APS 2013 Annual Report Download - page 128

Table of Contents
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APS had a regulatory liability of $42 million that represents amounts recovered in retail rates in excess of amounts spent for on-site interim spent fuel storage.
Nuclear Insurance
Public liability for incidents at nuclear power plants is governed by the Price-Anderson Nuclear Industries Indemnity Act (“Price-Anderson Act”),
which limits the liability of nuclear reactor owners to the amount of insurance available from both commercial sources and an industry retrospective payment
plan. In accordance with the Price-Anderson Act, the Palo Verde participants are insured against public liability for a nuclear incident up to $13.6 billion per
occurrence. 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 $13.2 billion of liability coverage 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 $127.3 million, subject to an annual limit
of $19 million per incident, to be periodically adjusted for inflation. Based on APS’s interest in the three Palo Verde units, APS’s maximum potential
retrospective assessment per incident for all three units is approximately $111 million, with an annual payment limitation of approximately $16.4 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”). Effective April 1, 2013, a sublimit of $1.5 billion for non-nuclear property damage losses site-wide has been imposed on the
NEIL property policies. Effective April 1, 2013, a sublimit of $327.6 million per unit has been imposed on the non-nuclear losses covered by the NEIL
accidental outage policy, potentially subject to further limitations. 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 $48 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, sublimits 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 2014 and 2043 that include
required purchase provisions. APS estimates the contract requirements to be approximately $729 million in 2014; $628 million in 2015; $638 million in
2016; $613 million in 2017; $580 million in 2018; and $8.7 billion thereafter. These fuel and purchased power commitments include the amounts incurred
from acquiring SCE’s interest in Four Corners. However, these amounts may vary significantly pursuant to certain provisions in such contracts that permit
us to decrease required purchases under certain circumstances.
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