

 

 

1,466,010 

Restricted cash equivalents

 

 

775,161 

 

 

1,028,758 

Total other property and investments

 

 

11,312,233 

 

 

11,552,067 



 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

 

4,552,878 

 

 

5,485,631 

Special deposits

 

 

54,300 

 

 

54,300 

Restricted cash equivalents

 

 

538,988 

 

 

687,370 

Marketable securities

 

 

9,379,081 

 

 

11,420,900 

Fuel cost under-recovery

 

 

 

 

4,921,794 

Accounts receivable, net

 

 

26,388,989 

 

 

35,680,680 

Materials and supplies

 

 

15,749,965 

 

 

15,291,095 

Fuel stock

 

 

11,254,356 

 

 

6,901,994 

Prepayments

 

 

3,822,752 

 

 

4,953,170 

Other current assets

 

 

292,496 

 

 

257,193 

Total current assets

 

 

72,033,805 

 

 

85,654,127 



 

 

 

 

 

 

Other non-current assets:

 

 

 

 

 

 

Deferred charges, net

 

 

37,288,222 

 

 

32,764,065 

Total other non-current assets

 

 

37,288,222 

 

 

32,764,065 



 

 

 

 

 

 

Total assets

 

$

827,106,351 

 

$

837,518,744 























 

3


 

Table Of Contents

 

Chugach Electric Association, Inc.

Consolidated Balance Sheets (continued)

(Unaudited)





 

 

 

 

 

 



 

 

 

 

 

 



Liabilities, Equities and Margins

 

September 30, 2018

 

December 31, 2017



 

 

 

 

 

 

Equities and margins:

 

 

 

 

 

 

Memberships

 

$

1,741,307 

 

$

1,719,154 

Patronage capital

 

 

173,484,942 

 

 

172,928,887 

Other

 

 

14,819,398 

 

 

14,653,253 

Total equities and margins

 

 

190,045,647 

 

 

189,301,294 



 

 

 

 

 

 

Long-term obligations, excluding current installments:

 

 

 

 

 

 

Bonds payable

 

 

398,416,664 

 

 

421,833,331 

Notes payable

 

 

34,770,000 

 

 

37,164,000 

Less unamortized debt issuance costs

 

 

(2,485,861)

 

 

(2,669,485)

Total long-term obligations

 

 

430,700,803 

 

 

456,327,846 



 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current installments of long-term obligations

 

 

26,608,667 

 

 

26,608,667 

Commercial paper

 

 

62,000,000 

 

 

50,000,000 

Accounts payable

 

 

11,146,309 

 

 

7,420,279 

Consumer deposits

 

 

5,017,975 

 

 

5,335,896 

Fuel cost over-recovery

 

 

2,558,578 

 

 

Accrued interest

 

 

1,028,538 

 

 

5,991,619 

Salaries, wages and benefits

 

 

8,031,686 

 

 

7,017,131 

Fuel

 

 

5,560,978 

 

 

9,913,781 

Other current liabilities

 

 

9,332,622 

 

 

7,079,821 

Total current liabilities

 

 

131,285,353 

 

 

119,367,194 



 

 

 

 

 

 

Other non-current liabilities:

 

 

 

 

 

 

Deferred compensation

 

 

1,366,927 

 

 

1,229,294 

Other liabilities, non-current

 

 

927,306 

 

 

531,630 

Deferred liabilities

 

 

1,391,253 

 

 

1,249,390 

Patronage capital payable

 

 

8,798,077 

 

 

8,798,077 

Cost of removal obligation / asset retirement obligation

 

 

62,590,985 

 

 

60,714,019 

Total other non-current liabilities

 

 

75,074,548 

 

 

72,522,410 



 

 

 

 

 

 

Total liabilities, equities and margins

 

$

827,106,351 

 

$

837,518,744 



See accompanying notes to financial statements.



 

4


 

Table Of Contents

 

Chugach Electric Association, Inc.

Consolidated Statements of Operations

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30,

 

Nine months ended September 30,



 

2018

 

2017

 

2018

 

2017



 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

46,114,590 

 

$

49,405,607 

 

$

148,160,451 

 

$

161,753,739 



 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Fuel

 

 

12,506,604 

 

 

17,291,134 

 

 

43,548,282 

 

 

55,487,263 

Production

 

 

4,577,360 

 

 

4,711,160 

 

 

13,184,565 

 

 

12,951,877 

Purchased power

 

 

4,373,454 

 

 

3,089,568 

 

 

12,668,357 

 

 

11,739,475 

Transmission

 

 

1,816,866 

 

 

1,548,215 

 

 

5,546,054 

 

 

4,598,273 

Distribution

 

 

3,968,811 

 

 

4,080,959 

 

 

11,590,360 

 

 

10,368,772 

Consumer accounts

 

 

1,632,570 

 

 

1,483,127 

 

 

5,150,221 

 

 

4,580,216 

Administrative, general and other

 

 

5,871,051 

 

 

4,666,137 

 

 

17,286,324 

 

 

17,776,742 

Depreciation and amortization

 

 

7,498,076 

 

 

7,980,294 

 

 

22,235,372 

 

 

26,936,964 

Total operating expenses

 

$

42,244,792 

 

$

44,850,594 

 

 

131,209,535 

 

 

144,439,582 



 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and other

 

 

5,471,316 

 

 

5,616,675 

 

 

16,587,462 

 

 

16,733,184 

Charged to construction

 

 

(82,335)

 

 

(46,714)

 

 

(207,196)

 

 

(107,712)

Interest expense, net

 

$

5,388,981 

 

$

5,569,961 

 

 

16,380,266 

 

 

16,625,472 

Net operating margins

 

$

(1,519,183)

 

$

(1,014,948)

 

 

570,650 

 

 

688,685 



 

 

 

 

 

 

 

 

 

 

 

 

Nonoperating margins:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

186,209 

 

 

164,207 

 

 

536,905 

 

 

471,038 

Allowance for funds used during construction

 

 

34,306 

 

 

19,555 

 

 

86,304 

 

 

45,219 

Capital credits, patronage dividends and other

 

 

2,258 

 

 

23,751 

 

 

(189,843)

 

 

105,049 

Total nonoperating margins

 

$

222,773 

 

$

207,513 

 

 

433,366 

 

 

621,306 



 

 

 

 

 

 

 

 

 

 

 

 

Assignable margins

 

$

(1,296,410)

 

$

(807,435)

 

$

1,004,016 

 

$

1,309,991 



See accompanying notes to financial statements.

