UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | |
FORM 10-Q | |
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended |
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 |
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 | ||
333-173665 | LG&E and KU Energy LLC (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 20-0523163 |
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 |
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 X | No | ||
PPL Electric Utilities Corporation | Yes X | No | ||
LG&E and KU Energy LLC | Yes X | No | ||
Louisville Gas and Electric Company | Yes X | No | ||
Kentucky Utilities Company | Yes X | No |
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
PPL Corporation | Yes X | No | ||
PPL Electric Utilities Corporation | Yes X | No | ||
LG&E and KU Energy LLC | Yes X | No | ||
Louisville Gas and Electric Company | Yes X | No | ||
Kentucky Utilities Company | Yes X | No |
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | ||
PPL Corporation | [ X ] | [ ] | [ | ||
[ ] | |||||
PPL Electric Utilities Corporation | [ ] | [ ] | [ X ] | [ ] | |
LG&E and KU Energy LLC | [ ] | [ ] | [ X ] | [ ] | |
Louisville Gas and Electric Company | [ ] | [ ] | [ X ] | [ ] | |
Kentucky Utilities Company | [ ] | [ ] | [ X ] | [ ] |
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
PPL Corporation | Yes | No X | ||
PPL Electric Utilities Corporation | Yes | No X | ||
LG&E and KU Energy LLC | Yes | No X | ||
Louisville Gas and Electric Company | Yes | No X | ||
Kentucky Utilities Company | Yes | No X |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
PPL Corporation | Common stock, $0.01 par value, | |
PPL Electric Utilities Corporation | Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at | |
LG&E and KU Energy LLC | PPL Corporation directly holds all of the membership interests in LG&E and KU Energy LLC. | |
Louisville Gas and Electric Company | Common stock, no par value, 21,294,223 shares outstanding and all held by LG&E and KU Energy LLC at | |
Kentucky Utilities Company | Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at |
This document is available free of charge at the Investor Center on PPL Corporation's website at www.pplweb.com. However, information on this website does not constitute a part of this Form 10-Q.
PPL CORPORATION
PPL ELECTRIC UTILITIES CORPORATION
LG&E ANDand KU ENERGYEnergy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2014
Table of Contents
This combined Form 10-Q is separately filed by the following Registrants in their individual capacity: PPL Corporation, PPL Energy Supply, LLC, 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.
Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Energy Supply, LLC, 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 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.
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1 | |||||||
PART I. FINANCIAL INFORMATION | |||||||
Item 1. Financial Statements | |||||||
PPL Corporation and Subsidiaries | |||||||
Condensed Consolidated Statements of Income | 3 | ||||||
4 | |||||||
5 | |||||||
6 | |||||||
8 | |||||||
PPL Electric Utilities Corporation and Subsidiaries | |||||||
Condensed Consolidated Statements of Income | 10 | ||||||
11 | |||||||
12 | |||||||
14 | |||||||
LG&E and KU Energy LLC and Subsidiaries | |||||||
Condensed Consolidated Statements of Income | 16 | ||||||
17 | |||||||
18 | |||||||
20 |
Louisville Gas and Electric Company | |||||
Kentucky Utilities Company | |||||
Combined Notes to Condensed Financial Statements (Unaudited) | ||||||
34 | ||||||
4. Earnings Per Share | 35 | |||||
5. Income Taxes | 36 | |||||
6. Utility Rate Regulation | 37 | |||||
7. Financing Activities | 40 | |||||
42 | ||||||
44 | ||||||
65 | ||||||
15. Goodwill | 75 | |||||
16. Asset Retirement Obligations | 75 | |||||
17. Available-for-Sale Securities | 75 | |||||
18. Accumulated Other Comprehensive Income (Loss) | 76 | |||||
Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||||
PART II. OTHER INFORMATION | ||||||
PPL Corporation and its subsidiaries
KU - Kentucky -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
LKS
PPL- PPL Corporation, the parent holding company of PPL Electric, PPL Energy Funding, PPL Capital Funding, LKE and other subsidiaries.
PPL Brunner Island - PPL Brunner Island, LLC, a subsidiary of PPL Generation that owns generating operations in Pennsylvania.
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 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 Energy Supply, PPL Global and other subsidiaries.
PPL EnergyPlus - PPL EnergyPlus, LLC, a subsidiary of PPL Energy Supply that markets and trades wholesale and retail electricity and gas, and supplies energy and energy services in competitive markets.
PPL Energy Supply - PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the parent company of PPL Generation, PPL EnergyPlus and other subsidiaries.
PPL EU Services
PPL Generation - PPL Generation, LLC, a subsidiary of PPL Energy Supply that owns and operates U.S. generating facilities through various subsidiaries.
PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Funding that, primarily through its subsidiaries, owns and operates WPD, PPL's regulated electricity distribution businesses in the U.K.
PPL Montana - PPL Montana, LLC, an indirect subsidiary of PPL Generation that generates electricity for wholesale sales in Montana and the Pacific Northwest.
PPL Montour - PPL Montour, LLC, a subsidiary of PPL Generation that owns generating operations in Pennsylvania.
PPL Services - PPL Services Corporation, a subsidiary of PPL that provides services to PPL and its subsidiaries.
PPL Susquehanna - PPL Susquehanna, LLC, a subsidiary of PPL Generation that owns a nuclear-powered generating station.
PPL WEMWPD Ltd - PPL WEM Holdings Limited, an indirect U.K. subsidiary of PPL Global. PPL WEM indirectly owns both WPD (East Midlands)Ltd holds a liability for a closed defined benefit pension plan and a receivable with WPD (West Midlands).
PPL WW - PPL WW Holdings Limited, an indirect U.K. subsidiary of PPL Global. PPL WW Holdings indirectly owns WPD (South Wales) and WPD (South West).
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Subsidiary Registrant(s) - Registrants that are direct or indirect wholly owned subsidiaries of PPL: PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
WPD - refers to WPD Ltd and its subsidiaries together with a sister company PPL WW and PPL WEM and their subsidiaries.
WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company.
WPD Ltd
WPD Midlands-refers to WPD (East Midlands) and WPD (West Midlands), collectively.
WPD(South Wales) - Western Power Distribution (South Wales) plc, a British regional electricity distribution utility company.
WPD(South West) - Western Power Distribution (South West) plc, a British regional electricity distribution utility company.
WPD (West Midlands) -Western Power Distribution (West Midlands) plc, a British regional electricity distribution utility company.
WKE -Western Kentucky Energy Corp., a subsidiary of LKE that leased certain non-utility generating plants in western Kentucky until July 2009.
Other terms and abbreviations
£ - British pound sterling.
2010 Equity Unit(s) - a PPL equity unit, issued in June 2010, consisting of a 2010 Purchase Contract and, initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.625% Junior Subordinated Notes due 2018.
Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation authorizes the PUC 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 amends the Pennsylvania Public Utility Code and creates an energy efficiency and conservation program and smart metering technology requirements, adopts new PLR electricity supply procurement rules, provides remedies for market misconduct and changes to the AEPS.
AEPS - Alternative Energy Portfolio Standard.
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.
Baseload generation- includes the output provided by PPL's nuclear, coal, hydroelectric and qualifying facilities.
Basis
CAIR - the EPA's Clean Air Interstate Rule.
CCRCCR(s) - Coal Combustion Residuals.Residual(s). CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.
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Clean Air Act - federal legislation enacted to address certain environmental issues related to air emissions, including acid rain, ozone and toxic air emissions.
COBRA -Consolidated Omnibus Budget Reconciliation Act, which provides individuals the option to temporarily continue employer group health insurance coverage after termination of employment.
CSAPR
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.
Depreciation not normalized - the flow-through income tax impact related to the state regulatory treatment of depreciation-related timing differences.
DOJ - U.S. Department of Justice.
DPCR4 - Distribution Price Control Review 4, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2005.
DPCR5 - Distribution Price Control Review 5, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2010.
DRIP - Dividend Reinvestment and Direct Stock Purchase Plan.
DSIC - the distribution system improvement chargeDistribution System Improvement Charge authorized under Act 11, which is an alternative ratemaking mechanism providing more-timely cost recovery of qualifying distribution system capital expenditures.
DSM-Demand Side Management. Pursuant to Kentucky Revised Statute 278.285, the KPSC may determine the reasonableness of DSM plans proposed by any utility under its jurisdiction. Proposed DSM mechanisms may seek full recovery of costs and revenues lost by implementing DSM programs and/or incentives designed to provide financial rewards to the utility for implementing cost-effective DSM programs. The cost of such programs shall be assigned only to the class or classes of customers which benefit from the programs.
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-products from the production of energy from coal.
EEI -Edison Electric Energy, Inc., owns and operates a coal-fired plant and a natural gas facility in southern Illinois. KU's 20% ownership interest in EEI is accounted for as an equity method investment.Institute,
EPA - Environmental Protection Agency, a U.S. government agency.
EPS - earnings per share.
Equity UnitsUnit(s) - refers collectively to thea PPL equity unit, issued in April 2011, consisting of a Purchase Contract and, 2010 Equity Units.
ERCOTERCOT - the Electric Reliability Council of Texas, operator of the electricity transmission network and electricity energy market in most of Texas.
ESOPE.W. Brown- Employee Stock Ownership Plan.
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.
Fitch
FTRs -financial transmission rights, which are financial instruments established to manage price risk related to electricity transmission congestion that entitle the holder to receive compensation or require the holder to remit payment for certain congestion-related transmission charges based on the level of congestion between two pricing locations, known as source and sink.
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GAAP - Generally Accepted Accounting Principles in the U.S.
GBPGBP - British pound sterling.
GHG - greenhouse gas(es).
GLT - Gas Line Tracker. The KPSC approved LG&E's recovery of costs associated with gas service lines, gas risers, leak mitigation, and gas main replacements. Rate recovery became effective on January 1, 2013.
Green River Unit 5Holdco- -Talen Energy Holdings, Inc., a natural gas combined-cycle unit proposed to be built in Kentucky, jointly owned by LG&E and KU,Delaware Corporation, which is expected to provide additional electric generating capacitywas formed for the purposes of 700MW (280 MW and 420 MW of LG&E and KU, respectively).
IBEW - International Brotherhood of Electrical Workers.
Intermediate and peaking generation- includes the output provided by PPL's oil- and natural gas-fired units.
IRSIronwood Facility - a natural gas combined-cycle unit in Lebanon, Pennsylvania with a summer rating of 660 MW.
IRS- Internal Revenue Service, a U.S. government agency.
ISO
KPSC
LIBOR
LTIIPMATS- Long Term Infrastructure Improvement Plan.
MDEQ
MEIC
MMBtu
Montana Power - The Montana Power Company, a Montana-based company that sold its generating assets to PPL Montana in December 1999. Through a series of transactions consummated during the first quarter of 2002, Montana Power sold its electricity delivery business to NorthWestern.
Moody's - Moody's Investors Service, Inc., a credit rating agency.
MPSC - Montana Public Service Commission.
MWh - megawatt-hour, one thousand kilowatt-hours.
NDT - PPL Susquehanna's nuclear plant decommissioning trust.
NERC - North American Electric Reliability Corporation.
NGCC - Natural gas-fired combined-cycle generating plant.
NorthWestern- NorthWestern Corporation, a Delaware corporation, and successor in interest to Montana Power's electricity delivery business, including Montana Power's rights and obligations under contracts with PPL Montana.
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.
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NRC - Nuclear Regulatory Commission, the U.S. federal agency that regulates nuclear power facilities.
OCI - other comprehensive income or loss.
Ofgem
Opacity - the degree to which emissions reduce the transmission of light and obscure the view of an object in the background. There are emission regulations that limit the opacity of power plant stack gas emissions.
OVEC-
PADEP - the Pennsylvania Department of Environmental Protection, a state government agency.
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.
PUC
Purchase Contract(s) - refers collectively to the 2010 and 2011 Purchase Contracts, which are components of the 2010 and 2011 Equity Units.
RCRA - Resource Conservation and Recovery Act of 1976.
RECs - renewable energy credits.
Regional Transmission Expansion Plan - PJM conducts a long-range Regional Transmission Expansion Planning process that identifies changes and additions to the grid necessary to ensure future needs are met for both the reliability and the economic performance of the grid. Under PJM agreements, transmission owners are obligated to build transmission projects assigned to them by the PJM Board.
RFC
RIIO-ED1 - RIIO represents "Revenues = Incentive + Innovation + Outputs - Electricity Distribution.Outputs." RIIO-ED1 refers to the initial eight-year rate review period applicable to WPD commencingwhich commenced April 1, 2015.
Riverstone - Riverstone Holdings LLC, a Delaware limited liability company and ultimate parent company of the entities that own the electricity generating assetscompetitive power generation business to be contributed to Talen Energy other than those assetsthe competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.
RJS Power - RJS PowerGeneration Holdings LLC, a Delaware limited liability company controlled by Riverstone, currently expected to holdthat owns the competitive power generation assetsbusiness to be contributed by its owners to Talen Energy other than those assetsthe competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.
RMC - Risk Management Committee.
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S&P - Standard & Poor's Ratings Services, a credit rating agency.
Sarbanes-Oxley
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.
SERC - SERC Reliability Corporation, one of eight regional entities with delegated authority from NERC that work to safeguard the reliability of the bulk power systems throughout North America.
SIFMA Index - the Securities Industry and Financial Markets Association Municipal Swap Index.
Smart meter-an electric meter that utilizes smart metering technology.
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.
SNCR - selective non-catalytic reduction, a pollution control process for the removal of nitrogen oxide from exhaust gases using ammonia.
Spark Spread - a measure of gross margin representing the price of power on a per MWh basis less the equivalent measure of the natural gas cost to produce that power. This measure is used to describe the gross margin of PPL and its subsidiaries' competitive natural gas-fired generating fleet. This term is also used to describe a derivative contract in which PPL and its subsidiaries sell power and buy natural gas on a forward basis in the same contract.
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 future owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone.
TC2 - Trimble County Unit 2, a coal-fired plant located in Kentucky with a net summer capacity of 732 MW. LKE indirectly owns a 75% interest (consists of LG&E's 14.25% and KU's 60.75% interests) in TC2 or 549 MW of the capacity.
Total shareowner return
TRA - Tennessee Regulatory Authority, the state agency that has jurisdiction over the regulation of rates and service of utilities in Tennessee.
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.
VaR - value-at-risk, a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level.
Volumetric risk - the risk that the actual load volumes provided under full-requirement sales contracts could vary significantly from forecasted volumes.
VSCC
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Statements contained in this Form 10-Q 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 each Registrant's 20132014 Form 10-K and in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q, the following are among the important factors that could cause actual results to differ materially from the forward-looking statements.
· | fuel supply cost and availability; |
· | continuing 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; |
· | weather conditions affecting generation, customer energy use and operating costs; |
· | operation, availability and operating costs of existing generation facilities; |
· | the duration of and cost, including lost revenue, associated with scheduled and unscheduled outages at our generating facilities; |
· | transmission and distribution system conditions and operating costs; |
· | expansion of alternative sources of electricity generation; |
· | laws or regulations to reduce emissions of "greenhouse" gases or the physical effects of climate change; |
· | collective labor bargaining negotiations; |
· | the outcome of litigation against the Registrants and their subsidiaries; |
· | potential effects of threatened or actual terrorism, war or other hostilities, cyber-based intrusions or natural disasters; |
· | the commitments and liabilities of the Registrants and their subsidiaries; |
· | the effectiveness of our risk management techniques, including hedging; |
· | the effect on our operations and ability to comply with new statutory and regulatory requirements related to derivative financial instruments; |
· | our ability to attract and retain qualified employees; |
· | volatility in market demand and prices for energy, capacity, transmission services, emission allowances and RECs; |
· | competition in retail and wholesale power and natural gas markets; |
· | liquidity of wholesale power markets; |
· | defaults by counterparties under energy, fuel or other power product contracts; |
· | market prices of commodity inputs for ongoing capital expenditures; |
· | capital market conditions, including the availability of capital or credit, changes in interest rates and certain economic indices, and decisions regarding capital structure; |
· | stock price performance of PPL; |
· | volatility in the fair value of debt and equity securities and its impact on the value of assets in the NDT funds and in defined benefit plans, and the potential cash funding requirements if fair value declines; |
· | interest rates and their effect on pension, retiree medical, nuclear decommissioning liabilities and interest payable on certain debt securities; |
· | volatility in or the impact of other changes in financial or commodity markets and economic conditions; |
· | new accounting requirements or new interpretations or applications of existing requirements; |
· | changes in securities and credit ratings; |
· | changes in foreign currency exchange rates for British pound sterling; |
· | current and future environmental conditions, regulations and other requirements and the related costs of compliance, including environmental capital expenditures, emission allowance costs and other expenses; |
· | legal, regulatory, political, market or other reactions to the 2011 incident at the nuclear generating facility at Fukushima, Japan, including additional NRC requirements; |
· | 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, approvals and rate relief; |
· | new state, federal or foreign legislation or regulatory developments; |
· | the outcome of any rate cases or other cost recovery or revenue filings by PPL Electric, LG&E, KU or WPD; |
· | the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry; |
· | the effect of any business or industry restructuring; |
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· | development of new projects, markets and technologies; |
· | performance of new ventures; and |
· | business dispositions or acquisitions, including the |
Any such forward-looking statements should be considered in light of such 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 such statement to reflect subsequent developments or information.
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ITEM 1. Financial Statements | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
PPL Corporation and Subsidiaries | |||||||||||||||
(Unaudited) | |||||||||||||||
(Millions of Dollars, except share data) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Operating Revenues | |||||||||||||||
Utility | $ | 1,830 | $ | 1,655 | $ | 3,992 | $ | 3,605 | |||||||
Unregulated wholesale energy | 591 | 1,401 | (838) | 1,544 | |||||||||||
Unregulated retail energy | 280 | 257 | 629 | 494 | |||||||||||
Energy-related businesses | 173 | 137 | 314 | 264 | |||||||||||
Total Operating Revenues | 2,874 | 3,450 | 4,097 | 5,907 | |||||||||||
Operating Expenses | |||||||||||||||
Operation | |||||||||||||||
Fuel | 491 | 441 | 1,249 | 970 | |||||||||||
Energy purchases | 351 | 1,051 | (1,143) | 1,108 | |||||||||||
Other operation and maintenance | 741 | 698 | 1,438 | 1,374 | |||||||||||
Depreciation | 312 | 286 | 617 | 570 | |||||||||||
Taxes, other than income | 93 | 86 | 197 | 182 | |||||||||||
Energy-related businesses | 168 | 130 | 306 | 252 | |||||||||||
Total Operating Expenses | 2,156 | 2,692 | 2,664 | 4,456 | |||||||||||
Operating Income | 718 | 758 | 1,433 | 1,451 | |||||||||||
Other Income (Expense) - net | (82) | 13 | (105) | 135 | |||||||||||
Interest Expense | 258 | 258 | 522 | 509 | |||||||||||
Income from Continuing Operations Before Income Taxes | 378 | 513 | 806 | 1,077 | |||||||||||
Income Taxes | 149 | 109 | 261 | 260 | |||||||||||
Income from Continuing Operations After Income Taxes | 229 | 404 | 545 | 817 | |||||||||||
Income (Loss) from Discontinued Operations (net of income taxes) | 1 | 1 | |||||||||||||
Net Income Attributable to PPL Shareowners | $ | 229 | $ | 405 | $ | 545 | $ | 818 | |||||||
Amounts Attributable to PPL Shareowners: | |||||||||||||||
Income from Continuing Operations After Income Taxes | $ | 229 | $ | 404 | $ | 545 | $ | 817 | |||||||
Income (Loss) from Discontinued Operations (net of income taxes) | 1 | 1 | |||||||||||||
Net Income | $ | 229 | $ | 405 | $ | 545 | $ | 818 | |||||||
Earnings Per Share of Common Stock: | |||||||||||||||
Income from Continuing Operations After Income Taxes Available to PPL | |||||||||||||||
Common Shareowners: | |||||||||||||||
Basic | $ | 0.35 | $ | 0.68 | $ | 0.84 | $ | 1.39 | |||||||
Diluted | $ | 0.34 | $ | 0.63 | $ | 0.83 | $ | 1.28 | |||||||
Net Income Available to PPL Common Shareowners: | |||||||||||||||
Basic | $ | 0.35 | $ | 0.68 | $ | 0.84 | $ | 1.39 | |||||||
Diluted | $ | 0.34 | $ | 0.63 | $ | 0.83 | $ | 1.28 | |||||||
Dividends Declared Per Share of Common Stock | $ | 0.3725 | $ | 0.3675 | $ | 0.7450 | $ | 0.7350 | |||||||
Weighted-Average Shares of Common Stock Outstanding (in thousands) | |||||||||||||||
Basic | 653,132 | 589,834 | 642,002 | 586,683 | |||||||||||
Diluted | 665,792 | 664,615 | 664,927 | 661,263 | |||||||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
PPL Corporation and Subsidiaries | |||||||||||||||
(Unaudited) | |||||||||||||||
(Millions of Dollars) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 229 | $ | 405 | $ | 545 | $ | 818 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Amounts arising during the period - gains (losses), net of tax (expense) | |||||||||||||||
benefit: | |||||||||||||||
Foreign currency translation adjustments, net of tax of $5, ($1), $6, ($7) | (3) | (7) | 128 | (252) | |||||||||||
Available-for-sale securities, net of tax of ($15), ($2), ($21), ($27) | 14 | 2 | 19 | 25 | |||||||||||
Qualifying derivatives, net of tax of $4, ($23), $29, ($43) | (1) | 24 | (47) | 86 | |||||||||||
Defined benefit plans: | |||||||||||||||
Net actuarial gain (loss), net of tax of $2, $0, $2, $0 | (2) | (2) | |||||||||||||
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||||||
Available-for-sale securities, net of tax of $1, $0, $2, $1 | (1) | (1) | (2) | (2) | |||||||||||
Qualifying derivatives, net of tax of $5, $22, $1, $57 | (5) | (36) | 14 | (116) | |||||||||||
Defined benefit plans: | |||||||||||||||
Prior service costs, net of tax of ($1), ($1), ($2), ($2) | 1 | 2 | 2 | 3 | |||||||||||
Net actuarial loss, net of tax of ($8), ($12), ($17), ($25) | 28 | 34 | 55 | 68 | |||||||||||
Total other comprehensive income (loss) attributable to PPL | |||||||||||||||
Shareowners | 31 | 18 | 167 | (188) | |||||||||||
Comprehensive income (loss) attributable to PPL Shareowners | $ | 260 | $ | 423 | $ | 712 | $ | 630 | |||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
PPL Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
Six Months Ended June 30, | |||||||||
2014 | 2013 | ||||||||
Cash Flows from Operating Activities | |||||||||
Net income | $ | 545 | $ | 818 | |||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation | 617 | 570 | |||||||
Amortization | 112 | 113 | |||||||
Defined benefit plans - expense | 59 | 91 | |||||||
Deferred income taxes and investment tax credits | 133 | 291 | |||||||
Unrealized (gains) losses on derivatives, and other hedging activities | 301 | (11) | |||||||
Adjustment to WPD line loss accrual | 65 | 24 | |||||||
Other | 51 | 26 | |||||||
Change in current assets and current liabilities | |||||||||
Accounts receivable | (73) | (189) | |||||||
Accounts payable | (99) | (75) | |||||||
Unbilled revenues | 161 | 144 | |||||||
Fuel, materials and supplies | 52 | 29 | |||||||
Prepayments | (35) | (64) | |||||||
Counterparty collateral | (15) | (61) | |||||||
Taxes payable | 51 | 128 | |||||||
Uncertain tax positions | (98) | ||||||||
Accrued interest | (107) | (119) | |||||||
Other | (82) | (142) | |||||||
Other operating activities | |||||||||
Defined benefit plans - funding | (218) | (468) | |||||||
Other assets | 1 | (64) | |||||||
Other liabilities | 64 | 4 | |||||||
Net cash provided by operating activities | 1,583 | 947 | |||||||
Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (1,854) | (1,797) | |||||||
Expenditures for intangible assets | (48) | (40) | |||||||
Purchases of nuclear plant decommissioning trust investments | (73) | (66) | |||||||
Proceeds from the sale of nuclear plant decommissioning trust investments | 65 | 59 | |||||||
Proceeds from the receipt of grants | 56 | 4 | |||||||
Net (increase) decrease in restricted cash and cash equivalents | (251) | (17) | |||||||
Other investing activities | 2 | 23 | |||||||
Net cash provided by (used in) investing activities | (2,103) | (1,834) | |||||||
Cash Flows from Financing Activities | |||||||||
Issuance of long-term debt | 296 | 450 | |||||||
Retirement of long-term debt | (239) | (9) | |||||||
Repurchase of common stock | (28) | ||||||||
Issuance of common stock | 1,017 | 259 | |||||||
Payment of common stock dividends | (470) | (426) | |||||||
Contract adjustment payments | (21) | (48) | |||||||
Net increase (decrease) in short-term debt | 107 | 563 | |||||||
Other financing activities | (19) | (51) | |||||||
Net cash provided by (used in) financing activities | 671 | 710 | |||||||
Effect of Exchange Rates on Cash and Cash Equivalents | 16 | (13) | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 167 | (190) | |||||||
Cash and Cash Equivalents at Beginning of Period | 1,102 | 901 | |||||||
Cash and Cash Equivalents at End of Period | $ | 1,269 | $ | 711 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
PPL Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Assets | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 1,269 | $ | 1,102 | |||||
Restricted cash and cash equivalents | 332 | 83 | |||||||
Accounts receivable (less reserve: 2014, $47; 2013, $64) | |||||||||
Customer | 981 | 923 | |||||||
Other | 115 | 97 | |||||||
Unbilled revenues | 680 | 835 | |||||||
Fuel, materials and supplies | 651 | 702 | |||||||
Prepayments | 160 | 153 | |||||||
Deferred income taxes | 317 | 246 | |||||||
Price risk management assets | 954 | 942 | |||||||
Regulatory assets | 29 | 33 | |||||||
Other current assets | 49 | 37 | |||||||
Total Current Assets | 5,537 | 5,153 | |||||||
Investments | |||||||||
Nuclear plant decommissioning trust funds | 911 | 864 | |||||||
Other investments | 39 | 43 | |||||||
Total Investments | 950 | 907 | |||||||
Property, Plant and Equipment | |||||||||
Regulated utility plant | 29,473 | 27,755 | |||||||
Less: accumulated depreciation - regulated utility plant | 5,291 | 4,873 | |||||||
Regulated utility plant, net | 24,182 | 22,882 | |||||||
Non-regulated property, plant and equipment | |||||||||
Generation | 11,858 | 11,881 | |||||||
Nuclear fuel | 624 | 591 | |||||||
Other | 864 | 834 | |||||||
Less: accumulated depreciation - non-regulated property, plant and equipment | 6,294 | 6,172 | |||||||
Non-regulated property, plant and equipment, net | 7,052 | 7,134 | |||||||
Construction work in progress | 3,197 | 3,071 | |||||||
Property, Plant and Equipment, net | 34,431 | 33,087 | |||||||
Other Noncurrent Assets | |||||||||
Regulatory assets | 1,242 | 1,246 | |||||||
Goodwill | 4,301 | 4,225 | |||||||
Other intangibles | 952 | 947 | |||||||
Price risk management assets | 423 | 337 | |||||||
Other noncurrent assets | 357 | 357 | |||||||
Total Other Noncurrent Assets | 7,275 | 7,112 | |||||||
Total Assets | $ | 48,193 | $ | 46,259 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
PPL Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 808 | $ | 701 | |||||
Long-term debt due within one year | 304 | 315 | |||||||
Accounts payable | 1,178 | 1,308 | |||||||
Taxes | 124 | 114 | |||||||
Interest | 223 | 325 | |||||||
Dividends | 248 | 232 | |||||||
Price risk management liabilities | 1,259 | 829 | |||||||
Regulatory liabilities | 82 | 90 | |||||||
Other current liabilities | 930 | 998 | |||||||
Total Current Liabilities | 5,156 | 4,912 | |||||||
Long-term Debt | 20,819 | 20,592 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 4,261 | 3,928 | |||||||
Investment tax credits | 278 | 342 | |||||||
Price risk management liabilities | 498 | 415 | |||||||
Accrued pension obligations | 1,080 | 1,286 | |||||||
Asset retirement obligations | 712 | 687 | |||||||
Regulatory liabilities | 1,026 | 1,048 | |||||||
Other deferred credits and noncurrent liabilities | 628 | 583 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 8,483 | 8,289 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Equity | |||||||||
Common stock - $0.01 par value (a) | 7 | 6 | |||||||
Additional paid-in capital | 9,358 | 8,316 | |||||||
Earnings reinvested | 5,768 | 5,709 | |||||||
Accumulated other comprehensive loss | (1,398) | (1,565) | |||||||
Total Equity | 13,735 | 12,466 | |||||||
Total Liabilities and Equity | $ | 48,193 | $ | 46,259 |
3 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||
PPL Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
Three Months Ended March 31, | |||||||||
2015 | 2014 | ||||||||
Net income | $ | 647 | $ | 316 | |||||
Other comprehensive income (loss): | |||||||||
Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||
Foreign currency translation adjustments, net of tax of ($5), $1 | (66) | 131 | |||||||
Available-for-sale securities, net of tax of ($6), ($6) | 5 | 5 | |||||||
Qualifying derivatives, net of tax of $4, $25 | 6 | (46) | |||||||
Defined benefit plans: | |||||||||
Net actuarial gain (loss), net of tax of $0, $0 | (1) | ||||||||
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||
Available-for-sale securities, net of tax of $1, $1 | (1) | (1) | |||||||
Qualifying derivatives, net of tax of $4, ($4) | (17) | 19 | |||||||
Equity investees' other comprehensive (income) loss, net of | |||||||||
tax of $1, $0 | (1) | ||||||||
Defined benefit plans: | |||||||||
Prior service costs, net of tax of $0, ($1) | 1 | ||||||||
Net actuarial loss, net of tax of ($13), ($9) | 38 | 27 | |||||||
Total other comprehensive income (loss) | (37) | 136 | |||||||
Comprehensive income (loss) | $ | 610 | $ | 452 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
PPL Corporation and Subsidiaries | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||
(Millions of Dollars) | ||||||||||||||||||||||
PPL Shareowners | ||||||||||||||||||||||
Common | ||||||||||||||||||||||
stock | Accumulated | |||||||||||||||||||||
shares | Additional | other | Non- | |||||||||||||||||||
outstanding | Common | paid-in | Earnings | comprehensive | controlling | |||||||||||||||||
(a) | stock | capital | reinvested | loss | interests | Total | ||||||||||||||||
March 31, 2014 | 631,417 | $ | 6 | $ | 8,352 | $ | 5,788 | $ | (1,429) | $ | 12,717 | |||||||||||
Common stock issued (b) | 32,601 | 1 | 997 | 998 | ||||||||||||||||||
Stock-based compensation (c) | 9 | 9 | ||||||||||||||||||||
Net income | 229 | 229 | ||||||||||||||||||||
Dividends and dividend | ||||||||||||||||||||||
equivalents (d) | (249) | (249) | ||||||||||||||||||||
Other comprehensive | ||||||||||||||||||||||
income (loss) | 31 | 31 | ||||||||||||||||||||
June 30, 2014 | 664,018 | $ | 7 | $ | 9,358 | $ | 5,768 | $ | (1,398) | $ | 13,735 | |||||||||||
December 31, 2013 | 630,321 | $ | 6 | $ | 8,316 | $ | 5,709 | $ | (1,565) | $ | 12,466 | |||||||||||
Common stock issued (b) | 33,697 | 1 | 1,027 | 1,028 | ||||||||||||||||||
