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Income Taxes | 12 Months Ended
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Dec. 31, 2024
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. On January 30, 2024, Pinnacle West entered into a tax credit transfer agreement to purchase from Ameresco $23 million of investment tax credits from the BCE Los Alamitos project for $21 million. See Note 20 for more information about the BCE Sale. As a part of the Inflation Reduction Act of 2022 (“IRA”), a new PTC for nuclear energy produced by existing nuclear energy plants (“Nuclear PTC”) was enacted. Energy produced and sold by APS from Palo Verde between 2024 and 2032 is eligible for this credit subject to a credit phase out based upon APS’s gross receipts from nuclear sales. The Company continues to await guidance from the U.S. Treasury Department related to the definition of “gross receipts from nuclear sales” for purposes of the credit phase-out. Without such guidance, the Company is unable to accurately determine the benefit the Nuclear PTC may provide. Due to the lack of guidance, no income tax benefits have been recognized related to the Nuclear PTC as of December 31, 2024. Net income associated with the Captive and 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 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 Consolidated |  | APS Consolidated
| 2024 |  | 2023 |  | 2022 |  | 2024 |  | 2023 |  | 2022
Total unrecognized tax benefits, January 1 | $ | 44,274 |  |  | $ | 43,097 |  |  | $ | 45,086 |  |  | $ | 44,274 |  |  | $ | 43,097 |  |  | $ | 45,086 |
Additions for tax positions of the current year | 1,271 |  |  | 1,473 |  |  | 1,399 |  |  | 1,271 |  |  | 1,473 |  |  | 1,399 |
Additions for tax positions of prior years | 2,031 |  |  | 419 |  |  | 2,069 |  |  | 2,031 |  |  | 419 |  |  | 2,069 |
Reductions for tax positions of prior years for: |  |  |  |  |  |  |  |  |  |  |
Changes in judgment | (2,043) |  |  | 661 |  |  | (3,495) |  |  | (2,043) |  |  | 661 |  |  | (3,495) |
Settlements with taxing authorities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Lapses of applicable statute of limitations | (1,184) |  |  | (1,376) |  |  | (1,962) |  |  | (1,184) |  |  | (1,376) |  |  | (1,962) |
Total unrecognized tax benefits, December 31 | $ | 44,349 |  |  | $ | 44,274 |  |  | $ | 43,097 |  |  | $ | 44,349 |  |  | $ | 44,274 |  |  | $ | 43,097 |
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
| 2024 |  | 2023 |  | 2022 |  | 2024 |  | 2023 |  | 2022
Tax positions, that if recognized, would decrease our effective tax rate | $ | 27,899 |  |  | $ | 28,762 |  |  | $ | 28,246 |  |  | $ | 27,899 |  |  | $ | 28,762 |  |  | $ | 28,246 |
As of the balance sheet date, the tax year ended December 31, 2021, 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 2020. 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
| 2024 |  | 2023 |  | 2022 |  | 2024 |  | 2023 |  | 2022
Unrecognized tax benefit interest expense/(benefit) recognized | $ | 2,743 |  |  | $ | 452 |  |  | $ | (139) |  |  | $ | 2,743 |  |  | $ | 452 |  |  | $ | (139) |
Following are the total amounts 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
| 2024 |  | 2023 |  | 2022 |  | 2024 |  | 2023 |  | 2022
