COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2013 |
Commitments and Contingencies Disclosure [Abstract] | ' |
COMMITMENTS AND CONTINGENCIES | ' |
COMMITMENTS AND CONTINGENCIES |
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Environmental |
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NPC |
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NEICO |
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NEICO, a wholly-owned subsidiary of NPC, owns property in Wellington, Utah, which was the site of a coal washing and load-out facility. The site has a reclamation estimate supported by a bond of approximately $4 million with the Utah Division of Oil and Gas Mining, which management believes is sufficient to cover reclamation costs. The site is under contract for sale to a third party and the sale is expected to close in the fourth quarter of 2013. The sale will not be material to NPC. |
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Reid Gardner Generating Station |
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On October 4, 2011, NPC received a request for information from the EPA-Region 9 under Section 114 of the Federal Clean Air Act requesting current and historical operations and capital project information for NPC’s Reid Gardner Generating Station located near Moapa, Nevada. NPC operates the facility and owns Units 1-4, with the interest of CDWR in Unit 4 having been terminated in October 2013. The EPA’s Section 114 information request does not allege any incidents of non-compliance at the plant. NPC completed its responses to EPA during the first quarter of 2012 and will continue to monitor developments relating to this Section 114 request. At this time, NPC cannot predict the impact, if any, associated with this information request. |
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SPPC |
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Valmy Generating Station |
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On June 22, 2009, SPPC received a request for information from the EPA-Region 9 under Section 114 of the Federal Clean Air Act requesting current and historical operations and capital project information for SPPC’s Valmy Generating Station located in Valmy, Nevada. SPPC co-owns and operates this coal-fired plant. Idaho Power Company owns the remaining 50%. The EPA’s Section 114 information request does not allege any incidents of non-compliance at the plant, and there have been no other new enforcement-related proceedings that have been initiated by the EPA relating to the plant. SPPC completed its response to the EPA in December 2009 and will continue to monitor developments relating to this Section 114 request. At this time, SPPC cannot predict the impact, if any, associated with this information request. |
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NPC and SPPC |
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NVision and SB 123 |
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NVision is a comprehensive plan of NVE for the reduction of emissions from coal-fired generation plants through the accelerated retirement of certain coal-fired plants, the replacement of the generation capacity of such plants with increased capacity from renewable energy facilities and other electric generating plants. NVision includes the following significant details: |
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• | Accelerating the plan to retire 800 MWs of coal plants, starting as soon as December 31, 2014; |
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• | Replacement of such coal plants with the procurement of 300 MWs from renewable facilities; |
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• | Construction or acquisition and ownership of 50 MWs of electric generating capacity from renewable facilities; |
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• | Construction or acquisition and ownership of 550 MWs of electric generating capacity from other electric generating plants; and |
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• | Assuring regulatory procedures that protect reliability and supply and address financial impacts on customer and utility. |
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In June 2013, the Nevada State Legislature passed SB 123, which was supported by NVE as part of its NVision initiative and includes the requirements as outlined in the bullets above. The Utilities, along with other interested parties, are currently working with the PUCN to finalize the rulemaking associated with this bill and expect to file an emissions reduction plan in 2014 to specifically address the plan details as outlined above. |
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Greenhouse Gas/Carbon Regulations |
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In conjunction with the release of President Obama’s Climate Action Plan on June 25, 2013, the President issued a memorandum directing the EPA to take several actions on carbon emissions standards for power plants. As discussed above, NVision and the passage of SB 123, will yield substantial reductions in carbon as NVE and the Utilities retire their existing coal-fired generating facilities on an accelerated schedule. While the Utilities currently cannot predict the financial impact or final mandates by President Obama’s Climate Action Plan or the EPA’s final rules, NVE and the Utilities remain committed to taking progressive steps over time to limit the carbon emissions from its generation fleet by retiring older fossil units and replacing them with new, lower emissions and/or zero emission sources. |
