1.0.0.3 false Commitments and Contingencies false 1 $ false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 2 Notes to Consolidated Financial Statements 0 eme_NotesToFinancialStatementsAbstract eme false na duration string Notes to Financial Statements [Abstract] false false false false false true false false false 1 false false 0 0 false false Notes to Financial Statements [Abstract] false 3 Commitments and Contingencies 1 us-gaap_CommitmentsAndContingenciesDisclosureTextBlock us-gaap true na duration string No definition available. false false false false false false false false false 1 false false 0 0 <!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <HTML><HEAD> <META http-equiv=Content-Type content="text/html; charset=utf-8"> <META content="MSHTML 6.00.2900.3492" name=GENERATOR></HEAD> <BODY> Note 11. Commitments and Contingencies Contractual Obligations Long-term Debt         EME's long-term debt maturities as of June 30, 2009 for the remainder of 2009 and the following four years were:  <DIV align=center> <TABLE cellSpacing=0 cellPadding=0 border=0> <TBODY> <TR> <TD style="FONT-FAMILY: times" align=left width=321></TD> <TD style="FONT-FAMILY: times" width=12></TD> <TD style="FONT-FAMILY: times" align=right width=5></TD> <TD style="FONT-FAMILY: times" width=40></TD> <TD style="FONT-FAMILY: times" width=3></TD></TR> <TR vAlign=bottom> <TH style="FONT-FAMILY: times" align=middle>  </TH> <TH style="FONT-FAMILY: times"> </TH> <TH style="FONT-FAMILY: times" align=middle colSpan=2>(in millions) </TH> <TH style="FONT-FAMILY: times"> </TH></TR> <TR vAlign=top bgColor=#cceeff> <TD style="FONT-FAMILY: times"> July through December 2009</TD> <TD style="FONT-FAMILY: times"> </TD> <TD style="FONT-FAMILY: times" align=right>$</TD> <TD style="FONT-FAMILY: times" align=right>16</TD> <TD style="FONT-FAMILY: times"> </TD></TR> <TR vAlign=top bgColor=white> <TD style="FONT-FAMILY: times"> 2010</TD> <TD style="FONT-FAMILY: times"> </TD> <TD style="FONT-FAMILY: times"> </TD> <TD style="FONT-FAMILY: times" align=right>37</TD> <TD style="FONT-FAMILY: times"> </TD></TR> <TR vAlign=top bgColor=#cceeff> <TD style="FONT-FAMILY: times"> 2011</TD> <TD style="FONT-FAMILY: times"> </TD> <TD style="FONT-FAMILY: times"> </TD> <TD style="FONT-FAMILY: times" align=right>36</TD> <TD style="FONT-FAMILY: times"> </TD></TR> <TR vAlign=top bgColor=white> <TD style="FONT-FAMILY: times"> 2012</TD> <TD style="FONT-FAMILY: times"> </TD> <TD style="FONT-FAMILY: times"> </TD> <TD style="FONT-FAMILY: times" align=right>865</TD> <TD style="FONT-FAMILY: times"> </TD></TR> <TR vAlign=top bgColor=#cceeff> <TD style="FONT-FAMILY: times"> 2013</TD> <TD style="FONT-FAMILY: times"> </TD> <TD style="FONT-FAMILY: times"> </TD> <TD style="FONT-FAMILY: times" align=right>545</TD> <TD style="FONT-FAMILY: times"> </TD></TR></TBODY></TABLE></DIV> <A name=page_xxx45001_1_24></A>         These amounts have been updated to reflect EME's financing activities completed during the second quarter of 2009. In June 2009, EME completed through its subsidiary, Viento Funding II, Inc., a non-recourse portfolio financing of its interests in the Wildorado, San Juan Mesa and Elkhorn Ridge wind projects. The portfolio financing included a $189 million seven-year term loan and a $13 million letter of credit facility which replaced project letters of credit previously issued under the EME corporate credit facility. Interest under the term loan accrues at LIBOR plus 3.875% initially, with the rate increasing 0.25% on the third and sixth anniversaries of the closing date. Viento Funding II has entered into interest rate swap agreements to hedge the majority of the variable interest rate under the term loan. For further details regarding the interest rate swap agreements, see Note 3Derivative Instruments. Commitments Capital Improvements         At June 30, 2009, EME's subsidiaries had firm commitments to spend approximately $110 million during the remainder of 2009 and $14 million in 2010 on capital and construction expenditures. The majority of these expenditures relate to the construction of wind projects and non-environmental improvements at both the Illinois Plants and the Homer City facilities. These expenditures are planned to be financed by cash on hand and cash generated from operations. Turbine Commitments         EME had entered into various turbine supply agreements with vendors to support its wind development efforts. At June 30, 2009, EME had secured the rights to 484 wind turbines (942 MW) for use in future projects for an aggregate purchase price of $1.2 billion, with remaining commitments of $596 million in 2009 and $242 million in 2010. At June 30, 2009, EME had recorded wind turbine deposits of $410 million, included in other long-term assets on its consolidated balance sheet. EME has executed non-binding letter agreements with two of its vendors to provide vendor financing. EME and such vendors are in the process of negotiating definitive agreements based on the non-binding letter agreements, but there is no assurance that final binding agreements will be executed or executed on terms that conform to the letter agreements. If definitive agreements are executed substantially in accordance with the terms of the letter agreements, turbine commitments would be reduced to approximately $191 million in 2009, $229 million in 2010, and $210 million in 2011, and the remaining $206 million due based on specified conditions (expected during the time period of 2011 and 2014). These commitments would be further reduced during this period if a third turbine supplier agrees to provide vendor financing. Furthermore, EME can elect under the existing turbine supply agreement with this supplier to terminate the agreement for convenience which would further reduce turbine commitments to $9 million in 2009 and $49 million in 2010 (in such case, EME would write off approximately $90 million in previously made non-refundable deposits). Fuel Supply Contracts         At June 30, 2009, Midwest Generation and EME Homer City had fuel purchase commitments with various third-party suppliers for the purchase of coal. Based on the contract provisions, which consist of fixed prices subject to adjustment clauses, these minimum commitments are currently estimated to aggregate $417 million, summarized as follows: remainder of 2009$230 million, 2010$177 million, and 2011$10 million.         