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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2012

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

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

(PPL)

				Three Months				Nine Months
				2012		2011		2012		2011
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before
		Income Taxes at statutory tax rate - 35%		$	130	$	196	$	539	$	518
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				6		8		38		47
	State valuation allowance adjustments (a)				2				2		11
	Impact of lower U.K. income tax rates (b)				(30)		(12)		(75)		(31)
	U.S. income tax on foreign earnings - net of foreign tax credit (c)				1		(10)		2		(25)
	Federal and state tax reserve adjustments				(2)		4		(7)		1
	Foreign tax reserve adjustments (d)						2		(5)		2
	Enactment of the U.K.'s Finance Acts 2012 and 2011 (b)				(74)		(69)		(74)		(69)
	Federal income tax credits				(5)		(4)		(12)		(11)
	Amortization of investment tax credit				(2)		(2)		(7)		(6)
	Depreciation not normalized (a)				(2)		(1)		(6)		(7)
	State deferred tax rate change (e)				(6)				(17)
	Net operating loss carryforward adjustments (f)								(9)
	Nondeductible acquisition-related costs (g)						1				9
	Other				(1)		(3)		(5)		(10)
			Total increase (decrease)		(113)		(86)		(175)		(89)
Total income taxes from continuing operations				$	17	$	110	$	364	$	429

(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 tax purposes. Due to the decrease in projected taxable income related to bonus depreciation, PPL recorded state deferred income tax expense during the nine months ended September 30, 2011 related to valuation allowances.

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. The federal provision for 100% bonus depreciation generally applies to property placed into service before January 1, 2012. The placed in-service deadline is extended to January 1, 2013 for property that exceeds $1 million, has a production period longer than one year and has a tax life of at least ten years.

(b) The U.K. Finance Act of 2012, enacted in July 2012, reduced the U.K. statutory income tax rate from 25% to 24% retroactive to April 1, 2012 and from 24% to 23% effective April 1, 2013. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2012 related to both rate decreases.

The U.K. Finance Act of 2011, enacted in July 2011, reduced the U.K. statutory income tax rate from 27% to 26% retroactive to April 1, 2011 and 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 related to both rate decreases.

(c) 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.

(d) During the nine months ended September 30, 2012, PPL recorded a tax benefit following resolution of a U.K. tax issue related to interest expense.

(e) During the three and nine months ended September 30, 2012, PPL recorded adjustments related to state deferred tax liabilities.

(f) During the nine months ended September 30, 2012, PPL recorded adjustments to deferred taxes related to net operating loss carryforwards of LKE based on income tax return adjustments.

(g) During the three and nine months ended September 30, 2011, PPL recorded non-deductible acquisition-related costs (primarily the U.K. stamp duty tax) associated with its acquisition of WPD Midlands.

Unrecognized Tax Benefits

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

		Three Months				Nine Months
		2012		2011		2012		2011
PPL
	Beginning of period	$	113	$	250	$	145	$	251
	Additions based on tax positions of prior years		2		1		6		2
	Reductions based on tax positions of prior years				(14)		(31)		(14)
	Additions based on tax positions related to the current year				4				4
	Reductions based on tax positions related to the current year		(1)		(1)		(2)		(3)
	Lapse of applicable statutes of limitations		(2)		(3)		(6)		(8)
	Effects of foreign currency translation				(2)				3
	End of period (a)	$	112	$	235	$	112	$	235

PPL Energy Supply
	Beginning of period	$	31	$	28	$	28	$	183
	Additions based on tax positions of prior years						4
	Reductions based on tax positions of prior years						(1)
	Derecognize unrecognized tax benefits (b)								(155)
	End of period	$	31	$	28	$	31	$	28

PPL Electric
	Beginning of period	$	43	$	56	$	73	$	62
	Reductions based on tax positions of prior years		(1)				(28)
	Additions based on tax positions related to the current year						1
	Reductions based on tax positions related to the current year								(1)
	Lapse of applicable statutes of limitations		(2)		(3)		(6)		(8)
	End of period	$	40	$	53	$	40	$	53

(a) Unrecognized tax benefits at September 30, 2011 included $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, capital loss carryforwards were increased. PPL reversed the unrecognized tax benefit and recorded a deferred tax asset in the fourth quarter of 2011. Simultaneously, PPL recorded a valuation allowance against the deferred tax asset related to the increase in capital loss carryforwards.

At September 30, 2012, 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	$	21	$	105
PPL Energy Supply		1		31
PPL Electric		22		38

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

PPL Energy Supply LLC [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

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

(PPL Energy Supply)

				Three Months				Nine Months
				2012		2011		2012		2011
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before
		Income Taxes at statutory tax rate - 35%		$	25	$	96	$	205	$	272
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				1		11		25		38
	State valuation allowance adjustments (a)				2				2		6
	Federal and state tax reserve adjustments						1				2
	Federal income tax credits				(4)		(5)		(10)		(11)
	State deferred tax rate change (b)				(6)				(17)
	Other				(2)		1		(3)		(2)
			Total increase (decrease)		(9)		8		(3)		33
Total income taxes from continuing operations				$	16	$	104	$	202	$	305

(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 tax purposes. Due to the decrease in projected taxable income related to bonus depreciation, PPL Energy Supply recorded state deferred income tax expense during the nine months ended September 30, 2011 related to valuation allowances on state net operating loss carryforwards.

(b) During the three and nine months ended September 30, 2012, PPL Energy Supply recorded adjustments related to state deferred tax liabilities.

