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Commitments and Contingencies | 12 Months Ended
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Sep. 30, 2011
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Commitments At September 30, 2011, the amounts of contractual cash commitments maturing in each of the next five years and beyond are shown below:
Commitments and Contingencies Payments due in the year ending September 30
|  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | Thereafter |  | Total
Debt(1) |  | $ | 2,019 |  |  | $ | 2,308 |  |  | $ | 32 |  |  | $ | 1,032 |  |  | $ | 32 |  |  | $ | 19,236 |  |  | $ | 24,659 |
Lease obligations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capital |  | 6 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3 |  |  | 9 |
Non-cancelable operating |  | 74 |  |  | 59 |  |  | 34 |  |  | 24 |  |  | 24 |  |  | 147 |  |  | 362 |
Purchase obligations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Power |  | 223 |  |  | 158 |  |  | 158 |  |  | 161 |  |  | 168 |  |  | 4,212 |  |  | 5,080 |
Fuel |  | 1,856 |  |  | 1,502 |  |  | 1,252 |  |  | 1,205 |  |  | 760 |  |  | 1,942 |  |  | 8,517 |
Other |  | 109 |  |  | 73 |  |  | 62 |  |  | 58 |  |  | 57 |  |  | 574 |  |  | 933 |
Payments on other financings |  | 138 |  |  | 488 |  |  | 100 |  |  | 104 |  |  | 104 |  |  | 609 |  |  | 1,543 |
Total |  | $ | 4,425 |  |  | $ | 4,588 |  |  | $ | 1,638 |  |  | $ | 2,584 |  |  | $ | 1,145 |  |  | $ | 26,723 |  |  | $ | 41,103 |
Note (1) Does not include noncash items of foreign currency exchange loss of $7 million and net discount on sale of Bonds of $235 million.
In addition to the cash requirements, above, TVA has contractual obligations in the form of revenue discounts related to energy prepayments. See Note 1 — Energy Prepayment Obligations and Discounts on Sales.
Energy Prepayment Obligations
|  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | Thereafter |  | Total
Energy Prepayment Obligations |  | $ | 105 |  |  | $ | 102 |  |  | $ | 100 |  |  | $ | 100 |  |  | $ | 100 |  |  | $ | 210 |  |  | $ | 717 |
Debt. At September 30, 2011, TVA had outstanding discount notes of $482 million and long-term debt (including current maturities) at varying maturities and interest rates of $23.9 billion for total outstanding indebtedness of $24.4 billion. See Note 11. Leases. TVA leases certain property, plant, and equipment under agreements with terms ranging from one to 80 years. Of the total obligations for TVA’s capital leases, $2 million represents the cost of financing. TVA’s rental expense for operating leases was $77 million in 2011, $57 million in 2010, and $62 million in 2009. Power Purchase Obligations. TVA has contracted with various independent power producers and power distributor customers for additional capability to be made available to TVA. In total, these agreements provide 2,442 MW of summer net capability. The remaining terms of the agreements range from three months to 20 years. The total financial commitment for these non-renewable power supply contracts is approximately $5.1 billion. TVA spent $713 million, $504 million, and $370 million under power purchase agreements during 2011, 2010, and 2009, respectively. Costs under TVA’s power purchase agreements are included in the Statements of Operations for 2011, 2010, and 2009 as purchased power expense and are expensed as incurred. Under federal law, TVA is obligated to purchase power from qualifying facilities, cogenerators, and small power producers. At September 30, 2011, there was a combined qualifying capacity of 914 MW, from five different suppliers, from which TVA purchased power under this law. TVA’s obligations to purchase power from these qualifying facilities are not included in the Commitments and Contingencies table. TVA, along with others, contracted with the Southeastern Power Administration (“SEPA”) to obtain power from eight U.S. Army Corps of Engineers hydroelectric facilities on the Cumberland River system. The agreement with SEPA can be terminated upon three years’ notice, but this notice of termination may not become effective prior to June 30, 2017. The contract requires SEPA to provide TVA an annual minimum of 1,500 hours of power for each megawatt of TVA’s 405 MW allocation, and all surplus power from the Cumberland River system. Because hydroelectric production has been reduced at two of the hydroelectric facilities on the Cumberland River system and because of reductions in the summer stream flow on the Cumberland River, SEPA declared “force majeure” on February 25, 2007. SEPA then instituted an emergency operating plan that, among other things, eliminates SEPA’s obligation to provide TVA and other affected customers with a minimum amount of power. It is unclear how long the emergency operating plan will remain in effect. TVA’s obligations under its contract with SEPA are not included in the Commitments and Contingencies table. Fuel Purchase Obligations. TVA has approximately $4.9 billion in long-term fuel purchase commitments ranging in terms of up to 11 years primarily for the purchase and transportation of coal. TVA also has approximately $3.6 billion of long-term commitments ranging in terms of up to 19 years for the purchase of enriched uranium and fabrication of nuclear fuel assemblies. Other Obligations. Other obligations of $933 million consist of contracts as of September 30, 2011, for goods and services primarily related to capital projects as well as other major recurring operating costs. Contingencies Nuclear Insurance. The Price-Anderson Act provides a layered framework of protection to compensate for losses arising from a nuclear event in the United States. For the first layer, all the NRC nuclear plant licensees, including TVA, purchase $375 million of nuclear liability insurance from American Nuclear Insurers for each plant with an operating license. Funds for the second layer, the Secondary Financial Program, would come from an assessment of up to $118 million from the licensees of each of the 104 NRC licensed reactors in the United States. The assessment for any nuclear accident would be limited to $18 million per year per unit. American Nuclear Insurers, under a contract with the NRC, administers the Secondary Financial Program. With its six licensed units, TVA could be required to pay a maximum of $705 million per nuclear