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 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.

In 2013, a decommissioning study with updated cash flow estimates was completed for Palo Verde, which resulted in a decrease of $52 million. Also in 2013, APS finalized the transaction to acquire SCE’s interest in Four Corners. As part of that transaction, APS assumed SCE’s asset retirement obligation resulting in an increase to the ARO of $34 million. In addition, on December 30, 2013, APS also retired Four Corners Units 1-3 and began decommissioning activities. Finally, Four Corners spent $12 million in actual decommissioning costs. An update was made to the timing of the Units 1-3 decommissioning cash flows to coincide with the expected decommissioning activities. This update resulted in a decrease to the ARO of $4 million.

The following schedule shows the change in our asset retirement obligations for 2014 and 2013 (dollars in millions):



	2014			2013
Asset retirement obligations at the beginning of year	$	347		$	357
Changes attributable to:
Accretion expense	24			24
Settlements	(30		)	(12		)
Assumed SCE’s obligation	—			34
Estimated cash flow revisions	44			(56		)
Newly incurred obligation	6			—
Asset retirement obligations at the end of year	$	391		$	347

As mentioned above, decommissioning activities for Four Corners Units 1-3 began in January 2014; and, $32 million of the total ARO at December 31, 2014, was classified as a current liability on the balance sheet. At December 31, 2013, $33 million of the total ARO of $347 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.