 



 

5


 

Table Of Contents

 

Chugach Electric Association, Inc.

Consolidated Statements of Cash Flows

(Unaudited)









 

 

 

 

 



Nine months ended September 30,



2018

 

2017

Cash flows from operating activities:

 

 

 

 

 

Assignable margins

$

1,004,016 

 

$

1,309,991 

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

 

 

 

 

 

Depreciation and amortization

 

22,235,372 

 

 

26,936,964 

Amortization and depreciation cleared to operating expenses

 

3,913,081 

 

 

3,548,294 

Allowance for funds used during construction

 

(86,304)

 

 

(45,219)

Write off of inventory, deferred charges and projects

 

160,022 

 

 

393,341 

Other

 

226,830 

 

 

(52,782)

(Increase) decrease in assets:

 

 

 

 

 

Accounts receivable, net

 

10,090,756 

 

 

1,955,518 

Fuel cost under-recovery

 

4,921,794 

 

 

(1,443,967)

Materials and supplies

 

(512,888)

 

 

2,183,548 

Fuel stock

 

(4,352,362)

 

 

(4,452,097)

Prepayments

 

1,130,418 

 

 

(3,514,464)

Other assets

 

(35,303)

 

 

Deferred charges

 

(7,192,752)

 

 

(432,465)

Increase (decrease) in liabilities:

 

 

 

 

 

Accounts payable

 

425,240 

 

 

(1,282,462)

Consumer deposits

 

(317,921)

 

 

12,158 

Fuel cost over-recovery

 

2,558,578 

 

 

(3,824,722)

Accrued interest

 

(4,963,081)

 

 

(4,777,716)

Salaries, wages and benefits

 

1,014,555 

 

 

(5,801)

Fuel

 

(4,352,803)

 

 

3,217,295 

Other current liabilities

 

172,475 

 

 

131,182 

Deferred liabilities

 

(15,298)

 

 

Net cash provided by operating activities

 

26,024,425 

 

 

19,856,600 

Cash flows from investing activities:

 

 

 

 

 

Return of capital from investment in associated organizations

 

414,012 

 

 

370,010 

Investment in special funds

 

(302,152)

 

 

Investment in marketable securities and investments-other

 

(2,843,213)

 

 

(1,158,521)

Proceeds from the sale of marketable securities

 

4,707,765 

 

 

Proceeds from capital grants

 

 

 

115,452 

Extension and replacement of plant

 

(18,479,692)

 

 

(21,844,914)

Net cash used in investing activities

 

(16,503,280)

 

 

(22,517,973)

Cash flows from financing activities:

 

 

 

 

 

Payments for debt issue costs

 

 

 

(208,498)

Net increase (decrease) in short-term obligations

 

12,000,000 

 

 

(17,200,000)

Proceeds from long-term obligations

 

 

 

40,000,000 

Repayments of long-term obligations

 

(25,810,667)

 

 

(24,038,667)

Memberships and donations received

 

188,298 

 

 

209,899 

Retirement of patronage capital and estate payments

 

(447,961)

 

 

(484,345)

Net receipts on consumer advances for construction

 

3,214,453 

 

 

3,679,338 

Net cash (used in) provided by financing activities

 

(10,855,877)

 

 

1,957,727 

Net change in cash, cash equivalents, and restricted cash equivalents

 

(1,334,732)

 

 

(703,646)

Cash, cash equivalents, and restricted cash equivalents at beginning of period

 

7,201,759 

 

 

6,383,217 

Cash, cash equivalents, and restricted cash equivalents at end of period

$

5,867,027 

 

$

5,679,571 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

Cost of removal obligation

$

1,876,966 

 

$

743,256 

Extension and replacement of plant included in accounts payable

$

4,468,774 

 

$

1,291,167 

Patronage capital retired/net transferred and included in other current liabilities

$

2,000,000 

 

$

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

$

20,484,334 

 

$

20,518,560 



See accompanying notes to financial statements.

 

6


 

Table of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

1.      PRESENTATION OF FINANCIAL INFORMATION



The accompanying unaudited interim financial statements include the accounts of Chugach Electric Association, Inc. (Chugach) and have been prepared in accordance with generally accepted accounting principles for interim financial information.  Accordingly, they do not include all of the information and footnotes required by United States of America generally accepted accounting principles (U.S. GAAP) for complete financial statements.  They should be read in conjunction with Chugach’s audited financial statements for the year ended December 31, 2017, filed as part of Chugach’s annual report on Form 10-K.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The results of operations for interim periods are not necessarily indicative of the results that may be expected for an entire year or any other period.



2.      DESCRIPTION OF BUSINESS



Chugach is one of the largest electric utilities in Alaska. Chugach is engaged in the generation, transmission and distribution of electricity in the Anchorage and upper Kenai Peninsula areas. Chugach is on an interconnected regional electrical system referred to as the Alaska Railbelt, a 400-mile-long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state, including Alaska's largest cities, Anchorage and Fairbanks.



Chugach’s retail and wholesale members are the consumers of the electricity sold. Chugach supplies much of the power requirements of the City of Seward (Seward), as a wholesale customer. Periodically, Chugach sells available generation, in excess of its own needs, to Matanuska Electric Association, Inc. (MEA),  Homer Electric Association, Inc. (HEA), Golden Valley Electric Association, Inc. (GVEA) and Anchorage Municipal Light & Power (ML&P).



Chugach was organized as an Alaska electric cooperative in 1948 and operates on a not‑for‑profit basis and, accordingly, seeks only to generate revenues sufficient to pay operating and maintenance costs, the cost of purchased power, capital expenditures, depreciation, and principal and interest on all indebtedness and to provide for reserves. Chugach is subject to the regulatory authority of the Regulatory Commission of Alaska (RCA).



