SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2006

                                       OR

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

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                         Commission file number 33-42125

                       CHUGACH ELECTRIC ASSOCIATION, INC.

                Incorporated pursuant to the Laws of Alaska State

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        Internal Revenue Service - Employer Identification No. 92-0014224

                    5601 Electron Drive, Anchorage, AK 99518
                                 (907) 563-7494

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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 [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer, (as
defined in Rule 12b-2 of the Exchange Act).
                                                                  [ ] Yes [X] No

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, (as defined in Rule 12b-2 of the
Act).
Large accelerated filer [ ]   Accelerated filer [ ]    Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company, as defined in
Rule 12b-2 of the Act.
                                                                  [ ] Yes [X] No

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

                     CLASS                      OUTSTANDING AT NOVEMBER 1, 2006

                     NONE                                   NONE

<PAGE>

<TABLE>
<CAPTION>
                                                                                          Page Number
                                                                                          -----------
<S>                                                                                       <C>
CAUTION REGARDING FORWARD-LOOKING STATEMENTS

PART I FINANCIAL INFORMATION

Item 1.         Financial Statements (Unaudited)                                                 2

                Balance Sheets, September 30, 2006 and December 31, 2005                         3

                Statements of Revenues, Expenses and Patronage Capital, Three and Nine
                Months Ended September 30, 2006 and 2005                                         5

                Statements of Cash Flows, Nine Months Ended September 30, 2006 and 2005          6

                Notes to Financial Statements                                                    7

Item 2.         Management's Discussion and Analysis of Results of Operations and
                Financial Condition                                                             16

Item 3.         Quantitative and Qualitative Disclosures About Market Risk                      25

Item 4.         Controls and Procedures                                                         27

PART II OTHER INFORMATION

Item 1.         Legal Proceedings                                                               27

Item 1A.        Risk Factors                                                                    31

Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds                     32

Item 3.         Defaults Upon Senior Securities                                                 32

Item 4.         Submission of Matters to a Vote of Security Holders                             32

Item 5.         Other Information                                                               32

Item 6.         Exhibits                                                                        32

                Signatures                                                                      33

                Exhibits                                                                        34
</TABLE>

<PAGE>

                  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.
Chugach Electric Association, Inc. (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 financial statements of
Chugach as of and for the three and nine months ended September 30, 2006,
follow:

                                        2

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                                 Balance Sheets
                                   (Unaudited)

<TABLE>
<CAPTION>
                  Assets                                     September 30, 2006   December 31, 2005
                  ------                                     ------------------   -----------------
<S>                                                          <C>                  <C>
Utility Plant:
   Electric plant in service                                 $      788,485,820   $     762,859,198

   Construction work in progress                                     15,163,275          32,505,401
                                                             ------------------   -----------------
      Total utility plant                                           803,649,095         795,364,599

   Less accumulated depreciation                                   (343,184,338)       (327,384,961)
                                                             ------------------   -----------------
      Net utility plant                                             460,464,757         467,979,638

Other property and investments, at cost:
   Non-utility property                                                  24,461              24,461

   Investments in associated organizations                           11,880,310          11,883,053
                                                             ------------------   -----------------
      Total other property and investments                           11,904,771          11,907,514

Current assets:
   Cash and cash equivalents                                          5,201,173          10,650,594

   Special deposits                                                     206,191             216,191

   Fuel cost under-recovery                                           1,867,108           1,781,833

   Accounts receivable, net                                          27,756,437          27,436,278

   Materials and supplies                                            27,019,195          23,809,691

   Prepayments                                                        1,810,447           1,801,104

   Other current assets                                                 316,356             282,939
                                                             ------------------   -----------------
      Total current assets                                           64,176,907          65,978,630

  Deferred charges, net                                              21,144,267          19,269,718
                                                             ------------------   -----------------

  Total assets                                               $      557,690,702   $     565,135,500
                                                             ==================   =================
</TABLE>

See accompanying notes to financial statements.

                                        3

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                                 Balance Sheets
                                   (Continued)
                                   (Unaudited)

<TABLE>
<CAPTION>
                  Liabilities and Equities                   September 30, 2006   December 31, 2005
                  ------------------------                   ------------------   -----------------
<S>                                                          <C>                  <C>
Equities and margins:
   Memberships                                               $        1,286,758   $       1,250,398

   Patronage capital                                                141,440,991         136,185,378

   Other                                                              7,457,629           7,603,376
                                                             ------------------   -----------------
      Total equities and margins                                    150,185,378         145,039,152

Long-term obligations, excluding current installments:
   2001 Series A Bond payable                                       150,000,000         150,000,000

   2002 Series A Bond payable                                       120,000,000         120,000,000

   2002 Series B Bond payable                                        35,500,000          41,000,000

   National Bank for Cooperatives promissory notes payable           45,803,530          53,532,099
                                                             ------------------   -----------------
      Total long-term obligations                                   351,303,530         364,532,099

Current liabilities:
   Current installments of long-term obligations                     13,728,569           8,325,687

   Accounts payable                                                   7,207,452           9,598,958

   Consumer deposits                                                  2,083,073           1,980,285

   Accrued interest                                                   2,216,886           6,360,652

   Salaries, wages and benefits                                       5,124,316           5,373,496

   Fuel                                                              19,117,537          18,123,139

   Other current liabilities                                          4,010,207           3,035,915
                                                             ------------------   -----------------
      Total current liabilities                                      53,488,040          52,798,132

Deferred credits                                                      2,713,754           2,766,117
                                                             ------------------   -----------------

Total liabilities and equities                               $      557,690,702   $     565,135,500
                                                             ==================   =================
</TABLE>

See accompanying notes to financial statements.

                                        4

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
             Statement of Revenues, Expenses and Patronage Capitals
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      Three months ended September 30   Nine months ended September 30
                                                           2006             2005             2006             2005
                                                      --------------   --------------   -------------   --------------
<S>                                                   <C>              <C>              <C>             <C>
Operating revenues                                    $   63,243,634   $   54,323,791   $ 190,377,774   $  161,850,226

Operating expenses:

   Fuel                                                   27,721,572       20,877,682      82,870,065       59,043,658

   Power production                                        4,331,051        3,799,930      11,002,135       10,213,754

   Purchased power                                         8,164,009        6,279,848      21,620,093       17,778,235

   Transmission                                            2,019,552        1,433,318       4,553,234        4,362,254

   Distribution                                            2,372,131        3,014,476       8,096,796        8,830,785

   Consumer accounts                                       1,187,437        1,487,133       3,722,437        4,034,971

   Administrative, general and other                       4,498,643        5,249,736      13,993,330       14,879,950

   Depreciation                                            7,070,812        7,624,509      21,280,580       21,907,024
                                                      --------------   --------------   -------------   --------------

      Total operating expenses                            57,365,207       49,766,632     167,138,670      141,050,631

Interest expense:

   On long-term obligations                                6,218,457        5,903,604      18,348,879       17,391,282

   On short-term obligations                                       0           44,412               0           46,649

   Charged to construction-credit                           (145,112)        (199,534)       (344,096)        (605,708)
                                                      --------------   --------------   -------------   --------------

      Net interest expense                                 6,073,345        5,748,482      18,004,783       16,832,223
                                                      --------------   --------------   -------------   --------------
      Net operating margins                                 (194,918)      (1,191,323)      5,234,321        3,967,372

Nonoperating margins:

   Interest income                                           261,131          155,968         673,365          411,946

   Capital credits, patronage dividends and other             51,844           40,395         113,471          108,494
                                                      --------------   --------------   -------------   --------------

      Total nonoperating margins                             312,975          196,363         786,836          520,440
                                                      --------------   --------------   -------------   --------------

      Assignable margins                              $      118,057   $     (994,960)  $   6,021,157   $    4,487,812
                                                      ==============   ==============   =============   ==============

Patronage capital at beginning of period                 141,584,126      136,091,073     136,185,378      130,750,269

Retirement of capital credits and estate payments           (261,192)        (353,912)       (765,544)        (495,880)
                                                      --------------   --------------   -------------   --------------

Patronage capital at end of period                    $  141,440,991   $  134,742,201   $ 141,440,991   $  134,742,201
                                                      ==============   ==============   =============   ==============
</TABLE>

See accompanying notes to financial statements.

