Commitments and Contingencies

(a) Unconditional Purchase Obligations and Purchase Order Commitments

We and our subsidiaries routinely enter into long-term purchase and sale commitments for various quantities and lengths of time. The natural gas utilities have obligations to distribute and sell natural gas to their customers, and our electric utility has obligations to distribute and sell electricity to its customers. The utilities expect to recover costs related to these obligations in future customer rates.

The following table shows our minimum future commitments related to these purchase obligations as of June 30, 2015, including those of our subsidiaries.



				Payments Due By Period
(Millions)	Year Contracts Extend Through	Total Amounts Committed		2015		2016		2017		2018		2019		Later Years
Wisconsin Operations
Natural gas supply and transportation	2024	$	218.9	$	20.7	$	43.8	$	42.9	$	42.4	$	27.1	$	42.0
Electric
Purchased power	2029	816.3		61.4		78.9		54.1		56.8		58.1		507.0
Coal supply and transportation	2019	154.0		35.6		39.0		34.9		33.4		11.1		—
Illinois Operations
Natural gas supply and transportation	2022	$	191.3	$	39.5	$	76.7	$	49.2	$	14.1	$	4.0	$	7.8
Other States Operations
Natural gas supply and transportation	2028	$	215.5	$	26.2	$	52.9	$	43.4	$	23.7	$	21.2	$	48.1
Total		$	1,596.0	$	183.4	$	291.3	$	224.5	$	170.4	$	121.5	$	604.9

(b) Environmental Matters

Air Permitting Violation Claims

Weston and Pulliam Clean Air Act (CAA) Issues:

In November 2009, the EPA issued a Notice of Violation (NOV) to WPS, which alleged violations of the CAA's New Source Review requirements relating to certain projects completed at the Weston and Pulliam plants from 1994 to 2009. WPS reached a settlement agreement with the EPA regarding this NOV and signed a Consent Decree. This Consent Decree was approved by the U.S. District Court (Court) in March 2013, after a public comment period. The final Consent Decree includes:


•	the installation of emission control technology, including ReACT™, at Weston 3,


•	changed operating conditions (including refueling, repowering, and/or retirement of units),


•	limitations on plant emissions,


•	beneficial environmental projects totaling $6.0 million, and


•	a civil penalty of $1.2 million.

As mentioned above, the Consent Decree contains a requirement to refuel, repower, and/or retire certain Weston and Pulliam units. Effective June 1, 2015, WPS retired Weston Unit 1 and Pulliam Units 5 and 6 and recorded a regulatory asset of $11.5 million for the undepreciated book value. WPS received approval from the PSCW in its 2015 rate order to defer and amortize the undepreciated book value of the retired plant associated with these units starting June 1, 2015, and concluding by 2023.

WPS received approval from the PSCW in its 2014 and 2015 rate orders to recover prudently incurred costs as a result of complying with the terms of the Consent Decree, with the exception of the civil penalty. We also believe that additional prudently incurred costs expected after 2015 will be recoverable from customers based on past precedent with the PSCW.

The majority of the beneficial environmental projects proposed by WPS have been approved by the EPA. Amounts have been accrued and recorded to regulatory assets, excluding costs associated with capital projects.

In May 2010, WPS received from the Sierra Club a Notice of Intent to file a civil lawsuit based on allegations that WPS violated the CAA at the Weston and Pulliam plants. WPS entered into a Standstill Agreement with the Sierra Club by which the parties agreed to negotiate as part of the EPA NOV process, rather than litigate. The Standstill Agreement ended in October 2012, but no further action has been taken by the Sierra Club as of June 30, 2015. It is unknown whether the Sierra Club will take further action in the future.

Columbia and Edgewater CAA Issues:

In December 2009, the EPA issued an NOV to Wisconsin Power and Light (WP&L), the operator of the Columbia and Edgewater plants, and the other joint owners of these plants, including Madison Gas and Electric and WPS. The NOV alleged violations of the CAA's New Source Review requirements related to certain projects completed at those plants. WPS, WP&L, and Madison Gas and Electric reached a settlement agreement with the EPA regarding this NOV and signed a Consent Decree. This Consent Decree was approved by the Court in June 2013, after a public comment period. The final Consent Decree includes:


•	the installation of emission control technology, including scrubbers at the Columbia plant,


•	changed operating conditions (including refueling, repowering, and/or retirement of units),


•	limitations on plant emissions,


•	beneficial environmental projects, with WPS's portion totaling $1.3 million, and


•	WPS's portion of a civil penalty and legal fees totaling $0.4 million.

