IRS approves a revised schedule of ruling amounts for a nuclear decommissioning fund after the plant's license was extended

Plain-English summary

The taxpayer is a regulated public utility that owns a partial interest in a nuclear power plant. Under Section 468A, a utility can take a current tax deduction for money it sets aside in a special fund to pay the eventual cost of decommissioning (safely dismantling) the plant, but only up to an annual cap called the "ruling amount," which the IRS has to approve in advance. After the plant's operating license was extended, the taxpayer had to ask the IRS for a revised schedule of ruling amounts to reflect the longer plant life. The IRS reviewed the taxpayer's cost estimates, funding period, and assumptions (drawn from an independent decommissioning study) and concluded the proposed schedule was reasonable and consistent with Section 468A and its regulations. The IRS approved the revised schedule. This matters because a utility cannot deduct any payment into a decommissioning fund without a current IRS-approved ruling amount, so the approval preserves the deductions going forward.

Ruling snapshot

• Question: Should the IRS approve the taxpayer's proposed revised schedule of ruling amounts for its nuclear decommissioning fund following the plant's license extension?
• Outcome: Approved
• Key authorities: IRC § 468A; Treas. Reg. §§ 1.468A-1, 1.468A-2, 1.468A-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202505020                                              [Third Party Communication: None
 Release Date: 1/31/2025                                        Date of Communication: Not Applicable]
 Index Number: 468A.01-00
                                                                Person To Contact:
 -------------------------                                      -----------------------------------------------------
 ---------------                                                -----
 --------------------------------------------------             Telephone Number:
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 -----------------------------------------                      Refer Reply To:
                                                                CC:PSI:B6
                                                                PLR-121552-23
 ----------------------------------------------------------     Date:
 ------------------------------------------------------------   10/29/2024
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LEGEND:

Taxpayer                   =         --------------------------------------------
----------------------------------------------------------
Plant                      =        --------------------------------------------------------------
Parent                     =         -----------------------------
----------------------------------------------------------
Company A                  =        ------------------------.
Location                   =        --------------------------------
Independent Study =                  ----------------------------------------------------------------------
------------------------------------------------------------------------
Method                     =        -----------
Commission                 =        -----------------------------------------------------
Year A                     =        -------
Year B                     =        -------
Year C                     =        -------
Year D                     =        -------
Year E                     =        -------
BA                         =        -------------------
FV                         =        -------------------
X                          =        ------
Y                          =        ------
P                          =        ---
Z                          =        ---------------
Fund                       =        ------------------------------------------
PLR-121552-23                                 2


Dear ---------------

This letter responds to your request, dated October 18, 2023, for a revised schedule of
ruling amounts pursuant to § 1.468A-3(e) of the Income Tax Regulations, following the
Unit’s license extension on December 1, 2016. This request was held in abeyance
pending the request, dated November 18, 2022, that the Service extend the time to
request this amended schedule, pursuant to § 301.9100-3 of the Procedure and
Administration Regulations. The request to extend the time was granted on August 8,
2023, and consideration of your request for a revised schedule of ruling amounts
followed.

 Taxpayer represents the facts and information relating to its request for a schedule of
ruling amounts as follows:

Taxpayer, a wholly-owned subsidiary of Parent, is a regulated public utility subject to the
jurisdiction of Commission with respect to rates, accounting practices, and other
matters. Taxpayer has an interest of P percent in Plant.

The cost estimates used by Taxpayer in the preparation of its request for this revised
schedule of ruling amounts are based on those in the Independent Study, prepared by
Company A. The proposed method of decommissioning the Plant is Method.

The estimated cost of $BA (Year C dollars) was used as a base cost for
decommissioning P percent of the Plant. The estimated cost of decommissioning P
percent of the Plant in future dollars is $FV. It is estimated that substantial
decommissioning costs will first be incurred in Year D and that decommissioning will be
substantially complete at the end of Year E. The methodology used to convert the Year
C dollars to future dollars was by escalating the estimated costs at an inflation rate of X
percent to the year of estimated expenditure. The assumed after-tax rate of return to be
earned by the amount collected for decommissioning is Y percent. The funding period
begins in the first taxable year in which a deductible payment was made to Fund and
ends in the taxable year that includes the date Plant will no longer be included in
Taxpayer’s rate base for ratemaking purposes.