                                        5

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                            Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                  Nine months ended September 30
                                                                                       2006            2005
                                                                                  -------------   --------------
<S>                                                                               <C>             <C>
Cash flows from operating activities:
      Assignable margins                                                          $   6,021,157   $    4,487,812
                                                                                  -------------   --------------

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

      Depreciation and amortization                                                  23,503,261       24,083,566
      Capitalized interest                                                             (470,081)        (713,201)
      Write off of deferred charges                                                     345,899                0
      Other                                                                             (10,013)             404

Changes in assets and liabilities:
   (Increase) decrease in assets:
      Accounts receivable                                                              (320,159)       3,499,535
      Fuel cost under-recovery                                                          (85,275)        (571,701)
      Materials and supplies                                                         (3,209,504)        (352,689)
      Prepayments                                                                        (9,343)        (783,718)
      Other assets                                                                      (23,417)         (26,730)
      Deferred charges                                                               (4,549,202)      (1,913,573)

Increase (decrease) in liabilities:
      Accounts payable                                                               (2,391,506)      (2,848,218)
      Consumer deposits                                                                 102,788           41,887
      Fuel cost over-recovery                                                                 0       (2,714,345)
      Accrued interest                                                               (4,143,766)      (4,187,608)
      Salaries, wages and benefits                                                     (249,180)         740,987
      Fuel                                                                              994,398        1,008,375
      Other liabilities                                                                 974,292          951,167
      Deferred credits                                                                  148,920          (52,866)
                                                                                  -------------   --------------
         Net cash provided by operating activities                                   16,629,269       20,649,084
                                                                                  -------------   --------------

Investing activities:
      Extension and replacement of plant                                            (13,176,789)     (19,005,361)
                                                                                  -------------   --------------
         Net cash used for investing activities                                     (13,176,789)     (19,005,361)
                                                                                  -------------   --------------

Cash flows from financing activities:
      Repayments of long-term obligations                                            (7,825,687)      (5,931,393)
      Memberships and donations received                                               (109,387)          58,505
      Retirement of patronage capital and estate payments, including discounted
         capital credits transferred to other equities and margins                     (765,544)        (495,880)
      Net refunds of consumer advances for constructions                               (201,283)         227,299
                                                                                  -------------   --------------
         Net cash used for financing activities                                      (8,901,901)      (6,141,469)
                                                                                  -------------   --------------

Net decrease in cash and cash equivalents                                            (5,449,421)      (4,497,746)

Cash and cash equivalents at beginning of period                                  $  10,650,594   $   10,465,004
                                                                                  -------------   --------------

Cash and cash equivalents at end of period                                        $   5,201,173   $    5,967,258
                                                                                  =============   ==============

Supplemental disclosure of non cash investing activities - retirement of plant    $   5,566,466   $    2,136,775
                                                                                  -------------   --------------

Supplemental disclosure of cash flow information - interest expense paid,
   excluding amounts capitalized                                                  $  22,148,549   $   21,019,831
                                                                                  =============   ==============
</TABLE>

See accompanying notes to financial statements.

                                        6

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                          Notes to Financial Statements
                                   (Unaudited)

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 accounting principles generally accepted in the United
States of America for complete financial statements. They should be read in
conjunction with our audited financial statements for the year ended December
31, 2005, filed as part of our 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 and Significant Accounting Policies

a. Description of Business

Chugach Electric Association, Inc., (Chugach) is the largest electric utility in
Alaska. Chugach is engaged in the generation, transmission and distribution of
electricity to directly serve retail customers in the Anchorage and upper Kenai
Peninsula areas. Through an interconnected regional electrical system, Chugach's
power flows throughout Alaska's 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 also supplies much of the power requirements of three wholesale
customers, Matanuska Electric Association, Inc. (MEA), Homer Electric
Association, Inc. (HEA) and the City of Seward (Seward). Chugach's members are
the consumers of the electricity sold.

Chugach 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 reasonable margins and reserves. Chugach
is subject to the regulatory authority of the Regulatory Commission of Alaska
(RCA).

b. Management Estimates

In preparing the financial statements, 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. Critical
estimates include the provision for rate refund and allowance for doubtful
accounts. Actual results could differ from those estimates.

                                        7

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                          Notes to Financial Statements
                                   (Unaudited)

c. 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
Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the
Effects of Certain Types of Regulation (SFAS 71).

d. Income Taxes

Chugach is exempt from federal income taxes under the provisions of Section
501(c)(12) of the Internal Revenue Code, except for unrelated business income.
For the three and nine months ended September 30, 2006 and 2005, Chugach
received no unrelated business income.

3. Lines of credit

Chugach maintains a $7.5 million line of credit with CoBank, ACB (CoBank). On
October 18, 2006, the Board of Directors approved a resolution to renew this
line of credit. The CoBank line of credit expires October 31, 2007, subject to
annual renewal at the discretion of the parties. At September 30, 2006, there
was no outstanding balance on this line of credit and it was not utilized during
the third quarter of 2006. At September 30, 2006, the borrowing rate would have
been 6.68% and at December 31, 2005, the borrowing rate would have been 5.95%.
In addition, Chugach has an annual line of credit of $50 million available at
the National Rural Utilities Cooperative Finance Corporation (NRUCFC). At
September 30, 2006, there was no outstanding balance on this line of credit and
it was not utilized during the third quarter of 2006. At September 30, 2006, the
borrowing rate would have been 7.15% and at December 31, 2005, the borrowing
rate would have been 6.10%. The NRUCFC line of credit expires October 15, 2007.

4. Legal Proceedings

Matanuska Electric Association, Inc., v. Chugach Electric Association, Inc.,
Superior Court Case No. 3AN-99-8152 Civil

In this action filed in 1999, MEA alleged that Chugach breached the Power Sales
Agreement under which Chugach is obligated to sell MEA power for 25 years, from
1989 through 2014. MEA asserted that Chugach failed to provide it certain
information, failed to properly manage Chugach's long-term debt, and failed to
bring Chugach's base rate action to a Joint Committee before presenting it to
the RCA. All of MEA's claims were dismissed by the Superior Court.

On April 29, 2002, MEA appealed to the Alaska Supreme Court the Superior Court's
dismissal of its claims related to Chugach's financial management and Chugach's
decision not to bring its base rate action to the Joint Committee before filing
with the RCA. Chugach

                                        8

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                          Notes to Financial Statements
                                   (Unaudited)

cross-appealed the Superior Court's decision not to also dismiss the financial
management claim on jurisprudential and res judicata grounds. The Alaska Supreme
Court, on October 8,

2004, issued an order upholding Chugach's right to not bring its base rate
action to the Joint Committee before filing with the RCA. But the Court rejected
Chugach's cross-appeal and reversed the Superior Court's decision dismissing
MEA's financial management claim. The Supreme Court remanded that claim to the
Superior Court for further proceedings.

On January 24, 2005, Chugach filed for summary judgment on that claim asserting
that in the 2000 Test Year rate case the RCA had fully reviewed and decided the
prudency of Chugach's financial management. In a decision dated August 22, 2005,
the Superior Court granted Chugach's summary judgment motion, finding that the
RCA had adjudicated the question of Chugach's financial management and that its
decision should be given res judicata effect. The Superior Court also found that
the RCA had exercised its primary jurisdiction in reviewing Chugach's financial
management, and that its decision should be given deference.

The Superior Court entered final judgment on November 10, 2005, after which
Chugach sought its costs and fees. On December 14, 2005, the Superior Court
entered judgment awarding Chugach fees and costs from MEA in the amount of
$104,732, which has not, as yet, been recorded in the financial statements.

On December 9, 2005, MEA appealed to the Alaska Supreme Court the Superior
Court's grant of summary judgment. On December 23, 2005, Chugach cross-appealed
the Superior Court's failure to also grant summary judgment based on the
doctrine of collateral estoppel. This appeal is pending. The ultimate resolution
of this matter is not currently determinable. In the opinion of management, an
adverse outcome is not likely to have a material adverse effect on Chugach's
results of operations, financial condition or liquidity. No reserves have been
established for this matter.

Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.,
Superior Court Case No. 3AN-04-11776 Civil

On October 12, 2004, MEA filed suit in Superior Court alleging that Chugach had
violated its bylaws in allocating margins (capital credits) during the years
1998 through 2003. The margins Chugach earns each year are allocated to the
customers who contributed them and are booked as capital credits to those
customers' accounts. Capital credits are eventually repatriated to customers at
the discretion of the board of directors, typically many years after the margins
are earned.

On February 17, 2006, MEA filed a Motion to File an Amended Complaint and an
Amended Complaint in this case. The Amended Complaint is identical to MEA's
initial Complaint except for changes made to accommodate one new claim. The new
claim challenges Chugach's failure to provide MEA with a capital credit
allocation for 2004. We expect the Court will allow MEA's proposed amendment.

                                        9

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                          Notes to Financial Statements
                                   (Unaudited)

In this suit, MEA asks the Court to hold that Chugach breached its bylaws in the
manner in which it allocated capital credits in 1998 through 2003 and if the
Amended Complaint is allowed by the Court, through 2004. MEA also asks the court
to enjoin Chugach to re-calculate MEA's capital credits applying MEA's
interpretation of Chugach's bylaws and in accordance with what MEA refers to as
"generally accepted accounting practices for nonprofit cooperatives and
cooperative principles". The suit also seeks damages in an unspecified amount to
compensate MEA for the alleged breach of contract. The trial date has been
rescheduled for January 16, 2007. Management is vigorously defending against the
claim. The ultimate resolution of this matter is not currently determinable. In
the opinion of management, an adverse outcome is not likely to have a material
adverse effect on Chugach's results of operations, financial condition or
liquidity because the matter relates primarily to issues of margin allocation
among customers. No reserves have been established for this matter.

Matanuska Electric Association, Inc. v. State of Alaska, Regulatory Commission
of Alaska, Superior Court Case No. 3AN-06-8243 Civil

On May 17, 2006, MEA appealed and on May 30, 2006, Homer Electric Association,
Inc., (HEA) cross appealed the RCA's decision in Commission Docket No. U-04-102,
see "Item 4 - Regulatory Matters - Docket No. U-04-102 (Revision to Current
Depreciation Rates)." On appeal, MEA claims the Commission's decision dated
January 10, 2006, to authorize Chugach to implement new depreciation rates as of
January 1, 2005 constituted illegal retroactive ratemaking. MEA also contends
that the Commission's reliance on avoidance of regulatory lag as a basis for its
decision was improper. HEA's points on appeal challenge several decisions by the
Commission on estimated lives of General Plant on the ground that there is not
substantial evidence in the record to support such a decision. HEA and MEA both
challenge the discovery rulings of the Commission. Chugach will join the State
of Alaska in defending the Commission's rulings. No briefing schedule has been
set.

