Income and Other Taxes

12 Months Ended

Dec. 31, 2014

5. Income and Other Taxes

(PPL)

"Income from Continuing Operations Before Income Taxes" included the following.

		2014		2013		2012

Domestic income		$	1,157	$	201	$	1,000
Foreign income			1,207		1,059		1,009
	Total	$	2,364	$	1,260	$	2,009

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 6 for additional information.

Net deferred tax assets have been recognized based on management's estimates of future taxable income for the U.S. and certain foreign jurisdictions in which PPL's operations have historically been profitable.

Significant components of PPL's deferred income tax assets and liabilities were as follows:

			2014		2013
Deferred Tax Assets
	Deferred investment tax credits (a)		$	63	$	137
	Regulatory obligations			131		144
	Accrued pension costs			298		140
	Federal loss carryforwards			151		331
	State loss carryforwards			304		304
	Federal and state tax credit carryforwards (a)			209		332
	Foreign capital loss carryforwards			446		467
	Foreign loss carryforwards			6		6
	Foreign - pensions			182		202
	Foreign - regulatory obligations			23		26
	Foreign - other			11		12
	Contributions in aid of construction			138		137
	Domestic - other			273		211
	Unrealized losses on qualifying derivatives			46
	Valuation allowances			(700)		(663)
		Total deferred tax assets		1,581		1,786

Deferred Tax Liabilities
	Domestic plant - net (a)			4,453		4,073
	Taxes recoverable through future rates			156		151
	Unrealized gain on qualifying derivatives			28		37
	Other regulatory assets			322		244
	Reacquired debt costs			31		34
	Foreign plant - net			854		859
	Domestic - other			58		78
		Total deferred tax liabilities		5,902		5,476
Net deferred tax liability			$	4,321	$	3,690

(a) During 2014, PPL accepted U.S. government grants for hydroelectric plant expansions resulting in reductions of investment tax credits previously claimed and reductions in the carrying value of the related plants. See Note 8 for additional information.

At December 31, PPL had the following loss and tax credit carryforwards.

		2014		Expiration

Loss carryforwards
	Federal net operating losses (a)	$	432	2031-2032
	State net operating losses (a) (b)		5,059	2017-2034
	State contributions		33	2015-2018
	Foreign net operating losses (c)		29	Indefinite
	Foreign capital losses (d)		2,231	Indefinite

Credit carryforwards
	Federal investment tax credit		125	2025-2028
	Federal alternative minimum tax credit		44	Indefinite
	Federal - other		34	2016-2034
	State - other		8	2022

State capital loss and foreign tax credit carryforwards were insignificant at December 31, 2014.

(a) Includes an insignificant amount of federal and state net operating loss carryforwards from excess tax deductions related to stock compensation for which a tax benefit will be recorded in Equity when realized.

(b) A valuation allowance of $238 million has been recorded against the deferred tax assets for these losses.

(d) A valuation allowance of $446 million has been recorded against the deferred tax assets for these losses.

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				Charged to					Balance
	Beginning		Charged		Other					at End
	of Period		to Income		Accounts		Deductions			of Period

2014	$	663	$	57	$	6	$	26		$	700
2013		706		29				72	(a)		663
2012		724		18		10		46	(a)		706

(a) The reductions of the U.K. statutory income tax rate in 2013 and 2012 resulted in $67 million and $46 million in reductions in deferred tax assets and the corresponding valuation allowances. See "Reconciliation of Income Tax Expense" below for more information on the impact of the U.K. Finance Acts 2013 and 2012.

PPL Global does not record U.S. income taxes on the undistributed earnings of WPD, with the exception of certain financing entities, as management has determined that the earnings are indefinitely reinvested. Historically, dividends paid by WPD have been distributions from current year's earnings. WPD's long-term working capital forecasts and capital expenditure projections for the foreseeable future require reinvestment of WPD's undistributed earnings, and WPD would have to issue debt or access credit facilities to fund any distributions in excess of current earnings. Additionally, U.S. long-term working capital forecasts and capital expenditure projections for the foreseeable future do not require or contemplate distributions from WPD in excess of some portion of future WPD earnings. The cumulative undistributed earnings are included in "Earnings Reinvested" on the Balance Sheets. The amounts considered indefinitely reinvested at December 31, 2014 and 2013 were $3.7 billion and $2.9 billion, respectively. If the WPD undistributed earnings were remitted as dividends, PPL Global could be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practicable to estimate the amount of additional taxes that could be payable on these foreign earnings in the event of repatriation to the U.S.