Chugach has three Collective Bargaining Agreements (CBA’s) with the International Brotherhood of Electrical Workers (IBEW), representing approximately 70% of its workforce. Chugach also has an agreement with the Hotel Employees and Restaurant Employees (HERE). All three IBEW CBA’s are effective through June 30, 2021. The three CBA’s provide for wage increases in all years and include health and welfare premium cost sharing provisions. The HERE contract is effective through June 30, 2021,  and provides for wage, pension contribution, and health and welfare contribution increases in all years.

 



7


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

3.      SIGNIFICANT ACCOUNTING POLICIES



a. Management Estimates



In preparing the financial statements in conformity with U.S. GAAP, the management of Chugach is required to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the Balance Sheet and revenues and expenses for the reporting period. Estimates include allowance for doubtful accounts, workers’ compensation liability, deferred charges and liabilities, unbilled revenue, estimated useful life of utility plant, cost of removal and asset retirement obligation (ARO), and remaining proved Beluga River Unit (BRU) reserves. Actual results could differ from those estimates.



b. Regulation



The accounting records of Chugach conform to the Uniform System of Accounts as prescribed by the Federal Energy Regulatory Commission (FERC). Chugach meets the criteria, and accordingly, follows the accounting and reporting requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 980, “Topic 980 - Regulated Operations.” FASB ASC 980 provides for the recognition of regulatory assets and liabilities as allowed by regulators for costs or credits that are reflected in current rates or are considered probable of being included in future rates. Chugach’s regulated rates are established to recover all of the specific costs of providing electric service. In each rate filing, rates are set at levels to recover all of the specific allowable costs and those rates are then collected from retail and wholesale customers. The regulatory assets or liabilities are then reduced as the cost or credit is reflected in earnings and our rates.



c. Income Taxes



Chugach is exempt from federal income taxes under the provisions of Section 501(c)(12) of the Internal Revenue Code and for the nine month periods ended September 30, 2018 and 2017 was in compliance with that provision.



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



8


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

d. Cash, Cash Equivalents, and Restricted Cash Equivalents



The following table provides a reconciliation of cash, cash equivalents, and restricted cash equivalents reported within the Consolidated Balance Sheet that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows.





 

 

 

 

 



 

 

 

 

 



September 30, 2018

 

December 31, 2017

Cash and cash equivalents

$

4,552,878 

 

$

5,485,631 

Restricted cash equivalents

 

538,988 

 

 

687,370 

Restricted cash equivalents included in other property and investments

 

775,161 

 

 

1,028,758 

Total cash, cash equivalents and restricted cash equivalents shown in the consolidated statements of cash flows

$

5,867,027 

 

$

7,201,759 



Restricted cash equivalents include funds on deposit for future workers’ compensation claims.



e. Marketable Securities



Chugach’s marketable securities consist of bond mutual funds, corporate bonds, and certificates of deposit with a maturity less than 12 months, classified as trading securities, reported at fair value with gains and losses in earnings. Net gains on marketable securities are included in nonoperating margins – capital credits, patronage dividends and other, and are summarized as follows:





 

 

 

 

 



 

 

 

 

 



Nine months ended

September 30, 2018

 

Nine months ended

September 30, 2017

Net gains and (losses) recognized during the period on trading securities

$

(177,267)

 

$

103,443 

Less: Net gains and (losses) recognized during the period on trading securities sold during the period

 

(179,916)

 

 

Unrealized gains and (losses) recognized during the reporting period on trading securities still held at the reporting date

$

2,649 

 

$

103,443 



f. Accounts Receivable



Included in accounts receivable are amounts invoiced to ML&P for their proportionate share of current Southcentral Power Project (SPP) costs, which amounted to $1.1 million and $1.3 million at September 30, 2018, and December 31, 2017, respectively. Accounts receivable also included $1.1 million from BRU operations primarily associated with gas sales to ENSTAR Natural Gas Company (ENSTAR) at December 31, 2017, at which time this contract expired.



9


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

g. Fuel Stock



Fuel Stock is the weighted average cost of fuel injected into the Cook Inlet Natural Gas Storage (CINGSA). Chugach’s fuel balance in storage amounted to $11.3 million and $6.9 million at September 30, 2018, and December 31, 2017, respectively.



h. Investments in Associated Organizations

Chugach’s investments in associated organizations are considered equity securities without readily determinable fair values, and as such are measured at cost minus impairment, if any. There were no impairments of these investments recognized during the nine months ended September 30, 2018 or 2017.    





4.      REVENUE FROM CONTRACTS WITH CUSTOMERS



a. Nature of goods and services



The following is a description of the contracts and customer classes from which Chugach generates revenue.



i. Energy Sales



Energy sales revenues are Chugach’s primary source of revenue, representing approximately 95.1% and 92.4% of total operating revenue during the nine months ended September 30, 2018 and 2017, respectively.  Energy sales revenues are recognized upon delivery of electricity, based on billing rates authorized by the RCA, which are applied to customers’ usage of electricity. Chugach’s rates are established, in part, on test period sales levels that reflect actual operating results. Chugach's tariffs include provisions for the recovery of gas costs according to gas supply contracts and costs associated with the BRU operations, as well as purchased power costs.



Expenses associated with electric services include fuel purchased from others and produced from Chugach’s interest in the BRU, both of which are used to generate electricity, as well as power purchased from others. Chugach is authorized by the RCA to recover fuel and purchased power costs through the fuel and purchased power adjustment process, which is adjusted quarterly to reflect increases and decreases of such costs.  The amount of fuel and purchased power revenue recognized is equal to actual fuel and purchased power costs. We recognize differences between projected recoverable fuel and purchased power costs and amounts actually recovered through rates.  The fuel cost under/over recovery on our Balance Sheet represents the net accumulation of any under- or over-collection of fuel and purchased power costs. Fuel cost under-recovery will appear as an asset on our Balance Sheet and will be collected from our members in subsequent periods. Conversely, fuel cost over-recovery will appear as a liability on our Balance Sheet and will be refunded to our members in subsequent periods.