The ultimate resolution of this matter is not currently determinable. In the
opinion of management, an adverse outcome is not likely to have a material
adverse effect on Chugach's results of operations, financial condition or
liquidity. No reserves have been established for this matter.

Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.,
Superior Court Case No. 3PA-06-1295 Civil

On May 17, 2006, MEA filed suit against Chugach in Superior Court asserting
three claims. In this action, MEA contends that by publishing unbundled
financial statements Chugach has in effect stated that MEA owes Chugach a debt.
Chugach denies having made statements to this effect.

Unbundled financial statements are an analytic tool developed by Chugach that
separate the financial statements into two business units consisting of the
Generation and Transmission (G&T) and the Distribution functions of the company.
The unbundled financial statements

                                       10
<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                          Notes to Financial Statements
                                   (Unaudited)

reflect the operating results of each separate entity. Statements of Revenues,
Expenses and Patronage Capital, Balance Sheets and Statements of Cash Flows are
prepared monthly for each business unit. MEA's action is based on the result of
Chugach's financial analysis showing intercompany receivable/payable entries on
the unbundled balance sheets.

The first of MEA's claims is that it is entitled to declaratory judgment to the
effect that MEA does not owe a debt to Chugach or to Chugach's Distribution
function. Second, MEA claims that Chugach has breached its Bylaws and the Power
Sales Agreement under which Chugach is obligated to sell MEA power and by
publishing its unbundled financial analysis and seeks a declaration that
Chugach's actions violate the Bylaws and the Power Sales Agreement. MEA also
asks for an injunction against further assertions, which Chugach denies having
made, that MEA owes Chugach or Chugach's Distribution function a debt. Finally,
MEA seeks damages, including punitive damages, to punish Chugach and deter it
from continuing to publish the analysis.

Chugach has moved to dismiss the first (declaratory judgment) and third
(defamation) counts of the complaint. Oral argument on this motion occurred on
October 13, 2006 and a decision on Chugach's motion to dismiss counts one and
three of the complaint is expected soon. Trial is currently scheduled for June
2007.

Chugach believes the claims are without merit and will vigorously defend against
them. Management is uncertain of the outcome of the proceeding before the
Superior Court. The ultimate resolution of this matter is not currently
determinable. In the opinion of management, an adverse outcome is not likely to
have a material adverse effect on Chugach's results of operations, financial
condition or liquidity.

Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.,
Superior Court Case No. 3PA-06-1591 Civil

On August 7, 2006, MEA served Chugach with a Summons and Complaint requesting
the Court grant MEA declaratory judgment, breach of contract and costs and
attorney fees. MEA seeks a declaratory judgment that Chugach has wrongfully
refused to grant MEA access to the books and records of the cooperative in
violation of state statute, common law and Chugach bylaws. MEA also alleges that
by refusing to grant access to these records, Chugach has breached its bylaws on
which MEA bases a breach of contract claim against Chugach. MEA asks the Court
to grant it access to, and the right to inspect and copy, unspecified Chugach's
records and order Chugach to cooperate in facilitating MEA's inspection and
copying of the same. Chugach has answered MEA's Complaint and believes the
claims are without merit and will vigorously defend against them. Management is
uncertain of the outcome of the proceeding before the Superior Court. The
ultimate resolution of this matter is not currently determinable. In the opinion
of management, an adverse outcome is not likely to have a material adverse
effect on Chugach's results of operations, financial condition or liquidity.

                                       11

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                          Notes to Financial Statements
                                   (Unaudited)

Chugach has certain additional litigation matters and pending claims that arise
in the ordinary course of Chugach's business. In the opinion of management, no
individual matter or the matters in the aggregate is likely to have a material
adverse effect on Chugach's results of operations, financial condition or
liquidity.

5. Regulatory Matters

Docket No. U-04-102 (Revision to Current Depreciation Rates)

In 2004, Chugach implemented new depreciation rates based on an update of the
1999 Depreciation Study utilizing Electric Plant in Service balances as of
December 31, 2002. The 2002 Depreciation Study resulted in an increase to 2004
depreciation expense of approximately $259 thousand, which, in aggregate, was
not material to the financial statements. The 2002 Depreciation Study was
submitted to the RCA for approval on November 19, 2004, resulting in the RCA
opening a docket to review the proposed new rates. Chugach, however, implemented
the new rates effective January 1, 2004. Chugach did not request a change in
electric rates charged to customers based on the proposed revisions to
depreciation rates.

Order No. 2

On March 9, 2005, the RCA ruled in Order No. 2 that depreciation rates may not
be implemented without prior approval of the RCA. On August 8, 2005, Chugach
filed a motion proposing an implementation plan.

Order No. 8

On September 21, 2005, the RCA issued Order No. 8 denying our motion and
granting a motion filed by a wholesale customer of Chugach to enforce Order No.
2. Order No. 8 required that Chugach adjust its underlying 2004 financial
records to reflect the results as if Chugach had not implemented unapproved
rates. In November of 2005, Chugach reversed the 2004 depreciation expense and
depreciation reserves that were previously recorded using the 2002 Depreciation
Study rates and calculated 2004 depreciation expense for all categories of plant
using the 1999 Depreciation Study rates as approved by the RCA in Docket
U-01-108. The adjustment was not material to Chugach's financial statements.

Order No. 9

In Order No. 9 dated January 10, 2006, the RCA ruled substantially in Chugach's
favor approving the 2002 Depreciation Study with certain changes to the proposed
depreciation rates. The main effect of this decision is to allow Chugach to
revise its depreciation rates effective as of January 1, 2005. The overall
impact to Chugach is an estimated decrease in annual depreciation expense of
$1.0 million. Because Chugach did not request changes to the electric rates
charged to our customers based on the proposed new depreciation rates, there was
no immediate electric rate impact. Wholesale customers MEA and HEA were active
in the proceeding. MEA filed a motion for reconsideration of the effective date
of

                                       12

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                          Notes to Financial Statements
                                   (Unaudited)

January 1, 2005, for the changes to depreciation rates based on the RCA's
ruling. The Commission did not rule on MEA's motion for reconsideration
resulting in its automatic denial. Subsequently, MEA filed an appeal of the
RCA's decision in Superior Court, see "Part II Other Information - Item 1 -
Legal Proceedings - Mantanuska Electric Association, Inc. v. State of Alaska,
Regulatory Commission of Alaska, Superior Court Case No. 3AN-06-8243 Civil."

Seward Contract request for review and approval

We currently provide nearly all the power needs of the City of Seward. Sales to
Seward represent approximately 2.5% of Chugach's total sales of energy
(including both retail and wholesale). In February 1998, we entered into a power
sales agreement (Old Contract) with Seward that allowed us to interrupt service
to Seward up to 12 times per year, not to exceed seventy-two cumulative hours
annually and also reduce the demand charge by 1/3 (approximately $350,000
annually). This agreement was scheduled to expire January 31, 2006, however,
Seward and Chugach jointly requested, and the RCA granted a four-month extension
to May 31, 2006, of the old contract to allow the parties to complete
negotiations on a new contract.

Negotiations with Seward were successful and on April 14, 2006, Chugach filed a
request for approval by the RCA of a proposed new power sales agreement with the
City of Seward (2006 Agreement) with a nominal effective date of June 1, 2006.
The contract is for five years with two automatic five-year extensions unless
notice of termination is given by either party. If approved, the 2006 Agreement
results in a 5 percent increase in revenues in relation to the Old Contract.

The 2006 Agreement is an interruptible, all-requirements/no reserves contract.
It has many of the attributes of firm service, especially in the requirement
that so long as Chugach has sufficient power available, it must meet Seward's
needs for power. However, service is interruptible because Chugach is under no
obligation to supply or plan for generation capacity reserves to supply Seward
and there is no limit on the number of times or hours per year that the supply
can be interrupted.

Counterbalancing this is the requirement that Chugach must provide power to
Seward if Chugach has the power available after first meeting its obligations to
its other customers for whom Chugach has an obligation to provide reserves (MEA,
HEA and Chugach retail customers).

The price under the 2006 Agreement reflects the reduced level of service because
no costs of generation in excess of that needed to meet the system peak will be
assigned to Seward.

In Order No. 1 the RCA opened the docket and suspended the filing. However, the
RCA has allowed the parties to operate under the terms of the proposed new 2006
Contract pending review. Approval is being contested by Chugach's wholesale
customer, MEA and a hearing is set to begin November 30, 2006. Chugach expects
that a contract in some form allowing continued service to Seward will be
approved.

                                       13

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                          Notes to Financial Statements
                                   (Unaudited)

2005 Test Year General Rate Case

On September 27, 2006, the Chugach Board of Directors authorized and instructed
management to file a general rate case with the RCA. On September 29, 2006,
Chugach filed a general rate case based on a 2005 test year and requesting a
revenue increase of $10.6 million for the Generation and Transmission (G&T)
function and a revenue decrease of $7.8 million for the Distribution function.
Overall revenues are proposed to increase $2.8 million.

