ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (In thousands of dollars, except per share amounts)
The following table summarizes the changes in the Company’s valuation allowance for deferred tax assets: 2025 2024 2023 Balance at January 1, $ 166,249 $ 149,486 $ 38,940 Amounts charged to expense 14,866 542 16,311 Amounts charged to regulatory assets (2,518) 16,221 94,235 Balance at December 31, $ 178,597 $ 166,249 $ 149,486 At December 31, 2025, the Company has a cumulative Federal NOL of $1,494,786. The Company believes the Federal NOLs are more likely than not to be recovered and require no valuation allowance. The Company’s Federal NOLs will begin to expire in 2032. At December 31, 2025, the Company has a cumulative state NOL of $3,063,726, a portion of which is offset by a valuation allowance. The Company believes a portion of its Regulated Natural Gas segment state NOLs is not likely to be realized due to its continuous investments in qualifying infrastructure resulting in the recording of a valuation allowance in 2023. The Company recorded a regulatory asset for the portion of the valuation allowance that is expected to be fully recovered from customers in future rates. At December 31, 2025, the Company has a cumulative state valuation allowance of $2,612,828. The state NOL began expiring in 2023. At December 31, 2025, the Company’s Federal and state NOL carryforwards are reduced by an unrecognized tax position of $22,538 and $16,670, respectively, which results from the Company’s presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amounts of the Company’s Federal and state NOL carryforwards net of the unrecognized tax positions are $1,472,249 and $3,047,056, respectively. The Company records its unrecognized tax benefit as a component of its net deferred income tax liability. At December 31, 2025, the Company has a cumulative Federal charitable contribution of $61,917, on which a valuation allowance of $61,917 has been recorded as the Company determined it is more likely than not they will expire before they are utilized within the carryforward period. At December 31, 2025, the Company has a cumulative state charitable contribution of $56,916 on which a valuation allowance of $56,916 has been recorded as the Company does not believe these state charitable contributions are more likely than not to be realized. On July 4, 2025, H.R.1 – One Big Beautiful Bill Act (“OBBBA”) was enacted into law. The OBBBA includes significant provisions such as the permanent extension of certain expiring provisions of the 2017 Tax Cuts and Jobs Act. The OBBBA did not have a significant impact to our consolidated financial statements.
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