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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

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):



	2014			2013			2012
Total unrecognized tax benefits, January 1	$	41,997		$	133,422		$	136,005
Additions for tax positions of the current year	4,309			3,516			5,167
Additions for tax positions of prior years	751			13,158			—
Reductions for tax positions of prior years for:
Changes in judgment	(2,282		)	(108,099		)	(7,729		)
Settlements with taxing authorities	—			—			—
Lapses of applicable statute of limitations	—			—			(21		)
Total unrecognized tax benefits, December 31	$	44,775		$	41,997		$	133,422

Components of income tax expense

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



	Year Ended December 31,
	2014		2013			2012
Current:
Federal	$	25,054	$	(81,784	)	$	(3,493	)
State	10,382		10,537			8,395
Total current	35,436		(71,247		)	4,902
Deferred:
Federal	167,365		279,973			200,322
State	17,904		21,865			28,280
Total deferred	185,269		301,838			228,602
Total income tax expense	220,705		230,591			233,504
Less: income tax benefit on discontinued operations	—		—			(3,813		)
Income tax expense — continuing operations	$	220,705	$	230,591		$	237,317

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,
	2014			2013			2012
Federal income tax expense at 35% statutory rate	$	225,540		$	234,695		$	229,709
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit	18,149			21,387			23,819
Credits and favorable adjustments related to prior years resolved in current year	—			(3,356		)	—
Medicare Subsidy Part-D	830			823			483
Allowance for equity funds used during construction (see Note 1)	(8,523		)	(6,997		)	(6,158		)
Palo Verde VIE noncontrolling interest (see Note 18)	(9,135		)	(11,862		)	(11,065		)
Investment tax credit amortization	(4,928		)	(3,548		)	(2,030		)
Other	(1,228		)	(551		)	2,559
Income tax expense — continuing operations	$	220,705		$	230,591		$	237,317

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):



	December 31,
	2014			2013
Current asset	$	122,232		$	91,152
Long-term liability	(2,582,636		)	(2,351,882		)
Deferred income taxes — net	$	(2,460,404	)	$	(2,260,730	)

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,
	2014			2013
DEFERRED TAX ASSETS
Risk management activities	$	57,505		$	44,920
Regulatory liabilities:
Asset retirement obligation and removal costs	229,772			235,959
Unamortized investment tax credits	96,232			82,116
Other postretirement benefits	90,496			—
Other	60,409			42,609
Pension liabilities	205,227			140,773
Other postretirement liabilities	—			57,869
Renewable energy incentives	65,169			65,434
Credit and loss carryforwards	68,347			133,070
Other	138,729			148,492
Total deferred tax assets	1,011,886			951,242
DEFERRED TAX LIABILITIES
Plant-related	(2,958,369		)	(2,903,730		)
Risk management activities	(12,171		)	(16,191		)
Other postretirement assets	(59,170		)	—
Regulatory assets:
Allowance for equity funds used during construction	(48,286		)	(43,058		)
Deferred fuel and purchased power	(2,498		)	(8,282		)
Deferred fuel and purchased power — mark-to-market	(38,187		)	(13,343		)
Pension and other postretirement benefits	(191,747		)	(129,250		)
Retired power plant costs (see Note 3)	(57,255		)	(8,199		)
Other	(99,123		)	(85,003		)
Other	(5,484		)	(4,916		)
Total deferred tax liabilities	(3,472,290		)	(3,211,972		)
Deferred income taxes — net	$	(2,460,404	)	$	(2,260,730	)

ARIZONA PUBLIC SERVICE COMPANY

Income Tax [Line Items]

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



	2014			2013			2012
Total unrecognized tax benefits, January 1	$	41,997		$	133,241		$	135,824
Additions for tax positions of the current year	4,309			3,516			5,167
Additions for tax positions of prior years	751			13,158			—
Reductions for tax positions of prior years for:
Changes in judgment	(2,282		)	(107,918		)	(7,729		)
Settlements with taxing authorities	—			—			—
Lapses of applicable statute of limitations	—			—			(21		)
Total unrecognized tax benefits, December 31	$	44,775		$	41,997		$	133,241

Components of income tax expense

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



	Year Ended December 31,
	2014		2013			2012
Current:
Federal	$	40,115	$	(97,531	)	$	(11,650	)
State	15,598		11,983			12,308
Total current	55,713		(85,548		)	658
Deferred:
Federal	165,027		305,389			216,367
State	16,620		25,254			27,371
Total deferred	181,647		330,643			243,738
Total income tax expense	$	237,360	$	245,095		$	244,396

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,
	2014			2013			2012
Federal income tax expense at 35% statutory rate	$	239,638		$	246,384		$	235,027
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit	21,148			23,970			25,379
Credits and favorable adjustments related to prior years resolved in current year	—			(3,231		)	—
Medicare Subsidy Part-D	830			823			483
Allowance for equity funds used during construction (see Note 1)	(8,523		)	(6,997		)	(6,158		)
Palo Verde VIE noncontrolling interest (see Note 18)	(9,135		)	(11,862		)	(11,065		)
Investment tax credit amortization	(4,928		)	(3,548		)	(2,030		)
Other	(1,670		)	(444		)	2,760
Income tax expense	$	237,360		$	245,095		$	244,396

Net deferred income tax liability recognized on the Consolidated Balance Sheets

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



	December 31,
	2014			2013
Current asset (liability)	$	55,253		$	(2,033	)
Long-term liability	(2,571,365		)	(2,347,724		)
Deferred income taxes — net	$	(2,516,112	)	$	(2,349,757	)

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,
	2014			2013
DEFERRED TAX ASSETS
Regulatory liabilities:
Asset retirement obligation and removal costs	$	229,772		$	235,959
Unamortized investment tax credits	96,232			82,116
Other postretirement benefits	90,496			—
Other	60,409			42,609
Risk management activities	57,505			44,920
Pension liabilities	194,541			132,263
Other postretirement liabilities	—			53,950
Renewable energy incentives	65,169			65,434
Credit and loss carryforwards	—			38,183
Other	161,379			166,781
Total deferred tax assets	955,503			862,215
DEFERRED TAX LIABILITIES
Plant-related	(2,958,369		)	(2,903,730		)
Risk management activities	(12,171		)	(16,191		)
Other postretirement benefit assets	(58,495		)	—
Regulatory assets:
Allowance for equity funds used during construction	(48,286		)	(43,058		)
Deferred fuel and purchased power	(2,498		)	(8,282		)
Deferred fuel and purchased power — mark-to-market	(38,187		)	(13,343		)
Pension and other postretirement benefits	(191,747		)	(129,250		)
Retired power plant costs (see Note 3)	(57,255		)	(8,199		)
Other	(99,123		)	(85,003		)
Other	(5,484		)	(4,916		)
Total deferred tax liabilities	(3,471,615		)	(3,211,972		)
Deferred income taxes — net	$	(2,516,112	)	$	(2,349,757	)

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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