6. New Accounting Standards

SFAS 155 "Accounting for Certain Hybrid Instruments"

In February 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standard "(SFAS") No. 155, "Accounting for Certain Hybrid
Instruments", which is an amendment of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", and SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities -- a
replacement of FASB Statement No. 125." SFAS No. 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder
elects to account for the whole instrument on a fair value basis. The Statement
also establishes a requirement to evaluate interests in securitized financial
assets to identify interests that are freestanding derivatives or that are
hybrid financial instruments that contain an embedded derivative requiring
bifurcation and clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives. SFAS No. 155 is effective for all
financial instruments acquired or issued after January 1, 2007. We are currently
evaluating the impact this Statement may have on our results of operations or
financial condition.

SFAS 156 "Accounting for Servicing of Financial Assets"

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets -- an amendment of FASB Statement No. 140." SFAS No. 156
requires an entity to recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
servicing contract in specific situations. Additionally, the servicing asset or
servicing liability is initially measured at fair value; however, an entity may
elect the "amortization method" or "fair value method" for subsequent balance
sheet reporting periods. SFAS No. 156 is effective on January 1, 2007. Adoption
of this statement is not expected to have a material effect on our results of
operations or financial condition.

SFAS 157 "Fair Value Measurements"

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
No. 157 provides guidance for using fair value to measure assets and
liabilities. In addition, this statement defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. This statement applies when other

                                       14

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                          Notes to Financial Statements
                                   (Unaudited)

accounting pronouncements require fair value measurement; it does not require
new fair value measurements. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We will begin application of SFAS No.
157 on January 1, 2008, and do not expect it to have a material affect on our
results of operations, financial position, and cash flows.

SFAS 158 "Employers' Accounting for Defined Pension and Other Postretirement
Plans"

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Pension and Other Postretirement Plans." SFAS No. 158 requires an
employer to recognize in its statement of financial position the overfunded or
underfunded status of a defined benefit postretirement plan measured as the
difference between the fair value of plan assets and the benefit obligation.
Employers must also recognize as a component of other comprehensive income, net
of tax, the actuarial gains and losses and the prior service costs and credits
that arise during the period. The Statement is effective for public entities for
fiscal years ending after December 15, 2006 (December 31, 2006 financial
statements for public entities with a calendar year end), and for nonpublic
entities for fiscal years ending after June 15, 2007. We have multi-employer
plans and a defined contribution plan and adoption of this statement is not
expected to have a material effect on our results of operations or financial
condition.

SAB 108 "The Effect of Prior-Years Errors on Current-Year Materiality
Evaluations"

In September 2006, the SEC issued Staff Accounting Bulletin ("SAB") No. 108,
"The Effect of Prior-Years Errors on Current-Year Materiality Evaluations." SAB
108 provides interpretive guidance on how the effects of the carryover or
reversal of prior year misstatements should be considered in quantifying a
current year misstatement. We will implement the guidance in the fourth quarter
of 2006. We are evaluating the impact, if any, that SAB No. 108 will have on our
financial statements.

FSP AUG AIR-1 "Accounting for Planned Major Maintenance Activities"

In September 2006, the FASB issued FASB Staff Position ("FSP") AUG AIR-1,
"Accounting for Planned Major Maintenance Activities." FSP AUG AIR-1 prohibits
the use of the accrue-in-advance method of accounting for planned major
maintenance activities in annual and interim financial reporting periods. An
entity shall apply the same method of accounting for planned major maintenance
activities in annual and interim financial reporting periods. The guidance in
this FSP is effective for the first fiscal year beginning after December 15,
2006. Adoption of this position is not expected to have a material effect on our
results of operations or financial condition.

                                       15

<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Reference is made to the information contained under the caption "CAUTION
REGARDING FORWARD-LOOKING STATEMENTS" at the beginning of this Report.

Results Of Operations

Current Year Quarter Versus Prior Year Quarter

Operating revenues, which include sales of electric energy to retail, wholesale
and economy energy customers and other miscellaneous revenues, increased by $8.9
million, or 16.4%, for the quarter ended September 30, 2006, over the same
quarter in 2005. The increase in revenues was primarily due to an increase in
revenue recovered through the fuel surcharge mechanism due to higher fuel
prices. With regard to retail sales, the Municipality of Anchorage, our primary
service area, experienced less economic growth in the third quarter of 2006,
compared to the same period in 2005. With regard to wholesale sales, actual
sales to one wholesale customer increased due to increased job growth and
continued state and federal spending in their geographic area, which generated
additional economic activity. However, this increase was offset by a decrease in
sales to another wholesale customer due to lower activity in their industrial
sector. Based on the results of fixed and variable cost recovery established in
Chugach's last rate case, wholesale rates contributed approximately $5.8 million
and $5.6 million to Chugach's fixed costs for the quarter ended September 30,
2006 and 2005, respectively.

                                       16

<PAGE>

The following table shows the base rate sales revenue and fuel and purchased
power revenue by customer class that is included in revenue for the quarters
ending September 30, 2006, and 2005.

<TABLE>
<CAPTION>
                                                      (In millions)

                                                 Fuel and Purchased Power
                     Base Rate Sales Revenue             Revenue                   Total Revenue
                   --------------------------   --------------------------   --------------------------
                                        %                            %                            %
                   --------------------------   --------------------------   --------------------------
                    2006     2005    Variance    2006     2005    Variance    2006     2005    Variance
                   ------   ------   --------   ------   ------   --------   ------   ------   --------
<S>                <C>      <C>      <C>        <C>      <C>      <C>        <C>      <C>      <C>
     Retail
Residential        $ 10.3   $ 10.3      0.0%    $  6.9   $  5.0     38.0%    $ 17.2   $ 15.3     12.4%
Small Commercial   $  1.9   $  1.9      0.0%    $  1.5   $  1.0     50.0%    $  3.4   $  2.9     17.2%
Large Commercial   $  7.5   $  7.5      0.0%    $  7.7   $  5.7     35.1%    $ 15.2   $ 13.2     15.2%
Lighting           $  0.3   $  0.3      0.0%    $  0.0   $  0.0      0.0%    $  0.3   $  0.3      0.0%
Total Retail       $ 20.0   $ 20.0      0.0%    $ 16.1   $ 11.7     37.6%    $ 36.1   $ 31.7     13.9%

   Wholesale
HEA                $  2.6   $  2.6      0.0%    $  6.7   $  5.2     28.8%    $  9.3   $  7.8     19.2%
MEA                $  4.1   $  3.9      5.1%    $  8.8   $  6.0     46.7%    $ 12.9   $  9.9     30.3%
SES                $  0.3   $  0.3      0.0%    $  0.9   $  0.7     28.6%    $  1.2   $  1.0     20.0%
Total Wholesale    $  7.0   $  6.8      2.9%    $ 16.4   $ 11.9     37.8%    $ 23.4   $ 18.7     25.1%

Economy Sales      $  0.7   $  0.9    (22.2%)   $  2.2   $  2.1      4.8%    $  2.9   $  3.0     (3.3%)
Miscellaneous      $  0.8   $  0.9    (11.1%)   $  0.0   $  0.0      0.0%    $  0.8   $  0.9    (11.1%)

Total Revenue      $ 28.5   $ 28.6     (0.3%)   $ 34.7   $ 25.7     35.0%    $ 63.2   $ 54.3     16.4%
</TABLE>

The following table summarizes kWh sales for the quarter ended September 30:

                                       2006          2005
                      Customer          kWh           kWh
                                    -----------   -----------
                   Retail           279,445,748   281,179,408
                   Wholesale        295,729,561   297,906,849
                   Economy Energy    41,836,320    61,124,910
                                    -----------   -----------
                   Total            617,011,629   640,211,167
                                    ===========   ===========

Retail demand and energy rates and wholesale demand and energy rates charged to
HEA, MEA, and Seward Electric System (SES) did not change in the third quarter
of 2006 compared to the third quarter of 2005.

Fuel expense increased by $6.8 million, or 32.8%, for the quarter ended
September 30, 2006, compared to the same period in 2005 primarily due to higher
fuel prices. For the quarter ended September 30, 2006, Chugach used 5,554,871
MCF of fuel at an average effective price of $4.99 per MCF, which does not
include 499,980 MCF of fuel that is recorded in purchased power. For the same
period in 2005, Chugach used 5,806,994 MCF of fuel at an average effective price
of $3.60 per MCF, which does not include 633,413 MCF of fuel recorded in
purchased power. Purchased power increased $1.9 million, or 30.0% compared to
the same quarter in 2005 due primarily to higher fuel prices. In the third
quarter of 2006, Chugach purchased 140,151 MWH of energy at an average effective
price of 5.60 cents per

                                       17

<PAGE>

kWh. For the same period in 2005, Chugach purchased 157,289 MWH of energy at an
average effective price of 3.81 cents per kWh. Fuel and purchased power is
collected through the fuel surcharge mechanism.

Production expense increased $531.1 thousand, or 14.0%, for the three-month
period ended September 30, 2006, compared to the same period in 2005, primarily
due to higher overall maintenance costs associated with Beluga and Bernice Lake
power plants in the third quarter of 2006 compared to the same period in 2005.

