COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2011

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 8.                       COMMITMENTS AND CONTINGENCIES

Environmental

   NPC and SPPC

Regional Haze Rule Update

On June 22, 2011, the EPA filed notice in the Federal Register proposing to approve a revision to the Nevada State Implementation Plan (SIP) to implement the Regional Haze program, also known as the Best Available Retrofit Technology (BART) rule, for the first planning period extending through July 31, 2018.  Public comments on the proposed revision are due by the third quarter of 2011.

The generating units subject to the BART rule are:  Reid Gardner units 1, 2 and 3 at NPC; and Tracy units 1, 2 and 3 and Fort Churchill units 1 and 2 at SPPC.

The Nevada BART rule will require a reduction in the nitrogen dioxide (NOx) emission rates for all affected units and specifies further reductions in sulfur dioxide (SO2) and particulate emissions from the units located at Tracy and Fort Churchill Generating Stations.   The current emission rates for SO2 and particulates at the Reid Gardner Generating Station are currently meeting the lower level BART requirements. Compliance with the new emission rules will be required by 2015 through a combination of fuel switching, installation of additional pollution controls, or retirement of individual units.  Management is currently assessing the impacts on the Utilities for these alternatives.

   NPC

      NEICO

NEICO, a wholly-owned subsidiary of NPC, owns property in Wellington, Utah, which was the site of a coal washing and load-out facility.  The site has a reclamation estimate supported by a bond of approximately $5 million with the Utah Division of Oil and Gas Mining, which management believes is sufficient to cover reclamation costs.  Management is continuing to evaluate various options including reclamation and sale.

   SPPC

      Valmy Generating Station

On June 22, 2009, SPPC received a request for information from the EPA-Region 9 under Section 114 of the Federal Clean Air Act requesting current and historical operations and capital project information for SPPC's Valmy Generating Station located in Valmy, Nevada.  SPPC co-owns and operates this coal-fired plant.  Idaho Power Company owns the remaining 50%.  The EPA's Section 114 information request does not allege any incidents of non-compliance at the plant, and there have been no other new enforcement-related proceedings that have been initiated by the EPA relating to the plant.  SPPC completed its response to the EPA in December 2009 and will continue to monitor developments relating to this Section 114 request.  SPPC cannot predict the impact, if any, associated with this information request.

Other Environmental Matters

NVE and the Utilities are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters.  NVE and the Utilities continue to comply with these environmental commitments.  As of June 30, 2011, environmental expenditures did not change materially from those disclosed in the 2010 Form 10-K.

Litigation Contingencies

   NPC and SPPC

      Peabody Western Coal Company - Royalty Claim

NPC owns an 11% interest in the Navajo Generating Station which is located in Northern Arizona and is operated by Salt River.  Other participants in the Navajo Generating Station are Arizona Public Service Company, Los Angeles Department of Water and Power and Tucson Electric Power Company (together with Salt River and NPC, the "Navajo Joint Owners").  NPC also owns a 14% interest in the Mohave Generating Station which is located in Laughlin, Nevada and was operated by Southern California Edison (SCE) prior to the time it became non-operational on December 31, 2005.

In October 2004, the Navajo Generating Station's coal supplier, Peabody Western Coal Co. (Peabody WC), filed a complaint against the Navajo Joint Owners in Missouri State Court in St. Louis, alleging, among other things, a declaration that the Navajo Joint Owners are obligated to reimburse Peabody WC for any royalty, tax or other obligations arising out of a lawsuit that the Navajo Nation filed against Salt River, several Peabody Coal Company entities (including Peabody WC and collectively referred to as "Peabody") and SCE in June 1999 in the U.S. District Court for the District of Columbia (DC Lawsuit).

The Navajo Joint Owners were first served in the Missouri lawsuit in January 2005.  The operating agent for the Navajo Generating Station, Salt River, defended the suit on behalf of the Navajo Joint Owners.  In July 2008, the Court dismissed all counts against NPC, two without prejudice to their possible refiling at a later date.  NPC is unable to predict whether any liability may arise from any of these matters, including from the ultimate outcome of the DC Lawsuit.

