Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes and the tax effects of net operating loss and tax credit carryforwards. The provision for PPL's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles of the applicable jurisdiction. See Notes 1 and 7 for additional information.


	2022		2021
Deferred Tax Assets
Deferred investment tax credits	$	29	$	30
Regulatory liabilities	88		94
Income taxes due to customers	448		422
Accrued pension and postretirement costs	86		75


State loss carryforwards	230		483

Federal and state tax credit carryforwards	68		15
Internal Revenue Code Section 197 intangibles (a)	85		—



Leases	15		67
Contributions in aid of construction	114		120
Other	72		84

Valuation allowances	(213)		(462)
Total deferred tax assets	1,022		928

Deferred Tax Liabilities
Plant - net	3,609		3,812

Regulatory assets	337		180

Prepayments	46		—

Other	30		75
Total deferred tax liabilities	4,022		4,067
Net deferred tax liability	$	3,000	$	3,139

(a)Certain of the RIE assets acquired in 2022 are treated as intangibles for tax purposes that are amortized over a 15 year period. PPL recorded deferred tax assets on these intangibles, which will reverse as tax deductions are taken.

State deferred taxes are determined by entity and by jurisdiction. As a result, $6 million and $12 million of net deferred tax assets are shown as "Other noncurrent assets" on the Balance Sheets for 2022 and 2021.

At December 31, 2022, 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
Credit carryforwards
Federal investment tax credit		20	—	2042

Federal foreign tax credits		32	—	2027
Federal - other		3	—	2042
State recycling credit		12	—	2028
State - other		1	—	Indefinite

Valuation allowances have been established for the amount that, more likely than not, will not be realized. 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
2022	$	462	$	10		$	—	$	259	(a)	$	213
2021	536		48		(b)	—		122		(c)	462
2020	514		26			—		4			536

(a)In 2022, PPL recorded a $36 million decrease in a valuation allowance on a 2002 state net operating loss carryforward that expired in 2022 and a $213 million decrease in the valuation allowance due to the Pennsylvania rate change. See reconciliation of income tax table below.

(b)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.

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:


	2022		2021		2020
Income Tax Expense (Benefit)
Current - Federal	$	(2)	$	(1)	$	(8)
Current - State	24		36		24
Current - Foreign	—		(1)		(2)
Total Current Expense (Benefit)	22		34		14
Deferred - Federal	122		28		135
Deferred - State	68		105		94
Deferred - Foreign (a)	—		383		101
Total Deferred Expense (Benefit), excluding operating loss carryforwards	190		516		330

Amortization of investment tax credit	(3)		(3)		(3)
Tax expense (benefit) of operating loss carryforwards
Deferred - Federal	2		12		6
Deferred - State	(10)		(56)		(33)
Total Tax Expense (Benefit) of Operating Loss Carryforwards	(8)		(44)		(27)
Total income tax expense (benefit)	$	201	$	503	$	314

Total income tax expense (benefit) - Federal	$	119	$	36	$	130
Total income tax expense (benefit) - State	82		85		85
Total income tax expense (benefit) - Foreign	—		382		99
Total income tax expense (benefit)	$	201	$	503	$	314

(a)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 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.


	2022		2021		2020
Discontinued operations	$	(42)	$	759	$	188

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


Other comprehensive income	11		150		(19)

Total	$	(31)	$	1,569	$	169


	2022		2021		2020
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	192	$	109	$	200

State income taxes, net of federal income tax benefit	68		23		48
Valuation allowance adjustments (a)	9		48		24




Federal and state income tax return adjustments	(1)		(3)		(9)
Impact of the U.K. Finance Acts on deferred tax balances (b)	—		383		101
Depreciation and other items not normalized	(8)		(5)		(5)
Amortization of excess deferred federal and state income taxes	(54)		(54)		(43)




Non-deductible officer's salary	5		6		7

Other	(10)		(4)		(9)
Total increase (decrease)	9		394		114
Total income tax expense (benefit)	$	201	$	503	$	314
Effective income tax rate	22.0%		96.5%		32.9%

(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.

In 2022, 2021, and 2020, PPL recorded deferred income tax expense of $5 million, $15 million and $24 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.

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 2021.

The provision for PPL Electric's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the PAPUC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.


	2022		2021
Deferred Tax Assets
Accrued pension and postretirement costs	$	27	$	14
Contributions in aid of construction	87		95
Regulatory liabilities	36		52
Income taxes due to customers	193		154




Other	18		21
Total deferred tax assets	361		336

Deferred Tax Liabilities
Electric utility plant - net	1,745		1,891


Regulatory assets	93		74
Prepayments	35		—
Other	2		39
Total deferred tax liabilities	1,875		2,004
Net deferred tax liability	$	1,514	$	1,668


	2022		2021		2020
Income Tax Expense (Benefit)
Current - Federal	$	63	$	40	$	61
Current - State	20		35		23
Total Current Expense (Benefit)	83		75		84
Deferred - Federal	60		59		45
Deferred - State	31		20		38
Total Deferred Expense (Benefit), excluding operating loss carryforwards	91		79		83






