COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 7. COMMITMENTS AND CONTINGENCIES

Environmental

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.

Reid Gardner Generating Station

On October 4, 2011, NPC 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 NPC's Reid Gardner Generating Station located near Moapa, Nevada.  NPC operates the facility and owns Units 1-3. Unit 4 of the facility is co-owned with the California Department of Water Resources.  The EPA's Section 114 information request does not allege any incidents of non-compliance at the plant. Responses were provided back to the EPA in February 2012 and NPC will continue to monitor developments relating to this Section 114 request. At this time, NPC cannot predict the impact, if any, associated with this information request.

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 September 30, 2012, environmental expenditures did not change materially from those disclosed in the 2011 Form 10-K; however, in August 2012, the EPA issued a final Regional Haze Rule which may impact NVE and the Utilities as described below.

Regional Haze Rules

In 2005, the EPA finalized amendments to its Regional Haze Rules that require the installation and operation of emission controls, known as best available retrofit technology (BART), for industrial facilities emitting air pollutants that reduce visibility in certain national parks and wilderness areas throughout the U.S. Certain NVE generating facilities are subject to BART requirements. Pursuant to the EPA's Regional Haze Rules, individual states were required to identify the facilities located in their states that will have to reduce sulfur dioxide (SO2), nitrogen oxide (NOx) and particulate matter emissions under BART and then set emissions limits for those facilities.

In June 2011, the EPA published in the Federal Register its proposal to approve Nevada's State Implementation Plan (SIP) implementing the Regional Haze Rules for affected units in the State of Nevada, which includes units at our Reid Gardner, Tracy and Ft. Churchill Generating Stations. However, in March 2012, the EPA approved Nevada's SIP as it pertains to all affected units and emissions, except for NOx controls at Units 1-3 at the Reid Gardner Generating Station. In that March 2012 Federal Register notice, the EPA stated that it intended to make a BART determination on those Reid Gardner Generating Station Units at a later date. In August 2012, the EPA published its final determination for NOx BART controls for the Reid Gardner Generating Station Units 1-3, approving and rejecting certain components of Nevada's SIP. For the limited portions of Nevada's SIP that EPA rejected, it put in place a Federal Implementation Plan that will remain enforceable until such time as Nevada submits a revised SIP to address the concerns the EPA noted in its August 2012 Federal Register notice. Within the August 2012 notice, the EPA approved Nevada's determination in its SIP that the installation of selective non-catalytic reduction technology (SNCR) represented BART for purposes of compliance with the Regional Haze Rule. NVE continues to work toward finalizing the retrofit designs for the affected BART units. Depending on certain regulatory approvals, NVE expects to retire Tracy Generating Station Units 1 and 2, install retrofit controls on Tracy Generating Station Unit 3, Ft. Churchill Generating Station Units 1 and 2, and install SNCRs on Reid Gardner Generating Station Units 1, 2 & 3. Compliance with the Regional Haze rule is estimated to cost approximately $80 million over the next several years; however, these costs are preliminary and subject to change based on final engineering analysis and retirement of generating station units. NVE expects that costs incurred to comply with the Regional Haze rule would be capitalized and recovered through the Utilities' regulatory proceedings similar to other environmental compliance requirements.

Environmental groups have challenged both of the EPA's final determinations with respect to Nevada's regional haze SIP submittal. In May 2012, WildEarth Guardians petitioned the Ninth Circuit to review the EPA's March 2012 approval of Nevada's SIP for all affected units and emissions except NOx controls at the Reid Gardner Generating Station, alleging that the EPA's approval did not conform to the requirements set forth in the Regional Haze Rule. NVE has intervened in that lawsuit. In October 2012, Earthjustice, on behalf of the Moapa Band of Paiute Indians, Sierra Club, and the National Parks Conservation Association, petitioned the Ninth Circuit to review the EPA's August 2012 final determinations pertaining to NOx controls at the Reid Gardner Generating Station. NVE intends to intervene in this lawsuit. At this time management is unable to determine the likelihood of success by petitioners in these litigation matters. An adverse decision in either lawsuit could impact our compliance strategy for the Tracy, Ft. Churchill and Reid Gardner Generating Stations, and could result in the requirement to install more stringent emissions controls, or the retirement of certain units earlier than currently planned.

