Exhibit 10.39.3

SETTLEMENT OF DISPUTE OVER NIKISKI COGENERATION PLANT
SYSTEM USE AND DISPATCH AGREEMENT AND
PREMIUM DEMAND CHARGES UNDER HEA PSA

          Chugach Electric Association, Inc. ( Chugach) and Alaska Electric and
Energy Cooperative, Inc. and Homer Electric Association, Inc. (collectively
referred to as “HEA”) have discussed the matter of their disparate
interpretations of the Nikiski Cogeneration Plant System Use and Dispatch
Agreement (Dispatch Agreement) and have agreed on a mutually satisfactory
settlement of their differences with respect to the Dispatch Agreement and
Chugach’s claim for Premium Demand charges under the HEA Power Sales Agreement
with Chugach (HEA PSA) as follows:

          Chugach agrees to dispatch HEA’s shares of Bradley Lake output for
$30,000/per calendar year subject to any changes in law or directive of
governmental authority. This annual fee shall be payable on the last business
day of June of each year for the duration of this settlement agreement
(Settlement).

          This Settlement will remain in effect until the earlier of (a) the
termination or expiration of the HEA PSA; (b) Chugach and HEA agree in writing
to terminate this Settlement; or (c) HEA notifies Chugach that HEA is unable to
acquire satisfactory gas supplies to provide for AEG&T Use (as defined in the
Dispatch Agreement) and on that basis elects to terminate this Settlement.

          Chugach shall dispatch HEA’s share of Bradley Lake output, to the
extent it is available, to minimize HEA’s demand on Chugach’s monthly system
peaks so as to minimize, to the extent possible, any Premium Demand charge or
claim by Chugach, and Chugach shall calculate any such charge as though Chugach
had complied perfectly with such dispatching obligation.

          HEA understands that while the parties believe that having Chugach
dispatch HEA’s share of Bradley Lake output is likely to greatly reduce the
claim from Chugach

SETTLEMENT AGREEMENT
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for Premium Demand charges, it will not eliminate the potential of such a claim.
So long as this Settlement is in effect, and for service rendered from December
1, 2007, forward, HEA will not contest and will promptly pay all Premium Demand
charges assessed by Chugach, as calculated under the terms of this Settlement.

          Chugach agrees that it will inquire as to natural gas availability
from Marathon Oil Company and from ENSTAR for AEG&T Use in order to develop a
supply of gas for AEG&T Use that can be used to further reduce Chugach’s claim
for Premium Demand charges. Chugach will report the results to HEA within 180
days of the date of this settlement agreement.

          Chugach shall not be responsible for obtaining and does not warrant
that it will obtain a supply of fuel for AEG&T Use. HEA agrees to use its best
efforts to obtain AEG&T Use fuel on commercially reasonable terms. Chugach and
HEA agree to cooperate in good faith on scheduling AEG&T Use fuel if any such
scheduling is required.

          Chugach will calculate charges for the Bradley Lake dispatch set out
in this Settlement to include $2,500 for December of 2006 and $30,000 for all of
2007.

          Chugach   will    recalculate   Premium   Demand   charges   through
  November  30,  2007,  to   reflect  a
re-dispatched HEA share of Bradley Lake output resulting in the following past
Premium Demand Charges under the HEA PSA:

          December 2006 - $24,181

          January 2007 - $58,486

          September 2007 - $12,693

          The result is that the total payable by HEA to Chugach through
November 30, 2007, under this Settlement is $127,860. HEA agrees to pay this
amount within 30 days after the date of this settlement agreement.

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          The parties intend by this agreement to fully and completely settle
all past claims for Premium Demand charges through November 30, 2007, and to
agree on how Premium Demand Charges will be computed thereafter for so long as
this Settlement is in effect. This Settlement represents a compromise of a
disputed claim for the convenience of the parties and by executing this
agreement and compromising with respect to the charges to be paid by HEA to and
accepted by Chugach, neither party is agreeing to the other party’s
interpretation of the Dispatch Agreement or to the impact of those
interpretations on Premium Demand charges under the HEA PSA. To the contrary,
each party continues to maintain the correctness of its interpretation of the
Dispatch Agreement, and reserves the right to assert its interpretation of the
Dispatch Agreement and questions relating to the assessment of the Premium
Demand charges at any time in an appropriate forum after this Settlement has
been terminated but only as to charges that have been asserted for events after
this Settlement has been terminated. This Settlement and HEA’s payment of any
amount hereunder and Chugach’s acceptance of the amounts to be paid hereunder
cannot and will not be used as evidence to support either party’s position in
any proceeding in which HEA challenges Chugach’s assessment of any demand charge
for services delivered after the termination of this Settlement.