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income from Continuing Operations Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:

				2014		2013		2012
Income Tax Expense (Benefit)
	Current - Federal			$	43	$	(91)	$	(15)
	Current - State				30		(4)		(5)
	Current - Foreign				152		181		121
			Total Current Expense		225		86		101
	Deferred - Federal				345		75		547
	Deferred - State				136		45		100
	Deferred - Foreign				96		(53)		35
			Total Deferred Expense, excluding operating loss carryforwards		577		67		682

	Investment tax credit, net - Federal				(7)		(8)		(10)
	Tax expense (benefit) of operating loss carryforwards
		Deferred - Federal (a)			8		36		(195)
		Deferred - State			(22)		(18)		(60)
			Total Tax Expense (Benefit) of Operating Loss Carryforwards		(14)		18		(255)
	Total income taxes from continuing operations			$	781	$	163	$	518

	Total income tax expense - Federal			$	389	$	12	$	327
	Total income tax expense - State				144		23		35
	Total income tax expense - Foreign				248		128		156
			Total income taxes from continuing operations	$	781	$	163	$	518

(a) A 2012 Federal income tax return adjustment was recorded in 2013 related to a reduction in the 2012 NOL recorded in the filed return. The reduction was primarily due to PPL's decision, at the time of filing, to utilize regular modified accelerated cost recovery system (MACRS) depreciation rates for certain non-regulated assets otherwise eligible for bonus tax depreciation.

In the table above, the following income tax expense (benefits) are excluded from income taxes from continuing operations.

			2014		2013		2012

Discontinued operations			$	109	$	18	$	23
Stock-based compensation recorded to Additional Paid-in Capital				(4)		(2)		(1)
Valuation allowance on state deferred taxes related to issuance costs of Purchase Contracts
	recorded to Additional Paid-in Capital					(2)
Other comprehensive income				190		159		(526)
Valuation allowance on state deferred taxes recorded to other comprehensive income						(7)
		Total	$	295	$	166	$	(504)

				2014		2013		2012
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before Income Taxes at
		statutory tax rate - 35%		$	827	$	441	$	703
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				41		(9)		25
	State valuation allowance adjustments (a)				55		24		13
	Impact of lower U.K. income tax rates (b)				(167)		(129)		(110)
	U.S. income tax on foreign earnings - net of foreign tax credit (c)				53		9		26
	Federal and state tax reserves adjustments (d)				(1)		(43)		(1)
	Federal and state income tax return adjustments (e)				2		(5)		16
	Impact of the U.K. Finance Acts on deferred tax balances (b)				(1)		(97)		(75)
	Federal income tax credits (f)				(1)		(9)		(11)
	Depreciation not normalized				(7)		(8)		(11)
	State deferred tax rate change (g)				(1)		15		(19)
	Intercompany interest on U.K. financing entities				(8)		(10)		(9)
	Other				(11)		(16)		(29)
			Total increase (decrease)		(46)		(278)		(185)
Total income taxes from continuing operations				$	781	$	163	$	518
Effective income tax rate					33.0%		12.9%		25.8%

(a) As a result of the PPL Energy Supply spinoff announcement, PPL recorded $50 million deferred income tax expense during 2014 to adjust the valuation allowance on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply. See Note 8 for additional information on the anticipated spinoff.

During 2013, PPL recorded $23 million of state deferred income tax expense related to a deferred tax valuation allowance primarily due to a decrease in projected future taxable income at PPL Energy Supply over the remaining carryforward period of Pennsylvania net operating losses.

(b) The U.K. Finance Act 2013, enacted in July 2013, reduced the U.K. statutory income tax rate from 23% to 21% effective April 1, 2014 and from 21% to 20% effective April 1, 2015. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit during 2013 related to both rate decreases.

The U.K. Finance Act 2012, enacted in July 2012, reduced the U.K. statutory income tax rate from 25% to 24% retroactive to April 1, 2012 and from 24% to 23% effective April 1, 2013. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit during 2012 related to both rate decreases.

During 2013, PPL recorded $28 million of income tax expense resulting from increased taxable dividends offset by a $19 million income tax benefit associated with a ruling obtained from the IRS impacting the recalculation of 2010 U.K. earnings and profits that was reflected on an amended 2010 U.S. tax return.

