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Income Taxes
 12 Months Ended
Dec. 31, 2025
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, 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. While the $23 million reduced tax payments, the $21 million paid to Ameresco is not included in the income taxes paid table below. See Note 22 for more information about the BCE Sale.

The Company claimed a $33.4 million benefit for the Nuclear PTC on its 2024 tax return using a revenue requirement methodology to determine its gross receipts from nuclear sales. In the continued absence of IRS guidance regarding the definition of gross receipts from nuclear sales, management intends to utilize this same methodology to claim a 2025 credit of $39.6 million. These benefits include the five times multiplier for complying with IRS prevailing wage rules. However, due to the continued lack of IRS guidance, management believes that there remains uncertainty as to whether the IRS will ultimately agree with the Company’s gross receipts methodology. As a result, the entire amount of the 2024 and 2025 benefits is recorded as uncertain tax positions and the Company continues to not recognize any income tax benefits related to the Nuclear PTC.
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 12 for additional details related to Palo Verde sale leaseback VIEs.

The components of income tax expense are as follows (dollars in thousands):
Pinnacle West ConsolidatedAPS Consolidated
 Year Ended December 31,Year Ended December 31,
 202520242023202520242023
Current:   
Federal$87,913 $137,342 $21,272 $94,207 $165,653 $26,405 
State10,892 2,392 2,854 31,424 26,054 1,027 
Total current98,805 139,734 24,126 125,631 191,707 27,432 
Deferred:
Federal(11,073)(53,228)37,273 (2,902)(69,075)44,922 
State18,994 24,023 15,513 3,190 4,361 21,830 
Total deferred7,921 (29,205)52,786 288 (64,714)66,752 
Income tax expense
106,726 110,529 76,912 125,919 126,993 94,184 
The following table compares Pinnacle West Consolidated pretax income at the 21% statutory federal income tax rate to income tax expense (dollars in thousands) and effective tax rates:
Pinnacle West Consolidated
 Year Ended December 31,
202520242023
 AmountPercentAmountPercentAmountPercent
Income before income taxes (a)$738,369 $736,559 $595,693 
Federal income tax expense at statutory rate155,057 21.00 %154,677 21.00 %125,095 21.00 %
State income tax net of federal income tax benefit (b)23,610 3.20 %23,735 3.22 %17,832 2.99 %
Changes in Valuation Allowance— — %— — %— — %
Nontaxable or Nondeductible Items
Share based compensation(4,062)(0.55)%(421)(0.06)%1,346 0.23 %
Palo Verde VIE noncontrolling interest (Note 12)
(3,173)(0.43)%(3,617)(0.49)%(3,617)(0.61)%
Other Nontaxable or Nondeductible Items5,896 0.80 %3,667 0.50 %2,405 0.40 %
Effect of changes in tax laws or rates enacted in the current period— — %— — %— — %
Tax Credits
Solar or Wind Production Tax Credit(14,698)(1.99)%(15,206)(2.07)%(8,441)(1.42)%
Other Federal Income Tax Credits(19)— %(242)(0.03)%(650)(0.11)%
Investment credit amortization – deferral method(12,625)(1.71)%(9,425)(1.28)%(9,495)(1.59)%
Changes in Unrecognized Tax Benefits1,523 0.21 %(28)— %(1,961)(0.33)%
Effects of Utility Ratemaking
Excess deferred income taxes — Tax Cuts and Jobs Act(36,558)(4.95)%(36,559)(4.96)%(36,558)(6.14)%
Allowance for equity funds used during construction (Note 1)
(7,005)(0.95)%(2,545)(0.35)%(5,964)(1.00)%
Other regulatory amortization(2,758)(0.38)%(1,796)(0.24)%(1,828)(0.31)%
Other Adjustments1,538 0.20 %(1,711)(0.23)%(1,252)(0.20)%
Income tax expense
$106,726 14.45 %$110,529 15.01 %$76,912 12.91 %
(a)     Income before income taxes is from continuing operations and is entirely domestic.
(b)     The State of Arizona makes up the majority (greater than 50 percent) of the effect of the state and local income tax category.
The following table compares APS Consolidated pretax income at the 21% statutory federal income tax rate to income tax expense (dollars in thousands) and effective tax rates:
APS Consolidated
 Year Ended December 31,
202520242023
 AmountPercentAmountPercentAmountPercent
Income before income taxes (a)$808,346 $786,142 $658,745 
Federal income tax expense at statutory rate169,753 21.00 %165,090 21.00 %138,337 21.00 %
State income tax net of federal income tax benefit (b)27,345 3.38 %26,824 3.41 %21,453 3.26 %
Changes in Valuation Allowance— — %— — %— — %
Nontaxable or Nondeductible Items
Share based compensation(2,482)(0.31)%23 — %997 0.15 %
Palo Verde VIE noncontrolling interest (Note 12)
(3,173)(0.39)%(3,617)(0.46)%(3,617)(0.55)%
Other Nontaxable or Nondeductible Items1,727 0.21 %694 0.09 %263 0.04 %
Effect of changes in tax laws or rates enacted in the current period— — %— — %— — %
Tax Credits
Solar or Wind Production Tax Credit(11,254)(1.39)%(12,110)(1.54)%(5,460)(0.83)%
Other Federal Income Tax Credits(19)— %(242)(0.03)%(650)(0.10)%
Investment credit amortization – deferral method(12,625)(1.56)%(9,425)(1.20)%(9,495)(1.44)%
Changes in Unrecognized Tax Benefits1,483 0.18 %(107)(0.01)%(1,946)(0.30)%
Effects of Utility Ratemaking
Excess deferred income taxes — Tax Cuts and Jobs Act(36,558)(4.52)%(36,559)(4.65)%(36,558)(5.55)%
Allowance for equity funds used during construction (Note 1)
(7,005)(0.87)%(2,545)(0.32)%(5,964)(0.91)%
Other regulatory amortization(2,758)(0.34)%(1,796)(0.23)%(1,828)(0.28)%
Other Adjustments1,485 0.19 %763 0.09 %(1,348)(0.19)%
Income tax expense
$125,919 15.58 %$126,993 16.15 %$94,184 14.30 %
(a)     Income before income taxes is from continuing operations and is entirely domestic.
(b)     The State of Arizona makes up the majority (greater than 50 percent) of the effect of the state and local income tax category.
The following table presents the income taxes paid for Pinnacle West and APS on a retrospective basis (dollars in thousands):
Pinnacle West ConsolidatedAPS Consolidated
 Year Ended December 31,Year Ended December 31,
 202520242023202520242023
Federal$20,894 $112,870 $8,609 $30,207 $156,112 $21,438 
State1,860 128 179 23,431 22,901 296 
Total$22,754 $112,998 $8,788 $53,638 $179,013 $21,734 
    
