Asset Retirement Obligations (AROs)

PSEG, Power and PSE&G have recorded various AROs which represent legal obligations to remove or dispose of an asset or some component of an asset at retirement.

Power’s ARO liability primarily relates to the decommissioning of its nuclear power plants in accordance with NRC requirements. To estimate this decommissioning obligation related to its nuclear power plants, Power uses a probability weighted, discounted cash flow model which, on a unit by unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and are based on decommissioning studies, cost escalation rates, inflation rates and discount rates. Power has an independent external trust that is intended to fund decommissioning of its nuclear facilities upon termination of operation. For additional information, see Note 9. Available-for-Sale Securities. Power also identified conditional AROs primarily related to Power’s fossil generation units, including liabilities for


•	removal of asbestos, stored hazardous liquid material and underground storage tanks from industrial power sites,


•	restoration of leased office space to rentable condition upon lease termination,


•	permits and authorizations,


•	restoration of an area occupied by a reservoir when the reservoir is no longer needed, and


•	demolition of certain plants, and the restoration of the sites at which they reside, when the plants are no longer in service.

PSE&G has a conditional ARO for legal obligations related to the removal of asbestos and underground storage tanks at certain industrial establishments, removal of wood poles, leases and licenses, removal of solar panels from leased property and the requirement to seal natural gas pipelines at all sources of gas when the pipelines are no longer in service. PSE&G did not record an ARO for its protected steel and poly-based natural gas transmission lines, as management believes that these categories of transmission lines have an indeterminable life.

The changes to the ARO liabilities for PSEG, Power and PSE&G during 2011 and 2012 are presented in the following table:




	PSEG			Power			PSE&G			Other
	Millions
ARO Liability as of January 1, 2011	$	461		$	242		$	216		$	3
Liabilities Settled	(6		)	(1		)	(5		)	—
Liabilities Incurred	2			—			2			—
Accretion Expense	19			18			—			1
Accretion Expense Deferred and Recovered in Rate Base (A)	13			—			13			—
ARO Liability as of December 21, 2011	$	489		$	259		$	226		$	4
Liabilities Settled	(5		)	(1		)	(5		)	1
Liabilities Incurred	11			1			7			3
Accretion Expense	21			21			—			—
Accretion Expense Deferred and Recovered in Rate Base (A)	14			—			14			—
Revisions to Present Values of Estimated Cash Flows	97			89			8			—
ARO Liability as of December 31, 2012	$	627		$	369		$	250		$	8


(A)	Not reflected as expense in Consolidated Statements of Operations

During 2012, Power recorded an increase in its ARO liabilities, primarily due to an increase in the estimated cost to decommission its nuclear power plants and increased accretion. The increase in the estimated costs to decommission Power's nuclear plants resulted primarily from the receipt of updated decommissioning cost studies in 2012 and the impact of lower discount rates. This change in the ARO did not result in any material impact in Power's Consolidated Statement of Operations.

Asset Retirement Obligations (AROs)

PSEG, Power and PSE&G have recorded various AROs which represent legal obligations to remove or dispose of an asset or some component of an asset at retirement.

Power’s ARO liability primarily relates to the decommissioning of its nuclear power plants in accordance with NRC requirements. To estimate this decommissioning obligation related to its nuclear power plants, Power uses a probability weighted, discounted cash flow model which, on a unit by unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and are based on decommissioning studies, cost escalation rates, inflation rates and discount rates. Power has an independent external trust that is intended to fund decommissioning of its nuclear facilities upon termination of operation. For additional information, see Note 9. Available-for-Sale Securities. Power also identified conditional AROs primarily related to Power’s fossil generation units, including liabilities for


•	removal of asbestos, stored hazardous liquid material and underground storage tanks from industrial power sites,


•	restoration of leased office space to rentable condition upon lease termination,


•	permits and authorizations,


•	restoration of an area occupied by a reservoir when the reservoir is no longer needed, and


•	demolition of certain plants, and the restoration of the sites at which they reside, when the plants are no longer in service.

PSE&G has a conditional ARO for legal obligations related to the removal of asbestos and underground storage tanks at certain industrial establishments, removal of wood poles, leases and licenses, removal of solar panels from leased property and the requirement to seal natural gas pipelines at all sources of gas when the pipelines are no longer in service. PSE&G did not record an ARO for its protected steel and poly-based natural gas transmission lines, as management believes that these categories of transmission lines have an indeterminable life.

