UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | |||||||||
| FORM | 10-K | ||||||||
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT | ||||||||
| OF 1934 for the fiscal year ended | December 31, | 2022 | |||||||
| OR | |||||||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT | ||||||||
| OF 1934 for the transition period from | _________ to ___________ | ||||||||
Commission File Number | Registrant; State of Incorporation; Address and Telephone Number | IRS Employer Identification No. | |||||||||
| 1-11459 | PPL Corporation | ||||||||||
(Exact name of Registrant as specified in its charter) | |||||||||||
Pennsylvania | |||||||||||
Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-2758192 | ||||||||||
| 1-905 | |||||||||||
PPL Electric Utilities Corporation | |||||||||||
(Exact name of Registrant as specified in its charter) | |||||||||||
Pennsylvania | |||||||||||
Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-0959590 | ||||||||||
| 1-2893 | |||||||||||
Louisville Gas and | |||||||||||
| Electric Company (Exact name of Registrant as specified in its charter) | |||||||||||
Kentucky | |||||||||||
220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 61-0264150 | ||||||||||
| 1-3464 | |||||||||||
Kentucky Utilities Company | |||||||||||
(Exact name of Registrant as specified in its charter) | |||||||||||
Kentucky and Virginia | |||||||||||
One Quality Street Lexington, KY 40507-1462 (502) 627-2000 | |||||||||||
| 61-0247570 | |||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s): | Name of each exchange on which registered | ||||||
| Common Stock of PPL Corporation | PPL | New York Stock Exchange | ||||||
| Junior Subordinated Notes of PPL Capital Funding, Inc. | ||||||||
| 2007 Series A due 2067 | PPL/67 | New York Stock Exchange | ||||||
Securities registered pursuant to Section 12(g) of the Act:
| Common Stock of PPL Electric Utilities Corporation | ||
Indicate by check mark if the registrants are a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
| PPL Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | No | |||||||||||||||
| Louisville Gas and Electric Company | Yes | ☐ | No | ☒ | |||||||||||||
| Kentucky Utilities Company | Yes | ☐ | No | ☒ | |||||||||||||
Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
| PPL Corporation | Yes | ☐ | No | ☒ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | ☐ | No | ☒ | |||||||||||||
| Louisville Gas and Electric Company | Yes | ☐ | No | ☒ | |||||||||||||
| Kentucky Utilities Company | Yes | ☐ | No | ☒ | |||||||||||||
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
| PPL Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| Louisville Gas and Electric Company | Yes | ☒ | No | ☐ | |||||||||||||
| Kentucky Utilities Company | Yes | ☒ | No | ☐ | |||||||||||||
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files).
| PPL Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| Louisville Gas and Electric Company | Yes | ☒ | No | ☐ | |||||||||||||
| Kentucky Utilities Company | Yes | ☒ | No | ☐ | |||||||||||||
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies or emerging growth companies. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | |||||||||||||
| PPL Corporation | ☒ | ☐ | ☐ | ☐ | ☐ | ||||||||||||
| PPL Electric Utilities Corporation | ☐ | ☐ | ☒ | ☐ | ☐ | ||||||||||||
| Louisville Gas and Electric Company | ☐ | ☐ | ☒ | ☐ | ☐ | ||||||||||||
| Kentucky Utilities Company | ☐ | ☐ | ☒ | ☐ | ☐ | ||||||||||||
If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
| PPL Corporation | ☐ | ||||||||||||||||
| PPL Electric Utilities Corporation | ☐ | ||||||||||||||||
| Louisville Gas and Electric Company | ☐ | ||||||||||||||||
| Kentucky Utilities Company | ☐ | ||||||||||||||||
Indicate by check mark whether each registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
| PPL Corporation | ☒ | ||||||||||||||||
| PPL Electric Utilities Corporation | ☐ | ||||||||||||||||
| Louisville Gas and Electric Company | ☐ | ||||||||||||||||
| Kentucky Utilities Company | ☐ | ||||||||||||||||
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
| PPL Corporation | Yes | ☐ | No | ☒ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | ☐ | No | ☒ | |||||||||||||
| Louisville Gas and Electric Company | Yes | ☐ | No | ☒ | |||||||||||||
| Kentucky Utilities Company | Yes | ☐ | No | ☒ | |||||||||||||
As of June 28, 2019,30, 2022, PPL Corporation had 721,840,206736,157,176 shares of its $0.01 par value Common Stock outstanding. The aggregate market value of these common shares (based upon the closing price of these shares on the New York Stock Exchange on that date) held by non-affiliates was $22,384,264,788.$19,971,944,185. As of January 31, 2020,2023, PPL Corporation had 767,813,625736,677,854 shares of its $0.01 par value Common Stock outstanding.
As of January 31, 2020,2023, PPL Corporation held all 66,368,056 outstanding common shares, no par value, of PPL Electric Utilities Corporation.
As of January 31, 2020,2023, LG&E and KU Energy LLC held all 21,294,223 outstanding common shares, no par value, of Louisville Gas and Electric Company.
As of January 31, 2020,2023, LG&E and KU Energy LLC held all 37,817,878 outstanding common shares, no par value, of Kentucky Utilities Company.
PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company meet the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and are therefore filing this form with the reduced disclosure format.
Documents incorporated by reference:
PPL Corporation has incorporated herein by reference certain sections of PPL Corporation's 20202023 Notice of Annual Meeting and Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2019. Such Statements2022 and which will provide the information required by Part III of this Report.
PPL CORPORATION
PPL ELECTRIC UTILITIES CORPORATION
LOUISVILLE GAS AND ELECTRIC COMPANY
KENTUCKY UTILITIES COMPANY
FORM 10-K ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 20192022
TABLE OF CONTENTS
This combined Form 10-K is separately filed by the following Registrants in their individual capacity: PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf and no Registrant makes any representation as to information relating to any other Registrant, except that information under "Forward-Looking Information" relating to subsidiaries of PPL Corporation is also attributed to PPL Corporation and information relating to the subsidiaries of LG&E and KU Energy LLC is also attributed to LG&E and KU Energy LLC.Corporation.
Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company are references to such entities directly or to one or more of their subsidiaries, as the case may be, the financial results of which subsidiaries are consolidated into such Registrants' financial statements in accordance with GAAP. This presentation has been applied where identification of particular subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.
| Item | Page | ||||||||||
| PART I | |||||||||||
| 1. | |||||||||||
| 1A. | |||||||||||
| 1B. | |||||||||||
| 2. | |||||||||||
| 3. | |||||||||||
| 4. | |||||||||||
| PART II | |||||||||||
| 5. | |||||||||||
| 6. | |||||||||||
| 7. | |||||||||||
| Item | Page | ||
| PART I | |||
| 1. | |||
| 1A. | |||
| 1B. | |||
| 2. | |||
| 3. | |||
| 4. | |||
| PART II | |||
| 5. | |||
| 6. | |||
| 7. | |||
| Item | Page | ||||||||||
| 7A. | |||||||||||
| 8. | Financial Statements and Supplementary Data | ||||||||||
| FINANCIAL STATEMENTS | |||||||||||
| PPL Corporation and Subsidiaries | |||||||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||||
| Item | Page | ||||||||||
| COMBINED NOTES TO FINANCIAL STATEMENTS | |||||||||||
| 9. | |||||||||||
| 9A. | |||||||||||
| 9B. | |||||||||||
| 9C. | |||||||||||
| PART III | |||||||||||
| 10. | |||||||||||
| 11. | |||||||||||
| 12. | |||||||||||
| 13. | |||||||||||
| 14. | |||||||||||
| PART IV | |||||||||||
| 15. | |||||||||||
| Item | Page | ||
| COMBINED NOTES TO FINANCIAL STATEMENTS | |||
| SUPPLEMENTARY DATA | |||
| Schedule I - Condensed Unconsolidated Financial Statements | |||
| 9. | |||
| 9A. | |||
| 9B. | |||
| PART III | |||
| 10. | |||
| 11. | |||
| 12. | |||
| 13. | |||
| 14. | |||
| PART IV | |||
| 15. | |||
GLOSSARY OF TERMS AND ABBREVIATIONS
PPL Corporation and its subsidiaries
CEP Reserves- CEP Reserves, Inc., a cash management subsidiary of PPL that maintains cash reserves for the balance sheet management of PPL and certain subsidiaries.
KU - Kentucky Utilities Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky.
LG&E - Louisville Gas and Electric Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas in Kentucky.
LKE - LG&E and KU Energy LLC, a subsidiary of PPL and the parent of LG&E, KU and other subsidiaries.
LKS - LG&E and KU Services Company, a subsidiary of LKE that provides administrative, management and support services primarily to LG&E and KU, as well as to LKE and its other subsidiaries.
Narragansett Electric - The Narragansett Electric Company, an entity that serves electric and natural gas customers in Rhode Island. On May 25, 2022, PPL and its subsidiary, PPL Rhode Island Holdings announced the completion of the acquisition of Narragansett Electric, which will continue to provide services under the name Rhode Island Energy.
PPL - PPL Corporation, the ultimate parent holding company of PPL Electric, PPL Energy Funding, PPL Capital Funding, LKE, RIE and other subsidiaries.
PPL Capital Funding - PPL Capital Funding, Inc., a financing subsidiary of PPL that provides financing for the operations of PPL and certain subsidiaries. Debt issued by PPL Capital Funding is fully and unconditionally guaranteed as to payment by PPL.
PPL Electric - PPL Electric Utilities Corporation, a public utility subsidiary of PPL engaged in the regulated transmission and distribution of electricity in its Pennsylvania service area and that provides electricity supply to its retail customers in this area as a PLR.
PPL Energy Funding - PPL Energy Funding Corporation, a subsidiary of PPL and the parent holding company of PPL Global and other subsidiaries.
PPL Energy Holdings- PPL Energy Holdings, LLC, a subsidiary of PPL and the parent holding company of PPL Energy Funding, LKE, PPL Electric, PPL Rhode Island Holdings, PPL Services and other subsidiaries.
PPL EU Services - PPL EU Services Corporation, a subsidiary of PPL that providesprovided administrative, management and support services primarily to PPL Electric. On December 31, 2021, PPL EU Services merged into PPL Services.
PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Funding that, prior to the sale of the U.K. utility business on June 14, 2021, primarily through its subsidiaries, ownsowned and operatesoperated WPD, PPL's regulated electricity distribution businesses in the U.K. PPL Global was not included in the sale of the U.K. utility business on June 14, 2021.
PPL Rhode Island Holdings - PPL Rhode Island Holdings, LLC, a subsidiary of PPL Energy Holdings formed for the purpose of acquiring Narragansett Electric to which certain interests of PPL Energy Holdings in the Narragansett SPA were assigned.
PPL Services - PPL Services Corporation, a subsidiary of PPL that provides administrative, management and support services to PPL and its subsidiaries.
PPL WPD Limited - an indirectPPL WPD Limited, a U.K. subsidiary of PPL Global andGlobal. Prior to the sale of the U.K. utility business on June 14, 2021, PPL WPD Limited was an indirect parent to WPD plc.
i
Other terms and abbreviations
£ - British pound sterling.
401(h) account(s) - a sub-account established within a qualified pension trust to provide for the payment of retiree medical costs.
Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation authorized the PUCPAPUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, a DSIC.
Act 129 - Act 129 of 2008 that became effective in October 2008. The law amended the Pennsylvania Public Utility Code and created an energy efficiency and conservation program and smart metering technology requirements, adopted new PLR electricity supply procurement rules, provided remedies for market misconduct and changed the Alternative Energy Portfolio Standard (AEPS).
Act 129 Smart Meter program - PPL Electric's system-wide meter replacement program that installs wireless digital meters that provide secure communication between PPL Electric and the meter as well as all related infrastructure.
Adjusted Gross Margins - a non-GAAP financial measure of performance used in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).
Advanced Metering Infrastructure - meters and meter reading infrastructure that provide two-way communication capabilities, which communicate usage and other relevant data to LG&E and KU at regular intervals, and are also able to receive information from LG&E and KU, such as software upgrades and requests to provide meter readings in real time.
AFUDC - allowance for funds used during construction. The cost of equity and debt funds used to finance construction projects of regulated businesses, which is capitalized as part of construction costs.
AOCI - accumulated other comprehensive income or loss.
ARO - asset retirement obligation.
ATM Program - at-the-market stock offering program.
Cane Run Unit 7 - a natural gas combined-cycleNGCC generating unit in Kentucky, jointly owned by LG&E and KU.
CCR(s) - coal combustion residual(s). CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.
Clean Air Act - federal legislation enacted to address certain environmental issues related to air emissions, including acid rain, ozone and toxic air emissions.
Clean Water Act - federal legislation enacted to address certain environmental issues relating to water quality including effluent discharges, cooling water intake, and dredge and fill activities.
COVID-19 - the disease caused by the coronavirus identified in 2019 that caused a global pandemic.
CPCN - Certificate of Public Convenience and Necessity. Authority granted by the KPSC pursuant to Kentucky Revised Statute 278.020 to provide utility service to or for the public or the construction of certain plant, equipment, property or facility for furnishing of utility service to the public. A CPCN is required for any capital addition, subject to KPSC jurisdiction, in excess of $100 million.
Customer Choice Act - the Pennsylvania Electricity Generation Customer Choice and Competition Act, legislation enacted to restructure the state's electric utility industry to create retail access to a competitive market for generation of electricity.
DDCP - Directors Deferred Compensation Plan.
DSIC - Distribution System Improvement Charge. Authorized under Act 11, which is an alternative ratemaking mechanism providing more-timely cost recovery of qualifying distribution system capital expenditures.
ii
DSM - Demand Side Management. Pursuant to Kentucky Revised Statute 278.285, the KPSC may determine the reasonableness of DSM programs proposed by any utility under its jurisdiction. DSM programs consist of energy efficiency programs intended to reduce peak demand and delay the investment in additional power plant construction, provide customers with tools and information regarding their energy usage and support energy efficiency.
Earnings from Ongoing Operations - a non-GAAP financial measure of earnings adjusted for the impact of special items and used in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).
EBPB - Employee Benefit Plan Board. The administrator of PPL's U.S. qualified retirement plans, which is charged with the fiduciary responsibility to oversee and manage those plans and the investments associated with those plans.
ECR - Environmental Cost Recovery. Pursuant to Kentucky Revised Statute 278.183, Kentucky electric utilities are entitled to the current recovery of costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements that apply to coal combustion wastes and by-productsbyproducts from the production of energy from coal.
ELG(s) - Effluent Limitation Guidelines, regulations promulgated by the EPA.
EPA - Environmental Protection Agency, a U.S. government agency.
EPS - earnings per share.
FERC - Federal Energy Regulatory Commission, the U.S. federal agency that regulates, among other things, interstate transmission and wholesale sales of electricity, hydroelectric power projects and related matters.
GAAP - Generally Accepted Accounting Principles in the U.S.
GBP - British pound sterling.
GHG(s) - greenhouse gas(es).
GLT - gas line tracker. The KPSC approved mechanism for LG&E's recovery of certain costs associated with gas transmission lines, gas service lines, gas risers, leak mitigation, and gas main replacements.
Green Tariff - a KPSC approved rate schedule, permitting customers to contract with LG&E or KU for the purchase of renewable energy certificates, construction of solar generation and use of the energy produced, or the purchase of energy from a renewable energy generator.
GWh - gigawatt-hour, one million kilowatt hours.
ICPKE - The PPL Incentive Compensation Plan for Key Employees. The ICPKE provides for incentive compensation to certain employees below the level of senior executive.
IRS - Internal Revenue Service, a U.S. government agency.
KPSC - Kentucky Public Service Commission, the state agency that has jurisdiction over the regulation of rates and service of utilities in Kentucky.
KU 2010 Mortgage Indenture - KU's Indenture, dated as of October 1, 2010, to The Bank of New York Mellon, as supplemented.
kVA - kilovolt ampere.
iii
kWh - kilowatt hour, basic unit of electrical energy.
LCIDA - Lehigh County Industrial Development Authority.
LG&E 2010 Mortgage Indenture - LG&E's Indenture, dated as of October 1, 2010, to The Bank of New York Mellon, as supplemented.
LIBOR - London Interbank Offered Rate.
Mcf - one thousand cubic feet, a unit of measure for natural gas.
MMBtu - one million British Thermal Units.
Moody's - Moody's Investors Service, Inc., a credit rating agency.
MW - megawatt, one thousand kilowatts.
MWac - megawatt, alternating current. The measure of the power output from a solar installation.
NAAQS - National Ambient Air Quality Standards periodically adopted pursuant to the Clean Air Act.
NEP - New England Power Company, a National Grid U.S. affiliate.
NERC - North American Electric Reliability Corporation.
NPNS - the normal purchases and normal sales exception as permitted by derivative accounting rules. Derivatives that qualify for this exception may receive accrual accounting treatment.
OCI - other comprehensive income or loss.
OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LKE indirectlyLG&E owns an 8.13%a 5.63% interest (consists of LG&E's 5.63% and KU'sKU owns a 2.50% interests),interest, which isare recorded at cost. OVEC owns and operates two coal-fired power plants, the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, with combined capacities of 2,120 MW.
PAPUC - Pennsylvania Public Utility Commission, the state agency that regulates certain ratemaking, services, accounting and operations of Pennsylvania utilities.
PEDFA - Pennsylvania Economic Development Financing Authority.
Performance unit - stock-based compensation award that represents a variable number of shares of PPL common stock that a recipient may receive based on PPL's attainment of (i) relative total shareowner return (TSR) over a three-year performance period as compared to companies in the Philadelphia Stock ExchangePHLX Utility Sector Index; or (ii) corporate return on equity (ROE) based on the average of the annual ROE for each year of the three-year performance period. In light of the transformational nature of the potential sale of the U.K. utility business in 2021, PPL's ROE-based performance units issued for 2021 were based on a one-year performance period from January 1, 2021 to December 31, 2021; however, these units retained the three year vesting schedule and other characteristics.
PJM - PJM Interconnection, L.L.C., operator of the electricity transmission network and electricity energy market in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
PLR - Provider of Last Resort, the role of PPL Electric in providing default electricity supply within its delivery area to retail customers who have not chosen to select an alternative electricity supplier under the Customer Choice Act.
PP&E - property, plant and equipment.
PPA(s) - power purchase agreement(s).
iv
PPL EnergyPlus - prior to the June 1, 2015 spinoff of PPL Energy Supply, LLC, PPL EnergyPlus, LLC, a subsidiary of PPL Energy Supply that marketed and traded wholesale and retail electricity and gas, and supplied energy and energy services in competitive markets.
PPL Energy Supply - prior to the June 1, 2015 spinoff, PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the indirect parent company of PPL EnergyPlusMontana, LLC.
PPL EU Services - PPL EU Services Corporation, a former subsidiary of PPL that, prior to being merged into PPL Services on December 31, 2021, provided administrative, management and other subsidiaries.support services primarily to PPL Electric.
PPL Montana - Priorprior to the June 1, 2015 spinoff of PPL Energy Supply, PPL Montana, LLC, an indirect subsidiary of PPL Energy Supply that generated electricity for wholesale sales in Montana and the Pacific Northwest.
RAR – Retired Asset Recovery rider, established by KPSC orders in 2021 to provide for recovery of and return on the remaining investment in certain electric generating units upon their retirement over a ten-year period following retirement.
RCRA - Resource Conservation and Recovery Act of 1976.
Registrant(s) - refers to the Registrants named on the cover of this Report (each a "Registrant" and collectively, the "Registrants").
Riverstone - Riverstone Holdings LLC, a Delaware limited liability company and, as of December 6, 2016, ultimate parent company of the entities that own the competitive power generation business contributed to Talen Energy.
RTO - Regional Transmission Operator, an electric power transmission system operator that coordinates, controls and monitors a multi-state electric grid.
Safari Energy - Safari Energy, LLC, which was, prior to the sale of Safari Holdings on November 1, 2022, a subsidiary of Safari Holdings that provided solar energy solutions for commercial customers in the U.S.
Safari Holdings - Safari Holdings, LLC, which was, prior to its sale on November 1, 2022, a subsidiary of PPL and parent holding company of Safari Energy.
Sarbanes-Oxley - Sarbanes-Oxley Act of 2002, which sets requirements for management's assessment of internal controls for financial reporting. It also requires an independent auditor to make its own assessment.
Scrubber - an air pollution control device that can remove particulates and/or gases (primarily sulfur dioxide) from exhaust gases.
SEC - the U.S. Securities and Exchange Commission, a U.S. government agency primarily responsible to protect investors and maintain the integrity of the securities markets.
SIP - PPL Corporation's Amended and Restated 2012 Stock Incentive Plan.
v
Smart metering technology - technology that can measure, among other things, time of electricity consumption to permit offering rate incentives for usage during lower cost or demand intervals. The use of this technology also has the potential to strengthen network reliability.
SOFR - Secured Overnight Financing Rate, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.
S&P - S&P Global Ratings, a credit rating agency.
Superfund - federal environmental statute that addresses remediation of contaminated sites; states also have similar statutes.
Talen Energy - Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone, which as of December 6, 2016, became wholly owned by Riverstone.
Talen Energy Marketing - Talen Energy Marketing, LLC, the newsuccessor name of PPL EnergyPlus, subsequent toafter the spinoff of PPL Energy Supply that marketed and traded wholesale and retail electricity and gas, and supplied energy and energy services in competitive markets, after the June 1, 2015 spinoff of PPL Energy Supply.
TCJA - Tax Cuts and Jobs Act. Comprehensive U.S. federal tax legislation enacted on December 22, 2017.
Total shareowner return - the change in market value of a share of the company's common stock plus the value of all dividends paid on a share of the common stock during the applicable performance period, divided by the price of the common stock as of the beginning of the performance period. The price used for purposes of this calculation is the average share price for the 20 trading days at the beginning and end of the applicable period.
Treasury Stock Method - a method applied to calculate diluted EPS that assumes any proceeds that could be obtained upon exercise of options and warrants (and their equivalents) would be used to purchase common stock at the average market price during the relevant period.
VEBA - Voluntary Employee Beneficiary Association. A tax-exempt trust under the Internal Revenue Code Section 501 (c)(9) used by employeesemployers to fund and pay eligible medical, life and similar benefits.
VSCC - Virginia State Corporation Commission, the state agency that has jurisdiction over the regulation of Virginia corporations, including utilities.
WPD - Prior to the sale of the U.K. utility business on June 14, 2021, refers to PPL WPD Limited Investments and its subsidiaries. WPD was included in the sale of the U.K. utility business on June 14, 2021.
WPD plc - Western Power Distribution plc, prior to the sale of the U.K utility business, a U.K. indirect subsidiary of PPL WPD Limited. Its principal indirectly owned subsidiaries are WPD (East Midlands), WPD (South Wales), WPD (South West) and WPD (West Midlands). WPD plc was included in the sale of the U.K. utility business on June 14, 2021.
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Forward-looking Information
Statements contained in this Annual Report concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although the Registrants believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in "Item 1A. Risk Factors" and in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report, the following are among the important factors that could cause actual results to differ materially and adversely from the forward-looking statements:
•strategic acquisitions, dispositions, or similar transactions, including the acquisition of Narragansett Electric, and our ability to consummate these business transactions or realize expected benefits from them;
•COVID-19 or other pandemics and their impact on economic conditions, financial markets and supply chains;
•other pandemic health events or other catastrophic events such as fires, earthquakes, explosions, floods, droughts, tornadoes, hurricanes and other extreme weather-related events (including events potentially caused or exacerbated by climate change);
•capital market conditions, including the availability of capital, credit or insurance, changes in interest rates and certain economic indices, and decisions regarding capital structure;
•volatility in or the impact of other changes in financial markets, commodity prices and economic conditions, including inflation;
•the outcome of rate cases or other cost recovery or revenue proceedings;
•the direct or indirect effects on PPL or its subsidiaries or business systems of cyber-based intrusion or the threat of cyber attacks;cyberattacks;
•significant decreaseschanges in the demand for electricity in the U.S.;electricity;
•expansion of alternative and distributed sources of electricity generation and storage;
•the effectiveness of our risk management programs, including foreign currencycommodity and interest rate hedging;
•defaults by counterparties or suppliers for energy, capacity, coal, natural gas or key commodities, goods or services;
•a material decline in the market value of PPL's equity;
•significant decreases in the fair value of debt and equity securities and itstheir impact on the value of assets in defined benefit plans, and the potentialrelated cash funding requirements if the fair value declines;of those assets decline;
•interest rates and their effect on pension and retiree medical liabilities, ARO liabilities and interest payable on certain debt securities;securities, and the general economy;
•the potential impact of any unrecorded commitments and liabilities of the Registrants and their subsidiaries;
•new accounting requirements or new interpretations or applications of existing requirements;
•adverse changes in the corporate credit ratings or securities analyst rankings of the Registrants and their securities;
•any requirement to record impairment charges pursuant to GAAP with respect to any of our significant investments;
•laws or regulations to reduce emissions of GHGs or the physical effects of climate change;
•continuing ability to access fuel supply for LG&E and KU, as well as the ability to recover fuel costs and environmental expenditures in a timely manner at LG&E and KU and natural gas supply costs at LG&E;&E and RIE;
•weather and other conditions affecting generation, transmission and distribution operations, operating costs and customer energy use;
•war, armed conflicts, terrorist attacks, or similar disruptive events;events, including the war in Ukraine;
•changes in political, regulatory or economic conditions in states, regions or countries where the Registrants or their subsidiaries conduct business;
•receipt of necessary governmental permits and approvals;
•changes in state, federal or foreign legislation or regulatory developments;
•the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry;
•our ability to attract and retain qualified employees;
•the effect of changing expectations and demands of our customers, regulators, investors and stakeholders, including heightened emphasis on environmental, social and governance concerns;
•the effect of any business or industry restructuring;
•development of new projects, markets and technologies;
•performance of new ventures;
•collective labor bargaining negotiations;negotiations and
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•the outcome of litigation againstinvolving the Registrants and their subsidiaries.
Any forward-looking statements should be considered in light of these important factors and in conjunction with other documents of the Registrants on file with the SEC.
New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for the Registrants to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and the Registrants undertake no obligation to update the information contained in the statement to reflect subsequent developments or information.
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PART I
ITEM 1. BUSINESS
General
(All Registrants)
PPL, Corporation, headquartered in Allentown, Pennsylvania, is a utility holding company, incorporated in 1994 in connection with the deregulation of electricity generation in Pennsylvania, to serve as the parentholding company tofor the regulated utility that is now PPL Electric and to generation andpursue other unregulated business activities. PPL Electric was foundedactivities in 1920 as Pennsylvania Power & Light Company.the deregulated power sector. PPL, through its regulated utility subsidiaries, delivers electricity to customers in the U.K., Pennsylvania, Kentucky, Virginia, and Virginia;Rhode Island; delivers natural gas to customers in Kentucky;Kentucky and Rhode Island; and generates electricity from power plants in Kentucky.
PPL's principal subsidiaries at December 31, 20192022 are shown below (* denotes a Registrant).
| PPL Corporation* | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PPL Capital Funding Provides financing for the operations of PPL and certain subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PPL Electric* Engages in the regulated transmission and distribution of electricity in Pennsylvania | LKE A holding company that owns regulated utility operations through its subsidiaries, LG&E and KU | RIE Engages in the regulated transmission, distribution and sale of electricity and regulated distribution and sale of natural gas in Rhode Island | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LG&E* Engages in the regulated generation, transmission, distribution and sale of electricity and | KU* Engages in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pennsylvania Regulated Segment | Kentucky Regulated Segment | Rhode Island Regulated Segment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In addition to PPL, the other Registrants included in this filing are as follows.
PPL Electric Utilities Corporation, headquartered in Allentown, Pennsylvania, is a wholly owned subsidiary of PPL organized in Pennsylvania in 1920 and a regulated public utility that is an electricity transmission and distribution service provider in eastern and central Pennsylvania. PPL Electric is subject to regulation as a public utility by the PUC,PAPUC, and certain of its transmission activities are subject to the jurisdiction of the FERC under the Federal Power Act. PPL Electric delivers electricity in its Pennsylvania service area and provides electricity supply to retail customers in that area as a PLR under the Customer Choice Act. PPL Electric was organized in 1920 as Pennsylvania Power & Light Company.
LG&E, and KU Energy LLC, acquired in 2010 and headquartered in Louisville, Kentucky, is a wholly owned subsidiary of PPL and a holding company that owns regulated utility operations through its subsidiaries, LG&E and KU, which constitute substantially all of LKE's assets. LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain separate corporate identities and serve customers in Kentucky under their respective names. KU also serves customers in Virginia under the Old Dominion Power name. LKE, formed in 2003, is the successor to a Kentucky entity incorporated in 1989.
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of the FERC under the Federal Power Act. KU serves its Kentucky customers under the KU name and its Virginia customers under the Old Dominion Power name. KU was incorporated in Kentucky in 1912 and in Virginia in 1991.
Segment Information
(PPL)
PPL is organized into three reportable segments as depicted in the chart above: U.K. Regulated, Kentucky Regulated, and Pennsylvania Regulated. The U.K. Regulated segment has no related subsidiary Registrants. PPL's other reportable segments' resultswhich primarily representrepresents the results of its related subsidiary Registrants, except that the reportable segments are also allocated certain corporate level financing costs that are not included inLG&E and KU, Pennsylvania Regulated, which primarily represents the results of PPL Electric, and Rhode Island Regulated, which primarily represents the applicable subsidiary Registrants. PPL also has corporateresults of RIE. "Corporate and Other" primarily includes financing and other costs, primarily including financing costs incurred at the corporate level that have not been allocated or assigned to the segments, as well as certain other unallocated costs. The financial resultsnon-recoverable costs resulting from commitments made to the Rhode Island Division of Safari Energy are also reported within CorporatePublic Utilities and Other.Carriers and the Attorney General of the State of Rhode Island in conjunction with the acquisition of Narragansett Electric.
A comparison of PPL's three regulatedRegulated segments is shown below.
| Kentucky | Pennsylvania | Rhode Island | |||||||||||||||
| Regulated | Regulated | Regulated (a) | |||||||||||||||
| For the year ended December 31, 2022: | |||||||||||||||||
| Operating Revenues (in billions) | $ | 3.8 | $ | 3.0 | $ | 1.0 | |||||||||||
| Net Income (in millions) | $ | 507 | $ | 525 | $ | (44) | |||||||||||
| Electricity delivered (GWh) | 30,892 | 37,593 | 4,494 | ||||||||||||||
| Natural gas delivered (Bcf) | 31 | — | 14 | ||||||||||||||
| At December 31, 2022: | |||||||||||||||||
| Regulatory Asset Base (in billions) (b) | $ | 11.7 | $ | 9.3 | $ | 3.2 | |||||||||||
| Service area (in square miles) | 8,000 | 10,000 | 1,200 | ||||||||||||||
| Customers (in millions) | 1.3 | 1.5 | 0.8 | ||||||||||||||
| Kentucky | Pennsylvania | ||||||||||
| U.K. Regulated | Regulated | Regulated | |||||||||
| For the year ended December 31, 2019: | |||||||||||
| Operating Revenues (in billions) | $ | 2.2 | $ | 3.2 | $ | 2.4 | |||||
| Net Income (in millions) | $ | 977 | $ | 436 | $ | 458 | |||||
| Electricity delivered (GWh) | 72,061 | 31,368 | 37,024 | ||||||||
| At December 31, 2019: | |||||||||||
| Regulatory Asset Base (in billions) (a) | $ | 10.3 | $ | 10.4 | $ | 7.6 | |||||
| Service area (in square miles) | 21,600 | 9,400 | 10,000 | ||||||||
| End-users (in millions) | 7.9 | 1.3 | 1.4 | ||||||||
(a)On May 25, 2022, PPL Rhode Island Holdings acquired 100% of the outstanding shares of common stock of Narragansett Electric. The results of RIE are included in PPL’s Rhode Island Regulated segment. See Note 9 to the Financial Statements for additional information.
(b)Represents capitalization for Kentucky Regulated, rate base for Pennsylvania Regulated and Rhode Island Regulated. The amount for Rhode Island Regulated excludes acquisition-related adjustments for non-earning assets.
See Note 2 to the Financial Statements for additional financial information by segment.
Beginning on January 1, 2023, the Kentucky Regulated segment will consist primarily of the regulated electricity generation, transmission and distribution operations conducted by LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. Prior to January 1, 2023, the Kentucky Regulated segment also included the financing activities of LKE. The financing activity of LKE will be presented in Corporate and Other beginning on January 1, 2023. As a result of this change, beginning on January 1, 2023, PPL’s segments will consist of the regulated operations of Kentucky, Pennsylvania and Rhode Island and will exclude any incremental financing activities of holding companies, which Management believes is a more meaningful presentation as it provides information on the core regulated operations of PPL.
(PPL Electric, LKE, LG&E and KU)
PPL Electric has two operating segments, thatdistribution and transmission, which are aggregated into a single reportable segment. LKE, LG&E and KU are individually single operating and reportable segments.
| 2019 | 2018 | 2017 | ||||||||||
| Taxes collected in revenues | £ | 56 | £ | 58 | £ | 57 | ||||||
| Taxes recorded under GAAP | 167 | 156 | 139 | |||||||||
| Incentive Received | Calendar Year Ended Incentive | |||||
| Calendar Year Ended Incentive Earned | (in millions) | Included in Revenue | ||||
| 2015 | £ | 79 | 2017 | |||
| 2016 | 76 | 2018 | ||||
| 2017 | 72 | 2019 | ||||
| 2018 | 78 | 2020 | ||||
| 2019 (a) | 75-85 | 2021 | ||||
| 2020 (a) | 75-85 | 2022 | ||||
Kentucky Regulated Segment (PPL)
The Kentucky Regulated segment consists primarily of the operations of LKE, which owns and operates regulated public utilities engaged in theelectricity generation, transmission and distribution operations conducted by LG&E and sale of electricity andKU, as well as LG&E's regulated distribution and sale of natural gas, representing primarily the activities of LG&E and KU.gas. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment. segment includes certain financing and other costs at LKE.
(PPL, LKE, LG&E and KU)
LG&E and KU direct subsidiaries of LKE, are engaged in the regulated generation, transmission, distribution and sale of electricity in Kentucky and, in KU's case, also Virginia. LG&E also engages in the distribution and sale of natural gas in Kentucky. LG&E provides electricityelectric service to approximately 418,000433,000 customers in Louisville and adjacent areas in Kentucky,
covering approximately 700 square miles in nine counties and provides natural gas service to approximately 329,000334,000 customers in its electricityelectric service area and eight additional counties in Kentucky. KU provides electric service to approximately 530,000541,000 customers in 77 counties in central,
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southeastern and western Kentucky and approximately 28,000 customers in five counties in southwestern Virginia, covering approximately 4,800 non-contiguous square miles. KU also sells wholesale electricity to two municipalities in Kentucky under load following contracts. See Note 3 to the Financial Statements for revenue information.
Franchises and Licenses
LG&E and KU provide electricity delivery service, and LG&E provides natural gas distribution service, in their respective service territories pursuant to certain franchises, licenses, statutory service areas, easements and other rights or permissions granted by state legislatures, cities or municipalities or other entities.
Competition
There are currently no other electric public utilities operating within the electricityelectric service areas of LKE.LG&E and KU. From time to time, bills are introduced into the Kentucky General Assembly which seek to authorize, promote or mandate increased distributed generation, customer choice or other developments. Neither the Kentucky General Assembly nor the KPSC has adopted or approved a plan or timetable for retail electric industry competition in Kentucky. The nature or timing of legislative or regulatory actions, if any, regarding industry restructuring and their impact on LKE,LG&E and KU, which may be significant, cannot currently be predicted. Virginia, formerly a deregulated jurisdiction, has enacted legislation that implemented a hybrid model of cost-based regulation. KU's operations in Virginia have been and remain regulated.
Alternative energy sources such as electricity, oil, propane and other fuels indirectly impact LG&E's natural gas revenues. Marketers may also compete to sell natural gas to certain large end-users. LG&E's natural gas tariffs include gas price pass-through mechanisms relating to its sale of natural gas as a commodity. Therefore, customer natural gas purchases from alternative suppliers do not generally impact LG&E's profitability. Some large industrial and commercial customers, however, may physically bypass LG&E's facilities and seek delivery service directly from interstate pipelines or other natural gas distribution systems.
Power Supply
At December 31, 2019, LKE2022, LG&E owned generating capacity of 7,5612,760 MW and KU owned generating capacity of which 2,786 MW related to LG&E and 4,775 MW related to KU.MW. See "Item 2. Properties - Kentucky Regulated Segment" for a complete list of LKE's generating facilities.
The system capacity of LKE'sLG&E's and KU's owned or controlled generation is based upon a number ofseveral factors, including the operating experience and physical condition of the units, and may be revised periodically to reflect changes in circumstances.
During 2019, LKE's2022, LG&E's and KU's power plants generated the following amounts of electricity:
| GWh | |||||||||||
| Fuel Source | LG&E | KU | |||||||||
| Coal | 10,488 | 13,880 | |||||||||
| Oil | — | 6 | |||||||||
| Gas | 1,816 | 5,039 | |||||||||
| Hydro | 278 | 61 | |||||||||
| Solar | 8 | 12 | |||||||||
| Total (a) | 12,590 | 18,998 | |||||||||
| GWh | ||||||||
| Fuel Source | LKE | LG&E | KU | |||||
| Coal | 25,348 | 11,336 | 14,012 | |||||
| Gas | 6,558 | 1,608 | 4,950 | |||||
| Hydro | 357 | 251 | 106 | |||||
| Solar | 18 | 7 | 11 | |||||
| Total (a) | 32,281 | 13,202 | 19,079 | |||||
The majority of LG&E's and KU's generated electricity was used to supply their retail customer bases.
LG&E and KU jointly dispatch their generation units with the lowest cost generation used to serve their customers. When LG&E has excess generation capacity after serving its own customers and its generation cost is lower than that of KU, KU purchases electricity from LG&E and vice versa.
LG&E and KU received approval from the KPSC to develop a 4 MW Solar Share facility to service a Solar Share program. The Solar Share program is a voluntary program that allows customers to subscribe capacity in the Solar Share facility. Construction
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commences, in 500-kilowatt phases, when subscription is complete. The firstConstruction of five 500-kilowatt phase was constructed in 2019. The subscription for the second 500-kilowatt phasephases was completed in 2019, with expected construction to be completed in 2020.as of December 31, 2022. LG&E and KU continue to market the program and have started receiving subscriptions for the thirdsixth 500-kilowatt phase.
On January 23, 2020, LG&E and KU applied to the KPSC for approval of arrangements relating to the purchase of 100 MW of solar power in connection with the Green Tariff option established in the most recent2018 Kentucky base rate cases. Pursuant to the agreements, LG&E and KU would purchase the initial 20 years of output of a proposed third-party solar generation facility and resell the bulk of the power as renewable energy to two large industrial customers and use the remaining power for other customers. The transactions are subjectgeneration facility is currently expected to be operational in the fourth quarter of 2024. In 2020, the KPSC approvalapproved LG&E’s and other standard conditions.KU’s applications. PPL, LKE, LG&E and KU do not anticipate that these arrangements will have a significant impact on their results of operations or financial condition.
On October 6, 2021, LG&E and KU entered into an agreement to purchase the initial 20 years of output of a proposed 125 MW third-party solar generation facility in connection with the Green Tariff option established in the 2018 Kentucky base rate cases. Pursuant to the agreements, LG&E and KU would purchase output of the facility and resell power as renewable energy to certain large customers. The generation facility is currently expected to be operational in the fourth quarter of 2024. PPL, LG&E and KU do not anticipate that this agreement will have a significant impact on their results of operations or financial condition.
On December 15, 2022, LG&E and KU filed an application with the KPSC for a CPCN for the construction of two 621 MW net summer rating NGCC combustion turbine facilities, one at LG&E's Mill Creek Generating Station in Jefferson County, Kentucky and the other at KU's E.W. Brown Generating Station in Mercer County, Kentucky, including on-site natural gas and electric transmission construction associated with those facilities and site compatibility certificates. LG&E and KU also applied for a CPCN to construct a 120 MWac solar photovoltaic electric generating facility in Mercer County, Kentucky, and for a CPCN to acquire a 120 MWac solar facility to be built by a third-party solar developer in Marion County, Kentucky. LG&E and KU further applied for a CPCN to construct a 125 MW, 4-hour battery energy storage system facility at KU's E.W. Brown Generating Station and for approval of their proposed 2024-2030 DSM programs. The plan includes adding 14 new, adjusted or expanded energy efficiency programs, which would reduce LG&E's and KU's overall need by approximately 100 MW each. Finally, LG&E and KU requested a declaratory order to confirm that their entry into non-firm energy-only power-purchase agreements for the output of four solar photovoltaic facilities with a combined capacity of 637 MW does not require KPSC approval and that LG&E and KU may recover the costs of the solar PPAs through their fuel adjustment clause mechanisms as previously approved for a prior solar PPA. LG&E and KU plan to accrue AFUDC on the constructed NGCCs, solar facility in Mercer County, Kentucky and the battery energy storage system facility and have requested regulatory asset treatment to recover the financing costs of these projects.
The new NGCC would be jointly owned by LG&E (31%) and KU (69%) and the solar units would be jointly owned by LG&E (37%) and KU (63%), the battery storage unit would be owned by LG&E, and the proposed PPA transactions and DSM programs would be entered into or conducted jointly by LG&E and KU, consistent with LG&E and KU's shared dispatch, cost allocation, tariff or other frameworks.
The filing also notes planned retirement dates for certain existing coal-fired generation units, including Mill Creek 1 (300 MW) in 2024 and E.W. Brown 3 (412 MW) in 2028, and updates and advances the planned retirement dates for Mill Creek 2 (297 MW) to 2027 and Ghent 2 (486 MW) to 2028. LG&E and KU anticipate the recovery of associated retirement costs, including the remaining net book value, for these coal-fired generating units through the RAR or other rate mechanisms.
The KPSC accepted the filing as of January 6, 2023 and has indicated its intention to issue an order on all issues by November 6, 2023. LG&E and KU cannot predict the outcome of these matters.
Fuel Supply
Coal and natural gas will continueare expected to be the predominant fuels used by LG&E and KU for generation for the foreseeable future. Natural gas used for generation is primarily purchased using contractual arrangements separate from LG&E's natural gas distribution operations. Natural gas and oil are also used for intermediate and peaking capacity and flame stabilization in coal-fired boilers.
Fuel inventory is maintained at levels estimated to be necessary to avoid operational disruptions at coal-fired generating units. Reliability of coal deliveries can be affected from time to time by a number ofseveral factors including fluctuations in demand, coal mine production issues, high or low river level events, lock outages and other supplier or transporter operating or financial difficulties.
LG&E and KU have entered into coal supply agreements with various suppliers for coal deliveries through 20242027 and augment their coal supply agreements with spot market purchases, as needed.
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For their existing units, LG&E and KU expect, for the foreseeable future, to purchase most of their coal from western Kentucky, southern Indiana, southern Illinois, northern West Virginia and southern Illinois.western Pennsylvania. LG&E and KU continue to purchase certain quantities of ultra-low sulfur content coal from Wyoming for blending at Trimble County Unit 2. Coal is delivered to the generating plants primarily by barge and rail.
To enhance the reliability of natural gas supply, LG&E and KU have secured firm long-term pipeline transport capacity services with contracts of various durations from 2020 tothrough 2024 on the interstate pipeline serving Cane Run Unit 7. This pipeline also serves the six simple cycle combustion turbine units located at the Trimble County site as well as threetwo other simple cycle units at the Paddy's Run site. For the seven simple cycle combustion turbines at the E.W. Brown facility, no firm long-term pipeline transport capacity has been purchased due to the facility being interconnectedfacility's connection to two interstate pipelines and some of the units having dual fuel capability.
LG&E and KU have firm contracts for a portion of the natural gas fuel for Cane Run Unit 7 through February 2022.October 2024. The bulk of the natural gas fuel remains purchased on the spot market.
(PPL LKE and LG&E)
Natural Gas Distribution Supply
Five underground natural gas storage fields, with a current working natural gas capacity of approximately 15 billion cubic feet (Bcf), are used to provide natural gas service to LG&E's firm sales customers. Natural gas is stored during the summer season for withdrawal during the following winter heating season. Without this storage capacity, LG&E would need to purchase additional natural gas and pipeline transportation services during winter months when customer demand increases and the prices forcost of natural gas supply and pipeline transportation services are expected to be higher. At December 31, 2019,2022, LG&E had 1210 Bcf of natural gas stored underground with a carrying value of $35$68 million. LG&E will continue work in 2023 on a multi-year project to retire one of its underground natural gas storage fields with a working natural gas capacity of 4 Bcf, with plans to complete by no later than 2025.
LG&E has a portfolio of supply arrangements of varying durations and terms that provide competitively priced natural gas designed to meet its firm sales obligations. These natural gas supply arrangements include pricing provisions that are market-responsive. In tandem with pipeline transportation services, these natural gas supplies provide the reliability and flexibility necessary to serve LG&E's natural gas customers.
LG&E purchases natural gas supply transportation services from two pipelines. LG&E has a set of contracts with one pipeline that are subject to termination by LG&E between 20212025 and 2025.2028. Total winter season capacity under these contracts is 184,900 MMBtu/day and summer season capacity is 60,000 MMBtu/day. WithLG&E has two additional contracts with this same pipeline, LG&E also has anotherpipeline. One contract is for pipeline capacity through 2026 for 60,000 MMBtu/day during both the winter and summer seasons. The other contract is for pipeline capacity through 2028 for 30,000 MMBtu/day during the winter season. LG&E has a single contract with a second pipeline with a total capacity of 20,000 MMBtu/day during both the winter and summer seasons that expires in 2023.2030.
LG&E expects to purchase natural gas supplies for its gas distribution operations from onshore producing regions in South Texas, East Texas, North Louisiana and Arkansas, as well as gas originating in the Marcellus and Utica production areas.
(PPL, LKE, LG&E and KU)
Transmission
LG&E and KU contract with the Tennessee Valley Authority to act as their transmission reliability coordinator and contract with TranServ International, Inc. to act as their independent transmission organization.
Rates
LG&E is subject to the jurisdiction of the KPSC and the FERC, and KU is subject to the jurisdiction of the KPSC, the FERC and the VSCC. LG&E and KU operate under a FERC-approved open access transmission tariff.
LG&E's and KU's Kentucky base rates are calculated based on a return on capitalization (common equity, long-term debt and short-term debt) including adjustments for certain net investments and costs recovered separately through other means. As such, LG&E and KU generally earn a return on regulatory assets in Kentucky.
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KU's Virginia base rates are calculated based on a return on rate base (net utility plant plus working capital less accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities, except for regulatory assets and liabilities related to the levelized fuel factor, and regulatory assets or liabilities recorded foraccumulated deferred income taxes, pension and postretirement benefits, and AROs related to certain CCR impoundments, are excluded from the return on rate base utilized in the calculation of Virginia base rates, no return is earned on the related assets.
KU's rates to two municipal customers for wholesale power requirements are calculated based on annual updates to a formula rate that utilizes a return on rate base (net utility plant plus working capital less accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities, except accumulated deferred income taxes, are excluded from the return on rate base utilized in the development of municipal rates, no return is earned on the related assets. In April 2014, certain municipalities submitted notices of termination to cease taking power under the wholesale requirements contracts. KU's service to eight municipalities terminated effective April 30, 2019. KU continues to provide service to two municipalities.
See "Financial and Operational Developments" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 7 to the Financial Statements for additional information on current rate proceedings and rate mechanisms.
Pennsylvania Regulated Segment (PPL)
The Pennsylvania Regulated segment consists of PPL Electric, a regulated public utility engaged in the distribution and transmission of electricity.
(PPL and PPL Electric)
PPL Electric delivers electricity to approximately 1.41.5 million customers in a 10,000-square mile territory in 29 counties within eastern and central Pennsylvania. PPL Electric also provides electricity to retail customers in this territory as a PLR under the Customer Choice Act. See Note 3 to the Financial Statements for revenue information.
Franchise, Licenses and Other Regulations
PPL Electric is authorized to provide electric public utility service throughout its service area as a result of grants by the Commonwealth of Pennsylvania in corporate charters to PPL Electric and companies whichthat it has succeeded, and as a result of certification by the PUC.PAPUC. PPL Electric is granted the right to enter the streets and highways by the Commonwealth subject to
certain conditions. In general, such conditions have been met by ordinance, resolution, permit, acquiescence or other action by an appropriate local political subdivision or agency of the Commonwealth.
Competition
Pursuant to authorizations from the Commonwealth of Pennsylvania and the PUC,PAPUC, PPL Electric operates a regulated distribution monopoly in its service area. Accordingly, PPL Electric does not face competition in its electricity distribution business. Pursuant to the Customer Choice Act, generation of electricity is a competitive business in Pennsylvania, and PPL Electric does not own or operate any generation facilities.
The PPL Electric transmission business, operating under a FERC-approved PJM Open Access Transmission Tariff, is subject to competition pursuant to FERC Order 1000 from entities that are not incumbent PJM transmission owners with respect to the construction and ownership of transmission facilities within PJM.
Rates and Regulation
Transmission
PPL Electric's transmission facilities are within PJM, which operates the electricity transmission network and electric energy market in the Mid-Atlantic and Midwest regions of the U.S.
PJM serves as a FERC-approved Regional Transmission Operator (RTO) to promote greater participation and competition in the region it serves. In addition to operating the electricity transmission network, PJM also administers regional markets for energy, capacity and ancillary services. A primary objective of any RTO is to separate the operation of, and access to, the transmission grid from market participants that buy or sell electricity in the same markets. Electric utilities continue to own the transmission assets and to receive their share of transmission revenues, but the RTO directs the control and operation of the transmission facilities. Certain types of transmission investments are subject to competitive processes outlined in the PJM tariff.
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As a transmission owner, PPL Electric's transmission revenues are recovered through PJM and billed in accordance with a FERC-approved Open Access Transmission Tariff that allows recovery of incurred transmission costs, a return on transmission-related plant and an automatic annual update based on a formula-based rate recovery mechanism. Under this formula, rates are put into effect in June of each year based upon prior year actual expenditures and current year forecasted capital additions. Rates are then adjusted the following year to reflect actual annual expenses and capital additions, as reported in PPL Electric’s annual FERC Form 1, filed under the FERC’s Uniform System of Accounts. Any difference between the revenue requirement in effect for the prior year and actual expenditures incurred for that year is recorded as a regulatory asset or regulatory liability. Any change in the prior year PPL zonal peak load billing factor applied on January 1 of each year will result in an increase or decrease in revenue until the next annual rate update is effective on June 1 of that same year.
As a PLR, PPL Electric also purchases transmission services from PJM. See "PLR" below.
See "Financial and Operational Developments" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 7 to the Financial Statements for additional information on rate mechanisms.mechanisms and regulatory matters.
Distribution
PPL Electric's distribution base rates are calculated based on a return on rate base (net utility plant plus a cash working capital allowance less plant-related deferred taxes and other miscellaneous additions and deductions). All regulatory assets and liabilities, except accumulated deferred income taxes, are excluded from the return on rate base. Therefore, no return is earned on the related assets unless specifically provided for by the PUC.PAPUC. Currently, PPL Electric's Smart Meter rider and the DSIC are the only riders authorized to earn a return. Certain operating expenses are also included in PPL Electric's distribution base rates including wages and benefits, other operation and maintenance expenses, depreciation and taxes.
Pennsylvania's Alternative Energy Portfolio Standard (AEPS) requires electricityelectric distribution companies and electricity generation suppliers to obtain from alternative energy resources a portion of the electricity sold to retail customers in Pennsylvania. Under the default service procurement plans approved by the PUC,PAPUC, PPL Electric purchases all of the alternative energy generation supply it needs to comply with the AEPS.
Act 129 created an energy efficiency and conservation program, a demand side management program, smart metering technology requirements, new PLR generation supply procurement rules, remedies for market misconduct and changes to the existing AEPS.
Act 11 authorizes the PUCPAPUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, the use of a DSIC. Such alternative ratemaking procedures and mechanisms provide opportunity for accelerated cost-recovery and, therefore, are important to PPL Electric as it is in a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging assets. PPL Electric utilized the fully projected future test year mechanism in its 2015 base rate proceeding. PPL has had the ability to utilize the DSIC recovery mechanism since July 2013.
See "Financial and Operational Developments" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 7 to the Financial Statements for additional information on rate mechanisms and legislative and regulatory matters.
PLR
The Customer Choice Act requires electric distribution companies, including PPL Electric, or an alternative supplier approved by the PUC,PAPUC, to act as a PLR of electricity supply for customers who do not choose to shop for supply with a competitive supplier and provides that electricity supply costs will be recovered by the PLR pursuant to PUCPAPUC regulations. In 2019,2022, the following average percentages of PPL Electric's customer load were provided by competitive suppliers: 43%37% of residential, 82%76% of small commercial and industrial and 96%95% of large commercial and industrial customers. The PUC continues to favor expanding the competitive market for electricity.
PPL Electric's cost ofElectric’s electricity generation iscosts are established based onupon the results of a competitive solicitation process. The PUCIn December 2020, the PAPUC approved PPL Electric'sElectric’s default service plan for the period June 20151, 2021 through May 2017, which included four solicitations for electricity supply held semiannually in April and October. The PUC approved PPL Electric's default service plan for the period June 2017 through May 2021,31, 2025, which includes a total of eight solicitations for electricity supply held semiannually in April and October. Through December 31, 2022, four auctions of the plan were completed. This plan also includes eight solicitations for alternative energy credits held semiannually in January and July. Through January 2023, four alternative energy credit solicitations have been completed.
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Pursuant to the plans, PPL Electric contracts for all of the electricity supply for residential, customers and commercial and industrial customers who elect to take thatdefault service from PPL Electric. These solicitations includecontain a mix of products including 5-year block energy contracts for residential customers, 6- and 12-month fixed-price load-following contracts for residential and small commercial and industrial customers, and 12-month real-time pricing contracts for large commercial and industrial customers, toand alternative energy credit contracts for residential, commercial and industrial customers. These contracts fulfill PPL Electric's obligation to provide customer electricity supply as a PLR.
Numerous alternative suppliers have offered to provide generation supply in PPL Electric's service area. As the cost of generation supply is a pass-through cost for PPL Electric, its financial results are not impacted if its customers purchase electricity supply from these alternative suppliers.
Rhode Island Regulated Segment (PPL)
The Rhode Island Regulated segment consists primarily of the regulated electricity transmission and distribution operations and regulated distribution and sale of natural gas conducted by RIE.
RIE is engaged in the regulated transmission, distribution and sale of electricity and regulated distribution and sale of natural gas in Rhode Island. RIE provides electric service to approximately 480,000 customers and natural gas service to approximately 270,000 customers. RIE's service area covers substantially all of Rhode Island. See Note 3 to the Financial Statements for revenue information.
Franchises and Licenses
RIE provides electricity delivery service and natural gas distribution service in its service territory pursuant to certain franchises, licenses, statutory service areas, easements and other rights or permissions granted by the Rhode Island state legislature, cities or municipalities or other entities.
Competition
There are currently no other electric or gas public utilities operating within the service area of RIE.
Alternative energy sources such as electricity, oil, propane and other fuels indirectly impact RIE's natural gas revenues. Marketers may also compete to sell natural gas to certain large end-users. RIE's natural gas tariffs include gas price pass-through mechanisms relating to its sale of natural gas as a commodity. Therefore, customer natural gas purchases from alternative suppliers do not generally impact RIE's profitability. Some large industrial and commercial customers, however, may physically bypass RIE's facilities and seek delivery service directly from interstate pipelines or other natural gas distribution systems.
Rates and Regulation
In general, RIE operates subject to the jurisdiction of the FERC, the RIPUC and the Rhode Island Division of Public Utilities and Carriers.
Distribution
RIE owns and maintains electric and natural gas distribution networks in Rhode Island. Distribution revenues are primarily from the sale of electricity, natural gas, and related services to retail customers. Distribution sales are regulated by the RIPUC, which is responsible for approving the rates and other terms of services as part of the rate making process. Natural gas and electric distribution revenues are derived from the regulated sale and distribution of electricity and natural gas to residential, commercial, and industrial customers within RIE’s service territory under the tariff rates. The tariff rates approved by the RIPUC are designed to recover the costs incurred by RIE for products and services provided, along with a return on investment.
Transmission
RIE owns an electric transmission system in Rhode Island. RIE’s transmission services are regulated by the FERC and coordinated with ISO – New England. Additionally, RIE makes available its transmission facilities to NEP, for operation and
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control pursuant to an integrated facilities agreement, Service Agreement No. 23 (Integrated Facilities Agreement or IFA). These revenues arise under tariff/rate agreements.
Deferral Mechanisms
RIE records revenues in accordance with accounting principles for rate-regulated operations for arrangements between RIE and the applicable regulator. These include various deferral mechanisms such as capital trackers, energy efficiency programs, and other programs that qualify as Alternative Revenue Programs (ARPs). ARPs enable RIE to adjust rates in the future, in response to past activities or completed events. RIE’s electric and gas distribution rates both have a revenue decoupling mechanism, which allows for annual adjustments to the RIE’s delivery rates, as a result of the reconciliation between allowed revenue and billed revenue. RIE also has other ARPs related to the achievement of certain objectives, demand side management initiatives, and certain other rate making mechanisms. RIE recognizes ARPs with a corresponding offset to a regulatory asset or liability account when the regulatory specified events or conditions have been met, when the amounts are determinable, and are probable of recovery (or payment) through future rate adjustments.
At December 31, 2022, all of RIE’s regulatory assets are authorized to earn a rate of return except $98 million of environmental response costs, $77 million of postretirement benefits and $61 million of net metering deferral costs.
Last Resort Service
RIE is required by the RIPUC and by statute to provide Last Resort Service. Last Resort Service is available to all customers who have not elected to receive their electric supply from a non-regulated power producer or any customer who, for any reason, has stopped receiving generation service from a non-regulated power producer.
The charge for Last Resort Service is the sum of the applicable Last Resort Service charges in addition to all appropriate Retail Delivery charges as stated in the applicable tariff. The monthly charge for Last Resort Service also includes the costs incurred by RIE to comply with the Renewable Energy Standard, established in Rhode Island General Laws Section 39-26-1 and the costs to comply with the RIPUC’s Rules Governing Energy Source Disclosure. The charge for Last Resort Service includes the administrative costs associated with the procurement of Last Resort Service, including an adjustment for uncollectible accounts as approved by the RIPUC.
Numerous alternative suppliers have offered to provide generation supply in RIE's service area. As the cost of generation supply is a pass-through cost for RIE, its financial results are not impacted if its customers purchase electricity supply from these alternative suppliers.
See Note 7 to the Financial Statements for additional information on rate mechanisms and regulatory matters.
Natural Gas Distribution Supply
To meet the projected annual gas supply requirements of approximately 37 Bcf, RIE has a portfolio of gas supply arrangements of varying contractual terms and durations to provide service to its customers. These natural gas supply arrangements include contracts with natural gas producers and marketers that reflect market price signals. RIE also has firm pipeline and underground storage capacity contracts to support the delivery of natural gas supplies to its customers. To manage the winter peak requirements for RIE customers, RIE contracts for liquified natural gas (LNG) service and owns and operates certain LNG storage facilities.
The RIE gas supply portfolio includes contracts for firm transportation service with eleven interstate pipeline companies and natural gas storage operators. These contracts have various termination dates with certain contracts being subject to evergreen renewal provisions providing RIE with flexibility in managing its upstream resource portfolio.
RIE has purchased and expects to continue to purchase natural gas supplies for its gas distribution operations from onshore producing regions accessed by its pipeline capacity portfolio in South Texas, East Texas, and Louisiana, as well as gas originating in the Marcellus and Utica production areas. RIE expects to purchase certain natural gas supplies that originate in Canada and from regional LNG import terminals.
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Corporate and Other (PPL)
PPL Services provides PPL subsidiaries with administrative, management and support services. The costs of these services are charged directly to the respective recipients for the services provided or indirectly charged to applicable recipients based on an average of the recipients' relative invested capital, operation and maintenance expenses and number of employees or a ratio of overall direct and indirect costs.
PPL Capital Funding PPL's financing subsidiary, provides financing for the operations of PPL and certain subsidiaries. PPL's growth in rate-regulated businesses provides the organization with an enhanced corporate level financing alternative, through PPL Capital Funding, that enables PPL to cost effectively support targeted credit profiles across all of PPL's rated companies. As a result, PPL plans to utilizeutilizes PPL Capital Funding as a source of capital in future financings, in addition to continued direct financing by thecertain operating companies.subsidiaries.
Unlike those of PPL Services, PPL Capital Funding's costs are not generally charged to PPL subsidiaries. Costs are charged directly to PPL. However, PPL Capital Funding participated significantly in the financing for the acquisitionsacquisition of LKE and WPD Midlands and certain associated financing costs were allocated to the Kentucky Regulated and U.K. Regulated segments. TheSegment. Prior to 2021, the associated financing costs, as well as the financing costs associated with prior issuances of certain other PPL Capital Funding securities, have beenwere assigned to the appropriaterelevant segments for purposes of PPL management's assessment of segment performance. TheBeginning in 2021, corporate level financing costs associated primarily with PPL Capital Funding's securities issuances beginning in 2013, with certain exceptions, have not been directly assigned orare no longer allocated to any segment.the reportable segments.
ENVIRONMENTAL MATTERS
(All Registrants)
The Registrants are subject to certain existing and developing federal, regional, state and local laws and regulations with respect to air and water quality, land use and other environmental matters.matters, and may be subject to different and more stringent such laws and regulations enacted in the future. The EPA hasand other federal agencies with jurisdiction over environmental matters have issued numerous environmental regulations relating to air, water and waste that directly affect the electric power industry. Due to these environmental issues, it may be necessary for the Registrants to modify or cease certain operations or operation of certain facilities to comply with statutes, regulations and other requirements of regulatory bodies or courts. In addition, legal challenges to new environmental permits or rules add uncertainty to estimating future costs of complying with such permits and rules. The Biden administration is currently undertaking changes in a wide range of environmental programs.
See “Legal Matters” in Note 1314 to the Financial Statements for a discussion of environmental commitments and contingencies. See "Financial Condition - Liquidity and Capital Resources - Forecasted Uses of Cash - Capital Expenditures" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for information on projected environmental capital expenditures for 20202023 through 2024.2025. See Note 20 to the Financial Statements for information related to the impacts of CCRs on AROs.
LG&E and KU are entitled to recover, through the ECR mechanism, certain costs of complying with the Clean Air Act, as amended, and other federal, state and local environmental requirements applicable to coal combustion wastes and by-products from coal-fired generating facilities upon KPSC review. Costs not covered by the ECR mechanism for LG&E and KU and all such costs for PPL Electric are subject to rate recovery at the discretion of the companies' respective state regulatory authorities, or the FERC, if applicable. WPD's distribution businesses are subject to certain statutoryBecause PPL Electric and regulatory environmental requirements. It may be necessary for WPD to incur significant compliance costs, which may be recoverable through rates subject to Ofgem approval. Because neither WPD nor PPL ElectricRIE do not own any generating plants, theirthey have less exposure to related environmental compliance costs is reduced. PPL, PPL Electric, LKE, LG&E and KUcosts. The Registrants can provide no assurances as to the ultimate outcome of future proceedings before regulatory authorities.
Air
NAAQS (PPL, LKE, LG&E and KU)
Applicable regulations require each state to identify areas within its boundaries that fail to meet the NAAQS, (known as nonattainment areas), and develop a state implementation plan to achieve and maintain compliance. States that are found to contribute significantly to another state's nonattainment with ozone standards are required to establish "good neighbor" state implementation plans. In addition, for attainment of ozone and fine particulates standards, certain states, including Kentucky, are subject to a regional EPA program known as the Cross-State Air Pollution Rule (CSAPR).
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The Clean Air Act has a significant impact on the operation of fossil fuel generation plants. The Clean Air Act requires the EPA periodically to establish and review NAAQS for six pollutants: carbon monoxide, lead, nitrogen dioxide, ozone (contributed to by nitrogen oxide emissions), particulate matter and sulfur dioxide. In December 2020, the EPA released final actions keeping the existing NAAQS standard for particulate matter and ozone without change, but the EPA subsequently announced reconsideration of those decisions in June 2021. On January 6, 2023, the EPA released a pre-publication proposed revision to the particulate matter standard that would lower the primary standard for fine particulates to a level to be determined after review of additional public comments.Depending on the final standard adopted by the EPA, the EPA could potentially designate Jefferson County, Kentucky (Louisville) as being in nonattainment with the new particulate matter standard and require additional particulate matter reductions from sources including LG&E’s Mill Creek Station.PPL, LG&E, and KU are unable to predict the outcome of future evaluations by the EPA and the states with respect to the NAAQS standards.
In January 2018, the EPA designated Jefferson County, Kentucky (Louisville) as being in nonattainment with the existing 2015 ozone standard. In December 2018,2020 and 2021, LG&E entered into agreements with the Louisville Metro Air Pollution Control District for temporary nitrogen oxide emission limits at LG&E's Mill Creek Station during those years to facilitate compliance with the ozone standard. In October 2022, Jefferson County was “bumped up” to the moderate nonattainment classification, but the Louisville Air Pollution Control District has applied to the EPA finalizedfor Jefferson County to be redesignated as in attainment. Although PPL and LG&E expect Jefferson County to be redesignated as in attainment, if the EPA declines to issue such a redesignation, Jefferson County could be subject to additional requirements including requirements for installation of reasonably available control technology on coal-fired generating units.Compliance with such requirements may require installation of additional pollution controls or other compliance actions. PPL and LG&E are unable to determine the impact on operations until certain compliance determinations are made by the EPA and Kentucky.
In March 2021, the EPA released final revisions to the CSAPR, "Close-Out Rule," determining that the existing CSAPR "Update Rule" foraimed at ensuring compliance with the 2008 ozone NAAQS fully addresses applicable states' interstate pollution transport obligations. Variousand providing for reductions in ozone season nitrogen oxide emissions for 2021 and subsequent years from sources in 12 states, and others challengedincluding Kentucky. Additionally, the rule in the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit). In September 2019, the D.C. Circuit granted these petitions and remanded a portionEPA reversed its previous approval of the CSAPR Update RuleKentucky State Implementation Plan with respect to these requirements. In February 2022, the EPA Administrator released a proposed Federal Implementation Plan under the Good Neighbor provisions of the Clean Air Act providing for significant additional nitrogen oxide emission reductions for compliance with the revised 2015 ozone NAAQS. The proposed reductions in Kentucky state-wide nitrogen oxide budgets are scheduled to commence in 2023, with the largest reductions planned for 2026, based on the installation time frame for certain selective catalytic reduction controls, subject to future specific allowance calculations. PPL, LG&E and KU are currently assessing the potential impact of the proposed Good Neighbor Plan revisions on operations. The current and proposed rules provide for reduced availability of nitrogen oxide allowances that have historically permitted operational flexibility for fossil units and could potentially result in constraints that may require implementation of additional emission controls or accelerate implementation of lower emission generation technologies. Pursuant to the EPA.President’s executive order, the EPA is currently reviewing its previous determinations made in December 2020 to retain the existing NAAQS for ozone and particulate matter without change, including a pre-publication proposed revision that was released by the EPA on January 6, 2023.
PPL, LG&E, and KU are unable to predict future emission reductions that may be required by future federal rules or state implementation actions. Compliance with the NAAQS, CSAPR and related requirements may require installation of additional pollution controls or other compliance actions, inclusive of retirements, the costs of which PPL, LKE, LG&E and KU believe are subject to rate recovery.
Climate Change (All Registrants)
The Biden administration is undertaking wide-ranging efforts to address climate change. Recent government actions and policy developments, including the President’s announced goal of a carbon free electricity sector by 2035, could have far-reaching impacts on PPL’s business operations, products, and services. On June 30, 2022, the Supreme Court ruled that provisions of the EPA's Clean Power Plan, premised on generation shifting from coal-fired plants to lower emitting natural gas-fired plants and renewables, exceeded the authority granted to the EPA under the Clean Air Act. The EPA has announced that it plans on issuing new greenhouse gas rules in the future. It is uncertain how the Supreme Court ruling may impact future EPA rulemaking. All of these developments are preliminary or ongoing in nature and the Registrants cannot predict the final outcome or ultimate impact on operations.
PPL has adopted a goal of net-zero carbon emissions by 2050, which PPL expects will include continuing to retire coal-fired generation and investing in research and innovation that will help to achieve this goal, while maintaining reliable and affordable energy in our service territories. The net-zero goal relates to direct and indirect carbon emissions consistent with Greenhouse Gas Protocol guidance and referenced by the EPA Center for Corporate Climate Leadership. Through 2021, PPL reduced carbon emissions nearly 60% from 2010 levels and is targeting a 70% reduction from 2010 levels by 2035 and an 80% reduction by 2040.
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PPL is also aware of the various risks associated with climate change, including increased frequency and severity of severe weather. To address these risks, PPL continues to work to advance grid modernization and improve the Company's equipment to help mitigate the impacts of extreme weather events and improve reliability.
Water/Waste
(PPL, LKE, LG&E and KU)
Clean Water Act
Regulations under the federal Clean Water Act dictate permitting and mitigation requirements for facilities and construction projects that impact "Waters of the United States."States". Many other requirements relate to power plant operations, including the treatment of pollutants in effluents prior to discharge, the temperature of effluent discharges and the location, design and construction of cooling water intake structures at generating facilities, and standards intended to protect aquatic organisms that become trapped at or pulled through cooling water intake structures at generating facilities. These requirements could impose significant costs for LG&E and KU, which are expected to be subject to rate recovery.
Clean Water Act Jurisdiction
Environmental groups and others have claimed that discharges to groundwater from leaking CCR impoundments at power plants are subject to Clean Water Act permitting. A citizen suit raising such claims has been filed against KU with respect to the E.W. Brown plant, as discussed under “Legal Matters” - “E.W. Brown Environmental Claims” in Note 13 to the Financial Statements. On April 12, 2019, the EPA released regulatory clarification finding that Clean Water Act jurisdiction does not cover such discharges to groundwater. On January 23, 2020, the EPA announced a final rule modifying the jurisdictional scope of the Clean Water Act. The announced rule revises the definition of the "Waters of the United States," including a revision to exclude groundwater from the definition. Additionally, a ruling fromIn April 2020, the U.S. Supreme Court inissued a pending case, likely in the first half of 2020, is expected to provide additional clarification on the scope of Clean Water Act jurisdiction. Extendingruling that Clean Water Act jurisdiction may apply to certain discharges to groundwater that result in the functional equivalent of a direct discharge to navigable waters. PPL, LG&E, and KU are unaware of any unpermitted releases from their facilities that are subject to Clean Water Act jurisdiction, but future regulatory developments and judicial rulings could potentially subject certain releases from CCR impoundments and landfills to additional permitting and remediation requirements, which could impose substantial costs. Any associated costs are expected to be subject to rate recovery. PPL, LKE, LG&E and KU are unable to predict the outcome or financial impact of currentfuture regulatory proceedings and litigation.
Superfund and Other Remediation
(All Registrants)
From time to time, PPL's subsidiaries in the United States undertake testing, monitoring or remedial action in response to spills or other releases at various on-site and off-site locations, negotiate with the EPA and state and local agencies regarding actions necessary to comply with applicable requirements, negotiate with property owners and other third parties alleging impacts from PPL's operations and undertake similar actions necessary to resolve environmental matters that arise in the course of normal operations. Based on analyses to date, resolution of these environmental matters is not expected to have a significant adverse impact on the operations of PPL, PPL Electric, LG&E and KU.
Future cleanup or remediation work at sites not yet identified may result in significant additional costs for PPL, PPL Electric, LKE, LG&E and KU.the Registrants. Insurance policies maintained by LKE, LG&E and KU may be available to cover certain of the costs or other obligations related to these matters, but the amount of insurance coverage or reimbursement cannot be estimated or assured.
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See “Legal Matters” in Note 1314 to the Financial Statements for additional information.
(All Registrants)
SEASONALITY
The demand for and market prices of electricity and natural gas are affected by weather. As a result, the Registrants' operating results in the future may fluctuate substantially on a seasonal basis, especially when unpredictable weather conditions make such fluctuations more pronounced. The pattern of this fluctuation may change depending on the type and location of the facilities owned. See "Item 1. Business - Environmental Matters - Air" for additional information regarding climate change.
FINANCIAL CONDITION
See "Financial Condition" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for this information.
CAPITAL EXPENDITURE REQUIREMENTS
See "Financial Condition - Liquidity and Capital Resources - Forecasted Uses of Cash - Capital Expenditures" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for information concerning projected capital expenditure requirements for 20202023 through 2024.2025. See "Item 1. Business - Environmental Matters" for additional information concerning the potential impact on capital expenditures from environmental matters.
PPL, together with its subsidiaries, is committed to fostering an exceptional workplace for employees. PPL pledges to enable the success of its current and future workforce by cultivating a diverse, equitable and inclusive culture, fostering professional development, encouraging employee engagement, and ensuring a safe and healthy work environment. Matters related to these priorities and corporate culture are overseen by PPL's senior management, which provides updates to the PPL Board of Directors (the Board). Pursuant to its charter, the Compensation Committee of the Board of Directors also periodically reviews and assesses the Company's strategy for human capital management. PPL's investment in the success of our workforce is embodied in the following areas with dedicated leadership and Board oversight:
•Diversity, equity and inclusion (DEI) - Foster an inclusive, respectful and diverse workplace through a comprehensive DEI strategy and commitments. PPL created a chief diversity officer position in 2022 to lead the company's DEI efforts. Senior management reviews demographic metrics, DEI objectives and associated programs semi-annually. The Board also receives periodic updates from senior management on PPL's DEI strategy and initiatives.
•Employee engagement - Create a workplace that fosters an engaged, high-quality workforce. PPL's operating companies regularly conduct assessments related to employee engagement, safety and culture. Senior management reviews corporate culture with the Board annually.
•Professional development - Invest in our current and future workforce through training and development, succession planning and creation of a pipeline for internal advancement. Senior management reviews succession planning with the Compensation Committee of the Board on an annual basis.
•Comprehensive benefits - In addition to challenging careers and competitive salaries, PPL offers competitive benefits programs to attract and retain talent and support employees' well-being. PPL offers competitive vacation time, expanded leave for new parents, retirement programs, and internal and external development opportunities, including tuition reimbursement offerings for undergraduate and certain graduate degrees. Senior management conducts annual benchmarking of employee compensation and benefits.
•Safety and Compliance - PPL is also committed to maintaining an ethical and safe workplace culture. Additional steps to ensure Board oversight in these areas include:
•Safety – PPL carries out programs focused on health and safety, including emergency preparedness, vehicle safety and accident prevention. Employees receive safety training and are encouraged to share, implement, and follow best practices. Senior management receives monthly safety data updates to determine whether additional safety measures should be implemented. The Board annually reviews the company's safety programs and results. The Board is also immediately engaged in the event of a fatality.
•Compliance – The Corporate Compliance Committee, including senior executives, meets quarterly to discuss metrics and other matters related to the compliance and ethics culture. Among the items discussed are
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statistics regarding Ethics Helpline reports and employee concerns. This information is also reviewed with the Audit Committee of the Board quarterly.
PPL will continue to engage with employees and to assess these priorities as we work to best position individuals and the company for future success. PPL had a turnover rate of 10.7% for the year ended December 31, 2022. Looking forward, we will maintain our strong focus on workforce planning to address future talent needs.
At December 31, 2019,2022, PPL and its subsidiaries had the following full-time employees and employees represented by labor unions:
| Total Full-Time Employees | Number of Union Employees | Percentage of Total Workforce | |||||||||||||||
| PPL | 6,527 | 2,411 | 37 | % | |||||||||||||
| PPL Electric | 1,382 | 913 | 66 | % | |||||||||||||
| LG&E | 964 | 618 | 64 | % | |||||||||||||
| KU | 807 | 109 | 14 | % | |||||||||||||
Total Full-Time Employees | Number of Union Employees | Percentage of Total Workforce | ||||||
| PPL | 12,280 | 5,787 | 47 | % | ||||
| PPL Electric | 1,562 | 918 | 59 | % | ||||
| LKE | 3,480 | 786 | 23 | % | ||||
| LG&E | 1,039 | 668 | 64 | % | ||||
| KU | 890 | 118 | 13 | % | ||||
In March 2022, members of the IBEW Local 1600 ratified a new five-year labor unions.agreement with PPL and PPL Electric. The contract covers over 900 employees and was effective May 16, 2022. The current five-year agreement expires in May 2027. The terms of the new labor agreement are not expected to have a significant impact on the financial results of PPL or PPL Electric.
