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14.3 Accounting for nuclear fuel
Publication date: 19 Jan 2024
us Utilities guide
The nuclear fuel life cycle covers the period of mining the uranium, converting it into fuel, using it to produce electricity, and disposing of the “spent” or used nuclear fuel. Accounting issues associated with the initial and subsequent accounting for nuclear fuel, including spent nuclear fuel, are discussed in this section.
14.3.1 Initial accounting for nuclear fuel
Unlike other fuels, such as natural gas or coal, nuclear fuel installation is accounted for as plant, instead of inventory, because it is a long-lived tangible asset that meets the definition of property, plant, and equipment in ASC 360-10-05-3.
Property, plant, and equipment typically consist of long-lived tangible assets used to create and distribute an entity’s products and services and include:
- Land and land improvements
- Buildings
- Machinery and equipment
- Furniture and fixtures.
The construction costs associated with fabricating and installing the fuel are generally accounted for like other construction work in progress (see UP 12.2 for information on costs to be included in construction of a plant). As a result, capitalized interest (or allowance for funds used during construction by regulated utilities) may be accrued as follows:
- For the initial core load (initial construction of the plant), capitalized interest can accrue up to the commercial date of the reactor (see UP 12.2.1.3).
- For subsequent reloads of nuclear fuel, capitalized interest can accrue until all nuclear fuel assemblies have been received from fabrication.
Question UP 14-1
Can contracts to supply nuclear fuel be the subject of a lease?
Can contracts to supply nuclear fuel be the subject of a lease?
PwC response
Yes. Unlike uranium, nuclear fuel installation is a depreciable, long-lived tangible asset that meets the definition of property, plant, and equipment. As such, it may be the subject of a lease. Therefore, reporting entities that have adopted ASC 842 should evaluate whether (1) contracts for nuclear fuel contain an identified asset and (2) whether the right to control the use of the identified asset is conveyed to the purchaser. See UP 2 for additional details on the lease evaluation under ASC 842.
Reporting entities that have not adopted ASC 842 should evaluate whether (1) fulfillment of the contract is dependent on the use of identified property, plant, or equipment, and (2) if the contract conveys the right to control the use of the property, plant, or equipment. See UP 2A for additional details on the lease evaluation under ASC 840.
14.3.2 Subsequent accounting for nuclear fuel
Once the nuclear fuel has been fabricated, assembled, and is ready for use, the reporting entity should consider subsequent accounting. The cost of nuclear fuel in the reactor is typically amortized based on a unit-of-production method. The amortization rate is developed based on the total cost of fuel in the reactor and the estimated energy to be produced from the fuel.
The same approach is applied whether the reporting entity has purchased the nuclear fuel or is leasing it. In the case of leased nuclear fuel accounted for under ASC 842, the entire rental expense (including the amortization of the right of use asset) is generally included in fuel costs.
14.3.3 Spent nuclear fuel
After the nuclear fuel is fully utilized to produce power, it is termed “spent nuclear fuel” and is typically stored for future disposal. Spent nuclear fuel is highly radioactive because of the fission product content. It must be allowed to cool and decrease in radioactivity for several months in a spent-fuel pool. After this cooling down period, the spent nuclear fuel requires long-term storage or disposal.
The US Department of Energy (DOE) has responsibility for the permanent disposal of spent nuclear fuel and processed high-level radioactive waste. Under the Nuclear Waste Policy Act of 1982, entities that produce nuclear energy were required to pay $0.001 per kilowatt-hour of net nuclear generation to the DOE for the cost of spent nuclear fuel disposal, which is generally accrued as nuclear power is generated. However, the DOE has not yet developed an approved site for the permanent storage of spent nuclear fuel and high-level radioactive waste, even though it was legally required to start taking possession of spent nuclear fuel by January 31, 1998. As a result, at the time of this publication, there is an indefinite suspension of the payment until there is an approved solution for storage.
Spent-fuel pools have limited capacity and were not designed for the storage of all spent nuclear fuel and high-level radioactive waste generated during a nuclear unit’s life. As a result of the DOE’s delay in assuming possession of spent nuclear fuel and high-level radioactive waste, nuclear operators have had to find alternative means for the long-term storage of the spent nuclear fuel and high-level radioactive waste generated by a nuclear site. Some interim alternatives for storage of spent fuel include re-racking the spent-fuel pool, consolidating fuel rods, and using dry-cask storage. Dry-cask storage is a method of storing spent fuel that has already cooled in the spent-fuel pool for at least one year by surrounding it with inert gas inside a container called a cask.
Costs associated with interim storage solutions should be capitalized and accrued as the fuel is used. In addition, reporting entities should provide appropriate disclosures in the financial statements about significant estimates, commitments, and contingencies regarding spent fuel storage requirements.
Because of the DOE’s failure to develop an approved site for the permanent storage of spent nuclear fuel and high-level radioactive waste, many companies have reached settlements with the DOE whereby the DOE agreed to reimburse certain costs related to spent nuclear fuel. In some cases, the government also agreed to a process to reimburse subsequent annual claims.
In general, we would expect the amounts received in such settlements to reduce the carrying value of dry cask storage facility assets, similar to the accounting for contributions in aid of construction. See Question UP 12-2 for information on accounting for contributions received from others.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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