incident, but it would have to pay no more than $105 million per incident in any one year. When the contributions of the nuclear plant licensees are added to the insurance proceeds of $375 million, over $12 billion, including a five percent surcharge for legal expenses, would be available. Under the Price-Anderson Act, if the first two layers are exhausted, the U.S. Congress is required to take action to provide additional funds to cover the additional losses. TVA carries property, decommissioning, and decontamination insurance of $4.6 billion for its licensed nuclear plants, with up to $2.1 billion available for a loss at any one site, to cover the cost of stabilizing or shutting down a reactor after an accident. Some of this insurance, which is purchased from Nuclear Electric Insurance Limited (“NEIL”), may require the payment of retrospective premiums up to a maximum of approximately $73 million. TVA purchases accidental outage (business interruption) insurance for TVA’s nuclear sites from NEIL. In the event that an accident covered by this policy takes a nuclear unit offline or keeps a nuclear unit offline, NEIL will pay TVA, after a waiting period, an indemnity (a set dollar amount per week) up to a maximum indemnity of $490 million per unit. This insurance policy may require the payment of retrospective premiums up to a maximum of approximately $30 million. Decommissioning Costs. TVA recognizes legal obligations associated with the future retirement of certain tangible long-lived assets related primarily to coal-fired generating plants and nuclear generating plants, hydroelectric generating plants/dams, transmission structures, and other property-related assets. Nuclear. Provision for decommissioning costs of nuclear generating units is based on options prescribed by the NRC procedures to dismantle and decontaminate the facilities to meet the NRC criteria for license termination. At September 30, 2011, the present value under GAAP of the estimated future decommissioning cost of $2.1 billion was included in AROs. The actual decommissioning costs may vary from the derived estimates because of, among other things, changes in current assumptions, such as the assumed dates of decommissioning, changes in regulatory requirements, changes in technology, and changes in the cost of labor, materials, and equipment. Utilities that own and operate nuclear plants are required to use different procedures in calculating nuclear decommissioning costs under GAAP than those that are used in calculating nuclear decommissioning costs when reporting to the NRC. The two sets of procedures produce different estimates for the costs of decommissioning primarily because of the difference in the discount rates used to calculate the present value of decommissioning costs. TVA maintains a NDT to provide funding for the ultimate decommissioning of its nuclear power plants. The balance at September 30, 2011, was less than the present value of the estimated future nuclear decommissioning costs under the NRC methodology and under GAAP. TVA monitors the monetary value of its NDT and believes that, over the long term and before cessation of nuclear plant operations and commencement of decommissioning activities, adequate funds from investments will be available to support decommissioning. TVA’s nuclear power units are currently authorized to operate until 2020-2036, depending on the unit. It may be possible to extend the operating life of some of the units with approval from the NRC. See Note 7 — Nuclear Decommissioning Costs and Note 10. Non-Nuclear Decommissioning. The present value of the estimated future non-nuclear decommissioning cost was $1.0 billion at September 30, 2011. This decommissioning cost estimate involves estimating the amount and timing of future expenditures and making judgments concerning whether or not such costs are considered a legal obligation. Estimating the amount and timing of future expenditures includes, among other things, making projections of the timing and duration of the asset retirement process and how costs will escalate with inflation. The actual decommissioning costs may vary from the derived estimates because of changes in current assumptions, such as the assumed dates of decommissioning, changes in regulatory requirements, changes in technology, and changes in the cost of labor, materials, and equipment. TVA maintains an ART to help fund the ultimate decommissioning of its power assets. Estimates involved in determining if additional funding will be made to the ART include inflation rate and rate of return projections on the fund investments. See Note 7 — Non-Nuclear Decommissioning Costs and Note 10. Environmental Matters. TVA’s power generation activities, like those across the utility industry and in other industrial sectors, are subject to most federal, state, and local environmental laws and regulations. Major areas of regulation affecting TVA’s activities include air quality control, water quality control, and management and disposal of solid and hazardous wastes. In the future, regulations in all of these areas are expected to become more stringent. Regulations are also expected to apply to new emissions and sources, with a particular emphasis on climate change, renewable generation, and energy efficiency. TVA has incurred, and expects to continue to incur, substantial capital and operating and maintenance costs to comply with evolving environmental requirements primarily associated with, but not limited to, the operation of TVA’s coal-fired generating units. It is virtually certain that environmental requirements placed on the operation of TVA’s coal-fired and other generating units will continue to become more restrictive and potentially apply to new emissions and sources. Litigation over emissions from coal-fired generating units is also occurring, including litigation against TVA. Failure to comply with environmental and safety laws can result in TVA being subject to enforcement actions, which can lead to the imposition of significant civil liability, including fines and penalties, criminal sanctions, and/or the shutting down of non-compliant facilities. From 1977 to 2011, TVA spent approximately $5.4 billion to reduce emissions from its power plants, including $34 million, $58 million, and $172 million in 2011, 2010, and 2009, respectively. TVA estimates that