Unrecognized tax benefit interest accrued | $ | 4,376 |  |  | $ | 1,633 |  |  | $ | 1,181 |  |  | $ | 4,376 |  |  | $ | 1,633 |  |  | $ | 1,181 |
Additionally, as of December 31, 2024, we have recognized approximately $2.1 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,
| 2024 |  | 2023 |  | 2022 |  | 2024 |  | 2023 |  | 2022
Current: |  |  |  |  |  |  |  |  |  |  |
Federal | $ | 137,342 |  |  | $ | 21,272 |  |  | $ | 35,617 |  |  | $ | 165,653 |  |  | $ | 26,405 |  |  | $ | 103,349 |
State | 2,392 |  |  | 2,854 |  |  | 1,950 |  |  | 26,054 |  |  | 1,027 |  |  | 161 |
Total current | 139,734 |  |  | 24,126 |  |  | 37,567 |  |  | 191,707 |  |  | 27,432 |  |  | 103,510 |
Deferred: |  |  |  |  |  |  |  |  |  |  |
Federal | (53,228) |  |  | 37,273 |  |  | 23,693 |  |  | (69,075) |  |  | 44,922 |  |  | (31,860) |
State | 24,023 |  |  | 15,513 |  |  | 13,567 |  |  | 4,361 |  |  | 21,830 |  |  | 19,150 |
Total deferred | (29,205) |  |  | 52,786 |  |  | 37,260 |  |  | (64,714) |  |  | 66,752 |  |  | (12,710) |
Income tax expense/(benefit) | $ | 110,529 |  |  | $ | 76,912 |  |  | $ | 74,827 |  |  | $ | 126,993 |  |  | $ | 94,184 |  |  | $ | 90,800 |
The following chart compares pretax income at the 21% statutory federal income tax rate to income tax expense (dollars in thousands):
| Pinnacle West Consolidated |  | APS Consolidated
| Year Ended December 31, |  | Year Ended December 31,
| 2024 |  | 2023 |  | 2022 |  | 2024 |  | 2023 |  | 2022
Federal income tax expense at statutory rate | $ | 154,677 |  |  | $ | 125,095 |  |  | $ | 120,887 |  |  | $ | 165,090 |  |  | $ | 138,337 |  |  | $ | 132,920 |
Increases (reductions) in tax expense resulting from: |  |  |  |  |  |  |  |  |  |  |
State income tax net of federal income tax benefit | 24,218 |  |  | 18,024 |  |  | 17,740 |  |  | 25,639 |  |  | 19,832 |  |  | 19,000 |
State income tax credits net of federal income tax benefit | (3,349) |  |  | (3,513) |  |  | (5,482) |  |  | (1,611) |  |  | (1,775) |  |  | (3,744) |
Excess deferred income taxes — Tax Cuts and Jobs Act | (36,559) |  |  | (36,558) |  |  | (36,241) |  |  | (36,559) |  |  | (36,558) |  |  | (36,241) |
Allowance for equity funds used during construction (Note 1) | (2,545) |  |  | (5,964) |  |  | (4,629) |  |  | (2,545) |  |  | (5,964) |  |  | (4,629) |
Palo Verde VIE noncontrolling interest (Note 17) | (3,617) |  |  | (3,617) |  |  | (3,617) |  |  | (3,617) |  |  | (3,617) |  |  | (3,617) |
Investment tax credit amortization | (9,425) |  |  | (9,495) |  |  | (5,608) |  |  | (9,425) |  |  | (9,495) |  |  | (5,608) |
Federal production tax credit | (15,206) |  |  | (8,441) |  |  | (3,146) |  |  | (12,110) |  |  | (5,460) |  |  | — |
Other federal income tax credits | (3,881) |  |  | (3,453) |  |  | (7,721) |  |  | (1,551) |  |  | (2,803) |  |  | (7,721) |
Other | 6,216 |  |  | 4,834 |  |  | 2,644 |  |  | 3,682 |  |  | 1,687 |  |  | 440 |
Income tax expense/(benefit) | $ | 110,529 |  |  | $ | 76,912 |  |  | $ | 74,827 |  |  | $ | 126,993 |  |  | $ | 94,184 |  |  | $ | 90,800 |
The components of the net deferred income tax liability were as follows (dollars in thousands):
| Pinnacle West Consolidated |  | APS Consolidated
| December 31, |  | December 31,
| 2024 |  | 2023 |  | 2024 |  | 2023
DEFERRED TAX ASSETS |  |  |  |  |  |  |
Risk management activities | $ | 14,539 |  |  | $ | 31,411 |  |  | $ | 14,539 |  |  | $ | 31,411 |