Labor agreement negotiations with the KU USW are expected to commence in July 2023. The current contract covers over 40 employees whoand is scheduled to expire in August 2023.
(PPL and LG&E)
Labor agreement negotiations with the LG&E IBEW are members of labor unions (or 60% of PPL's U.K. workforce). WPD recognizes four unions, the largest of which represent 41% of its union workforce. WPD's Electricity Business Agreement, whichexpected to commence in October 2023. The current contract covers 3,868 unionover 600 employees may be amended by agreement between WPD and the unions and can be terminated with 12 months' notice by either side.is scheduled to expire in November 2023.
CYBERSECURITY MANAGEMENT
The Registrants and their subsidiaries are subject to risks from cyber-attacks that have the potential to cause significant interruptions to the operation of their businesses. The frequency of these attempted intrusions has increased in recent years and the sources, motivations and techniques of attack continue to evolve and change rapidly. PPL has adopted a variety of measures to monitor and address cyber-related risks.risks and continues to implement and explore additional cybersecurity measures. Cybersecurity and the effectiveness of PPL’sPPL's cybersecurity strategy are regular topics of discussion at Board of Directors meetings. PPL's strategy for managing cyber-related risks is risk-based and, where appropriate, integrated within PPL's enterprise risk management processes. PPL’sPPL's Vice President and Chief Information Security Officer (CISO)(CSO), who reports directly to the President and Chief Executive Officer (CEO), leads a dedicated cybersecurity team and is responsible for the design, implementation, and execution of cyber-risk management strategy. AmongIn addition, among other things, the CISOCSO and the cybersecurity team actively monitor the Registrants' systems, regularly review policies, compliance, regulations and best practices, perform penetration testing, leadconduct incident response exercises and internal ethical phishing campaigns, and provide training and communication across the organization to strengthen secure behavior.behavior and foster a culture of security. The cybersecurity team also routinely participates in industry-wide programs to further information sharing, intelligence gathering, and unity of effort in responding to potential or actual attacks. In addition, in 2018, PPL revised and formalized itshas a formal internal policy and procedures for communicating cybersecurity incidents on an enterprise-wide basis.
In addition to these enterprise-wide initiatives, PPL’sPPL's Kentucky, Pennsylvania and PennsylvaniaRhode Island operations are subject to extensive and rigorous mandatory cybersecurity requirements that are developed and enforced by NERC and approved by the FERC to protect grid security and reliability. LG&E is also subject to certain security directives related to cybersecurity issued by the Department of Homeland Security’s Transportation Security Administration in 2021. See Note 14 to the Financial Statements for additional information on these directives. Finally, PPL purchases insurance to protect against a wide range of costs that could be incurred in connection with cyber-related incidents. There can be no assurance, however, that these efforts will be effective to prevent interruption of services or other damage to the Registrants' businesses or operations or that PPL's insurance coverage will cover all costs incurred in connection with any cyber-related incident.
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AVAILABLE INFORMATION
PPL's Internet website is www.pplweb.com. Under the Investors heading of that website, PPL provides access to SEC filings of the Registrants (including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(d) or 15(d)) free of charge, as soon as reasonably practicable after filing with the SEC. The information contained on, or available through, PPL's Internet website is not, and shall not be deemed to be, incorporated by reference into this report. Additionally, the Registrants' filings are available at the SEC's website (www.sec.gov).
ITEM 1A. RISK FACTORS
The Registrants face various risks associated with their businesses. Our businesses, financial condition, cash flows or results of operations could be materially adversely affected by any of these risks. In addition, this report also contains forward-looking and other statements about our businesses that are subject to numerous risks and uncertainties. See "Forward-Looking Information," "Item 1. Business," "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1314 to the Financial Statements for moreadditional information concerning the risks described below and for other risks, uncertainties and factors that could impact our businesses and financial results.
As used in this Item 1A., the terms "we," "our" and "us" generally refer to PPL and its consolidated subsidiaries taken as a whole, or PPL Electric and its consolidated subsidiaries taken as a whole within the Pennsylvania Regulated segment discussion, or LKE and its consolidated subsidiaries taken as a whole within the Kentucky Regulated segment discussion, and RIE and its consolidated subsidiaries taken as a whole within the Rhode Island Regulated segment discussion.
Order of Subsection Presentation
A.Risks Related to Our U.K.Registrant Holding Company
B.Risks Related to Regulated SegmentUtility Operations
E.Risks Specific to operating outside the U.S., including risks associated with changes in U.K. laws and regulations, taxes, economic conditions and political conditions and policies of the U.K. government and the European Union. These risks may adversely impact the results of operations of our U.K. distribution business or affect our abilityRhode Island Regulated Segment
F.Risks Related to access U.K. revenues for payment of distributions or for other corporate purposes in the U.S.All Segments
PPL is a holding company and LKE are holding companies and theirits cash flows and ability to meet theirits obligations with respect to indebtedness and under guarantees, and PPL'sits ability to pay dividends, largely depends on the financial performance of theirits respective subsidiaries and, as a result, is effectively subordinated to all existing and future liabilities of those subsidiaries.
PPL is a holding company and LKE are holding companies and conduct theirconducts its operations primarily through subsidiaries. Substantially all of the consolidated assets of these RegistrantsPPL are held by theirits subsidiaries. Accordingly, these Registrants'PPL's cash flows and ability to meet debt and guaranty obligations, as well as PPL's ability to pay dividends, are largely dependent upon the earnings of those subsidiaries and the distribution or other payment of such earnings in the form of dividends, distributions, loans, advances or repayment of loans and advances. The subsidiaries are separate legal entities and have no obligation to pay dividends or distributions to their parents or to make funds available for such a payment. The ability of the Registrants'PPL's subsidiaries to pay dividends or distributions in the future will depend on the subsidiaries' future earnings and cash flows and the needs of their businesses, and may be restricted by their obligations to holders of their outstanding debt and other creditors, as well as any contractual or legal restrictions in effect at such time, including the requirements of state corporate law applicable to payment of dividends and distributions, and regulatory requirements, including restrictions on the ability of PPL Electric, LG&E, KU, and KURIE to pay dividends under Section 305(a) of the Federal Power Act.
Because PPL and LKE areis a holding companies, theircompany, its debt and guaranty obligations are effectively subordinated to all existing and future liabilities of theirits subsidiaries. Although certain agreements to which certain subsidiaries are parties limit their ability to incur additional indebtedness, PPL and LKE and theirits subsidiaries retain the ability to incur substantial additional indebtedness and other liabilities. Therefore, PPL's and LKE's rights and the rights of theirits creditors, including rights of debt holders, to participate in the assets of any of theirits subsidiaries, in the event that such a subsidiary is liquidated or reorganized, will be subject to the prior claims of such subsidiary's creditors.
(PPL Electric, LG&E and KU)All Registrants)
Our domestic regulated utility businesses face many of the same risks, in addition to those risks that are unique to each of the Kentucky Regulated, Pennsylvania Regulated and PennsylvaniaRhode Island Regulated segments. Set forth below are risk factors common to both domesticthe regulated segments, followed by sections identifying separately the risks specific to each of these segments.
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Our profitability is highly dependent on our ability to recover the costs of providing energy and utility services to our customers and earn an adequate return on our capital investments. Regulators may not approve the rates we request and existing rates may be challenged.
The rates we charge our utility customers must be approved by one or more federal or state regulatory commissions, including the FERC, KPSC, VSCC, PAPUC and PUC.RIPUC. Although rate regulation is generally premised on the recovery of prudently incurred costs and a reasonable rate of return on invested capital, there can be no assurance that regulatory authorities will consider all of our costs to have been prudently incurred or that the regulatory process by which rates are determined will always result in rates that achieve full or timely recovery of our costs or an adequate return on our capital investments. Federal or state agencies, intervenors and other permitted parties may challenge our current or future rate requests, structures or mechanisms, and ultimately reduce, alter or limit the rates we receive. Although our rates are generally regulated based on an analysis of our costs incurred in a base year or on future projected costs, the rates we are allowed to charge may or may not match our costs at any given time. Our domestic regulated utility businesses are subject to substantial capital expenditure requirements over the next several years, which will likelymay require rate increase requests to the regulators.regulators in the future. If our costs are not adequately recovered through rates, it could have an adverse effect on our business, results of operations, cash flows and financial condition.
Our domestic utility businesses are subject to significant and complex governmental regulation.
In addition to regulating the rates we charge, various federal and state regulatory authorities regulate many aspects of our domestic utility operations, including:
•the terms and conditions of our service and operations;
•financial and capital structure matters;
•siting, construction and operation of facilities;
•mandatory reliability and safety standards under the Energy Policy Act of 2005 and other standards of conduct;
•accounting, depreciation and cost allocation methodologies;
•tax matters;
•affiliate transactions;
•acquisition and disposal of utility assets and issuance of securities; and
•various other matters, including energy efficiency.
Such regulations or changes thereto may subject us to higher operating costs or increased capital expenditures and failure to comply could result in sanctions or possible penalties which may not be recoverable from customers.
Our domestic regulated businesses undertake significant capital projects and these activities are subject to unforeseen costs, delays or failures, as well as risk of inadequate recovery of resulting costs.
The domestic regulated utility businesses are capital intensive and require significant investments in energy generation (in the case of LG&E and KU) and transmission, distribution and other infrastructure projects, such as projects for environmental compliance and system reliability. The completion of these projects without delays or cost overruns is subject to risks in many areas, including:
•approval, licensing and permitting;
•land acquisition and the availability of suitable land;
skilled labor or equipment shortages;
•construction problems or delays, including disputes with third-party intervenors;
•increases in commodity prices or labor rates;
•potential supply chain disruptions or delays; and
•contractor performance.
Failure to complete our capital projects on schedule or on budget, or at all, could adversely affect our financial performance, operations and future growth if such expenditures are not granted rate recovery by our regulators.
We are or may be subject to costs of remediation of environmental contamination at facilities owned or operated by our former subsidiaries.
We may be subject to liability for the costs of environmental remediation of property now or formerly owned by us with respect to substances that we may have generated regardless of whether the liabilities arose before, during or after the time we owned
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or operated the facilities. We also have current or previous ownership interests in sites associated with the production of manufactured gas for which we may be liable for additional costs related to investigation, remediation and monitoring of these sites. Remediation activities associated with our former manufactured gas plant operations are one source of such costs. Citizen groups or others may bring litigation regarding environmental issues including claims of various types, such as property damage, personal injury and citizen challenges to compliance decisions on the enforcement of environmental requirements, which could subject us to penalties, injunctive relief and the cost of litigation. We cannot predict the amount and timing of all future expenditures (including the potential or magnitude of fines or penalties) related to such environmental matters, although they could be material.
(PPL, LKE, LG&E and KU)
We are subject to financial, operational, regulatory and other risks related to requirements, developments and uncertainties in environmental regulation, including those affecting coal-fired generation facilities.
Extensive federal, state and local environmental laws and regulations are applicable to LG&E's and KU's generation supply, including its air emissions, water discharges (ELGs) and the management of hazardous and solid wastes (CCRs), among other business-related activities, and the costs of compliance or alleged non-compliance cannot be predicted butand could be material. In addition, our costs may increase significantly if the requirements or scope of environmental laws, regulations or similar rules are expanded or changed as the environmental standards governing LG&E’s and KU’s businesses, particularly as applicable to coal-fired generation and related activities, continue to be subject to uncertainties due to rulemaking and other regulatory developments, legislative activities and litigation, administrative orand permit challenges. The Biden administration is considering a wide range of potential policies, executive orders, rules, legislation and other initiatives in connection with climate change that may affect these costs. Depending on the extent, frequency and timing of such changes, the companiesLG&E and KU may face higher risks of unsuccessful implementation of environmental-related business plans, noncompliance with applicable environmental rules, delayed or incomplete rate recovery or increased costs of implementation. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or forfeitures, operational changes, permit limitations or other restrictions. At some of our older generating facilities it may be uneconomic for us to install necessary pollution control equipment, which could cause us to retire those units. Market prices for energy and capacity also affect this cost-effectiveness analysis. Many of these environmental law considerations are also applicable to the operations of our key suppliers or customers, such as coal producers, power producers and industrial power users, and may impact the costs of their products and demand for our services.
(PPL LKE and LG&E)
We are subject to operational, regulatory and other risks regarding natural gas supply infrastructure.
A natural gas pipeline explosion or associated incident could have a significant impact on LG&E’s natural gas operations or result in significant damages and penalties that could have an adverse impact on LG&E’s financial position and results of operations. The Pipeline and Hazardous Materials Safety Administration enforces regulations that govern the design, construction, operation and maintenance of pipeline facilities. Failure to comply with these regulations could result in the assessment of fines or penalties against LG&E. These regulations require, among other things, that pipeline operators engage in atake certain measures with respect to pipeline integrity program.integrity. Depending on the results of these integrity tests and other integrity program activities, we could incur significant and unexpected costs to perform remedial activities on our natural gas infrastructure to ensure our continued safe and reliable operation. Recent pipeline incidents in the U.S. have also led to the introduction of proposed rules and possible federal legislative actions which could impose restrictions on LG&E’s operations or require more stringent testing to
ensure pipeline integrity. Implementation of these regulations could increase our costs to comply with pipeline integrity and safety regulations.
(PPL and PPL Electric)
We face competition for transmission projects, which could adversely affect our rate base growth.
FERC Order 1000, issued in July 2011, establishes certain procedural and substantive requirements relating to participation, cost allocation and non-incumbent developer aspects of regional and inter-regional electricity transmission planning activities. The PPL Electric transmission business, operating under a FERC-approved PJM Open Access Transmission Tariff, is subject to
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competition pursuant to FERC Order 1000 from entities that are not incumbent PJM transmission owners with respect to the construction and ownership of transmission facilities within PJM. Increased competition can result in lower rate base growth.
We could be subject to higher costs and/or penalties related to Pennsylvania Conservation and Energy Efficiency Programs.
PPL Electric is subject to Act 129, which contains requirements for energy efficiency and conservation programs and for the use of smart metering technology, imposes PLR electricity supply procurement rules, provides remedies for market misconduct, and made changes to the existing Alternative Energy Portfolio Standard. The law also requires electric utilities to meet specified goals for reduction in customer electricity usage and peak demand. Utilities not meeting these Act 129 requirements are subject to significant penalties that cannot be recovered in rates. Numerous factors outside of our control could prevent compliance with these requirements and result in penalties to us.
E. Risks Related to the Rhode Island Regulated Segment
(PPL)
PPL may not realize the anticipated benefits of the RIE acquisition, which could materially adversely affect PPL's business, financial condition and results of operations.
PPL may not realize the anticipated financial and operational benefits from the RIE acquisition if the business is not integrated in an efficient and effective manner or if integration takes longer than anticipated. These integration risks include potential difficulties in conversion of systems and information, difficulties in harmonizing inconsistencies in standards, controls, procedures, practices and policies, disruption from the acquisition making it more difficult to maintain relationships with customers, employees or suppliers, and diversion of management time and attention to integration and other acquisition-related issues. In addition, PPL has incurred, and will continue to incur, significant costs in connection with the integration, and additional unanticipated costs may arise. No assurance can be given that the anticipated benefits from the acquisition will be achieved or, if achieved, the timing of their achievement. These risks and their consequences could result in increased costs or decreases in the amount of expected revenues and could have a material adverse effect on PPL's business, financial condition and results of operations.
We are subject to operational, regulatory and other risks regarding natural gas supply infrastructure in Rhode Island.
A natural gas pipeline explosion or associated incident could have a significant impact on RIE's natural gas operations or result in significant damages and penalties that could have an adverse impact on RIE’s financial position and results of operations. The Pipeline and Hazardous Materials Safety Administration enforces regulations that govern the design, construction, operation and maintenance of pipeline facilities. Failure to comply with these regulations could result in the assessment of fines or penalties against RIE. These regulations require, among other things, that pipeline operators take certain measures with respect to pipeline integrity. Depending on the results of integrity tests and other integrity program activities, we could incur significant and unexpected costs to perform remedial activities on our natural gas infrastructure to ensure our continued safe and reliable operation.
F. Risks Related to All Segments
(All Registrants)
COVID-19 or other pandemics and resultant impact on business and economic conditions could negatively affect our business.
The operationCOVID-19 pandemic disrupted the U.S. and global economies. While its impact is waning in many respects, a resurgence, new variant or other pandemic and related remediation efforts could present challenges to businesses, communities, workforces, markets and supply chains. The COVID-19 virus continues to pose risks to the health and welfare of our businesses isthe Registrants’ customers, employees, contractors and suppliers, and to affect the conduct of their business. The COVID-19 pandemic has been a contributing factor to certain supply chain shortages that have created risks of potential equipment and fuel supply chain disruptions. These issues may continue or become worse, as a result of pandemics and other factors, and Registrants may be forced to rely on a larger pool of suppliers, which could pose operational risks. These factors have the potential to materially and adversely affect the Registrants’ business and operations, especially if they are exacerbated by a resurgence or other pandemics. At this time, the Registrants’ cannot predict the extent to which these or other pandemic-related factors may affect their business, earnings or other financial results.
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Our business operations are continually subject to cyber-based security and data integrity risks.risks from vulnerabilities related to our IT systems, operational technology infrastructure and supply chain relationships.
Numerous functions affecting the efficient operation of our businesses are dependent on the secure and reliable storage, processing and communication of electronic data and the use of sophisticated computer hardware and software systems. The operation of our transmission and distribution systems, including gas distribution systems, as well as our generation plants, are all reliant on cyber-based technologies and, therefore, subject to the risk that these systems could be the target of disruptive actions by terrorists, nation state actors or criminals or otherwise be compromised by unintentional events. Attacks may come through ransomware, software updates or patches, use of opensource software, firmware that hackers can manipulate to include malicious codes for exploitation at a later date, orthe compromising of hardware by bad actors, creating serious risks to our security, the security of our customers' information, and potentially to our ability to provide power. As a result, operations could be interrupted, property could be damaged and sensitive customer information lost or stolen, causing us to incur significant losses of revenues, other substantial liabilities and damages, costs to replace or repair damaged equipment and damage to our reputation. Threats to our systems and operations continue to emerge as new ways to compromise components of our systems or networks are developed. Additionally, cybersecurity risks also threaten our supply chains, including aspects that are not under our control, such as the incorporation of opensource software in systems or software that we use, that despite our efforts do not meet our current security standards.
In addition, under the Energy Policy Act of 2005, users, owners and operators of the bulk power transmission system, including PPL Electric, LG&E, KU and KU,RIE, are subject to mandatory reliability standards promulgated by NERC and enforced by the FERC. As an operator of natural gas distribution systems, LG&E is also subject to mandatory reliability standards of the U.S. Department of Transportation.Transportation and is also subject to certain security directives related to cybersecurity issued by the Department of Homeland Security (DHS) Transportation Security Administration (TSA) in 2021. The TSA has determined that LG&E is critical, while RIE has not been notified of this distinction and is therefore not currently subject to the security directives. Failure to comply with these standards could result in the imposition of fines or civil penalties, and potential exposure to third party claims for alleged violations of the standards.
We are subject to risks associated with federal and state tax laws and regulations.
Changes in tax law as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact our results of operations and cash flows. We are required to make judgments in order to estimate our obligations to taxing authorities. These tax obligations include income, property, gross receipts, franchise, sales and use, employment-related and other taxes. We also estimate our ability to utilize deferred tax assets and tax credits. Dependent upon the revenue needs of the jurisdictions in which our businesses operate, various tax and fee increases may be proposed or considered. We cannot predict changes in tax law or regulation or the effect of any such changes on our businesses. Any such changes could increase tax expense and could have a significant negative impact on our results of operations and cash flows. We have completed or made reasonable estimates of theThe effects of the TCJA have been reflected in our December 31, 2018 financial statements, and we continue to evaluate the application of the law in calculating income tax expense.
Increases in electricity prices and/or a weak economy can lead to changes in legislative and regulatory policy, including the promotion of energy efficiency, conservation and distributed generation or self-generation, which may adversely impact our business.
Energy consumption is significantly impacted by overall levels of economic activity and costs of energy supplies. Economic downturns or periods of high energy supply costs can lead to changes in or the development of legislative and regulatory policy designed to promote reductions in energy consumption and increased energy efficiency, alternative and renewable energy sources, and distributed or self-generation by customers. This focus on conservation, energy efficiency and self-generation may result in a decline in electricity demand, which could adversely affect our business.
We could be negatively affected by rising interest rates, downgrades to our credit ratings, adverse credit market conditions or other negative developments in our ability to access capital markets.
Our businesses are capital-intensive and, in the ordinary course of business, we are reliant upon adequate long-term and short-term financing to fund our significant capital expenditures, debt service and operating needs. As a result, we are sensitive to developments in interest rates, credit rating considerations, insurance, security or collateral requirements, market liquidity and credit availability and refinancing opportunities necessary or advisable to respond to credit market changes. Changes in these conditions could result in increased costs and decreased availability of credit. In addition, certain sources of debt and equity capital have expressed reservations about investing in companies that rely on fossil fuels. If sources of our capital are reduced, capital costs could increase materially.
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A downgrade in our credit ratings could negatively affect our ability to access capital and increase the cost of maintaining our credit facilities and any new debt.
Credit ratings assigned by Moody's and S&P to our businesses and their financial obligations have a significant impact on the cost of capital incurred by our businesses. A ratings downgrade could increase our short-term borrowing costs and negatively affect our ability to fund liquidity needs and access new long-term debt at acceptable interest rates. See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Liquidity and Capital Resources - Ratings Triggers" for additional information on the financial impact of a downgrade in our credit ratings.
Our operating revenues could fluctuate on a seasonal basis, especially as a result of extreme weather conditions.conditions, including conditions caused or exacerbated by climate change.
Our businesses are subject to seasonal demand cycles. For example, in some markets demand for, and market prices of, electricity peak during hot summer months, while in other markets such peaks occur in cold winter months. As a result, our overall operating results may fluctuate substantially on a seasonal basis if weather conditions diverge adversely from seasonal norms. The effects of climate change may accelerate or magnify fluctuations in our operating results.
Operating expenses could be affected by weather conditions, including storms, as well as by significant man-made or accidental disturbances, including terrorism or natural disasters.
Weather and other factors can significantly affect our profitability or operations by causing outages, damaging infrastructure and requiring significant repair costs. Storm outages and damage often directly decrease revenues and increase expenses, due to reduced usage and restoration costs.
Our businesses are subject to physical, market and economic risks relating to potential effects of climate change.
Climate change may produce changes in weather or other environmental conditions, including temperature or precipitation levels, and thus may impact consumer demand for electricity. In addition, the potential physical effects of climate change, such as increased frequency and severity of storms, floods, and other climatic events, could disrupt our operations and cause us to incur significant costs to prepare for or respond to these effects. These or other meteorological changes could lead to increased operating costs, capital expenses or power purchase costs. Greenhouse gas regulation could increase the cost of electricity, particularly power generated by fossil fuels, and such increases could have a depressive effect on regional economies. Reduced economic and consumer activity in our service areas -- both generally and specific to certain industries and consumers accustomed to previously lower cost power -- could reduce demand for the power we generate, market and deliver. Also, demand for our energy-related services could be similarly lowered by consumers' preferences or market factors favoring energy efficiency, low-carbon power sources or reduced electricity usage. The Registrants' responses to such climate-related risks include compliance with evolving governmental policy and developing and implementing strategies designed to meet net zero carbon emissions goals, which may affect our financial condition, results of operations or cash flows.
We cannot predict the outcome of legal proceedings or investigations related to our businesses in which we are periodically involved. An unfavorable outcome or determination in any of these matters could have a material adverse effect on our financial condition, results of operations or cash flows.
We are involved in legal proceedings, claims and litigation and periodically are subject to state and federal investigations arising out of our business operations, the most significant of which are summarized in Item 1. Business and "Regulatory
Matters" in Note 7 to the Financial Statements and in "Legal Matters" and "Regulatory Issues" in Note 1314 to the Financial Statements. We cannot predict the ultimate outcome of these matters, nor can we reasonably estimate the costs or liabilities that could potentially result from a negative outcome in each case.
Significant increases in our operation and maintenance expenses, including health care and pension costs, could adversely affect our future earnings and liquidity.
We continually focus on limiting and reducing our operation and maintenance expenses. However, we expect to continue to face increased cost pressures in our operations. Increased costs of materials and labor may result from general inflation, increased regulatory requirements (especially in respect of environmental regulations), the need for higher-cost expertise in the workforce or other factors. In addition, pursuant to collective bargaining agreements, we are contractually committed to provide specified levels of health care and pension benefits to certain current employees and retirees. These benefits give rise to significant expenses. Due to general inflation with respect to such costs, the aging demographics of our workforce and other
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factors, we have experienced significant health care cost inflation in recent years, and we expect our health care costs, including prescription drug coverage, to continue to increase despite measures that we have taken and expect to take to require employees and retirees to bear a higher portion of the costs of their health care benefits. In addition, we expect to continue to incur significant costs with respect to the defined benefit pension plans for our employees and retirees. The measurement of our expected future health care and pension obligations, costs and liabilities is highly dependent on a variety of assumptions, most of which relate to factors beyond our control. These assumptions include investment returns, interest rates, health care cost trends, inflation rates, benefit improvements, salary increases and the demographics of plan participants. If our assumptions prove to be inaccurate, our future costs and cash contribution requirements to fund these benefits could increase significantly.
We may incur liabilities in connection with discontinued operations.divestitures.
In connection with various divestitures, and certain other transactions, we have indemnified or guaranteed parties against certain liabilities. These indemnities and guarantees relate, among other things, to liabilities which may arise with respect to the period during which we or our subsidiaries operated a divested business, and to certain ongoing contractual relationships and entitlements with respect to which we or our subsidiaries made commitments in connection with thea divestiture. See "Guarantees and Other Assurances" in Note 1314 to the Financial Statements.
We are subject to liability risks relating to our generation, transmission and distribution operations.
The conduct of our physical and commercial operations subjects us to many risks, including risks of potential physical injury, property damage or other financial liability, caused to or by employees, customers, contractors, vendors, contractual or financial counterparties and other third parties.
Our facilities may not operate as planned, which may increase our expenses and decrease our revenues and have an adverse effect on our financial performance.
Operation of power plants, transmission and distribution facilities, information technology systems and other assets and activities subjects us to a variety of risks, including the breakdown or failure of equipment, accidents, security breaches, viruses or outages affecting information technology systems, labor disputes, obsolescence, delivery/transportation problems and disruptions of fuel supply and performance below expected levels. These events may impact our ability to conduct our businesses efficiently and lead to increased costs, expenses or losses. Operation of our delivery systems below our expectations may result in lost revenue and increased expense, including higher maintenance costs, which may not be recoverable from customers. Planned and unplanned outages at our power plants may require us to purchase power at then-current market prices to satisfy our commitments or, in the alternative, pay penalties and damages for failure to satisfy them.
Although we maintain insurance coverage for certain of these risks, we do not carry insurance for all of these risks and no assurance can be given that such insurance coverage will be sufficient to compensate us in the event losses occur.
We are required to obtain, and to comply with, government permits and approvals.
We are required to obtain, and to comply with, numerous permits, approvals, licenses and certificates from governmental agencies. The process of obtaining and renewing necessary permits can be lengthy and complex and sometimes result in the establishment of permit conditions that make the project or activity for which a permit was sought unprofitable or otherwise unattractive. In addition, such permits or approvals may be subject to denial, revocation or modification under circumstances. Failure to obtain or comply with the conditions of permits or approvals, or failure to comply with any applicable laws or regulations, may result in delay or temporary suspension of our operations and electricity sales or the curtailment of our power delivery and may subject us to penalties and other sanctions. Although various regulators routinely renew existing licenses, renewal could be denied or jeopardized by various factors, including failure to provide adequate financial assurance for closure; failure to comply with environmental, health and safety laws and regulations or permit conditions; local community, political or other opposition; and executive, legislative or regulatory action.
Our cost or inability to obtain and comply with the permits and approvals required for our operations could have a material adverse effect on our operations and cash flows. In addition, new environmental legislation or regulations, if enacted, or changed interpretations of existing laws may elicit claims that historical routine modification activities at our facilities violated applicable laws and regulations. In addition to the possible imposition of fines in such cases, we may be required to undertake significant capital investments in pollution control technology and obtain additional operating permits or approvals, which could have an adverse impact on our business, results of operations, cash flows and financial condition.
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War, other armed conflicts or terrorist attacks could have a material adverse effect on our business.
War, terrorist attacks and unrest have caused and may continue to cause instability in the world's financial and commercial markets and have contributed to high levels of volatility in prices for oil and gas.markets. In addition, unrest in the Middle East could lead to acts of terrorism in the United States the United Kingdom or elsewhere, and acts of terrorism could be directed against companies such as ours. Armed conflicts and terrorism and their effects on us or our markets may significantly affect our business and results of operations in the future. In addition, we may incur increased costs for security, including additional physical plant security and security personnel or additionalincreased capability following a terrorist incident.
We are subject to counterparty performance, credit or other risk in the provision of goods or services to us, which could adversely affect our ability to operate our facilities or conduct business activities.
We purchase from a variety of suppliers energy, capacity, fuel, natural gas, transmission service and certain commodities used in the physical operation of our businesses, as well as goods or services, including information technology rights and services, used in the administration of our businesses. Delivery of these goods and services is dependent on the continuing operational performance and financial viability of our contractual counterparties and also the markets, infrastructure or third parties they use to provide such goods and services to us. As a result, we are subject to risks of disruptions, curtailments or increased costs in the operation of our businesses if such goods or services are unavailable or become subject to price spikes or if a counterparty fails to perform. Such disruptions could adversely affect our ability to operate our facilities or deliver services and collect revenues, which could result in lower sales and/or higher costs and thereby adversely affect our results of operations. The performance of coal markets and producers may be the subject of increased counterparty risk to LKE, LG&E and KU currently due to weaknesses in such markets and suppliers. The coal industry is subject to increasing competitive pressures from natural gas markets, political pressures and new or more stringent environmental regulation, including regulation of combustion byproducts and water inputs or discharges.
We are subject to the risk that our workforce and its knowledge base may become depleted in coming years.
We are experiencing an increase inexperience attrition due primarily to the number of retiring employees, with the risk that critical knowledge will be lost and that it may be difficult to replace departed personnel, and to attract and retain new personnel, with appropriate skills and experience, due to an increase in competition for such workers.experience.
ITEM 1B. UNRESOLVED STAFF COMMENTS
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
None.
ITEM 2. PROPERTIES
Kentucky Regulated Segment (PPL, LKE, LG&E and KU)
LG&E's and KU's properties consist primarily of regulated generation facilities, electricity transmission and distribution assets and natural gas transmission and distribution assets in Kentucky. The capacity of generation units is based on a number of factors, including the operating experience and physical condition of the units, and may be revised periodically to reflect changed circumstances. The electricity generating capacity at December 31, 20192022 was:
| LKE | LG&E | KU | LG&E | KU | ||||||||||||||||||||||||||||||||||||||||
| Primary Fuel/Plant | Total MW Capacity Summer | Ownership or Other Interest in MW | % Ownership or Other Interest | Ownership or Other Interest in MW | % Ownership or Other Interest | Ownership or Other Interest in MW | Primary Fuel/Plant | Total MW Capacity Summer | % Ownership or Other Interest | Ownership or Other Interest in MW | % Ownership or Other Interest | Ownership or Other Interest in MW | ||||||||||||||||||||||||||||||||
| Coal | Coal | |||||||||||||||||||||||||||||||||||||||||||
| Ghent - Units 1- 4 | 1,919 | 1,919 | 100.00 | 1,919 | Ghent - Units 1- 4 | 1,919 | 100.00 | 1,919 | ||||||||||||||||||||||||||||||||||||
| Mill Creek - Units 1- 4 | 1,465 | 1,465 | 100.00 | 1,465 | Mill Creek - Units 1- 4 | 1,465 | 100.00 | 1,465 | ||||||||||||||||||||||||||||||||||||
| E.W. Brown - Unit 3 | 412 | 412 | 100.00 | 412 | E.W. Brown - Unit 3 | 412 | 100.00 | 412 | ||||||||||||||||||||||||||||||||||||
| Trimble County - Unit 1 (a) | 493 | 370 | 75.00 | 370 | Trimble County - Unit 1 (a) | 493 | 75.00 | 370 | ||||||||||||||||||||||||||||||||||||
| Trimble County - Unit 2 (a) | 732 | 549 | 14.25 | 104 | 60.75 | 445 | Trimble County - Unit 2 (a) | 732 | 14.25 | 104 | 60.75 | 445 | ||||||||||||||||||||||||||||||||
| 5,021 | 4,715 | 1,939 | 2,776 | |||||||||||||||||||||||||||||||||||||||||
| 5,021 | 1,939 | 2,776 | ||||||||||||||||||||||||||||||||||||||||||
| Natural Gas/Oil | Natural Gas/Oil | |||||||||||||||||||||||||||||||||||||||||||
| E.W. Brown Unit 5 (b) | 130 | 130 | 53.00 | 69 | 47.00 | 61 | E.W. Brown Unit 5 (b) | 130 | 53.00 | 69 | 47.00 | 61 | ||||||||||||||||||||||||||||||||
| E.W. Brown Units 6 - 7 | 292 | 292 | 38.00 | 111 | 62.00 | 181 | E.W. Brown Units 6 - 7 | 292 | 38.00 | 111 | 62.00 | 181 | ||||||||||||||||||||||||||||||||
| E.W. Brown Units 8 - 11 (b) | 484 | 484 | 100.00 | 484 | E.W. Brown Units 8 - 11 (b) | 484 | 100.00 | 484 | ||||||||||||||||||||||||||||||||||||
| Trimble County Units 5 - 6 | 318 | 318 | 29.00 | 92 | 71.00 | 226 | Trimble County Units 5 - 6 | 318 | 29.00 | 92 | 71.00 | 226 | ||||||||||||||||||||||||||||||||
| Trimble County Units 7 - 10 | 636 | 636 | 37.00 | 235 | 63.00 | 401 | Trimble County Units 7 - 10 | 636 | 37.00 | 235 | 63.00 | 401 | ||||||||||||||||||||||||||||||||
| Paddy's Run Units 11 - 12 | 35 | 35 | 100.00 | 35 | ||||||||||||||||||||||||||||||||||||||||
| Paddy's Run Unit 12 | Paddy's Run Unit 12 | 23 | 100.00 | 23 | ||||||||||||||||||||||||||||||||||||||||
| Paddy's Run Unit 13 | 147 | 147 | 53.00 | 78 | 47.00 | 69 | Paddy's Run Unit 13 | 147 | 53.00 | 78 | 47.00 | 69 | ||||||||||||||||||||||||||||||||
| Haefling - Units 1 - 2 | 24 | 24 | 100.00 | 24 | Haefling - Units 1 - 2 | 24 | 100.00 | 24 | ||||||||||||||||||||||||||||||||||||
| Zorn Unit | 14 | 14 | 100.00 | 14 | ||||||||||||||||||||||||||||||||||||||||
| Cane Run Unit 7 | 662 | 662 | 22.00 | 146 | 78.00 | 516 | Cane Run Unit 7 | 662 | 22.00 | 146 | 78.00 | 516 | ||||||||||||||||||||||||||||||||
| 2,742 | 2,742 | 780 | 1,962 | 2,716 | 754 | 1,962 | ||||||||||||||||||||||||||||||||||||||
| Hydro | Hydro | |||||||||||||||||||||||||||||||||||||||||||
| Ohio Falls - Units 1-8 | 64 | 64 | 100.00 | 64 | Ohio Falls - Units 1-8 | 64 | 100.00 | 64 | ||||||||||||||||||||||||||||||||||||
| Dix Dam - Units 1-3 | 32 | 32 | 100.00 | 32 | Dix Dam - Units 1-3 | 32 | 100.00 | 32 | ||||||||||||||||||||||||||||||||||||
| 96 | 96 | 64 | 32 | 96 | 64 | 32 | ||||||||||||||||||||||||||||||||||||||
| Solar | Solar | |||||||||||||||||||||||||||||||||||||||||||
| E.W. Brown Solar (c) | 8 | 8 | 39.00 | 3 | 61.00 | 5 | E.W. Brown Solar (c) | 8 | 39.00 | 3 | 61.00 | 5 | ||||||||||||||||||||||||||||||||
| Total | 7,867 | 7,561 | 2,786 | 4,775 | Total | 7,841 | 2,760 | 4,775 | ||||||||||||||||||||||||||||||||||||
(b)There is an inlet air cooling system attributable to these units. This inlet air cooling system is not jointly owned; however, it is used to increase production on the units to which it relates, resulting in an additional 12 MW of capacity for LG&E and an additional 86 MW of capacity for KU.
(c)This unit is a 10 MW facility and achieves such production. The 8 MW solar facility summer capacity rating is reflective of an average expected output across the peak hours during the summer period based on average weather conditions at the solar facility.
For a description of LG&E's and KU's service areas, see "Item 1. Business - General - Segment Information - Kentucky Regulated Segment." At December 31, 2019,2022, LG&E's and KU's electricity transmission system included, in the aggregate, 45 substations (31 of which are shared with theand distribution system) with a total capacity of 8 million kVAsystems and 669 pole miles of lines. LG&E's distribution system included 96 substations (31 of which are shared with the transmission system) with a total capacity of 5
LG&E's natural gas transmission system includes 4,384 milesand distribution systems were:
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| LG&E | KU | |||||||||||||||||||||||||
| Distribution | Transmission | Distribution | Transmission | |||||||||||||||||||||||
| Electricity System | ||||||||||||||||||||||||||
| Substations (a) | 96 | 78 | 461 | 211 | ||||||||||||||||||||||
| Capacity (in millions of kVA) | 5 | 8 | 8 | 15 | ||||||||||||||||||||||
| Overhead lines (circuit miles) | 3,883 | 669 | 14,062 | 4,056 | ||||||||||||||||||||||
| Underground lines (circuit miles) | 2,791 | — | 2,728 | — | ||||||||||||||||||||||
| Natural Gas System | ||||||||||||||||||||||||||
| Distribution mains (miles) | 4,439 | — | — | — | ||||||||||||||||||||||
| Transmission pipeline (miles) | — | 234 | — | — | ||||||||||||||||||||||
| Transmission storage lines (miles) | — | 112 | — | — | ||||||||||||||||||||||
| Combustion turbine lines (miles) | — | 19 | — | 11 | ||||||||||||||||||||||
| Storage fields | — | 5 | — | — | ||||||||||||||||||||||
| Storage field capacity (Bcf) | — | 15 | — | — | ||||||||||||||||||||||
(a)191 substations (61 at LG&E and 130 at KU) are shared between the distribution mains and 371 miles of gas transmission mains, consisting of 234 miles of gas transmission pipeline, 117 miles of gas transmission storage lines, 20 miles of gas combustion turbine lines and one mile of gas transmission pipeline in regulator facilities. Five underground natural gas storage fields, with a total working natural gas capacity of approximately 15 Bcf, are used in providing natural gas service to ultimate consumers. KU's service area includes an additional 11 miles of gas transmission pipeline providing gas supply to natural gas combustion turbine electricity generating units.systems.
Substantially all of LG&E's and KU's respective real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity and, in the case of LG&E, the storage and distribution of natural gas, is subject to the lien of either the LG&E 2010 Mortgage Indenture or the KU 2010 Mortgage Indenture. See Note 8 to the Financial Statements for additional information.
LG&E and KU continuously reexamine development projects based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them or pursue other options. See Item 1. Business for a discussion related to LG&E's and KU's Solar Share program.
Pennsylvania Regulated Segment (PPL and PPL Electric)
For a description of PPL Electric's service area, see "Item 1. Business - General - Segment Information - Pennsylvania Regulated Segment." PPL Electric has electric transmission and distribution lines in public streets and highways pursuant to franchises and rights-of-way secured from property owners. At December 31, 2019,2022, PPL Electric's transmission system includes 5152 substations with a total capacity of 31 million kVA and 5,4395,307 circuit miles in service. PPL Electric's distribution system includes 353 substations with a total capacity of 14 million kVA, 36,38536,524 circuit miles of overhead lines and 8,5178,802 underground circuit miles. All of PPL Electric's facilities are located in Pennsylvania. Substantially all of PPL Electric's distribution properties and certain transmission properties are subject to the lien of the PPL Electric 2001 Mortgage Indenture. See Note 8 to the Financial Statements for additional information.
For a description of RIE's service area, see "Item 1. Business - General - Segment Information - Rhode Island Regulated Segment." At December 31, 2022, RIE's electric transmission system includes 44 substations with capacity of 33 kVA or higher, 342 circuit miles of overhead lines and 19 underground circuit miles. RIE's electric distribution system includes 59 substations, 5,328 circuit miles of overhead lines and 1,259 underground circuit miles. RIE also has distribution mains for its natural gas system with mileage of 3,227 miles. All of RIE's facilities are located in Rhode Island.
ITEM 3. LEGAL PROCEEDINGS
See Notes 6, 7, 9 and 1314 to the Financial Statements for information regarding legal, tax and regulatory matters and proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Liquidity and Capital Resources - Forecasted Uses of Cash" for information regarding certain restrictions on the ability to pay dividends for all Registrants.
PPL Corporation
Additional information for this item is set forth in the sections entitled "Quarterly Financial and Dividend Data," "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" and "Shareowner and Investor Information" of this report. At January 31, 2020,2023 there were 51,70246,380 common stock shareowners of record.
There were no purchases by PPL of its common stock during the fourth quarter of 2019.2022.
PPL Electric Utilities Corporation
There is no established public trading market for PPL Electric's common stock, as PPL owns 100% of the outstanding common shares. Dividends paid to PPL on those common shares are determined by PPL Electric's Board of Directors. PPL Electric paid common stock dividends to PPL of $486$340 million in 20192022 and $390$334 million in 2018.2021.
Louisville Gas and Electric Company
There is no established public trading market for LG&E's common stock, as LKE owns 100% of the outstanding common shares. Dividends paid to LKE on those common shares are determined by LG&E's Board of Directors. LG&E paid common stock dividends to LKE of $182$275 million in 20192022 and $156$192 million in 2018.2021.
Kentucky Utilities Company
There is no established public trading market for KU's common stock, as LKE owns 100% of the outstanding common shares. Dividends paid to LKE on those common shares are determined by KU's Board of Directors. KU paid common stock dividends to LKE of $229$296 million in 20192022 and $246$250 million in 2018.2021.
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
| PPL Corporation (a) (b) | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
Income Items (in millions) | ||||||||||||||||||||
| Operating revenues | $ | 7,769 | $ | 7,785 | $ | 7,447 | $ | 7,517 | $ | 7,669 | ||||||||||
| Operating income (c) | 2,840 | 2,852 | 2,901 | 2,936 | 2,802 | |||||||||||||||
| Income from continuing operations after income taxes attributable to PPL shareowners | 1,746 | 1,827 | 1,128 | 1,902 | 1,603 | |||||||||||||||
Loss from discontinued operations (net of income taxes) (f) | — | — | — | — | (921 | ) | ||||||||||||||
| Net income attributable to PPL shareowners (f) | 1,746 | 1,827 | 1,128 | 1,902 | 682 | |||||||||||||||
Balance Sheet Items (in millions) | ||||||||||||||||||||
| Total assets (d) | 45,680 | 43,396 | 41,479 | 38,315 | 39,301 | |||||||||||||||
| Short-term debt (d) | 1,151 | 1,430 | 1,080 | 923 | 916 | |||||||||||||||
| Long-term debt (d) | 21,893 | 20,599 | 20,195 | 18,326 | 19,048 | |||||||||||||||
| Common equity (d) | 12,991 | 11,657 | 10,761 | 9,899 | 9,919 | |||||||||||||||
| Total capitalization (d) | 36,035 | 33,686 | 32,036 | 29,148 | 29,883 | |||||||||||||||
| Financial Ratios | ||||||||||||||||||||
| Return on common equity - % (d)(f) | 14.3 | 16.1 | 10.9 | 19.2 | 5.8 | |||||||||||||||
| Common Stock Data | ||||||||||||||||||||
| Number of shares outstanding - Basic (in thousands) | ||||||||||||||||||||
| Year-end | 767,233 | 720,323 | 693,398 | 679,731 | 673,857 | |||||||||||||||
| Weighted-average | 728,512 | 704,439 | 685,240 | 677,592 | 669,814 | |||||||||||||||
Income from continuing operations after income taxes available to PPL common shareowners - Basic EPS | $ | 2.39 | $ | 2.59 | $ | 1.64 | $ | 2.80 | $ | 2.38 | ||||||||||
Income from continuing operations after income taxes available to PPL common shareowners - Diluted EPS | $ | 2.37 | $ | 2.58 | $ | 1.64 | $ | 2.79 | $ | 2.37 | ||||||||||
| Net income available to PPL common shareowners - Basic EPS | $ | 2.39 | $ | 2.59 | $ | 1.64 | $ | 2.80 | $ | 1.01 | ||||||||||
| Net income available to PPL common shareowners - Diluted EPS | $ | 2.37 | $ | 2.58 | $ | 1.64 | $ | 2.79 | $ | 1.01 | ||||||||||
| Dividends declared per share of common stock | $ | 1.65 | $ | 1.64 | $ | 1.58 | $ | 1.52 | $ | 1.50 | ||||||||||
| Book value per share (d) | $ | 16.93 | $ | 16.18 | $ | 15.52 | $ | 14.56 | $ | 14.72 | ||||||||||
| Market price per share | $ | 35.88 | $ | 28.33 | $ | 30.95 | $ | 34.05 | $ | 34.13 | ||||||||||
| Dividend payout ratio - % (e)(f) | 70 | 64 | 96 | 55 | 149 | |||||||||||||||
| Dividend yield - % (g) | 4.6 | 5.8 | 5.1 | 4.5 | 4.4 | |||||||||||||||
| Price earnings ratio (e)(f)(g) | 15.1 | 11.0 | 18.9 | 12.2 | 33.8 | |||||||||||||||
| Sales Data - GWh | ||||||||||||||||||||
| Domestic - Electric energy supplied - wholesale | 1,154 | 2,461 | 2,084 | 2,177 | 2,241 | |||||||||||||||
| Domestic - Electric energy delivered - retail | 67,238 | 68,686 | 65,751 | 67,474 | 67,798 | |||||||||||||||
| U.K. - Electric energy delivered | 72,061 | 74,181 | 74,317 | 74,728 | 75,907 | |||||||||||||||
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
(All Registrants)
This "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" is separately filed by PPL, PPL Electric, LKE, LG&E and KU. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for individual Registrants when significant.
The following should be read in conjunction with the Registrants' Consolidated Financial Statements and the accompanying Notes. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted.
"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:
•"Overview" provides a description of each Registrant's business strategy and a discussion of important financial and operational developments.
•"Results of Operations" for all Registrants includes a "Statement of Income Analysis," which discusses significant changes in principal line items on the Statements of Income, comparing 20192022 with 2018.2021. For PPL, "Results of Operations" also includes "Segment Earnings" and "Adjusted Gross Margins"Margins," which provide a detailed analysis of earnings by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Adjusted Gross Margins" and provide explanations of the non-GAAP financial measures and a reconciliation of the non-GAAP financial measures to the most comparable GAAP measure. The "2020 Outlook" discussion identifies key factors expected to impact 2020 earnings.
•"Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positions and credit profiles. This section also includes a discussion of forecasted sources and uses of cash and rating agency actions.
•"Financial Condition - Risk Management" provides an explanation of the Registrants' risk management programs relating to market and credit risk.
•"Application of Critical Accounting Policies" provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the Registrants and that require their management to make significant estimates, assumptions and other judgments of inherently uncertain matters.
For comparison of the Registrants’ results of operations and cash flows for the years ended December 31, 20182021 to December 31, 2017,2020, refer to “Item 7. Combined Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 20182021 Form 10-K, filed with the SEC on February 14, 2019.18, 2022.
Overview
For a description of the Registrants and their businesses, see "Item 1. Business."
Business Strategy
(All Registrants)
PPL operates sevenfour fully regulated high-performing utilities. These utilities are located in the U.K., Pennsylvania, Kentucky and Kentucky,Rhode Island, constructive regulatory jurisdictions with distinct regulatory structures and customer classes. PPL believes this business portfolio positions the company well for continued success and provides earnings and dividend growth potential.
PPL's strategy, and that ofwhich is supported by the other Registrants and subsidiaries, is to deliver best-in-sectorachieve industry-leading performance in safety, reliability, customer satisfaction and operational performance, invest inefficiency; to advance a sustainableclean energy future,transition while maintaining affordability and reliability; to maintain a strong financial foundation and engagecreate long-term value for our shareowners; to foster a diverse and develop its people.exceptional workplace; and to build strong communities in areas that we serve.
Central to PPL's business plan is designed to achieve growth by providing efficient, reliable and safe operations and strong customer service, maintaining constructive regulatory relationships and achieving timely recovery of costs. These businesses are expected to achieve strong, long-term
29
and other regulatory agency-approved recovery mechanisms designed to limit regulatory lag. In Kentucky, in addition to FERC formula rates, the KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, and gas supply clause) and recovery on construction work-in-progress that reduce regulatory lag and provide timely recovery of and return on, as appropriate, prudently incurred costs. In addition, the KPSC requires a utility to obtain a CPCN prior to constructing a facility, unless the construction is an ordinary extension of existing facilities in the usual course of business or does not involve sufficient capital expenditures to materially affect the utility's financial condition. Although such KPSC proceedings do not directly address cost recovery issues, the KPSC, in awarding a CPCN, concludes that the public convenience and necessity require the construction of the facility on the basis that the facility is the lowest reasonable cost alternative to address the need. In Pennsylvania, the FERC transmission formula rate, DSIC mechanism, Smart Meter Rider and other recovery mechanisms are in placeoperate to reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs. In Rhode Island, FERC formula rates, the gas cost adjustment, net metering, infrastructure, safety and reliability (ISR) and revenue decoupling mechanisms and other rate adjustment mechanisms operate to reduce regulatory lag and provide timely recovery of and return on, as appropriate, prudently incurred costs.
Financial and Operational Developments
(PPL)
Acquisition of Narragansett Electric
On May 25, 2022, PPL Rhode Island Holdings acquired 100% of the outstanding shares of common stock of Narragansett Electric from National Grid U.S. (the Acquisition). The consideration for the Acquisition consisted of approximately $3.8 billion in cash and approximately $1.5 billion of long-term debt assumed through the transaction. The $3.8 billion total cash consideration paid was funded with proceeds from PPL's 2021 sale of its U.K. utility business. The Acquisition resulted in $1.6 billion of goodwill. The results of RIE are reported in PPL's Rhode Island Regulated segment.
The acquisition of Narragansett Electric was deemed an asset acquisition for federal and state income tax purposes, as a result of PPL and National Grid making a tax election under Internal Revenue Code (IRC) §338(h)(10). Accordingly, the tax bases of substantially all of the assets acquired were increased to fair market value, which equaled net book value, thereby eliminating the related deferred tax assets and liabilities. This election resulted in tax goodwill that will be amortized for tax purposes over 15 years.
See Note 9 to the Financial Statements for additional information.
Sale of Safari Holdings
On September 29, 2022, PPL signed a definitive agreement to sell all of Safari Holdings membership interests to Aspen Power Services, LLC. On November 1, 2022, PPL completed the sale (the Transaction).
A loss on sale of $60 million ($46 million net of tax benefit) was recorded in "Other operation and maintenance" on the Statement of Income for the year ended December 31, 2022. As a result of the Transaction, $53 million of goodwill previously presented in the Corporate and Other category for segment reporting purposes was written-off.
See Note 9 and Note 14 to the Financial Statements for additional information.
Pennsylvania State Tax Reform (PPL and PPL Electric)
On July 8, 2022, the Governor of Pennsylvania signed into law Pennsylvania House Bill 1342 (H.B. 1342). Among other changes to the state tax code, the bill reduces the corporate net income tax rate from 9.99% to 8.99% beginning January 1, 2023, and further reduces the rate annually by half a percentage point until the rate reaches 4.99% in 2031.
GAAP requires that deferred tax assets and liabilities be measured at the enacted tax rate expected to apply when temporary book-to-tax differences are expected to be realized or settled. In 2022, PPL and PPL Electric recorded an increase in regulatory liabilities of $270 million for the remeasurement of regulated accumulated deferred tax balances and a deferred tax benefit of $5 million and $9 million, respectively, associated with the remeasurement of non-regulated accumulated deferred income tax balances. The amounts recorded are estimates that will be updated quarterly to reflect revised forecast, actual activity, and applicable orders from regulatory authorities.
30
Inflation Reduction Act (All Registrants)
future. PPL does not expect the financial condition and results of operations of WPD, itself, to change significantly asanticipate a result of Brexit. The regulatory environment and operation of WPD's businesses are not expected to change. RIIO-ED1, the current price control, with allowed revenues agreed with Ofgem runs through March 2023. Thematerial cash tax impact of a slower economy or recession on WPD would be mitigated in part because U.K. regulation provides that any reduction in the volume of electricity delivered will be recovered in allowed revenues in future periods through the K-factor adjustment. See "Item 1. Business - Segment Information - U.K. Regulated Segment" for additional information on the current price control and K-factor adjustment.foreseeable future. In addition, an increase in inflation would have a positive effect on revenues and RAV as annual inflation adjustments are applied to both revenues and RAV (and real returns are earned on inflated RAV). This impact, however, would be partially offset by higher operation and maintenance and interest expense on index-linked debt. With respect to access to financing, WPD has substantial borrowing capacity under existing credit facilities and expects to continue to have access to all major financial markets. With respect to access to and cost of equipment and other materials, WPD managementthe IRA enacted numerous new tax credits, largely associated with renewable energy. PPL continues to review U.K. government issued advice on preparations for Brexitassess the applicability of these provisions to PPL and has taken actions to mitigate potential increasing costs and disruption to its critical sources of supply. Additionally, less than 1% of WPD's employees are non-U.K. EU nationals and no change in their domicile is expected.subsidiaries.
Regulatory Requirements
(All Registrants)
The Registrants cannot predict the impact that future regulatory requirements may have on their financial condition or results of operations.
The businesses of LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to CCRs, GHG, and ELGs. See "Item 1. Business" and Notes 7, 1314 and 1920 to the Financial Statements for a discussion of these significant environmental matters. These and other environmental requirements led PPL, LKE, LG&E and KU to retire approximately 1,000 1,200 MW of coal-fired generating plants in Kentucky since 2015.
As a result of environmental requirements and aging infrastructure, LG&E anticipates retiring two older coal-fired units at the Mill Creek Plant and KU anticipates retiring one coal-fired unit at each of the FERC RulesE.W. Brown and Regulations. Specifically, PPL Electric proposedGhent plants. Mill Creek Unit 1, with 300 MW of capacity, is expected to modify its formula ratebe retired in 2024. Mill Creek Unit 2, with 297 MW of capacity, is expected to permitbe retired in 2027. E.W. Brown Unit 3, with 412 MW of capacity, and Ghent Unit 2, with 486 MW of capacity, are expected to be retired in 2028. LG&E and KU anticipate the return or recovery of excessassociated retirement costs, including the remaining net book value, for these coal-fired generating units through the RAR or deficient ADIT resulting from the TCJA and
On December 15, 2022, LG&E and KU filed a requestan application with the FERC to amend theirKPSC for a CPCN for the construction of two 621 MW net summer rating NGCC combustion turbine facilities, one at LG&E's Mill Creek Generating Station in Jefferson County, Kentucky and the other at KU's E.W. Brown Generating Station in Mercer County, Kentucky, including on-site natural gas and electric transmission formula rates resulting from the laws’ reductions to corporate income tax rates. The FERC approved this request effective June 1, 2019.construction associated with those facilities and site compatibility certificates. LG&E and KU are currently reviewing the Final Rulealso applied for a CPCN to construct a 120 MWac solar photovoltaic electric generating facility in Mercer County, Kentucky, and will submitfor a compliance filing addressing excess ADITCPCN to acquire a 120 MWac solar facility to be built by June 1, 2020.a third-party solar developer in Marion County, Kentucky. LG&E and KU dofurther applied for a CPCN to construct a 125 MW, 4-hour battery energy storage system facility at KU's E.W. Brown Generating Station and for approval of their proposed 2024-2030 DSM programs. The plan includes adding 14 new, adjusted or expanded energy efficiency programs, which would reduce LG&E's and KU's overall need by approximately 100 MW each. Finally, LG&E and KU requested a declaratory order to confirm that their entry into non-firm energy-only power-purchase agreements for the output of four solar photovoltaic facilities with a combined capacity of 637 MW does not anticipaterequire KPSC approval and that LG&E and KU may recover the impactcosts of the TCJAsolar PPAs through their fuel adjustment clause mechanisms as previously approved for a prior solar PPA. LG&E and Kentucky HB 487 relatedKU plan to their FERC-jurisdictional rates to be significant.
The current electricity distribution price control, RIIO-ED1, continues through March 31,plan is consistent with PPL's goal to achieve net-zero carbon emissions by 2050. The replacement strategy, if approved, would reduce the carbon intensity of LG&E and KU's generation fleet and result in nearly a 25% reduction in CO2 emissions from existing levels.
The KPSC accepted the filing as of January 6, 2023 and will not be impactedhas indicated its intention to issue an order on all issues by the RIIO-2 consultation process. Later in 2018, Ofgem published its decision following its RIIO-2 framework consultation after consideration of comments received including those from WPDNovember 6, 2023. LG&E and PPL.
31
FERC Transmission Rate Filing
(PPL, LKE, LG&E and KU)
In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application seekssought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky Municipalitiesmunicipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the on-goingongoing credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject towhich was subsequently filed, modified, and approved by the FERC reviewin 2020 and approval.2021. In July 2019,2020, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KUother parties filed requests for rehearing and clarification on the two September orders. These rehearing requests are currently pending before FERC. Additionally, certain petitions for review of FERC's orders have been filed by multiple parties, including LG&E and KU, atappeals with the D.C. Circuit Court of Appeals.Appeals regarding the FERC's orders on the elimination of the mitigation and required transition mechanism. On August 4, 2022, the D.C. Circuit Court of Appeals issued an order remanding the proceedings back to the FERC. LG&E and KU cannot predict the outcome of the proceedings.proceedings at the FERC on remand. LG&E and KU currently receive recovery of the waivers and credits provided through other rate mechanisms.
Rate Case Proceedings
Results of Operations
(PPL)
The "Statement of Income Analysis" discussion below describes significant changes in principal line items on PPL's Statements of Income, comparing 20192022 with 2018.2021. The "Segment Earnings" and "Adjusted Gross Margins" discussions for PPL provide a review of results by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Adjusted Gross Margins," and provide explanations of the non-GAAP financial measures and a reconciliation of those measures to the most comparable GAAP measure. The "2020 Outlook" discussion identifies key factors expected to impact 2020 earnings.
(PPL Electric, LKE, LG&E and KU)
A "Statement of Income Analysis" is presented separately for PPL Electric, LKE, LG&E and KU. The "Statement of Income Analysis" discussion below describes significant changes in principal line items on the Statements of Income, comparing 20192022 with 2018.2021. The results of operations section for PPL Electric, LKE, LG&E and KU is presented in a reduced disclosure format in accordance with General Instructions (I)(2)(a) of Form 10-K.
32
PPL: Statement of Income Analysis, Segment Earnings and Adjusted Gross Margins
Statement of Income Analysis
Net income for the years ended December 31 includes the following results:
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Operating Revenues | $ | 7,902 | $ | 5,783 | $ | 2,119 | |||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Fuel | 931 | 710 | 221 | ||||||||||||||
| Energy purchases | 1,686 | 752 | 934 | ||||||||||||||
| Other operation and maintenance | 2,398 | 1,608 | 790 | ||||||||||||||
| Depreciation | 1,181 | 1,082 | 99 | ||||||||||||||
| Taxes, other than income | 332 | 207 | 125 | ||||||||||||||
| Total Operating Expenses | 6,528 | 4,359 | 2,169 | ||||||||||||||
| Other Income (Expense) - net | 54 | 15 | 39 | ||||||||||||||
| Interest Expense | 513 | 918 | (405) | ||||||||||||||
| Income from Continuing Operations Before Income Taxes | 915 | 521 | 394 | ||||||||||||||
| Income Taxes | 201 | 503 | (302) | ||||||||||||||
| Income from Continuing Operations After Income Taxes | 714 | 18 | 696 | ||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | 42 | (1,498) | 1,540 | ||||||||||||||
| Net Income (Loss) | $ | 756 | $ | (1,480) | $ | 2,236 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | $ | 7,769 | $ | 7,785 | $ | (16 | ) | ||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 709 | 799 | (90 | ) | |||||||
| Energy purchases | 723 | 745 | (22 | ) | |||||||
| Other operation and maintenance | 1,985 | 1,983 | 2 | ||||||||
| Depreciation | 1,199 | 1,094 | 105 | ||||||||
| Taxes, other than income | 313 | 312 | 1 | ||||||||
| Total Operating Expenses | 4,929 | 4,933 | (4 | ) | |||||||
| Other Income (Expense) - net | 309 | 396 | (87 | ) | |||||||
| Interest Expense | 994 | 963 | 31 | ||||||||
| Income Taxes | 409 | 458 | (49 | ) | |||||||
| Net Income | $ | 1,746 | $ | 1,827 | $ | (81 | ) | ||||
Operating Revenues
The increase (decrease) in operating revenues was due to:
| 2019 vs. 2018 | |||
| Domestic: | |||
| PPL Electric Distribution price (a) | $ | 42 | |
| PPL Electric Distribution volume | (8 | ) | |
| PPL Electric PLR | 8 | ||
| PPL Electric Transmission Formula Rate (b) | 51 | ||
| PPL Electric TCJA refund (c) | (12 | ) | |
| LKE Retail rates (d) | 123 | ||
| LKE ECR (e) | 60 | ||
| LKE Volumes (f) | (91 | ) | |
| LKE Municipal supply (g) | (56 | ) | |
| LKE Fuel and other energy prices (h) | (48 | ) | |
| Other | 16 | ||
| Total Domestic | 85 | ||
| U.K.: | |||
| Price | 83 | ||
| Volume | (64 | ) | |
| Foreign currency exchange rates | (116 | ) | |
| Other | (4 | ) | |
| Total U.K. | (101 | ) | |
| Total | $ | (16 | ) |
| 2022 vs. 2021 | |||||
| PPL Electric distribution price (a) | $ | (19) | |||
| PPL Electric distribution volume (b) | 20 | ||||
| PPL Electric PLR (c) | 520 | ||||
| PPL Electric transmission formula rate (d) | 92 | ||||
| LG&E retail rates (f) | 50 | ||||
| LG&E volumes | 28 | ||||
| KU fuel and other energy prices (e) | 160 | ||||
| KU volumes | 29 | ||||
| Rhode Island Energy | 1,038 | ||||
| Other | 4 | ||||
| Total | $ | 2,119 | |||
(b) The increase was due to colder weather combined with higher non-residential customer volumes.
(c) The increase was primarily the result of higher energy prices, lower volumes of shopping customers and higher customer volumes due to colder weather.
(d) The increase was primarily due to returns on additional transmission capital investments, a $42higher PPL zonal peak load billing factor in 2022 and the
reduction in the transmission formula rate return on equity recorded in 2021. See Note 7 to the Financial Statements for additional information on the
transmission formula rate return on equity reduction.
(e) The increase was primarily due to higher recoveries of fuel and energy purchases due to higher commodity costs.
(f) The increase was due to new base rates approved by the KPSC effective July 1, 2021.
Fuel
Fuel increased $221 million decrease in commodity costs, a $332022 compared with 2021, primarily due to an $81 million decrease in volumes driven by weatherincrease at LG&E and a $20$140 million decrease in volumes driven by the terminationincrease at KU, primarily due to higher commodity costs.
33
Energy Purchases
Energy purchases decreased $22increased $934 million in 20192022 compared with 2018,2021, primarily due to higher PLR prices of $419 million and higher PLR volumes of $58 million at PPL Electric and a $27$78 million decreaseincrease at LKE (primarilyLG&E, primarily due to a $14 million decreasean increase in commodity costs and a $7an additional $365 million decrease in gas volumes driven by weather in 2019), partially offset by a $5 million increase at PPL Electric (primarily due to higher PLR volumesthe operations of $33 million, partially offset by lower PLR prices of $25 million).RIE.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
| 2019 vs. 2018 | |||
| Domestic: | |||
| PPL Electric project cancellation costs | $ | (12 | ) |
| Stock compensation expense | 10 | ||
| Other operation and maintenance of Safari Energy (a) | 20 | ||
| Other | 14 | ||
| U.K.: | |||
| Foreign currency exchange rates | (23 | ) | |
| Third-party engineering | (4 | ) | |
| Other | (3 | ) | |
| Total | $ | 2 | |
| 2022 vs. 2021 | |||||
| PPL Electric Act 129 smart meter program | $ | 7 | |||
| PPL Electric storm costs | (10) | ||||
| PPL Electric IT cloud amortization costs | 12 | ||||
| PPL Electric vegetation management costs | 12 | ||||
| PPL Electric bad debts | 14 | ||||
| PPL Electric canceled projects | 8 | ||||
| LG&E storm restoration costs | 6 | ||||
| LG&E natural gas inventory losses | 4 | ||||
| KU plant outages | 9 | ||||
| KU vegetation management costs | 10 | ||||
| Rhode Island Energy (a) | 684 | ||||
| Stock compensation expense | 5 | ||||
| Sale of Safari | 60 | ||||
| Solar panel impairment | (37) | ||||
| Charges related to the sale of the U.K. utility business | (15) | ||||
| Other | 21 | ||||
| Total | $ | 790 | |||
(a)Includes activity associated with the operations of RIE and integration and related costs. See Note 9 to the Financial Statements for additional information.
(b)Loss on sale of Safari Holdings. See Note 9 to the Financial Statements for additional information.
Depreciation
The increase (decrease) in depreciation was due to:
| 2019 vs. 2018 | |||
| Additions to PP&E, net | $ | 66 | |
| Foreign currency exchange rates | (13 | ) | |
| Depreciation rates (a) | 52 | ||
| Total | $ | 105 | |
| 2022 vs. 2021 | |||||
| Additions to PP&E, net (a) | $ | (3) | |||
| Depreciation rate change (b) | 12 | ||||
| Rhode Island Energy | 92 | ||||
| Other | (2) | ||||
| Total | $ | 99 | |||
(a)The decrease was primarily due to decreases in software and computer hardware depreciation at PPL Electric, as a result of end-of-life retirements, partially offset by additional assets placed into service, net of retirements at PPL Electric, LG&E and KU.
(b)The increase was due to higher depreciation rates at LG&E and KU effective July 2021.
Taxes, Other Than Income
The increase (decrease) in taxes, other than income was due to:
| 2022 vs. 2021 | |||||
| State gross receipts tax (a) | $ | 63 | |||
| Domestic property tax expense (a) | 59 | ||||
| Other | 3 | ||||
| Total | $ | 125 | |||
(a)Increase primarily due to the acquisition of RIE.
34
Other Income (Expense) - net
The increase (decrease) in other income (expense) - net was due to:
| 2022 vs. 2021 | |||||
| Defined benefit plans - non-service credits (Note 12) | $ | 26 | |||
| Interest income | (8) | ||||
| AFUDC - equity component | 4 | ||||
| Other | 17 | ||||
| Total | $ | 39 | |||
| 2019 vs. 2018 | |||
| Economic foreign currency exchange contracts (Note 17) | $ | (164 | ) |
| Defined benefit plans - non-service credits (Note 11) | 59 | ||
| Charitable contributions | 7 | ||
| Other | 11 | ||
| Total | $ | (87 | ) |
Interest Expense
The increase (decrease) in interest expense was due to:
| 2022 vs. 2021 | |||||
| Loss on extinguishment of debt (a) | $ | (395) | |||
| Long-term debt (b) | (53) | ||||
| Rhode Island Energy | 39 | ||||
| Other | 4 | ||||
| Total | $ | (405) | |||
| 2019 vs. 2018 | |||
| Long-term debt interest | $ | 38 | |
| Short-term debt interest | 7 | ||
| Foreign currency exchange rates | (20 | ) | |
| Other | 6 | ||
| Total | $ | 31 | |
Income Taxes
The increase (decrease) in income taxes was due to:
| 2019 vs. 2018 | |||
| Change in pre-tax income | $ | (24 | ) |
| Deferred tax impact of Kentucky state tax reform (a) | (9 | ) | |
| Kentucky recycling credit, net of federal income tax expense (b) | (18 | ) | |
| Other | 2 | ||
| Total | $ | (49 | ) |
| 2022 vs. 2021 | |||||
| Change in pre-tax income | $ | 128 | |||
| Valuation allowance adjustments (a) | |||||
| Impact of | (383) | ||||
| Other | (8) | ||||
| Total | $ | (302) | |||
(a)In 2021, PPL recorded a $31 million state deferred tax benefit on a net operating loss and an offsetting valuation allowance in connection with the loss on extinguishment associated with a tender offer to purchase and retire PPL Capital Funding's outstanding Senior Notes.
(b)The U.K. Finance Act 2021, formally enacted on June 10, 2021, increased the U.K. corporation tax rate from 19% to 25%, effective April 1, 2023. The primary impact of the corporation tax rate increase was an increase in deferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a corresponding deferred tax expense of $383 million, which was recognized in continuing operations in 2021.
See Note 6 to the Financial Statements for additional information on income taxes.
Income (Loss) from Discontinued Operations (net of income taxes)
Income (loss) from discontinued operations (net of income taxes) decreased $1,540 million in 2022 compared with 2021. The decrease was due to the completion of the U.K. utility business in the second quarter of 2021. See "Discontinued Operations" in Note 9 to the Financial Statements for summarized results of the operations of the U.K. utility business.
35
Segment Earnings
PPL's net incomeNet Income (Loss) by reportable segments werewas as follows:
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Kentucky Regulated | $ | 507 | $ | 468 | $ | 39 | |||||||||||
| Pennsylvania Regulated | 525 | 445 | 80 | ||||||||||||||
| Rhode Island Regulated (a) | (44) | — | (44) | ||||||||||||||
| Corporate and Other (b) | (274) | (895) | 621 | ||||||||||||||
| Discontinued Operations (a) | 42 | (1,498) | 1,540 | ||||||||||||||
| Net Income (Loss) | $ | 756 | $ | (1,480) | $ | 2,236 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| U.K. Regulated | $ | 977 | $ | 1,114 | $ | (137 | ) | ||||
| Kentucky Regulated | 436 | 411 | 25 | ||||||||
| Pennsylvania Regulated | 458 | 431 | 27 | ||||||||
| Corporate and Other (a) | (125 | ) | (129 | ) | 4 | ||||||
| Net Income | $ | 1,746 | $ | 1,827 | $ | (81 | ) | ||||
(a)See Note 9 to the Financial Statements for additional information.
(b)Primarily represents financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments, which are presented to reconcile segment information to PPL's consolidated results.
Earnings from Ongoing Operations
Management utilizes "Earnings from Ongoing Operations" as a non-GAAP financial measure that should not be considered as an alternative to net income, an indicator of operating performance determined in accordance with GAAP. PPL believes that Earnings from Ongoing Operations is useful and meaningful to investors because it provides management's view of PPL's earnings performance as another criterion in making investment decisions. In addition, PPL's management uses Earnings from Ongoing Operations in measuring achievement of certain corporate performance goals, including targets for certain executive incentive compensation. Other companies may use different measures to present financial performance.
Earnings from Ongoing Operations is adjusted for the impact of special items. Special items are presented in the financial tables on an after-tax basis with the related income taxes on special items separately disclosed. Income taxes on special items, when applicable, are calculated based on the statutory tax rate of the entity where the activity is recorded. Special items may include items such as:
• Gains and losses on sales of assets not in the ordinary course of business.
• Impairment charges.
• Significant workforce reduction and other restructuring effects.
• Acquisition and divestiture-related adjustments.
• Significant losses on early extinguishment of debt.
• Other charges or credits that are, in management's view, non-recurring or otherwise not reflective of the company's ongoing operations.
PPL's Earnings from Ongoing Operations by reportable segment were as follows:
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Kentucky Regulated | $ | 515 | $ | 465 | $ | 50 | |||||||||||
| Pennsylvania Regulated | 516 | 465 | 51 | ||||||||||||||
| Rhode Island Regulated | 65 | — | 65 | ||||||||||||||
| Corporate and Other | (55) | (124) | 69 | ||||||||||||||
| Earnings from Ongoing Operations | $ | 1,041 | $ | 806 | $ | 235 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| U.K. Regulated | $ | 1,032 | $ | 968 | $ | 64 | |||||
| Kentucky Regulated | 436 | 418 | 18 | ||||||||
| Pennsylvania Regulated | 458 | 436 | 22 | ||||||||
| Corporate and Other | (120 | ) | (117 | ) | (3 | ) | |||||
| Earnings from Ongoing Operations | $ | 1,806 | $ | 1,705 | $ | 101 | |||||
See "Reconciliation of Earnings from Ongoing Operations" below for a reconciliation of this non-GAAP financial measure to Net Income.
The U.K.Kentucky Regulated segment consists primarily of PPL Global, which primarily includes WPD'sLG&E's and KU's regulated electricity generation, transmission and distribution operations, the resultsas well as LG&E's regulated distribution and sale of hedging the translation of WPD's earnings from GBP into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs, and certain acquisition-related financing costs. The U.K. Regulated segment represents 56% of PPL's Net Income for 2019 and 39% of PPL's assets at December 31, 2019.natural gas.
Net Income and Earnings from Ongoing Operations include the following results:
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating revenues | $ | 2,167 | $ | 2,268 | $ | (101 | ) | ||||
| Other operation and maintenance | 510 | 538 | (28 | ) | |||||||
| Depreciation | 250 | 247 | 3 | ||||||||
| Taxes, other than income | 127 | 134 | (7 | ) | |||||||
| Total operating expenses | 887 | 919 | (32 | ) | |||||||
| Other Income (Expense) - net | 294 | 403 | (109 | ) | |||||||
| Interest Expense | 405 | 413 | (8 | ) | |||||||
| Income Taxes | 192 | 225 | (33 | ) | |||||||
| Net Income | 977 | 1,114 | (137 | ) | |||||||
| Less: Special Items | (55 | ) | 146 | (201 | ) | ||||||
| Earnings from Ongoing Operations | $ | 1,032 | $ | 968 | $ | 64 | |||||
| Income Statement Line Item | 2019 | 2018 | |||||||
| Foreign currency economic hedges, net of tax of $13, ($39) (a) | Other Income (Expense) - net | $ | (51 | ) | $ | 148 | |||
| Other, net of tax of $1, $0 (b) | Other operation and maintenance | (4 | ) | — | |||||
| U.S. tax reform (c) | Income Taxes | — | 3 | ||||||
| Death benefit, net of tax of $0, $1 (d) | Other operation and maintenance | — | (5 | ) | |||||
| Total | $ | (55 | ) | $ | 146 | ||||
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Operating revenues | $ | 3,811 | $ | 3,348 | $ | 463 | |||||||||||
| Fuel | 931 | 710 | 221 | ||||||||||||||
| Energy purchases | 273 | 186 | 87 | ||||||||||||||
| Other operation and maintenance | 959 | 905 | 54 | ||||||||||||||
| Depreciation | 685 | 647 | 38 | ||||||||||||||
| Taxes, other than income | 92 | 87 | 5 | ||||||||||||||
| Total operating expenses | 2,940 | 2,535 | 405 | ||||||||||||||
| Other Income (Expense) - net | 12 | (2) | 14 | ||||||||||||||
| Interest Expense | 205 | 196 | 9 | ||||||||||||||
| Interest Expense with Affiliate (a) | 57 | 53 | 4 | ||||||||||||||
| Income Taxes | 114 | 94 | 20 | ||||||||||||||
| Net Income | 507 | 468 | 39 | ||||||||||||||
| Less: Special Items | (8) | 3 | (11) | ||||||||||||||
| Earnings from Ongoing Operations | $ | 515 | $ | 465 | $ | 50 | |||||||||||
| 2019 vs. 2018 | |||
| U.K. | |||
| U.K. Adjusted Gross Margins | $ | 16 | |
| Other operation and maintenance | 3 | ||
| Depreciation | (16 | ) | |
| Other Income (Expense) - net | 74 | ||
| Interest expense | (12 | ) | |
| Income taxes | (15 | ) | |
| U.S. | |||
| Income taxes | 6 | ||
| Other | (4 | ) | |
| Foreign currency exchange, after-tax | 12 | ||
| Earnings from Ongoing Operations | 64 | ||
| Special items, after-tax | (201 | ) | |
| Net Income | $ | (137 | ) |
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating revenues | $ | 3,206 | $ | 3,214 | $ | (8 | ) | ||||
| Fuel | 709 | 799 | (90 | ) | |||||||
| Energy purchases | 174 | 201 | (27 | ) | |||||||
| Other operation and maintenance | 861 | 848 | 13 | ||||||||
| Depreciation | 547 | 475 | 72 | ||||||||
| Taxes, other than income | 74 | 70 | 4 | ||||||||
| Total operating expenses | 2,365 | 2,393 | (28 | ) | |||||||
| Other Income (Expense) - net | (13 | ) | (16 | ) | 3 | ||||||
| Interest Expense | 298 | 274 | 24 | ||||||||
| Income Taxes | 94 | 120 | (26 | ) | |||||||
| Net Income | 436 | 411 | 25 | ||||||||
| Less: Special Items | — | (7 | ) | 7 | |||||||
| Earnings from Ongoing Operations | $ | 436 | $ | 418 | $ | 18 | |||||
The following after-tax gains (losses), which management considers special items, impacted the Kentucky Regulated segment's results and are excluded from Earnings from Ongoing Operations:
| Income Statement Line Item | 2022 | 2021 | |||||||||||||||
| Valuation allowance adjustment (a) | Income Taxes | $ | — | $ | 4 | ||||||||||||
| Strategic corporate initiatives, net of tax of $3, $0 (b) | Other operation and maintenance | (8) | — | ||||||||||||||
| Strategic corporate initiatives, net of tax of $0, $0 | Other Income (Expense) - net | — | (1) | ||||||||||||||
| Total | $ | (8) | $ | 3 | |||||||||||||
| Income Statement Line Item | 2019 | 2018 | |||||||
| U.S. tax reform (a) | Income Taxes | $ | — | $ | 2 | ||||
| Kentucky state tax reform (b) | Income Taxes | — | (9 | ) | |||||
| Total | $ | — | $ | (7 | ) | ||||
The changes in the components of the Kentucky Regulated segment's results between these periods were due to the factors set forth below, which reflect amounts classified as Kentucky Adjusted Gross Margins and the items that management considers special on separate lines and not in their respective Statement of Income line item.
| 2022 vs. 2021 | |||||
| Kentucky Adjusted Gross Margins | $ | 205 | |||
| Other operation and maintenance | (39) | ||||
| Depreciation | (90) | ||||
| Taxes, other than income | (7) | ||||
| Other Income (Expense) - net | 13 | ||||
| Interest Expense | (9) | ||||
| Interest Expense with Affiliate | (4) | ||||
| Income Taxes | (19) | ||||
| Earnings from Ongoing Operations | 50 | ||||
| Special Items, after-tax | (11) | ||||
| Net Income | $ | 39 | |||
| 2019 vs. 2018 | |||
| Kentucky Adjusted Gross Margins | $ | 70 | |
| Other operation and maintenance | (19 | ) | |
| Depreciation | (26 | ) | |
| Taxes, other than income | (5 | ) | |
| Other Income (Expense) - net | 3 | ||
| Interest Expense | (24 | ) | |
| Income Taxes | 19 | ||
| Earnings from Ongoing Operations | 18 | ||
| Special Items, after-tax | 7 | ||
| Net Income | $ | 25 | |
•See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Kentucky Adjusted Gross Margins.