The Navajo Generating Station is also an affected unit under EPA's Regional Haze Rules and is currently awaiting an EPA BART determination, which is expected for proposal prior to the end of 2012.

Litigation Contingencies

NPC

Peabody Western Coal Company – Royalty Claim

NPC owns an 11% interest in the Navajo Generating Station, which is located in northern Arizona and 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 June 1999, the Navajo Nation filed suit against Salt River, several Peabody Coal Company entities (collectively referred to as “Peabody”) and SCE in the U.S. District Court for the District of Columbia (the “DC Lawsuit”). NPC was 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 asserted claims relating to the renegotiation of coal royalty and lease agreements and alleged, among other things, that the defendants obtained a favorable coal royalty rate for leases under which Peabody mined coal for both the Navajo Generating Station and Mohave Generating Station by improperly influencing the outcome of a federal administrative process. The DC Lawsuit sought $600 million in damages and punitive damages of not less than $1.0 billion.

In 2004, Peabody brought suit against the Navajo Joint Owners in state court in St. Louis, Missouri, seeking a declaration that the Navajo Joint Owners are obligated to reimburse Peabody for any royalty, tax or other obligations arising out of the DC Lawsuit. In July 2008, the court dismissed all counts against NPC, two without prejudice to their possible refiling.

In August 2011, all claims in the DC Lawsuit were dismissed pursuant to a settlement agreement amongthe Navajo Nation, Peabody, Salt River and SCE. At the request of Salt River, NPC contributed an immaterial amount toward the settlement of the DC Lawsuit based on its 11% ownership stake in the Navajo Generating Station.

SCE also has asked that the Mohave Joint Owners, including NPC, contribute toward the settlement based upon their ownership stakes in the Mohave Generating Station. NPC has not agreed to contribute to SCE's portion of the DC Lawsuit settlement. Management is currently negotiating a settlement with SCE, but does not believe the impact of any such settlement 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 rebuild, 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 Hartford Steam Boiler Inspection and Insurance Company and Zurich-American Insurance Company (collectively, the "Insurers") for the Farad Dam. In 2003, SPPC initiated federal court litigation against the insurers of the failed unit, who contested the extent and amount of insurance coverage. Coverage has been established through this litigation, but the matter was pending before the Ninth Circuit Court of Appeals (Ninth Circuit) for determination of the amount of coverage which could range from approximately $1.3 million to the estimated cost to rebuild the diversion dam, which is estimated to be approximately $20 million. On July 27, 2012, the Ninth Circuit entered its Order and reversed the valuation holding of the District Court. The Ninth Circuit set the value of Farad Dam at $19.8 million with some deduction for depreciation to be determined upon remand to the District Court. The court also affirmed SPPC's right to recover the $4.0 million in permitting and design costs, which is part of the $19.8 million replacement cost. Finally, the court affirmed full replacement cost in the event of a rebuild, and further finds that the District Court is free, on remand, to extend the three year time to rebuild to start at the conclusion of all litigation.

It is not known at this time when the District Court will set hearings for the issues remanded by the Ninth Circuit. Management cannot assess or predict the outcome or the impact of the District Court decisions at this time, but they are not expected to be material to SPPC as a whole.

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 substation on the NPC system.ON Line has an expected in-service date of no later than December 31, 2013. 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 September 30, 2012, capitalized construction costs associated with GBT's 75% interest of $241.1 and $12.7 million at NPC and SPPC, respectively, were included in CWIP with a corresponding credit to other deferred liabilities.