In July 2009, Midwest Generation entered into additional contractual agreements for the purchase of coal. These commitments, together with the estimated transportation costs under the existing <A name=page_xxx45001_1_25></A>agreements through 2011, are currently estimated to be $136 million for 2010, $264 million for 2011 and $134 million for 2012. Standby Letters of Credit         At June 30, 2009, standby letters of credit under EME and its subsidiaries' credit facilities aggregated $143 million and were scheduled to expire as follows: $60 million in 2009 and $83 million in 2010. Guarantees and Indemnities         EME and certain of its subsidiaries have various financial and performance guarantees and indemnifications which are issued in the normal course of business. As discussed below, these contracts include performance guarantees, guarantees of debt and indemnifications. Tax Indemnity Agreements         In connection with the sale-leaseback transactions related to the Homer City facilities in Pennsylvania, the Powerton and Joliet Stations in Illinois and, previously, the Collins Station in Illinois, EME and several of its subsidiaries entered into tax indemnity agreements. Although the Collins Station lease terminated in April 2004, Midwest Generation's tax indemnity agreement with the former lease equity investor is still in effect. Under these tax indemnity agreements, these entities agreed to indemnify the lessors in the sale-leaseback transactions for specified adverse tax consequences that could result in certain situations set forth in each tax indemnity agreement, including specified defaults under the respective leases. The potential indemnity obligations under these tax indemnity agreements could be significant. Due to the nature of these potential obligations, EME cannot determine a maximum potential liability which would be triggered by a valid claim from the lessors. EME has not recorded a liability related to these indemnities. Indemnities Provided as Part of the Acquisition of the Illinois Plants         In connection with the acquisition of the Illinois Plants, EME agreed to indemnify Commonwealth Edison with respect to specified environmental liabilities before and after December 15, 1999, the date of sale. The indemnification claims are reduced by any insurance proceeds and tax benefits related to such claims and are subject to a requirement that Commonwealth Edison takes all reasonable steps to mitigate losses related to any such indemnification claim. Due to the nature of the obligation under this indemnity, a maximum potential liability cannot be determined. This indemnification for environmental liabilities is not limited in term and would be triggered by a valid claim from Commonwealth Edison. Commonwealth Edison has advised EME that Commonwealth Edison believes it is entitled to indemnification for all liabilities, costs, and expenses that it may be required to bear as a result of the NOV discussed below under "ContingenciesMidwest Generation New Source Review Notice of Violation" and potential litigation by private groups related to the NOV. Except as discussed below, EME has not recorded a liability related to the environmental indemnity specified in the acquisition agreement.         Midwest Generation entered into a supplemental agreement with Commonwealth Edison and Exelon Generation Company, LLC on February 20, 2003 to resolve a dispute regarding interpretation of its reimbursement obligation for asbestos claims under the environmental indemnities set forth in the Asset Sale Agreement. Under this supplemental agreement, Midwest Generation agreed to reimburse Commonwealth Edison and Exelon Generation for 50% of specific asbestos claims pending as of February 2003 and related expenses less recovery of insurance costs, and agreed to a sharing <A name=page_xxx45001_1_26></A>arrangement for liabilities and expenses associated with future asbestos-related claims as specified in the agreement. As a general matter, Commonwealth Edison and Midwest Generation apportion responsibility for future asbestos-related claims based upon the number of exposure sites that are Commonwealth Edison locations or Midwest Generation locations. The obligations under this agreement are not subject to a maximum liability. The supplemental agreement had an initial five-year term with an automatic renewal provision for subsequent one-year terms (subject to the right of either party to terminate); pursuant to the automatic renewal provision, it has been extended until February 2010. There were approximately 214 cases for which Midwest Generation was potentially liable and that had not been settled and dismissed at June 30, 2009. Midwest Generation had recorded a $51 million liability at June 30, 2009 related to this matter.          