Chapter 5 — Industry Considerations Related to Asset Retirement Obligations and Environmental Obligations

5.5 Power and Utilities — Non-Nuclear

The power and utilities (P&U) industry includes many technologies for the generation of electricity, and companies in this industry are likely to have multiple AROs associated with the array of assets required for the generation and delivery of electricity. Common P&U generation methods and corresponding potential AROs include the following:

P&U Generation Method	Potential ARO
Coal-fired generation	Coal ash impoundments
Manufactured gas plants	Storage tanks, impoundments, and vaults
Solar	Solar array and associated structures
Wind	Turbines

In addition, as noted in Chapter 4, the common utility pole used in the distribution of electric power (and telecommunications) may also be subject to unique disposal requirements, creating an ARO for the disposal of a utility pole once the pole is extracted and removed from service.

5.5.1 Coal Ash Impoundments

5.5.1.1 The CCR Rule

The burning of coal results in the generation of CCR commonly called coal ash. Depending on the technology used to handle air emissions created during the burning of coal, ash is generated in either a dry or wet form, to be handled either on-site or off-site. When managed off-site, the ash generated leaves the site without long-term on-site storage. At facilities where the ash is retained on-site, impoundments are commonly used to contain the waste material. Coal ash impoundments, also known as ash landfills, coal ash ponds, and flue gas disposal ponds, were not universally regulated in the United States until December 19, 2014. Before that date, the operation and closure of these impoundments were regulated at the state level if they were regulated at all. That is, in some states, the management of coal ash was not regulated, and no obligation related to the handling and retirement of ash impoundments previously existed. On December 19, 2014, after more than six years of regulatory development, the EPA released its final rule on regulating the disposal of CCR as solid waste (the “CCR rule”). The rule was published in the Federal Register on April 17, 2015, and became effective on October 14, 2015.

The CCR rule, while complicated in how it is enforced, effectively created a single standard for the operation and closure of impoundments containing coal ash across the United States. In states where no regulation existed before, the CCR rule created a retirement obligation. However, in states that previously regulated the closure of these impoundments, the CCR rule either reinforced or amended the existing state requirements. As a result, the recognition and measurement of retirement obligations created by the CCR rule have given rise to diversity and complexity in practice, particularly for utilities operating in many states.

While the CCR rule is fairly straightforward, the initial recognition of an ARO for a long-lived asset that is already well into its estimated life is more complicated. As previously discussed in Chapter 4, ASC 410-20-25-4 requires an entity to recognize the fair value of an ARO in the period in which the liability is incurred if a reasonable estimate of the fair value of the liability can be made. Making a reasonable estimate of the obligation associated with closing an often old and complex ash impoundment proved challenging immediately after the CCR rule became law. Estimating the retirement or closure costs often required the estimation of ash volumes already within the impoundments, in some situations with very little information available about the original design or capacity of the impoundment. Many affected companies initially measured and recorded AROs on the basis of the best information then available and subsequently refined their estimates each period as additional information was obtained through studies and investigations. The initial lack of availability of complete information generally did not prevent the recognition of some portion of the liability.

Because of the CCR rule, many entities began accounting for AROs associated with coal ash impoundments for the first time. Consequently, the application of the accounting guidance in ASC 410-20 to these AROs proved challenging. Challenges included, but were not limited to, the following:

Inclusion of operational costs before closure (e.g., groundwater monitoring, maintenance) in the measurement of the ARO.
Failure to include long-term PCC activities after closure in the expected cash flows.
Estimates using internal cost without proper consideration of fair value concepts (e.g., profit margin, risk premiums).
Basic estimates lacking due diligence and consideration of leading industry practices.

Assumptions included in an ARO estimate should be well supported, and consideration should be given to the expertise of those persons who develop ARO estimates. Assistance from external subject matter experts may be required.

Connecting the Dots

Accounting for New AROs

As additional information becomes available, entities should continually reassess AROs, particularly when accounting for new AROs created by newly enacted laws or regulations. Chapter 4 provides additional guidance on the accounting for changes to an ARO that result from changes in the timing or amount of expected cash flows. Further, in these circumstances, entities should ensure that those responsible for the development of asset retirement/closure cost estimates are familiar with the accounting guidance, or that there is extensive coordination between operational personnel, subject matter experts, and finance/accounting personnel with expertise in the requirements of ASC 410-20 when developing the cost estimates and other assumptions that underlie an ARO.

Consistency of ARO Cost Estimates

A company may be required, in accordance with the terms of an operating permit or otherwise, to obtain certain forms of financial assurance associated with an ARO to guarantee the funding needed to satisfy the ARO in the event of the company’s insolvency. Under ASC 410-20-35-9, methods of providing assurance include surety bonds, insurance policies, letters of credit, guarantees by other entities, and establishment of trust funds or identification of other assets dedicated to satisfying an ARO.

