Asset Retirement Obligations

During the nine months ended June 30, 2015, TVA's total ARO liability increased $687 million.

In April 2015, the EPA published its final rule governing coal combustion residuals, which will regulate landfill and impoundment location, design, and operations; dictate certain pond-closure conditions; and establish groundwater monitoring and closure and post-closure standards. As a result of the ruling, TVA has made revisions to the assumptions and estimates used to calculate asset retirement obligations. Increases to estimated project costs, including expansion of work scope and higher costs of materials, have resulted in TVA recording a $539 million increase to the ARO liability during the three months ended June 30, 2015. TVA is continuing to evaluate the rules and their impact on its operations, including the cost and timing estimates of related projects. As a result, adjustments to its ARO liabilities may be required as estimates are refined. TVA also recorded an additional $60 million of other new AROs related to TVA’s coal-fired plants and a $7 million ARO related to the Ackerman Combined Cycle Plant acquisition during the same period. See Note 6.

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. Decommissioning cost studies will be updated for each of TVA’s nuclear units at least every five years.

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, 2015. The nuclear and non-nuclear accretion were deferred as regulatory assets, and $33 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, 2014	$	2,052	$	1,117		$	3,169
Settlements (ash storage areas)	—		(33		)	(33		)
Additional obligations	—		606			606
Accretion (recorded as regulatory asset)	74		40			114
Balance at June 30, 2015	$	2,126	$	1,730		$	3,856		⁽¹	⁾

Note

(1) The current portion of ARO in the amount of $180 million is included in Accounts payable and accrued liabilities at June 30, 2015.