•Higher other operation and maintenance expense in 2022 compared to 2021, primarily due to a $10 million increase in vegetation management expenses, a $9 million increase in plant outage expenses, a $6 million increase related to certain ECR and GLT expenses transferred to base rates as a result of the 2020 Kentucky rate case and a $6 million increase in storm restoration expenses.
•Higher depreciation expense in 20192022 compared with 2018to 2021, primarily due to a $15$60 million increase related to highercertain ECR and GLT depreciation expenses transferred to base rates effective May 1, 2019 and an $11as a result of the 2020 Kentucky rate case, a $19 million increase related due
37
to additional assets placed into service, net of retirements.
Pennsylvania Regulated Segment
The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric. In addition, certain costs are allocated to the Pennsylvania Regulated segment. The Pennsylvania Regulated segment represents 26% of PPL's Net Income for 2019 and 26% of PPL's assets at December 31, 2019.
Net Income and Earnings from Ongoing Operations include the following results:
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Operating revenues | $ | 3,030 | $ | 2,402 | $ | 628 | |||||||||||
| Energy purchases | 1,048 | 566 | 482 | ||||||||||||||
| Other operation and maintenance | 605 | 557 | 48 | ||||||||||||||
| Depreciation | 393 | 424 | (31) | ||||||||||||||
| Taxes, other than income | 149 | 120 | 29 | ||||||||||||||
| Total operating expenses | 2,195 | 1,667 | 528 | ||||||||||||||
| Other Income (Expense) - net | 35 | 26 | 9 | ||||||||||||||
| Interest Expense | 171 | 162 | 9 | ||||||||||||||
| Income Taxes | 174 | 154 | 20 | ||||||||||||||
| Net Income | 525 | 445 | 80 | ||||||||||||||
| Less: Special Items | 9 | (20) | 29 | ||||||||||||||
| Earnings from Ongoing Operations | $ | 516 | $ | 465 | $ | 51 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating revenues | $ | 2,358 | $ | 2,277 | $ | 81 | |||||
| Energy purchases | 549 | 544 | 5 | ||||||||
| Other operation and maintenance | 566 | 578 | (12 | ) | |||||||
| Depreciation | 386 | 352 | 34 | ||||||||
| Taxes, other than income | 112 | 109 | 3 | ||||||||
| Total operating expenses | 1,613 | 1,583 | 30 | ||||||||
| Other Income (Expense) - net | 31 | 32 | (1 | ) | |||||||
| Interest Expense | 169 | 159 | 10 | ||||||||
| Income Taxes | 149 | 136 | 13 | ||||||||
| Net Income | 458 | 431 | 27 | ||||||||
| Less: Special Items | — | (5 | ) | 5 | |||||||
| Earnings from Ongoing Operations | $ | 458 | $ | 436 | $ | 22 | |||||
The following after-tax gains (losses), which management considers special items, impacted the Pennsylvania Regulated segment's results and are excluded from Earnings from Ongoing Operations:
| Income Statement Line Item | 2022 | 2021 | |||||||||||||||
| PA tax rate change (a) | Income Taxes | $ | 9 | $ | — | ||||||||||||
| Transmission formula rate return on equity reduction, net of tax of $0, $8 (b) | Operating revenues | — | (20) | ||||||||||||||
| Total | $ | 9 | $ | (20) | |||||||||||||
| Income Statement Line Item | 2019 | 2018 | |||||||
| IT transformation, net of tax of $0, $2 (a) | Other operation and maintenance | $ | — | $ | (5 | ) | |||
| Total | $ | — | $ | (5 | ) | ||||
The changes in the components of the Pennsylvania Regulated segment's results between these periods were due to the factors set forth below, which reflect amounts classified as Pennsylvania Adjusted Gross Margins and the items that management considers special on separate lines and not in their respective Statement of Income line items.
| 2022 vs. 2021 | |||||
| Pennsylvania Adjusted Gross Margins | $ | 112 | |||
| Other operation and maintenance | (46) | ||||
| Depreciation | 6 | ||||
| Taxes, other than income | 1 | ||||
| Other Income (Expense) - net | 8 | ||||
| Interest Expense | (9) | ||||
| Income Taxes | (21) | ||||
| Earnings from Ongoing Operations | 51 | ||||
| Special Items, after-tax | 29 | ||||
| Net Income | $ | 80 | |||
| 2019 vs. 2018 | |||
| Pennsylvania Adjusted Gross Margins | $ | 54 | |
| Other operation and maintenance | 9 | ||
| Depreciation | (19 | ) | |
| Other Income (Expense) - net | (1 | ) | |
| Interest Expense | (10 | ) | |
| Income Taxes | (11 | ) | |
| Earnings from Ongoing Operations | 22 | ||
| Special Items, after-tax | 5 | ||
| Net Income | $ | 27 | |
•See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Pennsylvania Adjusted Gross Margins.
•Higher depreciationother operation and maintenance expense in 20192022 compared with 20182021 primarily due to additional assets placed into service,a $14 million increase in bad debt expenses, a $12 million increase in vegetation management expenses, a $12 million increase in IT cloud amortization and other items that were not individually significant.
38
Rhode Island Regulated Segment
The Rhode Island Regulated segment consists primarily of the regulated electricity transmission and distribution operations and
regulated distribution and sale of natural gas conducted by RIE.
Net Loss and Earnings from Ongoing Operations include the following results:
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Operating revenues | $ | 1,038 | $ | — | $ | 1,038 | |||||||||||
| Energy purchases | 365 | — | 365 | ||||||||||||||
| Other operation and maintenance | 531 | — | 531 | ||||||||||||||
| Depreciation | 92 | — | 92 | ||||||||||||||
| Taxes, other than income | 92 | — | 92 | ||||||||||||||
| Total operating expenses | 1,080 | — | 1,080 | ||||||||||||||
| Other Income (Expense) - net | 23 | — | 23 | ||||||||||||||
| Interest Expense | 39 | — | 39 | ||||||||||||||
| Income Taxes | (14) | — | (14) | ||||||||||||||
| Net Loss | (44) | — | (44) | ||||||||||||||
| Less: Special Items | (109) | — | (109) | ||||||||||||||
| Earnings from Ongoing Operations | $ | 65 | $ | — | $ | 65 | |||||||||||
The following after-tax gains (losses), which management considers special items, impacted the Rhode Island Regulated segment's results and are excluded from Earnings from Ongoing Operations:
| Income Statement Line Item | 2022 | 2021 | |||||||||||||||||||||||||||
| Acquisition integration, net of tax of $18, $0 (a) | Other operation and maintenance | $ | (70) | $ | — | ||||||||||||||||||||||||
| Acquisition integration, net of tax of $0, $0 (a) | Other Income (Expense) - net | 1 | — | ||||||||||||||||||||||||||
| Acquisition integration, net of tax of $10, $0 (a) | Operating revenues | (40) | — | ||||||||||||||||||||||||||
| Total Special Items | $ | (109) | $ | — | |||||||||||||||||||||||||
(a)Represents costs related to the ongoing effortsacquisition of Rhode Island Energy including certain costs associated with its integration, commitments made during the acquisition process and related costs. See Note 9 to ensure the reliabilityFinancial Statements for additional information related to the commitments made as a condition of the delivery system and the replacement of aging infrastructure, net of retirements.acquisition.
Reconciliation of Earnings from Ongoing Operations
The following tables contain after-tax gains (losses), in total, which management considers special items, that are excluded from Earnings from Ongoing Operations, and a reconciliation to PPL's "Net Income" for the years ended December 31:
| 2019 | |||||||||||||||||||
| U.K. Regulated | KY Regulated | PA Regulated | Corporate and Other | Total | |||||||||||||||
| Net Income | $ | 977 | $ | 436 | $ | 458 | $ | (125 | ) | $ | 1,746 | ||||||||
| Less: Special Items (expense) benefit: | |||||||||||||||||||
| Foreign currency economic hedges, net of tax of $13 | (51 | ) | — | — | — | (51 | ) | ||||||||||||
| Talen litigation costs, net of tax of $1 (a) | — | — | — | (5 | ) | (5 | ) | ||||||||||||
| Other, net of tax of $1 | (4 | ) | — | — | — | (4 | ) | ||||||||||||
| Total Special Items | (55 | ) | — | — | (5 | ) | (60 | ) | |||||||||||
| Earnings from Ongoing Operations | $ | 1,032 | $ | 436 | $ | 458 | $ | (120 | ) | $ | 1,806 | ||||||||
| 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| KY Regulated | PA Regulated | RI Regulated | Corporate and Other | Discontinued Operations (a) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | $ | 507 | $ | 525 | $ | (44) | $ | (274) | $ | 42 | $ | 756 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: Special Items (expense) benefit: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from Discontinued Operations (a) | — | — | — | — | 42 | 42 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Talen litigation costs, net of tax of $0 (b) | — | — | — | 1 | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Strategic corporate initiatives, net of tax of $3, $4 (c) | (8) | — | — | (15) | — | (23) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition integration, net of tax of $28, $39 (j) | — | — | (109) | (148) | — | (257) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PA tax rate change (e) | — | 9 | — | (4) | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of Safari Holdings, net of tax of $16 (i) | — | — | — | (53) | — | (53) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Special Items | (8) | 9 | (109) | (219) | 42 | (285) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings from Ongoing Operations | $ | 515 | $ | 516 | $ | 65 | $ | (55) | $ | — | $ | 1,041 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||||||||||||||
| KY Regulated | PA Regulated | RI Regulated | Corporate and Other | Discontinued Operations (a) | Total | ||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | $ | 468 | $ | 445 | $ | — | $ | (895) | $ | (1,498) | $ | (1,480) | |||||||||||||||||||||||||||||
| Less: Special Items (expense) benefit: | |||||||||||||||||||||||||||||||||||||||||
| Income (loss) from Discontinued Operations (a) | — | — | — | — | (1,502) | (1,502) | |||||||||||||||||||||||||||||||||||
| Talen litigation costs, net of tax of $4 (b) | — | — | — | (16) | — | (16) | |||||||||||||||||||||||||||||||||||
| Strategic corporate initiatives, net of tax of $0, $2 (c) | (1) | — | — | (8) | — | (9) | |||||||||||||||||||||||||||||||||||
| Valuation allowance adjustment (d) | 4 | — | — | (4) | 4 | 4 | |||||||||||||||||||||||||||||||||||
| Transmission formula rate return on equity reduction, net of tax of $8 | — | (20) | — | — | — | (20) | |||||||||||||||||||||||||||||||||||
| Acquisition integration, net of tax of $6 (j) | — | — | — | (22) | — | (22) | |||||||||||||||||||||||||||||||||||
| U.K. tax rate change (f) | — | — | — | (383) | — | (383) | |||||||||||||||||||||||||||||||||||
| Solar panel impairment, net of tax of $9 (g) | — | — | — | (26) | — | (26) | |||||||||||||||||||||||||||||||||||
| Loss on early extinguishment of debt, net of tax of $83 (h) | — | — | — | (312) | — | (312) | |||||||||||||||||||||||||||||||||||
| Total Special Items | 3 | (20) | — | (771) | (1,498) | (2,286) | |||||||||||||||||||||||||||||||||||
| Earnings from Ongoing Operations | $ | 465 | $ | 465 | $ | — | $ | (124) | $ | — | $ | 806 | |||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||
| U.K. Regulated | KY Regulated | PA Regulated | Corporate and Other | Total | |||||||||||||||
| Net Income | $ | 1,114 | $ | 411 | $ | 431 | $ | (129 | ) | $ | 1,827 | ||||||||
| Less: Special Items (expense) benefit: | |||||||||||||||||||
| Foreign currency economic hedges, net of tax of ($39) | 148 | — | — | — | 148 | ||||||||||||||
| U.S. tax reform (b) | 3 | 2 | — | (5 | ) | — | |||||||||||||
| Kentucky state tax reform | — | (9 | ) | — | — | (9 | ) | ||||||||||||
| IT transformation, net of tax of $2 | — | — | (5 | ) | — | (5 | ) | ||||||||||||
| Talen litigation costs, net of tax of $2 (a) | — | — | — | (7 | ) | (7 | ) | ||||||||||||
| Death benefit, net of tax of $1 | (5 | ) | — | — | — | (5 | ) | ||||||||||||
| Total Special Items | 146 | (7 | ) | (5 | ) | (12 | ) | 122 | |||||||||||
| Earnings from Ongoing Operations | $ | 968 | $ | 418 | $ | 436 | $ | (117 | ) | $ | 1,705 | ||||||||
(b)PPL incurred legal expenses and received insurance reimbursement related to litigation with its former affiliate, Talen Montana. See Note 14 to the Financial Statements for additional information.
(c)Costs incurred for 2022 relate to PPL's strategic repositioning and corporate centralization efforts. Costs incurred for 2021 are related to the sale of the U.K. utility business and PPL's strategic repositioning.
(d)Adjustment of valuation allowances related to certain tax credits recorded in 2017 as a result of the TCJA.
(e)Impact of Pennsylvania state tax reform. See Note 6 to the Financial Statements for additional information.
(f)Impact of the U.K. Finance Acts on deferred tax balances. See Note 6 to the Financial Statements for additional information.
(g)Reflects solar panel write-down due to extension of federal government’s solar investment tax credits, technological advances resulting in more efficient modules available on the market and rising commodity prices for materials used in various solar projects.
(h)In June and July 2021, in connection with the tender offer, PPL Capital Funding retired $3,034 million combined aggregate principal amount of its outstanding Senior Notes for $3,426 million aggregate cash purchase price. The loss on extinguishment activity included the tender premium, make-whole premiums, accrued interest, bank fees and unamortized fees, hedges and discounts.
(i)Primarily includes the loss on the sale of Safari Holdings, LLC. See Note 9 to the Financial Statements for more information.
(j)Represents costs related to the acquisition of Rhode Island Energy including certain costs associated with its integration, commitments made during the acquisition process and related costs. See Note 9 to the Financial Statements for additional information related to the commitments made as a condition of the acquisition.
Adjusted Gross Margins
Management also utilizes the following non-GAAP financial measures as indicators of performance for its businesses.
•"Kentucky Adjusted Gross Margins" is a single financial performance measure of the electricity generation, transmission and distribution operations of the Kentucky Regulated segment, as well as the Kentucky Regulated segment's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from operating revenues. In addition, certain other expenses, recorded in "Other operation and maintenance", "Depreciation" and "Taxes, other than income" on the Statements of Income, associated with approved cost recovery mechanisms are offset against the recovery of those expenses, which are included in revenues. These mechanisms allow for direct recovery of these expenses and, in some cases, returns on capital investments and performance incentives. As a result, this measure represents the net revenues from electricity and gas operations.
•"Pennsylvania Adjusted Gross Margins" is a single financial performance measure of the electricity transmission and distribution operations of the Pennsylvania Regulated segment. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance," (which are primarily Act 129, Storm Damage and Universal Service program costs), "Depreciation" (which is primarily related to the Act 129 Smart Meter program) and "Taxes, other than income," (which is primarily gross receipts tax) on the Statements of Income. This measure represents the net revenues from the Pennsylvania Regulated segment's electricity delivery operations.
•"Rhode Island Adjusted Gross Margins" is a single financial performance measure of the electricity transmission and distribution operations of the Rhode Island Regulated segment, as well as the Rhode Island Regulated segment's
40
distribution and sale of natural gas. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance" (which are primarily regional network transmission service, energy efficiency and storm cost related) and "Taxes, other than income" (which is primarily gross earnings tax) on the Statements of Income. This measure represents the net revenues from Rhode Island Regulated segment's electricity and gas delivery operations.
These measures are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to analyze and report their results of operations. Management believes these measures provide additional useful criteria to make investment decisions. These performance measures are used, in conjunction with other information, by senior management and PPL's Board of Directors to manage operations and analyze actual results compared with budget.
Changes in Adjusted Gross Margins
The following table shows Adjusted Gross Margins by PPL's reportable segmentssegment and by component, as applicable, for the year ended December 31 as well as the changes between periods. The factors that gave rise to the changes are described following the table:table.
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| U.K. Regulated | |||||||||||
| U.K. Adjusted Gross Margins | $ | 1,998 | $ | 2,089 | $ | (91 | ) | ||||
| Impact of changes in foreign currency exchange rates | (107 | ) | |||||||||
| U.K. Adjusted Gross Margins excluding impact of foreign currency exchange rates | $ | 16 | |||||||||
| Kentucky Regulated | |||||||||||
| Kentucky Adjusted Gross Margins | $ | 2,111 | $ | 2,041 | $ | 70 | |||||
| Pennsylvania Regulated | |||||||||||
| Pennsylvania Adjusted Gross Margins | |||||||||||
| Distribution | $ | 927 | $ | 924 | $ | 3 | |||||
| Transmission | 600 | 549 | 51 | ||||||||
| Total Pennsylvania Adjusted Gross Margins | $ | 1,527 | $ | 1,473 | $ | 54 | |||||
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Kentucky Regulated | |||||||||||||||||
| Kentucky Adjusted Gross Margins | $ | 2,460 | $ | 2,255 | $ | 205 | |||||||||||
| Pennsylvania Regulated | |||||||||||||||||
| Pennsylvania Adjusted Gross Margins | |||||||||||||||||
| Distribution | $ | 962 | $ | 915 | $ | 47 | |||||||||||
| Transmission | 739 | 674 | 65 | ||||||||||||||
| Total Pennsylvania Adjusted Gross Margins | $ | 1,701 | $ | 1,589 | $ | 112 | |||||||||||
| Rhode Island Regulated | |||||||||||||||||
| Rhode Island Adjusted Gross Margins | $ | 441 | $ | — | $ | 441 | |||||||||||
Kentucky Adjusted Gross Margins
Kentucky Adjusted Gross Margins increased in 20192022 compared with 20182021, primarily due to higher retailbase rates approved by the KPSC of $123$105 million, inclusiveenvironmental and gas cost recoveries added to base rates of the termination of the TCJA bill credit mechanism,$66 million and higher returns on additional environmental capital investments of $21 million. These increases were partially offset by $37 million of decreased sales volumes primarily due to weather of $29 million.
The increase in base rates was the result of new rates approved by the KPSC effective July 1, 2021. The environmental and gas cost recoveries added to base rates were the result of the transfer of certain ECR and GLT expenses into base rates as a $32 million decrease dueresult of the 2020 Kentucky rate case. This transfer results in depreciation and other operation and maintenance expenses associated with the ECR and GLT programs being excluded from margins for all twelve months in 2022 compared to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.six months in 2021.
Pennsylvania Adjusted Gross Margins
Distribution
Distribution Adjusted Gross Margins increased in 20192022 compared with 20182021, primarily due to returns on additional distribution system improvement capital investmentshigher sales volumes of $17 million which included favorable weather of $11 million. Late payment charges increased $10 million and returns on additional Smart Meter capital investments of $5 million, partially offset by a $12 million net of gross receipts tax impact of the estimated income tax savings owed to customers as a result of not charging late payment fees for much of 2021 due to the impact ofCOVID-19 pandemic. TCJA margins increased $11 million due to lower taxable income associated with the U.S. federal corporate income tax rate reduction from 35%mechanism. Merchant Function Charge, which is added to 21% as enactedthe PTC rates to offset uncollectible expenses, increased by $8 million largely due to the TCJA.energy price increases.
Transmission
Transmission Adjusted Gross Margins increased in 20192022 compared with 20182021, primarily due to ana $29 million increase as a result of $77a higher annual PPL zonal peak load billing factor in 2022 and $38 million fromof returns on additional transmission capital investments focused on replacing aging infrastructure and improving reliability, partially offset by $27 million fromreliability.
41
Rhode Island Adjusted Gross Margins
Rhode Island Adjusted Gross Margins increased for 2022 compared with 2021, due to the impactacquisition of the reduced U.S. federal corporate income taxes as a result of the TCJA in the first five months of 2019.Narragansett Electric on May 25, 2022.
Reconciliation of Adjusted Gross Margins
The following tables contain the components from the Statement of Income that are included in the non-GAAP financial measures and a reconciliation to PPL's "Operating Income" for the years ended December 31:
| 2022 | |||||||||||||||||||||||||||||||||||
| Kentucky Adjusted Gross Margins | Pennsylvania Adjusted Gross Margins | Rhode Island Adjusted Gross Margins (a) | Other (b) | Operating Income (c) | |||||||||||||||||||||||||||||||
| Operating Revenues | $ | 3,811 | $ | 3,030 | $ | 1,088 | $ | (27) | $ | 7,902 | |||||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||
| Fuel | 931 | — | — | — | 931 | ||||||||||||||||||||||||||||||
| Energy purchases | 273 | 1,048 | 365 | — | 1,686 | ||||||||||||||||||||||||||||||
| Other operation and maintenance | 92 | 111 | 249 | 1,946 | 2,398 | ||||||||||||||||||||||||||||||
| Depreciation | 53 | 28 | — | 1,100 | 1,181 | ||||||||||||||||||||||||||||||
| Taxes, other than income | 2 | 142 | 33 | 155 | 332 | ||||||||||||||||||||||||||||||
| Total Operating Expenses | 1,351 | 1,329 | 647 | 3,201 | 6,528 | ||||||||||||||||||||||||||||||
| Total | $ | 2,460 | $ | 1,701 | $ | 441 | $ | (3,228) | $ | 1,374 | |||||||||||||||||||||||||
| 2019 | |||||||||||||||||||
U.K. Adjusted Gross Margins | Kentucky Adjusted Gross Margins | Pennsylvania Adjusted Gross Margins | Other (a) | Operating Income (b) | |||||||||||||||
| Operating Revenues | $ | 2,129 | (c) | $ | 3,206 | $ | 2,358 | $ | 76 | $ | 7,769 | ||||||||
| Operating Expenses | |||||||||||||||||||
| Fuel | — | 709 | — | — | 709 | ||||||||||||||
| Energy purchases | — | 174 | 549 | — | 723 | ||||||||||||||
| Other operation and maintenance | 131 | 92 | 125 | 1,637 | 1,985 | ||||||||||||||
| Depreciation | — | 116 | 50 | 1,033 | 1,199 | ||||||||||||||
| Taxes, other than income | — | 4 | 107 | 202 | 313 | ||||||||||||||
| Total Operating Expenses | 131 | 1,095 | 831 | 2,872 | 4,929 | ||||||||||||||
| Total | $ | 1,998 | $ | 2,111 | $ | 1,527 | $ | (2,796 | ) | $ | 2,840 | ||||||||
| 2018 | |||||||||||||||||||
U.K. Adjusted Gross Margins | Kentucky Adjusted Gross Margins | Pennsylvania Adjusted Gross Margins | Other (a) | Operating Income (b) | |||||||||||||||
| Operating Revenues | $ | 2,230 | (c) | $ | 3,214 | $ | 2,277 | $ | 64 | $ | 7,785 | ||||||||
| Operating Expenses | |||||||||||||||||||
| Fuel | — | 799 | — | — | 799 | ||||||||||||||
| Energy purchases | — | 201 | 544 | — | 745 | ||||||||||||||
| Other operation and maintenance | 141 | 98 | 121 | 1,623 | 1,983 | ||||||||||||||
| Depreciation | — | 70 | 35 | 989 | 1,094 | ||||||||||||||
| Taxes, other than income | — | 5 | 104 | 203 | 312 | ||||||||||||||
| Total Operating Expenses | 141 | 1,173 | 804 | 2,815 | 4,933 | ||||||||||||||
| Total | $ | 2,089 | $ | 2,041 | $ | 1,473 | $ | (2,751 | ) | $ | 2,852 | ||||||||
| 2021 | |||||||||||||||||||||||||||||||||||
| Kentucky Adjusted Gross Margins | Pennsylvania Adjusted Gross Margins | Rhode Island Adjusted Gross Margins | Other (b) | Operating Income (c) | |||||||||||||||||||||||||||||||
| Operating Revenues | $ | 3,348 | $ | 2,430 | $ | — | $ | 5 | $ | 5,783 | |||||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||
| Fuel | 710 | — | — | — | 710 | ||||||||||||||||||||||||||||||
| Energy purchases | 186 | 566 | — | — | 752 | ||||||||||||||||||||||||||||||
| Other operation and maintenance | 88 | 111 | — | 1,409 | 1,608 | ||||||||||||||||||||||||||||||
| Depreciation | 105 | 52 | — | 925 | 1,082 | ||||||||||||||||||||||||||||||
| Taxes, other than income | 4 | 112 | — | 91 | 207 | ||||||||||||||||||||||||||||||
| Total Operating Expenses | 1,093 | 841 | — | 2,425 | 4,359 | ||||||||||||||||||||||||||||||
| Total | $ | 2,255 | $ | 1,589 | $ | — | $ | (2,420) | $ | 1,424 | |||||||||||||||||||||||||
(b)Represents amounts excluded from Adjusted Gross Margins.
(c)As reported on the Statements of the risks, uncertainties and factors that may impact future earnings.Income.
42
PPL Electric: Statement of Income Analysis
Net income for the years ended December 31 includes the following results:
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Operating Revenues | $ | 3,030 | $ | 2,402 | $ | 628 | |||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Energy purchases | 1,048 | 566 | 482 | ||||||||||||||
| Other operation and maintenance | 605 | 557 | 48 | ||||||||||||||
| Depreciation | 393 | 424 | (31) | ||||||||||||||
| Taxes, other than income | 149 | 120 | 29 | ||||||||||||||
| Total Operating Expenses | 2,195 | 1,667 | 528 | ||||||||||||||
| Other Income (Expense) - net | 30 | 21 | 9 | ||||||||||||||
| Interest Income from Affiliate | 5 | 5 | — | ||||||||||||||
| Interest Expense | 171 | 162 | 9 | ||||||||||||||
| Income Taxes | 174 | 154 | 20 | ||||||||||||||
| Net Income | $ | 525 | $ | 445 | $ | 80 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | $ | 2,358 | $ | 2,277 | $ | 81 | |||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Energy purchases | 549 | 544 | 5 | ||||||||
| Other operation and maintenance | 566 | 578 | (12 | ) | |||||||
| Depreciation | 386 | 352 | 34 | ||||||||
| Taxes, other than income | 112 | 109 | 3 | ||||||||
| Total Operating Expenses | 1,613 | 1,583 | 30 | ||||||||
| Other Income (Expense) - net | 25 | 23 | 2 | ||||||||
| Interest Income from Affiliate | 6 | 8 | (2 | ) | |||||||
| Interest Expense | 170 | 159 | 11 | ||||||||
| Income Taxes | 149 | 136 | 13 | ||||||||
| Net Income | $ | 457 | $ | 430 | $ | 27 | |||||
Operating Revenues
The increase (decrease) in operating revenues was due to:
| 2019 vs. 2018 | |||
| Distribution Price (a) | $ | 42 | |
| Distribution volume | (8 | ) | |
| PLR | 8 | ||
| Transmission Formula Rate (b) | 51 | ||
| TCJA Refund (c) | (12 | ) | |
| Total | $ | 81 | |
| 2022 vs. 2021 | |||||
| Distribution Price (a) | $ | (19) | |||
| Distribution volume (b) | 20 | ||||
| PLR (c) | 520 | ||||
| Transmission Formula Rate (d) | 92 | ||||
| 15 | |||||
| 628 | |||||
reduction in the transmission formula rate return on equity recorded in 2021. See Note 7 to the Financial Statements for additional information on the
transmission formula rate return on equity reduction.
(e)The increase was primarily due to higher late payment charges in 2022, which were not billed until the fourth quarter 2021 due to the COVID pandemic.
Energy Purchases
Energy purchases increased $5$482 million in 20192022 compared with 2018.2021. This increase was primarily due to higher PLR prices of $419 million and higher PLR volumes of $33 million, partially offset by lower PLR prices of $25 million and lower transmission enhancement expenses of $3$58 million.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
43
| 2019 vs. 2018 | |||
| Project cancellations | $ | (12 | ) |
| Storm costs | (4 | ) | |
| Bad debts | (3 | ) | |
| Contractor-related expenses | 3 | ||
| Vegetation management | 2 | ||
| Support costs | 1 | ||
| Other | 1 | ||
| Total | $ | (12 | ) |
| 2022 vs. 2021 | |||||
| Act 129 smart meter program | $ | 7 | |||
| Storm costs | (10) | ||||
| IT cloud amortization costs | 12 | ||||
| Vegetation management costs | 12 | ||||
| Bad debts | 14 | ||||
| Canceled projects | 8 | ||||
| Support costs | (9) | ||||
| Other | 14 | ||||
| Total | $ | 48 | |||
Depreciation
Depreciation increased by $34decreased $31 million in 20192022 compared with 2018. This increase was primarily due to additional assets placed into service, related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure as well as the roll-out of the Act 129 Smart Meter program, net of retirements.
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | $ | 3,206 | $ | 3,214 | $ | (8 | ) | ||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 709 | 799 | (90 | ) | |||||||
| Energy purchases | 174 | 201 | (27 | ) | |||||||
| Other operation and maintenance | 861 | 848 | 13 | ||||||||
| Depreciation | 547 | 475 | 72 | ||||||||
| Taxes, other than income | 74 | 70 | 4 | ||||||||
| Total Operating Expenses | 2,365 | 2,393 | (28 | ) | |||||||
| Other Income (Expense) - net | (13 | ) | (16 | ) | 3 | ||||||
| Interest Expense | 226 | 206 | 20 | ||||||||
| Interest Expense with Affiliate | 31 | 25 | 6 | ||||||||
| Income Taxes | 103 | 129 | (26 | ) | |||||||
| Net Income | $ | 468 | $ | 445 | $ | 23 | |||||
| 2019 vs. 2018 | |||
| Volumes (a) | $ | (91 | ) |
| Municipal supply (b) | (56 | ) | |
| Fuel and other energy prices (c) | (48 | ) | |
| Retail rates (d) | 123 | ||
| ECR (e) | 60 | ||
| Other | 4 | ||
| Total | $ | (8 | ) |
| 2019 vs. 2018 | |||
| Kentucky recycling credit, net of federal income tax expense (a) | $ | (18 | ) |
| Kentucky state tax reform (b) | (9 | ) | |
| Other | 1 | ||
| Total | $ | (26 | ) |
LG&E: Statement of Income Analysis
Net income for the years ended December 31 includes the following results:
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Operating Revenues | |||||||||||||||||
| Retail and wholesale | $ | 1,762 | $ | 1,545 | $ | 217 | |||||||||||
| Electric revenue from affiliate | 36 | 24 | 12 | ||||||||||||||
| Total Operating Revenues | 1,798 | 1,569 | 229 | ||||||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Fuel | 346 | 265 | 81 | ||||||||||||||
| Energy purchases | 245 | 167 | 78 | ||||||||||||||
| Energy purchases from affiliates | 25 | 23 | 2 | ||||||||||||||
| Other operation and maintenance | 416 | 400 | 16 | ||||||||||||||
| Depreciation | 298 | 279 | 19 | ||||||||||||||
| Taxes, other than income | 48 | 46 | 2 | ||||||||||||||
| Total Operating Expenses | 1,378 | 1,180 | 198 | ||||||||||||||
| Other Income (Expense) - net | 4 | (5) | 9 | ||||||||||||||
| Interest Expense | 89 | 81 | 8 | ||||||||||||||
| Income Taxes | 63 | 54 | 9 | ||||||||||||||
| Net Income | $ | 272 | $ | 249 | $ | 23 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | |||||||||||
| Retail and wholesale | $ | 1,473 | $ | 1,467 | $ | 6 | |||||
| Electric revenue from affiliate | 27 | 29 | (2 | ) | |||||||
| Total Operating Revenues | 1,500 | 1,496 | 4 | ||||||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 289 | 308 | (19 | ) | |||||||
| Energy purchases | 154 | 183 | (29 | ) | |||||||
| Energy purchases from affiliates | 7 | 13 | (6 | ) | |||||||
| Other operation and maintenance | 387 | 376 | 11 | ||||||||
| Depreciation | 231 | 195 | 36 | ||||||||
| Taxes, other than income | 39 | 36 | 3 | ||||||||
| Total Operating Expenses | 1,107 | 1,111 | (4 | ) | |||||||
| Other Income (Expense) - net | (11 | ) | (12 | ) | 1 | ||||||
| Interest Expense | 87 | 76 | 11 | ||||||||
| Income Taxes | 63 | 64 | (1 | ) | |||||||
| Net Income | $ | 232 | $ | 233 | $ | (1 | ) | ||||
Operating Revenues
The increase (decrease) in operating revenues was due to:
| 2019 vs. 2018 | |||
| Retail rates (a) | $ | 46 | |
| ECR (b) | 26 | ||
| Volumes (c) | (53 | ) | |
| Fuel and other energy prices (d) | (20 | ) | |
| Other | 5 | ||
| Total | $ | 4 | |
| 2022 vs. 2021 | |||||
| Fuel and other energy prices (a) | $ | 149 | |||
| Retail rates (b) | 50 | ||||
| Volumes | 33 | ||||
| (3) | |||
| 229 | |
(a)The increase was primarily due to higher recoveries of fuel and energy purchases due to higher commodity costs.
(b)The increase was due to new base rates approved by the KPSC effective July 1, 2021.
44
Fuel
Fuel decreased $19increased $81 million in 20192022 compared with 2018,2021, primarily due to a $10$67 million decreaseincrease in commodity costs and a $10$14 million decreaseincrease in volumes driven by weather.
Energy Purchases
Energy purchases decreased $29increased $78 million in 20192022 compared with 2018,2021, primarily due to an increase in commodity costs.
Other Operation and Maintenance
Other operation and maintenance increased $16 million in 2022 compared with 2021, primarily due to a $14$6 million decreaseincrease in commoditystorm restoration costs and a $7$4 million decreaseincrease in natural gas volumes driven by weather in 2019.inventory losses.
Depreciation
Depreciation increased $36$19 million in 20192022 compared with 2018,2021, primarily due to a $26$12 million increase related to higher depreciation rates effective May 1, 2019 and a $9 million increase related todriven by additional assets placed into service, net of retirements.retirements, and an $8 million increase driven by higher depreciation rates effective July 1, 2021.
KU: Statement of Income Analysis
Net income for the years ended December 31 includes the following results:
| Change | |||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Operating Revenues | |||||||||||||||||
| Retail and wholesale | $ | 2,049 | $ | 1,803 | $ | 246 | |||||||||||
| Electric revenue from affiliate | 25 | 23 | 2 | ||||||||||||||
| Total Operating Revenues | 2,074 | 1,826 | 248 | ||||||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Fuel | 585 | 445 | 140 | ||||||||||||||
| Energy purchases | 28 | 19 | 9 | ||||||||||||||
| Energy purchases from affiliates | 36 | 24 | 12 | ||||||||||||||
| Other operation and maintenance | 487 | 463 | 24 | ||||||||||||||
| Depreciation | 386 | 366 | 20 | ||||||||||||||
| Taxes, other than income | 45 | 41 | 4 | ||||||||||||||
| Total Operating Expenses | 1,567 | 1,358 | 209 | ||||||||||||||
| Other Income (Expense) - net | 8 | 4 | 4 | ||||||||||||||
| Interest Expense | 117 | 109 | 8 | ||||||||||||||
| Income Taxes | 76 | 67 | 9 | ||||||||||||||
| Net Income | $ | 322 | $ | 296 | $ | 26 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | |||||||||||
| Retail and wholesale | $ | 1,733 | $ | 1,747 | $ | (14 | ) | ||||
| Electric revenue from affiliate | 7 | 13 | (6 | ) | |||||||
| Total Operating Revenues | 1,740 | 1,760 | (20 | ) | |||||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 420 | 491 | (71 | ) | |||||||
| Energy purchases | 20 | 18 | 2 | ||||||||
| Energy purchases from affiliates | 27 | 29 | (2 | ) | |||||||
| Other operation and maintenance | 438 | 441 | (3 | ) | |||||||
| Depreciation | 315 | 279 | 36 | ||||||||
| Taxes, other than income | 35 | 34 | 1 | ||||||||
| Total Operating Expenses | 1,255 | 1,292 | (37 | ) | |||||||
| Other Income (Expense) - net | (4 | ) | (6 | ) | 2 | ||||||
| Interest Expense | 109 | 100 | 9 | ||||||||
| Income Taxes | 79 | 76 | 3 | ||||||||
| Net Income | $ | 293 | $ | 286 | $ | 7 | |||||
Operating RevenueRevenues
The increase (decrease) in operating revenuerevenues was due to:
| 2019 vs. 2018 | |||
| Municipal supply (a) | $ | (56 | ) |
| Volumes (b) | (43 | ) | |
| Fuel and other energy prices (c) | (30 | ) | |
| Retail rates (d) | 77 | ||
| ECR (e) | 34 | ||
| Other | (2 | ) | |
| Total | $ | (20 | ) |
| 2022 vs. 2021 | |||||
| Retail rates (a) | $ | 55 | |||
| Fuel and energy prices (b) | 165 | ||||
| Volumes | 24 | ||||
| 4 | |||||
| 248 | |||||
(a)The increases were due to new base rates approved by the KPSC effective July 1, 2021.
(b)The increases were primarily due to higher recoveries of fuel and energy purchases due to higher commodity costs.
45
Fuel
Fuel decreased $71increased $140 million in 20192022 compared with 2018,2021, primarily due to an increase in commodity costs.
Other Operation and Maintenance
Other operations and maintenance increased $24 million in 2022 compared with 2021, primarily due to a $32$10 million decreaseincrease in commodity costs, a $23 million decrease in volumes driven by weathervegetation management expenses and a $20$9 million decreaseincrease in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.plant outage expenses.
Depreciation
Depreciation increased $36$20 million in 20192022 compared with 2018,2021, primarily due to a $26$12 million increase related to higher depreciation rates effective May 1, 2019 and a $6 million increase related todriven by additional assets placed into service, net of retirements.retirements, and a $4 million increase driven by higher depreciation rates effective July 1, 2021.
Financial Condition
The remainder of this Item 7 in this Form 10-K is presented on a combined basis, providing information, as applicable, for all Registrants.
Liquidity and Capital Resources
(All Registrants)
The Registrants' cash flows from operations and access to cost effective bank and capital markets are subject to risks and uncertainties. See "Item 1A. Risk Factors" for a discussion of risks and uncertainties that could affect the Registrants' cash flows.
The Registrants had the following at:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 356 | $ | 25 | $ | 93 | $ | 21 | |||||||||||||||
| Short-term debt | 985 | 145 | 179 | 101 | |||||||||||||||||||
| Long-term debt due within one year | 354 | 340 | — | 13 | |||||||||||||||||||
| Notes payable with affiliates | — | — | — | ||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 3,571 | $ | 21 | $ | 9 | $ | 13 | |||||||||||||||
| Short-term debt | 69 | — | 69 | — | |||||||||||||||||||
| Long-term debt due within one year | 474 | 474 | — | — | |||||||||||||||||||
| Notes payable with affiliates | — | 324 | 294 | ||||||||||||||||||||
| PPL (a) | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| December 31, 2019 | |||||||||||||||||||
| Cash and cash equivalents | $ | 815 | $ | 262 | $ | 27 | $ | 15 | $ | 12 | |||||||||
| Short-term debt | 1,151 | — | 388 | 238 | 150 | ||||||||||||||
| Long-term debt due within one year | 1,172 | — | 975 | — | 500 | ||||||||||||||
| Notes payable with affiliates | — | 150 | — | — | |||||||||||||||
| December 31, 2018 | |||||||||||||||||||
| Cash and cash equivalents | $ | 621 | $ | 267 | $ | 24 | $ | 10 | $ | 14 | |||||||||
| Short-term debt | 1,430 | — | 514 | 279 | 235 | ||||||||||||||
| Long-term debt due within one year | 530 | — | 530 | 434 | 96 | ||||||||||||||
| Notes payable with affiliates | — | 113 | — | — | |||||||||||||||
(PPL)
The statements of Cash Flows separately report the cash flows of discontinued operations. The "Operating Activities," "Investing Activities" and "Financing Activities" sections below include only the cash flows of continuing operations.
(All Registrants)
Net cash provided by (used in) operating, investing and financing activities for the years ended December 31 and the changes between periods were as follows:
46
| PPL | PPL Electric | LG&E | KU | |||||||||||||||||||||||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||||||||||||||||||||||||||||
| 2019 | ||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2022 | |||||||||||||||||||||||||||||||||||||||||
| Operating activities | $ | 2,427 | $ | 913 | $ | 938 | $ | 492 | $ | 553 | Operating activities | $ | 1,730 | $ | 757 | $ | 543 | $ | 661 | |||||||||||||||||||||||
| Investing activities | (3,080 | ) | (1,117 | ) | (1,094 | ) | (482 | ) | (610 | ) | Investing activities | (5,654) | (387) | (360) | (547) | |||||||||||||||||||||||||||
| Financing activities | 836 | 199 | 159 | (5 | ) | 55 | Financing activities | 709 | (366) | (99) | (106) | |||||||||||||||||||||||||||||||
| 2018 | ||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2021 | |||||||||||||||||||||||||||||||||||||||||
| Operating activities | $ | 2,821 | $ | 978 | $ | 915 | $ | 443 | $ | 581 | Operating activities | $ | 1,544 | $ | 969 | $ | 458 | $ | 608 | |||||||||||||||||||||||
| Investing activities | (3,361 | ) | (1,193 | ) | (1,116 | ) | (554 | ) | (561 | ) | Investing activities | 8,564 | (1,400) | (466) | (556) | |||||||||||||||||||||||||||
| Financing activities | 690 | 433 | 195 | 106 | (21 | ) | Financing activities | (7,344) | 412 | 10 | (61) | |||||||||||||||||||||||||||||||
| 2019 vs. 2018 Change | ||||||||||||||||||||||||||||||||||||||||||
| 2022 vs. 2021 Change | 2022 vs. 2021 Change | |||||||||||||||||||||||||||||||||||||||||
| Operating activities | $ | (394 | ) | $ | (65 | ) | $ | 23 | $ | 49 | $ | (28 | ) | Operating activities | $ | 186 | $ | (212) | $ | 85 | $ | 53 | ||||||||||||||||||||
| Investing activities | 281 | 76 | 22 | 72 | (49 | ) | Investing activities | (14,218) | 1,013 | 106 | 9 | |||||||||||||||||||||||||||||||
| Financing activities | 146 | (234 | ) | (36 | ) | (111 | ) | 76 | Financing activities | 8,053 | (778) | (109) | (45) | |||||||||||||||||||||||||||||
Operating Activities
The components of the change in cash provided by (used in) operating activities were as follows:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| 2022 vs. 2021 | |||||||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||||||
| Net income | $ | 696 | $ | 80 | $ | 23 | $ | 26 | |||||||||||||||
| Non-cash components | (153) | (21) | 11 | 32 | |||||||||||||||||||
| Working capital | (414) | (262) | 50 | 2 | |||||||||||||||||||
| Defined benefit plan funding | 41 | 21 | 1 | — | |||||||||||||||||||
| Other operating activities | 16 | (30) | — | (7) | |||||||||||||||||||
| Total | $ | 186 | $ | (212) | $ | 85 | $ | 53 | |||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| 2019 vs. 2018 | |||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||
| Net income | $ | (81 | ) | $ | 27 | $ | 23 | $ | (1 | ) | $ | 7 | |||||||
| Non-cash components | 241 | (17 | ) | 64 | 33 | 34 | |||||||||||||
| Working capital | (451 | ) | (90 | ) | (181 | ) | (48 | ) | (126 | ) | |||||||||
| Defined benefit plan funding | 11 | 7 | 97 | 55 | 51 | ||||||||||||||
| Other operating activities | (114 | ) | 8 | 20 | 10 | 6 | |||||||||||||
| Total | $ | (394 | ) | $ | (65 | ) | $ | 23 | $ | 49 | $ | (28 | ) | ||||||
(PPL)
PPL cash provided by operating activities in 2019 decreased $3942022 increased $186 million compared with 2018.2021.
•Net income decreased $81increased $696 million between periods and included an increasea decrease in net non-cash charges of $241$153 million. The increasedecrease in net non-cash charges was primarily due to an increase in depreciation expense (primarily due to additional assets placed into service, related to the ongoing efforts to ensure reliabilityloss on extinguishment of the delivery systemdebt and the replacementimpairment of aging infrastructure, net of retirements and higher depreciation rates) and unrealized losses on hedging activitiessolar panels in 2021, partially offset by an increase in the U.K. net periodic defined benefit credits (primarily due to lower levels of unrecognized losses being amortized)depreciation and a decreasean increase in deferred income taxes (primarily due to book versusand investment tax plant timing differences).credits.
•The $451$414 million decrease in cash from changes in working capital was primarily due to a decrease in accounts payable (primarily due to timing of payments), an increase in net regulatory assets and liabilities (primarily due to PPL Electric’s transmission formula rate return on equity reduction and the impact of the TCJA and timing of rate recovery rate mechanisms), an increase in other current liabilities (primarily due to timing of payments and operating lease liability), an increase in unbilled revenue (primarily due to weather, higher retail rates effective May 1, 2019 and a change in pricing method in the model), an increase in fuel, materials and supplies (primarily due to inventory management) and an increase in other (primarily due to a decrease in taxes payable and a decrease in counter-party collateralother current assets, partially offset by an increase in customer deposits)unbilled revenues (primarily due to weather and rate recovery mechanisms), an increase in accounts receivable (primarily due to pricing) and an increase in accounts payable (primarily due to timing).
•The $114$41 million decrease in defined benefit plan funding was primarily due to a decrease in contribution to pension plans in 2022, as PPL's defined benefit pension plans have the option to utilize available prior year credit balances to meet current and future contribution requirements.
•The $16 million increase in cash provided by other operating activities was primarily due to the $65 million transfer of excess benefit funds,driven by an increase in 2018,non-current liabilities (primarily related to the favorable private letter ruling received by PPL from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new sub-account within the VEBA, to be used to pay for medical claims of active bargaining unit employees, decreasean increase in ARO expenditures and an increase in non-current regulatory liabilities, (due to timingpartially offset by a decrease in accrued pension and postretirement obligations).
47
(PPL Electric)
PPL Electric's cash provided by operating activities in 20192022 decreased $65$212 million compared with 2018.2021.
•Net income increased $27$80 million between the periods and included a decrease in non-cash components of $17$21 million. The decrease in non-cash components was primarily due to a $35 million decrease in deferred income tax expense (due to book versus tax plant timing differences and Federal net operating losses, partially offset by a book to tax timing difference related to the TCJA regulatory liability) and a $15 million decrease in Other (primarily due to an increase in AFUDC and a decrease in canceled projects), partially offset by a $34 million increase in depreciation expense (primarily due to additional assets placed into service, net of retirements, related to the ongoing efforts to ensure the reliabilitya decrease in software and computer hardware depreciation as a result of the delivery system and the replacement of aging infrastructure as well as the roll-out of the Act 129 Smart Meter program)end-of-life retirements).
•The $90$262 million decrease in cash from changes in working capital was primarily due to a decrease in regulatory liabilities (primarily due to refunds to customers related to the transmission formula rate return on equity reduction), partially offset by an increase in net regulatory assetsunbilled revenues (primarily due to weather and liabilities (due to timing of rate recovery mechanisms), an increase in unbilled revenue (primarily dueaccounts payable (due to a change in pricing method in the model), an increase in other net current assets and current liabilities (primarily due to an increase in 2019 material and supplies)timing) and an increase in accounts receivable (primarily(due to pricing).
•The $21 million of activity in defined benefit plan funding was primarily due to timing of receipts).a decrease in contribution to its pension plans in 2022, as PPL Electric's defined benefit pension plans have the option to utilize available prior year credit balances to meet current and future contribution requirements.
•The $8$30 million increasedecrease in cash provided by other operating activities was driven primarily dueby an increase in non-current assets (primarily related to cloud computing and a decrease in non-current regulatory assets (due to timing of rate recovery mechanisms, amortization of storm costs incurred in the prior year and $22 million of storm costs incurred in 2018), partially offset by a decrease in non-current liabilities (primarily due to a $41 million TCJA liability in 2018)medical claim payments).
•Net income increased $23 million between the periods and included an increase in non-cash components of $64$11 million. The increase in non-cash components was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).
•Cash from changes in working capital increased by $50 million. The increase was primarily driven by an increasedue to a decrease in net regulatory assets and liabilities, net (primarily due to the impact of the TCJA and timing of rate recovery mechanisms), a decreasean increase in accounts payable to affiliates and other current liabilities (primarily due to timing of payments) and, partially offset by an increase in unbilled revenues (primarily due to weather)weather and higher commodity costs).
•Net income decreased $1increased $26 million between the periods and included an increase in non-cash components of $33$32 million. The increase in non-cash components was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements)retirements and higher depreciation rates effective July 1, 2021).
Investing Activities
(All Registrants)
The components of the change in cash provided by (used in) investing activities were as follows:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| 2022 vs. 2021 | |||||||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||||||
| Expenditures for PP&E | $ | (182) | $ | 12 | $ | 95 | $ | 13 | |||||||||||||||
| Proceeds from sale of Safari Holdings, net of cash divested | 146 | — | — | — | |||||||||||||||||||
| Proceeds from sale of U.K. utility business, net of cash divested | (10,560) | — | — | — | |||||||||||||||||||
| Acquisition of Narragansett Electric, net of cash acquired | (3,660) | — | — | — | |||||||||||||||||||
| Notes receivable from affiliate | — | 998 | — | — | |||||||||||||||||||
| Other investing activities | 38 | 3 | 11 | (4) | |||||||||||||||||||
| Total | $ | (14,218) | $ | 1,013 | $ | 106 | $ | 9 | |||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| 2019 vs. 2018 | |||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||
| Expenditures for PP&E | $ | 155 | $ | 78 | $ | 23 | $ | 72 | $ | (48 | ) | ||||||||
| Purchase of investments | 10 | — | — | — | — | ||||||||||||||
| Proceeds from sale of investments | 63 | — | — | — | — | ||||||||||||||
| Other investing activities | 53 | (2 | ) | (1 | ) | — | (1 | ) | |||||||||||
| Total | $ | 281 | $ | 76 | $ | 22 | $ | 72 | $ | (49 | ) | ||||||||
For PPL, in 20192022 compared with 2018,2021, the decreaseincrease in expenditures was due to lower project expenditures at WPD, PPL Electric, LKE and LG&E,RIE, partially offset by higher projecta decrease in expenditures at KU.LG&E. The decrease in expenditures at WPDLG&E was primarily due to a decrease in expenditures to enhance system reliability and a decrease in foreign currency exchange rates. The decrease in expenditures for PPL Electric was primarily due to timing differences on capital spending projects related to ongoing efforts to improve reliability and replace aging infrastructure. The decrease in expenditures at LKE was primarily due to decreased spending for environmental water projects at LG&E and KU's Trimble County plant, LG&E’s Mill Creek plant and KU's Ghent plant, partially offset bylower spending on variousELG projects and other projects at KU that are not individually significant.
See "Forecasted Uses of Cash" for detail regarding projected capital expenditures for the years 20202023 through 2024.2025.
For PPL Electric, the changes in "Notes receivable from affiliate" activity resulted from payments received on the short-term note between affiliates in 2022, issued to support general corporate purposes. See Note 15 to the Financial Statements for further discussion of intercompany borrowings.
Financing Activities
(All Registrants)
The components of the change in cash provided by (used in) financing activities were as follows:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| 2022 vs. 2021 | |||||||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||||||
| Long-term debt issuance/retirement, net | $ | 4,542 | $ | (250) | $ | 300 | $ | 300 | |||||||||||||||
| Dividends | 492 | (6) | (83) | (46) | |||||||||||||||||||
| Purchase of treasury stock | 1,003 | — | — | — | |||||||||||||||||||
| Capital contributions/distributions, net | — | (671) | 16 | (16) | |||||||||||||||||||
| Retirement of term loan | 300 | — | — | — | |||||||||||||||||||
| Retirement of commercial paper | 73 | — | 41 | 32 | |||||||||||||||||||
| Changes in net short-term debt | 1,642 | 145 | 262 | 272 | |||||||||||||||||||
| Note payable with affiliate | — | — | (648) | (588) | |||||||||||||||||||
| Other financing activities | 1 | 4 | 3 | 1 | |||||||||||||||||||
| Total | $ | 8,053 | $ | (778) | $ | (109) | $ | (45) | |||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| 2019 vs. 2018 | |||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||
| Debt issuance/retirement, net | $ | 383 | $ | (105 | ) | $ | 414 | $ | 99 | $ | 315 | ||||||||
| Debt issuance/retirement, affiliate | — | (250 | ) | — | — | ||||||||||||||
| Stock issuances/redemptions, net | 469 | — | — | — | — | ||||||||||||||
| Dividends | (59 | ) | (96 | ) | — | (26 | ) | 17 | |||||||||||
| Capital contributions/distributions, net | (29 | ) | 57 | (58 | ) | 23 | |||||||||||||
| Changes in net short-term debt | (641 | ) | — | (396 | ) | (121 | ) | (275 | ) | ||||||||||
| Note payable with affiliate | — | 149 | — | — | |||||||||||||||
| Other financing activities | (6 | ) | (4 | ) | (10 | ) | (5 | ) | (4 | ) | |||||||||
| Total | $ | 146 | $ | (234 | ) | $ | (36 | ) | $ | (111 | ) | $ | 76 | ||||||
(All Registrants)
See Note 8 to the Financial Statements in this Form 10-K for information on 2022 activity.
See "Long-term Debt and Equity Securities" below for additional information on current year activity. See "Forecasted Sources of Cash" for a discussion of the Registrants' plans to issue debt and equity securities, as well as a discussion of credit facility capacity available to the Registrants. Also see "Forecasted Uses of Cash" for a discussion of PPL's plans to pay dividends on common securities in the future, as well as the Registrants' maturities of long-term debt.
Long-term Debt and Equity Securities
Long-term debt and equity securities activity for 20192022 included:
49
| Debt | Net Stock | Debt | Stock | |||||||||||||||||||||||||||||||
| Issuances (a) | Retirements | Issuances | Issuances (a) | Retirements | Issuances (b) | Repurchases | ||||||||||||||||||||||||||||
| Cash Flow Impact: | Cash Flow Impact: | |||||||||||||||||||||||||||||||||
| PPL | $ | 1,465 | $ | 300 | $ | 1,167 | PPL | $ | 850 | $ | 264 | $ | 18 | $ | — | |||||||||||||||||||
| PPL Electric | 393 | 100 | PPL Electric | 250 | 250 | — | — | |||||||||||||||||||||||||||
| LKE | 705 | 200 | ||||||||||||||||||||||||||||||||
| LG&E | 399 | 200 | LG&E | 300 | — | — | — | |||||||||||||||||||||||||||
| KU | 306 | — | KU | 300 | — | — | — | |||||||||||||||||||||||||||
(a)Issuances are net of pricing discounts, where applicable, and exclude the impact of debt issuance costs. Includes debt issuances with affiliates.
(b)Includes issuances of common stock and treasury stock, which are included in "Other financing activities" on the Statements of Cash Flows.
See Note 8 to the Financial Statements for additional long-term debt information.
Equity Securities Activities(PPL)
In May 2018, PPL completed a registered underwritten public offeringAugust 2021, PPL's Board of 55 million sharesDirectors authorized share repurchases of its common stock. In conjunction with that offering, the underwriters exercised an optionup to purchase 8.25 million additional shares$3 billion of PPL common stock solely to cover over-allotments.
shares. In connection with the registered public offering,2021, PPL entered into forward sale agreements with two counterparties covering the total 63.25 million sharesrepurchased approximately $1 billion of PPL common stock. Under the forward sale agreements, PPL was obligated to settle these forward sale agreements no later than November 2019. The forward sale agreements were classified as equity transactions.
Forecasted Sources of Cash
(All Registrants)
The Registrants expect to continue to have adequate liquidity available from operating cash flows, cash and cash equivalents, credit facilities and commercial paper issuances.issuances to meet their requirements with respect to their contractual obligations and anticipated capital expenditures. Additionally, subject to market conditions, the Registrants and their
subsidiaries may access the capital markets, and PPL Electric, LG&E and KU anticipate receiving equity contributions from their parent or member in 2020.2023.
Credit Facilities
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. Amounts borrowed under these credit facilities are reflected in "Short-term debt" on the Balance Sheets.Sheets, except for borrowings under PPL Electric's term loan agreement due in 2024 and borrowings under LG&E's and KU's term loan agreements due in 2024, which are reflected in "Long-term debt". At December 31, 2019,2022, the total committed borrowing capacity under credit facilities and the borrowings under these facilities were:
External
| Committed Capacity | Borrowed | Letters of Credit and Commercial Paper Issued (c) | Unused Capacity | ||||||||||||||||||||
| PPL Capital Funding Credit Facilities | $ | 1,350 | $ | — | $ | 561 | $ | 789 | |||||||||||||||
| PPL Electric Credit Facilities | 900 | 250 | 146 | 504 | |||||||||||||||||||
| LG&E Credit Facilities | 800 | 300 | 180 | 320 | |||||||||||||||||||
| KU Credit Facilities | 700 | 300 | 101 | 299 | |||||||||||||||||||
| Total Credit Facilities (a) (b) | $ | 3,750 | $ | 850 | $ | 988 | $ | 1,912 | |||||||||||||||
| Committed Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | Unused Capacity | ||||||||||||
| PPL Capital Funding Credit Facilities | $ | 1,550 | $ | — | $ | 465 | $ | 1,085 | |||||||
| PPL Electric Credit Facility | 650 | — | 1 | 649 | |||||||||||
| LG&E Credit Facilities | 500 | — | 238 | 262 | |||||||||||
| KU Credit Facilities | 400 | — | 150 | 250 | |||||||||||
| Total LKE Consolidated | 900 | — | 388 | 512 | |||||||||||
| Total U.S. Credit Facilities (a) (b) | $ | 3,100 | $ | — | $ | 854 | $ | 2,246 | |||||||
| Total U.K. Credit Facilities (b) (c) | £ | 1,055 | £ | 243 | £ | — | £ | 812 | |||||||
(a)The syndicated credit facilities, term loans and PPL Capital Funding's bilateral facility, each contain a financial covenant requiring debt to total capitalization not to exceed 70% for PPL Capital Funding, PPL Electric, LG&E and KU, as calculated in accordance with the facility, and other customary covenants.
The commitments under the domestic credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than the following percentages of the total committed capacity: PPL - 8%14%, PPL Electric - 6%, LKE - 6%18%, LG&E - 6%19% and KU - 6%21%.
(b)Each company pays customary fees under its respective syndicated credit facility. Borrowings generally bear interest at December 31, 2019, include a USD-denominated borrowing of $200 million and GBP-denominated borrowings of £88 million, which equated to $113 million. At December 31, 2019,LIBOR-based rates, or applicable SOFR, plus an applicable margin.
(c)Commercial paper issued reflects the USD equivalent of unused capacity under the U.K. committed credit facilities was approximately $1.0 billion.
In addition to the financial covenants noted in the table above, the credit agreements governing the above credit facilities contain various other covenants. Failure to comply with the covenants after applicable grace periods could result in acceleration of repayment of borrowings and/or termination of the agreements. The Registrants monitor compliance with the covenants on a regular basis. At December 31, 2019,2022, the Registrants were in compliance with these covenants. At this time, the Registrants believe that these covenants and other borrowing conditions will not limit access to these funding sources.
See Note 8 to the Financial Statements for further discussion of the Registrants' credit facilities.
Intercompany (LKE, LG(LG&E and KU)
| Committed Capacity | Borrowed | Commercial Paper Program Capacity | Unused Capacity | ||||||||||||||||||||
| LG&E Money Pool (a) | $ | 750 | $ | — | $ | 500 | $ | 250 | |||||||||||||||
| KU Money Pool (a) | 650 | — | 400 | 250 | |||||||||||||||||||
Committed Capacity | Borrowed | Non-affiliate Used Capacity | Unused Capacity | ||||||||||||
| LKE Credit Facility | $ | 375 | $ | 150 | $ | — | $ | 225 | |||||||
| LG&E Money Pool (a) | 500 | — | 238 | 262 | |||||||||||
| KU Money Pool (a) | 500 | — | 150 | 350 | |||||||||||
See Note 1415 to the Financial Statements for further discussion of intercompany credit facilities.
Commercial Paper (All Registrants)
| December 31, 2022 | |||||||||||||||||
| Capacity | Commercial Paper Issuances (c) | Unused Capacity | |||||||||||||||
| PPL Capital Funding | $ | 1,350 | $ | 561 | $ | 789 | |||||||||||
| PPL Electric | 650 | 145 | 505 | ||||||||||||||
| LG&E (a) | 500 | 180 | 320 | ||||||||||||||
| KU (b) | 400 | 101 | 299 | ||||||||||||||
| Total PPL | $ | 2,900 | $ | 987 | $ | 1,913 | |||||||||||
| December 31, 2019 | |||||||||||
| Capacity | Commercial Paper Issuances | Unused Capacity | |||||||||
| PPL Capital Funding | $ | 1,500 | $ | 450 | $ | 1,050 | |||||
| PPL Electric | 650 | — | 650 | ||||||||
| LG&E | 350 | 238 | 112 | ||||||||
| KU | 350 | 150 | 200 | ||||||||
| Total LKE | 700 | 388 | 312 | ||||||||
| Total PPL | $ | 2,850 | $ | 838 | $ | 2,012 | |||||
(a)In August 2022, the capacity for the LG&E commercial paper program was increased to $500 million.
(b)In August 2022, the capacity for the KU commercial paper program was increased to $400 million.
(c)Commercial paper issued reflects the undiscounted face value of the issuance.
Long-term Debt and Equity Securities
(PPL)
PPL and its subsidiaries are authorized to issue, at the discretion of management and subject to market conditions, up to $7$3.50 billion of long-term debt and equity securities, the proceeds of which would be used to fund capital expenditures and for general corporate purposes.
(PPL Electric)
PPL Electric is authorized to issue, at the discretion of management and subject to market conditions and regulatory approvals, up to $1 billion of long-term debt securities, the proceeds of which would be used to fund capital expenditures and for general corporate purposes.
51
(LG&E)
LG&E is authorized to issue, at the discretion of management and subject to market conditions and regulatory approvals, up to $500 million of long-term debt securities, the proceeds of which would be used to repay short-term debt incurred to fund capital expenditures and for general corporate purposes.
(KU)
KU is authorized to issue, at the discretion of management and subject to market conditions and regulatory approvals, up to $800$500 million of long-term debt securities, the proceeds of which would be used to repay $500 million of First Mortgage Bonds maturing in November 2020, repay short-term debt incurred to fund capital expenditures and for general corporate purposes.
Contributions from Parent/MemberParent (PPL Electric, LKE, LG&E and KU)
From time to time, LKE's member or the parents of PPL Electric, LG&E and KU make capital contributions to subsidiaries. The proceeds from these contributions are used to fund capital expenditures and for other general corporate purposes and, in the case of LKE, to make contributions to its subsidiaries.purposes.
Forecasted Uses of Cash
(All Registrants)
In addition to expenditures required for normal operating activities, such as purchased power, payroll, fuel and taxes, the Registrants currently expect to incur future cash outflows for capital expenditures, various contractual obligations, payment of dividends on its common stock, distributions by LKE to its member, and possibly the purchase or redemption of a portion of debt securities.
Capital Expenditures
The table below shows the Registrants' current capital expenditure projections for the years 20202023 through 2024.2025. Expenditures for the domestic regulated utilities are expected to be recovered through rates, pending regulatory approval.
| Projected | |||||||||||||||||||||||
| Total | 2020 (b) | 2021 | 2022 | 2023 | 2024 | ||||||||||||||||||
| PPL | |||||||||||||||||||||||
| Construction expenditures (a) | |||||||||||||||||||||||
| Generating facilities | $ | 763 | $ | 148 | $ | 222 | $ | 106 | $ | 121 | $ | 166 | |||||||||||
| Distribution facilities | 9,299 | 1,961 | 1,860 | 1,767 | 1,800 | 1,911 | |||||||||||||||||
| Transmission facilities | 2,724 | 903 | 632 | 470 | 357 | 362 | |||||||||||||||||
| Environmental | 549 | 139 | 209 | 113 | 84 | 4 | |||||||||||||||||
| Other | 932 | 221 | 207 | 161 | 171 | 172 | |||||||||||||||||
| Total Capital Expenditures | $ | 14,267 | $ | 3,372 | $ | 3,130 | $ | 2,617 | $ | 2,533 | $ | 2,615 | |||||||||||
PPL Electric (a) | |||||||||||||||||||||||
| Distribution facilities | $ | 1,810 | $ | 419 | $ | 406 | $ | 397 | $ | 294 | $ | 294 | |||||||||||
| Transmission facilities | 1,960 | 713 | 399 | 350 | 245 | 253 | |||||||||||||||||
| Total Capital Expenditures | $ | 3,770 | $ | 1,132 | $ | 805 | $ | 747 | $ | 539 | $ | 547 | |||||||||||
| LKE | |||||||||||||||||||||||
| Generating facilities | $ | 763 | $ | 148 | $ | 222 | $ | 106 | $ | 121 | $ | 166 | |||||||||||
| Distribution facilities | 1,661 | 417 | 392 | 296 | 284 | 272 | |||||||||||||||||
| Transmission facilities | 764 | 190 | 233 | 120 | 112 | 109 | |||||||||||||||||
| Environmental | 549 | 139 | 209 | 113 | 84 | 4 | |||||||||||||||||
| Other | 407 | 113 | 98 | 58 | 69 | 69 | |||||||||||||||||
| Total Capital Expenditures | $ | 4,144 | $ | 1,007 | $ | 1,154 | $ | 693 | $ | 670 | $ | 620 | |||||||||||
| LG&E | |||||||||||||||||||||||
| Generating facilities | $ | 322 | $ | 48 | $ | 100 | $ | 58 | $ | 54 | $ | 62 | |||||||||||
| Distribution facilities | 1,013 | 273 | 254 | 166 | 164 | 156 | |||||||||||||||||
| Transmission facilities | 132 | 44 | 39 | 15 | 15 | 19 | |||||||||||||||||
| Environmental | 214 | 58 | 90 | 38 | 28 | — | |||||||||||||||||
| Other | 207 | 60 | 47 | 31 | 34 | 35 | |||||||||||||||||
| Total Capital Expenditures | $ | 1,888 | $ | 483 | $ | 530 | $ | 308 | $ | 295 | $ | 272 | |||||||||||
| KU | |||||||||||||||||||||||
| Generating facilities | $ | 441 | $ | 100 | $ | 122 | $ | 48 | $ | 67 | $ | 104 | |||||||||||
| Distribution facilities | 648 | 144 | 138 | 130 | 120 | 116 | |||||||||||||||||
| Transmission facilities | 632 | 146 | 194 | 105 | 97 | 90 | |||||||||||||||||
| Environmental | 335 | 81 | 119 | 75 | 56 | 4 | |||||||||||||||||
| Other | 203 | 52 | 52 | 28 | 36 | 35 | |||||||||||||||||
| Total Capital Expenditures | $ | 2,259 | $ | 523 | $ | 625 | $ | 386 | $ | 376 | $ | 349 | |||||||||||
| Projected | ||||||||||||||||||||||||||||||||
| Total | 2023 (b) | 2024 | 2025 | |||||||||||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||||||||
| Generating facilities (a) | $ | 1,508 | $ | 252 | $ | 369 | $ | 887 | ||||||||||||||||||||||||
| Electric distribution facilities | 2,734 | 929 | 892 | 913 | ||||||||||||||||||||||||||||
| Gas distribution facilities | 1,005 | 272 | 313 | 420 | ||||||||||||||||||||||||||||
| Transmission facilities | 2,962 | 827 | 1,019 | 1,116 | ||||||||||||||||||||||||||||
| Other | 308 | 106 | 100 | 102 | ||||||||||||||||||||||||||||
| Total Capital Expenditures | $ | 8,517 | $ | 2,386 | $ | 2,693 | $ | 3,438 | ||||||||||||||||||||||||
| PPL Electric | ||||||||||||||||||||||||||||||||
| Electric distribution facilities | $ | 921 | $ | 318 | $ | 299 | $ | 304 | ||||||||||||||||||||||||
| Transmission facilities | 1,980 | 545 | 670 | 765 | ||||||||||||||||||||||||||||
| Total Capital Expenditures | $ | 2,901 | $ | 863 | $ | 969 | $ | 1,069 | ||||||||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||||||||
| Generating facilities (a) | $ | 633 | $ | 92 | $ | 147 | $ | 394 | ||||||||||||||||||||||||
| Electric distribution facilities | 476 | 165 | 161 | 150 | ||||||||||||||||||||||||||||
| Gas distribution facilities | 203 | 54 | 55 | 94 | ||||||||||||||||||||||||||||
| Transmission facilities | 56 | 5 | 23 | 28 | ||||||||||||||||||||||||||||
| Other | 120 | 50 | 34 | 36 | ||||||||||||||||||||||||||||
| Total Capital Expenditures | $ | 1,488 | $ | 366 | $ | 420 | $ | 702 | ||||||||||||||||||||||||
| Projected | ||||||||||||||||||||||||||||||||
| Total | 2023 (b) | 2024 | 2025 | |||||||||||||||||||||||||||||
| KU | ||||||||||||||||||||||||||||||||
| Generating facilities (a) | $ | 875 | $ | 160 | $ | 222 | $ | 493 | ||||||||||||||||||||||||
| Electric distribution facilities | 520 | 210 | 163 | 147 | ||||||||||||||||||||||||||||
| Transmission facilities | 338 | 165 | 91 | 82 | ||||||||||||||||||||||||||||
| Other | 178 | 52 | 63 | 63 | ||||||||||||||||||||||||||||
| Total Capital Expenditures | $ | 1,911 | $ | 587 | $ | 539 | $ | 785 | ||||||||||||||||||||||||
(a)Capital expenditure projections include $115 million at PPL ($42 million at LG&E and $73 million at KU) in 2023 and $44 million at PPL ($21 million at LG&E and $23 million at KU) in 2024 related to certain costs of complying with the Clean Air Act, as amended, and other federal, state and local environmental requirements applicable to coal combustion wastes and by-products from coal-fired generating facilities, which are expected to be subject to rate recovery through the ECR mechanism.
(b)The 2023 total excludes amounts included in accounts payable as of December 31, 2022.
Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions. For the years presented, this table includes PPL Electric's asset optimization program to replace aging transmission and distribution assets.