10


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 





 

Customer Class

Nature, timing of satisfaction of performance obligations, and significant payment terms

Retail

Retail energy customers can have up to four components of monthly billing included in revenue – energy, fuel and purchased power, demand and customer charge. The energy rate and fuel and purchased power surcharge are applied by kilowatt hour (kWh) usage. The demand charge is applied by kilowatt (kW). The customer charge is a monthly amount applied by meter.

Wholesale

Classified as firm energy sales. Four components of monthly billing are included in revenue – energy, fuel and purchased power, demand and customer charge. The energy rate and fuel and purchased power surcharge are applied by kWh usage. The demand charge is applied by kW.  The customer charge is a monthly amount applied by meter.

Economy

Classified as non-firm energy sales. Three components of monthly billing are included in revenue – fuel, operations and maintenance, and margin. The actual fuel costs are billed per thousand cubic feet (Mcf) used. The operations and maintenance and margin rates are applied by megawatt hour (MWh) usage.



Payment on energy sales invoices to all customer classes above are due within 15 to 30 days.



Chugach calculates unbilled revenue, for residential and commercial customers, at the end of each month to ensure the recognition of a full month of revenue. Chugach accrued $7,999,322 and $7,674,877 of unbilled retail revenue at September 30, 2018 and 2017, respectively, which is included in accounts receivable on the Balance Sheet. Revenue derived from wholesale and economy customers is recorded from metered locations on a calendar month basis, so no estimation is required.



The collectability of our energy sales is very high with typically 0.10% written off as bad debt expense, adjusted annually.



There were no costs associated with obtaining any of these contracts, therefore no asset was recognized or recorded associated with obtaining any contract.



ii. Wheeling



Wheeling represented 3.7% and 3.5% of our revenue during the nine months ended September 30, 2018 and 2017, respectively.  Wheeling was recorded through the wheeling of energy across Chugach’s transmission lines at rates set by utility tariff and approved by the RCA.  The rates are applied to MWh of energy wheeled. The collectability of wheeling is very high, with no adjustment required.



11


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

iii. Gas Sales



There were no gas sales during the nine months ended September 30, 2018. Gas sales represented 3.1% of our revenue during the nine months ended September 30, 2017, and were recorded through the transfer of natural gas and billed monthly, using Mcf as the unit of measure, and the RCA approved gas transfer price, revised annually. The collectability of gas sales was very high, with no adjustment required.



iv. Other Miscellaneous Services



Other miscellaneous services consist of various agreements including dispatch service and gas transfer agreements, pole rentals and microwave bandwidth. Revenue from these agreements is billed monthly and represented 1.2% and 1.0% of our total operating revenue during the nine months ended September 30, 2018 and 2017, respectively. The revenue recognized from these agreements is recorded as the service is provided over a period of time. The collectability of these agreements is very high, with no adjustment required.



b. Disaggregation of Revenue



The table below details the revenue recognized by customer class and disaggregates base revenue from fuel and purchased power revenue recognized in the Consolidated Statement of Operations for the third quarter of 2018 and 2017 (in millions).





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Base Rate Sales Revenue

Fuel and Purchased Power Revenue

Total Revenue



 

2018

 

2017

 

% Variance

 

2018

 

2017

 

% Variance

 

2018

 

2017

 

% Variance

Retail

 

$

28.1 

 

$

27.2 

 

3.3 

%

 

$

14.8 

 

$

16.1 

 

(8.1 

%)

 

$

42.9 

 

$

43.3 

 

(0.9 

%)

Wholesale

 

$

0.6 

 

$

0.6 

 

0.0 

%

 

$

0.7 

 

$

0.9 

 

(22.2 

%)

 

$

1.3 

 

$

1.5 

 

(13.3 

%)

Economy

 

$

0.0 

 

$

0.2 

 

(100.0 

%)

 

$

0.0 

 

$

0.5 

 

(100.0 

%)

 

$

0.0 

 

$

0.7 

 

(100.0 

%)

Total Energy Sales

 

$

28.7 

 

$

28.0 

 

2.5 

%

 

$

15.5 

 

$

17.5 

 

(11.4 

%)

 

$

44.2 

 

$

45.5 

 

(2.9 

%)

Wheeling

 

$

0.0 

 

$

0.0 

 

0.0 

%

 

$

1.2 

 

$

1.7 

 

(29.4 

%)

 

$

1.2 

 

$

1.7 

 

(29.4 

%)

Gas Sales

 

$

0.0 

 

$

0.0 

 

0.0 

%

 

$

0.0 

 

$

1.6 

 

(100.0 

%)

 

$

0.0 

 

$

1.6 

 

(100.0 

%)

Other

 

$

0.6 

 

$

0.5 

 

20.0 

%

 

$

0.1 

 

$

0.1 

 

0.0 

%

 

$

0.7 

 

$

0.6 

 

16.7 

%

Total Miscellaneous

 

$

0.6 

 

$

0.5 

 

20.0 

%

 

$

1.3 

 

$

3.4 

 

(61.8 

%)

 

$

1.9 

 

$

3.9 

 

(51.3 

%)

Total Revenue

 

$

29.3 

 

$

28.5 

 

2.8 

%

 

$

16.8 

 

$

20.9 

 

(19.6 

%)

 

$

46.1 

 

$

49.4 

 

(6.7 

%)



12


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

The table below details the revenue recognized by customer class and disaggregates base revenue from fuel and purchased power revenue recognized in the Consolidated Statement of Operations for the nine months ended September 30, 2018, and 2017 (in millions).









