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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2013

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

Reconciliations of income taxes for the periods ended September 30 are:

(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.

Unrecognized Tax Benefits

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

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.

	Increase		Decrease

PPL	$	16	$	30
PPL Energy Supply				15
PPL Electric		16		8

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 Energy Supply LLC [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

Reconciliations of income taxes for the periods ended September 30 are:

(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.

Unrecognized Tax Benefits

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

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.

	Increase		Decrease

PPL	$	16	$	30
PPL Energy Supply				15
PPL Electric		16		8

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 Electric Utilities Corp [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

Reconciliations of income taxes for the periods ended September 30 are:

(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

Unrecognized Tax Benefits

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

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.

	Increase		Decrease

PPL	$	16	$	30
PPL Energy Supply				15
PPL Electric		16		8

LG And E And KU Energy LLC [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

Reconciliations of income taxes for the periods ended September 30 are:

(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.

Louisville Gas And Electric Co [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

Reconciliations of income taxes for the periods ended September 30 are:

(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

Kentucky Utilities Co [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

Reconciliations of income taxes for the periods ended September 30 are:

(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

- 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.

+ References+ Details

PPL Energy Supply