A nuclear utility's spent-fuel storage costs count as "decommissioning costs" payable from its qualified fund

Plain-English summary

A public utility owns a majority interest in a nuclear plant with three reactors. For each reactor it maintains a qualified nuclear decommissioning reserve fund (a QNDRF) under § 468A, a fund whose contributions are deductible now to cover future cleanup costs. Because the U.S. Department of Energy is not yet accepting spent nuclear fuel for permanent disposal, the utility built an on-site facility (an ISFSI) to store the waste and collected money from ratepayers to pay for it. The utility asked whether the costs of that storage facility qualify as "nuclear decommissioning costs" that can be paid out of the QNDRF, even though the deductibility of those costs might be limited by potential DOE reimbursements treated as insurance. The IRS ruled yes: under the § 468A regulations, spent-fuel storage (ISFSI) costs are decommissioning costs, and the regulations deliberately do not require those specific storage costs to be "otherwise deductible." The IRS expressed no opinion on whether or when any particular amount is actually deductible.

Ruling snapshot

• Question: Do a nuclear utility's on-site spent-fuel storage (ISFSI) costs qualify as "nuclear decommissioning costs" payable from its qualified § 468A fund, even if their deductibility may be limited by potential DOE reimbursements?
• Outcome: Approved (storage costs qualify and may be paid from the QNDRF)
• Key authorities: IRC § 468A; Treas. Reg. § 1.468A-1(b)(6) and (b)(6)(ii); T.D. 9906

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202218003 Third Party Communication: None
Release Date: 5/6/2022 Date of Communication: Not Applicable
468A.00-00
Person To Contact:

------------------ ------------------------, ID No. -----------------
------------------------------------------------------- Telephone Number:
-------------------------------- --------------------
----------------------------- Refer Reply To:
CC:PSI:B06
--------------------------- PLR-116142-21
Date:
In Re: January 31, 2022
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LEGEND:

Taxpayer = ---------------------------------------------------------------------------------

Parent = -----------------------------------------------------

State A = --------------

Commission A = ---------------------------------------------------

Commission B = ------------------------------------------------------

Plant = -------------------------------------------------------

Dear --------------:

   This letter responds to your request dated August 9, 2021, for a ruling regarding

the application of § 468A of the Internal Revenue Code to the facts set forth below.

FACTS:

       Taxpayer represents the facts and information related to its request as follows:

    Taxpayer, a State A corporation, is a wholly-owned subsidiary of Parent. Parent

is incorporated in State A. Taxpayer is included in Parent’s consolidated tax return, filed
(electronically) on a calendar year basis, using the accrual method of accounting.
PLR-116142-21 2

  Taxpayer is a public utility, subject the jurisdiction of Commission A and

Commission B. Taxpayer has majority ownership in Plant, containing three separate
nuclear reactors, and for each reactor, maintains a Qualified (under § 468A) Nuclear
Decommissioning Reserve Fund (QNDRF) and a non-Qualified Nuclear
Decommissioning Reserve Fund (non-QNDRF).

   The Nuclear Waste Policy Act of 1982 states that the United States Government

is responsible for the permanent disposal of high-level radioactive waste and spent
nuclear fuel. Taxpayer, as a condition of its Nuclear Regulatory Commission license,
enters into contracts with the United States Department of Energy (DOE) to provide for
the disposal of its nuclear waste.

  Spent nuclear fuel is a highly-radioactive byproduct of nuclear power generation

that must cool in a spent fuel pool for three to five years before it is moved to either
temporary or permanent dry storage. After the cooling period, Taxpayer moves the
nuclear waste to dry storage in an Independent Spent Fuel Storage Installation (ISFSI).
Taxpayer is responsible for the storage and related costs of nuclear waste until it is
accepted by the DOE.

    Currently the DOE is not accepting nuclear waste for disposal. Taxpayer has

thus constructed an ISFSI at Plant site to store nuclear waste. Over the years of
operation of Plant, Taxpayer has collected amounts from ratepayers to pay for, inter
alia, the costs of storing the spent nuclear waste and contributed these monies to a
QNDRF.

RULING REQUESTED:

Whether amounts that are to be used to pay for ISFSI-related costs constitute “nuclear
decommissioning costs” as defined in § 468A and the regulations thereunder and may
therefore be paid from the applicable QNDRF where the deductibility of such costs may
be limited as a result of potential DOE reimbursements being considered compensated
for by insurance or otherwise.