compliance with future Clean Air Act ("CAA") requirements (excluding greenhouse gas ("GHG") requirements) could lead to additional costs of $3.4 billion from 2012 to 2018. There could be additional material costs if reductions of GHGs, including carbon dioxide ("CO 2"), are mandated under the CAA or by legislation, or if future legislative, regulatory, or judicial actions lead to more stringent emission reduction requirements for conventional pollutants. These costs cannot reasonably be predicted at this time because of the uncertainty of such potential actions. Liability for releases and cleanup of hazardous substances is primarily regulated by the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), and other federal and parallel state statutes. In a manner similar to many other industries and power systems, TVA has generated or used hazardous substances over the years. TVA is aware of alleged hazardous-substance releases at eight non-TVA areas for which it may have some liability. There is little or no known evidence that TVA contributed any significant quantity of hazardous substances to six of the non-TVA areas. There is evidence that TVA sent some materials to the remaining two non-TVA sites: the David Witherspoon site in Knoxville, Tennessee, and the Ward Transformer site in Raleigh, North Carolina. David Witherspoon Site. The David Witherspoon site in Knoxville, Tennessee, was contaminated with radionuclides, polychlorinated biphenyls (“PCBs”), and metals. The DOE admitted to being the main contributor of materials to the site and cleaned the site up at a reported cost of about $35 million. The DOE asked TVA to “cooperate” in completing the cleanup, but TVA believes it sent only a relatively small amount of equipment and that none of it was radioactive. TVA therefore believes its liability for these cleanup costs is limited. Ward Transformer Site. The Ward Transformer site in Raleigh, North Carolina, is contaminated by PCBs from electrical equipment. There is documentation showing that TVA sent a limited amount of electrical equipment containing PCBs to the site in 1974. A working group of potentially responsible parties (the “PRP Work Group”) is cleaning up on-site contamination in accordance with an agreement with the EPA. The cleanup effort has been divided into four areas: two phases of soil cleanup; cleanup of off-site contamination in the downstream drainage basin; and supplemental groundwater remediation. The cost estimate for the first phase of soil cleanup is approximately $55 million. The cost estimate for the second phase of soil cleanup is $10 million. Estimates for cleanup of off-site contamination in the downstream drainage basin range from $6 million to $25 million. There are no reliable estimates for the supplemental groundwater remediation phase. On April 30, 2009, the PRP Work Group filed an amended complaint in federal court against potentially responsible parties who had not yet settled, including TVA, regarding the two phases of soil cleanup. TVA settled this lawsuit and its potential liability for the two phases of soil cleanup for $300 thousand and has been dismissed as a party. Although the settlement with respect to the first two phases does not prohibit TVA from having liability in connection with the other two phases or any natural resource damages, the U.S. Department of Justice is attempting to negotiate a government-wide settlement of the liability of all federal agencies (including TVA) for cleanup of offsite contamination in the downstream drainage basin and the investigative portion of the supplemental groundwater remediation. TVA operations at some TVA facilities have resulted in oil spills and other contamination that TVA is addressing. At September 30, 2011, TVA’s estimated liability for cleanup and similar environmental work for those sites for which sufficient information is available to develop a cost estimate (primarily the TVA sites) is approximately $22 million on a non-discounted basis and was included in Other liabilities on the balance sheet. Legal Proceedings From time to time, TVA is a party to lawsuits, claims, proceedings, investigations, and other legal matters ("Legal Proceedings") that have arisen in the ordinary course of conducting TVA’s activities, as a result of a catastrophic event or otherwise. General. TVA had accrued approximately $391 million of potential losses with respect to Legal Proceedings through September 30, 2011. Of this amount, $346 million is included in Other long-term liabilities, $35 million is included in Accounts payable and accrued liabilities, and $10 million is included in regulatory assets. No assurance can be given that TVA will not be subject to significant additional claims and liabilities. If actual liabilities significantly exceed the estimates made, TVA’s results of operations, liquidity, and financial condition could be materially adversely affected. Environmental Agreements. On April 14, 2011, TVA entered into two agreements. The first agreement is a Federal Facilities Compliance Agreement with the EPA . The second agreement is with Alabama, Kentucky, North Carolina, Tennessee, and three environmental advocacy groups: the Sierra Club, National Parks Conservation Association, and Our Children’s Earth Foundation. The two agreements (collectively, the "Environmental Agreements”) are substantially the same and are parts of a collective undertaking and are described below. Under the Environmental Agreements:
• | Most existing and possible claims against TVA based on alleged NSR and associated violations are waived and cannot be brought against TVA. Some possible claims for sulfuric acid mist and GHG emissions can still be brought against TVA. Additionally, the agreements do not address compliance with new laws and regulations or the cost associated with such compliance.
• | The EPA generally will not enforce NSR requirements for new plant maintenance, repair, and component replacement projects against TVA until 2019. Possible claims for NSR violations involving increases in GHG and sulfuric acid mist from projects can still be pursued in the future. Claims for increases in particulates also can be pursued except at TVA’s Allen Fossil Plant ("Allen"), Bull Run Fossil Plant (“Bull Run”), Kingston, and Gallatin Fossil Plant ("Gallatin") and Unit 5 at TVA’s Colbert Fossil Plant ("Colbert").
