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Income Taxes | 12 Months Ended
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Dec. 31, 2017
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 (“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. On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was enacted. This legislation made significant changes to the federal income tax laws including a reduction in the corporate tax rate to 21% effective January 1, 2018. In accordance with generally accepted accounting principles, the effects of this corporate tax rate reduction were recognized for the year ending December 31, 2017. As a result of this rate reduction, the Company has recognized a $1.14 billion reduction in its net deferred income tax liabilities as of December 31, 2017. In accordance with accounting for regulated companies, the effect of this rate reduction is substantially offset by a regulatory liability. As of December 31, 2017, to reflect the $1.14 billion reduction in its net deferred income tax liabilities caused by the rate reduction, APS has recorded a regulatory liability of $1.52 billion and a new $377 million deferred tax asset. The company intends to amortize the regulatory liability in accordance with applicable federal income tax laws, which require the amortization of a majority of the balance over the remaining regulatory life of the related property, and in a manner to be approved by its federal and state regulatory agencies. See Note 3 for more details. Additionally, as a result of the corporate tax rate reduction, the Company recorded income tax expense of $9.3 million, for the year ended December 31, 2017, to recognize the effect of certain reductions in deferred tax assets, for which the Company did not believe recovery was probable through its revenue requirement. Several sections of the Tax Cuts and Jobs Act contain technical ambiguities. These ambiguities include certain transition rules regarding the applicability of bonus depreciation to property acquired, or under construction, prior to September 28, 2017 and the continued deductibility of certain executive compensation arrangements in place prior to November 3, 2017. Management has recognized tax positions which it believes are more likely than not to be sustained upon examination based upon its interpretation of this legislation. Clarifying guidance may be issued through additional legislation, Treasury regulations, or other technical guidance, within the next 12 months which may impact the income tax effects of the Tax Act as recorded by the Company. As of December 31, 2017, the Company does not have a reasonable estimate of what the income tax effects of such clarifying guidance may be, if any. 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
| 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Total unrecognized tax benefits, January 1 | $ | 36,075 |  |  | $ | 34,447 |  |  | $ | 44,775 |  |  | $ | 36,075 |  |  | $ | 34,447 |  |  | $ | 44,775 |
Additions for tax positions of the current year | 2,937 |  |  | 2,695 |  |  | 2,175 |  |  | 2,937 |  |  | 2,695 |  |  | 2,175 |
Additions for tax positions of prior years | 4,783 |  |  | 886 |  |  | — |  |  | 4,783 |  |  | 886 |  |  | — |
Reductions for tax positions of prior years for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Changes in judgment | (1,829 | ) |  | (1,953 | ) |  | (10,244 | ) |  | (1,829 | ) |  | (1,953 | ) |  | (10,244 | )
Settlements with taxing authorities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Lapses of applicable statute of limitations | — |  |  | — |  |  | (2,259 | ) |  | — |  |  | — |  |  | (2,259 | )
Total unrecognized tax benefits, December 31 | $ | 41,966 |  |  | $ | 36,075 |  |  | $ | 34,447 |  |  | $ | 41,966 |  |  | $ | 36,075 |  |  | $ | 34,447 |
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
| 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Tax positions, that if recognized, would decrease our effective tax rate | $ | 16,373 |  |  | $ | 11,313 |  |  | $ | 9,523 |  |  | $ | 16,373 |  |  | $ | 11,313 |  |  | $ | 9,523 |
As of the balance sheet date, the tax year ended December 31, 2014 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 2013. 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
| 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Unrecognized tax benefit interest expense/(benefit) recognized | $ | 577 |  |  | $ | 529 |  |  | $ | (161 | ) |  | $ | 577 |  |  | $ | 529 |  |  | $ | (161 | )
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
| 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Unrecognized tax benefit interest accrued | $ | 1,910 |  |  | $ | 1,333 |  |  | $ | 804 |  |  | $ | 1,910 |  |  | $ | 1,333 |  |  | $ | 804 |
Additionally, as of December 31, 2017, 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,
| 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Current: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal | $ | 11,624 |  |  | $ | 8,630 |  |  | $ | (12,335 | ) |  | $ | 21,512 |  |  | $ | 711 |  |  | $ | 6,485 |
State | 3,052 |  |  | 1,259 |  |  | 4,763 |  |  | 2,778 |  |  | 4,276 |  |  | 7,813 |
