Asset Retirement Obligations

During the nine months ended June 30, 2014, TVA's total ARO liability decreased $352 million.

To estimate its decommissioning obligation related to its nuclear generating stations, TVA uses a probability-weighted, discounted cash flow model which, on a unit-by-unit basis, considers multiple outcome scenarios that include significant estimations and assumptions. Those assumptions include (1) estimates of the cost of decommissioning, (2) the method of decommissioning and the timing of the related cash flows, (3) the license period of the nuclear plant, considering the probability of license extensions, (4) cost escalation factors, and (5) the credit adjusted risk free rate to measure the obligation at the present value of the future estimated costs. Prior to June 30, 2014, TVA based its decommissioning cost estimates on cost elements prescribed by the Nuclear Regulatory Commission ("NRC") to dismantle and decommission the radioactive portion of each site with the assumption that decommissioning would occur within the first seven years after plant shut down, which approximates the DECON method of decommissioning. The DECON method requires that radioactive contamination is removed from a site and safely disposed of or decontaminated to a level that permits the site to be released for unrestricted use shortly after it ceases operation. On June 30, 2014, TVA recorded a change in estimate based on site-specific decommissioning cost studies. Additionally, TVA determined it appropriate to reflect an increase in the probability that certain of its nuclear operating licenses will be extended and that there is a probability that it will be able to delay ultimate decommissioning activities under a SAFSTOR method of decommissioning. The SAFSTOR method allows nuclear facilities to be placed and maintained in a condition that allows the facilities to be safely stored and subsequently decontaminated to levels that permit release for unrestricted use. As such, TVA ascribed probabilities to both the SAFSTOR and DECON methods of decommissioning in order to estimate its decommissioning obligation. Decommissioning cost studies will be updated for each of TVA’s nuclear units at least every five years.

Additionally, both the nuclear and non-nuclear liabilities were increased by periodic accretion. This was partially offset by ash area settlement projects that were conducted during the nine months ended June 30, 2014. The nuclear and non-nuclear accretion were deferred as regulatory assets, and $30 million of the related regulatory assets was amortized into expense as this amount was collected in rates.



Asset Retirement Obligation Activity

	Nuclear			Non-Nuclear			Total
Balance at September 30, 2013	$	2,399		$	1,089		$	3,488
Settlements (ash storage areas)	—			(10		)	(10		)
Change in estimate as a result of nuclear site-specific studies	(471		)	—			(471		)
Change in estimate (ash storage areas)	—			(10		)	(10		)
Accretion (recorded as regulatory asset)	100			39			139
Balance at June 30, 2014	$	2,028		$	1,108		$	3,136		⁽¹	⁾

Note

(1) The current portion of ARO in the amount of $69 million is included in Accounts payable and accrued liabilities at June 30, 2014.