SETTLEMENT AGREEMENT

         This  Settlement  Agreement  is made this 15th day of May 1998,  by and
between  Nationwide  Mutual Insurance  Company  ("Nationwide"),  Alaska National
Insurance Company ("Alaska National"),  Providence  Washington Insurance Company
("Providence    Washington")   and   Admiral   Insurance   Company   ("Admiral")
(collectively the "Insurers"), and Chugach Electric
Association, Inc. ("Chugach").

                                   DEFINITIONS

         AGREEMENT means this Settlement Agreement.

         CLAIMS means claims, obligations,  demands, suits, proceedings,  causes
of action,  government orders,  costs, or liabilities,  whether known,  unknown,
foreseeable,   unforeseeable,  legal,  equitable,  fixed,  contingent,  matured,
unmatured,  liquidated,  or unliquidated and without regard to when such claims,
etc., accrue or accrued.

         ENVIRONMENTAL CLAIMS means any and all past, present, and future CLAIMS
that are asserted or brought at any time  against,  or imposed at any time upon,
Chugach arising out of or relating to actual, alleged,  threatened, or potential
bodily injury and/or property  damage and/or personal injury and/or  advertising
injury caused by ENVIRONMENTAL CONTAMINATION.

         ENVIRONMENTAL  CONTAMINATION  means the actual,  alleged, or threatened
presence, movement, migration, discharge, dispersal, seepage, emission, release,
disposal,  dumping,   landfilling,   or  escape  of  contaminants,   pollutants,
irritants,  thermal  contamination,  trash, smoke,  vapors, soot, acids, alkyds,
gases,  chemicals,   petroleum  derivatives,   waste  materials,  or  any  other
substances alleged by any person or entity in the past, now, or in the future to
be toxic, hazardous, damaging, or harmful to the environment and/or human health
or safety.

         POLICIES means:

                  Policies   issued   by   Nationwide   to   Chugach    numbered
                  85GA-953-672-0002  (5/1/84 to 5/1/85,  renewed to 5/1/86,  and
                  again to 5/1/87;

                  Policies issued by Alaska National to Chugach numbered A 82 LD
                  00361  (1/1/82 to 1/1/83),  A 83 CD 00361  (1/1/83 to 1/1/84),
                  and 84A LD 00361 (1/1/84 to 5/1/84);

                  Policies issued by Providence  Washington to Chugach  numbered
                  GLA4 52 36 (1/1/77 to  1/1/78),  GLA4 71 15 (1/1/78 to 1/1/79,
                  GLA5 06 65  (1/1/80  to  1/1/81),  and GLA5 20 86  (1/1/81  to
                  1/1/82); and

                  The policy  issued by  Admiral  to Chugach  numbered 9 CG 2769
                  (1/1/79 to 1/1/80).

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         SITE means the Standard  Steel & Metals  Salvage Yard Superfund Site in
Anchorage, Alaska.


                                    RECITALS

     WHEREAS, the Insurers issued the POLICIES to Chugach;

     WHEREAS,  the United States has asserted  claims against  Chugach under the
Comprehensive  Environmental  Response Compensation and Liability Act, 42 U.S.C.
ss.  9601 et  seq.  ("CERCLA  Claims")  relating  to the  release  of  hazardous
substances at the SITE;

     WHEREAS, in partial settlement of costs incurred in connection with the
CERCLA  Claims  Chugach  entered into a Partial  Consent  Decree with the United
States dated  December  1996 (the  "Partial  Consent  Decree").  Pursuant to the
Partial  Consent Decree,  Chugach paid United States' past response  costs,  EPA
oversight  costs,  and  remedial   investigation  and  feasibility  study  costs
(collectively, "Partial Consent Decree Costs") and costs of removing scrap metal
and debris from the SITE ("Scrap Removal Costs");

     WHEREAS,  in further  settlement,  Chugach  executed  a second  Consent
Decree with the United  States  which was  entered by the court in January  1998
pursuant to which Chugach and other potentially responsible parties ("PRPs") are
performing  remedial  design and remedial  action  ("RD/RA")  at the SITE.  This
second  Consent  Decree  requires  performance  of RD/RA work and operations and
maintenance  ("O&M")  activities  at the SITE and  payment of United  States EPA
oversight costs relating to the same ("Oversight Costs");