The Consent Decree contains a requirement to refuel, repower, or retire Edgewater Unit 4, of which WPS is a joint owner, by no later than December 31, 2018. In the first quarter of 2015, management of the joint owners recommended that Edgewater Unit 4 be retired in December 2018. However, a final decision on how to address the requirement for this unit has not yet been made by the joint owners, as early retirement is contingent on various operational and market factors, and other alternatives to retirement are still available.

We believe that significant costs prudently incurred as a result of complying with the terms of the Consent Decree, with the exception of the civil penalty, will be recoverable from customers.

All of the beneficial environmental projects proposed by WPS have been approved by the EPA. Amounts have been accrued and recorded to regulatory assets, excluding costs associated with capital projects.

Weston Title V Air Permit:

In August 2013, the WDNR issued the Weston Title V air permit. In September 2013, WPS challenged various requirements in the permit by filing a contested case proceeding with the WDNR and also filed a Petition for Judicial Review in the Brown County Circuit Court. The Sierra Club and Clean Wisconsin also challenged various aspects of the permit. The WDNR granted all parties' requests for contested case proceedings. The Petitions for Judicial Review, by all parties, have been stayed pending the resolution of the contested cases. In February 2014, WPS also requested a modification to the construction permit for Weston 4 to remove the mercury Best Available Control Technology (BACT) emission limit requirement. This permit request was denied by the WDNR, and WPS challenged this issue as well. At WPS's request, the permit was modified to resolve several of the petition issues. Those issues have now been voluntarily dismissed from the case, while a new permit change was challenged and added to the case. The administrative law judge (ALJ) dismissed some of the petition issues relating to the averaging period and monitoring issues.

In May 2014, the WDNR issued an NOV alleging that WPS failed to maintain a minimum sorbent feed rate prior to the Continuous Emissions Monitoring System certification and included an issue related to reporting nitrogen oxide emissions from the Weston 4 auxiliary boiler. In June 2015, the WDNR issued an NOV to WPS alleging that WPS failed to comply with mercury reporting requirements related to challenged matters in the 2013 Weston Title V permit. The ALJ denied WPS's request to issue a stay or confirm that a statutory stay applies to the requirements identified in the NOV. The contested case is proceeding and certain legal arguments are currently being addressed in the context of summary judgment motions. No hearing date has been set.

We do not expect these matters to have a material impact on our financial statements.

Air Quality

Mercury and Other Hazardous Air Pollutants:

In December 2011, the EPA issued the final Utility Mercury and Air Toxics Standards (MATS), which imposes stringent limitations on emissions of mercury and other hazardous air pollutants from coal and oil-fired electric generating units beginning in April 2015. In addition, Wisconsin has mercury rules with the same compliance deadline that require a 90% reduction of mercury. In June 2015, the United States Supreme Court (Supreme Court) ruled on a challenge to the MATS rule and remanded the case back to the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court of Appeals), ruling that the EPA failed to appropriately consider the cost of the regulation. The MATS rule remains in effect pending action by the D.C Circuit Court of Appeals, which has the option to vacate the rule while the EPA completes its cost evaluation. If the rule is stayed or revoked, the Wisconsin Mercury Rule is likely to be the governing standard for the WPS units. At this time, it is too early to determine what effect, if any, this ruling will have on our compliance plans.

WPS initiated certain capital projects for its wholly owned plants to achieve the required reductions for MATS or the Wisconsin Mercury Rule. These capital costs are expected to be recovered in future rates.

Sulfur Dioxide:

The EPA issued a 1-Hour Sulfur Dioxide (SO₂) National Ambient Air Quality Standard (NAAQS) that became effective in August 2010. In May 2014, the EPA issued the proposed Data Requirements Rule that would establish procedures and timelines for implementation of the standard. The proposed rule describes the EPA's plans for allowing the states to use either monitoring or modeling to make designations.

As proposed, the rule affords state agencies latitude in rule implementation. States would have the option of modeling or monitoring to show attainment (subject to EPA approval for this selection). If the state chooses modeling and the sources in an area do not make reductions by 2017, and as a consequence the area is classified as nonattainment, then they would have to make emission reductions by 2023. Alternatively, if a state opted out of modeling and instead chose monitoring, and subsequently monitored nonattainment, then it would face a 2026 compliance date. A nonattainment designation could have negative impacts for a localized geographic area, including permitting constraints for area sources and for other new or existing sources in the area.