Stock-based compensation (c) | 15 | 15 | ||||||||||||||||||||
Net income | 545 | 545 | ||||||||||||||||||||
Dividends and dividend | ||||||||||||||||||||||
equivalents (d) | (486) | (486) | ||||||||||||||||||||
Other comprehensive | ||||||||||||||||||||||
income (loss) | 167 | 167 | ||||||||||||||||||||
June 30, 2014 | 664,018 | $ | 7 | $ | 9,358 | $ | 5,768 | $ | (1,398) | $ | 13,735 | |||||||||||
March 31, 2013 | 583,214 | $ | 6 | $ | 6,988 | $ | 5,676 | $ | (2,146) | $ | 18 | $ | 10,542 | |||||||||
Common stock issued (b) | 9,338 | 245 | 245 | |||||||||||||||||||
Common stock repurchased | (930) | (28) | (28) | |||||||||||||||||||
Cash settlement of equity forward | ||||||||||||||||||||||
agreements | (13) | (13) | ||||||||||||||||||||
Stock-based compensation (c) | 3 | 3 | ||||||||||||||||||||
Net income | 405 | 405 | ||||||||||||||||||||
Dividends and dividend | ||||||||||||||||||||||
equivalents (d) | (218) | (218) | ||||||||||||||||||||
Other comprehensive | ||||||||||||||||||||||
income (loss) | 18 | 18 | ||||||||||||||||||||
June 30, 2013 | 591,622 | $ | 6 | $ | 7,195 | $ | 5,863 | $ | (2,128) | $ | 18 | $ | 10,954 | |||||||||
December 31, 2012 | 581,944 | $ | 6 | $ | 6,936 | $ | 5,478 | $ | (1,940) | $ | 18 | $ | 10,498 | |||||||||
Common stock issued (b) | 10,608 | 282 | 282 | |||||||||||||||||||
Common stock repurchased | (930) | (28) | (28) | |||||||||||||||||||
Cash settlement of equity forward | ||||||||||||||||||||||
agreements | (13) | (13) | ||||||||||||||||||||
Stock-based compensation (c) | 18 | 18 | ||||||||||||||||||||
Net income | 818 | 818 | ||||||||||||||||||||
Dividends and dividend | ||||||||||||||||||||||
equivalents (d) | (433) | (433) | ||||||||||||||||||||
Other comprehensive | ||||||||||||||||||||||
income (loss) | (188) | (188) | ||||||||||||||||||||
June 30, 2013 | 591,622 | $ | 6 | $ | 7,195 | $ | 5,863 | $ | (2,128) | $ | 18 | $ | 10,954 |
4 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
5 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
6 |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
PPL Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
March 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 1,595 | $ | 1,466 | |||||
Long-term debt due within one year | 1,535 | 1,535 | |||||||
Accounts payable | 1,128 | 1,356 | |||||||
Taxes | 274 | 230 | |||||||
Interest | 345 | 314 | |||||||
Dividends | 249 | 249 | |||||||
Price risk management liabilities | 1,073 | 1,126 | |||||||
Regulatory liabilities | 109 | 91 | |||||||
Other current liabilities | 909 | 1,076 | |||||||
Total Current Liabilities | 7,217 | 7,443 | |||||||
Long-term Debt | 18,772 | 18,856 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 4,627 | 4,450 | |||||||
Investment tax credits | 157 | 159 | |||||||
Price risk management liabilities | 333 | 252 | |||||||
Accrued pension obligations | 1,457 | 1,756 | |||||||
Asset retirement obligations | 739 | 739 | |||||||
Regulatory liabilities | 987 | 992 | |||||||
Other deferred credits and noncurrent liabilities | 596 | 589 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 8,896 | 8,937 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Equity | |||||||||
Common stock - $0.01 par value (a) | 7 | 7 | |||||||
Additional paid-in capital | 9,480 | 9,433 | |||||||
Earnings reinvested | 6,860 | 6,462 | |||||||
Accumulated other comprehensive loss | (2,311) | (2,274) | |||||||
Total Equity | 14,036 | 13,628 | |||||||
Total Liabilities and Equity | $ | 48,921 | $ | 48,864 |
(a) | 780,000 shares authorized; 667,713 and 665,849 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
7 |
(a) | Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
8 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
9 |
PPL Energy Supply, LLC and Subsidiaries | |||||||||||||||
(Unaudited) | |||||||||||||||
(Millions of Dollars) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Operating Revenues | |||||||||||||||
Unregulated wholesale energy | $ | 591 | $ | 1,401 | $ | (838) | $ | 1,544 | |||||||
Unregulated wholesale energy to affiliate | 21 | 12 | 48 | 26 | |||||||||||
Unregulated retail energy | 281 | 257 | 632 | 495 | |||||||||||
Energy-related businesses | 155 | 122 | 280 | 235 | |||||||||||
Total Operating Revenues | 1,048 | 1,792 | 122 | 2,300 | |||||||||||
Operating Expenses | |||||||||||||||
Operation | |||||||||||||||
Fuel | 259 | 224 | 741 | 522 | |||||||||||
Energy purchases | 203 | 898 | (1,601) | 699 | |||||||||||
Other operation and maintenance | 296 | 270 | 554 | 505 | |||||||||||
Depreciation | 82 | 79 | 162 | 157 | |||||||||||
Taxes, other than income | 16 | 16 | 37 | 33 | |||||||||||
Energy-related businesses | 155 | 118 | 279 | 228 | |||||||||||
Total Operating Expenses | 1,011 | 1,605 | 172 | 2,144 | |||||||||||
Operating Income (Loss) | 37 | 187 | (50) | 156 | |||||||||||
Other Income (Expense) - net | 8 | 12 | 14 | 16 | |||||||||||
Interest Expense | 35 | 46 | 69 | 92 | |||||||||||
Income (Loss) Before Income Taxes | 10 | 153 | (105) | 80 | |||||||||||
Income Taxes | (3) | 67 | (52) | 32 | |||||||||||
Net Income (Loss) Attributable to PPL Energy Supply Member | $ | 13 | $ | 86 | $ | (53) | $ | 48 | |||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
PPL Energy Supply, LLC and Subsidiaries | |||||||||||||||
(Unaudited) | |||||||||||||||
(Millions of Dollars) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income (loss) | $ | 13 | $ | 86 | $ | (53) | $ | 48 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Amounts arising during the period - gains (losses), net of tax (expense) | |||||||||||||||
benefit: | |||||||||||||||
Available-for-sale securities, net of tax of ($15), ($2), ($21), ($27) | 14 | 2 | 19 | 25 | |||||||||||
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||||||
Available-for-sale securities, net of tax of $1, $0, $2, $1 | (1) | (1) | (2) | (2) | |||||||||||
Qualifying derivatives, net of tax of $5, $23, $9, $44 | (8) | (37) | (13) | (67) | |||||||||||
Defined benefit plans: | |||||||||||||||
Prior service costs, net of tax of $0, $0, ($1), ($1) | 1 | 1 | 2 | ||||||||||||
Net actuarial loss, net of tax of ($1), ($3), ($2), ($5) | 2 | 4 | 3 | 8 | |||||||||||
Total other comprehensive income (loss) attributable to | |||||||||||||||
PPL Energy Supply Member | 7 | (31) | 8 | (34) | |||||||||||
Comprehensive income (loss) attributable to PPL Energy | |||||||||||||||
Supply Member | $ | 20 | $ | 55 | $ | (45) | $ | 14 | |||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
PPL Energy Supply, LLC and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
Six Months Ended June 30, | |||||||||
2014 | 2013 | ||||||||
Cash Flows from Operating Activities | |||||||||
Net income (loss) | $ | (53) | $ | 48 | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | |||||||||
Depreciation | 162 | 157 | |||||||
Amortization | 77 | 71 | |||||||
Defined benefit plans - expense | 32 | 26 | |||||||
Deferred income taxes and investment tax credits | (120) | 98 | |||||||
Impairment of assets | 18 | ||||||||
Unrealized (gains) losses on derivatives, and other hedging activities | 232 | 91 | |||||||
Other | 10 | 5 | |||||||
Change in current assets and current liabilities | |||||||||
Accounts receivable | 25 | 6 | |||||||
Accounts payable | (55) | (62) | |||||||
Unbilled revenues | 67 | 96 | |||||||
Prepayments | (16) | (67) | |||||||
Counterparty collateral | (15) | (61) | |||||||
Price risk management assets and liabilities | (33) | (2) | |||||||
Other | (20) | (15) | |||||||
Other operating activities | |||||||||
Defined benefit plans - funding | (32) | (106) | |||||||
Other assets | (1) | (38) | |||||||
Other liabilities | 12 | (20) | |||||||
Net cash provided by operating activities | 290 | 227 | |||||||
Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (176) | (241) | |||||||
Expenditures for intangible assets | (24) | (23) | |||||||
Purchases of nuclear plant decommissioning trust investments | (73) | (66) | |||||||
Proceeds from the sale of nuclear plant decommissioning trust investments | 65 | 59 | |||||||
Proceeds from the receipt of grants | 56 | 3 | |||||||
Net (increase) decrease in restricted cash and cash equivalents | (258) | (24) | |||||||
Other investing activities | 7 | 10 | |||||||
Net cash provided by (used in) investing activities | (403) | (282) | |||||||
Cash Flows from Financing Activities | |||||||||
Contributions from member | 730 | 105 | |||||||
Distributions to member | (914) | (408) | |||||||
Net increase (decrease) in short-term debt | 324 | 219 | |||||||
Other financing activities | (2) | (9) | |||||||
Net cash provided by (used in) financing activities | 138 | (93) | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 25 | (148) | |||||||
Cash and Cash Equivalents at Beginning of Period | 239 | 413 | |||||||
Cash and Cash Equivalents at End of Period | $ | 264 | $ | 265 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
PPL Energy Supply, LLC and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Assets | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 264 | $ | 239 | |||||
Restricted cash and cash equivalents | 326 | 68 | |||||||
Accounts receivable (less reserve: 2014, $2; 2013, $21) | |||||||||
Customer | 206 | 233 | |||||||
Other | 102 | 97 | |||||||
Accounts receivable from affiliates | 42 | 45 | |||||||
Unbilled revenues | 219 | 286 | |||||||
Fuel, materials and supplies | 349 | 358 | |||||||
Prepayments | 36 | 20 | |||||||
Deferred income taxes | 105 | ||||||||
Price risk management assets | 954 | 860 | |||||||
Other current assets | 31 | 27 | |||||||
Total Current Assets | 2,634 | 2,233 | |||||||
Investments | |||||||||
Nuclear plant decommissioning trust funds | 911 | 864 | |||||||
Other investments | 34 | 37 | |||||||
Total Investments | 945 | 901 | |||||||
Property, Plant and Equipment | |||||||||
Non-regulated property, plant and equipment | |||||||||
Generation | 11,866 | 11,891 | |||||||
Nuclear fuel | 624 | 591 | |||||||
Other | 291 | 288 | |||||||
Less: accumulated depreciation - non-regulated property, plant and equipment | 6,139 | 6,046 | |||||||
Non-regulated property, plant and equipment, net | 6,642 | 6,724 | |||||||
Construction work in progress | 386 | 450 | |||||||
Property, Plant and Equipment, net | 7,028 | 7,174 | |||||||
Other Noncurrent Assets | |||||||||
Goodwill | 86 | 86 | |||||||
Other intangibles | 267 | 266 | |||||||
Price risk management assets | 420 | 328 | |||||||
Other noncurrent assets | 79 | 86 | |||||||
Total Other Noncurrent Assets | 852 | 766 | |||||||
Total Assets | $ | 11,459 | $ | 11,074 |
(a) | Net income approximates comprehensive income. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
10 |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
PPL Energy Supply, LLC and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 324 | |||||||
Long-term debt due within one year | 304 | $ | 304 | ||||||
Accounts payable | 309 | 393 | |||||||
Accounts payable to affiliates | 2 | 4 | |||||||
Taxes | 30 | 31 | |||||||
Interest | 22 | 22 | |||||||
Price risk management liabilities | 1,133 | 750 | |||||||
Other current liabilities | 229 | 278 | |||||||
Total Current Liabilities | 2,353 | 1,782 | |||||||
Long-term Debt | 2,219 | 2,221 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,183 | 1,114 | |||||||
Investment tax credits | 144 | 205 | |||||||
Price risk management liabilities | 347 | 320 | |||||||
Accrued pension obligations | 104 | 111 | |||||||
Asset retirement obligations | 406 | 393 | |||||||
Other deferred credits and noncurrent liabilities | 134 | 130 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 2,318 | 2,273 | |||||||
Commitments and Contingent Liabilities (Note 10) | |||||||||
Member's Equity | 4,569 | 4,798 | |||||||
Total Liabilities and Equity | $ | 11,459 | $ | 11,074 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
PPL Energy Supply, LLC and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
Non- | |||||||||
Member's | controlling | ||||||||
equity | interests | Total | |||||||
March 31, 2014 | $ | 4,079 | $ | 4,079 | |||||
Net income (loss) | 13 | 13 | |||||||
Other comprehensive income (loss) | 7 | 7 | |||||||
Contributions from member | 730 | 730 | |||||||
Distributions | (260) | (260) | |||||||
June 30, 2014 | $ | 4,569 | $ | 4,569 | |||||
December 31, 2013 | $ | 4,798 | $ | 4,798 | |||||
Net income (loss) | (53) | (53) | |||||||
Other comprehensive income (loss) | 8 | 8 | |||||||
Contributions from member | 730 | 730 | |||||||
Distributions | (914) | (914) | |||||||
June 30, 2014 | $ | 4,569 | $ | 4,569 | |||||
March 31, 2013 | $ | 3,476 | $ | 18 | $ | 3,494 | |||
Net income | 86 | 86 | |||||||
Other comprehensive income (loss) | (31) | (31) | |||||||
Contributions from member | 105 | 105 | |||||||
Distributions | (95) | (95) | |||||||
June 30, 2013 | $ | 3,541 | $ | 18 | $ | 3,559 | |||
December 31, 2012 | $ | 3,830 | $ | 18 | $ | 3,848 | |||
Net income | 48 | 48 | |||||||
Other comprehensive income (loss) | (34) | (34) | |||||||
Contributions from member | 105 | 105 | |||||||
Distributions | (408) | (408) | |||||||
June 30, 2013 | $ | 3,541 | $ | 18 | $ | 3,559 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
PPL Electric Utilities Corporation and Subsidiaries | ||||||||||||||
(Unaudited) | ||||||||||||||
(Millions of Dollars) | ||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||
June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
Operating Revenues | $ | 449 | $ | 414 | $ | 1,041 | $ | 927 | ||||||
Operating Expenses | ||||||||||||||
Operation | ||||||||||||||
Energy purchases | 114 | 120 | 303 | 292 | ||||||||||
Energy purchases from affiliate | 21 | 12 | 48 | 26 | ||||||||||
Other operation and maintenance | 135 | 124 | 269 | 257 | ||||||||||
Depreciation | 45 | 44 | 90 | 87 | ||||||||||
Taxes, other than income | 23 | 22 | 55 | 52 | ||||||||||
Total Operating Expenses | 338 | 322 | 765 | 714 | ||||||||||
Operating Income | 111 | 92 | 276 | 213 | ||||||||||
Other Income (Expense) - net | 1 | 2 | 3 | 3 | ||||||||||
Interest Expense | 29 | 25 | 58 | 50 | ||||||||||
Income Before Income Taxes | 83 | 69 | 221 | 166 | ||||||||||
Income Taxes | 31 | 24 | 84 | 57 | ||||||||||
Net Income (a) | $ | 52 | $ | 45 | $ | 137 | $ | 109 |
PPL Electric Utilities Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
Six Months Ended | |||||||||
June 30, | |||||||||
2014 | 2013 | ||||||||
Cash Flows from Operating Activities | |||||||||
Net income | $ | 137 | $ | 109 | |||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation | 90 | 87 | |||||||
Amortization | 9 | 10 | |||||||
Defined benefit plans - expense | 11 | 10 | |||||||
Deferred income taxes and investment tax credits | 44 | 81 | |||||||
Other | (17) | (5) | |||||||
Change in current assets and current liabilities | |||||||||
Accounts receivable | (80) | (56) | |||||||
Accounts payable | (33) | (37) | |||||||
Unbilled revenues | 34 | 36 | |||||||
Prepayments | (40) | (18) | |||||||
Taxes payable | 8 | 18 | |||||||
Other | 2 | (38) | |||||||
Other operating activities | |||||||||
Defined benefit plans - funding | (19) | (88) | |||||||
Other assets | 5 | ||||||||
Other liabilities | (3) | 6 | |||||||
Net cash provided by operating activities | 148 | 115 | |||||||
Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (436) | (451) | |||||||
Expenditures for intangible assets | (22) | (13) | |||||||
Net (increase) decrease in notes receivable from affiliates | 150 | ||||||||
Other investing activities | 13 | 9 | |||||||
Net cash provided by (used in) investing activities | (295) | (455) | |||||||
Cash Flows from Financing Activities | |||||||||
Issuance of long-term debt | 296 | ||||||||
Retirement of long-term debt | (10) | ||||||||
Contributions from parent | 95 | 205 | |||||||
Payment of common stock dividends to parent | (87) | (66) | |||||||
Net increase (decrease) in short-term debt | (20) | 85 | |||||||
Other financing activities | (3) | ||||||||
Net cash provided by (used in) financing activities | 271 | 224 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 124 | (116) | |||||||
Cash and Cash Equivalents at Beginning of Period | 25 | 140 | |||||||
Cash and Cash Equivalents at End of Period | $ | 149 | $ | 24 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
PPL Electric Utilities Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Assets | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 149 | $ | 25 | |||||
Accounts receivable (less reserve: 2014, $17; 2013, $18) | |||||||||
Customer | 361 | 284 | |||||||
Other | 8 | 5 | |||||||
Accounts receivable from affiliates | 4 | 4 | |||||||
Notes receivable from affiliate | 150 | ||||||||
Unbilled revenues | 82 | 116 | |||||||
Materials and supplies | 35 | 35 | |||||||
Prepayments | 51 | 40 | |||||||
Deferred income taxes | 84 | 85 | |||||||
Other current assets | 13 | 22 | |||||||
Total Current Assets | 787 | 766 | |||||||
Property, Plant and Equipment | |||||||||
Regulated utility plant | 7,168 | 6,886 | |||||||
Less: accumulated depreciation - regulated utility plant | 2,488 | 2,417 | |||||||
Regulated utility plant, net | 4,680 | 4,469 | |||||||
Other, net | 2 | 2 | |||||||
Construction work in progress | 744 | 591 | |||||||
Property, Plant and Equipment, net | 5,426 | 5,062 | |||||||
Other Noncurrent Assets | |||||||||
Regulatory assets | 771 | 772 | |||||||
Intangibles | 233 | 211 | |||||||
Other noncurrent assets | 35 | 35 | |||||||
Total Other Noncurrent Assets | 1,039 | 1,018 | |||||||
Total Assets | $ | 7,252 | $ | 6,846 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
PPL Electric Utilities Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 20 | |||||||
Long term debt due within one year | 10 | ||||||||
Accounts payable | $ | 292 | 295 | ||||||
Accounts payable to affiliates | 50 | 57 | |||||||
Taxes | 15 | 51 | |||||||
Interest | 34 | 34 | |||||||
Regulatory liabilities | 72 | 76 | |||||||
Other current liabilities | 75 | 82 | |||||||
Total Current Liabilities | 538 | 625 | |||||||
Long-term Debt | 2,602 | 2,305 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,463 | 1,399 | |||||||
Accrued pension obligations | 85 | 96 | |||||||
Regulatory liabilities | 12 | 15 | |||||||
Other deferred credits and noncurrent liabilities | 58 | 57 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,618 | 1,567 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Stockholder's Equity | |||||||||
Common stock - no par value (a) | 364 | 364 | |||||||
Additional paid-in capital | 1,435 | 1,340 | |||||||
Earnings reinvested | 695 | 645 | |||||||
Total Equity | 2,494 | 2,349 | |||||||
Total Liabilities and Equity | $ | 7,252 | $ | 6,846 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
PPL Electric Utilities Corporation and Subsidiaries | |||||||||||||||
(Unaudited) | |||||||||||||||
(Millions of Dollars) | |||||||||||||||
Common | |||||||||||||||
stock | |||||||||||||||
shares | Additional | ||||||||||||||
outstanding | Common | paid-in | Earnings | ||||||||||||
(a) | stock | capital | reinvested | Total | |||||||||||
March 31, 2014 | 66,368 | $ | 364 | $ | 1,405 | $ | 698 | $ | 2,467 | ||||||
Net income | 52 | 52 | |||||||||||||
Capital contributions from PPL | 30 | 30 | |||||||||||||
Cash dividends declared on common stock | (55) | (55) | |||||||||||||
June 30, 2014 | 66,368 | $ | 364 | $ | 1,435 | $ | 695 | $ | 2,494 | ||||||
December 31, 2013 | 66,368 | $ | 364 | $ | 1,340 | $ | 645 | $ | 2,349 | ||||||
Net income | 137 | 137 | |||||||||||||
Capital contributions from PPL | 95 | 95 | |||||||||||||
Cash dividends declared on common stock | (87) | (87) | |||||||||||||
June 30, 2014 | 66,368 | $ | 364 | $ | 1,435 | $ | 695 | $ | 2,494 | ||||||
March 31, 2013 | 66,368 | $ | 364 | $ | 1,195 | $ | 602 | $ | 2,161 | ||||||
Net income | 45 | 45 | |||||||||||||
Capital contributions from PPL | 145 | 145 | |||||||||||||
Cash dividends declared on common stock | (41) | (41) | |||||||||||||
June 30, 2013 | 66,368 | $ | 364 | $ | 1,340 | $ | 606 | $ | 2,310 | ||||||
December 31, 2012 | 66,368 | $ | 364 | $ | 1,135 | $ | 563 | $ | 2,062 | ||||||
Net income | 109 | 109 | |||||||||||||
Capital contributions from PPL | 205 | 205 | |||||||||||||
Cash dividends declared on common stock | (66) | (66) | |||||||||||||
June 30, 2013 | 66,368 | $ | 364 | $ | 1,340 | $ | 606 | $ | 2,310 |
12 |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
PPL Electric Utilities Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
March 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 85 | |||||||
Long term debt due within one year | 100 | $ | 100 | ||||||
Accounts payable | 301 | 325 | |||||||
Accounts payable to affiliates | 70 | 70 | |||||||
Taxes | 90 | 85 | |||||||
Interest | 26 | 34 | |||||||
Regulatory liabilities | 85 | 76 | |||||||
Other current liabilities | 80 | 103 | |||||||
Total Current Liabilities | 837 | 793 | |||||||
Long-term Debt | 2,503 | 2,502 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,497 | 1,483 | |||||||
Accrued pension obligations | 182 | 212 | |||||||
Regulatory liabilities | 26 | 18 | |||||||
Other deferred credits and noncurrent liabilities | 66 | 60 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,771 | 1,773 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Equity | |||||||||
Common stock - no par value (a) | 364 | 364 | |||||||
Additional paid-in capital | 1,653 | 1,603 | |||||||
Earnings reinvested | 793 | 750 | |||||||
Total Equity | 2,810 | 2,717 | |||||||
Total Liabilities and Equity | $ | 7,921 | $ | 7,785 |
(a) | 170,000 shares authorized; 66,368 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
13 |
(a) | Shares in thousands. All common shares of PPL Electric stock are owned by PPL. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
14 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
LG&E and KU Energy LLC and Subsidiaries | |||||||||||||||
(Unaudited) | |||||||||||||||
(Millions of Dollars) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Operating Revenues | $ | 722 | $ | 682 | $ | 1,656 | $ | 1,482 | |||||||
Operating Expenses | |||||||||||||||
Operation | |||||||||||||||
Fuel | 231 | 216 | 508 | 447 | |||||||||||
Energy purchases | 36 | 37 | 160 | 123 | |||||||||||
Other operation and maintenance | 206 | 197 | 412 | 394 | |||||||||||
Depreciation | 87 | 83 | 173 | 165 | |||||||||||
Taxes, other than income | 13 | 12 | 26 | 24 | |||||||||||
Total Operating Expenses | 573 | 545 | 1,279 | 1,153 | |||||||||||
Operating Income | 149 | 137 | 377 | 329 | |||||||||||
Other Income (Expense) - net | (2) | (4) | (2) | ||||||||||||
Interest Expense | 41 | 36 | 83 | 73 | |||||||||||
Interest Expense with Affiliate | 1 | 1 | |||||||||||||
Income from Continuing Operations Before Income Taxes | 106 | 100 | 290 | 253 | |||||||||||
Income Taxes | 41 | 37 | 110 | 94 | |||||||||||
Income from Continuing Operations After Income Taxes | 65 | 63 | 180 | 159 | |||||||||||
Income (Loss) from Discontinued Operations (net of income taxes) | 1 | 1 | |||||||||||||
Net Income (a) | $ | 65 | $ | 64 | $ | 180 | $ | 160 |
15 |
(a) | Net income approximates comprehensive income. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
16 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
17 |
LG&E and KU Energy LLC and Subsidiaries | ||||||||||
(Unaudited) | ||||||||||
(Millions of Dollars) | ||||||||||
Six Months Ended June 30, | ||||||||||
2014 | 2013 | |||||||||
Cash Flows from Operating Activities | ||||||||||
Net income | $ | 180 | $ | 160 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||
Depreciation | 173 | 165 | ||||||||
Amortization | 12 | 14 | ||||||||
Defined benefit plans - expense | 12 | 27 | ||||||||
Deferred income taxes and investment tax credits | 149 | 95 | ||||||||
Other | 1 | (6) | ||||||||
Change in current assets and current liabilities | ||||||||||
Accounts receivable | (24) | (62) | ||||||||
Accounts payable | (5) | 36 | ||||||||
Accounts payable to affiliates | (2) | |||||||||
Unbilled revenues | 27 | (2) | ||||||||
Fuel, materials and supplies | 43 | 25 | ||||||||
Taxes payable | (10) | |||||||||
Other | 1 | 2 | ||||||||
Other operating activities | ||||||||||
Defined benefit plans - funding | (40) | (156) | ||||||||
Other assets | (3) | (3) | ||||||||
Other liabilities | 2 | 2 | ||||||||
Net cash provided by operating activities | 516 | 297 | ||||||||
Cash Flows from Investing Activities | ||||||||||
Expenditures for property, plant and equipment | (556) | (579) | ||||||||
Net (increase) decrease in notes receivable from affiliates | 54 | |||||||||
Net (increase) decrease in restricted cash and cash equivalents | 1 | 10 | ||||||||
Other investing activities | 1 | |||||||||
Net cash provided by (used in) investing activities | (501) | (568) | ||||||||
Cash Flows from Financing Activities | ||||||||||
Net increase (decrease) in notes payable with affiliates | 47 | |||||||||
Net increase (decrease) in short-term debt | 75 | 127 | ||||||||
Distributions to member | (221) | (69) | ||||||||
Contributions from member | 119 | 146 | ||||||||
Net cash provided by (used in) financing activities | (27) | 251 | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (12) | (20) | ||||||||
Cash and Cash Equivalents at Beginning of Period | 35 | 43 | ||||||||
Cash and Cash Equivalents at End of Period | $ | 23 | $ | 23 | ||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
LG&E and KU Energy LLC and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Assets | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 23 | $ | 35 | |||||
Accounts receivable (less reserve: 2014, $26; 2013, $22) | |||||||||
Customer | 238 | 224 | |||||||
Other | 23 | 20 | |||||||
Unbilled revenues | 153 | 180 | |||||||
Fuel, materials and supplies | 235 | 278 | |||||||
Prepayments | 27 | 21 | |||||||
Notes receivable from affiliates | 16 | 70 | |||||||
Deferred income taxes | 108 | 159 | |||||||
Regulatory assets | 27 | 27 | |||||||
Other current assets | 4 | 3 | |||||||
Total Current Assets | 854 | 1,017 | |||||||
Property, Plant and Equipment | |||||||||
Regulated utility plant | 9,036 | 8,526 | |||||||
Less: accumulated depreciation - regulated utility plant | 922 | 778 | |||||||
Regulated utility plant, net | 8,114 | 7,748 | |||||||
Other, net | 3 | 3 | |||||||
Construction work in progress | 1,809 | 1,793 | |||||||
Property, Plant and Equipment, net | 9,926 | 9,544 | |||||||
Other Noncurrent Assets | |||||||||
Regulatory assets | 471 | 474 | |||||||
Goodwill | 996 | 996 | |||||||
Other intangibles | 197 | 221 | |||||||
Other noncurrent assets | 101 | 98 | |||||||
Total Other Noncurrent Assets | 1,765 | 1,789 | |||||||
Total Assets | $ | 12,545 | $ | 12,350 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
LG&E and KU Energy LLC and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 320 | $ | 245 | |||||
Accounts payable | 335 | 346 | |||||||
Accounts payable to affiliates | 1 | 3 | |||||||
Customer deposits | 50 | 50 | |||||||
Taxes | 29 | 39 | |||||||
Price risk management liabilities | 4 | 4 | |||||||
Regulatory liabilities | 10 | 14 | |||||||
Interest | 23 | 23 | |||||||
Other current liabilities | 121 | 111 | |||||||
Total Current Liabilities | 893 | 835 | |||||||
Long-term Debt | 4,566 | 4,565 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,065 | 965 | |||||||
Investment tax credits | 133 | 135 | |||||||
Accrued pension obligations | 114 | 152 | |||||||
Asset retirement obligations | 255 | 245 | |||||||
Regulatory liabilities | 1,014 | 1,033 | |||||||
Price risk management liabilities | 38 | 32 | |||||||
Other deferred credits and noncurrent liabilities | 242 | 238 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 2,861 | 2,800 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Member's equity | 4,225 | 4,150 | |||||||
Total Liabilities and Equity | $ | 12,545 | $ | 12,350 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
18 |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
LG&E and KU Energy LLC and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars) | |||||||||
March 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 484 | $ | 575 | |||||
Long-term debt due within one year | 900 | 900 | |||||||
Notes payable with affiliates | 40 | 41 | |||||||
Accounts payable | 350 | 399 | |||||||
Accounts payable to affiliates | 3 | 2 | |||||||
Customer deposits | 52 | 52 | |||||||
Taxes | 25 | 36 | |||||||
Price risk management liabilities | 5 | 5 | |||||||
Price risk management liabilities with affiliates | 122 | 66 | |||||||
Regulatory liabilities | 24 | 15 | |||||||
Interest | 60 | 23 | |||||||
Other current liabilities | 115 | 131 | |||||||
Total Current Liabilities | 2,180 | 2,245 | |||||||
Long-term Debt | 3,667 | 3,667 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,324 | 1,241 | |||||||
Investment tax credits | 130 | 131 | |||||||
Accrued pension obligations | 256 | 305 | |||||||
Asset retirement obligations | 266 | 274 | |||||||
Regulatory liabilities | 961 | 974 | |||||||
Price risk management liabilities | 47 | 43 | |||||||
Other deferred credits and noncurrent liabilities | 270 | 268 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 3,254 | 3,236 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Member's equity | 4,342 | 4,248 | |||||||
Total Liabilities and Equity | $ | 13,443 | $ | 13,396 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
19 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
20 |
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Louisville Gas and Electric Company | |||||||||||||||
(Unaudited) | |||||||||||||||
(Millions of Dollars) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Operating Revenues | |||||||||||||||
Retail and wholesale | $ | 320 | $ | 302 | $ | 762 | $ | 671 | |||||||
Electric revenue from affiliate | 24 | 14 | 61 | 35 | |||||||||||
Total Operating Revenues | 344 | 316 | 823 | 706 | |||||||||||
Operating Expenses | |||||||||||||||
Operation | |||||||||||||||
Fuel | 104 | 88 | 221 | 184 | |||||||||||
Energy purchases | 29 | 31 | 147 | 111 | |||||||||||
Energy purchases from affiliate | 2 | 3 | 8 | 4 | |||||||||||
Other operation and maintenance | 94 | 94 | 192 | 185 | |||||||||||
Depreciation | 39 | 37 | 77 | 73 | |||||||||||
Taxes, other than income | 7 | 6 | 13 | 12 | |||||||||||
Total Operating Expenses | 275 | 259 | 658 | 569 | |||||||||||
Operating Income | 69 | 57 | 165 | 137 | |||||||||||
Other Income (Expense) - net | (1) | (1) | (3) | (2) | |||||||||||
Interest Expense | 12 | 10 | 24 | 20 | |||||||||||
Income Before Income Taxes | 56 | 46 | 138 | 115 | |||||||||||
Income Taxes | 21 | 17 | 51 | 42 | |||||||||||
Net Income (a) | $ | 35 | $ | 29 | $ | 87 | $ | 73 |
21 |
(a) | Net income equals comprehensive income. |
Louisville Gas and Electric Company | ||||||||||
(Unaudited) | ||||||||||
(Millions of Dollars) | ||||||||||
Six Months Ended June 30, | ||||||||||
2014 | 2013 | |||||||||
Cash Flows from Operating Activities | ||||||||||
Net income | $ | 87 | $ | 73 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||
Depreciation | 77 | 73 | ||||||||
Amortization | 6 | 6 | ||||||||
Defined benefit plans - expense | 5 | 9 | ||||||||
Deferred income taxes and investment tax credits | 20 | 21 | ||||||||
Other | (4) | |||||||||
Change in current assets and current liabilities | ||||||||||
Accounts receivable | (25) | (9) | ||||||||
Accounts payable | (5) | 13 | ||||||||
Accounts payable to affiliates | (4) | (2) | ||||||||
Unbilled revenues | 19 | 2 | ||||||||
Fuel, materials and supplies | 44 | 25 | ||||||||
Taxes payable | 2 | 12 | ||||||||
Other | (4) | 6 | ||||||||
Other operating activities | ||||||||||
Defined benefit plans - funding | (10) | (44) | ||||||||
Other assets | (2) | (1) | ||||||||
Other liabilities | (4) | 2 | ||||||||
Net cash provided by operating activities | 202 | 186 | ||||||||
Cash Flows from Investing Activities | ||||||||||
Expenditures for property, plant and equipment | (249) | (236) | ||||||||
Net (increase) decrease in restricted cash and cash equivalents | 1 | 10 | ||||||||
Net cash provided by (used in) investing activities | (248) | (226) | ||||||||
Cash Flows from Financing Activities | ||||||||||
Net increase (decrease) in short-term debt | 50 | 25 | ||||||||
Payment of common stock dividends to parent | (60) | (48) | ||||||||
Contributions from parent | 53 | 54 | ||||||||
Net cash provided by (used in) financing activities | 43 | 31 | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (3) | (9) | ||||||||
Cash and Cash Equivalents at Beginning of Period | 8 | 22 | ||||||||
Cash and Cash Equivalents at End of Period | $ | 5 | $ | 13 | ||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
Louisville Gas and Electric Company | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Assets | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 5 | $ | 8 | |||||
Accounts receivable (less reserve: 2014, $2; 2013, $2) | |||||||||
Customer | 102 | 102 | |||||||
Other | 14 | 9 | |||||||
Unbilled revenues | 66 | 85 | |||||||
Accounts receivable from affiliates | 17 | ||||||||
Fuel, materials and supplies | 110 | 154 | |||||||
Prepayments | 9 | 7 | |||||||
Regulatory assets | 24 | 17 | |||||||
Other current assets | 3 | 3 | |||||||
Total Current Assets | 350 | 385 | |||||||
Property, Plant and Equipment | |||||||||
Regulated utility plant | 3,564 | 3,383 | |||||||
Less: accumulated depreciation - regulated utility plant | 397 | 332 | |||||||
Regulated utility plant, net | 3,167 | 3,051 | |||||||
Construction work in progress | 750 | 651 | |||||||
Property, Plant and Equipment, net | 3,917 | 3,702 | |||||||
Other Noncurrent Assets | |||||||||
Regulatory assets | 306 | 303 | |||||||
Goodwill | 389 | 389 | |||||||
Other intangibles | 108 | 120 | |||||||
Other noncurrent assets | 35 | 35 | |||||||
Total Other Noncurrent Assets | 838 | 847 | |||||||
Total Assets | $ | 5,105 | $ | 4,934 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED BALANCE SHEETS | |||||||||
Louisville Gas and Electric Company | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 70 | $ | 20 | |||||
Accounts payable | 200 | 166 | |||||||
Accounts payable to affiliates | 20 | 24 | |||||||
Customer deposits | 24 | 24 | |||||||
Taxes | 13 | 11 | |||||||
Price risk management liabilities | 4 | 4 | |||||||
Regulatory liabilities | 9 | 9 | |||||||
Interest | 6 | 6 | |||||||
Other current liabilities | 30 | 32 | |||||||
Total Current Liabilities | 376 | 296 | |||||||
Long-term Debt | 1,353 | 1,353 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 603 | 582 | |||||||
Investment tax credits | 37 | 38 | |||||||
Accrued pension obligations | 10 | 19 | |||||||
