Income Taxes (Tables)

3 Months Ended

Mar. 31, 2012

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

5. Income Taxes

Reconciliations of income tax expense are:

(PPL)

				Three Months Ended March 31,
				2012		2011
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before Income Taxes
		at statutory tax rate - 35%		$	281	$	219
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				24		25
	State valuation allowance adjustments (a)						11
	Impact of lower U.K. income tax rates				(21)		(8)
	U.S. income tax on foreign earnings - net of foreign tax credit (b)				2		(6)
	Foreign tax reserve adjustments				3
	Federal income tax credits				(4)		(5)
	Amortization of investment tax credit				(2)		(3)
	Depreciation not normalized (a)				(2)		(4)
	State deferred tax rate change (c)				(11)
	Net operating loss carryforward adjustment (d)				(6)
	Other				(5)		(6)
			Total increase (decrease)		(22)		4
Total income taxes from continuing operations				$	259	$	223

(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 tax purposes. Due to the decrease in projected taxable income related to bonus depreciation, PPL recorded state deferred income tax expense during the three months ended March 31, 2011 related to valuation allowances.

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. The federal provision for 100% bonus depreciation generally applies to property placed in service before January 1, 2012. The placed in service deadline is extended to January 1, 2013 for property that exceeds $1 million, has a production period longer than one year and has a tax life of at least ten years.

(b) During the three months ended March 31, 2011, PPL recorded a $7 million federal income tax benefit related to U.K. pension contributions.

(c) During the three months ended March 31, 2012, PPL recorded an $11 million adjustment related to state deferred tax liabilities.

(d) During the three months ended March 31, 2012, PPL recorded an adjustment to deferred taxes related to net operating loss carryforwards of LKE.

Unrecognized Tax Benefits

Changes to unrecognized tax benefits were as follows:

		Three Months Ended March 31,
		2012		2011
PPL
	Beginning of period	$	145	$	251
	Additions based on tax positions of prior years		4
	Reductions based on tax positions of prior years		(27)
	Additions based on tax positions related to the current year		1
	Reductions based on tax positions related to the current year				(1)
	Lapse of applicable statutes of limitations		(2)		(2)
	Effects of foreign currency translation				3
	End of period	$	121	$	251

PPL Energy Supply
	Beginning of period	$	28	$	183
	Additions based on tax positions of prior years		4
	Reductions based on tax positions of prior years		(1)
	Derecognition (a)				(155)
	End of period	$	31	$	28

PPL Electric
	Beginning of period	$	73	$	62
	Reductions based on tax positions of prior years		(26)
	Additions based on tax positions related to the current year		1
	Reductions based on tax positions related to the current year				(1)
	Lapse of applicable statutes of limitations		(2)		(2)
	End of period	$	46	$	59

At March 31, 2012, 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 reasonably possible over the next 12 months.

	Increase		Decrease

PPL	$	17	$	111
PPL Energy Supply		1		31
PPL Electric		23		39

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

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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PPL Energy Supply

PPL Electric