Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

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
	2018			2017			2016			2018			2017			2016
Total unrecognized tax benefits, January 1	$	41,966		$	36,075		$	34,447		$	41,966		$	36,075		$	34,447
Additions for tax positions of the current year	3,436			2,937			2,695			3,436			2,937			2,695
Additions for tax positions of prior years	2,696			4,783			886			2,696			4,783			886
Reductions for tax positions of prior years for:
Changes in judgment	(1,764		)	(1,829		)	(1,953		)	(1,764		)	(1,829		)	(1,953		)
Settlements with taxing authorities	—			—			—			—			—			—
Lapses of applicable statute of limitations	(5,603		)	—			—			(5,603		)	—			—
Total unrecognized tax benefits, December 31	$	40,731		$	41,966		$	36,075		$	40,731		$	41,966		$	36,075

Summary of unrecognized tax benefits

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

	Pinnacle West Consolidated							APS Consolidated
	2018			2017		2016		2018			2017		2016
Unrecognized tax benefit interest expense/(benefit) recognized	$	(780	)	$	577	$	529	$	(780	)	$	577	$	529

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
	2018		2017		2016		2018		2017		2016
Unrecognized tax benefit interest accrued	$	1,130	$	1,910	$	1,333	$	1,130	$	1,910	$	1,333

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
	2018		2017		2016		2018		2017		2016
Tax positions, that if recognized, would decrease our effective tax rate	$	19,504	$	16,373	$	11,313	$	19,504	$	16,373	$	11,313

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,
	2018		2017		2016		2018		2017		2016
Current:
Federal	$	18,375	$	11,624	$	8,630	$	88,180	$	21,512	$	711
State	3,342		3,052		1,259		1,877		2,778		4,276
Total current	21,717		14,676		9,889		90,057		24,290		4,987
Deferred:
Federal	94,721		223,729		201,743		32,436		221,078		215,178
State	17,464		19,867		24,779		22,321		23,800		25,677
Total deferred	112,185		243,596		226,522		54,757		244,878		240,855
Income tax expense	$	133,902	$	258,272	$	236,411	$	144,814	$	269,168	$	245,842

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 statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 to income tax expense (dollars in thousands):

	Pinnacle West Consolidated									APS Consolidated
	Year Ended December 31,									Year Ended December 31,
	2018			2017			2016			2018			2017			2016
Federal income tax expense at statutory rate	$	139,533		$	268,177		$	244,278		$	154,260		$	277,540		$	254,617
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit	16,411			14,897			16,311			19,091			17,276			18,750
Nondeductible expenditures associated with ballot initiative	7,879			—			—			—			—			—
Stock compensation	(1,804		)	(6,659		)	(2,951		)	(780		)	(3,489		)	(1,937		)
Excess deferred income taxes - Tax Cuts and Jobs Act	(6,725		)	9,348			—			(4,715		)	9,431			—
Allowance for equity funds used during construction (see Note 1)	(7,231		)	(12,937		)	(11,724		)	(7,231		)	(12,937		)	(11,724		)
Palo Verde VIE noncontrolling interest (see Note 18)	(4,094		)	(6,823		)	(6,823		)	(4,094		)	(6,823		)	(6,823		)
Investment tax credit amortization	(6,742		)	(6,715		)	(5,887		)	(6,742		)	(6,715		)	(5,887		)
Other	(3,325		)	(1,016		)	3,207			(4,975		)	(5,115		)	(1,154		)
Income tax expense	$	133,902		$	258,272		$	236,411		$	144,814		$	269,168		$	245,842

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,
	2018			2017			2018			2017
DEFERRED TAX ASSETS
Risk management activities	$	15,785		$	25,103		$	15,785		$	25,103
Regulatory liabilities:
Excess deferred income taxes - Tax Cuts and Jobs Act	376,869			376,906			376,869			376,906
Asset retirement obligation and removal costs	117,201			135,847			117,201			135,847
Unamortized investment tax credits	53,284			54,661			53,284			54,661
Other postretirement benefits	40,532			47,021			40,532			47,021
Other	40,380			37,489			40,380			37,489
Pension liabilities	112,019			83,126			107,009			77,280
Coal reclamation liabilities	47,508			45,802			47,508			45,802
Renewable energy incentives	30,779			33,546			30,779			33,546
Credit and loss carryforwards	1,755			53,946			—			1,920
Other	58,820			56,630			59,919			62,421
Total deferred tax assets	894,932			950,077			889,266			897,996
DEFERRED TAX LIABILITIES
Plant-related	(2,277,724		)	(2,220,886		)	(2,277,724		)	(2,220,886		)
Risk management activities	(237		)	(491		)	(237		)	(491		)
Other postretirement assets and other special use funds	(57,697		)	(66,134		)	(57,274		)	(65,733		)
Regulatory assets:
Allowance for equity funds used during construction	(39,086		)	(36,365		)	(39,086		)	(36,365		)
Deferred fuel and purchased power	(23,086		)	(40,778		)	(23,086		)	(40,778		)
Pension benefits	(181,504		)	(142,848		)	(181,504		)	(142,848		)
Retired power plant costs (see Note 3)	(48,348		)	(53,611		)	(48,348		)	(53,611		)
Other	(72,096		)	(74,423		)	(72,096		)	(74,423		)
Other	(2,575		)	(5,346		)	(2,575		)	(5,346		)
Total deferred tax liabilities	(2,702,353		)	(2,640,882		)	(2,701,930		)	(2,640,481		)
Deferred income taxes — net	$	(1,807,421	)	$	(1,690,805	)	$	(1,812,664	)	$	(1,742,485	)