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On February 14, 2002, the Secretary of Energy submitted to the
President a recommendation for approval of the Yucca Mountain site
in Nevada for the development of a nuclear waste repository for
the disposal of spent nuclear fuel and high level nuclear waste
from the nation’s defense activities. In July 2002, the President
signed a resolution approving the Yucca Mountain site after receiving
the approval of this site from the U.S. Senate and House of Representatives.
This action allows the DOE to apply to the Nuclear Regulatory Commission
(NRC) to license the project. The DOE expects that this facility
will open in 2010. However, the opening of the Yucca Mountain site
could be delayed due to litigation and other issues related to the
site as a permanent repository for spent nuclear fuel.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated
that the various states, individually or through interstate compacts,
develop alternative low-level radioactive waste disposal facilities.
The states of Kansas, Nebraska, Arkansas, Louisiana and Oklahoma
formed the Central Interstate Low-Level Radioactive Waste Compact
(Compact) and selected a site in Nebraska to locate a disposal facility.
WCNOC and the owners of the other five nuclear units in the Compact
have provided most of the preconstruction financing for this project.
Our net investment in the Compact is approximately $7.4 million.
This amount constitutes about 7.6% of all preconstruction financing
provided to the Compact.
On December 18, 1998, the Nebraska agencies responsible for considering
the developer’s license application denied the application. The
license applicant has sought a hearing on the license denial, but
a U.S. District Court has indefinitely delayed proceedings related
to the hearing. In December 1998, most of the utilities that had
provided the project’s preconstruction financing (including WCNOC)
filed a federal court lawsuit contending Nebraska officials acted
in bad faith while handling the license application. Shortly thereafter,
the Central Interstate Low-Level Radioactive Waste Commission (Commission),
which is responsible for causing a new disposal facility to be developed
within the Compact region, and US Ecology, the license applicant,
filed similar claims against Nebraska. The U.S. District Court has
since dismissed the utilities’ and US Ecology’s claims against Nebraska
and its officials, but on September 30, 2002, the court entered
a $151.4 million judgment, about one-third of which constitutes
prejudgment interest, in favor of the Commission and against Nebraska,
finding that Nebraska had acted in bad faith in handling the license
application. In late 2002, Nebraska appealed that decision to the
8th Circuit U.S. Court of Appeals, where the case is pending.
In May 1999, the Nebraska Legislature passed a bill withdrawing
Nebraska from the Compact. In August 1999, the Nebraska Governor
gave official notice of the withdrawal to the other member states.
Withdrawal will not be effective for five years and will not, of
itself, nullify the site license proceeding.
Wolf Creek disposes of all classes of its low-level radioactive waste at
existing third-party repositories. Should disposal capability become
unavailable, Wolf Creek is able to store its low-level radioactive waste
in an on-site facility. Wolf Creek believes that a temporary loss of lowlevel
radioactive waste disposal capability will not affect continued
operation of the power plant.
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Outages
Wolf Creek has an 18-month refueling and
maintenance schedule that permits operations during every third
calendar year without interruption for a refueling outage. Wolf
Creek was shut down for 36 days for its 12th scheduled refueling
and maintenance outage, which began on March 23, 2002 and ended
on April 27, 2002. During the outage, electric demand was met primarily
by our fossil-fueled generating units and by purchased power. Wolf
Creek operated the entire year of 2001 without any refueling outages.
Wolf Creek is scheduled to be taken off-line in October 2003 for
its 13th refueling and maintenance outage.
An extended shutdown of Wolf Creek could
have a substantial adverse effect on our business, financial condition
and results of operations because of higher replacement power and
other costs. Although not expected, the NRC could impose an unscheduled
plant shutdown due to security or other concerns.
Security
We have increased the level of security
measures at our generation facility sites and various offices, due
in part to nationwide concerns about homeland security. These measures
include, but are not limited to, increased security personnel, use
of armed guard services, patrolling of company property, restricting
access to our properties and implementing emergency training and
response procedures.
Wolf Creek’s management has increased
both voluntary and federally mandated security measures at Wolf
Creek. The NRC has required nuclear power plants to be operated
at the highest level of security since September 11, 2001. The measures
implemented at Wolf Creek include, but are not limited to, increased
guard service, no unscheduled public visits and emergency training
and response procedures.
The NRC has issued orders to all nuclear
plants that make our current voluntary security measures mandatory.
The orders also impose new security requirements at U.S. nuclear
power plants. Wolf Creek has complied with and intends to continue
to comply with these requirements.
Competition and Deregulation
Electric utilities have historically operated
in a rate-regulated environment. FERC, the Federal regulatory agency
having jurisdiction over our wholesale rates and transmission services,
and other utilities have initiated steps that are expected to result
in a more competitive environment for utility services in the wholesale
market. The Kansas Legislature and the KCC took no action on deregulation
in 2002 or 2001 and no action is expected to be taken in the near
future.
Increased competition for retail electricity
sales may in the future reduce our earnings, which could impact
our ability to pay dividends and could have a material adverse impact
on our operations and our financial condition. Our rates range from
approximately 19% to 25% below the national average for retail customers
based on a comparison to a U.S. average obtained from Edison Electric
Institute for Winter 2002. Because of these rates, we expect to
retain a substantial part of our current volume of sales in a competitive
environment. However, a material non-cash charge to earnings may
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