Asset Retirement Obligations (AROs)

PSEG, PSE&G and PSEG Power recognize liabilities for the expected cost of retiring long-lived assets for which a legal obligation exists to remove or dispose of an asset or some component of an asset at retirement. These AROs are recorded at fair value in the period in which they are incurred and are capitalized as part of the carrying amount of the related long-lived assets. PSE&G, as a rate-regulated entity, recognizes Regulatory Assets or Liabilities as a result of timing differences between the recording of costs and costs recovered through the rate-making process. We accrete the ARO liability to reflect the passage of time with the corresponding expense recorded in O&M.

PSE&G has conditional AROs primarily for legal obligations related to the removal of treated wood poles and the requirement to seal natural gas pipelines at all sources of gas when the pipelines are no longer in service. PSE&G does not record an ARO for its protected steel and poly-based natural gas lines, as management believes that these categories of gas lines have an indeterminable life.

PSEG Power’s ARO liability primarily relates to the decommissioning of its nuclear power plants in accordance with NRC requirements. PSEG 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 11. Trust Investments. PSEG Power also identified conditional AROs primarily related to PSEG Power’s fossil generation units and solar facilities, including liabilities for removal of asbestos, ash ponds, stored hazardous liquid material and underground storage tanks from industrial power sites, and demolition of certain plants, and the restoration of the sites at which they reside, when the plants are no longer in service. To estimate the fair value of its AROs, PSEG 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 third-party decommissioning cost estimates, cost escalation rates, inflation rates and discount rates.

Updated cost studies are obtained triennially unless new information necessitates more frequent updates. The most recent cost study was done in 2018. When assumptions are revised to calculate fair values of existing AROs, generally, the ARO balance and corresponding long-lived asset are adjusted which impact the amount of accretion and depreciation expense recognized in future periods. For PSE&G, Regulatory Assets and Regulatory Liabilities result when accretion and amortization are adjusted to match rates established by regulators resulting in the regulatory deferral of any gain or loss.

The changes to the ARO liabilities for PSEG, PSE&G and PSEG Power during 2018 and 2019 are presented in the following table:




	PSEG			PSE&G			PSEG Power			Other
	Millions
ARO Liability as of January 1, 2018	$	1,024		$	212		$	810		$	2
Liabilities Settled	(10		)	(9		)	(1		)	—
Liabilities Incurred	1			—			1			—
Accretion Expense	41			—			41			—
Accretion Expense Deferred and Recovered in Rate Base (A)	12			12			—			—
Revision to Present Values of Estimated Cash Flows	(5		)	87			(93		)	1
ARO Liability as of December 31, 2018	$	1,063		$	302		$	758		$	3
Liabilities Settled	(19		)	(18		)	(1		)	—
Liabilities Incurred	3			1			2			—
Accretion Expense	40			—			40			—
Accretion Expense Deferred and Recovered in Rate Base (A)	16			16			—			—
Revision to Present Values of Estimated Cash Flows	(16		)	2			(18		)	—
ARO Liability as of December 31, 2019	$	1,087		$	303		$	781		$	3


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

In 2019, PSEG Power’s decrease of $18 million was primarily due to the sale of its interests in the Keystone and Conemaugh units. These changes had an immaterial impact in PSEG Power’s Consolidated Statement of Operations. See Note 4. Early Plant Retirements/Asset Dispositions for additional information. In addition, PSEG Power reviewed its probabilities of early retirement on its nuclear units and concluded that no adjustments were necessary as of December 31, 2019.

In 2018, PSE&G’s increase of $87 million was primarily due to the impact of an increase in labor rates. These changes had no impact in PSE&G’s Consolidated Statement of Operations.

In 2018, PSEG Power’s decrease of $93 million was primarily due to changes in discount rates and decommissioning assumptions related to nuclear. The changes in decommissioning assumptions, including a reduction for the lower probability of early retirement of the nuclear units, were due in part to the enactment of the New Jersey ZEC legislation in May 2018 and that the Salem and Hope Creek Units were the sole applicants under the ZEC program. This reduction was also due to the sale of the Hudson and Mercer units, partially offset by increases in estimated costs to decommission PSEG Power’s fossil units pursuant to its most recent cost study.

