Contingencies and Regulatory Matters

9 Months Ended

Sep. 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.

  Westinghouse Electric Company LLC and Stone & Webster, Inc., together, the "Contractor," and the Co-owners have established both informal and formal dispute resolution procedures in accordance with the Engineering, Procurement and Construction Contract for 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. When matters are not resolved through these procedures, the parties may proceed to litigation. The Contractor and the Co-owners are involved in litigation with respect to certain claims that have not been resolved through the formal dispute resolution process.

  During the course of construction activities, issues have arisen that may impact the project budget and schedule. The most significant issues relate to costs associated with design changes to the Westinghouse AP1000 Design Control Document (DCD), and costs associated with delays in the project schedule related to the timing of approval of the DCD and issuance of the combined construction permits and operating licenses by the Nuclear Regulatory Commission. Georgia Power, on behalf of the Co-owners, and the Contractor are negotiating these issues, including the assertion by the Contractor that the Co-owners are responsible for these costs under the terms of the contract. Through correspondence sent to the Co-owners, the Contractor provided its proposed adjustment to the contract price and, based on our ownership interest, the Contractor's estimated adjustment attributable to us is approximately $280 million in 2008 dollars with respect to these issues. Georgia Power, on behalf of the Co-owners, has not agreed with the amount of these proposed adjustments or that the Co-owners have responsibility for any costs related to these issues. On November 1, 2012, the Co-owners filed suit against the Contractor in the U.S. District Court for the Southern District of Georgia, seeking a declaratory judgment that the Co-owners are not responsible for the costs related to these issues. Also on November 1, 2012, the Contractor filed suit against the Co-owners in the U.S. District Court for the District of Columbia, alleging the Co-owners are responsible for the costs related to these issues and seeking payment from the Co-owners for the full amount of these costs. While the litigation has commenced, Georgia Power expects negotiations with the Contractor to continue with respect to cost and schedule during which time the parties will attempt to reach a mutually acceptable compromise of their positions. Georgia Power and the Co-owners intend to vigorously defend their positions. If these costs are ultimately imposed upon the Co-owners, we will capitalize the costs attributable to us. As of September 30, 2012, no material amounts have been recorded related to this claim. Additional claims by the Contractor or Georgia Power, on behalf of the Co-owners, are expected to arise throughout the construction of Vogtle Units No. 3 and No. 4.

  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.