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 June 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 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 AUGUST 1, 2006

             NONE                                  NONE

<PAGE>

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

PART I FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited)                                                   2

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

           Statements of Revenues, Expenses and Patronage Capital, Three and Six
           Months Ended June 30, 2006 and 2005                                                5

           Statements of Cash Flows, Six Months Ended June 30, 2006 and 2005                  6

           Notes to Financial Statements                                                      7

Item 2.    Management's Discussion and Analysis of Results of Operations and
           Financial Condition                                                               13

Item 3.    Quantitative and Qualitative Disclosures About Market Risk                        21

Item 4.    Controls and Procedures                                                           22

PART II OTHER INFORMATION

Item 1.    Legal Proceedings                                                                 23

Item 1A.   Risk Factors                                                                      26

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds                       27

Item 3.    Defaults Upon Senior Securities                                                   27

Item 4.    Submission of Matters to a Vote of Security Holders                               27

Item 5.    Other Information                                                                 27

Item 6.    Exhibits                                                                          27

           Signatures                                                                        28

           Exhibits                                                                          29
</TABLE>

                                        1

<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 financial statements of Chugach
as of and for the quarter ended June 30, 2006, follow:

                                        2

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
                                 Balance Sheets
                                   (Unaudited)

<TABLE>
<CAPTION>
                         Assets                             June 30, 2006   December 31, 2005
                         ------                             -------------   -----------------
<S>                                                         <C>             <C>
Utility plant:

   Electric plant in service                                $ 783,417,179   $     762,859,198

   Construction work in progress                               16,685,363          32,505,401
                                                            -------------   -----------------
      Total utility plant                                     800,102,542         795,364,599

Less accumulated depreciation                                (339,803,608)       (327,384,961)
                                                            -------------   -----------------
      Net utility plant                                       460,298,934         467,979,638

Other property and investments, at cost:

Nonutility property                                                24,461              24,461

Investments in associated organizations                        11,881,980          11,883,053
                                                            -------------   -----------------
      Total other property and investments                     11,906,441          11,907,514

Current assets:

   Cash and cash equivalents                                   19,202,023          10,650,594

   Special deposits                                               216,190             216,191

   Fuel cost under-recovery                                       657,846           1,781,833

   Accounts receivable, net                                    22,052,854          27,436,278

   Materials and supplies, at average cost                     27,851,543          23,809,691

   Prepayments                                                  1,047,039           1,801,104

   Other current assets                                           195,296             282,939
                                                            -------------   -----------------
      Total current assets                                     71,222,791          65,978,630

Deferred charges, net                                          18,010,327          19,269,718
                                                            -------------   -----------------

Total assets                                                $ 561,438,493   $     565,135,500
                                                            =============   =================
</TABLE>

                                        3

<PAGE>

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

<TABLE>
<CAPTION>
                Liabilities and Equities                    June 30, 2006   December 31, 2005
                ------------------------                    -------------   -----------------
<S>                                                         <C>             <C>
Equities and margins:

   Memberships                                              $   1,272,878   $       1,250,398

   Patronage capital                                          141,584,126         136,185,378

   Other                                                        7,477,431           7,603,376
                                                            -------------   -----------------
      Total equities and margins                              150,334,435         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 Cooperative promissory notes payable      46,303,530          53,532,099
                                                            -------------   -----------------
      Total long-term obligations                             351,803,530         364,532,099

Current liabilities:

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

   Accounts payable                                             5,958,968           9,598,958

   Consumer deposits                                            2,058,746           1,980,285

   Accrued interest                                             6,434,052           6,360,652

   Salaries, wages and benefits                                 5,210,185           5,373,496

   Fuel                                                        19,395,782          18,123,139

   Other current liabilities                                    3,915,707           3,035,915
                                                            -------------   -----------------
      Total current liabilities                                56,702,009          52,798,132

   Deferred credits                                             2,598,519           2,766,117
                                                            -------------   -----------------

   Total Liabilities and equities                           $ 561,438,493   $     565,135,500
                                                            =============   =================
</TABLE>

See accompanying notes to financial statements

                                        4

<PAGE>

                       CHUGACH ELECTRIC ASSOCIATION, INC.
             Statements of Revenues, Expenses and Patronage Capital
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     Three months ended June 30       Six months ended June 30
                                                         2006           2005            2006            2005
                                                    -------------   -------------   -------------   -------------
<S>                                                 <C>             <C>             <C>             <C>
Operating revenues                                  $  60,248,547   $  50,314,401   $ 127,134,140   $ 107,526,435