Contractual Obligations
The Registrants have assumed various financial obligations and commitments in the ordinary course of conducting business. At December 31, 2019,2022, estimated contractual cash obligations were as follows:
| Total | 2023 | 2024-2025 | 2026-2027 | After 2027 | |||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||
| Long-term Debt (a) | $ | 13,353 | $ | 354 | $ | 2,052 | $ | 1,207 | $ | 9,740 | |||||||||||||||||||
| Interest on Long-term Debt (b) | 9,067 | 557 | 984 | 881 | 6,645 | ||||||||||||||||||||||||
| Operating Leases (c) | 69 | 24 | 29 | 9 | 7 | ||||||||||||||||||||||||
| Purchase Obligations (d) | 3,348 | 1,363 | 1,090 | 340 | 555 | ||||||||||||||||||||||||
| Total Contractual Cash Obligations | $ | 25,837 | $ | 2,298 | $ | 4,155 | $ | 2,437 | $ | 16,947 | |||||||||||||||||||
| PPL Electric | |||||||||||||||||||||||||||||
| Long-term Debt (a) | $ | 4,539 | $ | 340 | $ | 900 | $ | 108 | $ | 3,191 | |||||||||||||||||||
| Interest on Long-term Debt (b) | 3,038 | 183 | 299 | 289 | 2,267 | ||||||||||||||||||||||||
| Unconditional Power Purchase Obligations | 106 | 29 | 57 | 20 | — | ||||||||||||||||||||||||
| Total Contractual Cash Obligations | $ | 7,683 | $ | 552 | $ | 1,256 | $ | 417 | $ | 5,458 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||||
| Long-term Debt (a) | $ | 2,324 | $ | — | $ | 600 | $ | 285 | $ | 1,439 | |||||||||||||||||||
| Interest on Long-term Debt (b) | 1,367 | 92 | 160 | 130 | 985 | ||||||||||||||||||||||||
| Operating Leases (c) | 16 | 6 | 8 | 2 | — | ||||||||||||||||||||||||
| Coal and Natural Gas Purchase Obligations (e) | 705 | 340 | 282 | 74 | 9 | ||||||||||||||||||||||||
| Unconditional Power Purchase Obligations (f) | 296 | 24 | 44 | 44 | 184 | ||||||||||||||||||||||||
| Construction Obligations (g) | 126 | 58 | 63 | 2 | 3 | ||||||||||||||||||||||||
| Other Obligations | 72 | 26 | 36 | 4 | 6 | ||||||||||||||||||||||||
| Total Contractual Cash Obligations | $ | 4,906 | $ | 546 | $ | 1,193 | $ | 541 | $ | 2,626 | |||||||||||||||||||
| KU | |||||||||||||||||||||||||||||
| Long-term Debt (a) | $ | 2,942 | $ | 13 | $ | 550 | $ | 164 | $ | 2,215 | |||||||||||||||||||
| Interest on Long-term Debt (b) | 2,045 | 123 | 220 | 191 | 1,511 | ||||||||||||||||||||||||
| Operating Leases (c) | 21 | 9 | 11 | 1 | — | ||||||||||||||||||||||||
| Coal and Natural Gas Purchase Obligations (e) | 866 | 354 | 408 | 104 | — | ||||||||||||||||||||||||
| Unconditional Power Purchase Obligations (f) | 131 | 10 | 20 | 20 | 81 | ||||||||||||||||||||||||
| Construction Obligations (g) | 103 | 54 | 43 | 2 | 4 | ||||||||||||||||||||||||
| Other Obligations | 128 | 60 | 50 | 12 | 6 | ||||||||||||||||||||||||
| Total Contractual Cash Obligations | $ | 6,236 | $ | 623 | $ | 1,302 | $ | 494 | $ | 3,817 | |||||||||||||||||||
| Total | 2020 | 2021-2022 | 2023-2024 | After 2024 | |||||||||||||||
| PPL | |||||||||||||||||||
| Long-term Debt (a) | $ | 22,002 | $ | 1,169 | $ | 2,848 | $ | 3,186 | $ | 14,799 | |||||||||
| Interest on Long-term Debt (b) | 15,131 | 926 | 1,657 | 1,435 | 11,113 | ||||||||||||||
| Operating Leases (c) | 122 | 26 | 42 | 27 | 27 | ||||||||||||||
| Purchase Obligations (d) | 2,759 | 1,137 | 842 | 325 | 455 | ||||||||||||||
| Pension Benefit Plan Funding Obligations (e) | 681 | 272 | 226 | 183 | — | ||||||||||||||
| Total Contractual Cash Obligations | $ | 40,695 | $ | 3,530 | $ | 5,615 | $ | 5,156 | $ | 26,394 | |||||||||
| PPL Electric | |||||||||||||||||||
| Long-term Debt (a) | $ | 4,039 | $ | — | $ | 874 | $ | 90 | $ | 3,075 | |||||||||
| Interest on Long-term Debt (b) | 3,441 | 166 | 317 | 281 | 2,677 | ||||||||||||||
| Unconditional Power Purchase Obligations | 30 | 22 | 8 | — | — | ||||||||||||||
| Total Contractual Cash Obligations | $ | 7,510 | $ | 188 | $ | 1,199 | $ | 371 | $ | 5,752 | |||||||||
| LKE | |||||||||||||||||||
| Long-term Debt (a) | $ | 6,041 | $ | 975 | $ | 674 | $ | 13 | $ | 4,379 | |||||||||
| Interest on Long-term Debt (b) | 3,598 | 237 | 378 | 363 | 2,620 | ||||||||||||||
| Operating Leases (c) | 61 | 18 | 22 | 13 | 8 | ||||||||||||||
| Coal and Natural Gas Purchase Obligations (f) | 1,482 | 572 | 661 | 235 | 14 | ||||||||||||||
| Unconditional Power Purchase Obligations (g) | 554 | 31 | 62 | 62 | 399 | ||||||||||||||
| Construction Obligations (h) | 221 | 184 | 34 | 3 | — | ||||||||||||||
| Pension Benefit Plan Obligations (e) | 22 | 22 | — | — | — | ||||||||||||||
| Other Obligations | 304 | 159 | 78 | 25 | 42 | ||||||||||||||
| Total Contractual Cash Obligations | $ | 12,283 | $ | 2,198 | $ | 1,909 | $ | 714 | $ | 7,462 | |||||||||
| LG&E | |||||||||||||||||||
| Long-term Debt (a) | $ | 2,024 | $ | — | $ | 292 | $ | — | $ | 1,732 | |||||||||
| Interest on Long-term Debt (b) | 1,573 | 80 | 146 | 143 | 1,204 | ||||||||||||||
| Operating Leases (c) | 24 | 7 | 9 | 5 | 3 | ||||||||||||||
| Coal and Natural Gas Purchase Obligations (f) | 837 | 289 | 383 | 155 | 10 | ||||||||||||||
| Unconditional Power Purchase Obligations (g) | 382 | 21 | 42 | 43 | 276 | ||||||||||||||
| Construction Obligations (h) | 77 | 64 | 12 | 1 | — | ||||||||||||||
| Pension Benefit Plan Obligations (e) | 4 | 4 | — | — | — | ||||||||||||||
| Other Obligations | 99 | 50 | 20 | 15 | 14 | ||||||||||||||
| Total Contractual Cash Obligations | $ | 5,020 | $ | 515 | $ | 904 | $ | 362 | $ | 3,239 | |||||||||
(b)Assumes interest payments through stated maturity or earlier put dates. The payments herein are subject to change, as payments for debt that is or becomes variable-rate debt have been estimated.
| Total | 2020 | 2021-2022 | 2023-2024 | After 2024 | |||||||||||||||
| KU | |||||||||||||||||||
| Long-term Debt (a) | $ | 2,642 | $ | 500 | $ | 132 | $ | 13 | $ | 1,997 | |||||||||
| Interest on Long-term Debt (b) | 1,809 | 104 | 173 | 172 | 1,360 | ||||||||||||||
| Operating Leases (c) | 36 | 11 | 13 | 8 | 4 | ||||||||||||||
| Coal and Natural Gas Purchase Obligations (f) | 645 | 283 | 278 | 80 | 4 | ||||||||||||||
| Unconditional Power Purchase Obligations (g) | 172 | 10 | 20 | 19 | 123 | ||||||||||||||
| Construction Obligations (h) | 108 | 97 | 10 | 1 | — | ||||||||||||||
| Pension Benefit Plan Obligations (e) | 1 | 1 | — | — | — | ||||||||||||||
| Other Obligations | 146 | 70 | 39 | 9 | 28 | ||||||||||||||
| Total Contractual Cash Obligations | $ | 5,559 | $ | 1,076 | $ | 665 | $ | 302 | $ | 3,516 | |||||||||
(d)The amounts include agreements to purchase goods or services that are enforceable and legally binding and specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Primarily includes, as applicable, the purchase obligations of electricity, coal, natural gas and limestone, as well as certain construction expenditures, which are also included in the Capital Expenditures discussion above.
(e)Represents contracts to purchase coal, natural gas and natural gas transportation. See Note 14 to the Financial Statements for additional information.
(f)Represents future minimum payments under OVEC power purchase agreements through June 2040. See Note 14 to the Financial Statements for additional information.
(g)Represents construction commitments, which are also reflected in the Capital Expenditures table presented above.
Dividends/Distributions
(PPL)
PPL views dividends as an integral component of shareowner return and expects to continue to pay dividends in amounts intended to maintain a capitalization structure that supports investment grade credit ratings. In November 2019,2022, PPL declared its quarterly common stock dividend, payable January 2, 2020,3, 2023, at 41.2522.50 cents per share (equivalent to $1.65$0.90 per annum). On February 14, 2020,17, 2023, PPL announced an increase of itsa quarterly common stock dividend to 41.5of 24.00 cents per share, (equivalentpayable April 3, 2023, to $1.66 per annum).shareowners of record as of March 10, 2023. Future dividends will be declared at the discretion of the Board of Directors and will depend upon future earnings, cash flows, financial and legal requirements and other factors.
Subject to certain exceptions, PPL may not declare or pay any cash dividend or distribution on its capital stock during any period in which PPL Capital Funding defers interest payments on its 2007 Series A Junior Subordinated Notes due 2067 or 2013 Series B Junior Subordinated Notes due 2073.2067. At December 31, 2019,2022, no interest payments were deferred.
(PPL Electric, LKE, LG&E and KU)
From time to time, as determined by their respective Board of Directors, the Registrants pay dividends, distributions or distributions,return capital, as applicable, to their respective shareholders or members. Certain of the credit facilities of PPL Electric, LKE, LG&E and KU include minimum debt covenant ratios that could effectively restrict the payment of dividends or distributions.
(All Registrants)
See Note 8 to the Financial Statements for these and other restrictions related to distributions on capital interests for the Registrants and their subsidiaries.
Purchase or Redemption of Debt Securities
The Registrants will continue to evaluate outstanding debt securities and may decide to purchase or redeem these securities in open market or privately negotiated transactions, in exchange transactions or otherwise, depending upon prevailing market conditions, available cash and other factors, and may be commenced or suspended at any time. The amounts involved may be material.
Rating Agency Actions
Moody's and S&P periodically review the credit ratings of the debt of the Registrants and their subsidiaries. Based on their respective independent reviews, the rating agencies may make certain ratings revisions or ratings affirmations.
A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues. The credit ratings of the Registrants and their subsidiaries are based on information provided by the Registrants and other sources. The ratings of Moody's and S&P are not a recommendation to buy, sell or hold any securities of the Registrants or their subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities.
The credit ratings of the Registrants and their subsidiaries affect their liquidity, access to capital markets and cost of borrowing under their credit facilities. A downgrade in the Registrants' or their subsidiaries' credit ratings could result in higher borrowing
54
costs and reduced access to capital markets. The Registrants and their subsidiaries have no credit rating triggers that would result in the reduction of access to capital markets or the acceleration of maturity dates of outstanding debt.
The following table sets forth the Registrants' and their subsidiaries' credit ratings for outstanding debt securities or commercial paper programs as of December 31, 2019.
2022.
| Senior Unsecured | Senior Secured | Commercial Paper | ||||||||||||||||||||||||||||||||||||
| Issuer | Moody's | S&P | Moody's | S&P | Moody's | S&P | ||||||||||||||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||||||||||||||
| PPL Capital Funding | BBB+ | P-2 | A-2 | |||||||||||||||||||||||||||||||||||
| PPL and PPL Electric | ||||||||||||||||||||||||||||||||||||||
| PPL Electric | A1 | P-2 | ||||||||||||||||||||||||||||||||||||
| PPL, LG&E and | ||||||||||||||||||||||||||||||||||||||
| A1 | A | P-2 | A-2 | |||||||||||||||||||||||||||||||||||
| A1 | A | P-2 | A-2 | |||||||||||||||||||||||||||||||||||
The rating agencies have taken the following actions related to the Registrants and their subsidiaries.
(PPL)
In September 2019, Moody'sJune 2022, Moody’s affirmed its commercial paper rating for PPL Capital Funding and upgraded the following ratings with a
stable outlook:
• the long-term issuer rating from Baa2 to Baa1 for PPL;
• the senior unsecured rating from Baa2 to Baa1 for PPL Capital Funding;
• the junior subordinated rating from Baa3 to Baa2 for PPL Capital Funding; and
• the senior unsecured bank credit facility rating from Baa2 to Baa1 for PPL Capital Funding.
In June 2022, Moody’s upgraded the following ratings with a stable outlook:
• the long-term issuer rating from Baa1 to A3 for RIE;
• the senior unsecured rating from Baa1 to A3 for RIE; and
• the preferred stock rating from Baa3 to Baa2 for RIE.
In June 2022, S&P assignedupgraded the following ratings of Baa1with a stable outlook:
• the long-term issuer rating from BBB+ to A- for RIE;
• the senior unsecured rating from BBB+ to A- for RIE; and A-
• the preferred stock rating from BBB- to WPD (East Midlands) £250 million of 1.75% Senior Notes due 2031.BBB for RIE.
(PPL and PPL Electric)
In May 2019, Moody's assigned2022, S&P upgraded the following ratings with a stable outlook for PPL Electric:
• the long-term issuer credit rating of A1, and in June 2019, S&P assigned afrom A- to A;
• the issue-level senior secured rating offrom A to A+; and
• the County of Jefferson, Kentucky's $31 million 1.65% Series A Environmental Facilities Revenue Refunding Bonds, due 2033, previously issued on behalf of LG&E. The bonds were remarketed June 1, 2019.short-term and commercial paper ratings from A-2 to A-1.
Ratings Triggers
(PPL, LKE, LG&E and KU)
Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, and interest rate and foreign currency instruments, (for PPL), contain provisions that require the posting of additional collateral or permit the counterparty to terminate the contract, if PPL's, LKE's, LG&E's or KU's or their subsidiaries' credit rating, as applicable, were to fall below investment grade. See Note 1718 to the Financial Statements for a
discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral requirements for PPL LKE and LG&E for derivative contracts in a net liability position at December 31, 2019.2022.
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Guarantees for Subsidiaries (PPL)
PPL guarantees certain consolidated affiliate financing arrangements. Some of the guarantees contain financial and other covenants that, if not met, would limit or restrict the consolidated affiliates' access to funds under these financing arrangements, accelerate maturity of such arrangements or limit the consolidated affiliates' ability to enter into certain transactions. At this time, PPL believes that these covenants will not limit access to relevant funding sources. See Note 1314 to the Financial Statements for additional information about guarantees.
The Registrants have entered into certain agreements that may contingently require payment to a guaranteed or indemnified party. See Note 1314 to the Financial Statements for a discussion of these agreements.
Risk Management
Market Risk
(All Registrants)
See Notes 1, 1617 and 1718 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.
The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These are not precise indicators of expected future losses, but are rather only indicators of possible losses under normal market conditions at a given confidence level.
Interest Rate Risk
The following interest rate hedges were outstanding at December 31:
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
| Exposure Hedged | Fair Value, Net - Asset (Liability) (a) | Effect of a 10% Adverse Movement in Rates (b) | Maturities Ranging Through | Exposure Hedged | Fair Value, Net - Asset (Liability) (a) | Effect of a 10% Adverse Movement in Rates (b) | |||||||||||||||||||||||||||||||||||
| PPL and LG&E | |||||||||||||||||||||||||||||||||||||||||
| Economic hedges | |||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps (c) | $ | 64 | $ | (7) | $ | (1) | 2033 | $ | 64 | $ | (19) | $ | (1) | ||||||||||||||||||||||||||||
| 2019 | 2018 | ||||||||||||||||||||||||
Exposure Hedged | Fair Value, Net - Asset (Liability) (a) | Effect of a 10% Adverse Movement in Rates (b) | Maturities Ranging Through | Exposure Hedged | Fair Value, Net - Asset (Liability) (a) | Effect of a 10% Adverse Movement in Rates (b) | |||||||||||||||||||
| PPL | |||||||||||||||||||||||||
| Cash flow hedges | |||||||||||||||||||||||||
| Cross-currency swaps (c) | $ | 702 | $ | 156 | $ | (71 | ) | 2028 | $ | 702 | $ | 137 | $ | (76 | ) | ||||||||||
| Economic hedges | |||||||||||||||||||||||||
| Interest rate swaps (d) | 147 | (22 | ) | (1 | ) | 2033 | 147 | (20 | ) | (1 | ) | ||||||||||||||
| LKE | |||||||||||||||||||||||||
| Economic hedges | |||||||||||||||||||||||||
| Interest rate swaps (d) | 147 | (22 | ) | (1 | ) | 2033 | 147 | (20 | ) | (1 | ) | ||||||||||||||
| LG&E | |||||||||||||||||||||||||
| Economic hedges | |||||||||||||||||||||||||
| Interest rate swaps (d) | 147 | (22 | ) | (1 | ) | 2033 | 147 | (20 | ) | (1 | ) | ||||||||||||||
The Registrants are exposed to a potential increase in interest expense and to changes in the fair value of their debt portfolios. The estimated impact of a 10% adverse movement in interest rates on interest expense at December 31, 2019 and 2018 was insignificant for PPL, PPL Electric, LKE, LG&E and KU. The estimated impact of a 10% adverse movement in interest rates on the fair value of debt and interest expense at December 31 is shown below.
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| 10% Adverse Movement in Rates | |||||||
| 2019 | 2018 | ||||||
| PPL | $ | 655 | $ | 652 | |||
| PPL Electric | 197 | 188 | |||||
| LKE | 198 | 172 | |||||
| LG&E | 84 | 62 | |||||
| KU | 104 | 92 | |||||
| 10% Adverse Movement in Rates on Fair Value of Debt | 10% Adverse Movement in Rates on Interest Expense For Floating Exposure | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| PPL | $ | 495 | $ | 394 | $ | 16 | $ | — | |||||||||||||||
| PPL Electric | 178 | 164 | 6 | — | |||||||||||||||||||
| LG&E | 84 | 74 | 3 | — | |||||||||||||||||||
| KU | 127 | 115 | 2 | — | |||||||||||||||||||
| 2019 | 2018 | ||||||||||||||||||||||||
Exposure Hedged | Fair Value, Net - Asset (Liability) | Effect of a 10% Adverse Movement in Foreign Currency Exchange Rates (a) | Maturities Ranging Through | Exposure Hedged | Fair Value, Net - Asset (Liability) | Effect of a 10% Adverse Movement in Foreign Currency Exchange Rates (a) | |||||||||||||||||||
| Economic hedges (b) | £ | 859 | $ | 137 | $ | (89 | ) | 2020 | £ | 1,540 | $ | 201 | $ | (181 | ) | ||||||||||
Commodity Price Risk
PPL is exposed to commodity price risk through its domestic subsidiaries as described below.
•PPL Electric is required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk is insignificant and mitigated through its PUC-approvedPAPUC-approved cost recovery mechanism and full-requirement supply agreements to serve its PLR customers which transfer the risk to energy suppliers.
•LG&E's and KU's rates include certain mechanisms for fuel, fuel-related expenses and energy purchases. In addition, LG&E's rates include a mechanism for natural gas supply expenses.costs. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.costs.
•RIE utilizes derivative instruments pursuant to its RIPUC-approved plan to manage commodity price risk associated with its natural gas purchases. RIE's commodity price risk management strategy is to reduce fluctuations in firm gas sales prices to its customers. RIE's costs associated with derivatives instruments are recoverable through its RIPUC- approved cost recovery mechanisms. RIE is required to purchase electricity to fulfill its obligation to provide Last Resort Service (LRS). Potential commodity price risk is mitigated through its RIPUC-approved cost recovery mechanisms and full requirements service agreements to serve LRS customers, which transfer the risk to energy suppliers. RIE is required to contract through long-term agreements for clean energy supply under the Rhode Island Renewable Energy Growth program and Long-term Clean Energy Standard. Potential commodity price risk is mitigated through its RIPUC-approved cost recovery mechanisms, which true-up cost differences between contract prices and market prices.
Volumetric Risk
Volumetric risk is the risk related to the changes in volume of retail sales due to weather, economic conditions or other factors. PPL is exposed to volumetric risk through its subsidiaries as described below.
PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.
•RIE is exposed to volumetric risk, which is significantly mitigated by regulatory mechanisms. RIE's electric and gas distribution rates both have a revenue decoupling mechanism, which allows for annual adjustments to RIE's delivery rates.
Defined Benefit Plans - Equity Securities Price Risk
See "Application of Critical Accounting Policies - Defined Benefits" for additional information regarding the effect of equity securities price risk on plan assets.
Credit Risk
(All Registrants)
Credit risk is the riskpotential loss that the Registrants would incurmay be incurred due to a loss as a result of nonperformance by counterparties of their contractual obligations. The Registrants maintain credit policies and procedures with respect to counterparty credit (including requirements that counterparties maintain specified credit ratings) and require other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, the Registrants, as applicable, have concentrations of suppliers and customers among electric utilities, financial institutions and energy marketing and trading companies. These concentrations may impact the Registrants' overall exposurecounterparty's non-performance.
PPL is exposed to credit risk positively or negatively,from "in-the-money" transactions with counterparties, as counterparties may be similarly affected by changes in economic, regulatory or other conditions.
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PPL and its subsidiaries have credit policies in future rates. At December 31, 2019, mostplace to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the successful bidders under alluse of master netting agreements or provisions. These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements. PPL and its subsidiaries may request additional credit assurance, in certain circumstances, in the solicitations had anevent that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit rating from S&P and were not required to post collateral under the Agreement. A small portion of bidders were required to post an insignificant amount of collateral under the Agreement. There is no instance under the Agreement in which PPL Electric is required to post collateral to its suppliers.
(All Registrants)
Related Party Transactions
The Registrants are not aware of any material ownership interests or operating responsibility by senior management in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with the Registrants. See Note 1415 to the Financial Statements for additional information on related party transactions for PPL Electric, LKE, LG&E and KU.
Acquisitions, Development and Divestitures
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures, and development projects. See Note 9 to the Financial Statements for additional information on acquisition and divestiture activity. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with, modify or terminate the projects. Any resulting transactions may impact future financial results.
Environmental Matters
Extensive federal, state and local environmental laws and regulations are applicable to PPL's, PPL Electric's, LKE's, LG&E's and KU'sthe Registrants' air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of the Registrants' businesses. The costs of compliance or alleged non-compliance cannot be predicted with certainty but could be significant. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. Many of these environmental law considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the costs for their products or their demand for the Registrants' services. Increased capital and operating costs are expected to be subject to rate recovery. PPL, PPL Electric, LKE, LG&E and KUThe Registrants can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.
See "Legal Matters" in Note 1314 to the Financial Statements for a discussion of the more significant environmental claims. See "Financial Condition - Liquidity and Capital Resources - Forecasted Uses of Cash - Capital Expenditures" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for information on projected environmental capital expenditures for 20202023 through 2024.2025. See Note 1920 to the Financial Statements for information related to the impacts of CCRs on AROs. See "Item 1. Business - Environmental Matters" for additional information.
Sustainability
Increasing attention has been focused on a broad range of corporate activities under the heading of “sustainability”, which has resulted in a significant increase in the number of requests from interested parties for information on sustainability topics. These parties range from investor groups focused on environmental, social, governance and other matters to non-investors concerned with a variety of public policy matters. Often the scope of the information sought is very broad and not necessarily relevant to an issuer’s business or industry. As a result, a number of private groups have proposed to standardize the subject matter constituting sustainability, either generally or by industry. Those efforts remain ongoing. In addition, certain of these private groups have advocated that the SEC promulgate regulations requiring specific sustainability reporting under the Securities Exchange Act of 1934, as amended (the “’34 Act”)’34 Act), or that issuers voluntarily include certain sustainability disclosure in their ’34 Act reports. To date, no new reportingIn March 2022, the SEC proposed broad-based climate disclosure requirements have been adoptedfor public companies. The proposed rule would require public companies to disclose direct and indirect GHG emissions, strategic insights, and certain financial implications in public disclosures. The proposed rulemaking elicited significant debate and comment. While a final rulemaking is currently expected to be issued in the spring of 2023, PPL cannot predict the final legal requirements or proposed bywhen the SEC.requirements will be effective.
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As has been PPL’s practice, to the extent sustainability issues have or may have a material impact on the Registrants’ financial condition or results of operation, PPL discloses such matters in accordance with applicable securities law and SEC regulations. With respect to other sustainability topics that PPL deems relevant to investors but that are not required to be reported under applicable securities law and SEC regulation, PPL will continue each spring to publish its annual sustainability report including tracking reductions related to the company's goal to reduce carbon emissions and post that report on its corporate website at www.pplweb.com and on www.pplsustainability.com. Neither the information in such annual sustainability report nor the information at such websites is incorporated in this Form 10-K by reference, and it should not be considered a part of this Form 10-K. In preparing its sustainability report, PPL is guided by the framework established by the Global Reporting Initiative, which identifies environmental, social, governance and other subject matter categories. PPL also participates in efforts by the Edison Electric Institute and American Gas Association to provide the appropriate subset of sustainability information that can be applied consistently across the electric and gas utility industry. Additionally, PPL publicly discloses itsconsults widely used reporting frameworks for discrete sustainability topics, including corporate political contributions and climate-related issues. PPL also responds to the climate survey of CDP, climate survey.a not-for-profit organization based in the United Kingdom formerly known as the Carbon Disclosure Project, that runs the global disclosure system that enables investors, companies, cities, states and regions to measure and manage their environmental impacts.
Cybersecurity
See “Cybersecurity Management” in “Item 1. Business” and “Item 1A. Risk factors” for a discussion of cybersecurity risks affecting the Registrants and the related strategies for managing these risks.
Competition
See "Competition" under each of PPL's reportable segments in "Item 1. Business - General - Segment Information" and "Item 1A. Risk Factors" for a discussion of competitive factors affecting the Registrants.
New Accounting Guidance
Application of Critical Accounting Policies
Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to an understanding of the reported financial condition or results of operations and require management to make estimates or other judgments of matters that are inherently uncertain. Changes in the estimates or other judgments included within these accounting policies could result in a significant change to the information presented in the Financial Statements (these accounting policies are also discussed in Note 1 to the Financial Statements). Senior management has reviewed with PPL's Audit Committee these critical accounting policies, the following disclosures regarding their application, and the estimates and assumptions regarding them.
Defined Benefits
(All Registrants)
Certain of the Registrants and/or their subsidiaries sponsor or participate in certain qualified funded and non-qualified unfunded defined benefit pension plans and both funded and unfunded other postretirement benefit plans. See Notes 1, 7 and 1112 to the Financial Statements for additional information about the plans and the accounting for defined benefits.
A summary of plan sponsors by Registrant and whether a Registrant or its subsidiaries sponsor (S) or participate in and receives allocations (P) from those plans is shown in the table below.
| Plan Sponsor | PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||||||||||
| PPL Services | S | P | ||||||||||||||||||||||||||||||
| P | ||||||||||||||||||||||||||||||||
| P | ||||||||||||||||||||||||||||||||
Management makes certain assumptions regarding the valuation of benefit obligations and the performance of plan assets. As such, annual net periodic defined benefit costs are recorded in current earnings or regulatory assets and liabilities based on
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estimated results. Any differences between actual and estimated results are recorded in AOCI or, in the case of PPL Electric, LG&E and KU, regulatory assets and liabilities for amounts that are expected to be recovered through regulated customer rates. These amounts in AOCI or regulatory assets and liabilities are amortized to income over future periods. The significant assumptions are:
•Discount Rate - In selecting the discount rates for U.S. defined benefit plans, the plan sponsors start with a cash flow analysis of the expected benefit payment stream for their plans. The plan-specific cash flows are matched against the coupons and expected maturity values of Aa-rated non-callable (or callable with make-whole provisions) bonds that could be purchased for a hypothetical settlement portfolio. The plan sponsors then use the single discount rate derived from matching the discounted benefit payment stream to the market value of the selected bond portfolio.
Expected Return on Plan Assets - The expected long-term rates of return for pension and other postretirement benefits are based on management's projections using a best-estimate of expected returns, volatilities and correlations for each asset class. Each plan's specific current and expected asset allocations are also considered in developing a reasonable return assumption.
•Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement. In selecting a rate of compensation increase, plan sponsors consider past experience, the potential impact of movements in inflation rates and expectations of ongoing compensation practices.
See Note 1112 to the Financial Statements for details of the assumptions selected for pension and other postretirement benefits. A variance in the assumptions could significantly impact accrued defined benefit liabilities or assets, reported annual net periodic defined benefit costs and AOCI or regulatory assets and liabilities.
The following tables reflect changes in certain assumptions based on the Registrants' primary defined benefit plans. The inverse of this change would have the opposite impact on accrued defined benefit liabilities or assets, reported annual net periodic defined benefit costs and AOCI or regulatory assets and liabilities. The sensitivities below reflect an evaluation of the change based solely on a change in that assumption.
| Increase (Decrease) | |||||
| Actuarial assumption | |||||
| Discount Rate | (0.25 | %) | |||
| Expected Return on Plan Assets | (0.25 | %) | |||
| Rate of Compensation Increase | 0.25 | % | |||
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| Increase (Decrease) | Increase (Decrease) | (Increase) Decrease | Increase (Decrease) | Increase (Decrease) | |||||||||||||||
| Actuarial assumption | Defined Benefit Asset | Defined Benefit Liabilities | AOCI (pre-tax) | Net Regulatory Assets | Defined Benefit Costs | ||||||||||||||
| PPL | |||||||||||||||||||
| Discount rates | $ | (371 | ) | $ | 134 | $ | 413 | $ | 92 | $ | 47 | ||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 31 | ||||||||||||||
| Rate of compensation increase | (56 | ) | 15 | 62 | 9 | 13 | |||||||||||||
| PPL Electric | |||||||||||||||||||
| Discount rates | 57 | — | 57 | 3 | |||||||||||||||
| Expected return on plan assets | n/a | — | n/a | 4 | |||||||||||||||
| Rate of compensation increase | 6 | — | 6 | 1 | |||||||||||||||
| LKE | |||||||||||||||||||
| Discount rates | (9 | ) | 51 | 26 | 34 | 6 | |||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 4 | ||||||||||||||
| Rate of compensation increase | n/a | 6 | 3 | 3 | 2 | ||||||||||||||
| Increase (Decrease) | Increase (Decrease) | (Increase) Decrease | Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||||||||
| Actuarial assumption | Defined Benefit Asset | Defined Benefit Liabilities | AOCI (pre-tax) | Net Regulatory Assets | Defined Benefit Costs | ||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||
| Discount rates | $ | (14) | $ | (78) | $ | 27 | $ | 65 | $ | 14 | |||||||||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 10 | ||||||||||||||||||||||||
| Rate of compensation increase | (2) | (6) | 2 | 6 | 3 | ||||||||||||||||||||||||
| PPL Electric | |||||||||||||||||||||||||||||
| Discount rates | — | (34) | — | 34 | 5 | ||||||||||||||||||||||||
| Expected return on plan assets | n/a | n/a | — | n/a | 4 | ||||||||||||||||||||||||
| Rate of compensation increase | — | (2) | — | 2 | 1 | ||||||||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||||
| Discount rates | (9) | 1 | n/a | 10 | 2 | ||||||||||||||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 1 | ||||||||||||||||||||||||
| Rate of compensation increase | (1) | — | n/a | 1 | — | ||||||||||||||||||||||||
| KU | |||||||||||||||||||||||||||||
| Discount rates | (8) | 1 | n/a | 9 | 2 | ||||||||||||||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 1 | ||||||||||||||||||||||||
| Rate of compensation increase | (1) | — | n/a | 1 | — | ||||||||||||||||||||||||
| Increase (Decrease) | Increase (Decrease) | (Increase) Decrease | Increase (Decrease) | Increase (Decrease) | |||||||||||||||
| Actuarial assumption | Defined Benefit Asset | Defined Benefit Liabilities | AOCI (pre-tax) | Net Regulatory Assets | Defined Benefit Costs | ||||||||||||||
| LG&E | |||||||||||||||||||
| Discount rates | (16 | ) | 2 | n/a | 18 | 2 | |||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 1 | ||||||||||||||
| Rate of compensation increase | (1 | ) | — | n/a | 1 | — | |||||||||||||
| KU | |||||||||||||||||||
| Discount rates | (14 | ) | 2 | n/a | 16 | 2 | |||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 1 | ||||||||||||||
| Rate of compensation increase | (2 | ) | — | n/a | 2 | — | |||||||||||||
Income Taxes (All Registrants)
Significant management judgment is required in developing the Registrants' provision for income taxes, primarily due to the uncertainty related to tax positions taken or expected to be taken inon tax returns and valuation allowances on deferred tax assets, as well as whether the undistributed earnings of WPD are considered indefinitely reinvested.assets.
Additionally, significant management judgment is required to determine the amount of benefit recognized related to an uncertain tax position. On a quarterly basis, uncertain tax positions are reassessed by considering information known as of the reporting date. Based on management's assessment of new information, a tax benefit may subsequently be recognized for a previously unrecognized tax position, a previously recognized tax position may be derecognized, or the benefit of a previously recognized tax position may be remeasured. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements in the future.
The need for valuation allowances to reduce deferred tax assets also requires significant management judgment. Valuation allowances are initially recorded and reevaluated each reporting period by assessing the likelihood of the ultimate realization of a deferred tax asset. Management considers a number ofseveral factors in assessing the expected realization of a deferred tax asset, including the reversal of temporary differences, future taxable income and ongoing prudent and feasible tax planning strategies. Any tax planning strategy utilized in this assessment must meet the recognition and measurement criteria utilized to account for an uncertain tax position. Management also considersWhen evaluating the need for valuation allowances, the uncertainty posed by political risk and the effect of this uncertainty on the varioussuch factors that management takes into account in evaluating the need for valuation allowances.is also considered by management. The amount of deferred tax assets ultimately realized may differ materially from the estimates utilized in the computation of valuation allowances and may materially impact the financial statements in the future.
See Note 6 to the Financial Statements for income tax disclosures, including the impact of the TCJA and management's conclusion that the undistributed earnings of WPD are considered indefinitely reinvested. Based on this conclusion, PPL Global does not record deferred U.S. federal income taxes on WPD's undistributed earnings.disclosures.
Regulatory Assets and Liabilities
(All Registrants)
PPL Electric, LG&E, KU and KURIE are subject to cost-based rate regulation. As a result, the effects of regulatory actions are required to be reflected in the financial statements. Assets and liabilities are recorded that result from the regulated ratemaking process that may not be recorded under GAAP for non-regulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in regulated customer rates. Regulatory liabilities are recognized for amounts expected to be returned through future regulated customer rates. In certain cases, regulatory liabilities are recorded based on an understanding or agreement with the regulator that rates have been set to recover costs that are expected to be incurred in the future, and the regulated entity is accountable for any amounts charged pursuant to such rates and not yet expended for the intended purpose.
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Management continually assesses whether the regulatory assets are probable of future recovery by considering factors such as changes in the applicable regulatory and political environments, the ability to recover costs through regulated rates, recent rate orders to the Registrants and other regulated entities, and the status of any pending or potential deregulation legislation. Based
on this continual assessment, management believes the existing regulatory assets are probable of recovery. This assessment reflects the current political and regulatory climate at the state and federal levels and is subject to change in the future. If future recovery of costs ceases to be probable, the regulatory asset would be written-off. Additionally, the regulatory agencies can provide flexibility in the manner and timing of recovery of regulatory assets.
See Note 7 to the Financial Statements for regulatory assets and regulatory liabilities recorded at December 31, 20192022 and 2018,2021, as well as additional information on those regulatory assets and liabilities. All regulatory assets are either currently being recovered under specific rate orders, represent amounts that are expected to be recovered in future rates or benefit future periods based upon established regulatory practices.
Price Risk Management (PPL)
See "Financial Condition - Risk Management" above.
Goodwill Impairment (PPL, LKE, LG&E and KU)
Goodwill is tested for impairment at the reporting unit level. PPL has determined itsThe reporting units to be primarily atof PPL include the same level as its reportable segments. LKE,Kentucky Regulated reporting unit, the Pennsylvania Regulated reporting unit, and the Rhode Island Regulated reporting unit. LG&E and KU are individually single operating and reportable segments.segments and each are single reporting units. A goodwill impairment test is performed annually or more frequently if events or changes in circumstances indicate that the carrying amount of the reporting unit may be greater than the reporting unit's fair value. Additionally, goodwill is tested for impairment after a portion
Management assigned the assets acquired and liabilities assumed in the RIE acquisition to the Rhode Island Regulated reporting unit. For purposes of goodwill has been allocatedimpairment testing, RIE goodwill of $1,586 million was assigned to a businessPPL’s reporting units. To determine the amount of the RIE goodwill assigned to be disposed of.
The fair value of a reporting unit is compared with the carrying value and an impairment charge is recognized if the carrying amount exceeds the fair value of the reporting unit.
PPL, LKE,for its reporting units, and individually LG&E and KU may elect either to initially make a qualitative evaluation about the likelihood of an impairment of goodwill or to bypass the qualitative evaluation and test goodwill for impairment using a two-step quantitative test. See “Long-Lived"Long-Lived and Intangible Assets - Asset Impairment (Excluding Investments)”" in Note 1 to the Financial Statements for further discussion of qualitative and quantitative goodwill impairment tests.tests. See Note 1819 to the Financial Statements for information on goodwill balances by reportable segment at December 31, 2019.2022.
As of October 1, 2022, PPL, for its reporting units, and individually, LG&E and KU, elected to perform the two-step quantitative annual goodwill impairment test of goodwill for the U.K. Regulated segment reporting unit in the fourth quarter of 2019.tests. Management used both discounted cash flows and market multiples, including implied RAV premiums, which required significant assumptions, to estimate the fair value of the reporting units. Significant assumptions used in the discounted cash flows includethese approaches included discount and growth rates, projected outcomes of future rate filings, and projected operating and capital cash flows.flows, and select market data. Projected operating and capital cash flows isare based on the Registrants' internal business plan, which assumes the occurrence of certain future events. Significant assumptions used in
There were no indicators of impairment for any of the market multiples include utility sector market performance and comparable transactions.
Asset Retirement Obligations (PPL, LKE, LG&E and KU)
ARO liabilities are required to be recognized for legal obligations associated with the retirement of long-lived assets. Initial obligations are measured at estimated fair value. An ARO must be recognized when incurred if the fair value of the ARO can be reasonably estimated. An equivalent amount is recorded as an increase in the value of the capitalized asset and amortized to expense over the asset's useful life.
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In determining AROs, management must make significant judgments and estimates to calculate fair value. Fair value is developed using an expected present value technique based on assumptions of market participants that consider estimated retirement costs in current period dollars, inflated to the anticipated retirement date and discounted back to the date the ARO was incurred. Changes in assumptions and estimates included within the calculations of the fair value of AROs could result in significantly different results than those identified and recorded in the financial statements. Estimated ARO costs and settlement dates, which affect the carrying value of the ARO and the related capitalized asset, are reviewed periodically to ensure that any material changes are incorporated into the ARO estimate. Any change to the capitalized asset is generally amortized over the remaining life of the associated long-lived asset.
See “Long-Lived"Long-Lived and Intangible Assets - Asset Retirement Obligations”Obligations" in Note 1, Note 7 and Note 1920 to the Financial Statements for additional information on AROs.
At December 31, 2019,2022, the total recorded balances and information on the most significant recorded AROs were as follows.
| Most Significant AROs | |||||||||||||||||||||||
| Total ARO Recorded | Amount Recorded | % of Total | Description | ||||||||||||||||||||
| LG&E | $ | 86 | $ | 65 | 76 | Ponds, landfills and natural gas mains | |||||||||||||||||
| KU | 82 | 55 | 67 | Ponds and landfills | |||||||||||||||||||
| Most Significant AROs | ||||||||||||
Total ARO Recorded | Amount Recorded | % of Total | Description | |||||||||
| PPL | $ | 282 | $ | 181 | 64 | Ponds, landfills and natural gas mains | ||||||
| LKE | 215 | 181 | 84 | Ponds, landfills and natural gas mains | ||||||||
| LG&E | 73 | 56 | 77 | Ponds, landfills and natural gas mains | ||||||||
| KU | 142 | 125 | 88 | Ponds and landfills | ||||||||
The most significant assumptions surrounding AROs are the forecasted retirement costs (including settlement dates and the timing of cash flows), discount and inflation rates. At December 31, 2019,2022, a 10% increase to retirement cost would increase these ARO liabilities by $33 million.$7 million at LG&E and $10 million at KU. A 0.25% decrease in the discount rate would increase these ARO liabilities by $4$5 million at LG&E and $1 million at KU and a 0.25% increase in the inflation rate would increase these ARO liabilities by $2 million.$4 million at LG&E. There would be no significant change to the annual depreciation expense of the ARO asset or the annual accretion expense of the ARO liability as a result of these changes in assumptions.
Revenue Recognition - Unbilled Revenues (LKE,All Registrants)
For RIE, LG&E and KU)
For PPL Electric, unbilled revenues for a month are calculated by multiplying the Registrants' Balance Sheets for balances at December 31, 2019actual unbilled volumes by the price per tariff. In the fourth quarter of 2022, PPL Electric estimated deliveries to customers due to a temporary technical system issue. These estimates took into consideration factors similar to those considered by RIE, LG&E and 2018.KU discussed above. The technical system issue has been resolved and unbilled revenues are expected to resume being calculated by multiplying the actual unbilled volumes by the price per tariff in the first quarter of 2023.
Other Information (All Registrants)
PPL's Audit Committee has approved the independent auditor to provide audit and audit-related services, tax services and other services permitted by Sarbanes-Oxley and SEC rules. The audit and audit-related services include services in connection with statutory and regulatory filings, reviews of offering documents and registration statements, and internal control reviews.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Reference is made to "Risk Management" for the Registrants in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations."
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareowners and the Board of Directors of PPL Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PPL Corporation and subsidiaries (the "Company") as of December 31, 20192022 and 2018,2021, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2020,17, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit mattersmatter communicated below are mattersis a matter arising from the current-period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Regulatory Assets and Liabilities -– Impact of Rate Regulation on Various Account Balances and Disclosures -– Refer to Notes 1 and 7 to the Financial Statementsfinancial statements
Critical Audit Matter Description
As discussed in Note 1 to the financial statements, PPL Corporationthe Company owns and operates threefour cost-based rate-regulated utilities in the United States (U.S.) for which rates are set by the Federal Energy Regulatory Commission (FERC), the Kentucky Public Service Commission (KPSC), the Virginia State Corporation Commission (VSCC) and, the Pennsylvania Public Utility Commission (PUC)(PAPUC), and the Rhode Island Public Utilities Commission (RIPUC) to enable the regulated utilities to recover the costs of providing electric or gas service,services, as applicable, and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by accounting principles generally accepted in the United States of Americaaccounting principles and reflect the effects of regulatory actions. Regulatory assets are recognized for the effect of transactions or events where future recovery of underlying costs is probable in regulated customer rates. The effect of such accounting is to defer certain or qualifying costs that would otherwise currently be charged to expense. Regulatory liabilities are recognized for amounts expected to be returned through future regulated customer rates.
The accounting for regulatory assets and regulatory liabilities is based on specific ratemaking decisions or precedent for each transaction or event as prescribed by the FERC, KPSC, VSCC, PAPUC, RIPUC, and PUC.Rhode Island Division of Public Utilities
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and Carriers. The accounting for the economics of rate regulation alsorate-regulation impacts other financial statement line items,various account balances, disclosures, including regulated utility plant, regulatory assets and liabilities, operating revenues, depreciation and income taxes and impacts multiple note disclosures. taxes.As of December 31, 2019, PPL Corporation2022, the Company had a recorded regulatory assets balance of $1,559$2,077 million and regulatory liabilities balance of $2,687$3,650 million.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management in continually assessing whether the regulatory assets are probable of future recovery by considering factors, such as changes in the applicable regulatory and political environments, the ability to recover costs through regulated rates, recent rate orders, and the status of any pending legislation. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the FERC, KPSC, VSCC, PAPUC, RIPUC, and PUCRhode Island Division of Public Utilities and Carriers included the following, among others:
•We tested the effectiveness of management’s internal controls over evaluating the likelihood of recovery in future rates of costs deferred as regulatory assets. We tested the effectiveness of management’s controls over the recognition of amounts as regulated utility plant, regulatory assets or liabilities, operating revenues, depreciation, income taxes, and note disclosures anddisclosures. We tested the effectiveness of management’s internal controls over the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
•We obtained and read relevant regulatory orders issued by the FERC, KPSC, VSCC, PAPUC, RIPUC and PUCRhode Island Division of Public Utilities and Carriers for PPL Corporation’s U.S.the Company’s regulated utilities and other public utilities, regulatory statutes, interpretations, procedural memorandums, filings made by intervening parties, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates.rates based on precedents of the treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.
•We inquired of management about regulated utility plant that may be abandoned. We inspected minutes of the boardBoard of directors,Directors, other public information, regulatory orders, and other filings with the commissioncommissions to identify any evidence that could indicate utility plant may contradict management’s assertion regarding probability of an abandonment.be abandoned.
•We evaluated PPL Corporation’sthe Company’s disclosures related to the impacts of rate-regulation, including the balances recorded and regulatory developments, in the financial statements.
Goodwill - U.K. Regulated Reporting Unit -arising from Acquisition of Rhode Island Energy – Refer to Notes 1, 9 and 1819 to the Financial Statements
Critical Audit Matter Description
To determine the amount of goodwill from the Acquisition assigned to each of the U.K. RegulatedCompany’s reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized. PPL Corporation elected to perform the two-step quantitative impairment test of goodwill for the U.K. Regulated reporting unit in the fourth quarter of 2019. Management used both discounted cash flows and market multiples, which required significant assumptions, to estimateunits, management calculated the fair value of the Kentucky Regulated and the Pennsylvania Regulated reporting units with-and-without the expected benefit to those reporting units from the Acquisition. The difference in the fair values of the Kentucky Regulated and Pennsylvania Regulated reporting units with-and-without the expected benefit from the Acquisition represents goodwill derived from the Acquisition and was assigned to the respective reporting units. Significant assumptions used inThe remainder of the discounted cash flows included discount and growth rates, and projected operating and capital cash flows. Projected operating and capital cash flows are based on PPL Corporation’s internal business plan, which assumesgoodwill from the occurrence of certain events inAcquisition was assigned to the future. Significant assumptions used in the market multiples include utility sector market performance and comparable transactions.Rhode Island Regulated reporting unit.
We identified the assignment of goodwill forfrom the U.K. RegulatedAcquisition to the Company’s reporting unitunits as a critical audit matter because ofdue to the significant judgments made by management to estimatedetermine the fair value of the U.K. Regulatedamount assigned to each reporting unit, specifically due to changes in the economy in the U.K.unit. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the regulatory asset value premiums (RAV premiums), discount and growth rates, and projected operating and capital cash flows.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the RAV premiums, discount and growth rates, and projected operating and capital cash flows used by managementamount of goodwill from the Acquisition assigned to estimateeach of the Company’s reporting units based on management’s fair value of the U.K. Regulated reporting unitcalculation included the following, among others:
•We tested the effectiveness of management’s internal controls over their assignment of goodwill impairment evaluation,from the Acquisition to each reporting unit, including those over the determination of the fair value of the U.K. Regulated reporting unit, such as controls related to management’s RAV premiums estimate, and selection of discount and growth rates and projected operating and capital cash flows.calculated based on a with-and-without expected benefit.
•We evaluated the reasonableness of management’s projected operating and capital cash flowsexpected benefit by comparing to:
◦Historical results.
◦Internal communications to management and the forecasts to:board of directors.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology, (2) RAV premiums and (3)amount of goodwill from the Acquisition assigned to each reporting unit based on management’s fair value calculation by:
◦Testing the source information underlying the determination of discount and growth rates by:rates.
| ◦Testing |
/s/ Deloitte & Touche LLP
February 14, 202017, 2023
We have served as the Company's auditor since 2015.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareowner and the Board of Directors of PPL Electric Utilities Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PPL Electric Utilities Corporation and subsidiaries (the "Company") as of December 31, 20192022 and 2018,2021, the related consolidated statements of income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Assets and Liabilities – Impact of Rate Regulation on Various Account Balances and Disclosures – Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
As discussed in Note 1 to the financial statements, PPL Electric Utilities Corporation (PPL Electric) is a cost-based rate-regulated utility for which rates are set by the Federal Energy Regulatory Commission (FERC) and the Pennsylvania Public Utility Commission (PAPUC) to enable the regulated utility to recover the costs of providing electric service and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by generally accepted accounting principles and reflect the effects of regulatory actions. Regulatory assets are recognized for the effect of transactions or events where future recovery of underlying costs is probable in regulated customer rates. The effect of such accounting is to defer certain or qualifying costs that would otherwise currently be charged to expense. Regulatory liabilities are recognized for amounts expected to be returned through future regulated customer rates. The accounting for regulatory assets and regulatory liabilities is based on specific ratemaking decisions or precedent for each transaction or event as prescribed by the FERC and PAPUC. The accounting for the economics of rate-regulation impacts various account balances and disclosures, including regulated utility plant, regulatory assets and liabilities, operating revenues, depreciation, and income taxes. As of December
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31, 2022, PPL Electric had a recorded regulatory assets balance of $581 million and regulatory liabilities balance of $905 million.
PPL Electric’s regulated utility’s rates are subject to cost-based rate-setting processes and annual earnings oversight. Rates are established based on an analysis of the costs incurred and the regulated utility’s capital structure and must be approved by one or more federal or state regulatory commissions, including the FERC and PAPUC. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital, and the timing and amount of assets to be recovered by rates. The FERC and PAPUC regulation of rates is premised on the full recovery of prudently incurred costs and an adequate return on capital investments. Current and future regulatory decisions can impact the rate of return earned on investments and the timing and amounts of cost recovery. While PPL Electric has indicated that it expects to recover costs from customers through regulated rates, there is a risk that the FERC or PAPUC will not approve full recovery of such costs or approve recovery on a timely basis in future regulatory decisions.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management in continually assessing whether the regulatory assets are probable of future recovery by considering factors such as changes in the applicable regulatory and political environments, the ability to recover costs through regulated rates, recent rate orders, and the status of any pending legislation. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the FERC and PAPUC included the following, among others:
•We tested the effectiveness of management’s internal controls over evaluating the likelihood of recovery in future rates of costs deferred as regulatory assets. We tested the effectiveness of management’s controls over the recognition of amounts as regulated utility plant, regulatory assets or liabilities, operating revenues, depreciation, income taxes, and note disclosures. We tested the effectiveness of management’s internal controls over the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
•We obtained and read relevant regulatory orders issued by the FERC and PAPUC for PPL Electric and other public utilities in Pennsylvania, regulatory statutes, interpretations, procedural memorandums, filings made by intervening parties, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.
•We inquired of management about regulated utility plant that may be abandoned. We inspected minutes of the Board of Directors, other public information, regulatory orders and other filings with the commissions to identify any evidence that may contradict management’s assertion regarding probability of an abandonment.
•We evaluated PPL Electric’s disclosures related to the impacts of rate-regulation, including the balances recorded and regulatory developments, in the financial statements.
/s/ Deloitte & Touche LLP
February 14, 202017, 2023
We have served as the Company's auditor since 2015.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of Louisville Gas and Electric Company
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Louisville Gas and Electric Company (the “Company”) as of December 31, 20192022 and 2018,2021, the related statements of income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Assets and Liabilities– Impact of Rate-Regulation on Various Account Balances and Disclosures – Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
As discussed in Note 1 to the financial statements, the Company is a cost-based rate-regulated utility for which rates are set by the Kentucky Public Service Commission (KPSC) and the Federal Energy Regulatory Commission (FERC) to enable the regulated utility to recover the costs of providing electric or gas services, as applicable, and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by generally accepted accounting principles and reflect the effects of regulatory actions. Regulatory assets are recognized for the effect of transactions or events where future recovery of underlying costs is probable in regulated customer rates. The effect of such accounting is to defer certain or qualifying costs that would otherwise currently be charged to expense. Regulatory liabilities are recognized for amounts expected to be returned through future regulated customer rates. The accounting for regulatory assets and regulatory liabilities is based on specific ratemaking decisions or precedent for each transaction or event as prescribed by the KPSC and FERC. The accounting for the economics of rate-regulation impacts various account balances and disclosures, including regulated utility plant, regulatory assets and liabilities, operating revenues, depreciation, and income taxes. As of December 31, 2022, the Company had a recorded regulatory assets balance of $396 million and regulatory liabilities balance of $840 million.
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The Company’s regulated utility’s rates are subject to cost-based rate-setting processes and annual earnings oversight. Rates are established based on an analysis of the costs incurred and the regulated utility’s capital structure and must be approved by one or more federal or state regulatory commissions, including the KPSC and FERC. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. The KPSC and FERC regulation of rates is premised on the full recovery of prudently incurred costs and an adequate return on capital investments.Current and future regulatory decisions can impact the timing of future utility plant retirements, the rate of return earned on investments, and the timing and amounts of cost recovery. While the Company has indicated that it expects to recover costs from customers through regulated rates, there is a risk that the KPSC or FERC will not approve full recovery of such costs or approve recovery on a timely basis in future regulatory decisions.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management in continually assessing whether the regulatory assets are probable of future recovery by considering factors such as changes in the applicable regulatory and political environments, the ability to recover costs through regulated rates, recent rate orders, and the status of any pending legislation. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the KPSC and FERC included the following, among others:
•We tested the effectiveness of management’s internal controls over evaluating the likelihood of recovery in future rates of costs deferred as regulatory assets. We tested the effectiveness of management's controls over the recognition of amounts as regulated utility plant, regulatory assets or liabilities, operating revenues, depreciation, income taxes, and note disclosures. We tested the effectiveness of management's internal controls over the monitoring and evaluation of regulatory developments that may affect the timing and amount of future utility plant retirements and the likelihood of recovering costs in future rates or of a future reduction in rates.
•We obtained and read relevant regulatory orders issued by the KPSC and FERC for the Company and other public utilities in Kentucky, regulatory statutes, interpretations, procedural memorandums, filings made by intervening parties, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.
•We inquired of management about regulated utility plant that may be abandoned. We inspected minutes of the board of directors, other public information, regulatory orders and other filings with the KPSC and FERC to identify any evidence that could indicate utility plant may be abandoned.
•We evaluated the Company’s disclosures related to the impacts of rate-regulation, including the balances recorded and regulatory developments.
/s/ Deloitte & Touche LLP
Louisville, Kentucky
February 14, 202017, 2023
We have served as the Company’s auditor since 2015.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of Kentucky Utilities Company
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Kentucky Utilities Company (the “Company”) as of December 31, 20192022 and 2018,2021, the related statements of income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Assets and Liabilities – Impact of Rate-Regulation on Various Account Balances and Disclosures – Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
As discussed in Note 1 to the financial statements, the Company is a cost-based rate-regulated utility for which rates are set by the Kentucky Public Service Commission (KPSC), the Virginia State Corporation Commission (VSCC), and the Federal Energy Regulatory Commission (FERC) to enable the regulated utility to recover the costs of providing electric service, as applicable, and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by generally accepted accounting principles and reflect the effects of regulatory actions. Regulatory assets are recognized for the effect of transactions or events where future recovery of underlying costs is probable in regulated customer rates. The effect of such accounting is to defer certain or qualifying costs that would otherwise currently be charged to expense. Regulatory liabilities are recognized for amounts expected to be returned through future regulated customer rates. The accounting for regulatory assets and regulatory liabilities is based on specific ratemaking decisions or precedent for each transaction or event as prescribed by the KPSC, VSCC, and FERC. The accounting for the economics of rate-regulation impacts various account balances and disclosures, including regulated utility plant, regulatory assets and liabilities, operating revenues, depreciation,
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and income taxes. As of December 31, 2022, the Company had a recorded regulatory assets balance of $474 million and regulatory liabilities balance of $1,035 million.
The Company’s regulated utility’s rates are subject to cost-based rate-setting processes and annual earnings oversight. Rates are established based on an analysis of the costs incurred and the regulated utility’s capital structure and must be approved by one or more federal or state regulatory commissions, including the KPSC, VSCC, and FERC. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. The KPSC, VSCC, and FERC regulation of rates is premised on the full recovery of prudently incurred costs and an adequate return on capital investments.Current and future regulatory decisions can impact the timing of future utility plant retirements, the rate of return earned on investments, and the timing and amounts of cost recovery. While the Company has indicated that it expects to recover costs from customers through regulated rates, there is a risk that the KPSC, VSCC, or FERC will not approve full recovery of such costs or approve recovery on a timely basis in future regulatory decisions.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management in continually assessing whether the regulatory assets are probable of future recovery by considering factors such as changes in the applicable regulatory and political environments, the ability to recover costs through regulated rates, recent rate orders, and the status of any pending legislation. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the KPSC, VSCC, and FERC included the following, among others:
•We tested the effectiveness of management’s internal controls over evaluating the likelihood of recovery in future rates of costs deferred as regulatory assets. We tested the effectiveness of management’s controls over the recognition of amounts as regulated utility plant, regulatory assets or liabilities, operating revenues, depreciation, income taxes, and note disclosures. We tested the effectiveness of management’s internal controls over the monitoring and evaluation of regulatory developments that may affect the timing and amount of future utility plant retirements and the likelihood of recovering costs in future rates or of a future reduction in rates.
•We obtained and read relevant regulatory orders issued by the KPSC, VSCC, and FERC for the Company and other public utilities in Kentucky and Virginia, regulatory statutes, interpretations, procedural memorandums, filings made by intervening parties, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.
•We inquired of management about regulated utility plant that may be abandoned. We inspected minutes of the board of directors, other public information, regulatory orders and other filings with the KPSC, VSCC, and FERC to identify any evidence that could indicate utility plant may be abandoned.
•We evaluated the Company’s disclosures related to the impacts of rate-regulation, including the balances recorded and regulatory developments.
/s/ Deloitte & Touche LLP
Louisville, Kentucky
February 14, 202017, 2023
We have served as the Company’s auditor since 2015.
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73
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, except share data)
| 2019 | 2018 | 2017 | 2022 | 2021 | 2020 | |||||||||||||||||||||||
| Operating Revenues | $ | 7,769 | $ | 7,785 | $ | 7,447 | Operating Revenues | $ | 7,902 | $ | 5,783 | $ | 5,474 | |||||||||||||||
| Operating Expenses | Operating Expenses | |||||||||||||||||||||||||||
| Operation | Operation | |||||||||||||||||||||||||||
| Fuel | 709 | 799 | 759 | Fuel | 931 | 710 | 632 | |||||||||||||||||||||
| Energy purchases | 723 | 745 | 685 | Energy purchases | 1,686 | 752 | 634 | |||||||||||||||||||||
| Other operation and maintenance | 1,985 | 1,983 | 1,802 | Other operation and maintenance | 2,398 | 1,608 | 1,420 | |||||||||||||||||||||
| Depreciation | 1,199 | 1,094 | 1,008 | Depreciation | 1,181 | 1,082 | 1,022 | |||||||||||||||||||||
| Taxes, other than income | 313 | 312 | 292 | Taxes, other than income | 332 | 207 | 180 | |||||||||||||||||||||
| Total Operating Expenses | 4,929 | 4,933 | 4,546 | Total Operating Expenses | 6,528 | 4,359 | 3,888 | |||||||||||||||||||||
| Operating Income | 2,840 | 2,852 | 2,901 | Operating Income | 1,374 | 1,424 | 1,586 | |||||||||||||||||||||
| Other Income (Expense) - net | 309 | 396 | (88 | ) | ||||||||||||||||||||||||
| Other Income (Expense) - net (Note 16) | Other Income (Expense) - net (Note 16) | 54 | 15 | 2 | ||||||||||||||||||||||||
| Interest Expense | 994 | 963 | 901 | Interest Expense | 513 | 918 | 634 | |||||||||||||||||||||
| Income Before Income Taxes | 2,155 | 2,285 | 1,912 | |||||||||||||||||||||||||
| Income from Continuing Operations Before Income Taxes | Income from Continuing Operations Before Income Taxes | 915 | 521 | 954 | ||||||||||||||||||||||||
| Income Taxes | 409 | 458 | 784 | Income Taxes | 201 | 503 | 314 | |||||||||||||||||||||
| Net Income | $ | 1,746 | $ | 1,827 | $ | 1,128 | ||||||||||||||||||||||
| Income from Continuing Operations After Income Taxes | Income from Continuing Operations After Income Taxes | 714 | 18 | 640 | ||||||||||||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | 42 | (1,498) | 829 | ||||||||||||||||||||||||
| Net Income (Loss) | Net Income (Loss) | $ | 756 | $ | (1,480) | $ | 1,469 | |||||||||||||||||||||
| Earnings Per Share of Common Stock: | Earnings Per Share of Common Stock: | |||||||||||||||||||||||||||
| Net Income Available to PPL Common Shareowners: | ||||||||||||||||||||||||||||
| Basic | $ | 2.39 | $ | 2.59 | $ | 1.64 | Basic | |||||||||||||||||||||
| Income from Continuing Operations After Income Taxes | Income from Continuing Operations After Income Taxes | $ | 0.97 | $ | 0.03 | $ | 0.83 | |||||||||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) | Income (Loss) from Discontinued Operations (net of income taxes) | 0.06 | (1.96) | 1.08 | ||||||||||||||||||||||||
| Net Income (Loss) Available to PPL Common Shareowners | Net Income (Loss) Available to PPL Common Shareowners | $ | 1.03 | $ | (1.93) | $ | 1.91 | |||||||||||||||||||||
| Diluted | $ | 2.37 | $ | 2.58 | $ | 1.64 | Diluted | |||||||||||||||||||||
| Income from Continuing Operations After Income Taxes | Income from Continuing Operations After Income Taxes | $ | 0.96 | $ | 0.03 | $ | 0.83 | |||||||||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) | Income (Loss) from Discontinued Operations (net of income taxes) | 0.06 | (1.96) | 1.08 | ||||||||||||||||||||||||
| Net Income (Loss) Available to PPL Common Shareowners | Net Income (Loss) Available to PPL Common Shareowners | $ | 1.02 | $ | (1.93) | $ | 1.91 | |||||||||||||||||||||
| Weighted-Average Shares of Common Stock Outstanding (in thousands) | Weighted-Average Shares of Common Stock Outstanding (in thousands) | |||||||||||||||||||||||||||
| Basic | 728,512 | 704,439 | 685,240 | Basic | 736,027 | 762,902 | 768,590 | |||||||||||||||||||||
| Diluted | 736,754 | 708,619 | 687,334 | Diluted | 736,902 | 764,819 | 769,384 | |||||||||||||||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
| 2019 | 2018 | 2017 | |||||||||
| Net income | $ | 1,746 | $ | 1,827 | $ | 1,128 | |||||
| Other comprehensive income (loss): | |||||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||||
| Foreign currency translation adjustments, net of tax of $0, ($2), ($1) | 108 | (444 | ) | 538 | |||||||
| Qualifying derivatives, net of tax of $2, ($9), $19 | (11 | ) | 36 | (79 | ) | ||||||
| Defined benefit plans: | |||||||||||
| Prior service costs, net of tax of $0, $3, $0 | (1 | ) | (11 | ) | — | ||||||
| Net actuarial gain (loss), net of tax of $119, $44, $72 | (592 | ) | (187 | ) | (308 | ) | |||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||
| Qualifying derivatives, net of tax of ($5), $6, ($18) | 13 | (29 | ) | 73 | |||||||
| Equity investees' other comprehensive (income) loss, net of tax of $0, $0, $0 | — | — | 1 | ||||||||
| Defined benefit plans: | |||||||||||
| Prior service costs, net of tax of ($1), $0, ($1) | 2 | 2 | 1 | ||||||||
| Net actuarial (gain) loss, net of tax of ($22), ($36), ($37) | 87 | 142 | 130 | ||||||||
| Total other comprehensive income (loss) | (394 | ) | (491 | ) | 356 | ||||||
| Comprehensive income | $ | 1,352 | $ | 1,336 | $ | 1,484 | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net income (loss) | $ | 756 | $ | (1,480) | $ | 1,469 | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||||||||||
| Foreign currency translation adjustments, net of tax of $0, ($123), $0 | — | 372 | 267 | ||||||||||||||
| Qualifying derivatives, net of tax of $0, $11, $5 | — | (39) | (19) | ||||||||||||||
| Equity investees' other comprehensive income (loss), net tax of $0, $0, $0 | 2 | — | — | ||||||||||||||
| Defined benefit plans: | |||||||||||||||||
| Prior service costs, net of tax of $0, $0, $0 | (1) | — | (1) | ||||||||||||||
| Net actuarial gain (loss), net of tax of ($2), $1, $74 | 11 | (1) | (341) | ||||||||||||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||||||||
| Qualifying derivatives, net of tax of ($1), ($5), ($8) | 2 | 25 | 24 | ||||||||||||||
| Defined benefit plans: | |||||||||||||||||
| Prior service costs, net of tax of ($1), ($1), ($1) | 2 | 2 | 3 | ||||||||||||||
| Net actuarial (gain) loss, net of tax of ($7), ($33), ($51) | 17 | 126 | 205 | ||||||||||||||
| Reclassifications from AOCI due to sale of the U.K. utility business - (gains) losses, net of tax expense (benefit): | |||||||||||||||||
| Foreign currency translation adjustments, net of tax of $0, $140, $0 | — | 786 | — | ||||||||||||||
| Qualifying derivatives, net of tax of $0, $0, $0 | — | 15 | — | ||||||||||||||
| Defined benefit plans: | |||||||||||||||||
| Prior service costs, net of tax of $0, ($2), $0 | — | 8 | — | ||||||||||||||
| Net actuarial (gain) loss, net of tax of $0, ($798), $0 | — | 2,769 | — | ||||||||||||||
| Total other comprehensive income (loss) | 33 | 4,063 | 138 | ||||||||||||||
| Comprehensive income | $ | 789 | $ | 2,583 | $ | 1,607 | |||||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
| 2019 | 2018 | 2017 | 2022 | 2021 | 2020 | |||||||||||||||||||||||
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | |||||||||||||||||||||||||||
| Net income | $ | 1,746 | $ | 1,827 | $ | 1,128 | ||||||||||||||||||||||
| Net income (loss) | Net income (loss) | $ | 756 | $ | (1,480) | $ | 1,469 | |||||||||||||||||||||
| Loss (income) from discontinued operations (net of income taxes) | Loss (income) from discontinued operations (net of income taxes) | (42) | 1,498 | (829) | ||||||||||||||||||||||||
| Income from continuing operations (net of income taxes) | Income from continuing operations (net of income taxes) | 714 | 18 | 640 | ||||||||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||||||||||||||||||
| Depreciation | 1,199 | 1,094 | 1,008 | Depreciation | 1,181 | 1,082 | 1,022 | |||||||||||||||||||||
| Amortization | 81 | 78 | 97 | Amortization | 52 | 39 | 58 | |||||||||||||||||||||
| Defined benefit plans - (income) | (263 | ) | (192 | ) | (95 | ) | ||||||||||||||||||||||
| Deferred income taxes and investment tax credits | 309 | 355 | 707 | Deferred income taxes and investment tax credits | 179 | 87 | 169 | |||||||||||||||||||||
| Unrealized (gains) losses on derivatives, and other hedging activities | 73 | (186 | ) | 178 | ||||||||||||||||||||||||
| Stock compensation expense | 36 | 26 | 38 | |||||||||||||||||||||||||
| Loss on sale of Safari Holdings | Loss on sale of Safari Holdings | 60 | — | — | ||||||||||||||||||||||||
| Impairment of solar panels | Impairment of solar panels | — | 37 | — | ||||||||||||||||||||||||
| Loss on extinguishment of debt | Loss on extinguishment of debt | — | 395 | — | ||||||||||||||||||||||||
| Other | (22 | ) | (3 | ) | (9 | ) | Other | 35 | 20 | 67 | ||||||||||||||||||
| Change in current assets and current liabilities | Change in current assets and current liabilities | |||||||||||||||||||||||||||
| Accounts receivable | 4 | 28 | (33 | ) | Accounts receivable | (176) | (14) | (70) | ||||||||||||||||||||
| Accounts payable | (77 | ) | 78 | (10 | ) | Accounts payable | 358 | 24 | (1) | |||||||||||||||||||
| Unbilled revenues | (5 | ) | 41 | (48 | ) | Unbilled revenues | (197) | (5) | 3 | |||||||||||||||||||
| Fuel, materials and supplies | (26 | ) | 17 | 40 | Fuel, materials and supplies | (90) | (21) | (9) | ||||||||||||||||||||
| Taxes payable | Taxes payable | (80) | 27 | 131 | ||||||||||||||||||||||||
| Regulatory assets and liabilities, net | (88 | ) | 13 | (12 | ) | Regulatory assets and liabilities, net | (119) | 52 | (63) | |||||||||||||||||||
| Other current liabilities | (73 | ) | (22 | ) | 6 | |||||||||||||||||||||||
| Other | (33 | ) | (2 | ) | 11 | Other | (88) | (41) | 124 | |||||||||||||||||||
| Other operating activities | Other operating activities | |||||||||||||||||||||||||||
| Defined benefit plans - funding | (350 | ) | (361 | ) | (565 | ) | Defined benefit plans - funding | (12) | (53) | (119) | ||||||||||||||||||
| Proceeds from transfer of excess benefit plan funds | — | 65 | — | |||||||||||||||||||||||||
| Other assets | (100 | ) | (75 | ) | 32 | Other assets | (126) | (111) | (59) | |||||||||||||||||||
| Other liabilities | 16 | 40 | (12 | ) | Other liabilities | 39 | 8 | (21) | ||||||||||||||||||||
| Net cash provided by operating activities - continuing operations | Net cash provided by operating activities - continuing operations | 1,730 | 1,544 | 1,872 | ||||||||||||||||||||||||
| Net cash provided by operating activities - discontinued operations | Net cash provided by operating activities - discontinued operations | — | 726 | 874 | ||||||||||||||||||||||||
| Net cash provided by operating activities | 2,427 | 2,821 | 2,461 | Net cash provided by operating activities | 1,730 | 2,270 | 2,746 | |||||||||||||||||||||
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | |||||||||||||||||||||||||||
| Expenditures for property, plant and equipment | (3,083 | ) | (3,238 | ) | (3,133 | ) | Expenditures for property, plant and equipment | (2,155) | (1,973) | (2,270) | ||||||||||||||||||
| Purchase of investments | (55 | ) | (65 | ) | — | |||||||||||||||||||||||
| Proceeds from the sale of investments | 69 | 6 | — | |||||||||||||||||||||||||
| Proceeds from sale of Safari Holdings, net of cash divested | Proceeds from sale of Safari Holdings, net of cash divested | 146 | — | — | ||||||||||||||||||||||||
| Proceeds from sale of U.K. utility business, net of cash divested | Proceeds from sale of U.K. utility business, net of cash divested | — | 10,560 | — | ||||||||||||||||||||||||
| Acquisition of Narragansett Electric, net of cash acquired | Acquisition of Narragansett Electric, net of cash acquired | (3,660) | — | — | ||||||||||||||||||||||||
| Other investing activities | (11 | ) | (64 | ) | (28 | ) | Other investing activities | 15 | (23) | 4 | ||||||||||||||||||
| Net cash used in investing activities | (3,080 | ) | (3,361 | ) | (3,161 | ) | ||||||||||||||||||||||
| Net cash provided by (used in) investing activities - continuing operations | Net cash provided by (used in) investing activities - continuing operations | (5,654) | 8,564 | (2,266) | ||||||||||||||||||||||||
| Net cash provided by (used in) investing activities - discontinued operations | Net cash provided by (used in) investing activities - discontinued operations | — | (607) | (992) | ||||||||||||||||||||||||
| Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | (5,654) | 7,957 | (3,258) | ||||||||||||||||||||||||
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | |||||||||||||||||||||||||||
| Issuance of long-term debt | 1,465 | 1,059 | 1,515 | Issuance of long-term debt | 850 | 650 | 1,848 | |||||||||||||||||||||
| Retirement of long-term debt | (300 | ) | (277 | ) | (168 | ) | Retirement of long-term debt | (264) | (4,606) | (975) | ||||||||||||||||||
| Issuance of common stock | 1,167 | 698 | 453 | |||||||||||||||||||||||||
| Payment of common stock dividends | (1,192 | ) | (1,133 | ) | (1,072 | ) | Payment of common stock dividends | (787) | (1,279) | (1,275) | ||||||||||||||||||
| Purchase of treasury stock | Purchase of treasury stock | — | (1,003) | — | ||||||||||||||||||||||||
| Issuance of term loan | Issuance of term loan | — | — | 300 | ||||||||||||||||||||||||
| Issuance of commercial paper | Issuance of commercial paper | — | — | 73 | ||||||||||||||||||||||||
| Retirement of term loan | Retirement of term loan | — | (300) | — | ||||||||||||||||||||||||
| Retirement of commercial paper | Retirement of commercial paper | — | (73) | — | ||||||||||||||||||||||||
| Net increase (decrease) in short-term debt | (278 | ) | 363 | 115 | Net increase (decrease) in short-term debt | 916 | (726) | (43) | ||||||||||||||||||||
| Other financing activities | (26 | ) | (20 | ) | (19 | ) | Other financing activities | (6) | (7) | 171 | ||||||||||||||||||
| Net cash provided by financing activities | 836 | 690 | 824 | |||||||||||||||||||||||||
| Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash | 10 | (18 | ) | 15 | ||||||||||||||||||||||||
| Net Increase in Cash, Cash Equivalents and Restricted Cash | 193 | 132 | 139 | |||||||||||||||||||||||||
| Net cash provided by (used in) financing activities - continuing operations | Net cash provided by (used in) financing activities - continuing operations | 709 | (7,344) | 99 | ||||||||||||||||||||||||
| Net cash provided by (used in) financing activities - discontinued operations | Net cash provided by (used in) financing activities - discontinued operations | — | (411) | 209 | ||||||||||||||||||||||||
| Contributions from discontinued operations | Contributions from discontinued operations | — | 365 | 78 | ||||||||||||||||||||||||
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | 709 | (7,390) | 386 | ||||||||||||||||||||||||
| Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | — | 8 | 17 | ||||||||||||||||||||||||
| Net (Increase) Decrease in Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | Net (Increase) Decrease in Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | — | 284 | (108) | ||||||||||||||||||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (3,215) | 3,129 | (217) | ||||||||||||||||||||||||
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 643 | 511 | 372 | Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 3,572 | 443 | 660 | |||||||||||||||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 836 | $ | 643 | $ | 511 | Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 357 | $ | 3,572 | $ | 443 | |||||||||||||||
| Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | |||||||||||||||||||||||||||
| Cash paid during the period for: | ||||||||||||||||||||||||||||
| Cash paid (received) during the period for: | Cash paid (received) during the period for: | |||||||||||||||||||||||||||
| Interest - net of amount capitalized | $ | 905 | $ | 910 | $ | 845 | Interest - net of amount capitalized | $ | 462 | $ | 191 | $ | 586 | |||||||||||||||
| Income taxes - net | $ | 93 | $ | 127 | $ | 65 | Income taxes - net | $ | 163 | $ | 284 | $ | 4 | |||||||||||||||
| Significant non-cash transactions: | Significant non-cash transactions: | |||||||||||||||||||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 340 | $ | 345 | $ | 360 | Accrued expenditures for property, plant and equipment at December 31, | $ | 269 | $ | 245 | $ | 257 | |||||||||||||||
| Accrued expenditures for intangible assets at December 31, | $ | 79 | $ | 64 | $ | 68 | ||||||||||||||||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, shares in thousands)
| 2019 | 2018 | 2022 | 2021 | |||||||||||||||
| Assets | Assets | |||||||||||||||||
| Current Assets | Current Assets | |||||||||||||||||
| Cash and cash equivalents | $ | 815 | $ | 621 | Cash and cash equivalents | $ | 356 | $ | 3,571 | |||||||||
| Accounts receivable (less reserve: 2019, $58; 2018, $56) | ||||||||||||||||||
| Accounts receivable (less reserve: 2022, $87; 2021, $65) | Accounts receivable (less reserve: 2022, $87; 2021, $65) | |||||||||||||||||
| Customer | 687 | 663 | Customer | 896 | 583 | |||||||||||||
| Other | 105 | 107 | Other | 150 | 58 | |||||||||||||
| Unbilled revenues | 504 | 496 | ||||||||||||||||
| Unbilled revenues (less reserve: 2022, $6; 2021, $2) | Unbilled revenues (less reserve: 2022, $6; 2021, $2) | 552 | 307 | |||||||||||||||
| Fuel, materials and supplies | 332 | 303 | Fuel, materials and supplies | 443 | 322 | |||||||||||||
| Prepayments | 79 | 70 | Prepayments | 92 | 60 | |||||||||||||
| Price risk management assets | 147 | 109 | ||||||||||||||||
| Regulatory assets | Regulatory assets | 258 | 64 | |||||||||||||||
| Other current assets | 98 | 63 | Other current assets | 77 | 42 | |||||||||||||
| Total Current Assets | 2,767 | 2,432 | Total Current Assets | 2,824 | 5,007 | |||||||||||||
| Property, Plant and Equipment | Property, Plant and Equipment | |||||||||||||||||
| Regulated utility plant | 42,709 | 39,734 | Regulated utility plant | 36,961 | 30,477 | |||||||||||||
| Less: accumulated depreciation - regulated utility plant | 8,055 | 7,310 | Less: accumulated depreciation - regulated utility plant | 8,352 | 6,488 | |||||||||||||
| Regulated utility plant, net | 34,654 | 32,424 | Regulated utility plant, net | 28,609 | 23,989 | |||||||||||||
| Non-regulated property, plant and equipment | 357 | 355 | Non-regulated property, plant and equipment | 92 | 266 | |||||||||||||
| Less: accumulated depreciation - non-regulated property, plant and equipment | 109 | 101 | Less: accumulated depreciation - non-regulated property, plant and equipment | 46 | 41 | |||||||||||||
| Non-regulated property, plant and equipment, net | 248 | 254 | Non-regulated property, plant and equipment, net | 46 | 225 | |||||||||||||
| Construction work in progress | 1,580 | 1,780 | Construction work in progress | 1,583 | 1,256 | |||||||||||||
| Property, Plant and Equipment, net | 36,482 | 34,458 | Property, Plant and Equipment, net | 30,238 | 25,470 | |||||||||||||
| Other Noncurrent Assets | Other Noncurrent Assets | |||||||||||||||||
| Regulatory assets | 1,492 | 1,673 | Regulatory assets | 1,819 | 1,236 | |||||||||||||
| Goodwill | 3,198 | 3,162 | Goodwill | 2,248 | 716 | |||||||||||||
| Other intangibles | 742 | 716 | Other intangibles | 313 | 343 | |||||||||||||
| Pension benefit asset | 464 | 535 | ||||||||||||||||
| Price risk management assets | 149 | 228 | ||||||||||||||||
| Other noncurrent assets | 386 | 192 | ||||||||||||||||
| Other noncurrent assets (less reserve for accounts receivable: 2022, $2; 2021, $2) | Other noncurrent assets (less reserve for accounts receivable: 2022, $2; 2021, $2) | 395 | 451 | |||||||||||||||
| Total Other Noncurrent Assets | 6,431 | 6,506 | Total Other Noncurrent Assets | 4,775 | 2,746 | |||||||||||||
| Total Assets | $ | 45,680 | $ | 43,396 | Total Assets | $ | 37,837 | $ | 33,223 | |||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, shares in thousands)
| 2019 | 2018 | ||||||
| Liabilities and Equity | |||||||
| Current Liabilities | |||||||
| Short-term debt | $ | 1,151 | $ | 1,430 | |||
| Long-term debt due within one year | 1,172 | 530 | |||||
| Accounts payable | 956 | 989 | |||||
| Taxes | 99 | 110 | |||||
| Interest | 294 | 278 | |||||
| Dividends | 317 | 296 | |||||
| Customer deposits | 261 | 257 | |||||
| Regulatory liabilities | 115 | 122 | |||||
| Other current liabilities | 535 | 551 | |||||
| Total Current Liabilities | 4,900 | 4,563 | |||||
| Long-term Debt | 20,721 | 20,069 | |||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||
| Deferred income taxes | 3,088 | 2,796 | |||||
| Investment tax credits | 124 | 126 | |||||
| Accrued pension obligations | 587 | 771 | |||||
| Asset retirement obligations | 212 | 264 | |||||
| Regulatory liabilities | 2,572 | 2,714 | |||||
| Other deferred credits and noncurrent liabilities | 485 | 436 | |||||
| Total Deferred Credits and Other Noncurrent Liabilities | 7,068 | 7,107 | |||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | |||||||
| Equity | |||||||
| Common stock - $0.01 par value (a) | 8 | 7 | |||||
| Additional paid-in capital | 12,214 | 11,021 | |||||
| Earnings reinvested | 5,127 | 4,593 | |||||
| Accumulated other comprehensive loss | (4,358 | ) | (3,964 | ) | |||
| Total Equity | 12,991 | 11,657 | |||||
| Total Liabilities and Equity | $ | 45,680 | $ | 43,396 | |||
| 2022 | 2021 | ||||||||||
| Liabilities and Equity | |||||||||||
| Current Liabilities | |||||||||||
| Short-term debt | $ | 985 | $ | 69 | |||||||
| Long-term debt due within one year | 354 | 474 | |||||||||
| Accounts payable | 1,201 | 679 | |||||||||
| Taxes | 124 | 96 | |||||||||
| Interest | 97 | 81 | |||||||||
| Dividends | 166 | 305 | |||||||||
| Regulatory liabilities | 238 | 182 | |||||||||
| Other current liabilities | 624 | 437 | |||||||||
| Total Current Liabilities | 3,789 | 2,323 | |||||||||
| Long-term Debt | 12,889 | 10,666 | |||||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||||
| Deferred income taxes | 3,007 | 3,151 | |||||||||
| Investment tax credits | 117 | 119 | |||||||||
| Accrued pension obligations | 206 | 183 | |||||||||
| Asset retirement obligations | 138 | 157 | |||||||||
| Regulatory liabilities | 3,412 | 2,422 | |||||||||
| Other deferred credits and noncurrent liabilities | 361 | 479 | |||||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 7,241 | 6,511 | |||||||||
| Commitments and Contingent Liabilities (Notes 7 and 14) | |||||||||||
| Equity | |||||||||||
| Common stock - $0.01 par value (a) | 8 | 8 | |||||||||
| Additional paid-in capital | 12,317 | 12,303 | |||||||||
| Treasury stock | (967) | (1,003) | |||||||||
| Earnings reinvested | 2,681 | 2,572 | |||||||||
| Accumulated other comprehensive loss | (124) | (157) | |||||||||
| Total Shareowners' Common Equity | 13,915 | 13,723 | |||||||||
| Noncontrolling interests | 3 | — | |||||||||
| Total Equity | 13,918 | 13,723 | |||||||||
| Total Liabilities and Equity | $ | 37,837 | $ | 33,223 | |||||||
(a)1,560,000 shares authorized; 770,013 shares issued and 736,487 shares outstanding at December 31, 2022. 1,560,000 shares authorized; 769,890 shares issued and 735,112 shares outstanding at December 31, 2021.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF EQUITY
PPL Corporation and Subsidiaries
(Millions of Dollars)
| PPL Shareowners | Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Treasury Stock | Earnings reinvested | Accumulated other comprehensive loss | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2019 | 767,233 | $ | 8 | $ | 12,214 | $ | — | $ | 5,127 | $ | (4,358) | $ | — | $ | 12,991 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | Common stock issued | 1,674 | 51 | 51 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Accumulated other comprehensive loss | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | 679,731 | $ | 7 | $ | 9,841 | $ | 3,829 | $ | (3,778 | ) | $ | 9,899 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | 13,667 | 482 | 482 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | (18 | ) | (18 | ) | Stock-based compensation | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,128 | 1,128 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | Net income (loss) | 1,469 | 1,469 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend equivalents (b) | (1,086 | ) | (1,086 | ) | Dividends and dividend equivalents (b) | (1,279) | (1,279) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 356 | 356 | Other comprehensive income (loss) | 138 | 138 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 693,398 | $ | 7 | $ | 10,305 | $ | 3,871 | $ | (3,422 | ) | $ | 10,761 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption of financial instrument credit losses guidance cumulative effect adjustment (Note 1) | Adoption of financial instrument credit losses guidance cumulative effect adjustment (Note 1) | (2) | (2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | 768,907 | $ | 8 | $ | 12,270 | $ | — | $ | 5,315 | $ | (4,220) | $ | — | $ | 13,373 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | 26,925 | 718 | 718 | Common stock issued | 983 | 29 | 29 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock | Treasury stock | (34,778) | (1,003) | (1,003) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | (2 | ) | (2 | ) | Stock-based compensation | 4 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,827 | 1,827 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | Net income (loss) | (1,480) | (1,480) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend equivalents (b) | (1,156 | ) | (1,156 | ) | Dividends and dividend equivalents (b) | (1,263) | (1,263) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (491 | ) | (491 | ) | Other comprehensive income (loss) | 4,063 | 4,063 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption of reclassification of certain tax effects from AOCI guidance cumulative effect adjustment (Note 1) | 51 | (51 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 720,323 | $ | 7 | $ | 11,021 | $ | 4,593 | $ | (3,964 | ) | $ | 11,657 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | 735,112 | $ | 8 | $ | 12,303 | $ | (1,003) | $ | 2,572 | $ | (157) | $ | — | $ | 13,723 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | 46,910 | 1 | 1,184 | 1,185 | Common stock issued | 123 | 5 | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock | Treasury stock | 1,252 | 36 | 36 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 9 | 9 | Stock-based compensation | 9 | 9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,746 | 1,746 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | Net income (loss) | 756 | 756 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend equivalents (b) | (1,212 | ) | (1,212 | ) | Dividends and dividend equivalents (b) | (647) | (647) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock (Note 8) | Preferred stock (Note 8) | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (394 | ) | (394 | ) | Other comprehensive income (loss) | 33 | 33 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 767,233 | $ | 8 | $ | 12,214 | $ | 5,127 | $ | (4,358 | ) | $ | 12,991 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | 736,487 | $ | 8 | $ | 12,317 | $ | (967) | $ | 2,681 | $ | (124) | $ | 3 | $ | 13,918 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a)Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting. (b)Dividends declared per share of common stock at December 31, 2022, 2021 and 2020 were: $0.875, $1.660 and $1.660. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
(THIS PAGE LEFT BLANK INTENTIONALLY.)