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Regional Haze Rules |
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In 2005, the EPA finalized amendments to its Regional Haze Rules that require the installation and operation of emission controls, known as best available retrofit technology (BART), for industrial facilities emitting air pollutants that reduce visibility in certain national parks and wilderness areas throughout the U.S. Certain NVE generating facilities are subject to BART requirements. Pursuant to the EPA’s Regional Haze Rules, individual states were required to identify the facilities located in their states that will have to reduce sulfur dioxide (SO2), nitrogen oxide (NOx) and particulate matter emissions under BART and then set emissions limits for those facilities. |
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In June 2011, the EPA published in the Federal Register its proposal to approve Nevada's State Implementation Plan (SIP) implementing the Regional Haze Rules for affected units in the State of Nevada, which includes units at our Reid Gardner, Tracy and Ft. Churchill Generating Stations. In March 2012, the EPA approved Nevada’s SIP as it pertains to all affected units and emissions, except for NOx controls at Units 1-3 at the Reid Gardner Generating Station. The specified compliance date for this action, which includes the affected Tracy and Ft. Churchill Generating Station units, is January 1, 2015. In that same March 2012 Federal Register notice, the EPA stated that it intended to make a BART determination on those Reid Gardner Generating Station units at a later date. In August 2012, the EPA published its final determination for NOx BART controls for the Reid Gardner Generating Station Units 1-3, approving and rejecting certain components of Nevada’s SIP. For the limited portions of Nevada’s SIP that EPA rejected, it put in place a Federal Implementation Plan (FIP) that will remain enforceable until such time as Nevada submits a revised SIP to address the concerns the EPA noted in its August 2012 Federal Register notice. Within the August 2012 notice, the EPA approved Nevada’s determination in its SIP that the installation of selective non-catalytic reduction technology (SNCR) represented BART for purposes of compliance with the Regional Haze Rule, with a specified compliance date of January 1, 2015. On October 19, 2012, NPC submitted to EPA a Petition for Reconsideration of the August 2012 final rule requesting EPA to reconsider the compliance deadline for the Reid Gardner Generating Station retrofits so that it be set no earlier than June 30, 2016, which would match the modified compliance data put forward by the State of Nevada. On March 26, 2013, the EPA granted reconsideration of the compliance date for the BART retrofits for Units 1, 2 and 3 at Reid Gardner Generating Station, proposing to extend the compliance date by 18 months, from January 1, 2015 to June 30, 2016. The EPA held a public hearing on April 29, 2013, to accept written and oral comments on this proposed action and t he comment period for this action closed on May 30, 2013. In August 2013, the EPA announced it was taking final action to extend the date by which Units 1, 2, and 3 at Reid Gardner Generating Station must meet the BART limits to reduce emissions of nitrogen oxides. The final date is now affirmed as June 30, 2016. |
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NVE continues to work toward finalizing the retrofit designs for the affected BART units. NVE has received approval from the PUCN to retire Tracy Generating Station Units 1 and 2, and install retrofit controls on Tracy Generating Station Unit 3 and Ft. Churchill Generating Station Units 1 and 2. As previously disclosed, NVE and the Utilities intend to file with the PUCN their emissions reduction plan in 2014 detailing how they will address the phased retirement of coal fired assets as required under SB 123. While the BART requirements specify the installation of SNCR’s on Reid Gardner Generating Station Units 1, 2 and 3, the passage of SB 123 could result in the early retirement of those units prior to the required BART installation deadline, pending the final approval of the PUCN. Therefore, in 2014, NVE and the Utilities will file an emissions reduction plan. NVE and the Utilities would need to obtain either the PUCN approval to retire those units as soon as the end of 2014 or seek approval for the BART retrofit installation with an alternate retirement date. Compliance with the Regional Haze Rules are estimated to cost approximately $77.1 million, including Reid Gardner Generating Station Units 1, 2 and 3, but excluding AFUDC, over the next several years; however, these costs are preliminary and subject to change based on final engineering analysis and retirement of generating station units. NVE expects that costs incurred to comply with the Regional Haze Rules would be capitalized and recovered through the Utilities’ regulatory proceedings similar to other environmental compliance requirements. |
