Dominion Power 2007 Annual Report Download - page 103

coverage from commercial insurance pools with the remainder
provided through a mandatory industry risk-sharing program. In
the event of a nuclear 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 to exceed $15 million per year per
reactor. There is no limit to the number 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 bil-
lion for North Anna power station (North Anna), $2.55 billion
for Surry power station, $2.75 billion for Millstone power station
(Millstone), and $1.8 billion for Kewaunee) exceeds the NRC
minimum requirement for nuclear power plant licensees of $1.06
billion per reactor site and includes coverage for premature
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 a safe and stable condition and sec-
ond, to decontaminate the reactor and station site in accordance
with a plan approved by the NRC. Our nuclear property
insurance is provided by the Nuclear Electric Insurance Limited
(NEIL), a mutual insurance company, and is subject to retro-
spective premium assessments in any policy year in which losses
exceed the funds available to the insurance company. The max-
imum assessment for the current policy period is $99 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 for any losses that exceed the limits or for which
insurance proceeds are not available because they must first be
used for stabilization and decontamination.
We purchase insurance from NEIL to cover the cost of replace-
ment power during the prolonged outage of a nuclear unit due to
direct physical damage of the unit. Under this program, we are
subject to a retrospective premium assessment for any policy year
in which losses exceed funds available to NEIL. The current
policy period’s maximum assessment is $35 million.
Old Dominion Electric Cooperative, a part owner of North
Anna, and Massachusetts Municipal Wholesale Electric Company
and Central Vermont Public Service Corporation, part owners of
Millstone’s Unit 3, are responsible to us for their share of the
nuclear decommissioning obligation and insurance premiums on
applicable units, including any retrospective premium assessments
and any losses not covered by insurance.
S
PENT N UCLEAR F UEL
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 accepting the spent 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 against the DOE requesting damages in connection with
its failure to commence accepting spent nuclear fuel. Trial is
scheduled for May 2008. We will continue to manage our spent
fuel until it is accepted by the DOE.
Guarantees, Surety Bonds and Letters of Credit
At December 31, 2007, we had issued $41 million of guarantees
to support third parties and equity method investees. Addition-
ally, we have issued a limited-scope guarantee and indemnifi-
cation for one-half of the project-level financing for phase one of
the NedPower wind farm project. Under this guarantee, we
would be required to repay one-half of NedPower’s debt, only if it
is unable to do so, as a direct result of an unfavorable ruling asso-
ciated with current litigation seeking to halt the project. The
guarantee will terminate when a final non-appealable ruling in
favor of the project is received. We do not expect an unfavorable
ruling and no significant amounts have been recorded. Our
exposure under the guarantee totaled $56 million as of
December 31, 2007 and will increase to $103 million in 2008
based upon NedPower’s future expected borrowings to complete
phase one. Shell has provided an identical guarantee for the other
one-half of NedPower’s borrowings.
We also enter into guarantee arrangements on behalf of our
consolidated subsidiaries, primarily to facilitate their commercial
transactions with third parties. To the extent that a liability sub-
ject to a guarantee has been incurred by one of our consolidated
subsidiaries, that liability is included in our Consolidated Finan-
cial Statements. We are not required to recognize liabilities for
guarantees issued on behalf of our subsidiaries unless it becomes
probable that we will have to perform under the guarantees. We
believe it is unlikely that we would be required to perform or
otherwise incur any losses associated with guarantees of our sub-
sidiaries’ obligations. At December 31, 2007, we had issued the
following subsidiary guarantees:
Stated Limit Value(1)
(millions)
Subsidiary debt(2) $48 $48
Commodity transactions(3) 2,985 326
Lease obligation for power generation facility(4) 917 917
Nuclear obligations(5) 383 302
Other 341 192
Total $4,674 $1,785
(1) Represents the estimated portion of the guarantee’s stated limit that is
utilized as of December 31, 2007 based upon prevailing economic con-
ditions and fact patterns specific to each guarantee arrangement. For
those guarantees related to obligations that are recorded as liabilities by
our subsidiaries, the value includes the recorded amount.
(2) Guarantees of debt of a DEI subsidiary. In the event of default by the
subsidiary, we would be obligated to repay such amounts.
(3) Guarantees related to energy trading and marketing activities and other
commodity commitments of certain subsidiaries, including subsidiaries of
Virginia Power and DEI. These guarantees were provided to counter-
parties in order to facilitate physical and financial transactions in gas,
oil, electricity, pipeline capacity, transportation and related commodities
and services. If any of these subsidiaries fail to perform or pay under the
contracts and the counterparties seek performance or payment, we would
be obligated to satisfy such obligation. We and our subsidiaries receive
similar guarantees as collateral for credit extended to others. The value
provided includes certain guarantees that do not have stated limits.
(4) Guarantee of a DEI subsidiary’s leasing obligation for Fairless.
(5) Guarantees related to certain DEI subsidiaries’ potential retrospective
premiums that could be assessed if there is a nuclear incident under our
nuclear insurance programs and guarantees for a DEI subsidiary’s and
Virginia Power’s commitment to buy nuclear fuel. In addition to the
guarantees listed above, we have also agreed to provide up to $150
million and $60 million to two DEI subsidiaries, to pay the operating
expenses of Millstone and Kewaunee, respectively, in the event of a
prolonged outage, as part of satisfying certain NRC requirements con-
cerned with ensuring adequate funding for the operations of nuclear
power stations.
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