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Base Rate Sales Revenue

Fuel and Purchased Power Revenue

Total Revenue



 

2018

 

2017

 

% Variance

 

2018

 

2017

 

% Variance

 

2018

 

2017

 

% Variance

Retail

 

$

88.3 

 

$

89.4 

 

(1.2 

%)

 

$

48.7 

 

$

52.6 

 

(7.4 

%)

 

$

137.0 

 

$

142.0 

 

(3.5 

%)

Wholesale

 

$

1.6 

 

$

1.7 

 

(5.9 

%)

 

$

2.3 

 

$

2.7 

 

(14.8 

%)

 

$

3.9 

 

$

4.4 

 

(11.4 

%)

Economy

 

$

0.0 

 

$

0.4 

 

(100.0 

%)

 

$

0.0 

 

$

2.7 

 

(100.0 

%)

 

$

0.0 

 

$

3.1 

 

(100.0 

%)

Total Energy Sales

 

$

89.9 

 

$

91.5 

 

(1.7 

%)

 

$

51.0 

 

$

58.0 

 

(12.1 

%)

 

$

140.9 

 

$

149.5 

 

(5.8 

%)

Wheeling

 

$

0.0 

 

$

0.0 

 

0.0 

%

 

$

5.4 

 

$

5.7 

 

(5.3 

%)

 

$

5.4 

 

$

5.7 

 

(5.3 

%)

Gas Sales

 

$

0.0 

 

$

0.0 

 

0.0 

%

 

$

0.0 

 

$

4.9 

 

(100.0 

%)

 

$

0.0 

 

$

4.9 

 

(100.0 

%)

Other

 

$

1.8 

 

$

1.6 

 

12.5 

%

 

$

0.1 

 

$

0.1 

 

0.0 

%

 

$

1.9 

 

$

1.7 

 

11.8 

%

Total Miscellaneous

 

$

1.8 

 

$

1.6 

 

12.5 

%

 

$

5.5 

 

$

10.7 

 

(48.6 

%)

 

$

7.3 

 

$

12.3 

 

(40.7 

%)

Total Revenue

 

$

91.7 

 

$

93.1 

 

(1.5 

%)

 

$

56.5 

 

$

68.7 

 

(17.8 

%)

 

$

148.2 

 

$

161.8 

 

(8.4 

%)



c. Contract Balances



The table below provides information about contract receivables, contract assets and contract liabilities.





 

 

 

 

 



 

 

 

 

 



September 30, 2018

 

December 31, 2017

Contract receivables, included in accounts receivable

$

23,257,609 

 

$

31,215,494 

Consumer deposits

 

3,284,182 

 

 

3,754,415 

Contract asset

 

 

 

4,921,794 

Contract liabilities

 

4,292,371 

 

 

1,581,481 



Contract receivables represent amounts receivable from retail, wholesale, economy, wheeling, and BRU customers. Consumer deposits represent the deposits required of certain customers to receive electric service and are refundable payments not recognized in revenue. When the customer either terminates service or has established a positive payment history, the deposit is either returned to the customer in cash or applied to the customer’s account.



The contract asset consists of the fuel cost under-recovery and represents the under-collection of fuel and purchased power costs through the fuel and purchased power adjustment process, which will be collected from customers in the following quarter.



Contract liabilities consist of credit balances and fuel cost over-recovery. Credit balances represent the prepaid accounts of retail customers and are recognized in revenue as the customer uses electric service. Fuel cost over-recovery represents the over-collection of fuel and purchased power costs through the fuel and purchased power adjustment process, which will be refunded to customers through lower rates in the following quarter.



13


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

Significant changes in the contract assets and liabilities balances during the nine months ended September 30, 2018, are as follows:





 

 

 

 

 



 

 

 

 

 



Contract assets
Increase (decrease)

 

Contract liabilities
(Increase) decrease

Revenue recognized that was included in the contract liability balance at the beginning of the period

$

 

$

1,456,096 

Revenue recognized and transferred from contract asset at the beginning of the period

 

(4,921,794)

 

 

Cash received, excluding amounts recognized as revenue during the period

 

 

 

(4,166,986)

Net change

$

(4,921,794)

 

$

(2,710,890)



d. Transaction Price Allocated to Remaining Performance Obligations



The table below includes estimated revenue to be recognized during the remainder of 2018 and in 2019 related to performance obligations that are unsatisfied (or partially unsatisfied) at September 30, 2018.





 

 



 

 



2018

Credit balances

$

1,733,793 

Fuel cost over-recovery

 

2,558,578 



Credit balances are primarily associated with Chugach’s LevelPay program. The program calculates the monthly amount to be collected from customers annually. It is anticipated the balance will be recognized in revenue within the following year as customers consume electricity.



Chugach’s fuel cost over- and under- recovery are adjusted quarterly, therefore, amounts over or under collected will be collected or refunded in the following quarter.



5.      REGULATORY MATTERS



Simplified Rate Filing



Chugach is a participant in the Simplified Rate Filing (SRF) process for adjustments to base demand and energy rates for Chugach retail customers and wholesale customer, Seward. SRF is an expedited base rate adjustment process available to electric cooperatives in the State of Alaska, with filings made either on a quarterly or semi-annual basis. Chugach is a participant on a quarterly filing schedule basis. Chugach is required to submit filings to the RCA for approval before any rate changes can be implemented.  While there is no limitation on decreases, base rate increases under SRF are limited to 8% in a 12-month period and 20% in a 36-month period. 



Chugach submitted quarterly SRF filings which resulted in a system demand and energy rate decrease of 3.0% effective July 1, 2017; an increase of 1.9% effective November 1, 2017; an increase of 0.4 % effective February 1, 2018; an increase of 0.3% effective May 1, 2018; an increase of 1.8% effective August 1, 2018; and an increase of 2.7% effective November 1, 2018.



14


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

Fuel and Purchased Power Rates



Chugach recovers fuel and purchased power costs directly from retail and wholesale customers through the fuel and purchased power rate adjustment process. Changes in fuel and purchased power costs are primarily due to fixed price or fuel price adjustment processes in gas-supply contracts. Other factors, including generation unit availability, also impact fuel and purchased power recovery rate levels.



The fuel and purchased power adjustment is approved on a quarterly basis by the RCA. There are no limitations on the number or amount of fuel and purchased power recovery rate changes. Increases in fuel and purchased power costs result in increased revenues while decreases in these costs result in lower revenues. Therefore, revenue from the fuel and purchased power adjustment process does not impact margins. Chugach recognizes differences between projected recoverable fuel and purchased power costs and amounts actually recovered through rates. The fuel cost under/over recovery on the Balance Sheet represents the net accumulation of any under- or over-collection of fuel and purchased power costs. A fuel cost under-recovery will appear as an asset on our Balance Sheet and will be collected from our members in subsequent periods. Conversely, a fuel cost over-recovery will appear as a liability on the Balance Sheet and will be refunded to members in subsequent periods.