     WHEREAS,  Chugach has requested  coverage  from the Insurers  under the
POLICIES for costs arising out of the CERCLA Claims against Chugach  relating to
the SITE;

     WHEREAS,  the Insurers dispute that they have any obligations to defend
or indemnify Chugach in connection with any CERCLA Claims or other ENVIRONMENTAL
CLAIMS under their POLICIES; and

     WHEREAS,  the  parties  now seek a full  and  final  resolution  of all
ENVIRONMENTAL  CLAIMS  relating  to the SITE,  except  with  respect to possible
natural  resource damage  assessment  claims arising under 42 U.S.C. ss. 9607(f)
("NRDA Claims");

     NOW,  THEREFORE,  in  consideration  of the  mutual  agreements  by and
between the parties, the parties hereby agree as follows:



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                                    AGREEMENT

         The parties hereby settle all ENVIRONMENTAL CLAIMS, except with respect
to NRDA Claims, that Chugach could assert as arising under the POLICIES relating
to the SITE. The terms of this settlement are as follows:

                  1.       PAYMENTS BY THE INSURERS.

                  a. The Insurers  shall pay 100% of Chugach's  attorneys'  fees
incurred in defending  CERCLA Claims through  February 28, 1998.  Subject to the
Insurers' right to audit and dispute such fees, payment of such fees for January
and February  1998 shall be due within  thirty (30) days of the date of invoice.
On or before March 16, 1998,  the Insurers  will bring current the past invoices
of Chugach's  defense  counsel Heller Ehrman,  with interest  running at 10 1/2%
simple  interest  from January 1, 1998.  These bills include  $8,750.71  owed on
1990- 91 billings and current billings in the amount of $7,496.40.

                  b. On March 16,  1998,  or  thirty  (30)  days  after  Chugach
provides  the  Insurers  with  documentation  supporting  its claim for payment,
whichever is later,  the Insurers  shall pay 100% of the  following:  50% of the
Partial Consent Decree Costs. This amount totals approximately $433,611 and will
be  allocated  to  defense  costs.  The  Insurers  shall  also pay  77.5% of the
following:  the remaining 50% of Partial  Consent Decree Costs,  the total Scrap
Removal  Costs,  and the total  RD/RA  costs paid by Chugach  prior to March 15,
1998.  This 77.5% payment will be allocated to  indemnity.  Interest will run at
the rate of 8% simple interest from the date this payment is due.

                  c. On December 1, 1998,  and December 1, 1999,  or thirty (30)
days after Chugach provides the Insurers with documentation supporting its claim
for payment,  whichever is later,  the Insurers shall pay 77.5% of the RD/RA and
Oversight Costs paid by Chugach since the last payment.  These progress payments
will be  allocated  to  indemnity.  Interest  will run at the rate of 8%  simple
interest from the date a payment is due.

                  d.  On the  earlier  of EPA  certification  of  completion  of
remedial action or January 1, 2001,  Chugach shall provide  documentation of the
RD/RA and  Oversight  Costs paid by Chugach  since the last payment and,  within
thirty (30) days  thereafter,  the Insurers shall pay 77.5% of the same.  Within
such  30-day  period the  Insurers  shall also pay 90% of the  present  value of
Chugach's  share of  estimated  future  costs for O & M,  Oversight  and defense
("Future  Costs").  These  amounts will be allocated to  indemnity.  The present
value estimate of Future Costs will be determined by the PRPs' consultant,  Alex
Tula. If Alex Tula is no longer serving as the PRPs'  consultant,  his successor
shall make the determination,  provided that the Insurers consent.  If Chugach's
share of the present  value  estimate of Future Costs is  determined  to be less
than  $100,000,  the  Insurers  shall  be bound  by this  determination.  If (1)
Chugach's  share of the present value  estimate of Future Costs is determined to
be equal to or more than $100,000 and the parties  cannot agree on the estimated
amount within a reasonable

