APS 2013 Annual Report Download - page 109

Table of Contents
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following chart compares pretax income from continuing operations at the 35% federal income tax rate to income tax expense — continuing
operations (dollars in thousands):
Year Ended December 31,
2013 2012 2011
Federal income tax expense at 35% statutory rate $234,695 $229,709 $188,733
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit 21,387 23,819 19,594
Credits and favorable adjustments related to prior years resolved in current
year (3,356) — —
Medicare Subsidy Part-D 823 483 823
Allowance for equity funds used during construction (see Note 1) (6,997)(6,158)(6,881)
Palo Verde VIE noncontrolling interest (see Note 19) (11,862)(11,065)(9,636)
Other (4,099) 529 (9,029)
Income tax expense — continuing operations $230,591 $237,317 $183,604
The following table shows the net deferred income tax liability recognized on the Consolidated Balance Sheets (dollars in thousands):
December 31,
2013 2012
Current asset $91,152 $152,191
Long-term liability (2,351,882)(2,151,371)
Deferred income taxes — net $(2,260,730)$(1,999,180)
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, 2013 APS has
recorded a regulatory liability of $75 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, 2013, APS has
recorded a regulatory liability of $2
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