Asset retirement obligations | 70 | 68 | |||||||
Regulatory liabilities | 472 | 482 | |||||||
Price risk management liabilities | 38 | 32 | |||||||
Other deferred credits and noncurrent liabilities | 106 | 104 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,336 | 1,325 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Stockholder's Equity | |||||||||
Common stock - no par value (a) | 424 | 424 | |||||||
Additional paid-in capital | 1,417 | 1,364 | |||||||
Earnings reinvested | 199 | 172 | |||||||
Total Equity | 2,040 | 1,960 | |||||||
Total Liabilities and Equity | $ | 5,105 | $ | 4,934 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
Louisville Gas and Electric Company | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(Millions of Dollars) | ||||||||||||||||
Common | ||||||||||||||||
stock | ||||||||||||||||
shares | Additional | |||||||||||||||
outstanding | Common | paid-in | Earnings | |||||||||||||
(a) | stock | capital | reinvested | Total | ||||||||||||
March 31, 2014 | 21,294 | $ | 424 | $ | 1,364 | $ | 197 | $ | 1,985 | |||||||
Net income | 35 | 35 | ||||||||||||||
Capital contributions from LKE | 53 | 53 | ||||||||||||||
Cash dividends declared on common stock | (33) | (33) | ||||||||||||||
June 30, 2014 | 21,294 | $ | 424 | $ | 1,417 | $ | 199 | $ | 2,040 | |||||||
December 31, 2013 | 21,294 | $ | 424 | $ | 1,364 | $ | 172 | $ | 1,960 | |||||||
Net income | 87 | 87 | ||||||||||||||
Capital contributions from LKE | 53 | 53 | ||||||||||||||
Cash dividends declared on common stock | (60) | (60) | ||||||||||||||
June 30, 2014 | 21,294 | $ | 424 | $ | 1,417 | $ | 199 | $ | 2,040 | |||||||
March 31, 2013 | 21,294 | $ | 424 | $ | 1,303 | $ | 133 | $ | 1,860 | |||||||
Net income | 29 | 29 | ||||||||||||||
Capital contributions from LKE | 29 | 29 | ||||||||||||||
Cash dividends declared on common stock | (29) | (29) | ||||||||||||||
June 30, 2013 | 21,294 | $ | 424 | $ | 1,332 | $ | 133 | $ | 1,889 | |||||||
December 31, 2012 | 21,294 | $ | 424 | $ | 1,278 | $ | 108 | $ | 1,810 | |||||||
Net income | 73 | 73 | ||||||||||||||
Capital contributions from LKE | 54 | 54 | ||||||||||||||
Cash dividends declared on common stock | (48) | (48) | ||||||||||||||
June 30, 2013 | 21,294 | $ | 424 | $ | 1,332 | $ | 133 | $ | 1,889 |
22 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
23 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
24 |
CONDENSED BALANCE SHEETS | |||||||||
Louisville Gas and Electric Company | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
March 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 216 | $ | 264 | |||||
Long-term debt due within one year | 250 | 250 | |||||||
Accounts payable | 222 | 240 | |||||||
Accounts payable to affiliates | 20 | 20 | |||||||
Customer deposits | 25 | 25 | |||||||
Taxes | 12 | 19 | |||||||
Price risk management liabilities | 5 | 5 | |||||||
Price risk management liabilities with affiliates | 61 | 33 | |||||||
Regulatory liabilities | 14 | 10 | |||||||
Interest | 15 | 6 | |||||||
Other current liabilities | 37 | 42 | |||||||
Total Current Liabilities | 877 | 914 | |||||||
Long-term Debt | 1,103 | 1,103 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 735 | 700 | |||||||
Investment tax credits | 36 | 36 | |||||||
Accrued pension obligations | 34 | 57 | |||||||
Asset retirement obligations | 64 | 66 | |||||||
Regulatory liabilities | 454 | 458 | |||||||
Price risk management liabilities | 47 | 43 | |||||||
Other deferred credits and noncurrent liabilities | 110 | 111 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,480 | 1,471 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Stockholder's Equity | |||||||||
Common stock - no par value (a) | 424 | 424 | |||||||
Additional paid-in capital | 1,521 | 1,521 | |||||||
Earnings reinvested | 259 | 229 | |||||||
Total Equity | 2,204 | 2,174 | |||||||
Total Liabilities and Equity | $ | 5,664 | $ | 5,662 |
(a) | 75,000 shares authorized; 21,294 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
25 |
(a) | Shares in thousands. All common shares of LG&E stock are owned by LKE. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
26 |
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Kentucky Utilities Company | |||||||||||||||
(Unaudited) | |||||||||||||||
(Millions of Dollars) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Operating Revenues | |||||||||||||||
Retail and wholesale | $ | 402 | $ | 380 | $ | 894 | $ | 811 | |||||||
Electric revenue from affiliate | 2 | 3 | 8 | 4 | |||||||||||
Total Operating Revenues | 404 | 383 | 902 | 815 | |||||||||||
Operating Expenses | |||||||||||||||
Operation | |||||||||||||||
Fuel | 127 | 128 | 287 | 263 | |||||||||||
Energy purchases | 7 | 6 | 13 | 12 | |||||||||||
Energy purchases from affiliate | 24 | 14 | 61 | 35 | |||||||||||
Other operation and maintenance | 107 | 98 | 205 | 195 | |||||||||||
Depreciation | 47 | 46 | 95 | 92 | |||||||||||
Taxes, other than income | 6 | 6 | 13 | 12 | |||||||||||
Total Operating Expenses | 318 | 298 | 674 | 609 | |||||||||||
Operating Income | 86 | 85 | 228 | 206 | |||||||||||
Other Income (Expense) - net | 2 | 1 | |||||||||||||
Interest Expense | 20 | 17 | 39 | 34 | |||||||||||
Income Before Income Taxes | 66 | 70 | 189 | 173 | |||||||||||
Income Taxes | 26 | 26 | 72 | 65 | |||||||||||
Net Income (a) | $ | 40 | $ | 44 | $ | 117 | $ | 108 |
27 |
(a) | Net income approximates comprehensive income. |
Kentucky Utilities Company | ||||||||||
(Unaudited) | ||||||||||
(Millions of Dollars) | ||||||||||
Six Months Ended June 30, | ||||||||||
2014 | 2013 | |||||||||
Cash Flows from Operating Activities | ||||||||||
Net income | $ | 117 | $ | 108 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||
Depreciation | 95 | 92 | ||||||||
Amortization | 4 | 7 | ||||||||
Defined benefit plans - expense | 2 | 12 | ||||||||
Deferred income taxes and investment tax credits | 89 | 72 | ||||||||
Other | 5 | (2) | ||||||||
Change in current assets and current liabilities | ||||||||||
Accounts receivable | (44) | (39) | ||||||||
Accounts payable | 10 | 33 | ||||||||
Accounts payable to affiliates | 13 | (7) | ||||||||
Unbilled revenues | 8 | (4) | ||||||||
Fuel, materials and supplies | (1) | |||||||||
Taxes payable | (19) | (10) | ||||||||
Other | 16 | 5 | ||||||||
Other operating activities | ||||||||||
Defined benefit plans - funding | (3) | (61) | ||||||||
Other assets | (1) | (3) | ||||||||
Other liabilities | 6 | (13) | ||||||||
Net cash provided by operating activities | 297 | 190 | ||||||||
Cash Flows from Investing Activities | ||||||||||
Expenditures for property, plant and equipment | (305) | (341) | ||||||||
Other investing activities | 1 | |||||||||
Net cash provided by (used in) investing activities | (305) | (340) | ||||||||
Cash Flows from Financing Activities | ||||||||||
Net increase (decrease) in short-term debt | 25 | 102 | ||||||||
Payment of common stock dividends to parent | (86) | (55) | ||||||||
Contributions from parent | 66 | 92 | ||||||||
Net cash provided by (used in) financing activities | 5 | 139 | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (3) | (11) | ||||||||
Cash and Cash Equivalents at Beginning of Period | 21 | 21 | ||||||||
Cash and Cash Equivalents at End of Period | $ | 18 | $ | 10 | ||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
Kentucky Utilities Company | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Assets | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 18 | $ | 21 | |||||
Accounts receivable (less reserve: 2014, $4; 2013, $4) | |||||||||
Customer | 136 | 122 | |||||||
Other | 34 | 9 | |||||||
Unbilled revenues | 87 | 95 | |||||||
Fuel, materials and supplies | 125 | 124 | |||||||
Prepayments | 8 | 4 | |||||||
Regulatory assets | 3 | 10 | |||||||
Other current assets | 5 | 6 | |||||||
Total Current Assets | 416 | 391 | |||||||
Property, Plant and Equipment | |||||||||
Regulated utility plant | 5,472 | 5,143 | |||||||
Less: accumulated depreciation - regulated utility plant | 525 | 446 | |||||||
Regulated utility plant, net | 4,947 | 4,697 | |||||||
Other, net | 1 | 1 | |||||||
Construction work in progress | 1,055 | 1,139 | |||||||
Property, Plant and Equipment, net | 6,003 | 5,837 | |||||||
Other Noncurrent Assets | |||||||||
Regulatory assets | 165 | 171 | |||||||
Goodwill | 607 | 607 | |||||||
Other intangibles | 89 | 101 | |||||||
Other noncurrent assets | 59 | 56 | |||||||
Total Other Noncurrent Assets | 920 | 935 | |||||||
Total Assets | $ | 7,339 | $ | 7,163 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED BALANCE SHEETS | |||||||||
Kentucky Utilities Company | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
June 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 175 | $ | 150 | |||||
Accounts payable | 125 | 159 | |||||||
Accounts payable to affiliates | 38 | 25 | |||||||
Customer deposits | 26 | 26 | |||||||
Taxes | 14 | 33 | |||||||
Regulatory liabilities | 1 | 5 | |||||||
Interest | 11 | 11 | |||||||
Other current liabilities | 58 | 36 | |||||||
Total Current Liabilities | 448 | 445 | |||||||
Long-term Debt | 2,091 | 2,091 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 747 | 658 | |||||||
Investment tax credits | 96 | 97 | |||||||
Accrued pension obligations | 2 | 11 | |||||||
Asset retirement obligations | 185 | 177 | |||||||
Regulatory liabilities | 542 | 551 | |||||||
Other deferred credits and noncurrent liabilities | 88 | 89 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,660 | 1,583 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Stockholder's Equity | |||||||||
Common stock - no par value (a) | 308 | 308 | |||||||
Additional paid-in capital | 2,571 | 2,505 | |||||||
Accumulated other comprehensive income (loss) | 1 | ||||||||
Earnings reinvested | 261 | 230 | |||||||
Total Equity | 3,140 | 3,044 | |||||||
Total Liabilities and Equity | $ | 7,339 | $ | 7,163 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
Kentucky Utilities Company | |||||||||||||||||
(Unaudited) | |||||||||||||||||
(Millions of Dollars) | |||||||||||||||||
Common | Accumulated | ||||||||||||||||
stock | other | ||||||||||||||||
shares | Additional | comprehensive | |||||||||||||||
outstanding | Common | paid-in | Earnings | income | |||||||||||||
(a) | stock | capital | reinvested | (loss) | Total | ||||||||||||
March 31, 2014 | 37,818 | $ | 308 | $ | 2,545 | $ | 270 | $ | 3,123 | ||||||||
Net income | 40 | 40 | |||||||||||||||
Capital contributions from LKE | 26 | 26 | |||||||||||||||
Cash dividends declared on common stock | (49) | (49) | |||||||||||||||
June 30, 2014 | 37,818 | $ | 308 | $ | 2,571 | $ | 261 | $ | 3,140 | ||||||||
December 31, 2013 | 37,818 | $ | 308 | $ | 2,505 | $ | 230 | $ | 1 | $ | 3,044 | ||||||
Net income | 117 | 117 | |||||||||||||||
Capital contributions from LKE | 66 | 66 | |||||||||||||||
Cash dividends declared on common stock | (86) | (86) | |||||||||||||||
Other comprehensive income (loss) | (1) | (1) | |||||||||||||||
June 30, 2014 | 37,818 | $ | 308 | $ | 2,571 | $ | 261 | $ | $ | 3,140 | |||||||
March 31, 2013 | 37,818 | $ | 308 | $ | 2,398 | $ | 177 | $ | 1 | $ | 2,884 | ||||||
Net income | 44 | 44 | |||||||||||||||
Capital contributions from LKE | 42 | 42 | |||||||||||||||
Cash dividends declared on common stock | (42) | (42) | |||||||||||||||
June 30, 2013 | 37,818 | $ | 308 | $ | 2,440 | $ | 179 | $ | 1 | $ | 2,928 | ||||||
December 31, 2012 | 37,818 | $ | 308 | $ | 2,348 | $ | 126 | $ | 1 | $ | 2,783 | ||||||
Net income | 108 | 108 | |||||||||||||||
Capital contributions from LKE | 92 | 92 | |||||||||||||||
Cash dividends declared on common stock | (55) | (55) | |||||||||||||||
June 30, 2013 | 37,818 | $ | 308 | $ | 2,440 | $ | 179 | $ | 1 | $ | 2,928 |
28 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
29 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
30 |
CONDENSED BALANCE SHEETS | |||||||||
Kentucky Utilities Company | |||||||||
(Unaudited) | |||||||||
(Millions of Dollars, shares in thousands) | |||||||||
March 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
Liabilities and Equity | |||||||||
Current Liabilities | |||||||||
Short-term debt | $ | 193 | $ | 236 | |||||
Long-term debt due within one year | 250 | 250 | |||||||
Accounts payable | 114 | 141 | |||||||
Accounts payable to affiliates | 33 | 47 | |||||||
Customer deposits | 27 | 27 | |||||||
Taxes | 13 | 14 | |||||||
Price risk management liabilities with affiliates | 61 | 33 | |||||||
Regulatory liabilities | 10 | 5 | |||||||
Interest | 30 | 11 | |||||||
Other current liabilities | 48 | 41 | |||||||
Total Current Liabilities | 779 | 805 | |||||||
Long-term Debt | 1,841 | 1,841 | |||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 933 | 884 | |||||||
Investment tax credits | 94 | 95 | |||||||
Accrued pension obligations | 44 | 59 | |||||||
Asset retirement obligations | 202 | 208 | |||||||
Regulatory liabilities | 507 | 516 | |||||||
Other deferred credits and noncurrent liabilities | 101 | 101 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,881 | 1,863 | |||||||
Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Stockholder's Equity | |||||||||
Common stock - no par value (a) | 308 | 308 | |||||||
Additional paid-in capital | 2,596 | 2,596 | |||||||
Accumulated other comprehensive income (loss) | (1) | ||||||||
Earnings reinvested | 350 | 302 | |||||||
Total Equity | 3,253 | 3,206 | |||||||
Total Liabilities and Equity | $ | 7,754 | $ | 7,715 |
(a) | 80,000 shares authorized; 37,818 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
31 |
(a) | Shares in thousands. All common shares of KU stock are owned by LKE. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
32 |
Combined Notes to Condensed Financial Statements (Unaudited)
(All Registrants)
Capitalized terms and abbreviations appearing in the unaudited combined notes to condensed 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 their related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.
The accompanying unaudited condensed financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation in accordance with GAAP are reflected in the condensed financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed. Each Registrant's Balance Sheet at December 31, 20132014 is derived from that Registrant's 20132014 audited Balance Sheet. The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in each Registrant's 20132014 Form 10-K. The results of operations for the three and six months ended June 30, 2014March 31, 2015 are not necessarily indicative of the results to be expected for the full year ending December 31, 20142015 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.
The classification of certain prior period amounts has been changed to conform to the presentation in the June 30, 2014March 31, 2015 financial statements.
(PPL)
"Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income includes the activities of PPL Montana's hydroelectric generating facilities sold in the fourth quarter of 2014. See Note 8 for additional information. The Statements of Cash Flows do not separately report the cash flows of the Discontinued Operations.
(All Registrants)
The following accounting policy disclosures represent updates to Note 1 in each Registrant's 20132014 Form 10-K and should be read in conjunction with those disclosures.
In accordance with a PUC-approved purchase of accounts receivable program, designed to facilitate competitive markets for electricity in Pennsylvania, PPL Electric purchases certain accounts receivable from alternative electricity suppliers (including PPL EnergyPlus) 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. The purchased accounts receivable are initially recorded at fair value using a market approach based on the purchase price paid and are classified as Level 2 in the fair value hierarchy. During the three and six months ended June 30, 2014,March 31, 2015, PPL Electric purchased $253 million and $614$331 million of accounts receivable from unaffiliated third parties and $79 million and $184$93 million from PPL EnergyPlus. During the three and six months ended June 30, 2013,March 31, 2014, PPL Electric purchased $220 million and $479$362 million of accounts receivable from unaffiliated third parties and $70 million and $147$105 million from PPL EnergyPlus.
Depreciation (PPL)
Effective January 1, 2015, after completing a review of the useful lives of its distribution network assets, WPD extended the weighted average useful lives of these assets to 69 years from 55 years. For the three months ended March 31, 2015, this change in useful lives resulted in lower depreciation of $20 million ($16 million after-tax or $0.02 per share).
33 |
Reporting of Discontinued Operations
Effective January 1, 2014,2015, the Registrants retrospectively adopted accounting guidance for the recognition, measurement and disclosure of certain obligations resulting from joint and several liability arrangements when the amount of the obligation is fixed at the reporting date. If the obligation is determined to be in the scope of this guidance, it will be measured as the sum of the amount the reporting entity agreed to pay on the basis of its arrangements among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. This guidance also requires additional disclosures for these obligations.
A disposal of a component of an entity or a group of components of an entity is required to be released into earningsreported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results when any of the following occurs: (1) The components of an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreigncomponents of an entity andmeets the criteria to be classified as held for sale, (2) The component of an entity or group of components of an entity is disposed of by sale, or transfer results(3) The component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in the complete or substantially complete liquidation of the foreign entity. For the step acquisition of previously held equity method investments that are foreign entities, this guidance clarifies that the amount of accumulated other comprehensive income that is reclassified and includeda distribution to owners in the calculation of a gain or loss shall include any foreign currency translation adjustment related to that previously held investment.
The initial adoption of this guidance did not have a significant impact on PPL; however, the impact in future periods could be material.
(PPL)
See Note 2 in PPL's 20132014 Form 10-K for a discussion of reportable segments and related information.
In June 2014, PPL and PPL Energy Supply, which primarilysubstantially represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded independent power producercompany named Talen Energy. The transaction is expected to occur on June 1, 2015. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 for additional information.
Financial data for the segments and reconciliation to PPL's consolidated results for the periods ended June 30March 31 are:
Three Months | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Income Statement Data | ||||||||||||||||
Revenues from external customers | ||||||||||||||||
U.K. Regulated | $ | 672 | $ | 572 | $ | 1,320 | $ | 1,220 | ||||||||
Kentucky Regulated | 722 | 682 | 1,656 | 1,482 | ||||||||||||
Pennsylvania Regulated | 448 | 413 | 1,039 | 925 | ||||||||||||
Supply (a) | 1,027 | 1,780 | 74 | 2,274 | ||||||||||||
Corporate and Other | 5 | 3 | 8 | 6 | ||||||||||||
Total | $ | 2,874 | $ | 3,450 | $ | 4,097 | $ | 5,907 | ||||||||
Intersegment electric revenues | ||||||||||||||||
Supply | $ | 21 | $ | 12 | $ | 48 | $ | 26 | ||||||||
Net Income Attributable to PPL Shareowners | ||||||||||||||||
U.K. Regulated (a) | $ | 187 | $ | 245 | $ | 393 | $ | 558 | ||||||||
Kentucky Regulated | 58 | 49 | 165 | 134 | ||||||||||||
Pennsylvania Regulated | 52 | 45 | 137 | 109 | ||||||||||||
Supply (a) | 5 | 77 | (70) | 31 | ||||||||||||
Corporate and Other (c) | (73) | (11) | (80) | (14) | ||||||||||||
Total | $ | 229 | $ | 405 | $ | 545 | $ | 818 |
June 30, | December 31, | ||||||
2014 | 2013 | ||||||
Balance Sheet Data | |||||||
Assets | |||||||
U.K. Regulated | $ | 16,496 | $ | 15,895 | |||
Kentucky Regulated | 12,211 | 12,016 | |||||
Pennsylvania Regulated | 7,252 | 6,846 | |||||
Supply | 11,793 | 11,408 | |||||
Corporate and Other (b) | 441 | 94 | |||||
Total assets | $ | 48,193 | $ | 46,259 |
Three Months | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Income Statement Data | ||||||||||||||||
Revenues from external customers | ||||||||||||||||
U.K. Regulated | $ | 697 | $ | 648 | ||||||||||||
Kentucky Regulated | 899 | 934 | ||||||||||||||
Pennsylvania Regulated | 630 | 591 | ||||||||||||||
Supply (a) | 937 | (982) | ||||||||||||||
Corporate and Other | 2 | 3 | ||||||||||||||
Total | $ | 3,165 | $ | 1,194 | ||||||||||||
Intersegment electric revenues | ||||||||||||||||
Supply | $ | 9 | $ | 27 | ||||||||||||
Net Income | ||||||||||||||||
U.K. Regulated (a) | $ | 375 | $ | 206 | ||||||||||||
Kentucky Regulated | 109 | 107 | ||||||||||||||
Pennsylvania Regulated | 87 | 85 | ||||||||||||||
Supply (a) | 95 | (75) | ||||||||||||||
Corporate and Other (b) | (19) | (7) | ||||||||||||||
Total | $ | 647 | $ | 316 |
March 31, | December 31, | ||||||
2015 | 2014 | ||||||
Balance Sheet Data | |||||||
Assets | |||||||
U.K. Regulated | $ | 16,275 | $ | 16,005 | |||
Kentucky Regulated | 13,109 | 13,062 | |||||
Pennsylvania Regulated | 7,921 | 7,785 | |||||
Supply | 10,631 | 11,025 | |||||
Corporate and Other (c) | 985 | 987 | |||||
Total assets | $ | 48,921 | $ | 48,864 |
(a) | Includes unrealized gains and losses from economic activity. See Note 14 for additional information. |
(b) | 2015 includes most of the transaction and transition costs related to the anticipated spinoff of PPL Energy Supply. See Note 8 for additional information. |
(c) | Primarily consists of unallocated items, including cash, PP&E and the elimination of inter-segment transactions. |
34 |
(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 methodMethod or the If-Converted Method, as applicable. Incremental non-participating securities that have a dilutive impact are detailed in the table below.
Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periodsperiod ended June 30March 31 used in the EPS calculation are:
Three Months | Six Months | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Income (Numerator) | |||||||||||||||
Income from continuing operations after income taxes attributable to PPL | |||||||||||||||
shareowners | $ | 229 | $ | 404 | $ | 545 | $ | 817 | |||||||
Less amounts allocated to participating securities | 1 | 2 | 3 | 4 | |||||||||||
Income from continuing operations after income taxes available to PPL | |||||||||||||||
common shareowners - Basic | 228 | 402 | 542 | 813 | |||||||||||
Plus interest charges (net of tax) related to Equity Units (a) | 15 | 9 | 30 | ||||||||||||
Income from continuing operations after income taxes available to PPL | |||||||||||||||
common shareowners - Diluted | $ | 228 | $ | 417 | $ | 551 | $ | 843 | |||||||
Income (loss) from discontinued operations (net of income taxes) available | |||||||||||||||
to PPL common shareowners - Basic and Diluted | $ | $ | 1 | $ | $ | 1 | |||||||||
Net income attributable to PPL shareowners | $ | 229 | $ | 405 | $ | 545 | $ | 818 | |||||||
Less amounts allocated to participating securities | 1 | 2 | 3 | 4 | |||||||||||
Net income available to PPL common shareowners - Basic | 228 | 403 | 542 | 814 | |||||||||||
Plus interest charges (net of tax) related to Equity Units (a) | 15 | 9 | 30 | ||||||||||||
Net income available to PPL common shareowners - Diluted | $ | 228 | $ | 418 | $ | 551 | $ | 844 | |||||||
Shares of Common Stock (Denominator) | |||||||||||||||
Weighted-average shares - Basic EPS | 653,132 | 589,834 | 642,002 | 586,683 | |||||||||||
Add incremental non-participating securities: | |||||||||||||||
Share-based payment awards | 2,100 | 1,133 | 1,806 | 971 | |||||||||||
Equity Units (a) | 10,560 | 73,388 | 21,119 | 72,689 | |||||||||||
Forward sale agreements | 260 | 920 | |||||||||||||
Weighted-average shares - Diluted EPS | 665,792 | 664,615 | 664,927 | 661,263 | |||||||||||
Basic EPS | |||||||||||||||
Net Income Available to PPL common shareowners | $ | 0.35 | $ | 0.68 | $ | 0.84 | $ | 1.39 | |||||||
Diluted EPS | |||||||||||||||
Net Income Available to PPL common shareowners | $ | 0.34 | $ | 0.63 | $ | 0.83 | $ | 1.28 |
Three Months | |||||||||||||||
2015 | 2014 | ||||||||||||||
Income (Numerator) | |||||||||||||||
Income from continuing operations after income taxes | $ | 647 | $ | 324 | |||||||||||
Less amounts allocated to participating securities | 3 | 2 | |||||||||||||
Income from continuing operations after income taxes available to PPL common shareowners - Basic | 644 | 322 | |||||||||||||
Plus interest charges (net of tax) related to Equity Units (a) | 9 | ||||||||||||||
Income from continuing operations after income taxes available to PPL common shareowners - Diluted | $ | 644 | $ | 331 | |||||||||||
Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic | |||||||||||||||
and Diluted | $ | $ | (8) | ||||||||||||
Net income | $ | 647 | $ | 316 | |||||||||||
Less amounts allocated to participating securities | 3 | 2 | |||||||||||||
Net income available to PPL common shareowners - Basic | 644 | 314 | |||||||||||||
Plus interest charges (net of tax) related to Equity Units (a) | 9 | ||||||||||||||
Net income available to PPL common shareowners - Diluted | $ | 644 | $ | 323 | |||||||||||
Shares of Common Stock (Denominator) | |||||||||||||||
Weighted-average shares - Basic EPS | 666,974 | 630,749 | |||||||||||||
Add incremental non-participating securities: | |||||||||||||||
Share-based payment awards | 1,758 | 1,511 | |||||||||||||
Equity Units (a) | 31,679 | ||||||||||||||
Weighted-average shares - Diluted EPS | 668,732 | 663,939 | |||||||||||||
Basic EPS | |||||||||||||||
Available to PPL common shareowners: | |||||||||||||||
Income from continuing operations after income taxes | $ | 0.97 | $ | 0.51 | |||||||||||
Income (loss) from discontinued operations (net of income taxes) | (0.01) | ||||||||||||||
Net Income Available to PPL common shareowners | $ | 0.97 | $ | 0.50 | |||||||||||
Diluted EPS | |||||||||||||||
Available to PPL common shareowners: | |||||||||||||||
Income from continuing operations after income taxes | $ | 0.96 | $ | 0.50 | |||||||||||
Income (loss) from discontinued operations (net of income taxes) | (0.01) | ||||||||||||||
Net Income Available to PPL common shareowners | $ | 0.96 | $ | 0.49 |
For the periods ended June 30,March 31, PPL issued common stock related to stock-based compensation plans ESOP and DRIP as follows (in thousands):
Three Months | Six Months | |||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
Stock-based compensation plans (a) | 922 | 938 | 2,018 | 1,384 | ||||||||||
ESOP | 275 | |||||||||||||
DRIP | 549 |
Three Months | ||||||||||||||
2015 | 2014 | |||||||||||||
Stock-based compensation plans (a) | 1,445 | 1,096 | ||||||||||||
DRIP | 419 |
(a) | Includes stock options exercised, vesting of performance units, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors. |
For the periods ended June 30,March 31, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
35 |
Three Months | Six Months | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Stock options | 790 | 2,192 | 2,060 | 5,486 | ||||||||
Performance units | 1 | 5 | 1 | 108 | ||||||||
Restricted stock units | 61 | 58 |
Three Months | ||||||||||||
2015 | 2014 | |||||||||||
Stock options | 1,473 | 2,540 | ||||||||||
Performance units | 146 | |||||||||||
Restricted stock units | 123 |
(PPL) | ||||||||||||||||
Three Months | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
Income Taxes at statutory tax rate - 35% | $ | 132 | $ | 180 | $ | 282 | $ | 377 | ||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | (7) | 14 | (5) | 17 | ||||||||||||
State valuation allowance adjustments (a) | 46 | 46 | ||||||||||||||
Impact of lower U.K. income tax rates | (31) | (25) | (76) | (63) | ||||||||||||
U.S. income tax on foreign earnings - net of foreign tax credit (b) | 10 | (7) | 21 | (5) | ||||||||||||
Federal and state tax reserve adjustments (c) | (39) | (40) | ||||||||||||||
Federal income tax credits | (1) | (2) | (2) | (5) | ||||||||||||
Amortization of investment tax credit | (1) | (2) | (3) | (5) | ||||||||||||
Depreciation not normalized | (2) | (1) | (4) | (4) | ||||||||||||
State deferred tax rate change | 3 | 3 | ||||||||||||||
Other | (9) | (1) | (12) | |||||||||||||
Total increase (decrease) | 17 | (71) | (21) | (117) | ||||||||||||
Total income taxes | $ | 149 | $ | 109 | $ | 261 | $ | 260 |
(PPL) | ||||||||||||||||
Three Months | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
Income Taxes at statutory tax rate - 35% | $ | 320 | $ | 153 | ||||||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | 25 | 3 | ||||||||||||||
Valuation allowance adjustments | 3 | |||||||||||||||
Impact of lower U.K. income tax rates | (62) | (44) | ||||||||||||||
U.S. income tax on foreign earnings - net of foreign tax credit | (1) | 11 | ||||||||||||||
Intercompany interest on U.K. financing entities | (8) | (2) | ||||||||||||||
Other | (9) | (7) | ||||||||||||||
Total increase (decrease) | (52) | (39) | ||||||||||||||
Total income taxes | $ | 268 | $ | 114 |
(PPL Electric) | ||||||||||||||||
Three Months | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 51 | $ | 48 | ||||||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | 10 | 8 | ||||||||||||||
Other | (2) | (3) | ||||||||||||||
Total increase (decrease) | 8 | 5 | ||||||||||||||
Total income taxes | $ | 59 | $ | 53 |
(LKE) | ||||||||||||||||
Three Months | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 68 | $ | 64 | ||||||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | 7 | 7 | ||||||||||||||
Valuation allowance adjustments | 3 | |||||||||||||||
Other | (2) | (2) | ||||||||||||||
Total increase (decrease) | 8 | 5 | ||||||||||||||
Total income taxes | $ | 76 | $ | 69 |
(LG&E) | ||||||||||||||||
Three Months | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 30 | $ | 29 | ||||||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | 3 | 3 | ||||||||||||||
Other | (2) | |||||||||||||||
Total increase (decrease) | 3 | 1 | ||||||||||||||
Total income taxes | $ | 33 | $ | 30 |
(KU) | ||||||||||||||||
Three Months | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 44 | $ | 43 | ||||||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | 4 | 4 | ||||||||||||||
Other | (1) | (1) | ||||||||||||||
Total increase (decrease) | 3 | 3 | ||||||||||||||
Total income taxes | $ | 47 | $ | 46 |
In February 2015, PPL and the threeIRS Appeals division reached a settlement on the amount of PPL's refund from its open audits for the years 1998 - 2011. The settlement was required to be reviewed and six months ended June 30, 2013,approved by the Joint Committee on Taxation (JCT) before it is considered final. In April 2015, PPL recorded a $14 million increase to income tax expense primarily attributablewas notified that the JCT approved PPL's settlement. Subject to a revisionfinal determination of interest on the refund, PPL expects to record a tax benefit in the expected taxable amountrange of cash repatriation$20 million to $30 million in 2013 offset by a $19 million incomethe second quarter of 2015 related to the settlement of previously unrecognized tax benefit associated with a ruling obtained from the IRS impacting the recalculation of 2010 U.K. earnings and profits that was reflected on amended 2010 U.S. tax returns.
(PPL Energy Supply) | ||||||||||||||||
Three Months | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Federal income tax on Income (Loss) Before Income Taxes at statutory | ||||||||||||||||
tax rate - 35% | $ | 4 | $ | 54 | $ | (37) | $ | 28 | ||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit (a) | (9) | 9 | (18) | 3 | ||||||||||||
Federal and state tax reserve adjustments | 1 | 7 | 1 | 6 | ||||||||||||
Federal income tax credits | (1) | (3) | ||||||||||||||
State deferred tax rate change | 3 | 3 | ||||||||||||||
Other | (2) | (3) | (2) | |||||||||||||
Total increase (decrease) | (7) | 13 | (15) | 4 | ||||||||||||
Total income taxes | $ | (3) | $ | 67 | $ | (52) | $ | 32 |
(PPL Electric) | ||||||||||||||||
Three Months | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Federal income tax on Income Before Income Taxes at statutory | ||||||||||||||||
tax rate - 35% | $ | 29 | $ | 24 | $ | 77 | $ | 58 | ||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | 4 | 3 | 12 | 8 | ||||||||||||
Federal and state tax reserve adjustments | (1) | (2) | (1) | (4) | ||||||||||||
Depreciation not normalized | (1) | (1) | (3) | (4) | ||||||||||||
Other | (1) | (1) | ||||||||||||||
Total increase (decrease) | 2 | 7 | (1) | |||||||||||||
Total income taxes | $ | 31 | $ | 24 | $ | 84 | $ | 57 |
(LKE) | ||||||||||||||||
Three Months | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
Income Taxes at statutory tax rate - 35% | $ | 37 | $ | 35 | $ | 102 | $ | 89 | ||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | 4 | 3 | 10 | 8 | ||||||||||||
Other | (1) | (2) | (3) | |||||||||||||
Total increase (decrease) | 4 | 2 | 8 | 5 | ||||||||||||
Total income taxes from continuing operations | $ | 41 | $ | 37 | $ | 110 | $ | 94 |
(LG&E) | ||||||||||||||||
Three Months | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Federal income tax on Income Before Income Taxes at statutory | ||||||||||||||||
tax rate - 35% | $ | 20 | $ | 16 | $ | 48 | $ | 40 | ||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | 2 | 1 | 5 | 4 | ||||||||||||
Other | (1) | (2) | (2) | |||||||||||||
Total increase (decrease) | 1 | 1 | 3 | 2 | ||||||||||||
Total income taxes | $ | 21 | $ | 17 | $ | 51 | $ | 42 |
(KU) | ||||||||||||||||
Three Months | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Federal income tax on Income Before Income Taxes at statutory | ||||||||||||||||
tax rate - 35% | $ | 23 | $ | 25 | $ | 66 | $ | 61 | ||||||||
Increase (decrease) due to: | ||||||||||||||||
State income taxes, net of federal income tax benefit | 2 | 2 | 7 | 6 | ||||||||||||
Other | 1 | (1) | (1) | (2) | ||||||||||||
Total increase (decrease) | 3 | 1 | 6 | 4 | ||||||||||||
Total income taxes | $ | 26 | $ | 26 | $ | 72 | $ | 65 |
(All Registrants except PPL Energy Supply)
The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.
