Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

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

(PPL)
	Three Months				Nine Months
	2022		2021		2022		2021
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 21%	$	45	$	55	$	150	$	70
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	8		17		56		12
Valuation allowance adjustments (a)	(1)		5		9		39
Impact of the U.K. Finance Acts on deferred tax balances (b)	—		—		—		383
Amortization of investment tax credit including deferred taxes on basis adjustment	—		(1)		(7)		(2)
Depreciation and other items not normalized	—		—		(8)		(4)
Amortization of excess deferred federal and state income taxes	(7)		(18)		(47)		(38)
Federal and state income tax return adjustments	—		(4)		(1)		(4)
State income tax rate change (c)	(5)		—		(5)		—
Other	1		(3)		—		(1)
Total increase (decrease)	(4)		(4)		(3)		385
Total income tax expense (benefit)	$	41	$	51	$	147	$	455

(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.

(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 in the second quarter of 2021.

(c)    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 further reduces the rate annually by half a percentage point until the rate reaches 4.99% in 2031. The income statement impact of the corporate net income tax reduction was a deferred tax benefit of $5 million.

(PPL Electric)
	Three Months				Nine Months
	2022		2021		2022		2021
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	38	$	36	$	114	$	95
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	14		13		43		36
Depreciation and other items not normalized	(1)		—		(7)		(4)
Amortization of excess deferred federal and state income taxes	(4)		(5)		(9)		(11)
State income tax rate change (a)	(9)		—		(9)		—
Other	(1)		1		(1)		—
Total increase (decrease)	(1)		9		17		21
Total income tax expense (benefit)	$	37	$	45	$	131	$	116

(a)    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 further reduces the rate annually by half a percentage point until the rate reaches 4.99% in 2031. The income statement impact of the corporate net income tax reduction was a deferred tax benefit of $9 million.

(LG&E)
	Three Months				Nine Months
	2022		2021		2022		2021
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	21	$	21	$	57	$	53
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	4		4		11		10
Amortization of excess deferred federal and state income taxes	(3)		(7)		(17)		(13)
Other	(1)		(1)		(2)		(2)
Total increase (decrease)	—		(4)		(8)		(5)
Total income tax expense (benefit)	$	21	$	17	$	49	$	48

(KU)
	Three Months				Nine Months
	2022		2021		2022		2021
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	25	$	26	$	70	$	63
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	5		5		13		12
Amortization of excess deferred federal and state income taxes	(4)		(6)		(16)		(14)
Other	(2)		(2)		(4)		(4)
Total increase (decrease)	(1)		(3)		(7)		(6)
Total income tax expense (benefit)	$	24	$	23	$	63	$	57

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 bases 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. This election resulted in tax goodwill that 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 reduces the corporate net income tax rate from 9.99% to 8.99% beginning January 1, 2023, and further reduces the rate 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. In the third quarter of 2022, PPL and PPL Electric recorded an increase in regulatory liabilities of $274 million for the remeasurement of regulated accumulated deferred tax balances and a deferred tax benefit of $5 million and $9 million, respectively, associated with the remeasurement of non-regulated accumulated deferred income tax balances. The foregoing numbers are estimates that will be updated quarterly to reflect revised forecast, actual activity, and orders from regulatory authorities.

Inflation Reduction Act (All Registrants)

On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law. Among other things, the IRA enacted a new 15% corporate "book minimum tax," which is based on adjusted GAAP pre-tax income and is only applicable to corporations whose pre-tax income exceeds a certain threshold. PPL continues to assess the impacts of the IRA on the financial statements of PPL and the other Registrants and will monitor guidance issued by the U.S. Treasury in the future. In addition, the IRA enacted numerous new tax credits, largely associated with renewable energy. PPL continues to assess the applicability of these provisions to PPL and its subsidiaries.