Dominion Power 2006 Annual Report Download - page 95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
None of the 21 former sites with which we are associatedis under
investigation by any state or federal environmental agency. One
of the former sites is conducting astate approvedpost closure
groundwater monitoring program andan environmental land use
restriction has been recorded. At another site we have been
accepted into astate-based voluntary remediation program.It is
not known to what degree the otherformer sites maycontain
environmental contamination. We are not able to estimate the
cost, if any, that mayberequired for the possible remediation of
these other sites.
Nuclear Operations
NUCLEAR DECOMMISSIONING—MINIMUM FINANCIAL
ASSURANCE
The Nuclear RegulatoryCommission (NRC) requires nuclear
power plant owners toannually updateminimum financial assur-
ance amounts forthe future decommissioning of their nuclear
facilities. Our 2006 NRC minimum financial assurance amount,
aggregated for our nuclear units, was $2.3 billion and has been
satisfied by acombination of the fundsbeing collected and
deposited in the nuclear decommissioning trusts and the real
annual rate of return growth of the funds allowed by the NRC.
NUCLEAR INSURANCE
The Price-Anderson Act provides the public up to $10.8 billion
of protection per nuclear incident viaobligationsrequired of
ownersof nuclear power plants. The Price-Anderson Act
Amendment of 1988 allows for an inflationary provision adjust-
mentevery fiveyears. We havepurchased $300 millionofcover-
age from the commercial insurance pools with the remainder
provided through amandatory industry risk-sharing program. In
the event of anuclear incident at any licensed nuclear reactor in
the U.S., we could be assessed up to $100.6 million for each of
our seven licensed reactors not toexceed $15 million per year per
reactor. There is no limit tothenumber of incidents for which
this retrospective premium can be assessed.The Price-Anderson
Act was first enacted in 1957 and was renewed again in 2005.
Our current level of property insurance coverage ($2.55 billion
forNorth Anna, $2.55 billion for Surry, $2.75 billion forMill-
stone, and $1.8 billion forKewaunee) exceeds the NRC’s mini-
mum requirement for nuclear power plant licensees of $1.06
billion per reactor site and includes coverage forpremature
decommissioning and functional total loss. The NRC requires
that the proceeds from this insurance be used first, to return the
reactor to and maintain it in asafe and stable condition and sec-
ond, to decontaminate the reactor and station site in accordance
with aplan approved by the NRC. Our nuclear property
insurance is provided by the Nuclear Electric InsuranceLimited
(NEIL), a mutual insurance company, and is subject toretro-
spective premium assessments in anypolicy year in which losses
exceed the funds available to the insurance company. The max-
imum assessment for the current policy period is $97 million.
Based on the severity of the incident, the board of directors of our
nuclear insurer has the discretion to lower or eliminate the max-
imum retrospective premium assessment. We have the financial
responsibility forany losses that exceed the limits or forwhich
insurance proceeds are not available because they must first be
used for stabilization anddecontamination.
We purchase insurance from NEIL to cover the cost of replace-
ment power duringthe prolonged outage of a nuclear unit due to
direct physical damageof the unit. Under this program,weare
subject toaretrospective premium assessment for any policy year
in which losses exceed fundsavailable to NEIL. The current
policy period’s maximum assessment is $34 million.
Old Dominion Electric Cooperative, a part owner of North
Anna Power Station, and Massachusetts Municipal Wholesale
Electric Company and Central Vermont Public ServiceCorpo-
ration, part ownersofMillstone’s Unit 3, are responsible to us for
their shareof the nuclear decommissioning obligation and
insurance premiums on applicable units, including any retro-
spective premium assessments and any losses not covered by
insurance.
SPENT NUCLEAR FUEL
Under provisions of the Nuclear Waste Policy Act of 1982, we
have entered into contracts with the Department of Energy
(DOE) for the disposal of spent nuclear fuel. The DOE failed to
begin acceptingthespent fuel on January 31, 1998, the date pro-
vided by the Nuclear Waste Policy Act and by our contracts with
the DOE. In January 2004, we and certain of our direct and
indirect subsidiaries filed lawsuits in the U.S. Court of Federal
Claims againstthe DOE in connection with its failure to com-
mence accepting spent nuclear fuel. Trial is scheduled forMarch
2008. We will continue to manage our spent fuel until it is
accepted by the DOE.
Insurance for E&P Operations
In the past, we have maintainedbusiness interruption insurance,
property damage and other insurance for our E&P operations.
However, the increased level of hurricane activity in the Gulf of
Mexico led our insurers to terminate certain coverages forour
E&P operations; specifically, our Operator’s Extra Expense
(OEE), offshore property damage and offshore business inter-
ruption coverage was terminated. All onshore property coverage
(with theexception of OEE) and liability coverage commensurate
with past coverage remained in place for our E&P operations
under our current policy. Recently our OEE coverage forboth
onshore and offshore E&P operations was reinstated under a new
policy. However, efforts to replace the terminatedinsurance for
our E&P operations for offshore property damage and offshore
business interruption with similar traditional insurance on com-
mercially reasonable terms were unsuccessful. In June 2006, we
entered into asix-month weather derivative contract with an SPE.
This arrangement provided limited alternative risk mitigation;
however, it offered substantially less protection than our previous
E&P insurance policies.This lack of insurance could adversely
affect our results of operations.
Guarantees, Surety Bonds and Letters of Credit
At December 31, 2006, we had issued $32 million of guarantees
to support third parties, equity method investees and employees
affected by Hurricane Katrina. In addition,in 2005, we, along
with two other gasand oil E&P companies, entered into afour-
year drilling contract related to anew, ultra-deepwater drillingrig
that is expected to be delivered in mid-2008. The contract has a
four-year primary term, plus four one-year extension options.Our
minimum commitment under the agreement is forapproximately
$99 million over the four-year term; however, we are jointly and
severally liable forupto $394 million to the contractor if the
other parties fail to pay the contractor fortheir obligationsunder
the primary term of the agreement, which we believe is improb-
94 DOMINION2006 Annual Report