APS 2011 Annual Report Download - page 148

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
123
11. Commitments and Contingencies
Palo Verde Nuclear Generating Station
Spent Nuclear Fuel and Waste Disposal
APS currently estimates it will incur $122 million (in 2011 dollars) over the current life of Palo
Verde for its share of the costs related to the on-site interim storage of spent nuclear fuel. At
December 31, 2011, APS had a regulatory liability of $49 million that represents amounts recovered in
retail rates in excess of amounts spent for on-site interim spent fuel storage.
Nuclear Insurance
The Palo Verde participants are insured against public liability for a nuclear incident up to
$12.6 billion per occurrence. As required by the Price Anderson Nuclear Industries Indemnity Act,
Palo Verde maintains the maximum available nuclear liability insurance in the amount of $375 million,
which is provided by commercial insurance carriers. The remaining balance of $12.2 billion is
provided through a mandatory industry wide retrospective assessment program. If losses at any
nuclear power plant covered by the program exceed the accumulated funds, APS could be assessed
retrospective premium adjustments. The maximum assessment per reactor under the program for each
nuclear incident is approximately $118 million, subject to an annual limit of $18 million per incident,
to be periodically adjusted for inflation. Based on APS’s interest in the three Palo Verde units, APS’s
maximum potential assessment per incident for all three units is approximately $103 million, with an
annual payment limitation of approximately $15 million.
The Palo Verde participants maintain “all risk” (including nuclear hazards) insurance for
property damage to, and decontamination of, property at Palo Verde in the aggregate amount of $2.75
billion, a substantial portion of which must first be applied to stabilization and decontamination. APS
has also secured insurance against portions of any increased cost of generation or purchased power and
business interruption resulting from a sudden and unforeseen accidental outage of any of the three
units. The property damage, decontamination, and replacement power coverages are provided by
Nuclear Electric Insurance Limited (“NEIL”). APS is subject to retrospective assessments under all
NEIL policies if NEIL’s losses in any policy year exceed accumulated funds. The maximum amount
APS could incur under the current NEIL policies totals approximately $18 million for each
retrospective assessment declared by NEIL’s Board of Directors due to losses. In addition, NEIL
policies contain rating triggers that would result in APS providing approximately $46 million of
collateral assurance within 20 business days of a rating downgrade to non-investment grade. The
insurance coverage discussed in this and the previous paragraph is subject to certain policy conditions
and exclusions.
Fuel and Purchased Power Commitments and Purchase Obligations
APS is party to purchase obligations and various fuel and purchased power contracts with
terms expiring between 2012 and 2042 that include required purchase provisions. APS estimates the
contract requirements to be approximately $580 million in 2012; $528 million in 2013; $556 million in
2014; $535 million in 2015; $503 million in 2016; and $6.8 billion thereafter. However, these amounts
may vary significantly pursuant to certain provisions in such contracts that permit us to decrease
required purchases under certain circumstances.