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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
 
Certain assets and liabilities are reported differently for income tax purposes than they are for financial statement purposes.  The tax effect of these differences is recorded as deferred taxes.  We calculate deferred taxes using currently enacted income tax rates.    

APS has recorded regulatory assets and regulatory liabilities related to income taxes on its Consolidated Balance Sheets in accordance with accounting guidance for regulated operations.  The regulatory assets are for certain temporary differences, primarily the allowance for equity funds used
during construction, investment tax credit (“ITC”) basis adjustment and tax expense of Medicare subsidy.  The regulatory liabilities primarily relate to the change in income tax rates and deferred taxes resulting from ITCs.    

In accordance with regulatory requirements, APS ITCs are deferred and are amortized over the life of the related property with such amortization applied as a credit to reduce current income tax expense in the Statements of Income.

Net income associated with the Palo Verde sale leaseback VIEs is not subject to tax.  As a result, there is no income tax expense associated with the VIEs recorded on the Pinnacle West Consolidated and APS Consolidated Statements of Income. See Note 17 for additional details related to the Palo Verde sale leaseback VIEs.

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 ConsolidatedAPS Consolidated
 202220212020202220212020
Total unrecognized tax benefits, January 1$45,086 $45,655 $43,435 $45,086 $45,655 $43,435 
Additions for tax positions of the current year1,399 3,305 3,418 1,399 3,305 3,418 
Additions for tax positions of prior years2,069 1,449 1,431 2,069 1,449 1,431 
Reductions for tax positions of prior years for:      
Changes in judgment(3,495)(2,659)(1,965)(3,495)(2,659)(1,965)
Settlements with taxing authorities— — — — — — 
Lapses of applicable statute of limitations(1,962)(2,664)(664)(1,962)(2,664)(664)
Total unrecognized tax benefits, December 31$43,097 $45,086 $45,655 $43,097 $45,086 $45,655 

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 ConsolidatedAPS Consolidated
 202220212020202220212020
Tax positions, that if recognized, would decrease our effective tax rate$28,246 $26,300 $25,714 $28,246 $26,300 $25,714 

As of the balance sheet date, the tax year ended December 31, 2019, and all subsequent tax years remain subject to examination by the IRS.  With a few exceptions, we are no longer subject to state income tax examinations by tax authorities for years before 2018.
We reflect interest and penalties, if any, on unrecognized tax benefits in the Pinnacle West Consolidated and APS Consolidated Statements of Income as income tax expense.  The amount of interest expense or benefit recognized related to unrecognized tax benefits are as follows (dollars in thousands):

Pinnacle West ConsolidatedAPS Consolidated
 202220212020202220212020
Unrecognized tax benefit interest expense/(benefit) recognized$(139)$(535)$266 $(139)$(535)$266 

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 ConsolidatedAPS Consolidated
 202220212020202220212020
Unrecognized tax benefit interest accrued $1,181 $1,320 $1,855 $1,181 $1,320 $1,855 

Additionally, as of December 31, 2022, we have recognized less than $1 million of interest expense to be paid on the underpayment of income taxes for certain adjustments that we have filed, or will file, with the IRS.

