PPL Corp
For the period ended Dec 31, 2023. Filed Feb 16, 2024.
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FY2023 · Filed Feb 16, 2024
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6. Income and Other Taxes
- Income and Other Taxes
(PPL)
"Income (Loss) from Continuing Operations Before Income Taxes" is from domestic operations.
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.
Net deferred tax assets have been recognized based on management's estimates of future taxable income.
Significant components of PPL's deferred income tax assets and liabilities were as follows:
| 2023 | 2022 | |
|---|---|---|
| Deferred Tax Assets | ||
| Deferred investment tax credits | $28 | $29 |
| Regulatory liabilities | 123 | 88 |
| Income taxes due to customers | 436 | 448 |
| Accrued pension and postretirement costs | 101 | 86 |
| State loss carryforwards | 253 | 230 |
| Federal and state tax credit carryforwards | 67 | 68 |
| Internal Revenue Code Section 197 intangibles (a) | 78 | 85 |
| Contributions in aid of construction | 149 | 114 |
| Other | 139 | 87 |
| Valuation allowances | (245) | (213) |
| Total deferred tax assets | 1,129 | 1,022 |
| Deferred Tax Liabilities | ||
| Plant - net | 3,749 | 3,609 |
| Regulatory assets | 376 | 337 |
| Prepayments | 47 | 46 |
| Goodwill | 22 | 7 |
| Other | 30 | 23 |
| Total deferred tax liabilities | 4,224 | 4,022 |
| Net deferred tax liability | $3,095 | $3,000 |
(a)Certain of the RIE assets acquired in 2022 are treated as intangibles for tax purposes and 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, $9 million and $6 million of net deferred tax assets are shown as "Other noncurrent assets" on the Balance Sheets for 2023 and 2022.
At December 31, 2023, 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 | $5,475 | $253 | $(243) | 2024-2043 |
| State charitable contributions | 10 | 1 | (1) | 2024-2028 |
| Gross · Deferred Tax Asset · Valuation Allowance · Expiration | |||
|---|---|---|---|
| Credit carryforwards | |||
| Federal investment tax credit | 51 | — | 2045 |
| Federal - other | 5 | — | 2043 |
| State recycling credit | 10 | — | 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 atBeginningof Period · Chargedto Income · Charged toOtherAccounts · Deductions · Balanceat Endof Period | |||||
| 2023 | $213 | $54(a) | $— | $22(b) | $245 |
| 2022 | 462 | 10 | — | 259(c) | 213 |
| 2021 | 536 | 48(d) | — | 122(e) | 462 |
(a)PPL has a Pennsylvania net operating loss fully offset by a valuation allowance. In 2023, PPL adjusted the net operating loss and related valuation allowance to be recorded at the current estimate of the applicable rate at which each portion of the net operating loss that will expire and be written off as the rate is reduced annually by one half a percentage point until the rate reaches to 4.99% in 2031.
(b)In 2023, PPL recorded a $22 million decrease in a valuation allowance on a 2003 state net operating loss carryforward that expired in 2023.
(c)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.
(d)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.
(e)In light of the disposition of PPL's U.K. utility business, there was a decrease in the valuation allowance of approximately $113 million.
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:
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Income Tax Expense (Benefit) | |||
| Current - Federal (a) | $(175) | $(2) | $(1) |
| Current - State | 37 | 24 | 36 |
| Current - Foreign | — | — | (1) |
| Total Current Expense (Benefit) | (138) | 22 | 34 |
| Deferred - Federal (a) | 286 | 122 | 28 |
| Deferred - State | 48 | 68 | 105 |
| Deferred - Foreign (b) | — | — | 383 |
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 334 | 190 | 516 |
| Amortization of investment tax credit | (3) | (3) | (3) |
| Tax expense (benefit) of operating loss carryforwards | |||
| Deferred - Federal | 3 | 2 | 12 |
| Deferred - State | (12) | (10) | (56) |
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | (9) | (8) | (44) |
| Total income tax expense (benefit) | $184 | $201 | $503 |
| Total income tax expense (benefit) - Federal | $111 | $119 | $36 |
| Total income tax expense (benefit) - State | 73 | 82 | 85 |
| Total income tax expense (benefit) - Foreign | — | — | 382 |
| Total income tax expense (benefit) | $184 | $201 | $503 |
(a)During 2023, PPL purchased approximately $300 million of renewable tax credits, as allowed by the IRA. PPL recorded a current tax benefit and a deferred tax expense for the utilization of approximately $250 million of the credits in 2023 and prior years, per the three-year carry-back rule. See "Other - Purchase of Renewable Tax Credits" below for additional information.
