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Income Taxes | 12 Months Ended
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Dec. 31, 2016
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 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 basis adjustment and tax expense of Medicare subsidy. The regulatory liabilities primarily relate to deferred taxes resulting from investment tax credits (“ITC”) and the change in income tax rates. 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 statement of income. Net income associated with the Palo Verde sale leaseback VIEs is not subject to tax (see Note 18). 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. 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 |
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 |
As of the balance sheet date, the tax year ended December 31, 2013 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 2012. 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 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 |
Additionally, as of December 31, 2016, 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 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 |
On the APS Consolidated Statements of Income, federal and state income taxes are allocated between operating income and other income. 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 |
On February 17, 2011, Arizona enacted legislation (H.B. 2001) that included a four-year phase-in of corporate income tax rate reductions beginning in 2014. As a result of these tax rate reductions, Pinnacle West has revised the tax rate applicable to reversing temporary items in Arizona. In accordance with accounting for regulated companies, the benefit of this rate reduction is substantially offset by a regulatory liability. As of December 31, 2016, APS has recorded a regulatory liability of $74 million, with a corresponding decrease in accumulated deferred income tax liabilities, to reflect the impact of this change in tax law. On April 4, 2013, New Mexico enacted legislation (H.B. 641) that included a five-year phase-in of corporate income tax rate reductions beginning in 2014. As a result of these tax rate reductions, Pinnacle West has revised the tax rate applicable to reversing temporary items in New Mexico. In accordance with accounting for regulated companies, the benefit of this rate reduction is substantially offset by a regulatory liability. As of December 31, 2016, APS has recorded a regulatory liability of $2 million, with a corresponding decrease in accumulated deferred income tax liabilities, to reflect the impact of this change in tax law. 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 | )
As of December 31, 2016, the deferred tax assets for credit and loss carryforwards relate primarily to federal general business credits of approximately $98 million, which first begin to expire in 2031, and other federal and state loss carryforwards of $5 million, which first begin to expire in 2019. The credit and loss carryforwards amount above has been reduced by $27 million of unrecognized tax benefits.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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