Section 468A(a), as amended by the Energy Tax Incentives Act of 2005 (the Act), Pub.
L. 109-58, 119 Stat. 594, allows an electing taxpayer to deduct payments made to a
nuclear decommissioning reserve fund.

Section 468A(b) limits the amount that may be paid into the nuclear decommissioning
fund in any year to the ruling amount applicable to that year. Prior to the changes made
by the Act, the deduction was limited to the lesser of the amount included in the utility’s
cost of service for ratemaking purposes or the ruling amount. Generally, as a result,
only regulated utilities could take advantage of section 468A. The Act’s amendment of
section 468A eliminated the cost-of-service limitation. Accordingly, decommissioning
PLR-121552-23                                3

costs of an unregulated nuclear power plant may now be funded by deductible
contributions to a qualified nuclear decommissioning fund.

Section 468A(d)(1) provides that no deduction shall be allowed for any payment to the
nuclear decommissioning fund unless the taxpayer requests and receives from the
Secretary a schedule of ruling amounts. The "ruling amount" for any tax year is defined
under § 468A(d)(2) as the amount which the Secretary determines to be necessary to
fund the total nuclear decommissioning cost of that nuclear power plant over the
estimated useful life of the plant. This term is further defined to include the amount
necessary to prevent excessive funding of nuclear decommissioning costs or funding of
these costs at a rate more rapid than level funding, taking into account such discount
rates as the Secretary deems appropriate.

Section 468A(h) provides that a taxpayer shall be deemed to have made a payment to
the nuclear decommissioning fund on the last day of a taxable year if the payment is
made on account of such taxable year and is made within 2 ½ months after the close of
the tax year. This section applies to payments made pursuant to either a schedule of
ruling amounts or a schedule of deduction amounts.

Section 1.468A-1(a) provides that an eligible taxpayer may elect to deduct nuclear
decommissioning costs under section 468A of the Code. An "eligible taxpayer," as
defined under § 1.468A-1(b)(1) of the regulations, is a taxpayer that has a "qualifying
interest" in any portion of a nuclear power plant. A qualifying interest is, among other
things, a direct ownership interest.

Section 1.468A-2(b)(1) provides that the maximum amount of cash payments made (or
deemed made) to a nuclear decommissioning fund during any tax year shall not exceed
the ruling amount applicable to the nuclear decommissioning fund for such taxable year.
The limitation on the amount of cash payments for purposes of section 1.468A-2(b)(1)
does not apply to any “special transfer” permitted under section 1.468A-8.

Section 1.468A-3(a)(1) provides that, in general, a schedule of ruling amounts for a
nuclear decommissioning fund is a ruling specifying annual payments that, over the tax
years remaining in the "funding period" as of the date the schedule first applies, will
result in a projected balance of the nuclear decommissioning fund as of the last day of
the funding period equal to (and in no event more than) the "amount of
decommissioning costs allocable to the fund".

 Section 1.468A-3(a)(2) provides that, to the extent consistent with the principles and
provisions of this section, each schedule of ruling amounts shall be based on
reasonable assumptions concerning the after-tax rate of return to be earned by the
amounts collected for decommissioning, the total estimated cost of decommissioning
the nuclear plant, and the frequency of contributions to a nuclear decommissioning fund
for a taxable year. Under § 1.468A-3(a)(3), the Internal Revenue Service shall provide a
schedule of ruling amounts identical to the schedule proposed by the taxpayer, but no
PLR-121552-23                                 4

such schedule shall be provided by the Service unless the taxpayer's proposed
schedule is consistent with the principles and provisions of that section.