State income taxes paid (net of refunds) exceed 5 percent of total income taxes paid (net of refunds) in the following jurisdictions (dollars in thousands):
Pinnacle West ConsolidatedAPS Consolidated
 Year Ended December 31,Year Ended December 31,
 202520242023202520242023
Arizona$2,000 $— (a)$— (a)$23,423 $22,788 $— (a)

(a)    Jurisdiction below the threshold for the period presented.

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
 202520242023202520242023
Total unrecognized tax benefits, January 1$44,349 $44,274 $43,097 $44,349 $44,274 $43,097 
Additions for tax positions of the current year81,286 1,271 1,473 81,286 1,271 1,473 
Additions for tax positions of prior years2,818 2,031 419 2,818 2,031 419 
Reductions for tax positions of prior years for:000000
Changes in judgment(2,044)(2,043)661 (2,044)(2,043)661 
Settlements with taxing authorities— — — — — — 
Lapses of applicable statute of limitations(970)(1,184)(1,376)(970)(1,184)(1,376)
Total unrecognized tax benefits, December 31$125,439 $44,349 $44,274 $125,439 $44,349 $44,274 

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
 202520242023202520242023
Tax positions, that if recognized, would decrease our effective tax rate$103,785 $27,899 $28,762 $103,785 $27,899 $28,762 

As of December 31, 2025, the tax year ended December 31, 2022 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 2021.
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
 202520242023202520242023
Unrecognized tax benefit interest expense recognized
$3,610 $2,743 $452 $3,610 $2,743 $452 

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 ConsolidatedAPS Consolidated
 202520242023202520242023
Unrecognized tax benefit interest accrued $7,986 $4,376 $1,633 $7,986 $4,376 $1,633 

As of December 31, 2025, we have recognized approximately $2.8 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 the net deferred income tax liability were as follows (dollars in thousands):

Pinnacle West ConsolidatedAPS Consolidated
 December 31,December 31,
 2025202420252024
DEFERRED TAX ASSETS 
Risk management activities$8,422 $14,539 $8,422 $14,539 
Regulatory liabilities:
Excess deferred income taxes — Tax Cuts and Jobs Act259,000 271,004 259,000 271,004 
Asset retirement obligation and removal costs66,031 81,308 66,031 81,308 
Unamortized investment tax credits81,949 66,327 81,949 66,327 
Other postretirement benefits57,833 58,862 57,833 58,862 
Other50,611 47,671 50,611 47,671 
Operating lease liabilities923,774 400,771 923,479 400,442 
Pension liabilities46,613 39,070 43,422 36,100 
Coal reclamation liabilities39,450 42,391 39,450 42,391 
Renewable energy incentives11,908 14,571 11,908 14,571 
Credit and loss carryforwards— 7,682 — — 
Employee benefit liabilities56,447 57,853 55,243 56,561 
Other49,098 44,412 49,098 44,412 
Total deferred tax assets1,651,136 1,146,461 1,646,446 1,134,188 
DEFERRED TAX LIABILITIES   
Plant-related(2,595,668)(2,562,990)(2,595,668)(2,562,990)
Risk management activities(2,072)(4,089)(2,072)(4,089)
Pension and other postretirement assets(97,557)(83,401)(96,988)(82,925)
Other special use funds(58,175)(55,146)(58,175)(55,146)
Operating lease right-of-use assets(923,774)(400,771)(923,479)(400,443)
Regulatory assets:
Allowance for equity funds used during construction(50,402)(47,694)(50,402)(47,694)
Deferred fuel and purchased power(45,504)(84,393)(45,504)(84,393)
Pension benefits(178,736)(185,641)(178,736)(185,641)
Ocotillo deferral(24,703)(28,372)(24,703)(28,372)
SCR deferral(19,080)(20,548)(19,080)(20,548)
Retired power plant costs (13,157)(16,904)(13,157)(16,904)
Other(58,822)(57,602)(58,822)(57,602)
Other(54,418)(43,383)(7,425)(7,378)
Total deferred tax liabilities(4,122,068)(3,590,934)(4,074,211)(3,554,125)
Deferred income taxes — net$(2,470,932)$(2,444,473)$(2,427,765)$(2,419,937)

As of December 31, 2025, Pinnacle West consolidated deferred tax assets for credit and loss carryforwards relate to federal credit carryforwards of $27.9 million. Pinnacle West consolidated credit and loss carryforwards amount above has been reduced by $27.9 million of unrecognized tax benefits.

As of December 31, 2025, APS consolidated deferred tax assets for credit and loss carryforwards relate to federal credit carryforwards of $12.4 million. APS consolidated credit and loss carryforwards amount above has been reduced by $12.4 million of unrecognized tax benefits.