Unrecognized Tax Benefits

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

		Three Months				Nine Months
		2012		2011		2012		2011
PPL
	Beginning of period	$	113	$	250	$	145	$	251
	Additions based on tax positions of prior years		2		1		6		2
	Reductions based on tax positions of prior years				(14)		(31)		(14)
	Additions based on tax positions related to the current year				4				4
	Reductions based on tax positions related to the current year		(1)		(1)		(2)		(3)
	Lapse of applicable statutes of limitations		(2)		(3)		(6)		(8)
	Effects of foreign currency translation				(2)				3
	End of period (a)	$	112	$	235	$	112	$	235

PPL Energy Supply
	Beginning of period	$	31	$	28	$	28	$	183
	Additions based on tax positions of prior years						4
	Reductions based on tax positions of prior years						(1)
	Derecognize unrecognized tax benefits (b)								(155)
	End of period	$	31	$	28	$	31	$	28

PPL Electric
	Beginning of period	$	43	$	56	$	73	$	62
	Reductions based on tax positions of prior years		(1)				(28)
	Additions based on tax positions related to the current year						1
	Reductions based on tax positions related to the current year								(1)
	Lapse of applicable statutes of limitations		(2)		(3)		(6)		(8)
	End of period	$	40	$	53	$	40	$	53

(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 9 in PPL Energy Supply's 2011 Form 10-K for additional information on the distribution.

At September 30, 2012, 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	$	21	$	105
PPL Energy Supply		1		31
PPL Electric		22		38

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

PPL Electric Utilities Corp [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

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

(PPL Electric)

				Three Months				Nine Months
				2012		2011		2012		2011
Reconciliation of Income Tax Expense
	Federal income tax on Income Before Income Taxes at statutory
		tax rate - 35%		$	17	$	16	$	51	$	64
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				2		2		7		9
	Federal and state tax reserve adjustments				(2)		(2)		(5)		(6)
	Federal and state income tax return adjustments (a)										(2)
	Depreciation not normalized (a)				(1)		(1)		(5)		(6)
	Other						(1)		(1)		(3)
			Total increase (decrease)		(1)		(2)		(4)		(8)
Total income taxes				$	16	$	14	$	47	$	56

(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 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. The federal provision for 100% bonus depreciation generally applies to property placed in service before January 1, 2012.

Unrecognized Tax Benefits

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

		Three Months				Nine Months
		2012		2011		2012		2011
PPL
	Beginning of period	$	113	$	250	$	145	$	251
	Additions based on tax positions of prior years		2		1		6		2
	Reductions based on tax positions of prior years				(14)		(31)		(14)
	Additions based on tax positions related to the current year				4				4
	Reductions based on tax positions related to the current year		(1)		(1)		(2)		(3)
	Lapse of applicable statutes of limitations		(2)		(3)		(6)		(8)
	Effects of foreign currency translation				(2)				3
	End of period (a)	$	112	$	235	$	112	$	235

PPL Energy Supply
	Beginning of period	$	31	$	28	$	28	$	183
	Additions based on tax positions of prior years						4
	Reductions based on tax positions of prior years						(1)
	Derecognize unrecognized tax benefits (b)								(155)
	End of period	$	31	$	28	$	31	$	28

PPL Electric
	Beginning of period	$	43	$	56	$	73	$	62
	Reductions based on tax positions of prior years		(1)				(28)
	Additions based on tax positions related to the current year						1
	Reductions based on tax positions related to the current year								(1)
	Lapse of applicable statutes of limitations		(2)		(3)		(6)		(8)
	End of period	$	40	$	53	$	40	$	53

At September 30, 2012, 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	$	21	$	105
PPL Energy Supply		1		31
PPL Electric		22		38

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

LG And E And KU Energy LLC [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

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

(LKE)

				Three Months				Nine Months
				2012		2011		2012		2011
Reconciliation of Income Tax Expense
	Federal income tax on Income from Continuing Operations Before
		Income Taxes at statutory tax rate - 35%		$	46	$	50	$	96	$	120
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				5		4		7		11
	Amortization of investment tax credit				(1)		(1)		(4)		(4)
	Net operating loss carryforward adjustments (a)								(9)
	Other				(2)		(1)		(1)		(2)
			Total increase (decrease)		2		2		(7)		5
Total income taxes from continuing operations				$	48	$	52	$	89	$	125

(a) During the nine months ended September 30, 2012, LKE recorded adjustments to deferred taxes related to net operating loss carryforwards based on income tax return adjustments.

Louisville Gas And Electric Co [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

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

(LG&E)

				Three Months				Nine Months
				2012		2011		2012		2011
Reconciliation of Income Tax Expense
	Federal income tax on Income Before Income Taxes at statutory
		tax rate - 35%		$	24	$	23	$	52	$	56
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				2		2		5		5
	Other				(1)		(1)		(3)		(3)
			Total increase (decrease)		1		1		2		2
Total income taxes				$	25	$	24	$	54	$	58

Kentucky Utilities Co [Member]

Income Taxes [Line Items]

Reconciliation of Income Tax Expense Derived From Statutory Tax Rate

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

(KU)

				Three Months				Nine Months
				2012		2011		2012		2011
Reconciliation of Income Tax Expense
	Federal income tax on Income Before Income Taxes at statutory
		tax rate - 35%		$	28	$	31	$	66	$	79
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit				3		3		6		7
	Other				(1)		(2)		(2)		(4)
			Total increase (decrease)		2		1		4		3
Total income taxes				$	30	$	32	$	70	$	82

- 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