PPL | PPL Electric | ||||||||||||
March 31, | December 31, | March 31, | December 31, | ||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||
Current Regulatory Assets: | |||||||||||||
Environmental cost recovery | $ | 10 | $ | 5 | |||||||||
Gas supply clause | 1 | 15 | |||||||||||
Fuel adjustment clause | 4 | 4 | |||||||||||
Transmission service charge | 6 | $ | 6 | ||||||||||
Other | 8 | 7 | $ | 3 | 6 | ||||||||
Total current regulatory assets | $ | 23 | $ | 37 | $ | 3 | $ | 12 | |||||
Noncurrent Regulatory Assets: | |||||||||||||
Defined benefit plans | $ | 705 | $ | 720 | $ | 367 | $ | 372 | |||||
Taxes recoverable through future rates | 317 | 316 | 317 | 316 | |||||||||
Storm costs | 116 | 124 | 42 | 46 | |||||||||
Unamortized loss on debt | 76 | 77 | 48 | 49 | |||||||||
Interest rate swaps | 182 | 122 | |||||||||||
Accumulated cost of removal of utility plant | 117 | 114 | 117 | 114 | |||||||||
AROs | 87 | 79 | |||||||||||
Other | 10 | 10 | |||||||||||
Total noncurrent regulatory assets | $ | 1,610 | $ | 1,562 | $ | 891 | $ | 897 |
Current Regulatory Liabilities: | |||||||||||||
Generation supply charge | $ | 26 | $ | 28 | $ | 26 | $ | 28 | |||||
Demand side management | 13 | 2 | |||||||||||
Gas supply clause | 6 | 6 | |||||||||||
Transmission formula rate | 49 | 42 | 49 | 42 | |||||||||
Storm damage expense | 7 | 3 | 7 | 3 | |||||||||
Gas line tracker | 2 | 3 | |||||||||||
Other | 6 | 7 | 3 | 3 | |||||||||
Total current regulatory liabilities | $ | 109 | $ | 91 | $ | 85 | $ | 76 | |||||
Noncurrent Regulatory Liabilities: | |||||||||||||
Accumulated cost of removal of utility plant | $ | 695 | $ | 693 | |||||||||
Coal contracts (a) | 49 | 59 | |||||||||||
Power purchase agreement - OVEC (a) | 90 | 92 | |||||||||||
Net deferred tax assets | 25 | 26 | |||||||||||
Act 129 compliance rider | 26 | 18 | $ | 26 | $ | 18 | |||||||
Defined benefit plans | 16 | 16 | |||||||||||
Interest rate swaps | 84 | 84 | |||||||||||
Other | 2 | 4 | |||||||||||
Total noncurrent regulatory liabilities | $ | 987 | $ | 992 | $ | 26 | $ | 18 |
PPL | PPL Electric | ||||||||||||
June 30, | December 31, | June 30, | December 31, | ||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Current Regulatory Assets: | |||||||||||||
Environmental cost recovery | $ | 1 | $ | 7 | |||||||||
Gas supply clause | 20 | 10 | |||||||||||
Fuel adjustment clause | 2 | ||||||||||||
Demand side management | 3 | 8 | |||||||||||
Other | 5 | 6 | $ | 2 | $ | 6 | |||||||
Total current regulatory assets | $ | 29 | $ | 33 | $ | 2 | $ | 6 | |||||
Noncurrent Regulatory Assets: | |||||||||||||
Defined benefit plans | $ | 493 | $ | 509 | $ | 252 | $ | 257 | |||||
Taxes recoverable through future rates | 312 | 306 | 312 | 306 | |||||||||
Storm costs | 135 | 147 | 49 | 53 | |||||||||
Unamortized loss on debt | 80 | 85 | 53 | 57 | |||||||||
Interest rate swaps | 51 | 44 | |||||||||||
Accumulated cost of removal of utility plant | 105 | 98 | 105 | 98 | |||||||||
AROs | 58 | 44 | |||||||||||
Other | 8 | 13 | 1 | ||||||||||
Total noncurrent regulatory assets | $ | 1,242 | $ | 1,246 | $ | 771 | $ | 772 |
Current Regulatory Liabilities: | |||||||||||||
Generation supply charge | $ | 30 | $ | 23 | $ | 30 | $ | 23 | |||||
Environmental cost recovery | 1 | ||||||||||||
Gas supply clause | 2 | 3 | |||||||||||
Transmission service charge | 6 | 8 | 6 | 8 | |||||||||
Fuel adjustment clause | 4 | ||||||||||||
Transmission formula rate | 32 | 20 | 32 | 20 | |||||||||
Universal service rider | 10 | 10 | |||||||||||
Storm damage expense | 2 | 14 | 2 | 14 | |||||||||
Gas line tracker | 7 | 6 | |||||||||||
Other | 2 | 2 | 2 | 1 | |||||||||
Total current regulatory liabilities | $ | 82 | $ | 90 | $ | 72 | $ | 76 | |||||
Noncurrent Regulatory Liabilities: | |||||||||||||
Accumulated cost of removal of utility plant | $ | 694 | $ | 688 | |||||||||
Coal contracts (a) | 78 | 98 | |||||||||||
Power purchase agreement - OVEC (a) | 96 | 100 | |||||||||||
Net deferred tax assets | 28 | 30 | |||||||||||
Act 129 compliance rider | 12 | 15 | $ | 12 | $ | 15 | |||||||
Defined benefit plans | 28 | 26 | |||||||||||
Interest rate swaps | 84 | 86 | |||||||||||
Other | 6 | 5 | |||||||||||
Total noncurrent regulatory liabilities | $ | 1,026 | $ | 1,048 | $ | 12 | $ | 15 |
LKE | LG&E | KU | |||||||||||||||||
June 30, | December 31, | June 30, | December 31, | June 30, | December 31, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||
Current Regulatory Assets: | |||||||||||||||||||
Environmental cost recovery | $ | 1 | $ | 7 | $ | 1 | $ | 2 | $ | 5 | |||||||||
Gas supply clause | 20 | 10 | 20 | 10 | |||||||||||||||
Fuel adjustment clause | 2 | 2 | |||||||||||||||||
Demand side management | 3 | 8 | 2 | 3 | $ | 1 | 5 | ||||||||||||
Other | 3 | 1 | 2 | ||||||||||||||||
Total current regulatory assets | $ | 27 | $ | 27 | $ | 24 | $ | 17 | $ | 3 | $ | 10 | |||||||
Noncurrent Regulatory Assets: | |||||||||||||||||||
Defined benefit plans | $ | 241 | $ | 252 | $ | 162 | $ | 164 | $ | 79 | $ | 88 | |||||||
Storm costs | 86 | 94 | 47 | 51 | 39 | 43 | |||||||||||||
Unamortized loss on debt | 27 | 28 | 18 | 18 | 9 | 10 | |||||||||||||
Interest rate swaps | 51 | 44 | 51 | 44 | |||||||||||||||
AROs | 58 | 44 | 25 | 21 | 33 | 23 | |||||||||||||
Other | 8 | 12 | 3 | 5 | 5 | 7 | |||||||||||||
Total noncurrent regulatory assets | $ | 471 | $ | 474 | $ | 306 | $ | 303 | $ | 165 | $ | 171 |
Current Regulatory Liabilities: | ||||||||||||||||||||
Environmental cost recovery | $ | 1 | $ | 1 | ||||||||||||||||
Gas supply clause | 2 | $ | 3 | $ | 2 | $ | 3 | |||||||||||||
Fuel adjustment clause | 4 | $ | 4 | |||||||||||||||||
Gas line tracker | 7 | 6 | 7 | 6 | ||||||||||||||||
Other | 1 | 1 | ||||||||||||||||||
Total current regulatory liabilities | $ | 10 | $ | 14 | $ | 9 | $ | 9 | $ | 1 | $ | 5 | ||||||||
Noncurrent Regulatory Liabilities: | ||||||||||||||||||||
Accumulated cost of removal | ||||||||||||||||||||
of utility plant | $ | 694 | $ | 688 | $ | 303 | $ | 299 | $ | 391 | $ | 389 | ||||||||
Coal contracts (a) | 78 | 98 | 34 | 43 | 44 | 55 | ||||||||||||||
Power purchase agreement - OVEC (a) | 96 | 100 | 66 | 69 | 30 | 31 | ||||||||||||||
Net deferred tax assets | 28 | 30 | 25 | 26 | 3 | 4 | ||||||||||||||
Defined benefit plans | 28 | 26 | 28 | 26 | ||||||||||||||||
Interest rate swaps | 84 | 86 | 42 | 43 | 42 | 43 | ||||||||||||||
Other | 6 | 5 | 2 | 2 | 4 | 3 | ||||||||||||||
Total noncurrent regulatory liabilities | $ | 1,014 | $ | 1,033 | $ | 472 | $ | 482 | $ | 542 | $ | 551 |
37 |
LKE | LG&E | KU | |||||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||
Current Regulatory Assets: | |||||||||||||||||||
Environmental cost recovery | $ | 10 | $ | 5 | $ | 7 | $ | 4 | $ | 3 | $ | 1 | |||||||
Gas supply clause | 1 | 15 | 1 | 15 | |||||||||||||||
Fuel adjustment clause | 4 | 4 | 4 | 2 | 2 | ||||||||||||||
Other | 5 | 1 | 5 | 1 | |||||||||||||||
Total current regulatory assets | $ | 20 | $ | 25 | $ | 12 | $ | 21 | $ | 8 | $ | 4 | |||||||
Noncurrent Regulatory Assets: | |||||||||||||||||||
Defined benefit plans | $ | 338 | $ | 348 | $ | 208 | $ | 215 | $ | 130 | $ | 133 | |||||||
Storm costs | 74 | 78 | 41 | 43 | 33 | 35 | |||||||||||||
Unamortized loss on debt | 28 | 28 | 18 | 18 | 10 | 10 | |||||||||||||
Interest rate swaps | 182 | 122 | 121 | 89 | 61 | 33 | |||||||||||||
AROs | 87 | 79 | 30 | 28 | 57 | 51 | |||||||||||||
Other | 10 | 10 | 4 | 4 | 6 | 6 | |||||||||||||
Total noncurrent regulatory assets | $ | 719 | $ | 665 | $ | 422 | $ | 397 | $ | 297 | $ | 268 |
Current Regulatory Liabilities: | ||||||||||||||||||||
Demand side management | $ | 13 | $ | 2 | $ | 5 | $ | 1 | $ | 8 | $ | 1 | ||||||||
Gas supply clause | 6 | 6 | 6 | 6 | ||||||||||||||||
Gas line tracker | 2 | 3 | 2 | 3 | ||||||||||||||||
Other | 3 | 4 | 1 | 2 | 4 | |||||||||||||||
Total current regulatory liabilities | $ | 24 | $ | 15 | $ | 14 | $ | 10 | $ | 10 | $ | 5 | ||||||||
Noncurrent Regulatory Liabilities: | ||||||||||||||||||||
Accumulated cost of removal | ||||||||||||||||||||
of utility plant | $ | 695 | $ | 693 | $ | 304 | $ | 302 | $ | 391 | $ | 391 | ||||||||
Coal contracts (a) | 49 | 59 | 21 | 25 | 28 | 34 | ||||||||||||||
Power purchase agreement - OVEC (a) | 90 | 92 | 62 | 63 | 28 | 29 | ||||||||||||||
Net deferred tax assets | 25 | 26 | 24 | 24 | 1 | 2 | ||||||||||||||
Defined benefit plans | 16 | 16 | 16 | 16 | ||||||||||||||||
Interest rate swaps | 84 | 84 | 42 | 42 | 42 | 42 | ||||||||||||||
Other | 2 | 4 | 1 | 2 | 1 | 2 | ||||||||||||||
Total noncurrent regulatory liabilities | $ | 961 | $ | 974 | $ | 454 | $ | 458 | $ | 507 | $ | 516 |
(a) | These liabilities were recorded as offsets to certain intangible assets that were recorded at fair value upon the acquisition of LKE by PPL. |
U. K. Activities
(PPL))RIIO-ED1
On April 1, 2015, the RIIO-ED1 eight-year price control period commenced for WPD's four DNOs. See "Item 1. Business - Segment Information - U. K. Regulated Segment" of PPL's 2014 Form 10-K for additional information on RIIO-ED1.
Ofgem Review of Line Loss Calculation
In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, during the first quarter of 2014 WPD increased its existing liability by $65 million for over-recovery of line losses with a reduction to "Utility" revenues on the Statement of Income. The total recorded liability at June 30, 2014 was $106March 31, 2015 of $97 million all of which will be refunded to customers from April 1, 2015 through March 31, 2019.
Kentucky Activities(PPL, LKE, LG&E and KU)
Rate Case Proceedings
On November 26, 2014, LG&E and KU filed requests with the KPSC for increases in annual base electricity rates for LG&E's electric and gas operations and KU's electric operations. On April 20, 2015, LG&E and KU, and the other parties to the proceeding, filed a unanimous settlement agreement with the KPSC. Among other things, the proposed settlement provides for increases in the annual revenue requirements associated with KU base electric rates of $125 million and LG&E base gas rates of $7 million. The recorded liabilityannual revenue requirement associated with base electric rates at LG&E will not increase. The settlement did not establish a specific return on equity with respect to the base rates, however an authorized 10% return on equity will be utilized in the ECR and GLT mechanisms. The settlement agreement provides for deferred recovery of
38 |
costs associated with Green River Units 3 and 4 through their retirement. The new regulatory asset will be amortized over three years. The settlement also provides regulatory asset treatment for the difference between pension expense currently booked in accordance with LG&E and KU's pension accounting policy and such an expense using a 15 year amortization period for actuarial gains and losses. The proposed settlement remains subject to KPSC approval. If approved, the new rates and all elements of the settlement would be effective July 1, 2015.
Pennsylvania Activities(PPL and PPL Electric)
Rate Case Proceeding
On March 31, 2015, PPL Electric filed a request with the PUC for an increase in its annual distribution revenue requirement of approximately $167.5 million. The proposal would result in a rate increase of 3.9% on a total bill basis and is expected to become effective on January 1, 2016. PPL Electric's application includes a request for an authorized return-on-equity of 10.95%. The application is based on a fully projected future test year of January 1, 2016 through December 31, 2013 was $74 million. Other activity impacting the liability included reductions in the liability that have been included in tariffs during the first half of 2014 and foreign exchange movements. In June 2014, WPD applied for judicial review of certain of Ofgem's decisions related to closing out the DPCR4 line loss mechanism. The primary relief sought is for Ofgem to reconsider the overall proportionality of penalties imposed on WPD. The entire process could last through the second quarter of 2015.2016. PPL Electric cannot predict the outcome of this matter.
Distribution System Improvement Charge (DSIC)
Act 11 authorizes the PUC 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 LKE, LG&EElectric as it is in a period of significant capital investment to maintain and KU)
On March 31, 2015, PPL Electric filed a petition requesting a waiver of the DSIC cap of 5% of billed revenues and KU filed an application for a CPCN with the KPSC requesting approval to build a NGCC generating unit at KU's Green River generating siteincrease the maximum allowable DSIC from 5% to 7.5% for service rendered after January 1, 2016. PPL Electric filed the petition concurrently with its 2015 rate case and a solar generating facility atis requesting that the E. W. Brown generating site. In April 2014, LG&E and KU filed a motion to hold further proceedings in abeyance for up to 90 days in order to allowPUC consolidate these two proceedings. PPL Electric cannot predict the companies to assess the potential impactoutcome of certain events on their future capacity needs, including the receipt of termination
Storm Damage Expense Rider
In its December 28, 2012 final rate case order, the PUC directed PPL Electric to file a proposed Storm Damage Expense Rider (SDER).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 recoup any differences from customers. In March 2013, PPL Electric filed its proposed SDER with the PUC and, as part of that filing, requested recovery of the 2012 qualifying storm costs related to Hurricane Sandy. PPL Electric proposed that the SDER become effective January 1, 2013 at a zero rate with qualifying storm costs incurred in 2013 and the 2012 Hurricane Sandy costs included in rates effective January 1, 2014. As of December 31, 2013, PPL Electric had a $14 million regulatory liability balance for amounts expected to be refunded to customers for revenues collected to cover storm costs in excess of actual storm costs incurred during 2013. OnIn April 3, 2014, the PUC issued a final order approving the SDER. The SDER will be effectivewith a January 1, 2015 effective date and will initially includeincluding actual storm costs compared to collections fromfor December 2013 through November 2014. As a result, of the order, PPL Electric reduced its regulatory liability by $12 million.million in March 2014. Also, as part of the April 2014 order, PPL Electric canwas authorized to recover Hurricane Sandy storm damage costs through the SDER of $29 million over a three-year period beginning January 1, 2015.
On June 20, 2014, the Office of Consumer Advocate (OCA) filed a petition for review of the April 2014 order with the Commonwealth Court of Pennsylvania. The case remains pending. See "Storm Costs" below for additional information on Hurricane Sandy costs.
Smart Meter Rider
Act 129 also requires installation of smart meters for new construction, upon the request of consumers and at their cost, or on a depreciation schedule not exceeding 15 years. Under Act 129, EDCs are able to recover the costs of providing smart metering technology. All of PPL Electric's metered customers currently have advanced meters installed at their service locations capable of many of the functions required under Act 129. PPL Electric conducted pilot projects and technical evaluations of its current advanced metering technology and concluded that the current technology does not meet all of the requirements of Act 129 requirements.129. PPL Electric recovered the cost of its evaluations through a cost recovery mechanism, the Smart Meter Rider (SMR).Rider. In August 2013, PPL Electric filed with the PUC an annual report describing the actions it was taking under its Smart Meter Plan during 2013 and its planned actions for 2014. PPL Electric also submitted revised SMR charges that became effective January 1, 2014. On June 30, 2014, PPL Electric filed its final Smart Meter Plan with the PUC. In that plan, PPL Electric proposes to replace all of its current meters with advanced meters that meet the Act 129 requirements. Full deployment of the new meters is expected to be complete by the end of 2019. The total cost of the project is estimated to
39 |
be approximately $450 million. PPL Electric proposes to recover these costs through the SMR which the PUC previously has approved for recovery of such costs. PPL Electric cannot predictOn April 30, 2015, the outcome of this proceeding.
Federal Matters
FERC Formula Rates (PPL and PPL Electric)
In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts, suchcontracts. Such terminations are to be effective in 2019, except in the case of one municipality with a 2017 effective date. In addition, a tenth municipality which has a previously settled termination date of 2016 has given notice that it will transfer service in June 2015. In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. In August 2014, the FERC issued an order on the interim settlement agreement allowing the proposed rates to become effective pending a final order. If approved, the settlement agreement will resolve the rate case with respect to these two municipalities, including an authorized return on equity of 10% or the return on equity awarded to other parties in this case, whichever is lower. Also in July 2014, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of their contracts. KU and the terminating municipalities continue settlement discussions in this proceeding. KU cannot currently predict the outcome of its FERC applications regarding its wholesale power agreements with the municipalities.
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 Energy Supply, 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. The amounts borrowed below are recorded as "Short-term debt" on the Balance Sheets. TheSheets.The following credit facilities were in place at:
March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
Letters of | Letters of | |||||||||||||||||||||||||
Credit | Credit | |||||||||||||||||||||||||
and | and | |||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||||
Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
PPL | ||||||||||||||||||||||||||
U.K. | ||||||||||||||||||||||||||
WPD Ltd. | ||||||||||||||||||||||||||
Syndicated Credit Facility | Dec. 2016 | £ | 210 | £ | 130 | £ | 80 | £ | 103 | |||||||||||||||||
WPD (South West) | ||||||||||||||||||||||||||
Syndicated Credit Facility | July 2019 | 245 | 245 | |||||||||||||||||||||||
WPD (East Midlands) | ||||||||||||||||||||||||||
Syndicated Credit Facility | July 2019 | 300 | 147 | 153 | 64 | |||||||||||||||||||||
WPD (West Midlands) | ||||||||||||||||||||||||||
Syndicated Credit Facility | July 2019 | 300 | 300 | |||||||||||||||||||||||
Uncommitted Credit Facilities | 65 | £ | 5 | 60 | £ | 5 | ||||||||||||||||||||
Total U.K. Credit Facilities (a) | £ | 1,120 | £ | 277 | £ | 5 | £ | 838 | £ | 167 | £ | 5 | ||||||||||||||
June 30, 2014 | December 31, 2013 | |||||||||||||||||||||||||
Letters of | Letters of | |||||||||||||||||||||||||
Credit | Credit | |||||||||||||||||||||||||
and | and | |||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||||
Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
PPL | ||||||||||||||||||||||||||
U.K. | ||||||||||||||||||||||||||
PPL WW Syndicated | ||||||||||||||||||||||||||
Credit Facility | Dec. 2016 | £ | 210 | £ | 97 | £ | 113 | £ | 103 | |||||||||||||||||
WPD (South West) | ||||||||||||||||||||||||||
Syndicated Credit Facility (c) | Jan. 2017 | 245 | 245 | |||||||||||||||||||||||
WPD (East Midlands) | ||||||||||||||||||||||||||
Syndicated Credit Facility (c) | Apr. 2016 | 300 | 300 | |||||||||||||||||||||||
WPD (West Midlands) | ||||||||||||||||||||||||||
Syndicated Credit Facility (c) | Apr. 2016 | 300 | 300 | |||||||||||||||||||||||
Uncommitted Credit Facilities | 105 | £ | 5 | 100 | £ | 5 | ||||||||||||||||||||
Total U.K. Credit Facilities (a) | £ | 1,160 | £ | 97 | £ | 5 | £ | 1,058 | £ | 103 | £ | 5 | ||||||||||||||
U.S. | ||||||||||||||||||||||||||
PPL Capital Funding | ||||||||||||||||||||||||||
Syndicated Credit Facility (b) | Nov. 2018 | $ | 300 | $ | 300 | $ | 270 | |||||||||||||||||||
Bilateral Credit Facility | Mar. 2015 | 150 | $ | 11 | 139 | |||||||||||||||||||||
Total PPL Capital Funding Credit Facilities | $ | 450 | $ | 11 | $ | 439 | $ | 270 | ||||||||||||||||||
PPL Energy Supply | ||||||||||||||||||||||||||
Syndicated Credit Facility (b) | Nov. 2017 | $ | 3,000 | $ | 175 | $ | 264 | $ | 2,561 | $ | 29 | |||||||||||||||
Letter of Credit Facility | Mar. 2015 | 150 | 143 | 7 | 138 | |||||||||||||||||||||
Uncommitted Credit Facilities (c) | 175 | 77 | 98 | 77 | ||||||||||||||||||||||
Total PPL Energy Supply Credit Facilities | $ | 3,325 | $ | 175 | $ | 484 | $ | 2,666 | $ | 244 | ||||||||||||||||
PPL Electric | ||||||||||||||||||||||||||
Syndicated Credit Facility (c) | Oct. 2017 | $ | 300 | $ | 1 | $ | 299 | $ | 21 | |||||||||||||||||
LKE | ||||||||||||||||||||||||||
Syndicated Credit Facility (b) | Oct. 2018 | $ | 75 | $ | 75 | $ | 75 | |||||||||||||||||||
LG&E | ||||||||||||||||||||||||||
Syndicated Credit Facility (c) | Nov. 2017 | $ | 500 | $ | 70 | $ | 430 | $ | 20 | |||||||||||||||||
KU | ||||||||||||||||||||||||||
Syndicated Credit Facility (c) | Nov. 2017 | $ | 400 | $ | 175 | $ | 225 | $ | 150 | |||||||||||||||||
Letter of Credit Facility | May 2016 | 198 | 198 | 198 | ||||||||||||||||||||||
Total KU Credit Facilities | $ | 598 | $ | 373 | $ | 225 | $ | 348 |
40 |
March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
Letters of | Letters of | |||||||||||||||||||||||||
Credit | Credit | |||||||||||||||||||||||||
and | and | |||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||||
Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
U.S. | ||||||||||||||||||||||||||
PPL Capital Funding | ||||||||||||||||||||||||||
Syndicated Credit Facility | July 2019 | $ | 300 | $ | 300 | |||||||||||||||||||||
Syndicated Credit Facility | Nov. 2018 | 300 | 300 | |||||||||||||||||||||||
Bilateral Credit Facility | Mar. 2016 | 150 | $ | 32 | 118 | $ | 21 | |||||||||||||||||||
Uncommitted Credit Facility | 65 | 1 | 64 | 1 | ||||||||||||||||||||||
Total PPL Capital Funding Credit Facilities | $ | 815 | $ | 33 | $ | 782 | $ | 22 | ||||||||||||||||||
PPL Energy Supply | ||||||||||||||||||||||||||
Syndicated Credit Facility (b) | Nov. 2017 | $ | 3,000 | $ | 600 | $ | 267 | $ | 2,133 | $ | 630 | $ | 121 | |||||||||||||
PPL Electric | ||||||||||||||||||||||||||
Syndicated Credit Facility | July 2019 | $ | 300 | $ | 86 | $ | 214 | $ | 1 | |||||||||||||||||
LKE | ||||||||||||||||||||||||||
Syndicated Credit Facility (b) | Oct. 2018 | $ | 75 | $ | 75 | $ | 75 | |||||||||||||||||||
�� | ||||||||||||||||||||||||||
LG&E | ||||||||||||||||||||||||||
Syndicated Credit Facility | July 2019 | $ | 500 | $ | 216 | $ | 284 | $ | 264 | |||||||||||||||||
KU | ||||||||||||||||||||||||||
Syndicated Credit Facility | July 2019 | $ | 400 | $ | 193 | $ | 207 | $ | 236 | |||||||||||||||||
Letter of Credit Facility | Oct. 2017 | 198 | 198 | 198 | ||||||||||||||||||||||
Total KU Credit Facilities | $ | 598 | $ | 391 | $ | 207 | $ | 434 |
(PPL)
PPL Energy Supply's Letter of Credit Facility and Uncommitted Credit Facilities that existed at December 31, 2014 PPL Capital Funding entered into an additional $300 million credit facility expiring in July 2019. The credit agreement allows for borrowings at market-based rates plus a spread, which is based upon PPL Capital Funding's senior unsecured long-term debt rating. In addition, PPL Capital Funding may request certain lenders underhave either expired or matured during the credit agreement to issuefirst quarter of 2015. Any previously issued letters of credit which issuances reduce available borrowing capacity. PPL Capital Funding intends to use this credit facility for general corporate purposes of PPL and its affiliates, including for making investments inunder these facilities were either terminated or loans to affiliates to support infrastructure investments by PPL's operating companies. PPL Capital Funding will pay customary commitment and letter of credit issuance feesreissued under the credit agreement.
(All Registrants)
PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility.The following commercial paper programs were in place at:
June 30, 2014 | December 31, 2013 | ||||||||||||||||||||||
Weighted - | Commercial | Weighted - | Commercial | ||||||||||||||||||||
Average | Paper | Unused | Average | Paper | |||||||||||||||||||
Interest Rate | Capacity | Issuances | Capacity | Interest Rate | Issuances | ||||||||||||||||||
PPL Energy Supply | 0.75% | $ | 750 | $ | 149 | $ | 601 | ||||||||||||||||
PPL Electric | 300 | 300 | 0.23% | $ | 20 | ||||||||||||||||||
LG&E | 0.29% | 350 | 70 | 280 | 0.29% | 20 | |||||||||||||||||
KU | 0.29% | 350 | 175 | 175 | 0.32% | 150 | |||||||||||||||||
Total | $ | 1,750 | $ | 394 | $ | 1,356 | $ | 190 |
March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||
Weighted - | Commercial | Weighted - | Commercial | ||||||||||||||||||||
Average | Paper | Unused | Average | Paper | |||||||||||||||||||
Interest Rate | Capacity | Issuances | Capacity | Interest Rate | Issuances | ||||||||||||||||||
PPL Electric | 0.57% | $ | 300 | $ | 85 | $ | 215 | ||||||||||||||||
LG&E | 0.63% | 350 | 216 | 134 | 0.42% | $ | 264 | ||||||||||||||||
KU | 0.62% | 350 | 193 | 157 | 0.49% | 236 | |||||||||||||||||
Total | $ | 1,000 | $ | 494 | $ | 506 | $ | 500 |
PPL Energy Supply maintains a $500 million Facility Agreement expiring June 2017, which provides PPL Energy Supply the ability to request up to $500 million of committed letter of credit capacity at fees to be agreed upon at the time of each request, based on certain market conditions. At June 30, 2014,March 31, 2015, PPL Energy Supply had not requested any capacity for the issuance of letters of credit under this arrangement.
41 |
PPL Energy Supply, PPL EnergyPlus, PPL Montour and PPL Brunner Island maintain an $800 million secured energy marketing and trading facility, whereby PPL EnergyPlus will receive credit to be applied to satisfy collateral posting obligations related to its energy marketing and trading activities with counterparties participating in the facility. The credit amount is guaranteed by PPL Energy Supply, PPL Montour and PPL Brunner Island. PPL Montour and PPL Brunner Island have granted liens on their respective generating facilities to secure any amount they may owe under their guarantees. The facility expires in November 2018,2019, but is subject to automatic one-year renewals under certain conditions. There were $41$88 million of secured obligations outstanding under this facility at June 30, 2014.
(LKE)
See Note 11 for discussion of intercompany borrowings.
(PPL)
At-the-Market Stock Offering Program
On February 26, 2015, PPL Capital Funding remarketed $978entered into two separate equity distribution agreements, pursuant to which PPL may sell, from time to time, up to an aggregate of $500 million of 4.32% Junior Subordinated Notes due 2019 that were originally issued in April 2011 as a component of PPL's 2011 Equity Units. In connection withits common stock. During the remarketing, PPL Capital Funding retired $228 million of the 4.32% Junior Subordinated Notes due 2019 and issued $350 million of 2.189% Junior Subordinated Notes due 2017 and $400 million of 3.184% Junior Subordinated Notes due 2019. Simultaneously, the newly issued Junior Subordinated Notes were exchanged for $350 million of 3.95% Senior Notes due 2024 and $400 million of 5.00% Senior Notes due 2044. The transaction was accounted for as a debt extinguishment, resulting in a $(9) million gain (loss) on extinguishment of the Junior Subordinated Notes, recorded to "Interest Expense" on the Statement of Income. Except for the $228 million retirement of the 4.32% Junior Subordinated Notes and fees related to the transactions, the activity was non-cash and was excluded from the Statement of Cash Flows for the six monthsperiod ended June 30, 2014. In May 2014, PPL issued 31.7 million sharesMarch 31, 2015, no sales of common stock at $30.86 per share to settleunder the 2011 Purchase Contracts. PPL received net cash proceeds of $978 million, whichequity distribution agreements were used to repay short-term debt and for general corporate purposes.
Distributions
In June 2014, PPL Electric issued $300 million of 4.125% First Mortgage Bonds due 2044. PPL Electric received proceeds of $294 million, net of a discount and underwriting fees, which will be used for capital expenditures, to repay short-term debt and for general corporate purposes.
(All Registrants)
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options. Any resulting transactions may impact future financial results. See Note 8 in the 20132014 Form 10-K for additional information.
Anticipated Spinoff of PPL Energy Supply
In June 2014,PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded independent power producercompany named Talen Energy. Under the terms of the agreements, at closing, PPL will spin off to PPL shareowners a newly formed entity, Holdco, which at such time will own all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy. Immediately following the spinoff, Holdco will merge with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL shareownersEnergy Supply. Substantially contemporaneous with the spinoff and simultaneously combine that business withmerger, RJS Power. Upon closing,Power will be contributed by its owners to become a subsidiary of Talen Energy. Following completion of these transactions, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen EnergyEnergy. The transaction is intended to be tax-free to PPL and PPL'sits shareowners will receivefor U.S. federal income tax purposes and is subject to customary closing conditions, including receipt of required regulatory approvals from the NRC, FERC, DOJ and PUC, all of which were received by mid-April 2015. In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn credit capacity under a numberrevolving credit or similar facility of Talen Energy sharesor one or more of its subsidiaries. Any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions at the time of the spinoff are excluded from this calculation.
In connection with the FERC approval, PPL and RJS Power agreed thatwithin 12 months after closing basedof the transaction, Talen Energy will divest approximately 1,300 MW of generating assets in one of two groups of assets (from PPL Energy
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Supply's existing portfolio, this includes either the Holtwood and Wallenpaupack hydroelectric facilities or the Ironwood facility), and limit PJM energy market offers from assets it would retain in the other group to cost-based offers.
On April 29, 2015, PPL's Board of Directors declared the distribution of Holdco to PPL's shareowners of record on May 20, 2015, with the spinoff to occur on June 1, 2015. Based on the number of shares of PPL common stock outstanding at April 29, 2015, the distribution ratio is expected to be approximately 0.125 shares owned as of Talen common stock for each share of PPL common stock. The final ratio will be determined after the spinoff record date. The spinoff will have no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding. The transaction is intended to be tax-free to PPL and its shareowners for U.S. federal income tax purposes and is subject to customary closing conditions, including receipt of certain regulatory approvals by the NRC, the FERC, the DOJ and the PUC. In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn capacity after excluding any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions then outstanding, under a Talen Energy (or its subsidiaries) revolving credit or similar facility. The transaction is expected to close in the first or second quarter of 2015.
Following the announcement of the transaction to form Talen Energy, efforts have beenwere initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans were substantially completed in 2014. The new organizational plans identified the need to resize and restructure the organizations and as a result, in 2014, estimated charges for employee separation benefits were recorded. See Note 8 in the 2014 Form 10-K for additional information. The separation benefits include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. Most separations and payment of separation benefits are expected to be completed by the end of 2014. As a result, charges for employee2015. At March 31, 2015 and December 31, 2014, the recorded liabilities related to the separation benefits were $19 million and related costs$30 million, which are anticipated to be recordedincluded in future periods. The separation"Other current liabilities" on the Balance Sheets.
Additional employee-related costs to be incurred primarily include cash severance compensation, lump sum COBRA reimbursement payments, accelerated stock-based compensation vesting,and pro-rated performance-based cash incentive and stock-based compensation awards, primarily for PPL Energy Supply employees and outplacement services. At present, there is considerable uncertainty as tofor PPL employees who have become PPL Energy Supply employees in connection with the range of costs that will be incurred and when thosetransaction. These costs will be recognized as the amount of each category of costs will depend on the number of employees leaving the company, current position and compensation level, years of service and expected separation date. Additionally, certain of these costs are expected to be reimbursed to PPL by Talen Energy upon closing of the transaction. As a result, a range of the separation costs associated withat the spinoff transaction and the timing of when thoseclosing date. PPL estimates these additional costs will be recognized cannot be reasonably estimated at this time but could be material.
PPL recorded $46 million of deferred income tax expense during the three and six months ended June 30, 2014 to adjust valuation allowances on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply.
The assets and liabilities of PPL EnergyPPL's Supply segment will continue to be classified as "held and used" on PPL's Balance Sheet until the closing of the transaction.transaction, at which time the operations of the Supply segment will be classified as discontinued operations. At the close of the transaction, unamortized losses on PPL interest rate swaps recorded in AOCI and designated as hedges of PPL Energy Supply's future interest payments will be reclassified into earnings and reflected in discontinued operations. The spinoff announcementamount of these unamortized losses deferred in AOCI at March 31, 2015 was evaluated and determined not to be an event or a change in circumstance that required a recoverability test or a$55 million after-tax.
In conducting its annual goodwill impairment assessment. However,assessment in the fourth quarter of 2014 for its Supply segment reporting unit, PPL determined that the estimated fair value of the Supply segment exceeded its carrying value and no impairment was recognized. PPL had not identified any indicators of impairment as of March 31, 2015, but cannot predict whether an impairment loss couldwill be recorded at the spinoff date. An impairment loss would be recognized by PPL at the spinoff date if the aggregate carrying amount of PPL Energy Supply'sthe Supply segment's assets and liabilities exceeds itsexceed their aggregate fair value at that date.date and would be reflected in discontinued operations. Upon completion of this transaction, PPL cannot currently predict whether an impairment loss will be recorded at the spinoff date.
In September 2013,November 2014, PPL Montana executed a definitive agreement to sellcompleted the sale to NorthWestern itsof 633 MW of hydroelectric generating facilities located in Montana (with a generation capacity of 633 MW) for approximately $900 million in cash, subjectcash. The proceeds will remain with PPL and not transfer to certain adjustments.Talen Energy as a result of the spinoff. The sale which is not expected to close before the fourth quarter of 2014, includesincluded 11 hydroelectric power facilities and related assets. In April 2014, the DOJ and Federal Trade Commission granted early termination of PPL Montana's and NorthWestern's notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The sale remains subject to closing conditions, including receipt of regulatory approvals by the FERC and the MPSC and certain third-party consents. Due to the uncertainties related to certain of these conditions as of June 30, 2014, the sale did not meet the applicable accounting criteria for the assets, and liabilities included in the transaction to be classified as held for sale onSupply segment.
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2014 | ||||||||||||
Operating revenues | $ | 29 | ||||||||||
Interest expense (a) | 2 | |||||||||||
Income (loss) before income taxes (b) | (10) | |||||||||||
Income (Loss) from Discontinued Operations (net of income taxes) (b) | (8) |
(a) | Represents allocated interest expense based upon the discontinued operations share of the net assets of PPL Energy Supply. |
(b) | Includes an impairment charge related to the Kerr Dam Project. See Note 13 for additional information. |
Development
Construction activity continuesis nearing completion and testing is in progress on the previously announced NGCC unit, Cane Run Unit 7, scheduled to be operational in Maythe second quarter of 2015. On March 31, 2015, LG&E retired an older coal-fired generating unit at the Cane Run plant and anticipates retiring the remaining two coal-fired units at the Cane Run plant in the third quarter of 2015. There were no significant losses related to this retirement.
In October 2013, LG&E and KU announced plans to build a second NGCC unit, Green River Unit 5, at KU's Green River generating site. Subject to finalizing details, regulatory applications, permitting and construction schedules, the facility would have approximately 700 MW of capacity and cost $700 million and was originally planned to be operational in 2018. At the same time, LG&E and KU also announced plans for a 10 MW solar generation facility to be operational in 2016 and toat a cost of approximately $36 million. AsIn December 2014, a result of developing uncertainty as to the need for the new capacity, in April 2014 LG&E and KU askedfinal order was issued by the KPSC approving the request to holdconstruct the related CPCN case in abeyance for 90 days. In May 2014, the KPSC granted that request and scheduled an informal conference for August 2014. LG&E and KU continue to evaluate their future capacity requirements, with the possibility that reduced or delayed capacity needs may result in adjustments to the timing of previously estimated capacity construction.
