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14.5 Nuclear decommissioning trust funds
Publication date: 19 Jan 2024
us Utilities guide
NRC regulations require nuclear power plant licensees to demonstrate that the appropriate level of funds will be available for the decommissioning process. Nuclear decommissioning trust funds are commonly used by nuclear plant licensees to meet decommissioning funding requirements. Figure UP 14-3 provides a high-level summary of some of the NRC’s requirements.
Figure UP 14-3
Nuclear regulatory commission decommissioning requirements
Nuclear regulatory commission decommissioning requirements
Factor |
Considerations |
Financial assurance requirements
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Nuclear plant licensees must demonstrate financial assurance for decommissioning through one or more of the following methods:
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Reporting requirements
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Licensees must report the status of decommissioning funds to the NRC at least once every two years and then annually when the plant is within five years of the planned shutdown and once operations cease. Required information includes:
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Additional considerations for nuclear decommissioning trust funds
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In addition to the requirements highlighted above, the NRC has many other requirements related to nuclear decommissioning trust funds as discussed in Title 10 of the Code of Federal Regulations, Part 50.75.
This section discusses accounting issues associated with investments held in nuclear decommissioning trust funds from the perspective of the owner of the trust fund (e.g., the utility that is a nuclear licensee).
14.5.1 Accounting for nuclear decommissioning trust funds (after adoption of ASU 2016-13)
This section reflects guidance in ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which is currently effective for all entities. The guidance reflected in this section assumes that a reporting entity has adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments (which introduces new accounting models related to the determination of credit losses on financial instruments).
Nuclear decommissioning trust funds typically comprise debt and equity securities and would therefore be subject to the accounting guidance within ASC 320, Investments – Debt securities, or ASC 321, Investments – Equity securities, respectively. A regulated utility may be able to record a regulatory asset or liability to offset changes in fair value that would otherwise be recognized in earnings in accordance with ASC 320 or ASC 321 (see UP 17.3.1, including Question UP 17-3 for additional information).
Question UP 14-2
Are nuclear decommissioning trust fund investments eligible for the fair value option under ASC 825, Financial Instruments?
Are nuclear decommissioning trust fund investments eligible for the fair value option under ASC 825, Financial Instruments?
PwC response
Yes. ASC 825-10-15-4(a) indicates that a recognized financial asset or financial liability is eligible for the fair value option. Equity and debt securities are financial assets and thus meet this criterion.
Items for which a reporting entity is precluded from applying the fair value option by ASC 825-10-15-5 include investments in consolidated entities, investments held in pension and other postretirement plans, amounts accounted for as leases, and financial instruments classified by the issuer as part of equity. These exceptions would generally not impact investments held in nuclear decommissioning trust funds. Thus, investments held in nuclear decommissioning trust funds typically are eligible for the fair value option.
Reporting entities that elect the fair value option for nuclear decommissioning trust fund investments are required to make the election at the time the investments are purchased; the election is irrevocable. Sufficiently clear documentation of such election should be completed at the time the election is made.
Under the fair value option, amounts are recognized on the balance sheet at fair value, and gains and losses are recognized each reporting period in earnings. See FV 5 for further information on the application of the fair value option.
14.5.1.1 Accounting for equity securities held by nuclear decommissioning trust funds
Figure UP 14-4 summarizes the accounting models for equity securities held by nuclear decommissioning trust funds.
Figure UP 14-4
Accounting for equity securities held by nuclear decommissioning trust funds
Accounting for equity securities held by nuclear decommissioning trust funds
No readily determinable fair value |
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Accounting consideration |
Readily determinable fair value |
NAV practical expedient |
Measurement alternative |
Measurement basis
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Impairment assessment
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Investments in equity securities with readily determinable fair values are reported at fair value (as determined in accordance with ASC 820, Fair value measurement) with changes in fair value recorded in earnings. If the fair value of an equity security is not readily determinable, it may be eligible for the NAV practical expedient provided in ASC 820-10-35-59 or the measurement alternative in ASC 321-10-35-2 as further described below. If neither the NAV practical expedient nor the measurement alternative is elected, the equity security will be measured at fair value with changes in fair value recorded in earnings.
Equity securities: NAV practical expedient
If the fair value of an equity security is not readily determinable, a reporting entity should first determine whether it is eligible to be measured using the NAV practical expedient provided in ASC 820-10-35-59. The criteria for application of the NAV practical expedient are discussed in ASC 820-10-15-4:
Excerpt ASC 820-10-15-4
Paragraphs 820-10-35-59 through 35-62 and 820-10-50-6A shall apply only to an investment that meets both of the following criteria as of the reporting entity's measurement date:
e. The investment does not have a readily determinable fair value
a. The investment is in an investment company within the scope of Topic 946 or is an investment in a real estate fund for which it is industry practice to measure investment assets at fair value on a recurring basis and to issue financial statements that are consistent with the measurement principles in Topic 946.
