Allegheny Power 2013 Annual Report Download - page 149

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The Price-Anderson Act limits the public liability which can be assessed with respect to a nuclear power plant to $13.6 billion
(assuming 104 units licensed to operate) for a single nuclear incident, which amount is covered by: (i) private insurance amounting
to $375 million; and (ii) $13.2 billion provided by an industry retrospective rating plan required by the NRC pursuant thereto. Under
such retrospective rating plan, in the event of a nuclear incident at any unit in the United States resulting in losses in excess of
private insurance, up to $127 million (but not more than $19 million per unit per year in the event of more than one incident) must
be contributed for each nuclear unit licensed to operate in the country by the licensees thereof to cover liabilities arising out of the
incident. Based on their present nuclear ownership and leasehold interests, FirstEnergy’s maximum potential assessment under
these provisions would be $509 million (OE-$44 million, NG-$442 million, and TE-$23 million) per incident but not more than $76
million (OE-$7 million, NG-$66 million, and TE-$3 million) in any one year for each incident.
In addition to the public liability insurance provided pursuant to the Price-Anderson Act, FirstEnergy has also obtained insurance
coverage in limited amounts for economic loss and property damage arising out of nuclear incidents. FirstEnergy is a member of
NEIL, which provides coverage (NEIL I) for the extra expense of replacement power incurred due to prolonged accidental outages
of nuclear units. Under NEIL I, FirstEnergy’s subsidiaries have policies, renewable yearly, corresponding to their respective nuclear
interests, which provide an aggregate indemnity of up to approximately $2 billion (OE-$168 million, NG-$1.7 billion, TE-$90 million)
for replacement power costs incurred during an outage after an initial 20-week waiting period. Members of NEIL I pay annual
premiums and are subject to assessments if losses exceed the accumulated funds available to the insurer. FirstEnergy’s present
maximum aggregate assessment for incidents at any covered nuclear facility occurring during a policy year would be approximately
$14 million (OE-$1.2 million, NG-$12 million and TE-$0.6 million).
FirstEnergy is insured as to its respective nuclear interests under property damage insurance provided by NEIL to the operating
company for each plant. Under these arrangements, up to $2.75 billion of coverage for decontamination costs, decommissioning
costs, debris removal and repair and/or replacement of property is provided. FirstEnergy pays annual premiums for this coverage
and is liable for retrospective assessments of up to approximately $79 million (OE-$7 million, NG-$68 million, TE-$3 million and
ME-$1 million).
FirstEnergy intends to maintain insurance against nuclear risks as described above as long as it is available. To the extent that
replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs
arising from a nuclear incident at any of FirstEnergy’s plants exceed the policy limits of the insurance in effect with respect to that
plant, to the extent a nuclear incident is determined not to be covered by FirstEnergy’s insurance policies, or to the extent such
insurance becomes unavailable in the future, FirstEnergy would remain at risk for such costs.
The NRC requires nuclear power plant licensees to obtain minimum property insurance coverage of $1.06 billion or the amount
generally available from private sources, whichever is less. The proceeds of this insurance are required to be used first to ensure
that the licensed reactor is in a safe and stable condition and can be maintained in that condition so as to prevent any significant
risk to the public health and safety. Within 30 days of stabilization, the licensee is required to prepare and submit to the NRC a
cleanup plan for approval. The plan is required to identify all cleanup operations necessary to decontaminate the reactor sufficiently
to permit the resumption of operations or to commence decommissioning. Any property insurance proceeds not already expended
to place the reactor in a safe and stable condition must be used first to complete those decontamination operations that are ordered
by the NRC. FirstEnergy is unable to predict what effect these requirements may have on the availability of insurance proceeds.
GUARANTEES AND OTHER ASSURANCES
FirstEnergy has various financial and performance guarantees and indemnifications which are issued in the normal course of
business. These contracts include performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and
indemnifications. FirstEnergy enters into these arrangements to facilitate commercial transactions with third parties by enhancing
the value of the transaction to the third party.
As of December 31, 2013, outstanding guarantees and other assurances aggregated approximately $4.3 billion, consisting of
parental guarantees ($1,375 million), subsidiaries' guarantees ($2,197 million) and other guarantees ($742 million).
Of this amount, substantially all relates to guarantees of wholly-owned consolidated entities. FES' debt obligations are generally
guaranteed by its subsidiaries, FG and NG, and FES guarantees the debt obligations of each of FG and NG. Accordingly, present
and future holders of indebtedness of FES, FG, and NG would have claims against each of FES, FG, and NG, regardless of whether
their primary obligor is FES, FG, or NG.
COLLATERAL AND CONTINGENT-RELATED FEATURES
In the normal course of business, FE and its subsidiaries routinely enter into physical or financially settled contracts for the sale
and purchase of electric capacity, energy, fuel, and emission allowances. Certain bilateral agreements and derivative instruments
contain provisions that require FE or its subsidiaries to post collateral. This collateral may be posted in the form of cash or credit
support with thresholds contingent upon FE's or its subsidiaries' credit rating from each of the major credit rating agencies. The
collateral and credit support requirements vary by contract and by counterparty. The incremental collateral requirement allows for
the offsetting of assets and liabilities with the same counterparty, where the contractual right of offset exists under applicable master
netting agreements.