XML 58 R28.htm IDEA: XBRL DOCUMENT v3.22.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
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 DTAs and liabilities.  DTAs 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 technical 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. 
The significant components of income tax provision (benefit) by taxing jurisdiction were as follows:
 PG&E CorporationUtility
 
Year Ended December 31,
(in millions)202220212020202220212020
Current:      
Federal$(1)$— $(26)$(1)$— $(26)
State— 1 (34)— — (34)
Deferred:
Federal(943)543 258 (852)588 290 
State(389)296 171 (348)316 185 
Tax credits(5)(4)(7)(5)(4)(7)
Income tax provision (benefit)
$(1,338)$836 $362 $(1,206)$900 $408 

The following tables describe net deferred income tax assets and liabilities:
 PG&E CorporationUtility
 
Year Ended December 31,
(in millions)2022202120222021
Deferred income tax assets:    
Tax carryforwards$7,156 $5,628 $6,868 $5,425 
Compensation157 185 80 108 
Greenhouse gas allowance239 157 239 157 
Wildfire-related claims (1)
1,489 1,723 1,489 1,723 
Operating lease liability
368 346 368 346 
Transmission tower wireless licenses254 266 254 266 
Other (2)
197 121 177 136 
Total deferred income tax assets$9,860 $8,426 $9,475 $8,161 
Deferred income tax liabilities:    
Property related basis differences9,374 8,847 9,363 8,835 
Regulatory balancing accounts1,376 1,193 1,376 1,193 
Debt financing costs465 501 465 501 
Operating lease right of use asset368 346 368 346 
Income tax regulatory asset (3)
764 517 764 517 
Other (4)
245 199 230 178 
Total deferred income tax liabilities$12,592 $11,603 $12,566 $11,570 
Total net deferred income tax liabilities$2,732 $3,177 $3,091 $3,409 
(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 in PG&E Corporation’s and the Utility’s service area over the past several years.
(2) Amounts include benefits, state taxes, and customer advances for construction. 
(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.
(4) Amount primarily includes an environmental reserve.
The following table reconciles income tax expense at the federal statutory rate to the income tax provision:
 PG&E CorporationUtility
 Year Ended December 31,
 202220212020202220212020
Federal statutory income tax rate21.0 %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)
(75.8)31.3 (15.3)(26.9)24.1 19.1 
Effect of regulatory treatment of fixed asset differences (2)
(123.8)(71.5)39.0 (49.2)(51.6)(44.9)
Tax credits(3.2)(1.7)1.5 (1.3)(1.2)(1.7)
Fire Victim Trust (3)
(160.9)127.3 (44.9)(64.0)91.9 51.7 
Bankruptcy and emergence— — (37.6)— — 2.4 
   Other, net (4)
12.9 5.3 (2.1)2.2 2.6 2.2 
Effective tax rate(329.8)%111.7 %(38.4)%(118.2)%86.8 %49.8 %
(1) Includes the effect of state flow-through ratemaking treatment.
(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 2022, 2021, and 2020, 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 tax benefit of the sale of shares by the Fire Victim Trust in 2022, a DTA write-off associated with the grantor trust election for the Fire Victim Trust in 2021 and an adjustment for the DTA write-off for difference between the liability recorded related to the Restructuring Support Agreement dated December 6, 2019 with the Official Committee of Tort Claimants and attorneys and other advisors and agents for certain holders of Fire Victim Claims (as defined therein), as amended and the ultimate value of PG&E Corporation stock contributed to the Fire Victim Trust in 2020. PG&E Corporation includes the same adjustment as the Utility in these years as well as a permanent non-deductible equity backstop premium expense in 2020.
(4) These amounts primarily represent the impact of tax audit settlements and non-tax deductible penalty costs.

