Xcel Energy 2015 Annual Report Download - page 57
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The occurrence of any of these events not fully covered by insurance could have a material effect on our financial position and results
of operations. For our natural gas transmission or distribution lines located near populated areas, the level of potential damages
resulting from these risks is greater.
Additionally, the operating or other costs that may be required in order to comply with potential new regulations, including the
Pipeline Safety Act, could be significant. The Pipeline Safety Act requires verification of pipeline infrastructure records by pipeline
owners and operators to confirm the maximum allowable operating pressure of lines located in high consequence areas or more-
densely populated areas. We have programs in place to comply with the Pipeline Safety Act and for systematic infrastructure
monitoring and renewal over time. A significant incident could increase regulatory scrutiny and result in penalties and higher costs of
operations.
Public Policy Risks
We may be subject to legislative and regulatory responses to climate change and emissions, with which compliance could be
difficult and costly.
The EPA is regulating GHGs from power plants with state plans to achieve the EPA’s goals due by September 2018. Increased public
awareness and concern regarding climate change may result in more state, regional and/or federal requirements to reduce or mitigate
the effects of GHGs. Legislative and regulatory responses related to climate change and new interpretations of existing laws through
climate change litigation create financial risk as our electric generating facilities may be subject to additional regulation at either the
state or federal level in the future. Such regulations could impose substantial costs on our system. International agreements could have
an impact to the extent they lead to future federal or state regulations.
The United States continues to participate in international negotiations related to the United Nations Framework Convention on Climate
Change (UNFCCC). In December 2015, the 21st Conference of the Parties to the UNFCCC reached consensus among 190 nations on
an agreement (the Paris Agreement) that establishes a framework for GHG mitigation actions by all countries (“nationally determined
contributions”), with a goal of holding the increase in global average temperature to below 2o Celsius above pre-industrial levels and an
aspiration to limit the increase to 1.5o Celsius. The Paris Agreement could result in future additional GHG reductions in the United States.
We have been, and in the future may be, subject to climate change lawsuits. An adverse outcome in any of these cases could require
substantial capital expenditures and could possibly require payment of substantial penalties or damages. Defense costs associated with
such litigation can also be significant. Such payments or expenditures could affect results of operations, cash flows and financial
condition if such costs are not recovered through regulated rates.
The form and stringency of GHG regulation in the power sector has become more clear with the finalization of the CPP by the EPA.
The legality of the CPP is being challenged in the courts. In addition, uncertainties remain regarding implementation plans in our
states (and the federal plan imposed by the EPA for states who do not submit approvable plans), including what opportunities are
available to reduce costs, whether and what type of emission trading will be available, how states will allocate the reduction burden
among utilities, what actions are creditable and the indirect impact of carbon regulation on natural gas and coal prices.
An important factor is our ability to recover the costs incurred to comply with any regulatory requirements in a timely manner. If our
regulators do not allow us to recover all or a part of the cost of capital investment or the O&M costs incurred to comply with the
mandates, it could have a material effect on our results of operations.
We are also subject to a significant number of proposed and potential rules that will impact our coal-fired and other generation
facilities. These include rules associated with emissions of SO2 and NOx, mercury, regional haze, ozone and particulate matter, water
intakes, water discharges and ash management. The costs of investment to comply with these rules could be substantial and in some
cases would lead to early retirement of coal units. We may not be able to timely recover all costs related to complying with regulatory
requirements imposed on us.
Increased risks of regulatory penalties could negatively impact our business.
The Energy Act increased civil penalty authority for violation of FERC statutes, rules and orders. The FERC can now impose
penalties of up to $1 million per violation per day, particularly as it relates to energy trading activities for both electricity and natural
gas. In addition, NERC electric reliability standards and critical infrastructure protection requirements are mandatory and subject to
potential financial penalties by regional entities, the NERC or the FERC for violations. If a serious reliability incident did occur, it
could have a material effect on our operations or financial results. Some states have the authority to impose substantial penalties in the
event of non-compliance.