Operation and Regulation of the Alaska Railbelt Electric and Transmission System



In June 2016, the RCA opened a docket to “evaluate the reliability and security standards and practices of Alaska Electric Utilities.” In 2017, Chugach and several other Alaska Railbelt utilities entered into a contract with GDS Associates, Inc. (GDS). GDS’s scope is to facilitate discussion between all six Alaska Railbelt utilities and various stakeholders with an end goal of submitting to the RCA a Railbelt Reliability Council (RRC), including a governance structure, that will be responsible for adoption and enforcement of uniform reliability standards and integrated transmission resource planning. GDS presented to the RCA during two technical conferences in January and March of 2018. Chugach and the other utilities provided GDS’s final recommendation of the RRC to the RCA in May 2018. Currently the utilities are finalizing an MOU covering implementation which is expected to be filed with the RCA in the fourth quarter of 2018 pending review and approval by each of the respective utility’s Board of Directors.  While Chugach cannot determine the materiality of any effect on its results of operations, financial condition, and cash flows until a business model and plan are adopted, it anticipates a positive outcome.



In June 2016, in response to Docket I-16-002, Railbelt Utility Information Technology and Operations Technology, leadership began meeting to discuss Railbelt Cybersecurity. The Railbelt Utilities Managers group designated the Cybersecurity Working Group to review industry standards and provide a statement of work to develop Railbelt Cybersecurity Standards. On June 21, 2018, Chugach posted a Request for Proposal to hire a consultant to write the standards. The final draft is expected to be presented to the Railbelt Utility Managers by the end of 2018.



15


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

Cook Inlet Natural Gas Storage Alaska, LLC (CINGSA)



CINGSA filed Tariff Advice Number 32-733 on April 30, 2018, to request adjustments to their base rates for firm natural gas storage service (FSS) and interruptible gas storage service (ISS). Chugach has intervened in this case, and the RCA has suspended this filing into a docket.  The RCA is expected to issue a decision by July 24, 2019.



On April 27, 2018, CINGSA filed a request with the RCA for advance determination of decisional prudence and assurance of cost recovery for what has been termed the Redundancy Project.  A docket was opened to address this matter. Chugach is participating in this docket. A decision by the RCA is expected by January 4, 2019.



Regulatory Assets:  Beluga Power Plant Unit No. 3 Overhaul and Cooper Lake Dredging Project



In June 2018, Chugach submitted petitions to the RCA for approval to create regulatory assets to amortize the costs for the overhaul of Beluga Unit No. 3 and for the Cooper Lake Power Plant Tailrace Dredging project. On August 27, 2018, the RCA authorized Chugach to create regulatory assets in the amount of $4.2 million for the overhaul of Beluga Unit No. 3 for amortization over a 26-month period beginning September 1, 2018, and $1.0 million for the Cooper Lake dredging project over a 16-month period beginning January 1, 2019. 



6.      DEBT



Lines of Credit



Chugach maintains a $50.0 million line of credit with National Rural Utilities Cooperative Finance Corporation (NRUCFC). Chugach did not utilize this line of credit in the nine months ended September 30, 2018. In addition, Chugach did not utilize this line of credit during 2017 and had no outstanding balance at December 31, 2017.  The borrowing rate is calculated using the total rate per annum and may be fixed by NRUCFC. The borrowing rate was 3.50% at September 30,  2018, and 3.00% at December 31, 2017. The NRUCFC Revolving Line Of Credit Agreement requires that Chugach, for each 12-month period, for a period of at least five consecutive days, pay down the entire outstanding principal balance. The NRUCFC line of credit was renewed September 29, 2017, and expires September 29, 2022. This line of credit is immediately available for unconditional borrowing.



16


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

Commercial Paper



On June 13, 2016, Chugach entered into a $150.0 million senior unsecured credit facility, the Credit Agreement, which is used to back Chugach’s commercial paper program. The pricing includes an all-in drawn spread of one month London Interbank Offered Rate (LIBOR) plus 90.0 basis points, along with a 10.0 basis points facility fee (based on an A/A2/A unsecured debt rating). The Credit Agreement will expire on June 13, 2021. The participating banks include NRUCFC, KeyBank National Association, Bank of America, N.A., and CoBank, ACB. The commercial paper can be repriced between one day and 270 days.



Chugach expects to continue issuing commercial paper in 2018, as needed. Chugach had $62.0 million and $50.0 million of commercial paper outstanding at September 30, 2018, and December 31, 2017, respectively.



The following table provides information regarding average commercial paper balances outstanding for the quarters ended September 30, 2018, and 2017 (dollars in millions), as well as corresponding weighted average interest rates:



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

2018

 

2017

Average Balance

 

Weighted Average Interest Rate

 

Average Balance

 

Weighted Average Interest Rate

$

52.9

 

2.28 

%

 

$

42.8

 

1.40 

%



Term Loans



Chugach has a term loan facility with CoBank. Loans made under this facility are evidenced by the 2016 CoBank Note, which is governed by the Amended and Restated Master Loan Agreement dated June 30, 2016, and secured by the Second Amended and Restated Indenture of Trust (Indenture). At September 30, 2018, Chugach had $38.0 million outstanding with CoBank.



Financing



On March 17, 2017, Chugach issued $40,000,000 of First Mortgage Bonds, 2017 Series A, due March 15, 2037. The bonds were issued for general corporate purposes. The 2017 Series A Bonds will mature on March 15, 2037, and bear interest at 3.43%. Interest will be paid each March 15 and September 15, commencing on September 15, 2017. The 2017 Series A Bonds require principal payments in equal installments on an annual basis beginning March 15, 2018, resulting in an average life of approximately 10.0 years. The bonds are secured, ranking equally with all other long-term obligations, by a first lien on substantially all of Chugach’s assets, pursuant to the Sixth Supplemental Indenture to the Second Amended and Restated Indenture of Trust, which initially became effective on January 20, 2011, as previously amended and supplemented. 



17


 

Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

Debt Issuance Costs



The following table outlines debt issuance costs associated with long-term obligations, excluding current installments, at September 30, 2018.



