Asset Retirement Obligations

12 Months Ended

Sep. 30, 2020

Asset Retirement Obligation Disclosure [Abstract]

During the year ended September 30, 2020, TVA's total ARO liability increased $1.2 billion.

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 2020, the revisions in non-nuclear estimates increased $1.1 billion for the year ended September 30, 2020. In November 2019, the Tennessee Department of Environment and Conservation ("TDEC") released amendments to its regulations which govern solid waste disposal facilities, including TVA's active CCR facilities covered by a solid waste disposal permit and those which closed pursuant to a TDEC approved closure plan. Such facilities are generally subject to a 30-year post-closure care period during which the owner or operator must undertake certain activities, including monitoring and maintaining the facility. The amendments, among other things, add an additional 50-year period after the end of the post-closure care period, require TVA to submit recommendations as to what activities must be performed during this 50-year period to protect human health and

the environment, and require TVA to submit revised closure plans every 10 years. This regulatory revision resulted in an increase of $129 million, of which $38 million was related to operating CCR facilities and $91 million was related to inactive or closed CCR facilities. In June 2020, based on recent project cost data and estimates, TVA revised its AROs for closure-by-removal of certain CCR facilities at Allen Fossil Plant, resulting in an increase to AROs of $273 million. In September 2020, TVA completed an engineering review of its cost estimates to close the ash pond complex at Gallatin Fossil Plant, resulting in an increase of $173 million due to expected cost increases for excavation, disposal, and other activities required in a closure-by-removal project. Also in September 2020, TVA completed a study of its plant decommissioning obligations and CCR post-closure care and monitoring obligations. TVA increased its plant decommissioning obligations by $19 million, primarily due to asbestos and hazardous material abatement costs. TVA increased its CCR post-closure care and monitoring AROs primarily as a result of expected cost increases to monitor groundwater and maintain CCR areas after closure as well as increases in expected acreage to maintain after closure, totaling $460 million.

During 2019, the revisions in non-nuclear estimates increased $50 million for the year ended September 30, 2019. As a result of recent experience in completing settlements at certain facilities, costs for asbestos abatement activities across TVA's fossil fleet increased $114 million. TVA changed the preferred closure method for Allen West Impoundment from closure-in-place to closure-by-removal, which resulted in a cost increase of $33 million. Partially offsetting these increases was a $57 million decrease in costs for Paradise closure projects, and a $44 million decrease in costs for the Allen East Impoundment closure project. Additionally, as a result of the decision in TVA's favor by the Sixth Circuit in the lawsuit brought by TSRA and TCWN, as well as the June 2019 consent order filed in the case brought by TDEC, Gallatin discounted cash flows related to CCR closure and post-closure costs of $672 million have been recorded as Asset retirement obligations. The obligation is based upon the assumptions outlined in the consent order, including a new lined facility will be permitted and constructed on the Gallatin site and existing CCR materials in the existing wet ash disposal impoundments at Gallatin will be moved to this new facility over a 20-year period.

Additionally, during the years ended September 30, 2020 and 2019, 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 2020, 2019, and 2018, $169 million, $144 million, and $144 million, respectively, of the related regulatory assets were amortized into expense as these amounts were collected in rates. See Note 9 — Regulatory Assets and Liabilities. TVA maintains investment trusts to help fund its decommissioning obligations. See Note 16 — Fair Value Measurements — Investment Funds and Note 22 — Commitments and 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, 2018	$	2,989	$	1,790	$	4,779

Settlements	(7)		(82)		(89)
Revisions in estimate	—		50		50


Additional obligations	18		—		18
Gallatin CCR	—		672		672
Accretion (recorded as regulatory asset)	136		50		186

Balance at September 30, 2019	3,136		2,480		5,616		(1)

Settlements	(1)		(113)		(114)
Revisions in estimate	—		1,077		1,077


Accretion (recorded as regulatory asset)	143		63		206


Balance at September 30, 2020	$	3,278	$	3,507	$	6,785	(1)

Note

(1) Includes $345 million and $163 million at September 30, 2020 and 2019, respectively, in Current liabilities.