PG&E Corporation and the Utility use the asset and liability method of accounting for income taxes. The income tax provision includes current and deferred income taxes resulting from operations during the year. PG&E Corporation and the Utility estimate current period tax expense in addition to calculating deferred tax assets and liabilities. Deferred tax assets and liabilities result from temporary tax and accounting timing differences, such as those arising from depreciation expense.

PG&E Corporation and the Utility recognize a tax benefit if it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by taxing authorities based on the merits of the position. The tax benefit recognized in the financial statements is measured based on the largest amount of benefit that is greater than 50% likely of being realized upon settlement. As such, the difference between a tax position taken or expected to be taken in a tax return in future periods and the benefit recognized and measured pursuant to this guidance in the financial statements represents an unrecognized tax benefit.

Investment tax credits are deferred and amortized to income over time. PG&E Corporation amortizes its investment tax credits over the projected investment recovery period. The Utility amortizes its investment tax credits over the life of the related property in accordance with regulatory treatment.

PG&E Corporation files a consolidated U.S. federal income tax return that includes the Utility and domestic subsidiaries in which its ownership is 80% or more. PG&E Corporation files a combined state income tax return in California. PG&E Corporation and the Utility are parties to a tax-sharing agreement under which the Utility determines its income tax provision (benefit) on a stand-alone basis.


	PG&E Corporation						Utility
	Year Ended December 31,
(in millions)	2020		2019		2018		2020		2019		2018
Current:
Federal	$	(26)	$	1	$	(5)	$	(26)	$	4	$	5
State	(34)		101		(8)		(34)		94		(7)
Deferred:
Federal	258		(2,361)		(2,264)		290		(2,363)		(2,278)
State	171		(1,136)		(1,009)		185		(1,137)		(1,009)
Tax credits	(7)		(5)		(6)		(7)		(5)		(6)
Income tax provision (benefit)	$	362	$	(3,400)	$	(3,292)	$	408	$	(3,407)	$	(3,295)


	PG&E Corporation				Utility
	Year Ended December 31,
(in millions)	2020		2019		2020		2019
Deferred income tax assets:
Tax carryforwards	$	7,641	$	1,390	$	7,529	$	1,308
Compensation	187		151		109		92
Wildfire-related claims (1)	544		6,520		544		6,520
Operating lease liability	489		642		488		640
Other (2)	212		112		219		121
Total deferred income tax assets	$	9,073	$	8,815	$	8,889	$	8,681
Deferred income tax liabilities:
Property related basis differences	8,311		7,984		8,300		7,973
Regulatory balancing accounts	763		381		763		381
Debt financing costs	526		—		526		—
Operating lease right of use asset	489		642		488		640
Income tax regulatory asset(3)	254		71		254		71
Other (4)	128		57		128		58
Total deferred income tax liabilities	$	10,471	$	9,135	$	10,459	$	9,123
Total net deferred income tax liabilities	$	1,398	$	320	$	1,570	$	442

(1) Amounts primarily relate to wildfire-related claims, net of estimated insurance recoveries, and legal and other costs related to various wildfires that have occurred on PG&E Corporation’s and the Utility’s service territory over the past several years.

(3) Represents the tax gross up portion of the deferred income tax for the cumulative differences between amounts recognized for ratemaking purposes and amounts recognized for tax, including the impact of changes in net deferred taxes associated with a lower federal income tax rate as a result of the Tax Act.


	PG&E Corporation						Utility
	Year Ended December 31,
	2020		2019		2018		2020		2019		2018
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%	21.0	%
Increase (decrease) in income tax rate resulting from:
State income tax (net of federal benefit) (1)	(15.3)		7.5		7.9		19.1		7.5		7.9
Effect of regulatory treatment of fixed asset differences (2)	39.0		2.8		3.6		(44.9)		2.8		3.6
Tax credits	1.5		0.1		0.1		(1.7)		0.1		0.1
Bankruptcy and emergence (3)	(82.5)		—		—		54.1		—		—
Other, net (4)	(2.1)		(0.6)		(0.1)		2.2		(0.5)		—
Effective tax rate	(38.4)	%	30.8	%	32.5	%	49.8	%	30.9	%	32.6	%

(2) Includes the effect of federal flow-through ratemaking treatment for certain property-related costs. For these temporary tax differences, PG&E Corporation and the Utility recognize the deferred tax impact in the current period and record offsetting regulatory assets and liabilities. Therefore, PG&E Corporation’s and the Utility’s effective tax rates are impacted as these differences arise and reverse. PG&E Corporation and the Utility recognize such differences as regulatory assets or liabilities as it is probable that these amounts will be recovered from or returned to customers in future rates. In 2020, 2019, and 2018, the amounts also reflect the impact of the amortization of excess deferred tax benefits to be refunded to customers as a result of the Tax Act passed in December 2017.