 

 

 

 

 



 

 

 

 

 



Long-term Obligations

 

Unamortized
Debt Issuance Costs

2011 Series A Bonds

$

189,666,664 

 

$

1,127,095 

2012 Series A Bonds

 

172,750,000 

 

 

958,149 

2017 Series A Bonds

 

36,000,000 

 

 

191,528 

2016 CoBank Note

 

34,770,000 

 

 

209,089 



$

433,186,664 

 

$

2,485,861 



The following table outlines debt issuance costs associated with long-term obligations, excluding current installments, at December 31, 2017.





 

 

 

 

 



 

 

 

 

 



Long-term Obligations

 

Unamortized
Debt Issuance Costs

2011 Series A Bonds

$

200,333,331 

 

$

1,218,687 

2012 Series A Bonds

 

183,500,000 

 

 

1,019,582 

2017 Series A Bonds

 

38,000,000 

 

 

199,399 

2016 CoBank Note

 

37,164,000 

 

 

231,817 



$

458,997,331 

 

$

2,669,485 











7.      RECENT ACCOUNTING PRONOUNCEMENTS



Issued, and adopted at September 30, 2018:



ASC Update 2014-09 “Revenue from Contracts with Customers (Topic 606)” and Related Updates

In May of 2014, the FASB issued ASC Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 provides guidance for the recognition, measurement and disclosure of revenue related to the transfer of promised goods or services to customers. Chugach adopted the standard on January 1, 2018, using the modified retrospective transition method with no cumulative effect adjustment as of adoption.

We evaluated our contracts associated with energy sales, wheeling, gas sales, and other miscellaneous revenue and did not identify any change to the timing or pattern of revenue recognition. The adoption of Topic 606 also included additional disclosure requirements. See “Note 4 – REVENUE FROM CONTRACTS WITH CUSTOMERS.”



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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

ASC Update 2016-01 “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

In January of 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends guidance related to certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption not permitted with certain exceptions. Chugach began application of ASU 2016-01 on January 1, 2018. Adoption did not have a material effect on its results of operations, financial position, and cash flows.



ASC Update 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)”

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force). ASU 2016-15 clarifies how certain cash payments and cash proceeds should be classified on the statement of cash flows to limit the diversity in practice. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted. Chugach began application of ASU 2016-15 on January 1, 2018. Adoption did not have a material effect on its results of operations, financial position, and cash flows.



ASC Update 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)



In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” ASU 2016-18 clarifies how to classify and present changes in restricted cash or cash equivalents that occur when there are transfers between cash, cash equivalents, and restricted cash or restricted cash equivalents and when there are direct cash receipts into or payments made from restricted cash or restricted cash equivalents on the statement of cash flows to limit the diversity in practice. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted. Chugach began application of ASU 2016-18 on January 1, 2018. Adoption did not have a material effect on its results of operations, financial position, and cash flows.



While there was not a material impact to the net change in cash flows, the beginning and ending cash balances for the nine months ended September 30, 2017, increased $1,710,282 and $1,713,249,  respectively, to reflect the restricted cash equivalents balances.



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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

ASC Update 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business



In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition of a business by providing a screen to determine when a set of assets and activities acquired or disposed of constitute a business, as well as a framework for evaluating whether all elements of a business are present in the set. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted only when the transaction has not been reported in financial statements. Chugach began application of ASU 2017-01 on January 1, 2018. Adoption did not have a material effect on its results of operations, financial position, and cash flows.



ASC Update 2017-07 “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost



In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 amends current guidance on the presentation and disclosure of other compensation costs in the income statement. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted only for financial statements that have not been issued. Chugach began application of ASU 2017-07 on January 1, 2018. Adoption did not have a material effect on its results of operations, financial position, and cash flows.



Issued, not yet adopted:



ASC Update 2016-02 “Leases (Topic 842): Section A – Leases: Amendments to the FASB Accounting Standards Codification; Section B – Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification; Section C – Background Information and Basis for Conclusions and Related Updates



In February of 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): Section A – Leases: Amendments to the FASB Accounting Standards Codification; Section B – Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification; Section C – Background Information and Basis for Conclusions.” ASU 2016-02 amends guidance related to the recognition, measurement, presentation and disclosure of leases for lessors and lessees. While accounting for lessors remains substantially the same, lessee accounting requires significant changes from current U.S. GAAP. Pursuant to the new standard, lessees will be required to identify all leases, including those embedded in contracts, classify leases as finance or operating, recognize all leases on the Balance Sheet and record corresponding right-of-use assets and lease liabilities. The update requires the recognition of lease assets and liabilities for those leases currently classified as operating leases while also refining the definition of a lease. Operating leases will reflect lease expense on a straight-line basis, while finance leases will result in the separate presentation of interest expense on the lease liability and amortization expense of the right-of-use asset.



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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

In January 2018, the FASB issued ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842.” ASU 2018-01 amends ASU 2016-02 to provide an optional transition practical expedient allowing entities to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.



Chugach is continuing to evaluate existing leases and contracts to determine the impact of these updates.  Chugach expects that, for the vast majority of its leases, the impact will not be material, however it continues to evaluate the impact, if any, of Topic 842 on its Bradley Lake Hydroelectric Project and continues to monitor utility industry implementation issues that may change existing and future lease classification.  We are working on developing and implementing a new contract review process to ensure that any future leases will be identified and accounted for properly according to the new standard.  We have evaluated existing land easements and determined that we will elect to use the practical expedient for transition.



These updates are effective for fiscal years beginning after December 15, 2018, including the interim periods within those years, with early adoption permitted. Chugach will begin application of ASU 2016-02 and related updates on January 1, 2019. Chugach expects these updates to increase the recorded amounts of assets and liabilities. We are continuing to evaluate the impact of these updates to our results of operations, financial position, and cash flows.



ASC Update 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments



In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 revised the criteria for the measurement, recognition, and reporting of credit losses on financial instruments to be recognized when expected. This update is effective for fiscal years beginning after December 15, 2019, including the interim periods within those years, with early adoption permitted for fiscal years beginning after December 15, 2018, including interim periods within those years. Chugach will begin application of ASU 2016-13 on January 1, 2020. Adoption is not expected to have a material effect on its results of operations, financial position, and cash flows.



