Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

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
	2019			2018			2017			2019			2018			2017
Total unrecognized tax benefits, January 1	$	40,731		$	41,966		$	36,075		$	40,731		$	41,966		$	36,075
Additions for tax positions of the current year	3,373			3,436			2,937			3,373			3,436			2,937
Additions for tax positions of prior years	1,843			2,696			4,783			1,843			2,696			4,783
Reductions for tax positions of prior years for:
Changes in judgment	(2,078		)	(1,764		)	(1,829		)	(2,078		)	(1,764		)	(1,829		)
Settlements with taxing authorities	—			—			—			—			—			—
Lapses of applicable statute of limitations	(434		)	(5,603		)	—			(434		)	(5,603		)	—
Total unrecognized tax benefits, December 31	$	43,435		$	40,731		$	41,966		$	43,435		$	40,731		$	41,966

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
	2019		2018			2017		2019		2018			2017
Unrecognized tax benefit interest expense/(benefit) recognized	$	459	$	(780	)	$	577	$	459	$	(780	)	$	577

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
	2019		2018		2017		2019		2018		2017
Unrecognized tax benefit interest accrued	$	1,589	$	1,130	$	1,910	$	1,589	$	1,130	$	1,910

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
	2019		2018		2017		2019		2018		2017
Tax positions, that if recognized, would decrease our effective tax rate	$	22,813	$	19,504	$	16,373	$	22,813	$	19,504	$	16,373

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,
	2019			2018		2017		2019			2018		2017
Current:
Federal	$	(13,551	)	$	18,375	$	11,624	$	(54,697	)	$	88,180	$	21,512
State	3,195			3,342		3,052		695			1,877		2,778
Total current	(10,356		)	21,717		14,676		(54,002		)	90,057		24,290
Deferred:
Federal	(14,982		)	94,721		223,729		29,321			32,436		221,078
State	9,565			17,464		19,867		15,109			22,321		23,800
Total deferred	(5,417		)	112,185		243,596		44,430			54,757		244,878
Income tax expense/(benefit)	$	(15,773	)	$	133,902	$	258,272	$	(9,572	)	$	144,814	$	269,168

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 2019 and 2018 and 35% in 2017 to income tax expense (dollars in thousands):

	Pinnacle West Consolidated									APS Consolidated
	Year Ended December 31,									Year Ended December 31,
	2019			2018			2017			2019			2018			2017
Federal income tax expense at statutory rate	$	113,828		$	139,533		$	268,177		$	120,790		$	154,260		$	277,540
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit	18,599			23,115			21,380			19,267			24,531			22,329
State income tax credits net of federal income tax benefit	(8,519		)	(6,704		)	(6,483		)	(6,781		)	(5,440		)	(5,053		)
Nondeductible expenditures associated with ballot initiative	—			7,879			—			—			—			—
Stock compensation	(2,252		)	(1,804		)	(6,659		)	(1,054		)	(780		)	(3,489		)
Excess deferred income taxes - Tax Cuts and Jobs Act	(124,082		)	(6,725		)	9,348			(124,082		)	(4,715		)	9,431
Allowance for equity funds used during construction (see Note 1)	(2,476		)	(7,231		)	(12,937		)	(2,476		)	(7,231		)	(12,937		)
Palo Verde VIE noncontrolling interest (see Note 19)	(4,094		)	(4,094		)	(6,823		)	(4,094		)	(4,094		)	(6,823		)
Investment tax credit amortization	(6,851		)	(6,742		)	(6,715		)	(6,851		)	(6,742		)	(6,715		)
Other	74			(3,325		)	(1,016		)	(4,291		)	(4,975		)	(5,115		)
Income tax expense/(benefit)	$	(15,773	)	$	133,902		$	258,272		$	(9,572	)	$	144,814		$	269,168

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,
	2019			2018			2019			2018
DEFERRED TAX ASSETS
Risk management activities	$	17,552		$	15,785		$	17,552		$	15,785
Regulatory liabilities:
Excess deferred income taxes - Tax Cuts and Jobs Act	335,877			376,869			335,877			376,869
Asset retirement obligation and removal costs	143,011			117,201			143,011			117,201
Unamortized investment tax credits	52,236			53,284			52,236			53,284
Other postretirement benefits	43,841			40,532			43,841			40,532
Other	52,382			40,380			52,382			40,380
Pension liabilities	73,210			112,019			67,976			107,009
Coal reclamation liabilities	40,837			47,508			40,837			47,508
Renewable energy incentives	28,066			30,779			28,066			30,779
Credit and loss carryforwards	54,795			1,755			10,992			—
Other	63,102			58,820			70,948			59,919
Total deferred tax assets	904,909			894,932			863,718			889,266
DEFERRED TAX LIABILITIES
Plant-related	(2,448,458		)	(2,277,724		)	(2,448,458		)	(2,277,724		)
Risk management activities	(27		)	(237		)	(27		)	(237		)
Other postretirement assets and other special use funds	(66,399		)	(57,697		)	(65,965		)	(57,274		)
Regulatory assets:
Allowance for equity funds used during construction	(40,023		)	(39,086		)	(40,023		)	(39,086		)
Deferred fuel and purchased power	(35,162		)	(23,086		)	(35,162		)	(23,086		)
Pension benefits	(163,339		)	(181,504		)	(163,339		)	(181,504		)
Retired power plant costs (see Note 4)	(42,228		)	(48,348		)	(42,228		)	(48,348		)
Other	(82,722		)	(72,096		)	(82,722		)	(72,096		)
Other	(18,890		)	(2,575		)	(18,890		)	(2,575		)
Total deferred tax liabilities	(2,897,248		)	(2,702,353		)	(2,896,814		)	(2,701,930		)
Deferred income taxes — net	$	(1,992,339	)	$	(1,807,421	)	$	(2,033,096	)	$	(1,812,664	)