(3) The Utility includes an adjustment for the measurement of the deferred tax asset associated with the difference between the liability recorded related to the TCC RSA and the ultimate value of PG&E Corporation stock contributed to the Fire Victim Trust. PG&E Corporation includes the same adjustment as the Utility and a permanent non-deductible equity backstop premium expense. This combined with a pre-tax loss and a pre-tax income for PG&E Corporation and the Utility, respectively, accounts for the remaining difference.


	PG&E Corporation						Utility
(in millions)	2020		2019		2018		2020		2019		2018
Balance at beginning of year	$	420	$	377	$	349	$	420	$	377	$	349
Reductions for tax position taken during a prior year	(43)		(1)		(27)		(43)		(1)		(27)
Additions for tax position taken during the current year	60		44		55		60		44		55
Settlements	—		—		—		—		—		—
Expiration of statute	—		—		—		—		—		—
Balance at end of year	$	437	$	420	$	377	$	437	$	420	$	377

The component of unrecognized tax benefits that, if recognized, would affect the effective tax rate at December 31, 2020 for PG&E Corporation and the Utility was $16 million.

Interest income, interest expense and penalties associated with income taxes are reflected in income tax expense on the Consolidated Statements of Income. For the years ended December 31, 2020, 2019, and 2018, these amounts were immaterial.

PG&E Corporation’s tax returns have been accepted through 2015 for federal income tax purposes, except for a few matters, the most significant of which relate to deductible repair costs for gas transmission and distribution lines of business and tax deductions claimed for regulatory fines and fees assessed as part of the penalty decision issued in 2015 for the San Bruno natural gas explosion in September of 2010.


(in millions)	December 31, 2020		Expiration Year
Federal:
Net operating loss carryforward - Pre-2018	$	3,600	2031 - 2036
Net operating loss carryforward - Post-2017	24,887		N/A
Tax credit carryforward	134		2029 - 2040

State:
Net operating loss carryforward	$	25,364	2039 - 2040
Tax credit carryforward	100		Various

On the Petition Date, PG&E Corporation and the Utility filed voluntary petitions for relief under Chapter 11 in the Bankruptcy Court. PG&E Corporation does not believe that the Chapter 11 Cases resulted in loss of or limitation on the utilization of any of the tax carryforwards. PG&E Corporation will continue to monitor the status of tax carryforwards.

PG&E Corporation’s and the Utility’s unrecognized tax benefits are not likely to change significantly within the next 12 months. At December 31, 2020, it is reasonably possible that within the next 12 months, unrecognized tax benefits will decrease. The amount is not expected to be material.

As of the date of this report, PG&E Corporation does not believe that it had undergone an ownership change, and consequently, its net operating loss carryforwards and other tax attributes are not limited by Section 382 of the Internal Revenue Code.

In March 2020, Congress passed, and the President signed into law the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Under the CARES Act, PG&E Corporation and the Utility have deferred the payment of 2020 payroll taxes for the remainder of the year to 2021 and 2022.

During June 2020, the State of California enacted AB 85, which increases taxes on corporations over a three-year period beginning in 2020 by suspension of the net operating loss deduction and a limit of $5 million per year on business tax credits. PG&E Corporation and the Utility do not anticipate any material impacts to PG&E Corporation’s Consolidated Financial Statements due to this legislation.

In December 2020, Congress passed, and the President signed into law the Consolidations and Appropriations Act of 2021. PG&E Corporation and the Utility do not expect this legislation to have a material impact to PG&E Corporation’s Consolidated Financial Statements.

See “Ownership Restrictions in PG&E Corporation’s Amended Articles” in Note 6 of the Notes to the Consolidated Financial Statements in Item 8 for information on the possible election to treat the Fire Victim Trust as a “grantor trust” for federal income tax purposes.