(PPL)

				Three Months				Six Months
				2011		2010		2011		2010
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before
		Income Taxes at statutory tax rate - 35%		$	104	$	32	$	323	$	163
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				14		1		39		15
	State valuation allowance adjustments (a)								11		(8)
	Impact of lower U.K. income tax rates (b)				(11)		(3)		(19)		(7)
	U.S. income tax on foreign earnings - net of foreign tax credit (c)				(9)		(8)		(15)		(6)
	Federal and state tax reserve adjustments (d)				(2)		1		(3)		(7)
	Foreign tax reserve adjustments (e)						22				22
	Domestic manufacturing deduction (f)						(8)				(12)
	Health Care Reform (g)										8
	Foreign losses resulting from restructuring (e)						(25)				(25)
	Federal income tax credits				(2)		(2)		(7)		(4)
	Amortization of investment tax credit				(1)		(1)		(4)		(2)
	Depreciation not normalized (a)				(2)				(6)
	Nondeductible acquisition-related costs (h)				8				8
	Other				(3)		(2)		(8)		(4)
			Total increase (decrease)		(8)		(25)		(4)		(30)
Total income taxes from continuing operations				$	96	$	7	$	319	$	133

(a) In February 2011, the Pennsylvania Department of Revenue issued interpretive guidance on the treatment of bonus depreciation for Pennsylvania income tax purposes. In accordance with Corporation Tax Bulletin 2011-01, Pennsylvania allows 100% bonus depreciation for qualifying assets in the same year bonus depreciation is allowed for federal income tax purposes. Due to the reduction in projected Pennsylvania taxable income for tax years 2011 and 2012 related to the 100% bonus depreciation deduction, PPL adjusted its deferred tax valuation allowances for Pennsylvania net operating losses. As a result, during the six months ended June 30, 2011 PPL recorded $11 million of deferred income tax expense.

Additionally, the 100% Pennsylvania bonus depreciation deduction created a current state income tax benefit for the flow-through impact of Pennsylvania regulated state tax depreciation.

(b) The U.K.'s Finance Act of 2010, enacted in July 2010, included a reduction in the U.K. statutory income tax rate. Effective April 1, 2011, the statutory income tax rate was reduced from 28% to 27%.

(c) During the three and six months ended June 30, 2011, PPL recorded a $7 million and $14 million federal income tax benefit related to U.K. pension contributions.

(d) During the six months ended June 30, 2010, PPL recorded a $6 million federal income tax benefit related to claims associated with foreign earnings.

(e) During the three and six months ended June 30, 2010, PPL recorded a $25 million foreign tax benefit and a related $22 million foreign tax reserve in conjunction with losses resulting from restructuring in the U.K. These losses offset tax on a deferred gain from a prior year sale of WPD's supply business.

(f) In December 2010, Congress enacted legislation allowing for 100% bonus depreciation on qualified property. The increased tax depreciation eliminates the estimated income tax benefit related to the domestic manufacturing deduction in 2011.

(g) Beginning in 2013, provisions within Health Care Reform eliminated the tax deductibility of retiree health care costs to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D Coverage. As a result, PPL recorded deferred income tax expense in the first quarter of 2010. See Note 9 for additional information.

(h) During the three and six months ended June 30, 2011, PPL recorded nondeductible acquisition-related costs (primarily the U.K. stamp duty tax) associated with its acquisition of WPD Midlands. See Note 8 for additional information on the acquisition.

In July 2011, the U.K. Finance Act 2011 was enacted. The most significant change to the law was a reduction in the U.K.'s statutory income tax rate. The statutory tax rate was changed from 27% to 26%, effective April 1, 2011 and from 26% to 25%, effective April 1, 2012. As a result of these changes, PPL expects to record a deferred tax benefit in the range of $65 million to $75 million in the third quarter of 2011.

(PPL Energy Supply)

				Three Months				Six Months
				2011		2010		2011		2010
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before
		Income Taxes at statutory tax rate - 35%		$	52	$	10	$	176	$	82
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				10		1		27		12
	State valuation allowance adjustments (a)								6
	Domestic manufacturing deduction (b)						(8)				(12)
	Health Care Reform (c)										5
	Federal income tax credits				(1)		(1)		(6)		(3)
	Other				(2)		1		(2)		1
			Total increase (decrease)		7		(7)		25		3
Total income taxes from continuing operations				$	59	$	3	$	201	$	85

(a) In February 2011, the Pennsylvania Department of Revenue issued interpretive guidance on the treatment of bonus depreciation for Pennsylvania income tax purposes. In accordance with Corporation Tax Bulletin 2011-01, Pennsylvania allows 100% bonus depreciation for qualifying assets in the same year bonus depreciation is allowed for Federal income tax purposes. Due to the reduction in projected Pennsylvania taxable income for tax years 2011 and 2012 related to the 100% bonus depreciation deduction, PPL Energy Supply adjusted its deferred tax valuation allowances for Pennsylvania net operating losses. As a result, during the six months ended June 30, 2011, PPL Energy Supply recorded $6 million of deferred income tax expense.

(b) In December 2010, Congress enacted legislation allowing for 100% bonus depreciation on qualified property. The increased tax depreciation eliminates the estimated tax benefit related to the domestic manufacturing deduction in 2011.

(c) Beginning in 2013, provisions within Health Care Reform eliminated the income tax deductibility of retiree health care costs to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D Coverage. As a result, PPL Energy Supply recorded deferred income tax expense in the first quarter of 2010. See Note 9 for additional information.

