Asset Retirement Obligations

12 Months Ended

Sep. 30, 2022

Asset Retirement Obligation Disclosure [Abstract]

During the year ended September 30, 2022, TVA's total ARO liability increased $160 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.

The revisions in nuclear estimates increased the liability balance by $61 million for the year ended September 30, 2022. This was primarily due to approval and implementation of the most recent site-specific cost study in September 2022 resulting in an increase of $58 million.

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 the liability balance by $186 million for the year ended September 30, 2022. During the year, TVA completed an engineering review of its cost estimates for closure of certain areas containing coal fines at Paradise Fossil Plant ("Paradise"), which resulted in an increase of $119 million due to expected cost increases for necessary changes in activities associated with proper completion of the closure. Coal combustion residuals ("CCR") closure liabilities at Paradise and Cumberland increased $82 million due to new vendor bids, modified closure designs, and revised estimates for construction costs. Refined project cost assumptions and scope changes related to TVA's AROs for the closure of certain coal yards at its fossil plants resulted in an increase of $57 million. In addition, effective October 1, 2022, TVA implemented revised depreciation rates applicable to its completed plant due to the results of a new depreciation study. The study included 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 change in service life estimates 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 increased AROs by $47 million due to identified changes in the projections of timing of certain asset retirement activities. Partially offsetting these increases, expected reductions in CCR post-closure costs for maintenance and monitoring at Paradise, Shawnee, and Colbert Fossil Plant ("Colbert") resulted in a decrease of $53 million. CCR closure liabilities at Gallatin decreased $30 million due to selection of a new vendor bid and changes to anticipated timing

of certain asset retirement activities. In addition, CCR closure liabilities at Allen Fossil Plant decreased $15 million as a result of changes in cost estimates and anticipated timing of various retirement activities.

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 CCR closure liabilities at Shawnee, Paradise, Colbert, Cumberland, and Gallatin resulting from revised engineering estimates for construction costs, new vendor bids, modified closure designs, and expected costs associated with post-closure care of 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.

Additionally, during the years ended September 30, 2022 and 2021, 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 2022, 2021, and 2020, $137 million, $72 million, and $169 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 16 — Fair Value Measurements — Investment Funds and Note 21 — Commitments and Contingencies — Decommissioning Costs for a discussion of the trusts' objectives and the current balances of the trusts.


Asset Retirement Obligation Activity (in millions)
	Nuclear		Non-Nuclear		Total
Balance at September 30, 2020	$	3,278	$	3,507	$	6,785
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)

Settlements	(2)		(309)		(311)		(2)
Revisions in estimate	61		186		247


Accretion (recorded as regulatory asset)	156		68		224

Balance at September 30, 2022	$	3,643	$	3,519	$	7,162	(1)

Note

(1) Includes $275 million and $266 million at September 30, 2022 and 2021, respectively, in Current liabilities.

(2) Settlements include the change in asset retirement obligation project accruals included in Accounts payable and accrued liabilities of $20 million.