Asset Retirement Obligations

12 Months Ended

Dec. 31, 2012

Asset Retirement Obligations

Asset Retirement Obligations

12. 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.  In the first quarter of 2011, a new decommissioning study with updated cash flow estimates was completed for Palo Verde.  This study reflects the twenty-year license extension approved by the NRC on April 21, 2011, which extends the commencement of decommissioning to 2045.

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.  The Four Corners coal-fired power plant asset retirement obligation relates to final plant decommissioning, including ash pond closures.  In the fourth quarter of 2012, a new study related to ash pond closure was completed which updated the total cost estimates and related cash flow estimates.

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 distribution and transmission assets.

Additionally, APS has aquifer protection permits for some of its generation sites that require the closure of certain facilities at those sites.

The following schedule shows the change in our asset retirement obligations for 2012 and 2011 (dollars in millions):

	2012		2011
Asset retirement obligations at the beginning of year	$	280	$	329
Changes attributable to:
Accretion expense	19		19
Estimated cash flow revisions	58		(68		)
Asset retirement obligations at the end of year	$	357	$	280

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.