Income Taxes

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

Reconciliations of income tax expense (benefit) for the periods ended June 30 are as follows.

(PPL)
	Three Months				Six Months
	2022		2021		2022		2021
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 21%	$	32	$	(40)	$	104	$	15
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	27		(18)		48		(5)
Valuation allowance adjustments (a)	7		26		10		34
Impact of the U.K. Finance Acts on deferred tax balances (b)	—		383		—		383
Amortization of investment tax credit including deferred taxes on basis adjustment	(4)		—		(7)		(1)
Depreciation and other items not normalized	(5)		(2)		(8)		(4)
Amortization of excess deferred federal and state income taxes	(22)		(8)		(40)		(20)
Other	(3)		4		(1)		2
Total increase (decrease)	—		385		2		389
Total income tax expense (benefit)	$	32	$	345	$	106	$	404

(a)In June 2021, PPL recorded a $25 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.

(b)The U.K. Finance Act 2021, formally enacted on June 10, 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.

(PPL Electric)
	Three Months				Six Months
	2022		2021		2022		2021
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	35	$	27	$	76	$	59
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	13		10		28		22
Depreciation and other items not normalized	(3)		(2)		(6)		(4)
Amortization of excess deferred federal and state income taxes	(2)		(3)		(5)		(6)
Other	1		2		1		—
Total increase (decrease)	9		7		18		12
Total income tax expense (benefit)	$	44	$	34	$	94	$	71

(LG&E)
	Three Months				Six Months
	2022		2021		2022		2021
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	13	$	12	$	37	$	32
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	2		2		7		6
Amortization of excess deferred federal and state income taxes	(7)		(3)		(14)		(6)
Other	1		1		(2)		(1)
Total increase (decrease)	(4)		—		(9)		(1)
Total income tax expense (benefit)	$	9	$	12	$	28	$	31

(KU)
	Three Months				Six Months
	2022		2021		2022		2021
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	17	$	15	$	45	$	37
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	3		3		8		7
Amortization of excess deferred federal and state income taxes	(6)		(4)		(12)		(8)
Other	1		(1)		(2)		(2)
Total increase (decrease)	(2)		(2)		(6)		(3)
Total income tax expense (benefit)	$	15	$	13	$	39	$	34

Other

Narragansett Electric Acquisition (PPL)

The acquisition of Narragansett Electric was deemed an asset acquisition for federal and state income tax purposes, as a result of PPL and National Grid making a tax election under Internal Revenue Code (IRC) §338(h)(10). Accordingly, the tax basis of substantially all of the assets acquired were increased to fair market value, which equaled net book value, thereby eliminating the related deferred tax assets and liabilities. The tax goodwill will be amortized for tax purposes over 15 years.

Pennsylvania State Tax Reform (PPL and PPL Electric)

On July 8, 2022, the Governor of Pennsylvania signed into law Pennsylvania House Bill 1342 (H.B. 1342). Among other changes to the state tax code, the bill will reduce the corporate net income tax rate from 9.99% to 8.99% beginning January 1, 2023, and reduces annually by half a percentage point until the rate reaches 4.99% in 2031.

GAAP requires that deferred tax assets and liabilities be measured at the enacted tax rate expected to apply when temporary book-to-tax differences are expected to be realized or settled. Accordingly, in the third quarter of 2022, PPL expects to record the impact of the reduced tax rate as a reduction in the accumulated deferred income taxes related to regulated operations in an amount between $200 million and $300 million, with a corresponding increase in regulatory liabilities. In addition, PPL expects to recognize a deferred tax benefit of between $3 million and $7 million primarily associated with the remeasurement of accumulated deferred income tax balances related to non-regulated operations.

The foregoing numbers are estimates that will be updated quarterly to reflect revised forecast, actual activity, and orders from regulatory authorities.