Asset Retirement Obligations

APS has asset retirement obligations for its Palo Verde nuclear facilities and certain other generation 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 2016, APS recognized an ARO for the Ocotillo steam units as a condition of the air permit (issued in 2016) to allow the construction and operation of five new turbine units. This resulted in an increase to the ARO in the amount of $10 million. In addition, 4CA acquired El Paso's share of Four Corners Units 4 & 5 and the associated ARO. This resulted in an increase to the ARO in the amount of $9 million. In addition, Four Corners spent $16 million in actual decommissioning costs. Finally, in 2016, APS received a new decommissioning study for the Palo Verde Nuclear Generating Station. This resulted in an increase to the ARO in the amount of $151 million, an increase in plant in service of $131 million, and a reduction of the regulatory liability of $20 million.

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.

The following table shows the change in our asset retirement obligations for 2016 and 2015 (dollars in thousands):



	2016			2015
Asset retirement obligations at the beginning of year	$	443,576		$	390,750
Changes attributable to:
Accretion expense	26,656			25,163
Settlements	(15,732		)	(32,048		)
Estimated cash flow revisions	151,046			17,556
Newly incurred or acquired obligations	18,929			42,155
Asset retirement obligations at the end of year	$	624,475		$	443,576

Decommissioning activities for Four Corners Units 1-3 began in January 2014. Thus, $9 million of the total ARO of $624 million at December 31, 2016, is classified as a current liability on the balance sheet. At December 31, 2015, $29 million of the total ARO of $444 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.