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Environmental groups have challenged both of the EPA’s final determinations with respect to Nevada’s regional haze SIP submittal. In May 2012, WildEarth Guardians petitioned the Ninth Circuit to review the EPA’s March 2012 approval of Nevada’s SIP for all affected units and emissions except NOx controls at the Reid Gardner Generating Station, alleging that the EPA’s approval did not conform to the requirements set forth in the Regional Haze Rule. NVE has intervened in that lawsuit. In October 2012, Earthjustice, on behalf of the Moapa Band of Paiute Indians, Sierra Club and the National Parks Conservation Association, petitioned the Ninth Circuit to review the EPA’s August 2012 final determinations pertaining to NOx controls at the Reid Gardner Generating Station. NVE has intervened in this lawsuit. At this time management is unable to determine the likelihood of success by petitioners in these litigation matters. An adverse decision in either lawsuit could impact our compliance strategy for the Tracy, Ft. Churchill and Reid Gardner Generating Stations, and could result in the requirement to install more stringent emissions controls, or the retirement of certain units earlier than currently planned. |
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The Navajo Generating Station is also an affected unit under EPA’s Regional Haze Rules. On January 17, 2013, the EPA announced a proposed FIP addressing BART and an “Alternative to BART” for the Navajo Generating Station that includes a flexible timeline for reducing NOx emissions. NVE, along with the other owners of the facility, have been reviewing the EPA proposal to determine its impact on the viability of the plant’s future operations. The land lease for the Navajo Generating Station is up for renewal in 2019. Renewal of this lease will require completion of an Environmental Impact Statement as well as a renewal of the fuels supply agreement, among other considerations. It is believed that the EPA BART proposal will require an investment of up to $1.1 billion in additional emission controls at the plant of which NPC’s ownership share is 11.3%. |
The original comment period on the EPA BART proposal expired on May 6, 2013, but Navajo Generating Station operator Salt River requested and was granted several extensions, citing the complexity of the plan and the need to consult with multiple tribes and the other plant co-owners. |
On September 25, 2013, the EPA issued a supplemental proposal which included a BART alternative called the Technical Work Group (“TWG”) Alternative. The TWG Alternative is based upon the proposal submitted to the EPA in July 2013 by a group of Navajo Generating Station stakeholders called the TWG. At this time, the EPA is concurrently accepting comments on the BART determination and the EPA Alternative which were proposed in February 2013, as well the TWG Alternative proposed in the supplemental proposal. Comments are now due by January 6, 2014. |
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Given the uncertainties that remain regarding the various lease and agreement renewal terms, the timeline for BART installation, and the fact that the EPA’s overall proposal will be subject to significant input from a variety of affected parties before it is finalized, NVE cannot predict at this time the ultimate financial impact to the Navajo Generating Station operations or what other alternative actions the ownership may decide to take. As a result of the passage of NVision and these uncertainties, NPC expects to file in 2014 an emissions reduction plan to specifically address its ownership participation in the Navajo Generating Station. |
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Mercury and Air Toxics Standards (MATS) |
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In December 2011, the EPA signed for publication in the Federal Register a final rule regulating hazardous air pollutant (HAP) emissions from coal- and oil-fired electric utility steam generating units. The rule, referred to as the MATS rule, requires coal- and oil-fired electric utility steam generating units to meet HAP emission standards reflecting the application of the Maximum Achievable Control Technology (MACT). The final MATS rule (previously referred to as the Utility MACT Rule) was published in the Federal Register on February 16, 2012. The final rule establishes emission limits for hazardous air pollutants from new and existing coal-fired and oil-fired steam electric generating units. The rule requires sources to comply with the emission limits by April 16, 2015, with a potential one year compliance extension available for sources that are unable to complete the installation of emission controls before the compliance deadline. Numerous petitions for review of the final MATS rule have been filed with the United States Court of Appeals for the District of Columbia. The Court has established a schedule for the litigation; however, the Utilities cannot predict the outcome at this time. |