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time frame or (2) Alex Tula is no longer serving as the PRPs' consultant and the
Insurers do not consent to his successor's making the determination, the parties
will attempt to agree on a single  mutually  acceptable  consultant to determine
the present  value  estimate of Future Costs.  If the parties  cannot agree on a
consultant within a reasonable time period, each party will select a consultant,
those two consultants will select a third  consultant and all three  consultants
will  attempt to agree upon the  present  value  estimate of Future  Costs.  The
decision of two of the three  consultants  will be binding on all  parties.  The
cost of a single mutually  agreeable  consultant,  or, if three  consultants are
used, the cost of the consultant  selected by the other two consultants  will be
paid on a 50-50  basis by Chugach and the  Insurers.  If three  consultants  are
used, each party will pay the full cost of the consultant it selected.  Interest
on Future Costs will run at the rate of 8% simple interest from the date payment
is due.

                  e. The  Insurers  shall pay 90% of Chugach's  attorneys'  fees
incurred  in  defending   CERCLA   Claims  from  March  1,  1998,   through  EPA
certification of completion of remedial action or January 1, 2001,  whichever is
earlier.  Subject to the Insurers' right to audit and dispute such fees, payment
of such fees shall be made within thirty (30) days after the date of invoice.

         2.                MUTUAL RELEASE OF ALL CLAIMS.
         In  consideration  of the payment set forth in the preceding  paragraph
and the mutual  release set forth in this  paragraph,  Chugach and the  Insurers
jointly  release and discharge  each other from any and all liability  under the
POLICIES  for all  CLAIMS  for both  defense  and  indemnity  payment  involving
ENVIRONMENTAL  CLAIMS,  except for NRDA Claims,  against Chugach relating to the
SITE.

         3.                KNOWN POLICIES.
         Chugach and the  Insurers  agree that the only  policies  of  insurance
covered by this AGREEMENT are the POLICIES, as defined above.

         4.                TERMS AND CONDITIONS OF POLICIES.

         Except  as  specifically  provided  by  the  AGREEMENT,   the  parties'
respective  rights and duties shall be determined by the terms and conditions of
the POLICIES and applicable  law. For example,  and without  limitation,  issues
regarding  applicable  policy limits and the exhaustion of policy limits will be
determined by the language of the POLICIES and  applicable law unless and except
as expressly addressed in this AGREEMENT.

         5. POLICY  LIMITS OF 1978  PROVIDENCE  WASHINGTON  POLICY.  

         Chugach and Providence Washington only  agree  for  purposes  of  this
settlement  that the 1978  Providence  Washington  policy (GLA4 71 15, 1/1/78 to
1/1/79)

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         will be treated as if it has limits of $50,000 for liability on account
of property damage, but Chugach and Providence Washington agree that nothing in 
this AGREEMENT shall waive Chugach's right to argue that this policy had higher 
limits in connection with any CLAIMS other than those settled hereunder.

         6.                ALLOCATION OF PAYMENTS.
         The Insurers  agree that, as to their  respective  POLICIES,  they will
allocate payments made under this settlement on a pro rata horizontal basis. The
Insurers  do not  agree to  allocate  on a pro rata  basis as among  themselves.
Providence  Washington  agrees it will not allocate  horizontally to policies in
effect before January 1, 1977.

         7.                EXCLUSION OF NRDA CLAIMS.
         All  NRDA  Claims,   whether  related  to  defense  or  indemnification
obligations, are excluded from this AGREEMENT.

         8.                CONFIDENTIALITY.
         The parties acknowledge that Chugach is a publicly traded, member-owned
utility and that  Chugach may be  required  to disclose  information  about this
AGREEMENT  to  regulatory  agencies  and  others.  The  parties  agree  to  work
cooperatively  together  to retain as much  confidentiality  as possible of this
settlement  while   acknowledging   that  Chugach  has  substantial   disclosure
obligations  including,  without  limitation,  those  relating to SEC,  APUC and
wholesale  customers.  The terms of this  AGREEMENT may also be disclosed by the
parties to their respective counsel, reinsurers, and accountants. This AGREEMENT
is made pursuant to and in reliance on Evidence Rule 408.

         9.                PARTIES BOUND.
         This  AGREEMENT  is binding on and for the  benefit of the  parties and
their respective officers, directors, shareholders, agents, servants, employees,
attorneys,  representatives,  divisions,  parent  and  subsidiary  corporations,
affiliates,  heirs,  executors,  administrators,  successors,  and assigns.  The
AGREEMENT is not intended to, and does not,  give or create rights to or for any
other person or entity.