The amounts recorded by Midwest Generation for the asbestos-related liability are based upon a number of assumptions. Future events, such as the number of new claims to be filed each year, the average cost of disposing of claims, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs to be higher or lower than projected. Indemnity Provided as Part of the Acquisition of the Homer City Facilities         In connection with the acquisition of the Homer City facilities, EME Homer City agreed to indemnify the sellers with respect to specific environmental liabilities before and after the date of sale. Payments would be triggered under this indemnity by a valid claim from the sellers. EME guaranteed the obligations of EME Homer City. Due to the nature of the obligation under this indemnity provision, it is not subject to a maximum potential liability and does not have an expiration date. For discussion of the NOV received by EME Homer City and associated indemnity claims, see "ContingenciesEME Homer City New Source Review Notice of Violation." EME has not recorded a liability related to this indemnity. Indemnities Provided under Asset Sale Agreements         The asset sale agreements for the sale of EME's international assets contain indemnities from EME to the purchasers, including indemnification for taxes imposed with respect to operations of the assets prior to the sale and for pre-closing environmental liabilities. Not all indemnities under the asset sale agreements have specific expiration dates. Payments would be triggered under these indemnities by valid claims from the sellers or purchasers, as the case may be. At June 30, 2009, EME had recorded a liability of $97 million (of which $52 million is classified as a current liability) related to these matters.         In connection with the sale of various domestic assets, EME has from time to time provided indemnities to the purchasers for taxes imposed with respect to operations of the asset prior to the sale. EME has also provided indemnities to purchasers for items specified in each agreement (for example, specific pre-existing litigation matters and/or environmental conditions). Due to the nature of the obligations under these indemnity agreements, a maximum potential liability cannot be determined. Not all indemnities under the asset sale agreements have specific expiration dates. Payments would be triggered under these indemnities by valid claims from the sellers or purchasers, as the case may be. At June 30, 2009, EME had recorded a liability of $3 million related to these matters. Contingencies RPM Buyers' Complaint         On May 30, 2008, a group of entities referring to themselves as the "RPM Buyers" filed a complaint at the FERC asking that PJM's RPM, as implemented through the transitional base residual <A name=page_xxx45001_1_27></A>auctions establishing capacity payments for the period from June 1, 2008 through May 31, 2011, be found to have produced unjust and unreasonable capacity prices. On September 19, 2008, the FERC dismissed the RPM Buyers' complaint, finding that the RPM Buyers had failed to allege or prove that any party violated PJM's tariff and market rules, and that the prices determined during the transition period were determined in accordance with PJM's FERC-approved tariff. On October 20, 2008, the RPM Buyers requested rehearing of the FERC's order dismissing their complaint. On June 18, 2009, the FERC denied rehearing of the order. Midwest Generation New Source Review Notice of Violation         On August 3, 2007, Midwest Generation received an NOV from the US EPA alleging that, beginning in the early 1990s and into 2003, Midwest Generation or Commonwealth Edison performed repair or replacement projects at six Illinois coal-fired electric generating stations in violation of the Prevention of Significant Deterioration requirements and of the New Source Performance Standards of the CAA, including alleged requirements to obtain a construction permit and to install best available control technology at the time of the projects. The US EPA also alleges that Midwest Generation and Commonwealth Edison violated certain operating permit requirements under Title V of the CAA. Finally, the US EPA alleges violations of certain opacity and particulate matter standards at the Illinois Plants. The NOV does not specify the penalties or other relief that the US EPA seeks for the alleged violations. Midwest Generation, Commonwealth Edison, the US EPA, and the DOJ are in talks designed to explore the possibility of a settlement. If the settlement talks fail and the DOJ files suit, litigation could take many years to resolve the issues alleged in the NOV.         On August 13, 2007, Midwest Generation and Commonwealth Edison received a letter signed by several Chicago-based environmental action groups stating that, in light of the NOV, the groups are examining the possibility of filing a citizen suit against Midwest Generation and Commonwealth Edison based presumably on the same or similar theories advanced by the US EPA in the NOV. On July 28, 2009, Midwest Generation received a sixty-day Notice of Intent to Sue signed by the same groups, stating their intent to file a citizen suit alleging exceedances of CAA opacity limits and violations of permit requirements related to monitoring and reporting.         By letter dated August 8, 2007, Commonwealth Edison advised EME that Commonwealth Edison believes it is entitled to indemnification for all liabilities, costs, and expenses that it may be required to bear as a result of the NOV. By letter dated August 16, 2007, Commonwealth Edison tendered a request for indemnification to EME for all liabilities, costs, and expenses that Commonwealth Edison may be required to bear if the environmental groups were to file suit. Midwest Generation and Commonwealth Edison are cooperating with one another in responding to the NOV.         