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The final rule does not specifically list control technologies that are required to achieve the MATS emission standards. Coal- and oil-fired electric generating units are required to meet the applicable HAP emission limits using whatever control technology, or combination of technologies, they deem appropriate for their specific situation. In general, control technology requirements will be a function of the fuel being fired and the performance of existing air pollution control systems. Based on a review of emissions data available from NVE’s generating units, as well as emissions data available from EPA for similar sources, the Utilities anticipate that SO2 and/or acid gas reduction will be required at SPPC’s Valmy Generating Station, Unit 1 to achieve compliance with the MATS standards. At the present time, SPPC believes a dry sorbent injection system will be selected as the final control option for Unit 1, at an estimated capital cost for SPPC’s 50% ownership interest of approximately $6.4 million, excluding AFUDC. Note that the actual cost will be dependent upon final engineering design. |
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The three units at the Navajo Generating Station are also subject to MATS. The plant operator intends to file a one year extension request associated with the compliance date in order to allow for additional testing of various mercury control strategies. Due to the uncertainty of what control equipment will be ultimately required to control mercury from the Navajo Generating Station units, a cost estimate is unable to be determined at this time. |
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Currently, all four of the units at the Reid Gardner Generating Station, as well as Unit 2 at the Valmy Generating Station are compliant with the MATS emission standards, based on the current fuel blend. However, NVE and the Utilities will continue to monitor the chemical coal composition utilized in these units to ensure continued compliance. |
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Other Environmental Matters |
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NVE and the Utilities are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. In addition, NVE and the Utilities may also be subject to future state or federal regulations. Due to the age and/or historical usage of past and present operating properties, the Utilities may be responsible for various levels of environmental remediation at contaminated sites. This can include properties that are part of ongoing Utility operations, sites formerly owned or used by NVE or the Utilities, and/or sites owned by third parties. The responsibility to remediate typically involves management of contaminated soils and may involve groundwater remediation. Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remedial requirements, complexity and sharing of responsibility, which may be accelerated by any decision to retire a generating station or other facility. If remediation activities involve statutory joint and several liability provisions, strict liability or cost recovery of contribution actions, NVE, the Utilities or their respective affiliates could potentially be held responsible for contamination caused by other parties. In some instances, NVE or the Utilities may share liability associated with contamination with other parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. These types of sites/situations are generally managed in the normal course of business operations. |
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In 2008, NPC signed an Administrative Order of Consent (AOC) as owner and operator of Reid Gardner Generating Station Units 1, 2 and 3 and as co-owner and operating agent of Unit 4. In October 2013, NPC purchased Unit 4 from CDWR. Based on the AOC, in 2008, NPC recorded estimated ARO and capital remediation costs. However, actual costs of work under the AOC may vary significantly once the scope of work is defined and additional site characterization has been completed. |
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NVE and the Utilities seek to continually comply with environmental regulations; however, given the uncertainties involved in the federal, state and local regulatory environment, future costs to comply may be material. |
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Litigation Contingencies |
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NVE |
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Litigation Related to the MidAmerican Merger |
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Following the announcement of the proposed acquisition of NVE by MEHC through its subsidiary Silver Merger Sub, Inc. on May 29, 2013, several complaints were filed by alleged NVE shareholders in the Eighth Judicial District Court in Clark County, Nevada, challenging the MidAmerican Merger. |