If the security qualifies for the practical expedient, the reporting entity may decide whether to elect it; the election may be applied on an investment-by-investment basis. If the security qualified and the reporting entity does not elect the NAV practical expedient, the security will not be eligible for the measurement alternative described below and must be measured at fair value with changes in value reported in earnings.
When the NAV practical expedient is elected, the reporting entity measures the equity security using the NAV per share as a measure of the fair value of the security. Examples of investments that may qualify include investments in private equity funds, registered mutual funds, and common collective trusts. See FV 6.2.6 for additional information on the practical expedient.
Equity securities: measurement alternative
Equity securities without a readily determinable fair value that are not eligible for the NAV practical expedient may qualify for a measurement alternative under ASC 321. This measurement alternative is not available for equity securities for which the fair value option in ASC 825 has been elected.
Application of the measurement alternative is optional and, when elected, should be applied upon acquisition of an equity security on an instrument-by-instrument basis. ASC 312-10-35-2 provides guidance on the measurement alternative election.
An entity may elect to measure an equity security without a readily determinable fair value that does not qualify for the practical expedient to estimate fair value in accordance with paragraph 820-10-35-59 at its cost minus impairment, if any. If an entity identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, it shall measure the equity security at fair value as of the date that the observable transaction occurred. An election to measure an equity security in accordance with this paragraph shall be made for each investment separately. Once an entity elects to measure an equity security in accordance with this paragraph, the entity shall continue to apply the measurement guidance in this paragraph until the investment does not qualify to be measured in accordance with this paragraph (for example, if the investment has a readily determinable fair value or becomes eligible for the practical expedient to estimate fair value in accordance with paragraph 820-10-35-59). The entity shall reassess at each reporting period whether the equity investment without a readily determinable fair value qualifies to be measured in accordance with this paragraph. If an entity measures an equity security in accordance with this paragraph (and the security continues to qualify for measurement in accordance with this paragraph), the entity may subsequently elect to measure the equity security at fair value. If an entity subsequently elects to measure an equity security at fair value, the entity shall measure all identical or similar investments of the same issuer, including future purchases of identical or similar investments of the same issuer, at fair value. The election to measure those securities at fair value shall be irrevocable. Any resulting gains or losses on the securities for which that election is made shall be recorded in earnings at the time of the election.
Under this measurement alternative, the equity interest is recorded at cost, less impairment, if any. Subsequently, the carrying amount should be remeasured to its fair value per the provisions of ASC 820 when observable price changes (i.e., observable prices in orderly transactions for an identical or similar investment of the same issuer) occur. Refer to LI 2.3.2.2. for further details on applying the measurement alternative, including examples of observable transactions/prices.
An ongoing assessment will need to be performed to determine whether an equity interest for which the measurement alternative has been elected has become impaired. The equity security is impaired if based on a qualitative assessment of impairment indicators, the fair value of the equity interest is less than its carrying amount. If considered impaired, the difference between the carrying amount and fair value should be recorded in net income.
Refer to LI 2.3.2.5 for further details on impairment considerations applicable when the measurement alternative is elected.
If the measurement alternative is not elected, the equity security will be measured at fair value in accordance with the provisions of ASC 820, with all subsequent changes in fair value recorded in earnings.
14.5.1.2 Accounting for debt securities held by nuclear decommissioning trust funds
As required by ASC 320, at the time of acquisition, debt securities held by nuclear decommissioning trust funds should be classified as trading, available-for-sale, or held-to-maturity, as applicable. As summarized in Figure UP 14-5, the classification of a debt security is important because the accounting treatment (including measurement and impairment) and related disclosures are different for each of the three categories.
Figure UP 14-5
Accounting for debt securities held by nuclear decommissioning trust funds
Accounting for debt securities held by nuclear decommissioning trust funds
Accounting consideration |
Trading or fair value option |
Available-for-sale (AFS) |
Held to maturity |
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Measurement basis
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Impairment assessment
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Refer to LI 3.3 for more information on classifying debt securities.
One of the key issues in accounting for debt securities held by nuclear decommissioning trust funds is the recognition of impairment losses. In general, impairment testing is not necessary for trading debt securities because they are recorded at fair value. The impairment models for available-for-sale (AFS) securities and held-to-maturity securities are further discussed below.
Available-for-sale (AFS) debt securities
Available-for-sale (AFS) debt securities are not within the scope of the CECL model. ASC 326-30 provides a different impairment model that is a modified version of the other-than-temporary (OTTI) model prescribed by prior GAAP. The new AFS debt security model differs from the prior OTTI model in that it no longer allows considerations of the length of time during which the fair value has been less than its amortized cost basis when determining whether a credit loss exists; the concept of OTTI is no longer relevant under ASC 326-30.
In accordance with the guidance in ASC 326-30, an AFS debt security is impaired if its fair value is below its amortized cost. If a security is impaired, a reporting entity must consider if it intends to sell the security or will more likely than not be required to sell the security before recovery of the security’s amortized cost basis.