Total income tax expense (benefit)	$	174	$	154	$	167

Total income tax expense (benefit) - Federal	$	123	$	99	$	106
Total income tax expense (benefit) - State	51		55		61
Total income tax expense (benefit)	$	174	$	154	$	167


	2022		2021		2020
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	147	$	126	$	139
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	54		46		52

Federal and state income tax return adjustments	(1)		—		(4)
Depreciation and other items not normalized	(7)		(5)		(5)
Amortization of excess deferred federal income taxes (a)	(12)		(14)		(16)
State income tax rate change (b)	(9)		—		—

Other	2		1		1
Total increase (decrease)	27		28		28
Total income tax expense (benefit)	$	174	$	154	$	167
Effective income tax rate	24.9%		25.7%		25.2%

(a)In 2022, 2021, and 2020, 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.

(b)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. The income statement impact of the corporate net income tax reduction was a deferred tax benefit of $9 million.

The provision for LG&E's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.


	2022		2021
Deferred Tax Assets

Contributions in aid of construction	$	17	$	15
Regulatory liabilities	18		18

Deferred investment tax credits	8		8
Income taxes due to customers	119		125
State tax credit carryforwards	9		11
Lease liabilities	4		4
Valuation allowances	(9)		(11)
Other	8		11
Total deferred tax assets	174		181

Deferred Tax Liabilities
Plant - net	869		854
Regulatory assets	69		65
Lease right-of-use assets	3		4
Other	4		9
Total deferred tax liabilities	945		932
Net deferred tax liability	$	771	$	751

At December 31, 2022, LG&E had $9 million of state credit carryforwards that expire in 2028 and a $9 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.


	2022		2021		2020
Income Tax Expense (Benefit)
Current - Federal	$	60	$	41	$	53
Current - State	9		5		7
Total Current Expense (Benefit)	69		46		60
Deferred - Federal	(10)		1		(4)
Deferred - State	5		8		7
Total Deferred Expense (Benefit)	(5)		9		3
Amortization of investment tax credit - Federal	(1)		(1)		(1)




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

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


	2022		2021		2020
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	70	$	64	$	64
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	13		12		12
Amortization of excess deferred federal and state income taxes	(18)		(20)		(11)


Other	(2)		(2)		(3)
Total increase (decrease)	(7)		(10)		(2)
Total income tax expense (benefit)	$	63	$	54	$	62
Effective income tax rate	18.8%		17.8%		20.3%

The provision for KU's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC, the VSCC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.


	2022		2021
Deferred Tax Assets

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

Deferred investment tax credits	21		22
Income taxes due to customers	136		143
State tax credit carryforwards	4		4
Lease liabilities	5		7
Valuation allowances	(3)		(3)
Other	4		4
Total deferred tax assets	199		209

Deferred Tax Liabilities
Plant - net	1,028		1,012
Regulatory assets	56		41
Pension and postretirement costs	6		13
Lease right-of-use assets	5		6
Other	—		2
Total deferred tax liabilities	1,095		1,074
Net deferred tax liability	$	896	$	865

At December 31, 2022, KU had $4 million of state credit carryforwards of which $3 million will expire in 2028 and $1 million that has an indefinite carryforward period. At December 31, 2022, KU had a $3 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.


	2022		2021		2020
Income Tax Expense (Benefit)
Current - Federal	$	63	$	58	$	40
Current - State	11		8		3
Total Current Expense (Benefit)	74		66		43
Deferred - Federal	(3)		(4)		11
Deferred - State	7		7		11
Total Deferred Expense (Benefit)	4		3		22
Amortization of investment tax credit - Federal	(2)		(2)		(2)



Total income tax expense (benefit)	$	76	$	67	$	63

Total income tax expense (benefit) - Federal	$	58	$	52	$	49
Total income tax expense (benefit) - State	18		15		14
Total income tax expense (benefit)	$	76	$	67	$	63


	2022		2021		2020
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	84	$	76	$	72
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	16		14		14
Amortization of investment tax credit	(2)		(2)		(2)
Amortization of excess deferred federal and state income taxes	(21)		(20)		(17)


Other	(1)		(1)		(4)
Total decrease	(8)		(9)		(9)
Total income tax expense (benefit)	$	76	$	67	$	63
Effective income tax rate	19.1%		18.4%		18.4%

PPL or its subsidiaries file tax returns in four major tax jurisdictions. The income tax provisions for PPL Electric, LG&E and KU are calculated in accordance with an intercompany tax sharing agreement, which provides that taxable income be calculated as if each domestic subsidiary filed a separate consolidated return. PPL Electric or its subsidiaries indirectly or directly file tax returns in three major tax jurisdictions, and LG&E and KU indirectly or directly file tax returns in two major tax jurisdictions. With few exceptions, at December 31, 2022, 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)

2018 and prior

Pennsylvania (state)

2017 and prior

Kentucky (state)

2017 and prior

U.K. (foreign)

2019 and prior

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.

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 2022, PPL and PPL Electric recorded an increase in regulatory liabilities of $270 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 amounts recorded are estimates that will be updated quarterly to reflect revised forecast, actual activity, and applicable orders from regulatory authorities.

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.