Exelon 2015 Annual Report Download - page 108

Table of Contents
Nuclear Decommissioning Asset Retirement Obligations (Exelon and Generation)
Generation’s ARO associated with decommissioning its nuclear units was $8.2 billion at December 31, 2015. The authoritative guidance
requires that Generation estimate its obligation for the future decommissioning of its nuclear generating plants. To estimate that liability,
Generation uses an internally-developed, probability-weighted, discounted cash flow model which, on a unit-by-unit basis, considers multiple
decommissioning outcome scenarios.
As a result of recent nuclear plant retirements in the industry, nuclear operators and third-party service providers are obtaining more
information about costs associated with decommissioning activities. At the same time, regulators are gaining more information about
decommissioning activities which could result in changes to existing decommissioning requirements. In addition, as more nuclear plants are
retired, it is possible that technological advances will be identified that could create efficiencies and lead to a reduction in decommissioning costs.
These factors could result in material changes to Generation’s current estimates as more information becomes available and could change the
timing and probability assigned to the decommissioning outcome scenarios.
The nuclear decommissioning obligation is adjusted on a regular basis due to the passage of time and revisions to the key assumptions for
the expected timing and/or estimated amounts of the future undiscounted cash flows required to decommission the nuclear plants, based upon the
methodologies and significant estimates and assumptions described as follows:
Decommissioning Cost Studies. Generation uses unit-by-unit decommissioning cost studies to provide a marketplace assessment of the
costs and timing of decommissioning activities, which are validated by comparison to current decommissioning projects within its industry and
other estimates. Decommissioning cost studies are updated, on a rotational basis, for each of Generation’s nuclear units at least every five years,
unless circumstances warrant more frequent updates (such as a change in assumed operating life for a nuclear plant). As part of the annual cost
study update process, Generation evaluates newly assumed costs or substantive changes in previously assumed costs to determine if the cost
estimate impacts are sufficiently material to warrant application of the updated estimates to the AROs across the nuclear fleet outside of the
normal five-year rotating cost study update cycle.
Cost Escalation Factors. Generation uses cost escalation factors to escalate the decommissioning costs from the decommissioning cost
studies discussed above through the assumed decommissioning period for each of the units. Cost escalation studies, updated on an annual basis,
are used to determine escalation factors, and are based on inflation indices for labor, equipment and materials, energy, LLRW disposal and other
costs. All of the nuclear AROs are adjusted each year for the updated cost escalation factors.
Probabilistic Cash Flow Models. Generation’s probabilistic cash flow models include the assignment of probabilities to various scenarios
for decommissioning cost levels, decommissioning approaches, and timing of plant shutdown on a unit-by-unit basis. Probabilities assigned to
cost levels include an assessment of the likelihood of costs 20% higher (high-cost scenario) or 15% lower (low-cost scenario) than the base cost
scenario. Probabilities are also assigned to three different decommissioning approaches as follows:
1. DECON—a method of decommissioning shortly after the cessation of operation in which the equipment, structures, and portions of a
facility and site containing radioactive contaminants are removed and safely buried in a LLRW landfill or decontaminated to a level that
permits property to be released for unrestricted use,
2. Delayed DECON—similar to the DECON scenario but with a delay to allow for spent fuel to be removed from the site prior to onset of
decommissioning activities, or
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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