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
| 2022 | 2021 | 2020 | |||||||||||||||
| Operating Revenues | $ | 3,030 | $ | 2,402 | $ | 2,331 | |||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Energy purchases | 1,048 | 566 | 491 | ||||||||||||||
| Other operation and maintenance | 605 | 557 | 513 | ||||||||||||||
| Depreciation | 393 | 424 | 403 | ||||||||||||||
| Taxes, other than income | 149 | 120 | 107 | ||||||||||||||
| Total Operating Expenses | 2,195 | 1,667 | 1,514 | ||||||||||||||
| Operating Income | 835 | 735 | 817 | ||||||||||||||
| Other Income (Expense) - net | 30 | 21 | 18 | ||||||||||||||
| Interest Income from Affiliate | 5 | 5 | 2 | ||||||||||||||
| Interest Expense | 171 | 162 | 173 | ||||||||||||||
| Income Before Income Taxes | 699 | 599 | 664 | ||||||||||||||
| Income Taxes | 174 | 154 | 167 | ||||||||||||||
| Net Income (a) | $ | 525 | $ | 445 | $ | 497 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Operating Revenues | $ | 2,358 | $ | 2,277 | $ | 2,195 | |||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Energy purchases | 549 | 544 | 507 | ||||||||
| Other operation and maintenance | 566 | 578 | 572 | ||||||||
| Depreciation | 386 | 352 | 309 | ||||||||
| Taxes, other than income | 112 | 109 | 107 | ||||||||
| Total Operating Expenses | 1,613 | 1,583 | 1,495 | ||||||||
| Operating Income | 745 | 694 | 700 | ||||||||
| Other Income (Expense) - net | 25 | 23 | 12 | ||||||||
| Interest Income from Affiliate | 6 | 8 | 5 | ||||||||
| Interest Expense | 170 | 159 | 142 | ||||||||
| Income Before Income Taxes | 606 | 566 | 575 | ||||||||
| Income Taxes | 149 | 136 | 213 | ||||||||
| Net Income (a) | $ | 457 | $ | 430 | $ | 362 | |||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
| 2022 | 2021 | 2020 | |||||||||||||||
| Cash Flows from Operating Activities | |||||||||||||||||
| Net income | $ | 525 | $ | 445 | $ | 497 | |||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||||||||
| Depreciation | 393 | 424 | 403 | ||||||||||||||
| Amortization | 22 | 19 | 26 | ||||||||||||||
| Defined benefit plans expense (income) | (23) | (10) | (1) | ||||||||||||||
| Deferred income taxes and investment tax credits | 91 | 79 | 83 | ||||||||||||||
| Other | (11) | (19) | (5) | ||||||||||||||
| Change in current assets and current liabilities | |||||||||||||||||
| Accounts receivable | (47) | (9) | (47) | ||||||||||||||
| Accounts payable | 46 | (3) | 21 | ||||||||||||||
| Unbilled revenues | (95) | (8) | 13 | ||||||||||||||
| Materials and supplies | (11) | (5) | (18) | ||||||||||||||
| Prepayments | (2) | (4) | (3) | ||||||||||||||
| Regulatory assets and liabilities, net | (59) | 96 | (40) | ||||||||||||||
| Taxes payable | 5 | 14 | 4 | ||||||||||||||
| Other | (19) | (1) | (10) | ||||||||||||||
| Other operating activities | |||||||||||||||||
| Defined benefit plans - funding | — | (21) | (21) | ||||||||||||||
| Other assets | (47) | (12) | (28) | ||||||||||||||
| Other liabilities | (11) | (16) | 10 | ||||||||||||||
| Net cash provided by operating activities | 757 | 969 | 884 | ||||||||||||||
| Cash Flows from Investing Activities | |||||||||||||||||
| Expenditures for property, plant and equipment | (886) | (898) | (1,145) | ||||||||||||||
| Expenditures for intangible assets | (2) | (6) | (9) | ||||||||||||||
| Net (increase) decrease in notes receivable from affiliate | 499 | (499) | — | ||||||||||||||
| Other investing activities | 2 | 3 | 3 | ||||||||||||||
| Net cash used in investing activities | (387) | (1,400) | (1,151) | ||||||||||||||
| Cash Flows from Financing Activities | |||||||||||||||||
| Issuance of long-term debt | 250 | 650 | 250 | ||||||||||||||
| Retirement of long-term debt | (250) | (400) | — | ||||||||||||||
| Contributions from parent | — | 1,075 | 940 | ||||||||||||||
| Payment of common stock dividends to parent | (340) | (334) | (400) | ||||||||||||||
| Return of capital to parent | (170) | (574) | (745) | ||||||||||||||
| Net increase in short-term debt | 145 | — | — | ||||||||||||||
| Other financing activities | (1) | (5) | (2) | ||||||||||||||
| Net cash provided by (used in) financing activities | (366) | 412 | 43 | ||||||||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 4 | (19) | (224) | ||||||||||||||
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 21 | 40 | 264 | ||||||||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 25 | $ | 21 | $ | 40 | |||||||||||
| Supplemental Disclosures of Cash Flow Information | |||||||||||||||||
| Cash paid during the period for: | |||||||||||||||||
| Interest - net of amount capitalized | $ | 164 | $ | 156 | $ | 158 | |||||||||||
| Income taxes - net | $ | 111 | $ | 64 | $ | 67 | |||||||||||
| Significant non-cash transactions: | |||||||||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 133 | $ | 118 | $ | 156 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | 457 | $ | 430 | $ | 362 | |||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||
| Depreciation | 386 | 352 | 309 | ||||||||
| Amortization | 24 | 22 | 33 | ||||||||
| Defined benefit plans - expense | — | 3 | 12 | ||||||||
| Deferred income taxes and investment tax credits | 90 | 125 | 258 | ||||||||
| Other | (19 | ) | (4 | ) | (8 | ) | |||||
| Change in current assets and current liabilities | |||||||||||
| Accounts receivable | 33 | 47 | (57 | ) | |||||||
| Accounts payable | 5 | 10 | 3 | ||||||||
| Unbilled revenues | (14 | ) | 7 | (13 | ) | ||||||
| Prepayments | (1 | ) | 1 | 3 | |||||||
| Regulatory assets and liabilities | (43 | ) | (19 | ) | (5 | ) | |||||
| Taxes payable | 1 | 4 | (4 | ) | |||||||
| Other | (11 | ) | 10 | (1 | ) | ||||||
| Other operating activities | |||||||||||
| Defined benefit plans - funding | (21 | ) | (28 | ) | (24 | ) | |||||
| Other assets | 15 | (37 | ) | 15 | |||||||
| Other liabilities | 11 | 55 | (3 | ) | |||||||
| Net cash provided by operating activities | 913 | 978 | 880 | ||||||||
| Cash Flows from Investing Activities | |||||||||||
| Expenditures for property, plant and equipment | (1,114 | ) | (1,192 | ) | (1,244 | ) | |||||
| Expenditures for intangible assets | (7 | ) | (4 | ) | (10 | ) | |||||
| Other investing activities | 4 | 3 | 2 | ||||||||
| Net cash used in investing activities | (1,117 | ) | (1,193 | ) | (1,252 | ) | |||||
| Cash Flows from Financing Activities | |||||||||||
| Issuance of long-term debt | 393 | 398 | 470 | ||||||||
| Retirement of long-term debt | (100 | ) | — | — | |||||||
| Contributions from PPL | 400 | 429 | 575 | ||||||||
| Payment of common stock dividends to parent | (486 | ) | (390 | ) | (336 | ) | |||||
| Net decrease in short-term debt | — | (295 | ) | ||||||||
| Other financing activities | (8 | ) | (4 | ) | (6 | ) | |||||
| Net cash provided by financing activities | 199 | 433 | 408 | ||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (5 | ) | 218 | 36 | |||||||
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 269 | 51 | 15 | ||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 264 | $ | 269 | $ | 51 | |||||
| Supplemental Disclosures of Cash Flow Information | |||||||||||
| Cash paid (received) during the period for: | |||||||||||
| Interest - net of amount capitalized | $ | 154 | $ | 144 | $ | 128 | |||||
| Income taxes - net | $ | 32 | $ | (20 | ) | $ | 4 | ||||
| Significant non-cash transactions: | |||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 180 | $ | 158 | $ | 133 | |||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars, shares in thousands)
| 2022 | 2021 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 25 | $ | 21 | |||||||
| Accounts receivable (less reserve: 2022, $28; 2021, $31) | |||||||||||
| Customer | 357 | 305 | |||||||||
| Other | 12 | 22 | |||||||||
| Accounts receivable from affiliates | 3 | 11 | |||||||||
| Notes receivable from affiliate | — | 499 | |||||||||
| Unbilled revenues (less reserve: 2022, $2; 2021, $2) | 224 | 129 | |||||||||
| Materials and supplies | 69 | 61 | |||||||||
| Prepayments | 34 | 13 | |||||||||
| Regulatory assets | 13 | 22 | |||||||||
| Other current assets | 22 | 21 | |||||||||
| Total Current Assets | 759 | 1,104 | |||||||||
| Property, Plant and Equipment | |||||||||||
| Regulated utility plant | 14,794 | 14,082 | |||||||||
| Less: accumulated depreciation - regulated utility plant | 3,544 | 3,386 | |||||||||
| Regulated utility plant, net | 11,250 | 10,696 | |||||||||
| Construction work in progress | 593 | 581 | |||||||||
| Property, Plant and Equipment, net | 11,843 | 11,277 | |||||||||
| Other Noncurrent Assets | |||||||||||
| Regulatory assets | 568 | 488 | |||||||||
| Intangibles | 269 | 270 | |||||||||
| Pension benefit asset | — | 50 | |||||||||
| Other noncurrent assets (less reserve for accounts receivable: 2022, $2; 2021, $2) | 126 | 113 | |||||||||
| Total Other Noncurrent Assets | 963 | 921 | |||||||||
| Total Assets | $ | 13,565 | $ | 13,302 | |||||||
| 2019 | 2018 | ||||||
| Assets | |||||||
| Current Assets | |||||||
| Cash and cash equivalents | $ | 262 | $ | 267 | |||
| Accounts receivable (less reserve: 2019, $28; 2018, $27) | |||||||
| Customer | 258 | 264 | |||||
| Other | 22 | 38 | |||||
| Accounts receivable from affiliates | 11 | 11 | |||||
| Unbilled revenues | 134 | 120 | |||||
| Materials and supplies | 33 | 25 | |||||
| Prepayments | 6 | 5 | |||||
| Regulatory assets | 26 | 11 | |||||
| Other current assets | 9 | 9 | |||||
| Total Current Assets | 761 | 750 | |||||
| Property, Plant and Equipment | |||||||
| Regulated utility plant | 12,589 | 11,637 | |||||
| Less: accumulated depreciation - regulated utility plant | 3,078 | 2,856 | |||||
| Regulated utility plant, net | 9,511 | 8,781 | |||||
| Construction work in progress | 597 | 586 | |||||
| Property, Plant and Equipment, net | 10,108 | 9,367 | |||||
| Other Noncurrent Assets | |||||||
| Regulatory assets | 726 | 824 | |||||
| Intangibles | 263 | 260 | |||||
| Other noncurrent assets | 43 | 42 | |||||
| Total Other Noncurrent Assets | 1,032 | 1,126 | |||||
| Total Assets | $ | 11,901 | $ | 11,243 | |||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars, shares in thousands)
| 2019 | 2018 | 2022 | 2021 | |||||||||||||||
| Liabilities and Equity | Liabilities and Equity | |||||||||||||||||
| Current Liabilities | Current Liabilities | |||||||||||||||||
| Short-term debt | Short-term debt | $ | 145 | $ | — | |||||||||||||
| Long-term debt due within one year | Long-term debt due within one year | 340 | 474 | |||||||||||||||
| Accounts payable | $ | 438 | $ | 418 | Accounts payable | 480 | 367 | |||||||||||
| Accounts payable to affiliates | 32 | 25 | Accounts payable to affiliates | 16 | 56 | |||||||||||||
| Taxes | 13 | 12 | Taxes | 36 | 31 | |||||||||||||
| Interest | 41 | 37 | Interest | 35 | 35 | |||||||||||||
| Regulatory liabilities | 96 | 74 | Regulatory liabilities | 85 | 153 | |||||||||||||
| Other current liabilities | 93 | 101 | Other current liabilities | 86 | 108 | |||||||||||||
| Total Current Liabilities | 713 | 667 | Total Current Liabilities | 1,223 | 1,224 | |||||||||||||
| Long-term Debt | 3,985 | 3,694 | Long-term Debt | 4,146 | 4,010 | |||||||||||||
| Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | |||||||||||||||||
| Deferred income taxes | 1,447 | 1,320 | Deferred income taxes | 1,514 | 1,668 | |||||||||||||
| Accrued pension obligations | 179 | 282 | ||||||||||||||||
| Regulatory liabilities | 599 | 675 | Regulatory liabilities | 820 | 559 | |||||||||||||
| Other deferred credits and noncurrent liabilities | 146 | 144 | Other deferred credits and noncurrent liabilities | 111 | 105 | |||||||||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 2,371 | 2,421 | Total Deferred Credits and Other Noncurrent Liabilities | 2,445 | 2,332 | |||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | ||||||||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 14) | Commitments and Contingent Liabilities (Notes 7 and 14) | |||||||||||||||||
| Equity | Equity | |||||||||||||||||
| Common stock - no par value (a) | 364 | 364 | Common stock - no par value (a) | 364 | 364 | |||||||||||||
| Additional paid-in capital | 3,558 | 3,158 | Additional paid-in capital | 4,084 | 4,254 | |||||||||||||
| Earnings reinvested | 910 | 939 | Earnings reinvested | 1,303 | 1,118 | |||||||||||||
| Total Equity | 4,832 | 4,461 | Total Equity | 5,751 | 5,736 | |||||||||||||
| Total Liabilities and Equity | $ | 11,901 | $ | 11,243 | Total Liabilities and Equity | $ | 13,565 | $ | 13,302 | |||||||||
(a)170,000 shares authorized; 66,368 shares issued and outstanding at December 31, 2022 and December 31, 2021.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF EQUITY
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
| Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Total | |||||||||||||||||||||||||||||||||||||||||||
Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Total | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | 66,368 | $ | 364 | $ | 2,154 | $ | 873 | $ | 3,391 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2019 | 66,368 | $ | 364 | $ | 3,558 | $ | 910 | $ | 4,832 | |||||||||||||||||||||||||||||||||||||
| Net income | 362 | 362 | Net income | 497 | 497 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | 575 | 575 | Capital contributions from parent | 940 | 940 | ||||||||||||||||||||||||||||||||||||||||||
| Return of capital to parent | Return of capital to parent | (745) | (745) | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock | (336 | ) | (336 | ) | Dividends declared on common stock | (400) | (400) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 66,368 | $ | 364 | $ | 2,729 | $ | 899 | $ | 3,992 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | 66,368 | $ | 364 | $ | 3,753 | $ | 1,007 | $ | 5,124 | |||||||||||||||||||||||||||||||||||||
| Net income | 430 | 430 | Net income | 445 | 445 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | 429 | 429 | Capital contributions from parent | 1,075 | 1,075 | ||||||||||||||||||||||||||||||||||||||||||
| Return of capital to parent | Return of capital to parent | (574) | (574) | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock | (390 | ) | (390 | ) | Dividends declared on common stock | (334) | (334) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 66,368 | $ | 364 | $ | 3,158 | $ | 939 | $ | 4,461 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | 66,368 | $ | 364 | $ | 4,254 | $ | 1,118 | $ | 5,736 | |||||||||||||||||||||||||||||||||||||
| Net income | 457 | 457 | Net income | 525 | 525 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | 400 | 400 | |||||||||||||||||||||||||||||||||||||||||||||
| Return of capital to parent | Return of capital to parent | (170) | (170) | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock | (486 | ) | (486 | ) | Dividends declared on common stock | (340) | (340) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 66,368 | $ | 364 | $ | 3,558 | $ | 910 | $ | 4,832 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | 66,368 | $ | 364 | $ | 4,084 | $ | 1,303 | $ | 5,751 | |||||||||||||||||||||||||||||||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
| 2019 | 2018 | 2017 | |||||||||
| Operating Revenues | $ | 3,206 | $ | 3,214 | $ | 3,156 | |||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 709 | 799 | 759 | ||||||||
| Energy purchases | 174 | 201 | 178 | ||||||||
| Other operation and maintenance | 861 | 848 | 801 | ||||||||
| Depreciation | 547 | 475 | 439 | ||||||||
| Taxes, other than income | 74 | 70 | 65 | ||||||||
| Total Operating Expenses | 2,365 | 2,393 | 2,242 | ||||||||
| Operating Income | 841 | 821 | 914 | ||||||||
| Other Income (Expense) - net | (13 | ) | (16 | ) | (8 | ) | |||||
| Interest Expense | 226 | 206 | 197 | ||||||||
| Interest Expense with Affiliate | 31 | 25 | 18 | ||||||||
| Income Before Income Taxes | 571 | 574 | 691 | ||||||||
| Income Taxes | 103 | 129 | 375 | ||||||||
| Net Income | $ | 468 | $ | 445 | $ | 316 | |||||
| 2019 | 2018 | 2017 | |||||||||
| Net income | $ | 468 | $ | 445 | $ | 316 | |||||
| Other comprehensive income (loss): | |||||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||||
| Defined benefit plans: | |||||||||||
| Prior service costs, net of tax of $0, $0, $1 | (1 | ) | — | (2 | ) | ||||||
| Net actuarial gain (loss), net of tax of $2, ($2), $13 | (6 | ) | 7 | (23 | ) | ||||||
| Reclassifications to net income - (gains) losses, net of tax expense (benefit): | |||||||||||
| Equity investees' other comprehensive (income) loss, net of tax of $0, $0, $0 | — | — | 1 | ||||||||
| Defined benefit plans: | |||||||||||
| Prior service costs, net of tax of $0, $0, ($1) | 1 | 2 | 1 | ||||||||
| Net actuarial (gain) loss, net of tax of $1, ($3), ($2) | 2 | 8 | 5 | ||||||||
| Total other comprehensive income (loss) | (4 | ) | 17 | (18 | ) | ||||||
| Comprehensive income | $ | 464 | $ | 462 | $ | 298 | |||||
| 2019 | 2018 | 2017 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | 468 | $ | 445 | $ | 316 | |||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||
| Depreciation | 547 | 475 | 439 | ||||||||
| Amortization | 27 | 18 | 24 | ||||||||
| Defined benefit plans - expense | 11 | 17 | 25 | ||||||||
| Deferred income taxes and investment tax credits | 82 | 94 | 294 | ||||||||
| Other | (3 | ) | (4 | ) | — | ||||||
| Change in current assets and current liabilities | |||||||||||
| Accounts receivable | (16 | ) | 1 | (12 | ) | ||||||
| Accounts payable | (26 | ) | 39 | (9 | ) | ||||||
| Accounts payable to affiliates | 2 | 2 | 2 | ||||||||
| Unbilled revenues | 5 | 34 | (33 | ) | |||||||
| Fuel, materials and supplies | — | 7 | 45 | ||||||||
| Regulatory assets and liabilities, net | (45 | ) | 32 | (7 | ) | ||||||
| Taxes payable | (5 | ) | (3 | ) | 27 | ||||||
| Other | (8 | ) | (24 | ) | 41 | ||||||
| Other operating activities | |||||||||||
| Defined benefit plans - funding | (34 | ) | (131 | ) | (35 | ) | |||||
| Expenditures for asset retirement obligations | (89 | ) | (72 | ) | (34 | ) | |||||
| Other assets | (3 | ) | (24 | ) | 8 | ||||||
| Other liabilities | 25 | 9 | 8 | ||||||||
| Net cash provided by operating activities | 938 | 915 | 1,099 | ||||||||
| Cash Flows from Investing Activities | |||||||||||
| Expenditures for property, plant and equipment | (1,094 | ) | (1,117 | ) | (892 | ) | |||||
| Other investing activities | — | 1 | 4 | ||||||||
| Net cash used in investing activities | (1,094 | ) | (1,116 | ) | (888 | ) | |||||
| Cash Flows from Financing Activities | |||||||||||
| Net increase (decrease) in notes payable with affiliates | 37 | (112 | ) | 62 | |||||||
| Issuance of long-term note with affiliate | — | 250 | — | ||||||||
| Issuance of long-term debt | 705 | 118 | 160 | ||||||||
| Retirement of long-term debt | (200 | ) | (27 | ) | (70 | ) | |||||
| Acquisition of outstanding bonds | (40 | ) | — | — | |||||||
| Remarketing of reacquired bonds | 40 | — | — | ||||||||
| Distributions to member | (308 | ) | (302 | ) | (402 | ) | |||||
| Contributions from member | 63 | — | — | ||||||||
| Net increase (decrease) in short-term debt | (126 | ) | 270 | 59 | |||||||
| Other financing activities | (12 | ) | (2 | ) | (3 | ) | |||||
| Net cash provided by (used in) financing activities | 159 | 195 | (194 | ) | |||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 3 | (6 | ) | 17 | |||||||
| Cash and Cash Equivalents at Beginning of Period | 24 | 30 | 13 | ||||||||
| Cash and Cash Equivalents at End of Period | $ | 27 | $ | 24 | $ | 30 | |||||
| Supplemental Disclosures of Cash Flow Information | |||||||||||
| Cash paid (received) during the period for: | |||||||||||
| Interest - net of amount capitalized | $ | 237 | $ | 218 | $ | 204 | |||||
| Income taxes - net | $ | 29 | $ | 46 | $ | 48 | |||||
| Significant non-cash transactions: | |||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 113 | $ | 150 | $ | 174 | |||||
| 2019 | 2018 | ||||||
| Assets | |||||||
| Current Assets | |||||||
| Cash and cash equivalents | $ | 27 | $ | 24 | |||
| Accounts receivable (less reserve: 2019, $28; 2018, $27) | |||||||
| Customer | 260 | 239 | |||||
| Other | 71 | 63 | |||||
| Unbilled revenues | 164 | 169 | |||||
| Fuel, materials and supplies | 250 | 248 | |||||
| Prepayments | 30 | 25 | |||||
| Regulatory assets | 41 | 25 | |||||
| Other current assets | 2 | — | |||||
| Total Current Assets | 845 | 793 | |||||
| Property, Plant and Equipment | |||||||
| Regulated utility plant | 14,646 | 13,721 | |||||
| Less: accumulated depreciation - regulated utility plant | 2,356 | 2,125 | |||||
| Regulated utility plant, net | 12,290 | 11,596 | |||||
| Construction work in progress | 794 | 1,018 | |||||
| Property, Plant and Equipment, net | 13,084 | 12,614 | |||||
| Other Noncurrent Assets | |||||||
| Regulatory assets | 766 | 849 | |||||
| Goodwill | 996 | 996 | |||||
| Other intangibles | 69 | 78 | |||||
| Other noncurrent assets | 171 | 82 | |||||
| Total Other Noncurrent Assets | 2,002 | 2,005 | |||||
| Total Assets | $ | 15,931 | $ | 15,412 | |||
| 2019 | 2018 | ||||||
| Liabilities and Equity | |||||||
| Current Liabilities | |||||||
| Short-term debt | $ | 388 | $ | 514 | |||
| Long-term debt due within one year | 975 | 530 | |||||
| Notes payable with affiliates | 150 | 113 | |||||
| Accounts payable | 316 | 366 | |||||
| Accounts payable to affiliates | 11 | 9 | |||||
| Customer deposits | 62 | 61 | |||||
| Taxes | 58 | 63 | |||||
| Price risk management liabilities | 4 | 4 | |||||
| Regulatory liabilities | 19 | 48 | |||||
| Interest | 40 | 32 | |||||
| Asset retirement obligations | 70 | 82 | |||||
| Other current liabilities | 153 | 126 | |||||
| Total Current Liabilities | 2,246 | 1,948 | |||||
| Long-term Debt | |||||||
| Long-term debt | 4,377 | 4,322 | |||||
| Long-term debt to affiliate | 650 | 650 | |||||
| Total Long-term Debt | 5,027 | 4,972 | |||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||
| Deferred income taxes | 1,069 | 956 | |||||
| Investment tax credits | 124 | 126 | |||||
| Price risk management liabilities | 17 | 16 | |||||
| Accrued pension obligations | 233 | 282 | |||||
| Asset retirement obligations | 145 | 214 | |||||
| Regulatory liabilities | 1,973 | 2,039 | |||||
| Other deferred credits and noncurrent liabilities | 155 | 136 | |||||
| Total Deferred Credits and Other Noncurrent Liabilities | 3,716 | 3,769 | |||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | |||||||
| Member's equity | 4,942 | 4,723 | |||||
| Total Liabilities and Equity | $ | 15,931 | $ | 15,412 | |||
Member's Equity | |||
| December 31, 2016 | $ | 4,667 | |
| Net income | 316 | ||
| Distributions to member | (402 | ) | |
| Other comprehensive income (loss) | (18 | ) | |
| December 31, 2017 | $ | 4,563 | |
| Net income | $ | 445 | |
| Distributions to member | (302 | ) | |
| Other comprehensive income (loss) | 17 | ||
| December 31, 2018 | $ | 4,723 | |
| Net income | $ | 468 | |
| Contributions from member | 63 | ||
| Distributions to member | (308 | ) | |
| Other comprehensive income (loss) | (4 | ) | |
| December 31, 2019 | $ | 4,942 | |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
Louisville Gas and Electric Company
(Millions of Dollars)
| 2019 | 2018 | 2017 | 2022 | 2021 | 2020 | |||||||||||||||||||||||
| Operating Revenues | Operating Revenues | |||||||||||||||||||||||||||
| Retail and wholesale | $ | 1,473 | $ | 1,467 | $ | 1,422 | Retail and wholesale | $ | 1,762 | $ | 1,545 | $ | 1,435 | |||||||||||||||
| Electric revenue from affiliate | 27 | 29 | 31 | Electric revenue from affiliate | 36 | 24 | 21 | |||||||||||||||||||||
| Total Operating Revenues | 1,500 | 1,496 | 1,453 | Total Operating Revenues | 1,798 | 1,569 | 1,456 | |||||||||||||||||||||
| Operating Expenses | Operating Expenses | |||||||||||||||||||||||||||
| Operation | Operation | |||||||||||||||||||||||||||
| Fuel | 289 | 308 | 292 | Fuel | 346 | 265 | 246 | |||||||||||||||||||||
| Energy purchases | 154 | 183 | 160 | Energy purchases | 245 | 167 | 125 | |||||||||||||||||||||
| Energy purchases from affiliate | 7 | 13 | 10 | Energy purchases from affiliate | 25 | 23 | 19 | |||||||||||||||||||||
| Other operation and maintenance | 387 | 376 | 350 | Other operation and maintenance | 416 | 400 | 373 | |||||||||||||||||||||
| Depreciation | 231 | 195 | 183 | Depreciation | 298 | 279 | 259 | |||||||||||||||||||||
| Taxes, other than income | 39 | 36 | 33 | Taxes, other than income | 48 | 46 | 40 | |||||||||||||||||||||
| Total Operating Expenses | 1,107 | 1,111 | 1,028 | Total Operating Expenses | 1,378 | 1,180 | 1,062 | |||||||||||||||||||||
| Operating Income | 393 | 385 | 425 | Operating Income | 420 | 389 | 394 | |||||||||||||||||||||
| Other Income (Expense) – net | (11 | ) | (12 | ) | (10 | ) | Other Income (Expense) – net | 4 | (5) | (1) | ||||||||||||||||||
| Interest Expense | 87 | 76 | 71 | Interest Expense | 89 | 81 | 87 | |||||||||||||||||||||
| Income Before Income Taxes | 295 | 297 | 344 | Income Before Income Taxes | 335 | 303 | 306 | |||||||||||||||||||||
| Income Taxes | 63 | 64 | 131 | Income Taxes | 63 | 54 | 62 | |||||||||||||||||||||
| Net Income (a) | $ | 232 | $ | 233 | $ | 213 | Net Income (a) | $ | 272 | $ | 249 | $ | 244 | |||||||||||||||
(a)Net income equals comprehensive income.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
Louisville Gas and Electric Company
(Millions of Dollars)
| 2019 | 2018 | 2017 | 2022 | 2021 | 2020 | |||||||||||||||||||||||
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | |||||||||||||||||||||||||||
| Net income | $ | 232 | $ | 233 | $ | 213 | Net income | $ | 272 | $ | 249 | $ | 244 | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||||||||||||||||||
| Depreciation | 231 | 195 | 183 | Depreciation | 298 | 279 | 259 | |||||||||||||||||||||
| Amortization | 15 | 14 | 14 | Amortization | 5 | 2 | 9 | |||||||||||||||||||||
| Defined benefit plans - expense | 3 | 3 | 7 | Defined benefit plans - expense | — | 1 | 3 | |||||||||||||||||||||
| Deferred income taxes and investment tax credits | 56 | 60 | 126 | Deferred income taxes and investment tax credits | (6) | 8 | 3 | |||||||||||||||||||||
| Other | — | — | 1 | Other | 4 | — | — | |||||||||||||||||||||
| Change in current assets and current liabilities | Change in current assets and current liabilities | |||||||||||||||||||||||||||
| Accounts receivable | (9 | ) | 4 | (7 | ) | Accounts receivable | (19) | (11) | (3) | |||||||||||||||||||
| Accounts receivable from affiliates | 6 | — | 4 | Accounts receivable from affiliates | (5) | (13) | 4 | |||||||||||||||||||||
| Accounts payable | (10 | ) | 10 | (7 | ) | Accounts payable | 22 | 32 | (18) | |||||||||||||||||||
| Accounts payable to affiliates | 5 | 1 | (4 | ) | Accounts payable to affiliates | 30 | (4) | (5) | ||||||||||||||||||||
| Unbilled revenues | 1 | 14 | (16 | ) | Unbilled revenues | (32) | (1) | (3) | ||||||||||||||||||||
| Fuel, materials and supplies | 5 | 4 | 12 | Fuel, materials and supplies | (28) | (17) | 4 | |||||||||||||||||||||
| Regulatory assets and liabilities, net | (19 | ) | 5 | (5 | ) | Regulatory assets and liabilities, net | 17 | (23) | — | |||||||||||||||||||
| Taxes payable | 7 | 1 | (15 | ) | Taxes payable | 7 | 2 | (1) | ||||||||||||||||||||
| Other | (5 | ) | (10 | ) | 16 | Other | 5 | (18) | (3) | |||||||||||||||||||
| Other operating activities | Other operating activities | |||||||||||||||||||||||||||
| Defined benefit plans - funding | (6 | ) | (61 | ) | (4 | ) | Defined benefit plans - funding | (2) | (3) | (11) | ||||||||||||||||||
| Expenditures for asset retirement obligations | (30 | ) | (22 | ) | (15 | ) | Expenditures for asset retirement obligations | (13) | (27) | (20) | ||||||||||||||||||
| Other assets | (1 | ) | (12 | ) | 5 | Other assets | (8) | 2 | (2) | |||||||||||||||||||
| Other liabilities | 11 | 4 | 4 | Other liabilities | (4) | — | 23 | |||||||||||||||||||||
| Net cash provided by operating activities | 492 | 443 | 512 | Net cash provided by operating activities | 543 | 458 | 483 | |||||||||||||||||||||
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | |||||||||||||||||||||||||||
| Expenditures for property, plant and equipment | (482 | ) | (554 | ) | (458 | ) | Expenditures for property, plant and equipment | (371) | (466) | (456) | ||||||||||||||||||
| Other investing activities | Other investing activities | 11 | — | — | ||||||||||||||||||||||||
| Net cash used in investing activities | (482 | ) | (554 | ) | (458 | ) | Net cash used in investing activities | (360) | (466) | (456) | ||||||||||||||||||
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | |||||||||||||||||||||||||||
| Net increase (decrease) in notes payable with affiliates | Net increase (decrease) in notes payable with affiliates | (324) | 324 | — | ||||||||||||||||||||||||
| Issuance of long-term debt | 399 | 100 | 160 | Issuance of long-term debt | 300 | — | — | |||||||||||||||||||||
| Retirement of long-term debt | (200 | ) | — | (70 | ) | |||||||||||||||||||||||
| Acquisition of outstanding bonds | (40 | ) | — | — | ||||||||||||||||||||||||
| Remarketing of reacquired bonds | 40 | — | — | |||||||||||||||||||||||||
| Payment of common stock dividends to parent | (182 | ) | (156 | ) | (192 | ) | Payment of common stock dividends to parent | (275) | (192) | (161) | ||||||||||||||||||
| Contributions from parent | 25 | 83 | 30 | Contributions from parent | 90 | 74 | 103 | |||||||||||||||||||||
| Issuance of commercial paper | Issuance of commercial paper | — | — | 41 | ||||||||||||||||||||||||
| Retirement of commercial paper | Retirement of commercial paper | — | (41) | — | ||||||||||||||||||||||||
| Net increase (decrease) in short-term debt | (41 | ) | 80 | 30 | Net increase (decrease) in short-term debt | 110 | (152) | (17) | ||||||||||||||||||||
| Other financing activities | (6 | ) | (1 | ) | (2 | ) | Other financing activities | — | (3) | (1) | ||||||||||||||||||
| Net cash provided by (used in) financing activities | (5 | ) | 106 | (44 | ) | Net cash provided by (used in) financing activities | (99) | 10 | (35) | |||||||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 5 | (5 | ) | 10 | Net Increase (Decrease) in Cash and Cash Equivalents | 84 | 2 | (8) | ||||||||||||||||||||
| Cash and Cash Equivalents at Beginning of Period | 10 | 15 | 5 | Cash and Cash Equivalents at Beginning of Period | 9 | 7 | 15 | |||||||||||||||||||||
| Cash and Cash Equivalents at End of Period | $ | 15 | $ | 10 | $ | 15 | Cash and Cash Equivalents at End of Period | $ | 93 | $ | 9 | $ | 7 | |||||||||||||||
| Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | |||||||||||||||||||||||||||
| Cash paid (received) during the period for: | ||||||||||||||||||||||||||||
| Cash paid during the period for: | Cash paid during the period for: | |||||||||||||||||||||||||||
| Interest - net of amount capitalized | $ | 77 | $ | 71 | $ | 65 | Interest - net of amount capitalized | $ | 83 | $ | 77 | $ | 82 | |||||||||||||||
| Income taxes - net | $ | 2 | $ | 7 | $ | 22 | Income taxes - net | $ | 57 | $ | 52 | $ | 63 | |||||||||||||||
| Significant non-cash transactions: | Significant non-cash transactions: | |||||||||||||||||||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 59 | $ | 61 | $ | 92 | Accrued expenditures for property, plant and equipment at December 31, | $ | 43 | $ | 60 | $ | 60 | |||||||||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
BALANCE SHEETS AT DECEMBER 31,
Louisville Gas and Electric Company
(Millions of Dollars, shares in thousands)
| 2019 | 2018 | 2022 | 2021 | |||||||||||||||
| Assets | Assets | |||||||||||||||||
| Current Assets | Current Assets | |||||||||||||||||
| Cash and cash equivalents | $ | 15 | $ | 10 | Cash and cash equivalents | $ | 93 | $ | 9 | |||||||||
| Accounts receivable (less reserve: 2019, $1; 2018, $1) | ||||||||||||||||||
| Accounts receivable (less reserve: 2022, $4; 2021, $3) | Accounts receivable (less reserve: 2022, $4; 2021, $3) | |||||||||||||||||
| Customer | 121 | 110 | Customer | 157 | 130 | |||||||||||||
| Other | 41 | 30 | Other | 13 | 25 | |||||||||||||
| Unbilled revenues | 76 | 77 | ||||||||||||||||
| Unbilled revenues (less reserve: 2022, $0; 2021, $0) | Unbilled revenues (less reserve: 2022, $0; 2021, $0) | 112 | 80 | |||||||||||||||
| Accounts receivable from affiliates | 18 | 24 | Accounts receivable from affiliates | 37 | 31 | |||||||||||||
| Fuel, materials and supplies | 122 | 127 | Fuel, materials and supplies | 166 | 137 | |||||||||||||
| Prepayments | 14 | 12 | Prepayments | 13 | 14 | |||||||||||||
| Regulatory assets | 25 | 21 | Regulatory assets | 23 | 33 | |||||||||||||
| Other current assets | 1 | — | Other current assets | 2 | 2 | |||||||||||||
| Total Current Assets | 433 | 411 | Total Current Assets | 616 | 461 | |||||||||||||
| Property, Plant and Equipment | Property, Plant and Equipment | |||||||||||||||||
| Regulated utility plant | 6,372 | 5,816 | Regulated utility plant | 7,429 | 7,192 | |||||||||||||
| Less: accumulated depreciation - regulated utility plant | 846 | 741 | Less: accumulated depreciation - regulated utility plant | 1,355 | 1,172 | |||||||||||||
| Regulated utility plant, net | 5,526 | 5,075 | Regulated utility plant, net | 6,074 | 6,020 | |||||||||||||
| Construction work in progress | 297 | 514 | Construction work in progress | 268 | 242 | |||||||||||||
| Property, Plant and Equipment, net | 5,823 | 5,589 | Property, Plant and Equipment, net | 6,342 | 6,262 | |||||||||||||
| Other Noncurrent Assets | Other Noncurrent Assets | |||||||||||||||||
| Regulatory assets | 380 | 431 | Regulatory assets | 373 | 337 | |||||||||||||
| Goodwill | 389 | 389 | Goodwill | 389 | 389 | |||||||||||||
| Other intangibles | 41 | 47 | Other intangibles | 24 | 30 | |||||||||||||
| Other noncurrent assets | 67 | 16 | Other noncurrent assets | 66 | 113 | |||||||||||||
| Total Other Noncurrent Assets | 877 | 883 | Total Other Noncurrent Assets | 852 | 869 | |||||||||||||
| Total Assets | $ | 7,133 | $ | 6,883 | Total Assets | $ | 7,810 | $ | 7,592 | |||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
BALANCE SHEETS AT DECEMBER 31,
Louisville Gas and Electric Company
(Millions of Dollars, shares in thousands)
| 2019 | 2018 | 2022 | 2021 | |||||||||||||||
| Liabilities and Equity | Liabilities and Equity | |||||||||||||||||
| Current Liabilities | Current Liabilities | |||||||||||||||||
| Short-term debt | $ | 238 | $ | 279 | Short-term debt | $ | 179 | $ | 69 | |||||||||
| Long-term debt due within one year | — | 434 | ||||||||||||||||
| Notes payable with affiliates | Notes payable with affiliates | — | 324 | |||||||||||||||
| Accounts payable | 172 | 172 | Accounts payable | 165 | 163 | |||||||||||||
| Accounts payable to affiliates | 31 | 26 | Accounts payable to affiliates | 60 | 31 | |||||||||||||
| Customer deposits | 31 | 29 | Customer deposits | 32 | 32 | |||||||||||||
| Taxes | 33 | 26 | Taxes | 41 | 34 | |||||||||||||
| Price risk management liabilities | 4 | 4 | Price risk management liabilities | 1 | 1 | |||||||||||||
| Regulatory liabilities | 2 | 17 | Regulatory liabilities | 7 | 21 | |||||||||||||
| Interest | 15 | 11 | Interest | 15 | 15 | |||||||||||||
| Asset retirement obligations | 24 | 23 | Asset retirement obligations | 13 | 10 | |||||||||||||
| Other current liabilities | 47 | 39 | Other current liabilities | 46 | 37 | |||||||||||||
| Total Current Liabilities | 597 | 1,060 | Total Current Liabilities | 559 | 737 | |||||||||||||
| Long-term Debt | 2,005 | 1,375 | Long-term Debt | 2,307 | 2,006 | |||||||||||||
| Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | |||||||||||||||||
| Deferred income taxes | 697 | 628 | Deferred income taxes | 771 | 751 | |||||||||||||
| Investment tax credits | 34 | 34 | Investment tax credits | 31 | 32 | |||||||||||||
| Price risk management liabilities | 17 | 16 | Price risk management liabilities | 6 | 17 | |||||||||||||
| Asset retirement obligations | 49 | 80 | Asset retirement obligations | 73 | 74 | |||||||||||||
| Regulatory liabilities | 883 | 915 | Regulatory liabilities | 833 | 818 | |||||||||||||
| Other deferred credits and noncurrent liabilities | 89 | 88 | Other deferred credits and noncurrent liabilities | 64 | 78 | |||||||||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,769 | 1,761 | Total Deferred Credits and Other Noncurrent Liabilities | 1,778 | 1,770 | |||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | ||||||||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 14) | Commitments and Contingent Liabilities (Notes 7 and 14) | |||||||||||||||||
| Equity | Equity | |||||||||||||||||
| Common stock - no par value (a) | 424 | 424 | Common stock - no par value (a) | 424 | 424 | |||||||||||||
| Additional paid-in capital | 1,820 | 1,795 | Additional paid-in capital | 2,087 | 1,997 | |||||||||||||
| Earnings reinvested | 518 | 468 | Earnings reinvested | 655 | 658 | |||||||||||||
| Total Equity | 2,762 | 2,687 | Total Equity | 3,166 | 3,079 | |||||||||||||
| Total Liabilities and Equity | $ | 7,133 | $ | 6,883 | Total Liabilities and Equity | $ | 7,810 | $ | 7,592 | |||||||||
(a)75,000 shares authorized; 21,294 shares issued and outstanding at December 31, 2022 and December 31, 2021.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
STATEMENTS OF EQUITY
Louisville Gas and Electric Company
(Millions of Dollars)
| Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Total | |||||||||||||||||||||||||||||||||||||||||||
Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Total | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | 21,294 | $ | 424 | $ | 1,682 | $ | 370 | $ | 2,476 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2019 | 21,294 | $ | 424 | $ | 1,820 | $ | 518 | $ | 2,762 | |||||||||||||||||||||||||||||||||||||
| Net income | 213 | 213 | Net income | 244 | 244 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 30 | 30 | |||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | Capital contributions from parent | 103 | 103 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (192 | ) | (192 | ) | Cash dividends declared on common stock | (161) | (161) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 21,294 | $ | 424 | $ | 1,712 | $ | 391 | $ | 2,527 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | 21,294 | $ | 424 | $ | 1,923 | $ | 601 | $ | 2,948 | |||||||||||||||||||||||||||||||||||||
| Net income | 233 | 233 | Net income | 249 | 249 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 83 | 83 | |||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | Capital contributions from parent | 74 | 74 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (156 | ) | (156 | ) | Cash dividends declared on common stock | (192) | (192) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 21,294 | $ | 424 | $ | 1,795 | $ | 468 | $ | 2,687 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | 21,294 | $ | 424 | $ | 1,997 | $ | 658 | $ | 3,079 | |||||||||||||||||||||||||||||||||||||
| Net income | 232 | 232 | Net income | 272 | 272 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 25 | 25 | |||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | Capital contributions from parent | 90 | 90 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (182 | ) | (182 | ) | Cash dividends declared on common stock | (275) | (275) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 21,294 | $ | 424 | $ | 1,820 | $ | 518 | $ | 2,762 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | 21,294 | $ | 424 | $ | 2,087 | $ | 655 | $ | 3,166 | |||||||||||||||||||||||||||||||||||||
(a)Shares in thousands. All common shares of LG&E stock are owned by LKE.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
(THIS PAGE LEFT BLANK INTENTIONALLY.)
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
Kentucky Utilities Company
(Millions of Dollars)
| 2019 | 2018 | 2017 | 2022 | 2021 | 2020 | |||||||||||||||||||||||
| Operating Revenues | Operating Revenues | |||||||||||||||||||||||||||
| Retail and wholesale | $ | 1,733 | $ | 1,747 | $ | 1,734 | Retail and wholesale | $ | 2,049 | $ | 1,803 | $ | 1,671 | |||||||||||||||
| Electric revenue from affiliate | 7 | 13 | 10 | Electric revenue from affiliate | 25 | 23 | 19 | |||||||||||||||||||||
| Total Operating Revenues | 1,740 | 1,760 | 1,744 | Total Operating Revenues | 2,074 | 1,826 | 1,690 | |||||||||||||||||||||
| Operating Expenses | Operating Expenses | |||||||||||||||||||||||||||
| Operation | Operation | |||||||||||||||||||||||||||
| Fuel | 420 | 491 | 467 | Fuel | 585 | 445 | 386 | |||||||||||||||||||||
| Energy purchases | 20 | 18 | 18 | Energy purchases | 28 | 19 | 18 | |||||||||||||||||||||
| Energy purchases from affiliate | 27 | 29 | 31 | Energy purchases from affiliate | 36 | 24 | 21 | |||||||||||||||||||||
| Other operation and maintenance | 438 | 441 | 423 | Other operation and maintenance | 487 | 463 | 429 | |||||||||||||||||||||
| Depreciation | 315 | 279 | 255 | Depreciation | 386 | 366 | 346 | |||||||||||||||||||||
| Taxes, other than income | 35 | 34 | 32 | Taxes, other than income | 45 | 41 | 37 | |||||||||||||||||||||
| Total Operating Expenses | 1,255 | 1,292 | 1,226 | Total Operating Expenses | 1,567 | 1,358 | 1,237 | |||||||||||||||||||||
| Operating Income | 485 | 468 | 518 | Operating Income | 507 | 468 | 453 | |||||||||||||||||||||
| Other Income (Expense) – net | (4 | ) | (6 | ) | (4 | ) | Other Income (Expense) – net | 8 | 4 | 3 | ||||||||||||||||||
| Interest Expense | 109 | 100 | 96 | Interest Expense | 117 | 109 | 113 | |||||||||||||||||||||
| Income Before Income Taxes | 372 | 362 | 418 | Income Before Income Taxes | 398 | 363 | 343 | |||||||||||||||||||||
| Income Taxes | 79 | 76 | 159 | Income Taxes | 76 | 67 | 63 | |||||||||||||||||||||
| Net Income (a) | $ | 293 | $ | 286 | $ | 259 | Net Income (a) | $ | 322 | $ | 296 | $ | 280 | |||||||||||||||
(a)Net income equals comprehensive income.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
Kentucky Utilities Company
(Millions of Dollars)
| 2019 | 2018 | 2017 | 2022 | 2021 | 2020 | |||||||||||||||||||||||
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | |||||||||||||||||||||||||||
| Net income | $ | 293 | $ | 286 | $ | 259 | Net income | $ | 322 | $ | 296 | $ | 280 | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||||||||||||||||||
| Depreciation | 315 | 279 | 255 | Depreciation | 386 | 366 | 346 | |||||||||||||||||||||
| Amortization | 10 | 3 | 9 | Amortization | 18 | 12 | 8 | |||||||||||||||||||||
| Defined benefit plans - expense | (1 | ) | — | 4 | ||||||||||||||||||||||||
| Defined benefit plans - expense (credit) | Defined benefit plans - expense (credit) | (4) | (3) | — | ||||||||||||||||||||||||
| Deferred income taxes and investment tax credits | 39 | 48 | 152 | Deferred income taxes and investment tax credits | 2 | 1 | 20 | |||||||||||||||||||||
| Other | (3 | ) | (4 | ) | — | Other | 3 | (3) | (1) | |||||||||||||||||||
| Change in current assets and current liabilities | Change in current assets and current liabilities | |||||||||||||||||||||||||||
| Accounts receivable | (3 | ) | (4 | ) | (5 | ) | Accounts receivable | (16) | 6 | (13) | ||||||||||||||||||
| Accounts receivable from affiliates | Accounts receivable from affiliates | — | 1 | (1) | ||||||||||||||||||||||||
| Accounts payable | (15 | ) | 29 | — | Accounts payable | 26 | (12) | 9 | ||||||||||||||||||||
| Accounts payable to affiliates | (2 | ) | (3 | ) | (6 | ) | Accounts payable to affiliates | 37 | 15 | (16) | ||||||||||||||||||
| Unbilled revenues | 4 | 20 | (17 | ) | Unbilled revenues | (23) | 6 | (9) | ||||||||||||||||||||
| Fuel, materials and supplies | (6 | ) | 3 | 32 | Fuel, materials and supplies | (41) | 1 | 6 | ||||||||||||||||||||
| Regulatory assets and liabilities, net | (26 | ) | 27 | (2 | ) | Regulatory assets and liabilities, net | (19) | (22) | (26) | |||||||||||||||||||
| Taxes payable | 2 | 5 | (26 | ) | Taxes payable | 7 | (10) | 2 | ||||||||||||||||||||
| Accrued interest | Accrued interest | 1 | — | — | ||||||||||||||||||||||||
| Other | (6 | ) | (3 | ) | 9 | Other | (3) | (18) | (5) | |||||||||||||||||||
| Other operating activities | Other operating activities | |||||||||||||||||||||||||||
| Defined benefit plans - funding | (3 | ) | (54 | ) | (23 | ) | Defined benefit plans - funding | (1) | (1) | (3) | ||||||||||||||||||
| Expenditures for asset retirement obligations | (59 | ) | (50 | ) | (19 | ) | Expenditures for asset retirement obligations | (29) | (36) | (64) | ||||||||||||||||||
| Other assets | (2 | ) | (12 | ) | 3 | Other assets | (1) | 9 | (2) | |||||||||||||||||||
| Other liabilities | 16 | 11 | 9 | Other liabilities | (4) | — | 12 | |||||||||||||||||||||
| Net cash provided by operating activities | 553 | 581 | 634 | Net cash provided by operating activities | 661 | 608 | 543 | |||||||||||||||||||||
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | |||||||||||||||||||||||||||
| Expenditures for property, plant and equipment | (610 | ) | (562 | ) | (432 | ) | Expenditures for property, plant and equipment | (547) | (560) | (510) | ||||||||||||||||||
| Other investing activities | — | 1 | 4 | Other investing activities | — | 4 | 3 | |||||||||||||||||||||
| Net cash used in investing activities | (610 | ) | (561 | ) | (428 | ) | Net cash used in investing activities | (547) | (556) | (507) | ||||||||||||||||||
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | |||||||||||||||||||||||||||
| Net increase (decrease) in notes payable with affiliates | Net increase (decrease) in notes payable with affiliates | (294) | 294 | — | ||||||||||||||||||||||||
| Issuance of long-term debt | 306 | 18 | — | Issuance of long-term debt | 300 | — | 498 | |||||||||||||||||||||
| Retirement of long-term debt | — | (27 | ) | — | Retirement of long-term debt | — | — | (500) | ||||||||||||||||||||
| Payment of common stock dividends to parent | (229 | ) | (246 | ) | (226 | ) | Payment of common stock dividends to parent | (296) | (250) | (200) | ||||||||||||||||||
| Contributions from parent | 68 | 45 | — | Contributions from parent | 84 | 100 | 128 | |||||||||||||||||||||
| Issuance of commercial paper | Issuance of commercial paper | — | — | 32 | ||||||||||||||||||||||||
| Retirement of commercial paper | Retirement of commercial paper | — | (32) | — | ||||||||||||||||||||||||
| Net increase (decrease) in short-term debt | (85 | ) | 190 | 29 | Net increase (decrease) in short-term debt | 101 | (171) | 21 | ||||||||||||||||||||
| Other financing activities | (5 | ) | (1 | ) | (1 | ) | Other financing activities | (1) | (2) | (5) | ||||||||||||||||||
| Net cash provided by (used in) financing activities | 55 | (21 | ) | (198 | ) | |||||||||||||||||||||||
| Net cash used in financing activities | Net cash used in financing activities | (106) | (61) | (26) | ||||||||||||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (2 | ) | (1 | ) | 8 | Net Increase (Decrease) in Cash and Cash Equivalents | 8 | (9) | 10 | |||||||||||||||||||
| Cash and Cash Equivalents at Beginning of Period | 14 | 15 | 7 | Cash and Cash Equivalents at Beginning of Period | 13 | 22 | 12 | |||||||||||||||||||||
| Cash and Cash Equivalents at End of Period | $ | 12 | $ | 14 | $ | 15 | Cash and Cash Equivalents at End of Period | $ | 21 | $ | 13 | $ | 22 | |||||||||||||||
| Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | |||||||||||||||||||||||||||
| Cash paid (received) during the period for: | ||||||||||||||||||||||||||||
| Cash paid during the period for: | Cash paid during the period for: | |||||||||||||||||||||||||||
| Interest - net of amount capitalized | $ | 101 | $ | 95 | $ | 92 | Interest - net of amount capitalized | $ | 112 | $ | 105 | $ | 109 | |||||||||||||||
| Income taxes - net | $ | 39 | $ | 25 | $ | 34 | Income taxes - net | $ | 78 | $ | 72 | $ | 44 | |||||||||||||||
| Significant non-cash transactions: | Significant non-cash transactions: | |||||||||||||||||||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 54 | $ | 88 | $ | 82 | Accrued expenditures for property, plant and equipment at December 31, | $ | 56 | $ | 67 | $ | 40 | |||||||||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
BALANCE SHEETS AT DECEMBER 31,
Kentucky Utilities Company
(Millions of Dollars, shares in thousands)
| 2019 | 2018 | 2022 | 2021 | |||||||||||||||
| Assets | Assets | |||||||||||||||||
| Current Assets | Current Assets | |||||||||||||||||
| Cash and cash equivalents | $ | 12 | $ | 14 | Cash and cash equivalents | $ | 21 | $ | 13 | |||||||||
| Accounts receivable (less reserve: 2019, $1; 2018, $2) | ||||||||||||||||||
| Accounts receivable (less reserve: 2022, $3; 2021, $3) | Accounts receivable (less reserve: 2022, $3; 2021, $3) | |||||||||||||||||
| Customer | 139 | 129 | Customer | 158 | 144 | |||||||||||||
| Other | 27 | 34 | Other | 13 | 12 | |||||||||||||
| Unbilled revenues | 88 | 92 | ||||||||||||||||
| Unbilled revenues (less reserve: 2022, $0; 2021, $0) | Unbilled revenues (less reserve: 2022, $0; 2021, $0) | 114 | 91 | |||||||||||||||
| Fuel, materials and supplies | 128 | 121 | Fuel, materials and supplies | 167 | 124 | |||||||||||||
| Prepayments | 14 | 11 | Prepayments | 14 | 15 | |||||||||||||
| Regulatory assets | 16 | 4 | Regulatory assets | 32 | 9 | |||||||||||||
| Other current assets | 1 | — | Other current assets | 1 | 2 | |||||||||||||
| Total Current Assets | 425 | 405 | Total Current Assets | 520 | 410 | |||||||||||||
| Property, Plant and Equipment | Property, Plant and Equipment | |||||||||||||||||
| Regulated utility plant | 8,262 | 7,895 | Regulated utility plant | 9,515 | 9,219 | |||||||||||||
| Less: accumulated depreciation - regulated utility plant | 1,507 | 1,382 | Less: accumulated depreciation - regulated utility plant | 2,201 | 1,929 | |||||||||||||
| Regulated utility plant, net | 6,755 | 6,513 | Regulated utility plant, net | 7,314 | 7,290 | |||||||||||||
| Construction work in progress | 496 | 503 | Construction work in progress | 522 | 378 | |||||||||||||
| Property, Plant and Equipment, net | 7,251 | 7,016 | Property, Plant and Equipment, net | 7,836 | 7,668 | |||||||||||||
| Other Noncurrent Assets | Other Noncurrent Assets | |||||||||||||||||
| Regulatory assets | 386 | 418 | Regulatory assets | 442 | 411 | |||||||||||||
| Goodwill | 607 | 607 | Goodwill | 607 | 607 | |||||||||||||
| Other intangibles | 28 | 31 | Other intangibles | 21 | 23 | |||||||||||||
| Other noncurrent assets | 128 | 63 | Other noncurrent assets | 116 | 153 | |||||||||||||
| Total Other Noncurrent Assets | 1,149 | 1,119 | Total Other Noncurrent Assets | 1,186 | 1,194 | |||||||||||||
| Total Assets | $ | 8,825 | $ | 8,540 | Total Assets | $ | 9,542 | $ | 9,272 | |||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
BALANCE SHEETS AT DECEMBER 31,
Kentucky Utilities Company
(Millions of Dollars, shares in thousands)
| 2019 | 2018 | 2022 | 2021 | |||||||||||||||
| Liabilities and Equity | Liabilities and Equity | |||||||||||||||||
| Current Liabilities | Current Liabilities | |||||||||||||||||
| Short-term debt | $ | 150 | $ | 235 | Short-term debt | $ | 101 | $ | — | |||||||||
| Notes payable with affiliates | Notes payable with affiliates | — | 294 | |||||||||||||||
| Long-term debt due within one year | 500 | 96 | Long-term debt due within one year | 13 | — | |||||||||||||
| Accounts payable | 121 | 171 | Accounts payable | 123 | 108 | |||||||||||||
| Accounts payable to affiliates | 52 | 53 | Accounts payable to affiliates | 101 | 64 | |||||||||||||
| Customer deposits | 31 | 32 | Customer deposits | 33 | 32 | |||||||||||||
| Taxes | 26 | 24 | Taxes | 26 | 19 | |||||||||||||
| Regulatory liabilities | 17 | 31 | Regulatory liabilities | 6 | 8 | |||||||||||||
| Interest | 20 | 16 | Interest | 19 | 18 | |||||||||||||
| Asset retirement obligations | 46 | 59 | Asset retirement obligations | 26 | 22 | |||||||||||||
| Other current liabilities | 51 | 35 | Other current liabilities | 51 | 47 | |||||||||||||
| Total Current Liabilities | 1,014 | 752 | Total Current Liabilities | 499 | 612 | |||||||||||||
| Long-term Debt | 2,123 | 2,225 | Long-term Debt | 2,907 | 2,618 | |||||||||||||
| Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | |||||||||||||||||
| Deferred income taxes | 792 | 735 | Deferred income taxes | 896 | 865 | |||||||||||||
| Investment tax credits | 90 | 92 | Investment tax credits | 85 | 87 | |||||||||||||
| Asset retirement obligations | 96 | 134 | Asset retirement obligations | 56 | 83 | |||||||||||||
| Regulatory liabilities | 1,090 | 1,124 | Regulatory liabilities | 1,029 | 1,045 | |||||||||||||
| Other deferred credits and noncurrent liabilities | 46 | 36 | Other deferred credits and noncurrent liabilities | 32 | 34 | |||||||||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 2,114 | 2,121 | Total Deferred Credits and Other Noncurrent Liabilities | 2,098 | 2,114 | |||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | ||||||||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 14) | Commitments and Contingent Liabilities (Notes 7 and 14) | |||||||||||||||||
| Equity | Equity | |||||||||||||||||
| Common stock - no par value (a) | 308 | 308 | Common stock - no par value (a) | 308 | 308 | |||||||||||||
| Additional paid-in capital | 2,729 | 2,661 | Additional paid-in capital | 3,041 | 2,957 | |||||||||||||
| Earnings reinvested | 537 | 473 | Earnings reinvested | 689 | 663 | |||||||||||||
| Total Equity | 3,574 | 3,442 | Total Equity | 4,038 | 3,928 | |||||||||||||
| Total Liabilities and Equity | $ | 8,825 | $ | 8,540 | Total Liabilities and Equity | $ | 9,542 | $ | 9,272 | |||||||||
(a) 80,000 shares authorized; 37,818 shares issued and outstanding at December 31, 2022 and December 31, 2021.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
STATEMENTS OF EQUITY
Kentucky Utilities Company
(Millions of Dollars)
| Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2019 | 37,818 | $ | 308 | $ | 2,729 | $ | 537 | $ | 3,574 | |||||||||||||||||||||||||||||||||||||||||
| Net income | Net income | 280 | 280 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | Capital contributions from parent | 128 | 128 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | Cash dividends declared on common stock | (200) | (200) | ||||||||||||||||||||||||||||||||||||||||||||||||
Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Accumulated other comprehensive income (loss) | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | 37,818 | $ | 308 | $ | 2,616 | $ | 400 | $ | (1 | ) | $ | 3,323 | |||||||||||||||||||||||||||||||||||||||
| Net income | 259 | 259 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (226 | ) | (226 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 37,818 | $ | 308 | $ | 2,616 | $ | 433 | $ | — | $ | 3,357 | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | 37,818 | $ | 308 | $ | 2,857 | $ | 617 | $ | 3,782 | |||||||||||||||||||||||||||||||||||||||||
| Net income | 286 | 286 | Net income | 296 | 296 | ||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 45 | 45 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | Capital contributions from parent | 100 | 100 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (246 | ) | (246 | ) | Cash dividends declared on common stock | (250) | (250) | ||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 37,818 | $ | 308 | $ | 2,661 | $ | 473 | $ | — | $ | 3,442 | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | 37,818 | $ | 308 | $ | 2,957 | $ | 663 | $ | 3,928 | |||||||||||||||||||||||||||||||||||||||||
| Net income | 293 | 293 | Net income | 322 | 322 | ||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 68 | 68 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | Capital contributions from parent | 84 | 84 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (229 | ) | (229 | ) | Cash dividends declared on common stock | (296) | (296) | ||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 37,818 | $ | 308 | $ | 2,729 | $ | 537 | $ | — | $ | 3,574 | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | 37,818 | $ | 308 | $ | 3,041 | $ | 689 | $ | 4,038 | |||||||||||||||||||||||||||||||||||||||||
(a)Shares in thousands. All common shares of KU stock are owned by LKE.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
COMBINED NOTES TO FINANCIAL STATEMENTS
Index to Combined Notes to Consolidated Financial Statements
The notes to the consolidated financial statements that follow are a combined presentation. The following list indicates the Registrants to which the footnotes apply:
| Registrant | ||||||||||||||||||||||||||||
| PPL | PPL Electric | KU | ||||||||||||||||||||||||||
| 1. Summary of Significant Accounting Policies | x | x | x | x | ||||||||||||||||||||||||
| 2. Segment and Related Information | x | x | x | x | ||||||||||||||||||||||||
| 3. Revenue from Contracts with Customers | x | x | x | x | ||||||||||||||||||||||||
| 4. Preferred Securities | x | x | x | x | ||||||||||||||||||||||||
| 5. Earnings Per Share | x | |||||||||||||||||||||||||||
| 6. Income and Other Taxes | x | x | x | x | ||||||||||||||||||||||||
| 7. Utility Rate Regulation | x | x | x | x | ||||||||||||||||||||||||
| 8. Financing Activities | x | x | x | x | ||||||||||||||||||||||||
| 9. | x | |||||||||||||||||||||||||||
| 10. Leases | x | x | x | x | ||||||||||||||||||||||||
| 11. Stock-Based Compensation | x | x | ||||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | ||||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | ||||||||||||||||||||||||||
| x | x | |||||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | ||||||||||||||||||||||||||||
1. Summary of Significant Accounting Policies
(All Registrants)
General
Capitalized terms and abbreviations appearing in the combined notes to financial statements are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrants' related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.
Business and Consolidation
(PPL)
PPL is a utility holding company that, through its regulated subsidiaries, is primarily engaged in: 1) the distribution of electricity in the U.K.; 2) the generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas, primarily in Kentucky; 2) the transmission, distribution and sale of electricity in Pennsylvania; and 3) the transmission, distribution and sale of electricity and the distribution and sale of natural gas in Pennsylvania.Rhode Island. Headquartered in Allentown, PA, PPL's principal subsidiaries are PPL Global, LKE (including its principal subsidiaries, LG&E, and KU)KU, RIE and PPL Electric. PPL's corporate level financing subsidiary is PPL Capital Funding.
On March 17, 2021, PPL WPD Limited entered into a share purchase agreement to sell PPL's U.K. utility business, which prior to its sale substantially represented PPL's U.K. Regulated segment, to a subsidiary of National Grid plc. The sale was completed on June 14, 2021. The results of operations of the U.K. utility business are classified as Discontinued Operations on PPL's Statements of Income for all periods presented. PPL Global, through indirect,has elected to separately report the cash flows of continuing and discontinued operations on the Statements of Cash Flows for all periods presented. Unless otherwise noted, the notes to these financial statements exclude amounts related to discontinued operations. See Note 9 for additional information.
On May 25, 2022, PPL Rhode Island Holdings, a wholly owned subsidiaries, operates distribution networks providing electricitysubsidiary of PPL, acquired 100% of the outstanding shares of common stock of Narragansett Electric from National Grid U.S., a subsidiary of National Grid plc. Narragansett Electric, whose service area covers substantially all of Rhode Island, is primarily engaged in the U.K. WPD serves end-users in South Walestransmission, distribution and southwestsale of electricity and central England. Its principal subsidiariesthe distribution and sale of natural gas. The results of Narragansett Electric are WPD (South Wales), WPD (South West), WPD (East Midlands) and WPD (West Midlands).
(PPL and PPL Electric)
(PPL, LKE, LG&E and KU)
(All Registrants)
The financial statements of the Registrants include each company's own accounts as well as the accounts of all entities in which the company has a controlling financial interest. Entities for which a controlling financial interest is not demonstrated through voting interests are evaluated based on accounting guidance for Variable Interest Entities (VIEs). The Registrants consolidate a VIE when they are determined to have a controlling interest in the VIE and, as a result, are the primary beneficiary of the entity. The RegistrantsAmounts consolidated under the VIE guidance are not material to the primary beneficiary in any significant VIEs. Investments in entities in which a company has the ability to exercise significant influence but does not have a controlling financial interest are accounted for under the equity method. All other investments are carried at cost or fair value. Registrants.
All significant intercompany transactions have been eliminated.
The financial statements of PPL, LKE, LG&E and KU include their share of any undivided interests in jointly owned facilities, as well as their share of the related operating costs of those facilities. See Note 1213 for additional information.
Regulation
(All Registrants)
PPL Electric, RIE, LG&E and KU are cost-based rate-regulated utilities for which rates are set by regulators to enable PPL Electric, RIE, LG&E and KU to recover the costs of providing electric or gas service, as applicable, and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by GAAP and reflect the effects of regulatory actions. Regulatory assets are recognized for the effect of transactions or events where future recovery of underlying costs is probable in regulated customer rates. The effect of such accounting is to defer certain or qualifying costs that would otherwise currently be charged to expense. Regulatory liabilities are recognized for amounts expected to be returned through future regulated customer rates. In certain cases, regulatory liabilities are recorded based on an understanding or agreement with the regulator that rates have been set to recover expected future costs, and the regulated entity is accountable for any amounts charged pursuant to such rates and not yet expended for the intended purpose. The accounting for regulatory assets and regulatory liabilities is based on specific ratemaking decisions or precedent for each transaction or event as prescribed by the FERC or the applicable state regulatory commissions. See Note 7 for additional details regarding regulatory matters.
Accounting Records
The system of accounts for domestic regulated entities is maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the applicable state regulatory commissions.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Loss Accruals
Potential losses are accrued when (1) information is available that indicates it is "probable" that a loss has been incurred, given the likelihood of uncertain future events and (2) the amount of loss can be reasonably estimated. Accounting guidance defines "probable" as cases in which "the future event or events are likely to occur." The Registrants continuously assess potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events. Loss accruals for environmental remediation are discounted when appropriate.
The accrual of contingencies that might result in gains is not recorded, unless realization is assured.
Earnings Per Share (PPL)
EPS is computed using the two-class method, which is an earnings allocation method for computing EPS that treats a participating security as having rights to earnings that would otherwise have been available to common shareowners. Share-based payment awards that provide recipients a non-forfeitable right to dividends or dividend equivalents are considered participating securities.
Price Risk Management
(All Registrants)
Interest rate contracts are used to hedge exposure to changes in the fair value of debt instruments and to hedge exposure to variability in expected cash flows associated with existing floating-rate debt instruments or forecasted fixed-rate issuances of debt. Foreign currency exchange contracts are usedDerivative instruments pursuant to hedge foreign currency exposures, primarilyregulator approved plans to manage commodity price risk associated with PPL's investmentsnatural gas purchases to reduce fluctuations in U.K. subsidiaries.natural gas prices and costs associated with these derivatives instruments are generally recoverable through approved cost recovery mechanism. Similar derivatives may receive different accounting treatment, depending on management's intended use and documentation.
Certain contracts may not meet the definition of a derivative because they lack a notional amount or a net settlement provision. In cases where there is no net settlement provision, markets are periodically assessed to determine whether market mechanisms have evolved to facilitate net settlement. Certain derivative contracts may be excluded from the requirements of derivative accounting treatment because NPNS has been elected. These contracts are accounted for using accrual accounting. Contracts that have been classified as derivative contracts are reflected on the balance sheets at fair value. The portion of derivative positions that deliver within a year are included in "Current Assets" and "Current Liabilities," while the portion of derivative positions that deliver beyond a year are recorded in "Other Noncurrent Assets" and "Deferred Credits and Other Noncurrent Liabilities."
Cash inflows and outflows related to derivative instruments are included as a component of operating, investing or financing activities on the Statements of Cash Flows, depending on the classification of the hedged items.
PPL and its subsidiaries have elected not to offset net derivative positions against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.
(PPL)
Processes exist that allow for subsequent review and validation of contract information as it relates to interest rate derivatives and foreign currency derivatives.commodity gas contracts. The accounting department provides the treasury department with guidelines on appropriate accounting
classifications for various contract types and strategies. Examples of accounting guidelines provided to the treasury department staff include, but are not limited to:
•Transactions to lock in an interest rate prior to a debt issuance can be designated as cash flow hedges, to the extent the forecasted debt issuances remain probable of occurring.