During 2012, PPL recorded a $23 million adjustment to federal income tax expense related to the recalculation of 2010 U.K. earnings and profits.

(d) In 1997, the U.K. imposed a Windfall Profits Tax (WPT) on privatized utilities, including WPD. PPL filed its federal income tax returns for years subsequent to its 1997 and 1998 claims for refund on the basis that the U.K. WPT was creditable. In September 2010, the U.S. Tax Court (Tax Court) ruled in PPL’s favor in a dispute with the IRS, concluding that the U.K. WPT is a creditable tax for U.S. tax purposes. As a result, and with the finalization of other issues, PPL recorded a $42 million tax benefit in 2010. In January 2011, the IRS appealed the Tax Court’s decision to the U.S. Court of Appeals for the Third Circuit (Third Circuit). In December 2011, the Third Circuit issued its opinion reversing the Tax Court’s decision, holding that the U.K. WPT is not a creditable tax. As a result of the Third Circuit’s adverse determination, PPL recorded a $39 million expense in 2011. In June 2012, the U.S. Court of Appeals for the Fifth Circuit issued a contrary opinion in an identical case involving another company. In July 2012, PPL filed a petition for a writ of certiorari seeking U.S. Supreme Court review of the Third Circuit’s opinion. The Supreme Court granted PPL’s petition and oral argument was held in February 2013. On May 20, 2013, the Supreme Court reversed the Third Circuit’s opinion and ruled that the WPT is a creditable tax. As a result of the Supreme Court ruling, PPL recorded a tax benefit of $44 million during 2013, of which $19 million relates to interest.

PPL recorded a tax benefit of $7 million during 2013 and $6 million during 2012 federal and state income tax reserves related to stranded cost securitization. The reserve balance at December 31, 2013 related to stranded costs securitization was zero.

(e) During 2012, PPL recorded $16 million in federal and state income tax expense related to the filing of the 2011 federal and state income tax returns. Of this amount, $5 million relates to the reversal of prior years’ state income tax benefits related to regulated depreciation. PPL changed its method of accounting for repair expenditures for tax purposes effective for its 2008 tax year. In August 2011, the IRS issued guidance regarding the use and evaluation of statistical samples and sampling estimates for network assets. The IRS guidance provided a safe harbor method of determining whether the repair expenditures for electric transmission and distribution property can be currently deducted for tax purposes. PPL adopted the safe harbor method with the filing of its 2011 federal income tax return.

(f) During 2013 and 2012, PPL recorded deferred tax benefits related to investment tax credits on progress expenditures for the Holtwood hydroelectric plant expansion. See Note 8 for additional information.

(g) During 2014, 2013 and 2012, PPL recorded adjustments related to its December 31 state deferred tax liabilities as a result of annual changes in state apportionment and the impact on the future estimated state income tax rate.

		2014		2013		2012
Taxes, other than income
	State gross receipts	$	147	$	135	$	135
	Foreign property		157		147		147
	Domestic Other		70		69		70
	Total	$	374	$	351	$	352

(PPL Energy Supply)

Net deferred tax assets have been recognized based on management's estimates of future taxable income for the U.S. jurisdictions in which PPL Energy Supply's operations have historically been profitable.

Significant components of PPL Energy Supply's deferred income tax assets and liabilities were as follows:

			2014		2013
Deferred Tax Assets
	Deferred investment tax credits (a)		$	11	$	84
	Accrued pension costs			98		39
	Federal loss carryforwards			22		28
	Federal tax credit carryforwards (a)			13		131
	State loss carryforwards			79		80
	Other			79		69
	Valuation allowances			(78)		(78)
		Total deferred tax assets		224		353

Deferred Tax Liabilities
	Plant - net (a)			1,374		1,392
	Unrealized gain on qualifying derivatives			28		38
	Other			42		46
		Total deferred tax liabilities		1,444		1,476
Net deferred tax liability			$	1,220	$	1,123

At December 31, PPL Energy Supply had the following loss and tax credit carryforwards.

		2014		Expiration
Loss carryforwards
	Federal net operating losses	$	63	2031-2032
	State net operating losses (a)		1,228	2018-2034

Credit carryforwards
	Federal AMT credit		6	Indefinite
	Federal - other		7	2031-2034

(a) A valuation allowance of $78 million has been recorded against the deferred tax assets for these losses.

