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 deferred tax assets and liabilities. Deferred tax assets 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 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.


	PG&E Corporation										Utility
	Year Ended December 31,
(in millions)	2019		2018		2017		2019		2018		2017
Current:
Federal	$	1	$	(5)	$	(10)	$	4	$	5	$	61
State	101		(8)		48		94		(7)		50
Deferred:
Federal	(2,361)		(2,264)		481		(2,363)		(2,278)		326
State	(1,136)		(1,009)		6		(1,137)		(1,009)		4
Tax credits	(5)		(6)		(14)		(5)		(6)		(14)
Income tax provision (benefit)	$	(3,400)	$	(3,292)	$	511	$	(3,407)	$	(3,295)	$	427


	PG&E Corporation						Utility
	Year Ended December 31,
(in millions)	2019		2018		2019		2018
Deferred income tax assets:
Tax carryforwards	$	1,390	$	740	$	1,308	$	650
Compensation	151		173		92		121
Income tax regulatory liability⁽¹⁾	—		79		—		79
Wildfire-related claims⁽²⁾	6,520		3,433		6,520		3,433
Operating lease liability	642		—		640		—
Other⁽³⁾	112		87		121		93
Total deferred income tax assets	$	8,815	$	4,512	$	8,681	$	4,376
Deferred income tax liabilities:
Property related basis differences	7,984		7,672		7,973		7,660
Regulatory balancing accounts	381		118		381		118
Operating lease right of use asset	642		—		640		—
Income tax regulatory asset⁽¹⁾	71		—		71		—
Other⁽⁴⁾	57		3		58		3
Total deferred income tax liabilities	$	9,135	$	7,793	$	9,123	$	7,781
Total net deferred income tax liabilities	$	320	$	3,281	$	442	$	3,405

⁽¹⁾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. (For more information see Note 3 above).

⁽²⁾Amounts primarily relate to wildfire-related claims, net of estimated insurance recoveries, and legal and other costs related to the 2018 Camp fire, 2017 Northern California wildfires, and the 2015 Butte fire.


	PG&E Corporation										Utility
	Year Ended December 31,
	2019		2018		2017		2019		2018		2017
Federal statutory income tax rate	21.0	%	21.0	%	35.0	%	21.0	%	21.0	%	35.0	%
Increase (decrease) in income tax rate resulting from:
State income tax (net of federal benefit)⁽¹⁾	7.5		7.9		1.5		7.5		7.9		1.6
Effect of regulatory treatment of fixed asset differences⁽²⁾	2.8		3.6		(16.5)		2.8		3.6		(16.8)
Tax credits	0.1		0.1		(1.1)		0.1		0.1		(1.1)
Compensation related ⁽³⁾	—		(0.2)		(1.0)		—		(0.1)		(0.9)
Tax Reform adjustment ⁽⁴⁾	—		0.1		6.8		—		0.1		3.0
Other, net ⁽⁵⁾	(0.6)		—		(1.1)		(0.5)		—		(0.7)
Effective tax rate	30.8	%	32.5	%	23.6	%	30.9	%	32.6	%	20.1	%

⁽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 2019 and 2018, 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.


	PG&E Corporation										Utility
(in millions)	2019		2018		2017		2019		2018		2017
Balance at beginning of year	$	377	$	349	$	388	$	377	$	349	$	382
Reductions for tax position taken during a prior year	(1)		(27)		(71)		(1)		(27)		(71)
Additions for tax position taken during the current year	44		55		48		44		55		48
Settlements	—		—		(14)		—		—		(8)
Expiration of statute	—		—		(3)		—		—		(3)
Balance at end of year	$	420	$	377	$	349	$	420	$	377	$	349

The component of unrecognized tax benefits that, if recognized, would affect the effective tax rate at December 31, 2019 for PG&E Corporation and the Utility was $6 million.

PG&E Corporation’s and the Utility’s unrecognized tax benefits are not likely to change significantly within the next 12 months. As of December 31, 2019, it is reasonably possible that unrecognized tax benefits will decrease by approximately $10 million within the next 12 months.

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, 2019, 2018, and 2017, these amounts were immaterial.

On December 22, 2017, the U.S. government enacted expansive tax legislation commonly referred to as the Tax Act. Among other provisions, the Tax Act reduces the federal income tax rate from 35% to 21% beginning on January 1, 2018 and eliminated bonus depreciation for utilities. The Treasury is still issuing interpretive guidance on various aspects of the Tax Act. If future guidance requires a change in the recorded tax amounts, any necessary change will be reflected in the period such guidance is issued.

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.


(in millions)	December 31, 2019		Expiration Year
Federal:
Net operating loss carryforward - Pre-2018	$	3,940	2031 - 2036
Net operating loss carryforward - Post-2017	1,777		N/A
Tax credit carryforward	127		2029 - 2039

State:
Net operating loss carryforward	$	1,927	N/A
Tax credit carryforward	96		Various