Asset Retirement Obligations

During the year ended September 30, 2018, TVA's total ARO liability increased $475 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. The most recent study was approved and implemented in September 2017. An increase of $250 million was recorded to the nuclear AROs as a result of the updates. Site-specific cost studies are updated for each of TVA’s nuclear units at least every five years.

TVA also has decommissioning obligations related to its non-nuclear generating sites, ash impoundments, transmission substation and distribution assets, and certain general facilities. To estimate its decommissioning obligation related to these assets, TVA uses estimations and assumptions for the amounts and timing of future expenditures and makes judgments concerning whether or not such costs are considered a legal obligation. Those assumptions include (1) estimates of the costs of decommissioning, (2) the method of decommissioning and the timing of the related cash flows, (3) the expected retirement date of each asset, (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 bases its decommissioning estimates for each asset on its identified preferred closure method.

During 2018, TVA recorded adjustments to non-nuclear ARO liabilities as a result of projects maturing and estimates being refined. This resulted in an increase of $430 million to the non-nuclear AROs. A majority of this increase was due to a change in closure method at Allen for the East Ash Pond and Coal Yard Runoff Pond, which changed from closure in place to closure by removal and resulted in an increase of $338 million.

During 2017, TVA recorded adjustments to non-nuclear ARO liabilities as a result of projects maturing and estimates being refined. This resulted in an increase of $161 million to the non-nuclear AROs. This amount was offset by a decrease of $188 million to non-nuclear AROs due to the reversal of certain Gallatin AROs given that the retirement obligations for the Gallatin ash ponds are now recorded as part of environmental remediation obligations. See Note 8.

Additionally, during the years ended September 30, 2018 and 2017, 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 2018, 2017, and 2016, $144 million per year 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 16 and Note 21 — 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, 2016	$	2,492	$	1,560		$	4,052
Settlements	—		(123		)	(123		)
Change in estimate	250		161			411
Additional obligations	—		1			1
Reclassification of Gallatin projects⁽²⁾	—		(188		)	(188		)
Accretion (recorded to regulatory asset)	117		34			151
Balance at September 30, 2017	2,859		1,445			4,304			⁽¹⁾
Settlements	—		(106		)	(106		)
Change in estimate	—		430			430
Additional obligations	—		1			1
Accretion (recorded to regulatory asset)	130		35			165
Asset Disposition	—		(15		)	(15		)
Balance at September 30, 2018	$	2,989	$	1,790		$	4,779		⁽¹⁾

Notes

(1) The current portions of the ARO liability in the amounts of $115 million and $128 million as of September 30, 2018 and 2017, respectively, are included in Accounts payable and accrued liabilities.

(2) See Note 8 for additional information.