COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2015 |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Commitments and Contingencies |
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(a) Unconditional Purchase Obligations and Purchase Order Commitments |
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We and our subsidiaries routinely enter into long-term purchase and sale commitments for various quantities and lengths of time. The natural gas utilities have obligations to distribute and sell natural gas to their customers, and our electric utility has obligations to distribute and sell electricity to its customers. The utilities expect to recover costs related to these obligations in future customer rates. |
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The following table shows our minimum future commitments related to these purchase obligations as of March 31, 2015, including those of our subsidiaries. |
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| | | | | | Payments Due By Period |
(Millions) | | Year Contracts Extend Through | | Total Amounts Committed | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | Later Years |
Natural gas utility supply and transportation | | 2028 | | $ | 664.6 | | | $ | 128.8 | | | $ | 171.7 | | | $ | 134.4 | | | $ | 79.6 | | | $ | 52.3 | | | $ | 97.8 | |
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Electric utility | | | | | | | | | | | | | | | | |
Purchased power | | 2029 | | 806.1 | | | 92.1 | | | 42.7 | | | 53.3 | | | 55.9 | | | 57.1 | | | 505 | |
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Coal supply and transportation | | 2019 | | 155.8 | | | 44.3 | | | 34.8 | | | 33.5 | | | 32.1 | | | 11.1 | | | — | |
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Total | | | | $ | 1,626.50 | | | $ | 265.2 | | | $ | 249.2 | | | $ | 221.2 | | | $ | 167.6 | | | $ | 120.5 | | | $ | 602.8 | |
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(b) Environmental Matters |
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Air Permitting Violation Claims |
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Weston and Pulliam Clean Air Act (CAA) Issues: |
In November 2009, the EPA issued a Notice of Violation (NOV) to WPS, which alleged violations of the CAA's New Source Review requirements relating to certain projects completed at the Weston and Pulliam plants from 1994 to 2009. WPS reached a settlement agreement with the EPA regarding this NOV and signed a Consent Decree. This Consent Decree was approved by the U.S. District Court (Court) in March 2013, after a public comment period. The final Consent Decree includes: |
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• | the installation of emission control technology, including ReACT™, at Weston 3, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | changed operating conditions (including refueling, repowering, and/or retirement of units), | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | limitations on plant emissions, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | beneficial environmental projects totaling $6.0 million, and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | a civil penalty of $1.2 million. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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As mentioned above, the Consent Decree contains a requirement to refuel, repower, and/or retire certain Weston and Pulliam units. WPS announced that certain Weston and Pulliam units mentioned in the Consent Decree will be retired early, in June 2015. WPS received approval from the PSCW in its 2015 rate order to defer and amortize the undepreciated book value of the retired plant associated with Pulliam 5 and 6 and Weston 1 starting with the actual retirement date in 2015 and concluding by 2023. |
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WPS received approval from the PSCW in its 2014 and 2015 rate orders to recover prudently incurred costs as a result of complying with the terms of the Consent Decree, with the exception of the civil penalty. We also believe that additional prudently incurred costs expected after 2015 will be recoverable from customers based on past precedent with the PSCW. |
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The majority of the beneficial environmental projects proposed by WPS have been approved by the EPA. Amounts have been accrued and recorded to regulatory assets, excluding costs associated with capital projects. |
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In May 2010, WPS received from the Sierra Club a Notice of Intent to file a civil lawsuit based on allegations that WPS violated the CAA at the Weston and Pulliam plants. WPS entered into a Standstill Agreement with the Sierra Club by which the parties agreed to negotiate as part of the EPA NOV process, rather than litigate. The Standstill Agreement ended in October 2012, but no further action has been taken by the Sierra Club as of March 31, 2015. It is unknown whether the Sierra Club will take further action in the future. |
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Columbia and Edgewater CAA Issues: |
In December 2009, the EPA issued an NOV to Wisconsin Power and Light (WP&L), the operator of the Columbia and Edgewater plants, and the other joint owners of these plants, including Madison Gas and Electric and WPS. The NOV alleged violations of the CAA's New Source Review requirements related to certain projects completed at those plants. WPS, WP&L, and Madison Gas and Electric reached a settlement agreement with the EPA regarding this NOV and signed a Consent Decree. This Consent Decree was approved by the Court in June 2013, after a public comment period. The final Consent Decree includes: |