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On June 6, 2013, a complaint was filed on behalf of a putative class of NVE public shareholders, naming NVE, its BOD, and Silver Merger Sub, Inc., as defendants. This complaint was amended on July 16, 2013. The amended complaint generally alleges that the individual defendants breached their fiduciary duties in connection with the proposed MidAmerican Merger, including by approving the transaction on allegedly unfair terms, at an allegedly unfair price and pursuant to an allegedly inadequate process; allegedly acting with conflicts and in their own personal interests rather than those of shareholders; and making inadequate disclosures in connection with requested shareholder approval of the proposed MidAmerican Merger. The amended complaint also alleges that Silver Merger Sub. Inc., NVE and MEHC aided and abetted the individual defendants in breaching their fiduciary duties. |
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Four additional complaints were filed in the Eighth Judicial District Court in Clark County, Nevada on June 7, 2013, June 10, 2013, July 12, 2013 and August 16, 2013. These complaints contain claims and allegations similar to the amended July 16, 2013 complaint and seek similar relief on behalf of the same putative class. One complaint was voluntarily dismissed. The remaining cases were consolidated in Department XI of the Eighth Judicial District Court in Clark County, Nevada. |
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An agreement-in-principle has been reached between the parties to these lawsuits, which was memorialized in a memorandum of understanding executed on September 4, 2013. The memorandum of understanding called for NVE to supplement the proxy statement for the special meeting of stockholders related to the MidAmerican Merger, and the supplemental information was in fact provided via NVE’s Form 8-K dated September 9, 2013. The parties currently are preparing a final stipulation of settlement which will be submitted to the court for approval. It is not known at this time when the court will set hearings and/or issue a final order, but NVE does not expect the outcome of this litigation or settlement to delay the closing of the MidAmerican Merger or otherwise have a material impact on NVE. |
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NPC |
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Peabody Western Coal Company - Royalty Claim |
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NPC owns an 11% interest in the Navajo Generating Station, which is located in northern Arizona and operated by Salt River. Other participants in the Navajo Generating Station are Arizona Public Service Company, Los Angeles Department of Water and Power and Tucson Electric Power Company (together with Salt River and NPC, the “Navajo Joint Owners”). NPC also owns a 14% interest in the Mohave Generating Station which is located in Laughlin, Nevada and was operated by Southern California Edison (SCE) prior to the time it became non-operational on December 31, 2005. |
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In June 1999, the Navajo Nation filed suit against Salt River, several Peabody Coal Company entities (collectively referred to as “Peabody”) and SCE in the U.S. District Court for the District of Columbia (the “DC Lawsuit”). NPC was not a party to the DC Lawsuit although, as noted above, it is a participant in both the Navajo Generating Station and the Mohave Generating Station. The DC Lawsuit asserted claims relating to the renegotiation of coal royalty and lease agreements and alleged, among other things, that the defendants obtained a favorable coal royalty rate for leases under which Peabody mined coal for both the Navajo Generating Station and Mohave Generating Station by improperly influencing the outcome of a federal administrative process. The DC Lawsuit sought $600 million in damages and punitive damages of not less than $1.0 billion. |
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In 2004, Peabody brought suit against the Navajo Joint Owners in state court in St. Louis, Missouri, seeking a declaration that the Navajo Joint Owners are obligated to reimburse Peabody for any royalty, tax or other obligations arising out of the DC Lawsuit. In July 2008, the court dismissed all counts against NPC, two without prejudice to their possible re-filing. |
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In August 2011, all claims in the DC Lawsuit were dismissed pursuant to a settlement agreement among the Navajo Nation, Peabody, Salt River and SCE. At the request of Salt River, NPC contributed an immaterial amount toward the settlement of the DC Lawsuit based on its 11% ownership stake in the Navajo Generating Station. |
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SCE also has asked that the Mohave Joint Owners, including NPC, contribute toward the settlement based upon their ownership stakes in the Mohave Generating Station. In October 2013, NPC settled with SCE on this matter. The terms of the settlement are not material to NPC. |
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November 2005 Land Investors |