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:

			Additions
	Balance at				Charged to		Balance
	Beginning		Charged		Other		at End
	of Period		to Income		Accounts	Deductions	of Period

2014	$	78					$	78
2013		74	$	4				78
2012		72		2				74

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income (Loss) from Continuing Operations Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:

				2014		2013		2012
Income Tax Expense (Benefit)
	Current - Federal			$	28	$	118	$	74
	Current - State				13		16		19
			Total Current Expense		41		134		93
	Deferred - Federal				66		(285)		187
	Deferred - State				11		(27)		7
			Total Deferred Expense (Benefit), excluding operating loss carryforwards		77		(312)		194

	Investment tax credit, net - federal				(2)		(3)		(2)
	Tax expense (benefit) of operating loss carryforwards
		Deferred - Federal (a)					22		(48)
		Deferred - State							(1)
			Total Tax Expense (Benefit) of Operating Loss Carryforwards				22		(49)
	Total income taxes (benefits) from continuing operations (b)			$	116	$	(159)	$	236

	Total income tax expense (benefit) - Federal			$	92	$	(148)	$	211
	Total income tax expense (benefit) - State				24		(11)		25
			Total income taxes (benefits) from continuing operations (b)	$	116	$	(159)	$	236

(a) A 2012 federal income tax return adjustment was recorded in 2013 related to a reduction in the 2012 NOL recorded in the filed return. The reduction was primarily due to PPL's decision, at the time of filing, to utilize regular MACRS depreciation rates for certain non-regulated assets otherwise eligible for bonus tax depreciation.

(b) Excludes current and deferred federal and state tax expense recorded to Discontinued Operations of $109 million, $17 million and $27 million in 2014, 2013 and 2012. Also excludes federal and state tax expense (benefit) recorded to OCI of $(56) million, $47 million and $(267) million in 2014, 2013 and 2012.

				2014		2013		2012
Reconciliation of Income Tax Expense
	Federal income tax on Income (Loss) from Continuing Operations Before Income Taxes at
		statutory tax rate - 35%		$	106	$	(147)	$	233
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				17		(24)		30
	State deferred tax rate change (a)				(1)		15		(19)
	Federal income tax credits (b)						(8)		(11)
	Other				(6)		5		3
			Total increase (decrease)		10		(12)		3
Total income taxes from continuing operations				$	116	$	(159)	$	236
Effective income tax rate					38.3%		37.9%		35.5%

(a) During 2014, 2013 and 2012, PPL Energy Supply recorded adjustments related to its December 31 state deferred tax liabilities as a result of annual changes in state apportionment and the impact on the future estimated state income tax rate.

(b) During 2013 and 2012, PPL Energy Supply recorded deferred tax benefits related to investment tax credits on progress expenditures for the Holtwood hydroelectric plant expansion. See Note 8 for additional information.

			2014		2013		2012
Taxes, other than income
	State gross receipts		$	45	$	37	$	35
	State capital stock			1		1		5
	Property and other			11		15		15
		Total	$	57	$	53	$	55

(PPL Electric)

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 PUC 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 "Regulated liabilities" on the Balance Sheets.

Significant components of PPL Electric's deferred income tax assets and liabilities were as follows.

			2014		2013
Deferred Tax Assets
	Accrued pension costs		$	85	$	42
	Contributions in aid of construction			110		109
	Regulatory obligations			39		38
	State loss carryforwards			30		35
	Federal loss carryforwards			51		72
	Other			54		45
		Total deferred tax assets		369		341

Deferred Tax Liabilities
	Electric utility plant - net			1,453		1,366
	Taxes recoverable through future rates			132		129
	Reacquired debt costs			20		23
	Other regulatory assets			173		129
	Other			16		8
		Total deferred tax liabilities		1,794		1,655
Net deferred tax liability			$	1,425	$	1,314

At December 31, PPL Electric had the following loss carryforwards.

		2014		Expiration

Loss carryforwards
	Federal net operating losses	$	146	2031-2032
	State net operating losses		467	2030-2032

Credit and state contribution carryforwards were insignificant at December 31, 2014.

