Income Taxes

9 Months Ended

Sep. 30, 2015

5. Income Taxes

Reconciliations of income taxes for the periods ended September 30 are as follows.

(PPL)

				Three Months				Nine Months
				2015		2014		2015		2014

Federal income tax on Income from Continuing Operations Before
	Income Taxes at statutory tax rate - 35%			$	189	$	214	$	571	$	547
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			15		13		44		28
		Valuation allowance adjustments (a)					3		8		49
		Impact of lower U.K. income tax rates			(40)		(48)		(138)		(124)
		U.S. income tax on foreign earnings - net of foreign tax credit (b)					26		(1)		47
		Federal and state tax reserve adjustments (c)			(9)				(21)
		Foreign income tax return adjustments							(4)
		Amortization of investment tax credit			(1)		1		(3)		(3)
		Depreciation not normalized			(1)		(3)		(4)		(7)
		Intercompany interest on U.K. financing entities			(4)				(15)		(4)
		Other			(5)		(5)		(5)		1
			Total increase (decrease)		(45)		(13)		(139)		(13)
Total income taxes				$	144	$	201	$	432	$	534

(a) As a result of the 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 spinoff.

(b) During the three and nine months ended September 30, 2015, PPL recorded lower income tax expense due to a decrease in taxable dividends.

(c) During the three and nine months ended September 30, 2015, PPL recorded a $9 million tax benefit related to a planned amendment of a prior period tax return.

During the nine months ended September 30, 2015, PPL recorded a $12 million tax benefit to adjust the settled refund amount approved by the Joint Committee of Taxation for the open audit years 1998-2011.

(PPL Electric)

				Three Months				Nine Months
				2015		2014		2015		2014

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	32	$	33	$	112	$	110
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			7		5		21		17
		Depreciation not normalized			(1)		(2)		(3)		(5)
		Other			(3)		1				(1)
			Total increase (decrease)		3		4		18		11
Total income taxes				$	35	$	37	$	130	$	121

(LKE)

				Three Months				Nine Months
				2015		2014		2015		2014

Federal income tax on Income from Continuing Operations Before
	Income Taxes at statutory tax rate - 35%			$	68	$	51	$	172	$	153
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			7		6		18		16
		Amortization of investment tax credit			(1)		(1)		(2)		(3)
		Valuation allowance adjustment (a)							8
		Other			(1)		(1)		(2)		(1)
			Total increase (decrease)		5		4		22		12
Total income taxes				$	73	$	55	$	194	$	165

(a) Represents a valuation allowance against tax credits expiring in 2016 and 2017 that are more likely than not to expire before being utilized.

(LG&E)

				Three Months				Nine Months
				2015		2014		2015		2014

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	33	$	26	$	83	$	74
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			4		3		9		8
		Other			(1)		(2)		(1)		(4)
			Total increase (decrease)		3		1		8		4
Total income taxes				$	36	$	27	$	91	$	78

(KU)

				Three Months				Nine Months
				2015		2014		2015		2014

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	41	$	32	$	106	$	98
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			4		3		11		10
		Other			(1)		(1)		(2)		(2)
			Total increase (decrease)		3		2		9		8
Total income taxes				$	44	$	34	$	115	$	106

Unrecognized Tax Benefits (PPL)

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

		Three Months				Nine Months
		2015		2014		2015		2014
PPL
	Beginning of period	$	5	$	21	$	20	$	22
	Additions based on tax positions of prior years								1
	Reductions based on tax positions of prior years								(2)
	Settlements						(15)
	End of period	$	5	$	21	$	5	$	21

Other (PPL)

In February 2015, PPL and the IRS Appeals division reached a settlement on the amount of PPL's refund from its open audits for the years 1998 – 2011. In April 2015, PPL was notified that the Joint Committee on Taxation approved PPL's settlement. For the nine months ended September 30, 2015, PPL recorded a tax benefit of $24 million. Of this amount, $12 million is reflected in continuing operations.