Regulatory liabilities: |  |  |  |  |  |  |
Excess deferred income taxes — Tax Cuts and Jobs Act | 271,004 |  |  | 283,161 |  |  | 271,004 |  |  | 283,161 |
Asset retirement obligation and removal costs | 81,308 |  |  | 113,312 |  |  | 81,308 |  |  | 113,312 |
Unamortized investment tax credits | 66,327 |  |  | 68,521 |  |  | 66,327 |  |  | 68,521 |
Other postretirement benefits | 58,862 |  |  | 56,070 |  |  | 58,862 |  |  | 56,070 |
Other | 47,671 |  |  | 39,857 |  |  | 47,671 |  |  | 39,857 |
Operating lease liabilities | 400,771 |  |  | 316,067 |  |  | 400,442 |  |  | 315,670 |
Pension liabilities | 39,070 |  |  | 33,294 |  |  | 36,100 |  |  | 29,918 |
Coal reclamation liabilities | 42,391 |  |  | 45,505 |  |  | 42,391 |  |  | 45,505 |
Renewable energy incentives | 14,571 |  |  | 17,261 |  |  | 14,571 |  |  | 17,261 |
Credit and loss carryforwards | 7,682 |  |  | 43,940 |  |  | — |  |  | 3,031 |
Employee benefit liabilities | 57,853 |  |  | 49,222 |  |  | 56,561 |  |  | 48,551 |
Other | 44,412 |  |  | 28,643 |  |  | 44,412 |  |  | 29,314 |
Total deferred tax assets | 1,146,461 |  |  | 1,126,264 |  |  | 1,134,188 |  |  | 1,081,582 |
DEFERRED TAX LIABILITIES |  |  |  |  |  |  |
Plant-related | (2,562,990) |  |  | (2,572,495) |  |  | (2,562,990) |  |  | (2,572,495) |
Risk management activities | (4,089) |  |  | (1,682) |  |  | (4,089) |  |  | (1,682) |
Pension and other postretirement assets | (83,401) |  |  | (78,853) |  |  | (82,925) |  |  | (78,297) |
Other special use funds | (55,146) |  |  | (56,550) |  |  | (55,146) |  |  | (56,550) |
Operating lease right-of-use assets | (400,771) |  |  | (316,067) |  |  | (400,443) |  |  | (315,670) |
Regulatory assets: |  |  |  |  |  |  |
Allowance for equity funds used during construction | (47,694) |  |  | (46,754) |  |  | (47,694) |  |  | (46,754) |
Deferred fuel and purchased power | (84,393) |  |  | (149,078) |  |  | (84,393) |  |  | (149,078) |
Pension benefits | (185,641) |  |  | (172,239) |  |  | (185,641) |  |  | (172,239) |
Ocotillo deferral | (28,372) |  |  | (31,812) |  |  | (28,372) |  |  | (31,812) |
SCR deferral | (20,548) |  |  | (22,128) |  |  | (20,548) |  |  | (22,128) |
Retired power plant costs | (16,904) |  |  | (20,659) |  |  | (16,904) |  |  | (20,659) |
Other | (57,602) |  |  | (38,320) |  |  | (57,602) |  |  | (38,320) |
Other | (43,383) |  |  | (36,107) |  |  | (7,378) |  |  | (7,595) |
Total deferred tax liabilities | (3,590,934) |  |  | (3,542,744) |  |  | (3,554,125) |  |  | (3,513,279) |
Deferred income taxes — net | $ | (2,444,473) |  |  | $ | (2,416,480) |  |  | $ | (2,419,937) |  |  | $ | (2,431,697) |
As of December 31, 2024, Pinnacle West consolidated deferred tax assets for credit and loss carryforwards relate to federal and state credit carryforwards, net of federal benefit, of $12 million, which first begin to expire in 2029. Pinnacle West consolidated credit and loss carryforwards amount above has been reduced by $4 million of unrecognized tax benefits. As of December 31, 2024, APS consolidated does not have any deferred tax assets for credit and loss carryforwards relating to federal or state carryforwards due to APS utilizing all available federal and state credits in 2024.

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