Asset Retirement Obligations

During the year ended September 30, 2015, TVA's total ARO liability increased $674 million.

In April 2015, the EPA published its final rule governing coal combustion residuals, which regulates landfill and impoundment location, design, and operations; dictates certain pond-closure conditions; and establishes groundwater monitoring and closure and post-closure standards. As a result of the ruling, TVA made revisions to the assumptions and estimates used to calculate its coal ash AROs. Increases to estimated project costs, including expansion of work scope and higher costs of materials, resulted in an increase of $469 million of the ARO liability during the year ended September 30, 2015. TVA continues to evaluate the impact of the rule on its operations, including cost and timing estimates of related projects. As a result, further adjustments to its ARO liabilities may be required as estimates are refined. Also during 2015, TVA recorded additional obligations of $94 million for other new AROs related to TVA’s coal-fired plants and $7 million related to the acquisition of the Ackerman Combined Cycle Plant. See Note 6. Additionally, an increase of $36 million for estimate revisions resulting from a license extension granted to the Sequoyah Nuclear Plant ("Sequoyah") and a decrease of $25 million for other non-nuclear changes in estimates were recorded.

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 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.

During the years ended September 30, 2015 and 2014, both the nuclear and non-nuclear liabilities were increased by periodic accretion, partially offset by ash area settlement projects that were conducted during these periods. The nuclear and non-nuclear accretion amounts were deferred as regulatory assets. During 2015 and 2014, $44 million and $40 million, respectively, of the related regulatory assets, were amortized into expense as these amounts were 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)	—			(14		)	(14		)
Change in estimate (nuclear site - specific studies)	(472		)	—			(472		)
Change in estimate (other)	—			(10		)	(10		)
Accretion (recorded to regulatory asset)	125			52			177

Balance at September 30, 2014	$	2,052		$	1,117		$	3,169		⁽¹⁾

Settlements (ash storage areas)	—			(58		)	(58		)
Change in estimate (coal combustion residuals rule)	—			469			469
Change in estimate (nuclear license extension)	36			—			36
Change in estimate (other)	—			(25		)	(25		)
Additional obligations	—			101			101
Accretion (recorded to regulatory asset)	99			52			151

Balance at September 30, 2015	$	2,187		$	1,656		$	3,843		⁽¹⁾

Note

(1) The current portions of ARO in the amounts of $161 million and $80 million as of September 30, 2015 and 2014, respectively, are included in Accounts payable and accrued liabilities.