Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Schedule of unrecognized tax benefits roll forward

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, at the beginning and end of the year that are included in accrued taxes and unrecognized tax benefits (dollars in thousands):



	Pinnacle West Consolidated									APS Consolidated
	2015			2014			2013			2015			2014			2013
Total unrecognized tax benefits, January 1	$	44,775		$	41,997		$	133,422		$	44,775		$	41,997		$	133,241
Additions for tax positions of the current year	2,175			4,309			3,516			2,175			4,309			3,516
Additions for tax positions of prior years	—			751			13,158			—			751			13,158
Reductions for tax positions of prior years for:
Changes in judgment	(10,244		)	(2,282		)	(108,099		)	(10,244		)	(2,282		)	(107,918		)
Settlements with taxing authorities	—			—			—			—			—			—
Lapses of applicable statute of limitations	(2,259		)	—			—			(2,259		)	—			—
Total unrecognized tax benefits, December 31	$	34,447		$	44,775		$	41,997		$	34,447		$	44,775		$	41,997

Summary of unrecognized tax benefits

Included in the balances of unrecognized tax benefits are the following tax positions that, if recognized, would decrease our effective tax rate (dollars in thousands):



	Pinnacle West Consolidated						APS Consolidated
	2015		2014		2013		2015		2014		2013
Tax positions, that if recognized, would decrease our effective tax rate	$	9,523	$	11,207	$	9,827	$	9,523	$	11,207	$	9,827

The amount of interest expense or benefit recognized related to unrecognized tax benefits are as follows (dollars in thousands):



	Pinnacle West Consolidated								APS Consolidated
	2015			2014		2013			2015			2014		2013
Unrecognized tax benefit interest expense/(benefit) recognized	$	(161	)	$	752	$	(3,716	)	$	(161	)	$	752	$	(3,716	)

Following are the total amount of accrued liabilities for interest recognized related to unrecognized benefits that could reverse and decrease our effective tax rate to the extent matters are settled favorably (dollars in thousands):



	Pinnacle West Consolidated						APS Consolidated
	2015		2014		2013		2015		2014		2013
Unrecognized tax benefit interest accrued	$	804	$	965	$	213	$	804	$	965	$	213

Components of income tax expense

The components of income tax expense are as follows (dollars in thousands):



	Pinnacle West Consolidated								APS Consolidated
	Year Ended December 31,								Year Ended December 31,
	2015			2014		2013			2015		2014		2013
Current:
Federal	$	(12,335	)	$	25,054	$	(81,784	)	$	6,485	$	40,115	$	(97,531	)
State	4,763			10,382		10,537			7,813		15,598		11,983
Total current	(7,572		)	35,436		(71,247		)	14,298		55,713		(85,548		)
Deferred:
Federal	221,505			167,365		279,973			208,326		165,027		305,389
State	23,787			17,904		21,865			23,217		16,620		25,254
Total deferred	245,292			185,269		301,838			231,543		181,647		330,643
Income tax expense	$	237,720		$	220,705	$	230,591		$	245,841	$	237,360	$	245,095

Comparison of pretax income from continuing operations at the federal income tax rate to income tax expense - continuing operations

The following chart compares pretax income at the 35% federal income tax rate to income tax expense (dollars in thousands):



	Pinnacle West Consolidated									APS Consolidated
	Year Ended December 31,									Year Ended December 31,
	2015			2014			2013			2015			2014			2013
Federal income tax expense at 35% statutory rate	$	242,869		$	225,540		$	234,695		$	250,267		$	239,638		$	246,384
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit	18,265			18,149			21,387			20,433			21,148			23,970
Credits and favorable adjustments related to prior years resolved in current year	(2,169		)	—			(3,356		)	(1,892		)	—			(3,231		)
Medicare Subsidy Part-D	837			830			823			837			830			823
Allowance for equity funds used during construction (see Note 1)	(9,711		)	(8,523		)	(6,997		)	(9,711		)	(8,523		)	(6,997		)
Palo Verde VIE noncontrolling interest (see Note 18)	(6,626		)	(9,135		)	(11,862		)	(6,626		)	(9,135		)	(11,862		)
Investment tax credit amortization	(5,527		)	(4,928		)	(3,548		)	(5,527		)	(4,928		)	(3,548		)
Other	(218		)	(1,228		)	(551		)	(1,940		)	(1,670		)	(444		)
Income tax expense	$	237,720		$	220,705		$	230,591		$	245,841		$	237,360		$	245,095

Net deferred income tax liability recognized on the Consolidated Balance Sheets

The following table shows the net deferred income tax liability recognized on the Consolidated Balance Sheets (dollars in thousands):



	Pinnacle West Consolidated						APS Consolidated
	December 31,						December 31,
	2015			2014			2015			2014
Current asset	$	—		$	122,232		$	—		$	55,253
Long-term liability	(2,723,425		)	(2,582,636		)	(2,764,489		)	(2,571,365		)
Deferred income taxes — net	$	(2,723,425	)	$	(2,460,404	)	$	(2,764,489	)	$	(2,516,112	)

Components of the net deferred income tax liability

The components of the net deferred income tax liability were as follows (dollars in thousands):



	Pinnacle West Consolidated						APS Consolidated
	December 31,						December 31,
	2015			2014			2015			2014
DEFERRED TAX ASSETS
Risk management activities	$	70,498		$	57,505		$	70,498		$	57,505
Regulatory liabilities:
Asset retirement obligation and removal costs	216,765			229,772			216,765			229,772
Unamortized investment tax credits	100,779			96,232			100,779			96,232
Other postretirement benefits	83,034			90,496			83,034			90,496
Other	60,707			60,409			60,707			60,409
Pension liabilities	191,028			205,227			181,787			194,541
Renewable energy incentives	60,956			65,169			60,956			65,169
Credit and loss carryforwards	59,557			68,347			—			—
Other	149,033			138,729			176,016			161,379
Total deferred tax assets	992,357			1,011,886			950,542			955,503
DEFERRED TAX LIABILITIES
Plant-related	(3,116,752		)	(2,958,369		)	(3,116,752		)	(2,958,369		)
Risk management activities	(10,626		)	(12,171		)	(10,626		)	(12,171		)
Other postretirement assets	(71,737		)	(59,170		)	(70,986		)	(58,495		)
Regulatory assets:
Allowance for equity funds used during construction	(54,110		)	(48,286		)	(54,110		)	(48,286		)
Deferred fuel and purchased power	—			(2,498		)	—			(2,498		)
Deferred fuel and purchased power — mark-to-market	(55,020		)	(38,187		)	(55,020		)	(38,187		)
Pension benefits	(240,692		)	(191,747		)	(240,692		)	(191,747		)
Retired power plant costs (see Note 3)	(53,420		)	(57,255		)	(53,420		)	(57,255		)
Other	(108,441		)	(99,123		)	(108,441		)	(99,123		)
Other	(4,984		)	(5,484		)	(4,984		)	(5,484		)
Total deferred tax liabilities	(3,715,782		)	(3,472,290		)	(3,715,031		)	(3,471,615		)
Deferred income taxes — net	$	(2,723,425	)	$	(2,460,404	)	$	(2,764,489	)	$	(2,516,112	)