(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 2021.
In the table above, the following income tax expense (benefit) are excluded from income taxes:
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Discontinued operations | $— | $(42) | $759 |
| Reclassification from AOCI due to sale of UK utility business | — | — | 660 |
| Other comprehensive income | (14) | 11 | 150 |
| Valuation allowance recorded to other comprehensive income | (1) | — | — |
| Total | $(15) | $(31) | $1,569 |
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Reconciliation of Income Tax Expense (Benefit) | |||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $194 | $192 | $109 |
| State income taxes, net of federal income tax benefit | 58 | 68 | 23 |
| Valuation allowance adjustments (a) | 12 | 9 | 48 |
| Income tax credits (b) | (22) | (3) | (2) |
| Impact of the U.K. Finance Acts on deferred tax balances (c) | — | — | 383 |
| Depreciation and other items not normalized | (10) | (8) | (5) |
| Amortization of excess deferred federal and state income taxes | (48) | (54) | (54) |
| Non-deductible officer's salary | 1 | 5 | 6 |
| Other | (1) | (8) | (5) |
| Total increase (decrease) | (10) | 9 | 394 |
| Total income tax expense (benefit) | $184 | $201 | $503 |
| Effective income tax rate | 19.9% | 22.0% | 96.5% |
(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 2023, 2022, and 2021, PPL recorded deferred income tax expense of $11 million, $5 million and $15 million for valuation allowances primarily related to increased Pennsylvania net operating loss carryforwards expected to be unutilized.
(b)In addition to credits internally generated, in 2023, PPL purchased approximately $300 million of renewable tax credits, as allowed by the IRA. PPL recorded a current tax benefit and a deferred tax expense for the utilization of approximately $250 million of the credits in 2023 and prior years, per the three-year carry-back rule.
(c)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.
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Taxes, other than income | |||
| State gross receipts (a) | $195 | $175 | $113 |
| Property and other (a) | 197 | 157 | 94 |
| Total | $392 | $332 | $207 |
(a)Increase in 2022 is primarily due to the acquisition of RIE on May 25, 2022. The increase in 2023 is primarily due to the results for 2023 including a full year of RIE operations compared to 2022, which includes only operations beginning on the acquisition date.
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.
Significant components of PPL Electric's deferred income tax assets and liabilities were as follows:
| 2023 | 2022 | |
|---|---|---|
| Deferred Tax Assets | ||
| Accrued pension and postretirement costs | $30 | $27 |
| Contributions in aid of construction | 105 | 87 |
| Regulatory liabilities | 43 | 36 |
| Income taxes due to customers | 191 | 193 |
| Other | 27 | 18 |
| Total deferred tax assets | 396 | 361 |
| Deferred Tax Liabilities | ||
| Electric utility plant - net | 1,810 | 1,745 |
| Regulatory assets | 119 | 93 |
| Prepayments | 36 | 35 |
| Other | 4 | 2 |
| Total deferred tax liabilities | 1,969 | 1,875 |
| Net deferred tax liability | $1,573 | $1,514 |
PPL Electric expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.