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:

				2014		2013		2012
Income Tax Expense (Benefit)
	Current - Federal			$	60	$	(15)	$	(28)
	Current - State				15		(4)		(18)
			Total Current Expense (Benefit)		75		(19)		(46)
	Deferred - Federal				70		109		162
	Deferred - State				16		16		42
			Total Deferred Expense, excluding operating loss carryforwards		86		125		204

	Investment tax credit, net - Federal				(1)		(1)		(1)
	Tax expense (benefit) of operating loss carryforwards
		Deferred - Federal					4		(72)
		Deferred - State					(1)		(17)
			Total Tax Expense (Benefit) of Operating Loss Carryforwards				3		(89)
	Total income tax expense			$	160	$	108	$	68

	Total income tax expense - Federal			$	129	$	97	$	61
	Total income tax expense - State				31		11		7
			Total income tax expense	$	160	$	108	$	68

			2014		2013		2012
Reconciliation of Income Taxes
	Federal income tax on Income Before Income Taxes at statutory tax rate - 35%		$	148	$	111	$	71
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit			22		16		9
	Federal and state tax reserves adjustments (a)			(1)		(9)		(8)
	Federal and state income tax return adjustments (b)			1		(1)		7
	Depreciation not normalized			(6)		(6)		(8)
	Other			(4)		(3)		(3)
		Total increase (decrease)		12		(3)		(3)
Total income tax expense			$	160	$	108	$	68
Effective income tax rate				37.8%		34.1%		33.3%

(a) PPL Electric recorded a tax benefit of $7 million during 2013 and $6 million during 2012 to federal and state income tax reserves related to stranded cost securitization. The reserve balance at December 31, 2013 related to stranded costs securitization was zero.

(b) PPL Electric changed its method of accounting for repair expenditures for tax purposes effective for its 2008 tax year. In August 2011, the IRS issued guidance regarding the use and evaluation of statistical samples and sampling estimates for network assets. The IRS guidance provided a safe harbor method of determining whether the repair expenditures for electric transmission and distribution property can be currently deducted for tax purposes. PPL Electric adopted the safe harbor method with the filing of its 2011 federal income tax return and recorded a $5 million adjustment to federal and state income tax expense in 2012 resulting from the reversal of prior years’ state income tax benefits related to regulated depreciation.

			2014		2013		2012
Taxes, other than income
	State gross receipts		$	102	$	98	$	101
	Other			5		5		4
		Total	$	107	$	103	$	105

(LKE)

The provision for LKE’s deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC, VSCC, TRA 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 LKE's deferred income tax assets and liabilities were as follows:

			2014		2013
Deferred Tax Assets
	Net operating loss carryforward		$	82	$	222
	Tax credit carryforwards			182		179
	Regulatory liabilities			92		107
	Accrued pension costs			53		26
	Capital loss carryforward					4
	Income taxes due to customers			20		23
	Deferred investment tax credits			51		52
	Derivative liability			45		14
	Other			44		43
	Valuation allowances					(4)
		Total deferred tax assets		569		666

Deferred Tax Liabilities
	Plant - net			1,639		1,327
	Regulatory assets			143		133
	Other			12		12
		Total deferred tax liabilities		1,794		1,472
Net deferred tax liability			$	1,225	$	806

LKE expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.

At December 31, LKE had the following loss and tax credit carryforwards.

		2014		Expiration

Loss carryforwards
	Federal net operating losses	$	132	2031-2032
	State net operating losses		927	2028-2032
	State capital losses		1	2016

Credit carryforwards
	Federal investment tax credit		125	2025-2028
	Federal alternative minimum tax credit		30	Indefinite
	Federal - other		27	2016-2034
	State - other		8	2022

Changes in deferred tax valuation allowances were:

	Balance at						Balance
	Beginning						at End
	of Period		Additions	Deductions			of Period

2014	$	4		$	4	(a)
2013		5			1	(a)	$	4
2012		5						5

(a) Primarily related to the expiration of state capital loss carryforwards.

				2014		2013		2012
Income Tax Expense (Benefit)
	Current - Federal			$	(247)	$	(59)	$	(32)
	Current - State				8		10		2
			Total Current Expense (Benefit)		(239)		(49)		(30)
	Deferred - Federal				437		244		185
	Deferred - State				23		20		15
			Total Deferred Expense, excluding benefits of operating loss carryforwards		460		264		200
	Investment tax credit, net - Federal				(4)		(4)		(6)
	Tax benefit of operating loss carryforwards
		Deferred - Federal			(8)		(4)		(46)
		Deferred - State					(1)		(12)
			Total Tax Benefit of Operating Loss Carryforwards		(8)		(5)		(58)
	Total income tax expense from continuing operations (a)			$	209	$	206	$	106

	Total income tax expense - Federal			$	178	$	177	$	101
	Total income tax expense - State				31		29		5
			Total income tax expense from continuing operations (a)	$	209	$	206	$	106

(a) Excludes current and deferred federal and state tax expense (benefit) recorded to Discontinued Operations of less than $1 million in 2014, $1 million in 2013, and $(4) million in 2012. Also, excludes deferred federal and state tax expense (benefit) recorded to OCI of $(36) million in 2014, $18 million in 2013 and $(12) million in 2012.