Transmission expense increased by $586.2 thousand, or 40.9% and distribution
expense decreased $642.3, or 21.3% due primarily to unexpected costs for
transmission tower repairs in the third quarter of 2006. Chugach has submitted a
claim with the Federal Emergency Management Agency (FEMA) for approximately
$398.0 thousand for the cost of repairs and is awaiting a determination for
reimbursement of these costs. The majority of these costs have been expensed. We
will recognize this claim when and if it is approved. During the third quarter
of 2006 there was a higher concentration on transmission work compared to a
higher concentration of distribution work in the same quarter of 2005.

Consumer accounts decreased $299.7 thousand, or 20.2% primarily due to lower
labor expense as a result of unfilled positions and decreased spending on
professional services associated with television safety advertising in the third
quarter of 2006 compared to the same quarter of 2005. Administrative, general
and other expense decreased $751.1 thousand or 14.3% primarily due lower labor
expense as a result of vacancies related to retirements and unfilled positions
in the third quarter of 2006 compared to the same quarter of 2005. Depreciation
expenses decreased $553.7 thousand, or 7.3% primarily due to retirements
associated with the Beluga unit 6 "C" Inspection in the third quarter of 2006
compared to the same quarter of 2005.

Interest on long-term debt increased by $314.9 thousand, or 5.3%, due to higher
interest rates on the variable CoBank and 2002 Series B bonds. Interest charged
to construction decreased by $54.4 thousand, or 27.3%, due to a lower average
balance in construction work-in-progress in the third quarter of 2006 compared
to 2005.

Nonoperating margins increased $116.6 thousand, or 59.4%, for the three-month
period ended September 30, 2006, compared to the same period in 2005 primarily
due to an increase in interest income associated with higher interest rates on
our investment account as well as a higher average cash balance in the third
quarter of 2006 compared to the same quarter in 2005.

Current Year to Date Versus Prior Year to Date

Operating revenues increased $28.5 million, or 17.6%, due to an increase in
revenue recovered through the fuel surcharge mechanism due to higher fuel
prices, as well as increased retail and wholesale kWh sales, which was offset by
a decrease in economy energy sales. With regard to retail sales, the
Municipality of Anchorage, our primary service area, experienced average
economic activity in the first nine months of 2006, compared to the

                                       18

<PAGE>

same period in 2005. With regard to wholesale revenue, actual sales increased
due to increased job growth and continued state and federal spending, which
generated additional economic activity. Based on the results of fixed and
variable cost recovery established in Chugach's last rate case, wholesale rates
contributed approximately $18.5 million and $17.8 million to Chugach's fixed
costs for the year ended September 30, 2006 and 2005, respectively.

The following table shows the base rate sales revenue and fuel and purchased
power revenue by customer class that is included in revenue at September 30,
2006, and 2005.

<TABLE>
<CAPTION>
                                                      (In millions)

                                                 Fuel and Purchased Power
                     Base Rate Sales Revenue             Revenue                   Total Revenue
                   --------------------------   --------------------------   --------------------------
                                        %                            %                            %
                   --------------------------   --------------------------   --------------------------
                    2006     2005    Variance    2006     2005    Variance    2006     2005    Variance
                   ------   ------   --------   ------   ------   --------   ------   ------   --------
<S>                <C>      <C>      <C>        <C>      <C>      <C>        <C>      <C>      <C>
     Retail
Residential        $ 34.2   $ 34.0      0.6%    $ 21.1   $ 15.0     40.7%    $ 55.3   $ 49.0     12.9%
Small Commercial   $  6.1   $  6.0      1.7%    $  4.4   $  3.1     41.9%    $ 10.5   $  9.1     15.4%
Large Commercial   $ 21.7   $ 21.5      0.9%    $ 20.9   $ 14.8     41.2%    $ 42.6   $ 36.3     17.4%
Lighting           $  1.0   $  1.0      0.0%    $  0.1   $  0.1      0.0%    $  1.1   $  1.1      0.0%
Total Retail       $ 63.0   $ 62.5      0.8%    $ 46.5   $ 33.0     40.9%    $109.5   $ 95.5     14.7%

   Wholesale
HEA                $  7.6   $  7.8     -2.6%    $ 17.9   $ 13.4     33.6%    $ 25.5   $ 21.2     20.3%
MEA                $ 13.6   $ 12.9      5.4%    $ 25.6   $ 17.2     48.8%    $ 39.2   $ 30.1     30.2%
SES                $  0.8   $  0.8      0.0%    $  2.1   $  1.7     23.5%    $  2.9   $  2.5     16.0%
Total Wholesale    $ 22.0   $ 21.5      2.3%    $ 45.6   $ 32.3     41.2%    $ 67.6   $ 53.8     25.7%

Economy Sales      $  2.9   $  3.3    -12.1%    $  8.2   $  7.1     15.5%    $ 11.1   $ 10.4      6.7%
Miscellaneous      $  2.2   $  2.2      0.0%    $  0.0   $  0.0      0.0%    $  2.2   $  2.2      0.0%

Total Revenue      $ 90.1   $ 89.5      0.7%    $100.3   $ 72.4     38.5%    $190.4   $161.9     17.6%
</TABLE>

The following table summarizes kWh sales for the nine months ended September 30:

                                      2006            2005
                    Customer           kWh             kWh
                                  -------------   -------------
                 Retail             888,399,387     882,411,034
                 Wholesale          914,797,999     909,893,201
                 Economy Energy     187,746,390     226,125,700
                                  -------------   -------------
                 Total            1,990,943,776   2,018,429,935
                                  =============   =============

Fuel expense increased by $23.8 million, or 40.4%, for the first nine months of
2006, compared to the same period in 2005 due primarily to higher fuel prices
and an increase in quantity used. In the first nine months of 2006, Chugach used
18,037,375 MCF of fuel at an average effective price of $4.59 per MCF, which
does not include 1,329,142 MCF of fuel that is recorded in purchased power. For
the same period in 2005, Chugach used 17,569,823 MCF of fuel at an average
effective price of $3.36 per MCF, which does not include 1,898,585 MCF of fuel
recorded in purchased power. Purchased power expense increased by $3.8 million,
or 21.6%, primarily due to higher fuel prices. In the first nine months of 2006,

                                       19

<PAGE>

Chugach purchased 374,906 MWH of energy at an average effective price of 5.52
cents per kWh. For the same period in 2005, Chugach purchased 434,533 MWH of
energy at an average effective price of 3.90 cents per kWh. Fuel expense is
collected through the fuel surcharge mechanism.

Power production expense increased $788.4 thousand, or 7.7% due to higher
maintenance costs for Beluga and Bernice Lake power plants for the nine-month
period ended September 30, 2006, compared to the same period in 2005.
Transmission expense increased $191.0 thousand, or 4.4% due primarily to the
aforementioned unexpected costs for transmission tower repairs at Dynamite
Slough in the third quarter of 2006. The increase, however was offset by the
timing of transmission line clearing during the first nine months of 2006
compared to the first nine months of 2005. Distribution expense decreased $734.0
thousand, or 8.3% due to lower maintenance costs in the first nine months of
2006 compared to 2005. In the first nine months of 2005, distribution expense
was high due to increased labor and professional services related to outages
caused by windstorms.

Consumer accounts expense decreased $312.5 thousand, or 7.7% in the nine-month
period ended September 30, 2006 compared to the same period in 2005 due to
decreased spending on professional services associated with safety advertising
as well as lower labor expense as a result of unfilled positions.
Administrative, general and other expense decreased $886.6 thousand, or 6.0% due
to lower labor expense as a result of retirements and unfilled positions in the
first nine months of 2006 compared to same period in 2005.

Interest on long-term debt increased by $957.6 thousand, or 5.5%, due to higher
interest rates on our 2002 Series B bonds and our CoBank promissory notes, which
carry variable interest rates. Interest charged to construction decreased by
$261.6 thousand, or 43.2%, in the first nine months of 2006 compared to the same
period in 2005, due to the completion of the South Anchorage substation and the
related transmission line, which resulted in a lower average balance in
construction work-in-progress in the first nine months of 2006 compared to 2005.

Other non-operating margins increased by $266.4 thousand, or 51.2%, for the
nine-month period ended September 30, 2006, compared to the same period in 2005,
due to an increase in interest income associated with higher interest rates on
our investment account as well as higher average cash balances.

Financial Condition

Total assets decreased $7.4 million, or 1.3% from December 31, 2005, to
September 30, 2006. The decrease was due in part to a $7.5 million, or 1.6%
decrease in net plant due to depreciation expense in excess of extension and
replacement of plant. The decrease was also due to a $5.4 million, or 51.2%,
decrease in cash and cash equivalents at September 30, 2006, compared to
December 31, 2005 caused by the semi-annual interest payments on the 2001 and
2002 Series A bonds in the third quarter of 2006.

                                       20

<PAGE>

The decreases were offset by increases in materials and supplies and deferred
charges. Materials and supplies increased $3.2 million, or 13.5% due to the
timing and scope of work of several projects. Deferred charges increased $1.9
million, or 9.7% due to the Beluga River gas compression project.