Midwest Generation cannot predict the outcome of these matters or estimate the impact on its facilities, its results of operations, financial position or cash flows. EME Homer City New Source Review Notice of Violation         On June 12, 2008, EME Homer City received an NOV from the US EPA alleging that, beginning in 1988, EME Homer City (or former owners of the Homer City facilities) performed repair or replacement projects at Homer City Units 1 and 2 without first obtaining construction permits as required by the Prevention of Significant Deterioration requirements of the CAA. The US EPA also alleges that EME Homer City has failed to file timely and complete Title V permits. The NOV does not specify the penalties or other relief that the US EPA seeks for the alleged violations. On June 30, 2009, the US EPA issued a request for information to EME Homer City under Section 114 of the CAA. EME Homer City is working on a response to the request. EME Homer City has met with the <A name=page_xxx45001_1_28></A>US EPA and has expressed its intent to explore the possibility of a settlement. If no settlement is reached and the DOJ files suit, litigation could take many years to resolve the issues alleged in the NOV. EME Homer City cannot predict the outcome of this matter or estimate the impact on its facilities, its results of operations, financial position or cash flows.         EME Homer City has sought indemnification for liability and defense costs associated with the NOV from the sellers under the asset purchase agreement pursuant to which EME Homer City acquired the Homer City facilities. The sellers responded by denying the indemnity obligation, but accepting a portion of defense costs related to the claims.         EME Homer City notified the sale-leaseback owner participants of the Homer City facilities of the NOV under the operative indemnity provisions of the sale-leaseback documents. The owner participants of the Homer City facilities, in turn, have sought indemnification and defense from EME Homer City for costs and liability associated with the EME Homer City NOV. EME Homer City responded by undertaking the indemnity obligation and defense of the claims. Environmental Matters and Regulations         The construction and operation of power plants are subject to environmental regulation by federal, state and local authorities. EME believes that it is in substantial compliance with existing environmental regulatory requirements. However, possible future developments, such as the promulgation of more stringent environmental laws and regulations, future proceedings that may be initiated by environmental and other regulatory authorities, cases in which new theories of liability are recognized, and settlements agreed to by other companies that establish precedent or expectations for the power industry, could affect the costs and the manner in which EME and its subsidiaries conduct their businesses and could require substantial additional capital or operational expenditures or the ceasing of operations at certain of their facilities. There is no assurance that EME's financial position and results of operations would not be materially adversely affected. EME is unable to predict the precise extent to which additional laws and regulations may affect its future operations and capital expenditure requirements. For a more complete discussion of EME's environmental contingencies, refer to "Note 12Commitments and ContingenciesEnvironmental Matters and Regulations" on page 156 of EME's annual report on Form 10-K for the year ended December 31, 2008.         Typically, environmental laws and regulations require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction, operation or modification of a project or generating facility. Meeting all the necessary requirements can delay or sometimes prevent the completion of a proposed project, as well as require extensive modifications to existing projects, which may involve significant capital or operational expenditures. If EME fails to comply with applicable environmental laws, it may be subject to injunctive relief or penalties and fines imposed by federal and state regulatory authorities.         With respect to EME's potential liabilities arising under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, commonly referred to as CERCLA, or similar laws for the investigation and remediation of contaminated property, EME accrues a liability to the extent the costs are probable and can be reasonably estimated. Midwest Generation has accrued approximately $5 million at June 30, 2009 for estimated environmental investigation and remediation costs for the Illinois Plants. This estimate is based upon the number of sites, the scope of work and the estimated costs for investigation and/or remediation where such expenditures could be reasonably estimated. Future estimated costs may vary based on changes in regulations or requirements of federal, state, or local governmental agencies, changes in technology, and actual costs of disposal. In addition, future remediation costs will be affected by the nature and extent of contamination discovered at the <A name=page_xxx45001_1_29></A>sites that requires remediation. Given the prior history of the operations at its facilities, EME cannot be certain that the existence or extent of all contamination at its sites has been fully identified. However, based on available information, management believes that future costs in excess of the amounts disclosed on all known and quantifiable environmental contingencies will not be material to EME's financial position. </BODY></HTML> Note 11. Commitments and Contingencies Contractual Obligations Long-term Debt         EME's long-term debt false false No definition available. 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