(PPL Electric)

				Three Months				Six Months
				2011		2010		2011		2010
Reconciliation of Income Tax Expense
	Federal income tax on Income Before Income Taxes at statutory
		tax rate - 35%		$	21	$	12	$	48	$	34
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				3		1		7		4
	Federal and state tax reserve adjustments				(2)		(2)		(4)		(4)
	Federal and state income tax return adjustments								(2)
	Depreciation not normalized (a)				(2)				(5)
	Other				(1)				(2)		(2)
			Total increase (decrease)		(2)		(1)		(6)		(2)
Total income taxes				$	19	$	11	$	42	$	32

(a) In February 2011, the Pennsylvania Department of Revenue issued interpretive guidance on the treatment of bonus depreciation for Pennsylvania income tax purposes. In accordance with Corporation Tax Bulletin 2011-01, Pennsylvania allows 100% bonus depreciation for qualifying assets in the same year bonus depreciation is allowed for Federal income tax purposes. The 100% Pennsylvania bonus depreciation deduction created a current state income tax benefit for the flow-through impact of Pennsylvania regulated state tax depreciation.

(LKE)

				Three Months				Six Months
				2011		2010		2011		2010
				Successor		Predecessor		Successor		Predecessor
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before
		Income Taxes at statutory tax rate - 35%		$	23	$	16	$	70	$	51
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				2				7		4
	Other				(1)		(1)		(4)		(2)
			Total increase (decrease)		1		(1)		3		2
Total income taxes from continuing operations				$	24	$	15	$	73	$	53

(LG&E)

				Three Months				Six Months
				2011		2010		2011		2010
				Successor		Predecessor		Successor		Predecessor
Reconciliation of Income Tax Expense
	Federal income tax on Income Before Income Taxes at statutory
		tax rate - 35%		$	11	$	7	$	33	$	25
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				1		1		3		2
	Other						(1)		(2)		(2)
			Total increase (decrease)		1				1
Total income taxes				$	12	$	7	$	34	$	25

(KU)

				Three Months				Six Months
				2011		2010		2011		2010
				Successor		Predecessor		Successor		Predecessor
Reconciliation of Income Tax Expense
	Federal income tax on Income Before Income Taxes at statutory
		tax rate - 35%		$	17	$	17	$	48	$	42
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				2		2		4		4
	Other				(1)		(1)		(2)		(2)
			Total increase (decrease)		1		1		2		2
Total income taxes				$	18	$	18	$	50	$	44

Unrecognized Tax Benefits (PPL, PPL Energy Supply, PPL Electric, LKE, LG&E and KU)

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

		Three Months				Six Months
		2011		2010		2011		2010
PPL
	Beginning of period	$	251	$	201	$	251	$	212
	Additions based on tax positions of prior years		1		2		1		4
	Reductions based on tax positions of prior years								(6)
	Additions based on tax positions related to the current year				30				30
	Reductions based on tax positions related to the current year		(1)				(2)		(5)
	Settlements				(5)				(1)
	Lapse of applicable statutes of limitations		(3)		(2)		(5)		(4)
	Effects of foreign currency translation		2		(2)		5		(6)
	End of period	$	250	$	224	$	250	$	224

PPL Energy Supply
	Beginning of period	$	28	$	115	$	183	$	124
	Additions based on tax positions of prior years				2				2
	Reductions based on tax positions of prior years								(4)
	Additions based on tax positions related to the current year				30				30
	Reductions based on tax positions related to the current year				(3)				(3)
	Settlements								(1)
	Derecognition (a)						(155)
	Effects of foreign currency translation				(2)				(6)
	End of period	$	28	$	142	$	28	$	142

PPL Electric
	Beginning of period	$	59	$	72	$	62	$	74
	Additions based on tax positions of prior years								2
	Reductions based on tax positions of prior years								(2)
	Reductions based on tax positions related to the current year				(2)		(1)		(2)
	Lapse of applicable statutes of limitations		(3)		(2)		(5)		(4)
	End of period	$	56	$	68	$	56	$	68

(a) Represents unrecognized tax benefits derecognized as a result of PPL Energy Supply's distribution of its membership interest in PPL Global to PPL Energy Supply's parent, PPL Energy Funding. See Note 8 for additional information on the distribution.

LKE's, LG&E's and KU's unrecognized tax benefits and changes in those unrecognized tax benefits are insignificant for the three and six months ended June 30, 2011 and 2010.

At June 30, 2011, 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. For LKE, LG&E and KU, no significant changes in unrecognized tax benefits are projected over the next 12 months.

These 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.

At June 30, the total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective tax rate were as follows. The amounts for LKE, LG&E and KU were insignificant.

In January 2011, the IRS appealed, to the U.S. Court of Appeals for the Third Circuit, the U.S. Tax Court's decision that the 1997 U.K. Windfall Profits Tax (WPT) is a creditable tax for U.S. Federal income tax purposes. In its decision, the Tax Court ruled on two issues: (1) the 1997 U.K. WPT imposed on all U.K. privatized utilities, including PPL's U.K. subsidiary, was creditable against the Company's U.S. income taxes; and (2) PPL Electric's street lighting assets could be depreciated for tax purposes over seven years as permitted for "property without a class life" instead of the 20-year depreciation recovery period argued by the IRS. The IRS is not appealing the street lighting decision. PPL filed its tax returns for 1997 and all intervening years on the basis that the WPT was creditable and that the appropriate tax depreciable life for its street lighting assets was seven years. Therefore, the cash benefit resulting from these items has already been realized. PPL cannot predict the outcome of this matter.