Revised nuclear decommissioning fund contribution schedule approved

Plain-English summary

A regulated utility requested approval of a revised schedule of deductible contributions to its nuclear decommissioning reserve fund. The schedule used the utility's ownership share, a decommissioning cost study, projected inflation, an assumed after-tax return, and the timing of expected decommissioning work. The IRS found that the utility was an eligible taxpayer with a qualifying ownership interest and that the proposed schedule used reasonable assumptions consistent with IRC § 468A. It approved the redacted annual ruling amount for the specified years. The utility must seek another revision if a triggering event occurs and otherwise must request a revised schedule by the required tenth-year deadline.

Ruling snapshot

• Question: Does the proposed revised schedule of nuclear decommissioning fund ruling amounts satisfy section 468A?
• Outcome: Approved
• Key authorities: IRC § 468A; Treas. Reg. §§ 1.468A-1 through 1.468A-3 and 1.468A-7

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202519001 Third Party Communication: None
Release Date: 5/9/2025 Date of Communication: Not Applicable
Index Number: 468A.04-02
Person To Contact:
-------------------- ----------------, ID No. -----------------
-------------------------- Telephone Number:
---------------------------------- -------------------
------------------------------ Refer Reply To:
------------------------- CC:ECE:B02
PLR-105552-23
Date:
February 04, 2025

LEGEND:

Taxpayer = -----------------------------------------------------------
Parent = ----------------------------------------------------------
Commission A = ------------------------------------------------
Commission B = -----------------------------------------------------
State = -----------
Plant = --------------------------------------------------
Location = -------------------------------
Order = -----------------------------------------------------
Independent = ------------------------------------------------------------------------------------
Study ---------------------------------------
Method = -----------
BA = -----------------
FV = -----------------
a = ------
b = ------
c = ------
Year A = -------
Year B = -------
Year C = -------
Year D = -------
Year E = -------
Amount = -------------
Date 1 = ----------------------------------------------------------------------
Date 2 = --------------------------------------------------------
Date 3 = --------------------------------------------------------------------
PLR-105552-23 2

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

This letter responds to your request, dated March 7, 2023, for an elective review of
revised schedule of ruling amounts under § 468A(d)(3) of the Internal Revenue Code
and § 1.468A-3(f)(2) of the Income Tax Regulations. The Internal Revenue Service
(Service) most recently approved a previous request on Date 1 for a schedule of ruling
amounts for Plant.

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

                                      FACTS

Taxpayer is a member of an affiliated group that files a consolidated federal income tax
return, whose common parent is Parent. Taxpayer is subject to the regulation by
Commission A and Commission B for ratemaking and decommissioning purposes.

Taxpayer owns a% of the qualifying interest in Plant at Location. Taxpayer maintains a
nuclear decommissioning reserve fund (the Fund) for Plant.

In Order issued on Date 2 Commission A ruled that, effective January 1, 2023, the
Taxpayer will include in its cost of service an amount of annual decommissioning
expense reflecting the cost necessary to decommission the radioactive portion of the
nuclear units based upon the 2021 Nuclear Regulatory Commission's minimum funding
requirements and the costs to manage spent nuclear fuel from the nuclear facilities after
decommissioning and the spent nuclear fuel storage facilities.

The estimated cost of $BA (Year A dollars) was used as a base cost for
decommissioning Taxpayer’s share of Plant. The estimated cost of decommissioning
Taxpayer’s share (a%) of the Plant in future dollars is $FV. It is estimated that
substantial decommissioning costs will first be incurred in Year B and that
decommissioning will be substantially complete at the end of Year C. The methodology
used to convert the Year A dollars to future dollars was by escalating the estimated
costs, depending on the category of cost being escalated, at an inflation rate of b%, to
the year of estimated expenditure. The assumed after-tax rate of return to be earned by
the amounts collected for decommissioning is c%

                                    ANALYSIS

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.
PLR-105552-23 3

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 §468A. The Act amendment of §468A
eliminated the cost-of-service limitation. Accordingly, decommissioning 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 2½ 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 §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 §1.468A-2(b)(1) does
not apply to any “special transfer” permitted under §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."
PLR-105552-23 4

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
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 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
PLR-105552-23 5

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).

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-3(e)(1) and (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.

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.
2. Taxpayer has a qualifying ownership interest in the Plant and is, therefore, an
   eligible taxpayer under §1.468A-1(b)(1).
3. Taxpayer has calculated its share of the total decommissioning costs under
   §1.468A-3(d).

4. The proposed schedule of ruling amounts was derived by following the
   assumptions contained in Study which Taxpayer has represented is a standard
   type study used in the industry. Taxpayer has demonstrated, pursuant to §
   1.468A-3(a)(4), that the proposed schedule of ruling amounts is based on
   PLR-105552-23 6

   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. We have
   approved the following schedule of ruling amounts.

            APPROVED SCHEDULE OF RULING AMOUNTS
   

   Years Ruling Amount
   Each Year, Year D – Year E $Amount

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 this schedule of ruling amounts is received.

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 whether the independent decommissioning study conforms to
industry standards and practices.

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. In accordance with the Power of
Attorney on file with this office, a copy of this letter is being sent to your authorized
representative.

Pursuant to § 1.468A-7(a), a copy of this letter must be attached (with the required
Election Statement) to Taxpayer's federal income tax return for each tax year in which
the Taxpayer claims a deduction for payments made to the Fund.

                                   Sincerely,


                                   Patrick S. Kirwan
                                   Branch Chief, Branch 2
                                   (Energy, Credits, and Excise Tax (ECE))

Enclosure (1)
PLR-105552-23 7

cc: -----------------------------------
------------------------------------------------------
------------------------------
-----------------------------
-------------------------

 -----------------
 ---------------------------------------------------------
 -------------------------