Operating expenses:
   Fuel                                                27,162,313      17,673,953      55,148,493      38,165,976

   Power production                                     3,478,172       2,971,044       6,671,084       6,413,824

   Purchased power                                      6,245,351       6,222,465      13,456,084      11,498,387

   Transmission                                         1,141,723       1,326,796       2,533,682       2,928,936

   Distribution                                         2,687,572       2,996,705       5,724,665       5,816,310

   Consumer accounts                                    1,232,997       1,192,447       2,535,000       2,547,838

   Administrative, general and other                    4,694,058       4,764,653       9,494,686       9,630,214

   Depreciation                                         7,160,384       7,160,655      14,209,768      14,282,515
                                                    -------------   -------------   -------------   -------------

      Total operating expenses                         53,802,570      44,308,718     109,773,462      91,284,000

Interest expense:
   On long-term obligations                             6,094,713       5,811,992      12,130,422      11,487,678

   On short-term obligations                                    0               0               0           2,237

   Charged to construction-credit                         (83,566)       (214,456)       (198,983)       (406,174)
                                                    -------------   -------------   -------------   -------------

      Net interest expense                              6,011,147       5,597,536      11,931,439      11,083,741
                                                    -------------   -------------   -------------   -------------

      Net operating margins                               434,830         408,147       5,429,239       5,158,694

Nonoperating margins:
   Interest income                                        248,796         134,284         412,234         255,978

   Capital credits, patronage dividends and other          30,801          32,658          61,627          68,099
                                                    -------------   -------------   -------------   -------------

   Total nonoperating margins                             279,597         166,942         473,861         324,077
                                                    -------------   -------------   -------------   -------------

   Assignable margins                                     714,427         575,089       5,903,100       5,482,771
                                                    =============   =============   =============   =============

Patronage capital at beginning of period              141,240,221     135,553,458     136,185,378     130,750,269

Retirement of capital credits and estate payments        (370,522)        (37,474)       (504,352)       (141,967)

Patronage capital at end of period                  $ 141,584,126   $ 136,091,073   $ 141,584,126   $ 136,091,073
                                                    =============   =============   =============   =============
</TABLE>

See accompanying notes to financial statements

                                        5

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        Six months ended June 30
                                                                                          2006            2005
                                                                                      -------------   -------------
<S>                                                                                   <C>             <C>
Cash flows from operating activities:
      Assignable margins                                                              $   5,903,100   $   5,482,771
                                                                                      -------------   -------------
Adjustments to reconcile assignable margins to net cash provided by operating
   activities:

      Depreciation and amortization                                                      15,686,468      15,328,628
      Capitalized interest                                                                 (273,422)       (479,000)
      Write off of deferred charges                                                         345,899               0
      Other                                                                                 (11,745)           (597)

Changes in assets and liabilities:
   (Increase) decrease in assets:
      Accounts receivable                                                                 5,383,424       4,005,241
      Fuel cost under-recovery                                                            1,123,987               0
      Materials and supplies                                                             (4,041,852)       (109,327)
      Prepayments                                                                           754,065        (236,230)
      Other assets                                                                           87,705          75,703
      Deferred charges                                                                     (669,281)       (764,634)

Increase (decrease) in liabilities:
      Accounts payable                                                                   (3,639,990)     (1,441,442)
      Consumer deposits                                                                      78,461           2,927
      Fuel cost over-recovery                                                                     0      (1,134,185)
      Accrued interest                                                                       73,400          86,731
      Salaries, wages and benefits                                                         (163,311)        436,492
      Fuel                                                                                1,272,643         462,886
      Other liabilities                                                                     879,792         187,664
      Deferred credits                                                                      100,575         (25,763)
                                                                                      -------------   -------------
         Net cash provided by operating activities                                       22,889,918      21,877,865
                                                                                      -------------   -------------

Investing activities:
      Extension and replacement of plant                                                 (6,136,812)    (11,623,350)
                                                                                      -------------   -------------
         Net cash used for investing activities                                          (6,136,812)    (11,623,350)
                                                                                      -------------   -------------

Cash flows from financing activities:
      Repayments of long-term obiligations                                               (7,325,687)     (5,931,393)
      Memberships and donations received/Other equities and margins                        (103,465)         (2,121)
      Retirement of patronage capital and estate payments, including discounted
         capital credits transferred to other equities and margins                         (504,352)       (141,967)
      Net refunds of consumer advances for constructions                                   (268,173)        (60,136)
                                                                                      -------------   -------------
         Net cash used for financing activities                                          (8,201,677)     (6,135,617)
                                                                                      -------------   -------------