Obtaining financial assurance typically requires a company to submit cost estimates associated with satisfying its ARO. An estimate developed for assurance or insurance purposes may include or exclude costs that should be excluded from or included in the measurement of an ARO under ASC 410-20, or it may be based on assumptions regarding timing or method of settlement that are inconsistent with the requirements of ASC 410-20. However, a company should evaluate the consistency of cost estimates made for assurance or insurance purposes when measuring the fair value of an ARO under the guidance in ASC 410-20 to understand the reasons for any significant differences.

5.5.1.2 Recent CCR Developments

For most coal power generators with CCR units, 2018 marked the completion of background groundwater monitoring, in which companies gathered data about groundwater in and around their units to determine concentrations of a select list of chemicals and what would indicate a statistically significant level (SSL) of excess contamination under federal cleanup standards.

Recently, there has been an increase in reporting and public scrutiny of the groundwater data, together with a resulting push on companies to address the excess contamination. While there is still some uncertainty regarding state enforcement, the likelihood of some enforcement action is high. We expect continued public scrutiny and believe that more states are likely to push for stricter management of CCR implementation.

The federal standards (40 CFR Sections 257.96–98) set forth an accelerated schedule for the investigation of remedial options and the implementation of some form of corrective measure. Specifically, within 90 days of identifying an SSL of excess contamination, a company must begin a corrective measures assessment. Further, within 180 days of completing the assessment, implementation must begin.

Over the past few years, many instances of excess contamination have been reported. However, the determination of statistical significance was largely held off until the completion of background sampling, which for most companies occurred in 2018.

5.5.1.2.1 The Final Closure Part A Rule

On August 28, 2020, the EPA’s final Closure Part A rule was published in the Federal Register. Effective as of September 28, 2020, the final Closure Part A rule altered many of the environmental standards that plants were required to meet to maintain regulatory compliance. Under this final rule:

Plant owners were required to initiate closure of unlined CCR impoundments, or impoundments not meeting location restrictions, by April 11, 2021, unless the EPA granted them an extension. Any request for an extension had to be submitted as soon as possible but no later than November 30, 2020.
Operations under the site-specific alternative closure provision for unlined impoundments were required to cease by October 15, 2023, at the latest.
Owners and operators of unlined impoundments that meet all location restrictions, comply with the safety factor assessment requirements, and have not detected a statistically significant increase (SSI) above an applicable groundwater protection standard must cease operations by October 15, 2024, at the latest.
The time frames for the alternative closure provision involving the cessation of coal-fired generation remain the same as those specified by the CCR rule published in the Federal Register on April 17, 2015.
Unlined impoundments that are 40 acres or smaller were required to stop receiving waste and to complete closure by October 17, 2023, while unlined impoundments larger than 40 acres must do so by October 17, 2028.

The EPA reviewed the 57 demonstrations submitted by facilities for extensions to the deadline for unlined CCR surface impoundments to stop receiving waste in accordance with 40 CFR Section 257.103(f)(1) and (f)(2). As of May 17, 2024, the EPA has issued proposed decisions for 12 facilities and is in the process of reviewing the remaining submitted demonstrations.

5.5.1.2.2 The Final Closure Part B Rule

On November 12, 2020, the EPA’s final Closure Part B rule was published in the Federal Register. Under this rule, which became effective on December 14, 2020, a limited number of facilities were allowed to demonstrate to the EPA or a participating state director that, on the basis of groundwater data and the design of specific surface impoundments, they can and will continue to ensure that there is no reasonable probability of adverse effects on human health and the environment. The EPA accepted Part B demonstration applications in accordance with the rule until December 14, 2020 (the application submission deadline under previous regulations had been November 30, 2020). On January 11, 2022, the EPA determined that seven applications were complete and that one facility had withdrawn its application. Another facility withdrew its application in the fall of 2022, leaving a total of six complete applications awaiting EPA determinations. On January 25, 2023, the EPA proposed denial determinations on all of those complete applications.

5.5.1.2.3 Final Rule on Legacy CCR Surface Impoundments and CCR Management Units

On May 8, 2024, the EPA’s final rule on legacy CCR surface impoundments and CCR management units (CCRMUs) was published in the Federal Register. The final rule was developed, in part, in response to an August 21, 2018, ruling of the U.S. Court of Appeals for the D.C. Circuit, which vacated and remanded the EPA’s exemption of inactive impoundments at inactive facilities from the CCR rule published in the Federal Register on April 17, 2015.