•Transactions to hedge fluctuations in the fair value of existing debt can be designated as fair value hedges.
•Derivative transactions that do not qualify for cash flow or net investment hedge treatment are marked to fair value through earnings. These transactions generally include foreign currency forwards and options to hedge GBP-denominated earnings translation risk associated with PPL's U.K. subsidiaries that report their financial statements in GBP. As such, these transactions reduce earnings volatility due solely to changes in foreign currency exchange rates.
(All Registrants)
Derivative transactions may be marked to fair value through regulatory assets/liabilities at PPL Electric, RIE, LG&E and KU, if approved by the appropriate regulatory body. These transactions generally include the effect of interest rate swaps or commodity gas contracts that are included in customer rates.
(PPL and PPL Electric)
To meet its obligationtheir obligations as a PLRlast resort providers to itstheir customers, PPL Electric hasand RIE have entered into certain contracts that meet the definition of a derivative. However, NPNS has been elected for these contracts.
(All Registrants)
See Notes 1617 and 1718 for additional information on derivatives.
Revenue
(All Registrants)
Operating revenues are primarily recorded based on energy deliveries through the end of each calendar month. Unbilled retail revenues result because customers' bills are rendered throughout the month, rather than bills being rendered at the end of the month. For LKE,RIE, LG&E and KU, unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh or Mcf by the estimated average cents per kWh.kWh or Mcf. Any difference between estimated and actual revenues is adjusted the following month when the previous unbilled estimate is reversed and actual billings occur. For PPL Electric, unbilled revenues for a month are calculated by multiplying the actual unbilled kWhvolumes by an average ratethe price per customer class.tariff. In the fourth quarter of 2022, PPL Electric estimated deliveries to customers due to a temporary technical system issue. The issue has been resolved and unbilled revenues are expected to resume being calculated by multiplying the actual unbilled volumes by the price per tariff in the first quarter of 2023.
PPL Electric's, RIE's, LG&E's and KU's base rates are determined based on cost of service. Some regulators have also authorized the use of additional alternative revenue programs, which enable PPL Electric, RIE, LG&E and KU to adjust future rates based on past activities or completed events. Revenues from alternative revenue programs are recognized when the specific events permitting future billings have occurred. Revenues from alternative revenue programs are required to be presented separately from revenues from contracts with customers. These amounts are, however, presented as revenues from contracts with customers, with an offsetting adjustment to alternative revenue program revenue, when they are billed to customers in future periods. See Note 3 for additional information.
(All Registrants)
Accounts receivable are reported on the Balance Sheets at the gross outstanding amount adjusted for an allowance for doubtful accounts. Financing receivables include accounts receivable, with the exception of those items within accounts receivable that are not subject to the current expected credit loss model.
these analyses. Accounts receivable are written off in the period in which the receivable is deemed uncollectible.
PPL Electric, RIE, LG&E and KU have identified one class of financing receivables, “accounts receivable - customer”, which includes financing receivables for all billed and unbilled sales with customers. All other financing receivables are classified as other.
101
(PPL and PPL Electric)
Within the credit loss model for the residential customer accounts receivables, customers are disaggregated based on their projected propensity to pay, which is derived from historical trends and the current activity of the individual customer accounts. Conversely, the non-residential customer accounts receivables are not further segmented due to the varying nature of the individual customers, which lack readily identifiable risk characteristics for disaggregation.
(All Registrants)
The changes in the allowance for doubtful accounts were:are included in the following table. Amounts relate to financing receivables, except as noted.
| Additions | ||||||||||||||||||||||||||
| Balance at Beginning of Period | Charged to Income | Deductions (b) | Balance at End of Period | |||||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||
| 2022 | $ | 69 | $ | 78 | $ | 52 | $ | 95 | (d) | |||||||||||||||||
| 2021 | 73 | 26 | 30 | 69 | (d) | |||||||||||||||||||||
| 2020 (a) | 58 | (a) | 28 | 13 | 73 | (d) | ||||||||||||||||||||
PPL Electric | ||||||||||||||||||||||||||
| 2022 | $ | 35 | $ | 27 | $ | 29 | $ | 33 | (c) | |||||||||||||||||
| 2021 | 41 | 13 | 19 | 35 | (c) | |||||||||||||||||||||
| 2020 | 30 | (a) | 19 | 8 | 41 | (c) | ||||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||
| 2022 | $ | 3 | $ | 6 | $ | 5 | $ | 4 | ||||||||||||||||||
| 2021 | 3 | 4 | 4 | 3 | ||||||||||||||||||||||
| 2020 | 1 | 4 | 2 | 3 | ||||||||||||||||||||||
| KU | ||||||||||||||||||||||||||
| 2022 | $ | 3 | $ | 6 | $ | 6 | $ | 3 | ||||||||||||||||||
| 2021 | 2 | 8 | 7 | 3 | ||||||||||||||||||||||
| 2020 | 1 | 4 | 3 | 2 | ||||||||||||||||||||||
| Additions | |||||||||||||||||||
Balance at Beginning of Period | Charged to Income | Charged to Other Accounts | Deductions (a) | Balance at End of Period | |||||||||||||||
| PPL | |||||||||||||||||||
| 2019 | $ | 56 | $ | 37 | $ | 3 | $ | 38 | $ | 58 | |||||||||
| 2018 | 51 | 41 | 3 | 39 | 56 | ||||||||||||||
| 2017 | 54 | 28 | (1 | ) | 30 | 51 | |||||||||||||
| PPL Electric | |||||||||||||||||||
| 2019 | $ | 27 | $ | 26 | $ | — | $ | 25 | $ | 28 | |||||||||
| 2018 | 24 | 29 | — | 26 | 27 | ||||||||||||||
| 2017 | 28 | 18 | — | 22 | 24 | ||||||||||||||
| LKE | |||||||||||||||||||
| 2019 | $ | 27 | $ | 8 | $ | 3 | $ | 10 | $ | 28 | |||||||||
| 2018 | 25 | 10 | 3 | 11 | 27 | ||||||||||||||
| 2017 | 24 | 8 | (1 | ) | 6 | 25 | |||||||||||||
| LG&E | |||||||||||||||||||
| 2019 | $ | 1 | $ | 2 | $ | 2 | $ | 4 | $ | 1 | |||||||||
| 2018 | 1 | 4 | 1 | 5 | 1 | ||||||||||||||
| 2017 | 2 | 2 | (1 | ) | 2 | 1 | |||||||||||||
| KU | |||||||||||||||||||
| 2019 | $ | 2 | $ | 4 | $ | 1 | $ | 6 | $ | 1 | |||||||||
| 2018 | 1 | 5 | 2 | 6 | 2 | ||||||||||||||
| 2017 | 2 | 4 | (1 | ) | 4 | 1 | |||||||||||||
Cash
(All Registrants)
Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.
Restricted Cash and Cash Equivalents
Bank deposits and other cash equivalents that are restricted by agreement or that have been clearly designated for a specific purpose are classified as restricted cash and cash equivalents. On the Balance Sheets, the current portion of restricted cash and cash equivalents is included in "Other current assets," while the noncurrent portion is included in "Other noncurrent assets."
| PPL | PPL Electric | ||||||||||||||
| December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | ||||||||||||
| Cash and cash equivalents | $ | 815 | $ | 621 | $ | 262 | $ | 267 | |||||||
| Restricted cash - current | 3 | 3 | 2 | 2 | |||||||||||
| Restricted cash - noncurrent (a) | 18 | 19 | — | — | |||||||||||
| Total Cash, Cash Equivalents and Restricted Cash | $ | 836 | $ | 643 | $ | 264 | $ | 269 | |||||||
(All Registrants)
Fair Value Measurements
The Registrants value certain financial and nonfinancial assets and liabilities at fair value. Generally, the most significant fair value measurements relate to price risk management assets and liabilities, investments in securities in defined benefit plans, and cash and cash equivalents. PPL and its subsidiaries use, as appropriate, a market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models) and/or a cost approach (generally, replacement cost) to measure the fair value of an asset or liability. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk.
The Registrants classify fair value measurements within one of three levels in the fair value hierarchy. The level assigned to a fair value measurement is based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:
•Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. •Level 2 - inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for substantially the full term of the asset or liability. •Level 3 - unobservable inputs that management believes are predicated on the assumptions market participants would use to measure the asset or liability at fair value. |
Assessing the significance of a particular input requires judgment that considers factors specific to the asset or liability. As such, the Registrants' assessment of the significance of a particular input may affect how the assets and liabilities are classified within the fair value hierarchy.
Investments
Generally, the original maturity date of an investment and management's intent and ability to sell an investment prior to its original maturity determine the classification of investments as either short-term or long-term. Investments that would otherwise be classified as short-term, but are restricted as to withdrawal or use for other than current operations or are clearly designated for expenditure in the acquisition or construction of noncurrent assets or for the liquidation of long-term debts, are classified as long-term.
Short-term investments generally include certain deposits as well as securities that are considered highly liquid or provide for periodic reset of interest rates. Investments with original maturities greater than three months and less than a year, as well as investments with original maturities of greater than a year that management has the ability and intent to sell within a year, are included in "Other current assets" on the Balance Sheets.
Long-Lived and Intangible Assets
Property, Plant and Equipment
(All Registrants)
PP&E is recorded at original cost, unless impaired. PP&E acquired in business combinations is recorded at fair value at the time of acquisition. If impaired, the asset is written down to fair value at that time, which becomes the new cost basis of the asset. PP&E acquired in business combinations is recorded at fair value at the time of acquisition. Original cost for constructed assets includes material, labor, contractor costs, certain overheads and financing costs,
103
where applicable. Included in PP&E are capitalized costs of software projects that were developed or obtained for internal use. The cost of repairs and minor replacements are charged to expense as incurred. The Registrants record costs associated with planned major maintenance projects in the period in which work is performed and costs are incurred.
AFUDC is capitalized at PPL Electric and RIE as part of the construction costs for cost-based rate-regulated projects for which a return on such costs is recovered after the project is placed in service. The debt component of AFUDC is credited to "Interest Expense" and the equity component is credited to "Other Income (Expense) - net" on the Statements of Income. AFUDC capitalized at LG&E and KU is generally do not record AFUDC assignificant because a return is provided on construction work in progress.
RIE and PPL capitalizesElectric capitalize interest costs as part of construction costs. Capitalized interest, including the debt component of AFUDC, for PPL, was $10 million in 2019, $15 million in 2018 and $11 million 2017.the years ended December 31 is as follows:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | $ | 7 | $ | 6 | $ | 7 | |||||||||||
| PPL Electric | 5 | 6 | 7 | ||||||||||||||
Depreciation(All Registrants)
Depreciation is recorded over the estimated useful lives of property using various methods including the straight-line, composite and group methods. When a component of PP&E that was depreciated under the composite or group method is retired, the original cost is charged to accumulated depreciation. When all or a significant portion of an operating unit that
was depreciated under the composite or group method is retired or sold, the property and the related accumulated depreciation account is reduced and any gain or loss is included in income, unless otherwise required by regulators. RIE, LG&E and KU accrue costs of removal net of estimated salvage value through depreciation, which is included in the calculation of customer rates over the assets' depreciable lives in accordance with regulatory practices. Cost of removal amounts accrued through depreciation rates are accumulated as a regulatory liability until the removal costs are incurred. For LKE, LG&E and KU, all ARO depreciation expenses are reclassified to a regulatory asset.asset or regulatory liability. See "Asset Retirement Obligations" below and Note 7 for additional information. PPL Electric records net costs of removal when incurred as a regulatory asset. The regulatory asset is subsequently amortized through depreciation over a five-year period, which is recoverable in customer rates in accordance with regulatory practices.
Following are the weighted-average annual rates of depreciation, for regulated utility plant, for the years ended December 31:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | 3.21 | % | 3.61 | % | 3.53 | % | |||||||||||
| PPL Electric | 2.75 | % | 3.05 | % | 2.99 | % | |||||||||||
| LG&E | 4.16 | % | 3.99 | % | 4.00 | % | |||||||||||
| KU | 4.01 | % | 4.17 | % | 4.00 | % | |||||||||||
| 2019 | 2018 | 2017 | ||||||
| PPL | 2.84 | % | 2.77 | % | 2.65 | % | ||
| PPL Electric | 3.05 | % | 3.01 | % | 2.86 | % | ||
| LKE | 3.96 | % | 3.69 | % | 3.64 | % | ||
| LG&E | 3.87 | % | 3.63 | % | 3.63 | % | ||
| KU | 4.02 | % | 3.74 | % | 3.66 | % | ||
Goodwill and Other Intangible Assets (All Registrants)
Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net assets acquired in a business combination.
Other acquired intangible assets are initially measured based on their fair value. Intangibles that have finite useful lives are amortized over their useful lives based upon the pattern in which the economic benefits of the intangible assets are consumed
or otherwise used. Costs incurred to obtain an initial license and renew or extend terms of licenses are capitalized as intangible assets.
When determining the useful life of an intangible asset, including intangible assets that are renewed or extended, PPL and its subsidiaries consider:
•the expected use of the asset;
•the expected useful life of other assets to which the useful life of the intangible asset may relate;
•legal, regulatory, or contractual provisions that may limit the useful life;
•the company's historical experience as evidence of its ability to support renewal or extension;
•the effects of obsolescence, demand, competition, and other economic factors; and,
104
•the level of maintenance expenditures required to obtain the expected future cash flows from the asset.
Asset Impairment (Excluding Investments)
(All Registrants)
The Registrants review long-lived assets that are subject to depreciation or amortization, including finite-lived intangibles, for impairment when events or circumstances indicate carrying amounts may not be recoverable.
A long-lived asset classified as held and used is impaired when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If impaired, the asset's carrying value is written down to its fair value.
A long-lived asset classified as held for sale is impaired when the carrying amount of the asset (disposal group) exceeds its fair value less cost to sell. If impaired, the asset's (disposal group's) carrying value is written down to its fair value less cost to sell.
PPL, LKE, LG&E and KU review goodwill for impairment at the reporting unit level annually or more frequently when events or circumstances indicate that the carrying amount of a reporting unit may be greater than the unit's fair value. Additionally, goodwill must be tested for impairment in circumstances when a portion of goodwill has been allocated to a business to be disposed. PPL's, LKE's, LG&E's and KU's reporting units are primarily at the operating segment level.
Goodwill recognized upon the acquisition of Narragansett Electric was assigned for impairment testing by PPL to its reporting units expected to benefit from the acquisition, which were the Rhode Island Regulated reporting unit, the Pennsylvania Regulated reporting unit and the Kentucky Regulated reporting unit. See Note 9 for additional information regarding the acquisition.
PPL, LKE,for its reporting units, and individually LG&E and KU may elect either to initially make a qualitative evaluation about the likelihood of an impairment of goodwill or to bypass the qualitative evaluation and test goodwill for impairment using a two-step quantitative test. If the qualitative evaluation (referred to as "step zero")step zero) is elected and the assessment results in a determination that it is not more likely than not that the fair value of a reporting unit is less than the carrying amount, the two-step quantitative impairment test is not necessary. However, the quantitative impairment test is required if management concludes it is more likely than not that the fair value of a reporting unit is less than the carrying amount based on the step zero assessment.
If the carrying amount of the reporting unit, including goodwill, exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the implied fair valuetotal amount of goodwill must be calculated in the same manner as goodwill in a business combination. The fair value of a reporting unit is allocated to all assetsthat reporting unit.
As of October 1, 2022, PPL, for its reporting units, and liabilitiesindividually, LG&E and KU, elected to perform quantitative annual goodwill impairment tests. There were no indicators of that unit as ifimpairment for any of the reporting unit had been acquired in a business combination. The excess ofunits as the fair value of each of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the implied fair value of goodwill is less than theunits significantly exceeded their carrying amount, goodwill is written down to its implied fair value.values.
(PPL, LKE, LG&E and KU)
Asset Retirement Obligations
PPL and its subsidiaries record liabilities to reflect various legal obligations associated with the retirement of long-lived assets. Initially, this obligation is measured at fair value and offset with an increase in the value of the capitalized asset, which is depreciated over the asset's useful life. Until the obligation is settled, the liability is increased through the recognition of accretion expense classified within "Other operation and maintenance" on the Statements of Income to reflect changes in the obligation due to the passage of time. For LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset.asset or regulatory liability. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, at the time of retirement, the related ARO regulatory assetdeferred accretion and depreciation expense is offset against the associatedrecovered through cost of removal regulatory liability, PP&E and ARO liability.removal.
Estimated ARO costs and settlement dates, which affect the carrying value of the ARO and the related capitalized asset, are reviewed periodically to ensure that any material changes are incorporated into the latest estimate of the ARO. Any change to the capitalized asset, positive or negative, is generally amortized over the remaining life of the associated long-lived asset. See Note 7 and Note 1920 for additional information on AROs.
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Compensation and Benefits
Defined Benefits (All Registrants)
Certain PPL subsidiaries sponsor various defined benefit pension and other postretirement plans. An asset or liability is recorded to recognize the funded status of all defined benefit plans with an offsetting entry to AOCI or, for LG&E, KU, RIE and PPL Electric, to regulatory assets or liabilities. Consequently, the funded status of all defined benefit plans is fully recognized on the Balance Sheets.
The expected return on plan assets is determined based on a market-related value of plan assets, which is calculated by rolling forward the prior year market-related value with contributions, disbursements and long-term expected return on investments. One-fifth of the difference between the actual value and the expected value is added (or subtracted if negative) to the expected value to determine the new market-related value.
PPL uses an accelerated amortization method for the recognition of gains and losses for its defined benefit pension plans. Under the accelerated method, actuarial gains and losses in excess of 30% of the plan's projected benefit obligation are amortized on a straight-line basis over one-half of the required amortization period. Actuarial gains and losses in excess of 10% of the greater of the plan's projected benefit obligation or the market-related value of plan assets and less than 30% of the plan's projected benefit obligation are amortized on a straight-line basis over the full required amortization period.
See Note 7 for a discussion of the regulatory treatment of defined benefit costs and Note 1112 for a discussion of defined benefits.
Stock-Based Compensation (PPL and PPL Electric and LKE)Electric)
PPL has several stock-based compensation plans for purposes of granting stock options, restricted stock, restricted stock units and performance units to certain employees as well as stock units and restricted stock units to directors. PPL grants most stock-based compensation awards in the first quarter of each year. PPL and its subsidiaries recognize compensation expense for stock-based compensation awards based on the fair value method. Forfeitures of awards are recognized when they occur. See Note 1011 for a discussion of stock-based compensation. All awards are recorded as equity or a liability on the Balance Sheets. Stock-based compensation expense is primarily included in "Other operation and maintenance" on the Statements of Income. Stock-based compensation expense for PPL Electric and LKE includes an allocation of PPL Services' expense.
Taxes
Income Taxes
(All Registrants)
PPL and its domestic subsidiaries file a consolidated U.S. federal income tax return.
Significant management judgment is required in developing the Registrants' provision for income taxes, primarily due to the uncertainty related to tax positions taken or expected to be taken inon tax returns and valuation allowances on deferred tax assets and whether the undistributed earnings of WPD are considered indefinitely reinvested.assets.
The Registrants use a two-step process to evaluate tax positions. The first step requires an entity to determine whether, based on the technical merits supporting a particular tax position, it is more likely than not (greater than a 50% chance) that the tax position will be sustained. This determination assumes that the relevant taxing authority will examine the tax position and is aware of all the relevant facts surrounding the tax position. The second step requires an entity to recognize in theits financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The benefit recognized is measured at the largest amount of benefit that has a likelihood of realization upon settlement that exceeds 50%. Unrecognized tax benefits are classified as current to the extent management expects to settle anthe uncertain tax position by payment or receipt of cash within one year of the reporting date. The amounts ultimately paid upon resolution of issues raised by taxing authorities
may differ materially from the amounts accrued and may materially impact the financial statements of the Registrants in future periods. At December 31, 2019,2022, no significant changes in unrecognized tax benefits arewere projected over the next 12 months.
Deferred income taxes reflect the net future tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes, as well as the tax effects of net operating losses and tax credit carryforwards.
The Registrants record valuation allowances to reduce deferred income tax assets to the amounts that are more likely than notmore-likely-than-not to be realized. The need for valuation allowances requires significant management judgment. If the Registrants determine that
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they are able to realize deferred tax assets in the future in excess of recorded net deferred tax assets, adjustments to the valuation allowances increase income by reducing tax expense in the period that such determination is made. Likewise, if the Registrants determine that they are not able to realize all or part of net deferred tax assets in the future, adjustments to the valuation allowances would decrease income by increasing tax expense in the period that such determination is made. The amount of deferred tax assets ultimately realized may differ materially from the estimates utilized in the computation of valuation allowances and may materially impact the financial statements in the future.future.
The Registrants defer investment tax credits when the credits are generated and amortize the deferred amounts over the average lives of the related assets.
The Registrants recognize tax-related interest and penalties in "Income Taxes" on their Statements of Income.
The Registrants use the portfolio approach method of accounting for deferred taxes related to pre-tax OCI transactions. The portfolio approach involves a strict period-by-period cumulative incremental allocation of income taxes to the change in income and losses reflected in OCI. Under this approach, the net cumulative tax effect is ignored. The net change in unrealized gains and losses recorded in AOCI under this approach would be eliminated only on the date the entire balanceinvestment portfolio is soldclassified as held for sale or otherwise disposed of.is liquidated.
See Note 6 to the Financial Statements for additional discussion regarding income taxes, including the impact of the TCJA and management's conclusion that the undistributed earnings of WPD are considered indefinitely reinvested.tax disclosures.
The provision for PPL's, PPL Electric's, LKE's, LG&E's and KU'sthe Registrants' deferred income taxes forrelated to regulatory assets and liabilities is based upon the ratemaking principles reflected in rates established by therelevant regulators. The difference in the provision for deferred income taxes for regulatory assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included on the Balance Sheets in noncurrent "Regulatory assets" or "Regulatory liabilities."
(PPL Electric, LKE, LG&E and KU)
The income tax provision for PPL Electric, LG&E and KU is calculated in accordance with an intercompany tax sharing agreement, which provides that taxable income be calculated as if PPL Electric, LG&E, KU and any domestic subsidiaries each filed a separate return. Tax benefits are not shared between companies. The entity that generates a tax benefit is the entity that is entitled to the tax benefit. The effect of PPL filing a consolidated tax return is taken into account in the settlement of current taxes and the recognition of deferred taxes.
At December 31, the following intercompany tax receivables (payables) were recorded:
| 2022 | 2021 | ||||||||||
| PPL Electric | $ | 2 | $ | (4) | |||||||
| LG&E | (6) | 4 | |||||||||
| KU | 4 | 1 | |||||||||
| 2019 | 2018 | ||||||
| PPL Electric | $ | 3 | $ | 19 | |||
| LKE | (8 | ) | (16 | ) | |||
| LG&E | (4 | ) | — | ||||
| KU | (6 | ) | (5 | ) | |||
Taxes, Other Than Income (All Registrants)
The Registrants present sales taxes in "Other current liabilities" and PPL presents value-added taxes in "Taxes" on the Balance Sheets. These taxes are not reflected on the Statements of Income. See Note 6 for details onof taxes included in "Taxes, other than income" on the Statements of Income.
Other
(All Registrants)
Leases
The Registrants evaluatedetermine whether contractual arrangements entered into contain a lease by evaluating whether those arrangements either implicitly or explicitly identify an asset, whether the Registrants have the right to obtain substantially all of the economic benefits from use of the asset throughout the term of the arrangement, and whether the Registrants have the right to direct the use of the asset. Renewal options are included in the lease term if it is reasonably certain the Registrants will exercise those options. Periods for which the Registrants are reasonably certain not to exercise termination options are also included in the lease term. The Registrants have certain agreements with lease and non-lease components, such as office space leases, which are generally accounted for separately.
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Short-term leases are leases with a term that is 12 months or less and do not include a purchase option or option to extend the initial term of the lease to greater than 12 months that the Registrants are reasonably certain to exercise. The Registrants have made an accounting purposes.policy election to not recognize the right-of-use asset and the lease liability arising from leases classified as short-term.
The discount rate for a lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the Registrants are required to use their incremental borrowing rate, which is the rate the Registrants would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.
The Registrants receive secured borrowing rates from financial institutions based on their applicable credit profiles. The Registrants use the secured rate which corresponds with the term of the applicable lease. See Note 910 for additional information.
Fuel, Materials and Supplies
Fuel, natural gas stored underground and materials and supplies are valued using the average cost method. Fuel costs for electricity generation are charged to expense as used. For RIE, natural gas supply costs are charged to expense when delivered to customers. For LG&E, natural gas supply costs are charged to expense as delivered to the distribution system. See Note 7 for further discussion of the fuel adjustment clauses and gas supply clause.
"Fuel, materials and supplies" on the Balance Sheets consisted of the following at December 31:
| 2022 | |||||||||||||||||||||||
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Fuel | $ | 125 | $ | — | $ | 44 | $ | 81 | |||||||||||||||
| Natural gas stored underground | 91 | — | 68 | — | |||||||||||||||||||
| Materials and supplies | 227 | 69 | 54 | 86 | |||||||||||||||||||
| Total | $ | 443 | $ | 69 | $ | 166 | $ | 167 | |||||||||||||||
| PPL | LKE | LG&E | KU | ||||||||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
| Fuel | $ | 106 | $ | 98 | $ | 106 | $ | 98 | $ | 43 | $ | 42 | $ | 63 | $ | 56 | |||||||||||||||
| Natural gas stored underground | 35 | 41 | 35 | 41 | 35 | 41 | — | — | |||||||||||||||||||||||
| Materials and supplies | 191 | 164 | 109 | 109 | 44 | 44 | 65 | 65 | |||||||||||||||||||||||
| Total | $ | 332 | $ | 303 | $ | 250 | $ | 248 | $ | 122 | $ | 127 | $ | 128 | $ | 121 | |||||||||||||||
| 2021 | |||||||||||||||||||||||
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Fuel | $ | 90 | $ | — | $ | 32 | $ | 58 | |||||||||||||||
| Natural gas stored underground | 54 | — | 54 | — | |||||||||||||||||||
| Materials and supplies | 178 | 61 | 51 | 66 | |||||||||||||||||||
| Total | $ | 322 | $ | 61 | $ | 137 | $ | 124 | |||||||||||||||
(PPL)
Renewable Energy Standard Obligation
Purchased Renewable Energy Certificates (RECs) are stated at cost and are used to measure compliance with state renewable energy standards. RECs support new renewable generation standards and are held primarily to be utilized in fulfillment of RIE’s compliance obligations.
(All Registrants)
Guarantees(All Registrants)
Generally, the initial measurement of a guarantee liability is the fair value of the guarantee at its inception. However, there are certain guarantees excluded from the scope of accounting guidance and other guarantees that are not subject to the initial recognition and measurement provisions of accounting guidance that only require disclosure. See Note 1314 for further discussion of recorded and unrecorded guarantees.
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(PPL)
Treasury Stock(PPL)
PPL generally restores all shares of common stock acquired to authorized but unissued shares of common stock upon or soon after acquisition.
| PPL | LKE | LG&E | KU | ||||||||||||
| Right-of-Use Asset (a) | $ | 81 | $ | 56 | $ | 23 | $ | 31 | |||||||
| Lease Liability - Current (b) | 23 | 18 | 9 | 9 | |||||||||||
| Lease Liability - Noncurrent (c) | 67 | 46 | 18 | 26 | |||||||||||
2. Segment and Related Information
(PPL)
PPL is organized into 3three segments: U.K. Regulated, Kentucky Regulated, Pennsylvania Regulated, and PennsylvaniaRhode Island Regulated. PPL's segments are segmented by geographic location.
The Kentucky Regulated segment consists primarily of LKE'sLG&E's and KU's regulated electricity generation, transmission and distribution operations, of LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment.segment includes certain financing and other costs at LKE.
The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric. In addition, certain costs are allocated to
The Rhode Island Regulated segment includes the Pennsylvania Regulated segment.regulated electricity transmission and distribution and natural gas distribution operations of RIE, which was acquired on May 25, 2022.
"Corporate and Other" primarily includes financing and other costs incurred at the corporate level that have not been allocated or assigned to the segments, certain other unallocated costs, as well as certain non-recoverable costs resulting from commitments made to the financial resultsRhode Island Division of Safari Energy, which is presented to reconcilePublic Utilities and Carriers and the Attorney General of the State of Rhode Island in conjunction with the acquisition of Narragansett Electric.
As a result of the June 14, 2021 sale of the U.K. utility business, PPL determined segment information to PPL's consolidated results.for the U.K. Regulated segment would no longer be provided beginning with the March 31, 2021 Form 10-Q. See Note 9 for additional information.
Income Statement data for the segments and reconciliation to PPL's consolidated results for the years ended December 31 are as follows:
| 2022 | 2021 | 2020 | |||||||||||||||
| Operating Revenues from external customers (a) | |||||||||||||||||
| Kentucky Regulated | $ | 3,811 | $ | 3,348 | $ | 3,106 | |||||||||||
| Pennsylvania Regulated | 3,030 | 2,402 | 2,330 | ||||||||||||||
| Rhode Island Regulated | 1,038 | — | — | ||||||||||||||
| Corporate and Other | 23 | 33 | 38 | ||||||||||||||
| Total | $ | 7,902 | $ | 5,783 | $ | 5,474 | |||||||||||
| Depreciation | |||||||||||||||||
| Kentucky Regulated | $ | 685 | $ | 647 | $ | 606 | |||||||||||
| Pennsylvania Regulated | 393 | 424 | 403 | ||||||||||||||
| Rhode Island Regulated | 92 | — | — | ||||||||||||||
| Corporate and Other | 11 | 11 | 13 | ||||||||||||||
| Total | $ | 1,181 | $ | 1,082 | $ | 1,022 | |||||||||||
| Amortization (b) | |||||||||||||||||
| Kentucky Regulated | $ | 23 | $ | 15 | $ | 19 | |||||||||||
| Pennsylvania Regulated | 22 | 19 | 26 | ||||||||||||||
| Rhode Island Regulated | 2 | — | — | ||||||||||||||
| Corporate and Other | 5 | 5 | 13 | ||||||||||||||
| Total | $ | 52 | $ | 39 | $ | 58 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Operating Revenues from external customers (a) | |||||||||||
| U.K. Regulated | $ | 2,167 | $ | 2,268 | $ | 2,091 | |||||
| Kentucky Regulated | 3,206 | 3,214 | 3,156 | ||||||||
| Pennsylvania Regulated | 2,358 | 2,277 | 2,195 | ||||||||
| Corporate and Other | 38 | 26 | 5 | ||||||||
| Total | $ | 7,769 | $ | 7,785 | $ | 7,447 | |||||
| Depreciation | |||||||||||
| U.K. Regulated | $ | 250 | $ | 247 | $ | 230 | |||||
| Kentucky Regulated | 547 | 475 | 439 | ||||||||
| Pennsylvania Regulated | 386 | 352 | 309 | ||||||||
| Corporate and Other | 16 | 20 | 30 | ||||||||
| Total | $ | 1,199 | $ | 1,094 | $ | 1,008 | |||||
| Amortization (b) | |||||||||||
| U.K. Regulated | $ | 25 | $ | 34 | $ | 34 | |||||
| Kentucky Regulated | 27 | 18 | 24 | ||||||||
| Pennsylvania Regulated | 24 | 22 | 33 | ||||||||
| Corporate and Other | 5 | 4 | 6 | ||||||||
| Total | $ | 81 | $ | 78 | $ | 97 | |||||
| Unrealized (gains) losses on derivatives and other hedging activities (c) | |||||||||||
| U.K. Regulated | $ | 62 | $ | (190 | ) | $ | 166 | ||||
| Kentucky Regulated | 6 | 6 | 6 | ||||||||
| Corporate and Other | 5 | (2 | ) | 6 | |||||||
| Total | $ | 73 | $ | (186 | ) | $ | 178 | ||||
| Interest Expense | |||||||||||
| U.K. Regulated | $ | 405 | $ | 413 | $ | 397 | |||||
| Kentucky Regulated | 298 | 274 | 261 | ||||||||
| Pennsylvania Regulated | 169 | 159 | 142 | ||||||||
| Corporate and Other | 122 | 117 | 101 | ||||||||
| Total | $ | 994 | $ | 963 | $ | 901 | |||||
| Income Before Income Taxes | |||||||||||
| U.K. Regulated | $ | 1,169 | $ | 1,339 | $ | 804 | |||||
| Kentucky Regulated | 530 | 531 | 645 | ||||||||
| Pennsylvania Regulated | 607 | 567 | 575 | ||||||||
| Corporate and Other | (151 | ) | (152 | ) | (112 | ) | |||||
| Total | $ | 2,155 | $ | 2,285 | $ | 1,912 | |||||
| Income Taxes (d) | |||||||||||
| U.K. Regulated | $ | 192 | $ | 225 | $ | 152 | |||||
| Kentucky Regulated | 94 | 120 | 359 | ||||||||
| Pennsylvania Regulated | 149 | 136 | 216 | ||||||||
| Corporate and Other | (26 | ) | (23 | ) | 57 | ||||||
| Total | $ | 409 | $ | 458 | $ | 784 | |||||
| Deferred income taxes and investment tax credits (e) | |||||||||||
| U.K. Regulated | $ | 140 | $ | 118 | $ | 66 | |||||
| Kentucky Regulated | 82 | 94 | 294 | ||||||||
| Pennsylvania Regulated | 90 | 125 | 257 | ||||||||
| Corporate and Other | (3 | ) | 18 | 90 | |||||||
| Total | $ | 309 | $ | 355 | $ | 707 | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Interest Expense (c) | |||||||||||||||||
| Kentucky Regulated | $ | 262 | $ | 249 | $ | 300 | |||||||||||
| Pennsylvania Regulated | 171 | 162 | 172 | ||||||||||||||
| Rhode Island Regulated | 39 | — | — | ||||||||||||||
| Corporate and Other (d) | 41 | 507 | 162 | ||||||||||||||
| Total | $ | 513 | $ | 918 | $ | 634 | |||||||||||
| Income Before Income Taxes | |||||||||||||||||
| Kentucky Regulated | $ | 621 | $ | 562 | $ | 516 | |||||||||||
| Pennsylvania Regulated | 699 | 599 | 664 | ||||||||||||||
| Rhode Island Regulated | (58) | — | — | ||||||||||||||
| Corporate and Other | (347) | (640) | (226) | ||||||||||||||
| Total | $ | 915 | $ | 521 | $ | 954 | |||||||||||
| Income Taxes (e) | |||||||||||||||||
| Kentucky Regulated | $ | 114 | $ | 94 | $ | 98 | |||||||||||
| Pennsylvania Regulated | 174 | 154 | 167 | ||||||||||||||
| Rhode Island Regulated | (14) | — | — | ||||||||||||||
| Corporate and Other | (73) | 255 | 49 | ||||||||||||||
| Total | $ | 201 | $ | 503 | $ | 314 | |||||||||||
| Deferred income taxes and investment tax credits (f) | |||||||||||||||||
| Kentucky Regulated | $ | 6 | $ | 272 | $ | 64 | |||||||||||
| Pennsylvania Regulated | 91 | 79 | 82 | ||||||||||||||
| Rhode Island Regulated | 39 | — | — | ||||||||||||||
| Corporate and Other | 43 | (264) | 23 | ||||||||||||||
| Total | $ | 179 | $ | 87 | $ | 169 | |||||||||||
| Net Income | |||||||||||||||||
| Kentucky Regulated | $ | 507 | $ | 468 | $ | 418 | |||||||||||
| Pennsylvania Regulated | 525 | 445 | 497 | ||||||||||||||
| Rhode Island Regulated | (44) | — | — | ||||||||||||||
| Corporate and Other (d) | (274) | (895) | (275) | ||||||||||||||
| Discontinued Operations | 42 | (1,498) | 829 | ||||||||||||||
| Total | $ | 756 | $ | (1,480) | $ | 1,469 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net Income | |||||||||||
| U.K. Regulated | $ | 977 | $ | 1,114 | $ | 652 | |||||
| Kentucky Regulated | 436 | 411 | 286 | ||||||||
| Pennsylvania Regulated | 458 | 431 | 359 | ||||||||
| Corporate and Other | (125 | ) | (129 | ) | (169 | ) | |||||
| Total | $ | 1,746 | $ | 1,827 | $ | 1,128 | |||||
(a)See Note 1 and Note 3 for additional information on Operating Revenues.
(b)Represents non-cash expense items that include amortization of operating lease right-of-use assets, regulatory assets and liabilities, debt discounts and premiums and debt issuance costs.
(c)Beginning in 2021, corporate level financing costs are no longer allocated to the reportable segments and are being reported in Corporate and Other. For the year ended December 31, 2020, corporate level financing costs of $32 million, net of $8 million of income taxes, were allocated to the Kentucky Regulated segment. For the year ended December 31, 2020, an immaterial amount of financing costs was allocated to the Pennsylvania Regulated segment.
(d)2021 includes losses from the extinguishment of PPL Capital Funding debt. See Note 8 for additional information.
(e)Represents both current and deferred income taxes, including investment tax credits.
(f)Represents a non-cash expense item that is also included in "Income Taxes."
Cash Flow data for the segments and reconciliation to PPL's consolidated results for the years ended December 31 are as follows:
| 2022 | 2021 | 2020 | |||||||||||||||
| Expenditures for long-lived assets | |||||||||||||||||
| Kentucky Regulated | $ | 917 | $ | 1,026 | $ | 966 | |||||||||||
| Pennsylvania Regulated | 889 | 904 | 1,154 | ||||||||||||||
| Rhode Island Regulated | 268 | — | — | ||||||||||||||
| Corporate and Other | 84 | 49 | 158 | ||||||||||||||
| Total | $ | 2,158 | $ | 1,979 | $ | 2,278 | |||||||||||
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| 2019 | 2018 | 2017 | |||||||||
| Expenditures for long-lived assets | |||||||||||
| U.K. Regulated | $ | 857 | $ | 954 | $ | 1,015 | |||||
| Kentucky Regulated | 1,097 | 1,117 | 892 | ||||||||
| Pennsylvania Regulated | 1,121 | 1,196 | 1,254 | ||||||||
| Corporate and Other | 32 | 1 | 10 | ||||||||
| Total | $ | 3,107 | $ | 3,268 | $ | 3,171 | |||||
The following provides Balance Sheet data for the segments and reconciliation to PPL's consolidated results as of:
| As of December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Total Assets | |||||||||||
| Kentucky Regulated | $ | 16,904 | $ | 16,360 | |||||||
| Pennsylvania Regulated | 13,565 | 13,336 | |||||||||
| Rhode Island Regulated | 6,081 | — | |||||||||
| Corporate and Other (a) | 1,287 | 3,527 | |||||||||
| Total | $ | 37,837 | $ | 33,223 | |||||||
| As of December 31, | |||||||
| 2019 | 2018 | ||||||
| Total Assets | |||||||
| U.K. Regulated (a) | $ | 17,622 | $ | 16,700 | |||
| Kentucky Regulated | 15,597 | 15,078 | |||||
| Pennsylvania Regulated | 11,918 | 11,257 | |||||
| Corporate and Other (b) | 543 | 361 | |||||
| Total | $ | 45,680 | $ | 43,396 | |||
| 2019 | 2018 | 2017 | |||||||||
| Revenues from external customers | |||||||||||
| U.K. | $ | 2,167 | $ | 2,268 | $ | 2,091 | |||||
| U.S. | 5,602 | 5,517 | 5,356 | ||||||||
| Total | $ | 7,769 | $ | 7,785 | $ | 7,447 | |||||
Beginning on January 1, 2023, the Kentucky Regulated segment will consist primarily of the regulated electricity generation, transmission and distribution operations conducted by LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. Prior to January 1, 2023, the Kentucky Regulated segment also included the financing activities of LKE. The financing activity of LKE will be presented in Corporate and Other beginning on January 1, 2023. As a result of this change, beginning on January 1, 2023, PPL’s segments will consist of the regulated operations of Kentucky, Pennsylvania and Rhode Island and will exclude any incremental financing activities of holding companies, which Management believes is a more meaningful presentation as it provides information on the core regulated operations of PPL.
| As of December 31, | |||||||
| 2019 | 2018 | ||||||
| Long-Lived Assets | |||||||
| U.K. | $ | 13,618 | $ | 12,791 | |||
| U.S. | 23,607 | 22,384 | |||||
| Total | $ | 37,225 | $ | 35,175 | |||
(PPL Electric, LKE, LG&E and KU)
PPL Electric has 2two operating segments, thatdistribution and transmission, which are aggregated into a single reportable segment. LKE, LG&E and KU are individually single operating and reportable segments.
3. Revenue from Contracts with Customers
(All Registrants)
The following is a description of the principal activities from which the Registrants and PPL’s segments generate their revenues.
(PPL and PPL Electric)
Pennsylvania Regulated Segment Revenue
The Pennsylvania Regulated Segmentsegment generates substantially all of its revenues from contracts with customers from PPL Electric’s tariff-based distribution and transmission of electricity.
Distribution Revenue
PPL Electric provides distribution services to residential, commercial, industrial, municipal and governmental end users of energy. PPL Electric satisfies its performance obligation to its distribution customers and revenue is recognized over-time as electricity is delivered and simultaneously consumed by the customer. The amount of revenue recognized is the volume of electricity delivered during the period multiplied by a per-unit of energythe price per tariff, plus a monthly fixed charge. This method of recognition fairly presents PPL Electric's transfer of electric service to the customer as the calculation is based on actual volumes delivered, and the per-unit of energyprice per tariff rate and the monthly fixed charge are set by the PUC.PAPUC. Customers are typically billed monthly and outstanding amounts are normally due within 21 days of the date of the bill.
Distribution customers are "at will" customers of PPL Electric with no term contract and no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with PPL Electric’s retail account contracts.
Certain customers have the option to obtain electricity or natural gas from other suppliers. In those circumstances, revenue is only recognized for providing delivery of the commodity to the customer.
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Transmission Revenue
PPL Electric generates transmission revenues from a FERC-approved PJM Open Access Transmission Tariff. An annual revenue requirement for PPL Electric to provide transmission services is calculated using a formula-based rate. This revenue requirement is converted into a daily rate (dollars per day). PPL Electric satisfies its performance obligation to provide transmission services and revenue is recognized over-time as transmission services are provided and consumed. This method of
recognition fairly presents PPL Electric's transfer of transmission services as the daily rate is set by a FERC approved formula-based rate. PJM remits payment on a weekly basis.
PPL Electric's agreement to provide transmission services contains no minimum purchase commitment. The performance obligation is limited to the service requested and received to date. Accordingly, PPL Electric has no unsatisfied performance obligations.
(PPL)
Rhode Island Regulated Segment Revenues
The Rhode Island Regulated segment generates substantially all of its revenues from contracts with customers from RIE’s regulated tariff-based transmission and distribution of electricity and regulated tariff-based distribution of natural gas.
Distribution Revenue
Distribution revenues are primarily from the sale of electricity, natural gas, and related services to retail customers. Distribution sales are regulated by the RIPUC, which is responsible for approving the rates and other terms of services as part of the rate making process. Natural gas and electric distribution revenues are derived from the regulated sale and distribution of electricity and natural gas to residential, commercial, and industrial customers within RIE’s service territory under the tariff rates. The performance obligation related to distribution sales is to provide electricity and natural gas to customers on demand. The performance obligation is satisfied over time because the customer simultaneously receives and consumes the electricity or natural gas as services are provided. RIE records revenues related to the distribution sales based upon the approved tariff rate and the volume delivered to the customers, which corresponds with the amount RIE has the right to invoice.
Distribution revenue also includes estimated unbilled amounts, which represent the estimated amounts due from retail customers as a result of customer's bills rendered throughout the month, rather than bills being rendered at the end of the month. Unbilled revenues are determined based on estimated unbilled sales volumes and then applying tariff rates to those volumes. Any difference between estimated and actual revenues is adjusted the following month when the previous unbilled estimate is reversed and actual billings occur. This method of recognition fairly presents RIE's transfer of electricity and natural gas to the customer as the amount recognized is based on actual and estimated volumes delivered and the tariff rate per unit of energy and any applicable fixed charges or regulatory mechanisms as approved by the respective regulatory body.
Certain customers have the option to obtain electricity or natural gas from other suppliers. In those circumstances, revenue is only recognized for providing delivery of the commodity to the customer.
Transmission Revenue
RIE’s transmission services are regulated by the FERC and coordinated with ISO – New England (ISO-NE). Additionally, RIE makes available its transmission facilities to NEP, for operation and control pursuant to an integrated facilities agreement, Service Agreement No. 23 (Integrated Facilities Agreement or IFA). As of December 31, 2022 these integrated facilities agreements have concluded as RIE is a transmission operator. These revenues arise under tariff/rate agreements and are collected primarily from RIE’s distribution customers. The revenue is recognized over-time as transmission services are provided and consumed. This method of recognition fairly presents RIE’s transfer of transmission services as the daily rate is set by a FERC-approved formula-based rate.
(PPL, LKE, LG&E and KU)
Kentucky Regulated Segment Revenue
The Kentucky Regulated Segment generates substantially all of its revenues from contracts with customers from LG&E's and KU's regulated tariff-based sales of electricity and LG&E's regulated tariff-based sales of natural gas.
112
LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity in Kentucky and, in KU's case, Virginia. LG&E also engages in the distribution and sale of natural gas in Kentucky. Revenue from these activities is generated from tariffs approved by applicable regulatory authorities including the FERC, KPSC and VSCC. LG&E and KU satisfy their performance obligations upon LG&E's and KU's delivery of electricity and LG&E's delivery of natural gas to customers. This revenue is recognized over-time as the customer simultaneously receives and consumes the benefits provided by LG&E and KU. The amount of revenue recognized is the billed volume of electricity or natural gas delivered multiplied by a tariff rate per-unit of energy, plus any applicable fixed charges or additional regulatory mechanisms. Customers are billed monthly and outstanding amounts are typically due within 22 days of the date of the bill. Additionally, unbilled revenues are recognized as a result of customers' bills rendered throughout the month, rather than bills being rendered at the end of the month. Unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh or Mcf delivered but not yet billed by the estimated average cents per kWh or Mcf. Any difference between estimated and actual revenues is adjusted the following month when the previous unbilled estimate is reversed and actual billings occur. This method of recognition fairly presents LG&E's and KU's transfer of electricity and LG&E's transfer of natural gas to the customer as the amount recognized is based on actual and estimated volumes delivered and the tariff rate per-unit of energy and any applicable fixed charges or regulatory mechanisms as set by the respective regulatory body.
LG&E's and KU's customers generally have no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with these customers.
(All Registrants)
The following table reconciles "Operating Revenues" included in each Registrant's Statement of Income with revenues generated from contracts with customers for the years ended December 31:
| 2022 | |||||||||||||||||||||||
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Operating Revenues (a) | $ | 7,902 | $ | 3,030 | $ | 1,798 | $ | 2,074 | |||||||||||||||
| Revenues derived from: | |||||||||||||||||||||||
| Alternative revenue programs (b) | (92) | (56) | 9 | 5 | |||||||||||||||||||
| Other (c) | (24) | (14) | (6) | (4) | |||||||||||||||||||
| Revenues from Contracts with Customers | $ | 7,786 | $ | 2,960 | $ | 1,801 | $ | 2,075 | |||||||||||||||
| 2019 | 2021 | |||||||||||||||||||||||||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||||||||||||||||
| Operating Revenues (a) | $ | 7,769 | $ | 2,358 | $ | 3,206 | $ | 1,500 | $ | 1,740 | Operating Revenues (a) | $ | 5,783 | $ | 2,402 | $ | 1,569 | $ | 1,826 | |||||||||||||||||||||||
| Revenues derived from: | Revenues derived from: | |||||||||||||||||||||||||||||||||||||||||
| Alternative revenue programs (b) | (30 | ) | (6 | ) | (24 | ) | (10 | ) | (14 | ) | Alternative revenue programs (b) | 77 | 83 | (3) | (3) | |||||||||||||||||||||||||||
| Other (c) | (38 | ) | (10 | ) | (21 | ) | (9 | ) | (12 | ) | Other (c) | (22) | (3) | (8) | (9) | |||||||||||||||||||||||||||
| Revenues from Contracts with Customers | $ | 7,701 | $ | 2,342 | $ | 3,161 | $ | 1,481 | $ | 1,714 | Revenues from Contracts with Customers | $ | 5,838 | $ | 2,482 | $ | 1,558 | $ | 1,814 | |||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Operating Revenues (a) | $ | 5,474 | $ | 2,331 | $ | 1,456 | $ | 1,690 | |||||||||||||||
| Revenues derived from: | |||||||||||||||||||||||
| Alternative revenue programs (b) | (24) | (12) | (8) | (4) | |||||||||||||||||||
| Other (c) | (21) | (3) | (7) | (10) | |||||||||||||||||||
| Revenues from Contracts with Customers | $ | 5,429 | $ | 2,316 | $ | 1,441 | $ | 1,676 | |||||||||||||||
(a)PPL includes $1,038 million for the twelve months ended December 31, 2022 of revenues from external customers reported by the Rhode Island Regulated segment. PPL Electric represents revenues from external customers reported by the Pennsylvania Regulated segment and LG&E and KU, net of intercompany power sales and transmission revenues, represent revenues from external customers reported by the Kentucky Regulated segment. See Note 2 for additional information.
(b)This line item shows the over/under collection of rate mechanisms deemed alternative revenue programs with over-collections of revenue shown as positive amounts in the table above and under collections as negative amounts. For PPL Electric, revenue in 2022 includes $74 million related to the
| 2018 | |||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Operating Revenues (a) | $ | 7,785 | $ | 2,277 | $ | 3,214 | $ | 1,496 | $ | 1,760 | |||||||||
| Revenues derived from: | |||||||||||||||||||
| Alternative revenue programs (b) | 32 | (6 | ) | 38 | 12 | 26 | |||||||||||||
| Other (c) | (38 | ) | (12 | ) | (17 | ) | (5 | ) | (12 | ) | |||||||||
| Revenues from Contracts with Customers | $ | 7,779 | $ | 2,259 | $ | 3,235 | $ | 1,503 | $ | 1,774 | |||||||||
(c)Represents additional revenues outside the scope of revenues from contracts with customers such as leases and other miscellaneous revenues.
The following table shows revenues from contracts with customers disaggregated by customer class for the years ended December 31:
| Residential | Commercial | Industrial | Other (a) | Wholesale - municipality | Wholesale - other (b) | Transmission | Revenues from Contracts with Customers | ||||||||||||||||||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| PA Regulated | $ | 1,647 | $ | 491 | $ | 85 | $ | 54 | $ | — | $ | — | $ | 683 | $ | 2,960 | |||||||||||||||||||||||||||||||
| RI Regulated | 299 | 101 | 9 | 478 | — | — | 101 | 988 | |||||||||||||||||||||||||||||||||||||||
| KY Regulated | 1,637 | 1,068 | 662 | 323 | 28 | 97 | — | 3,815 | |||||||||||||||||||||||||||||||||||||||
| Corp and Other | — | — | — | 23 | — | — | — | 23 | |||||||||||||||||||||||||||||||||||||||
| Total PPL | $ | 3,583 | $ | 1,660 | $ | 756 | $ | 878 | $ | 28 | $ | 97 | $ | 784 | $ | 7,786 | |||||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| PA Regulated | $ | 1,299 | $ | 350 | $ | 53 | $ | 50 | $ | — | $ | — | $ | 730 | $ | 2,482 | |||||||||||||||||||||||||||||||
| RI Regulated | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| KY Regulated | 1,416 | 928 | 586 | 305 | 24 | 66 | — | 3,325 | |||||||||||||||||||||||||||||||||||||||
| Corp and Other | — | — | — | 31 | — | — | — | 31 | |||||||||||||||||||||||||||||||||||||||
| Total PPL | $ | 2,715 | $ | 1,278 | $ | 639 | $ | 386 | $ | 24 | $ | 66 | $ | 730 | $ | 5,838 | |||||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| PA Regulated | $ | 1,238 | $ | 314 | $ | 44 | $ | 50 | $ | — | $ | — | $ | 670 | $ | 2,316 | |||||||||||||||||||||||||||||||
| RI Regulated | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| KY Regulated | 1,347 | 871 | 538 | 261 | 20 | 40 | — | 3,077 | |||||||||||||||||||||||||||||||||||||||
| Corp and Other | — | — | — | 36 | — | — | — | 36 | |||||||||||||||||||||||||||||||||||||||
| Total PPL | $ | 2,585 | $ | 1,185 | $ | 582 | $ | 347 | $ | 20 | $ | 40 | $ | 670 | $ | 5,429 | |||||||||||||||||||||||||||||||
| PPL Electric | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | $ | 1,647 | $ | 491 | $ | 85 | $ | 54 | $ | — | $ | — | $ | 683 | $ | 2,960 | |||||||||||||||||||||||||||||||
| 2021 | $ | 1,299 | $ | 350 | $ | 53 | $ | 50 | $ | — | $ | — | $ | 730 | $ | 2,482 | |||||||||||||||||||||||||||||||
| 2020 | $ | 1,238 | $ | 314 | $ | 44 | $ | 50 | $ | — | $ | — | $ | 670 | $ | 2,316 | |||||||||||||||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | $ | 835 | $ | 551 | $ | 199 | $ | 141 | $ | — | $ | 75 | $ | — | $ | 1,801 | |||||||||||||||||||||||||||||||
| 2021 | $ | 711 | $ | 473 | $ | 180 | $ | 145 | $ | — | $ | 49 | $ | — | $ | 1,558 | |||||||||||||||||||||||||||||||
| 2020 | $ | 676 | $ | 444 | $ | 173 | $ | 114 | $ | — | $ | 34 | $ | — | $ | 1,441 | |||||||||||||||||||||||||||||||
| KU | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | $ | 802 | $ | 517 | $ | 463 | $ | 182 | $ | 28 | $ | 83 | $ | — | $ | 2,075 | |||||||||||||||||||||||||||||||
| 2021 | $ | 705 | $ | 455 | $ | 406 | $ | 160 | $ | 24 | $ | 64 | $ | — | $ | 1,814 | |||||||||||||||||||||||||||||||
| 2020 | $ | 671 | $ | 427 | $ | 365 | $ | 147 | $ | 20 | $ | 46 | $ | — | $ | 1,676 | |||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||
| PPL (d) | PPL Electric (d) | LKE | LG&E | KU | |||||||||||||||
| Licensed energy suppliers (a) | $ | 2,032 | $ | — | $ | — | $ | — | $ | — | |||||||||
| Residential | 2,610 | 1,288 | 1,322 | 668 | 654 | ||||||||||||||
| Commercial | 1,257 | 349 | 908 | 466 | 442 | ||||||||||||||
| Industrial | 621 | 59 | 562 | 180 | 382 | ||||||||||||||
| Other (b) | 495 | 52 | 277 | 121 | 156 | ||||||||||||||
| Wholesale - municipal | 43 | — | 43 | — | 43 | ||||||||||||||
| Wholesale - other (c) | 49 | — | 49 | 46 | 37 | ||||||||||||||
| Transmission | 594 | 594 | — | — | — | ||||||||||||||
| Revenues from Contracts with Customers | $ | 7,701 | $ | 2,342 | $ | 3,161 | $ | 1,481 | $ | 1,714 | |||||||||
(b)Includes wholesale power and transmission revenues. LG&E and KU amounts include intercompany power sales and transmission revenues, which are eliminated upon consolidation at PPL.
| 2018 | |||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Licensed energy suppliers (a) | $ | 2,127 | $ | — | $ | — | $ | — | $ | — | |||||||||
| Residential | 2,704 | 1,379 | 1,325 | 666 | 659 | ||||||||||||||
| Commercial | 1,233 | 368 | 865 | 455 | 410 | ||||||||||||||
| Industrial | 624 | 54 | 570 | 180 | 390 | ||||||||||||||
| Other (b) | 489 | 53 | 278 | 129 | 149 | ||||||||||||||
| Wholesale - municipal | 118 | — | 118 | — | 118 | ||||||||||||||
| Wholesale - other (c) | 79 | — | 79 | 73 | 48 | ||||||||||||||
| Transmission | 405 | 405 | — | — | — | ||||||||||||||
| Revenues from Contracts with Customers | $ | 7,779 | $ | 2,259 | $ | 3,235 | $ | 1,503 | $ | 1,774 | |||||||||
As discussed in Note 2, PPL'sPPL segments are segmentedits business by geographic location. Revenues from external customers for each segment/geographic location are reconciled to revenues from contracts with customers in the tablefootnotes to the tables above. For PPL Electric,Electric's revenues from contracts with customers are further disaggregated by distribution and transmission which were $1.7 billion and $594 million foras indicated in the year ended December 31, 2019 and $1.9 billion and $405 million for the year ended December 31, 2018.above tables.
Contract receivables from customers are primarily included in "Accounts receivable - Customer" and "Unbilled revenues" on the Balance Sheets. For PPL Electric, the "Accounts receivable - Customer" balance includes purchased receivables from alternative electricity suppliers. See Note 7 for additional information regarding the purchase of receivables program.
The following table shows the accounts receivable and unbilled revenues balances from contracts with customers that were impaired for the year ended December 31:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL(a) | $ | 70 | $ | 22 | $ | 25 | |||||||||||
| PPL Electric | 21 | 10 | 17 | ||||||||||||||
| LG&E | 6 | 4 | 4 | ||||||||||||||
| KU | 6 | 8 | 4 | ||||||||||||||
| 2019 | 2018 | ||||||
| PPL | $ | 27 | $ | 34 | |||
| PPL Electric | 21 | 24 | |||||
| LKE | 6 | 9 | |||||
| LG&E | 2 | 4 | |||||
| KU | 4 | 5 | |||||
The following table shows the balances and certain activity of contract liabilities resulting from contracts with customers:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Contract liabilities as of December 31, 2022 | $ | 34 | $ | 23 | $ | 5 | $ | 6 | |||||||||||||||
| Contract liabilities as of December 31, 2021 | 42 | 25 | 6 | 6 | |||||||||||||||||||
| Revenue recognized during the year ended December 31, 2022 that was included in the contract liability balance at December 31, 2021 | 25 | 12 | 6 | 6 | |||||||||||||||||||
| Contract liabilities as of December 31, 2021 | $ | 42 | $ | 25 | $ | 6 | $ | 6 | |||||||||||||||
| Contract liabilities as of December 31, 2020 | 40 | 23 | 5 | 6 | |||||||||||||||||||
| Revenue recognized during the year ended December 31, 2021 that was included in the contract liability balance at December 31, 2020 | 24 | 11 | 5 | 6 | |||||||||||||||||||
| Contract liabilities as of December 31, 2020 | $ | 40 | $ | 23 | $ | 5 | $ | 6 | |||||||||||||||
| Contract liabilities as of December 31, 2019 | 37 | 21 | 5 | 4 | |||||||||||||||||||
| Revenue recognized during the year ended December 31, 2020 that was included in the contract liability balance at December 31, 2019 | 22 | 9 | 5 | 4 | |||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Contract liabilities as of December 31, 2019 | $ | 44 | $ | 21 | $ | 9 | $ | 5 | $ | 4 | |||||||||
| Contract liabilities as of December 31, 2018 | 42 | 23 | 9 | 5 | 4 | ||||||||||||||
| Revenue recognized during the year ended December 31, 2019 that was included in the contract liability balance at December 31, 2018 | 32 | 11 | 9 | 5 | 4 | ||||||||||||||
| Contract liabilities as of December 31, 2018 | $ | 42 | $ | 23 | $ | 9 | $ | 5 | $ | 4 | |||||||||
| Contract liabilities as of December 31, 2017 | 29 | 19 | 8 | 4 | 4 | ||||||||||||||
| Revenue recognized during the year ended December 31, 2018 that was included in the contract liability balance at December 31, 2017 | 21 | 8 | 8 | 4 | 4 | ||||||||||||||
Contract liabilities result from recording contractual billings in advance for customer attachments to the Registrants' infrastructure and payments received in excess of revenues earned to date. Advanced billings for customer attachments are recognized as revenue ratably over the billing period. Payments received in excess of revenues earned to date are recognized as revenue as services are delivered in subsequent periods.
4. Preferred Securities
(PPL)
PPL is authorized to issue up to 10 million shares of preferred stock. NaNNo PPL preferred stock was issued or outstanding in 2019, 20182022, 2021 or 2017.2020.
RIE has $3 million of outstanding preferred stock. See Note 8 for additional information.
(PPL Electric)
PPL Electric is authorized to issue up to 20,629,936 shares of preferred stock. NaNNo PPL Electric preferred stock was issued or outstanding in 2019, 20182022, 2021 or 2017.2020.
(LG&E)
LG&E is authorized to issue up to 1,720,000 shares of preferred stock at a $25 par value and 6,750,000 shares of preferred stock without par value. LG&E had 0no preferred stock issued or outstanding in 2019, 20182022, 2021 or 2017.2020.
115
(KU)
KU is authorized to issue up to 5,300,000 shares of preferred stock and 2,000,000 shares of preference stock without par value. KU had 0no preferred or preference stock issued or outstanding in 2019, 20182022, 2021 or 2017.2020.
5. Earnings Per Share
(PPL)
Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock Method. Incremental non-participating securities that have a dilutive impact are detailed in the table below. In 2019 and 2018, these securities also included the PPL common stock forward sale agreements. See Note 8 for additional information on these agreements which were partially settled in 2018 with the remaining shares settled in 2019. The forward sale agreements were dilutive under the Treasury Stock Method to the extent the average stock price of PPL's common shares exceeded the forward sale price prescribed in the agreements.
Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended December 31, used in the EPS calculation are:
| 2022 | 2021 | 2020 | |||||||||||||||
| Income (Numerator) | |||||||||||||||||
| Income from continuing operations after income taxes | $ | 714 | $ | 18 | $ | 640 | |||||||||||
| Less amounts allocated to participating securities | 1 | — | 1 | ||||||||||||||
| Income from continuing operations after income taxes available to PPL common shareowners - Basic and Diluted | $ | 713 | $ | 18 | $ | 639 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic and Diluted | $ | 42 | $ | (1,498) | $ | 829 | |||||||||||
| Net income (loss) attributable to PPL | $ | 756 | $ | (1,480) | 1,469 | ||||||||||||
| Less amounts allocated to participating securities | 1 | — | 1 | ||||||||||||||
| Net income (loss) available to PPL common shareowners - Basic and Diluted | $ | 755 | $ | (1,480) | $ | 1,468 | |||||||||||
| Shares of Common Stock (Denominator) | |||||||||||||||||
| Weighted-average shares - Basic EPS | 736,027 | 762,902 | 768,590 | ||||||||||||||
| Add: Dilutive share-based payment awards (a) | 875 | 1,917 | 794 | ||||||||||||||
| Weighted-average shares - Diluted EPS | 736,902 | 764,819 | 769,384 | ||||||||||||||
| Basic EPS | |||||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||||
| Income from continuing operations after income taxes | $ | 0.97 | $ | 0.03 | $ | 0.83 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) | 0.06 | (1.96) | 1.08 | ||||||||||||||
| Net Income (Loss) available to PPL common shareowners | $ | 1.03 | $ | (1.93) | $ | 1.91 | |||||||||||
| Diluted EPS | |||||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||||
| Income from continuing operations after income taxes | $ | 0.96 | $ | 0.03 | $ | 0.83 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) | 0.06 | (1.96) | 1.08 | ||||||||||||||
| Net Income (Loss) available to PPL common shareowners | $ | 1.02 | $ | (1.93) | $ | 1.91 | |||||||||||
(a)The Treasury Stock Method was applied to non-participating share-based payment awards.
| 2019 | 2018 | 2017 | |||||||||
| Income (Numerator) | |||||||||||
| Net income | $ | 1,746 | $ | 1,827 | $ | 1,128 | |||||
| Less amounts allocated to participating securities | 1 | 2 | 2 | ||||||||
| Net income available to PPL common shareowners - Basic and Diluted | $ | 1,745 | $ | 1,825 | $ | 1,126 | |||||
| Shares of Common Stock (Denominator) | |||||||||||
| Weighted-average shares - Basic EPS | 728,512 | 704,439 | 685,240 | ||||||||
| Add incremental non-participating securities: | |||||||||||
| Share-based payment awards (a) | 1,101 | 445 | 2,094 | ||||||||
| Forward sale agreements | 7,141 | 3,735 | — | ||||||||
| Weighted-average shares - Diluted EPS | 736,754 | 708,619 | 687,334 | ||||||||
| Basic EPS | |||||||||||
| Net Income available to PPL common shareowners | $ | 2.39 | $ | 2.59 | $ | 1.64 | |||||
| Diluted EPS | |||||||||||
| Net Income available to PPL common shareowners | $ | 2.37 | $ | 2.58 | $ | 1.64 | |||||
For the yearyears ended December 31, PPL issued common stock related to stock-based compensation plans and DRIP as follows (in thousands):
| 2022 | 2021 | ||||||||||
| Stock-based compensation plans (a) | 124 | 983 | |||||||||
116
For the years ended December 31, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive:
| 2019 | 2018 | 2017 | ||||||
| Stock options | — | 172 | 696 | |||||
| Performance units | 5 | — | — | |||||
| Restricted stock units | 3 | 11 | — | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Stock-based compensation awards | 93 | 1,783 | 452 | ||||||||||||||
6. Income and Other Taxes
(PPL)
"Income (Loss) from Continuing Operations Before Income Taxes" included the following:is from domestic operations.
| 2019 | 2018 | 2017 | |||||||||
| Domestic income | $ | 964 | $ | 1,127 | $ | 874 | |||||
| Foreign income | 1,191 | 1,158 | 1,038 | ||||||||
| Total | $ | 2,155 | $ | 2,285 | $ | 1,912 | |||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes and the tax effects of net operating loss and tax credit carryforwards. The provision for PPL's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles of the applicable jurisdiction. See Notes 1 and 7 for additional information.
Net deferred tax assets have been recognized based on management's estimates of future taxable income for the U.S. and the U.K.income.
Significant components of PPL's deferred income tax assets and liabilities were as follows:
| 2022 | 2021 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Deferred investment tax credits | $ | 29 | $ | 30 | |||||||
| Regulatory liabilities | 88 | 94 | |||||||||
| Income taxes due to customers | 448 | 422 | |||||||||
| Accrued pension and postretirement costs | 86 | 75 | |||||||||
| State loss carryforwards | 230 | 483 | |||||||||
| Federal and state tax credit carryforwards | 68 | 15 | |||||||||
| Internal Revenue Code Section 197 intangibles (a) | 85 | — | |||||||||
| Leases | 15 | 67 | |||||||||
| Contributions in aid of construction | 114 | 120 | |||||||||
| Other | 72 | 84 | |||||||||
| Valuation allowances | (213) | (462) | |||||||||
| Total deferred tax assets | 1,022 | 928 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Plant - net | 3,609 | 3,812 | |||||||||
| Regulatory assets | 337 | 180 | |||||||||
| Prepayments | 46 | — | |||||||||
| Other | 30 | 75 | |||||||||
| Total deferred tax liabilities | 4,022 | 4,067 | |||||||||
| Net deferred tax liability | $ | 3,000 | $ | 3,139 | |||||||
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Deferred investment tax credits | $ | 31 | $ | 31 | |||
| Regulatory liabilities | 75 | 87 | |||||
| Income taxes due to customer | 462 | 479 | |||||
| Accrued pension and postretirement costs | 211 | 277 | |||||
| Federal loss carryforwards | 324 | 325 | |||||
| State loss carryforwards | 432 | 419 | |||||
| Federal and state tax credit carryforwards | 402 | 392 | |||||
| Foreign capital loss carryforwards | 320 | 313 | |||||
| Foreign - other | 8 | 10 | |||||
| Contributions in aid of construction | 112 | 139 | |||||
| Domestic - other | 99 | 88 | |||||
| Valuation allowances | (834 | ) | (808 | ) | |||
| Total deferred tax assets | 1,642 | 1,752 | |||||
| Deferred Tax Liabilities | |||||||
| Domestic plant - net | 3,546 | 3,359 | |||||
| Regulatory assets | 262 | 314 | |||||
| Foreign plant - net | 765 | 724 | |||||
| Foreign - pensions | 72 | 83 | |||||
| Domestic - other | 61 | 40 | |||||
| Total deferred tax liabilities | 4,706 | 4,520 | |||||
| Net deferred tax liability | $ | 3,064 | $ | 2,768 | |||
State deferred taxes are determined by entity and by jurisdiction. As a result, $24$6 million and $28$12 million of net deferred tax assets are shown as "Other noncurrent assets" on the Balance Sheets for 20192022 and 2018.2021.
At December 31, 2019,2022, PPL had the following loss and tax credit carryforwards, related deferred tax assets and valuation allowances recorded against the deferred tax assets:
| Gross | Deferred Tax Asset | Valuation Allowance | Expiration | ||||||||||||||||||||
| Loss and other carryforwards | |||||||||||||||||||||||
| State net operating losses | $ | 5,830 | $ | 230 | $ | (213) | 2023-2042 | ||||||||||||||||
| Gross | Deferred Tax Asset | Valuation Allowance | Expiration | ||||||||||
| Loss carryforwards | |||||||||||||
| Federal net operating losses | $ | 1,499 | $ | 315 | $ | — | 2032-2037 | ||||||
| Federal charitable contributions | 42 | 9 | — | 2020-2024 | |||||||||
| State net operating losses | 5,879 | 432 | (393 | ) | 2021-2039 | ||||||||
| State charitable contributions | 1 | — | — | 2020-2024 | |||||||||
| Foreign net operating losses | 3 | — | — | Indefinite | |||||||||
| Foreign capital losses | 1,880 | 320 | (320 | ) | Indefinite | ||||||||
| Federal - Other | 7 | 1 | — | Indefinite | |||||||||
| Gross | Deferred Tax Asset | Valuation Allowance | Expiration | ||||||||||||||||||||
| Credit carryforwards | |||||||||||||||||||||||
| Federal investment tax credit | 20 | — | 2042 | ||||||||||||||||||||
| Federal foreign tax credits | 32 | — | 2027 | ||||||||||||||||||||
| Federal - other | 3 | — | 2042 | ||||||||||||||||||||
| State recycling credit | 12 | — | 2028 | ||||||||||||||||||||
| State - other | 1 | — | Indefinite | ||||||||||||||||||||
| Credit carryforwards | |||||||||
| Federal investment tax credit | 133 | — | 2025-2039 | ||||||
| Federal alternative minimum tax credit (a) | 8 | — | Indefinite | ||||||
| Federal foreign tax credits (b) | 218 | (113 | ) | 2024-2027 | |||||
| Federal - other | 24 | (6 | ) | 2020-2039 | |||||
| State Recycling Credit | 18 | — | 2028 | ||||||
| State - other | 1 | — | Indefinite | ||||||
Valuation allowances have been established for the amount that, more likely than not, will not be realized. The changes in deferred tax valuation allowances were as follows:
| Additions | |||||||||||||||||||||||||||||
| Balance at Beginning of Period | Charged to Income | Charged to Other Accounts | Deductions | Balance at End of Period | |||||||||||||||||||||||||
| 2022 | $ | 462 | $ | 10 | $ | — | $ | 259 | (a) | $ | 213 | ||||||||||||||||||
| 2021 | 536 | 48 | (b) | — | 122 | (c) | 462 | ||||||||||||||||||||||
| 2020 | 514 | 26 | — | 4 | 536 | ||||||||||||||||||||||||
| Additions | |||||||||||||||||||
Balance at Beginning of Period | Charged to Income | Charged to Other Accounts | Deductions | Balance at End of Period | |||||||||||||||
| 2019 | $ | 808 | $ | 31 | $ | — | $ | 5 | $ | 834 | |||||||||
| 2018 | 838 | 26 | — | 56 | (a) | 808 | |||||||||||||
| 2017 | 593 | 256 | (b) | — | 11 | 838 | |||||||||||||
(b)In 2021, PPL recorded a $62$31 million increase in federal deferred tax assets and a corresponding valuation allowance related to the federal tax benefits ofon a state net operating losses.
Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:
| 2022 | 2021 | 2020 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Current - Federal | $ | (2) | $ | (1) | $ | (8) | |||||||||||
| Current - State | 24 | 36 | 24 | ||||||||||||||
| Current - Foreign | — | (1) | (2) | ||||||||||||||
| Total Current Expense (Benefit) | 22 | 34 | 14 | ||||||||||||||
| Deferred - Federal | 122 | 28 | 135 | ||||||||||||||
| Deferred - State | 68 | 105 | 94 | ||||||||||||||
| Deferred - Foreign (a) | — | 383 | 101 | ||||||||||||||
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 190 | 516 | 330 | ||||||||||||||
| Amortization of investment tax credit | (3) | (3) | (3) | ||||||||||||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||||||||
| Deferred - Federal | 2 | 12 | 6 | ||||||||||||||
| Deferred - State | (10) | (56) | (33) | ||||||||||||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | (8) | (44) | (27) | ||||||||||||||
| Total income tax expense (benefit) | $ | 201 | $ | 503 | $ | 314 | |||||||||||
| Total income tax expense (benefit) - Federal | $ | 119 | $ | 36 | $ | 130 | |||||||||||
| Total income tax expense (benefit) - State | 82 | 85 | 85 | ||||||||||||||
| Total income tax expense (benefit) - Foreign | — | 382 | 99 | ||||||||||||||
| Total income tax expense (benefit) | $ | 201 | $ | 503 | $ | 314 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | (10 | ) | $ | (19 | ) | $ | 6 | |||
| Current - State | 19 | 17 | 25 | ||||||||
| Current - Foreign | 91 | 104 | 45 | ||||||||
| Total Current Expense (Benefit) | 100 | 102 | 76 | ||||||||
| Deferred - Federal (a) | 139 | 203 | 532 | ||||||||
| Deferred - State | 76 | 100 | 88 | ||||||||
| Deferred - Foreign | 123 | 107 | 133 | ||||||||
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 338 | 410 | 753 | ||||||||
| Amortization of investment tax credit | (3 | ) | (3 | ) | (3 | ) | |||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||
| Deferred - Federal | 7 | (20 | ) | (16 | ) | ||||||
| Deferred - State | (33 | ) | (31 | ) | (26 | ) | |||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | (26 | ) | (51 | ) | (42 | ) | |||||
| Total income tax expense (benefit) | $ | 409 | $ | 458 | $ | 784 | |||||
| Total income tax expense (benefit) - Federal | $ | 133 | $ | 161 | $ | 519 | |||||
| Total income tax expense (benefit) - State | 62 | 86 | 87 | ||||||||
| Total income tax expense (benefit) - Foreign | 214 | 211 | 178 | ||||||||
| Total income tax expense (benefit) | $ | 409 | $ | 458 | $ | 784 | |||||
In 2020, the U.K. Finance Act 2020 cancelled the tax rate reduction from 35%19% to 21% on17%. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax assetsliabilities and liabilities;
In the table above, the following income tax expense (benefit) are excluded from income taxes:
| 2019 | 2018 | 2017 | |||||||||
| Other comprehensive income | $ | (93 | ) | $ | (6 | ) | $ | (34 | ) | ||
| Valuation allowance on state deferred taxes recorded to other comprehensive income | — | — | (1 | ) | |||||||
| Total | $ | (93 | ) | $ | (6 | ) | $ | (35 | ) | ||
118
| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 453 | $ | 480 | $ | 669 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit (a) | 45 | 40 | 46 | ||||||||
| Valuation allowance adjustments (b) | 22 | 21 | 36 | ||||||||
| Impact of lower U.K. income tax rates (c) | (25 | ) | (25 | ) | (176 | ) | |||||
| U.S. income tax on foreign earnings - net of foreign tax credit (a)(d) | 2 | 3 | 47 | ||||||||
| Foreign income return adjustments | — | — | (8 | ) | |||||||
| Impact of the U.K. Finance Act on deferred tax balances (e) | (14 | ) | (13 | ) | (16 | ) | |||||
| Depreciation and other items not normalized | (10 | ) | (11 | ) | (10 | ) | |||||
| Amortization of excess deferred federal and state income taxes (f) | (40 | ) | (37 | ) | — | ||||||
| Interest benefit on U.K. financing entities | (12 | ) | (17 | ) | (16 | ) | |||||
| Deferred tax impact of U.S. tax reform (g) | — | — | 220 | ||||||||
| Deferred tax impact of Kentucky tax reform (h) | — | 9 | — | ||||||||
| Kentucky recycling credit, net of federal income tax expense (i) | (18 | ) | — | — | |||||||
| Other | 6 | 8 | (8 | ) | |||||||
| Total increase (decrease) | (44 | ) | (22 | ) | 115 | ||||||
| Total income tax expense (benefit) | $ | 409 | $ | 458 | $ | 784 | |||||
| Effective income tax rate | 19.0 | % | 20.0 | % | 41.0 | % | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Discontinued operations | $ | (42) | $ | 759 | $ | 188 | |||||||||||
| Reclassification from AOCI due to sale of UK utility business | — | 660 | — | ||||||||||||||
| Other comprehensive income | 11 | 150 | (19) | ||||||||||||||
| Total | $ | (31) | $ | 1,569 | $ | 169 | |||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 192 | $ | 109 | $ | 200 | |||||||||||
| State income taxes, net of federal income tax benefit | 68 | 23 | 48 | ||||||||||||||
| Valuation allowance adjustments (a) | 9 | 48 | 24 | ||||||||||||||
| Federal and state income tax return adjustments | (1) | (3) | (9) | ||||||||||||||
| Impact of the U.K. Finance Acts on deferred tax balances (b) | — | 383 | 101 | ||||||||||||||
| Depreciation and other items not normalized | (8) | (5) | (5) | ||||||||||||||
| Amortization of excess deferred federal and state income taxes | (54) | (54) | (43) | ||||||||||||||
| Non-deductible officer's salary | 5 | 6 | 7 | ||||||||||||||
| Other | (10) | (4) | (9) | ||||||||||||||
| Total increase (decrease) | 9 | 394 | 114 | ||||||||||||||
| Total income tax expense (benefit) | $ | 201 | $ | 503 | $ | 314 | |||||||||||
| Effective income tax rate | 22.0% | 96.5% | 32.9% | ||||||||||||||
(a)In 2021, PPL recorded a $31 million state deferred tax benefit on a net operating loss and an offsetting valuation allowance in connection with the loss on extinguishment associated with a tender offer to purchase and retire PPL Capital Funding's outstanding Senior Notes.
