Income Taxes

9 Months Ended

Sep. 30, 2014

5. Income Taxes

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

(PPL)

				Three Months				Nine Months
				2014		2013		2014		2013

Federal income tax on Income from Continuing Operations Before
	Income Taxes at statutory tax rate - 35%			$	264	$	170	$	543	$	535
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			27		11		21		27
		State valuation allowance adjustments (a)			3		38		49		38
		Impact of lower U.K. income tax rates (b)			(50)		(38)		(126)		(101)
		U.S. income tax on foreign earnings - net of foreign tax credit (c)			26		10		47		5
		Federal and state tax reserve adjustments (d)			(1)		(1)				(41)
		Federal and state income tax return adjustments			2		(4)		2		(4)
		Impact of the U.K. Finance Acts on deferred tax balances (b)					(93)				(93)
		Federal income tax credits					(3)		(3)		(8)
		Amortization of investment tax credit			(1)				(5)		(5)
		Depreciation not normalized			(3)		(2)		(7)		(6)
		Intercompany interest on U.K. financing entities			(2)		(2)		(6)		(7)
		Other					(5)		5		(11)
			Total increase (decrease)		1		(89)		(23)		(206)
Total income taxes				$	265	$	81	$	520	$	329

(a) As a result of the PPL Energy Supply spinoff announcement, PPL recorded deferred income tax expense during the three and nine months ended September 30, 2014 to adjust valuation allowances 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 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.'s Finance Act of 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.

(c) For the three and nine months ended September 30, 2014, PPL recorded $19 million and $40 million increases to income tax expense primarily attributable to the expected taxable amount of cash repatriation in 2014.

During the three and nine months ended September 30, 2013, PPL recorded $10 million and $24 million increases 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 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. In May 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.

(PPL Energy Supply)

				Three Months				Nine Months
				2014		2013		2014		2013
Federal income tax on Income from Continuing Operations Before
	Income Taxes at statutory tax rate - 35%			$	59	$	67	$	19	$	83
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			16		6		(3)		8
		State valuation allowance adjustments					4				4
		Federal and state tax reserve adjustments			(1)						6
		Federal income tax credits			(3)		(3)		(5)		(6)
		State deferred tax rate change							3
		Other			3		(3)		2		(4)
			Total increase (decrease)		15		4		(3)		8
Total income taxes				$	74	$	71	$	16	$	91

(PPL Electric)

				Three Months				Nine Months
				2014		2013		2014		2013

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	33	$	27	$	110	$	85
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			5		5		17		13
		Federal and state tax reserve adjustments					(2)		(1)		(6)
		Depreciation not normalized			(2)		(2)		(5)		(6)
		Other			1		(2)				(3)
			Total increase (decrease)		4		(1)		11		(2)
Total income taxes				$	37	$	26	$	121	$	83

(LKE)

				Three Months				Nine Months
				2014		2013		2014		2013

Federal income tax on Income from Continuing Operations Before
	Income Taxes at statutory tax rate - 35%			$	51	$	56	$	153	$	144
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			6		6		16		14
		Amortization of investment tax credit			(1)		(1)		(3)		(3)
		Other			(1)		(2)		(1)		(2)
			Total increase (decrease)		4		3		12		9
Total income taxes				$	55	$	59	$	165	$	153

(LG&E)

				Three Months				Nine Months
				2014		2013		2014		2013

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	26	$	27	$	74	$	67
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			3		3		8		7
		Other			(2)		(3)		(4)		(5)
			Total increase (decrease)		1				4		2
Total income taxes				$	27	$	27	$	78	$	69

(KU)

				Three Months				Nine Months
				2014		2013		2014		2013

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	32	$	35	$	98	$	95
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			3		4		10		10
		Other			(1)		(3)		(2)		(4)
			Total increase (decrease)		2		1		8		6
Total income taxes				$	34	$	36	$	106	$	101

- 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