(
PPL,Certain net periodic defined benefit costs are applied to accounts that are further distributed between capital and expense, including certain costs allocated to applicable subsidiaries for plans sponsored by PPL Services and LKE.Following are the net periodic defined benefit costs (credits) of the plans sponsored by PPL, PPL Energy Supply,and its subsidiaries, LKE and its subsidiaries and LG&E for the periods ended June 30:
Pension Benefits | ||||||||||||||||||||||||||
Three Months | Six Months | |||||||||||||||||||||||||
U.S. | U.K. | U.S. | U.K. | |||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
PPL | ||||||||||||||||||||||||||
Service cost | $ | 25 | $ | 32 | $ | 18 | $ | 16 | $ | 51 | $ | 63 | $ | 36 | $ | 34 | ||||||||||
Interest cost | 58 | 53 | 90 | 78 | 117 | 107 | 178 | 159 | ||||||||||||||||||
Expected return on plan assets | (75) | (73) | (132) | (113) | (149) | (147) | (262) | (231) | ||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||||
Prior service cost | 5 | 5 | 10 | 11 | ||||||||||||||||||||||
Actuarial (gain) loss | 8 | 20 | 33 | 37 | 15 | 40 | 66 | 75 | ||||||||||||||||||
Net periodic defined benefit | ||||||||||||||||||||||||||
costs (credits) prior to | ||||||||||||||||||||||||||
termination benefits | 21 | 37 | 9 | 18 | 44 | 74 | 18 | 37 | ||||||||||||||||||
Termination benefits (a) | 20 | 20 | ||||||||||||||||||||||||
Net periodic defined benefit | ||||||||||||||||||||||||||
costs (credits) | $ | 41 | $ | 37 | $ | 9 | $ | 18 | $ | 64 | $ | 74 | $ | 18 | $ | 37 |
Pension Benefits | ||||||||||||||
Three Months | Six Months | |||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
PPL Energy Supply | ||||||||||||||
Service cost | $ | 2 | $ | 2 | $ | 3 | $ | 4 | ||||||
Interest cost | 2 | 2 | 4 | 4 | ||||||||||
Expected return on plan assets | (3) | (2) | (5) | (5) | ||||||||||
Amortization of: | ||||||||||||||
Actuarial (gain) loss | 1 | 1 | 1 | |||||||||||
Net periodic defined benefit costs (credits) | $ | 2 | $ | 2 | $ | 3 | $ | 4 | ||||||
LKE | ||||||||||||||
Service cost | $ | 5 | $ | 6 | $ | 11 | $ | 13 | ||||||
Interest cost | 16 | 15 | 33 | 31 | ||||||||||
Expected return on plan assets | (21) | (20) | (41) | (41) | ||||||||||
Amortization of: | ||||||||||||||
Prior service cost | 1 | 1 | 2 | 2 | ||||||||||
Actuarial (gain) loss | 3 | 9 | 6 | 17 | ||||||||||
Net periodic defined benefit costs (credits) | $ | 4 | $ | 11 | $ | 11 | $ | 22 | ||||||
LG&E | ||||||||||||||
Service cost | $ | 1 | $ | 1 | $ | 1 | ||||||||
Interest cost | 3 | $ | 4 | 7 | 7 | |||||||||
Expected return on plan assets | (5) | (5) | (10) | (10) | ||||||||||
Amortization of: | ||||||||||||||
Prior service cost | 1 | 1 | ||||||||||||
Actuarial (gain) loss | 2 | 4 | 3 | 7 | ||||||||||
Net periodic defined benefit costs (credits) | $ | 1 | $ | 3 | $ | 2 | $ | 6 |
Other Postretirement Benefits | |||||||||||||
Three Months | Six Months | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
PPL | |||||||||||||
Service cost | $ | 3 | $ | 3 | $ | 6 | $ | 7 | |||||
Interest cost | 8 | 7 | 16 | 14 | |||||||||
Expected return on plan assets | (7) | (6) | (13) | (12) | |||||||||
Amortization of: | |||||||||||||
Actuarial (gain) loss | 2 | 3 | |||||||||||
Net periodic defined benefit costs (credits) | $ | 4 | $ | 6 | $ | 9 | $ | 12 | |||||
LKE | |||||||||||||
Service cost | $ | 1 | $ | 1 | $ | 2 | $ | 2 | |||||
Interest cost | 3 | 2 | 5 | 4 | |||||||||
Expected return on plan assets | (2) | (1) | (3) | (2) | |||||||||
Amortization of: | |||||||||||||
Prior service cost | 1 | 1 | |||||||||||
Net periodic defined benefit costs (credits) | $ | 2 | $ | 2 | $ | 5 | $ | 5 |
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||
U.S. | U.K. | |||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
PPL | ||||||||||||||||||||
Service cost | $ | 32 | $ | 26 | $ | 20 | $ | 18 | $ | 4 | $ | 3 | ||||||||
Interest cost | 59 | 59 | 79 | 88 | 7 | 8 | ||||||||||||||
Expected return on plan assets | (79) | (74) | (131) | (130) | (7) | (6) | ||||||||||||||
Amortization of: | ||||||||||||||||||||
Prior service cost | 2 | 5 | ||||||||||||||||||
Actuarial (gain) loss | 25 | 7 | 39 | 33 | ||||||||||||||||
Net periodic defined benefit costs (credits) | $ | 39 | $ | 23 | $ | 7 | $ | 9 | $ | 4 | $ | 5 |
LKE | ||||||||||||||||||||
Service cost | $ | 7 | $ | 6 | $ | 1 | $ | 1 | ||||||||||||
Interest cost | 17 | 17 | 2 | 2 | ||||||||||||||||
Expected return on plan assets | (22) | (20) | (1) | (1) | ||||||||||||||||
Amortization of: | ||||||||||||||||||||
Prior service cost | 2 | 1 | 1 | 1 | ||||||||||||||||
Actuarial (gain) loss | 8 | 3 | ||||||||||||||||||
Net periodic defined benefit costs (credits) | $ | 12 | $ | 7 | $ | 3 | $ | 3 | ||||||||||||
LG&E | ||||||||||||||||||||
Interest cost | $ | 3 | $ | 4 | ||||||||||||||||
Expected return on plan assets | (5) | (5) | ||||||||||||||||||
Amortization of: | ||||||||||||||||||||
Prior service cost | 1 | 1 | ||||||||||||||||||
Actuarial (gain) loss | 3 | 1 | ||||||||||||||||||
Net periodic defined benefit costs (credits) | $ | 2 | $ | 1 |
In addition to the specific plans they sponsor, PPL Energy Supply subsidiaries are also allocated costs of defined benefit plans sponsored by PPL Services, andit sponsors, LG&E is allocated costs of defined benefit plans sponsored by LKE based on theirits participation in those plans, which management believes are reasonable. PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services and KU is allocated
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costs of defined benefit plans sponsored by LKE based on their participation in those plans, which management believes are reasonable.For the periods ended June 30,March 31, PPL Services allocated the following net periodic defined benefit costs to PPL Energy Supply subsidiaries and PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU.
Three Months | Six Months | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
PPL Energy Supply (a) | $ | 23 | $ | 12 | $ | 30 | $ | 23 | ||||
PPL Electric (a) | 10 | 9 | 15 | 18 | ||||||||
LG&E | 2 | 3 | 4 | 6 | ||||||||
KU | 1 | 5 | 4 | 9 |
(PPL)
All commitments and contingencies related to PPL Energy Supply and its subsidiaries will remain with PPL Energy Supply and its subsidiaries at the spinoff date without recourse, except as otherwise provided in the definitive agreements entered into in connection with the spinoff of Talen Energy.
Energy Purchase Commitments
(PPL Electric)
See Note 11 for information on the power supply agreements between PPL EnergyPlus and PPL Electric.
(All Registrants)
PPL and its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities, unless otherwise noted.
WKE Indemnification(PPL and LKE)
See footnote (h)(f) to the table in "Guarantees and Other Assurances" below for information on an LKE indemnity relating to its former WKE lease, including related legal proceedings.
(PPL)
Sierra Club Litigation
On March 6, 2013, the Sierra Club and the MEIC filed a complaint in the U.S. District Court, District of Montana, Billings Division against PPL Montana and the other Colstrip Steam Electric Station (Colstrip) co-owners: Avista Corporation, Puget Sound Energy, Portland General Electric Company, Northwestern EnergyNorthWestern and Pacific Corp.PacifiCorp. PPL Montana operates Colstrip on behalf of the co-owners. The suitcomplaint alleges certain violations of the Clean Air Act, including New Source Review, Title V and opacity requirements and listed 39 separate claims for relief. The complaint requests injunctive relief and civil penalties on average of $36,000 per day per violation, including a request that the owners remediate environmental damage and that $100,000 of the civil penalties be used for beneficial mitigation projects.
In July 27, 2013, the Sierra Club and MEIC filed an additional Notice of Intent to Sue, identifying additional plant projects that are alleged not to be in compliance with the Clean Air Act. InAct and, in September 2013, the plaintiffs filed an amended complaint. ThisThe amended complaint dropsdropped all claims regarding pre-2001 plant projects, as well as the plaintiffs' Title V and opacity claims. It does,did, however, add claims with respect to a number of post-2000 plant projects, which effectively increased the number of projects subject to the litigation by about 40. PPL Montana and the other Colstrip owners filed a motion to dismiss the amended complaint in October 2013. OnIn May 22, 2014, the court dismissed the plaintiffs' independent Best Available Control Technology claims and their Prevention of Significant Deterioration (PSD) claims for three projects, but denied the owners' motion to dismiss the plaintiffs' other PSD claims on statute of limitation grounds. On August 27, 2014, the Sierra Club and MEIC filed a second amended complaint. This complaint includes the same causes of action articulated in the first amended complaint, but alleges those claims in regard to only eight projects at the plant between 2001 and 2013. On September 26, 2014, the Colstrip owners filed an answer to the second amended complaint. Discovery has been completed. In April 2014,2015,
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the plaintiffs indicated they intend to pursue claims related to only four of the remaining projects. In January 2015, trial as to liability in this matter was re-scheduledrescheduled to JuneNovember 16, 2015. A trial date with respect to remedies, if there is a finding of liability, has not been scheduled. PPL Montana believes it and the other co-owners have numerous defenses to the allegations set forth in this complaint and will vigorously assert the same. PPL Montana cannot predict the ultimate outcome of this matter at this time.
Notice of Intent to File Suit
In October 2014, PPL Energy Supply received a notice letter from the Chesapeake Bay Foundation (CBF) alleging violations of the Clean Water Act and Pennsylvania Clean Streams Law at the Brunner Island generation plant. The letter was sent to PPL Brunner Island and the PADEP and is intended to provide notice of the alleged violations and CBF's intent to file suit in Federal court after expiration of the 60 day statutory notice period. Among other things, the letter alleges that PPL Brunner Island failed to comply with the terms of its National Pollutant Discharge Elimination System permit and associated regulations related to the application of nutrient credits to the facility's discharges of nitrogen into the Susquehanna River. The letter also alleges that PADEP has failed to ensure that credits generated from nonpoint source pollution reduction activities that PPL Brunner Island applies to its discharges meet the eligibility and certification requirements under PADEP's nutrient trading program regulations. If a court-approved settlement cannot be reached, CBF plans to seek injunctive relief, monetary penalties, fees and costs of litigation. PPL cannot predict the outcome of this matter.
Proposed Legislation - Pacific Northwest
In the first quarter of 2015, legislation was proposed in the State of Oregon to eliminate, over time, the sale of electricity in Oregon from coal-fired generating facilities, and in the State of Washington to provide a means of cost recovery to utility owners of coal-fired generating facilities who commit to retire such facilities. Both proposals are in early stages of consideration and PPL cannot predict whether any legislation seeking to achieve the objectives of the Oregon or Washington legislation will be enacted. Were such legislation to be enacted as proposed, such laws, either individually or collectively, would not be expected to have a material adverse effect on PPL's financial condition or results of operation.
(PPL, LKE and LG&E)
Cane Run Environmental Claims
In December 16, 2013, six residents, on behalf of themselves and others similarly situated, filed a class action complaint against LG&E and PPL in the U.S. District Court for the Western District of Kentucky for allegedalleging violations of the Clean Air Act and RCRA. In addition, these plaintiffs assert common law claims of nuisance, trespass and negligence. These plaintiffs seek injunctive relief and civil penalties, plus costs and attorney fees, for the alleged statutory violations. Under the common law claims, these plaintiffs seek monetary compensation and punitive damages for property damage and diminished property values for a class consisting of residents within four miles of the plant. In their individual capacities, these plaintiffs seek compensation for alleged adverse health effects. In response to a motion to dismiss filed by PPL and LG&E, onin July 17, 2014, the court dismissed the plaintiffs' RCRA claims and all but one of its Clean Air Act claims, but declined to dismiss their common law tort claims. Upon motion of LG&E and PPL, the district court certified for appellate review the issue of whether the state common law claims are preempted by federal statute. In December 2014, the U.S. Court of Appeals for the Sixth Circuit issued an order granting appellate review regarding the above matter and such issues as may appropriately be presented by the parties and determined by the court. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on operations of the Cane Run plant. LG&E has previously announced that itretired one coal-fired unit at the Cane Run plant in March 2015 and anticipates retiring the remaining two coal-fired units at the Cane Run beforeplant in the endthird quarter of 2015.
Mill Creek Environmental Claims
In May 28, 2014, the Sierra Club filed a citizen suit against LG&E in the U.S. District Court for the Western District of Kentucky for alleged violations of the Clean Water Act. The Sierra Club alleges that various discharges at the Mill Creek plant constitute violations of the plant's water discharge permit. The Sierra Club seeks civil penalties, injunctive relief, plus costs and attorney's fees. The parties have filed various cross-motions for summary judgment which are pending before the court. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on the operations of the Mill Creek plant but believe the plant is operating in compliance with the permits.
Regulatory Issues
(All Registrants except PPL Energy Supply)
See Note 6 for information on regulatory matters related to utility rate regulation.
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(PPL PPL Energy Supply and PPL Electric)
New Jersey Capacity Legislation
In January 2011, New Jersey enacted a law (the Act) that intervenesPPL believes would intervene in the wholesale capacity market exclusively regulated by the FERC (the Act). Toto create incentives for the development of new, in-state electricity generation facilities the Act implements a long-term capacity agreement pilot program (LCAPP). The Act requires New Jersey utilities to pay a guaranteed fixed price for wholesale capacity, imposed by the New Jersey Board of Public Utilities (BPU), to certain new generators participating in PJM, with the ultimate costs of that guarantee to be borne by New Jersey ratepayers. PPL believes the intent and effect of the LCAPP is to encourage the construction of new generation in New Jersey even when, under the FERC-approved PJM economic model, such new generation would not be economic. The Act could depress capacity prices in PJM in the short term,short-term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.
In February 2011, PPL and several other generating companies and utilities filed a complaint in U.S. District Court in New Jersey challenging the Act on the grounds that it violates well-established principles under the Supremacy and Commerce clauses of the U.S. Constitution and requesting declaratory and injunctive relief barring implementation of the Act by the BPU Commissioners.implementation. In October 2013, the U.S. District Court in New Jersey issued a decision finding the Act unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce. The decision has beenwas appealed to the U.S. Court of Appeals for the Third Circuit (Third Circuit) by CPV Power Development, Inc., Hess Newark, LLC and the State of New Jersey and oral argument was held on(the Appellants). In September 2014, the Third Circuit affirmed the District Court's decision. In December 2014, the Appellants filed a petition for certioraribefore the U.S. Supreme Court. In March 27, 2014. PPL, PPL Energy Supply and PPL Electric cannot predict2015, the outcome ofU.S. Supreme Court requested the U.S. Solicitor General to submit briefs expressing its views as to the issues raised in this proceeding or the economic impact on their businesses or operations, or the markets in which they transact business.
Maryland Capacity Order
In April 2012, the Maryland Public Service Commission (MD PSC) ordered (Order) three electric utilities in Maryland to enter into long-term contracts to support the construction of new electricity generating facilities in Maryland specifically a 661 MW natural gas-fired combined-cycle generating facility to be owned by CPV Maryland, LLC. PPL believes the intent and effect of the action by the MD PSC iswhich, PPL believed, was to encourage the construction of new generation in Maryland even when, under the FERC-approved PJM economic model, such new generation would not be economic. The MD PSC action could depress capacity prices in PJM in the short term,short-term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.
In April 2012, PPL and several other generating companies filed a complaint in U.S. District Court (District Court) in Maryland (District Court) challenging the MD PSC orderOrder on the grounds that it violates well-established principles under the Supremacy and Commerce clauses of the U.S. Constitution and requested declaratory and injunctive relief barring implementation of the order by the MD PSC Commissioners. In September 2013, the District Court issued a decision finding the MD PSC orderOrder unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce. The decision was appealed to the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) by CPV Power Development, Inc. and the State of Maryland.Maryland (the Appellants). In June 2014, the Fourth Circuit affirmed the District Court's opinion and subsequently denied the appellants'Appellants' motion for rehearing.
Pacific Northwest Markets(PPL)(PPL and PPL Energy Supply)
Through its subsidiaries, PPL Energy Supply made spot market bilateral sales of power in the Pacific Northwest during the period from December 2000 through June 2001. Several parties subsequently claimed refunds at FERC as a result of these sales. In June 2003, the FERC terminated proceedings to consider whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. In August 2007, the U.S. Court of Appeals for the Ninth Circuit reversed the FERC's decision and ordered the FERC to consider additional evidence. In October 2011, the FERC initiated proceedings to consider additional evidence. In July 2012, PPL Montana and the City of Tacoma, one of the two parties claiming refunds at FERC, reached a settlement whereby PPL Montana paid $75 thousand to resolve the City of Tacoma's $23 million claim. The settlement does not resolve the remaining claim outstanding at June 30, 2014 by the City of Seattle for approximately $50 million. Hearings before a FERC Administrative Law Judge (ALJ) regarding the City of Seattle's refund claims were completed in October 2013 and briefing was completed in January 2014. In March 2014, the ALJ issued an initial decision denying the City of Seattle's complaint against PPL Montana. The initial decision is pending review by the FERC.
Although PPL and its subsidiaries believe they have not engaged in any improper trading or marketing practices affecting the Pacific Northwest markets, PPL and PPL Energy Supply cannot predict the outcome of the above-described proceedings or
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will be the subject of any additional governmental investigations or named in other lawsuits or refund proceedings. Consequently, PPL and PPL Energy Supply cannot estimate a range of reasonably possible losses, if any, related to this matter.
(All Registrants)
Electricity - Reliability Standards
The NERC is responsible for establishing and enforcing mandatory reliability standards (Reliability Standards) regarding the bulk power system. The FERC oversees this process and independently enforces the Reliability Standards.
The Reliability Standards have the force and effect of law and apply to certain users of the bulk power electricity system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties of up to $1 million per day, per violation, for certain violations.
PPL, LG&E, KU, and PPL Electric and certain subsidiaries of PPL Energy Supply monitor their compliance with the Reliability Standards and continue to self-report potential violations of certain applicable reliability requirements and submit accompanying mitigation plans, as required. The resolution of a number of potential violations is pending. Any Regional Reliability Entity (including RFC or SERC) determination concerning the resolution of violations of the Reliability Standards remains subject to the approval of the NERC and the FERC.
In the course of implementing their programs to ensure compliance with the Reliability Standards by those PPL affiliates subject to the standards, certain other instances of potential non-compliance may be identified from time to time. The Registrants cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.
In October 2012, the FERC initiated its consideration of proposed changes to Reliability Standards to address the impacts of geomagnetic disturbances on the reliable operation of the bulk-power system, which might, among other things, lead to a requirement to install equipment that blocks geomagnetically induced currents on implicated transformers. OnIn May 16, 2013, FERC issued Order No. 779, requiring NERC to submit two types of Reliability Standards for FERC's approval. The first type would require certain owners and operators of the nation's electricity infrastructure, such as the Registrants, to develop and implement operational procedures to mitigate the effects of geomagnetic disturbances on the bulk-power system. This NERC-proposedNERC proposed standard was filed by NERC with FERC for approval in January 2014, and was approved onin June 19, 2014. The second type is to require owners and operators of the bulk-power system to assess certain geomagnetic disturbance events and develop and implement plans to protect the bulk-power system from those events and must beevents. This proposal was filed by NERC with FERC for approval by January 22, 2015.2015 and is pending consideration by FERC. The Registrants may be required to make significant expenditures in new equipment or modifications to their facilities to comply with the new requirements. The Registrants are unable to predict the amount of any expenditures that may be required as a result of the adoption of any Reliability Standards for geomagnetic disturbances.
(All Registrants)
Due to the environmental issues discussed below or other environmental matters, it may be necessary for the Registrants to modify, curtail, replace or cease operation of certain facilities or performance of certain operations to comply with statutes, regulations and other requirements of regulatory bodies or courts. In addition, legal challenges to new environmental permits or rules add to the uncertainty of estimating the future cost impact of these permits and rules.
LG&E and KU are entitled to recover, through the ECR mechanism, certain costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements which are applicable to coal combustion wastes and by-products from facilities that generate electricity from coal in accordance with approved compliance plans. Costs not covered by the ECR mechanism for LG&E and KU and all such costs for PPL Electric are subject to rate recovery before the companies' respective state regulatory authorities, or the FERC, if applicable. Because PPL Electric does not own any generating plants, its exposure to related environmental compliance costs is reduced. As PPL Energy Supply is not a rate-regulated entity, it cannot seek to recover environmental compliance costs through the mechanism of rate recovery. PPL, PPL Electric, LKE, LG&E and KU can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.
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(All Registrants except PPL Electric)
Air
CSAPR
The EPA's CSAPR (formerly Clean Air Transport Rule)addresses the interstate transport of fine particulates and CAIR
Although PPL, PPL Energy Supply, LKE, LG&E and KU cannot predict the outcome of further regulatory and legal proceedings.
National Ambient Air Quality Standards
In 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, states in the ozone transport region (OTR), including Pennsylvania, are required by the Clean Air Act to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies.technologies (RACT). The PADEP has issued a draft rule requiring reasonable reductions. However, the proposal is being questioned as too lenient by the EPA, other OTR states and environmental groups. The PADEP may impose more stringent emission limits than those set forth in the proposed rule which could have a significant impact on PPL Energy Supply's Pennsylvania coal plants. The EPA is expected to finalize a RACT rule in 2015 requiring some fossil-fueled plants to operate at more stringent nitrogen oxide emission rates. The EPA proposed to further tightenstrengthen the ozone standard in the near term,November 2014, which may requirecould lead to further nitrogen oxide controls, particularlyreductions, for PPL's fossil-fueled plants within the OTR.
In 2010, the EPA finalized a new National Ambient Air Quality Standard for sulfur dioxide and required states to identify areas that meet those standards and areas that are in non-attainment."non-attainment". In July 2013, the EPA finalized non-attainment designations for parts of the country, including part of Yellowstone County in Montana (Billings area) and part of Jefferson County in Kentucky. Attainment must be achieved by 2018. StatesPursuant to a consent decree between the EPA and Sierra Club approved on March 2, 2015, states are working onto finalize designations for other areas. On
In December 2012, the EPA issued final rules that tighten the annual National Ambient Air Quality Standard for fine particulates. The rules were challenged by industry groups, and in May 2014 the D.C. Circuit Court upheld them. On January 15, 2015, the EPA published a final rule establishing area designations under the standard. Non-attainment areas in Pennsylvania and Kentucky were identified; however, EPA recently approved state implementation plan revisions for both states that improved these classifications. PPL Energy Supply, previously announced its intentLG&E and KU plants in Pennsylvania and Kentucky will not be expected to place the plant in long-term reserve status beginning in April 2015.
Until final rules are promulgated, non-attainment designations are finalized and state compliance plans are developed, PPL, PPL Energy Supply, LKE, LG&E and KU cannot predict the ultimate outcome of the new National Ambient Air Quality standards for ozone, sulfur dioxide and particulate matter.
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MATS
In May 2011,February 2012, the EPA published a proposed regulationfinalized the MATS rule requiring stringent reductions of mercury and other hazardous air pollutants from fossil-fuel fired power plants. In February 2012, the EPA published the final rule,plants, known as the MATS, with an effective date of April 16, 2012. The rule which was challenged by industry groups and states and was upheld by the D.C. Circuit Court in April 2014. On July 14, 2014, a coalitionA group of 23 states filed a petition seekingsubsequently petitioned the U.S. Supreme Court to review of this decision.decision and on March 25, 2015, oral arguments were heard as to one issue - whether or not EPA unreasonably refused to consider costs when determining whether the MATS regulation was appropriate and necessary. A U.S. Supreme Court decision is expected by June 30, 2015. The rule provides for a three-year compliance deadline with the potential for a one-year extensionone- and two-year extensions as provided under the statute. PPL, LKE, LG&E and KU and PPL Energy Supplyhave completed installation or upgrading of relevant environmental controls at affected plants or have received compliance extensions, for certain plants and are considering extension requests for additional plants.
At the time the MATS rule was proposed, LG&E and KU filed requests with the KPSC for environmental cost recovery based on their expected need to install environmental controls including chemical additive and fabric-filter baghouses to remove air pollutants. Recovery of the cost of certain controls was granted by the KPSC in December 2011. LG&E's March 2015 retirement of one coal-fired generating unit at Cane Run and LG&E's and KU's anticipated retirement of certainremaining coal-fired electricity generating units located at Cane Run and Green River isin 2015 and 2016 are in response to MATS and other environmental regulations. The retirement of these units is not expected to have a material impact on the financial condition or results of operations of PPL, LKE, LG&E and KU are continuing to assess whether any revisions of their approved compliance plans will be necessary.
PPL Energy Supply's Pennsylvania plants, PPL Energy Supply believes that installation of chemical additive systems and other controls may be necessary at certain coal-fired plants in Pennsylvania, the capital cost of which is not expected to be significant. PPL Energy Supply continues to analyze the potential impact of MATS on operating costs. With respect to PPL Energy Supply'sPPL's Montana plants, modifications to the air pollution controls installed onat Colstrip may beare required, the cost of which is not expected to be significant. ForOperations were suspended and the Corette plant PPL Energy Supply announcedwas retired in September 2012 its intention, beginning in AprilMarch 2015 to place the plant in long-term reserve status, suspending the plant's operation due to expected market conditions and the costs to comply with the MATS requirements. The Corette plant was determined to be impaired in December 2013. See Note 18 in PPL's and
PPL, Energy Supply's 2013 Form 10-K for additional information.
Regional Haze and Visibility
The EPA's regional haze programs were developed under the Clean Air Act to eliminate man-made visibility degradation by 2064. Under the programs, states are required to make reasonable progress every decade through the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977.
The primary power plant emissions affecting visibility are sulfur dioxide, nitrogen oxides and particulates. To date, the focus of regional haze activityregulation has been the western U.S. becauseAs for the eastern U.S., the EPA had determined that the regional trading program in the eastern U.S.region-wide reductions under the CSAPR satisfiestrading program could, in most instances, be utilized under state programs to satisfy BART requirements to reducefor sulfur dioxide and nitrogen oxides. AlthoughHowever, the D.C. Circuit Court's August 2012 decision to vacateEPA's determination is being challenged by environmental groups and remand the CSAPR has been reversed by the U.S. Supreme Court, future decisions by the EPA and the courts will determine whether power plants located in the eastern U.S., including PPL's plants in Pennsylvania and Kentucky, will be subject to additional reductions in sulfur dioxide and nitrogen oxides as required by BART. In addition, others.
LG&E's Mill Creek Units 3 and 4 are required to reduce sulfuric acid mist emissions because they were determined to have a significant regional haze impact. These reductions are required in the regional haze state implementation plan that the Kentucky Division for Air Quality submitted to the EPA. LG&E is currently installing sorbent injection technology to comply with these reductions, the costs of which are not expected to be significant.
In Montana, the EPA Region 8 developed the regional haze plan as the MDEQ declined to do so. The EPA finalized the Federal Implementation Plan (FIP) for Montana in September 2012. The final FIP assumed no additional controls for Corette or Colstrip Units 3 and 4, but proposed tighterstricter limits for Corette and Colstrip Units 1 and 2. PPL Energy Supply expects to meetwas meeting these tighterstricter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations atand the retirement of Corette beginning in AprilMarch 2015 (see "MATS" discussion above). Under the final FIP, Colstrip Units 1 and 2 may require additional controls, including the possible installation of an SNCR and other technology, to meet more stringent nitrogen oxides and sulfur dioxide limits. The cost of these potential additional controls, if required, could be significant. Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit. Oral arguments were held onCircuit, oral argument was heard in May 16, 2014.
New Source Review (NSR)
The EPA has continued its NSR enforcement efforts targeting coal-fired generating plants. The EPA has asserted that modification of these plants has increased their emissions and, consequently, that they are subject to stringent NSR requirements under the Clean Air Act. In April 2009, PPL, LKE, LG&E and KU received various EPA information requests for its Montourin 2007 and Brunner Island plants,
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2009, but they have received no further communications from the EPA related to those requests since providing their responses. In January 2009, PPL PPL Energy Supply and other companies that own or operate the Keystone plant in Pennsylvania received a notice of violation from the EPA alleging that certain projects were undertaken without proper NSR compliance. The companies responded to the EPA and the matter remains open. In May and November 2012, PPL Montana received information requests from the EPA regarding projects undertaken during a Spring 2012 maintenance outage at Colstrip Unit 1. The EPA requests remain an open matter. In September 2012, PPL Montana received an information request from the MDEQ regarding Colstrip Unit 1 and other projects. MDEQ formally suspended this request on June 6, 2014 in consideration of pending litigation. The EPA request remains an open matter. PPL and PPL Energy Supply cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.
States and environmental groups also have commenced litigation alleging violations of the NSR regulations by coal-fired generating plants across the nation. See "Legal Matters" above for information on a lawsuit filed by environmental groups in March 2013 against PPL Montana and other owners of Colstrip.
If any PPL subsidiaries aresubsidiary is found to have violated NSR regulations by significantly increasing pollutants through a major plant modification, PPL, PPL Energy Supply, LKE, LG&E and KUthe subsidiary would, among other things, be required to meet stringent permit limits reflecting Best Available Control Technology (BACT) for pollutants meeting the National Ambient Air Quality Standards (NAAQS) in the area and reflecting Lowest Achievable Emission Rates for pollutants not meeting the NAAQS in the area. The costs to meet such limits, including installation of technology at certain units, could be material.
Trimble County Unit 2 Air Permit (PPL,(PPL, LKE, LG&E and KU)
The Sierra Club and other environmental groups petitioned the Kentucky Environmental and Public Protection Cabinet to overturn the air permit issued for the TC2Trimble County Unit 2 baseload coal-fired generating unit, but the agency upheld the permit in an order issued in September 2007. In response to subsequent petitions by environmental groups, the EPA ordered certain non-material changes to the permit which, in January 2010, were incorporated into a final revised permit issued by the Kentucky Division for Air Quality. In March 2010, the environmental groups petitioned the EPA to object to the revised state permit. Until the EPA issues a final ruling on the pending petition and all available appeals are exhausted, PPL, LKE, LG&E and KU cannot predict the outcome of this matter or the potential impact on plant operations, including increased capital costs, if any.
Climate Change
(All Registrants)
As a result of the April 2007 U.S. Supreme Court decision that the EPA has authority under the Clean Air Act to regulate GHGcarbon dioxide emissions from new motor vehicles, in April 2010 the EPA and the U.S. Department of Transportation issued new light-duty vehicle emissions standards that applied beginning with 2012 model year vehicles. The EPA also clarified that this standard, beginning in 2011, authorized regulation of GHGcarbon dioxide emissions from stationary sources under the NSR and Title V operating permit provisions of the Clean Air Act. The EPA's rules were challenged in court and on June 23, 2014, the U.S. Supreme Court ruled that the EPA has the authority to regulate GHGcarbon dioxide emissions under these provisions of the Clean Air Act but only for stationary sources that would otherwise have been subject to these provisions due to significant increases in
In June 2013, President Obama released his Climate Action Plan that reiterates the goal of reducing greenhouse gasGHG emissions in the U.S. "in the range of" 17% below 2005 levels by 2020 through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing tightermore restrictive energy efficiency standards. Also, by Presidential Memorandum, the EPA was directed to issue a revised proposal for new power plants (a prior proposal was issued in 2012) by September 20, 2013, with a final rule in a timely fashion thereafter, and to issue proposed standards for existing plants by June 1, 2014 with a final rule to be issued by June 1, 2015. The EPA was further directed to require that states develop implementation plans for existing plants by June 30, 2016. The Administration's increase in its estimate of the "social cost of carbon" (which is used to calculate benefits associated with proposed regulations) from $23.80 to $38 per metric ton in 2015 may also lead to more costly regulatory requirements; the White House Office of Management and Budget opened this issue for public comment and PPL submitted comments. Additionally, the Climate Action Plan requirements relatedcalls for the U.S. to preparing the U.S.prepare for the impacts of climate changechange. Requirements related to this Plan could affect PPLthe Registrants and others in the industry as modifications may be needed to electricity delivery systems to improve the ability to withstand major storms may be needed in order to meet those requirements.
In January 2014, the EPA issued itsa revised proposal forto regulate carbon dioxide emissions from new sources on September 20, 2013 as directed by the White House. This proposal was published in the Federal Register on January 8, 2014.power plants. The comment period closed on May 9, 2014. Unlike the EPA's prior proposal, the EPA's revised proposal establishedcalls for separate emission standards for coal and gas units based on the application of different
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technologies. The coal standard is based on the application of partial carbon capture and sequestration technology, but because this technology is not presently commercially available, the revised proposal effectively precludes the construction of new coalcoal-fired plants. The standard for NGCC power plants is the same as the EPA proposed in 2012 and is not continuously achievable.
In June 2014, the EPA issued proposed regulationregulations addressing GHGcarbon dioxide emissions from existing sources was published in the Federal Register on June 18, 2014.power plants. The existing plant proposal contains state-specific rate-based reduction goals and guidelines for the development, submission and implementation of state plans to achieve the state goals. State-specific goals were calculated from 2012 data by applying EPA's very broad interpretation and definition of the Best System of Emission Reduction resulting in very stringent targets to be met in two phases (2020-2029 and 2030 and beyond). The EPA believes it has offered some flexibility to the states as to how state compliance plans can be crafted, including the option to demonstrate compliance on a mass basis and through multi-state collaborations. The EPA is also proposing potential state plan extensions based on the type of plan filed (single or multi-state)multi state). PPL is analyzinghas analyzed the proposal and identified potential impacts and solutions in preparationcomments filed on December 1, 2014. PPL also submitted Supplemental Comments to FERC through EEI, advocating for submitting commentsreliability coordination and relief in response to technical conferences hosted by FERC on the EPA by the October 16, 2014 deadline.reliability implications of implementing this rule. The regulation of GHGcarbon dioxide emissions from existing power plants could have a significant industry-wide impact depending on the structure and stringency of the final rule and state implementation plans.
In June 2014, the EPA also proposed a GHG white paper on April 10, 2014 regarding the regulation ofaddressing carbon dioxide emissions under Section 111(d) offrom existing power plants that are modified or reconstructed. The Registrants, however, do not expect a significant impact from this rulemaking as there are no plans to modify or reconstruct their existing plants in a manner that would trigger the Clean Air Act. The PADEP expects to achieve reductions required underproposed requirements.
(PPL)
Based on the stringent GHG reduction requirements in the EPA's proposed rule for existing plants, and based on information gained from public input, the PADEP is no longer expecting to achieve all required GHG reductions by solely increasing efficiency at existing fossil-fuel plants and/or reducing generation. The PADEP specifically excludes demand-side energy efficiency projects (suchtheir generation as DSM andset forth in the PADEP's April 10, 2014 white paper. In October 2014, the Governor of Pennsylvania signed into law Act 129 programs) from consideration under the program, which makes it more difficult for Pennsylvania to achieve the reduction levels proposed for Pennsylvania by the EPA, as the EPA assumed significant reductions due to demand-side energy efficiency. On July 1,175 of 2014, a bill passed the Pennsylvania House of Representatives (HB 2354) requiring the PADEP to obtain General Assembly approval of any state plan addressing GHG emissions under the EPA's GHG rules for existing plants. The legislation, which will next be considered by the Pennsylvania Senate,law includes provisions to minimize the exposure to a federal implementation plan due to legislative delay.
The MDEQ, at the request of the Governor of Montana, has issued a white paper outlining possible regulatory scenarios to implement the EPA's proposed GHG rule for existing plants, including a combination of increasing energy efficiency at coal-fired plants, adding more low- and zero-carbon generation, and carbon sequestration at Colstrip. The white paper was made public in September 2014 and the MDEQ has held public meetings to present the white paper and gather comments. Legislation drafted to require legislative approval of any related plan formulated by MDEQ was tabled.
