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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2011

Notes To Financial Statements [Abstract]

Reconciliation of Income Taxes From Continuing Operations

Reconciliations of income tax expense for the periods ended September 30 are:

(PPL)

				Three Months				Nine 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%		$	196	$	114	$	518	$	277
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				8		17		47		32
	State valuation allowance adjustments (a)								11		(8)
	Impact of lower U.K. income tax rates				(12)		(8)		(31)		(15)
	U.S. income tax on foreign earnings - net of foreign tax credit (b)				(10)		(8)		(25)		(14)
	Federal and state tax reserve adjustments (c)				4		(52)		1		(59)
	Foreign tax reserve adjustments (d)				2		24		2		46
	Domestic manufacturing deduction (e)						(12)				(24)
	Health Care Reform (f)										8
	Foreign losses resulting from restructuring (d)						(27)				(52)
	Enactment of the U.K.'s Finance Act of 2011 and 2010 (g)				(69)		(19)		(69)		(19)
	Federal income tax credits				(4)		(4)		(11)		(8)
	Amortization of investment tax credit				(2)				(6)		(2)
	Depreciation not normalized (a)				(1)		(1)		(7)		(1)
	Nondeductible acquisition-related costs (h)				1				9
	Other				(3)		(5)		(10)		(9)
			Total increase (decrease)		(86)		(95)		(89)		(125)
Total income taxes from continuing operations				$	110	$	19	$	429	$	152

(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 by $11 million in the first quarter of 2011.

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) During the three and nine months ended September 30, 2011, PPL recorded a $7 million and $21 million federal income tax benefit related to U.K. pension contributions.

(c) In 1997, the U.K. imposed a Windfall Profits Tax on privatized utilities, including WPD. In September 2010, the U.S. Tax Court ruled in PPL's favor in a pending dispute with the IRS, concluding that the U.K. Windfall Profits Tax is a creditable tax for U.S. tax purposes. As a result and with the finalization of other issues, PPL recorded a $42 million tax benefit which impacted federal and state income tax reserves and related deferred income taxes during the third quarter of 2010. In January 2011, the IRS appealed the U.S. Tax Court's decision to the U.S. Court of Appeals for the Third Circuit.

In July 2010, the U.S. Tax Court ruled in PPL's favor in a pending dispute with the IRS, concluding that street lighting assets of PPL Electric are depreciable for tax purposes over seven years. As a result, PPL recorded a $7 million tax benefit to federal and state income tax reserves and related deferred income taxes in the third quarter of 2010.

See "Tax Litigation" below for additional information.

(d) During the three and nine months ended September 30, 2010, PPL recorded $27 million and $52 million in foreign tax benefits and related adjustments to foreign tax reserves of $24 and $46 million 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.

(e) 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.

(f) 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 recorded deferred income tax expense in the first quarter of 2010. See Note 9 for additional information.

(g) The U.K.'s Finance Act of 2011, enacted in July 2011, included reductions in the U.K. statutory income tax rate. The statutory income tax rate was reduced from 27% to 26% retroactive to April 1, 2011 and will be reduced from 26% to 25% effective April 1, 2012. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2011 to comprehend both rate decreases.

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%. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2010.

(h) During the three and nine months ended September 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.

Unrecognized Tax Benefits

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

		Three Months				Nine Months
		2011		2010		2011		2010
PPL
	Beginning of period	$	250	$	224	$	251	$	212
	Additions based on tax positions of prior years		1				2		4
	Reductions based on tax positions of prior years		(14)		(50)		(14)		(56)
	Additions based on tax positions related to the current year		4		13		4		43
	Reductions based on tax positions related to the current year		(1)		(1)		(3)		(6)
	Settlements				(11)				(12)
	Lapse of applicable statutes of limitation		(3)		(2)		(8)		(6)
	Effects of foreign currency translation		(2)		5		3		(1)
	End of period (a)	$	235	$	178	$	235	$	178

PPL Energy Supply
	Beginning of period	$	28	$	142	$	183	$	124
	Additions based on tax positions of prior years								2
	Reductions based on tax positions of prior years				(43)				(47)
	Additions based on tax positions related to the current year				13				43
	Reductions based on tax positions related to the current year								(3)
	Settlements								(1)
	Derecognize unrecognized tax benefits (b)						(155)
	Effects of foreign currency translation				5				(1)
	End of period	$	28	$	117	$	28	$	117

PPL Electric
	Beginning of period	$	56	$	68	$	62	$	74
	Additions based on tax positions of prior years								2
	Reductions based on tax positions of prior years				(7)				(9)
	Reductions based on tax positions related to the current year				(1)		(1)		(3)
	Lapse of applicable statutes of limitation		(3)		(2)		(8)		(6)
	End of period	$	53	$	58	$	53	$	58

(a) Unrecognized tax benefits at September 30, 2011 include $146 million of U.K. capital losses related to positions previously recorded on U.K. income tax returns. In October 2011, the U.K. tax authority accepted these capital loss positions. As a result, in the fourth quarter of 2011, PPL expects to reverse this unrecognized tax benefit and expects to record a valuation allowance for this amount against the deferred tax asset that results from an increase in capital loss carry forwards.

(b) 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.

At September 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.

	Increase		Decrease

PPL	$	23	$	216
PPL Energy Supply				26
PPL Electric		26		41

At September 30, the total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective tax rate were as follows.

- 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

PPL Electric