Income Taxes

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



(PPL)
	Three Months						Nine Months
	2016			2015			2016			2015
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 35%	$	214		$	189		$	681		$	571
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	13			15			37			44
Valuation allowance adjustments	4			—			13			8
Impact of lower U.K. income tax rates	(37		)	(40		)	(136		)	(138		)
Federal and state tax reserve adjustments (a)	—			(9		)	—			(21		)
Enactment of the U.K. Finance Act 2016 (b)	(42		)	—			(42		)	—
Depreciation not normalized	—			—			(6		)	(4		)
Interest benefit on U.K. financing entities	(4		)	(4		)	(13		)	(15		)
Stock-based compensation (c)	(1		)	—			(12		)	—
Other	(8		)	(7		)	(12		)	(13		)
Total increase (decrease)	(75		)	(45		)	(171		)	(139		)
Total income taxes	$	139		$	144		$	510		$	432


(a)	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 on Taxation for the open audit years 1998 - 2011.


(b)	The U.K. Finance Act 2016, enacted in September 2016, reduces the U.K. statutory income tax rate effective April 1, 2020 from 18% to 17%. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit during the three and nine months ended September 30, 2016.


(c)	During the three and nine months ended September 30, 2016, PPL recorded lower income tax expense related to the application of new stock-based compensation accounting guidance. See Note 2 for additional information.



(PPL Electric)
	Three Months						Nine Months
	2016			2015			2016			2015
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	52		$	32		$	149		$	112
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	9			7			27			21
Depreciation not normalized	(2		)	(1		)	(5		)	(3		)
Stock-based compensation (a)	—			—			(7		)	—
Other	(1		)	(3		)	(2		)	—
Total increase (decrease)	6			3			13			18
Total income taxes	$	58		$	35		$	162		$	130


(a)	During the nine months ended September 30, 2016, PPL Electric recorded lower income tax expense related to the application of new stock-based compensation accounting guidance. See Note 2 for additional information.



(LKE)
	Three Months						Nine Months
	2016			2015			2016			2015
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	74		$	68		$	189		$	172
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	8			7			20			18
Amortization of investment tax credit	(1		)	(1		)	(2		)	(2		)
Valuation allowance adjustments (a)	—			—			—			8
Stock-based compensation	(1		)	—			(2		)	—
Other	(1		)	(1		)	(3		)	(2		)
Total increase (decrease)	5			5			13			22
Total income taxes	$	79		$	73		$	202		$	194


(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
	2016			2015			2016			2015
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	36		$	33		$	90		$	83
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	4			4			10			9
Other	(1		)	(1		)	(2		)	(1		)
Total increase (decrease)	3			3			8			8
Total income taxes	$	39		$	36		$	98		$	91



(KU)
	Three Months						Nine Months
	2016			2015			2016			2015
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	44		$	41		$	117		$	106
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	5			4			12			11
Other	(1		)	(1		)	(1		)	(2		)
Total increase (decrease)	4			3			11			9
Total income taxes	$	48		$	44		$	128		$	115

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 was reflected in continuing operations. PPL finalized the settlement of interest in the second quarter of 2016 and recorded an additional $3 million tax benefit.