Notable changes to total liabilities and equities include a $7.8 million
decrease in long-term debt, including current installments, due to the
installment payments on the 2002 Series B bonds as well as the CoBank 3, 4 and 5
bonds. Accounts payable decreased $2.4 million, or 24.9%, as a result of the
payment of invoices that were accrued but not paid at December 31, 2005. Accrued
interest decreased $4.1 million, or 65.2% due to the semi-annual interest
payments on the 2002 and 2002 Series A Bonds in the third quarter of 2006.

These decreases were offset by a $5.1 million, or 3.6%, increase in total
equities and margins due to the margins generated in the first three quarters of
2006, as well as a $994.4 thousand, or 5.5%, increase in fuel payable primarily
caused by higher fuel prices. Other current liabilities increased $974.3
thousand, or 32.1%, due to a state and municipal underground compliance charge
on retail revenue that was implemented June 1, 2005.

Liquidity and Capital Resources

Chugach has satisfied its operational and capital cash requirements primarily
through internally-generated funds, an annual $7.5 million line of credit with
CoBank and a $50 million line of credit from NRUCFC. At September 30, 2006,
there was no outstanding balance with NRUCFC or CoBank, however, the line of
credit amounts are available for immediate borrowing unconditionally.

Chugach also has a term loan facility with CoBank. Loans made under this
facility are evidenced by promissory notes governed by the Master Loan
Agreement, which became effective on January 22, 2003. At September 30, 2006,
Chugach had the following promissory notes outstanding under this facility:

<TABLE>
<CAPTION>
                    Principal     Interest rate at                      Principal
Promissory Note      balance     September 30, 2006   Maturity Date   Payment Dates
---------------   ------------   ------------------   -------------   -------------
<S>               <C>            <C>                  <C>             <C>
   CoBank 2       $  8,000,000         5.50%              2010         2005 - 2010
   CoBank 3       $ 19,604,225         6.68%              2022         2003 - 2022
   CoBank 4       $ 21,427,874         6.68%              2022         2003 - 2022
   CoBank 5       $  5,000,000         6.68%              2007            2007

     Total        $ 54,032,099
</TABLE>

On January 22, 2003, Chugach and CoBank finalized a new Master Loan Agreement
pursuant to which the CoBank term loan facility was converted from secured to
unsecured debt and the obligations represented by the outstanding bonds then
held by CoBank were

                                       21

<PAGE>

converted into promissory notes governed by the new Master Loan Agreement.
Chugach's mortgage indenture was replaced in its entirety by an Amended and
Restated Indenture dated April 1, 2001. All liens and security interests imposed
under the indenture were terminated and all outstanding Chugach bonds (including
new bonds of 2001 Series A, 2002 Series A and 2002 Series B) became unsecured
obligations governed by the terms of the Amended and Restated Indenture.

Capital construction in 2006 is estimated at $30.8 million. At September 30,
2006, approximately $13.2 million had been expended. Capital improvement
expenditures are expected to increase in the fourth quarter of 2006 as the
construction season ends.

Chugach management continues to expect that cash flows from operations and
external funding sources will be sufficient to cover operational and capital
funding requirements in 2006 and thereafter.

Critical Accounting Policies

Our accounting and reporting policies comply with accounting principles
generally accepted in the United States of America. The preparation of financial
statements in conformity with Generally Accepted Accounting Principles (GAAP)
requires that management apply accounting policies and make estimates and
assumptions that affect results of operations and reported amounts of assets and
liabilities in the financial statements. Significant accounting policies are
described in Note 1 to the financial statements (See "Financial Statements and
Supplementary Data"). Critical accounting policies are those policies that
management believes are the most important to the portrayal of Chugach's
financial condition and results of its operations, and require management's most
difficult, subjective, or complex judgments, often as a result of the need to
make estimates about matters that are inherently uncertain. Most accounting
policies are not considered by management to be critical accounting policies.
Several factors are considered in determining whether or not a policy is
critical in the preparation of financial statements. These factors include,
among other things, whether the estimates are significant to the financial
statements, the nature of the estimates, the ability to readily validate the
estimates with other information including third parties or available prices,
and sensitivity of the estimates to changes in economic conditions and whether
alternative accounting methods may be utilized under accounting principles
general accepted in the United States of America. For all of these policies
management cautions that future events rarely develop exactly as forecast, and
the best estimates routinely require adjustment. Management has discussed the
development and the selection of critical accounting policies with Chugach's
Audit Committee. The following policies are considered to be critical accounting
policies for the quarter ended September 30, 2006.

Electric Utility Regulation

Chugach is subject to regulation by the Regulatory Commission of Alaska (RCA).
The RCA sets the rates Chugach is permitted to charge customers based on
allowable costs. As a result, Chugach applies Statement of Financial Accounting
Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of
Regulation (SFAS 71). Through the ratemaking process, the regulators may require
the inclusion of costs or revenues in periods different than when

                                       22

<PAGE>

they would be recognized by a non-regulated company. This treatment may result
in the deferral of expenses and the recording of related regulatory assets based
on anticipated future recovery through rates or the deferral of gains or
creation of liabilities and the recording of related regulatory liabilities. The
application of Statement No. 71 has a further effect on Chugach's financial
statements as a result of the estimates of allowable costs used in the
ratemaking process. These estimates may differ from those actually incurred by
the Company; therefore, the accounting estimates inherent in specific costs such
as depreciation and pension and post-retirement benefits have less of a direct
impact on Chugach's results of operations than they would on a non-regulated
company. Significant regulatory assets and liabilities have been recorded.
Management reviews the ultimate recoverability of these regulatory assets and
liabilities based on applicable regulatory guidelines. However, adverse
legislation and judicial or regulatory actions could materially impact the
amounts of such regulatory assets and liabilities and could adversely impact
Chugach's financial statements.

Critical estimates also include allowance for doubtful accounts. The allowance
for doubtful accounts is management's best estimate of the amount of probable
credit losses in existing accounts receivable. Chugach determines the allowance
based on its historical write-off experience and current economic conditions.
Chugach reviews its allowance for doubtful accounts monthly. Past due balances
over 90 days in a specified amount are reviewed individually for collectibility.
All other balances are reviewed in aggregate. Account balances are charged off
against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. Chugach does not have any
off-balance-sheet credit exposure related to its customers. Actual results could
differ from those estimates.

New Accounting Standards

SFAS 155 "Accounting for Certain Hybrid Instruments"

In February 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standard "(SFAS") No. 155, "Accounting for Certain Hybrid
Instruments", which is an amendment of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", and SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities -- a
replacement of FASB Statement No. 125." SFAS No. 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder
elects to account for the whole instrument on a fair value basis. The Statement
also establishes a requirement to evaluate interests in securitized financial
assets to identify interests that are freestanding derivatives or that are
hybrid financial instruments that contain an embedded derivative requiring
bifurcation and clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives. SFAS No. 155 is effective for all
financial instruments acquired or issued after January 1, 2007. We are currently
evaluating the impact this Statement may have on our results of operations or
financial condition.

                                       23

<PAGE>

SFAS 156 "Accounting for Servicing of Financial Assets"

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets -- an amendment of FASB Statement No. 140." SFAS No. 156
requires an entity to recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
servicing contract in specific situations. Additionally, the servicing asset or
servicing liability is initially measured at fair value; however, an entity may
elect the "amortization method" or "fair value method" for subsequent balance
sheet reporting periods. SFAS No. 156 is effective on January 1, 2007. Adoption
of this statement is not expected to have a material effect on our results of
operations or financial condition.

SFAS 157 "Fair Value Measurements"

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
No. 157 provides guidance for using fair value to measure assets and
liabilities. In addition, this statement defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. This statement applies when other accounting pronouncements
require fair value measurement; it does not require new fair value measurements.
This statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. We will begin application of SFAS No. 157 on January 1, 2008, and do not
expect it to have a material affect on our results of operations, financial
position, and cash flows.

SFAS 158 "Employers' Accounting for Defined Pension and Other Postretirement
Plans

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Pension and Other Postretirement Plans." SFAS No. 158 requires an
employer to recognize in its statement of financial position the overfunded or
underfunded status of a defined benefit postretirement plan measured as the
difference between the fair value of plan assets and the benefit obligation.
Employers must also recognize as a component of other comprehensive income, net
of tax, the actuarial gains and losses and the prior service costs and credits
that arise during the period. The Statement is effective for public entities for
fiscal years ending after December 15, 2006 (December 31, 2006 financial
statements for public entities with a calendar year end), and for nonpublic
entities for fiscal years ending after June 15, 2007. We have multi-employer
plans and a defined contribution plan and adoption of this statement is not
expected to have a material effect on our results of operations or financial
condition.

SAB 108 "The Effect of Prior-Years Errors on Current-Year Materiality
Evaluations"

In September 2006, the SEC issued Staff Accounting Bulletin ("SAB") No. 108,
"The Effect of Prior-Years Errors on Current-Year Materiality Evaluations." SAB
108 provides interpretive guidance on how the effects of the carryover or
reversal of prior year misstatements should be considered in quantifying a
current year misstatement. We will

                                       24

<PAGE>

implement the guidance in the fourth quarter of 2006. We are evaluating the
impact, if any, that SAB No. 108 will have on our financial statements.

