Income Taxes (APSC) (Tables)

12 Months Ended

Dec. 31, 2013

Tabular reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, at the beginning and end of the year

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):

	2013			2012			2011
Total unrecognized tax benefits, January 1	$	133,422		$	136,005		$	127,595
Additions for tax positions of the current year	3,516			5,167			10,915
Additions for tax positions of prior years	13,158			—			—
Reductions for tax positions of prior years for:
Changes in judgment	(108,099		)	(7,729		)	(1,555		)
Settlements with taxing authorities	—			—			(124		)
Lapses of applicable statute of limitations	—			(21		)	(826		)
Total unrecognized tax benefits, December 31	$	41,997		$	133,422		$	136,005

Components of income tax expense

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

	Year Ended December 31,
	2013			2012			2011
Current:
Federal	$	(81,784	)	$	(3,493	)	$	(310	)
State	10,537			8,395			15,140
Total current	(71,247		)	4,902			14,830
Deferred:
Federal	279,973			200,322			159,566
State	21,865			28,280			16,626
Total deferred	301,838			228,602			176,192
Total income tax expense	230,591			233,504			191,022
Less: income tax expense (benefit) on discontinued operations	—			(3,813		)	7,418
Income tax expense — continuing operations	$	230,591		$	237,317		$	183,604

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 from continuing operations at the 35% federal income tax rate to income tax expense — continuing operations (dollars in thousands):

	Year Ended December 31,
	2013			2012			2011
Federal income tax expense at 35% statutory rate	$	234,695		$	229,709		$	188,733
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit	21,387			23,819			19,594
Credits and favorable adjustments related to prior years resolved in current year	(3,356		)	—			—
Medicare Subsidy Part-D	823			483			823
Allowance for equity funds used during construction (see Note 1)	(6,997		)	(6,158		)	(6,881		)
Palo Verde VIE noncontrolling interest (see Note 19)	(11,862		)	(11,065		)	(9,636		)
Other	(4,099		)	529			(9,029		)
Income tax expense — continuing operations	$	230,591		$	237,317		$	183,604

Net deferred income tax liability recognized on the Balance Sheets

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

	December 31,
	2013			2012
Current asset	$	91,152		$	152,191
Long-term liability	(2,351,882		)	(2,151,371		)
Deferred income taxes — net	$	(2,260,730	)	$	(1,999,180	)

Components of the net deferred income tax liability

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

	December 31,
	2013			2012
DEFERRED TAX ASSETS
Risk management activities	$	44,920		$	72,243
Regulatory liabilities:
Asset retirement obligation and removal costs	235,959			238,669
Unamortized investment tax credits	82,116			53,837
Other	42,609			33,764
Pension and other postretirement liabilities	198,642			408,764
Renewable energy incentives	65,434			66,941
Credit and loss carryforwards	133,070			139,022
Other	148,492			68,844
Total deferred tax assets	951,242			1,082,084
DEFERRED TAX LIABILITIES
Plant-related	(2,903,730		)	(2,584,166		)
Risk management activities	(16,191		)	(23,940		)
Regulatory assets:
Allowance for equity funds used during construction	(43,058		)	(37,899		)
Deferred fuel and purchased power	(8,282		)	(28,858		)
Deferred fuel and purchased power — mark-to-market	(13,343		)	(15,796		)
Pension and other postretirement benefits	(129,250		)	(316,757		)
Other	(93,202		)	(68,170		)
Other	(4,916		)	(5,678		)
Total deferred tax liabilities	(3,211,972		)	(3,081,264		)
Deferred income taxes — net	$	(2,260,730	)	$	(1,999,180	)

ARIZONA PUBLIC SERVICE COMPANY

Tabular reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, at the beginning and end of the year

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):

	2013			2012			2011
Total unrecognized tax benefits, January 1	$	133,241		$	135,824		$	126,698
Additions for tax positions of the current year	3,516			5,167			10,915
Additions for tax positions of prior years	13,158			—			—
Reductions for tax positions of prior years for:
Changes in judgment	(107,918		)	(7,729		)	(1,555		)
Settlements with taxing authorities	—			—			(124		)
Lapses of applicable statute of limitations	—			(21		)	(110		)
Total unrecognized tax benefits, December 31	$	41,997		$	133,241		$	135,824

Components of income tax expense

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

	Year Ended December 31,
	2013			2012			2011
Current:
Federal	$	(97,531	)	$	(11,650	)	$	4,633
State	11,983			12,308			19,104
Total current	(85,548		)	658			23,737
Deferred:
Federal	305,389			216,367			154,632
State	25,254			27,371			14,173
Total deferred	330,643			243,738			168,805
Total income tax expense	$	245,095		$	244,396		$	192,542

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

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

	Year Ended December 31,
	2013			2012			2011
Federal income tax expense at 35% statutory rate	$	246,384		$	235,027		$	194,710
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit	23,970			25,379			21,139
Credits and favorable adjustments related to prior years resolved in current year	(3,231		)	—			—
Medicare Subsidy Part-D	823			483			823
Allowance for equity funds used during construction (see Note 1)	(6,997		)	(6,158		)	(6,880		)
Palo Verde VIE noncontrolling interest (see Note 19)	(11,862		)	(11,065		)	(9,633		)
Other	(3,992		)	730			(7,617		)
Income tax expense	$	245,095		$	244,396		$	192,542

Net deferred income tax liability recognized on the Balance Sheets

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

	December 31,
	2013			2012
Current asset (liability)	$	(2,033	)	$	74,420
Long-term liability	(2,347,724		)	(2,133,976		)
Deferred income taxes — net	$	(2,349,757	)	$	(2,059,556	)

Components of the net deferred income tax liability

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

	December 31,
	2013			2012
DEFERRED TAX ASSETS
Regulatory liabilities:
Asset retirement obligation and removal costs	$	235,959		$	238,669
Unamortized investment tax credits	82,116			53,837
Other	42,609			33,764
Risk management activities	44,920			72,243
Pension and other postretirement liabilities	186,213			392,486
Renewable energy incentives	65,434			66,941
Credit and loss carryforwards	38,183			52,441
Other	166,781			111,327
Total deferred tax assets	862,215			1,021,708
DEFERRED TAX LIABILITIES
Plant-related	(2,903,730		)	(2,584,166		)
Risk management activities	(16,191		)	(23,940		)
Regulatory assets:
Allowance for equity funds used during construction	(43,058		)	(37,899		)
Deferred fuel and purchased power	(8,282		)	(28,858		)
Deferred fuel and purchased power — mark-to-market	(13,343		)	(15,796		)
Pension and other postretirement benefits	(129,250		)	(316,757		)
Other	(93,202		)	(68,170		)
Other	(4,916		)	(5,678		)
Total deferred tax liabilities	(3,211,972		)	(3,081,264		)
Deferred income taxes — net	$	(2,349,757	)	$	(2,059,556	)