Nuclear Decommissioning (Exelon and Generation)

6 Months Ended

Jun. 30, 2021

Asset Retirement Obligation Disclosure [Abstract]

Nuclear Decommissioning (Exelon and Generation)

Nuclear Decommissioning (Exelon and Generation)

Nuclear Decommissioning Asset Retirement Obligations

Generation has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses. To estimate its decommissioning obligation related to its nuclear generating stations for financial accounting and reporting purposes, Generation 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 cost studies, cost escalation rates, probabilistic cash flow models, and discount rates. Generation updates its ARO annually, unless circumstances warrant more frequent updates, based on its review of updated cost studies and its annual evaluation of cost escalation factors and probabilities assigned to various scenarios.

The financial statement impact for changes in the ARO, on an individual unit basis, due to the changes in and timing of estimated cash flows generally result in a corresponding change in the unit’s ARC within Property, plant, and equipment on Exelon’s and Generation’s Consolidated Balance Sheets. If the ARO decreases for a Non-Regulatory Agreement unit without any remaining ARC, the corresponding change is recorded as decrease in Operating and maintenance expense within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

The following table provides a rollforward of the nuclear decommissioning ARO reflected in Exelon’s and Generation’s Consolidated Balance Sheets from December 31, 2020 to June 30, 2021:

Nuclear decommissioning ARO at December 31, 2020(a)	$	11,922
Accretion expense	249
Costs incurred related to decommissioning plants	(39)
Nuclear decommissioning ARO at June 30, 2021(a)	$	12,132

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(a)Includes $84 million and $80 million as the current portion of the ARO at June 30, 2021 and December 31, 2020, which is included in Other current liabilities in Exelon’s and Generation’s Consolidated Balance Sheets.

On July 28, 2021 Generation submitted PSDAR filings for the Byron and Dresden nuclear units, selecting the SAFSTOR decommissioning approach that allows for up to 60 years in duration, with certain aspects of the specific approach unique to each unit. Based on the approaches selected, and assuming the Byron and Dresden units retire as previously announced in September 2021 and November 2021, respectively, Generation expects to record an incremental increase in the nuclear decommissioning ARO of $650 million to $850 million in the second half of 2021. As discussed further below, contractual offset for the Byron units has been suspended and $275 million to $375 million of this increase in the ARO would result in a pre-tax charge in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

NDT Funds

Exelon and Generation had NDT funds totaling $15,596 million and $14,599 million at June 30, 2021 and December 31, 2020, respectively. The NDT funds also include $196 million and $134 million for the current portion of the NDT funds at June 30, 2021 and December 31, 2020, respectively, which are included in Other current assets in Exelon's and Generation's Consolidated Balance Sheets. See Note 18 — Supplemental Financial Information for additional information on activities of the NDT funds.

Accounting Implications of the Regulatory Agreements with ComEd and PECO

Based on the regulatory agreements with the ICC and PAPUC that dictate Generation’s obligations related to the shortfall or excess of NDT funds necessary for decommissioning the former ComEd units on a unit-by-unit basis and the former PECO units in total, decommissioning-related activities net of applicable taxes, including realized and unrealized gains and losses on the NDT funds, depreciation of the ARC, and accretion of the decommissioning obligation, are generally offset within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income and are recorded by Generation and the corresponding regulated utility as a component of the intercompany and regulatory balances on the balance sheet. For the purposes of making this determination, the decommissioning obligation referred to is different from the calculation used in the NRC minimum funding obligation filings based on NRC guidelines.

For the former ComEd units, given no further recovery from ComEd customers is permitted and Generation retains an obligation to ultimately return any unused NDTs to ComEd customers (on a unit-by-unit basis), to the extent the related NDT investment balances are expected to exceed the total estimated decommissioning obligation for each unit, the offset of decommissioning-related activities within the Consolidated Statements of Operations and Comprehensive Income results with Generation recognizing an intercompany payable to ComEd while ComEd records an intercompany receivable from Generation with a corresponding regulatory liability. However, given the asymmetric settlement provision that does not allow for continued recovery from ComEd customers in the event of a shortfall, recognition of a regulatory asset at ComEd is not permissible and accounting for decommissioning-related activities at Generation for that unit would not be offset, and the impact to Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income could be material during such periods. During the second quarter of 2021, a pre-tax charge of $53 million was recorded in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income for decommissioning-related activities that were not offset for the Byron units due to contractual offset being suspended. Generation believes that additional growth of the NDT funds for the Byron units will ultimately be sufficient to cover the future costs of decommissioning.

As of June 30, 2021, decommissioning-related activities for all of the former ComEd units, except for Byron (see discussion above) and Zion (see Note 10 – Asset Retirement Obligations of the Exelon 2020 Form 10-K), are currently offset within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

The decommissioning-related activities related to the Non-Regulatory Agreement Units are reflected in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

See Note 10 – Asset Retirement Obligations of the Exelon 2020 Form 10-K for additional information, including the former PECO units.

NRC Minimum Funding Requirements

NRC regulations require that licensees of nuclear generating facilities demonstrate reasonable assurance that funds will be available in specified minimum amounts to decommission the facility at the end of its life.

Generation filed its biennial decommissioning funding status report with the NRC on February 24, 2021 for all units, including its shutdown units, except for Zion Station which is included in a separate report to the NRC submitted by ZionSolutions, LLC. The status report demonstrated adequate decommissioning funding assurance as of December 31, 2020 for all units except for Byron Units 1 and 2. Prior to shutdown, Generation will supplement its July 28, 2021 PSDAR filing with decommissioning cost information for Byron Units 1 and 2 and will evaluate the status of funding assurance based on this cost information and updated trust fund values. If required, Generation intends to provide additional funding assurance by the time of shutdown.

Generation will file its next decommissioning funding status report with the NRC by March 31, 2022. This report will reflect the status of decommissioning funding assurance as of December 31, 2021 for shutdown units.