         10.               DISPUTES REGARDING AGREEMENT.
         The laws of the state of Alaska  shall  apply to  construction  of this
AGREEMENT,  and any proceeding to enforce the AGREEMENT  shall be brought in the
state of Alaska,  unless all parties agree  otherwise.  The prevailing  party or
parties in any such proceedings  shall be entitled to their reasonable costs and
attorneys'  fees incurred in  prosecuting  or defending  such  proceeding.  This
AGREEMENT was reviewed and accepted by legal counsel for CHUGACH

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and the INSURERS.  In the event any ambiguity is found to exist in any provision
of this  AGREEMENT,  such ambiguity is not to be construed  against any party as
drafter of the document.

         11.               COMPLETE AGREEMENT.
         This AGREEMENT  contains all of the terms and conditions agreed upon by
the parties  relating to its subject  matter and supersedes any and all prior or
contemporaneous agreements,  negotiations,  correspondence,  understandings, and
communications  of  the  parties,  whether  oral  or  written,  respecting  this
settlement.

         12.               EXECUTION OF AGREEMENT.
         There shall be only one original AGREEMENT,  to be retained by Chugach,
consisting of 11 pages with an original  signature on behalf of each party. This
AGREEMENT may be executed by the parties in counterpart  originals with the same
force and effect as if fully and  simultaneously  executed as a single  original
document.

         13.               AUTHORITY.
         Each of the  following  undersigned  represents  that he or she has the
authority to enter into,  and does enter into,  this  AGREEMENT on behalf of the
party he or she represents.

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                                              Chugach Electric Association, Inc.


May 19, 1998                                /s/ Eugene N. Bjornstad
                                            ------------------------
DATE                                        Authorized Representative

                                                General Manager
                                                    Title

SUBSCRIBED AND SWORN to before me this 19 day of March, 1998.


                                            /s/ Denise A. Withers
                                            NOTARY PUBLIC in and for the State
                                            of Alaska, residing at
                                            Anchorage, Alaska.
                                            My Commission Expires: 4/8/99.

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                                            Nationwide Mutual Insurance Company


6/2/98                                      /s/ Richard Rizk
DATE                                        Authorized Representative

                                            Environmental Claim Supervisor
                                                     Title

SUBSCRIBED AND SWORN to before me this 2 day of June, 1998.


                                            /s/ Rosa Ferrari
                                            NOTARY PUBLIC in and for the State
                                            of Illinois, residing at
                                            Oupage County.
                                            My Commission Expires: 2-18-2001.

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                                            Alaska National Insurance Company


May 26, 1998                                /s/ Gary B. Oehler
                                            -------------------
DATE                                        Authorized Representative

                                            Senior Vice President
                                                   Title

SUBSCRIBED AND SWORN to before me this 26 day of May, 1998.


                                            /s/ Michelle L. Washington
                                            NOTARY PUBLIC in and for the State
                                            of Washington, residing at
                                            Seattle, WA.
                                            My Commission Expires: 11-1-01.

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                                        Providence Washington Insurance Company


August 31, 1998                             /s/ Dennis Grasso
DATE                                        Authorized Representative

                                            General Claim Specialist
                                                     Title

SUBSCRIBED AND SWORN to before me this 31st day of August, 1998.


                                            /s/ Eleanor L. Davies
                                            NOTARY PUBLIC in and for the State
                                            of Rhode Island, residing at
                                            E. Providence.
                                            My Commission Expires: 5/2/02.

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                                            Admiral Insurance Company


6/11/98                                     /s/ Beth Onslager
DATE                                        Authorized Representative

                                            Claims Superintendent
                                                   Title

SUBSCRIBED AND SWORN to before me this 11th day of June, 1998.


                                    /s/ Marlene Greenberg
                                    NOTARY PUBLIC in and for the State
                                    of New Jersey, residing at
                                    417 Fireside Ln, Cherry Hill, NJ, Camden Co.
                                    My Commission Expires: June 13, 2000.


F:\CLIENTS\180\1\PLDGS\JES23.7D


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