• | TVA commits to retiring on a phased schedule two units at John Sevier, the six small units at Widows Creek Fossil Plant, and 10 units at Johnsonville. This is a total of approximately 2,700 MW (nameplate capacity) or 2,200 MW (summer net dependable capability). The majority of these retirement costs have been previously included in the ARO liability. Further, the depreciation expense related to these facilities was changed beginning in April 2011 in order to depreciate the assets over their remaining useful lives.
• | Of the remaining 5,600 MW (nameplate capacity) or 4,500 MW (summer net dependable capability) coal-fired fleet capacity that is not already fully equipped with advanced SO 2 or NO x controls, TVA must decide whether to control, convert, or retire 4,300 MW (nameplate capacity) or 3,500 MW (summer net dependable capability) on a unit by unit schedule which can extend until 2019.
• | Annual, declining emission caps are set for SO 2 and NO x.
• | TVA, with EPA approval, will invest $290 million in energy efficiency projects, demand response projects, renewable energy projects, and other TVA projects by approximately June 2016.
• | TVA will provide Alabama, Kentucky, North Carolina, and Tennessee a total of $60 million in annual installments from 2011 through 2016 to fund environmental projects, giving a preference for projects in the Tennessee River watershed or service area, $4 million of which was paid in 2011.
• | The civil penalties of $10 million were paid in July 2011 and expensed during the year ended September 30, 2011. The civil penalty was divided among the EPA, Alabama, Kentucky, and Tennessee.
Failure to comply with the terms of the Environmental Agreements would subject TVA to penalties stipulated in these agreements. TVA is taking actions necessary to comply with the Environmental Agreements. The liabilities related to the Environmental Agreements detailed above are included in Other long-term liabilities on the September 30, 2011 Balance Sheet. In conjunction with the approval of the Environmental Agreements, the TVA Board determined that it was appropriate to record the amounts detailed above as regulatory assets, and they are included as such on the September 30, 2011 Balance Sheet and will be recovered in rates in future periods. The agreement with the EPA became effective on June 13, 2011. The United States District Court for the Eastern District of Tennessee (“Eastern District of Tennessee”) entered the second agreement on June 30, 2011. In connection with the Environmental Agreements, the following legal and administrative clean air proceedings discussed below are expected to be narrowed in scope:
• | The Proceeding Involving the John Sevier CAA Permit, and
• | The Proceeding Involving the Shawnee Fossil Plant (“Shawnee”) CAA Permit.
Additionally, the following legal and administrative clean air proceedings have already been terminated in connection with the Environmental Agreements:
• | The Case Involving Alleged Violations of New Source Review Regulations at Bull Run,
• | The Case Brought by North Carolina Alleging Public Nuisance, and
• | The Proceeding Involving the Paradise Fossil Plant (“Paradise”) CAA Permit.
Legal Proceedings Related to the Kingston Ash Spill. Sixty lawsuits based on the Kingston ash spill have been filed in the Eastern District of Tennessee. Fifteen of these actions have been dismissed. The lawsuits, filed by residents, businesses, and property owners in the Kingston area, allege various causes of action in tort – including nuisance, strict liability, personal injury, and property damage – as well as inverse condemnation, and generally seek unspecified compensatory and punitive damages, court orders to clean up the plaintiffs’ properties and surrounding properties, and other relief. Three of the four actions seeking class certification have been voluntarily consolidated in Chesney and the fourth action seeking class certification, Mays, has been voluntarily dismissed. The court has denied the request for class certification. TVA is the sole defendant in all actions, since the two non-TVA defendants in Chesney have been dismissed. On March 26, 2010, the court issued a decision finding (1) the discretionary function doctrine is applicable to TVA’s ash pond design decisions and its spill response activities, (2) plaintiffs cannot recover punitive damages against TVA, and (3) plaintiffs have no right to a jury trial against TVA. The court denied TVA’s motions with regard to plaintiffs’ tort claims concerning TVA's maintenance and upkeep of the ash pond, along with the inverse condemnation claims raised by certain plaintiffs. On March 22, 2011, the court issued decisions on two motions filed by TVA. With respect to the TVA motions, the court held that (1) a plaintiff could not bring a claim for TVA’s allegedly having caused a nuisance with regard to property if the plaintiff did not have a valid property interest in that property and (2) a plaintiff who filed for bankruptcy after bringing suit against TVA but did not include the suit in the bankruptcy proceeding was barred from pursuing the suit against TVA. On March 24, 2011, the court issued a decision which granted TVA’s motion for summary judgment on any claim related to activities the court had previously ruled as being protected by the discretionary function doctrine (ash pond design and spill response activities). The court denied TVA’s motion with regard to any alleged failures to adequately inform or train personnel in applicable policies or procedures or negligent maintenance. The court also held that while TVA’s design and construction decisions concerning the ash pond were protected by the discretionary function doctrine, the court would not grant summary judgment on claims related to alleged negligence in carrying out such design and construction decisions. On April 19, 2011, plaintiffs in one of the lawsuits requested permission from the court to file an amended complaint which asserts only claims based on alleged property damage, including nuisance and trespass. The court allowed the amended complaint, and the case with regard to these plaintiffs will proceed on the property damage claims and not on any personal injury or related claims, including requests for medical monitoring. On August 2, 2011, the