This post was originally published on Forbes Mar 30, 201
Remember Three Mile Island? That was a really long time ago. In 1979 the movie China Syndrome, starring Jane Fonda and Michael Douglas playing a television reporter and cameraman who secretly film an accident at a nuclear power plant, was released
Due to the possibility of final resolution through an appellate decision, Generation continues to believe that it is reasonably possible that the $661 million of total unrecognized tax benefits will significantly decrease in the next twelve months.
Generation has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses. To estimate its decommissioning obligation related to its nuclear generating stations for financial accounting and reporting purposes, Generation uses a probability-weighted, discounted cash flow model which, on a unit-by-unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and are based on decommissioning cost studies, cost escalation rates, probabilistic cash flow models and discount rates.
Here, AmerGen might not fully satisfy its nuclear decommissioning liabilities until 2106. The actual decommissioning process can take sixty years to complete after the plants cease operations, with costs incurred along that time frame. The interpretation of § 461(h) that AmerGen urges would create disparate treatment of taxpayers facing the same nuclear decommissioning liabilities. Thus, there is no support for a conclusion that the economic performance rule applies only to taxpayers who build and retain plants, but not to those who buy and sell plants. ....
AmerGen was advised before it purchased the plants that it could not accelerate the future decommissioning liabilities. It requested the sellers of the plants to increase the amount of their decommissioning funds before transferring both qualified and nonqualified decommissioning funds to AmerGen. After the purchase, AmerGen did not contribute additional money of its own to those funds, but instead sought to include the estimated decommissioning costs in the basis of its acquired assets in order to make depreciation and amortization deductions.
We therefore agree with the Claims Court and conclude that § 461(h) is applicable in determining when and whether an accrual method taxpayer, such as AmerGen, incurs nuclear decommissioning liabilities for purposes of calculating the basis of acquired nuclear power plants and associated assets. AmerGen's future decommissioning liabilities must be deemed incurred under § 461(h) before they are includable in the basis of the purchased assets.