XML 33 R19.htm IDEA: XBRL DOCUMENT v3.10.0.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Legal
NSP-Wisconsin is involved in various litigation matters that are being defended and handled in the ordinary course of business. The assessment of whether a loss is probable or is a reasonable possibility, and whether the loss or a range of loss is estimable, often involves complex judgments about future events. Management maintains accruals for losses that are probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of a reasonably possible loss in certain situations, including when (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss. For current proceedings not specifically reported herein, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on NSP-Wisconsin’s financial statements. Unless otherwise required by GAAP, legal fees are expensed as incurred.
Gas Trading Litigation e prime is a wholly owned subsidiary of Xcel Energy Inc. e prime was in the business of natural gas trading and marketing but has not engaged in natural gas trading or marketing activities since 2003. Multiple lawsuits seeking monetary damages were commenced against e prime and its affiliates, including Xcel Energy, between 2003 and 2009 alleging fraud and anticompetitive activities in conspiring to restrain the trade of natural gas and manipulate natural gas prices.
Cases were all consolidated in the U.S. District Court in Nevada.
In the fourth quarter of 2018, four cases were settled. Two cases remain active which include an MDL matter consisting of a Colorado class (Breckenridge), and a Wisconsin class (Arandell Corp.).
Breckenridge/Colorado Case has been remanded to the MDL panel and is expected to be referred back to the U.S. District court in Colorado. Xcel Energy has concluded that a loss is a remote.
Arandell Corp. In November 2017, the U.S. District Court in Nevada granted summary judgment against two plaintiffs in the Arandell Corp. case in favor of Xcel Energy and NSP-Wisconsin, leaving only three individual plaintiffs remaining in the litigation. In addition, the plaintiffs’ motions for class certification and remand back to originating courts were denied in March 2017.
Plaintiffs have asked the lower court to remand the cases back to the court where the actions were originally filed anticipating class certification. A hearing date has not been set. Xcel Energy has concluded that a loss is remote.
Rate Matters
MISO ROE Complaints — In November 2013 and February 2015, customers filed complaints against MISO TOs including NSP-Minnesota and NSP-Wisconsin. The first complaint argued for a reduction in the base ROE in MISO transmission formula rates from 12.38% to 9.15%, and removal of ROE adders (including those for RTO membership). The second complaint sought to reduce base ROE from 12.38% to 8.67%. In September 2016, the FERC issued an order granting a 10.32% base ROE (10.82% with the RTO adder) effective for the first complaint period of Nov. 12, 2013 to Feb. 11, 2015 and subsequent to the date of the order. The D.C. Circuit subsequently vacated and remanded FERC Opinion No. 531, which had established the ROE methodology on which the September 2016 FERC order was based.
In October 2018, the FERC issued a New England Transmission Owners base ROE order that addressed the D.C. Circuit’s actions on Opinion No. 531. Under a new proposed two step ROE approach, the FERC has indicated an intention to dismiss an ROE complaint if the existing ROE falls within the range of just and reasonable ROEs based on equal weighting of the DCF, CAPM, and Expected Earnings models. The FERC proposes that if necessary, it would then set a new ROE by averaging the results of these models plus a Risk Premium model.