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In 2006, November 2005 Land Investors, LLC (“NLI”) purchased from the U.S. through the Bureau of Land Management (“BLM”) 2,675 acres of land located in North Las Vegas, Nevada. A small portion of the land was and is traversed by a 500kV transmission line owned by NPC and sited pursuant to a pre-existing right-of-way grant (“Grant”) from the BLM. Subsequent to NLI’s purchase, a dispute arose as to whether NPC owed rent and, if it did, the amount owed to NLI under the Grant. NLI eventually “terminated” the Grant and brought claims against NPC for breach of contract, inverse condemnation and trespass. NPC counterclaimed for express condemnation of a perpetual easement over the right-of-way corridor. The matter proceeded to trial in the Eighth Judicial District Court, Clark County, Nevada. In September 2013, the court awarded NLI approximately $1.0 million for unpaid rent and $5.1 million for inverse condemnation, plus interest and attorneys’ fees. The court also found NPC was entitled to judgment in its favor on its counterclaim for condemnation of the right-of-way corridor. |
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NPC has appealed to the Nevada Supreme Court, which has yet to establish a schedule for the appeal. Management cannot assess or predict the outcome of the case at this time, but it is not expected to be material to NPC. |
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SPPC |
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Farad Dam |
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In June 2001, SPPC sold four hydro generating units (10.3 MW total capacity) located in Nevada and California to TMWA for $8.0 million. One of the units, the Farad Hydro (2.8 MW), has been out of service since the summer of 1996 due to a collapsed flume. Under the terms of the contract with TMWA, SPPC is not entitled to receive the proceeds of sale relating to Farad unless and until it has reconstructed the Farad facility in a manner reasonably acceptable to TMWA or, alternatively, SPPC assigns its casualty loss claim to TMWA and TMWA is reasonably satisfied regarding its rights with respect to such claim. The current estimate to rebuild the diversion dam, if management decides to rebuild, is approximately $20 million. |
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SPPC filed a claim with the Farad Dam’s insurers, Hartford Steam Boiler Inspection and Insurance Company and Zurich-American Insurance Company, and in 2003 initiated federal court litigation against the insurers. The insurers contested the extent and amount of insurance coverage. Coverage was established through this litigation, but until July 2012 the matter remained in litigation to determine the amount of coverage. |
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In July 2012, the Ninth Circuit entered its order reversing the valuation holding of the U.S. District Court and setting the value of Farad Dam at $19.8 million (as was argued by SPPC), with some deduction for depreciation to be determined on remand. The court also affirmed SPPC’s right to recover $4.0 million dollars in permitting and design costs, but held that if SPPC accepts the money, rather than rebuild, the $4.0 million is part of the $19.8 million replacement cost. In addition, the court held that SPPC is entitled to recover full replacement cost in the event of a rebuild, and that the District Court is free, on remand, to extend the three years time to rebuild to start at the conclusion of all litigation. |
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The District Court has now set the briefing schedule for the issues remanded by the Ninth Circuit. Management cannot assess or predict the outcome or the impact of the District Court decisions at this time, but they are not expected to be material to SPPC. |
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Other Legal Matters |
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NVE and its subsidiaries, through the course of their normal business operations, are currently involved in a number of other legal actions, none of which, in the opinion of management, is expected to have a significant impact on their financial positions, results of operations or cash flows. |
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Other Commitments |
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NPC and SPPC |
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ON Line TUA |
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During the second quarter of 2011, NVE began to construct Phase 1 of ON Line, which is a joint project between the Utilities and GBT-South. Construction of Phase 1 consists of the initial 500 kV interconnection between the Robinson Summit substation on the SPPC system and the Harry Allen substation on the NPC system. ON Line has an expected in-service date of no later than December 31, 2013. The Utilities will own a 25% interest in Phase 1 and have entered into a TUA with GBT-South for its 75% interest in Phase 1. Under the terms of the TUA, NVE’s future lease payments are adjusted for final capital costs, for which the Utilities expect to get regulatory recovery. For accounting purposes, NVE is treated as the owner of the construction project in accordance with Lease Accounting, The Effect of Lessee Involvement in Asset Construction of the FASC. As a result, as of September 30, 2013, capitalized construction costs associated with GBT’s 75% interest of $370.8 million and $19.4 million were included in CWIP with a corresponding credit to other deferred liabilities at NPC and SPPC, respectively. |