Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

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
	2016			2015			2014			2016			2015			2014
Total unrecognized tax benefits, January 1	$	34,447		$	44,775		$	41,997		$	34,447		$	44,775		$	41,997
Additions for tax positions of the current year	2,695			2,175			4,309			2,695			2,175			4,309
Additions for tax positions of prior years	886			—			751			886			—			751
Reductions for tax positions of prior years for:
Changes in judgment	(1,953		)	(10,244		)	(2,282		)	(1,953		)	(10,244		)	(2,282		)
Settlements with taxing authorities	—			—			—			—			—			—
Lapses of applicable statute of limitations	—			(2,259		)	—			—			(2,259		)	—
Total unrecognized tax benefits, December 31	$	36,075		$	34,447		$	44,775		$	36,075		$	34,447		$	44,775

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
	2016		2015		2014		2016		2015		2014
Tax positions, that if recognized, would decrease our effective tax rate	$	11,313	$	9,523	$	11,207	$	11,313	$	9,523	$	11,207

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



	Pinnacle West Consolidated							APS Consolidated
	2016		2015			2014		2016		2015			2014
Unrecognized tax benefit interest expense/(benefit) recognized	$	529	$	(161	)	$	752	$	529	$	(161	)	$	752

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
	2016		2015		2014		2016		2015		2014
Unrecognized tax benefit interest accrued	$	1,333	$	804	$	965	$	1,333	$	804	$	965

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,
	2016		2015			2014		2016		2015		2014
Current:
Federal	$	8,630	$	(12,335	)	$	25,054	$	711	$	6,485	$	40,115
State	1,259		4,763			10,382		4,276		7,813		15,598
Total current	9,889		(7,572		)	35,436		4,987		14,298		55,713
Deferred:
Federal	201,743		221,505			167,365		215,178		208,326		165,027
State	24,779		23,787			17,904		25,677		23,217		16,620
Total deferred	226,522		245,292			185,269		240,855		231,543		181,647
Income tax expense	$	236,411	$	237,720		$	220,705	$	245,842	$	245,841	$	237,360

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,
	2016			2015			2014			2016			2015			2014
Federal income tax expense at 35% statutory rate	$	244,278		$	242,869		$	225,540		$	254,617		$	250,267		$	239,638
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit	16,311			18,265			18,149			18,750			20,433			21,148
Credits and favorable adjustments related to prior years resolved in current year	—			(2,169		)	—			—			(1,892		)	—
Medicare Subsidy Part-D	844			837			830			844			837			830
Allowance for equity funds used during construction (see Note 1)	(11,724		)	(9,711		)	(8,523		)	(11,724		)	(9,711		)	(8,523		)
Palo Verde VIE noncontrolling interest (see Note 18)	(6,823		)	(6,626		)	(9,135		)	(6,823		)	(6,626		)	(9,135		)
Investment tax credit amortization	(5,887		)	(5,527		)	(4,928		)	(5,887		)	(5,527		)	(4,928		)
Other	(588		)	(218		)	(1,228		)	(3,935		)	(1,940		)	(1,670		)
Income tax expense	$	236,411		$	237,720		$	220,705		$	245,842		$	245,841		$	237,360

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,
	2016			2015			2016			2015
DEFERRED TAX ASSETS
Risk management activities	$	26,614		$	70,498		$	26,614		$	70,498
Regulatory liabilities:
Asset retirement obligation and removal costs	200,140			216,765			200,140			216,765
Unamortized investment tax credits	113,195			100,779			113,195			100,779
Other postretirement benefits	60,375			83,034			60,375			83,034
Other	63,311			60,707			63,311			60,707
Pension liabilities	204,436			191,028			194,981			181,787
Renewable energy incentives	56,379			60,956			56,379			60,956
Credit and loss carryforwards	75,944			59,557			1,645			—
Other	158,421			149,033			187,453			176,016
Total deferred tax assets	958,815			992,357			904,093			950,542
DEFERRED TAX LIABILITIES
Plant-related	(3,297,989		)	(3,116,752		)	(3,297,989		)	(3,116,752		)
Risk management activities	(7,594		)	(10,626		)	(7,594		)	(10,626		)
Other postretirement assets	(63,477		)	(71,737		)	(62,819		)	(70,986		)
Regulatory assets:
Allowance for equity funds used during construction	(61,088		)	(54,110		)	(61,088		)	(54,110		)
Deferred fuel and purchased power — mark-to-market	(21,396		)	(55,020		)	(21,396		)	(55,020		)
Pension benefits	(274,184		)	(240,692		)	(274,184		)	(240,692		)
Retired power plant costs (see Note 3)	(49,166		)	(53,420		)	(49,166		)	(53,420		)
Other	(123,987		)	(108,441		)	(123,987		)	(108,441		)
Other	(5,166		)	(4,984		)	(5,165		)	(4,984		)
Total deferred tax liabilities	(3,904,047		)	(3,715,782		)	(3,903,388		)	(3,715,031		)
Deferred income taxes — net	$	(2,945,232	)	$	(2,723,425	)	$	(2,999,295	)	$	(2,764,489	)