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.
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