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:
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Income Tax Expense (Benefit) | |||
| Current - Federal | $91 | $63 | $40 |
| Current - State | 31 | 20 | 35 |
| Total Current Expense (Benefit) | 122 | 83 | 75 |
| Deferred - Federal | 28 | 60 | 59 |
| Deferred - State | 18 | 31 | 20 |
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 46 | 91 | 79 |
| Total income tax expense (benefit) | $168 | $174 | $154 |
| Total income tax expense (benefit) - Federal | $119 | $123 | $99 |
| Total income tax expense (benefit) - State | 49 | 51 | 55 |
| Total income tax expense (benefit) | $168 | $174 | $154 |
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Reconciliation of Income Tax Expense (Benefit) | |||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $144 | $147 | $126 |
| Increase (decrease) due to: | |||
| State income taxes, net of federal income tax benefit | 49 | 54 | 46 |
| Depreciation and other items not normalized | (9) | (7) | (5) |
| Amortization of excess deferred federal income taxes (a) | (11) | (12) | (14) |
| State income tax rate change (b) | — | (9) | — |
| Other | (5) | 1 | 1 |
| Total increase (decrease) | 24 | 27 | 28 |
| Total income tax expense (benefit) | $168 | $174 | $154 |
| Effective income tax rate | 24.5% | 24.9% | 25.7% |
(a)In 2023, 2022, and 2021, 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)2022 includes a deferred tax benefit of $9 million due to the corporate net income tax rate reduction. See "Other - Pennsylvania State Tax Reform" below for additional information.
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Taxes, other than income | |||
| State gross receipts | $136 | $142 | $113 |
| Property and other | 7 | 7 | 7 |
| Total | $143 | $149 | $120 |
(LG&E)
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.
Significant components of LG&E's deferred income tax assets and liabilities were as follows:
| 2023 | 2022 | |
|---|---|---|
| Deferred Tax Assets | ||
| Contributions in aid of construction | $18 | $17 |
| Regulatory liabilities | 19 | 18 |
| Accrued pension and postretirement costs | 3 | — |
| Deferred investment tax credits | 8 | 8 |
| Income taxes due to customers | 115 | 119 |
| State tax credit carryforwards | 8 | 9 |
| Lease liabilities | 4 | 4 |
| Valuation allowances | (8) | (9) |
| Other | 8 | 8 |
| Total deferred tax assets | 175 | 174 |
| Deferred Tax Liabilities | ||
| Plant - net | 877 | 869 |
| Regulatory assets | 67 | 69 |
| Lease right-of-use assets | 3 | 3 |
| Other | 4 | 4 |
| Total deferred tax liabilities | 951 | 945 |
| Net deferred tax liability | $776 | $771 |
At December 31, 2023, LG&E had $8 million of state credit carryforwards that expire in 2028 and an $8 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.
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:
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Income Tax Expense (Benefit) | |||
| Current - Federal | $70 | $60 | $41 |
| Current - State | 13 | 9 | 5 |
| Total Current Expense (Benefit) | 83 | 69 | 46 |
| Deferred - Federal | (15) | (10) | 1 |
| Deferred - State | 2 | 5 | 8 |
| Total Deferred Expense (Benefit) | (13) | (5) | 9 |
| Amortization of investment tax credit - Federal | (1) | (1) | (1) |
| Total income tax expense (benefit) | $69 | $63 | $54 |
| Total income tax expense (benefit) - Federal | $54 | $49 | $41 |
| Total income tax expense (benefit) - State | 15 | 14 | 13 |
| Total income tax expense (benefit) | $69 | $63 | $54 |
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Reconciliation of Income Tax Expense (Benefit) | |||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $70 | $70 | $64 |
| Increase (decrease) due to: | |||
| State income taxes, net of federal income tax benefit | 13 | 13 | 12 |
| Amortization of excess deferred federal and state income taxes | (13) | (18) | (20) |
| Other | (1) | (2) | (2) |
| Total increase (decrease) | (1) | (7) | (10) |
| Total income tax expense (benefit) | $69 | $63 | $54 |
| Effective income tax rate | 20.6% | 18.8% | 17.8% |
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Taxes, other than income | |||
| Property and other | $48 | $48 | $46 |
| Total | $48 | $48 | $46 |
(KU)
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.
