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Deferring Nuclear Decommissioning: Costs, Benefits, and Economic Consequences
Product Summary: Over the last 15-20 years, estimated decommissioning costs have increased. Moreover, there is now growing recognition that some nuclear plants will not operate as long as some have previously assumed. This means that decommissioning is an issue that will be dealt with sooner rather than later. Consequently, nuclear decommissioning is receiving increased attention at the Department of Energy and the Nuclear Regulatory Commission. The Securities and Exchange Commission (SEC) has also requested that the Financial Accounting Standards Board (FASB) develop specific procedures to explicitly report decommissioning liabilities in utilities' balance sheets and income statements. At the state level, nuclear decommissioning has been the subject of many rate hearings, some of which have proved to be very contentious. Finally, most proposed and enacted electric utility restructuring legislation at both the state and federal level have explicit provisions dealing with nuclear decommissioning. This analysis will result in two products--an analysis report and improvements in the algorithms used by National Energy Modeling System (NEMS) to forecast regulated and competitive electricity prices. With regard to the modeling, NEMS has a very detailed nuclear decommissioning algorithm that is used to compute the funds recovered from consumers. However, the underlying cost data are dated. The set of cost and trust fund balance estimates collected in the proposed project will be used to improve the forecasts of regulated prices such as the ones presented in the Annual Energy Outlook (AEO). It is also assumed that decommissioning expenses will be recovered as a stranded cost. However, NEMS treats the recovery of decommissioning expenses the same as any other stranded cost. At this point, the validity of this assumption is unknown. The review of how the state restructuring proposals treat nuclear decommissioning costs especially when units are retired "prematurely" will be used to determine if the approach used in NEMS is correct and to make any appropriate modifications. Thus, this work will also be used in forecasts of competitive electricity prices. In some cases, Baltimore Gas and Electric, for example, decommissioning costs are over 50 percent of total stranded costs, so the correct estimatation of the costs and how (or if) they will be recovered will improve NEMS's forecasts of competitive electricity prices. The analysis report itself will have two major parts. The first part will outline the evolution of the regulation of decommissioning at state and federal level. The focus here will be on the regulations affecting the economics of decommissioning--e.g., SEC's regulation of the reporting of the costs on utilities' financial statements, and the regulation of the types of investments that the trust fund managers are permitted to undertake. (Given the size of the trust funds, regulations affected the types of investments could have larger effects than the ones affecting the decommissioning process.) Most of these policies evolved in a world of cost- based regulation, and most policy-makers realize that new policies will be needed with the restructuring of the electric utility industry. This section will also focus on how state and federal restructuring legislation treats decommissioning. The second part of this report focuses on economic and financial issues and forecasts of their effects. The last publicly available set of decommissioning cost estimates was published 10 years ago and is therefore extremely outdated. There is, however, sufficient information from the Federal Energy Regulatory Commission (FERC) Form 1, the SEC Form 10K, state PUC documents, and data provided by the National Institute of Security Advisors (NISA) to compile a set of current cost estimates along with current balances in the state decommissioning trust funds. (Currently, all state PUCs require that utilities recover funds from consumers and place the monies in external trust funds.) This section will present such a compilation, along with an analysis of how they vary over time and between units. Additionally, there is no explicit representation of nuclear decommissioning liabilities on utilities' financial statements. However, FASB is about to specify standards governing the reporting of deferred decommissioning liabilities, and the SEC will require the utilities to do so. When utilities were vertically integrated, these deferred liabilities were modest when compared to generation, and transmission and distributions (T&D;) assets. However, if (when) utilities divest all their T&D; assets, the deferred decommissioning liabilities could be much larger when compared to just generation assets. Some within the industry believe that the combination of these two events could have financial effects that approximate the ones that occurred when companies were required to report deferred pension liabilities. In this section of the report, the reporting procedures in the latest FASB draft proposal will be used to estimate what the balance sheet and income statement for a composite set of utilities would look like if they were required to divest their TD assets and report deferred decommissioning liabilities. (Note that a composite set of utilities, as opposed to actual ones, will be used.) Some possible financial impacts will then be analyzed and forecasted. From time to time, EIA has received questions about publicly available decommissioning cost estimates. The cost estimates derived in the proposed study can be used to answer such questions.
Schedule:
Contacts:
nancy.nicoletti@eia.doe.gov or
ingrid.springer@eia.doe.gov
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