FSP AUG AIR-1 "Accounting for Planned Major Maintenance Activities"

In September 2006, the FASB issued FASB Staff Position ("FSP") AUG AIR-1,
"Accounting for Planned Major Maintenance Activities." FSP AUG AIR-1 prohibits
the use of the accrue-in-advance method of accounting for planned major
maintenance activities in annual and interim financial reporting periods. An
entity shall apply the same method of accounting for planned major maintenance
activities in annual and interim financial reporting periods. The guidance in
this FSP is effective for the first fiscal year beginning after December 15,
2006. Adoption of this position is not expected to have a material effect on our
results of operations or financial condition.

Outlook

Not applicable

Environmental Matters

Compliance with Environmental Standards

Chugach's operations are subject to certain federal, state and local
environmental laws. The costs associated with environmental compliance are
included as a component of both the operating and capital budget processes.
Chugach accrues for costs associated with environmental remediation obligations
when such costs are probable and reasonably estimable.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Chugach is exposed to a variety of risks, including changes in interest rates
and changes in commodity prices due to repricing mechanisms inherent in gas
supply contracts. In the normal course of business, Chugach manages exposure to
these risks as described below. Chugach does not engage in trading market
risk-sensitive instruments for speculative purposes.

                                       25

<PAGE>

Interest Rate Risk

The following table provides information regarding auction dates and rates in
2006 on the 2002 Series B bonds. The maximum rate on the 2002 Series B bonds is
15%.

                          Auction Date       Interest Rate
                       -----------------     -------------

                        January 25, 2006         4.49%
                       February 22, 2006         4.55%
                         March 22, 2006          4.69%
                         April 19, 2006          4.80%
                          May 17, 2006           5.05%
                         June 14, 2006           5.18%
                         July 12, 2006           5.35%
                         August 9, 2006          5.35%
                       September 6, 2006         5.29%
                        October 4, 2006          5.31%
                       November 1, 2006          5.30%

Chugach is exposed to market risk from changes in interest rates. A 100
basis-point change (up or down) would increase or decrease our interest expense
by approximately $87,032 based on $87,032,099 of variable rate debt outstanding
at September 30, 2006.

The following table provides information regarding principal payments on total
debt by maturity date (dollars in thousands) as of September 30, 2006.

<TABLE>
<CAPTION>
                                                                                                                   Fair
Total Debt*                       2006       2007       2008       2009       2010     Thereafter     Total       Value
------------------------        --------   --------   --------   --------   --------   ----------   ---------   ---------
<S>                             <C>        <C>        <C>        <C>        <C>        <C>          <C>         <C>
Fixed rate debt                 $    500   $  2,000   $  2,000   $  2,000   $  1,500   $  270,000   $ 278,000   $ 290,729

Average interest rate               5.50%      5.50%      5.50%      5.50%      5.50%        6.39%       6.37%

Annual interest expense         $ 17,740   $ 17,628   $ 17,518   $ 17,405   $ 17,297   $   10,107

Variable rate debt                     0   $ 11,729   $  7,241   $  7,763   $  8,297   $   52,002   $  87,032   $  87,032

Average interest rate                          6.02%      5.55%      5.54%      5.55%        6.22%       6.01%
</TABLE>

*     Includes current portion

Commodity Price Risk

Chugach's gas contracts provide for adjustments to gas costs based on
fluctuations of certain commodity prices and indices. Because fuel and purchased
power costs are passed directly to wholesale and retail customers through a fuel
surcharge rate, fluctuations in the price paid

                                       26

<PAGE>

for gas pursuant to long-term gas supply contracts do not normally impact
margins. The fuel surcharge mechanism mitigates the commodity price risk of
market fluctuations in the price of fuel and purchased power.

Item 4. Controls and Procedures

As of the end of the period covered by this report, Chugach evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures. Our principal executive officer (CEO) and principal financial
officer (CFO) supervised and participated in this evaluation. Based on this
evaluation, our CEO and CFO each concluded that our disclosure controls and
procedures are effective and timely in alerting them to material information
required to be included in our periodic reports to the Securities and Exchange
Commission. The design of any system of controls is based in part upon various
assumptions about the likelihood of future events and there can be no assurance
that any of our plans, products, services or procedures will succeed in
achieving their intended goals under future conditions. In addition, there were
no changes in our internal controls during the last fiscal quarter that
materially affected, or are reasonable likely to materially affect, our internal
controls over financial reporting.

Chugach is in the process of implementing the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, which requires our management to assess the
effectiveness of our internal controls over financial reporting and include an
assertion in our annual report as of December 31, 2007 as to the effectiveness
of our controls. Subsequently, our independent registered public accounting
firm, KPMG LLP, will be required to attest to whether our assessment of the
effectiveness of our internal controls over financial reporting is fairly stated
in all material respects and separately report on whether it believes Chugach
maintained, in all material respects, effective internal controls over financial
reporting as of December 31, 2008, as Chugach is considered a non-accelerated
filer under Section 404 of the Sarbanes-Oxley Act of 2002. Chugach is in the
process of performing the system and process documentation, evaluation and
testing required for management to make this assessment and for KPMG LLP to
provide its attestation report. This process will continue to require
significant amounts of management time and resources. In the course of
evaluation and testing, management may identify deficiencies that will need to
be addressed and remediated.

                            PART II OTHER INFORMATION

Item 1. Legal Proceedings

Matanuska Electric Association, Inc., v. Chugach Electric Association, Inc.,
Superior Court Case No. 3AN-99-8152 Civil

In this action filed in 1999, Matanuska Electric Association, Inc. (MEA) alleged
that Chugach breached the Power Sales Agreement under which Chugach is obligated
to sell MEA power for 25 years, from 1989 through 2014. MEA asserted that
Chugach failed to provide it certain information, failed to properly manage
Chugach's long-term debt, and failed to bring Chugach's base rate action to a
Joint Committee before presenting it to the

                                       27

<PAGE>

Regulatory Commission of Alaska (RCA). All of MEA's claims were dismissed by the
Superior Court.

On April 29, 2002, MEA appealed to the Alaska Supreme Court the Superior Court's
dismissal of its claims related to Chugach's financial management and Chugach's
decision not to bring its base rate action to the Joint Committee before filing
with the RCA. Chugach cross-appealed the Superior Court's decision not to also
dismiss the financial management claim on jurisprudential and res judicata
grounds. The Alaska Supreme Court, on October 8, 2004, issued an order upholding
Chugach's right to not bring its base rate action to the Joint Committee before
filing with the RCA. But the Court rejected Chugach's cross-appeal and reversed
the Superior Court's decision dismissing MEA's financial management claim. The
Supreme Court remanded that claim to the Superior Court for further proceedings.

On January 24, 2005, Chugach filed for summary judgment on that claim asserting
that in the 2000 Test Year rate case the RCA had fully reviewed and decided the
prudency of Chugach's financial management. In a decision dated August 22, 2005,
the Superior Court granted Chugach's summary judgment motion, finding that the
RCA had adjudicated the question of Chugach's financial management and that its
decision should be given res judicata effect. The Superior Court also found that
the RCA had exercised its primary jurisdiction in reviewing Chugach's financial
management, and that its decision should be given deference.

The Superior Court entered final judgment on November 10, 2005, after which
Chugach sought its costs and fees. On December 14, 2005, the Superior Court
entered judgment awarding Chugach fees and costs from MEA in the amount of
$104,732, which has not, as yet, been recorded in the financial statements.

On December 9, 2005, MEA appealed to the Alaska Supreme Court the Superior
Court's grant of summary judgment. On December 23, 2005, Chugach cross-appealed
the Superior Court's failure to also grant summary judgment based on the
doctrine of collateral estoppel. This appeal is pending. The ultimate resolution
of this matter is not currently determinable. In the opinion of management, an
adverse outcome is not likely to have a material adverse effect on Chugach's
results of operations, financial condition or liquidity. No reserves have been
established for this matter.

Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.,
Superior Court Case No. 3AN-04-11776 Civil

On October 12, 2004, MEA filed suit in Superior Court alleging that Chugach had
violated its bylaws in allocating margins (capital credits) during the years
1998 through 2003. The margins Chugach earns each year are allocated to the
customers who contributed them and are booked as capital credits to those
customers' accounts. Capital credits are eventually repatriated to customers at
the discretion of the board of directors, typically many years after the margins
are earned.

                                       28

<PAGE>

On February 17, 2006, MEA filed a Motion to File an Amended Complaint and an
Amended Complaint in this case. The Amended Complaint is identical to MEA's
initial Complaint except for changes made to accommodate one new claim. The new
claim challenges Chugach's failure to provide MEA with a capital credit
allocation for 2004. We expect the Court will allow MEA's proposed amendment.

In this suit, MEA asks the Court to hold that Chugach breached its bylaws in the
manner in which it allocated capital credits in 1998 through 2003 and if the
Amended Complaint is allowed by the Court, through 2004. MEA also asks the court
to enjoin Chugach to re-calculate MEA's capital credits applying MEA's
interpretation of Chugach's bylaws and in accordance with what MEA refers to as
"generally accepted accounting practices for nonprofit cooperatives and
cooperative principles". The suit also seeks damages in an unspecified amount to
compensate MEA for the alleged breach of contract. The trial date has been
rescheduled for January 16, 2007. Management is vigorously defending against the
claim. The ultimate resolution of this matter is not currently determinable. In
the opinion of management, an adverse outcome is not likely to have a material
adverse effect on Chugach's results of operations, financial condition or
liquidity because the matter relates primarily to issues of margin allocation
among customers. No reserves have been established for this matter.

