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Nuclear Insurance
We maintain nuclear insurance for Wolf
Creek in four areas: liability, worker radiation, property and accidental
outage. These policies contain certain industry standard exclusions,
including, but not limited to, ordinary wear and tear, and war.
Terrorist acts are not excluded from the property and accidental
outage policies, but are covered as a common occurrence under the
Non-Terrorism Risk Insurance Act. The term common occurrence means
that if terrorist acts occur against one or more commercial nuclear
power plants insured by our insurance company within a 12-month
period, all of these terrorist acts will be treated as one event
and the owners of the plants will share one full limit of each type
of policy, which is currently $3.24 billion plus any reinsurance
recoverable by Nuclear Electric Insurance Limited (NEIL), our insurance
provider. Currently there is $1 billion of reinsurance purchased
by NEIL. Claims that arise from terrorist acts are also covered
by our nuclear liability and worker radiation policies. These policies
are subject to one industry aggregate limit for such acts, currently
$300 million for the risk of terrorism. Unlike the property and
accidental outage policies, an industry-wide retrospective assessment
program (discussed below) applies once the nuclear liability and
worker radiation policies have been exhausted.
Nuclear Liability
Insurance
Pursuant to the Price-Anderson Act, we
are required to insure against public liability claims resulting
from nuclear incidents to the full limit of public liability, which
is currently approximately $9.5 billion. This limit of liability
consists of the maximum available commercial insurance of $300 million,
and the remaining $9.2 billion is provided through mandatory participation
in an industry-wide retrospective assessment program. Under this
retrospective assessment program, we can be assessed up to $88.1
million per incident at any commercial reactor in the country, payable
at no more than $10 million per incident per year. This assessment
is subject to an inflation adjustment based on the Consumer Price
Index and applicable premium taxes. This assessment also applies
in excess of our worker radiation claims insurance. In addition,
the U.S. Congress could impose additional revenue-raising measures
to pay claims. If the $9.5 billion liability limitation is insufficient,
the U.S. Congress will consider taking whatever action is necessary
to compensate the public for valid claims.
The Price-Anderson Act expired in August
2002. In late 2002, a renewal act was approved by Congress to be
part of an energy bill to extend the Act for 15 years from August
1, 2002. The renewal act would have increased the annual retrospective
premium limit from $10 million to $15 million per reactor per incident
and increased the maximum potential assessment from $88.1 million
to $98.7 million per reactor per incident. Although the renewal
act was approved by Congress, the energy bill was never signed by
the President. However, in February 2003, the Act was extended to
December 31, 2003 with no changes except for its expiration date.
We expect that the Act will be renewed, but we are unable to predict
whether the Act will be modified as proposed in 2002.
Nuclear Property
Insurance
The owners carry decontamination liability,
premature decommissioning liability and property damage insurance
for
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Wolf Creek totaling approximately $2.75
billion ($1.3 billion our share). This insurance is provided by
NEIL. In the event of an accident, insurance proceeds must first
be used for reactor stabilization and site decontamination in accordance
with a plan mandated by the NRC. Our share of any remaining proceeds
can be used to pay for property damage or decontamination expenses
or, if certain requirements are met including decommissioning the
plant, toward a shortfall in the decommissioning trust fund.
Accidental
Nuclear Outage Insurance
The owners also carry additional insurance
with NEIL to cover costs of replacement power and other extra expenses
incurred during a prolonged outage resulting from accidental property
damage at Wolf Creek. If significant losses were incurred at any
of the nuclear plants insured under the NEIL policies, we may be
subject to retrospective assessments under the current policies
of approximately $24.5 million ($11.5 million our share).
Although we maintain various insurance
policies to provide coverage for potential losses and liabilities
resulting from an accident or an extended outage, our insurance
coverage may not be adequate to cover the costs that could result
from a catastrophic accident or extended outage at Wolf Creek. Any
substantial losses not covered by insurance, to the extent not recoverable
through rates, would have a material adverse effect on our financial
condition and results of operations.
Fuel Commitments
To supply a portion of the fuel requirements
for our generating plants, we have entered into various commitments
to obtain nuclear fuel and coal. Some of these contracts contain
provisions for price escalation and minimum purchase commitments.
At December 31, 2002, our share of WCNOC’s nuclear fuel commitments
were approximately $5.0 million for uranium concentrates expiring
in 2003, $0.6 million for conversion expiring in 2003, $21.5 million
for enrichment expiring at various times through 2006 and $57.5
million for fabrication through 2025.
At December 31, 2002, our coal and coal
transportation contract commitments in 2002 dollars under the remaining
terms of the contracts were approximately $2.0 billion. The largest
contract expires in 2020, with the remaining contracts expiring
at various times through 2013.
At December 31, 2002, our natural gas
transportation commitments in 2002 dollars under the remaining terms
of the contracts were approximately $56.2 million. The natural gas
transportation contracts provide firm service to several of our
gas burning facilities and expire at various times through 2010,
except for one contract that expires in 2016.
Energy Act
As part of the 1992 Energy Policy Act,
a special assessment is being collected from utilities for a uranium
enrichment decontamination and decommissioning fund. Our portion
of the assessment for Wolf Creek is approximately $8.1 million.
To date, we have paid approximately $6.8 million, with the remainder
payable over the next four years. Such costs are recovered through
the rate-making process.
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