Asset Retirement Obligations

During the nine months ended June 30, 2016, TVA's total ARO liability increased $164 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.

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. TVA bases its nuclear decommissioning estimates on site-specific cost studies. These cost studies will be updated for each of TVA’s nuclear units at least every five years, and TVA plans to complete new cost studies in 2017.

In April 2015, the Environmental Protection Agency ("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 these rules, TVA recorded certain adjustments to its ARO liabilities in 2015. TVA continues to evaluate the impact of both the rule and the results of ongoing settlement activity on its cost and timing estimates of related projects. As a result, further adjustments to its ARO liability may be required as estimates are refined.

During the nine months ended June 30, 2016, both the nuclear and non-nuclear liabilities were increased by periodic accretion, partially offset by settlement projects that were conducted during these periods. The nuclear and non-nuclear accretion amounts were deferred as regulatory assets. During the nine months ended June 30, 2016, $108 million of the related regulatory assets were amortized into expense as these amounts were collected in rates. See Note 6. TVA maintains investment trusts to help fund its decommissioning obligations. See Note 13 and Note 16 — 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, 2015	$	2,187	$	1,656		$	3,843
Settlements	—		(82		)	(82		)
Change in estimate	198		(79		)	119
Additional obligations	—		15			15
Accretion (recorded as regulatory asset)	79		33			112
Balance at June 30, 2016	$	2,464	$	1,543		$	4,007		⁽¹	⁾

Note

(1) The current portion of ARO in the amount of $192 million and $161 million is included in Accounts payable and accrued liabilities at June 30, 2016 and September 30, 2015, respectively.