Summary of Operating Loss Carryforwards and Tax Credit Carryforwards

Significant components of PPL's deferred income tax assets and liabilities were as follows:


	2021		2020
Deferred Tax Assets
Deferred investment tax credits	$	30	$	30
Regulatory liabilities	94		68
Income taxes due to customers	422		444
Accrued pension and postretirement costs	75		106
Federal loss carryforwards (a)	—		234

State loss carryforwards	483		448

Federal and state tax credit carryforwards (a)	15		401




Leases	67		68
Contributions in aid of construction	120		115
Other	84		68

Valuation allowances	(462)		(536)
Total deferred tax assets	928		1,446

Deferred Tax Liabilities
Plant - net	3,812		3,700

Regulatory assets	180		195



Other	75		70
Total deferred tax liabilities	4,067		3,965
Net deferred tax liability	$	3,139	$	2,519

(a)PPL utilized federal net operating losses of $1,115 million and tax credit carryforwards of $272 million in June 2021 as a result of the completion of the sale of the U.K. utility business on June 14, 2021. The related deferred tax assets decreased by approximately $506 million, with a corresponding reduction in current income taxes.

At December 31, 2021, PPL had the following loss and tax credit carryforwards, related deferred tax assets and valuation allowances recorded against the deferred tax assets:


	Gross		Deferred Tax Asset		Valuation Allowance		Expiration
Loss and other carryforwards


State net operating losses	$	6,468	$	483	$	(459)	2022-2041


Credit carryforwards




State recycling credit	14	—	2028
State - other	1	—	Indefinite

Schedule of Valuation and Qualifying Accounts of Deferred Tax Assets

The changes in deferred tax valuation allowances were as follows:


			Additions
	Balance at Beginning of Period		Charged to Income			Charged to Other Accounts		Deductions			Balance at End of Period
2021	$	536	$	48	(a)	$	—	$	122	(b)	$	462
2020	514		26			—		4			536
2019	495		24			—		5			514

(a)In 2021, PPL recorded a $31 million increase in a valuation allowance on a state net operating loss carryforward in connection with the loss on extinguishment associated with a tender offer to purchase and retire PPL Capital Funding's outstanding Senior Notes. See Note 8 for additional information on the tender offer.

(b)In light of the disposition of PPL's U.K. utility business, there was a decrease in the valuation allowance of approximately $113 million.

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:


	2021		2020		2019
Income Tax Expense (Benefit)
Current - Federal	$	(1)	$	(8)	$	(10)
Current - State	36		24		19
Current - Foreign	(1)		(2)		—
Total Current Expense (Benefit)	34		14		9
Deferred - Federal	28		135		141
Deferred - State	105		94		76
Deferred - Foreign (a)	383		101		(14)
Total Deferred Expense (Benefit), excluding operating loss carryforwards	516		330		203

Amortization of investment tax credit	(3)		(3)		(3)
Tax expense (benefit) of operating loss carryforwards
Deferred - Federal	12		6		7
Deferred - State	(56)		(33)		(33)
Total Tax Expense (Benefit) of Operating Loss Carryforwards	(44)		(27)		(26)
Total income tax expense (benefit)	$	503	$	314	$	183

Total income tax expense (benefit) - Federal	$	36	$	130	$	135
Total income tax expense (benefit) - State	85		85		62
Total income tax expense (benefit) - Foreign	382		99		(14)
Total income tax expense (benefit)	$	503	$	314	$	183

(a)In 2021, the U.K. Finance Act 2021 increased the U.K. corporation tax rate from 19% to 25%, effective April 1, 2023. The primary impact of the corporation tax rate increase was an increase in deferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a corresponding deferred tax expense of $383 million, which was recognized in continuing operations in the second quarter of 2021.

In 2020, the U.K. Finance Act 2020 cancelled the tax rate reduction from 19% to 17%. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.