Net increase (decrease) in cash and cash equivalents                                      8,551,429       4,118,898

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

Cash and cash equivalents at end of period                                            $  19,202,023   $  14,583,902
                                                                                      =============   =============
Supplemental disclosure of cash flow information - interest expense paid, excluding
   amounts capitalized                                                                $  11,785,886   $  10,518,010
                                                                                      =============   =============
</TABLE>

See accompanying notes to financial statements

                                        6

<PAGE>

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

1. Presentation of Financial Information

During interim periods, Chugach Electric Association, Inc. (Chugach) follows the
accounting policies set forth in its audited financial statements included in
Form 10-K filed with the Securities and Exchange Commission (SEC) unless
otherwise noted. Users of interim financial information are encouraged to refer
to the footnotes contained in Chugach's Form 10-K when reviewing interim
financial results. The accompanying unaudited interim financial statements
reflect all adjustments of normal and recurring nature, which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods presented.

2. Lines of credit

Chugach maintains a line of credit of $7.5 million with CoBank, ACB (CoBank).
The CoBank line of credit expires October 31, 2006, subject to annual renewal at
the discretion of the parties. At June 30, 2006, there was no outstanding
balance on this line of credit and it was not utilized during the second quarter
of 2006. At June 30, 2006, the borrowing rate would have been 6.65% 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 June 30, 2006,
there was no outstanding balance on this line of credit and it was not utilized
during the second quarter of 2006. At June 30, 2006, the borrowing rate would
have been 6.75% and at December 31, 2005, the borrowing rate would have been
6.10%. The NRUCFC line of credit expires October 15, 2007.

3. 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 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

                                        7

<PAGE>

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

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.

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

                                        8

<PAGE>

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

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. 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.

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
Generating 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

                                        9

<PAGE>

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

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 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.

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.

4. 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 a net impact on 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

                                       10

<PAGE>

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

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 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

                                       11

<PAGE>

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

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 Old Contract pending review.
Chugach expects approval to be contested by its wholesale customer, MEA, but
that a contract in some form allowing continued service to Seward be approved.

5. 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 - an amendment of FASB
Statement No. 140"

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.

                                       12

<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.

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 a net impact on 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

                                       13

<PAGE>

active in the proceeding. MEA filed a motion for reconsideration of the
effective date of 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 Old Contract pending review.
Chugach expects approval to be contested by its wholesale customer, MEA, but
that a contract in some form allowing continued service to Seward will be
approved.

                                       14

<PAGE>

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 $9.9
million, or 19.7%, for the quarter ended June 30, 2006, over the same quarter in
2005. The increase in revenues was 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 continued economic growth in
the second quarter of 2006, compared to the 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 sales to MEA, HEA and Seward contributed
approximately $5.7 million and $5.5 million to Chugach's fixed costs for the
quarter ended June 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 for the quarters
ended June 30, 2006, and 2005.

<TABLE>
<CAPTION>
                      Base Rate Sales Revenue     Fuel and Purchased Power Revenue           Total Revenue
-----------------------------------------------------------------------------------------------------------------
                    2006     2005    % Variance    2006       2005      % Variance    2006     2005    % Variance
-----------------------------------------------------------------------------------------------------------------
<S>                <C>      <C>      <C>          <C>        <C>        <C>          <C>      <C>      <C>
  Retail
Residential        $ 10.5   $ 10.4       1.0%     $  6.6     $  4.6        43.5%     $ 17.1   $ 15.0      14.0%
Small Commercial   $  1.9   $  1.9       0.0%     $  1.4     $  1.0        40.0%     $  3.3   $  2.9      13.8%
Large Commercial   $  7.0   $  6.9       1.4%     $  6.8     $  4.7        44.7%     $ 13.8   $ 11.6      19.0%
Lighting           $  0.4   $  0.4       0.0%     $  0.0     $  0.0         0.0%     $  0.4   $  0.4       0.0%
Total Retail       $ 19.8   $ 19.6       1.0%     $ 14.8     $ 10.3        43.7%     $ 34.6   $ 29.9      15.7%