Refer to LI 8.2.3 for more information on assessing if the entity intends to sell or will more likely than not be required to sell an impaired AFS debt security.
If an AFS debt security is impaired, and the reporting entity intends to sell the security, or it is more likely than not that the reporting entity will be required to sell the security before recovery of the amortized cost basis, then the impairment loss is recorded as a direct write-down to the security’s amortized cost basis with an offsetting entry to earnings. The amount of the write-down is the difference between the fair value and the amortized cost basis of the security, which would include both credit and noncredit related factors.
If an AFS debt security is impaired, but the reporting entity does not meet the guidance for intending to sell or more likely than not being required to sell the security before the amortized cost basis is recovered, the reporting entity should determine whether the impairment is due to credit or noncredit factors. If the present value of cash flows expected to be collected is less than the security’s amortized cost basis, a credit-related impairment exists, and the difference should be recorded in earnings as an allowance for credit losses. Any remaining difference between the security’s fair value and amortized cost basis is considered to be non-credit-related impairment and should be recorded in other comprehensive income. The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the AFS debt security (i.e., the model contains a “fair value floor”).
Refer to LI 3.4.3 for more information on accounting for AFS debt securities and to LI 8.2.4 for additional details on determining whether an impairment is related to credit or noncredit factors.
Question UP 14-3
Does the involvement of a third-party investment manager impact the reporting entity’s ability to assert that it is not more likely than not that it will sell a debt security?
Does the involvement of a third-party investment manager impact the reporting entity’s ability to assert that it is not more likely than not that it will sell a debt security?
PwC response
It depends. Using a third-party investment manager will not necessarily preclude a reporting entity from being able to assert that it does not intend to sell the security and that it is not more likely than not that it will be required to sell the security.
A third-party investment manager typically acts as an agent for the reporting entity and performs a function that the reporting entity itself could legally perform. Although the contractual arrangement between the reporting entity and the asset manager may provide the asset manager with discretion regarding which assets to buy and sell, this discretion is typically defined within the parameters of a given investment strategy that is approved by the reporting entity. Effectively, the operation of the third-party asset manager is not dissimilar to that of the reporting entity’s internal asset managers, who must comply with internal investment guidelines. In this situation, management should still be able to assert that it does not intend to sell the security, and that it is not more likely than not that the entity will be required to sell the security through discussions with and instructions to the third-party investment manager.
Although management may not be able to prevent a third-party investment manager from selling an impaired debt security, were such a sale to occur, it would not necessarily be the same as a “required sale” as discussed in ASC 326-30-35-10.
Excerpt from ASC 326-30-35-10
If an entity does not intend to sell the debt security, the entity shall consider available evidence to assess whether it more likely than not will be required to sell the security before the recovery of its amortized cost basis (for example, whether its cash or working capital requirements or contractual or regulatory obligations indicate that the security will be required to be sold before the forecasted recovery occurs).
Consistent with the guidance in ASC 326-30-35-10, only sales that involve a level of legal, regulatory, or operational compulsion should be considered “required” sales. If the assets managed by the third-party investment manager are not needed to fund current operating needs or to satisfy other legal or regulatory requirements, the fact that the reporting entity may not be able to prevent the manager from selling the debt security would not prevent the reporting entity from asserting that it is not more likely than not that it would be required to sell these securities. In addition, the fact that a third-party investment manager may sell a debt security does not necessarily mean that the sale is more likely than not.
Because of the unique regulatory environment and oversight by the NRC, industry practice in accounting for debt securities held in nuclear decommissioning trust funds is to consider all sales by the third-party investment manager to be “required.” Further, this approach assumes that a reporting entity’s inability to prevent the asset manager from selling an impaired debt security also prevents it from asserting that it is more likely than not that these sales will not occur, resulting in recording an other-than-temporary impairment for any impaired securities managed by a third-party investment manager. This industry practice should be considered an accounting policy election that should be applied consistently to all similar investments.
Held-to-maturity debt securities
Held-to-maturity debt securities are monetary assets reported at amortized cost and, therefore, are subject to an ongoing evaluation for impairment under the CECL impairment model.
Under the CECL impairment, held-to-maturity debt securities will have expected credit losses recorded through an allowance for credit losses account. A reporting entity should update its estimate for current expected losses on the debt securities at each reporting period and adjust the allowance for credit losses accordingly. Increases in the allowance are recorded through net income as credit loss expense. Decreases in the allowance are recorded through net income as a reversal of credit loss expense.
Refer to LI 3.4.1 for more information on accounting for debt securities classified as held-to-maturity. LI 7 provides general guidance on applying the CECL impairment model, and specific considerations for assets carried at amortized cost (e.g., held-to-maturity debt securities) are discussed in LI 7.3.2.
1 Source: NRC website as of December 2022.
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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