(PPL)

				Three Months				Nine Months
				2011		2010		2011		2010
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before
		Income Taxes at statutory tax rate - 35%		$	196	$	114	$	518	$	277
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				8		17		47		32
	State valuation allowance adjustments (a)								11		(8)
	Impact of lower U.K. income tax rates				(12)		(8)		(31)		(15)
	U.S. income tax on foreign earnings - net of foreign tax credit (b)				(10)		(8)		(25)		(14)
	Federal and state tax reserve adjustments (c)				4		(52)		1		(59)
	Foreign tax reserve adjustments (d)				2		24		2		46
	Domestic manufacturing deduction (e)						(12)				(24)
	Health Care Reform (f)										8
	Foreign losses resulting from restructuring (d)						(27)				(52)
	Enactment of the U.K.'s Finance Act of 2011 and 2010 (g)				(69)		(19)		(69)		(19)
	Federal income tax credits				(4)		(4)		(11)		(8)
	Amortization of investment tax credit				(2)				(6)		(2)
	Depreciation not normalized (a)				(1)		(1)		(7)		(1)
	Nondeductible acquisition-related costs (h)				1				9
	Other				(3)		(5)		(10)		(9)
			Total increase (decrease)		(86)		(95)		(89)		(125)
Total income taxes from continuing operations				$	110	$	19	$	429	$	152

(a) In February 2011, the Pennsylvania Department of Revenue issued interpretive guidance on the treatment of bonus depreciation for Pennsylvania income tax purposes. In accordance with Corporation Tax Bulletin 2011-01, Pennsylvania allows 100% bonus depreciation for qualifying assets in the same year bonus depreciation is allowed for federal income tax purposes. Due to the reduction in projected Pennsylvania taxable income for tax years 2011 and 2012 related to the 100% bonus depreciation deduction, PPL adjusted its deferred tax valuation allowances for Pennsylvania net operating losses by $11 million in the first quarter of 2011.

Additionally, the 100% Pennsylvania bonus depreciation deduction created a current state income tax benefit for the flow-through impact of Pennsylvania regulated state tax depreciation.

(b) During the three and nine months ended September 30, 2011, PPL recorded a $7 million and $21 million federal income tax benefit related to U.K. pension contributions.

(c) In 1997, the U.K. imposed a Windfall Profits Tax on privatized utilities, including WPD. In September 2010, the U.S. Tax Court ruled in PPL's favor in a pending dispute with the IRS, concluding that the U.K. Windfall Profits Tax 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 which impacted federal and state income tax reserves and related deferred income taxes during the third quarter of 2010. In January 2011, the IRS appealed the U.S. Tax Court's decision to the U.S. Court of Appeals for the Third Circuit.

In July 2010, the U.S. Tax Court ruled in PPL's favor in a pending dispute with the IRS, concluding that street lighting assets of PPL Electric are depreciable for tax purposes over seven years. As a result, PPL recorded a $7 million tax benefit to federal and state income tax reserves and related deferred income taxes in the third quarter of 2010.

(d) During the three and nine months ended September 30, 2010, PPL recorded $27 million and $52 million in foreign tax benefits and related adjustments to foreign tax reserves of $24 and $46 million in conjunction with losses resulting from restructuring in the U.K. These losses offset tax on a deferred gain from a prior year sale of WPD's supply business.

(e) In December 2010, Congress enacted legislation allowing for 100% bonus depreciation on qualified property. The increased tax depreciation eliminates the estimated tax benefit related to the domestic manufacturing deduction in 2011.

(f) Beginning in 2013, provisions within Health Care Reform eliminated the income tax deductibility of retiree health care costs to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D Coverage. As a result, PPL recorded deferred income tax expense in the first quarter of 2010. See Note 9 for additional information.

(g) The U.K.'s Finance Act of 2011, enacted in July 2011, included reductions in the U.K. statutory income tax rate. The statutory income tax rate was reduced from 27% to 26% retroactive to April 1, 2011 and will be reduced from 26% to 25% effective April 1, 2012. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2011 to comprehend both rate decreases.

The U.K.'s Finance Act of 2010, enacted in July 2010, included a reduction in the U.K. statutory income tax rate. Effective April 1, 2011, the statutory income tax rate was reduced from 28% to 27%. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2010.

(h) During the three and nine months ended September 30, 2011, PPL recorded nondeductible acquisition-related costs (primarily the U.K. stamp duty tax) associated with its acquisition of WPD Midlands. See Note 8 for additional information on the acquisition.