Total current | 14,676 |  |  | 9,889 |  |  | (7,572 | ) |  | 24,290 |  |  | 4,987 |  |  | 14,298 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal | 223,729 |  |  | 201,743 |  |  | 221,505 |  |  | 221,078 |  |  | 215,178 |  |  | 208,326 |
State | 19,867 |  |  | 24,779 |  |  | 23,787 |  |  | 23,800 |  |  | 25,677 |  |  | 23,217 |
Total deferred | 243,596 |  |  | 226,522 |  |  | 245,292 |  |  | 244,878 |  |  | 240,855 |  |  | 231,543 |
Income tax expense | $ | 258,272 |  |  | $ | 236,411 |  |  | $ | 237,720 |  |  | $ | 269,168 |  |  | $ | 245,842 |  |  | $ | 245,841 |
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,
| 2017 |  | 2016 |  | 2015 |  | 2017 |  | 2016 |  | 2015
Federal income tax expense at 35% statutory rate | $ | 268,177 |  |  | $ | 244,278 |  |  | $ | 242,869 |  |  | $ | 277,540 |  |  | $ | 254,617 |  |  | $ | 250,267 |
Increases (reductions) in tax expense resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State income tax net of federal income tax benefit | 14,897 |  |  | 16,311 |  |  | 18,265 |  |  | 17,276 |  |  | 18,750 |  |  | 20,433 |
Credits and favorable adjustments related to prior years resolved in current year | — |  |  | — |  |  | (2,169 | ) |  | — |  |  | — |  |  | (1,892 | )
Medicare Subsidy Part-D | 853 |  |  | 844 |  |  | 837 |  |  | 853 |  |  | 844 |  |  | 837 |
Stock compensation | (6,659 | ) |  | (2,951 | ) |  | — |  |  | (3,489 | ) |  | (1,937 | ) |  | — |
Excess Deferred Income Taxes - Tax Cuts and Jobs Act | 9,348 |  |  | — |  |  | — |  |  | 9,431 |  |  | — |  |  | — |
Allowance for equity funds used during construction (see Note 1) | (12,937 | ) |  | (11,724 | ) |  | (9,711 | ) |  | (12,937 | ) |  | (11,724 | ) |  | (9,711 | )
Palo Verde VIE noncontrolling interest (see Note 18) | (6,823 | ) |  | (6,823 | ) |  | (6,626 | ) |  | (6,823 | ) |  | (6,823 | ) |  | (6,626 | )
Investment tax credit amortization | (6,715 | ) |  | (5,887 | ) |  | (5,527 | ) |  | (6,715 | ) |  | (5,887 | ) |  | (5,527 | )
Other | (1,869 | ) |  | 2,363 |  |  | (218 | ) |  | (5,968 | ) |  | (1,998 | ) |  | (1,940 | )
Income tax expense | $ | 258,272 |  |  | $ | 236,411 |  |  | $ | 237,720 |  |  | $ | 269,168 |  |  | $ | 245,842 |  |  | $ | 245,841 |
The components of the net deferred income tax liability were as follows (dollars in thousands):
| Pinnacle West Consolidated |  | APS Consolidated
| December 31, |  | December 31,
| 2017 |  | 2016 |  | 2017 |  | 2016
DEFERRED TAX ASSETS |  |  |  |  |  |  |  |  |
Risk management activities | $ | 25,103 |  |  | $ | 26,614 |  |  | $ | 25,103 |  |  | $ | 26,614 |
Regulatory liabilities: |  |  |  |  |  |  |  |  |  |
Excess Deferred Income Taxes - Tax Cuts and Jobs Act | 376,906 |  |  | — |  |  | 376,906 |  |  | — |
Asset retirement obligation and removal costs | 135,847 |  |  | 200,140 |  |  | 135,847 |  |  | 200,140 |
Unamortized investment tax credits | 54,661 |  |  | 113,195 |  |  | 54,661 |  |  | 113,195 |
Other postretirement benefits | 47,021 |  |  | 60,375 |  |  | 47,021 |  |  | 60,375 |
Other | 37,489 |  |  | 63,311 |  |  | 37,489 |  |  | 63,311 |
Pension liabilities | 83,126 |  |  | 204,436 |  |  | 77,280 |  |  | 194,981 |
Renewable energy incentives | 33,546 |  |  | 56,379 |  |  | 33,546 |  |  | 56,379 |
Credit and loss carryforwards | 53,946 |  |  | 75,944 |  |  | 1,920 |  |  | 1,645 |
Other | 102,432 |  |  | 158,421 |  |  | 108,223 |  |  | 187,453 |
Total deferred tax assets | 950,077 |  |  | 958,815 |  |  | 897,996 |  |  | 904,093 |
DEFERRED TAX LIABILITIES |  |  |  |  |  |  |  |  |  |
Plant-related | (2,220,886 | ) |  | (3,297,989 | ) |  | (2,220,886 | ) |  | (3,297,989 | )
Risk management activities | (491 | ) |  | (7,594 | ) |  | (491 | ) |  | (7,594 | )
Other postretirement assets | (66,134 | ) |  | (63,477 | ) |  | (65,733 | ) |  | (62,819 | )
Regulatory assets: |  |  |  |  |  |  |  |  |  |
Allowance for equity funds used during construction | (36,365 | ) |  | (61,088 | ) |  | (36,365 | ) |  | (61,088 | )
Deferred fuel and purchased power — mark-to-market | (40,778 | ) |  | (21,396 | ) |  | (40,778 | ) |  | (21,396 | )
Pension benefits | (142,848 | ) |  | (274,184 | ) |  | (142,848 | ) |  | (274,184 | )
Retired power plant costs (see Note 3) | (53,611 | ) |  | (49,166 | ) |  | (53,611 | ) |  | (49,166 | )
Other | (74,423 | ) |  | (123,987 | ) |  | (74,423 | ) |  | (123,987 | )
Other | (5,346 | ) |  | (5,166 | ) |  | (5,346 | ) |  | (5,165 | )
Total deferred tax liabilities | (2,640,882 | ) |  | (3,904,047 | ) |  | (2,640,481 | ) |  | (3,903,388 | )
Deferred income taxes — net | $ | (1,690,805 | ) |  | $ | (2,945,232 | ) |  | $ | (1,742,485 | ) |  | $ | (2,999,295 | )
As of December 31, 2017, the deferred tax assets for credit and loss carryforwards relate primarily to federal general business credits of approximately $79 million, which first begin to expire in 2034, and other federal and state credit carryforwards of $6 million, which first begin to expire in 2031. The credit and loss carryforwards amount above has been reduced by $31 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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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