In the table above, the following income tax expense (benefit) are excluded from income taxes:


	2021		2020		2019
Discontinued operations - PPL U.K. utility business	$	759	$	188	$	226

Reclassification from AOCI due to sale of UK utility business	660		—		—


Other comprehensive income	150		(19)		(93)

Total	$	1,569	$	169	$	133


	2021		2020		2019
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	109	$	200	$	193

State income taxes, net of federal income tax benefit	23		48		45
Valuation allowance adjustments (a)	48		24		22




Federal and state income tax return adjustments	(3)		(9)		1
Impact of the U.K. Finance Acts on deferred tax balances (b)	383		101		(14)
Depreciation and other items not normalized	(5)		(5)		(10)
Amortization of excess deferred federal and state income taxes	(54)		(43)		(40)




Non-deductible officer's salary	6		7		4
Kentucky recycling credit, net of federal income tax expense (c)	—		—		(18)
Other	(4)		(9)		—
Total increase (decrease)	394		114		(10)
Total income tax expense (benefit)	$	503	$	314	$	183
Effective income tax rate	96.5%		32.9%		19.9%

(a)In 2021, PPL recorded a $31 million state deferred tax benefit on a net operating loss and an offsetting valuation allowance in connection with the loss on extinguishment associated with a tender offer to purchase and retire PPL Capital Funding's outstanding Senior Notes. See Note 8 for additional information on the tender offer.

In 2021, 2020, and 2019, PPL recorded deferred income tax expense of $15 million, $24 million and $25 million for valuation allowances primarily related to increased Pennsylvania net operating loss carryforwards expected to be unutilized.

(b)In 2020, the U.K. Finance Act 2020 cancelled the tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19% for financial years 2020 and 2021. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.

In 2021, the U.K. Finance Act 2021 increased the U.K. corporation tax rate from 19% to 25%, effective April 1, 2023. The primary impact of the corporation tax rate increase was an increase in deferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a corresponding deferred tax expense of $383 million, which was recognized in continuing operations in the second quarter of 2021.

(c)In 2019, LG&E recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky.

Summary of Income Tax Examinations


	2021		2020		2019
Taxes, other than income
State gross receipts	$	113	$	100	$	107


Domestic - other	94		80		79
Total	$	207	$	180	$	186

With few exceptions, at December 31, 2021, these jurisdictions, as well as the tax years that are no longer subject to examination, were as follows.

PPL

PPL Electric

LG&E

U.S. (federal)

2017 and prior

Pennsylvania (state)

2017 and prior

Kentucky (state)

2014 and prior

U.K. (foreign)

2019 and prior

PPL Electric Utilities Corp [Member]

Income Taxes [Line Items]

Significant components of PPL Electric's deferred income tax assets and liabilities were as follows:


	2021		2020
Deferred Tax Assets
Accrued pension and postretirement costs	$	14	$	25
Contributions in aid of construction	95		91
Regulatory liabilities	52		24
Income taxes due to customers	154		162


Federal loss carryforwards (a)	—		52

Other	21		29
Total deferred tax assets	336		383

Deferred Tax Liabilities
Electric utility plant - net	1,891		1,826


Regulatory assets	74		86
Other	39		30
Total deferred tax liabilities	2,004		1,942
Net deferred tax liability	$	1,668	$	1,559

(a)PPL Electric utilized their remaining federal net operating losses and recorded the related deferred tax assets to current expense in June 2021 as a result of the completion of the sale of the U.K. utility business on June 14, 2021.

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate


	2021		2020		2019
Income Tax Expense (Benefit)
Current - Federal	$	40	$	61	$	44
Current - State	35		23		15
Total Current Expense (Benefit)	75		84		59
Deferred - Federal	59		45		51
Deferred - State	20		38		39
Total Deferred Expense (Benefit), excluding operating loss carryforwards	79		83		90






Total income tax expense (benefit)	$	154	$	167	$	149

Total income tax expense (benefit) - Federal	$	99	$	106	$	95
Total income tax expense (benefit) - State	55		61		54
Total income tax expense (benefit)	$	154	$	167	$	149


	2021		2020		2019
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	126	$	139	$	127
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	46		52		47

Federal and state income tax return adjustments	—		(4)		1
Depreciation and other items not normalized	(5)		(5)		(10)
Amortization of excess deferred federal income taxes (a)	(14)		(16)		(18)


Other	1		1		2
Total increase (decrease)	28		28		22
Total income tax expense (benefit)	$	154	$	167	$	149
Effective income tax rate	25.7%		25.2%		24.6%

(a)In 2021, 2020 and 2019, PPL Electric recorded lower income tax expense for the amortization of excess deferred taxes that primarily resulted from the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA. This amortization represents each year's refund amount, prior to a tax gross-up, to be paid to customers for previously collected deferred taxes at higher income tax rates.