PPL has evaluated the impact of the change in earnings estimates on its projected annual effective tax rate. The result of the change in estimate reduced income tax expense for the three months ended September 30, 2011 by $18 million ($0.03 per share, basic and diluted).

(PPL Energy Supply)

				Three Months				Nine Months
				2011		2010		2011		2010
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before
		Income Taxes at statutory tax rate - 35%		$	96	$	107	$	272	$	189
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				11		15		38		27
	State valuation allowance adjustments (a)								6
	Federal and state tax reserve adjustments				1		(11)		2		(11)
	Domestic manufacturing deduction (b)						(12)				(24)
	Health Care Reform (c)										5
	Federal income tax credits				(5)		(4)		(11)		(7)
	Other				1		(2)		(2)		(1)
			Total increase (decrease)		8		(14)		33		(11)
Total income taxes from continuing operations				$	104	$	93	$	305	$	178

(a) In February 2011, the Pennsylvania Department of Revenue issued interpretive guidance on the treatment of bonus depreciation for Pennsylvania income tax purposes. In accordance with Corporation Tax Bulletin 2011-01, Pennsylvania allows 100% bonus depreciation for qualifying assets in the same year bonus depreciation is allowed for federal income tax purposes. Due to the reduction in projected Pennsylvania taxable income for tax years 2011 and 2012 related to the 100% bonus depreciation deduction, PPL Energy Supply adjusted its deferred tax valuation allowances for Pennsylvania net operating losses in the first quarter of 2011.

(b) In December 2010, Congress enacted legislation allowing for 100% bonus depreciation on qualified property. The increased tax depreciation eliminates the estimated tax benefit related to the domestic manufacturing deduction in 2011.

(c) Beginning in 2013, provisions within Health Care Reform eliminated the income tax deductibility of retiree health care costs to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D Coverage. As a result, PPL Energy Supply recorded deferred income tax expense in the first quarter of 2010. See Note 9 for additional information.

(PPL Electric)

				Three Months				Nine Months
				2011		2010		2011		2010
Reconciliation of Income Tax Expense
	Federal income tax on Income Before Income Taxes at statutory
		tax rate - 35%		$	16	$	19	$	64	$	53
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				2		3		9		7
	Federal and state tax reserve adjustments (a)				(2)		(6)		(6)		(10)
	Federal and state income tax return adjustments								(2)
	Depreciation not normalized (b)				(1)		(1)		(6)		(1)
	Other				(1)				(3)		(2)
			Total increase (decrease)		(2)		(4)		(8)		(6)
Total income taxes				$	14	$	15	$	56	$	47

(a) In July 2010, the U.S. Tax Court ruled in PPL Electric's favor in a pending dispute with the IRS, concluding that street lighting assets are depreciable for tax purposes over seven years. As a result, PPL Electric recorded a $7 million tax benefit which impacted federal and state income tax reserves and related deferred income taxes in the third quarter of 2010. See "Tax Litigation" below for additional information.

(b) In February 2011, the Pennsylvania Department of Revenue issued interpretive guidance on the treatment of bonus depreciation for Pennsylvania income tax purposes. In accordance with Corporation Tax Bulletin 2011-01, Pennsylvania allows 100% bonus depreciation for qualifying assets in the same year bonus depreciation is allowed for federal income tax purposes. The 100% Pennsylvania bonus depreciation deduction created a current state income tax benefit for the flow-through impact of Pennsylvania regulated state tax depreciation.

(LKE)

				Three Months				Nine Months
				2011		2010		2011		2010
				Successor		Predecessor		Successor		Predecessor
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before
		Income Taxes at statutory tax rate - 35%		$	50	$	56	$	120	$	108
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				4		6		11		10
	Other				(2)		(3)		(6)		(6)
			Total increase (decrease)		2		3		5		4
Total income taxes from continuing operations				$	52	$	59	$	125	$	112

(LG&E)

				Three Months				Nine Months
				2011		2010		2011		2010
				Successor		Predecessor		Successor		Predecessor
Reconciliation of Income Tax Expense
	Federal income tax on Income Before Income Taxes at statutory
		tax rate - 35%		$	23	$	33	$	56	$	58
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				2		4		5		6
	Other				(1)		(2)		(3)		(4)
			Total increase (decrease)		1		2		2		2
Total income taxes				$	24	$	35	$	58	$	60

(KU)

				Three Months				Nine Months
				2011		2010		2011		2010
				Successor		Predecessor		Successor		Predecessor
Reconciliation of Income Tax Expense
	Federal income tax on Income Before Income Taxes at statutory
		tax rate - 35%		$	31	$	30	$	79	$	72
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				3		3		7		8
	Other				(2)		(1)		(4)		(4)
			Total increase (decrease)		1		2		3		4
Total income taxes				$	32	$	32	$	82	$	76

Unrecognized Tax Benefits (PPL, PPL Energy Supply, PPL Electric, LKE, LG&E and KU)

Changes to unrecognized tax benefits for the periods ended September 30 were as follows.