court granted summary judgment in favor of TVA on plaintiffs’ personal injury, emotional distress, and inverse condemnation claims. The court denied summary judgment on the trespass, nuisance, and property injury claims. Trial on the issue of causation took place in the seven earliest filed cases from September 15 to October 12, 2011. A decision is expected sometime in the spring or summer of 2012. The court held a proceeding involving 38 of the remaining cases on November 1, 2011. In this proceeding, the court entered a stipulation that the evidence introduced in the previous trial on the causation issue would provide the evidence to be used in making a decision in these 38 cases. TVA has received several notices of intent to sue under various environmental statutes from both individuals and environmental groups. In addition, TVA has received substantial other claims from individuals and companies allegedly affected by the ash spill and may receive additional claims or be subject to additional lawsuits. Civil Penalty and Natural Resource Damages for the Kingston Ash Spill. On June 14, 2010, TDEC issued a civil penalty order of approximately $12 million to TVA for the Kingston ash spill, citing violations of the Tennessee Solid Waste Disposal Act and the Tennessee Water Quality Control Act. Of the $12 million, TVA has already satisfied $8 million and may also be credited up to $2 million for performing environmental projects approved by TDEC. The remaining obligation will be paid in installments through July 2012. On January 24, 2011, TVA entered into a memorandum of agreement with the TDEC and the Fish and Wildlife Service establishing a process and a method for resolving the natural resource damage claim associated with the Kingston ash spill. As part of this memorandum of agreement, TVA agreed to pay $250 thousand each year for three years as a down payment on the amount of natural resource damages ultimately established. TVA is also required to reimburse TDEC and the Fish and Wildlife Service for their costs. Case Brought by North Carolina Alleging Public Nuisance. On January 30, 2006, North Carolina filed suit against TVA in the United States District Court for the Western District of North Carolina, alleging that TVA’s operation of its coal-fired power plants in Tennessee, Alabama, and Kentucky constitutes a public nuisance. On January 13, 2009, the court held that emissions from Bull Run, Kingston, and John Sevier, located in Tennessee, and Widows Creek, located in Alabama, constitute a public nuisance. TVA appealed the decision to the United States Court of Appeals for the Fourth Circuit (“Fourth Circuit”), which on July 26, 2010, reversed the holding of the district court and directed the district court to dismiss the action against TVA. In its decision, the Fourth Circuit held that (1) state laws, including nuisance laws, could not be used to bypass the regulatory structure established by Congress and the EPA for controlling emissions; (2) the district court improperly applied North Carolina law to power plants located in Alabama and Tennessee; and (3) the plant operations in Alabama and Tennessee could not be considered nuisances because both states had specifically approved these operations. North Carolina requested an en banc rehearing, but the Fourth Circuit denied this request on September 21, 2010. The district court dismissed the case with prejudice on October 1, 2010. North Carolina filed a petition for review of the Fourth Circuit’s decision with the U.S. Supreme Court on February 2, 2011. On July 22, 2011, the U.S. Supreme Court granted the parties joint motion to withdraw the petition for review, ending this case. See Environmental Agreements. Case Involving Alleged Violations of the New Source Review Regulations at Bull Run. The National Parks Conservation Association and the Sierra Club filed suit against TVA on February 13, 2001, in the Eastern District of Tennessee, alleging that TVA did not comply with the NSR requirements of the CAA when TVA repaired Bull Run. On March 31, 2010, the court ruled in TVA’s favor, holding that two maintenance projects at Bull Run fell under the exception for “routine maintenance repair and replacement” and therefore did not require NSR permits. The plaintiffs appealed this decision to the United States Court of Appeals for the Sixth Circuit (“Sixth Circuit”). On July 6, 2011, the Sixth Circuit granted the parties’ joint motion to dismiss this case. See Environmental Agreements. Case Involving Tennessee Valley Authority Retirement System. On March 5, 2010, eight current and former participants in and beneficiaries of TVARS filed suit in the United States District Court for the Middle District of Tennessee against the six then-current members of the TVARS Board. The lawsuit challenged the TVARS Board’s decision to suspend the TVA contribution requirements for 2010 through 2013, and to amend the TVARS Rules and Regulations to (1) reduce the calculation for COLA benefits for CY 2010 through CY 2013, (2) reduce the interest crediting rate for the fixed fund accounts, and (3) increase the eligibility age to receive COLAs from age 55 to 60. The plaintiffs allege that these actions violated the TVARS Board members’ fiduciary duties to the plaintiffs (and the purported class) and the plaintiffs’ contractual rights, among other claims. The plaintiffs sought, among other things, unspecified damages, an order directing the TVARS Board to rescind the amendments, and the appointment of a seventh TVARS Board member. Five of the six individual defendants filed motions to dismiss the lawsuit, while the remaining defendant filed an answer to the complaint. On July 28, 2010, TVA moved to intervene in the suit in the event it was not dismissed. On September 7, 2010, the district court dismissed the breach of fiduciary duty claim against the directors without prejudice, allowing the plaintiffs to file an amended complaint within 14 days against TVARS and TVA but not the individual directors. The plaintiffs previously had voluntarily withdrawn their constitutional claims, so the court also dismissed those claims without prejudice. The court dismissed with prejudice the plaintiffs’ claims for breach of contract, violation of the Internal Revenue Code, and appointment of a seventh