(PPL, LKE, LG&E and KU)
In April 2014, the Kentucky
(All Registrants except PPL Electric)
A number of lawsuits have been filed asserting common law claims including nuisance, trespass and negligence against various companies with GHG emitting plants and, although the decided cases to date have not sustained claims brought on the basis of these theories of liability, the law remains unsettled on these claims. In September 2009, the U.S. Court of Appeals for the Second Circuit in the case of AEP v. Connecticut reversed a federal district court's decision and ruled that several states and public interest groups, as well as the City of New York, could sue five electric utility companies under federal common law for allegedly causing a public nuisance as a result of their emissions of GHGs. In June 2011, the U.S. Supreme Court overturned the Second Circuit and held that such federal common law claims were displaced by the Clean Air Act and regulatory actions of the EPA. In addition, in Comer v. Murphy Oil (Comer case), the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit) declined to overturn a district court ruling that plaintiffs did not have standing to pursue state common law claims against companies that emit GHGs. The complaint in the Comer case named the previous indirect parent of LKE as a defendant based upon emissions from the Kentucky plants. In January 2011, the U.S. Supreme Court denied a petition to reverse the Fifth Circuit's ruling. In May 2011, the plaintiffs in the Comer case filed a substantially similar
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complaint in federal district court in Mississippi against 87 companies, including KU and three other indirect subsidiaries of LKE, under a Mississippi statute that allows the re-filing of an action in certain circumstances. In March 2012, the Mississippi federal district court granted defendants' motions to dismiss the state common law claims. Plaintiffs appealed to the U.S. Court of Appeals for the Fifth Circuit, and in May 2013, the Fifth Circuit affirmed the district court's dismissal of the case. Additional litigation in federal and state courts over such issues is continuing. The Registrants cannot predict the outcome of these lawsuits or estimate a range of reasonably possible losses, if any.
Renewable Energy Legislation
(PPL PPL Energy Supply and PPL Electric)
In Pennsylvania, bills wereHouse Bill 100 was introduced calling for anin February 2015, proposing to increase in Alternative Energy Portfolio Standard (AEPS)AEPS solar and Tier 1 obligations and to create a $25 million permanent funding program for solar generation. Bills (SB 1171 and HB 100) were alsotargets. A similar bill is in the process of being introduced to add natural gas as a qualified AEPS resource, and anotherin the Senate (no bill (HB 1912) would repeal the AEPS Act entirely. All these bills remain in committee and are unlikely to advance. An interim legislative committee in Montananumber is reviewing the state's Renewable Portfolio Standard (RPS)available at this time). PPL and PPL Energy SupplyElectric cannot predict atthe outcome of this time whether the committee will recommend any changes to existing laws. legislative effort.
(PPL)
In New Jersey, a bill (S-1475) has been introduced to increase the current RPS standardRenewable Portfolio Standard (RPS) to 30% from Class I sources by 2020. The chairman of the Senate Environmental Committee has convened a workgroup to look at further changes to New Jersey's RPS law to enable New Jersey to meet emissions goals established in the state's Global Warming Response Act. A bill (S-2444) was subsequently introduced to mandate that 80% of New Jersey's electricity be generated from renewable resources by 2050. PPL and PPL Energy Supply are unable tocannot predict the outcome of this legislation at this time.
(All Registrants)
The Registrants believe there are financial, regulatory and operational uncertainties related to the implementation of renewable energy mandates that will need to be resolved before the impact of such requirements on them can be estimated. Such uncertainties, among others, include the need to provide back-up supply to augment intermittent renewable generation, potential generation over-supply and downward pressure on energy prices that could result from such renewable generation and back-up, impacts to PJM's capacity market and the need for substantial changes to transmission and distribution systems to accommodate renewable energy sources. These uncertainties are not directly addressed by proposed legislation. PPL and PPL Energy Supply cannot predict at this time the effect on their competitive plants' future competitive position, results of operation, cash flows and financial position of renewable energy mandates that may be adopted, although the costs to implement and comply with any such requirements could be significant.
Water/Waste
(All Registrants except PPL Electric)
Coal Combustion Residuals (CCRs)
On April 17, 2015, the EPA proposed two approaches topublished its final rule regulating the disposal and management of CCRs (as either hazardous or non-hazardous) under the RCRA.CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. RegulatingThe rule will become effective on October 14, 2015. It imposes extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants and not closed. Under the rule, the EPA will regulate CCRs as a hazardous wastenon-hazardous under Subtitle CD of the RCRA would materially increase costs and result in early retirements of many coal-fired plants, as it would require plants to retrofit their operations to comply with full hazardous waste requirements for the generation of CCRs and associated waste waters through generation, transportation and disposal. This would also have a negative impact on theallow beneficial use of CCRs, with some restrictions. This self-implementing rule requires posting of compliance documentation on a publicly accessible website and could eliminate existing markets for CCRs. The EPA's proposed approach to regulate CCRs as non-hazardous waste under Subtitle D of the RCRA would mainly affect disposal and most significantly affect any wet disposal operations. Under this approach, many of the current markets for beneficial uses would not be affected. Currently,is enforceable through citizen suits. PPL expects that several of its plants in Kentucky and Montana could be significantly impacted by the EPA's proposed non-hazardous waste regulations, as these plants are using surface impoundments for management and disposal of CCRs.
PPL, LKE, LG&E and KU are reviewing the RCRArule and what impact they would have on their facilities, but theare still evaluating its financial and operational impact. It is expected that these requirements will result in increases to existing AROs which will be recorded in the second quarter of 2015. PPL, LKE, LG&E and KU are not yet able to determine an estimate of the expected increases to the existing AROs. PPL, LKE, LG&E and KU believe relevant costs relating to this rule are subject to future rate recovery before the respective state regulatory agencies, or the FERC, as applicable.
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Effluent Limitations Guidelines (ELGs) and Standards
In June 2013, the EPA published proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash transport water and metal cleaning waste waters, as well as new limits for scrubber wastewater and landfill leachate. The EPA's proposed ELG regulations contain requirements that would affect the inspection and operation of CCR facilities if finalized as proposed. The proposal contains alternative approaches, some of which could significantly impact PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's coal-fired plants. The final regulation is expected to be material if CCRsissued by the third or fourth quarter of 2015. At the present time, PPL, LKE, LG&E and KU are regulated as hazardous wasteunable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant. Pending finalization of the ELGs, certain states (including Pennsylvania and Kentucky) and environmental groups are proposing more stringent technology-based limits in permit renewals. Depending on the final limits imposed, the costs of compliance could be significant if regulated as non-hazardous.
Trimble County Landfill Permit (PPL, LKE, LG&E and KU)
In May 2011, LG&E submitted an application for a special waste landfill permit to handle coal combustion residualsCCRs generated at the Trimble County plant. After extensive review of the permit application inIn May 2013, the Kentucky Division of Waste Management denied the permit application on the grounds that the proposed facility would violate the Kentucky Cave Protection Act because it would eliminate an on-site karst feature considered to be a cave. After assessing additional options for managing coal combustion residuals, inIn January 2014, LG&E submitted to the Kentucky Division of Waste Management a landfill permit application for an alternate site adjacent to the plant. LG&E has also applied for other necessary regulatory approvals including a dredge and fill permit from the U.S. Army Corps of Engineers, in which proceeding the EPA or the public have submitted certain comments to which LG&E and KU are responding. PPL, LKE, LG&E and KU are unable to determine the potential impact of this matter until a landfill permit isall permits are issued and any resulting legal challenges are concluded.
Seepages and Groundwater Infiltration - Pennsylvania, Montana and Kentucky
(All Registrants except PPL Electric)
Seepages or groundwater infiltration have been detected at active and retired wastewater basins and landfills at various PPL, PPL Energy Supply, LKE, LG&E and KU plants. PPL, PPL Energy Supply, LKE, LG&E and KU have completed or are completing assessments of seepages or groundwater infiltration at various facilities and have completed or are working with agencies to respond to notices of violations and implement assessment or abatement measures, where required or applicable. A range of reasonably possible losses cannot currently be estimated.
(PPL)
In August 2012, PPL Montana entered into an Administrative Order on Consent (AOC) with the MDEQ which establishes a comprehensive process to investigate and remediate groundwater seepage impacts related to the wastewater facilities at the Colstrip power plant. The AOC requires that within five years, PPL Montana provide financial assurance to the MDEQ for the costs associated with closure and future monitoring of the waste-water treatment facilities. PPL Montana cannot predict at this time if the actions required under the AOC will create the need to adjust the existing ARO related to these facilities.
In September 2012, Earthjustice filed an affidavit pursuant to Montana's Major Facility Siting Act (MFSA) that sought review of the AOC by Montana's Board of Environmental Review (BER) on behalf of the Sierra Club, the MEIC and the National Wildlife Federation. In September 2012, PPL Montana filed an election with the BER to have this proceeding conducted in Montana state district court as contemplated by the MFSA. In October 2012, Earthjustice filed a petition for review of the AOC in the Montana state district court in Rosebud County. This matter was stayed in December 2012. In April 2014, Earthjustice filed a motion for leave to amend the petition for review and to lift the stay which was granted by the court in May 2014. PPL Montana and the MDEQ responded to the amended petition and filed partial motions to dismiss in July 2014, which were both denied in October 2014.
Clean Water Act 316(b)(All Registrants except PPL Electric)
The EPA's final 316(b) rule under 316(b) was issued on May 16, 2014. The rule contains two requirements to reduce impact to aquatic organisms atfor existing facilities became effective in October 2014, and regulates cooling water intake structures.structures and their impact on aquatic organisms. States are allowed considerable authority to make site-specific determinations under the rule. The firstrule requires all existing facilities to meet standards forchoose between several options to reduce the reduction of mortality ofimpact to aquatic organisms that become trapped against water intake screens (impingement) regardless of the levels of mortality actually occurring or the cost to achieve the standards. The second requirement isand to determine and install the best technology available to reduce mortality ofintake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). A form of cost-benefit analysis is allowed for this second requirement involving a site-specific evaluation based on nine factors, including impactsPlants already equipped with closed-cycle cooling, an acceptable option, would likely not incur substantial costs. Once-through systems would likely
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require additional technology to energy delivery reliabilitycomply with the rule. Mill Creek Unit 1 and Brunner Island (all units) are the remaining useful life of the plant.only units expected to be impacted. PPL, PPL Energy Supply, LKE, LG&E and KU are evaluating compliance strategies but do not presently expect the compliance costs to be material.
(All Registrants)
Waters of the United States (WOTUS)
In April 21, 2014, the EPA and the U.S. Army Corps of Engineers (Army Corps) published thea proposed rule defining Waters of the United States (WOTUS)WOTUS that could significantlygreatly expand the federal government's interpretation of what constitutes WOTUS subject to regulation under the Clean Water Act. The comment deadline is October 20, 2014. If the definition is expanded as proposed by the EPA and the Army Corps, permits and other regulatory requirements may be imposed for many matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. The EPA plans to make certain changes to the proposed regulation based on comments received. The U.S. House and Senate are considering legislation to block these regulations.
Other Issues
The EPA is reassessing its polychlorinated biphenyls (PCB) regulations under the Toxic Substance Control Act, which currently allow certain PCB articles to remain in use. In April 2010, the EPA issued an Advanced Notice of Proposed Rulemaking for changes to these regulations. This rulemaking could lead to a phase-out of all or some PCB-containing equipment. The EPA is planning to propose the revised regulations in November 2014.2015. PCBs are found, in varying degrees, in all of the Registrants' operations. The Registrants cannot predict at this time the outcome of these proposed EPA regulations and what impact, if any, they would have on their facilities, but the costs could be significant.
(PPL)
A subsidiary of PPL Energy Supply has investigated alternatives to exclude fish from the discharge channel at its Brunner Island plant. In June 2012, a Consent Order and Agreement (COA) with the PADEP was signed, allowing the subsidiary to study a change in a cooling tower operational method that may keep fish from entering the channel. The COA required a retrofit of impingement control technology at the intakes to the cooling towers, at a cost that would have been significant. Based on the results of the first year of study, the PADEP has suggested closing the COA and writing a new COA to resolve the issue. PPL is in negotiations with the agency at this time. PPL and PPL Energy Supply cannot predict at this time the outcome of the proposed new COA and what impact, if any, it would have on their facilities, but the costs could be significant.
(PPL, LKE, LG&E and KU)
In May 2010, the Kentucky Waterways Alliance and other environmental groups filed a petition with the Kentucky Energy and Environment Cabinet challenging the Kentucky Pollutant Discharge Elimination System permit issued in April 2010, which covers water discharges from the Trimble County plant. In November 2010, the Cabinet issued a final order upholding the permit. In December 2010, the environmental groups appealed the order to the Trimble Circuit Court, but the case was subsequently transferred to the Franklin Circuit Court. In September 2013, the court reversed the Cabinet order upholding the permit and remanded the permit to the agency for further proceedings. In October 2013, LG&E filed a notice of appeal with the Kentucky Court of Appeals. In February 2015, oral arguments occurred in the appellate proceeding. PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible losses, if any.
Superfund and Other Remediation
(All Registrants)PPL Electric is potentially responsible for costs at several sites listed by the EPA under the federal Superfund program, including the Columbia Gas Plant site, the Metal Bank site, the Brodhead site and the Ward Transformer site. Clean-up actions have been or are being undertaken at all of these sites, the costs of which have not been significant to PPL Electric. However, should the EPA require different or additional measures in the future, or should PPL Electric's share of costs at multi-party sites increase substantially more than currently expected, the costs could be significant.
PPL Electric, LG&E and KU are remediating, or have completed the remediation of, or are responding to agency inquiries regarding several sites that were not addressed under a regulatory program such as Superfund, but for which PPL Electric, LG&E and KU may be liable for remediation. These include a number of former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated or currently owned by predecessors or affiliates of PPL Electric, LG&E and KU. To date, the costs of these sites have not been significant. There are additional sites, formerly owned or
55 |
operated by PPL Electric, LG&E and KU predecessors or affiliates, for which PPL Electric, LG&E and KU lack information on current site conditions and are therefore unable to predict what, if any, potential liability they may have.
Depending on the outcome of investigations at sites where investigations have not begun or been completed or developments at sites for which PPL Electric, LG&E and KU currently lack information, the costs of remediation and other liabilities could be material. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of reasonably possible losses, if any, related to these matters.
The EPA is evaluating the risks associated with polycyclic aromatic hydrocarbons and naphthalene, chemical by-products of coal gas manufacturing. As a result of the EPA's evaluation, individual states may establish stricter standards for water quality and soil cleanup. This could require several PPL subsidiaries to take more extensive assessment and remedial actions at former coal gas manufacturing plants. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of reasonably possible losses, if any, related to these matters.
From time to time, PPL Energy Supply, PPL Electric, LG&E and KUPPL's subsidiaries undertake remedial action in response to notices of violations, spills or other releases at various on-site and off-site locations, negotiate with the EPA and state and local agencies regarding actions necessary for compliance with applicable requirements, negotiate with property owners and other third
Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in significant additional costs for the Registrants.
WPD's distribution businesses are subject to environmental regulatory and statutory requirements. PPL believes that WPD has taken and continues to take measures to comply with the applicable laws and governmental regulations for the protection of the environment.
Nuclear Insurance(PPL)(PPL and PPL Energy Supply)
The Price-Anderson Act is a United States Federal law which governsgoverning liability-related issues and ensures the availability of funds for public liability claims arising from an incident at any of the U.S. licensed nuclear facilities.facility. It also seeks to limit the liability of nuclear reactor owners for such claims from any single incident. Effective September 10, 2013,At March 31, 2015, the liability limit per incident is $13.6 billion for such claims which is funded by insurance coverage from American Nuclear Insurers and an industry assessment program.
Under the industry assessment program, in the event of a nuclear incident at any of the reactors covered by The Price-Anderson Act, as amended, PPL Susquehanna could be assessed up to $255 million per incident, payable at $38 million per year.
Additionally, PPL Susquehanna purchases property insurance programs from NEIL, an industry mutual insurance company of which PPL Susquehanna is a member. Effective April 1, 2014,At March 31, 2015, facilities at the Susquehannaplant are insured against property damage losses up to $2.0 billion. PPL Susquehanna also purchases an insurance program that provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.
Under the NEIL property and replacement power insurance programs, PPL Susquehanna could be assessed retrospective premiums in the event of the insurers' adverse loss experience. This maximum assessment is $46 million.
PPL Energy | PPL | ||||||||
PPL | Supply | Electric | |||||||
Pension Benefits | $ | 20 | $ | 16 | $ | 4 | |||
Severance Compensation | 9 | 7 | 2 | ||||||
Total Separation Benefits | $ | 29 | $ | 23 | $ | 6 | |||
Number of Employees | 155 | 124 | 30 |
(All Registrants)
In the normal course of business, the Registrants enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies. These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.
56 |
(PPL)
PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding.
(All Registrants)
The table below details guarantees provided as of June 30, 2014.March 31, 2015. "Exposure" represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee. The probability of expected payment/performance under each of these guarantees is remote except for "WPD guarantee of pension and other obligations of unconsolidated entities", "Indemnification for sales of assets" and "Indemnification of lease termination and other divestitures." The total recorded liability at June 30, 2014March 31, 2015 and December 31, 2013,2014, was $25$37 million and $26$38 million for PPL and $19 million for LKE for both periods for LKE.periods. For reporting purposes, on a consolidated basis, all guarantees of PPL Energy Supply (other than the letters of credit), PPL Electric, LKE, LG&E and KU also apply to PPL, and all guarantees of LG&E and KU also apply to LKE.
Exposure at | Expiration | |||||
June 30, 2014 | Date | |||||
PPL | ||||||
Indemnifications related to the WPD Midlands acquisition | (a) | |||||
WPD indemnifications for entities in liquidation and sales of assets | $ | 12 | (b) | 2017 - 2018 | ||
WPD guarantee of pension and other obligations of unconsolidated entities | 131 | (c) | ||||
PPL Energy Supply | ||||||
Letters of credit issued on behalf of affiliates | 45 | (d) | 2014 - 2015 | |||
Indemnifications for sales of assets | 250 | (e) | 2025 | |||
Guarantee of a portion of a divested unconsolidated entity's debt | 22 | (f) | 2018 | |||
PPL Electric | ||||||
Guarantee of inventory value | 38 | (g) | 2017 | |||
LKE | ||||||
Indemnification of lease termination and other divestitures | 301 | (h) | 2021 - 2023 | |||
LG&E and KU | ||||||
LG&E and KU guarantee of shortfall related to OVEC | (i) |
Exposure at | Expiration | |||||
March 31, 2015 | Date | |||||
PPL | ||||||
Indemnifications related to the WPD Midlands acquisition | (a) | |||||
WPD indemnifications for entities in liquidation and sales of assets | $ | 11 | (b) | 2018 | ||
WPD guarantee of pension and other obligations of unconsolidated entities | 114 | (c) | ||||
Indemnifications for sales of assets | 1,150 | (d) | 2016 - 2025 | |||
PPL Electric | ||||||
Guarantee of inventory value | 32 | (e) | 2017 | |||
LKE | ||||||
Indemnification of lease termination and other divestitures | 301 | (f) | 2021 - 2023 | |||
LG&E and KU | ||||||
LG&E and KU guarantee of shortfall related to OVEC | (g) |
In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties. |
(d) |
57 |
indemnified party. However, LKE is not aware of formal claims under such indemnities made by any party at this time. LKE cannot predict the ultimate outcomes of indemnification circumstances, but does not currently expect such outcomes to result in significant losses above the amounts recorded.
The Registrants provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of indemnification or warranties related to services or equipment and vary in duration. The amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, no significant payments have been made with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.
PPL, on behalf of itself and certain of its subsidiaries, maintains insurance that covers liability assumed under contract for bodily injury and property damage. The coverage provides maximum aggregate coverage of $225 million. This insurance may be applicable to obligations under certain of these contractual arrangements.
PLR Contracts/Purchase of Accounts Receivable(PPL Energy Supply and PPL Electric)
PPL Electric holds competitive solicitations for PLR generation supply. PPL EnergyPlus has been awarded a portion of the PLR generation supply through these competitive solicitations. The sales and purchases betweenfrom PPL EnergyPlus and PPL Electric are included in thePPL Electric's Statements of Income as "Unregulated wholesale energy to affiliate" by PPL Energy Supply and as "Energy purchases from affiliate" by PPL Electric.
Under the standard Default Service Supply Master Agreement for the solicitation process, PPL Electric requires all suppliers to post collateral once credit exposures exceed defined credit limits. PPL EnergyPlus is required to post collateral with PPL Electric when: (a) the market price of electricity to be delivered by PPL EnergyPlus exceeds the contract price for the forecasted quantity of electricity to be delivered; and (b) this market price exposure exceeds a contractual credit limit. During the second quarter of 2014, PPL Energy Supply experienced a downgrade in its corporate credit ratings to below investment grade. As a result of the downgrade of PPL Energy Supply, as guarantor, PPL EnergyPlus no longer hasdoes not have an established credit limit andlimit. At March 31, 2015, PPL EnergyPlus was not required to post an insignificant amount of collateral at June 30, 2014.collateral. In no instance is PPL Electric required to post collateral to suppliers under these supply contracts.
PPL Electric's customers may choose an alternative supplier for their generation supply. See Note 2 for additional information regarding PPL Electric's purchases of accounts receivable from alternative suppliers, including PPL EnergyPlus.
PPL Services and LKS provide thetheir respective PPL and LKE subsidiaries with administrative, management and support services. Where applicable,In 2015, PPL EU Services was formed to provide the majority of financial, supply chain, human resources and facilities management services primarily to PPL Electric. PPL Services will continue to provide certain corporate functions. For all service companies, the costs of these services are charged to the respective subsidiariesrecipients as direct support costs. General costs that cannot be directly attributed to a specific subsidiaryentity are allocated and charged to the respective subsidiariesrecipients as indirect support costs. PPL Services usesand PPL EU Services use a three-factor methodology that includes the subsidiaries'applicable recipients' invested capital, operation and maintenance expenses and number of employees to allocate indirect costs. LKS bases its indirect allocations on the subsidiaries' number of employees, total assets, revenues, number of customers and/or other statistical information.PPL Services, PPL EU Services and LKS charged the following amounts for the periods ended June 30,March 31, and believe these amounts are reasonable, including amounts applied to accounts that are further distributed between capital and expense.
Three Months | Six Months | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
PPL Energy Supply from PPL Services | $ | 54 | $ | 52 | $ | 112 | $ | 109 | ||||
PPL Electric from PPL Services | 38 | 34 | 79 | 72 | ||||||||
LKE from PPL Services | 4 | 4 | 8 | 8 | ||||||||
LG&E from LKS | 57 | 67 | 105 | 106 | ||||||||
KU from LKS | 59 | 44 | 112 | 110 |
Three Months | ||||||||||||
2015 | 2014 | |||||||||||
PPL Electric from PPL Services | $ | 30 | $ | 41 | ||||||||
LKE from PPL Services | 4 | 4 | ||||||||||
PPL Electric from PPL EU Services | 15 |
LG&E from LKS | 51 | 48 | ||||||||||
KU from LKS | 56 | 53 |
LG&E and KU also provide services to each other and to LKS. Billings between LG&E and KU relate to labor and overheads associated with union and hourly employees performing work for the other company, charges related to jointly-owned generating units and other miscellaneous charges. Tax settlements between LKE and LG&E and LKE and KU are reimbursed through LKS.
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LKE maintains a $225 million revolving line of credit with a PPL Energy Funding subsidiary whereby LKE can borrow funds on a short-term basis at market-based rates. The interest rate on borrowings is equal to one-month LIBOR plus a spread. There were no balances outstanding at June 30, 2014At March 31, 2015 and December 31, 2013.
Intercompany Derivatives(LKE, LG&E and KU)
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL. These hedging instruments have terms identical to forward-starting swaps entered into by PPL with third parties. See Note 14 for additional information on intercompany derivatives.
See Note 9 for discussions regarding intercompany allocations associated with defined benefits.
Three Months | Six Months | |||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
PPL | ||||||||||||||
Other Income | ||||||||||||||
Earnings on securities in NDT funds | $ | 6 | $ | 5 | $ | 12 | $ | 10 | ||||||
Interest income | 3 | 4 | 1 | |||||||||||
AFUDC - equity component | 2 | 2 | 5 | 5 | ||||||||||
Miscellaneous - Domestic | 2 | 7 | 4 | 9 | ||||||||||
Miscellaneous - U.K. | 1 | |||||||||||||
Total Other Income | 13 | 14 | 25 | 26 | ||||||||||
Other Expense | ||||||||||||||
Economic foreign currency exchange contracts (Note 14) | 72 | (4) | 96 | (123) | ||||||||||
Charitable contributions | 2 | 4 | 9 | 8 | ||||||||||
Spinoff of PPL Energy Supply transaction costs (Note 8) | 16 | 16 | ||||||||||||
Miscellaneous - Domestic | 5 | 1 | 8 | 5 | ||||||||||
Miscellaneous - U.K. | 1 | 1 | ||||||||||||
Total Other Expense | 95 | 1 | 130 | (109) | ||||||||||
Other Income (Expense) - net | $ | (82) | $ | 13 | $ | (105) | $ | 135 |
Three Months | ||||||||
2015 | 2014 | |||||||
Other Income | ||||||||
Earnings on securities in NDT funds | $ | 7 | $ | 6 | ||||
Interest income | 1 | 1 | ||||||
AFUDC - equity component | 4 | 3 | ||||||
Miscellaneous | 5 | 2 | ||||||
Total Other Income | 17 | 12 | ||||||
Other Expense | ||||||||
Economic foreign currency exchange contracts (Note 14) | (88) | 24 | ||||||
Charitable contributions | 5 | 7 | ||||||
Spinoff of PPL Energy Supply transaction costs (Note 8) | 2 | |||||||
Miscellaneous | 3 | 4 | ||||||
Total Other Expense | (78) | 35 | ||||||
Other Income (Expense) - net | $ | 95 | $ | (23) |
The components of "Other Income (Expense) - net" for the three and six months ended June 30,March 31, 2015 and 2014 and 2013 for PPL Electric, LKE, LG&E and KU arewere not significant.
(All Registrants)
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). 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) are used to measure the fair value of an asset or liability, as appropriate. 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 fair value of a group of financial assets and liabilities is measured on a net basis. Transfersbasis.Transfers between levels are recognized at end-of-reporting-period values. During the three and six months ended June 30,March 31, 2015 and 2014, and 2013, there were no transfers between Level 1 and Level 2. See Note 1 in each Registrant's 20132014 Form 10-K for information on the levels in the fair value hierarchy.
