DTE Energy 2012 Annual Report Download - page 77

Table of Contents
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The Company has a legal retirement obligation for the decommissioning costs for its Fermi 1 and Fermi 2 nuclear plants, dismantlement of facilities
located on leased property and various other operations. The Company has conditional retirement obligations for gas pipelines, asbestos and PCB removal at
certain of its power plants and various distribution equipment. The Company recognizes such obligations as liabilities at fair market value when they are
incurred, which generally is at the time the associated assets are placed in service. Fair value is measured using expected future cash outflows discounted at
our credit-adjusted risk-free rate. In its regulated operations, the Company recognizes regulatory assets or liabilities for timing differences in expense recognition
for legal asset retirement costs that are currently recovered in rates.
If a reasonable estimate of fair value cannot be made in the period in which the retirement obligation is incurred, such as for assets with indeterminate
lives, the liability is recognized when a reasonable estimate of fair value can be made. Natural gas storage system assets, substations, manholes and certain
other distribution assets have an indeterminate life. Therefore, no liability has been recorded for these assets.
A reconciliation of the asset retirement obligations for 2012 follows:
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Asset retirement obligations at December 31, 2011 $1,593
Accretion 100
Liabilities incurred 27
Liabilities settled (11)
Revision in estimated cash flows 10
Asset retirement obligations at December 31, 2012 1,719
In 2001, DTE Electric began the final decommissioning of Fermi 1, with the goal of removing the remaining radioactive material and terminating the
Fermi 1 license. In 2011, based on management decisions revising the timing and estimate of cash flows, DTE Electric accrued an additional $ 19
million with respect to the decommissioning of Fermi 1. Management has suspended decommissioning activities and placed the facility in safe storage status.
The expense amount has been recorded in Asset (gains) and losses, reserves and impairments, net on the Consolidated Statements of Operations. In addition,
in 2011, based on updated studies revising the timing and estimate of cash flows, a reduction of approximately $ 20 million was made to the DTE Electric
asset retirement obligation for asbestos removal with approximately $ 6 million of the decrease associated with Fermi 1 recorded in Asset (gains) and losses,
reserves and impairments, net on the Consolidated Statements of Operations.
In October 2011, the MPSC approved DTE Electric's request for a reduction to the nuclear decommissioning surcharge under the assumption that it
would request an extension of the Fermi 2 license for an additional 20 years beyond the term of the existing license which expires in 2025. DTE Electric expects
to request the license extension in 2014. This proposed extension of the license, including the associated impact on spent nuclear fuel, resulted in a revision in
estimated cash flows for the Fermi 2 asset retirement obligation of approximately $ 22 million in 2011. It is estimated that the cost of decommissioning Fermi 2
is $1.5 billion in 2012 dollars and $10 billion in 2045 dollars, using a 6% inflation rate. Approximately $1.5 billion of the asset retirement obligations
represent nuclear decommissioning liabilities that are funded through a surcharge to electric customers over the life of the Fermi 2 nuclear plant.
The NRC has jurisdiction over the decommissioning of nuclear power plants and requires minimum decommissioning funding based upon a formula.
The MPSC and FERC regulate the recovery of costs of decommissioning nuclear power plants and both require the use of external trust funds to finance the
decommissioning of Fermi 2. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level
radioactive waste. DTE Electric is continuing to fund FERC jurisdictional amounts for decommissioning even though explicit provisions are not included in
FERC rates. The Company believes the MPSC and FERC collections will be adequate to fund the estimated cost of decommissioning. The decommissioning
assets, anticipated earnings thereon and future revenues from decommissioning collections will be used to decommission Fermi 2. The Company expects the
liabilities to be reduced to zero at the conclusion of the decommissioning activities. If amounts remain in the trust funds for Fermi 2 following the completion of
the decommissioning activities, those amounts will be disbursed based on rulings by the MPSC and FERC.
A portion of the funds recovered through the Fermi 2 decommissioning surcharge and deposited in external trust accounts is designated for the removal
of non-radioactive assets and returning the site to greenfield. This removal and greenfielding is not considered a legal liability. Therefore, it is not included in
the asset retirement obligation, but is reflected as the nuclear
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