  Wholesale
HEA                $  2.5   $  2.4       4.2%     $  6.0     $  4.1        46.3%     $  8.5   $  6.5      30.8%
MEA                $  4.0   $  3.8       5.3%     $  8.1     $  5.4        50.0%     $ 12.1   $  9.2      31.5%
SES                $  0.3   $  0.3       0.0%     $  0.7     $  0.5        40.0%     $  1.0   $  0.8      25.0%
Total Wholesale    $  6.8   $  6.5       4.6%     $ 14.8     $ 10.0        48.0%     $ 21.6   $ 16.5      30.9%

  Economy Sales    $  0.9   $  1.0     (10.0%)    $  2.4     $  2.2         9.1%     $  3.3   $  3.2       3.1%
  Miscellaneous    $  0.7   $  0.7       0.0%     $  0.0     $  0.0         0.0%     $  0.7   $  0.7       0.0%

Total Revenue      $ 28.2   $ 27.8       1.4%     $ 32.0     $ 22.5        42.2%     $ 60.2   $ 50.3      19.7%
</TABLE>

The following table represents kWh sales for the quarter ended June 30:

                                        2006          2005
                                    -----------   -----------
                      Customer          kWh           kWh
                   Retail           277,082,143   271,856,959
                   Wholesale        288,466,023   284,351,528
                   Economy Energy    56,972,030    69,174,940
                                    -----------   -----------
                   Total            622,520,196   625,383,427
                                    ===========   ===========

Retail demand and energy rates and wholesale demand and energy rates charged to
HEA and MEA did not change in the second quarter of 2006 compared to the second
quarter of 2005.

                                       15

<PAGE>

The wholesale demand and energy rates charged to Seward Electric System (SES)
increased 16.7% in the second quarter of 2006 compared to the second quarter of
2005 caused by a change of rates in a new power sales agreement that was
implemented June 1, 2006

Fuel expense increased by $9.5 million, or 53.7%, for the quarter ended June 30,
2006, compared to the same period in 2005 primarily due to higher fuel prices
and an increase in quantity used. For the quarter ended June 30, 2006, Chugach
used 5,821,333 MCF of fuel at an average effective price of $4.66 per MCF, which
does not include 382,306 MCF of fuel that is recorded in purchased power. For
the same period in 2005, Chugach used 5,159,919 MCF of fuel at an average
effective price of $3.43 per MCF, which does not include 654,337 MCF of fuel
recorded in purchased power. Fuel and purchased power is collected through the
fuel surcharge mechanism. Production expense increased $507.1 thousand, or
17.1%, for the three-month period ended June 30, 2006, compared to the same
period in 2005, primarily due to higher maintenance costs associated with Beluga
Unit 5 and Unit 8 in 2006 compared to maintenance costs for Beluga Unit 3 and
Unit 5 in 2005. Transmission expense decreased by $185.1 thousand, or 13.9%, and
distribution expense decreased by $309.1 thousand, or 10.3%, due primarily to
the timing of line maintenance. Consumer Accounts/Information, administrative,
general and other and depreciation and amortization expense did not materially
change for the three-month period ended June 30, 2006.

Interest on long-term debt increased by $282.7 thousand, or 4.9%, due to higher
interest rates on the variable CoBank and 2002 Series B bonds. Interest charged
to construction decreased by $130.9 thousand, or 61.0%, 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 second
quarter of 2006 compared to 2005.

Other nonoperating margins increased $112.7 thousand, or 67.5%, for the
three-month period ended June 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.

Current Year to Date Versus Prior Year to Date

Operating revenues increased $19.6 million, or 18.2%, 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 and wholesale sales,
actual sales increased in the first six months of 2006 over the same period in
2005 due to the same economic activity in the aforementioned current year
quarter versus prior year quarter discussion. Based on the results of fixed and
variable cost recovery established in Chugach's last rate case, wholesale sales
contributed approximately $12.7 and $12.2 million to Chugach's fixed costs for
the year ended June 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 at June 30, 2006,
and 2005.

