Accounting For Asset Retirement And Environmental Obligations

12 Months Ended

Dec. 31, 2023

Asset Retirement Obligation Disclosure [Abstract]

Accounting For Asset Retirement And Environmental Obligations

NOTE 3—Accounting for Asset Retirement and Environmental Obligations

We account for our asset retirement obligations in accordance with Accounting for Asset Retirement and Environmental Obligations. This requires that legal obligations associated with the retirement of long-lived assets be recognized at fair value when incurred and capitalized as part of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized asset is depreciated over the useful life of the long-lived asset.

In the absence of quoted market prices, we estimate the fair value of our asset retirement obligations using present value techniques, in which estimates of future cash flows associated with retirement activities are discounted using a credit-adjusted risk-free rate. Our estimated liability could change significantly if actual costs vary from assumptions or if governmental regulations change significantly.

A significant portion of our asset retirement obligations relates to our share of the future costs to decommission North Anna. At December 31, 2023 and 2022, our share of North Anna’s nuclear decommissioning asset retirement obligation totaled $171.2 million and $166.3 million, respectively. Periodically, a new decommissioning study for North Anna is performed by third-party experts. A new study was performed in 2019, and we adopted it effective December 31, 2019, which resulted in an additional layer related to the asset retirement obligation associated with North Anna. The additional layer resulted in an increase to our asset retirement cost and our asset retirement obligation of $37.6 million. The increase is related to costs associated with spent fuel, including the change in methodology to be utilized, as a result of the DOE delay for acceptance of spent fuel, as well as the change in the market risk premium and inflation rates utilized to calculate our costs. We are not aware of any events that have occurred since the 2019 study that would materially impact our estimate or that would have required an updated study to be performed in 2023. We anticipate that a new study will be performed in 2024. We are required to maintain a funded trust to satisfy our future obligation to decommission the North Anna facility. See Note 8—Investments.

The following represents changes in our asset retirement obligations for the years ended December 31, 2023 and 2022 (in thousands):

Asset retirement obligations as of December 31, 2021	$	184,797
Accretion expense		5,873
Asset retirement obligations as of December 31, 2022	$	190,670
Accretion expense		6,077
Asset retirement obligations as of December 31, 2023	$	196,747

The cash flow estimates for North Anna’s asset retirement obligation are based upon an assumption of an additional 20-year life extension, which will extend the life of Unit 1 to April 1, 2058, and the life of Unit 2 to August 21, 2060. Virginia Power, the co-owner of North Anna, submitted an application to the NRC in August 2020 for this additional 20-year operating license extension for North Anna. Given the life extension, the nuclear decommissioning trust was, and currently is, estimated to be adequate to fund North Anna’s asset retirement obligation and no additional funding was, or is, currently required. We ceased collection of decommissioning expense in August 2003 with the approval of FERC. As we are not currently collecting decommissioning expense in our rates, we are deferring the difference between the earnings on the nuclear decommissioning trust and the total asset retirement obligation related depreciation and accretion expense for North Anna as part of our asset retirement obligation regulatory liability. See Note 9—Regulatory Assets and Liabilities.