Section 1.468A-3(a)(4) provides that the taxpayer bears the burden of demonstrating
that the proposed schedule of ruling amounts is consistent with the principles of the
regulations and that it is based on reasonable assumptions. That section also provides
additional guidance regarding how the Service will determine whether a proposed
schedule of ruling amounts is based on reasonable assumptions. For example, if a
public utility commission established or approved the currently applicable rates for the
furnishing or sale by the taxpayer of electricity from the plant, the taxpayer can generally
satisfy this burden of proof by demonstrating that the schedule of ruling amounts is
calculated using the assumptions used by the public utility commission in its most
recent order. In addition, a taxpayer that owns an interest in a deregulated nuclear plant
may submit assumptions used by a public utility commission that formerly had
regulatory jurisdiction over the plant as support for the assumptions used in calculating
the taxpayer’s proposed schedule of ruling amounts, with the understanding that the
assumptions used by the public utility commission may be given less weight if they are
out of date or were developed in a proceeding for a different taxpayer. The use of other
industry standards, such as the assumptions underlying the taxpayer's most recent
financial assurance filing with the NRC, are described by the temporary regulations as
an alternative means of demonstrating that the taxpayer has calculated its proposed
schedule of ruling amounts on a reasonable basis. Section 1.468A-3(a)(4) further
provides that consistency with financial accounting statements is not sufficient, in the
absence of other supporting evidence, to meet the taxpayer’s burden of proof.

Section 1.468A-3(b)(1) provides that, in general, the ruling amount for any tax year in
the funding period shall not be less than the ruling amount for any earlier tax year.
Under § 1.468A-3(c)(1), the funding period begins on the first day of the first tax year for
which a deductible payment is made to the nuclear decommissioning fund and ends on
the last day of the taxable year that includes the last day of the estimated useful life of
the nuclear power plant to which the fund relates.

Section 1.468A-3(c)(2) provides rules for determining the estimated useful life of a
nuclear plant for purposes of § 468A. In general, under § 1.468A-3(c)(2)(i)(A), if the
plant was included in rate base for ratemaking purposes for a period prior to January 1,
2006, the date used in the first such ratemaking proceeding as the estimated date on
which the nuclear plant will no longer be included in the taxpayer’s rate base is the end
of the estimated useful life of the nuclear plant. Section 1.468A-3(c)(2)(i)(B) provides
that, If the nuclear plant is not described in § 1.468A-3(c)(2)(i)(A), the last day of the
estimated useful life of the nuclear plant is determined as of the date the plant is placed
in service. Under § 1.468A-3(c)(2)(i)(C), any reasonable method may be used in
determining the estimated useful life of a nuclear power plant that is not described in
§ 1.468A-3(c)(2)(i)(A).
PLR-121552-23                                5

Section 1.468A-3(d)(1) provides that the amount of decommissioning costs allocable to
a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of
decommissioning the nuclear power plant. Section 1.468A-3(d)(3) provides that a
taxpayer's share of the total estimated cost of decommissioning a nuclear power plant
equals the total estimated cost of decommissioning such plant multiplied by the
taxpayer's qualifying interest in the plant.

Section 1.468A-3(e) provides the rules regarding the manner of requesting a schedule
of ruling amounts. Section 1.468A-3(e)(1)(v) provides that the Service will not provide or
revise a ruling amount applicable to a taxable year in response to a request for a
schedule of ruling amounts that is filed after the deemed payment date (as defined in §
1.468A-2(c)(1)) for such taxable year.

Section 1.468A-3(e)(2) enumerates the information required to be contained in a
request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling
amount for any taxable year.

Section 1.468A-3(e)(3) provides that the Service may prescribe administrative
procedures that supplement the provisions of § § 1.468A(e)(1)-(2). In addition, that
section provides that the Service may, in its discretion, waive the requirements of § §
1.468A-3(e)(1) and (2) under appropriate circumstances.

       Section 1.468A-3(f)(1) describes the circumstances in which a taxpayer must
request a revised schedule of ruling amounts. Section 1.468A-3(f)(1)(iv) requires that a
taxpayer request a revised schedule or ruling amounts for the fund if the operating
license of the nuclear plant to which the fund relates is extended. The request for the
revised schedule of ruling amounts must be submitted on or before the deemed
payment deadline for the taxable year that includes the date on which the license
extension is granted.