59 |
Recurring Fair Value Measurements
March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
PPL | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,335 | $ | 1,335 | $ | 1,751 | $ | 1,751 | |||||||||||||||||||
Short-term investments | 135 | 135 | 120 | 120 | |||||||||||||||||||||||
Restricted cash and cash equivalents (a) | 231 | 231 | 224 | 224 | |||||||||||||||||||||||
Price risk management assets: | |||||||||||||||||||||||||||
Energy commodities | 1,298 | 2 | $ | 1,136 | $ | 160 | 1,318 | 6 | $ | 1,171 | $ | 141 | |||||||||||||||
Foreign currency contracts | 209 | 209 | 130 | 130 | |||||||||||||||||||||||
Cross-currency swaps | 49 | 49 | 29 | 28 | 1 | ||||||||||||||||||||||
Total price risk management assets | 1,556 | 2 | 1,394 | 160 | 1,477 | 6 | 1,329 | 142 | |||||||||||||||||||
NDT funds: | |||||||||||||||||||||||||||
Cash and cash equivalents | 20 | 20 | 19 | 19 | |||||||||||||||||||||||
Equity securities | |||||||||||||||||||||||||||
U.S. large-cap | 620 | 461 | 159 | 611 | 454 | 157 | |||||||||||||||||||||
U.S. mid/small-cap | 93 | 38 | 55 | 89 | 37 | 52 | |||||||||||||||||||||
Debt securities | |||||||||||||||||||||||||||
U.S. Treasury | 97 | 97 | 99 | 99 | |||||||||||||||||||||||
U.S. government sponsored agency | 8 | 8 | 9 | 9 | |||||||||||||||||||||||
Municipality | 76 | 76 | 76 | 76 | |||||||||||||||||||||||
Investment-grade corporate | 45 | 45 | 42 | 42 | |||||||||||||||||||||||
Other | 3 | 3 | 3 | 3 | |||||||||||||||||||||||
Receivables (payables), net | 3 | 1 | 2 | 2 | 2 | ||||||||||||||||||||||
Total NDT funds | 965 | 617 | 348 | 950 | 609 | 341 | |||||||||||||||||||||
Auction rate securities (b) | 10 | 10 | 10 | 10 | |||||||||||||||||||||||
Total assets | $ | 4,232 | $ | 2,320 | $ | 1,742 | $ | 170 | $ | 4,532 | $ | 2,710 | $ | 1,670 | $ | 152 | |||||||||||
Liabilities | |||||||||||||||||||||||||||
Price risk management liabilities: | |||||||||||||||||||||||||||
Energy commodities | $ | 1,163 | $ | 2 | $ | 1,130 | $ | 31 | $ | 1,217 | $ | 5 | $ | 1,182 | $ | 30 | |||||||||||
Interest rate swaps | 235 | 235 | 156 | 156 | |||||||||||||||||||||||
Foreign currency contracts | 6 | 6 | 2 | 2 | |||||||||||||||||||||||
Cross-currency swaps | 2 | 2 | 3 | 3 | |||||||||||||||||||||||
Total price risk management liabilities | $ | 1,406 | $ | 2 | $ | 1,373 | $ | 31 | $ | 1,378 | $ | 5 | $ | 1,343 | $ | 30 | |||||||||||
PPL Electric | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 35 | $ | 35 | $ | 214 | $ | 214 | |||||||||||||||||||
Restricted cash and cash equivalents (c) | 2 | 2 | 3 | 3 | |||||||||||||||||||||||
Total assets | $ | 37 | $ | 37 | $ | 217 | $ | 217 |
LKE | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 40 | $ | 40 | $ | 21 | $ | 21 | |||||||||||||||||||
Cash collateral posted to counterparties (d) | 22 | 22 | 21 | 21 | |||||||||||||||||||||||
Total assets | $ | 62 | $ | 62 | $ | 42 | $ | 42 | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||
Price risk management liabilities: | |||||||||||||||||||||||||||
Interest rate swaps | $ | 174 | $ | 174 | $ | 114 | $ | 114 | |||||||||||||||||||
Total price risk management liabilities | $ | 174 | $ | 174 | $ | 114 | $ | 114 | |||||||||||||||||||
LG&E | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 17 | $ | 17 | $ | 10 | $ | 10 | |||||||||||||||||||
Cash collateral posted to counterparties (d) | 22 | 22 | 21 | 21 | |||||||||||||||||||||||
Total assets | $ | 39 | $ | 39 | $ | 31 | $ | 31 | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||
Price risk management liabilities: | |||||||||||||||||||||||||||
Interest rate swaps | $ | 113 | $ | 113 | $ | 81 | $ | 81 | |||||||||||||||||||
Total price risk management liabilities | $ | 113 | $ | 113 | $ | 81 | $ | 81 | |||||||||||||||||||
June 30, 2014 | December 31, 2013 | ||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
PPL | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,269 | $ | 1,269 | $ | 1,102 | $ | 1,102 | |||||||||||||||||||
Restricted cash and cash equivalents (a) | 408 | 408 | 156 | 156 | |||||||||||||||||||||||
Price risk management assets: | |||||||||||||||||||||||||||
Energy commodities | 1,374 | 2 | $ | 1,206 | $ | 166 | 1,188 | 3 | $ | 1,123 | $ | 62 | |||||||||||||||
Interest rate swaps | 1 | 1 | 91 | 91 | |||||||||||||||||||||||
Foreign currency contracts | 2 | 2 | |||||||||||||||||||||||||
Total price risk management assets | 1,377 | 2 | 1,209 | 166 | 1,279 | 3 | 1,214 | 62 | |||||||||||||||||||
NDT funds: | |||||||||||||||||||||||||||
Cash and cash equivalents | 16 | 16 | 14 | 14 | |||||||||||||||||||||||
Equity securities | |||||||||||||||||||||||||||
U.S. large-cap | 580 | 432 | 148 | 547 | 409 | 138 | |||||||||||||||||||||
U.S. mid/small-cap | 85 | 35 | 50 | 81 | 33 | 48 | |||||||||||||||||||||
Debt securities | |||||||||||||||||||||||||||
U.S. Treasury | 97 | 97 | 95 | 95 | |||||||||||||||||||||||
U.S. government sponsored agency | 6 | 6 | 6 | 6 | |||||||||||||||||||||||
Municipality | 78 | 78 | 77 | 77 | |||||||||||||||||||||||
Investment-grade corporate | 41 | 41 | 38 | 38 | |||||||||||||||||||||||
Other | 6 | 6 | 5 | 5 | |||||||||||||||||||||||
Receivables (payables), net | 2 | 2 | 1 | (1) | 2 | ||||||||||||||||||||||
Total NDT funds | 911 | 580 | 331 | 864 | 550 | 314 | |||||||||||||||||||||
Auction rate securities (b) | 16 | 16 | 19 | 19 | |||||||||||||||||||||||
Total assets | $ | 3,981 | $ | 2,259 | $ | 1,540 | $ | 182 | $ | 3,420 | $ | 1,811 | $ | 1,528 | $ | 81 |
June 30, 2014 | December 31, 2013 | ||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||
Price risk management liabilities: | |||||||||||||||||||||||||||
Energy commodities | $ | 1,480 | $ | 2 | $ | 1,386 | $ | 92 | $ | 1,070 | $ | 4 | $ | 1,028 | $ | 38 | |||||||||||
Interest rate swaps | 54 | 54 | 36 | 36 | |||||||||||||||||||||||
Foreign currency contracts | 176 | 176 | 106 | 106 | |||||||||||||||||||||||
Cross-currency swaps | 47 | 47 | 32 | 32 | |||||||||||||||||||||||
Total price risk management liabilities | $ | 1,757 | $ | 2 | $ | 1,663 | $ | 92 | $ | 1,244 | $ | 4 | $ | 1,202 | $ | 38 | |||||||||||
PPL Energy Supply | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 264 | $ | 264 | $ | 239 | $ | 239 | |||||||||||||||||||
Restricted cash and cash equivalents (a) | 343 | 343 | 85 | 85 | |||||||||||||||||||||||
Price risk management assets: | |||||||||||||||||||||||||||
Energy commodities | 1,374 | 2 | $ | 1,206 | $ | 166 | 1,188 | 3 | $ | 1,123 | $ | 62 | |||||||||||||||
Total price risk management assets | 1,374 | 2 | 1,206 | 166 | 1,188 | 3 | 1,123 | 62 | |||||||||||||||||||
NDT funds: | |||||||||||||||||||||||||||
Cash and cash equivalents | 16 | 16 | 14 | 14 | |||||||||||||||||||||||
Equity securities | |||||||||||||||||||||||||||
U.S. large-cap | 580 | 432 | 148 | 547 | 409 | 138 | |||||||||||||||||||||
U.S. mid/small-cap | 85 | 35 | 50 | 81 | 33 | 48 | |||||||||||||||||||||
Debt securities | |||||||||||||||||||||||||||
U.S. Treasury | 97 | 97 | 95 | 95 | |||||||||||||||||||||||
U.S. government sponsored agency | 6 | 6 | 6 | 6 | |||||||||||||||||||||||
Municipality | 78 | 78 | 77 | 77 | |||||||||||||||||||||||
Investment-grade corporate | 41 | 41 | 38 | 38 | |||||||||||||||||||||||
Other | 6 | 6 | 5 | 5 | |||||||||||||||||||||||
Receivables (payables), net | 2 | 2 | 1 | (1) | 2 | ||||||||||||||||||||||
Total NDT funds | 911 | 580 | 331 | 864 | 550 | 314 | |||||||||||||||||||||
Auction rate securities (b) | 13 | 13 | 16 | 16 | |||||||||||||||||||||||
Total assets | $ | 2,905 | $ | 1,189 | $ | 1,537 | $ | 179 | $ | 2,392 | $ | 877 | $ | 1,437 | $ | 78 | |||||||||||
Liabilities | |||||||||||||||||||||||||||
Price risk management liabilities: | |||||||||||||||||||||||||||
Energy commodities | $ | 1,480 | $ | 2 | $ | 1,386 | $ | 92 | $ | 1,070 | $ | 4 | $ | 1,028 | $ | 38 | |||||||||||
Total price risk management liabilities | $ | 1,480 | $ | 2 | $ | 1,386 | $ | 92 | $ | 1,070 | $ | 4 | $ | 1,028 | $ | 38 | |||||||||||
PPL Electric | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 149 | $ | 149 | $ | 25 | $ | 25 | |||||||||||||||||||
Restricted cash and cash equivalents (c) | 3 | 3 | 12 | 12 | |||||||||||||||||||||||
Total assets | $ | 152 | $ | 152 | $ | 37 | $ | 37 |
LKE | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 23 | $ | 23 | $ | 35 | $ | 35 | |||||||||||||||||||
Restricted cash and cash equivalents (d) | 21 | 21 | 22 | 22 | |||||||||||||||||||||||
Total assets | $ | 44 | $ | 44 | $ | 57 | $ | 57 | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||
Price risk management liabilities: | |||||||||||||||||||||||||||
Interest rate swaps | $ | 42 | $ | 42 | $ | 36 | $ | 36 | |||||||||||||||||||
Total price risk management liabilities | $ | 42 | $ | 42 | $ | 36 | $ | 36 | |||||||||||||||||||
LG&E | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 5 | $ | 5 | $ | 8 | $ | 8 | |||||||||||||||||||
Restricted cash and cash equivalents (d) | 21 | 21 | 22 | 22 | |||||||||||||||||||||||
Total assets | $ | 26 | $ | 26 | $ | 30 | $ | 30 | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||
Price risk management liabilities: | |||||||||||||||||||||||||||
Interest rate swaps | $ | 42 | $ | 42 | $ | 36 | $ | 36 | |||||||||||||||||||
Total price risk management liabilities | $ | 42 | $ | 42 | $ | 36 | $ | 36 | |||||||||||||||||||
KU | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 18 | $ | 18 | $ | 21 | $ | 21 | |||||||||||||||||||
Total assets | $ | 18 | $ | 18 | $ | 21 | $ | 21 |
60 |
March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
KU | |||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Cash and cash equivalents | $ | 23 | $ | 23 | $ | 11 | $ | 11 | |||||||||||||||||||
Total assets | $ | 23 | $ | 23 | $ | 11 | $ | 11 | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||
Price risk management liabilities: | |||||||||||||||||||||||||||
Interest rate swaps | $ | 61 | $ | 61 | $ | 33 | $ | 33 | |||||||||||||||||||
Total price risk management liabilities | $ | 61 | $ | 61 | $ | 33 | $ | 33 | |||||||||||||||||||
(a) | Current portion is included in "Restricted cash and cash equivalents" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
(c) | Current portion is included in "Other current assets" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
A reconciliation of net assets and liabilities classified as Level 3 for the periods ended June 30, 2014 is as follows: | ||||||||||||||||||||||||||||
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
Three Months | Six Months | |||||||||||||||||||||||||||
Energy | Auction | Cross- | Energy | Auction | Cross- | |||||||||||||||||||||||
Commodities, | Rate | Currency | Commodities, | Rate | Currency | |||||||||||||||||||||||
net | Securities | Swaps | Total | net | Securities | Swaps | Total | |||||||||||||||||||||
PPL | ||||||||||||||||||||||||||||
Balance at beginning of | ||||||||||||||||||||||||||||
period | $ | 17 | $ | 16 | $ | 33 | $ | 24 | $ | 19 | $ | 43 | ||||||||||||||||
Total realized/unrealized | ||||||||||||||||||||||||||||
gains (losses) | ||||||||||||||||||||||||||||
Included in earnings | 72 | 72 | (63) | (63) | ||||||||||||||||||||||||
Included in OCI (a) | $ | (1) | (1) | |||||||||||||||||||||||||
Purchases | (6) | (6) | (6) | (6) | ||||||||||||||||||||||||
Sales | (3) | (3) | ||||||||||||||||||||||||||
Settlements | (9) | (9) | 119 | 119 | ||||||||||||||||||||||||
Transfers out of Level 3 | 1 | 1 | ||||||||||||||||||||||||||
Balance at end of period | $ | 74 | $ | 16 | $ | 90 | $ | 74 | $ | 16 | $ | $ | 90 | |||||||||||||||
PPL Energy Supply | ||||||||||||||||||||||||||||
Balance at beginning of | ||||||||||||||||||||||||||||
period | $ | 17 | $ | 13 | $ | 30 | $ | 24 | $ | 16 | $ | 40 | ||||||||||||||||
Total realized/unrealized | ||||||||||||||||||||||||||||
gains (losses) | ||||||||||||||||||||||||||||
Included in earnings | 72 | 72 | (63) | (63) | ||||||||||||||||||||||||
Purchases | (6) | (6) | (6) | (6) | ||||||||||||||||||||||||
Sales | (3) | (3) | ||||||||||||||||||||||||||
Settlements | (9) | (9) | 119 | 119 | ||||||||||||||||||||||||
Balance at end of period | $ | 74 | $ | 13 | $ | 87 | $ | 74 | $ | 13 | $ | 87 |
A reconciliation of net assets and liabilities classified as Level 3 for the three months ended March 31 is as follows: | ||||||||||||||||||||||||||||
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||||||
Energy | Auction | Cross- | Energy | Auction | Cross- | |||||||||||||||||||||||
Commodities, | Rate | Currency | Commodities, | Rate | Currency | |||||||||||||||||||||||
net | Securities | Swaps | Total | net | Securities | Swaps | Total | |||||||||||||||||||||
PPL | ||||||||||||||||||||||||||||
Balance at beginning of | ||||||||||||||||||||||||||||
period | $ | 111 | $ | 10 | $ | 1 | $ | 122 | $ | 24 | $ | 19 | $ | 43 | ||||||||||||||
Total realized/unrealized | ||||||||||||||||||||||||||||
gains (losses) | ||||||||||||||||||||||||||||
Included in earnings | (17) | (17) | (135) | (135) | ||||||||||||||||||||||||
Included in OCI (a) | 6 | 6 | $ | (1) | (1) | |||||||||||||||||||||||
Sales | (3) | (3) | ||||||||||||||||||||||||||
Settlements | 30 | 30 | 128 | 128 | ||||||||||||||||||||||||
Transfers into Level 3 | 4 | 4 | ||||||||||||||||||||||||||
Transfers out of Level 3 | 1 | (7) | (6) | 1 | 1 | |||||||||||||||||||||||
Balance at end of period | $ | 129 | $ | 10 | $ | $ | 139 | $ | 17 | $ | 16 | $ | $ | 33 |
A reconciliation of net assets and liabilities classified as Level 3 for the periods ended June 30, 2013 is as follows: | ||||||||||||||||||||||||||||
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
Three Months | Six Months | |||||||||||||||||||||||||||
Energy | Auction | Cross- | Energy | Auction | Cross- | |||||||||||||||||||||||
Commodities, | Rate | Currency | Commodities, | Rate | Currency | |||||||||||||||||||||||
net | Securities | Swaps | Total | net | Securities | Swaps | Total | |||||||||||||||||||||
PPL | ||||||||||||||||||||||||||||
Balance at beginning of | ||||||||||||||||||||||||||||
period | $ | 14 | $ | 16 | $ | 30 | $ | 22 | $ | 16 | $ | 1 | $ | 39 | ||||||||||||||
Total realized/unrealized | ||||||||||||||||||||||||||||
gains (losses) | ||||||||||||||||||||||||||||
Included in earnings | 14 | 14 | 6 | 6 | ||||||||||||||||||||||||
Included in OCI (a) | 3 | 3 | ||||||||||||||||||||||||||
Sales | (2) | (2) | (2) | (2) | ||||||||||||||||||||||||
Settlements | 4 | 4 | 3 | 3 | ||||||||||||||||||||||||
Transfers into Level 3 | 6 | 3 | $ | 3 | 12 | 7 | 3 | 3 | 13 | |||||||||||||||||||
Transfers out of Level 3 | 4 | 4 | 4 | (4) | ||||||||||||||||||||||||
Balance at end of period | $ | 40 | $ | 19 | $ | 3 | $ | 62 | $ | 40 | $ | 19 | $ | 3 | $ | 62 | ||||||||||||
PPL Energy Supply | ||||||||||||||||||||||||||||
Balance at beginning of | ||||||||||||||||||||||||||||
period | $ | 14 | $ | 13 | $ | 27 | $ | 22 | $ | 13 | $ | 35 | ||||||||||||||||
Total realized/unrealized | ||||||||||||||||||||||||||||
gains (losses) | ||||||||||||||||||||||||||||
Included in earnings | 14 | 14 | 6 | 6 | ||||||||||||||||||||||||
Sales | (2) | (2) | (2) | (2) | ||||||||||||||||||||||||
Settlements | 4 | 4 | 3 | 3 | ||||||||||||||||||||||||
Transfers into Level 3 | 6 | 3 | 9 | 7 | 3 | 10 | ||||||||||||||||||||||
Transfers out of Level 3 | 4 | 4 | 4 | 4 | ||||||||||||||||||||||||
Balance at end of period | $ | 40 | $ | 16 | $ | 56 | $ | 40 | $ | 16 | $ | 56 |
The significant unobservable inputs used in and quantitative information about the fair value measurement of assets and liabilities classified as Level 3 are as follows:
Fair Value, net | Range | ||||||||||||
Asset | Valuation | Unobservable | (Weighted | ||||||||||
(Liability) | Technique | Input(s) | Average) (a) | ||||||||||
PPL | |||||||||||||
Energy commodities | |||||||||||||
Natural gas contracts (b) | $ | | Discounted cash flow | Proprietary model used to calculate forward prices | |||||||||
Power sales contracts (c) | | Discounted cash flow | Proprietary model used to calculate forward prices | ||||||||||
Heat rate options (e) | | Discounted cash flow | Proprietary model used to calculate forward prices | 22% - | |||||||||
Auction rate securities (f) | |
Discounted cash flow | Modeled from SIFMA Index | ||||||||||||
61 |
December 31, 2014 | |||||||||||||
Fair Value, net | Range | ||||||||||||
Asset | Valuation | Unobservable | (Weighted | ||||||||||
(Liability) | Technique | Input(s) | Average) (a) | ||||||||||
PPL | |||||||||||||
Energy commodities | |||||||||||||
Natural gas contracts (b) | $ | | Discounted cash flow | Proprietary model used to calculate forward prices | |||||||||
Power sales contracts (c) | | Discounted cash flow | Proprietary model used to calculate forward prices | ||||||||||
FTR purchase contracts (d) | 3 | Discounted cash flow | Historical settled prices used to model forward prices | 100% (100%) | |||||||||
Heat rate options (e) | 50 | Discounted cash flow | Proprietary model used to calculate forward prices | 23% - 51% (45%) | |||||||||
Auction rate securities (f) | | Discounted cash flow | Modeled from SIFMA Index | ||||||||||
Cross-currency swaps (g) | 1 | Discounted cash flow | Credit valuation adjustment | 15% (15%) |
(d) | As the forward implied spread increases/(decreases), the fair value of the contracts increases/(decreases). |
Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the periodsthree months ended June 30 are reported in the Statements of Income as follows:
Three Months | |||||||||||||||||||
Energy Commodities, net | |||||||||||||||||||
Unregulated | Unregulated | Energy | |||||||||||||||||
Wholesale Energy | Retail Energy | Purchases | |||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||
PPL and PPL Energy Supply | |||||||||||||||||||
Total gains (losses) included in earnings | $ | 58 | $ | (7) | $ | 12 | $ | 22 | $ | 2 | $ | (1) | |||||||
Change in unrealized gains (losses) relating | |||||||||||||||||||
to positions still held at the reporting date | 47 | (7) | 10 | 22 | (4) | 1 |
Six Months | |||||||||||||||||||
Energy Commodities, net | |||||||||||||||||||
Unregulated | Unregulated | Energy | |||||||||||||||||
Wholesale Energy | Retail Energy | Purchases | |||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||
PPL and PPL Energy Supply | |||||||||||||||||||
Total gains (losses) included in earnings | $ | (31) | $ | (9) | $ | (51) | $ | 15 | $ | 19 | |||||||||
Change in unrealized gains (losses) relating | |||||||||||||||||||
to positions still held at the reporting date | 44 | (9) | (21) | 17 | (3) | $ | 2 |
Energy Commodities, net | ||||||||||||||||||
Unregulated | Unregulated | Energy | ||||||||||||||||
Wholesale Energy | Retail Energy | Purchases | ||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||
PPL | ||||||||||||||||||
Total gains (losses) included in earnings | $ | 21 | $ | (89) | $ | (40) | $ | (63) | $ | 2 | $ | 17 | ||||||
Change in unrealized gains (losses) relating | ||||||||||||||||||
to positions still held at the reporting date | 25 | (13) | (9) | (33) | 1 | 1 |
Price Risk Management Assets/Liabilities - Energy Commodities
(Energy commodity contracts are generally valued using the income approach, except for exchange-traded derivative contracts, which are valued using the market approach and are classified as Level 1. Level 2 contracts are valued using inputs which may include quotes obtained from an exchange (where there is insufficient market liquidity to warrant inclusion in Level 1), binding and non-binding broker quotes, prices posted by ISOs or published tariff rates. Furthermore, independent quotes are obtained from the market to validate the forward price curves. Energy commodity contracts include forwards, futures, swaps, options and structured transactions and may be offset with similar positions in exchange-traded markets. To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs. In certain instances, these contracts may be valued using models, including standard option valuation models and other standard industry models. When the lowest level inputs that are significant to the fair value measurement of a contract are observable, the contract is classified as Level 2.
When unobservable inputs are significant to the fair value measurement, a contract is classified as Level 3. Level 3 contracts are valued using PPL proprietary models which may include significant unobservable inputs such as delivery at a location where pricing is unobservable, delivery dates that are beyond the dates for which independent quotes are available, volumetric assumptions, implied volatilities, implied correlations, and market implied heat rates. Forward transactions, including forward transactions classified as Level 3, are analyzed by PPL's Risk Management department, which reports to the Chief Financial Officer (CFO).department. Accounting personnel who also report to the CFO, interpret the analysis quarterly to appropriately classify the forward transactions in the fair value hierarchy.
62 |
Valuation techniques are evaluated periodically. Additionally, Level 2 and Level 3 fair value measurements include adjustments for credit risk based on PPL's own creditworthiness (for net liabilities) and its counterparties' creditworthiness (for net assets). PPL's credit department assesses all reasonably available market information which is used by accounting personnel to calculate the credit valuation adjustment.
In certain instances, energy commodity contracts are transferred between Level 2 and Level 3. The primary reasons for the transfers during 20132015 were changes in the availability of market information and changes in the significance of the unobservable inputs utilized in the valuation of the contract. As the delivery period of a contract becomes closer, market information may become available. When this occurs, the model's unobservable inputs are replaced with observable market information.
Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps
(PPL, LKE, LG&E and KU)To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency exchange risk, PPL uses foreign currency contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency
The market approach is used to measure the fair value of equity securities held in the NDTtheNDT funds.
· | The fair value measurements of equity securities classified as Level 1 are based on quoted prices in active markets. |
· | The fair value measurements of investments in commingled equity funds are classified as Level 2. These fair value measurements are based on firm quotes of net asset values per share, which are not obtained from a quoted price in an active market. |
The fair value of debt securities is generally measured using a market approach, including the use of pricing models which incorporate observable inputs. Common inputs include benchmark yields, reported trades,relevant trade data, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments. When necessary, the fair value of debt securities is measured using the income approach, which incorporates similar observable inputs as well as monthly payment data, future predicted cash flows, collateral performance and new issue data.
Auction rate securities include Federal Family Education Loan Program guaranteed student loan revenue bonds, as well as various municipal bond issues. The probability of realizing losses on these securities is not significant.
The fair value of auction rate securities is estimated using an income approach that includes readily observable inputs, such as principal payments and discount curves for bonds with credit ratings and maturities similar to the securities, and unobservable inputs, such as future interest rates that are estimated based on the SIFMA Index, creditworthiness, and liquidity assumptions driven by the impact of auction failures. When the present value of future interest payments is significant to the overall valuation, the auction rate securities are classified as Level 3. The primary reason for the transfers during 2013 was the change in discount rates and SIFMA Index.
Auction rate securities are valued by PPL's Treasury department, which reports to the CFO.department. Accounting personnel who also report to the CFO, interpret the analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.
63 |
The following nonrecurring fair value measurement occurred during the sixthree months ended June 30,March 31, 2014, resulting in an asset impairment:
Carrying | Fair Value Measurement Using | |||||||||
Amount (a) | Level 3 | Loss (b) | ||||||||
PPL and PPL Energy Supply | ||||||||||
Kerr Dam Project | $ | 47 | $ | 29 | $ | 18 |
Carrying | Fair Value Measurements Using | |||||||||
Amount (a) | Level 3 | Loss (b) | ||||||||
PPL | ||||||||||
Kerr Dam Project | $ | 47 | $ | 29 | $ | 18 |
(a) | Represents carrying value before fair value measurement. |
The significant unobservable inputs used in and the quantitative information about the nonrecurring fair value measurement of assets and liabilities classified as Level 3 are as follows: | ||||||||||||
Fair Value, net | Significant | Range | ||||||||||
Asset | Valuation | Unobservable | (Weighted | |||||||||
(Liability) | Technique | Input(s) | Average)(a) | |||||||||
Kerr Dam Project | ||||||||||||
March 31, 2014 | $ | 29 | Discounted cash flow | Proprietary model used to calculate plant value | 38% (38%) |
(a) | The range and weighted average represent the percentage of fair value derived from the unobservable inputs. |
Kerr Dam Project
PPL Montana holdspreviously held a joint operating license issued for the Kerr Dam Project. The license extends until 2035 and, between 2015 and 2025, the Confederated Salish and Kootenai Tribes of the Flathead Nation (the Tribes) have the option to purchase, hold and operate the Kerr Dam Project. The parties submitted the issue of the appropriate amount of the conveyance price to arbitration in February 2013. In March 2014, the arbitration panel issued its final decision holding that the conveyance price payable by the Tribes to PPL Montanafor the Kerr Dam Project is $18 million. As a result of the decision, PPL Energy Supply performed a recoverability test on the Kerr Dam Project and recorded an impairment charge. PPL Energy Supply performed an internal analysis using an income approach based on discounted cash flows (a PPL proprietary PPL model) to assess the fair value of the Kerr Dam Project. Assumptions used in the PPL proprietary model were the conveyance price, forward energy price curves, forecasted generation, and forecasted operation and maintenance expenditures that were consistent with assumptions used in the business planning process and a market participant discount rate. Through this analysis, PPL Energy Supply determined the fair value of the Kerr Dam Project to be $29 million at March 31, 2014.
The assets were valued by the PPL Energy Supply Financial Department, which reports to the President of PPL Energy Supply.Department. Accounting personnel who report to the CFO, interpreted the analysis to appropriately classify the assets in the fair value hierarchy.
The carrying amounts of contract adjustment payments related to the 2011 Purchase Contract component of the 2011 Equity Units and long-term debt on the Balance Sheets and their estimated fair values are set forth below. The fair values of these instruments were estimated using an income approach by discounting future cash flows at estimated current cost of funding rates, which incorporate the credit risk of the Registrants. These instruments areLong-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.
June 30, 2014 | December 31, 2013 | ||||||||||||
Carrying | Carrying | ||||||||||||
Amount | Fair Value | Amount | Fair Value | ||||||||||
Contract adjustment payments (a) | |||||||||||||
PPL | $ | 21 | $ | 22 | |||||||||
Long-term debt | |||||||||||||
PPL | $ | 21,123 | $ | 22,958 | 20,907 | 22,177 | |||||||
PPL Energy Supply | 2,523 | 2,630 | 2,525 | 2,658 | |||||||||
PPL Electric | 2,602 | 2,915 | 2,315 | 2,483 | |||||||||
LKE | 4,566 | 4,879 | 4,565 | 4,672 | |||||||||
LG&E | 1,353 | 1,428 | 1,353 | 1,372 | |||||||||
KU | 2,091 | 2,264 | 2,091 | 2,155 |
March 31, 2015 | December 31, 2014 | ||||||||||||
Carrying | Carrying | ||||||||||||
Amount | Fair Value | Amount | Fair Value | ||||||||||
PPL | $ | 20,307 | $ | 23,258 | $ | 20,391 | $ | 22,670 | |||||
PPL Electric | 2,603 | 3,084 | 2,602 | 2,990 |
LKE | 4,567 | 5,091 | 4,567 | 4,946 | |||||||||
LG&E | 1,353 | 1,493 | 1,353 | 1,455 | |||||||||
KU | 2,091 | 2,396 | 2,091 | 2,313 |
The carrying value of short-term debt (including notes between affiliates), when outstanding, approximates fair value due to the variable interest rates associated with the short-term debt and is classified as Level 2.
64 |
(All Registrants)
Contracts are entered into with many entities for the purchase and sale of energy. When NPNS is elected, the fair value of these contracts is not reflected in the financial statements. However, the fair value of these contracts is considered when committing to new business from a credit perspective. See Note 14 for information on credit policies used to manage credit risk, including master netting arrangements and collateral requirements.
(PPL)
At June 30, 2014,March 31, 2015, PPL and PPL Energy Supply had credit exposure of $805$692 million from energy trading partners, excluding exposure from related parties (PPL Energy Supply only) and the effects of netting arrangements, reserves and collateral. As a result of netting arrangements, reserves and collateral, PPL and PPL Energy Supply'sPPL's credit exposure was reduced to $340$402 million. The top ten counterparties including their affiliates accounted for $192$220 million, or 56%55%, of these exposures. SevenEight of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 65%75% of the top ten exposures. The remaining counterparties are rated below investment grade, or have not been rated by S&P or Moody's, but are current on their obligations. See Note 11 for information regarding PPL Energy Supply's related party credit exposure.
PPL Electric is exposed to credit risk under energy supply contracts (including its supply contracts with PPL EnergyPlus); however, its PUC-approved recovery mechanism is anticipated to substantially mitigate this exposure.
At June 30, 2014,March 31, 2015, LKE's, LG&E's and KU's credit exposure was not significant.
Risk Management Objectives
(All Registrants)
PPL has a risk management policy approved by the Board of Directors to manage market risk associated with commodities, interest rates on debt issuances and foreign exchange (including price, liquidity and volumetric risk) and credit risk (including non-performance risk and payment default risk). The RMC, comprised of senior management and chaired by the Chief Risk Officer, oversees the risk management function. Key risk control activities designed to ensure compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, VaR analyses, portfolio stress tests, gross margin at risk analyses, sensitivity analyses and daily portfolio reporting, including open positions, determinations of fair value, and other risk management metrics.
Market Risk
Market risk includes the potential loss that may be incurred as a result of price changes associated with a particular financial or commodity instrument as well as market liquidity and volumetric risks. Forward contracts, futures contracts, options, swaps and structured transactions are utilized as part of risk management strategies to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, volumes of full-requirement sales contracts, basis exposure, interest rates and/orand foreign currency exchange rates. Many of the contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.
The table below summarizes the market risks that affect PPL and its Subsidiary Registrants.
PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
Commodity price risk (including basis and volumetric risk) | X | M | M | M | M | ||||||||||||||||||
Interest rate risk: | |||||||||||||||||||||||
Debt issuances | X | M | M | M | M | ||||||||||||||||||
Defined benefit plans | X | M | M | M | M | ||||||||||||||||||
NDT securities | X | ||||||||||||||||||||||
Equity securities price risk: | |||||||||||||||||||||||
Defined benefit plans | X | M | M | M | M | ||||||||||||||||||
NDT securities | X | ||||||||||||||||||||||
Future stock transactions | X | ||||||||||||||||||||||
Foreign currency risk - WPD investment and | |||||||||||||||||||||||
earnings | X |
65 |
X | = PPL |
M | = The regulatory environments for PPL's regulated entities, by definition, significantly mitigate market risk. |
Commodity price risk
· | PPL is exposed to commodity price risk through its domestic subsidiaries as described below. |
· | PPL |
· | PPL Electric is exposed to commodity price risk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the volumetric risk associated with the PLR obligation to the energy suppliers. |
· | LG&E's and KU's rates include certain mechanisms for fuel |
Interest rate risk
· | PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. WPD holds over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. LG&E utilizes over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt, and LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates, when appropriate, in connection with future debt issuances. |
· | PPL and its subsidiaries are exposed to interest rate risk associated with debt securities held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place. Additionally, PPL |
Equity securities price risk
· | PPL and its subsidiaries are exposed to equity securities price risk associated with defined benefit plans. This risk is significantly mitigated at the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place. Additionally, PPL |
· | PPL is exposed to equity securities price risk from future stock sales and/or purchases. |
Foreign currency risk
· | PPL is exposed to foreign currency exchange risk primarily associated with its investments in and earnings |
Credit Risk
Credit risk is the potential loss that may be incurred due to a counterparty's non-performance.
PPL is exposed to credit risk from "in-the-money" interest rate and foreign currency derivatives with financial institutions, as well as additional credit risk through certain of its subsidiaries, as discussed below.
PPL Energy Supply is exposed to credit risk from "in-the-money" commodity derivatives with its energy trading partners, which include other energy companies, fuel suppliers, financial institutions, other wholesale customers and retail customers.
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The majority of PPL and PPL Energy Supply'sPPL's credit risk stems from commodity derivatives for multi-year contracts for energy sales and purchases.purchases entered into by PPL Energy Supply. If PPL Energy Supply's counterparties fail to perform their obligations under such contracts and PPL Energy Supply could not replace the sales or purchases at the same or better prices as those under the defaulted contracts, PPL Energy Supply would incur financial losses. Those losses would be recognized immediately or through lower revenues or higher costs in future years, depending on the accounting treatment for the defaulted contracts. In the event a supplier of LKE (through its subsidiaries LG&E and KU) or PPL Electric defaults on its obligation, those entities would be required to seek replacement power or replacement fuel in the market. In general, subject to regulatory review or other processes, appropriate incremental costs incurred by these entities would be recoverable from customers in future rates,through applicable rate mechanisms, thus mitigating the financial risk for these entities.
PPL and its subsidiaries have credit policies in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use 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 event that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit. See Note 13 for credit concentration associated with energy trading partners.
Master Netting Arrangements
Net derivative positions on the balance sheets are not offset against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.
PPL's and PPL Energy Supply's obligation to return counterparty cash collateral under master netting arrangements was $13 million and $9$11 million at June 30, 2014March 31, 2015 and December 31, 2013.
PPL Electric, LKE and LG&E had no obligation to return cash collateral under master netting arrangements at June 30, 2014March 31, 2015 and December 31, 2013.
PPL, posted $25 million and LKE and LG&E posted $22 million and $21 million of cash collateral under master netting arrangements at June 30, 2014. PPL, LKEMarch 31, 2015 and LG&E had posted $22 million of cash collateral under master netting arrangements at December 31, 2013.
PPL Electric and KU did not post any cash collateral under master netting arrangements at June 30, 2014March 31, 2015 and December 31, 2013.
See "Offsetting Derivative Investments" below for a summary of derivative positions presented in the balance sheets where a right of setoff exists under these arrangements.
Commodity price risk, including basis and volumetric risk, is among PPL's and PPL Energy Supply's most significant risks due to the level of investment that PPL and PPL Energy Supply maintainmaintains in theirits competitive generation assets, as well as the extent of theirits marketing activities. Several factors influence price levels and volatilities. These factors include, but are not
PPL Energy Supply maximizes the value of its unregulated wholesale and unregulated retail energy portfolios through the use of non-trading strategies that include sales of competitive baseload generation, optimization of competitive intermediate and peaking generation and marketing activities.
PPL Energy Supply has a formal hedging program to economically hedge the forecasted purchase and sale of electricity and related fuels for its competitive baseload generation fleet, which includes 7,3696,496 MW (summer rating) of nuclear, coal and hydroelectric generating capacity. PPL Energy Supply attempts to optimize the overall value of its competitive intermediate and peaking fleet, which includes 3,3093,252 MW (summer rating) of natural gas and oil-fired generation. PPL Energy Supply's marketing portfolio is comprised of full-requirement sales contracts and related supply contracts, retail natural gas and electricity sales contracts and other marketing activities. The strategies that PPL Energy Supply uses to hedge its full-requirement sales contracts include purchasing energy (at a liquid trading hub or directly at the load delivery zone), capacity and RECs in the market and/or supplying the energy, capacity and RECs from its generation assets.
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PPL Energy Supply enterenters into financial and physical derivative contracts, including forwards, futures, swaps and options, to hedge the price risk associated with electricity, natural gas, oil and other commodities. Certain contracts are non-derivatives or NPNS is elected and therefore they are not reflected in the financial statements until delivery. PPL and PPL Energy Supply segregate theirsegregates its non-trading activities into two categories: cash flow hedges and economic activity as discussed below.
Cash Flow Hedges
Certain derivative contracts have qualified for hedge accounting so that the effective portion of a derivative's gain or loss is deferred in AOCI and reclassified into earnings when the forecasted transaction occurs. ThereIn 2015 and 2014, there were no active cash flow hedges during the three and six months ended June 30, 2014.there was no hedge ineffectiveness associated with energy derivatives. At June 30, 2014,March 31, 2015, the accumulated net unrecognized after-tax gains (losses) that are expected to be reclassified into earnings during the next 12 months were $22 million for PPL and PPL Energy Supply.$18 million. Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedge transaction is probable of not occurring. Thereoccurring.There were no such reclassifications for the three and six months ended June 30, 2014March 31, 2015 and 2013.
Economic Activity
Many derivative contracts economically hedge the commodity price risk associated with electricity, natural gas, oil and other commodities but do not receive hedge accounting treatment because they were not eligible for hedge accounting or because hedge accounting was not elected. These derivatives hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and unregulated full-requirement and retail contracts, which are subject to changes in fair value due to market price volatility and volume expectations. Additionally, economic activity also includes the ineffective portion of qualifying cash flow hedges (see "Cash Flow Hedges" above). The derivative contracts in this category that existed at June 30, 2014March 31, 2015 range in maturity through 2019.
Examples of economic activity may include hedges on sales of baseload generation, certain purchase contracts used to supply full-requirement sales contracts, FTRs or basis swaps used to hedge basis risk associated with the sale of competitive generation or supplying full-requirement sales contracts, Spark Spread hedging contracts, retail electric and natural gas activities, and fuel oil swaps used to hedge price escalation clauses in coal transportation and other fuel-related contracts. PPL Energy Supply also uses options, which include the sale of call options and the purchase of put options tied to a particular generating unit. Since the physical generating capacity is owned, price exposure is generally capped at the price at which the generating unit would be dispatched and therefore does not expose PPL Energy Supply to uncovered market price risk.
The unrealized gains (losses) for economic activity for the periods ended June 30March 31 were as follows.
Three Months | Six Months | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Operating Revenues | |||||||||||||
Unregulated wholesale energy | $ | (91) | $ | 590 | $ | (880) | $ | (232) | |||||
Unregulated retail energy | 4 | 20 | (22) | 12 | |||||||||
Operating Expenses | |||||||||||||
Fuel | 7 | (4) | 6 | (5) | |||||||||
Energy purchases | 39 | (479) | 619 | 155 |
Three Months | |||||||||||||
2015 | 2014 | ||||||||||||
Operating Revenues | |||||||||||||
Unregulated wholesale energy | $ | (92) | $ | (789) | |||||||||
Unregulated retail energy | (13) | (26) | |||||||||||
Operating Expenses | |||||||||||||
Fuel | (1) | ||||||||||||
Energy purchases | 145 | 580 |
PPL Energy Supply has a proprietary trading strategy which is utilized to take advantage of market opportunities primarily in its geographic footprint. As a result, PPL Energy Supply may at times create a net open position in its portfolio that could result in losses if prices do not move in the manner or direction anticipated. Net energy trading margins, which are included in "Unregulated wholesale energy" on the Statements of Income, were $44 million and $58 millioninsignificant for the three and six months ended June 30, 2014March 31, 2015 and were insignificant for the same periods in 2013.
Commodity Volumes
At June 30, 2014,March 31, 2015, the net volumes of derivative (sales)/purchase contracts used in support of the various strategies discussed above were as follows.
Volumes (a) | ||||||||||
Commodity | Unit of Measure | 2014 (b) | 2015 | 2016 | Thereafter | |||||
Power | MWh | (20,439,732) | (26,034,375) | (2,187,131) | 12,845,473 | |||||
Capacity | MW-Month | (8,589) | (5,120) | 501 | 9 | |||||
Gas | MMBtu | 66,064,719 | 40,183,723 | 55,354,593 | 37,786,174 | |||||
Coal | Tons | 45,000 | ||||||||
FTRs | MW-Month | 4,283 | 3,364 | |||||||
Oil | Barrels | 68,966 | 363,660 | 322,777 | 269,438 |
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Volumes (a) | ||||||||||
Commodity | Unit of Measure | 2015 (b) | 2016 | 2017 | Thereafter | |||||
Power | MWh | (30,874,062) | (8,521,382) | (248,329) | 2,236,333 | |||||
Capacity | MW-Month | (3,998) | (878) | 6 | 3 | |||||
Gas | MMBtu | 157,995,389 | 87,545,701 | 13,742,416 | 20,314,625 | |||||
FTRs | MW-Month | 532 | ||||||||
Oil | Barrels | 300,328 | 387,429 | 257,483 | 60,000 |
(a) | Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option. |
(PPL, LKE, LG&E and KU)
PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. Various financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt portfolio, adjust the duration of the debt portfolio and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under PPL's risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolio due to changes in benchmark interest rates.
Cash Flow Hedges
(PPL)
Interest rate risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings. Financial interest rate swap contracts that qualify as cash flow hedges may be entered into to hedge floating interest rate risk associated with both existing and anticipated debt issuances. At June 30, 2014, outstandingMarch 31, 2015, PPL held an aggregate notional value in interest rate swap contracts of $1.6 billion that range in maturity through 2026 for PPL's domestic2045. The amount outstanding includes swaps entered into by PPL on behalf of LG&E and KU. Realized gains and losses on the LG&E and KU swaps are probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest rate swaps. These swaps hadexpense is recorded.
At March 31, 2015, PPL held an aggregate notional value of $475 million at June 30, 2014.
For the three months ended June 30, 2014,March 31, 2015, PPL had no hedge ineffectiveness associated with interest rate derivatives. There werederivatives and an insignificant amounts of hedge ineffectiveness associated with interest rate derivativesamount for the sixthree months ended June 30, 2014 and three and six months ended June 30, 2013.
Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time period and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedged transaction is probable of not occurring. For the six months ended June 30, 2014, PPLoccurring.PPL had an insignificant amount reclassified associated with discontinued cash flow hedges. There were no such reclassifications for the three months ended June 30, 2014March 31, 2015 associated with discontinued cash flow hedges and an insignificant amount reclassified for the three and six months ended June 30, 2013.
At June 30, 2014,March 31, 2015, the accumulated net unrecognized after-tax gains (losses) on qualifying derivatives that are expected to be reclassified into earnings during the next 12 months were $(13) million. In addition, see Note 8 for unamortized losses on PPL interest rate swaps expected to be reclassified into earnings and reflected in discontinued operations at the close of the spinoff transaction. Amounts are reclassified as the hedged interest paymentsexpense is recorded.
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL that have terms identical to forward-starting swaps entered into by PPL with third parties. Realized gains and losses on all of these swaps are made.probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest expense is recorded. At March 31, 2015, the total notional amount of forward starting interest rate swaps outstanding was $1 billion (LG&E and KU each held contracts of $500 million). The swaps range in maturity through 2045.
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Economic Activity(PPL, LKE and LG&E)
LG&E enters into interest rate swap contracts that economically hedge interest payments on variable rate debt. Because realized gains and losses from the swaps, including a terminated swap contract, are recoverable through regulated rates, any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities until they are realized as interest expense. Realized gains and losses are recognized in "Interest Expense" on the Statements of Income whenat the time the underlying hedged interest expense is recorded. At June 30, 2014,March 31, 2015, LG&E held contracts with a notional amount of $179 million that range in maturity through 2033.
PPL is exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected GBP earnings.
Net Investment Hedges
PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. The contracts outstanding at June 30, 2014March 31, 2015 had a notional amount of £306£217 million (approximately $494$355 million based on contracted rates). The settlement dates of these contracts range from November 2014May 2015 through June 2016.
