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 generally updates its ARO annually during the third quarter, 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 following table provides a rollforward of the nuclear decommissioning ARO reflected on Exelon’s and Generation’s Consolidated Balance Sheets from December 31, 2014 to September 30, 2015:



Nuclear decommissioning ARO at December 31, 2014^(a)	$	6,961
Net increase due to changes in, and timing of, estimated future cash flows	831
Accretion expense	283
Costs incurred to decommission retired plants	(2		)
Nuclear decommissioning ARO at September 30, 2015^(a)	$	8,073

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(a)	Includes $7 million and $8 million as the current portion of the ARO at September 30, 2015 and December 31, 2014 respectively, which is included in Other current liabilities on Exelon’s and Generation’s Consolidated Balance Sheets.

During the nine months ended September 30, 2015, Generation’s total nuclear ARO increased by approximately $1.1 billion, reflecting impacts of ARO updates completed during the first and third quarters of 2015 to reflect changes in amounts and timing of estimated decommissioning cash flows and impacts of year-to-date accretion of the ARO liability due to the passage of time.

In the first quarter of 2015, the ARO liability was increased by $55 million to reflect a purchase accounting adjustment to the fair value of the CENG ARO liability as of April 1, 2014, the date of the consolidation of CENG. See Note 6 - Investment in Constellation Energy Nuclear Group, LLC for additional information. The third quarter 2015 annual update further increased the ARO liability by a net $775 million, which was primarily driven by an increase of approximately $550 million for costs expected to be incurred for required site security during the decommissioning periods in which SNF remains onsite and until major reactor components and buildings have been dismantled and removed. This projected increase is based on emerging industry experience at nuclear sites in the planning or early stage of decommissioning indicating greater than originally expected numbers of security personnel required to be on site during these decommissioning periods. Generation will continue to monitor emerging security cost trends, including potential strategies to limit such costs by, for example, optimizing the transfer of SNF when DOE starts taking possession of SNF or increasing the use of dry SNF storage, and will adjust the ARO liability accordingly. The third quarter 2015 adjustment to the ARO includes an increase of $285 million for the impacts of a change implemented in the 2015 annual assessment of Generation’s SNF storage and disposal cost estimation methodology to better align the projected timing of SNF transfers to the DOE with assumed plant shutdown dates. The third quarter 2015 net increase to the ARO further reflects higher assumed probabilities of early retirements of certain economically challenged nuclear plants (See Note 8 - Implications of Potential Early Plant Retirements for additional information) and net increases in the estimated costs for Peach Bottom and Salem nuclear units pursuant to updated decommissioning cost studies received during 2015; partially offset by reductions in estimated cost escalation rates, primarily for labor and energy costs.

The financial statement impact related to the increase in the ARO due to the changes in, and timing of, estimated cash flows primarily resulted in a corresponding increase in Property, plant and equipment on Exelon’s and Generation’s Consolidated Balance Sheets. Approximately $8 million of the third quarter adjustment resulted in a credit to income, which is included in Operating and maintenance expense within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

During the nine months ended September 30, 2014, Generation’s ARO increased by approximately $1.8 billion. The increase is largely driven by the recording of an ARO on Exelon’s and Generation’s Consolidated Balance Sheets at fair value, including subsequent purchase accounting adjustments, upon consolidation of CENG during the second quarter (see Note 6 - Investment in Constellation Energy Nuclear Group, LLC). The change in the ARO was also driven by an increase in the estimated costs to decommission the Byron and Braidwood nuclear units pursuant to updated decommissioning costs studies received during the third quarter 2014 as part of the annual assessment. These increases in the ARO were partially offset by decreases in the ARO due to reductions in estimated escalation rates, primarily for labor and energy costs. The increase in the ARO due to the changes in, and timing of, estimated cash flows primarily resulted in a corresponding increase in Property, plant and equipment on Exelon’s and Generation’s Consolidated Balance Sheets. Approximately $16 million of the change in the ARO resulted in a credit to income, which is included in Operating and maintenance expense within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

Nuclear Decommissioning Trust Fund Investments

At September 30, 2015 and December 31, 2014, Exelon and Generation had NDT fund investments totaling $10,103 million and $10,537 million, respectively.

The following table provides unrealized gains (losses) on NDT funds for the three and nine months ended September 30, 2015 and 2014:



	Exelon and Generation
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net unrealized gains (losses) on decommissioning trust funds — Regulatory Agreement Units^(a)	$	(301	)	$	(107	)	$	(385	)	$	126
Net unrealized gains (losses) on decommissioning trust funds — Non-Regulatory Agreement Units^(b)(c)	(218		)	(41		)	(274		)	100

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(a)	Net unrealized gains (losses) related to Generation’s NDT funds associated with Regulatory Agreement Units are included in Regulatory liabilities on Exelon’s Consolidated Balance Sheets and Noncurrent payables to affiliates on Generation’s Consolidated Balance Sheets.