          With respect to the foregoing agreements the parties hereby
acknowledge that they are aware that they or their attorneys may hereafter
discover claims, facts, damages or injuries based upon, relating to or arising
out of the subject matter of this Settlement but that it is nevertheless their
intention to hereby fully, finally and forever settle and release all of the
claims known or unknown, suspected or unsuspected, which each has against the
other based upon, relating to, or arising out of the subject matter of this
Settlement to the extent described herein. In furtherance of such intention, the
agreements reached shall be and remain in effect as a full and complete general
release to the extent described

SETTLEMENT AGREEMENT
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herein notwithstanding the discovery or existence of any additional or different
claims, facts, damages or injuries. The parties are aware of the decision in the
case of Witt v. Watkins, 579 P.2d 1065 (Alaska 1978). The parties expressly
waive and relinquish any and all rights and benefits which they may have under,
or which may be conferred upon them by, the holding in Witt v. Watkins or any
other similar case law decision, statute or other legal authority law of the
State of Alaska, of any other state or territory of the United States, of the
United States, or of any foreign country, to the fullest extent that they may
lawfully waive such rights or benefits pertaining to the subject matter of this
Settlement.

          The parties are aware of the decisions in the cases of Young v. State,
455 P.2d 889 (Alaska 1969) and Totem Marine Tug & Barge, Inc. v. Alyeska
Pipeline Service Co., 584 P.2d 15 (Alaska 1978), and any protections of the
holdings therein relevant to the present case are hereby waived and
relinquished. It is the true intent and desire of HEA and Chugach to fully
release all individuals, firms, corporations or other business entities related
to HEA and Chugach who may in any way have been connected with any claims
released herein as fully as though they were specifically listed and named
herein. The parties acknowledge their freedom of choice and understand that they
do not need to consent to the terms of this Agreement, and further acknowledge
the availability of other reasonable alternatives and adequate remedies, but
have nonetheless freely, voluntarily, and intentionally chosen not to pursue the
same for the purpose of making a full, final, and complete compromise of the
disputes settled herein

          HEA and Chugach each shall bear all attorney’s fees and costs arising
from the actions of their own counsel in connection with the drafting and
negotiation of this Settlement.

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          This Settlement constitutes the entire agreement between HEA and
Chugach relating to the settlement of the subject of this Settlement. No
statements, communications, letters or other agreements, whether written or
verbal, relating to this Settlement shall have any force or effect unless
embodied in this Settlement.

          HEA and Chugach each agree to support jointly the reasonableness or
adequacy of this Settlement in all proceedings in which its reasonableness or
adequacy is at issue. A determination by any court or administrative agency with
jurisdiction over this matter that this Settlement is not reasonable or adequate
shall render this Settlement null and void.

          HEA and Chugach each individually represents, warrants and agrees that
it has the full right and authority to enter into this Settlement, and to
provide the covenants set forth in this Settlement, and that the party or
representative executing this Settlement has the full right and authority to
commit and bind such party according to the provisions hereof.

          This Settlement represents the compromise of disputed claims. This
Settlement shall be binding upon and inure to the benefit of the parties hereto
and their predecessors, successors, heirs, assigns, and representatives.

          Dated this 15 day of January, 2008.

 

 

 

HOMER ELECTRIC ASSOCIATION, INC.

 

 

AND ALASKA ELECTRIC AND

 

 

ENERGY, INC.

 

 

 

By:

-s- Bradley P. Janorschke [d74063001.jpg]

 

 

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Bradley P. Janorschke, General Manager

 

 

 

CHUGACH ELECTRIC ASSOCIATION,
INC.

 

 

 

By:

-s- Bradley Evans [d74063002.jpg]

 

 

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Bradley Evans, CEO

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