With respect to the MISO TOs, the FERC subsequently made preliminary determinations in a November 2018 order that the MISO base ROE in effect for the first complaint period (12.38%) was outside the range of reasonableness, and should be reduced. The FERC indicated its preliminary analysis using the new ROE approach resulted in a base ROE of 10.28% for the first compliant period, compared to the previously ordered base ROE of 10.32%. A procedural schedule has been set for the first half of 2019, with the FERC expected to act no earlier than the second half of 2019. NSP-Minnesota has recognized a current refund liability consistent with its best estimate of the final ROE.
Environmental
New and changing federal and state environmental mandates can create financial liabilities for NSP-Wisconsin, which are normally recovered through the regulated rate process.
Site Remediation Various federal and state environmental laws impose liability where hazardous substances or other regulated materials have been released to the environment. NSP-Wisconsin may sometimes pay all or a portion of the cost to remediate sites where past activities of NSP-Wisconsin’s predecessors or other parties have caused environmental contamination. Environmental contingencies could arise from various situations, including sites of former MGPs; and third-party sites, such as landfills, for which NSP-Wisconsin is alleged to have sent wastes to that site.
MGP Sites
Ashland MGP Site — NSP-Wisconsin was named a responsible party for contamination at the Ashland/Northern States Power Lakefront Superfund Site (the Site) in Ashland, Wisconsin. Remediation and restoration activities are anticipated to be completed in 2019 and groundwater treatment activities at the Site will continue for many years.
Current cost estimate for the remediation of the entire site is approximately $192 million, of which approximately $165 million has been spent. As of Dec. 31, 2018 and 2017, NSP-Wisconsin had recorded a total liability of $27 million and $30 million, respectively, for the entire site.
NSP-Wisconsin has deferred the unrecovered portion of the estimated Site remediation costs as a regulatory asset. The PSCW has authorized NSP-Wisconsin rate recovery for all remediation costs incurred at the Site. In 2012, the PSCW agreed to allow NSP-Wisconsin to pre-collect certain costs, to amortize costs over a 10-year period and to apply a 3% carrying cost to the unamortized regulatory asset.
MGP, Landfill or Disposal Sites NSP-Wisconsin is currently investigating or remediating two MGP, landfill or other disposal sites across its service territories, in addition to the Ashland MGP Site, and these activities will continue through at least 2019. NSP-Wisconsin accrued $1.7 million as of Dec. 31, 2018, and $0.1 million as of Dec. 31, 2017 for these sites. There may be insurance recovery and/or recovery from other potentially responsible parties, offsetting some portion of costs incurred.
Environmental Requirements — Water and Waste
Federal CWA WOTUS Rule In 2015, the EPA and Corps published a final rule that significantly broadened the scope of waters under the CWA that are subject to federal jurisdiction, referred to as “WOTUS”. The Rule has been subject to significant litigation and is currently stayed in a portion of the country. NSP-Wisconsin cannot estimate potential impacts until the legal and administrative processes are finalized, but expects costs will be recoverable through regulatory mechanisms.
Federal CWA Section 316(b) — The federal CWA requires the EPA to regulate cooling water intake structures to assure that these structures reflect the best technology available for minimizing impingement and entrainment of aquatic species. NSP-Wisconsin estimates the likely cost for complying with impingement requirements is approximately $4 million, to be incurred between 2019 and 2028, while the total cost of entrainment improvements is anticipated to be immaterial. NSP-Wisconsin believes two plants could be required by state regulators to make improvements to reduce entrainment. NSP-Wisconsin anticipates these costs will be fully recoverable through regulatory mechanisms.
AROs AROs have been recorded for NSP-Wisconsin’s assets.
NSP-Wisconsin’s AROs were as follows:
 