Significant components of KU's deferred income tax assets and liabilities were as follows:
| 2023 | 2022 | |
|---|---|---|
| Deferred Tax Assets | ||
| Contributions in aid of construction | $10 | $9 |
| Regulatory liabilities | 23 | 23 |
| Deferred investment tax credits | 21 | 21 |
| Income taxes due to customers | 131 | 136 |
| State tax credit carryforwards | 4 | 4 |
| Lease liabilities | 5 | 5 |
| Valuation allowances | (2) | (3) |
| Other | 5 | 4 |
| Total deferred tax assets | 197 | 199 |
| Deferred Tax Liabilities | ||
| Plant - net | 1,045 | 1,028 |
| Regulatory assets | 50 | 56 |
| Pension and postretirement costs | 7 | 6 |
| Lease right-of-use assets | 5 | 5 |
| Other | 2 | — |
| Total deferred tax liabilities | 1,109 | 1,095 |
| Net deferred tax liability | $912 | $896 |
At December 31, 2023, KU had $4 million of state credit carryforwards of which $2 million will expire in 2028 and $2 million that has an indefinite carryforward period. At December 31, 2023, KU had a $2 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.
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:
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Income Tax Expense (Benefit) | |||
| Current - Federal | $73 | $63 | $58 |
| Current - State | 13 | 11 | 8 |
| Total Current Expense (Benefit) | 86 | 74 | 66 |
| Deferred - Federal | (11) | (3) | (4) |
| Deferred - State | 4 | 7 | 7 |
| Total Deferred Expense (Benefit) | (7) | 4 | 3 |
| Amortization of investment tax credit - Federal | (2) | (2) | (2) |
| Total income tax expense (benefit) | $77 | $76 | $67 |
| Total income tax expense (benefit) - Federal | $60 | $58 | $52 |
| Total income tax expense (benefit) - State | 17 | 18 | 15 |
| Total income tax expense (benefit) | $77 | $76 | $67 |
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Reconciliation of Income Tax Expense (Benefit) | |||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $82 | $84 | $76 |
| Increase (decrease) due to: | |||
| State income taxes, net of federal income tax benefit | 15 | 16 | 14 |
| Amortization of investment tax credit | (2) | (2) | (2) |
| Amortization of excess deferred federal and state income taxes | (17) | (21) | (20) |
| Other | (1) | (1) | (1) |
| Total decrease | (5) | (8) | (9) |
| Total income tax expense (benefit) | $77 | $76 | $67 |
| Effective income tax rate | 19.8% | 19.1% | 18.4% |
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Taxes, other than income | |||
| Property and other | $45 | $45 | $41 |
| Total | $45 | $45 | $41 |
Unrecognized Tax Benefits
PPL or its subsidiaries file tax returns infour 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 inthree major tax jurisdictions, and LG&E and KU indirectly or directly file tax returns intwo major tax jurisdictions. With few exceptions, at December 31, 2023, these jurisdictions, as well as the tax years that are no longer subject to examination, were as follows.
| PPL | PPL Electric | LG&E | KU | |
| U.S. (federal) | 2019 and prior | 2019 and prior | 2019 and prior | 2019 and prior |
|---|---|---|---|---|
| Pennsylvania (state) | 2017 and prior | 2017 and prior | ||
| Kentucky (state) | 2018 and prior | 2018 and prior | 2018 and prior | 2018 and prior |
| U.K. (foreign) | 2021 and prior | |||
Other
Purchase of Renewable Tax Credits(PPL)
During 2023, PPL purchased approximately $300 million of renewable tax credits, as allowed by the IRA. The credits were acquired at a discount. PPL believes that it will be able to monetize the acquired credits within the foreseeable future and recorded the associated benefit of the discount as a reduction of income taxes as of December 31, 2023. In addition, PPL recorded a deferred tax asset representing credits that will be utilized in future periods.
Narragansett Electric Acquisition (PPL)
The acquisition of Narragansett Electric on May 25, 2022 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.
Inflation Reduction Act(All Registrants)
On August 16, 2022, the 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 does not expect to be subject to the book minimum tax for the year ended December 31, 2023. The Registrants will continue to assess the impacts of the IRA on their financial statements 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.
IRS Revenue Procedure 2023-15(PPL and LG&E)
On April 14, 2023, the IRS issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve natural gas transmission and distribution property must be capitalized for tax purposes. PPL and LG&E are currently reviewing the revenue procedure to determine its potential impact on their financial statements.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.