(b)

Excludes $7 million of net unrealized gains related to the Zion Station pledged assets for the three months ended September 30, 2014 and $9 million and $27 million of net unrealized gains related to the Zion Station pledged assets for the nine months ended September 30, 2015 and 2014, respectively. Net unrealized gains related to Zion Station pledged assets are included in the Payable for Zion Station decommissioning on Exelon’s and Generation’s Consolidated Balance Sheets.


(c)	Net unrealized gains (losses) related to Generation’s NDT funds with Non-Regulatory Agreement Units are included within Other, net in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

Interest and dividends on NDT fund investments are recognized when earned and are included in Other, net in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income. Interest and dividends earned on the NDT fund investments for the Regulatory Agreement Units are eliminated within Other, net in Exelon’s and Generation’s Consolidated Statement of Operations and Comprehensive Income.

Refer to Note 3 — Regulatory Matters and Note 25 — Related Party Transactions of the Exelon 2014 Form 10-K for information regarding regulatory liabilities at ComEd and PECO and intercompany balances between Generation, ComEd and PECO reflecting the obligation to refund to customers any decommissioning-related assets in excess of the related decommissioning obligations.

Zion Station Decommissioning

On September 1, 2010, Generation completed an Asset Sale Agreement (ASA) with EnergySolutions Inc. and its wholly owned subsidiaries, EnergySolutions, LLC (EnergySolutions) and ZionSolutions, under which ZionSolutions has assumed responsibility for completing certain decommissioning activities at Zion Station, which is located in Zion, Illinois and ceased operation in 1998. See Note 15 — Asset Retirement Obligations of the Exelon 2014 Form 10-K for information regarding the specific treatment of assets, including NDT funds, and decommissioning liabilities transferred in the transaction.

ZionSolutions is subject to certain restrictions on its ability to request reimbursements from the Zion Station NDT funds as defined within the ASA. Therefore, the transfer of the Zion Station assets did not qualify for asset sale accounting treatment and, as a result, the related NDT funds were reclassified to Pledged assets for Zion Station decommissioning within Generation’s and Exelon’s Consolidated Balance Sheets and will continue to be measured in the same manner as prior to the completion of the transaction. Additionally, the transferred ARO for decommissioning was replaced with a Payable for Zion Station decommissioning in Generation’s and Exelon’s Consolidated Balance Sheets. Changes in the value of the Zion Station NDT assets, net of applicable taxes, are recorded as a change in the Payable to ZionSolutions. At no point will the payable to ZionSolutions exceed the project budget of the costs remaining to decommission Zion Station. Generation has retained its obligation for the SNF. Following ZionSolutions’ completion of its contractual obligations and transfer of the NRC license to Generation, Generation will store the SNF at Zion Station until it is transferred to the DOE for ultimate disposal, and will complete all remaining decommissioning activities associated with the SNF dry storage facility. Generation has a liability of approximately $82 million, which is included within the nuclear decommissioning ARO at September 30, 2015. Generation also has retained NDT assets to fund its obligation to maintain the SNF at Zion Station until transfer to the DOE and to complete all remaining decommissioning activities for the SNF storage facility. Any shortage of funds necessary to maintain the SNF and decommission the SNF storage facility is ultimately required to be funded by Generation. Any Zion Station NDT funds remaining after the completion of all decommissioning activities will be returned to ComEd customers in accordance with the applicable orders. The following table provides the pledged assets and payables to ZionSolutions and withdrawals by ZionSolutions at September 30, 2015 and December 31, 2014:



	Exelon and Generation
	September 30, 2015		December 31, 2014
Carrying value of Zion Station pledged assets	$	237	$	319
Payable to Zion Solutions^(a)	217		292
Current portion of payable to Zion Solutions^(b)	118		137
Cumulative withdrawals by Zion Solutions to pay decommissioning and other costs^(c)	757		666

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(a)	Excludes a liability recorded within Exelon’s and Generation’s Consolidated Balance Sheets related to the tax obligation on the unrealized activity associated with the Zion Station NDT Funds. The NDT Funds will be utilized to satisfy the tax obligations as gains and losses are realized.


(b)	Included in Other current liabilities within Exelon’s and Generation’s Consolidated Balance Sheets.


(c)	Includes project expenses to decommission Zion Station and estimated tax payments on Zion Station NDT Fund earnings.

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 March 31, 2015. This report reflects the status of decommissioning funding assurance as of December 31, 2014. Due to increased cost estimates received in the second half of 2014, Braidwood Unit 1, Braidwood Unit 2, and Byron Unit 2 did not meet the NRC's minimum funding assurance criteria as of December 31, 2014. NRC guidance provides licensees with two years or by the time of submitting the next biennial report (on or before March 31, 2017) to resolve funding assurance shortfalls. During this period, Generation will monitor funding assurance and new developments, including the impact of a 20-year license renewal for Braidwood and Byron, to assess the status of funding assurance and to take steps, if necessary, to address any funding shortfall on these funds on or before March 31, 2017. The increased security costs discussed above will be taken into consideration, as appropriate and in accordance with the regulatory requirements, in Generation's future decommissioning funding status reports submitted to the NRC. Generation does not expect the increased costs to change Generation's NRC minimum funding assurance status.