<TABLE>
<CAPTION>
                        Base Rate Sales Revenue      Fuel and Purchased Power Revenue          Total Revenue
---------------------------------------------------------------------------------------------------------------------
                      2006      2005    % Variance    2006      2005     % Variance      2006      2005    % Variance
---------------------------------------------------------------------------------------------------------------------
<S>                  <C>      <C>       <C>          <C>       <C>       <C>            <C>       <C>      <C>
   Retail
Residential          $ 23.8   $  23.7      0.4%      $  14.2   $ 10.0       42.0%       $  38.0   $ 33.7     12.8%
Small Commercial     $  4.2   $   4.2      0.0%      $   2.9   $  2.0       45.0%       $   7.1   $  6.2     14.5%
Large Commercial     $ 14.2   $  14.0      1.4%      $  13.2   $  9.1       45.1%       $  27.4   $ 23.1     18.6%
Lighting             $  0.7   $   0.7      0.0%      $   0.0   $  0.0        0.0%       $   0.7   $  0.7      0.0%
Total Retail         $ 42.9   $  42.6      0.7%      $  30.3   $ 21.1       43.6%       $  73.2   $ 63.7     14.9%

   Wholesale
HEA                  $  5.1   $   5.2     (1.9%)     $  11.2   $  8.2       36.6%       $  16.3   $ 13.4     21.6%
MEA                  $  9.5   $   8.9      6.7%      $  16.9   $ 11.2       50.9%       $  26.4   $ 20.1     31.3%
SES                  $  0.5   $   0.5      0.0%      $   1.2   $  1.1        9.1%       $   1.7   $  1.6      6.2%
Total Wholesale      $ 15.1   $  14.6      3.4%      $  29.3   $ 20.5       42.9%       $  44.4   $ 35.1     26.5%

   Economy Sales     $  2.2   $   2.4     (8.3%)     $   6.0   $  5.0       20.0%       $   8.2   $  7.4     10.8%
   Miscellaneous     $  1.3   $   1.3      0.0%      $   0.0   $  0.0        n/a        $   1.3   $  1.3      0.0%

Total Revenue        $ 61.5   $  60.9      1.0%      $  65.6   $ 46.6       40.8%       $ 127.1   $107.5     18.2%
</TABLE>

The following table represents kWh sales for the six months ended June 30:

                                         2006             2005
                                     -------------    -------------
                  Customer                 kWh             KWh
             Retail                    608,953,639      601,231,626
             Wholesale                 619,068,438      611,986,352
             Economy Energy            145,910,070      165,000,790
                                     -------------    -------------
             Total                   1,373,932,147    1,378,218,768
                                     =============    =============

Fuel expense increased by $17.0 million, or 44.5%, for the first six 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 six months of 2006, Chugach used
12,482,504 MCF of fuel at an average effective price of $4.41 per MCF, which
does not include 829,162 MCF of fuel that is recorded in purchased power. For
the same period in 2005, Chugach used 11,762,829 MCF of fuel at an average
effective price of $3.24 per MCF, which does not include 1,265,172 MCF of fuel
recorded in purchased power. Purchased power expense increased by $2.0 million,
or 17.0%, primarily due to higher fuel prices. These increases were offset by a
decrease in quantity purchased due to maintenance scheduling at Bradley Lake.
Fuel expense is collected through the fuel surcharge mechanism. Power production
expense did not materially change for the six-month period ended June 30, 2006.
Transmission expense decreased $395.3 thousand, or 13.5%, primarily due to
timing of line maintenance. Distribution, consumer accounts, administrative,
general and other and depreciation expense did not materially change for the
six-month period ended June 30, 2006.

Interest on long-term debt increased by $642.7 thousand, or 5.6%, due to higher
interest rates on our 2002 Series B bonds and our CoBank promissory notes.
Interest charged to construction decreased by $207.2 thousand, or 51.0%, in the
first six 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 six months of 2006 compared to 2005.

                                       17

<PAGE>

Other non-operating margins increased by $149.8 thousand, or 46.2%, for the
six-month period ended June 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 a higher average cash balance.

Financial Condition

Total assets decreased $3.7 million, or 0.7%, from December 31, 2005, to June
30, 2006. The decrease was due in part to a $7.7 million, or 1.6%, decrease in
net plant primarily due to depreciation expense in excess of extension and
replacement of plant. The decrease was also due to a $5.4 million, or 19.6%,
decrease in accounts receivable due to less energy sold at June 30, 2006,
compared to December 31, 2005. The decrease was also due to a $1.1 million, or
63.1%, decrease in fuel cost under-recovery, caused by the collection of the
previous quarter's fuel and purchased power costs through the fuel surcharge
mechanism and a $0.8 million, or 41.9%, decrease in prepayments caused by the
amortization of prepaid insurance. Deferred charges decreased by $1.3 million,
or 6.5%, due primarily to six months of amortization of existing charges, which
were minimally offset by additions of approximately $217.3 thousand.