ASC Update 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”



In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.”  ASU 2018-13 which changes the fair value measurement disclosure requirements of ASC 820. This update is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU.  Chugach will begin application of ASU 2018-13 on January 1, 2020. Adoption is not expected to have a material effect on its results of operations, financial position, and cash flows.



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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

ASC Update 2018-14 “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”



In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.”  ASU 2018-14 Modifies ASC 715-20 to improve disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for fiscal years ending after December 15, 2020, for public companiesEarly adoption is permitted.  Chugach will begin application of ASU 2018-14 on January 1, 2021. Adoption is not expected to have a material effect on its results of operations, financial position, and cash flows.



ASC Update 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”



In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”  ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.  The ASU is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. Chugach will begin application of ASU 2018-15 on January 1, 2020. Adoption is not expected to have a material effect on its results of operations, financial position, and cash flows.



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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

8.      FAIR VALUES OF ASSETS AND LIABILITIES



Fair Value Hierarchy



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



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



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



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



The table below presents the balance of Chugach’s marketable securities measured at fair value on a recurring basis at September 30, 2018, and December 31, 2017. Chugach’s bond mutual funds, corporate bonds, and marketable certificates of deposit are measured using quoted prices in active markets. Chugach had no other assets or liabilities measured at fair value on a recurring basis at September 30, 2018, or at December 31, 2017.  







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

Total

 

Level 1

 

Level 2

 

Level 3

Bond mutual funds

 

$

7,939,912 

 

$

7,939,912 

 

$

 

$

Certificates of deposit

 

$

1,439,169 

 

$

1,439,169 

 

$

 

$



 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

Total

 

Level 1

 

Level 2

 

Level 3

Bond mutual funds

 

$

8,109,242 

 

$

8,109,242 

 

$

 

$

Corporate bonds

 

$

248,335 

 

$

248,335 

 

$

 

$

Certificates of deposit

 

$

3,063,323 

 

$

3,063,323 

 

$

 

$



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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 

Fair Value of Financial Instruments



Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions. The fair value of cash and cash equivalents, accounts receivable and payable, and other short-term monetary assets and liabilities approximate carrying value due to their short-term nature.



The estimated fair values (in thousands) of long-term obligations included in the financial statements at September 30, 2018, are as follows:









 

 

 

 

 

 



 

 

 

 

 

 



 

Carrying Value

 

Fair Value Level 2

Long-term obligations (including current installments)

 

$

459,795 

 

$

460,754 





9.      ENVIRONMENTAL MATTERS



Chugach includes costs associated with environmental compliance in both our operating and capital budgets. We accrue for costs associated with environmental remediation obligations when those costs are probable and reasonably estimable. We do not anticipate that environmental related expenditures will have a material effect on our results of operations or financial condition. We cannot, however, predict the nature, extent or cost of new laws or regulations relating to environmental matters.



The Clean Air Act and Environmental Protection Agency (EPA) regulations under the Clean Air Act establish ambient air quality standards and limit the emission of many air pollutants. New Clean Air Act regulations impacting electric utilities may result from future events or new regulatory programs. On August 3, 2015, the EPA released the final 111(d) regulation language aimed at reducing emissions of carbon dioxide (CO2) from existing power plants that provide electricity for utility customers. In the final rule, the EPA took the approach of making individual states responsible for the development and implementation of plans to reduce the rate of CO2 emissions from the power sector. The EPA initially applied the final rule to 47 of the contiguous states. At this time, Alaska, Hawaii, Vermont, Washington District of Columbia (D.C.) and two U.S. territories are not bound by the regulation. Alaska may be required to comply at some future date. On February 9, 2016 the U.S. Supreme Court issued a stay on the proposed EPA 111(d) regulations until the D.C. Circuit decides the case, or until the disposition of a petition to the Supreme Court on the issue. On September 27, 2016, the U.S. Court of Appeals for the D.C. Circuit heard oral arguments challenging the legality of the Clean Power Plan. While awaiting the court decision, an Executive Order promoting energy independence and economic growth was issued March 28, 2017, by the President instructing the EPA to review the Clean Power Plan. The EPA is directed to review the Clean Power Plan rule and either revise or withdraw the proposed rule. On October 10, 2017, the EPA initiated a Proposed Repeal of the Clean Power Plan. The EPA 111(d) regulation, in its current form, is not expected to have a material effect on Chugach’s financial condition, results of operations, or cash flows. While Chugach cannot predict the implementation of any additional new law or regulation, or the limitations thereof, it is possible that new laws or regulations could increase capital and operating costs. Chugach has obtained or applied for all Clean Air Act permits currently required for the operation of generating facilities.

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Table Of Contents

 

Chugach Electric Association, Inc.

Notes to Consolidated Financial Statements

September 30, 2018 and 2017

 



Chugach is subject to numerous other environmental statutes including the Clean Water Act, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Endangered Species Act, and the Comprehensive Environmental Response, Compensation and Liability Act and to the regulations implementing these statutes. Chugach does not believe that compliance with these statutes and regulations to date has had a material impact on its financial condition, results of operation or cash flows. However, the implementation of any additional new law or regulation, or the limitations thereof, or changes in or new interpretations of laws or regulations could result in significant additional capital or operating expenses. Chugach monitors proposed new regulations and existing regulation changes through industry associations and professional organizations.



10.    COMMITMENTS AND CONTINGENCIES



Contingencies



Chugach is a participant in various legal actions, rate disputes, personnel matters and claims both for and against Chugach’s interests. Management believes the outcome of any such matters will not materially impact Chugach’s financial condition, results of operations or liquidity. Chugach establishes reserves when a particular contingency is probable and calculable. Chugach has not accrued for any contingency at September 30, 2018, as it does not consider any contingency to be probable nor calculable. Chugach faces contingencies that are reasonably possible to occur; however, they cannot currently be estimated.



Concentrations



Approximately 70% of our employees are members of the IBEW. Chugach has three CBA’s with the IBEW. We also have a CBA with the HERE. All t