Asset Retirement Obligation [Line Items]

Asset Retirement Obligations (AROs)

PSEG, PSE&G and PSEG Power recognize liabilities for the expected cost of retiring long-lived assets for which a legal obligation exists to remove or dispose of an asset or some component of an asset at retirement. These AROs are recorded at fair value in the period in which they are incurred and are capitalized as part of the carrying amount of the related long-lived assets. PSE&G, as a rate-regulated entity, recognizes Regulatory Assets or Liabilities as a result of timing differences between the recording of costs and costs recovered through the rate-making process. We accrete the ARO liability to reflect the passage of time with the corresponding expense recorded in O&M.

PSE&G has conditional AROs primarily for legal obligations related to the removal of treated wood poles and the requirement to seal natural gas pipelines at all sources of gas when the pipelines are no longer in service. PSE&G does not record an ARO for its protected steel and poly-based natural gas lines, as management believes that these categories of gas lines have an indeterminable life.

PSEG Power’s ARO liability primarily relates to the decommissioning of its nuclear power plants in accordance with NRC requirements. PSEG 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 11. Trust Investments. PSEG Power also identified conditional AROs primarily related to PSEG Power’s fossil generation units and solar facilities, including liabilities for removal of asbestos, ash ponds, stored hazardous liquid material and underground storage tanks from industrial power sites, and demolition of certain plants, and the restoration of the sites at which they reside, when the plants are no longer in service. To estimate the fair value of its AROs, PSEG 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 third-party decommissioning cost estimates, cost escalation rates, inflation rates and discount rates.

Updated cost studies are obtained triennially unless new information necessitates more frequent updates. The most recent cost study was done in 2018. When assumptions are revised to calculate fair values of existing AROs, generally, the ARO balance and corresponding long-lived asset are adjusted which impact the amount of accretion and depreciation expense recognized in future periods. For PSE&G, Regulatory Assets and Regulatory Liabilities result when accretion and amortization are adjusted to match rates established by regulators resulting in the regulatory deferral of any gain or loss.

The changes to the ARO liabilities for PSEG, PSE&G and PSEG Power during 2018 and 2019 are presented in the following table:




	PSEG			PSE&G			PSEG Power			Other
	Millions
ARO Liability as of January 1, 2018	$	1,024		$	212		$	810		$	2
Liabilities Settled	(10		)	(9		)	(1		)	—
Liabilities Incurred	1			—			1			—
Accretion Expense	41			—			41			—
Accretion Expense Deferred and Recovered in Rate Base (A)	12			12			—			—
Revision to Present Values of Estimated Cash Flows	(5		)	87			(93		)	1
ARO Liability as of December 31, 2018	$	1,063		$	302		$	758		$	3
Liabilities Settled	(19		)	(18		)	(1		)	—
Liabilities Incurred	3			1			2			—
Accretion Expense	40			—			40			—
Accretion Expense Deferred and Recovered in Rate Base (A)	16			16			—			—
Revision to Present Values of Estimated Cash Flows	(16		)	2			(18		)	—
ARO Liability as of December 31, 2019	$	1,087		$	303		$	781		$	3


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

In 2019, PSEG Power’s decrease of $18 million was primarily due to the sale of its interests in the Keystone and Conemaugh units. These changes had an immaterial impact in PSEG Power’s Consolidated Statement of Operations. See Note 4. Early Plant Retirements/Asset Dispositions for additional information. In addition, PSEG Power reviewed its probabilities of early retirement on its nuclear units and concluded that no adjustments were necessary as of December 31, 2019.

In 2018, PSE&G’s increase of $87 million was primarily due to the impact of an increase in labor rates. These changes had no impact in PSE&G’s Consolidated Statement of Operations.

In 2018, PSEG Power’s decrease of $93 million was primarily due to changes in discount rates and decommissioning assumptions related to nuclear. The changes in decommissioning assumptions, including a reduction for the lower probability of early retirement of the nuclear units, were due in part to the enactment of the New Jersey ZEC legislation in May 2018 and that the Salem and Hope Creek Units were the sole applicants under the ZEC program. This reduction was also due to the sale of the Hudson and Mercer units, partially offset by increases in estimated costs to decommission PSEG Power’s fossil units pursuant to its most recent cost study.