Fact Sheets

The Facts About Nuclear Decommissioning Trust Funds

The Facts About Nuclear Decommissioning Trust Funds: No Reason to Change the Tax Rate on Earnings

July 2012


  • Every nuclear power plant in the United States is required, by the Nuclear Regulatory Commission, to set aside sufficient funds to decommission the plant when it reaches the end of its useful life.
  • These monies are collected from electricity consumers as part of their electric bill and deposited in a trust fund.
  • These nuclear decommissioning trust funds are not the property of the electric utility. They are outside the electric utility’s control. In bankruptcy situations, for example, decommissioning trust funds cannot be used to satisfy creditors’ claims.

Tax Treatment of Nuclear Decommissioning Trust Funds

  • Until 1992, the earnings in nuclear decommissioning trust funds were taxed at the general corporate rate (then 34 percent, now approximately 39 percent).
  • In 1992, in the Energy Policy Act, Congress changed the tax treatment of nuclear decommissioning trust funds, and reduced the tax rate on earnings to 20 percent.
  • Congress took this step after determining that the general corporate tax rate was not appropriate.
  • Because the nuclear decommissioning trust funds are the property of customers (not the electric companies) and dedicated irrevocably to decommissioning, Congress determined that earnings in the trust funds should be subject to an average tax rate representative of the tax rate paid by average Americans.
  • After consultations with, and analysis by, the Joint Committee on Taxation and the U.S. Treasury Department, Congress found that a 20 percent tax rate was representative of the average tax rate paid by consumers of electricity.

Higher Tax Rate on Nuclear Decommissioning Trust Funds Would Be a New Tax On Electricity Consumers

  • As Congress searches for ways to reduce federal spending and increase federal revenues, some have suggested that the tax rate on earnings in nuclear decommissioning trust funds should be increased to the general corporate rate.
  • Increasing the taxes paid by nuclear decommissioning trust funds would be unwise and unfair, and would have one of two equally unacceptable results:
  1. it would basically represent a new tax on consumers of electricity, since consumers would be forced to make up the difference between the lower tax rate and the higher tax rate, or
  2. it would reduce the amount of money available for decommissioning a nuclear power plant at the end of its life.
  • Either result represents bad public policy. The rationale for the 20-percent tax rate on earnings in nuclear decommissioning trust funds is as sound today as it was in 1992, when Congress changed the tax rate on earnings.

For the Record

“Payments made by electric utilities to decommissioning funds represent amounts collected from their customers. Because the actual decommissioning costs will not be incurred for many years to come, these amounts are essentially advance payment by the utility customers. If these advance payments were not required, utility customers could retain these monies until such time as the actual decommissioning costs were incurred. If the customers invested these amounts until needed to pay decommissioning costs, the earnings in such investments would be subject to Federal taxation at the average marginal tax rate of the customers. Accordingly, sound public policy dictates that customers should not be penalized by the application of an arbitrarily inflated tax rate on earnings of customer monies simply because they are aggregated in an external trust fund. Rather, the earnings of decommissioning funds should be subject to the rate of taxation comparable to the marginal rate the customers would pay if they retained these funds.

“The Edison Electric Institute, the trade organization of investor-owned electric utility companies, undertook a study to develop the composite marginal tax rate of electric utility customers. The study concluded that the average marginal tax rate is 16.61 percent….”

−Testimony of the Utility Decommissioning Tax Group to the House Committee on Ways and Means, Subcommittee on Select Revenue Measures, March 9, 1990.