The components of income tax expense are as follows (dollars in thousands):
Pinnacle West ConsolidatedAPS Consolidated
 Year Ended December 31,Year Ended December 31,
 202220212020202220212020
Current:   
Federal$35,617 $(5,041)$11,869 $103,349 $1,514 $57,299 
State1,950 2,458 1,932 161 (11)99 
Total current37,567 (2,583)13,801 103,510 1,503 57,398 
Deferred:      
Federal23,693 95,327 53,398 (31,860)101,175 15,122 
State13,567 17,342 10,974 19,150 22,875 16,244 
Total deferred37,260 112,669 64,372 (12,710)124,050 31,366 
Income tax expense/(benefit)$74,827 $110,086 $78,173 $90,800 $125,553 $88,764 
The following chart compares pretax income at the 21% statutory federal income tax rate to income tax expense (dollars in thousands):
Pinnacle West ConsolidatedAPS Consolidated
 Year Ended December 31,Year Ended December 31,
 202220212020202220212020
Federal income tax expense at statutory rate$120,887 $156,666 $136,127 $132,920 $162,762 $142,020 
Increases (reductions) in tax expense resulting from:      
State income tax net of federal income tax benefit17,740 22,656 19,146 19,000 23,339 20,124 
State income tax credits net of federal income tax benefit(5,482)(7,015)(8,951)(3,744)(5,277)(7,213)
Net operating loss carryback tax benefit— (5,915)— — — — 
Excess deferred income taxes — Tax Cuts and Jobs Act(36,241)(36,558)(50,543)(36,241)(36,558)(50,543)
Allowance for equity funds used during construction (see Note 1)
(4,629)(4,180)(2,747)(4,629)(4,180)(2,747)
Palo Verde VIE noncontrolling interest (see Note 17)
(3,617)(3,617)(4,094)(3,617)(3,617)(4,094)
Investment tax credit amortization(5,608)(7,620)(7,510)(5,608)(7,620)(7,510)
   Other federal income tax credits(10,867)(6,976)(4,616)(7,721)(3,912)(3,035)
Other2,644 2,645 1,361 440 616 1,762 
Income tax expense/(benefit)$74,827 $110,086 $78,173 $90,800 $125,553 $88,764 
     The components of the net deferred income tax liability were as follows (dollars in thousands):
Pinnacle West ConsolidatedAPS Consolidated
 December 31,December 31,
 2022202120222021
DEFERRED TAX ASSETS  
Risk management activities$8,826 $677 $8,826 $677 
Regulatory liabilities:   
Excess deferred income taxes — Tax Cuts and Jobs Act295,014 306,915 295,014 306,915 
Asset retirement obligation and removal costs107,104 174,952 107,104 174,952 
Unamortized investment tax credits48,035 49,601 48,035 49,601 
Other postretirement benefits66,893 92,654 66,893 92,654 
Other62,915 65,815 62,915 65,815 
Operating lease liabilities184,030 204,890 182,663 204,378 
Pension liabilities33,674 42,136 30,436 37,814 
Coal reclamation liabilities44,312 43,165 44,312 43,165 
Renewable energy incentives19,948 22,646 19,948 22,646 
Credit and loss carryforwards37,647 57,077 13,654 18,902 
Other72,605 74,184 72,605 74,184 
Total deferred tax assets981,003 1,134,712 952,405 1,091,703 
DEFERRED TAX LIABILITIES   
Plant-related(2,518,164)(2,570,613)(2,518,164)(2,570,613)
Risk management activities(32,648)(27,276)(32,648)(27,276)
Pension and other postretirement assets(96,845)(133,624)(96,196)(132,769)
Other special use funds(57,572)(64,610)(57,572)(64,610)
Operating lease right-of-use assets(184,030)(204,890)(182,663)(204,378)
Regulatory assets:   
Allowance for equity funds used during construction(44,405)(42,616)(44,405)(42,616)
Deferred fuel and purchased power(114,232)(96,033)(114,232)(96,033)
Pension benefits(157,629)(126,010)(157,629)(126,010)
Retired power plant costs (24,397)(28,389)(24,397)(28,389)
Other(103,023)(123,902)(103,023)(123,902)
Other(32,479)(28,611)(7,123)(6,808)
Total deferred tax liabilities(3,365,424)(3,446,574)(3,338,052)(3,423,404)
Deferred income taxes — net$(2,384,421)$(2,311,862)$(2,385,647)$(2,331,701)
As of December 31, 2022, PNW consolidated deferred tax assets for credit and loss carryforwards relate to state credit carryforwards net of federal benefit of $43 million, which first begin to expire in 2024. PNW consolidated credit and loss carryforwards amount above has been reduced by $5 million of unrecognized tax benefits.

As of December 31, 2022, APS consolidated deferred tax assets for credit and loss carryforwards relate to state credit carryforwards net of federal benefit of $19 million, which first begin to expire in 2025. APS consolidated credit and loss carryforwards amount above has been reduced by $5 million of unrecognized tax benefits.