Allegheny Power 2014 Annual Report Download - page 52

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The table above also excludes regulatory liabilities (see Note 14, Regulatory Matters), AROs (see Note 13, Asset Retirement
Obligations), reserves for litigation, injuries and damages, environmental remediation, and annual insurance premiums, including
nuclear insurance (see Note 15, Commitments, Guarantees and Contingencies) since the amount and timing of the cash payments
are uncertain. The table also excludes accumulated deferred income taxes and investment tax credits since cash payments for
income taxes are determined based primarily on taxable income for each applicable fiscal year.
NUCLEAR INSURANCE
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 (NG-$501 million) per incident but not more than $76 million (NG-$75 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 annually, corresponding to their respective
nuclear interests, which provide an aggregate indemnity of up to approximately $1.96 billion (NG-$1.93 billion) 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 (NG-
$13 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 $74 million (NG-$72 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. The maximum potential amount of future payments FirstEnergy could be required to
make under these guarantees as of December 31, 2014, was approximately $4.0 billion, as summarized below: