ASSET RETIREMENT OBLIGATIONS

The Company records the fair value of a liability for an asset retirement obligation (ARO) in the period in which it is incurred. When the liability is initially recorded, the associated costs of the ARO are capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its present value each period and the related capitalized costs are depreciated over the useful life of the related asset. Upon retirement of the asset, the Company either settles the ARO for its recorded amount or incurs a gain or loss. The Company records regulatory assets and liabilities for the difference between asset retirement costs currently recovered in rates and AROs recorded since asset retirement costs are recovered through rates charged to customers. The regulatory assets do not earn a return.

Specifically, the Company has recorded liabilities for future asset retirement obligations to:


•	restore ponds at Colstrip,


•	cap a landfill at the Kettle Falls Plant,


•	remove plant and restore the land at the Coyote Springs 2 site at the termination of the land lease,


•	remove asbestos at the corporate office building, and


•	dispose of PCBs in certain transformers.

Due to an inability to estimate a range of settlement dates, the Company cannot estimate a liability for the:


•	removal and disposal of certain transmission and distribution assets, and


•	abandonment and decommissioning of certain hydroelectric generation and natural gas storage facilities.

The following table documents the changes in the Company’s asset retirement obligation during the years ended December 31 (dollars in thousands):



	2014			2013			2012
Asset retirement obligation at beginning of year	$	2,859		$	3,168		$	3,513
Liability settled	(41		)	(263		)	(559		)
Accretion expense (income)	210			(46		)	214
Asset retirement obligation at end of year	$	3,028		$	2,859		$	3,168

In addition to the AROs described above, on December 19, 2014, the EPA issued its pre-publication version of a final rule regarding the disposal of coal ash. This rule is expected to be published in the Federal Register in early 2015 and the rule is not effective until six months after it is published in the Federal Register; therefore, the Company does not have a revised legal obligation until the third quarter of 2015 when the rule is effective. The Company will continue to review the potential costs of complying with the new coal ash rule and its impacts on the valuation of the Company's ARO at Colstrip to restore ponds to their original states. The Company cannot currently estimate the cost impact of future regulation. If the Company incurs incremental costs as a result of these regulations, it would seek recovery in customer rates.