Asset Retirement Obligations

12 Months Ended

Sep. 30, 2021

Asset Retirement Obligation Disclosure [Abstract]

During the year ended September 30, 2021, TVA's total ARO liability increased $217 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. TVA plans to complete new cost studies for its nuclear units in 2022.

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.

The revisions in non-nuclear estimates increased $191 million for the year ended September 30, 2021. This increase was primarily driven by revisions of approximately $122 million to certain coal combustion residuals ("CCR") closure liabilities at Shawnee Fossil Plant ("Shawnee"), Paradise, Colbert Fossil Plant, Cumberland Fossil Plant, and Gallatin Fossil Plant ("Gallatin") resulting from revised engineering estimates for construction costs, new vendor bids, modified closure designs, and expected costs associated with post-closure care of the closed areas. CCR ARO liabilities associated with groundwater well monitoring also increased approximately $69 million due to expansion in the scope of recurring activities including measuring, modeling, and reporting. In addition, TVA's use of a new CCR landfill at Shawnee and expansion of landfill acreage used at Gallatin resulted in new obligations of $30 million and $13 million, respectively.

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 that 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, 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.

Additionally, during the years ended September 30, 2021 and 2020, 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 2021, 2020, and 2019, $72 million, $169 million, and $144 million, respectively, of the related regulatory assets were amortized into expense as these amounts were collected in rates. See Note 10 — Regulatory Assets and Liabilities. TVA maintains investment trusts to help fund its decommissioning obligations. See Note 17 — Fair Value Measurements — Investment Funds and Note 23 — 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, 2019	$	3,136	$	2,480	$	5,616
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)

Settlements	(11)		(231)		(242)
Revisions in estimate	12		191		203
Additional obligations	—		43		43

Accretion (recorded as regulatory asset)	149		64		213

Balance at September 30, 2021	$	3,428	$	3,574	$	7,002	(1)

Note

(1) Includes $266 million and $345 million at September 30, 2021 and 2020, respectively, in Current liabilities.

TVA implemented revised depreciation rates during the first quarter of 2022 applicable to its completed plant as a result of the completion of a new depreciation study. The study includes a decline in the service life estimates of TVA’s coal-fired plants based on current planning assumptions to potentially retire the remainder of the coal-fired fleet by 2035. As a result of the accelerated retirements reflected in the depreciation study, TVA performed an assessment of the assumptions used in the timing of cash flows related to its non-nuclear AROs. Based on the assessment, TVA identified changes to its projections of timing of certain asset retirement processes, that will be recorded in 2022.