NPC is not a party to the DC Lawsuit although, as noted above, it is a participant in both the Navajo Generating Station and the Mohave Generating Station.  The DC Lawsuit consists of various claims relating to the renegotiations of coal royalty and lease agreements and alleges, among other things, that the defendants obtained a favorable coal royalty rate for the lease agreements under which Peabody mines coal for both the Navajo Generating Station and the Mohave Generating Station by improperly influencing the outcome of a federal administrative process pursuant to which the royalty rate was to be adjusted.  Initially, the DC Lawsuit sought $600 million in damages, treble damages and punitive damages of not less than $1 billion, and the ejection of defendants from all possessory interests and Navajo Tribal lands arising out of the primary coal lease.  In July 2001, the U.S. District Court dismissed all claims against Salt River.   In April 2010, the Navajo Nation amended their complaint; it no longer seeks treble damages.  Factual discovery was completed in October 2010, after which the parties engaged in settlement discussions. In April 2011, SCE indicated that it reached a settlement in the DC Lawsuit in principle. On August 1, 2011, the Navajo Nation, Peabody, Salt River and SCE executed a written settlement agreement in return for dismissal of all claims by the Navajo Nation. Salt River has asked that the Navajo Joint Owners, including NPC, contribute towards the settlement based on its 11% percent ownership stake in the Navajo plant. NPC has agreed to pay Salt River the requested contribution, which wil not have a material impact on the financial statements.  SCE has asked that the Mohave Joint Owners, including NPC, contribute towards the settlement based upon their ownership stake in the Mohave plant. NPC has not agreed to pay SCE the requested contribution. Management continues to assess to what extent it should reimburse SCE, but does not believe the impact of such assessment will be material to NPC at this time.

   SPPC

      Farad Dam

SPPC sold four hydro generating units, (10.3 MW total capacity), located in Nevada and California, for $8 million to TMWA in June 2001.  The Farad Hydro (2.8 MW), has been out of service since the summer of 1996 due to a collapsed flume.  The current estimate to rebuild the diversion dam, if management decides to proceed, is approximately $20 million.  Under the terms of the contract with TMWA, SPPC is not entitled to receive the proceeds of sale relating to Farad unless and until it has reconstructed the Farad facility in a manner reasonably acceptable to TMWA or, alternatively SPPC assigns its casualty loss claim to TMWA and TMWA is reasonably satisfied regarding its rights with respect to such claim.

SPPC filed a claim with the insurers Hartford Steam Boiler Inspection and Insurance Co. and Zurich-American Insurance Company (collectively, the "Insurers") for the Farad flume and Farad Dam.  In December 2003, SPPC sued the Insurers in the U.S. District Court for the District of Nevada on a coverage dispute relating to potential rebuild costs for Farad Dam.  The case went to trial before the Court in April 2008.  On September 30, 2008, the Court ruled that SPPC was not time barred from reconstructing Farad Dam, and has coverage for the full rebuild costs, subject to coverage sub-limits set forth in the insurance policies.  The Court further ruled that SPPC is entitled to recover $4 million for costs incurred to date on Farad Dam and that SPPC shall have three years to rebuild the dam from the date of the Court's decision.  In the event Farad Dam is not rebuilt, the Court determined SPPC would be entitled to actual cash value of approximately $1.3 million.  SPPC has requested the court to reconsider the cash value to reflect rebuild costs and the Insurers opposed.   The Insurers time to file an appeal on the Court's decision had been suspended pending the Court's determination on the cash value reconsideration.  On July 10, 2009, the District Court declined SPPC's request to reconsider the cash value and further ordered that the three year period to replace the dam commences as of July 10th. In early August 2009, SPPC appealed the District Court's $1.3 million cash value determination with the Ninth Circuit. Subsequently, in August 2009, the Insurers appealed the District Court's insurance coverage decision with the Ninth Circuit.  The Ninth Circuit heard arguments on the appeal in November 2010 and further asked that the parties consider mediation settlement proceedings. In January 2011, the parties, including TMWA, agreed to engage in mediation settlement discussions. Mediation was not successful, and the case was returned to the active docket for decision by the Ninth Circuit. On June 15, 2011, the parties filed supplemental briefs concerning the cash value determination and the replacement cost of the dam. A decision is expected in the third or fourth quarter of 2011.

Other Legal Matters

NVE and its subsidiaries, through the course of their normal business operations, are currently involved in a number of other legal actions, none of which, in the opinion of management, is expected to have a significant impact on their financial positions, results of operations or cash flows.

Other Commitments

   NPC and SPPC

      ON Line TUA

During the second quarter of 2011, NVE began to construct Phase 1 of ON Line, which is a joint project between the Utilities and GBT-South.  Construction of Phase 1 consists of the initial 500 kV interconnection between the Robinson Summit substation on the SPPC system and the Harry Allen Generating Station on the NPC system by late 2012.  The Utilities will own a 25% interest in Phase 1 and have entered into a TUA with GBT-South for its 75% interest in Phase 1.  Under the terms of the TUA, NVE's future lease payments are adjusted for construction costs, including cost overruns; therefore, for accounting purposes NVE is treated as the owner of the construction project in accordance with Lease Accounting, The Effect of Lessee Involvement in Asset Construction of the FASC. As a result, as of June 30, 2011, NVE has capitalized construction costs associated with GBT's 75% interest of approximately $51.5 million, or $50.1 and $1.4 million at NPC and SPPC, respectively, in CWIP with a corresponding credit to other deferred liabilities.