 
Dec. 31, 2018
(Millions of Dollars)
 
Jan. 1, 2018
 
Accretion
 
Cash Flow Revisions (a)
 
Dec. 31, 2018 (b)
Electric
 
 
 
 
 
 
 
 
Distribution
 
$

 
$

 
$
4.6

 
$
4.6

Steam production
 
3.7

 
0.1

 

 
3.8

Miscellaneous
 
0.4

 

 

 
0.4

Natural gas
 
 
 
 
 
 
 
 
Distribution
 
10.3

 
0.4

 
(1.6
)
 
9.1

Total liability (c)
 
$
14.4

 
$
0.5

 
$
3.0

 
$
17.9

(a) 
In 2018, AROs were revised for changes in timing and estimates of cash flows. Changes in gas distribution AROs were mainly related to increased gas line mileage and number of services, which were more than offset by increased discount rates. Changes in electric distribution AROs primarily related to increased labor costs.
(b) 
There were no ARO amounts incurred or settled in 2018.
(c) 
Included in other long-term liabilities balance in the consolidated balance sheet.
 
 
Dec. 31, 2017
(Millions of 
Dollars)
 
Jan. 1, 2017
 
Amounts Incurred (a)
 
Accretion
 
Cash Flow Revisions (b)
 
Dec. 31, 2017 (c)
Electric
 
 
 
 
 
 
 
 
 
 
Steam production
 
$
2.7

 
$
1.0

 
$

 
$

 
$
3.7

Miscellaneous
 
0.4

 

 

 

 
0.4

Natural gas
 
 
 
 
 
 
 
 
 
 
Distribution
 
8.3

 

 
0.3

 
1.7

 
10.3

Total liability (d)
 
$
11.4

 
$
1.0

 
$
0.3

 
$
1.7

 
$
14.4

(a) 
Amounts incurred related to asbestos at the French Island plant.
(b) 
Changes in gas distribution AROs were primarily related to increased labor costs.
(c) 
There were no ARO amounts settled in 2017.
(d) 
Included in other long-term liabilities balance in the consolidated balance sheet.
Indeterminate AROs — Outside of the recorded asbestos AROs, other plants or buildings may contain asbestos due to the age of many of NSP-Wisconsin’s facilities, but no confirmation or measurement of the cost of removal could be determined as of Dec. 31, 2018. Therefore, an ARO has not been recorded for these facilities.
Removal Costs — NSP-Wisconsin records a regulatory liability for the plant removal costs that are recovered currently in rates. These removal costs have accumulated based on varying rates as authorized by the appropriate regulatory entities. NSP-Wisconsin has estimated the amount of removal costs accumulated through historic depreciation expense based on current factors used in the existing depreciation rates. Removal costs as of Dec. 31, 2018 and 2017 were $158 million and $146 million, respectively.
Joint Operating System The electric production and transmission system of NSP-Wisconsin is managed as the NSP System. The electric production and transmission costs of the entire NSP System are shared by NSP-Minnesota and NSP-Wisconsin. A FERC approved agreement between the two companies, called the Interchange Agreement, provides for the sharing of all costs of generation and transmission facilities of the system, including capital costs. Such costs include current and potential obligations of NSP-Minnesota related to its nuclear generating facilities.
NSP-Minnesota’s public liability for claims from any nuclear incident is limited to $14.1 billion under the Price-Anderson amendment to the Atomic Energy Act. NSP-Minnesota has secured $450.0 million of coverage for its public liability exposure with a pool of insurance companies. The remaining $13.6 billion of exposure is funded by the Secondary Financial Protection Program, available from assessments by the federal government in case of a nuclear incident. NSP-Minnesota is subject to assessments of up to $137.6 million per reactor-incident for each of its three licensed reactors, for public liability arising from a nuclear incident at any licensed nuclear facility in the United States. The maximum funding requirement is $20.5 million per reactor-incident during any one year. These maximum assessment amounts are both subject to inflation adjustment by the NRC and state premium taxes. The NRC’s last adjustment was effective November 2018.
NSP-Minnesota purchases insurance for property damage and site decontamination cleanup costs from NEIL and EMANI. The coverage limits are $2.3 billion for each of NSP-Minnesota’s two nuclear plant sites. NEIL also provides business interruption insurance coverage, including the cost of replacement power obtained during certain prolonged accidental outages of nuclear generating units. Premiums are expensed over the policy term.
All companies insured with NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. Capital has been accumulated in the reserve funds of NEIL and EMANI to the extent that NSP-Minnesota would have no exposure for retroactive premium assessments in case of a single incident under the business interruption and the property damage insurance coverage. NSP-Minnesota could be subject to annual maximum assessments of approximately $18.0 million for business interruption insurance and $39.0 million for property damage insurance if losses exceed accumulated reserve funds.
Leases — NSP-Wisconsin leases a variety of equipment and facilities. These leases, primarily for office space, vehicles, aircraft and power-operated equipment, are accounted for as operating leases.
Total expenses under operating lease obligations for NSP-Wisconsin for the year ended Dec. 31:
(Millions of Dollars)
 
2018
 
2017
 
2016
Total expense
 
$
1.3

 
$
1.2

 
$
1.2


Future commitments under operating leases are:
(Millions of Dollars)
 