Louisville Gas And Electric Co [Member]


	2021		2020		2019
Taxes, other than income
State gross receipts	$	113	$	100	$	107
Property and other	7		7		5
Total	$	120	$	107	$	112

Income Taxes [Line Items]

Significant components of LG&E's deferred income tax assets and liabilities were as follows:


	2021		2020
Deferred Tax Assets

Contributions in aid of construction	$	15	$	15
Regulatory liabilities	18		20

Deferred investment tax credits	8		8
Income taxes due to customers	125		132
State tax credit carryforwards	11		12
Lease liabilities	4		5
Valuation allowances	(11)		(12)
Other	11		11
Total deferred tax assets	181		191

Deferred Tax Liabilities
Plant - net	854		833
Regulatory assets	65		66
Lease right-of-use assets	4		4
Other	9		4
Total deferred tax liabilities	932		907
Net deferred tax liability	$	751	$	716

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate


	2021		2020		2019
Income Tax Expense (Benefit)
Current - Federal	$	41	$	53	$	4
Current - State	5		7		4
Total Current Expense (Benefit)	46		60		8
Deferred - Federal	1		(4)		46
Deferred - State	8		7		10
Total Deferred Expense (Benefit)	9		3		56
Amortization of investment tax credit - Federal	(1)		(1)		(1)




Total income tax expense (benefit)	$	54	$	62	$	63

Total income tax expense (benefit) - Federal	$	41	$	48	$	49
Total income tax expense (benefit) - State	13		14		14
Total income tax expense (benefit)	$	54	$	62	$	63


	2021		2020		2019
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	64	$	64	$	62
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	12		12		12
Amortization of excess deferred federal and state income taxes	(20)		(11)		(10)
Kentucky recycling credit, net of federal income tax expense (a)	—		—		(14)
Valuation allowance adjustments (a)	—		—		14
Other	(2)		(3)		(1)
Total increase (decrease)	(10)		(2)		1
Total income tax expense (benefit)	$	54	$	62	$	63
Effective income tax rate	17.8%		20.3%		21.4%

(a)In 2019, LG&E recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. This amount has been reserved due to insufficient Kentucky taxable income projected at LG&E.

Kentucky Utilities Co [Member]


	2021		2020		2019
Taxes, other than income
Property and other	$	46	$	40	$	39
Total	$	46	$	40	$	39

Income Taxes [Line Items]

Significant components of KU's deferred income tax assets and liabilities were as follows:


	2021		2020
Deferred Tax Assets

Contributions in aid of construction	$	9	$	8
Regulatory liabilities	23		23

Deferred investment tax credits	22		22
Income taxes due to customers	143		150
State tax credit carryforwards	4		5
Lease liabilities	7		8
Valuation allowances	(3)		(4)
Other	4		4
Total deferred tax assets	209		216

Deferred Tax Liabilities
Plant - net	1,012		992
Regulatory assets	41		43
Pension and postretirement costs	13		8
Lease right-of-use assets	6		7
Other	2		1
Total deferred tax liabilities	1,074		1,051
Net deferred tax liability	$	865	$	835

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate


	2021		2020		2019
Income Tax Expense (Benefit)
Current - Federal	$	58	$	40	$	35
Current - State	8		3		5
Total Current Expense (Benefit)	66		43		40
Deferred - Federal	(4)		11		28
Deferred - State	7		11		13
Total Deferred Expense (Benefit)	3		22		41
Amortization of investment tax credit - Federal	(2)		(2)		(2)



Total income tax expense (benefit)	$	67	$	63	$	79

Total income tax expense (benefit) - Federal	$	52	$	49	$	61
Total income tax expense (benefit) - State	15		14		18
Total income tax expense (benefit)	$	67	$	63	$	79


	2021		2020		2019
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	76	$	72	$	78
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	14		14		15
Amortization of investment tax credit	(2)		(2)		(2)
Amortization of excess deferred federal and state income taxes	(20)		(17)		(13)
Kentucky recycling credit, net of federal income tax expense (a)	—		—		(4)
Valuation allowance adjustments (a)	—		—		4
Other	(1)		(4)		1
Total increase (decrease)	(9)		(9)		1
Total income tax expense (benefit)	$	67	$	63	$	79
Effective income tax rate	18.4%		18.4%		21.2%

(a)In 2019, KU recorded a deferred income tax benefit associated with a project placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. This amount has been reserved due to insufficient Kentucky taxable income projected at KU.