In 2019, 20182022, 2021, and 2017,2020, PPL recorded deferred income tax expense of $25$5 million,$24 $15 million and $16$24 million for valuation allowances primarily related to increased Pennsylvania net operating loss carryforwards expected to be unutilized.
(b)In 2017, PPL recorded2020, the U.K. Finance Act 2020 cancelled the tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19% for financial years 2020 and 2021. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred incometax liabilities and a corresponding deferred tax expense of $83 million primarily related$106 million.
The U.K. Finance Act 2021, formally enacted on June 10, 2021, increased the U.K. corporation tax rate from 19% to enactment25%, effective April 1, 2023. The primary impact of the TCJA. The enactedcorporation tax law included a conversion from a worldwiderate increase was an increase in deferred tax system to a territorial tax system, effective January 1, 2018. In the transition to the territorial regime, a one-time transition tax was imposed on PPL’s unrepatriated accumulated foreign earnings in 2017. These earnings were treated as a taxable deemed dividend to PPL of approximately $462 million, including $205 million of foreign tax credits. As the PPL consolidated U.S. group had a taxable loss for 2017, inclusiveliabilities of the taxable deemed dividend, these credits were recorded asU.K. utility business, which was sold on June 14, 2021, and a deferred tax asset. However, it is expected that under the TCJA, only $83 million of the $205 million of foreign tax credits will be realized in the carry forward period. Accordingly, a valuation allowance on the current year foreign tax credits in the amount of $122 million has been recorded to reflect the reduction in the future utilization of the credits. The foreign tax credits associated with the deemed repatriation result in a gross carryforward and corresponding deferred tax assetexpense of $205$383 million, offset by a valuation allowance of $122 million.which was recognized in continuing operations in 2021.
(a)Increase primarily | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| State gross receipts | $ | 107 | $ | 103 | $ | 102 | |||||
| State capital stock | — | — | (6 | ) | |||||||
| Foreign property | 127 | 134 | 127 | ||||||||
| Domestic Other | 79 | 75 | 69 | ||||||||
| Total | $ | 313 | $ | 312 | $ | 292 | |||||
(PPL Electric)
The provision for PPL Electric's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the PUCPAPUC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.
Significant components of PPL Electric's deferred income tax assets and liabilities were as follows:
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Accrued pension and postretirement costs | $ | 81 | $ | 110 | |||
| Contributions in aid of construction | 88 | 118 | |||||
| Regulatory liabilities | 31 | 35 | |||||
| Income taxes due to customers | 170 | 181 | |||||
| State loss carryforwards | 6 | 14 | |||||
| Federal loss carryforwards | 78 | 79 | |||||
| Other | 23 | 25 | |||||
| Total deferred tax assets | 477 | 562 | |||||
| 2019 | 2018 | ||||||
| Deferred Tax Liabilities | |||||||
| Electric utility plant - net | 1,761 | 1,681 | |||||
| Regulatory assets | 139 | 176 | |||||
| Other | 24 | 25 | |||||
| Total deferred tax liabilities | 1,924 | 1,882 | |||||
| Net deferred tax liability | $ | 1,447 | $ | 1,320 | |||
| 2022 | 2021 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Accrued pension and postretirement costs | $ | 27 | $ | 14 | |||||||
| Contributions in aid of construction | 87 | 95 | |||||||||
| Regulatory liabilities | 36 | 52 | |||||||||
| Income taxes due to customers | 193 | 154 | |||||||||
| Other | 18 | 21 | |||||||||
| Total deferred tax assets | 361 | 336 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Electric utility plant - net | 1,745 | 1,891 | |||||||||
| Regulatory assets | 93 | 74 | |||||||||
| Prepayments | 35 | — | |||||||||
| Other | 2 | 39 | |||||||||
| Total deferred tax liabilities | 1,875 | 2,004 | |||||||||
| Net deferred tax liability | $ | 1,514 | $ | 1,668 | |||||||
PPL Electric expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.
| Gross | Deferred Tax Asset | Expiration | |||||||
| Loss carryforwards | |||||||||
| Federal net operating losses | $ | 363 | $ | 76 | 2032-2037 | ||||
| Federal charitable contributions | 9 | 2 | 2020-2024 | ||||||
| State net operating losses | 81 | 6 | 2031-2032 | ||||||
Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:
| 2022 | 2021 | 2020 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Current - Federal | $ | 63 | $ | 40 | $ | 61 | |||||||||||
| Current - State | 20 | 35 | 23 | ||||||||||||||
| Total Current Expense (Benefit) | 83 | 75 | 84 | ||||||||||||||
| Deferred - Federal | 60 | 59 | 45 | ||||||||||||||
| Deferred - State | 31 | 20 | 38 | ||||||||||||||
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 91 | 79 | 83 | ||||||||||||||
| Total income tax expense (benefit) | $ | 174 | $ | 154 | $ | 167 | |||||||||||
| Total income tax expense (benefit) - Federal | $ | 123 | $ | 99 | $ | 106 | |||||||||||
| Total income tax expense (benefit) - State | 51 | 55 | 61 | ||||||||||||||
| Total income tax expense (benefit) | $ | 174 | $ | 154 | $ | 167 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | 44 | $ | 2 | $ | (65 | ) | ||||
| Current - State | 15 | 9 | 20 | ||||||||
| Total Current Expense (Benefit) | 59 | 11 | (45 | ) | |||||||
| Deferred - Federal (a) | 51 | 96 | 234 | ||||||||
| Deferred - State | 39 | 37 | 29 | ||||||||
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 90 | 133 | 263 | ||||||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||
| Deferred - Federal | — | (8 | ) | (5 | ) | ||||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | — | (8 | ) | (5 | ) | ||||||
| Total income tax expense (benefit) | $ | 149 | $ | 136 | $ | 213 | |||||
| Total income tax expense (benefit) - Federal | $ | 95 | $ | 90 | $ | 164 | |||||
| Total income tax expense (benefit) - State | 54 | 46 | 49 | ||||||||
| Total income tax expense (benefit) | $ | 149 | $ | 136 | $ | 213 | |||||
| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 127 | $ | 119 | $ | 201 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit (a) | 47 | 43 | 36 | ||||||||
| Depreciation and other items not normalized | (10 | ) | (11 | ) | (8 | ) | |||||
| Amortization of excess deferred federal income taxes (b) | (18 | ) | (17 | ) | — | ||||||
| Deferred tax impact of U.S. tax reform (c) | — | — | (13 | ) | |||||||
| Other | 3 | 2 | (3 | ) | |||||||
| Total increase (decrease) | 22 | 17 | 12 | ||||||||
| Total income tax expense (benefit) | $ | 149 | $ | 136 | $ | 213 | |||||
| Effective income tax rate | 24.6 | % | 24.0 | % | 37.0 | % | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 147 | $ | 126 | $ | 139 | |||||||||||
| Increase (decrease) due to: | |||||||||||||||||
| State income taxes, net of federal income tax benefit | 54 | 46 | 52 | ||||||||||||||
| Federal and state income tax return adjustments | (1) | — | (4) | ||||||||||||||
| Depreciation and other items not normalized | (7) | (5) | (5) | ||||||||||||||
| Amortization of excess deferred federal income taxes (a) | (12) | (14) | (16) | ||||||||||||||
| State income tax rate change (b) | (9) | — | — | ||||||||||||||
| Other | 2 | 1 | 1 | ||||||||||||||
| Total increase (decrease) | 27 | 28 | 28 | ||||||||||||||
| Total income tax expense (benefit) | $ | 174 | $ | 154 | $ | 167 | |||||||||||
| Effective income tax rate | 24.9% | 25.7% | 25.2% | ||||||||||||||
(a)In 2022, 2021, and 2020, PPL Electric recorded lower |
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| State gross receipts | $ | 107 | $ | 103 | $ | 102 | |||||
| Property and other | 5 | 6 | 5 | ||||||||
| Total | $ | 112 | $ | 109 | $ | 107 | |||||
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Federal loss carryforwards | $ | 140 | $ | 142 | |||
| State loss carryforwards | 31 | 33 | |||||
| Federal tax credit carryforwards | 162 | 169 | |||||
| Contributions in aid of construction | 23 | 21 | |||||
| Regulatory liabilities | 44 | 52 | |||||
| Accrued pension and postretirement costs | 71 | 92 | |||||
| State tax credit carryforwards | 19 | 1 | |||||
| Income taxes due to customers | 292 | 299 | |||||
| Deferred investment tax credits | 31 | 32 | |||||
| Lease liabilities | 14 | — | |||||
| Valuation allowances | (6 | ) | (8 | ) | |||
| Other | 28 | 28 | |||||
| Total deferred tax assets | 849 | 861 | |||||
| Deferred Tax Liabilities | |||||||
| Plant - net | 1,778 | 1,671 | |||||
| Regulatory assets | 122 | 138 | |||||
| Lease right-of-use assets | 12 | — | |||||
| Other | 6 | 8 | |||||
| Total deferred tax liabilities | 1,918 | 1,817 | |||||
| Net deferred tax liability | $ | 1,069 | $ | 956 | |||
| Gross | Deferred Tax Asset | Valuation Allowance | Expiration | ||||||||||
| Loss carryforwards | |||||||||||||
| Federal net operating losses | $ | 668 | $ | 140 | $ | — | 2032 - 2037 | ||||||
| Federal charitable contributions | 23 | 5 | — | 2020 - 2024 | |||||||||
| State net operating losses | 797 | 31 | — | 2029 - 2038 | |||||||||
| Gross | Deferred Tax Asset | Valuation Allowance | Expiration | ||||||
| Credit carryforwards | |||||||||
| Federal investment tax credit | 133 | — | 2025 - 2028, 2036 - 2039 | ||||||
| Federal alternative minimum tax credit (a) | 7 | — | Indefinite | ||||||
| Federal - other | 22 | (6 | ) | 2020-2039 | |||||
| State - recycling credit | 18 | — | 2028 | ||||||
| State - other | 1 | — | Indefinite | ||||||
Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | ||||||||||||
| 2019 | $ | 8 | $ | 3 | $ | 5 | (a) | $ | 6 | ||||||
| 2018 | 8 | — | — | 8 | |||||||||||
| 2017 | 11 | 4 | 7 | (a) | 8 | ||||||||||
(b)On July 8, 2022, the Governor of federalPennsylvania signed into law Pennsylvania House Bill 1342 (H.B. 1342). Among other changes to the state tax code, the bill reduces the corporate net income taxes derivedtax rate from statutory9.99% to 8.99% beginning January 1, 2023, and further reduces the rate annually by half a percentage point until the rate reaches 4.99% in 2031. The income statement impact of the corporate net income tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and detailsreduction was a deferred tax benefit of "Taxes, other than income" were:$9 million.
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | 20 | $ | 31 | $ | 74 | |||||
| Current - State | — | 4 | 6 | ||||||||
| Total Current Expense (Benefit) | 20 | 35 | 80 | ||||||||
| Deferred - Federal (a) | 81 | 65 | 268 | ||||||||
| Deferred - State (b) | 5 | 34 | 32 | ||||||||
| Total Deferred Expense (Benefit), excluding benefits of operating loss carryforwards | 86 | 99 | 300 | ||||||||
| Amortization of investment tax credit - Federal | (3 | ) | (3 | ) | (3 | ) | |||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||
| Deferred - Federal | — | (2 | ) | (2 | ) | ||||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | — | (2 | ) | (2 | ) | ||||||
| Total income tax expense (benefit) (c) | $ | 103 | $ | 129 | $ | 375 | |||||
| Total income tax expense (benefit) - Federal | $ | 98 | $ | 91 | $ | 337 | |||||
| Total income tax expense (benefit) - State | 5 | 38 | 38 | ||||||||
| Total income tax expense (benefit) (c) | $ | 103 | $ | 129 | $ | 375 | |||||
| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 120 | $ | 121 | $ | 242 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit | 23 | 22 | 26 | ||||||||
| Amortization of investment tax credit | (3 | ) | (3 | ) | (3 | ) | |||||
| Amortization of excess deferred federal and state income taxes (b) | (23 | ) | (20 | ) | (2 | ) | |||||
| Deferred tax impact of U.S. tax reform (c) | — | — | 112 | ||||||||
| Deferred tax impact of state tax reform (d) | — | 9 | — | ||||||||
| Kentucky Recycling Credit, net of federal income tax expense (e) | (18 | ) | — | — | |||||||
| Other | 4 | — | — | ||||||||
| Total increase (decrease) | (17 | ) | 8 | 133 | |||||||
| Total income tax expense (benefit) | $ | 103 | $ | 129 | $ | 375 | |||||
| Effective income tax rate | 18.0 | % | 22.5 | % | 54.3 | % | |||||
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| Property and other | $ | 74 | $ | 70 | $ | 65 | |||||
| Total | $ | 74 | $ | 70 | $ | 65 | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Taxes, other than income | |||||||||||||||||
| State gross receipts | $ | 142 | $ | 113 | $ | 100 | |||||||||||
| Property and other | 7 | 7 | 7 | ||||||||||||||
| Total | $ | 149 | $ | 120 | $ | 107 | |||||||||||
(LG&E)
The provision for LG&E's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.
Significant components of LG&E's deferred income tax assets and liabilities were as follows:
| 2022 | 2021 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Contributions in aid of construction | $ | 17 | $ | 15 | |||||||
| Regulatory liabilities | 18 | 18 | |||||||||
| Deferred investment tax credits | 8 | 8 | |||||||||
| Income taxes due to customers | 119 | 125 | |||||||||
| State tax credit carryforwards | 9 | 11 | |||||||||
| Lease liabilities | 4 | 4 | |||||||||
| Valuation allowances | (9) | (11) | |||||||||
| Other | 8 | 11 | |||||||||
| Total deferred tax assets | 174 | 181 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Plant - net | 869 | 854 | |||||||||
| Regulatory assets | 69 | 65 | |||||||||
| Lease right-of-use assets | 3 | 4 | |||||||||
| Other | 4 | 9 | |||||||||
| Total deferred tax liabilities | 945 | 932 | |||||||||
| Net deferred tax liability | $ | 771 | $ | 751 | |||||||
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Contributions in aid of construction | $ | 15 | $ | 14 | |||
| Regulatory liabilities | 19 | 24 | |||||
| Accrued pension and postretirement costs | 6 | 16 | |||||
| Deferred investment tax credits | 8 | 9 | |||||
| Income taxes due to customers | 136 | 139 | |||||
| State tax credit carryforwards | 14 | — | |||||
| Lease liabilities | 5 | — | |||||
| Valuation allowances | (14 | ) | — | ||||
| Other | 10 | 15 | |||||
| Total deferred tax assets | 199 | 217 | |||||
| 2019 | 2018 | ||||||
| Deferred Tax Liabilities | |||||||
| Plant - net | 811 | 751 | |||||
| Regulatory assets | 77 | 88 | |||||
| Lease right-of-use assets | 4 | — | |||||
| Other | 4 | 6 | |||||
| Total deferred tax liabilities | 896 | 845 | |||||
| Net deferred tax liability | $ | 697 | $ | 628 | |||
At December 31, 20192022, LG&E had $14$9 million of state credit carryforwards that expire in 2028. In 2019, LG&E recorded2028 and a $14$9 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.
Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were:
| 2022 | 2021 | 2020 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Current - Federal | $ | 60 | $ | 41 | $ | 53 | |||||||||||
| Current - State | 9 | 5 | 7 | ||||||||||||||
| Total Current Expense (Benefit) | 69 | 46 | 60 | ||||||||||||||
| Deferred - Federal | (10) | 1 | (4) | ||||||||||||||
| Deferred - State | 5 | 8 | 7 | ||||||||||||||
| Total Deferred Expense (Benefit) | (5) | 9 | 3 | ||||||||||||||
| Amortization of investment tax credit - Federal | (1) | (1) | (1) | ||||||||||||||
| Total income tax expense (benefit) | $ | 63 | $ | 54 | $ | 62 | |||||||||||
| Total income tax expense (benefit) - Federal | $ | 49 | $ | 41 | $ | 48 | |||||||||||
| Total income tax expense (benefit) - State | 14 | 13 | 14 | ||||||||||||||
| Total income tax expense (benefit) | $ | 63 | $ | 54 | $ | 62 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | 4 | $ | — | $ | — | |||||
| Current - State | 4 | 4 | 5 | ||||||||
| Total Current Expense (Benefit) | 8 | 4 | 5 | ||||||||
| Deferred - Federal | 46 | 51 | 112 | ||||||||
| Deferred - State | 10 | 10 | 14 | ||||||||
| Total Deferred Expense (Benefit), excluding benefits of operating loss carryforwards | 56 | 61 | 126 | ||||||||
| Amortization of investment tax credit - Federal | (1 | ) | (1 | ) | (1 | ) | |||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||
| Deferred - Federal | — | — | 1 | ||||||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | — | — | 1 | ||||||||
| Total income tax expense (benefit) | $ | 63 | $ | 64 | $ | 131 | |||||
| Total income tax expense (benefit) - Federal | $ | 49 | $ | 50 | $ | 112 | |||||
| Total income tax expense (benefit) - State | 14 | 14 | 19 | ||||||||
| Total income tax expense (benefit) | $ | 63 | $ | 64 | $ | 131 | |||||
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| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 62 | $ | 62 | $ | 120 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit | 12 | 11 | 14 | ||||||||
| Amortization of excess deferred federal and state income taxes (b) | (10 | ) | (8 | ) | (1 | ) | |||||
| Kentucky recycling credit, net of federal income tax expense (c) | (14 | ) | — | — | |||||||
| Valuation allowance adjustments (c) | 14 | — | — | ||||||||
| Other | (1 | ) | (1 | ) | (2 | ) | |||||
| Total increase (decrease) | 1 | 2 | 11 | ||||||||
| Total income tax expense (benefit) | $ | 63 | $ | 64 | $ | 131 | |||||
| Effective income tax rate | 21.4 | % | 21.5 | % | 38.1 | % | |||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| Property and other | $ | 39 | $ | 36 | $ | 33 | |||||
| Total | $ | 39 | $ | 36 | $ | 33 | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Taxes, other than income | |||||||||||||||||
| Property and other | $ | 48 | $ | 46 | $ | 40 | |||||||||||
| Total | $ | 48 | $ | 46 | $ | 40 | |||||||||||
(KU)
The provision for KU's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC, the VSCC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.
Significant components of KU's deferred income tax assets and liabilities were as follows:
| 2022 | 2021 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Contributions in aid of construction | $ | 9 | $ | 9 | |||||||
| Regulatory liabilities | 23 | 23 | |||||||||
| Deferred investment tax credits | 21 | 22 | |||||||||
| Income taxes due to customers | 136 | 143 | |||||||||
| State tax credit carryforwards | 4 | 4 | |||||||||
| Lease liabilities | 5 | 7 | |||||||||
| Valuation allowances | (3) | (3) | |||||||||
| Other | 4 | 4 | |||||||||
| Total deferred tax assets | 199 | 209 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Plant - net | 1,028 | 1,012 | |||||||||
| Regulatory assets | 56 | 41 | |||||||||
| Pension and postretirement costs | 6 | 13 | |||||||||
| Lease right-of-use assets | 5 | 6 | |||||||||
| Other | — | 2 | |||||||||
| Total deferred tax liabilities | 1,095 | 1,074 | |||||||||
| Net deferred tax liability | $ | 896 | $ | 865 | |||||||
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Contributions in aid of construction | $ | 8 | $ | 7 | |||
| Regulatory liabilities | 25 | 28 | |||||
| Accrued pension and postretirement costs | — | 7 | |||||
| Deferred investment tax credits | 23 | 23 | |||||
| Income taxes due to customers | 156 | 160 | |||||
| State tax credit carryforwards | 5 | — | |||||
| Lease liabilities | 8 | — | |||||
| Valuation allowances | (4 | ) | — | ||||
| Other | 3 | 3 | |||||
| Total deferred tax assets | 224 | 228 | |||||
| Deferred Tax Liabilities | |||||||
| Plant - net | 959 | 911 | |||||
| Regulatory assets | 45 | 50 | |||||
| Accrued pension and postretirement costs | 2 | — | |||||
| Lease right-of-use assets | 7 | — | |||||
| Other | 3 | 2 | |||||
| Total deferred tax liabilities | 1,016 | 963 | |||||
| Net deferred tax liability | $ | 792 | $ | 735 | |||
At December 31, 20192022, KU had $5$4 million of state credit carryforwards of which $4$3 million will expire in 2028 and $1 million that has an indefinite carryforward period. In 2019,At December 31, 2022, KU recordedhad a $4$3 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.
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Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were:
| 2022 | 2021 | 2020 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Current - Federal | $ | 63 | $ | 58 | $ | 40 | |||||||||||
| Current - State | 11 | 8 | 3 | ||||||||||||||
| Total Current Expense (Benefit) | 74 | 66 | 43 | ||||||||||||||
| Deferred - Federal | (3) | (4) | 11 | ||||||||||||||
| Deferred - State | 7 | 7 | 11 | ||||||||||||||
| Total Deferred Expense (Benefit) | 4 | 3 | 22 | ||||||||||||||
| Amortization of investment tax credit - Federal | (2) | (2) | (2) | ||||||||||||||
| Total income tax expense (benefit) | $ | 76 | $ | 67 | $ | 63 | |||||||||||
| Total income tax expense (benefit) - Federal | $ | 58 | $ | 52 | $ | 49 | |||||||||||
| Total income tax expense (benefit) - State | 18 | 15 | 14 | ||||||||||||||
| Total income tax expense (benefit) | $ | 76 | $ | 67 | $ | 63 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | 35 | $ | 22 | $ | — | |||||
| Current - State | 5 | 6 | 7 | ||||||||
| Total Current Expense (Benefit) | 40 | 28 | 7 | ||||||||
| Deferred - Federal | 28 | 40 | 138 | ||||||||
| Deferred - State | 13 | 10 | 16 | ||||||||
| Total Deferred Expense (Benefit) | 41 | 50 | 154 | ||||||||
| Amortization of investment tax credit - Federal | (2 | ) | (2 | ) | (2 | ) | |||||
| Total income tax expense (benefit) | $ | 79 | $ | 76 | $ | 159 | |||||
| Total income tax expense (benefit) - Federal | $ | 61 | $ | 60 | $ | 136 | |||||
| Total income tax expense (benefit) - State | 18 | 16 | 23 | ||||||||
| Total income tax expense (benefit) | $ | 79 | $ | 76 | $ | 159 | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 84 | $ | 76 | $ | 72 | |||||||||||
| Increase (decrease) due to: | |||||||||||||||||
| State income taxes, net of federal income tax benefit | 16 | 14 | 14 | ||||||||||||||
| Amortization of investment tax credit | (2) | (2) | (2) | ||||||||||||||
| Amortization of excess deferred federal and state income taxes | (21) | (20) | (17) | ||||||||||||||
| Other | (1) | (1) | (4) | ||||||||||||||
| Total decrease | (8) | (9) | (9) | ||||||||||||||
| Total income tax expense (benefit) | $ | 76 | $ | 67 | $ | 63 | |||||||||||
| Effective income tax rate | 19.1% | 18.4% | 18.4% | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 78 | $ | 76 | $ | 146 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit | 15 | 13 | 15 | ||||||||
| Amortization of investment tax credit | (2 | ) | (2 | ) | (2 | ) | |||||
| Amortization of excess deferred federal and state income taxes (b) | (13 | ) | (12 | ) | (1 | ) | |||||
| Kentucky recycling credit, net of federal income tax expense (c) | (4 | ) | — | — | |||||||
| Valuation allowance adjustments (c) | 4 | — | — | ||||||||
| Other | 1 | 1 | 1 | ||||||||
| Total increase (decrease) | 1 | — | 13 | ||||||||
| Total income tax expense (benefit) | $ | 79 | $ | 76 | $ | 159 | |||||
| Effective income tax rate | 21.2 | % | 21.0 | % | 38.0 | % | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Taxes, other than income | |||||||||||||||||
| Property and other | $ | 45 | $ | 41 | $ | 37 | |||||||||||
| Total | $ | 45 | $ | 41 | $ | 37 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| Property and other | $ | 35 | $ | 34 | $ | 32 | |||||
| Total | $ | 35 | $ | 34 | $ | 32 | |||||
Unrecognized Tax Benefits(All Registrants)
PPL or its subsidiaries file tax returns in 4four major tax jurisdictions. The income tax provisions for PPL Electric, LG&E and KU are calculated in accordance with an intercompany tax sharing agreement, which provides that taxable income be calculated as if each domestic subsidiary filed a separate consolidated return. PPL Electric or its subsidiaries indirectly or directly file tax returns in 2three major tax jurisdictions, and LKE, LG&E and KU or their subsidiaries indirectly or directly file tax returns in 2two major tax jurisdictions. With few exceptions, at December 31, 2019,2022, these jurisdictions, as well as the tax years that are no longer subject to examination, were as follows.
| PPL | PPL Electric | KU | |||||||||||||||||||||||
| U.S. (federal) | |||||||||||||||||||||||||
| Pennsylvania (state) | |||||||||||||||||||||||||
| Kentucky (state) | |||||||||||||||||||||||||
| U.K. (foreign) | |||||||||||||||||||||||||
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Other
Narragansett Electric Acquisition (PPL)
The acquisition of Narragansett Electric was deemed an asset acquisition for federal and state income tax purposes, as a result of PPL and National Grid making a tax election under Internal Revenue Code (IRC) §338(h)(10). Accordingly, the tax bases of substantially all of the assets acquired were increased to fair market value, which equaled net book value, thereby eliminating the related deferred tax assets and liabilities. This election resulted in tax goodwill that will be amortized for tax purposes over 15 years.
Pennsylvania State Tax CutsReform (PPL and Jobs Act (TCJA)PPL Electric)
On December 22, 2017, President TrumpJuly 8, 2022, the Governor of Pennsylvania signed into law the TCJA. Substantially all of the provisions of the TCJA were effective for taxable years beginning after December 31, 2017. The TCJA included significantPennsylvania House Bill 1342 (H.B. 1342). Among other changes to the taxation of corporations, including provisions specifically applicable to regulated public utilities. The more significant changes that impactstate tax code, the Registrants were:
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Income tax expense (benefit) | $ | 321 | $ | (13 | ) | $ | 112 | $ | — | $ | — | ||||||||
GAAP requires that deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary book-to-tax differences are expected to be realized or settled. Thus, atIn 2022, PPL and PPL Electric recorded an increase in regulatory liabilities of $270 million for the dateremeasurement of enactment, the Registrants' deferred taxes were remeasured based upon the U.S. federal corporate income tax rate of 21%. For PPL’s regulated entities, the changes in deferred taxes were, in large part, recorded as an offset to either a regulatory asset or regulatory liability and will be reflected in future rates charged to customers. The tax rate reduction impacts on non-regulatedaccumulated deferred tax assetsbalances and liabilities were recorded as an adjustment to the Registrants' deferred tax provisions, and were reflected in "Income Taxes" on the Statement of Income for the year ended December 31, 2017 as follows:
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Income tax expense (benefit) | $ | 220 | $ | (13 | ) | $ | 112 | $ | — | $ | — | ||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Net Increase in Regulatory Liabilities | $ | 2,185 | $ | 1,019 | $ | 1,166 | $ | 532 | $ | 634 | |||||||||
| Taxable Income (Loss) (a) | |||||||||||
| Adjustments per 2017 Tax Return | Adjustments per 2017 Tax Provision | 2018 Adjustments | |||||||||
| PPL | |||||||||||
| Deemed Dividend | $ | 397 | $ | 462 | $ | (65 | ) | ||||
| Bonus Depreciation (b) | (67 | ) | — | (67 | ) | ||||||
| Consolidated Federal Net Operating Loss due to the TCJA (c) | (330 | ) | (462 | ) | 132 | ||||||
| Total | $ | — | $ | — | $ | — | |||||
| PPL Electric | |||||||||||
| Bonus Depreciation (b) | $ | (39 | ) | $ | — | $ | (39 | ) | |||
| Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) | (68 | ) | (105 | ) | 37 | ||||||
| Total | $ | (107 | ) | $ | (105 | ) | $ | (2 | ) | ||
| LKE | |||||||||||
| Bonus Depreciation (b) | $ | (28 | ) | $ | — | $ | (28 | ) | |||
| Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) | (32 | ) | (45 | ) | 13 | ||||||
| Total | $ | (60 | ) | $ | (45 | ) | $ | (15 | ) | ||
| LG&E | |||||||||||
| Bonus Depreciation (b) | $ | (17 | ) | $ | — | $ | (17 | ) | |||
| Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) | 17 | — | 17 | ||||||||
| Total | $ | — | $ | — | $ | — | |||||
| KU | |||||||||||
| Bonus Depreciation (b) | $ | (11 | ) | $ | — | $ | (11 | ) | |||
| Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) | 11 | — | 11 | ||||||||
| Total | $ | — | $ | — | $ | — | |||||
| Income Tax Expense (Benefit) | |||||||||||
| Adjustments per 2017 Tax Return | Adjustments per 2017 Tax Provision | 2018 Adjustments | |||||||||
| PPL | |||||||||||
| Deemed Dividend | $ | 139 | $ | 161 | $ | (22 | ) | ||||
| Foreign Tax Credits | (157 | ) | (205 | ) | 48 | ||||||
| Valuation of Foreign Tax Credit Carryforward | 110 | 145 | (35 | ) | |||||||
| Reduction in U.S. federal income tax rate | 229 | 220 | 9 | ||||||||
| Total | $ | 321 | $ | 321 | $ | — | |||||
| PPL Electric | |||||||||||
| Reduction in U.S. federal income tax rate | $ | (13 | ) | $ | (13 | ) | $ | — | |||
| LKE | |||||||||||
| Reduction in U.S. federal income tax rate | $ | 110 | $ | 112 | $ | (2 | ) | ||||
On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law. Among other things, the IRA enacted a new 15% corporate "book minimum tax," which is based on adjusted GAAP pre-tax income and KU's accounting foris only applicable to corporations whose pre-tax income taxes is impactedexceeds a certain threshold. PPL continues to assess the impacts of the IRA on the financial statements of PPL and the other Registrants and will monitor guidance issued by rate regulation. Therefore, reductions in regulated accumulated deferred income tax balances due to the reductionU.S. Treasury in the Kentucky corporate incomefuture. In addition, the IRA enacted numerous new tax ratecredits, largely associated with renewable energy. PPL continues to 5% underassess the applicability of these provisions of HB 487 will result in amounts previously collected from utility customers for these deferred taxes to be refundable to such customers in future periods. In 2018, LG&EPPL and KU recorded the impact of the reduced tax rate, related to the remeasurement of deferred income taxes, as an increase in regulatory liabilities of $16 million and $19 million. In 2019, LG&E and KU began returning state excess deferred income taxes to customers in conjunction with the 2018 Kentucky base rate case. See Note 7 for additional information related to the rate case proceedings.its subsidiaries.
7. Utility Rate Regulation
Regulatory Assets and Liabilities
(All Registrants)
PPL, PPL Electric, LKE, LG&E and KU reflect the effects of regulatory actions in the financial statements for their cost-based rate-regulated utility operations. Regulatory assets and liabilities are classified as current if, upon initial recognition, the entire amount related to an item will be recovered or refunded within a year of the balance sheet date.
(PPL)
(PPL, LKE, LG&E and KU)
LG&E is subject to the jurisdiction of the KPSC and the FERC, and KU is subject to the jurisdiction of the KPSC, the FERC and the VSCC.
LG&E's and KU's Kentucky base rates are calculated based on recovery of costs as well as a return on capitalization (common equity, long-term debt and short-term debt) including adjustments for certain net investments and costs recovered separately through other means. As such, LG&E and KU generally earn a return on regulatory assets.
124
(PPL LKE and KU)
KU's Virginia base rates are calculated based on recovery of costs as well as a return on rate base (net utility plant plus working capital less accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities, except for regulatory assets and liabilities related to the levelized fuel factor, accumulated deferred income taxes, pension and postretirement benefits, and AROs related to certain CCR impoundments, are excluded from the return on rate base utilized in the calculation of Virginia base rates, no return is earned on the related assets.
KU's rates to municipal customers for wholesale power requirements are calculated based on annual updates to a formula rate that utilizes a return on rate base (net utility plant plus working capital less accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities, except accumulated deferred income taxes, are excluded from the return on rate base utilized in the development of municipal rates, no return is earned on the related assets.
(PPL and PPL Electric)
PPL Electric is subject to the jurisdiction of the PAPUC and the FERC. PPL Electric's distribution base rates are calculated based on recovery of costs as well as a return on distribution rate base (net utility plant plus a working capital allowance less plant-related deferred taxes and other miscellaneous additions and deductions). PPL Electric's transmission revenues are billed in accordance with a FERC tariff that allows for recovery of transmission costs incurred, a return on transmission-related rate base (net utility plant plus a working capital allowance less plant-related deferred taxes and other miscellaneous additions and deductions) and an automatic annual update. See "Transmission Formula Rate" below for additional information on this tariff. All regulatory assets and liabilities are excluded from distribution and transmission return on investment calculations; therefore, generally no return is earned on PPL Electric's regulatory assets.
(All Registrants)
The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations at December 31:
| PPL | PPL Electric | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||||||
| Gas supply clause | $ | 41 | $ | 21 | $ | — | $ | — | |||||||||||||||
| Rate adjustment mechanism | 96 | — | — | — | |||||||||||||||||||
| Derivative Instruments | 41 | — | — | — | |||||||||||||||||||
| Smart meter rider | 5 | 11 | 5 | 11 | |||||||||||||||||||
| Universal service rider | 3 | — | 3 | — | |||||||||||||||||||
| Fuel adjustment clause | 38 | 11 | — | — | |||||||||||||||||||
| Other | 34 | 21 | 5 | 11 | |||||||||||||||||||
| Total current regulatory assets | $ | 258 | $ | 64 | $ | 13 | $ | 22 | |||||||||||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||||||
| Defined benefit plans | $ | 778 | $ | 523 | $ | 353 | $ | 256 | |||||||||||||||
| Plant outage cost | 46 | 54 | — | — | |||||||||||||||||||
| Net Metering | 61 | — | — | — | |||||||||||||||||||
| Environmental Cost recovery | 102 | — | — | — | |||||||||||||||||||
| Taxes recoverable through future rates | 47 | — | — | — | |||||||||||||||||||
| Storm costs | 118 | 11 | — | — | |||||||||||||||||||
| Unamortized loss on debt | 21 | 24 | 3 | 4 | |||||||||||||||||||
| Interest rate swaps | 7 | 18 | — | — | |||||||||||||||||||
| Terminated interest rate swaps | 63 | 70 | — | — | |||||||||||||||||||
| Accumulated cost of removal of utility plant | 212 | 228 | 212 | 228 | |||||||||||||||||||
| AROs | 295 | 302 | — | — | |||||||||||||||||||
| Other | 69 | 6 | — | — | |||||||||||||||||||
| Total noncurrent regulatory assets | $ | 1,819 | $ | 1,236 | $ | 568 | $ | 488 | |||||||||||||||
| PPL | PPL Electric | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Current Regulatory Liabilities: | |||||||||||||||||||||||
| Generation supply charge | $ | 37 | $ | 10 | $ | 37 | $ | 10 | |||||||||||||||
| Transmission service charge | 14 | 21 | 7 | 21 | |||||||||||||||||||
| Universal service rider | — | 17 | — | 17 | |||||||||||||||||||
| TCJA customer refund | 15 | 22 | 15 | 22 | |||||||||||||||||||
| Act 129 compliance rider | 14 | 10 | 14 | 10 | |||||||||||||||||||
| Transmission formula rate return on equity (b) | — | 73 | — | 73 | |||||||||||||||||||
| Economic relief billing rate | — | 27 | — | — | |||||||||||||||||||
| Transmission formula rate | 12 | — | 12 | — | |||||||||||||||||||
| Rate adjustment mechanism | 96 | — | — | — | |||||||||||||||||||
| Energy efficiency | 23 | — | — | — | |||||||||||||||||||
| Other | 27 | 2 | — | — | |||||||||||||||||||
| Total current regulatory liabilities | $ | 238 | $ | 182 | $ | 85 | $ | 153 | |||||||||||||||
| Noncurrent Regulatory Liabilities: | |||||||||||||||||||||||
| Accumulated cost of removal of utility plant | $ | 950 | $ | 639 | $ | — | $ | — | |||||||||||||||
| Power purchase agreement - OVEC | 26 | 35 | — | — | |||||||||||||||||||
| Net deferred taxes | 2,094 | 1,591 | 775 | 531 | |||||||||||||||||||
| Defined benefit plans | 187 | 95 | 45 | 28 | |||||||||||||||||||
| Terminated interest rate swaps | 60 | 62 | — | — | |||||||||||||||||||
| Energy efficiency | 32 | — | — | — | |||||||||||||||||||
| Other | 63 | — | — | — | |||||||||||||||||||
| Total noncurrent regulatory liabilities | $ | 3,412 | $ | 2,422 | $ | 820 | $ | 559 | |||||||||||||||
| LG&E | KU | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||||||
| Gas supply clause | $ | 13 | $ | 21 | $ | — | $ | — | |||||||||||||||
| Gas line tracker | — | 3 | — | — | |||||||||||||||||||
| Generation formula rate | — | — | — | 2 | |||||||||||||||||||
| Fuel adjustment clause | 9 | 4 | 29 | 7 | |||||||||||||||||||
| Other | 1 | 5 | 3 | — | |||||||||||||||||||
| Total current regulatory assets | $ | 23 | $ | 33 | $ | 32 | $ | 9 | |||||||||||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||||||
| Defined benefit plans | $ | 209 | $ | 164 | $ | 140 | $ | 103 | |||||||||||||||
| Storm costs | 7 | 8 | 3 | 3 | |||||||||||||||||||
| Unamortized loss on debt | 11 | 12 | 7 | 8 | |||||||||||||||||||
| Interest rate swaps | 7 | 18 | — | — | |||||||||||||||||||
| Terminated interest rate swaps | 37 | 41 | 26 | 29 | |||||||||||||||||||
| AROs | 76 | 75 | 219 | 227 | |||||||||||||||||||
| Plant outage costs | 12 | 15 | 34 | 39 | |||||||||||||||||||
| Other | 14 | 4 | 13 | 2 | |||||||||||||||||||
| Total noncurrent regulatory assets | $ | 373 | $ | 337 | $ | 442 | $ | 411 | |||||||||||||||
| PPL | PPL Electric | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Current Regulatory Assets: | |||||||||||||||
| Gas supply clause | $ | 8 | $ | 12 | $ | — | $ | — | |||||||
| Smart meter rider | 13 | 11 | 13 | 11 | |||||||||||
| Plant outage costs | 32 | 10 | — | — | |||||||||||
| Transmission formula rate | — | — | 3 | — | |||||||||||
| Transmission service charge | 10 | — | 10 | — | |||||||||||
| Other | 4 | 3 | — | — | |||||||||||
| Total current regulatory assets (a) | $ | 67 | $ | 36 | $ | 26 | $ | 11 | |||||||
| Noncurrent Regulatory Assets: | |||||||||||||||
| Defined benefit plans | $ | 800 | $ | 963 | $ | 467 | $ | 558 | |||||||
| Storm costs | 39 | 56 | 15 | 22 | |||||||||||
| Unamortized loss on debt | 41 | 45 | 18 | 22 | |||||||||||
| Interest rate swaps | 22 | 20 | — | — | |||||||||||
| Terminated interest rate swaps | 81 | 87 | — | — | |||||||||||
| Accumulated cost of removal of utility plant | 220 | 200 | 220 | 200 | |||||||||||
| AROs | 279 | 273 | — | — | |||||||||||
| Act 129 compliance rider | 6 | 19 | 6 | 19 | |||||||||||
| Other | 4 | 10 | — | 3 | |||||||||||
| Total noncurrent regulatory assets | $ | 1,492 | $ | 1,673 | $ | 726 | $ | 824 | |||||||
| PPL | PPL Electric | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Current Regulatory Liabilities: | |||||||||||||||
| Generation supply charge | $ | 23 | $ | 33 | $ | 23 | $ | 33 | |||||||
| Transmission service charge | — | — | — | 3 | |||||||||||
| Environmental cost recovery | 5 | 16 | — | — | |||||||||||
| Universal service rider | 9 | 27 | 9 | 27 | |||||||||||
| Transmission formula rate | — | — | — | 3 | |||||||||||
| Fuel adjustment clause | 8 | — | — | — | |||||||||||
| TCJA customer refund | 61 | 20 | 59 | 3 | |||||||||||
| Storm damage expense rider | 5 | 5 | 5 | 5 | |||||||||||
| Generation formula rate | 1 | 7 | — | — | |||||||||||
| Other | 3 | 14 | — | — | |||||||||||
| Total current regulatory liabilities | $ | 115 | $ | 122 | $ | 96 | $ | 74 | |||||||
| Noncurrent Regulatory Liabilities: | |||||||||||||||
| Accumulated cost of removal of utility plant | $ | 640 | $ | 674 | $ | — | $ | — | |||||||
| Power purchase agreement - OVEC | 51 | 59 | — | — | |||||||||||
| Net deferred taxes | 1,756 | 1,826 | 588 | 629 | |||||||||||
| Defined benefit plans | 51 | 37 | 11 | 5 | |||||||||||
| Terminated interest rate swaps | 68 | 72 | — | — | |||||||||||
| TCJA customer refund | — | 41 | — | 41 | |||||||||||
| Other | 6 | 5 | — | — | |||||||||||
| Total noncurrent regulatory liabilities | $ | 2,572 | $ | 2,714 | $ | 599 | $ | 675 | |||||||
| LG&E | KU | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Current Regulatory Liabilities: | |||||||||||||||||||||||
| Economic relief billing credit | $ | — | $ | 21 | $ | — | $ | 6 | |||||||||||||||
| Other | 7 | — | 6 | 2 | |||||||||||||||||||
| Total current regulatory liabilities | $ | 7 | $ | 21 | $ | 6 | $ | 8 | |||||||||||||||
| Noncurrent Regulatory Liabilities: | |||||||||||||||||||||||
| Accumulated cost of removal of utility plant | $ | 287 | $ | 262 | $ | 389 | $ | 377 | |||||||||||||||
| Power purchase agreement - OVEC | 18 | 24 | 8 | 11 | |||||||||||||||||||
| Net deferred taxes | 477 | 491 | 546 | 569 | |||||||||||||||||||
| Defined benefit plans | 21 | 10 | 56 | 57 | |||||||||||||||||||
| Terminated interest rate swaps | 30 | 31 | 30 | 31 | |||||||||||||||||||
| Total noncurrent regulatory liabilities | $ | 833 | $ | 818 | $ | 1,029 | $ | 1,045 | |||||||||||||||
| LKE | LG&E | KU | |||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||||||
| Plant outage costs | $ | 32 | $ | 10 | $ | 16 | $ | 7 | $ | 16 | $ | 3 | |||||||||||
| Gas supply clause | 8 | 12 | 8 | 12 | — | — | |||||||||||||||||
| Other | 1 | 3 | 1 | 2 | — | 1 | |||||||||||||||||
| Total current regulatory assets | $ | 41 | $ | 25 | $ | 25 | $ | 21 | $ | 16 | $ | 4 | |||||||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||||||
| Defined benefit plans | $ | 333 | $ | 405 | $ | 206 | $ | 249 | $ | 127 | $ | 156 | |||||||||||
| Storm costs | 24 | 34 | 14 | 20 | 10 | 14 | |||||||||||||||||
| Unamortized loss on debt | 23 | 23 | 14 | 15 | 9 | 8 | |||||||||||||||||
| Interest rate swaps | 22 | 20 | 22 | 20 | — | — | |||||||||||||||||
| Terminated interest rate swaps | 81 | 87 | 47 | 51 | 34 | 36 | |||||||||||||||||
| AROs | 279 | 273 | 76 | 75 | 203 | 198 | |||||||||||||||||
| Other | 4 | 7 | 1 | 1 | 3 | 6 | |||||||||||||||||
| Total noncurrent regulatory assets | $ | 766 | $ | 849 | $ | 380 | $ | 431 | $ | 386 | $ | 418 | |||||||||||
| LKE | LG&E | KU | |||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Current Regulatory Liabilities: | |||||||||||||||||||||||
| Environmental cost recovery | $ | 5 | $ | 16 | $ | 1 | $ | 6 | $ | 4 | $ | 10 | |||||||||||
| Fuel adjustment clauses | 8 | — | — | — | 8 | — | |||||||||||||||||
| TCJA customer refund | 2 | 17 | — | 7 | 2 | 10 | |||||||||||||||||
| Generation formula rate | 1 | 7 | — | — | 1 | 7 | |||||||||||||||||
| Other | 3 | 8 | 1 | 4 | 2 | 4 | |||||||||||||||||
| Total current regulatory liabilities | $ | 19 | $ | 48 | $ | 2 | $ | 17 | $ | 17 | $ | 31 | |||||||||||
| Noncurrent Regulatory Liabilities: | |||||||||||||||||||||||
| Accumulated cost of removal of utility plant | $ | 640 | $ | 674 | $ | 266 | $ | 279 | $ | 374 | $ | 395 | |||||||||||
| Power purchase agreement - OVEC | 51 | 59 | 35 | 41 | 16 | 18 | |||||||||||||||||
| Net deferred taxes | 1,168 | 1,197 | 544 | 557 | 624 | 640 | |||||||||||||||||
| Defined benefit plans | 40 | 32 | — | — | 40 | 32 | |||||||||||||||||
| Terminated interest rate swaps | 68 | 72 | 34 | 36 | 34 | 36 | |||||||||||||||||
| Other | 6 | 5 | 4 | 2 | 2 | 3 | |||||||||||||||||
| Total noncurrent regulatory liabilities | $ | 1,973 | $ | 2,039 | $ | 883 | $ | 915 | $ | 1,090 | $ | 1,124 | |||||||||||
(a)See “Regulatory Matters - Federal Matters - PPL Electric Transmission Formula Rate Return on Equity” below for additional information.
Following is an overview of selected regulatory assets and liabilities detailed in the preceding tables. Specific developments with respect to certain of these regulatory assets and liabilities are discussed in "Regulatory Matters."
Defined Benefit Plans
(All Registrants)
Defined benefit plan regulatory assets and liabilities represent prior service cost and net actuarial gains and losses that will be recovered in defined benefit plans expense through future base rates based upon established regulatory practices and, generally, are amortized over the average remaining service lives of plan participants. These regulatory assets and liabilities are adjusted at least annually or whenever the funded status of defined benefit plans is remeasured.
(PPL, LKE, LG&E and KU)
As a result of the 2014 Kentuckyprevious rate case settlement that became effective July 1, 2015,settlements and orders, the difference between pension cost calculated in accordance with LG&E's and KU's pension accounting policy and pension cost calculated using a 15-year amortization period for actuarial gains and losses isand settlements are recorded as a regulatory asset. As of December 31, 2019,2022, the balances were $51$107 million for PPL, and LKE, $29$57 million for LG&E and $22$50 million for KU. As of December 31, 2018,2021, the balances were $45$98 million for PPL, and LKE, $25$54 million for LG&E and $20$44 million for KU.
(All Registrants)
Storm Costs
PPL Electric, LG&E and KU have the ability to request from the PUC,PAPUC, the KPSC and the VSCC, as applicable, the authority to treat expenses related to specific extraordinary storms as a regulatory asset and defer such costs for regulatory accounting and reporting purposes. Once such authority is granted, LG&E and KU can request recovery of those expenses in a base rate case and begin amortizing the costs when recovery starts. PPL Electric can recover qualifying expenses caused by major storm events, as defined in its retail tariff, over three years through the Storm Damage Expense Rider commencing in the application year after the storm occurred. Storm costs incurred in PPL Electric's regulatory assets forterritory from a March 2018 storm costs are beingwere amortized through various dates ending in 2021. LG&E's and KU's regulatory assets for storm costs are being amortized through various dates ending in 2029.2031.
As provided in the Amendment Settlement Agreement (ASA), RIE has the authority from the RIPUC to treat certain incremental O&M expenses related to specific extraordinary storms as a regulatory asset and defer such costs for regulatory accounting and reporting purposes. Once all expenses for the extraordinary storm have been finalized, RIE files a final accounting of those storm expenses with the RIPUC that is subject to review by the RIPUC and the Rhode Island Division of Public Utilities and Carriers.
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Unamortized Loss on Debt
Unamortized loss on reacquired debt represents losses on long-term debt refinanced, reacquired or redeemed that have been deferred and will be amortized and recovered over either the original life of the extinguished debt or the life of the replacement debt (in the case of refinancing). Such costs are being amortized through 2029 for PPL Electric, through 2042 for KU, and through 2044 for LG&E.
Accumulated Cost of Removal of Utility Plant
RIE, LG&E and KU charge costs of removal through depreciation expense with an offsetting credit to a regulatory liability. The regulatory liability is relieved as costs are incurred.
PPL Electric does not accrue for costs of removal. When costs of removal are incurred, PPL Electric records the costs as a regulatory asset. Such deferral is included in rates and amortized over the subsequent five-yearfive-year period.
Net Deferred Taxes
Regulatory liabilities associated with net deferred taxes represent the future revenue impact from the adjustment of deferred income taxes required primarily for excess deferred taxes and unamortized investment tax credits, largely a result of the TCJA enacted in 2017. See Note 6 for additional information on the TCJA.
(PPL and PPL Electric)
Generation Supply Charge (GSC)
The GSC is a cost recovery mechanism that permits PPL Electric to recover costs incurred to provide generation supply to PLR customers who receive basic generation supply service. The recovery includes charges for generation supply, as well as administration of the acquisition process. In addition, the GSC contains a reconciliation mechanism whereby any over- or
under-recovery from prior quartersperiods is refunded to, or recovered from, customers through the adjustment factor determined for the subsequent rate filing period.
Transmission Service Charge (TSC)
PPL Electric is charged by PJM for transmission service-related costs applicable to its PLR customers. PPL Electric passes these costs on to customers, who receive basic generation supply service through the PUC-approvedPAPUC-approved TSC cost recovery mechanism. The TSC contains a reconciliation mechanism whereby any over- or under-recovery from customers is either refunded to, or recovered from, customers through the adjustment factor determined for the subsequent year.
Transmission Formula Rate
PPL Electric's transmission revenues are billed in accordance with a FERC-approved Open Access Transmission Tariff that utilizes a formula-based rate recovery mechanism. Under this formula, rates are put into effect in June of each year based upon prior year actual expenditures and current year forecasted capital additions. Rates are then adjusted the following year to reflect actual annual expenses and capital additions, as reported in PPL Electric's annual FERC Form 1, filed under the FERC's Uniform System of Accounts. Any difference between the revenue requirement in effect for the prior year and actual expenditures incurred for that year is recorded as a regulatory asset or regulatory liability.
Storm Damage Expense Rider (SDER)
The SDER is a reconcilable automatic adjustment clause under which PPL Electric annually will compare actual storm costs to storm costs allowed in base rates and refund or recover any differences from customers. In the 2015 rate case settlement approved by the PUCPAPUC in November 2015, it was determined that reportable storm damage expenses to be recovered annually through base rates will be set at $20 million. The SDER will recover from or refund to customers as appropriate, onlythe applicable expenses from reportable storms that are greater than or less thanas compared to the $20 million recovered annually through base rates. Storm costs incurred in PPL Electric's territory from a March 2018 storm are being amortized through 2021.
Act 129 Compliance Rider
In compliance with Pennsylvania's Act 129 of 2008 and implementing regulations, PPL Electric is currently in Phase IIIIV of the energy efficiency and conservation plan which was approved in June 2016.March 2021. Phase IIIIV allows PPL Electric to recover the
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maximum $313 million over the five-yearfive-year period, June 1, 20162021 through May 31, 2021.2026. The plan includes programs intended to reduce electricity consumption. The recoverable costs include direct and indirect charges, including design and development costs, general and administrative costs and applicable state evaluator costs. The rates are applied to customers who receive distribution service through the Act 129 Compliance Rider. The actual Phase IIIIV program costs are reconcilable after each 12 month12-month period, and any over- or under-recovery from customers will be refunded or recovered over the next rate filing period. PPL Electric's Act 129 Phase III plan ended May 31, 2021 and any over-or under-recovery from customers related to Phase III will be refunded or recovered over the next rate filing period.
Smart Meter Rider (SMR)
Act 129 requires each electric distribution company (EDC) with more than 100,000 customers to have a PUCPAPUC approved Smart Meter Technology Procurement and Installation Plan (SMP). As of December 31, 2019, PPL Electric replaced substantially all of its old meters with meters that meet the Act 129 requirements under its SMP. In accordance with Act 129, EDCs are able to recover the costs and earn a return on capital of providing smart metering technology. PPL Electric uses the SMR to recover the costs to implement its SMP. The SMR is a reconciliation mechanism whereby any over- or under-recovery from prior years is refunded to, or recovered from, customers through the adjustment factor determined for the subsequent quarters.
Universal Service Rider (USR)
The USR provides for recovery of costs associated with universal service programs, OnTrack and Winter Relief Assistance Program (WRAP), provided by PPL Electric to residential customers. OnTrack is a special payment program for low-income households and WRAP provides low-income customers a means to reduce electric bills through energy saving methods. The USR rate is applied to residential customers who receive distribution service. The actual program costs are reconcilable, and any over- or under-recovery from customers will be refunded or recovered annually in the subsequent year.
(PPL, LKE, LG&E and KU)
Fuel Adjustment Clauses
LG&E's and KU's retail electric rates contain a fuel adjustment clause, whereby variances in power purchases and the cost of fuel to generate electricity, including transportation costs, from the costs embedded in base rates are adjusted in LG&E's and KU's rates. The KPSC requires formal reviews at six-month intervals to examine past fuel adjustments and at two-year intervals to review past operations of the fuel adjustment clause and, to the extent appropriate, may conduct public hearings and reestablish the fuel charge included in base rates. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered within 12 months.
KU also employs a levelized fuel factor mechanism for Virginia customers using an average fuel cost factor based primarily on projected fuel costs and load for the fuel year (12 months ending March 31). The Virginia levelized fuel factor allows fuel recovery based on projected fuel costs for the fuel year plus an adjustment for any under- or over-recovery of fuel expenses from the prior fuel year. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered or refunded within 12 months.
Economic Relief Billing Credit
The Economic Relief Billing Credit represents regulatory liabilities at December 31, 2021, that were returned to customers through September 30, 2022, as approved in the 2020 Kentucky rate case in recognition of the economic impact of COVID-19.
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AROs
As discussed in Note 1, for LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset or regulatory liability. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, deferred accretion and depreciation expense is recovered through cost of removal.
Power Purchase Agreement - OVEC
As a result of purchase accounting associated with PPL's acquisition of LG&E and KU, the fair values of the OVEC power purchase agreement were recorded on the balance sheets of LG&E and KU with offsets to regulatory liabilities. The regulatory liabilities are being amortized using the units-of-production method until March 2026, the expiration date of the agreement at the date of the acquisition. LG&E's and KU's customer rates continue to reflect the original contracts. See Notes 14 and 19 for additional discussion of the power purchase agreement.
Interest Rate Swaps
LG&E's unrealized gains and losses are recorded as regulatory assets or regulatory liabilities until they are realized as interest expense. Interest expense from existing swaps is realized and recovered over the terms of the associated debt, which matures in 2033.
Terminated Interest Rate Swaps
Net realized gains and losses on all interest rate swaps are recovered through regulated rates. As such, any gains and losses on these derivatives are included in regulatory assets or liabilities and are primarily recognized in "Interest Expense" on the Statements of Income over the life of the associated debt.
Plant Outage Costs
From July 1, 2017 through June 30, 2021, plant outage costs were normalized for ratemaking purposes based on an average level of expenses. Plant outage expenses that were greater or less than the average will be collected from or returned to customers, through future base rates. Effective July 1, 2021 under-recovered plant outage costs are being amortized through 2029 for LG&E and KU.
(PPL)
Derivative Instruments
RIE evaluates open derivative instruments for regulatory deferral by determining if they are probable of recovery from, or refund to, customers through future rates. Derivative instruments that qualify for recovery are recorded at fair value, with changes in fair value recorded as regulatory assets or regulatory liabilities in the period in which the change occurs. The balance is reconcilable, and any over- or under-recovery from customers will be refunded or recovered annually in the subsequent year.
Energy Efficiency
Energy efficiency represents the difference between revenue billed to customers through RIE's energy efficiency charge and the costs of the RIE’s energy efficiency programs as approved by the RIPUC.
The energy efficiency charge is designed to collect the estimated costs of the RIE’s energy efficiency plan for the upcoming calendar year. The final annual over/under is reconciled in the next year's energy efficiency plan filing, as part of the reconciliation factor calculation. RIE may file to change the energy efficiency plan charge at any time should significant over-or under-recoveries occur.
Net Metering
Net metering deferral reflects the recovery mechanism for costs associated with customer-installed on-site generation facilities, including the costs of renewable generation credits. This surcharge provides RIE with a mechanism to recover such amounts. Net metering is reconcilable annually, and any over- or under-recovery from customers will be refunded to, or recovered from, customers through the adjustment factor determined for the subsequent year.
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Rate Adjustment Mechanisms
In addition to commodity costs, RIE is subject to a number of additional rate adjustment mechanisms whereby an asset or liability is recognized resulting from differences between actual revenues and the underlying cost being recovered or differences between actual revenues and targeted amounts as approved by the RIPUC. The rate adjustment mechanisms are reconcilable, and any over- or under-recovery from customers are to be refunded or recovered annually in the subsequent year.
Taxes Recoverable through Future Rates
Taxes recoverable through future rates represent the portion of future income taxes that are anticipated to be recovered through future rates based upon established regulatory practices. Accordingly, this regulatory asset is recognized when the offsetting deferred tax liability is recognized.For general-purpose financial reporting, this regulatory asset and the deferred tax liability are not offset; rather, each is displayed separately.This regulatory asset is expected to be recovered over the period that the underlying book-tax timing differences reverse and the actual cash taxes are incurred.
(PPL, LG&E and KU)
Environmental Cost Recovery
Kentucky law permits LG&E and KU to recover the costs, including a return of operating expenses and a return of and on capital invested, of complying with the Clean Air Act and those federal, state or local environmental requirements, which apply to coal combustion wastes and by-products from coal-fired electricity generating facilities. The KPSC requires reviews of the past operations of the environmental surcharge for six-month and two-year billing periods to evaluate the related charges, credits and rates of return, as well as to provide for the roll-in of ECR amounts to base rates each two-year period. The KPSC has authorized a return on equity of 9.725%9.35% for all existing approved ECR plans and projects. The ECR regulatory asset or liability represents the amount that has been under- or over-recovered due to timing or adjustments to the mechanism and is typically recovered or refunded within 12 months.
(PPL LKE and LG&E)
Gas Supply Clause
LG&E's natural gas rates contain a gas supply clause, whereby the expected cost of natural gas supply and variances between actual and expected costs and customer usage from prior periods are adjusted quarterly in LG&E's rates, subject to approval by the KPSC. The gas supply clause also includes a separate natural gas procurement incentive mechanism, which allows LG&E's rates to be adjusted annually to share savings between the actual cost of gas purchases and market indices, with the shareholders and the customers during each performance-based rate year (12 months ending October 31). The regulatory assets or liabilities represent the total amounts that have been under- or over-recovered due to timing or adjustments to the mechanisms and are typically recovered or refunded within 18 months.
Regulatory Matters
Rhode Island Activities(PPL)
Rate Case proceedings
At its August 24, 2018 Open Meeting, and subsequently memorialized pursuant to Report and Order No. 23823 issued May 5, 2020, the RIPUC approved the terms of an ASA, reflecting an allowed return on equity (ROE) rate of 9.275% based on a common equity ratio of approximately 51%. RIE is currently in year four of the multi-year rate plan (Rate Plan). On June 30, 2021, the Rhode Island Division of Public Utilities and Carriers consented to an open-ended extension of the term of the Rate
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Plan such that RIE was not required to file its next rate case in order for new rates take effect no later than September 1, 2022 as originally contemplated by the ASA. Pursuant to the settlement with the Rhode Island Office of the Attorney General in connection with the acquisition of RIE by PPL, RIE currently does not anticipate filing a new base rate case until at least three years following the closing of the acquisition on May 25, 2022. Pursuant to the open-ended extension, the Rate Year 3 level of base distribution rates under ASA will remain in effect and RIE will continue to operate under the current Rate Plan until a new Rate Plan is approved by the RIPUC.
The ASA includes additional provisions, including (i) an Electric Transportation Initiative (the ET Initiative) to facilitate the growth of Electric Vehicle (EV) adoption and scaling of the market for EV charging equipment to advance Rhode Island's zero emission vehicles and greenhouse gas emissions policy goals, which the RIPUC is continuing to review in connection with certain underspending in the ET Initiative and the timing of crediting customers the deferral balance pursuant to the ASA, (ii) two energy storage demonstration projects, which are on track for timely completion, (iii) a new incentive-only performance incentive for System Efficiency: Annual Megawatt Capacity Savings, which sunset in 2021 and (iv) several additional metrics for tracking and reporting purposes only. The RIPUC discussed the ET Initiative at an Open Meeting on August 30, 2022, advising the Company to seek RIPUC authorization to continue the ET Initiative and/or to alter any of the targets established in the ASA for Rate Year 5 and beyond. No votes or official rulings were taken; however, based on this feedback, RIE has paused the ET programs in Rate Year 5.
Advanced Metering Functionality and Grid Modernization
On January 21, 2021, RIE filed its Updated Advance Metering Functionality (AMF) Business Case and Grid Modernization Plan (GMP) with the RIPUC in accordance with the ASA. The Updated AMF Business Case – a foundational component of the GMP – seeks approval to deploy smart meters throughout the service territory. Pursuant to the written order issued on July 14, 2021, the RIPUC stayed the AMF and GMP proceedings pending further consideration following the issuance of a final Order by the Rhode Island Division of Public Utilities and Carriers on the acquisition. RIE filed notice of withdrawal of the original Updated AMF Business Case and GMP with the RIPUC on September 12, 2022. RIE filed a new AMF Business Case with the RIPUC on November 18, 2022.The new AMF Business Case filing consists of a detailed proposal for full-scale deployment of AMF across its electric service territory. The proposal will enable significant customer and grid benefits in line with the state’s climate mandates. If approved, the program is estimated to cost $188 million on a net present value (NPV) basis and provide benefits of $729 million NPV over the 20-year project life, yielding a benefit-cost ratio of 3.9%. RIE’s proposal represents an opportunity to deploy this foundational technology, which is a necessary first step to transforming Rhode Island’s electric distribution system.In its filing, RIE requested a RIPUC decision by June 2023; the RIPUC issued a revised procedural schedule for the AMF Business Case filing that provides for hearings on July 19-20, and July 25-27, 2023. In addition, the RIPUC will hold a public comment hearing on February 28, 2023, and technical sessions on February 22, 2023, March 2, 2023, April 18, 2023 and May 10, 2023. RIE filed a new GMP with the RIPUC on December 30, 2022. The new GMP filing consists of a holistic suite of grid modernization investments that will provide RIE with the tools and capability to manage the electric distribution system more granularly considering a range of distributed energy resources adoption levels, accelerated by Rhode Island’s ambitious climate mandates, while at the same time maintaining a safe and reliable electric distribution system. The GMP is an informational guidance document that supports the foundational grid modernization investments proposed in RIE’s Fiscal Year (FY) 2024 Electric Infrastructure, Safety and Reliability (ISR) Plan and will support additional grid modernization investments to be proposed in future electric ISR plans. Consequently, RIE is not requesting approval from the RIPUC for any specific investments or seeking any cost recovery as part of this GMP; rather, RIE requested the RIPUC issue an order affirming RIE’s compliance with its obligation to file a GMP that meets the requirements of the ASA. The RIPUC has not yet established a procedural schedule for the GMP filing.
COVID-19 Deferral Filing
On April 30, 2021, RIE filed a petition for approval to recognize regulatory assets related to COVID-19 impacts (RIPUC Docket No. 5154). In its petition, RIE seeks the RIPUC's authorization to create regulatory assets and consideration of future cost recovery for the following COVID-19 costs: (1) the increased cost of customer accounts receivable that RIE will be unable to collect as a result of the COVID-19 pandemic, and the executive orders and RIPUC orders restricting RIE's collection activities as a result of the pandemic, which will result in increased net charge-offs; (2) lost revenue from unassessed late payment charges; and (3) charges to RIE for other fees that RIE has waived pursuant to the RIPUC's orders in RIPUC Docket No. 5022. The RIPUC has not taken any action on the filing to date and RIE is continuing to monitor the docket. RIE is evaluating its request to create a regulatory asset for COVID-19-related bad debt expense to consider the impact, if any, of the proposed arrearage forgiveness sought in RIE’s Petition to Forgive Certain Arrearage Balances for Low-Income and Protected Customers in Docket No. 22-08-GE, which RIE filed with the RIPUC to fulfill its obligations under PPL's settlement with the Rhode Island Attorney General.
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FY 2023 Gas ISR Plan
At an Open Meeting on March 29, 2022, the RIPUC conditionally approved RIE’s FY 2023 Gas ISR Plan and associated revenue requirement, subject to further review regarding RIE’s Proactive Main Replacement Program and its decision to reconstruct and purchase heating and pressure regulation equipment located at RIE’s Wampanoag and Tiverton take stations. The RIPUC held an Open Meeting on September 13, 2022, and issued its Order on November 18. 2022 regarding the Proactive Main Replacement Program and made the following rulings: (1) commencing with the Gas ISR plan to be filed in this calendar year 2022 (prospectively), new main constructed to replace leak prone pipe will not be considered used and useful, and therefore not eligible for rate base treatment, until the related old main is abandoned; and (2) approved the proactive main replacement revenue requirement set forth in the FY2023 Gas ISR plan. Also, the RIPUC directed RIE to submit prefiled testimony on the issue of its replacement of heating and pressure regulation facilities at the Wampanoag and Tiverton take stations and to address three issues, specifically: (i) a cost-benefit analysis arising from RIE's decision to take ownership of the reconstructed take station equipment; (ii) the potential that the benefits derived from the reconstruction and ownership transfer of the take station equipment will not be realized due to the future use of hydrogen or abandonment of the gas system; and (iii) the depreciation and accounting treatment of the reconstructed take station equipment. RIE filed this testimony with the RIPUC on May 16, 2022 and this issue is still pending before the RIPUC.
FY 2024 Gas ISR Plan
On December 23, 2022, RIE filed its FY 2024 Gas ISR Plan with the RIPUC. To transition the filing of the ISR plan from National Grid’s fiscal year (April 1 – March 31) to PPL’s fiscal year (January 1 – December 31), RIE proposed a one-time 21-month plan to cover the period from April 1, 2023, through December 31, 2024; subsequent ISR plans would then align with PPL's fiscal year. The 21-month plan includes $389 million of capital investment spend and would result in the abandonment of approximately 123 miles of leak-prone pipe as well as continue significant investment into our custody transfer stations, pressure regulating facilities, and peak shaving plants/operations. The RIPUC directed RIE and the Rhode Island Division of Public Utilities and Carriers to brief the question of how the 21-month plan, which spans two fiscal years, is consistent with the Decoupling Act (R.I. Gen. Laws Section 39-1-27.7.1) on or before January 17, 2023. At its January 20, 2023 Open Meeting, the RIPUC directed RIE to file supplemental budget and rate schedules to reflect an April 1 to March 31 fiscal year, consistent with past ISR plan filings and the existing tariff. The supplemental budget that was filed with the RIPUC on January 27, 2023 includes $187 million of capital investment spend. The supplemental rate schedules were filed on February 3, 2023. The RIPUC has scheduled a hearing on the plan on March 14, 2023 and March 15, 2023, and is expected to render a decision by the end of March for rates effective April 1, 2023.
FY 2024 Electric ISR Plan
On December 23, 2022, RIE filed its FY 2024 Electric ISR Plan with the RIPUC. To transition the filing of the ISR plan from National Grid’s fiscal year (April 1 – March 31) to PPL's fiscal year (January 1 – December 31), RIE proposed a one-time 21-month plan to cover the period from April 1, 2023, through December 31, 2024; subsequent ISR plans would then align with PPL’s fiscal year. The 21-month plan includes $328 million of capital investment spend; $24 million of vegetation management O&M expenses; and $6 million of Other O&M expenses. This year's Electric ISR Plan includes $82 million for capital investment spend included in RIE’s recently filed GMP, along with investments stemming from the completion of RIE’s area studies. The RIPUC directed RIE and the Rhode Island Division of Public Utilities and Carriers to brief the question of how the 21-month Plan, which spans two fiscal years, is consistent with the Decoupling Act (R.I. Gen. Laws Section 39-1-27.7.1) on or before January 17, 2023. At its January 20, 2023 Open Meeting, the RIPUC directed RIE to file supplemental budget and rate schedules to reflect an April 1 to March 31 fiscal year, consistent with past ISR plan filings and the existing tariff. The supplemental budget filed with the RIPUC on January 27, 2023 includes $176 million of capital investment spend, $14 million of vegetation management O&M spend and $3 million of Other O&M spend. The supplemental rate schedules were filed on February 3, 2023. The RIPUC has scheduled a hearing on March 8-9, 2023 and March 21-22, 2023 and is expected to render a decision by the end of March for rates effective April 1, 2023.
Kentucky Activities(PPL, LKE, LG&E and KU)
133
for a CPCN to construct a 120 MWac solar photovoltaic electric generating facility in Mercer County, Kentucky, and for a CPCN to acquire a 120 MWac solar facility to be built by a third-party solar developer in Marion County, Kentucky. LG&E and KU further applied for a CPCN to construct a 125 MW, 4-hour battery energy storage system facility at KUKU's E.W. Brown Generating Station and increases in annual base electricity and gas ratesfor approval of approximately $35 million and $25 million at LG&E.their proposed 2024-2030 DSM programs. The plan includes adding 14 new, adjusted or expanded energy efficiency programs, which would reduce LG&E's and KU's applications also sought to include changes associated with the TCJA and state tax reform in the calculation of the proposed base rates and to terminate the TCJA bill credit mechanism when new base rates would go into effect. The elimination of the TCJA bill credit mechanism will result in an estimated annual electricity revenue increase ofoverall need by approximately $58 million at KU and increases in electricity and gas revenues of approximately $40 million and $12 million at LG&E. The applications were based on a forecasted test year of May 1, 2019 through April 30, 2020 with a requested return-on-equity of 10.42%.
The new NGCC would be jointly owned by LG&E (31%) and KU (69%) and the TCJA bill credit mechanism,solar units would be jointly owned by LG&E (37%) and KU (63%), the battery storage unit would be owned by LG&E, and the proposed stipulations providedPPA transactions and DSM programs would be entered into or conducted jointly by LG&E and KU, consistent with LG&E and KU's shared dispatch, cost allocation, tariff or other frameworks.
The filing also notes planned retirement dates for increasescertain existing coal-fired generation units, including Mill Creek 1 (300 MW) in annual revenue requirements2024 and E.W. Brown 3 (412 MW) in 2028, and updates and advances the planned retirement dates for Mill Creek 2 (297 MW) to 2027 and Ghent 2 (486 MW) to 2028. LG&E and KU anticipate the recovery of associated with base electricity ratesretirement costs, including the remaining net book value, for these coal-fired generating units through the RAR or other rate mechanisms.
The KPSC accepted the filing as of approximately $58 million atJanuary 6, 2023 and has indicated its intention to issue an order on all issues by November 6, 2023. LG&E and KU and increases in annual base electricity and gas ratescannot predict the outcome of approximately $4 million and $20 million at LG&E, based on a 9.725% return-on-equity.these matters.
(PPL and PPL Electric)
PAPUC investigation into billing issues
On January 31, 2023, the PAPUC initiated an investigation focused on billing issues related to estimated, irregular bills and customer service concerns following customer complaints, which for many customers were driven by increased prices for electricity supply. Certain bills issued during the time period of December 20, 2022 through January 9, 2023 were estimated due to a technical issue that prevented PPL Electric from providing actual collected meter data to customer facing and other internal systems. Customers also reported difficulties accessing PPL Electric’s website and contacting the customer service call center. The PAPUC’s Bureau of Investigation & Enforcement has directed PPL Electric to respond to certain inquiries and document requests. PPL Electric plans to submit its responses to the information request and cooperate fully with the investigation. PPL Electric cannot predict the outcome of this matter.
Act 129
Act 129 requires Pennsylvania Electric Distribution Companies (EDCs) to meet, by specified dates, specified goals for reduction in customer electricity usage and peak demand. EDCs not meeting the requirements of Act 129 are subject to significant penalties. PPL Electric filed with the PAPUC its Act 129 Phase IV Energy Efficiency and Conservation Plan on November 2019,30, 2020, for the PUC approvedfive-year period starting June 1, 2021 and ending on May 31, 2026. PPL Electric's October 2019 petitionPhase IV Act 129 Plan was approved by the PAPUC at its March 25, 2021, public meeting.
Act 129 also requires EDCs to distributeact as a default service provider (DSP), which provides electricity generation supply service to customers pursuant to a PAPUC-approved default service procurement plan. A DSP is able to recover the $43 millioncosts associated with its default service procurement plan.
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Federal Matters
In April 2019, PPL ElectricMay 2020, PP&L Industrial Customer Alliance (PPLICA) filed its annual transmission formula rate updatea complaint with the FERC reflectingalleging that PPL Electric's base ROE of 11.18% used to determine PPL Electric's formula transmission rate was unjust and unreasonable. In August 2021, PPL Electric entered into a revised revenue requirement, which includes the impactsettlement agreement (the Settlement) with PPLICA and all other parties, including intervenors. The key aspects of the TCJA.Settlement included changes to PPL Electric's base ROE. The filing establishedsettlement was approved by the FERC in November 2021. The interim rates reflecting the agreed-to-base ROE in the Settlement were effective December 1, 2021.
In 2021, PPL Electric recorded a revenue requirement usedreduction of $78 million ($55 million after-tax), of which $73 million ($52 million after-tax) represented revenue subject to set ratesrefund for the period May 21, 2020 through November 30, 2021. The reduction recorded included $28 million ($20 million after-tax) related to the period from May 21, 2020 to December 31, 2020. At December 31, 2021, PPL and PPL Electric had a regulatory liability on the Balance Sheet of $73 million, which represented revenue subject to refund based on the difference between charges that tookwere calculated using the ROE in effect at the time and charges calculated using the revised ROE provided for in June 2019.the Settlement, plus interest at the FERC interest rate. The total balance at December 31, 2021, plus additional interest recorded was refunded to customers by May 31, 2022.