TVARS Board member. On September 21, 2010, the plaintiffs filed an amended complaint against TVARS and TVA. The plaintiffs allege, among other things, violations of their constitutional rights (due process, equal protection, and property rights), violations of the Administrative Procedure Act, and breach of statutory duties owed to the plaintiffs. They seek a declaratory judgment and appropriate relief for the alleged statutory and constitutional violations and breaches of duty. TVA filed its answer to the amended complaint on December 27, 2010. A briefing schedule has been issued and final disposition motions are due in 2012. Case Arising out of Hurricane Katrina. In April 2006, TVA was added as a defendant to a class action lawsuit brought in the United States District Court for the Southern District of Mississippi by 14 Mississippi residents allegedly injured by Hurricane Katrina. The plaintiffs sued seven large oil companies and an oil company trade association, three large chemical companies and a chemical trade association, and 31 large companies involved in the mining and/or burning of coal, alleging that the defendants’ GHG emissions contributed to global warming and were a proximate and direct cause of Hurricane Katrina’s increased destructive force. Action by the United States Supreme Court on January 10, 2011, ended this case in a manner favorable to TVA. On May 27, 2011, under a Mississippi state statute that permits the re-filing of lawsuits that were dismissed on procedural grounds, the plaintiffs filed another lawsuit against the same and additional defendants, again alleging that the defendants’ greenhouse gas emissions contributed to global warming and were a proximate and direct cause of Hurricane Katrina' s increased destructive force. A number of defendants, including TVA, have filed motions to dismiss the complaint. Global Warming Cases, Southern District of New York. On July 21, 2004, two lawsuits were filed in the United States District Court for the Southern District of New York against TVA and other companies that generate power from fossil-fuel electric generating facilities alleging that global warming is a public nuisance and that CO 2 emissions from fossil-fuel electric generating facilities should be ordered abated because they contribute to causing the nuisance. The first case was filed by various states (California, Connecticut, Iowa, New Jersey, New York, Rhode Island, Vermont, and Wisconsin) and the City of New York against TVA and other power suppliers. The second case, which also alleges private nuisance, was filed against the same defendants by Open Space Institute, Inc., Open Space Conservancy, Inc., and the Audubon Society of New Hampshire. The plaintiffs seek a court order requiring each defendant to cap its CO 2 emissions and then reduce these emissions by an unspecified percentage each year for at least a decade. In September 2005, the district court dismissed both lawsuits because they raised political questions that should not be decided by the courts. The plaintiffs appealed to the United States Court of Appeals for the Second Circuit (“Second Circuit”). On September 21, 2009, the Second Circuit reversed the district court’s decision and remanded the cases to the district court for further proceedings. On November 5, 2009, TVA and the other defendants filed a petition seeking a rehearing by the entire Second Circuit, which petition was denied on March 5, 2010. On December 6, 2010, the U.S. Supreme Court granted a petition requesting that the Supreme Court review the Second Circuit’s decision. The U.S. Solicitor General filed a brief on behalf of TVA on January 31, 2011. Oral arguments were held on April 19, 2011. On June 16, 2011, the Supreme Court issued a decision reversing the Second Circuit’s ruling and holding that any federal common law cause of action was displaced by the CAA and its implementing regulations. The Supreme Court did not address the plaintiffs’ state law claims, but instead remanded the case to the Second Circuit for consideration of these claims. The Second Circuit has sent both lawsuits back to the district court for further proceedings. Case Regarding Bellefonte Nuclear Plant Units 1 and 2. On March 9, 2009, in response to a request by TVA, the NRC issued an order reinstating the construction permits for Bellefonte Units 1 and 2 and returning the Bellefonte construction permits to a terminated status. On March 30, 2009, Blue Ridge Environmental Defense League (“BREDL”) filed a petition in the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) challenging the NRC’s authority to reinstate the construction permits and alleging that the NRC failed to follow the requirements of the National Environmental Policy Act (“NEPA”). TVA was permitted to intervene in this proceeding. On June 11, 2009, the D.C. Circuit issued an order holding the case in abeyance pending further order of the court. On March 8, 2010, BREDL filed a second petition in the D.C. Circuit, again challenging the NRC’s compliance with NEPA and the NRC’s authority to reinstate the construction permits. TVA was granted intervenor status in this case as well, and requested that the court dismiss this second petition. On July 26, 2010, the D.C. Circuit consolidated the two BREDL petitions and continued the stay of the case pending the conclusion of an administrative proceeding concerning the same issues. The administrative proceeding, in which BREDL challenged the reinstatement of the construction permits before an NRC Atomic Safety and Licensing Board (“ASLB”), was completed on September 29, 2010, with the dismissal of all contentions. Upon completion of the administrative proceeding, the D.C. Circuit on November 5, 2010, issued an order returning the two cases to the court’s active docket. Final briefs have been submitted, and oral arguments took place on October 20, 2011. Administrative Proceedings Regarding Bellefonte Units 3 and 4. TVA submitted its combined construction and operating license application ("CCOLA") for two Advanced Passive 1000 reactors at Bellefonte Units 3 and 4 to the NRC in October 2007. On June 6, 2008, Bellefonte Efficiency and Sustainability Team (“BEST”), BREDL, and Southern Alliance for Clean Energy (“SACE”) submitted to the NRC a joint petition for intervention