 
2019
 
$
1.0

2020
 
0.9

2021
 
0.8

2022
 
0.8

2023
 
0.8

Thereafter
 
3.8

Total
 
$
8.1

Fuel Contracts — NSP-Wisconsin has entered into various long-term commitments for the purchase and delivery of a significant portion of its coal and natural gas requirements. These contracts expire between 2019 and 2029. NSP-Wisconsin is required to pay additional amounts depending on actual quantities shipped under these agreements.
As NSP-Wisconsin does not have an automatic electric fuel adjustment clause for Wisconsin retail customers, NSP-Wisconsin utilizes deferred accounting treatment for future rate recovery or refund when fuel costs differ from the amount included in rates by more than 2% on an annual basis, as determined by the PSCW after an opportunity for a hearing and an earnings test based on NSP-Wisconsin’s authorized ROE.
Estimated minimum purchases under these contracts as of Dec. 31, 2018:
(Millions of Dollars)
 
Coal
 
Natural gas
supply
 
Natural gas
storage and
transportation
2019
 
$
6.1

 
$
9.9

 
$
13.4

2020
 
2.3

 
0.3

 
11.8

2021
 
0.6

 
0.4

 
11.3

2022
 
0.7

 
0.2

 
9.7

2023
 
0.7

 

 
7.9

Thereafter
 

 

 
24.3

Total (a)
 
$
10.4

 
$
10.8

 
$
78.4


(a) 
Excludes additional amounts allocated to NSP-Wisconsin through intercompany charges.
Additional expenditures for fuel and natural gas storage and transportation will be required to meet expected future electric generation and natural gas needs.
VIEs — NSP-Wisconsin has entered into limited partnerships for the construction and operation of affordable rental housing developments which qualify for low-income housing tax credits. NSP-Wisconsin has determined the low-income housing partnerships to be VIEs primarily due to contractual arrangements within each limited partnership that establishes sharing of ongoing voting control and profits and losses that do not align with the partners’ proportional equity ownership. NSP-Wisconsin has the power to direct the activities that most significantly impact these entities’ economic performance. Therefore, NSP-Wisconsin consolidates these limited partnerships in its consolidated financial statements. NSP-Wisconsin’s risk of loss for these partnerships is limited to its capital contributions, adjusted for any distributions and its share of undistributed profits and losses; no significant additional financial support has been, or is required to be provided to the limited partnerships by NSP-Wisconsin.
Amounts reflected in NSP-Wisconsin’s consolidated balance sheets for low-income housing limited partnerships include the following:
(Millions of Dollars)
 
Dec. 31, 2018
 
Dec. 31, 2017
Current assets
 
$
0.3

 
$
0.4

Property, plant and equipment, net
 
0.9

 
1.9

Other noncurrent assets
 
0.1

 
0.1

Total assets
 
$
1.3

 
$
2.4

 
 
 
 
 
Current liabilities
 
$

 
$
1.2

Mortgages and other long-term debt payable
 
0.5

 
0.5

Other noncurrent liabilities
 

 
0.1

Total liabilities
 
$
0.5

 
$
1.8

Guarantees — NSP-Wisconsin provides a guarantee for payment of customer loans related to NSP-Wisconsin’s farm rewiring program. NSP-Wisconsin’s exposure under the guarantee is based upon the net liability under the agreement. The guarantee issued by NSP-Wisconsin limits the exposure of NSP-Wisconsin to a maximum amount stated in the guarantee. The guarantee contains no recourse provisions and requires no collateral.
The following table presents the guarantee issued and outstanding for NSP-Wisconsin:
(Millions of Dollars)
 
Guarantor
 
Guarantee
Amount
 
Current
Exposure
 
Triggering
Event
Guarantee of customer loans for the Farm Rewiring Program(a)
 
NSP-Wisconsin
 
$
1.0

 
$

 
(b) 
(a) 
The term of this guarantee expires in 2020, which is the final scheduled repayment date for the loans. As of Dec. 31, 2018, no claims had been made by the lender.
(b) 
The debtor becomes the subject of bankruptcy or other insolvency proceedings.