Unrecognized Tax Benefits

The following table reconciles the changes in unrecognized tax benefits:
 PG&E CorporationUtility
(in millions)202220212020202220212020
Balance at beginning of year$498 $437 $420 $498 $437 $420 
Reductions for tax position taken during a prior year(1)(23)(43)(1)(23)(43)
Additions for tax position taken during the current year73 85 60 73 85 60 
Settlements— (1)— — (1)— 
Balance at end of year
$570 $498 $437 $570 $498 $437 

The component of unrecognized tax benefits that, if recognized, would affect the effective tax rate at December 31, 2022 for PG&E Corporation and the Utility was $31 million.

PG&E Corporation’s and the Utility’s unrecognized tax benefits may change significantly within the next 12 months based on tax audit progress.

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, 2022, 2021, and 2020, these amounts were immaterial.
Tax Settlements

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. The Internal Revenue Service is auditing tax years 2015 through 2018.

PG&E Corporation’s tax returns have been accepted through 2014 for California income tax purposes. Tax years 2015 and thereafter remain subject to examination by the State of California. The State of California is auditing tax years 2015 through 2019.

Carryforwards

The following table describes PG&E Corporation’s operating loss and tax credit carryforward balances:
(in millions)December 31, 2022Expiration
Year
Federal:  
Net operating loss carryforward - Pre-2018$3,447 2031 - 2036
Net operating loss carryforward - Post-201723,170 N/A
Tax credit carryforward152 2029 - 2041
State:
Net operating loss carryforward$25,169 2039 - 2041
Tax credit carryforward126 Various

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.

Other Tax Matters

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. Half of the payment was paid in 2021, and the other half of the payment was paid in 2022.

Under Section 382 of the IRC, if a corporation (or a consolidated group) undergoes an “ownership change,” net operating loss carryforwards and other tax attributes may be subject to certain limitations. In general, an ownership change occurs if the aggregate stock ownership of certain shareholders (generally five percent shareholders, applying certain look-through and aggregation rules) increases by more than 50% over such shareholders’ lowest percentage ownership during the testing period (generally three years). PG&E Corporation’s and the Utility’s Amended Articles limit Transfers (as defined in the Amended Articles) that increase a person’s or entity’s (including certain groups of persons) ownership of PG&E Corporation’s equity securities to 4.75% or more prior to the Restriction Release Date (as defined in the Amended Articles) without approval by the Board of Directors of PG&E Corporation (the “Ownership Restrictions”). Due to the election to treat the Fire Victim Trust as a grantor trust for income tax purposes, the calculation of Percentage Stock Ownership (as defined in the Amended Articles) will effectively be based on a reduced number of shares outstanding, namely the total number of outstanding equity securities less the number of equity securities held by the Fire Victim Trust, the Utility, and ShareCo. As of the date of this report, it is more likely than not that PG&E Corporation has not undergone an ownership change, and consequently, its net operating loss carryforwards and other tax attributes are not limited by Section 382 of the IRC.
Furthermore, the activities of the Fire Victim Trust are treated as activities of the Utility for tax purposes. Accordingly, PG&E Corporation will recognize income tax benefits and the corresponding DTA as the Fire Victim Trust sells shares of PG&E Corporation common stock, and the amounts of such benefits and assets will be impacted by the price at which the Fire Victim Trust sells the shares, rather than the price at the time such shares were transferred to the Fire Victim Trust. From inception through December 31, 2022, the Fire Victim Trust exchanged Plan Shares in the aggregate amount of 230,000,000 for an equal number of New Shares in the manner contemplated by the Share Exchange and Tax Matters Agreement; in each case, the Fire Victim Trust thereafter reported that it sold the applicable New Shares. In the year ended December 31, 2022, the Fire Victim Trust’s sale of PG&E Corporation common stock in the aggregate amount of 230,000,000 shares resulted in an aggregate tax benefit of $870 million recorded in PG&E Corporation’s and the Utility’s Consolidated Financial Statements. On January 9, 2023, the Fire Victim Trust exchanged 60,000,000 Plan Shares and thereafter the Fire Victim Trust reported that it sold the applicable New Shares. An aggregate tax benefit of $256 million will be recorded in January 2023. For more information, see Note 7 above.