and a request for a hearing. The petition raised 20 potential contentions with respect to TVA’s CCOLA. The ASLB denied standing to BEST and admitted four of the 20 contentions submitted by BREDL and SACE. The NRC later reversed the ASLB’s decision to admit two of the four contentions, leaving only two contentions (which involve questions about the estimated costs of the new nuclear plant and the impact of the facility’s operations, in particular the plant intake, on aquatic ecology) to be litigated in a future hearing. On September 29, 2010, TVA notified the NRC that the recently completed final Supplemental Environmental Impact Statement had determined that completion of the partially constructed Bellefonte Unit 1 is the preferred alternative for near-term additional generating capacity at the Bellefonte site. Consequently, with the exception of the ongoing review of hydrology-related portions of the application, TVA requested that the NRC defer review of the Bellefonte Units 3 and 4 CCOLA pending a final decision of the TVA Board regarding new generation capacity at the Bellefonte site. On September 2, 2011, TVA informed the ASLB that it is analyzing the path forward for the Bellefonte Units 3 and 4 CCOLA in light of the August 18, 2011 decision by the TVA Board to authorize completion of Bellefonte Unit 1. TVA expects to complete this analysis by the end of CY 2011, and has requested the Bellefonte Units 3 and 4 CCOLA continue to be deferred until a final decision is made. On August 11, 2011, BREDL and SACE petitioned for the admission of a new, late-filed contention to require the environmental analysis completed for the CCOLA to consider the findings of the NRC's Near-Term Task Force on the Fukushima Event regarding the events at the Fukushima Daiichi Nuclear Power Plant ("Fukushima Daiichi"). TVA submitted a reply brief on August 25, 2011, opposing admission of such a contention on the grounds it does not satisfy the standards for non-timely contentions or the standards for admitting a new contention. The NRC submitted a brief opposing the new contention on similar grounds on September 6, 2011. BREDL and SACE filed their response to TVA's and the NRC's reply briefs on September 19, 2011. TVA filed a motion to strike the reply on administrative and procedural grounds on September 22, 2011. Administrative Proceedings Regarding Watts Bar Nuclear Plant Unit 2. On July 13, 2009, SACE, the Tennessee Environmental Council, the Sierra Club, We the People, and BREDL filed a request for a hearing and petition to intervene in the NRC administrative process reviewing TVA’s application for an operating license for Watts Bar Unit 2. The petitioners raised seven contentions related to TVA’s environmental review of the project and the NRC’s basis for confidence in the availability of safe storage options for spent nuclear fuel. On November 19, 2009, the ASLB granted SACE’s request for hearing, admitted two of SACE’s seven contentions for hearing, and denied the request for hearing submitted on behalf of the other four petitioners. On March 26, 2010, the NRC affirmed the ASLB’s decision denying the other petitioners the opportunity to participate. After providing additional information to the NRC on April 9, 2010, which addressed one of the two admitted contentions, TVA submitted a motion asking the ASLB to dismiss the contention as moot. The motion was unopposed by SACE and on June 2, 2010, the ASLB granted TVA’s motion to dismiss the contention. SACE also asked the ASLB to waive the NRC’s longstanding regulations establishing that, for the purposes of NEPA, the need for power and alternative energy source issues will not be considered in operating license proceedings. On June 29, 2010, the ASLB denied this request and declined to refer the waiver petition to the NRC for consideration. SACE subsequently filed a petition for interlocutory review of this decision with the NRC, which the NRC denied on November 30, 2010. Regarding the sole remaining contention which raises concerns about the aquatic impacts of two-unit operation, several additional reports have been provided to the NRC providing up-to-date information to address this contention. These reports include a mussel survey report and an entrainment report, both issued on March 24, 2011, and an impingement report issued on March 29, 2011. A supplement to the impingement report was submitted on April 28, 2011. A hearing on the remaining contention is expected to take place in the latter part of 2012. On August 11, 2011, SACE petitioned for the admission of a new, late-filed contention to require the environmental analysis completed for TVA’s operating license application to consider the findings of the NRC's Near-Term Task Force on the Fukushima Event regarding the events at the Fukushima Daiichi reactors. TVA submitted a reply brief on September 6, 2011, opposing admission of such a contention on the grounds it does not satisfy the standards for non-timely contentions or the standards for admitting a new contention. John Sevier Fossil Plant Clean Air Act Permit. On September 20, 2010, the Environmental Integrity Project, the Southern Environmental Law Center, and the Tennessee Environmental Council filed a petition with the EPA, requesting that the EPA Administrator object to the CAA permit issued to TVA for operation of John Sevier. Among other things, the petitioners allege that repair, maintenance, or replacement activities undertaken at John Sevier Unit 3 in 1986 triggered the Prevention of Significant Deterioration (“PSD”) requirements for SO 2 and NO x. The CAA permit, issued by TDEC, remains in effect pending the disposition of the EPA’s petition. The Environmental Agreements should narrow the scope of this proceeding. See Environmental Agreements. Paradise Fossil Plant Clean Air Act Permit. On December 21, 2007, the Sierra Club, the Center for Biological Diversity, Kentucky Heartwood, Preston Forsythe, and Hilary Lambert filed a petition with the EPA raising objections to the conditions of TVA’s current CAA permit at Paradise. Among other things, the petitioners allege that activities at Paradise triggered the NSR requirements for NO x and that the monitoring of opacity at Units 1 and 2 of the plant is deficient. In an order issued in July 2009, the EPA agreed that