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
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Coal ash impoundments
|
|
Manufactured gas plants
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Storage tanks, impoundments, and vaults
|
|
Solar
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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 coal
combustion residuals 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 coal combustion residuals 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.
In May 2022, the EPA and a Colorado utility company reached
an agreement to settle allegations of
noncompliance with CCR regulations. The agreement commits the company to
addressing groundwater contamination issues and ensuring the proper closure
of CCR surface impoundments under RCRA. In addition, the agreement provides
that the company will pay a civil penalty of $925,000. The agreement
demonstrates the EPA’s commitment to working with its state partners to hold
owners and operators of CCR facilities accountable for the damage that has
occurred.
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 October 15, 2023, the EPA had issued
proposed decisions for seven facilities and was 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 Advance Notices of Proposed Rulemaking and Proposed Rule on Legacy CCR Surface Impoundments and CCR Management Units
The EPA issued an advance notice of proposed rulemaking (ANPRM) that
was published in the Federal Register on October 14, 2020. The
ANPRM was released 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. In
the ANPRM, the EPA sought comments and data on inactive surface
impoundments at inactive electric utilities, referred to as “legacy CCR
surface impoundments” or “legacy units,” to help the agency develop
future regulations for these CCR units. For example, the EPA
requested:
- “[I]nput on regulatory authority and a potential definition of a legacy CCR surface impoundment.”
- “[S]pecific information on the types of
inactive surface impoundments at inactive facilities that might
be considered legacy CCR surface impoundments,” particularly:
- “[H]ow many of these units might exist.”
- “[T]heir current status (e.g., capped, dry, closed according to state requirements, still holding water).”
- “[N]ames and locations of former power plants that may have these units and when [the plants] closed.”
- “[C]omment on which CCR regulations should apply to legacy CCR surface impoundments and on suggestions for timeframes that EPA should prescribe for coming into compliance with those regulations.”
The original due date for comments was December 14,
2020. However, in a second ANPRM, which was published
in the Federal Register on December 14, 2020, the EPA extended the first
ANPRM’s comment period to February 12, 2021.
Subsequently, in response to the August 21, 2018,
federal appellate court ruling noted above, the EPA issued a
proposed rule that was published in
the Federal Register on May 18, 2023. The proposed rule would
require the safe management of coal ash dumped in areas that are
currently unregulated at the federal level. Such areas include (1)
inactive power plants with surface impoundments that are no longer being
used and (2) historical coal ash disposal areas at power plants with
regulated coal ash units. The proposed rule would apply to historical
contamination and inactive units that no longer support current power
plant operations.
Because legacy CCR surface impoundments are often unlined and
unmonitored, they are more prone to leaks and structural problems than
units at facilities that are currently in service. Consequently, the
proposed rule would provide safeguards for legacy CCR surface
impoundments that are similar to those for inactive impoundments at
active facilities, requiring the proper closure of impoundments and
remediating CCR-contaminated groundwater.
In addition, the proposed rule would address CCR management units
(CCRMUs). As a result of the implementation of the 2015 CCR rule, the
EPA found that power plants with regulated impoundments had also
disposed of coal ash in areas outside of regulated units and that many
utilities had identified those areas as a source of detected groundwater
contamination. Those areas, or CCRMUs, include surface impoundments and
landfills that closed before the effective date of the 2015 CCR rule,
inactive CCR landfills, and other areas where coal ash is placed
directly on the land. The proposed rule would establish groundwater
monitoring, corrective action, closure, and postclosure care
requirements for those areas.
The public comment period for the proposed rule closed on July 17, 2023.
Subject to any revisions made on the basis of comments received, the
provisions in the proposed rule would become effective six months after
publication of a final rule in the Federal Register. Until then,
no facility would be required to meet any of the new requirements. The
EPA has proposed that for both legacy CCR surface impoundments and
CCRMUs, facilities would first need to prepare written reports that
identify the units, delineate the units’ boundaries, include figures of
the facilities and where the units are located, and specify the size of
the units. The facilities would then make these reports publicly
accessible on their Web sites.
The proposed rule’s compliance timeline is outlined in the table
below.
|
Legacy Impoundments
|
CCRMUs
| |
|---|---|---|
|
Effective date (6 months after finalization
|
|
—
|
|
3 months after effective date
|
|
Complete facility evaluation report.
|
|
6 months after effective date
|
|
|
|
9 months after effective date
|
Prepare:
|
—
|
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12 months after effective date
|
|
|
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24 months after effective date
|
|
|
Utility companies should start preparing now. They should assess how the
proposed rule would affect their sites by inventorying legacy and CCRMU
sites. In addition, they should consider the timeline to determine when
an accrual should be established and when adjustments should be
made.
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.
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.