In March 2015, a Federal Court in the Northern District of California entered a consent decree relating to the implementation of the revised 1-Hour SO₂ standard that Sierra Club and EPA had agreed upon in May 2014. This consent decree has 1-Hour SO₂ implementation dates that are sooner than the proposed Data Requirements Rule. The EPA has not yet indicated how, in light of this consent decree, the Data Requirements Rule will be finalized.

We believe our fleet, with the exception of WPS’s Pulliam plant, is well positioned to meet this regulation once it is finalized. The Pulliam plant is located in Brown County, which has been preliminarily determined to be in nonattainment with the standard based on monitoring data from 2012 through 2014. The WDNR has indicated that additional modeling and monitoring data will be required prior to final attainment designations being made in 2017 and 2020. We are currently working closely with the state of Wisconsin as they determine the attainment status of the areas and the effect, if any, on the Pulliam plant.

Land Quality

Coal Combustion Residuals (CCR) Rule:

In April 2015, the EPA published the Hazardous and Solid Waste Management System; Disposal of Coal Combustion Residuals from Electric Utilities final rule in the Federal Register. The final rule regulates the disposal of coal combustion byproducts, primarily fly ash and bottom ash, as a nonhazardous waste. The rules are intended to address risks related to groundwater impacts, catastrophic failures, and air emissions. There will be additional requirements for recordkeeping, groundwater monitoring, and structural integrity, including ongoing inspections and hazard assessments. There will also be more locational restrictions to protect wetlands and seismic impact zones. The rule will affect how WPS operates the Weston plant's bottom ash basins and an offsite landfill. However, we have landfill capacity that meets the rule requirements, if needed, for our coal combustion product sources. We do not expect the compliance costs to be significant because we currently have a program of beneficial utilization for most of our coal combustion byproducts and expect to recover these costs in future rates.

Water Quality

Clean Water Act Rule:

In August 2014, the EPA issued a final Clean Water Act rule under Section 316(b), which requires that the location, design, construction and capacity of cooling water intake structures reflect the Best Technology Available (BTA) for minimizing adverse environmental impacts. The rule became effective in October 2014 and applies to the Weston and Pulliam plants at WPS.

Facility owners must select from seven compliance options available to meet the impingement mortality (IM) reduction standard. BTA determinations must also be made to address entrainment mortality (EM) reduction on a site-specific basis taking into consideration several factors. The rule requires state permitting agencies, including the WDNR, to make BTA determinations for IM and EM over the next several years, subject to EPA oversight, when facility permits are reissued. Based on our assessment, we believe that existing technologies at Weston Units 3 and 4 satisfy the IM and EM requirements by virtue of their existing cooling towers. In addition, it is expected that the WDNR will determine that no modifications will be required at Weston Unit 2 due to low projected utilization. However, Pulliam Units 7 and 8 do not have the technologies to satisfy the IM and EM BTA requirements.

During 2015-18, we plan to complete studies to address the EM BTA requirements and evaluate the available IM options for Pulliam Units 7 and 8. We also expect limited studies to support WDNR BTA determinations to be conducted at the Weston facility. We cannot yet determine what, if any, intake structure or operational modifications will be required to meet the EM BTA requirements for Pulliam Units 7 and 8. We expect to recover any future compliance costs in future rates.

Manufactured Gas Plant Remediation

We have identified several sites at which our utilities, or a predecessor company, owned or operated a manufactured gas plant. These sites are at various stages of investigation, monitoring and remediation. We have also identified other sites that may have been impacted by historical manufactured gas plant activities. Our natural gas utilities are responsible for the environmental remediation of these sites, some of which are in the EPA Superfund Alternative Sites Program.

The future costs for detailed site investigation and future remediation are dependent upon several variables including, among other things, the extent of remediation, changes in technology, and changes in regulation. Historically, our regulators have allowed us to recover incurred costs, net of insurance recoveries, associated with the remediation of manufactured gas plant sites. Accordingly, we have established regulatory assets for costs associated with these sites.

We established the following reserves and regulatory assets related to manufactured gas plant sites:



(Millions)	June 30, 2015		December 31, 2014
Regulatory assets	$	625.4	$	634.3
Reserves for future remediation	576.0		579.7