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• | the installation of emission control technology, including scrubbers at the Columbia plant, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | changed operating conditions (including refueling, repowering, and/or retirement of units), | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | limitations on plant emissions, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | beneficial environmental projects, with WPS's portion totaling $1.3 million, and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | WPS's portion of a civil penalty and legal fees totaling $0.4 million. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The Consent Decree contains a requirement to refuel, repower, or retire Edgewater 4, of which WPS is a joint owner, by no later than December 31, 2018. In the first quarter of 2015, management of the joint owners recommended that the Edgewater 4 unit be retired in December 2018. However, a final decision on how to address the requirement for this unit has not yet been made by the joint owners, as early retirement is contingent on various operational and market factors, and other alternatives to retirement are still available. |
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We believe that significant costs prudently incurred as a result of complying with the terms of the Consent Decree, with the exception of the civil penalty, will be recoverable from customers. |
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All of the beneficial environmental projects proposed by WPS have been approved by the EPA. Amounts have been accrued and recorded to regulatory assets, excluding costs associated with capital projects. |
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Weston Title V Air Permit: |
In August 2013, the WDNR issued the Weston Title V air permit. In September 2013, WPS challenged various requirements in the permit by filing a contested case proceeding with the WDNR and also filed a Petition for Judicial Review in the Brown County Circuit Court. The Sierra Club and Clean Wisconsin also challenged various aspects of the permit. The WDNR granted all parties' requests for contested case proceedings. The Petitions for Judicial Review, by all parties, have been stayed pending the resolution of the contested cases. In February 2014, WPS also requested a modification to the construction permit for Weston 4 to remove the mercury Best Available Control Technology (BACT) emission limit requirement. This permit request was denied by the WDNR, and WPS challenged this issue as well. At WPS's request, the permit was modified to resolve several of the petition issues. Those issues have now been voluntarily dismissed from the case, while a new permit change was challenged and added to the case. The administrative law judge (ALJ) recently dismissed some of the petition issues relating to the averaging period and monitoring issues. |
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In May 2014, the WDNR issued an NOV alleging that WPS failed to maintain a minimum sorbent feed rate prior to the Continuous Emissions Monitoring System certification. The WDNR also issued a Notice of Inquiry (NOI) to WPS alleging that WPS failed to comply with reporting requirements related to challenged matters in the 2013 Weston Title V permit. The ALJ denied WPS's request to issue a stay or confirm that a statutory stay applies to the requirements identified in the NOV and NOI. The contested case is proceeding and certain legal arguments are currently being addressed in the context of summary judgment motions. No hearing date has been set. |
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We do not expect these matters to have a material impact on our financial statements. |
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Mercury and Interstate Air Quality Rules |
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Mercury and Other Hazardous Air Pollutants: |
In December 2011, the EPA issued the final Utility Mercury and Air Toxics Standards (MATS), which regulates emissions of mercury and other hazardous air pollutants beginning in April 2015. The State of Wisconsin recently revised the compliance dates in the state mercury rule to be consistent with the MATS rule. Projects approved and initiated to address the State of Wisconsin mercury rule are expected to ensure compliance with the mercury limits in the MATS rule. WPS placed in service capital projects for its wholly owned plants in 2015 to achieve the required reductions for MATS compliance in April 2015. These capital costs are expected to be recovered in future rates. |
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Sulfur Dioxide and Nitrogen Oxide: |