				2014		2013		2012
Reconciliation of Income Taxes
	Federal income tax on Income Before Income Taxes at
		statutory tax rate - 35%		$	194	$	193	$	116
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				20		20		6
	Amortization of investment tax credit				(4)		(4)		(6)
	Net operating loss carryforward (a)								(9)
	Other				(1)		(3)		(1)
			Total increase (decrease)		15		13		(10)
Total income tax expense from continuing operations				$	209	$	206	$	106
Effective income tax rate					37.8%		37.4%		32.0%

(a) During 2012, LKE recorded adjustments to deferred taxes related to net operating loss carryforwards based on income tax return adjustments.

			2014		2013		2012
Taxes, other than income
	Property and other		$	52	$	48	$	46
		Total	$	52	$	48	$	46

(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:

			2014		2013
Deferred Tax Assets
	Regulatory liabilities		$	51	$	59
	Deferred investment tax credits			14		15
	Income taxes due to customers			18		19
	Derivative liability			32		14
	Other			9		14
		Total deferred tax assets		124		121

Deferred Tax Liabilities
	Plant - net			698		585
	Regulatory assets			90		83
	Accrued pension costs			28		24
	Other			8		8
		Total deferred tax liabilities		824		700
Net deferred tax liability			$	700	$	579

LG&E expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.

At December 31, 2014, LG&E had $4 million of state credit carryforwards that expire in 2022.

				2014		2013		2012
Income Tax Expense (Benefit)
	Current - Federal			$	(25)	$	52	$	(2)
	Current - State				10		16		3
			Total Current Expense (Benefit)		(15)		68		1
	Deferred - Federal				114		33		65
	Deferred - State				6		(2)		6
			Total Deferred Expense, excluding benefits of operating loss carryforwards		120		31		71
	Investment tax credit, net - Federal				(2)		(2)		(3)
	Tax benefit of operating loss carryforwards
		Deferred - Federal					(3)
			Total Tax Benefit of Operating Loss Carryforwards				(3)
	Total income tax expense			$	103	$	94	$	69

	Total income tax expense - Federal			$	87	$	80	$	60
	Total income tax expense - State				16		14		9
			Total income tax expense	$	103	$	94	$	69

				2014		2013		2012
Reconciliation of Income Taxes
	Federal income tax on Income Before Income Taxes at
		statutory tax rate - 35%		$	95	$	90	$	67
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				10		10		5
	Amortization of investment tax credit				(2)		(2)		(3)
	Other						(4)
			Total increase (decrease)		8		4		2
Total income tax expense				$	103	$	94	$	69
Effective income tax rate					37.9%		36.6%		35.9%

			2014		2013		2012
Taxes, other than income
	Property and other		$	25	$	24	$	23
		Total	$	25	$	24	$	23

(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, VSCC, TRA 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:

			2014		2013
Deferred Tax Assets
	Regulatory liabilities		$	41	$	47
	Deferred investment tax credits			37		38
	Net operating loss carryforward					23
	Income taxes due to customers			2		4
	Derivative liability			13
	Other			7		8
		Total deferred tax assets		100		120

Deferred Tax Liabilities
	Plant - net			922		721
	Regulatory assets			53		50
	Other			7		4
		Total deferred tax liabilities		982		775
Net deferred tax liability			$	882	$	655

KU expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.

At December 31, 2014, KU had $4 million of state credit carryforwards that expire in 2022.