FERC Transmission Rate Filing(PPL, LG&E and KU)
In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application seekssought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky Municipalitiesmunicipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the on-goingongoing credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject towhich was subsequently filed, modified, and approved by the FERC reviewin 2020 and approval.2021. In July 2019,2020, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KUother parties filed requests for rehearing and clarification on the two September orders. These rehearing requests are currently pending before FERC. Additionally, certain petitions for review of FERC's orders have been filed by multiple parties, including LG&E and KU, atappeals with the D.C. Circuit Court of Appeals.Appeals regarding the FERC's orders on the elimination of the mitigation and required transition mechanism. On August 4, 2022, the D.C. Circuit Court of Appeals issued an order remanding the proceedings back to the FERC. LG&E and KU cannot predict the outcome of the proceedings.proceedings at the FERC on remand. LG&E and KU currently receive recovery of the waivers and credits provided through other rate mechanisms.mechanisms and such rate recovery would be anticipated to be adjusted consistent with potential changes or terminations of the waivers and credits, as such become effective.
The ROE for transmission rates under the ISO-NE OATT is the subject of four complaints that public utility transmission providers include mechanisms in their formula rates to deduct excess ADIT from, or add deficient ADIT to, rate base and adjust their income tax allowances by amortized excess or deficient ADIT, and to make a related compliance filing.
Other
Purchase of Receivables ProgramPrograms
(PPL and PPL Electric)
In accordance with a PUC-approvedPAPUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. During 2019, 20182022, 2021 and 2017,2020, PPL Electric purchased $1.3 billion, $1.2 billion $1.3 billion and $1.3$1.1 billion of accounts receivable from alternative suppliers.
At its July 27, 2021, December 21, 2021, and March 2, 2022 Open Meetings, the RIPUC approved various components of a Purchase of Receivables Program (POR) in Rhode Island for effect on April 1, 2022. Municipal aggregators and non-regulated power producers (collectively, Competitive Suppliers) are eligible to participate in accordance with RIE’s approved electric tariffs for municipal aggregation and non-regulated power producers. Under the POR program, RIE will purchase the Competitive Suppliers' accounts receivables, including existing receivables, at discounted rates, regardless of whether RIE has collected the owed monies from customers. The program is intended to make RIE whole through the implementation of a discount rate or Standard Complete Bill Percentage (SCBP) paid by Competitive Suppliers. RIE will calculate the SCBP for each customer class and file the calculations with the RIPUC for review and approval by February 15 of each year. Once approved, the SCBP will be effective beginning on April 1 for a one-year period.
8. Financing Activities
Credit Arrangements and Short-term Debt
(All Registrants)
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of PPL Electric, LKE, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE.PPL. The amounts listed in the borrowed column below are recorded as "Short-term debt" on the Balance Sheets except for borrowings under PPL Electric's term loan agreement due March 2024 and borrowings under LG&E's Term Loan Facilityand KU's term loan agreements due July 2024, which are recorded asreflected in "Long-term debt due within one year" on the December 31, 2018 Balance Sheet.debt." The following credit facilities were in place at:
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||
Expiration Date | Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | Unused Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | |||||||||||||||||||
| PPL | |||||||||||||||||||||||||
| U.K. | |||||||||||||||||||||||||
| WPD plc | |||||||||||||||||||||||||
| Syndicated Credit Facility (a)(b)(c) | Jan. 2023 | £ | 210 | £ | 155 | £ | — | £ | 55 | £ | 157 | £ | — | ||||||||||||
| WPD (South West) | |||||||||||||||||||||||||
| Syndicated Credit Facility (a)(b)(c) | July 2021 | 245 | 40 | — | 205 | — | — | ||||||||||||||||||
| WPD (East Midlands) | |||||||||||||||||||||||||
| Syndicated Credit Facility (a)(b)(c) | July 2021 | 300 | — | — | 300 | 38 | — | ||||||||||||||||||
| WPD (West Midlands) | |||||||||||||||||||||||||
| Syndicated Credit Facility (a)(b)(c) | July 2021 | 300 | 48 | — | 252 | — | — | ||||||||||||||||||
| Uncommitted Credit Facilities | 100 | — | 4 | 96 | — | 4 | |||||||||||||||||||
| Total U.K. Credit Facilities (b) | £ | 1,155 | £ | 243 | £ | 4 | £ | 908 | £ | 195 | £ | 4 | |||||||||||||
| U.S. | |||||||||||||||||||||||||
| PPL Capital Funding | |||||||||||||||||||||||||
| Syndicated Credit Facility (c) (d) | Jan 2024 | $ | 1,450 | $ | 450 | $ | 1,000 | $ | — | $ | 669 | ||||||||||||||
| Bilateral Credit Facility (c) (d) | Mar 2020 | 100 | — | 15 | 85 | — | 15 | ||||||||||||||||||
| Total PPL Capital Funding Credit Facilities | $ | 1,550 | $ | — | $ | 465 | $ | 1,085 | $ | — | $ | 684 | |||||||||||||
| PPL Electric | |||||||||||||||||||||||||
| Syndicated Credit Facility (c) (d) | Jan 2024 | $ | 650 | $ | — | $ | 1 | $ | 649 | $ | — | $ | 1 | ||||||||||||
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Expiration Date | Capacity | Borrowed | Letters of Credit and Commercial Paper Issued (c) | Unused Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | |||||||||||||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||||||||||||||
| PPL Capital Funding | |||||||||||||||||||||||||||||||||||||||||
| Syndicated Credit Facility (a) (b) | Dec 2026 | $ | 1,250 | $ | — | $ | 561 | $ | 689 | $ | — | $ | — | ||||||||||||||||||||||||||||
| Bilateral Credit Facility (a) (b) | Mar 2023 | 100 | — | — | 100 | — | — | ||||||||||||||||||||||||||||||||||
| Bilateral Credit Facility (a) (b) | Mar 2023 | 100 | — | 58 | 42 | — | 15 | ||||||||||||||||||||||||||||||||||
| Total PPL Capital Funding Credit Facilities | $ | 1,450 | $ | — | $ | 619 | $ | 831 | $ | — | $ | 15 | |||||||||||||||||||||||||||||
| PPL Electric | |||||||||||||||||||||||||||||||||||||||||
| Syndicated Credit Facility (a) (b) | Dec 2026 | 650 | — | 146 | 504 | — | 1 | ||||||||||||||||||||||||||||||||||
| Term Loan Credit Facility (a) (b) | Mar 2024 | 250 | 250 | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Total PPL Electric Credit Facilities | $ | 900 | $ | 250 | $ | 146 | $ | 504 | $ | — | $ | 1 | |||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Expiration Date | Capacity | Borrowed | Letters of Credit and Commercial Paper Issued (c) | Unused Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | |||||||||||||||||||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||||||||||||||||
| Syndicated Credit Facility (a) (b) | Dec 2026 | 500 | — | 180 | 320 | — | 69 | ||||||||||||||||||||||||||||||||||
| Term Loan Credit Facility (a) (b) | Jul 2024 | 300 | 300 | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Total LG&E Credit Facilities | $ | 800 | $ | 300 | $ | 180 | $ | 320 | $ | — | $ | 69 | |||||||||||||||||||||||||||||
| KU | |||||||||||||||||||||||||||||||||||||||||
| Syndicated Credit Facility (a) (b) | Dec 2026 | 400 | — | 101 | 299 | — | — | ||||||||||||||||||||||||||||||||||
| Term Loan Credit Facility (a) (b) | Jul 2024 | 300 | 300 | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Total KU Credit Facilities | $ | 700 | $ | 300 | $ | 101 | $ | 299 | $ | — | $ | — | |||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||
Expiration Date | Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | Unused Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||
| Syndicated Credit Facility (c) (d) | Jan 2024 | $ | 500 | $ | — | $ | 238 | $ | 262 | $ | — | $ | 279 | ||||||||||||
| Term Loan Credit Facility (c) (e) | — | — | — | — | 200 | — | |||||||||||||||||||
| Total LG&E Credit Facilities | $ | 500 | $ | — | $ | 238 | $ | 262 | $ | 200 | $ | 279 | |||||||||||||
| KU | |||||||||||||||||||||||||
| Syndicated Credit Facility (c) (d) | Jan 2024 | $ | 400 | $ | — | $ | 150 | $ | 250 | $ | — | $ | 235 | ||||||||||||
| Letter of Credit Facility (f) | — | — | — | — | — | 198 | |||||||||||||||||||
| Total KU Credit Facilities | $ | 400 | $ | — | $ | 150 | $ | 250 | $ | — | $ | 433 | |||||||||||||
| (b)The facilities contain a financial covenant requiring debt to total capitalization not to exceed 70% for PPL Capital Funding, |
(c)Commercial paper issued reflects the undiscounted face value of the issuance.
(PPL)
In March 2022, PPL Capital Funding amended and restated its two existing $50 million bilateral credit facilities to extend the termination dates from March 9, 2022 to March 6, 2023 and to increase the borrowing capacity under each facility to $100 million.
(PPL and LG&E)
In July 2022, LG&E entered into a $300 million term loan credit facility expiring in 2024. On July 29, 2022, LG&E borrowed $300 million under this facility at an initial interest rate of 3.23%. The per annum interest rate fluctuates based on the applicable secured overnight financing rate plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes.
(PPL and KU)
In July 2022, KU entered into a $300 million term loan credit facility expiring in 2024. On July 29, 2022, KU borrowed $300 million under this facility at an initial interest rate of 3.23%. The per annum interest rate fluctuates based on the applicable secured overnight financing rate plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes.
(PPL and PPL Electric)
In September 2022, PPL Electric entered into a $250 million term loan credit facility expiring in 2024. On September 16, 2022, PPL Electric borrowed $250 million under this facility at an initial interest rate of 3.77%. The per annum interest rate fluctuates based on the applicable secured overnight financing rate plus a spread. The proceeds were used to repay long-term debt.
(All Registrants)
The Registrants maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's credit facilities. The following commercial paper programs were in place at:
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||
| Weighted - Average Interest Rate | Capacity | Commercial Paper Issuances | Unused Capacity | Weighted - Average Interest Rate | Commercial Paper Issuances | ||||||||||||||
| PPL Capital Funding | 2.13% | $ | 1,500 | $ | 450 | $ | 1,050 | 2.82% | $ | 669 | |||||||||
| PPL Electric | 650 | — | 650 | — | |||||||||||||||
| LG&E | 2.07% | 350 | 238 | 112 | 2.94% | 279 | |||||||||||||
| KU | 2.02% | 350 | 150 | 200 | 2.94% | 235 | |||||||||||||
| Total | $ | 2,850 | $ | 838 | $ | 2,012 | $ | 1,183 | |||||||||||
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| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Weighted - Average Interest Rate | Capacity | Commercial Paper Issuances (d) | Unused Capacity | Weighted - Average Interest Rate | Commercial Paper Issuances (d) | ||||||||||||||||||||||||||||||
| PPL Capital Funding (a) | 4.84% | $ | 1,350 | $ | 561 | $ | 789 | $ | — | ||||||||||||||||||||||||||
| PPL Electric | 4.74% | 650 | 145 | 505 | — | ||||||||||||||||||||||||||||||
| LG&E (b) | 4.94% | 500 | 180 | 320 | 0.31% | 69 | |||||||||||||||||||||||||||||
| KU (c) | 4.90% | 400 | 101 | 299 | — | ||||||||||||||||||||||||||||||
| Total | $ | 2,900 | $ | 987 | $ | 1,913 | $ | 69 | |||||||||||||||||||||||||||
(a)PPL Capital Funding's obligations are fully and unconditionally guaranteed by PPL.
(b)In August 2022, LG&E increased the size of their commercial paper program to $500 million.
(c)In August 2022, KU increased the size of their commercial paper program to $400 million.
(d)Commercial paper issued reflects the undiscounted face value of the issuance.
(PPL Electric, LKE, LG&E and KU)
See Note 1415 for a discussion of intercompany borrowings.
Long-term Debt (All Registrants)
| December 31, | ||||||||||||
| Weighted-Average Rate (g) | Maturities (g) | 2019 | 2018 | |||||||||
| PPL | ||||||||||||
| U.S. | ||||||||||||
| Senior Unsecured Notes | 3.88 | % | 2020 - 2047 | $ | 4,325 | $ | 4,325 | |||||
| Senior Secured Notes/First Mortgage Bonds (a) (b) (c) | 3.95 | % | 2020 - 2049 | 8,705 | 7,705 | |||||||
| Junior Subordinated Notes | 5.24 | % | 2067 - 2073 | 930 | 930 | |||||||
| Term Loan Credit Facility | 2019 | — | 200 | |||||||||
| Total U.S. Long-term Debt | 13,960 | 13,160 | ||||||||||
| U.K. | ||||||||||||
| Senior Unsecured Notes (d) | 4.97 | % | 2020 - 2040 | 6,874 | 6,471 | |||||||
| Index-linked Senior Unsecured Notes (e) | 1.45 | % | 2026 - 2056 | 1,104 | 1,063 | |||||||
| Term Loan Credit Facility | 2.18 | % | 2024 - 2024 | 64 | — | |||||||
| Total U.K. Long-term Debt (f) | 8,042 | 7,534 | ||||||||||
| Total Long-term Debt Before Adjustments | 22,002 | 20,694 | ||||||||||
| Fair market value adjustments | 12 | 16 | ||||||||||
| Unamortized premium and (discount), net | 5 | 9 | ||||||||||
| Unamortized debt issuance costs | (126 | ) | (120 | ) | ||||||||
| Total Long-term Debt | 21,893 | 20,599 | ||||||||||
| Less current portion of Long-term Debt | 1,172 | 530 | ||||||||||
| Total Long-term Debt, noncurrent | $ | 20,721 | $ | 20,069 | ||||||||
| PPL Electric | ||||||||||||
| Senior Secured Notes/First Mortgage Bonds (a) (b) | 4.08 | % | 2021 - 2049 | $ | 4,039 | $ | 3,739 | |||||
| Total Long-term Debt Before Adjustments | 4,039 | 3,739 | ||||||||||
| Unamortized discount | (24 | ) | (18 | ) | ||||||||
| Unamortized debt issuance costs | (30 | ) | (27 | ) | ||||||||
| Total Long-term Debt | 3,985 | 3,694 | ||||||||||
| Less current portion of Long-term Debt | — | — | ||||||||||
| Total Long-term Debt, noncurrent | $ | 3,985 | $ | 3,694 | ||||||||
| LKE | ||||||||||||
| Senior Unsecured Notes | 3.97 | % | 2020 - 2021 | $ | 725 | $ | 725 | |||||
| Term Loan Credit Facility | — | 200 | ||||||||||
| First Mortgage Bonds (a) (c) | 3.84 | % | 2020 - 2049 | 4,666 | 3,966 | |||||||
| Long-term debt to affiliate | 3.69 | % | 2026 - 2028 | 650 | 650 | |||||||
| Total Long-term Debt Before Adjustments | 6,041 | 5,541 | ||||||||||
| Unamortized premium | 5 | — | ||||||||||
| Unamortized discount | (12 | ) | (13 | ) | ||||||||
| Unamortized debt issuance costs | (32 | ) | (26 | ) | ||||||||
| Total Long-term Debt | 6,002 | 5,502 | ||||||||||
| Less current portion of Long-term Debt | 975 | 530 | ||||||||||
| Total Long-term Debt, noncurrent | $ | 5,027 | $ | 4,972 | ||||||||
| December 31, | |||||||||||||||||||||||
| Weighted-Average Rate (d) | Maturities (d) | 2022 | 2021 | ||||||||||||||||||||
| PPL | |||||||||||||||||||||||
| Senior Unsecured Notes | 3.95 | % | 2026 - 2047 | $ | 3,066 | $ | 1,566 | ||||||||||||||||
| Senior Secured Notes/First Mortgage Bonds (a) (b) (c) | 4.06 | % | 2023 - 2050 | 8,957 | 9,205 | ||||||||||||||||||
| Junior Subordinated Notes | 7.39 | % | 2067 | 480 | 480 | ||||||||||||||||||
| Term Loan Credit Facility | 5.21 | % | 2024 | 850 | — | ||||||||||||||||||
| Total Long-term Debt before adjustments | 13,353 | 11,251 | |||||||||||||||||||||
| Unamortized premium and (discount), net | (32) | (34) | |||||||||||||||||||||
| Unamortized debt issuance costs | (78) | (77) | |||||||||||||||||||||
| Total Long-term Debt | 13,243 | 11,140 | |||||||||||||||||||||
| Less current portion of Long-term Debt | 354 | 474 | |||||||||||||||||||||
| Total Long-term Debt, noncurrent | $ | 12,889 | $ | 10,666 | |||||||||||||||||||
| PPL Electric | |||||||||||||||||||||||
| Senior Secured Notes/First Mortgage Bonds (a) (b) | 4.26 | % | 2023 - 2049 | $ | 4,289 | $ | 4,539 | ||||||||||||||||
| Term Loan Credit Facility | 5.17 | % | 2024 | 250 | — | ||||||||||||||||||
| Total Long-term Debt Before Adjustments | 4,539 | 4,539 | |||||||||||||||||||||
| Unamortized discount | (22) | (22) | |||||||||||||||||||||
| Unamortized debt issuance costs | (31) | (33) | |||||||||||||||||||||
| Total Long-term Debt | 4,486 | 4,484 | |||||||||||||||||||||
| Less current portion of Long-term Debt | 340 | 474 | |||||||||||||||||||||
| Total Long-term Debt, noncurrent | $ | 4,146 | $ | 4,010 | |||||||||||||||||||
| December 31, | |||||||||||||||||||||||
| Weighted-Average Rate (d) | Maturities (d) | 2022 | 2021 | ||||||||||||||||||||
| LG&E | |||||||||||||||||||||||
| Senior Secured Notes/First Mortgage Bonds (a) (c) | 3.70 | % | 2025 - 2049 | $ | 2,024 | $ | 2,024 | ||||||||||||||||
| Term Loan Credit Facility | 5.22 | % | 2024 | 300 | — | ||||||||||||||||||
| Total Long-term Debt Before Adjustments | 2,324 | 2,024 | |||||||||||||||||||||
| Unamortized discount | (4) | (4) | |||||||||||||||||||||
| Unamortized debt issuance costs | (13) | (14) | |||||||||||||||||||||
| Total Long-term Debt | 2,307 | 2,006 | |||||||||||||||||||||
| Less current portion of Long-term Debt | — | — | |||||||||||||||||||||
| Total Long-term Debt, noncurrent | $ | 2,307 | $ | 2,006 | |||||||||||||||||||
| KU | |||||||||||||||||||||||
| Senior Secured Notes/First Mortgage Bonds (a) (c) | 4.00 | % | 2023 - 2050 | $ | 2,642 | $ | 2,642 | ||||||||||||||||
| Term Loan Credit Facility | 5.22 | % | 2024 | 300 | — | ||||||||||||||||||
| Total Long-term Debt Before Adjustments | 2,942 | 2,642 | |||||||||||||||||||||
| Unamortized premium | 5 | 5 | |||||||||||||||||||||
| Unamortized discount | (9) | (9) | |||||||||||||||||||||
| Unamortized debt issuance costs | (18) | (20) | |||||||||||||||||||||
| Total Long-term Debt | 2,920 | 2,618 | |||||||||||||||||||||
| Less current portion of Long-term Debt | 13 | — | |||||||||||||||||||||
| Total Long-term Debt, noncurrent | $ | 2,907 | $ | 2,618 | |||||||||||||||||||
| December 31, | ||||||||||||
| Weighted-Average Rate (g) | Maturities (g) | 2019 | 2018 | |||||||||
| LG&E | ||||||||||||
| Term Loan Credit Facility | $ | — | $ | 200 | ||||||||
| First Mortgage Bonds (a) (c) | 3.73 | % | 2025 - 2049 | 2,024 | 1,624 | |||||||
| Total Long-term Debt Before Adjustments | 2,024 | 1,824 | ||||||||||
| Unamortized discount | (4 | ) | (4 | ) | ||||||||
| Unamortized debt issuance costs | (15 | ) | (11 | ) | ||||||||
| Total Long-term Debt | 2,005 | 1,809 | ||||||||||
| Less current portion of Long-term Debt | — | 434 | ||||||||||
| Total Long-term Debt, noncurrent | $ | 2,005 | $ | 1,375 | ||||||||
| KU | ||||||||||||
| First Mortgage Bonds (a) (c) | 3.93 | % | 2020 - 2045 | $ | 2,642 | $ | 2,342 | |||||
| Total Long-term Debt Before Adjustments | 2,642 | 2,342 | ||||||||||
| Unamortized premium | 5 | — | ||||||||||
| Unamortized discount | (8 | ) | (8 | ) | ||||||||
| Unamortized debt issuance costs | (16 | ) | (13 | ) | ||||||||
| Total Long-term Debt | 2,623 | 2,321 | ||||||||||
| Less current portion of Long-term Debt | 500 | 96 | ||||||||||
| Total Long-term Debt, noncurrent | $ | 2,123 | $ | 2,225 | ||||||||
Includes LG&E's first mortgage bonds that are secured by the lien of the LG&E 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of LG&E's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity and the storage and distribution of natural gas. The aggregate carrying value of the property subject to the lien was $5.3$5.8 billion and $5.1$5.7 billion at December 31, 20192022 and 2018.2021.
Includes KU's first mortgage bonds that are secured by the lien of the KU 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of KU's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity. The aggregate carrying value of the property subject to the lien was $6.6$7.1 billion and $6.3$6.9 billion at December 31, 20192022 and 2018.
(b)Includes PPL Electric's series of senior secured bonds that secure its obligations to make payments with respect to each series of Pollution Control Bonds that were issued by the LCIDA and the PEDFA on behalf of PPL Electric. These senior secured bonds were issued in the same principal amount, contain payment and redemption provisions that correspond to and bear the same interest rate as such Pollution Control Bonds. These senior secured bonds were issued under PPL Electric's 2001 Mortgage Indenture and are secured as noted in (a) above. The tax-exempt revenue bonds are subject to mandatory redemption upon determination that the interest rate on the bonds would be included in the holders' gross income for federal tax purposes.
Includes $250 million of notes that may be called at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
(c)Includes LG&E's and KU's series of first mortgage bonds that were issued to the respective trustees of tax-exempt revenue bonds to secure its respective obligations to make payments with respect to each series of bonds. The first mortgage bonds were issued in the same principal amounts, contain payment and redemption provisions that correspond to and bear the same interest rate as such tax-exempt revenue bonds. These first mortgage bonds were issued under the LG&E 2010 Mortgage Indenture and the KU 2010 Mortgage Indenture and are secured as noted in (a) above. The related tax-exempt revenue bonds were issued by various governmental entities, principally counties in Kentucky, on behalf of LG&E and KU. The related revenue bond documents allow LG&E and KU to convert the interest rate mode on the bonds from time to time to a commercial paper rate, daily rate, weekly rate, term rate of at least one year or, in some cases, an auction rate or a LIBOR index rate. At December 31, 2019,2022, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a term rate mode totaled $700$782 million for LKE,PPL, comprised of $392$473 million and $308$309 million for LG&E and KU respectively.KU. At December 31, 2019,2022, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a variable rate mode totaled $181 million for LKE, comprised of $148$66 million and $33 million for LG&E and KU respectively.KU. These variable rate tax-exempt revenue bonds are subject to tender for purchase by LG&E and KU at the option of the holder and to mandatory tender for purchase by LG&E and KU upon the occurrence of certain events.
(d)The table reflects principal maturities only, based on stated maturities, sinking fund requirements, or earlier put dates, and the weighted-average rates as of December 31, 2022.
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||||||||
| 2023 | $ | 354 | $ | 340 | $ | — | $ | 13 | |||||||||||||||||||||
| 2024 | 1,501 | 900 | 300 | 300 | |||||||||||||||||||||||||
| 2025 | 551 | — | 300 | 250 | |||||||||||||||||||||||||
| 2026 | 904 | — | 90 | 164 | |||||||||||||||||||||||||
| 2027 | 303 | 108 | 195 | — | |||||||||||||||||||||||||
| Thereafter | 9,740 | 3,191 | 1,439 | 2,215 | |||||||||||||||||||||||||
| Total | $ | 13,353 | $ | 4,539 | $ | 2,324 | $ | 2,942 | |||||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| 2020 | $ | 1,169 | $ | — | $ | 975 | $ | — | $ | 500 | |||||||||
| 2021 | 1,574 | 400 | 674 | 292 | 132 | ||||||||||||||
| 2022 | 1,274 | 474 | — | — | — | ||||||||||||||
| 2023 | 2,254 | 90 | 13 | — | 13 | ||||||||||||||
| 2024 | 932 | — | — | — | — | ||||||||||||||
| Thereafter | 14,799 | 3,075 | 4,379 | 1,732 | 1,997 | ||||||||||||||
| Total | $ | 22,002 | $ | 4,039 | $ | 6,041 | $ | 2,024 | $ | 2,642 | |||||||||
(PPL and PPL Electric)
In September 2019, PPL Electric issued $400 million of 3.00% First Mortgage Bonds due 2049. PPL Electric received proceeds of $390 million, net of a discount and underwriting fees, which were used to repay short-term debt and for general corporate purposes.
In June 2019,September 2022, the Louisville/JeffersonLehigh County Metro Government of KentuckyIndustrial Development Authority remarketed $31$116 million of Environmental FacilitiesPollution Control Revenue Refunding Bonds 2007(PPL Electric Utilities Corporation Project), 2016 Series A due 20332029 previously issued on behalf of LG&E.PPL Electric. The bonds were remarketed at a long-term rate and will bear interest at 1.65% through their mandatory purchase date of June 1, 2021.
(PPL Electric, LG&E and KU)
See Note 1415 for additional information related to intercompany borrowings.
Legal Separateness (All Registrants)
The subsidiaries of PPL are separate legal entities. PPL's subsidiaries are not liable for the debts of PPL. Accordingly, creditors of PPL may not satisfy their debts from the assets of PPL's subsidiaries absent a specific contractual undertaking by a subsidiary to pay PPL's creditors or as required by applicable law or regulation. Similarly, PPL is not liable for the debts of its subsidiaries, nor are its subsidiaries liable for the debts of one another. Accordingly, creditors of PPL's subsidiaries may not satisfy their debts from the assets of PPL or its other subsidiaries absent a specific contractual undertaking by PPL or its other subsidiaries to pay the creditors or as required by applicable law or regulation.
Similarly, the subsidiaries of PPL Electric and LKE are each separate legal entities. These subsidiaries are not liable for the debts of PPL Electric and LKE.Electric. Accordingly, creditors of PPL Electric and LKE may not satisfy theirits debts from the assets of theirits subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation. Similarly, PPL Electric and LKE areis not liable for the debts of theirits subsidiaries, nor are theirits subsidiaries liable for the debts of one another. Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of PPL Electric and LKE (or theirits other subsidiaries) absent a specific contractual undertaking by that parentPPL Electric or any such other subsidiary to pay such creditors or as required by applicable law or regulation.
(PPL)
Equity Securities
In May 2018, PPL completed a registered underwritten public offeringAugust 2021, PPL's Board of 55 million sharesDirectors authorized share repurchases of its common stock. In conjunction with that offering, the underwriters exercised an optionup to purchase 8.25 million additional shares$3 billion of PPL common stock solely to cover over-allotments.
shares. In connection with the registered public offering,2021, PPL entered into forward sale agreements with 2 counterparties covering the total 63.25 million sharesrepurchased approximately $1 billion of PPL common stock. Under the forward sale agreements, PPL was obligated to settle these forward sale agreements no later than November 2019. The forward sale agreements were classified as equity transactions.
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Distributions and Related Restrictions
In November 2019,2022, PPL declared its quarterly common stock dividend, payable January 2, 2020,3, 2023, at 41.2522.50 cents per share (equivalent to $1.650.90 cents per annum). On February 14, 2020,17, 2023, PPL announced an increase of itsa quarterly common stock dividend to 41.5of 24.00 cents per share, (equivalentpayable April 3, 2023, to $1.66 per annum).shareowners of record as of March 10, 2023. Future dividends will be declared at the discretion of the Board of Directors and will depend upon future earnings, cash flows, financial and legal requirements and other factors.
Neither PPL Capital Funding nor PPL may declare or pay any cash dividend or distribution on its capital stock during any period in which PPL Capital Funding defers interest payments on its 2007 Series A Junior Subordinated Notes due 2067 or 2013 Series B Junior Subordinated Notes due 2073.2067. At December 31, 2019, 02022, no interest payments were deferred.
(All Registrants)
PPL relies on dividends or loans from its subsidiaries to fund PPL's dividends to its common shareholders. The net assets of certain PPL subsidiaries are subject to legal restrictions. LKE primarily relies on dividends from its subsidiaries to fund its distributions to PPL. LG&E, KU and PPL Electric are subject to Section 305(a) of the Federal Power Act, which makes it unlawful for a public utility to make or pay a dividend from any funds "properly included in capital account." The meaning of this limitation has never been clarified under the Federal Power Act. LG&E, KU and PPL Electric believe, however, that this statutory restriction, as applied to their circumstances, would not be construed or applied by the FERC to prohibit the payment from retained earnings of dividends that are not excessive and are for lawful and legitimate business purposes. In February 2012, LG&E and KU petitioned the FERC requesting authorization to pay dividends in the future based on retained earnings balances calculated without giving effect to the impact of purchase accounting adjustments for PPL's 2010 acquisition of LKE.LG&E and KU. In May 2012, the FERC approved the petitions with the further condition that each utility may not pay dividends if such payment would cause its adjusted equity ratio to fall below 30% of total capitalization. Accordingly, at December 31, 2019,2022, net assets of $3 billion ($1.3$1.4 billion for LG&E and $1.7$1.9 billion for KU)KU were restricted for purposes of paying dividends to LKE, and net assets of $3.3 billion ($1.5$1.8 billion for LG&E and $1.8$2.1 billion for KU)KU were available for payment of dividends to LKE. LG&E and KU believe they will not be required to change their current dividend practices as a result of the foregoing requirement. In addition, under Virginia law, KU is prohibited from making loans to affiliates without the prior approval of the VSCC. There are no comparable statutes under Kentucky law applicable to LG&E and KU, or under Pennsylvania law applicable to PPL Electric. However, orders from the KPSC require LG&E and KU to obtain prior consent or approval before lending amounts to PPL.
9. Acquisitions, Development and Divestitures
(PPL)
Acquisitions
Acquisition of Narragansett Electric
On May 25, 2022, PPL Rhode Island Holdings acquired 100% of the outstanding shares of common stock of Narragansett Electric from National Grid U.S., a subsidiary of National Grid plc (the Acquisition). Narragansett Electric, whose service area covers substantially all of Rhode Island, is primarily engaged in the transmission and distribution of electricity and distribution of natural gas. The Acquisition expands PPL's portfolio of regulated natural gas and electricity transmission and distribution assets, has improved PPL's credit metrics and is expected to enhance long term earnings growth. Following the closing of the Acquisition, Narragansett Electric provides services doing business under the name Rhode Island Energy (RIE).
The consideration for the Acquisition consisted of approximately $3.8 billion in cash and approximately $1.5 billion of long-term debt assumed through the transaction. The fair value of the consideration paid for Narragansett Electric was as follows (in billions):
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| Aggregate enterprise consideration | $ | 5.3 | ||||||||||||||||||
| Less: fair value of assumed long-term debt outstanding | 1.5 | |||||||||||||||||||
| Total cash consideration | $ | 3.8 | ||||||||||||||||||
The $3.8 billion total cash consideration paid was funded with proceeds from PPL's 2021 sale of its U.K. utility business.
In connection with the Acquisition, National Grid USA Service Company, Inc., National Grid U.S. and Narragansett Electric have entered into a transition services agreement (TSA), pursuant to which National Grid has agreed to provide certain transition services to Narragansett Electric to facilitate the transition of the operation of Narragansett Electric to PPL following the Acquisition, as agreed upon in the Narragansett SPA. The TSA is for an initial two-year term and is subject to extension as necessary to complete the successful transition. TSA costs of $123 million were incurred for the twelve month period ended December 31, 2022.
Acquisition Approval
The Acquisition required certain approvals or waivers, including, among others, approval of National Grid USA's shareholders, authorizations or waivers from the Rhode Island Division of Public Utilities and Carriers, the Massachusetts Department of Public Utilities, the Federal Communications Commission (FCC), and the FERC, as well as review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. All such approvals were received prior to closing of the Acquisition.
Commitments to the Rhode Island Division of Public Utilities and Carriers and the Attorney General of the State of Rhode Island
As a condition to the Acquisition, PPL made certain commitments to the Rhode Island Division of Public Utilities and Carriers and the Attorney General of the State of Rhode Island. As a result:
•RIE provided a credit to all its electric and natural gas distribution customers in the total amount of $50 million ($40 million net of tax benefit). Based on the relative number of electric distribution customers and natural gas distribution customers as of November 1, 2022, RIE refunded, in the form of a bill credit, $33 million to electric customers and $17 million to natural gas customers of amounts collected from customers since the Acquisition date. Each electric customer received the same credit, and each natural gas customer received the same credit. A reduction of revenue and a regulatory liability of $50 million for the amounts refunded were recorded during the quarter ended September 30, 2022. These credits were issued during the fourth quarter of 2022. The amounts refunded will not impact RIE's earnings sharing regulatory mechanism.
•RIE forgave approximately $44 million ($21 million net of allowance for doubtful accounts) in arrearages for low-income and protected residential customers, which represents 100% of the arrearages over 90 days for those customers as of March 31, 2022. PPL deemed these accounts uncollectible and fully reserved for them as of September 30, 2022, resulting in an increase to "Other operations and maintenance expense" on the Statement of Income of $23 million for the year ended December 31, 2022.
•RIE will not file a base rate case seeking an increase in base distribution rates for natural gas and/or electric service sooner than three years from the Acquisition date, and RIE will not submit a request for a change in base rates unless and until there is at least twelve months of operating experience under PPL's exclusive leadership and after the TSA with National Grid terminates.
•RIE will forgo potential recovery of any and all transition costs which PPL estimates will be approximately $408 million through June 30, 2024, and includes (1) the installation of certain information technology systems; (2) modification and enhancements to physical facilities in Rhode Island; and (3) incurring costs related to severance payments, communications and branding changes, and other transition related costs. These costs, which are being expensed as incurred, were $181 million for the year ended December 31, 2022.
•RIE will not seek to recover any transaction costs related to the Acquisition, which were $27 million through December 31, 2022, including $18 million for the year ended December 31, 2022 recorded in "Other operations and maintenance" on the Statement of Income.
•RIE will not seek to recover in rates any markup charged by National Grid U.S. and/or its affiliates under the TSA. These amounts were $3 million as of December 31, 2022.
•In June 2022, RIE expensed $20 million of regulatory assets as of the Acquisition date for the Gas Business Enablement (GBE) project and for certain Cybersecurity/IT investments related to GBE. The expense was recorded to "Other operations and maintenance" on the Statements of Income for the year ended December 31, 2022. RIE will not seek to recover these regulatory assets from customers in any future proceedings.
•RIE will exclude all goodwill from the ratemaking capital structure.
142
•RIE will hold harmless Rhode Island customers from any changes to Accumulated Deferred Income Taxes (ADIT) as a result of the Acquisition. RIE reserves the right to seek rate adjustments based on future changes to ADIT that are not related to the Acquisition.
•RIE will not increase its revenue requirement to a level higher than what would exist in the absence of the Acquisition as a result of any restatement of pension and other post-retirement benefits plan assets and liabilities to fair value after the close of the Acquisition.
•Rhode Island Holdings contributed $2.5 million to the Rhode Island Commerce Corporation's Renewable Energy Fund and will not use any of the $2.5 million to meet its pre-existing renewable energy credit goals in Rhode Island or any other state. This contribution was made during the year ended December 31, 2022 and was recorded in "Other Income (Expense)" on the Statement of Income.
•RIE will make available up to $2.5 million for the Rhode Island Attorney General to utilize as needed in evaluating PPL's report on RIE's specific decarbonization goals to support Rhode Island's 2021 Act on Climate or to assess the future of the gas distribution business in Rhode Island. This amount was accrued during the year ended December 31, 2022 and was recorded in "Other Income (Expense) - net" on the Statement of Income.
•Various other operational and reporting commitments have been established.
Purchase Price Allocation
The operations of Narragansett Electric are subject to the accounting for certain types of regulation as prescribed by GAAP. The carrying value of Narragansett Electric’s assets and liabilities subject to rate-setting and cost recovery provisions provide revenues derived from costs, including a return on investment of net assets and liabilities included in rate base. As such, the fair values of these assets and liabilities equal their carrying values. Accordingly, neither the assets acquired or liabilities assumed, nor the unaudited pro forma financial information presented below, reflect any adjustments related to these amounts.
As of December 31, 2022, the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was $1,586 million, which has been recorded as goodwill. PPL has elected to not reflect the effects of purchase accounting in the separate financial statements of RIE or PPL's Rhode Island Regulated segment. Accordingly, the Rhode Island Regulated segment includes $725 million of acquired legacy goodwill. The remaining excess purchase price of $861 million is included in PPL's Corporate and Other category for segment reporting purposes. The goodwill reflects the value paid for the expected continued growth of a rate-regulated business located in a defined service area with a constructive regulatory environment, the ability of PPL to leverage its assembled workforce to take advantage of those growth opportunities and the attractiveness of stable, growing cash flows. The tax goodwill is deductible for income tax purposes over a 15 year period, and as such, deferred taxes will be recorded as the tax deductions are taken.
The table below shows the preliminary allocation of the purchase price to the assets acquired and liabilities assumed that were recorded in PPL’s Consolidated Balance Sheet as of the Acquisition date. The allocation is subject to change during the one-year measurement period as additional information is obtained about the facts and circumstances that existed at closing. As a result, the amount of goodwill included below may change by a material amount as PPL finalizes the allocation of the purchase price. Adjustments to certain assets acquired and liabilities assumed resulted in an increase in goodwill of $5 million since the initial purchase price allocation as of the Acquisition date.
| Purchase Price Allocation as of December 31, 2022 | ||||||||||||||||||||
| Assets | ||||||||||||||||||||
| Current Assets | ||||||||||||||||||||
| Cash and Cash Equivalents | $ | 154 | ||||||||||||||||||
| Accounts Receivable (a) | 195 | |||||||||||||||||||
| Unbilled Revenues | 54 | |||||||||||||||||||
| Price Risk Management Assets | 99 | |||||||||||||||||||
| Regulatory Assets | 75 | |||||||||||||||||||
| Other Current Assets | 65 | |||||||||||||||||||
| Total Current Assets | 642 | |||||||||||||||||||
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| Purchase Price Allocation as of December 31, 2022 | ||||||||||||||||||||
| Noncurrent Assets | ||||||||||||||||||||
| Property, Plant and Equipment, net | 3,988 | |||||||||||||||||||
| Regulatory Assets | 395 | |||||||||||||||||||
| Goodwill | 1,586 | |||||||||||||||||||
| Other Noncurrent Assets | 166 | |||||||||||||||||||
| Total Noncurrent Assets | 6,135 | |||||||||||||||||||
| Total Assets | $ | 6,777 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||
| Long-Term Debt Due Within One Year | $ | 14 | ||||||||||||||||||
| Accounts Payable | 180 | |||||||||||||||||||
| Taxes Accrued | 44 | |||||||||||||||||||
| Regulatory Liabilities | 239 | |||||||||||||||||||
| Other Current Liabilities | 198 | |||||||||||||||||||
| Total Current Liabilities | 675 | |||||||||||||||||||
| Noncurrent Liabilities | ||||||||||||||||||||
| Long-Term Debt | 1,496 | |||||||||||||||||||
| Regulatory Liabilities | 643 | |||||||||||||||||||
| Other Deferred Credits and Noncurrent Liabilities | 143 | |||||||||||||||||||
| Noncurrent Liabilities | 2,282 | |||||||||||||||||||
| Total Purchase Price (Balance Sheet Net Assets) | $ | 3,820 | ||||||||||||||||||
(a)Amounts represent fair value as of May 25, 2022. The gross contractual amount is $255 million. Cash flows not expected to be collected as of May 25, 2022 were $60 million.
Pro Forma Financial Information
The actual RIE Operating Revenues and Net income attributable to PPL included in PPL's Statement of Income for the period ended December 31, 2022, and PPL's unaudited pro forma 2022 and 2021 Operating Revenues and Net Income (Loss) attributable to PPL, including RIE, as if the Acquisition had occurred on January 1, 2021 are as follows.
| Operating Revenues | Net Income (Loss) | |||||||||||||||||||||||||
| Actual RIE results included from May 25, 2022 - December 31, 2022 (a) | $ | 1,038 | $ | (44) | ||||||||||||||||||||||
| PPL Pro Forma for the year ended 2022 | 8,667 | 790 | ||||||||||||||||||||||||
| PPL Pro Forma for the year ended 2021 | 7,478 | 159 | ||||||||||||||||||||||||
(a)Net Income (Loss) includes expenses of $98 million (pre-tax) related to commitments made as a condition of the Acquisition.
The pro forma financial information presented above has been derived from the historical consolidated financial statements of PPL and Narragansett Electric. Non-recurring items included in the 2022 pro forma financial information include: (a) $18 million (pre-tax) of transaction costs related to the Acquisition, primarily for advisory, accounting and legal fees incurred, (b) $223 million (pre-tax) of Acquisition integration costs, (c) a $50 million reduction of revenue (pre-tax), write-offs of $43 million (pre-tax) of certain accounts receivable and regulatory assets of RIE and $5 million (pre-tax) of expenses accrued in support of Rhode Island's decarbonization goals, all of which were conditions of the Acquisition, and (d) the income tax effect of these items, which was tax effected at the statutory federal income tax rate of 21%.
Non-recurring items included in the 2021 pro forma financial information include: (a) $38 million (pre-tax) of Acquisition integration costs and (b) the income tax effect of this item, which was tax effected at the statutory federal income tax rate of
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21%. Losses from the discontinued operations (net of income taxes) of PPL of $1,498 million in 2021 were excluded from the pro forma amount above.
Divestitures
Sale of Safari Holdings
On September 29, 2022, PPL signed a definitive agreement to sell all of Safari Holdings membership interests to Aspen Power Services, LLC (Aspen Power). On November 1, 2022, PPL completed the sale (the Transaction).
A loss on sale of $60 million ($46 million net of tax benefit) was recorded in "Other operation and maintenance" on the Statement of Income for the year ended December 31, 2022. As a result of the Transaction, $53 million of goodwill previously presented in the Corporate and Other category for segment reporting purposes was written-off.
The accounting for the closing of the Transaction was substantially completed in the fourth quarter of 2022. Final closing adjustments are expected to be completed in the first quarter of 2023.
In connection with the closing of the Transaction, PPL provided certain guarantees and other assurances. See Note 14 to the Financial Statements for additional information.
Discontinued Operations
Sale of the U.K. Utility Business
On June 14, 2021, PPL WPD Limited completed the sale of PPL's utility business to National Grid Holdings One plc (National Grid U.K.), a subsidiary of National Grid plc. The transaction resulted in cash proceeds of $10.7 billion inclusive of foreign currency hedges executed by PPL. PPL received net proceeds, after taxes and fees, of $10.4 billion.PPL WPD Limited agreed to indemnify National Grid U.K. for certain tax related matters. See Note 14 for additional information. PPL has not had and will not have any significant involvement with the U.K. utility business since completion of the sale.
Summarized Results of Discontinued Operations
The operations of the U.K. utility business are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income. Following are the components of discontinued operations in the Statements of Income for the years ended December 31:
| 2022 | 2021 | 2020 | |||||||||||||||
| Operating Revenues | $ | — | $ | 1,344 | $ | 2,133 | |||||||||||
| Operating Expenses | — | 467 | 916 | ||||||||||||||
| Other Income (Expense) - net | — | 202 | 167 | ||||||||||||||
| Interest Expense (a) | — | 209 | 367 | ||||||||||||||
| Income before income taxes | — | 870 | 1,017 | ||||||||||||||
| Loss on sale | — | (1,609) | — | ||||||||||||||
| Income tax (benefit) expense | (42) | 759 | 188 | ||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) | $ | 42 | $ | (1,498) | $ | 829 | |||||||||||
(a)No interest from corporate level debt was allocated to discontinued operations.
10. Leases
(All Registrants)
PPL has also entered into various operating leases primarily for office space, land easements, telecom assets and warehouse space. These leases generally have fixed payments with expiration dates ranging from 20202024 through 2029, except2030. RIE has various operating leases, primarily related to a transmission line, buildings, land, and fleet vehicles used to support the electric and gas operations, with lease terms ranging between 1 and 50 years. In measuring lease liabilities, the Company excludes variable lease payments, other than those that
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depend on an index or rate, or are in substance fixed payments, and includes lease payments made at or before the commencement date. The variable lease payments were not material for the land agreements which extend through 2116.year ended December 31, 2022.
PPL Electric also has operating leases which do not have a significant impact to its operations.
(PPL, LKE, LG&E and KU)
Lessee Transactions
The following table provides the components of lease cost for the Registrants' operating leases for the yearyears ended December 31, 2019.31:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | |||||||||||||||||
| Lease cost: | |||||||||||||||||
| Operating lease cost | $ | 20 | $ | 24 | $ | 28 | |||||||||||
| Short-term lease cost | 6 | 6 | 7 | ||||||||||||||
| Total lease cost | $ | 26 | $ | 30 | $ | 35 | |||||||||||
| LG&E | |||||||||||||||||
| Lease cost: | |||||||||||||||||
| Operating lease cost | $ | 6 | $ | 6 | $ | 8 | |||||||||||
| Short-term lease cost | 1 | 1 | 1 | ||||||||||||||
| Total lease cost | $ | 7 | $ | 7 | $ | 9 | |||||||||||
| KU | |||||||||||||||||
| Lease cost: | |||||||||||||||||
| Operating lease cost | $ | 9 | $ | 10 | $ | 13 | |||||||||||
| Short-term lease cost | 2 | 1 | 1 | ||||||||||||||
| Total lease cost | $ | 11 | $ | 11 | $ | 14 | |||||||||||
| PPL | LKE | LG&E | KU | ||||||||||||
| Lease cost: | |||||||||||||||
| Operating lease cost | $ | 33 | $ | 25 | $ | 12 | $ | 13 | |||||||
| Short-term lease cost | 7 | 2 | 1 | 1 | |||||||||||
| Total lease cost | $ | 40 | $ | 27 | $ | 13 | $ | 14 | |||||||
The following table provides other key information related to the Registrants' operating leases at December 31, 2019.31:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 26 | $ | 23 | $ | 24 | |||||||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | 15 | 12 | 17 | ||||||||||||||
| LG&E | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 8 | $ | 6 | $ | 7 | |||||||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | 4 | 4 | 6 | ||||||||||||||
| KU | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 12 | $ | 10 | $ | 11 | |||||||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | 5 | 7 | 9 | ||||||||||||||
| PPL | LKE | LG&E | KU | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||
| Operating cash flows from operating leases | $ | 29 | $ | 21 | $ | 9 | $ | 11 | |||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | 46 | 16 | 5 | 11 | |||||||||||
The following table provides the total future minimum rental payments for operating leases, as well as a reconciliation of these undiscounted cash flows to the lease liabilities recognized on the Balance Sheets as of December 31, 2019.2022.
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| PPL | LG&E | KU | ||||||||||||||||||||||||||||||
| PPL | LKE | LG&E | KU | |||||||||||||||||||||||||||||
| 2020 | $ | 29 | $ | 18 | $ | 7 | $ | 11 | ||||||||||||||||||||||||
| 2021 | 22 | 13 | 5 | 8 | ||||||||||||||||||||||||||||
| 2022 | 17 | 9 | 4 | 5 | ||||||||||||||||||||||||||||
| 2023 | 15 | 7 | 3 | 4 | 2023 | $ | 24 | $ | 6 | $ | 9 | |||||||||||||||||||||
| 2024 | 12 | 6 | 2 | 4 | 2024 | 17 | 5 | 7 | ||||||||||||||||||||||||
| 2025 | 2025 | 12 | 3 | 4 | ||||||||||||||||||||||||||||
| 2026 | 2026 | 5 | 1 | 1 | ||||||||||||||||||||||||||||
| 2027 | 2027 | 4 | 1 | — | ||||||||||||||||||||||||||||
| Thereafter | 27 | 8 | 3 | 4 | Thereafter | 7 | — | — | ||||||||||||||||||||||||
| Total | $ | 122 | $ | 61 | $ | 24 | $ | 36 | Total | $ | 69 | $ | 16 | $ | 21 | |||||||||||||||||
Weighted-average discount rate | 3.48 | % | 3.96 | % | 3.89 | % | 4.01 | % | Weighted-average discount rate | 3.1% | 3.17% | 3.4% | ||||||||||||||||||||
Weighted-average remaining lease term (in years) | 8 | 5 | 5 | 5 | Weighted-average remaining lease term (in years) | 4 | 3 | 3 | ||||||||||||||||||||||||
| Current lease liabilities (a) | $ | 26 | $ | 16 | $ | 6 | $ | 10 | Current lease liabilities (a) | $ | 22 | $ | 6 | $ | 8 | |||||||||||||||||
| Non-current lease liabilities (a) | 78 | 39 | 15 | 23 | Non-current lease liabilities (a) | 42 | 9 | 12 | ||||||||||||||||||||||||
| Right-of-use assets (b) | 96 | 47 | 18 | 28 | Right-of-use assets (b) | 60 | 13 | 19 | ||||||||||||||||||||||||
(a) Current lease liabilities are included in "Other Current Liabilities" on the Balance Sheets. Non-current lease liabilities are included in "Other deferred credits and noncurrent liabilities" on the Balance Sheets. The difference between |
(b) Right-of-use assets are included in "Other noncurrent assets" on the Balance Sheets.
| PPL | LKE | LG&E | KU | ||||||||||||
| 2019 | $ | 26 | $ | 20 | $ | 10 | $ | 10 | |||||||
| 2020 | 21 | 15 | 6 | 9 | |||||||||||
| 2021 | 15 | 11 | 4 | 7 | |||||||||||
| 2022 | 13 | 7 | 3 | 4 | |||||||||||
| 2023 | 8 | 6 | 3 | 3 | |||||||||||
| Thereafter | 33 | 11 | 4 | 6 | |||||||||||
| Total | $ | 116 | $ | 70 | $ | 30 | $ | 39 | |||||||
Lessor Transactions
Third parties leaseleased land from LKE, LG&E and KU at certain generation plants to produce refined coal used to generate electricity. The leases arewere operating leases and expireexpired in 2021. Payments arewere allocated among lease and non-lease components as stated in the agreements. Lease payments arewere fixed or are determined based on the amount of refined coal used in electricity generation at the facility. Payments received arewere primarily recorded as a regulatory liability and are amortized in accordance with regulatory approvals.
| PPL | LKE | LG&E | KU | ||||||||||||
| 2020 | $ | 13 | $ | 7 | $ | — | $ | 7 | |||||||
| 2021 | 11 | 5 | — | 5 | |||||||||||
| 2022 | 5 | — | — | — | |||||||||||
| 2023 | 5 | 1 | — | — | |||||||||||
| 2024 | 3 | — | — | — | |||||||||||
| Thereafter | 12 | — | — | — | |||||||||||
| Total | $ | 49 | $ | 13 | $ | — | $ | 12 | |||||||
| Lease income recognized for the twelve months ended December 31, 2019 | $ | 21 | $ | 13 | $ | 5 | $ | 8 | |||||||
11. Stock-Based Compensation
(PPL and PPL Electric and LKE)Electric)
Under the ICP, SIP and the ICPKE (together, the Plans), restricted shares of PPL common stock, restricted stock units, performance units and stock options may be granted to officers and other key employees of PPL, PPL Electric LKE and other affiliated companies. Awards under the Plans are made by the Compensation Governance and Nominating Committee (CGNC) of the PPL Board of Directors, in the case of the ICP and SIP, and by the PPL Corporate Leadership Council (CLC), in the case of the ICPKE.
The following table details the award limits under each of the Plans.
| Total Plan | Annual Grant Limit Total As % of Outstanding | Annual Grant | Annual Grant Limit For Individual Participants - Performance Based Awards | |||||||||||||||||||||||||||||
| Award Limit | PPL Common Stock On First Day of | Limit Options | For awards denominated in | For awards denominated in | ||||||||||||||||||||||||||||
| Plan | (Shares) | Each Calendar Year | (Shares) | shares (Shares) | cash (in dollars) | |||||||||||||||||||||||||||
| SIP | 15,000,000 | 2,000,000 | 750,000 | $ | 15,000,000 | |||||||||||||||||||||||||||
| ICPKE | 14,199,796 | 2 | % | 3,000,000 | ||||||||||||||||||||||||||||
Any portion of these awards that has not been granted may be carried over and used in any subsequent year. If any award lapses, the rights of the participant terminate, or, with respect to certain awards, is forfeited, and the shares of PPL common stock underlying such an award are again available for grant. Shares delivered under the Plans may be in the form of authorized
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and unissued PPL common stock, common stock held in treasury by PPL or PPL common stock purchased on the open market (including private purchases) in accordance with applicable securities laws.
Restricted Stock Units
Restricted stock units represent the right to receive shares of PPL common stock in the future, generally three years after the date of grant, in an amount based on the fair value of PPL common stock on the date of grant.
Under the SIP, each restricted stock unit entitles the grant recipient to accrue additional restricted stock units equal to the amount of quarterly dividends paid on PPL stock. These additional restricted stock units are deferred and payable in shares of PPL common stock at the end of the restriction period. Dividend equivalents on restricted stock unit awards granted under the ICPKE are currently paid in cash when dividends are declared by PPL.
The fair value of restricted stock units granted is recognized on a straight-line basis over the restriction period or through the date at which the employee reaches retirement eligibility. The fair value of restricted stock units granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. Recipients of restricted stock units granted under the ICPKE may also be granted the right to receive dividend equivalents through the end of the restriction period or until the award is forfeited. Restricted stock units are subject to forfeiture or accelerated payout under the plan provisions for termination, retirement, disability and death of employees. Restrictions lapse on restricted stock units fully, in certain situations, as defined by each of the Plans.
The weighted-average grant date fair value of restricted stock units granted was:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | $ | 27.52 | $ | 28.00 | $ | 35.30 | |||||||||||
| PPL Electric | 26.66 | 27.96 | 35.37 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 31.95 | $ | 30.58 | $ | 35.30 | |||||
| PPL Electric | 32.33 | 30.00 | 35.45 | ||||||||
| LKE | 30.65 | 30.98 | 35.25 | ||||||||
Restricted stock unit activity for 20192022 was:
| Restricted Shares/Units | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| PPL | |||||||||||
| Nonvested, beginning of period | 1,004,583 | $ | 31.19 | ||||||||
| Granted | 620,708 | 27.52 | |||||||||
| Vested | (427,095) | 31.55 | |||||||||
| Forfeited | (15,779) | 29.61 | |||||||||
| Nonvested, end of period | 1,182,417 | 29.16 | |||||||||
| PPL Electric | |||||||||||
| Nonvested, beginning of period | 131,287 | $ | 31.50 | ||||||||
| Transfer between registrants | (30,353) | 30.03 | |||||||||
| Granted | 51,832 | 26.66 | |||||||||
| Vested | (41,233) | 32.19 | |||||||||
| Forfeited | (1,747) | 32.19 | |||||||||
| Nonvested, end of period | 109,786 | 28.91 | |||||||||
Restricted Shares/Units | Weighted- Average Grant Date Fair Value Per Share | |||||
| PPL | ||||||
| Nonvested, beginning of period | 1,098,203 | $ | 33.45 | |||
| Granted | 479,428 | 31.95 | ||||
| Vested | (429,258 | ) | 33.64 | |||
| Forfeited | (10,688 | ) | 31.53 | |||
| Nonvested, end of period | 1,137,685 | 32.76 | ||||
| PPL Electric | ||||||
| Nonvested, beginning of period | 187,337 | $ | 33.09 | |||
| Transfer between registrants | (3,305 | ) | 33.06 | |||
| Granted | 112,138 | 32.33 | ||||
| Vested | (59,661 | ) | 33.77 | |||
| Forfeited | (6,649 | ) | 31.01 | |||
| Nonvested, end of period | 229,860 | 32.61 | ||||
| LKE | ||||||
| Nonvested, beginning of period | 133,030 | $ | 33.45 | |||
| Granted | 76,256 | 30.65 | ||||
| Vested | (42,841 | ) | 33.75 | |||
| Nonvested, end of period | 166,445 | 32.09 | ||||
Substantially all restricted stock unit awards are expected to vest.
The total fair value of restricted stock units vesting for the years ended December 31 was:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | $ | 12 | $ | 8 | $ | 19 | |||||||||||
| PPL Electric | 1 | 1 | 3 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 13 | $ | 16 | $ | 20 | |||||
| PPL Electric | 2 | 2 | 3 | ||||||||
| LKE | 1 | 5 | 4 | ||||||||
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Performance Units - Total Shareowner Return
Performance units based on relative Total Shareowner Return (TSR) are intended to encourage and reward future corporate performance. Performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable performance goal. Performance is determined based on TSR during a three-yearthree-year performance period. At the end of the period, payout is determined by comparing PPL's performance to the TSR of the companies included in the Philadelphia Stock ExchangePHLX Utility Sector Index. Awards are payable on a graduated basis based on thresholds that measure PPL's performance relative to peers that comprise the applicable index on which each year's awards are measured. Awards can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the CGNC'sCompensation Committee's determination of achievement of the performance goals. Under the plan provisions, TSR performance units are subject to forfeiture upon termination of employment other than retirement, one year or more from commencement of the performance period, disability or death of an employee.
The fair value of TSR performance units granted to retirement-eligible employees is recognized as compensation expense on a straight-line basis over a one-yearone-year period, the minimum vesting period required for an employee to be entitled to payout of the
awards with no proration. For employees who are not retirement-eligible, compensation expense is recognized over the shorter of the three-yearthree-year performance period or the period until the employee is retirement-eligible, with a minimum vesting and recognition period of one-year.one-year. If an employee retires before the one-year vesting period, the performance units are forfeited. Performance units vest on a pro rata basis, in certain situations, as defined by each of the Plans.
The fair value of each performance unit granted was estimated using a Monte Carlo pricing model that considers stock beta, a risk-free interest rate, expected stock volatility and expected life. The stock beta was calculated comparing the risk of the individual securities to the average risk of the companies in the index group. The risk-free interest rate reflects the yield on a U.S. Treasury bond commensurate with the expected life of the performance unit. Volatility over the expected term of the performance unit is calculated using daily stock price observations for PPL and all companies in the index group and is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL and the companies in the index group. PPL uses a mix of historic and implied volatility to value awards.
The weighted-average assumptions used in the model were:
| 2022 | 2021 | 2020 | |||||||||||||||
| Expected stock volatility | 22.79% | 27.81% | 15.64% | ||||||||||||||
| Expected life | 3 years | 3 years | 3 years | ||||||||||||||
| 2019 | 2018 | 2017 | ||||||
| Expected stock volatility | 17.57 | % | 17.60 | % | 17.40 | % | ||
| Expected life | 3 years | 3 years | 3 years | |||||
The weighted-average grant date fair value of TSR performance units granted was:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | $ | 34.27 | $ | 32.44 | $ | 37.63 | |||||||||||
| PPL Electric | 34.42 | 32.92 | 38.64 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 35.83 | $ | 38.26 | $ | 38.38 | |||||
| PPL Electric | 35.68 | 38.37 | 38.37 | ||||||||
| LKE | 35.93 | 38.32 | 38.24 | ||||||||
TSR performance unit activity for 20192022 was:
| TSR Performance Units | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| PPL | |||||||||||
| Nonvested, beginning of period | 633,773 | $ | 34.68 | ||||||||
| Granted | 298,795 | 34.27 | |||||||||
| Forfeited (a) | (245,861) | 35.48 | |||||||||
| Nonvested, end of period | 686,707 | 34.21 | |||||||||
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| TSR Performance Units | Weighted- Average Grant Date Fair Value Per Share | ||||||||||||||||
| TSR Performance Units | Weighted- Average Grant Date Fair Value Per Share | ||||||||||||||||
| PPL | |||||||||||||||||
| PPL Electric | PPL Electric | ||||||||||||||||
| Nonvested, beginning of period | 840,124 | $ | 37.89 | Nonvested, beginning of period | 15,354 | $ | 34.36 | ||||||||||
| Granted | 250,734 | 35.83 | Granted | 14,238 | 34.42 | ||||||||||||
| Forfeited (a) | (351,466 | ) | 37.24 | Forfeited (a) | (3,113) | 35.58 | |||||||||||
| Nonvested, end of period | 739,392 | 37.50 | Nonvested, end of period | 26,479 | 34.25 | ||||||||||||
| PPL Electric | |||||||||||||||||
| Nonvested, beginning of period | 67,863 | $ | 37.86 | ||||||||||||||
| Granted | 24,158 | 35.68 | |||||||||||||||
| Forfeited (a) | (25,222 | ) | 36.92 | ||||||||||||||
| Nonvested, end of period | 66,799 | 37.43 | |||||||||||||||
| LKE | |||||||||||||||||
| Nonvested, beginning of period | 148,996 | $ | 37.81 | ||||||||||||||
| Granted | 39,453 | 35.93 | |||||||||||||||
| Forfeited (a) | (57,916 | ) | 37.02 | ||||||||||||||
| Nonvested, end of period | 130,533 | 37.60 | |||||||||||||||
For the year ended December 31, 2019 and the total fair value2021, $2 million of TSR performance units vestingvested. All awards vested were associated with the sale of the U.K. utility business. See Note 9 for additional information on the sale of the U.K. utility business. No TSR performance units vested for the yearyears ended December 31, 20182022 and 2017 was $3 million and $8 million for PPL and insignificant2020. Amounts for PPL Electric and LKE.are insignificant.
Performance Units - Return on Equity
Payout of these performance units will be based on the calculated average of the annual corporate ROE for each year of the three-yearthree-year performance period for PPL Corporation. In light of the transformational nature of the sale of the U.K. utility business in 2021, PPL’s ROE-based performance units issued for 2021 were based on a one-year performance period from January 1, 2021 to December 31, 2021; however, these units retained the three year vesting schedule and other characteristics. ROE performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable ROE performance goal. ROE performance units can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the CGNC'sCompensation Committee's determination of achievement of the performance goals. Under the plan provisions, these performance units are subject to forfeiture upon termination of employment other than retirement, disability or death of an employee.
The fair value of each ROE performance unit is based on the closing price of PPL Common Stock on the date of grant. The fair value of ROE performance units is recognized on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value awards granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. As these awards are based on performance conditions, the level of attainment is monitored each reporting period and compensation expense is adjusted based on the expected attainment level.
The weighted-average grant date fair value of ROE performance units granted was:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | $ | 30.81 | $ | 30.08 | $ | 34.95 | |||||||||||
| PPL Electric | 30.70 | 29.39 | 35.59 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 30.89 | $ | 32.21 | $ | 32.42 | |||||
| PPL Electric | 30.76 | 32.32 | 34.41 | ||||||||
| LKE | 30.99 | 32.28 | 34.29 | ||||||||
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ROE performance unit activity for 20192022 was:
| ROE Performance Unit | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| PPL | |||||||||||
| Nonvested, beginning of period | 722,353 | $ | 31.28 | ||||||||
| Granted (a) | 257,199 | 30.81 | |||||||||
| Vested | (470,182) | 30.76 | |||||||||
| Nonvested, end of period | 509,370 | 31.53 | |||||||||
| PPL Electric | |||||||||||
| Nonvested, beginning of period | 15,354 | $ | 30.27 | ||||||||
| Granted (a) | 3,663 | 30.70 | |||||||||
| Vested | (6,311) | 30.78 | |||||||||
| Nonvested, end of period | 12,706 | 30.14 | |||||||||
| ROE Performance Unit | Weighted- Average Grant Date Fair Value Per Share | |||||
| PPL | ||||||
| Nonvested, beginning of period | 328,958 | $ | 32.86 | |||
| Granted | 241,807 | 30.89 | ||||
| Nonvested, end of period | 570,765 | 32.02 | ||||
| PPL Electric | ||||||
| Nonvested, beginning of period | 25,960 | $ | 32.96 | |||
| Granted | 23,234 | 30.76 | ||||
| Nonvested, end of period | 49,194 | 31.92 | ||||
| LKE | ||||||
| Nonvested, beginning of period | 69,620 | $ | 32.87 | |||
| Granted | 38,185 | 30.99 | ||||
| Nonvested, end of period | 107,805 | 32.20 | ||||
The total fair value of ROE performance units vesting for the years ended December 31 was:
| 2022 | 2021 | 2020 | |||||||||||||||||||||
| PPL | $ | 12 | $ | 16 | $ | 8 | |||||||||||||||||
| PPL Electric | — | — | 1 | ||||||||||||||||||||
Performance Units - Earnings Growth
Beginning in 2022, PPL changed its executive compensation mix to add performance units based on achievement of corporate earnings growth (EG) metrics. EG performance units are intended to further align executive compensation with the company’s future strategy.
Payout of these performance units will be based on the earnings growth above the projected midpoint of ongoing earnings for the three-year performance period for PPL Corporation. EG performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable EG performance goal. EG performance units can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the Compensation Committee's determination of achievement of the performance goals. Under the plan provisions, these performance units are subject to forfeiture upon termination of employment other than retirement, disability or death of an employee.
The fair value of each EG performance unit is based on the closing price of PPL Common Stock on the date of grant. The fair value of EG performance units is recognized on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value awards granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. As these awards are based on performance conditions, the level of attainment is monitored each reporting period and compensation expense is adjusted based on the expected attainment level.
The weighted-average grant date fair value of EG performance units granted was:
| 2022 | |||||||||||||||||
| PPL | $ | 29.29 | |||||||||||||||
| PPL Electric | 29.35 | ||||||||||||||||
151
EG performance unit activity for 2022 was:
| EG Performance Unit | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| PPL | |||||||||||
| Nonvested, beginning of period | — | $ | — | ||||||||
| Granted | 141,880 | 29.29 | |||||||||
| Nonvested, end of period | 141,880 | 29.29 | |||||||||
| PPL Electric | |||||||||||
| Nonvested, beginning of period | — | $ | — | ||||||||
| Granted | 6,888 | 29.35 | |||||||||
| Nonvested, end of period | 6,888 | 29.35 | |||||||||
Performance Units - Environmental, Social and Governance
Beginning in 2022, PPL changed its executive compensation mix to add performance units based on environmental, social and governance (ESG) metrics. ESG performance units are tied to climate-related performance and intended to further align executive compensation with the company’s future strategy.
Payout of these performance units will be based on the attainment of reductions in company vehicle emissions and building energy use, as well as the retirement of Mill Creek Unit 1, a coal-fired generating facility in Kentucky. ESG performance units can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the Compensation Committee's determination of achievement of the performance goals. Under the plan provisions, these performance units are subject to forfeiture upon termination of employment other than retirement, disability or death of an employee.
The fair value of each ESG performance unit is based on the closing price of PPL Common Stock on the date of grant. The fair value of ESG performance units is recognized on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value awards granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. As these awards are based on performance conditions, the level of attainment is monitored each reporting period and compensation expense is adjusted based on the expected attainment level.
The weighted-average grant date fair value of ESG performance units granted was:
| 2022 | |||||||||||||||||
| PPL | $ | 29.29 | |||||||||||||||
| PPL Electric | 29.35 | ||||||||||||||||
152
ESG performance unit activity for 2022 was:
| ESG Performance Unit | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| PPL | |||||||||||
| Nonvested, beginning of period | — | $ | — | ||||||||
| Granted | 141,880 | 29.29 | |||||||||
| Nonvested, end of period | 141,880 | 29.29 | |||||||||
| PPL Electric | |||||||||||
| Nonvested, beginning of period | — | $ | — | ||||||||
| Granted | 6,888 | 29.35 | |||||||||
| Nonvested, end of period | 6,888 | 29.35 | |||||||||
Stock Options
PPL's CGNCCompensation, Governance and Nominating Committee, now known as the Compensation Committee, eliminated the use of stock options due to changes in its long-term incentive mix beginning in January 2014.
Under the Plans, stock options had been granted with an option exercise price per share not less than the fair value of PPL's common stock on the date of grant. Options outstanding at December 31, 2019,2022, are fully vested. All options expire no later than 10 years from the grant date. The options become exercisable immediately in certain situations, as defined by each of the Plans.
Stock option activity for 20192022 was:
| Number of Options | Weighted Average Exercise Price Per Share | Weighted- Average Remaining Contractual Term (years) | Aggregate Total Intrinsic Value | ||||||||||||||||||||
| PPL | |||||||||||||||||||||||
| Outstanding at beginning of period | 766,002 | $ | 26.57 | ||||||||||||||||||||
| Exercised | (594,450) | 26.44 | |||||||||||||||||||||
| Outstanding and exercisable at end of period | 171,552 | 27.04 | 0.1 | $ | — | ||||||||||||||||||
Number of Options | Weighted Average Exercise Price Per Share | Weighted- Average Remaining Contractual Term (years) | Aggregate Total Intrinsic Value | |||||||||
| PPL | ||||||||||||
| Outstanding at beginning of period | 2,914,525 | $ | 26.26 | |||||||||
| Exercised | (1,578,554 | ) | 26.31 | |||||||||
| Forfeited | (5,028 | ) | 28.77 | |||||||||
| Outstanding and exercisable at end of period | 1,330,943 | 26.20 | 2.5 | $ | 13 | |||||||
For 2019, 20182022, 2021 and 2017,2020, PPL received $53$18 million, $5$10 million and $19$8 million in cash from stock options exercised. The total intrinsic value of stock options exercised for 2019 was $11 million, insignificant in 2018 and $8 million for 2017.each of those years. The related income tax benefits realized were not significant.
Compensation Expense
Compensation expense for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards which for PPL Electric and LKE includes an allocation of PPL Services' expense, was:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | $ | 36 | $ | 34 | $ | 28 | |||||||||||
| PPL Electric | 2 | 11 | 10 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 35 | $ | 25 | $ | 32 | |||||
| PPL Electric | 12 | 10 | 18 | ||||||||
| LKE | 9 | 8 | 8 | ||||||||
The income tax benefit related to above compensation expense was as follows:
| 2022 | 2021 | 2020 | |||||||||||||||
| PPL | $ | 10 | $ | 10 | $ | 8 | |||||||||||
| PPL Electric | 1 | 3 | 3 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 10 | $ | 10 | $ | 13 | |||||
| PPL Electric | 3 | 3 | 8 | ||||||||
| LKE | 2 | 2 | 3 | ||||||||
At December 31, 2019,2022, unrecognized compensation expense related to nonvested stock awards was:
Unrecognized Compensation Expense | Weighted- Average Period for Recognition | ||||
| PPL | $ | 14 | 1.9 | ||
| PPL Electric | 3 | 2.2 | |||
| LKE | 1 | 1.5 | |||
153
| Unrecognized Compensation Expense | Weighted- Average Period for Recognition | ||||||||||
| PPL | $ | 23 | 1.8 | ||||||||
| PPL Electric | 2 | 1.8 | |||||||||
12. Retirement and Postemployment Benefits
(All Registrants)
Defined Benefits
Certain employees of PPL's domestic subsidiaries are eligible for pension benefits under non-contributory defined benefit pension plans with benefits based on length of service and final average pay, as defined by the plans. Effective January 1, 2012, PPL's primary defined benefit pension plan was closed to all newly hired salaried employees. Effective July 1, 2014, PPL's primary defined benefit pension plan was closed to all newly hired bargaining unit employees. Newly hired employees are eligible to participate in the PPL Retirement Savings Plan, a 401(k) savings plan with enhanced employer contributions.
The defined benefit pension plans of LKE and its subsidiaries were closed to new salaried and bargaining unit employees hired after December 31, 2005. Employees hired after December 31, 2005 receive additional company contributions above the standard matching contributions to their savings plans. The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan. The merged plan is sponsored by LKE. LG&E and KU participate in this plan.
PPL and certain of its subsidiaries also provide supplemental retirement benefits to executives and other key management employees through unfunded nonqualified retirement plans.
Certain employees of PPL's domestic subsidiaries are eligible for certain health care and life insurance benefits upon retirement through contributory plans. Effective January 1, 2014, the PPL Postretirement Medical Plan was closed to all newly hired salaried employees. Effective July 1, 2014, the PPL Postretirement Medical Plan was closed to all newly hired bargaining unit employees. Postretirement health benefits may be paid from 401(h) accounts established as part of the PPL Retirement Plan and the LG&E and KU Pension Plan within the PPL Services Corporation Master Trust, funded VEBA trusts and company funds. WPD does not sponsor any
The Rhode Island postretirement benefit plans other than pensions.provide health care and life insurance coverage to eligible retired employees. Eligibility is based on age and length of service requirements and, in most cases, retirees must contribute to the cost of their coverage.
154
(PPL)
The following table provides the components of net periodic defined benefit costs (credits) for PPL's domestic (U.S.) and WPD's (U.K.) pension and other postretirement benefit plans for the years ended December 31.
| Pension Benefits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. | U.K. | Other Postretirement Benefits | Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic defined benefit costs (credits): | Net periodic defined benefit costs (credits): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Service cost | $ | 50 | $ | 62 | $ | 65 | $ | 68 | $ | 82 | $ | 76 | $ | 6 | $ | 7 | $ | 7 | Service cost | $ | 51 | $ | 56 | $ | 56 | $ | 7 | $ | 6 | $ | 6 | |||||||||||||||||||||||||||||||||||||||
| Interest cost | 164 | 156 | 168 | 187 | 185 | 178 | 22 | 21 | 23 | Interest cost | 144 | 121 | 146 | 20 | 16 | 19 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (245 | ) | (249 | ) | (231 | ) | (588 | ) | (587 | ) | (514 | ) | (18 | ) | (23 | ) | (22 | ) | Expected return on plan assets | (276) | (255) | (246) | (28) | (23) | (21) | |||||||||||||||||||||||||||||||||||||||||||||
| Amortization of: | Amortization of: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prior service cost (credit) | 8 | 10 | 10 | 1 | — | — | (1 | ) | (1 | ) | (1 | ) | Prior service cost (credit) | 8 | 8 | 9 | 1 | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Actuarial (gain) loss | 56 | 84 | 69 | 92 | 151 | 144 | 1 | — | 1 | Actuarial (gain) loss | 51 | 93 | 89 | (5) | (1) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net periodic defined benefit costs (credits) prior to settlements and termination benefits | 33 | 63 | 81 | (240 | ) | (169 | ) | (116 | ) | 10 | 4 | 8 | Net periodic defined benefit costs (credits) prior to settlements and termination benefits | (22) | 23 | 54 | (5) | (1) | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlements | 1 | — | 1 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Termination benefits | — | — | 1 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlements (a) | Settlements (a) | 23 | 18 | 23 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net periodic defined benefit costs (credits) | $ | 34 | $ | 63 | $ | 83 | $ | (240 | ) | $ | (169 | ) | $ | (116 | ) | $ | 10 | $ | 4 | $ | 8 | Net periodic defined benefit costs (credits) | $ | 1 | $ | 41 | $ | 77 | $ | (5) | $ | (1) | $ | 5 | ||||||||||||||||||||||||||||||||||||
| Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross: | Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss)/gain allocated at acquisition | Net (loss)/gain allocated at acquisition | $ | 33 | $ | — | $ | — | $ | (49) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement | (1 | ) | — | (1 | ) | — | — | — | — | — | — | Settlement | (23) | (18) | (23) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (gain) loss | (121 | ) | 157 | 27 | 723 | 201 | 346 | (18 | ) | 8 | (28 | ) | Net (gain) loss | 242 | 42 | (221) | — | (53) | (6) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Prior service cost (credit) | 2 | 1 | (1 | ) | — | 13 | — | — | — | 8 | Prior service cost (credit) | — | 3 | 1 | — | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of: | Amortization of: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prior service (cost) credit | (8 | ) | (10 | ) | (10 | ) | (1 | ) | — | — | 1 | 1 | 1 | Prior service (cost) credit | (8) | (8) | (9) | (1) | (1) | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Actuarial gain (loss) | (56 | ) | (84 | ) | (69 | ) | (92 | ) | (151 | ) | (144 | ) | (1 | ) | — | (1 | ) | Actuarial gain (loss) | (51) | (93) | (89) | 5 | 1 | — | ||||||||||||||||||||||||||||||||||||||||||||||
Total recognized in OCI and regulatory assets/liabilities (a) | (184 | ) | 64 | (54 | ) | 630 | 63 | 202 | (18 | ) | 9 | (20 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total recognized in OCI and regulatory assets/liabilities | Total recognized in OCI and regulatory assets/liabilities | 193 | (74) | (341) | (45) | (53) | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities (a) | $ | (150 | ) | $ | 127 | $ | 29 | $ | 390 | $ | (106 | ) | $ | 86 | $ | (8 | ) | $ | 13 | $ | (12 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities | Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities | $ | 194 | $ | (33) | $ | (264) | $ | (50) | $ | (54) | $ | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||