The three main elements of the final rule are as follows:

Legacy CCR surface impoundments — The final rule introduces a definition for legacy CCR surface impoundments, which are inactive surface impoundments at inactive power plants. These impoundments must adhere to the same regulations as inactive CCR impoundments at active power plants, barring location restrictions and liner design criteria, with customized compliance deadlines.
CCRMUs — The final rule stipulates groundwater monitoring, corrective action, closure, and postclosure care requirements for CCRMUs, which are at active and inactive power plants with a legacy CCR surface impoundment. CCRMUs include CCR surface impoundments and landfills closed before October 19, 2015, and inactive CCR landfills.
Facility evaluation reports (FERs) — The final rule mandates new reporting requirements. The owners and operators of legacy CCR surface impoundments must prepare FERs that identify and describe the CCRMUs. In a manner consistent with existing CCR rules, facilities must publish FERs on their CCR Web sites in two parts, within 15 months (Part 1) and 27 months (Part 2) of the final rule’s effective date.

The timeline presented in the final rule as it applies to legacy CCR surface impoundments is as follows:

	Legacy CCR Surface Impoundments
November 8, 2024	Complete applicability report Establish CCR Web site Implement site security Prepare dust fugitive plans Initiate weekly inspections Initiate monthly monitoring of CCR unit instrumentation
January 8, 2025	Install permanent marker
February 10, 2025	Complete initial annual inspection of the CCR unit
January 8, 2026	Complete initial annual fugitive dust report
February 9, 2026	Compile history of construction
May 8, 2026	Complete initial hazard potential classification assessment Complete initial structural stability assessment Complete initial safety factor assessment Prepare emergency action plan Complete initial inflow design flood control system plan
January 31, 2027	Complete initial annual groundwater monitoring and corrective action (GWMCA) report
May 10, 2027	Install the groundwater monitoring system Develop the groundwater sampling and analysis program Initiate detection monitoring and assessment monitoring Begin evaluating the groundwater monitoring data for SSIs over background levels and SSLs over the groundwater protection standard
November 8, 2027	Prepare written closure plan Prepare written postclosure plan
May 8, 2028	Initiate closure

The timeline presented in the final rule as it applies to CCRMUs is as follows:

	CCRMUs
February 9, 2026	Establish CCR Web site Complete FER Part I
February 8, 2027	Complete FER Part 2
May 8, 2028	Install the groundwater monitoring system Develop the groundwater sampling and analysis program Initiate the detection monitoring and assessment monitoring Begin evaluating the groundwater monitoring data for SSIs over background levels and SSLs over the groundwater protection system
November 8, 2028	Prepare written closure plan Prepare written postclosure plan
January 31, 2029	Complete initial annual GWMCA report
May 8, 2029	Initiate closure

5.5.1.2.4 Potential Accounting Impact

All of the recent CCR developments discussed above could have an accounting impact depending on the recognition of an additional liability (corrective action), the probability of enforcement, the level of remedial action required, and whether impoundment closure will even be required. This year, we expect that in situations in which contamination above a cleanup level has been identified, companies will need to consider recognizing costs related to further investigation and likely remediation.

Connecting the Dots

As discussed in Section 4.3, entities should account for legal obligations associated with a change in law or regulation in the period in which such law or regulation has been enacted. The enactment date is the date on which all steps in the process for legislation to become law have been completed. For rules and regulations issued by federal regulatory agencies to implement enacted U.S. laws, the enactment date is generally the date on which final rules or regulations promulgated by the federal regulatory agency are published in the Federal Register, which may differ from the effective date of such rules or regulations.

5.5.2 Manufactured Gas Plants

Manufactured gas plants (MGPs) in the United States date back to the early 19th century and were in operation as late as the mid-1970s. The manufacturing of synthetic gas was necessary because of the limited availability of natural gas and the difficulty of transporting it. The chemical process, while relatively simple, resulted in significant amounts of residual waste. The waste products, which are persistent, still contaminate many former MGP sites and are the basis for many environmental remediation liabilities. The contamination from former MGP operations may have continued over decades, and in many cases, this contamination has remained unremediated. The result is often contamination spread across a site horizontally, with vertical distribution from near the surface to well below groundwater and into bedrock.

In terms of accounting for MGP liabilities, there is no clear industry consensus on whether the remediation costs should be treated as AROs under ASC 410-20 or as environmental remediation liabilities under ASC 410-30. When it can be clearly shown that the regulatory remediation obligations can be delayed (to a point that they can be reasonably estimated), it may be appropriate to treat the liabilities as AROs. When the regulatory remediation obligations cannot be further delayed, treatment as environmental remediation liabilities may be appropriate.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.