LAW AND ANALYSIS:

    Section 468A(a) of the Internal Revenue Code (Code) allows taxpayers with a

qualifying interest in a nuclear power plant to currently deduct the future costs of
decommissioning the nuclear power plant by making contributions to a Fund prior to
when economic performance occurs.

   Treasury Regulation Section 1.468A-1(b)(6) provides that “nuclear

decommissioning costs” means all otherwise deductible expenses to be incurred in
connection with the entombment, decontamination, dismantlement, removal and
disposal of the structures, systems and components of a nuclear power plant, whether
PLR-116142-21 3

that nuclear power plant will continue to produce electric energy or has permanently
ceased to produce electric energy. Such term includes all otherwise deductible
expenses to be incurred in connection with the preparation for decommissioning, such
as engineering and other planning expenses, and all otherwise deductible expenses to
be incurred with respect to the plant after the actual decommissioning occurs, such as
physical security and radiation monitoring expenses. Such term also includes costs
incurred in connection with the construction, operation, and ultimate decommissioning
of a facility used solely to store, pending acceptance by the government for permanent
storage or disposal, spent nuclear fuel generated by the nuclear power plant or plants
located on the same site as the storage facility. Such term does not include otherwise
deductible expenses to be incurred in connection with the disposal of spent nuclear fuel
under the Nuclear Waste Policy Act of 1982 (Pub.L. 97- 425). An expense is “otherwise
deductible” for purposes of this paragraph (b)(6) if it would be deductible under chapter
1 of the Internal Revenue Code without regard to section 280B.

   Section 1.468A-1(b)(6)(ii) of the regulations provide that the term nuclear

decommissioning costs or decommissioning costs, as applicable to this title, also
includes expenses incurred in connection with the construction, operation, and ultimate
decommissioning of a facility used solely to store, pending delivery to a permanent
repository or disposal, spent nuclear fuel generated by one or more nuclear power
plants (for example, an ISFSI). Such term does not include otherwise deductible
expenses to be incurred in connection with the disposal of spent nuclear fuel under the
Nuclear Waste Policy Act of 1982 (Pub. L. 97-425).

   It is important to note that the regulations discussed above require that amounts

expended or to be expended for purposes related to nuclear decommissioning be
“otherwise deductible” for those expenses to be considered “nuclear decommissioning
costs” except for those amounts to be expended in connection with the construction,
operation, and ultimate decommissioning of a facility used solely to store, pending
delivery to a permanent repository or disposal, spent nuclear fuel generated by one or
more nuclear power plants (that is, directly related to an ISFSI). This is a deliberate
choice in drafting the regulations. Section 1.A. of Treasury Decision 9906 confirmed
that the requirement that an expense be “otherwise deductible” is not applicable to costs
related to storing spent nuclear fuel generated by a nuclear power plant or plants (T.D.
9906, 85 FR 55185, 55186-87).

RULING:

  Based upon the facts submitted and the representations made by the taxpayer,

we reach the following conclusion:

Amounts currently held in a QNDRF to be used to pay for ISFSI-related costs constitute
“nuclear decommissioning costs” as defined in § 468A and the regulations thereunder
and may therefore be paid from that QNDRF where the deductibility of such costs may
PLR-116142-21 4

be limited as a result of potential DOE reimbursements being considered compensated
for by insurance or otherwise.

    Except as specifically set forth above, no opinion is expressed or implied

concerning the federal income tax consequences of the above-described facts under
any other provision of the Code or regulations. In particular, we express no opinion
regarding the deductibility of any amount under any provision of the Code or the timing
of that deduction for any amounts expended related to an ISFSI under the situation
described above.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the

Code provides that it may not be used or cited as precedent.

     This ruling is based upon information and representations submitted by Taxpayer

and accompanied by penalty of perjury statements executed by an appropriate party.
While this office has not verified any of the material submitted in support of the request
for rulings, it is subject to verification on examination.

     In accordance with the power of attorney on file with this office, a copy of this

letter is being sent to your authorized representatives.

                                               Sincerely,

                                               Patrick S. Kirwan
                                               Chief, Branch 6
                                               Office of Associate Chief Counsel
                                               (Passthroughs & Special Industries)

cc: