Contingencies and Regulatory Matters

6 Months Ended

Jun. 30, 2012

Contingencies and Regulatory Matters

Contingencies and Regulatory Matters

(G)

Contingencies and Regulatory Matters.

• Nuclear Construction

  We, along with Georgia Power, the Municipal Electric Authority of Georgia and the City of Dalton, the "Co-owners," are participating in the construction of two Westinghouse AP1000 nuclear generating units at Plant Vogtle, each with a nominally rated generating capacity of approximately 1,100 megawatts. Our ownership interest is 30%, representing 660 megawatts of total capacity.

  The Co-owners, Westinghouse Electric Company LLC and Stone & Webster, Inc., the "Contractor," have established both informal and formal dispute resolution procedures in accordance with the Engineering, Procurement and Construction Contract to design, engineer, procure, construct, and test Vogtle Units No. 3 and No. 4 in order to resolve issues arising during the course of constructing a project of this magnitude. Georgia Power, on behalf of the Co-owners, and the Contractor have successfully initiated both formal and informal claims through these procedures, including ongoing claims, to resolve disputes and expect to resolve any existing and future disputes. When matters are not resolved through these procedures, the parties may proceed to litigation. The Contractor and Georgia Power, on behalf of the Co-owners, are involved in litigation with respect to certain claims that have not been resolved through the formal dispute resolution process.

  The ultimate outcome of these matters cannot be determined at this time.

  Environmental Matters

  As is typical for electric utilities, we are subject to various federal, state and local air and water quality requirements which, among other things, regulate emissions of pollutants, such as particulate matter, sulfur dioxide, nitrogen oxides and mercury into the air and discharges of other pollutants, including heat, into waters of the United States, which represent significant future risks and uncertainties. We are also subject to climate change regulations that impose restrictions on emissions of greenhouse gases, including carbon dioxide, for certain new and modified facilities. Finally, we are subject to federal, state and local waste disposal requirements that regulate the manner of transportation, storage and disposal of various types of waste.

  In general, environmental requirements are becoming increasingly stringent. Any new requirements in the future but not in existence now may substantially increase the cost of electric service by requiring changes in the design or operation of existing facilities or changes or delays in the location, design, construction or operation of new facilities. Failure to comply with any new requirements could result in the imposition of civil and criminal penalties as well as the complete shutdown of individual generating units not in compliance. Certain of our debt instruments and credit agreements require us to comply in all material respects with laws, rules, regulations and orders imposed by applicable governmental authorities, which include current or future environmental laws and regulations. We believe that we are in compliance with those environmental regulations currently applicable to our business and operations. Should we fail to be in compliance with these requirements, or any new requirements, it would constitute a default under such debt instruments and credit agreements. Although it is our intent to comply with applicable current and future regulations, we cannot provide assurance that we will always be in compliance with such requirements.

  At this time, the ultimate impact of any new and more stringent environmental regulations described above is uncertain and could have an effect on our financial condition, results of operations and cash flows as a result of future additional capital expenditures and increased operations and maintenance costs.

  We are currently not subject to any environmental loss contingencies for which we believe it is probable or reasonably possible that a loss has been incurred that would be material to our financial position, results of operations or cash flows.