The decreases were offset by an $8.6 million, or 80.3%, increase in cash and
cash equivalents, caused, in part by lower capital spending in the first two
quarters of 2006. The decreases were also offset by an increase of $4.0 million,
or 17.0%, in materials and supplies caused by an increase in generation
inventory in preparation for a Beluga Unit 6 inspection.

Notable changes to total liabilities and equities include a decrease of $7.3
million caused by the reclassification of and installment payments on the 2002
Series B bond, as well as CoBank 3, 4 and 5 bonds. Accounts payable also
decreased $3.6 million, or 37.9%, as a result of the payment of invoices that
were accrued but not paid at December 31, 2005.

These decreases were offset by a $5.3 million, or 3.7%, increase in patronage
capital due to the margins generated in the first and second quarters of 2006,
as well as a $1.3 million, or 7.0%, increase in fuel payable primarily caused by
higher fuel prices. Other current liabilities increased $0.9 million, or 29.9%,
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 June 30, 2006, there was
no outstanding balance with NRUCFC or CoBank.

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 June 30, 2006, Chugach
had the following promissory notes outstanding under this facility:

                                       18

<PAGE>

      Promissory    Principal     Interest rate at   Maturity     Principal
         Note        balance       June 30, 2006       Date     Payment Dates
      ----------   ------------   ----------------   --------   -------------

       CoBank 2    $  8,500,000        5.50%           2010      2005 - 2010
       CoBank 3    $ 19,604,225        6.65%           2022      2003 - 2022
       CoBank 4    $ 21,427,874        6.65%           2022      2003 - 2022
       CoBank 5    $  5,000,000        6.65%           2007          2007

        Total      $ 54,532,099

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 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 June 30, 2006,
approximately $6.1 million had been expended. Capital improvement expenditures
are expected to increase in the third quarter of 2006 as the construction season
extends into October.

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

                                       19

<PAGE>

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 June 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 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. As reflected in Note 1
to the financial statements under "Deferred Charges and Credits", 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 provision for rate refunds and allowance for
doubtful accounts. Actual results could differ from those estimates.

Outlook

None

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

                                       20

<PAGE>

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 our business, we manage our exposure
to these risks as described below. Chugach does not engage in trading market
risk-sensitive instruments for speculative purposes.

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%

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 $870,320 based on $87,032,099 of variable rate debt outstanding
at June 30, 2006.

                                       21

<PAGE>

The following table provides information regarding cash flows for principal
payments on total debt by maturity date (dollars in thousands) as of June 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              $  1,000   $  2,000   $  2,000   $  2,000   $  1,500   $  270,000   $ 278,500   $ 284,971

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            0.00%      6.03%      5.59%      5.58%      5.59%        6.22%       6.03%
</TABLE>

*     Includes current portion

Commodity Price Risk

Chugach's gas contracts provide for adjustments to gas prices based on
fluctuations of certain commodity prices and indices. Because purchased power
costs are passed directly to our wholesale and retail customers through a fuel
surcharge mechanism, fluctuations in the price paid for gas pursuant to
long-term gas supply contracts does not normally impact margins.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we 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 have
been no changes in our internal controls or in other factors known to management
that could significantly affect our internal controls subsequent to our most
recent evaluation.

We are 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 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

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<PAGE>

our internal controls over financial reporting is fairly stated in all material
respects and separately report on whether it believes we maintained, in all
material respects, effective internal controls over financial reporting as of
December 31, 2007. We are 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 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.

                                       23

<PAGE>

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.

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. 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. 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

                                       24

<PAGE>

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.

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
Generating 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 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. In the opinion of management, an adverse outcome is not likely
to have a material adverse effect on our 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. 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.

                                       25

<PAGE>

Item 1A. Risk Factors

Chugach's consolidated 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 June 30, 2006, Chugach
had under-recovered $657.8 thousand 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 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.

                                       26

<PAGE>

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

At a special meeting of the Board of Directors of Chugach Electric Association,
Inc. on August 2, 2006, William R. Stewart 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 and spent the past 20 years as a
senior executive. Prior to being appointed Interim Chief Executive Officer in
September 2005, Stewart held the positions of General Manager, Corporate
Services Division, Sr. Vice President, Administration, Executive Manager, Retail
Services, Executive Manager, Administration, Division Director of Administration
and Staff Assistant to the General Manager of Chugach.

Item 6. Exhibits

Exhibits:

            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

                                       27

<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: August 4, 2006

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

                              Date: August 4, 2006

                                       28

<PAGE>

                                    EXHIBITS

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

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

           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

                                       29