Section 1.468A-3(f)(2) provides that any taxpayer that has previously obtained a
schedule of ruling amounts may request a revised schedule of ruling amounts. Such a
request must be made in accordance with the rules of § 1.468A-3(e). The Service shall
not provide a revised schedule of ruling amounts applicable to a taxable year in
response to a request for a schedule of ruling amounts that is filed after the deemed
payment deadline date for such taxable year.

       We have examined the representations and information submitted by the
Taxpayer in relation to the requirements set forth in § 468A and the regulations
thereunder. Based solely upon these representations of the facts, we reach the
following conclusions:

1.     Pursuant to § 1.468A-3(a)(4), Taxpayer has met its burden of demonstrating that
the proposed schedule of ruling amounts is consistent with the principles of the Code
and regulations and is based on reasonable assumptions.
PLR-121552-23                                6


2.    Taxpayer has a qualifying interest in the Plant and is, therefore, an eligible
taxpayer under § 1.468A-1(b)(1) of the regulations.

3.    Taxpayer, as an eligible taxpayer under § 1.468A-1(b)(1), has calculated its
share of the total decommissioning costs under § 1.468A-3(d)(3) of the regulations.

4.     The proposed schedule of ruling amounts was derived by following the cost
estimates contained in an independent decommissioning study that Taxpayer has
represented is a standard type study used in the industry. The funding period is
determined appropriately under § 1.468A-3(c). The annual payments specified in the
proposed schedule or ruling amounts are based on the reasonable assumptions and
determinations and will result in a projected fund balance at the end of the funding
period equal to or less than the amount of decommissioning costs allocable to the Fund.
Based on these representations, Taxpayer has demonstrated, pursuant to § 1.468A-
3(a)(4), that the proposed schedule of ruling amounts is based on reasonable
assumptions and is consistent with the principles of § 468A and the regulations
thereunder.

5.     The maximum amount of cash payments made (or deemed made) to the Fund
during any tax year is restricted to the ruling amount applicable to the Fund, as set forth
under § 1.468A-2(b)(1) of the regulations.

      Based solely on the determinations above, we conclude that the Taxpayer’s
proposed schedule of ruling amounts satisfies the requirements of § 468A of the Code.

                   APPROVED SCHEDULE OF RULING AMOUNTS

                    Year                                    Ruling Amount

               Year A-Year B                                       $Z



Approval of the schedule of ruling amounts is contingent on there being no change in
the facts and circumstances, known or assumed, at the time the current ruling is issued.
If any of the events described in § 1.468A-3(f)(1) occur in future years, the Taxpayer
must request a review and revision of the schedule of ruling amounts. Generally, the
Taxpayer is required to file such a request on or before the deemed payment deadline
date for the first taxable year in which the rates reflecting such action became effective.
When no such event occurs, the Taxpayer must file a request for a revised schedule of
ruling amounts on or before the deemed payment deadline of the tenth taxable year
following the close of the tax year in which the most recent schedule of ruling amounts
was received.
PLR-121552-23                                 7

Except as specifically determined above, no opinion is expressed or implied concerning
the Federal income tax consequences of the transaction described above. Specifically,
no determination is made as to whether the Independent Study conforms to industry
standards and practices or whether any particular item contained in that study
constitutes a nuclear decommissioning cost under § 1.468A-1(b)(6).

This ruling is directed only to the Taxpayer who requested it. Section 6110(k)(3) of the
Code provides it may not be used or cited as precedent. In accordance with the power
of attorney on file with this office, a copy of this letter is being sent to your designated
representatives. Pursuant to § 1.468A-7(a), a copy of this letter must be attached (with
the required Election Statement) to the Taxpayer's federal income tax return for each
tax year in which the Taxpayer claims a deduction for payments made to the Fund.




Sincerely,

/S/

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



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