National Grid 2013 Annual Report Download - page 63

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any, the outcome of these proceedings will have on our financial condition, results of operations, and cash flows.
Utility Sites
At March 31, 2013, the Company’ s total reserve for estimated MGP-related environmental matters is $1.4 billion. The
potential high end of the range at March 31, 2013 is presently estimated at $2.1 billion on an undiscounted basis.
Management believes that obligations imposed on the Company because of the environmental laws will not have a
material adverse effect on its operations, financial condition or cash flows. Through various rate orders issued by the
NYPSC, DPU, and RIPUC, costs related to MGP environmental cleanup activities are recovered in rates charged to gas
distribution customers. Accordingly, the Company has reflected a regulatory asset of $1.7 billion and $2 billion on the
consolidated balance sheets at March 31, 2013 and March 31, 2012, respectively.
Upon the acquisition of KeySpan by NGUSA, the Company recognized those environmental liabilities at fair value. The
fair values included discounting of the reserve at a rate of 6.5%, which is being accreted over the period for which
remediation is expected to occur. Following the acquisition of KeySpan, its new environmental liabilities are recognized
in accordance with the current accounting guidance for environmental obligations.
The Company is pursuing claims against other potentially responsible parties to recover investigation and remediation
costs it believes are the obligations of those parties. The Company cannot predict the likelihood of success of such
claims.
Non-Utility Sites
The Company is aware of two non-utility sites for which it may have or share environmental remediation or ongoing
maintenance responsibility. Expenditures incurred were approximately $1 million for each of the years ended March 31,
2013 and March 31, 2012. The Company presently estimates the remaining cost of the environmental cleanup activities
for these two non-utility sites will be approximately $22 million, which has been accrued at March 31, 2013 and March
31, 2012. The Company’ s environmental obligation is net of a discount rate of 6.5%, and the undiscounted amount
totaled $27 million in liabilities at both March 31, 2013 and March 31, 2012. The Company believes this to be a
reasonable estimate of probable costs for known sites; however, remediation costs for each site may be materially higher
than noted, depending upon changing technologies and regulatory standards, selected end use for each site, and actual
environmental conditions encountered.
The Company believes that in the aggregate, the accrued liability for all of the sites and related facilities identified above
are reasonable estimates of the probable cost for the investigation and remediation of these sites and facilities. As
circumstances warrant, we periodically re-evaluate the accrued liabilities associated with MGP sites and related facilities.
We may be required to investigate and, if necessary, remediate each site previously noted, or other currently unknown
former sites and related facility sites, the cost of which is not presently determinable.
The Company believes that its ongoing operations, and its approach to addressing conditions at historic sites, are in
substantial compliance with all applicable environmental laws. The Company believes that the obligations imposed on it
because of the environmental laws will not have a material impact on its results of operations or financial position since,
as noted above, environmental expenditures incurred by the Company are generally recoverable from customers.
Electric Services and LIPA Agreements
KeySpan and LIPA have three major long-term service agreements to; (i) provide to LIPA all operation, maintenance
and construction services and significant administrative services relating to the Long Island electric transmission and
distribution system pursuant to the MSA, expiring on December 31, 2013; (ii) supply LIPA with electric generating
capacity, energy conversion and ancillary services from our Long Island generating units pursuant to the amended and
restated PSA, the rates of which are approved by the FERC; and (iii) manage all aspects of the fuel supply for our Long
Island generating facilities, pursuant to the EMA, which was renewed on May 28, 2013.
KeySpan’ s compensation for managing the electric transmission and distribution system owned by LIPA under the MSA
consists of two components: a minimum fixed compensation component of $224 million per year and a variable
component based on electric sales. The fixed component remained unchanged for three years commencing January 2006
and thereafter increased annually by 1.7%, plus inflation. The variable component is based on electric sales adjusted for
inflation.