(PPL)

				Three Months				Nine Months
				2013		2012		2013		2012

Federal income tax on Income from Continuing Operations Before
	Income Taxes at statutory tax rate - 35%			$	173	$	130	$	550	$	539
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			12		6		29		38
		State valuation allowance adjustments (a)			38		2		38		2
		Impact of lower U.K. income tax rates (b)			(38)		(30)		(101)		(75)
		U.S. income tax on foreign earnings - net of foreign tax credit (c)			10		1		5		2
		Federal and state tax reserve adjustments (d)			(1)		(2)		(41)		(7)
		Foreign tax reserve adjustments			(2)				(2)		(5)
		Federal and state income tax return adjustments			(4)				(4)
		Enactment of the U.K.'s Finance Acts 2013 and 2012 (b)			(93)		(74)		(93)		(74)
		Federal income tax credits			(4)		(5)		(9)		(12)
		Amortization of investment tax credit			(1)		(2)		(6)		(7)
		Depreciation not normalized			(2)		(2)		(6)		(6)
		State deferred tax rate change (e)					(6)				(17)
		Net operating loss carryforward adjustments (f)									(9)
		Intercompany interest on U.K. financing entities (g)			(2)		(3)		(7)		(8)
		Other			(2)		2		(9)		3
			Total increase (decrease)		(89)		(113)		(206)		(175)
Total income taxes from continuing operations				$	84	$	17	$	344	$	364

(a) During the three and nine months ended September 30, 2013, PPL recorded an increase in state deferred income tax expense related to a deferred tax valuation allowance primarily due to a decrease in projected future taxable income 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 in the third quarter of 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 in the third quarter of 2012 related to both rate decreases.

(c) During the three and nine months ended September 30, 2013, PPL recorded a $10 million and $24 million increase to income tax expense primarily attributable to a revision in the expected taxable amount of cash repatriation in 2013.

During the nine months ended September 30, 2013, PPL recorded a tax benefit of $19 million 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.

(d) In 1997, the U.K. imposed a Windfall Profits Tax (WPT) on privatized utilities, including WPD. PPL filed its 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. 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 the fourth quarter of 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 the nine months ended September 30, 2013, of which $19 million relates to interest.

(e) During the three and nine months ended September 30, 2012, PPL recorded adjustments related to state deferred tax liabilities.

(f) During the nine months ended September 30, 2012, PPL recorded adjustments to deferred taxes related to net operating loss carryforwards of LKE based on income tax return adjustments.

(g) PPL recorded foreign income tax benefits related to interest expense on intercompany loans for which there was no domestic income tax expense.

(PPL Energy Supply)

				Three Months				Nine Months
				2013		2012		2013		2012
Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	70	$	25	$	98	$	205
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			7		1		10		25
		State valuation allowance adjustments			4		2		4		2
		Federal and state tax reserve adjustments (a)							6
		Federal income tax credits			(4)		(4)		(7)		(10)
		State deferred tax rate change (b)					(6)				(17)
		Other			(3)		(2)		(5)		(3)
			Total increase (decrease)		4		(9)		8		(3)
Total income taxes				$	74	$	16	$	106	$	202

(a) During the nine months ended September 30, 2013, PPL Energy Supply reversed $3 million in tax benefits related to a 2008 change in method of accounting for certain expenditures for tax purposes and recorded $4 million in federal tax reserves related to differences in over (under) payment interest rates applied to audit claims as a result of the U.S. Supreme Court decision related to Windfall Profits Tax.

(b) During the three and nine months ended September 30, 2012, PPL Energy Supply recorded adjustments related to state deferred tax liabilities.

(PPL Electric)

				Three Months				Nine Months
				2013		2012		2013		2012

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	27	$	17	$	85	$	51
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			5		2		13		7
		Federal and state tax reserve adjustments			(2)		(2)		(6)		(5)
		Depreciation not normalized			(2)		(1)		(6)		(5)
		Other			(2)				(3)		(1)
			Total increase (decrease)		(1)		(1)		(2)		(4)
Total income taxes				$	26	$	16	$	83	$	47

(LKE)

				Three Months				Nine Months
				2013		2012		2013		2012

Federal income tax on Income from Continuing Operations Before
	Income Taxes at statutory tax rate - 35%			$	56	$	46	$	144	$	96
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			6		5		14		7
		Amortization of investment tax credit			(1)		(1)		(3)		(4)
		Net operating loss carryforward adjustments (a)									(9)
		Other			(2)		(2)		(2)		(1)
			Total increase (decrease)		3		2		9		(7)
Total income taxes from continuing operations				$	59	$	48	$	153	$	89

(a) During the nine months ended September 30, 2012, LKE recorded adjustments to deferred taxes related to net operating loss carryforwards based on income tax return adjustments.

(LG&E)

				Three Months				Nine Months
				2013		2012		2013		2012

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	27	$	24	$	67	$	52
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			3		2		7		5
		Other			(3)		(1)		(5)		(3)
			Total increase (decrease)				1		2		2
Total income taxes				$	27	$	25	$	69	$	54

(KU)

				Three Months				Nine Months
				2013		2012		2013		2012

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	35	$	28	$	95	$	66
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			4		3		10		6
		Other			(3)		(1)		(4)		(2)
			Total increase (decrease)		1		2		6		4
Total income taxes				$	36	$	30	$	101	$	70

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

		Three Months				Nine Months
		2013		2012		2013		2012
PPL
	Beginning of period	$	36	$	113	$	92	$	145
	Additions based on tax positions of prior years				2				6
	Reductions based on tax positions of prior years						(26)		(31)
	Additions based on tax positions related to the current year						4
	Reductions based on tax positions related to the current year				(1)				(2)
	Settlements						(30)
	Lapse of applicable statutes of limitations		(5)		(2)		(9)		(6)
	End of period	$	31	$	112	$	31	$	112

PPL Energy Supply
	Beginning of period	$	15	$	31	$	30	$	28
	Additions based on tax positions of prior years								4
	Reductions based on tax positions of prior years						(15)		(1)
	End of period	$	15	$	31	$	15	$	31

PPL Electric
	Beginning of period	$	12	$	43	$	26	$	73
	Reductions based on tax positions of prior years				(1)		(10)		(28)
	Additions based on tax positions related to the current year								1
	Lapse of applicable statutes of limitations		(3)		(2)		(7)		(6)
	End of period	$	9	$	40	$	9	$	40

LKE's, LG&E's and KU's unrecognized tax benefits and changes in those unrecognized tax benefits were insignificant for the three and nine months ended September 30, 2013 and 2012.

At September 30, 2013, 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.

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.

For LKE, LG&E and KU, no significant changes in unrecognized tax benefits are projected over the next 12 months.

At September 30, the total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective income tax rate were as follows.

PPL changed its method of accounting for repair expenditures for tax purposes effective for its 2008 tax year for Pennsylvania operations. PPL made the same change for its Montana operations for the 2009 tax year. In 2011, the IRS issued guidance on repair expenditures related to network assets providing a safe harbor method of determining whether the repair expenditures can be currently deducted for tax purposes. On April 30, 2013, the IRS issued Revenue Procedure 2013-24 providing guidance to taxpayers to determine whether expenditures to maintain, replace or improve steam or electric generation property must be capitalized for tax purposes. The IRS may assert, and ultimately conclude, that PPL's deduction for generation-related expenditures should be less than the amount determined by PPL. PPL believes that it has established adequate reserves for this contingency.