Asset Retirement Obligations

During the year ended September 30, 2016, TVA's total ARO liability increased $209 million.

On May 23, 2016, Watts Bar Unit 2 achieved initial criticality. As a result, TVA revised its decommissioning liability estimate for Watts Bar Nuclear Plant and recorded an increase of $198 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. TVA has ascribed probabilities to two different decommissioning methods related to its nuclear decommissioning obligation estimate: the DECON method and the SAFSTOR method. The DECON method requires radioactive contamination to be 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. 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. TVA bases its nuclear decommissioning estimates on site-specific cost studies. These cost studies are updated for each of TVA’s nuclear units at least every five years, and TVA plans to complete new cost studies for its nuclear units in 2017.

During 2016, TVA performed reassessments of its AROs for its non-nuclear plants and other buildings. The reassessments consisted of detailed studies of various TVA sites conducted to identify and update benchmarks and standards used in estimating decommissioning costs. Additionally, TVA management updated its non-nuclear plant closure method assumption from a maintain-in-place method to a plant demolition method. TVA's reassessments and change in closure method assumption resulted in a net increase of $32 million to TVA's liability for existing non-nuclear AROs during the year ended September 30, 2016. Also during 2016, TVA recorded a decrease of $54 million to its non-nuclear AROs as a result of changes in estimates related to active decommissioning projects and recorded $15 million of new AROs related to coal ash areas. Further adjustments to TVA's non-nuclear ARO liabilities may be required as projects mature and estimates are refined.

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 to 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. 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. Additionally, an increase of $36 million for estimate revisions resulting from a license extension granted to Sequoyah and a decrease of $25 million for other non-nuclear changes in estimates were recorded.

During the years ended September 30, 2016 and 2015, 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 2016 and 2015, $144 million and $44 million, respectively, of the related regulatory assets were amortized into expense as these amounts were collected in rates. See Note 7. TVA maintains investment trusts to help fund its decommissioning obligations. See Note 15 and Note 20 — Contingencies — Decommissioning Costs for a discussion of the trusts' objectives and the current balances of the trusts.



Asset Retirement Obligation Activity

	Nuclear		Non-Nuclear			Total
Balance at September 30, 2014	$	2,052	$	1,117		$	3,169

Settlements	—		(58		)	(58		)
Change in estimate	36		444			480
Additional obligations	—		101			101
Accretion (recorded to regulatory asset)	99		52			151

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

Settlements	—		(133		)	(133		)
Change in estimate	198		(22		)	176
Additional obligations	—		15			15
Accretion (recorded to regulatory asset)	107		44			151

Balance at September 30, 2016	$	2,492	$	1,560		$	4,052		⁽¹⁾

Note

(1) The current portions of the ARO liability in the amounts of $212 million and $161 million as of September 30, 2016 and 2015, respectively, are included in Accounts payable and accrued liabilities.