In July 2011, the EPA issued a final rule known as the Cross State Air Pollution Rule (CSAPR), which numerous parties, including WPS, challenged in the United States Court of Appeals (Court of Appeals) for the District of Columbia Circuit (D.C. Circuit). The new rule was to become effective in January 2012. However, in December 2011, the CSAPR requirements were stayed by the D.C. Circuit and a previous rule, the Clean Air Interstate Rule (CAIR), was implemented during the stay period. In August 2012, the D.C. Circuit issued their ruling vacating and remanding CSAPR and simultaneously reinstating CAIR pending the issuance of a replacement rule by the EPA. The case was appealed to the United States Supreme Court (Supreme Court), and in April 2014, the Supreme Court upheld the CSAPR rule and remanded the case to the Court of Appeals for the D.C. Circuit. In October 2014, the Court of Appeals granted the EPA's request to lift the stay on CSAPR and changed the compliance deadlines by three years, so that Phase 1 emissions budgets apply in 2015 and 2016, and Phase 2 emissions budgets will apply to 2017 and beyond. We do not expect to incur significant costs to comply with either phase of CSAPR and expect to recover any future compliance costs in future rates. |
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Under CAIR, units affected by the Best Available Retrofit Technology (BART) rule were considered in compliance with BART for sulfur dioxide and nitrogen oxide emissions if they were in compliance with CAIR. This determination was updated when CSAPR was issued (CSAPR satisfied BART). Although particulate emissions also contribute to visibility impairment, the WDNR's modeling for Pulliam Unit 8, the only unit covered by BART, has shown the impairment to be so insignificant that additional capital expenditures or controls may not be warranted. |
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Clean Water Act Rule |
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In August 2014, the EPA issued a final Clean Water Act rule, which established requirements under Section 316(b) to regulate water intake structures at industrial facilities that use large volumes of surface water as cooling water. The new rule became effective in October 2014 and has been challenged by a number of parties. The cases have been consolidated and will be heard in the United States Court of Appeals for the Second Circuit. To the extent that the rule is upheld, WPS will comply with the rule on the timeline required under the regulation. WPS will evaluate the impact of compliance by conducting the studies required by the rule at its facilities. WPS anticipates that the timing for compliance will be incorporated into future wastewater discharge permit renewals. We do not expect to incur significant costs to comply with the Clean Water Act rule at WPS's Weston plant as this plant already has two units equipped with cooling towers that assist with meeting these new requirements. We expect to recover any future compliance costs in future rates. |
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Manufactured Gas Plant Remediation |
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Our natural gas utilities, their predecessors, and certain former affiliates operated facilities in the past at multiple sites for the purpose of manufacturing and storing manufactured gas. In connection with these activities, waste materials were produced that may have resulted in soil and groundwater contamination at these sites. Under certain laws and regulations relating to the protection of the environment, our natural gas utilities are required to undertake remedial action with respect to some of these materials. The natural gas utilities are coordinating the investigation and cleanup of the sites subject to EPA jurisdiction under what is called a "multisite" program. This program involves prioritizing the work to be done at the sites, preparation and approval of documents common to all of the sites, and use of a consistent approach in selecting remedies. |
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Our natural gas utilities are responsible for the environmental remediation of 53 sites, of which 20 have been transferred to the EPA Superfund Alternative Sites Program. Under the EPA's program, the remedy decisions at these sites will be made using risk-based criteria typically used at Superfund sites. Our balance sheet includes liabilities of $573.0 million that we have estimated and accrued for as of March 31, 2015, for future undiscounted investigation and cleanup costs for all sites. We may adjust these estimates in the future due to remedial technology, regulatory requirements, remedy determinations, and any claims of natural resource damages. As of March 31, 2015, cash expenditures for environmental remediation not yet recovered in rates were $43.1 million. Our balance sheet also includes a regulatory asset of $616.1 million at March 31, 2015, which is net of insurance recoveries, related to the expected recovery through rates of both cash expenditures and estimated future expenditures. |
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Management believes that any costs incurred for environmental activities relating to former manufactured gas plant operations that are not recoverable through contributions from other entities or from insurance carriers have been prudently incurred and are, therefore, recoverable through rates for MGU, NSG, PGL, and WPS. Accordingly, we do not expect these costs to have a material impact on our financial statements. However, any changes in the approved rate mechanisms for recovery of these costs, or any adverse conclusions by the various regulatory commissions with respect to the prudence of costs actually incurred, could materially affect recovery of such costs through rates. |