				2014		2013		2012
Income Tax Expense (Benefit)
	Current - Federal			$	(95)	$	51	$	(20)
	Current - State				6		12		(1)
			Total Current Expense (Benefit)		(89)		63		(21)
	Deferred - Federal				212		66		111
	Deferred - State				14		8		11
			Total Deferred Expense, excluding benefits of operating loss carryforwards		226		74		122
	Investment tax credit, net - Federal				(2)		(2)		(3)
	Tax benefit of operating loss carryforwards
		Deferred - Federal					(3)		(20)
			Total Tax Benefit of Operating Loss Carryforwards				(3)		(20)
	Total income tax expense (a)			$	135	$	132	$	78

	Total income tax expense - Federal			$	115	$	112	$	68
	Total income tax expense - State				20		20		10
			Total income tax expense (a)	$	135	$	132	$	78

(a) Excludes deferred federal and state tax expense (benefit) recorded to OCI of less than $(1) million in both 2014 and in 2013 and $1 million in 2012.

				2014		2013		2012
Reconciliation of Income Taxes
	Federal income tax on Income Before Income Taxes at
		statutory tax rate - 35%		$	124	$	126	$	75
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				13		14		6
	Amortization of investment tax credit				(2)		(2)		(3)
	Other						(6)
			Total increase (decrease)		11		6		3
Total income tax expense				$	135	$	132	$	78
Effective income tax rate					38.0%		36.7%		36.3%

			2014		2013		2012
Taxes, other than income
	Property and other		$	27	$	24	$	23
		Total	$	27	$	24	$	23

Unrecognized Tax Benefits (All Registrants)

Changes to unrecognized tax benefits were as follows:

		2014		2013
PPL
	Beginning of period	$	22	$	92
	Additions based on tax positions of prior years		1		3
	Reductions based on tax positions of prior years		(2)		(32)
	Settlements		(1)		(30)
	Lapse of applicable statute of limitation				(11)
	End of period	$	20	$	22

PPL Energy Supply
	Beginning of period	$	15	$	30
	Reductions based on tax positions of prior years				(15)
	End of period	$	15	$	15

PPL Electric
	Beginning of period			$	26
	Reductions based on tax positions of prior years				(17)
	Lapse of applicable statute of limitation				(9)
	End of period			$

LKE's, LG&E's and KU's unrecognized tax benefits and changes in those unrecognized tax benefits are insignificant at December 31, 2014 and December 31, 2013.

At December 31, 2014, it was reasonably possible that during the next 12 months the total amount of unrecognized tax benefits could increase or decrease by the following amounts. For PPL Electric, LKE, LG&E and KU, no significant changes in unrecognized tax benefits are projected over the next 12 months.

These potential changes could result from subsequent recognition, derecognition and/or changes in the measurement of uncertain tax positions related to the creditability of foreign taxes, the timing and utilization of foreign tax credits and the related impact on alternative minimum tax and other credits, the timing and/or valuation of certain deductions, intercompany transactions and unitary filing groups. The events that could cause these changes are direct settlements with taxing authorities, litigation, legal or administrative guidance by relevant taxing authorities and the lapse of an applicable statute of limitation.

At December 31, the total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective tax rate were as follows. The amounts for PPL Electric, LKE, LG&E and KU were insignificant.

At December 31, the following receivable (payable) balances were recorded for interest related to tax positions. The amounts for PPL Electric, LKE, LG&E and KU were insignificant.

The following interest expense (benefit) was recognized in income taxes. The amounts for LKE, LG&E and KU were insignificant.

	2014		2013		2012

PPL	$	1	$	(30)	$	(4)
PPL Energy Supply		(1)		5		(4)
PPL Electric				(7)		(4)

PPL or its subsidiaries file tax returns in five major tax jurisdictions. The income tax provisions for PPL Energy Supply, PPL Electric, LKE, 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. Based on this tax sharing agreement, PPL Energy Supply or its subsidiaries indirectly or directly file tax returns in three major tax jurisdictions, PPL Electric or its subsidiaries indirectly or directly file tax returns in two major tax jurisdictions, and LKE, LG&E and KU or their subsidiaries indirectly or directly file tax returns in two major tax jurisdictions. With few exceptions, at December 31, 2014, these jurisdictions, as well as the tax years that are no longer subject to examination, were as follows:

PPL

Energy Supply

PPL Electric

LKE

LG&E

U.S. (federal)

1997 and prior

10/31/2010 and prior

Pennsylvania (state)

2010 and prior

2008 and prior

Kentucky (state)

2009 and prior

2010 and prior

Montana (state)

2010 and prior

U.K. (foreign)

2011 and prior

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References+ Details

PPL Energy Supply