the permit failed to include a proper PSD analysis for NO x emission increases as a result of physical changes made to the plant’s three main boilers in the 1984-1986 period, that the permit failed to require adequate monitoring systems for opacity and NO x, and that the monitoring of soot emissions from the coal washing and handling plant was inadequate. TVA’s permit at Paradise is issued by the Kentucky Division for Air Quality (“KDAQ”). In November 2009, KDAQ determined that the actions at Paradise had not triggered NSR requirements and reissued the operating permit without including NSR compliance milestones. On January 9, 2010, the Sierra Club petitioned the EPA to object to the operating permit, alleging that KDAQ had failed to properly take into account the PSD requirements for the physical changes made in 1986. On May 21, 2010, the Sierra Club filed a lawsuit seeking to compel the EPA to act on the petition. To resolve this lawsuit, the EPA entered into with the Sierra Club under which the EPA agreed to respond to the petition. On May 2, 2011, the EPA denied the petition, citing the Environmental Agreements. See Environmental Agreements. Shawnee Fossil Plant Clean Air Act Permit. On December 16, 2010, the Environmental Integrity Project and the SACE filed a petition with the EPA requesting that the EPA Administrator object to the proposed CAA renewal permit issued to TVA for operations at Shawnee. Among other things, the petitioners allege that repair, maintenance, or replacement undertaken at Shawnee Units 1 and 4 in the 1989-90 period triggered the PSD requirements for SO 2 and NO x. The current permit remains in effect pending KDAQ’s finalization of the renewal permit. The Environmental Agreements should narrow the scope of this proceeding. See Environmental Agreements. Kingston NPDES Permit Appeal. The Sierra Club filed a challenge to the National Pollutant Discharge Elimination System (“NPDES”) permit issued by Tennessee for the scrubber-gypsum pond discharge at Kingston in November 2009 before the Tennessee Water Quality Control Board (“TWQCB”). This is the second such challenge nationally. In addition to its allegation that Tennessee violated the Clean Water Act by failing to set specific limits on certain toxic discharges, the Sierra Club alleges that no discharges from the pond infrastructure should be allowed because zero-discharge scrubbers exist. TDEC is the defendant in the challenge, and TVA has intervened in support of TDEC’s decision to issue the permit. The matter was set for a hearing before the TWQCB in February 2011 but has since been stayed by agreement of the parties. The other similar challenge involves an Allegheny Power NPDES permit for its scrubber discharge at a Pennsylvania plant. Bull Run NDPES Permit Appeal. SACE and the Tennessee Clean Water Network (“TCWN”) filed a challenge to the NPDES permit for Bull Run on November 1, 2010. TDEC is the defendant in the challenge and TVA’s petition to intervene to support TDEC’s decision to issue the permit was granted on January 12, 2011. The matter is expected to go to a hearing before the TWQCB in the spring of 2012. Johnsonville Fossil Plant NDPES Permit Appeal. SACE and TCWN filed a challenge to the NPDES permit for Johnsonville on or about March 10, 2011. TDEC is the defendant in the challenge. TVA's motion to intervene was granted on August 3, 2011. The matter has not yet been given a hearing date before the TWQCB. John Sevier Fossil Plant NDPES Permit Appeal. SACE and TCWN filed a challenge to the NPDES permit for John Sevier on or about May 31, 2011. TDEC is the defendant in the challenge. TVA's motion to intervene was granted on August 3, 2011. The matter has not yet been given a hearing date before the TWQCB. Information Request from the EPA. On April 25, 2008, TVA received a request from the EPA under Section 114 of the CAA requesting extensive information about maintenance, repair, and replacement projects at and the operations of 14 coal-fired units. The Environmental Agreements have resolved most issues related to this information request, excluding claims related to sulfuric acid mist. See Environmental Agreements. Petitions Resulting from Japanese Nuclear Events. As a result of the events precipitated by the March 11, 2011 Japanese nuclear events, petitions have been filed with the NRC which could impact TVA's nuclear program. While some petitions have been dismissed after review, petitions that remain open include the following:
• | Petition to Immediately Suspend the Operating Licenses of GE BWR Mark I Units Pending the Full NRC Review With Independent Expert and Public Participation From Affected Emergency Planning Zone Communities
Beyond Nuclear filed a petition on April 13, 2011, requesting that the NRC take emergency enforcement action against all nuclear reactor licensees that operate units that use the General Electric Mark I BWR design. TVA uses this design at Browns Ferry Units 1, 2, and 3. The petition requests the NRC to take several actions, including the suspension of the operating licenses at the affected nuclear units, including Browns Ferry Units 1, 2, and 3, until several milestones have been met.
• | Twelve separate petitions on various issues
On July 27, 2011, the Natural Resources Defense Council submitted twelve separate letters to the NRC requesting action on various health and safety aspects of operating nuclear facilities in the United States. The NRC is treating these as a single 2.206 Petition, and the issues are currently under review.
• | Petition Pursuant to 10 CFR 2.206 - Demand For Information Regarding Compliance with 10 CFR 50, Appendix A, General Design Criterion 44, Cooling Water, and 10 CFR 50.49, Environmental Qualification
A petition was filed by the Union of Concerned Scientists on July 29, 2011, requesting that a demand for information be issued for affected licensees, including TVA with regards to Browns Ferry, to describe how the facility complies with General Design Criterion 44, Cooling Water, within Appendix A to 10 CFR Part 50, and with 10 CFR 50.49, Environmental Qualification of Electric Equipment Important to Safety for Nuclear Power Plants, for all applicable design and licensing bases events. This petition is under review.

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