Matanuska Electric Association, Inc. v. State of Alaska, Regulatory Commission
of Alaska, Superior Court Case No. 3AN-06-8243 Civil

On May 17, 2006, MEA appealed and on May 30, 2006, Homer Electric Association,
Inc., (HEA) cross appealed the RCA's decision in Commission Docket No. U-04-102,
see "Item 4 - Regulatory Matters - Docket No. U-04-102 (Revision to Current
Depreciation Rates)." On appeal, MEA claims the Commission's decision dated
January 10, 2006, to authorize Chugach to implement new depreciation rates as of
January 1, 2005 constituted illegal retroactive ratemaking. MEA also contends
that the Commission's reliance on avoidance of regulatory lag as a basis for its
decision was improper. HEA's points on appeal challenge several decisions by the
Commission on estimated lives of General Plant on the ground that there is not
substantial evidence in the record to support such a decision. HEA and MEA both
challenge the discovery rulings of the Commission. Chugach will join the State
of Alaska in defending the Commission's rulings. No briefing schedule has been
set.

The ultimate resolution of this matter is not currently determinable. In the
opinion of management, an adverse outcome is not likely to have a material
adverse effect on Chugach's results of operations, financial condition or
liquidity. No reserves have been established for this matter.

Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.,
Superior Court Case No. 3PA-06-1295 Civil

On May 17, 2006, MEA filed suit against Chugach in Superior Court asserting
three claims. In this action, MEA contends that by publishing unbundled
financial statements Chugach has in effect stated that MEA owes Chugach a debt.
Chugach denies having made statements to this effect.

                                       29

<PAGE>

Unbundled financial statements are an analytic tool developed by Chugach that
separate the financial statements into two business units consisting of the
Generation and Transmission (G&T) and the Distribution functions of the company.
The unbundled financial statements reflect the operating results of each
separate entity. Statements of Revenues, Expenses and Patronage Capital, Balance
Sheets and Statements of Cash Flows are prepared monthly for each business unit.
MEA's action is based on the result of Chugach's financial analysis showing
intercompany receivable/payable entries on the unbundled balance sheets.

The first of MEA's claims is that it is entitled to declaratory judgment to the
effect that MEA does not owe a debt to Chugach or to Chugach's Distribution
function. Second, MEA claims that Chugach has breached its Bylaws and the Power
Sales Agreement under which Chugach is obligated to sell MEA power and by
publishing its unbundled financial analysis and seeks a declaration that
Chugach's actions violate the Bylaws and the Power Sales Agreement. MEA also
asks for an injunction against further assertions, which Chugach denies having
made, that MEA owes Chugach or Chugach's Distribution function a debt. Finally,
MEA seeks damages, including punitive damages, to punish Chugach and deter it
from continuing to publish the analysis.

Chugach has moved to dismiss the first (declaratory judgment) and third
(defamation) counts of the complaint. Oral argument on this motion occurred on
October 13, 2006 and a decision on Chugach's motion to dismiss counts one and
three of the complaint is expected soon. Trial is currently scheduled for June
2007.

Chugach believes the claims are without merit and will vigorously defend against
them. Management is uncertain of the outcome of the proceeding before the
Superior Court. The ultimate resolution of this matter is not currently
determinable. In the opinion of management, an adverse outcome is not likely to
have a material adverse effect on Chugach's results of operations, financial
condition or liquidity.

Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.,
Superior Court Case No. 3PA-06-1591 Civil

On August 7, 2006, MEA served Chugach with a Summons and Complaint requesting
the Court grant MEA declaratory judgment, breach of contract and costs and
attorney fees. MEA seeks a declaratory judgment that Chugach has wrongfully
refused to grant MEA access to the books and records of the cooperative in
violation of state statute, common law and Chugach bylaws. MEA also alleges that
by refusing to grant access to these records, Chugach has breached its bylaws on
which MEA bases a breach of contract claim against Chugach. MEA asks the Court
to grant it access to, and the right to inspect and copy, unspecified Chugach's
records and order Chugach to cooperate in facilitating MEA's inspection and
copying of the same. Chugach has answered MEA's Complaint and believes the
claims are without merit and will vigorously defend against them. Management is
uncertain of the outcome of the proceeding before the Superior Court. The
ultimate resolution of this matter is not currently determinable. In the opinion
of management, an adverse outcome is not likely to have a material adverse
effect on

                                       30

<PAGE>

Chugach's results of operations, financial condition or liquidity.

Chugach has certain additional litigation matters and pending claims that arise
in the ordinary course of Chugach's business. In the opinion of management, no
individual matter or the matters in the aggregate is likely to have a material
adverse effect on Chugach's results of operations, financial condition or
liquidity.

Item 1A. Risk Factors

Chugach's financial results will be impacted by weather, the economy of our
service territory, fuel availability and prices, the future direction customers
may take and the decisions of regulatory agencies. Our creditworthiness will be
affected by national and international monetary trends, general market
conditions and the expectations of the investment community, all of which are
largely beyond our control. In addition, the following statements highlight risk
factors that may affect our consolidated financial condition and results of
operations. The statements below must be read together with factors discussed
elsewhere in this document and in our other filings with the SEC.

Fuel and Purchased Power Surcharge Mechanism

The fuel and purchased power surcharge mechanism allows Chugach to reflect
current fuel cost and to recover under-recoveries and refund over-recoveries
with a three-month lag. If Chugach were to materially under-recover fuel costs,
we may seek an increase in the surcharge to recover those costs at the time of
the next fuel surcharge filing. During periods of significant increases in
natural gas prices such as occurred in 2004 and 2005, Chugach realizes a lag in
the ability to reflect unanticipated increases in fuel costs in its fuel and
purchased power surcharge mechanism. As a result, cash flow may be impacted due
to the lag in collection of fuel costs from customers. At September 30, 2006,
Chugach had under-recovered $1.9 million and at December 31, 2005, Chugach had
under-recovered $1.8 million. To the extent the regulated fuel recovery process
does not provide for the timely recovery of fuel costs, Chugach could experience
a material negative impact on its cash flows.

Equipment Failures and Other External Factors

The generation and transmission of electricity requires the use of expensive and
complex equipment. While we have a maintenance program in place, generating
plants are subject to unplanned outages because of equipment failure. We are
particularly vulnerable to this due to the advanced age of several of our
gas-fired generating units. In the event of unplanned outages, we must acquire
power from others at unpredictable costs in order to supply our customers and
comply with our contractual agreements. The fuel and purchased power surcharge
mechanism allows Chugach to reflect current purchased power cost and to recover
under-recoveries and refund over-recoveries with a three-month lag. If Chugach
were to materially under-recover purchased power costs due to an unplanned
outage, we may seek an increase in the surcharge to recover those costs at the
time of the next fuel surcharge filing. As a result, cash flow may be impacted
due to the lag in payments of purchased power costs and collection of purchased
power costs from customers. To the extent the regulated

                                       31

<PAGE>

purchased power recovery process does not provide for the timely recovery of
purchased power costs, Chugach could experience a material negative impact on
its cash flows. This factor, as well as weather, interest rates, economic
conditions, fuel supply and prices, are largely beyond our control, but may have
a material adverse effect on our consolidated earnings, cash flows and financial
position.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable

Item 5. Other Information

Effective July 1, 2006, William R. Stewart, Interim Chief Executive Officer was
appointed as Chugach's Chief Executive Officer. Mr. Stewart, age 59, is a
37-year employee of Chugach and has served in a variety of management positions
including 20 years as a senior executive. Prior to being appointed Chief
Executive Officer, Stewart held the positions of General Manager, Corporate
Services Division, Sr. Vice President, Administration, Executive Manager,
Corporate Services Division, Executive Manager, Administration, Division
Director of Administration and Staff Assistant to the General Manager of
Chugach.

Item 6. Exhibits

Exhibits:

               Employment Agreement between the Registrant and William
               R. Stewart dated effective July 1, 2006

               Certification of Principal Executive Officer pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

               Certification of Principal Financial Officer pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

               Certification of Principal Executive Officer pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002

               Certification of Principal Financial Officer pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002

                                       32

<PAGE>

                                   Signatures

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                   CHUGACH ELECTRIC ASSOCIATION, INC.

                                   By: /s/ William R. Stewart
                                       ----------------------
                                       William R. Stewart
                                       Chief Executive Officer

                                   Date: November 10, 2006

                                   By: /s/ Michael R. Cunningham
                                       -------------------------
                                       Michael R. Cunningham
                                       Chief Financial Officer

                                   Date: November 10, 2006

                                       33

<PAGE>

                                    EXHIBITS

Listed below are the exhibits, which are filed as part of this Report:

Exhibit Number                          Description
--------------   -------------------------------------------------------

    10.54        Employment Agreement between the Registrant and William
                 R. Stewart dated effective July 1, 2006.

     31.1        Certification of Principal Executive Officer pursuant
                 to Section 302 of the Sarbanes-Oxley Act of 2002

     31.2        Certification of Principal Financial Officer pursuant
                 to Section 302 of the Sarbanes-Oxley Act of 2002

     32.1        Certification of Principal Executive Officer pursuant
                 to Section 906 of the Sarbanes-Oxley Act of 2002

     32.2        Certification of Principal Financial Officer pursuant
                 to Section 906 of the Sarbanes-Oxley Act of 2002

                                       34