		Three Months				Nine Months
		2011		2010		2011		2010
PPL
	Beginning of period	$	250	$	224	$	251	$	212
	Additions based on tax positions of prior years		1				2		4
	Reductions based on tax positions of prior years		(14)		(50)		(14)		(56)
	Additions based on tax positions related to the current year		4		13		4		43
	Reductions based on tax positions related to the current year		(1)		(1)		(3)		(6)
	Settlements				(11)				(12)
	Lapse of applicable statutes of limitation		(3)		(2)		(8)		(6)
	Effects of foreign currency translation		(2)		5		3		(1)
	End of period (a)	$	235	$	178	$	235	$	178

PPL Energy Supply
	Beginning of period	$	28	$	142	$	183	$	124
	Additions based on tax positions of prior years								2
	Reductions based on tax positions of prior years				(43)				(47)
	Additions based on tax positions related to the current year				13				43
	Reductions based on tax positions related to the current year								(3)
	Settlements								(1)
	Derecognize unrecognized tax benefits (b)						(155)
	Effects of foreign currency translation				5				(1)
	End of period	$	28	$	117	$	28	$	117

PPL Electric
	Beginning of period	$	56	$	68	$	62	$	74
	Additions based on tax positions of prior years								2
	Reductions based on tax positions of prior years				(7)				(9)
	Reductions based on tax positions related to the current year				(1)		(1)		(3)
	Lapse of applicable statutes of limitation		(3)		(2)		(8)		(6)
	End of period	$	53	$	58	$	53	$	58

(a) Unrecognized tax benefits at September 30, 2011 include $146 million of U.K. capital losses related to positions previously recorded on U.K. income tax returns. In October 2011, the U.K. tax authority accepted these capital loss positions. As a result, in the fourth quarter of 2011, PPL expects to reverse this unrecognized tax benefit and expects to record a valuation allowance for this amount against the deferred tax asset that results from an increase in capital loss carry forwards.

(b) Represents unrecognized tax benefits derecognized as a result of PPL Energy Supply's distribution of its membership interest in PPL Global to PPL Energy Supply's parent, PPL Energy Funding. See Note 8 for additional information on the distribution.

LKE's, LG&E's and KU's unrecognized tax benefits and changes in those unrecognized tax benefits are insignificant for the three and nine months ended September 30, 2011 and 2010.

At September 30, 2011, 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 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 September 30, the total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective tax rate were as follows. The amounts for LKE, LG&E and KU were insignificant.

PPL changed its method of accounting for repair expenditures for tax purposes effective for its 2008 tax year for the Pennsylvania generation, transmission and distribution operations. The same change was made for the Montana generation operations for 2009.

In August 2011, the IRS issued Rev. Procs. 2011-42 and 2011-43. Rev. Proc. 2011-42 provides guidance regarding the use and evaluation of statistical samples and sampling estimates. Rev. Proc. 2011-43 provides a safe harbor method of determining whether certain expenditures for electric transmission and distribution property can be currently deducted for tax purposes. No guidance was issued related to generation property.

If PPL adopts the safe harbor method of Rev. Proc. 2011-43, the amount of deductible versus capitalizable expenditures will likely be different from PPL's current method. While PPL has not yet completed its analysis of this guidance, it does not believe any resulting adjustment to unrecognized tax benefits or income tax liabilities will have a significant impact on net income.

In January 2011, the IRS appealed, to the U.S. Court of Appeals for the Third Circuit, the U.S. Tax Court's decision that the 1997 U.K. Windfall Profits Tax (WPT) is a creditable tax for U.S. Federal income tax purposes. In its decision, the Tax Court ruled on two issues: (1) the 1997 U.K. WPT imposed on all U.K. privatized utilities, including PPL's U.K. subsidiary, was creditable against the Company's U.S. income taxes; and (2) PPL Electric's street lighting assets could be depreciated for tax purposes over seven years as permitted for "property without a class life" instead of the 20-year depreciation recovery period argued by the IRS. The IRS did not appeal the street lighting decision. PPL filed its tax returns for 1997 and all intervening years on the basis that the WPT was creditable and that the appropriate tax depreciable life for its street lighting assets was seven years. Therefore, the cash benefit resulting from these items has already been realized.