Asset Retirement Obligations

APS has asset retirement obligations for its Palo Verde nuclear facilities and certain other generation, transmission and distribution assets.

The Palo Verde asset retirement obligation primarily relates to final plant decommissioning. This obligation is based on the NRC’s requirements for disposal of radiated property or plant and agreements APS reached with the ACC for final decommissioning of the plant. The non-nuclear generation asset retirement obligations primarily relate to requirements for removing portions of those plants at the end of the plant life or lease term and coal ash pond closures. Some of APS’s transmission and distribution assets have asset retirement obligations because they are subject to right of way and easement agreements that require final removal. These agreements have a history of uninterrupted renewal that APS expects to continue. As a result, APS cannot reasonably estimate the fair value of the asset retirement obligation related to such transmission and distribution assets. Additionally, APS has aquifer protection permits for some of its generation sites that require the closure of certain facilities at those sites.

In 2015, a revision to the estimated cash flows for the decommissioning study was completed for the Four Corners coal-fired plant, which resulted in an increase to the ARO in the amount of $24 million. Also in 2015, Four Corners spent $32 million in actual decommissioning costs. In addition, APS recognized an ARO for Cholla as a result of new CCR environmental rules that were published in the Federal Register in the second quarter of 2015. See Note 10 for additional information related to the CCR environmental rules. This resulted in an increase to the ARO in the amount of $39 million, an increase in plant in service of $23 million and a reduction of the regulatory liability of $16 million. Finally, in 2015 there was a revision in estimated cash flows for the Cholla decommissioning, which resulted in a decrease of the ARO in the amount of $3 million.

In 2014, an update to the 2013 decommissioning study was completed for Palo Verde nuclear generation facility to incorporate additional spent fuel related charges resulting in an increase to the ARO in the amount of $20 million. Also in 2014, an updated Four Corners Units 1-3 coal-fired power plant decommissioning study was finalized, which resulted in an increase to the ARO of $24 million. In addition, Four Corners spent $30 million in actual decommissioning costs. Finally, in 2014 APS also recognized an ARO related to a new solar facility on leased property that requires the land to be returned to its original condition upon decommissioning of the plant, which resulted in an increase to the ARO of $6 million.

The following table shows the change in our asset retirement obligations for 2015 and 2014 (dollars in thousands):



	2015			2014
Asset retirement obligations at the beginning of year	$	390,750		$	346,729
Changes attributable to:
Accretion expense	25,163			23,567
Settlements	(32,048		)	(29,497		)
Estimated cash flow revisions	17,556			43,899
Newly incurred obligation	42,155			6,052
Asset retirement obligations at the end of year	$	443,576		$	390,750

As mentioned above, decommissioning activities for Four Corners Units 1-3 began in January 2014. Decommissioning activities for Cholla ash ponds began in January 2015. Thus, $29 million of the total ARO of $444 million at December 31, 2015, is classified as a current liability on the balance sheet. At December 31, 2014, $32 million of the total ARO of $391 million was classified as a current liability on the balance sheet.

In accordance with regulatory accounting, APS accrues removal costs for its regulated utility assets, even if there is no legal obligation for removal. See detail of regulatory liabilities in Note 3.