Duke Energy 2012 Annual Report Download - page 162

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PART II
Combined Notes to Consolidated Financial Statements – (Continued)
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • CAROLINA POWER & LIGHT COMPANY d/b/a PROGRESS ENERGY
CAROLINAS, INC. • FLORIDA POWER CORPORATION d/b/a PROGRESS ENERY FLORIDA, INC. • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
Duke Energy continues to evaluate the potential need to retire these
coal-fi red generating facilities earlier than the current estimated useful lives,
and plans to seek regulatory recovery for amounts that would not be otherwise
recovered when any of these assets are retired. However, such recovery,
including recovery of carrying costs on remaining book values, could be subject
to future regulatory approvals and therefore cannot be assured.
5. COMMITMENTS AND CONTINGENCIES
General Insurance
The Duke Energy Registrants have insurance and reinsurance coverage
either directly or through indemnifi cation from Duke Energy’s captive insurance
company, Bison, and its affi liates, consistent with companies engaged in
similar commercial operations with similar type properties. The Duke Energy
Registrants’ coverage includes (i) commercial general liability coverage for
liabilities arising to third parties for bodily injury and property damage resulting
from the Duke Energy Registrants’ operations; (ii) workers’ compensation
liability coverage to statutory limits; (iii) automobile liability coverage for
all owned, non-owned and hired vehicles covering liabilities to third parties
for bodily injury and property damage; (iv) insurance policies in support of
the indemnifi cation provisions of the Duke Energy Registrants’ by-laws and
(v) property coverage for all real and personal property damage, excluding
electric transmission and distribution lines, including damages arising from
boiler and machinery breakdowns, earthquake, fl ood damage and extra expense,
but not outage or replacement power coverage. All coverage is subject to
certain deductibles or retentions, sublimits, terms and conditions common for
companies with similar types of operations.
The Duke Energy Registrants self-insure their transmission and
distribution lines against loss due to storm damage and other natural disasters.
As discussed further in Note 4, Progress Energy Florida maintains a storm
damage reserve and has a regulatory mechanism to recover the cost of named
storms on an expedited basis.
The cost of the Duke Energy Registrants’ coverage can fl uctuate year to
year refl ecting any changing claims history and conditions of the insurance and
reinsurance markets.
In the event of a loss, the terms and amount of insurance and reinsurance
available might not be adequate to cover claims and other expenses incurred.
Uninsured losses and other expenses, to the extent not recovered by other
sources, could have a material effect on the Duke Energy Registrants’ results of
operations, cash fl ows or fi nancial position. Each company is responsible to the
extent losses may exceed limits of the coverage available.
Nuclear Insurance
Nuclear insurance includes nuclear liability coverage; property,
decontamination and premature decommissioning coverage; and replacement
power expense coverage.
Duke Energy Carolinas owns and operates the McGuire Nuclear Station
(McGuire) and the Oconee Nuclear Station (Oconee) and operates and has a
partial ownership interest in the Catawba Nuclear Station (Catawba). McGuire
and Catawba each have two nuclear reactors and Oconee has three. The other
joint owners of Catawba reimburse Duke Energy Carolinas for certain expenses
associated with nuclear insurance per the Catawba joint owner agreements.
Progress Energy Carolinas owns and operates the Robinson Nuclear
Station (Robinson) and operates and has a partial ownership interest in the
Brunswick Nuclear Station (Brunswick) and Harris. Robinson and Harris each
have one nuclear reactor and Brunswick has two. The other joint owners of
Brunswick and Harris reimburse Progress Energy Carolinas for certain expenses
associated with nuclear insurance per the Brunswick and Harris joint owner
agreements.
Progress Energy Florida has a partial ownership interest in Crystal River
Unit 3. The other joint owners of Crystal River Unit 3 reimburse Progress Energy
Florida for certain expenses associated with nuclear insurance per the Crystal
River Unit 3 joint owner participation agreement. Due to the planned retirement
of Crystal River Unit 3, Progress Energy Florida and the other joint owners will
evaluate appropriate nuclear insurance adjustments.
Nuclear Liability Coverage
The Price-Anderson Act requires owners of nuclear reactors to provide
for public nuclear liability protection per nuclear incident up to a maximum
total fi nancial protection liability. The maximum total fi nancial protection
liability, which is currently $ 12.6 billion, is subject to an infl ationary provision
adjustment every fi ve years. Total nuclear liability coverage consists of a
combination of private primary nuclear liability insurance coverage and a
mandatory industry risk-sharing program to provide for excess nuclear liability
coverage above the maximum reasonably available private primary coverage.
There is a possibility that Congress could impose revenue-raising measures on
the nuclear industry to pay claims.
Primary Nuclear Liability Insurance.
Duke Energy Carolinas, Progress Energy Carolinas and Progress Energy
Florida have purchased the maximum reasonably available private primary
nuclear liability insurance as required by law, which currently is $ 375 million
per station.
Excess Nuclear Liability Program.
This program provides $ 12.2 billion of coverage per incident through the
Price-Anderson Act’s mandatory industry-wide excess secondary fi nancial
protection program of risk pooling. The $12.2 billion is the sum of the current
potential cumulative retrospective premium assessments of $117.5 million
per licensed commercial nuclear reactor. There are currently 104 licensed
commercial nuclear reactors in the industry. This would be increased by
$117.5 million for each additional commercial nuclear reactor licensed, or
reduced by $117.5 million for nuclear reactors no longer operational and which
may be exempted from the risk pooling program. Under this program, licensees
could be assessed retrospective premiums to compensate for public nuclear
liability damages in the event of a nuclear incident at any licensed facility in
the U.S. If such an incident should occur and public nuclear liability damages
exceed primary nuclear liability insurance, licensees may be assessed up to
$117.5 million for each of their licensed reactors, payable at a rate not to exceed
$17.5 million a year per licensed reactor for each incident. The assessment and
rate are subject to indexing for infl ation and may be subject to state premium
taxes. The Price-Anderson Act provides for an infl ation adjustment at least every
fi ve years with the last adjustment effective October 2008.
Nuclear Property Coverage
Duke Energy Carolinas, Progress Energy Carolinas and Progress Energy
Florida are members of NEIL, which provides property and accidental outage
insurance coverage for nuclear facilities under three policy programs: the
primary property insurance program, the excess property insurance program and
the accidental outage insurance program.