The changes to the ARO liabilities for PSEG, Power and PSE&G during 2011 and 2012 are presented in the following table:




	PSEG			Power			PSE&G			Other
	Millions
ARO Liability as of January 1, 2011	$	461		$	242		$	216		$	3
Liabilities Settled	(6		)	(1		)	(5		)	—
Liabilities Incurred	2			—			2			—
Accretion Expense	19			18			—			1
Accretion Expense Deferred and Recovered in Rate Base (A)	13			—			13			—
ARO Liability as of December 21, 2011	$	489		$	259		$	226		$	4
Liabilities Settled	(5		)	(1		)	(5		)	1
Liabilities Incurred	11			1			7			3
Accretion Expense	21			21			—			—
Accretion Expense Deferred and Recovered in Rate Base (A)	14			—			14			—
Revisions to Present Values of Estimated Cash Flows	97			89			8			—
ARO Liability as of December 31, 2012	$	627		$	369		$	250		$	8


(A)	Not reflected as expense in Consolidated Statements of Operations

During 2012, Power recorded an increase in its ARO liabilities, primarily due to an increase in the estimated cost to decommission its nuclear power plants and increased accretion. The increase in the estimated costs to decommission Power's nuclear plants resulted primarily from the receipt of updated decommissioning cost studies in 2012 and the impact of lower discount rates. This change in the ARO did not result in any material impact in Power's Consolidated Statement of Operations.

Asset Retirement Obligations (AROs)

PSEG, Power and PSE&G have recorded various AROs which represent legal obligations to remove or dispose of an asset or some component of an asset at retirement.

Power’s ARO liability primarily relates to the decommissioning of its nuclear power plants in accordance with NRC requirements. To estimate this decommissioning obligation related to its nuclear power plants, Power uses a probability weighted, discounted cash flow model which, on a unit by unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and are based on decommissioning studies, cost escalation rates, inflation rates and discount rates. Power has an independent external trust that is intended to fund decommissioning of its nuclear facilities upon termination of operation. For additional information, see Note 9. Available-for-Sale Securities. Power also identified conditional AROs primarily related to Power’s fossil generation units, including liabilities for


•	removal of asbestos, stored hazardous liquid material and underground storage tanks from industrial power sites,


•	restoration of leased office space to rentable condition upon lease termination,


•	permits and authorizations,


•	restoration of an area occupied by a reservoir when the reservoir is no longer needed, and


•	demolition of certain plants, and the restoration of the sites at which they reside, when the plants are no longer in service.

PSE&G has a conditional ARO for legal obligations related to the removal of asbestos and underground storage tanks at certain industrial establishments, removal of wood poles, leases and licenses, removal of solar panels from leased property and the requirement to seal natural gas pipelines at all sources of gas when the pipelines are no longer in service. PSE&G did not record an ARO for its protected steel and poly-based natural gas transmission lines, as management believes that these categories of transmission lines have an indeterminable life.

The changes to the ARO liabilities for PSEG, Power and PSE&G during 2011 and 2012 are presented in the following table:




	PSEG			Power			PSE&G			Other
	Millions
ARO Liability as of January 1, 2011	$	461		$	242		$	216		$	3
Liabilities Settled	(6		)	(1		)	(5		)	—
Liabilities Incurred	2			—			2			—
Accretion Expense	19			18			—			1
Accretion Expense Deferred and Recovered in Rate Base (A)	13			—			13			—
ARO Liability as of December 21, 2011	$	489		$	259		$	226		$	4
Liabilities Settled	(5		)	(1		)	(5		)	1
Liabilities Incurred	11			1			7			3
Accretion Expense	21			21			—			—
Accretion Expense Deferred and Recovered in Rate Base (A)	14			—			14			—
Revisions to Present Values of Estimated Cash Flows	97			89			8			—
ARO Liability as of December 31, 2012	$	627		$	369		$	250		$	8


(A)	Not reflected as expense in Consolidated Statements of Operations

During 2012, Power recorded an increase in its ARO liabilities, primarily due to an increase in the estimated cost to decommission its nuclear power plants and increased accretion. The increase in the estimated costs to decommission Power's nuclear plants resulted primarily from the receipt of updated decommissioning cost studies in 2012 and the impact of lower discount rates. This change in the ARO did not result in any material impact in Power's Consolidated Statement of Operations.