At June 30, 2014, the outstanding balances of the intercompany loans were £38 million (approximately $64 million based on spot rates). For the three and six months ended June 30, 2014, PPL recognized an insignificant amount of net investment hedge gains (losses) on the intercompany loans in the foreign currency translation adjustment component of OCI. For the three and six months ended June 30, 2013, PPL recognized an insignificant amount and $6 million of net investment hedge gains (losses) on the intercompany loans in the foreign currency translation adjustment component of OCI.
Economic Activity
PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At June 30, 2014,March 31, 2015, the total exposure hedged by PPL was approximately £1.7£1.3 billion (approximately $2.8$2.1 billion based on contracted rates). These contracts had termination dates ranging from July 2014April 2015 through December 2016.
(All Registrants)
All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected. NPNS contracts for PPL and PPL Energy Supply include certain full-requirement sales contracts, other physical purchase and sales contracts and certain retail energy and physical capacity contracts, and for PPL Electric include certain full-requirement purchase contracts and other physical purchase contracts. Changes in the fair value of derivatives not designated as NPNS are recognized currently in earnings unless specific hedge accounting criteria are met and designated as such, except for the
See Notes 1 and 1917 in each Registrant's 20132014 Form 10-K for additional information on accounting policies related to derivative instruments.
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The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets.
June 30, 2014 | December 31, 2013 | ||||||||||||||||||||||||||||
Derivatives designated as | Derivatives not designated | Derivatives designated as | Derivatives not designated | ||||||||||||||||||||||||||
hedging instruments | as hedging instruments | hedging instruments | as hedging instruments | ||||||||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||
Current: | |||||||||||||||||||||||||||||
Price Risk Management | |||||||||||||||||||||||||||||
Assets/Liabilities (a): | |||||||||||||||||||||||||||||
Interest rate swaps (b) | $ | 4 | $ | 82 | $ | 4 | |||||||||||||||||||||||
Cross-currency swaps (b) | $ | 5 | $ | 4 | |||||||||||||||||||||||||
Foreign currency | �� | ||||||||||||||||||||||||||||
contracts | 22 | 95 | 16 | 55 | |||||||||||||||||||||||||
Commodity contracts | $ | 954 | 1,133 | $ | 860 | 750 | |||||||||||||||||||||||
Total current | 27 | 954 | 1,232 | 82 | 20 | 860 | 809 | ||||||||||||||||||||||
Noncurrent: | |||||||||||||||||||||||||||||
Price Risk Management | |||||||||||||||||||||||||||||
Assets/Liabilities (a): | |||||||||||||||||||||||||||||
Interest rate swaps (b) | $ | 1 | 12 | 38 | 9 | 32 | |||||||||||||||||||||||
Cross-currency swaps (b) | 42 | 28 | |||||||||||||||||||||||||||
Foreign currency | |||||||||||||||||||||||||||||
contracts | 5 | 2 | 54 | 4 | 31 | ||||||||||||||||||||||||
Commodity contracts | 420 | 347 | 328 | 320 | |||||||||||||||||||||||||
Total noncurrent | 1 | 59 | 422 | 439 | 9 | 32 | 328 | 383 | |||||||||||||||||||||
Total derivatives | $ | 1 | $ | 86 | $ | 1,376 | $ | 1,671 | $ | 91 | $ | 52 | $ | 1,188 | $ | 1,192 |
March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||||
Derivatives designated as | Derivatives not designated | Derivatives designated as | Derivatives not designated | ||||||||||||||||||||||||||
hedging instruments | as hedging instruments | hedging instruments | as hedging instruments | ||||||||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||
Current: | |||||||||||||||||||||||||||||
Price Risk Management | |||||||||||||||||||||||||||||
Assets/Liabilities (a): | |||||||||||||||||||||||||||||
Interest rate swaps (b) | $ | 160 | $ | 5 | $ | 94 | $ | 5 | |||||||||||||||||||||
Cross-currency swaps (b) | $ | 1 | 2 | 3 | |||||||||||||||||||||||||
Foreign currency | |||||||||||||||||||||||||||||
contracts | 24 | $ | 106 | 2 | $ | 12 | $ | 67 | |||||||||||||||||||||
Commodity contracts | 988 | 904 | 1,079 | 1,024 | |||||||||||||||||||||||||
Total current | 25 | 162 | 1,094 | 911 | 12 | 97 | 1,146 | 1,029 | |||||||||||||||||||||
Noncurrent: | |||||||||||||||||||||||||||||
Price Risk Management | |||||||||||||||||||||||||||||
Assets/Liabilities (a): | |||||||||||||||||||||||||||||
Interest rate swaps (b) | 23 | 47 | 14 | 43 | |||||||||||||||||||||||||
Cross-currency swaps (b) | 48 | 29 | |||||||||||||||||||||||||||
Foreign currency | |||||||||||||||||||||||||||||
contracts | 10 | 69 | 4 | 5 | 46 | 2 | |||||||||||||||||||||||
Commodity contracts | 310 | 259 | 239 | 193 | |||||||||||||||||||||||||
Total noncurrent | 58 | 23 | 379 | 310 | 34 | 14 | 285 | 238 | |||||||||||||||||||||
Total derivatives | $ | 83 | $ | 185 | $ | 1,473 | $ | 1,221 | $ | 46 | $ | 111 | $ | 1,431 | $ | 1,267 |
(a) | Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the periodsthree months ended June 30, 2014.
2015 | 2014 | |||||||||||||||||||||||
Gain (Loss) | Gain (Loss) | |||||||||||||||||||||||
Recognized | Recognized | |||||||||||||||||||||||
in Income | in Income | |||||||||||||||||||||||
on Derivative | Gain (Loss) | on Derivative | ||||||||||||||||||||||
Gain (Loss) | (Ineffective | Reclassified | (Ineffective | |||||||||||||||||||||
Location of | Reclassified | Portion and | from AOCI | Portion and | ||||||||||||||||||||
Derivative Gain | Gain (Loss) | from AOCI | Amount | into | Amount | |||||||||||||||||||
(Loss) Recognized in | Recognized | into Income | Excluded from | Income | Excluded from | |||||||||||||||||||
Derivative | OCI (Effective Portion) | in Income | (Effective | Effectiveness | (Effective | Effectiveness | ||||||||||||||||||
Relationships | 2015 | 2014 | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
Cash Flow Hedges: | ||||||||||||||||||||||||
Interest rate swaps | $ | (19) | $ | (46) | Interest expense | $ | (4) | $ | (5) | $ | 2 | |||||||||||||
Cross-currency swaps | 21 | (25) | Interest expense | 1 | ||||||||||||||||||||
Other income | ||||||||||||||||||||||||
(expense) - net | 17 | (29) | ||||||||||||||||||||||
Commodity contracts | Unregulated | |||||||||||||||||||||||
wholesale energy | (2) | (1) | ||||||||||||||||||||||
Energy purchases | 8 | 7 | ||||||||||||||||||||||
Depreciation | 1 | 1 | ||||||||||||||||||||||
Discontinued operations | 2 | |||||||||||||||||||||||
Total | $ | 2 | $ | (71) | $ | 21 | $ | (25) | $ | 2 | ||||||||||||||
Net Investment Hedges: | ||||||||||||||||||||||||
Foreign currency contracts | $ | 16 | $ | (4) | ||||||||||||||||||||
Three Months | Six Months | |||||||||||||||||||||||
Gain (Loss) | Gain (Loss) | |||||||||||||||||||||||
Recognized | Recognized | |||||||||||||||||||||||
in Income | in Income | |||||||||||||||||||||||
on Derivative | Gain (Loss) | on Derivative | ||||||||||||||||||||||
Gain (Loss) | (Ineffective | Reclassified | (Ineffective | |||||||||||||||||||||
Location of | Reclassified | Portion and | from AOCI | Portion and | ||||||||||||||||||||
Derivative Gain | Gain (Loss) | from AOCI | Amount | into | Amount | |||||||||||||||||||
(Loss) Recognized in | Recognized | into Income | Excluded from | Income | Excluded from | |||||||||||||||||||
Derivative | OCI (Effective Portion) | in Income | (Effective | Effectiveness | (Effective | Effectiveness | ||||||||||||||||||
Relationships | Three Months | Six Months | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
Cash Flow Hedges: | ||||||||||||||||||||||||
Interest rate swaps | $ | (14) | $ | (60) | Interest expense | $ | (4) | $ | (9) | $ | 2 | |||||||||||||
Cross-currency swaps | 9 | (16) | Interest expense | 1 | 1 | |||||||||||||||||||
Other income | ||||||||||||||||||||||||
(expense) - net | (29) |
Three Months | Six Months | |||||||||||||||||||||||
Gain (Loss) | Gain (Loss) | |||||||||||||||||||||||
Recognized | Recognized | |||||||||||||||||||||||
in Income | in Income | |||||||||||||||||||||||
on Derivative | Gain (Loss) | on Derivative | ||||||||||||||||||||||
Gain (Loss) | (Ineffective | Reclassified | (Ineffective | |||||||||||||||||||||
Location of | Reclassified | Portion and | from AOCI | Portion and | ||||||||||||||||||||
Derivative Gain | Gain (Loss) | from AOCI | Amount | into | Amount | |||||||||||||||||||
(Loss) Recognized in | Recognized | into Income | Excluded from | Income | Excluded from | |||||||||||||||||||
Derivative | OCI (Effective Portion) | in Income | (Effective | Effectiveness | (Effective | Effectiveness | ||||||||||||||||||
Relationships | Three Months | Six Months | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
Commodity contracts | Unregulated wholesale | |||||||||||||||||||||||
energy | 5 | 6 | ||||||||||||||||||||||
Energy purchases | 8 | 15 | ||||||||||||||||||||||
Depreciation | 1 | |||||||||||||||||||||||
Total | $ | (5) | $ | (76) | $ | 10 | $ | (15) | $ | 2 | ||||||||||||||
Net Investment Hedges: | ||||||||||||||||||||||||
Foreign currency contracts | $ | (14) | $ | (18) |
Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
Hedging Instruments | Income on Derivative | Three Months | Six Months | |||||
Foreign currency contracts | Other income (expense) - net | $ | (72) | $ | (96) | |||
Interest rate swaps | Interest expense | (2) | (4) | |||||
Commodity contracts | Unregulated wholesale energy (a) | (91) | (3,135) | |||||
Unregulated retail energy | 12 | (52) | ||||||
Fuel | 8 | 7 | ||||||
Energy purchases (b) | 78 | 2,442 | ||||||
Total | $ | (67) | $ | (838) | ||||
Derivatives Not Designated as | Location of Gain (Loss) Recognized as | |||||||
Hedging Instruments | Regulatory Liabilities/Assets | Three Months | Six Months | |||||
Interest rate swaps | Regulatory assets - noncurrent | $ | (2) | $ | (6) |
71 |
Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
Hedging Instruments | Income on Derivative | 2015 | 2014 | |||||
Foreign currency contracts | Other income (expense) - net | $ | 88 | $ | (24) | |||
Interest rate swaps | Interest expense | (2) | (2) | |||||
Commodity contracts | Unregulated wholesale energy (a) | (229) | (3,042) | |||||
Unregulated retail energy | (39) | (64) | ||||||
Fuel | (3) | (1) | ||||||
Energy purchases (b) | 196 | 2,364 | ||||||
Discontinued operations | (2) | |||||||
Total | $ | 11 | $ | (771) | ||||
Derivatives Designated as | Location of Gain (Loss) Recognized as | |||||||
Hedging Instruments | Regulatory Liabilities/Assets | 2015 | 2014 | |||||
Interest rate swaps | Regulatory assets- noncurrent | $ | (56) | |||||
Derivatives Not Designated as | Location of Gain (Loss) Recognized as | |||||||
Hedging Instruments | Regulatory Liabilities/Assets | 2015 | 2014 | |||||
Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | (4) |
Three Months | Six Months | |||||||||||||||||||||||
Gain (Loss) | Gain (Loss) | |||||||||||||||||||||||
Recognized | Recognized | |||||||||||||||||||||||
in Income | in Income | |||||||||||||||||||||||
on Derivative | Gain (Loss) | on Derivative | ||||||||||||||||||||||
Gain (Loss) | (Ineffective | Reclassified | (Ineffective | |||||||||||||||||||||
Location of | Reclassified | Portion and | from AOCI | Portion and | ||||||||||||||||||||
Derivative Gain | Gain (Loss) | from AOCI | Amount | into | Amount | |||||||||||||||||||
(Loss) Recognized in | Recognized | into Income | Excluded from | Income | Excluded from | |||||||||||||||||||
Derivative | OCI (Effective Portion) | in Income | (Effective | Effectiveness | (Effective | Effectiveness | ||||||||||||||||||
Relationships | Three Months | Six Months | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
Cash Flow Hedges: | ||||||||||||||||||||||||
Interest rate swaps | $ | 68 | $ | 77 | Interest expense | $ | (4) | $ | (9) | |||||||||||||||
Cross-currency swaps | (21) | 52 | Interest expense | 1 | 1 | |||||||||||||||||||
Other income | ||||||||||||||||||||||||
(expense) - net | 1 | 70 | ||||||||||||||||||||||
Commodity contracts | Unregulated | |||||||||||||||||||||||
wholesale energy | 73 | 140 | $ | 1 | ||||||||||||||||||||
Energy purchases | (14) | (30) | ||||||||||||||||||||||
Depreciation | 1 | 1 | ||||||||||||||||||||||
Total | $ | 47 | $ | 129 | $ | 58 | $ | 173 | $ | 1 | ||||||||||||||
Net Investment Hedges: | ||||||||||||||||||||||||
Foreign currency contracts | $ | 1 | $ | 17 |
Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
Hedging Instruments | Income on Derivative | Three Months | Six Months | |||||
Foreign currency contracts | Other income (expense) - net | $ | 4 | $ | 123 | |||
Interest rate swaps | Interest expense | (2) | (4) | |||||
Commodity contracts | Unregulated wholesale energy | 740 | 34 | |||||
Unregulated retail energy | 22 | 15 | ||||||
Fuel | (3) | (2) | ||||||
Energy purchases | (599) | (13) | ||||||
Total | $ | 162 | $ | 153 | ||||
Derivatives Not Designated as | Location of Gain (Loss) Recognized as | |||||||
Hedging Instruments | Regulatory Liabilities/Assets | Three Months | Six Months | |||||
Interest rate swaps | Regulatory assets - noncurrent | $ | 11 | $ | 15 | |||
Derivatives Designated as | Location of Gain (Loss) Recognized as | |||||||
Hedging Instruments | Regulatory Liabilities/Assets | Three Months | Six Months | |||||
Interest rate swaps | Regulatory liabilities - noncurrent | $ | 48 | $ | 58 |
The following table presents the fair value and the location on the Balance Sheets of derivative instruments recorded on the Balance Sheets.
June 30, 2014 | December 31, 2013 | |||||||||||||||||
Derivatives not designated | Derivatives not designated | |||||||||||||||||
as hedging instruments | as hedging instruments | |||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||
Current: | ||||||||||||||||||
Price Risk Management | ||||||||||||||||||
Assets/Liabilities (a): | ||||||||||||||||||
Commodity contracts | $ | 954 | $ | 1,133 | $ | 860 | $ | 750 | ||||||||||
Total current | 954 | 1,133 | 860 | 750 | ||||||||||||||
Noncurrent: | ||||||||||||||||||
Price Risk Management | ||||||||||||||||||
Assets/Liabilities (a): | ||||||||||||||||||
Commodity contracts | 420 | 347 | 328 | 320 | ||||||||||||||
Total noncurrent | 420 | 347 | 328 | 320 | ||||||||||||||
Total derivatives | $ | 1,374 | $ | 1,480 | $ | 1,188 | $ | 1,070 |
March 31, 2015 | December 31, 2014 | |||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||
Current: | ||||||||||||||||||
Price Risk Management | ||||||||||||||||||
Assets/Liabilities (a): | ||||||||||||||||||
Interest rate swaps | $ | 122 | $ | 66 |
(a) | Represents the location on the Balance Sheets. |
Three Months | Six Months | |||||||||||||||||||||||
Gain (Loss) | Gain (Loss) | |||||||||||||||||||||||
Recognized | Recognized | |||||||||||||||||||||||
in Income | in Income | |||||||||||||||||||||||
on Derivative | on Derivative | |||||||||||||||||||||||
Gain (Loss) | (Ineffective | Gain (Loss) | (Ineffective | |||||||||||||||||||||
Location of | Reclassified | Portion and | Reclassified | Portion and | ||||||||||||||||||||
Derivative Gain | Gains (Losses) | from AOCI | Amount | from AOCI | Amount | |||||||||||||||||||
(Loss) Recognized in | Recognized | into Income | Excluded from | into Income | Excluded from | |||||||||||||||||||
Derivative | OCI (Effective Portion) | in Income | (Effective | Effectiveness | (Effective | Effectiveness | ||||||||||||||||||
Relationships | Three Months | Six Months | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
Cash Flow Hedges: | ||||||||||||||||||||||||
Commodity contracts | Unregulated wholesale | |||||||||||||||||||||||
energy | $ | 5 | $ | 6 | ||||||||||||||||||||
Energy purchases | 8 | 15 | ||||||||||||||||||||||
Depreciation | 1 | |||||||||||||||||||||||
Total | $ | 13 | $ | 22 |
Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
Hedging Instruments | Income on Derivative | Three Months | Six Months | |||||
Commodity contracts | Unregulated wholesale energy (a) | $ | (91) | $ | (3,135) | |||
Unregulated retail energy | 12 | (52) | ||||||
Fuel | 8 | 7 | ||||||
Energy purchases (b) | 78 | 2,442 | ||||||
Total | $ | 7 | $ | (738) |
Three Months | Six Months | |||||||||||||||||||||||
Gain (Loss) | Gain (Loss) | |||||||||||||||||||||||
Recognized | Recognized | |||||||||||||||||||||||
in Income | in Income | |||||||||||||||||||||||
on Derivative | on Derivative | |||||||||||||||||||||||
Gain (Loss) | (Ineffective | Gain (Loss) | (Ineffective | |||||||||||||||||||||
Location of | Reclassified | Portion and | Reclassified | Portion and | ||||||||||||||||||||
Derivative Gain | Gains (Losses) | from AOCI | Amount | from AOCI | Amount | |||||||||||||||||||
(Loss) Recognized in | Recognized | into Income | Excluded from | into Income | Excluded from | |||||||||||||||||||
Derivative | OCI (Effective Portion) | in Income | (Effective | Effectiveness | (Effective | Effectiveness | ||||||||||||||||||
Relationships | Three Months | Six Months | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
Cash Flow Hedges: | ||||||||||||||||||||||||
Unregulated | ||||||||||||||||||||||||
Commodity contracts | wholesale energy | $ | 73 | $ | 140 | $ | 1 | |||||||||||||||||
Energy purchases | (14) | (30) | ||||||||||||||||||||||
Depreciation | 1 | 1 | ||||||||||||||||||||||
Total | $ | 60 | $ | 111 | $ | 1 |
Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
Hedging Instruments | Income on Derivative | Three Months | Six Months | |||||
Commodity contracts | Unregulated wholesale energy | $ | 740 | $ | 34 | |||
Unregulated retail energy | 22 | 15 | ||||||
Fuel | (3) | (2) | ||||||
Energy purchases | (599) | (13) | ||||||
Total | $ | 160 | $ | 34 |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilitiesassets for the periodsthree months ended June 30, 2013.
Derivative Instruments | Location of Gain (Loss) | Three Months | Six Months | |||||
Interest rate swaps | Regulatory liabilities - noncurrent | $ | 48 | $ | 58 |
Location of Gain (Loss) Recognized in | ||||||||
Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
Interest rate swaps | Regulatory assets - noncurrent | $ | (56) | |||||
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
March 31, 2015 | December 31, 2014 | |||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||
Current: | ||||||||||||||||||
Price Risk Management | ||||||||||||||||||
Assets/Liabilities (a): | ||||||||||||||||||
Interest rate swaps | $ | 61 | $ | 33 |
(a) | Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilitiesassets for the periodsthree months ended June 30, 2013.March 31.
72 |
Derivative Instruments | Location of Gain (Loss) | Three Months | Six Months | |||||
Interest rate swaps | Regulatory liabilities - noncurrent | $ | 24 | $ | 29 |
Location of Gain (Loss) Recognized in | ||||||||
Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
Interest rate swaps | Regulatory assets - noncurrent | $ | (28) |
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
March 31, 2015 | December 31, 2014 | |||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||
Current: | ||||||||||||||||||
Price Risk Management | ||||||||||||||||||
Assets/Liabilities (a): | ||||||||||||||||||
Interest rate swaps | $ | 61 | $ | 33 |
(a) | Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilitiesassets for the periodsthree months ended June 30, 2013.
Derivative Instruments | Location of Gain (Loss) | Three Months | Six Months | |||||
Interest rate swaps | Regulatory liabilities - noncurrent | $ | 24 | $ | 29 |
Location of Gain (Loss) Recognized in | ||||||||
Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
Interest rate swaps | Regulatory assets - noncurrent | $ | (28) |
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
June 30, 2014 | December 31, 2013 | ||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | ||||||||||||||||
Current: | |||||||||||||||||||
Price Risk Management | |||||||||||||||||||
Assets/Liabilities (a): | |||||||||||||||||||
Interest rate swaps | $ | 4 | $ | 4 | |||||||||||||||
Total current | 4 | 4 | |||||||||||||||||
Noncurrent: | |||||||||||||||||||
Price Risk Management | |||||||||||||||||||
Assets/Liabilities (a): | |||||||||||||||||||
Interest rate swaps | 38 | 32 | |||||||||||||||||
Total noncurrent | 38 | 32 | |||||||||||||||||
Total derivatives | $ | 42 | $ | 36 |
March 31, 2015 | December 31, 2014 | |||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||
Current: | ||||||||||||||||||
Price Risk Management | ||||||||||||||||||
Assets/Liabilities (a): | ||||||||||||||||||
Interest rate swaps | $ | 5 | $ | 5 | ||||||||||||||
Total current | 5 | 5 | ||||||||||||||||
Noncurrent: | ||||||||||||||||||
Price Risk Management | ||||||||||||||||||
Assets/Liabilities (a): | ||||||||||||||||||
Interest rate swaps | 47 | 43 | ||||||||||||||||
Total noncurrent | 47 | 43 | ||||||||||||||||
Total derivatives | $ | 52 | $ | 48 |
(a) | Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivatives not designated as hedging instrumentscash flow hedges that are recognized in income or regulatory assets for the periodsthree months ended June 30, 2014.
Location of Gain (Loss) Recognized in | ||||||||
Derivative Instruments | Income on Derivatives | Three Months | Six Months | |||||
Interest rate swaps | Interest expense | $ | (2) | $ | (4) | |||
Location of Gain (Loss) Recognized in | ||||||||
Derivative Instruments | Regulatory Assets | Three Months | Six Months | |||||
Interest rate swaps | Regulatory assets - noncurrent | $ | (2) | $ | (6) |
Location of Gain (Loss) Recognized in | ||||||||
Derivative Instruments | Income on Derivatives | Three Months | Six Months | |||||
Interest rate swaps | Interest expense | $ | (2) | $ | (4) | |||
Location of Gain (Loss) Recognized in | ||||||||
Derivative Instruments | Regulatory Assets | Three Months | Six Months | |||||
Interest rate swaps | Regulatory assets - noncurrent | $ | 11 | $ | 15 |
Location of Gain (Loss) Recognized in | ||||||||
Derivative Instruments | Income on Derivatives | 2015 | 2014 | |||||
Interest rate swaps | Interest expense | $ | (2) | $ | (2) | |||
Location of Gain (Loss) Recognized in | ||||||||
Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | (4) |
Offsetting Derivative Instruments
PPL, PPL Energy Supply, LKE, LG&E and KU or certain of their subsidiaries have master netting arrangements or similar agreements in place including derivative clearing agreements with futures commission merchants (FCMs) to permit the trading of cleared
73 |
derivative products on one or more futures exchanges. The clearing arrangements permit ana FCM to use and apply any property in its possession as a set off to pay amounts or discharge obligations owed by a customer upon default of the customer and typically do not place any restrictions on the FCM's use of collateral posted by the customer. PPL, PPL Energy Supply, LKE, LG&E and KU and their subsidiaries also enter into agreements pursuant to which they trade certain energy and other products. Under the agreements, upon termination of the agreement as a result of a default or other termination event, the non-defaulting party typically would have a right to setoff amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.
PPL, PPL Energy Supply, LKE, LG&E and KU have elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivatives agreements.The table below summarizes the derivative positions presented in the balance sheets where a right of setoff exists under these arrangements and related cash collateral received or pledged.
Assets | Liabilities | ||||||||||||||||||||||||||
Eligible for Offset | Eligible for Offset | ||||||||||||||||||||||||||
Cash | Cash | ||||||||||||||||||||||||||
Derivative | Collateral | Derivative | Collateral | ||||||||||||||||||||||||
Gross | Instruments | Received | Net | Gross | Instruments | Pledged | Net | ||||||||||||||||||||
June 30, 2014 | |||||||||||||||||||||||||||
PPL | |||||||||||||||||||||||||||
Energy Commodities | $ | 1,374 | $ | 1,176 | $ | 12 | $ | 186 | $ | 1,480 | $ | 1,176 | $ | 148 | $ | 156 | |||||||||||
Treasury Derivatives | 3 | 3 | 277 | 3 | 55 | 219 | |||||||||||||||||||||
Total | $ | 1,377 | $ | 1,179 | $ | 12 | $ | 186 | $ | 1,757 | $ | 1,179 | $ | 203 | $ | 375 | |||||||||||
PPL Energy Supply | |||||||||||||||||||||||||||
Energy Commodities | $ | 1,374 | $ | 1,176 | $ | 12 | $ | 186 | $ | 1,480 | $ | 1,176 | $ | 148 | $ | 156 |
LKE | ||||||||||||||||||||||||||
Treasury Derivatives | $ | 42 | $ | 21 | $ | 21 | ||||||||||||||||||||
LG&E | ||||||||||||||||||||||||||
Treasury Derivatives | $ | 42 | $ | 21 | $ | 21 |
December 31, 2013 | ||||||||||||||||||||||||||
PPL | ||||||||||||||||||||||||||
Energy Commodities | $ | 1,188 | $ | 912 | $ | 7 | $ | 269 | $ | 1,070 | $ | 912 | $ | 1 | $ | 157 | ||||||||||
Treasury Derivatives | 91 | 61 | 30 | 174 | 61 | 23 | 90 | |||||||||||||||||||
Total | $ | 1,279 | $ | 973 | $ | 7 | $ | 299 | $ | 1,244 | $ | 973 | $ | 24 | $ | 247 | ||||||||||
PPL Energy Supply | ||||||||||||||||||||||||||
Energy Commodities | $ | 1,188 | $ | 912 | $ | 7 | $ | 269 | $ | 1,070 | $ | 912 | $ | 1 | $ | 157 |
LKE | ||||||||||||||||||||||||||
Treasury Derivatives | $ | 36 | $ | 20 | $ | 16 | ||||||||||||||||||||
LG&E | ||||||||||||||||||||||||||
Treasury Derivatives | $ | 36 | $ | 20 | $ | 16 |
Assets | Liabilities | ||||||||||||||||||||||||
Eligible for Offset | Eligible for Offset | ||||||||||||||||||||||||
Cash | Cash | ||||||||||||||||||||||||
Derivative | Collateral | Derivative | Collateral | ||||||||||||||||||||||
Gross | Instruments | Received | Net | Gross | Instruments | Pledged | Net | ||||||||||||||||||
March 31, 2015 | |||||||||||||||||||||||||
PPL | |||||||||||||||||||||||||
Energy Commodities | $ | 1,298 | $ | 990 | $ | 11 | $ | 297 | $ | 1,163 | $ | 990 | $ | 49 | $ | 124 | |||||||||
Treasury Derivatives | 258 | 105 | 153 | 243 | 105 | 21 | 117 | ||||||||||||||||||
Total | $ | 1,556 | $ | 1,095 | $ | 11 | $ | 450 | $ | 1,406 | $ | 1,095 | $ | 70 | $ | 241 |
LKE | |||||||||||||||||||||||||
Treasury Derivatives | $ | 174 | $ | 21 | $ | 153 | |||||||||||||||||||
LG&E | |||||||||||||||||||||||||
Treasury Derivatives | $ | 113 | $ | 21 | $ | 92 | |||||||||||||||||||
KU | |||||||||||||||||||||||||
Treasury Derivatives | $ | 61 | $ | $ | 61 |
December 31, 2014 | |||||||||||||||||||||||||
PPL | |||||||||||||||||||||||||
Energy Commodities | $ | 1,318 | $ | 1,060 | $ | 10 | $ | 248 | $ | 1,217 | $ | 1,060 | $ | 58 | $ | 99 | |||||||||
Treasury Derivatives | 159 | 65 | 94 | 161 | 65 | 21 | 75 | ||||||||||||||||||
Total | $ | 1,477 | $ | 1,125 | $ | 10 | $ | 342 | $ | 1,378 | $ | 1,125 | $ | 79 | $ | 174 |
LKE | |||||||||||||||||||||||||
Treasury Derivatives | $ | 114 | $ | 20 | $ | 94 | |||||||||||||||||||
LG&E | |||||||||||||||||||||||||
Treasury Derivatives | $ | 81 | $ | 20 | $ | 61 | |||||||||||||||||||
KU | |||||||||||||||||||||||||
Treasury Derivatives | $ | 33 | $ | 33 |
Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, PPL Energy Supply, LKE, LG&E and KU or certain of their subsidiaries. Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade. Some of these features also would allow the counterparty to require additional collateral upon each downgrade in the credit rating at levels that remain above investment grade. In either case, if the applicable credit rating were to fall below investment grade, (i.e., below BBB- for S&P or Fitch, or Baa3 for Moody's), and assuming no assignment to an investment grade affiliate were allowed, most of these credit contingent features require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization on derivative instruments in net liability positions.
Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of PPL's, obligationLKE's, LG&E's, and KU's obligations under the contract.contracts. A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity. This would typically
74 |
involve negotiations among the parties. However, amounts disclosed below represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" features.
(All Registrants except PPL Electric and KU)
At June 30, 2014,March 31, 2015, derivative contracts in a net liability position that contain credit risk-related contingent features, collateral posted on those positions and the related effect of a decrease in credit ratings below investment grade are summarized as follows:
PPL | ||||||||||||||
PPL | Energy Supply | LKE | LG&E | |||||||||||
Aggregate fair value of derivative instruments in a net liability | ||||||||||||||
position with credit risk-related contingent features | $ | 373 | $ | 155 | $ | 28 | $ | 28 | ||||||
Aggregate fair value of collateral posted on these derivative instruments | 155 | 134 | 21 | 21 | ||||||||||
Aggregate fair value of additional collateral requirements in the event of | ||||||||||||||
a credit downgrade below investment grade (a) | 265 | (b) | 68 | (b) | 8 | 8 |
PPL | LKE | LG&E | |||||||||
Aggregate fair value of derivative instruments in a net liability position with credit risk-related | |||||||||||
contingent features | $ | 241 | $ | 31 | $ | 31 | |||||
Aggregate fair value of collateral posted on these derivative instruments | 140 | 22 | 22 | ||||||||
Aggregate fair value of additional collateral requirements in the event of | |||||||||||
a credit downgrade below investment grade (a) | 128 | (b) | 10 | 10 |
(a) | Includes the effect of net receivables and payables already recorded on the Balance Sheet. |
(PPL)
The change in the carrying amount of goodwill for the sixthree months ended June 30, 2014March 31, 2015 was due to the effect of foreign currency exchange rates on the U.K. Regulated segment.
(All Registrants except PPL Electric) | |||||||||||||||||
The changes in the carrying amounts of AROs were as follows. | |||||||||||||||||
PPL | |||||||||||||||||
PPL | Energy Supply | LKE | LG&E | KU | |||||||||||||
Balance at December 31, 2013 | $ | 705 | $ | 404 | $ | 252 | $ | 74 | $ | 178 | |||||||
Accretion expense | 22 | 15 | 6 | 2 | 4 | ||||||||||||
Obligations incurred | 1 | 1 | 1 | ||||||||||||||
Changes in estimated cash flow or settlement date | 4 | 4 | 1 | 3 | |||||||||||||
Effect of foreign currency exchange rates | 1 | ||||||||||||||||
Obligations settled | (5) | (3) | (2) | (2) | |||||||||||||
Balance at June 30, 2014 | $ | 728 | $ | 416 | $ | 261 | $ | 75 | $ | 186 |
Substantially all of the ARO balances are classified as noncurrent at June 30, 2014March 31, 2015 and December 31, 2013.
See Note 10 for information on a CCR rule that is expected to require the recording of additional AROs in the second quarter of 2015.
PPL's most significant ARO recorded by PPL Energy Supply relates to the decommissioning of the Susquehanna nuclear plant. Assets in the NDT funds are legally restricted for purposes of settling this ARO. See Notes 13 and 17 for additional information on these assets.
LG&E's and KU's accretion and ARO-related depreciation expense are recorded as a regulatory asset, such that there is no net earnings impact.
(PPL)
Securities held by the NDT funds and auction rate securities are classified as available-for-sale. Available-for-sale securities are carried on the Balance Sheets at fair value. Unrealized gains and losses on these securities are reported, net of tax, in OCI
75 |
or are recognized currently in earnings when a decline in fair value is determined to be other-than-temporary. The specific identification method is used to calculate realized gains and losses.
The following table shows the amortized cost, the gross unrealized gains and losses recorded in AOCI and the fair value of available-for-sale securities.
June 30, 2014 | December 31, 2013 | ||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | ||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Amortized | Unrealized | Unrealized | ||||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
NDT funds: | |||||||||||||||||||||||||||||
PPL and PPL Energy Supply | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 16 | $ | 16 | $ | 14 | $ | 14 | |||||||||||||||||||||
Equity securities | 272 | $ | 393 | 665 | 265 | $ | 363 | 628 | |||||||||||||||||||||
Debt securities | 218 | 11 | $ | 1 | 228 | 217 | 7 | $ | 3 | 221 | |||||||||||||||||||
Receivables/payables, net | 2 | 2 | 1 | 1 | |||||||||||||||||||||||||
Total NDT funds | $ | 508 | $ | 404 | $ | 1 | $ | 911 | $ | 497 | $ | 370 | $ | 3 | $ | 864 | |||||||||||||
Auction rate securities: | |||||||||||||||||||||||||||||
PPL | $ | 17 | $ | 1 | $ | 16 | $ | 20 | $ | 1 | $ | 19 | |||||||||||||||||
PPL Energy Supply | 14 | 1 | 13 | 17 | 1 | 16 |
March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | ||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Amortized | Unrealized | Unrealized | ||||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
NDT funds: | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 20 | $ | 20 | $ | 19 | $ | 19 | |||||||||||||||||||||
Equity securities | 287 | $ | 426 | 713 | 283 | $ | 417 | 700 | |||||||||||||||||||||
Debt securities | 218 | 12 | $ | 1 | 229 | 218 | 11 | 229 | |||||||||||||||||||||
Receivables/payables, net | 3 | 3 | 2 | 2 | |||||||||||||||||||||||||
Total NDT funds | $ | 528 | $ | 438 | $ | 1 | $ | 965 | $ | 522 | $ | 428 | $ | 950 | |||||||||||||||
Auction rate securities | |||||||||||||||||||||||||||||
PPL | $ | 11 | $ | 1 | $ | 10 | $ | 11 | $ | 1 | $ | 10 |
See Note 13 for details on the securities held by the NDT funds.
There were no securities with credit losses at June 30, 2014March 31, 2015 and December 31, 2013.
The following table shows the scheduled maturity dates of debt securities held at June 30, 2014.
Maturity | Maturity | Maturity | Maturity | |||||||||||||
Less Than | 1-5 | 6-10 | in Excess | |||||||||||||
1 Year | Years | Years | of 10 Years | Total | ||||||||||||
PPL | ||||||||||||||||
Amortized cost | $ | 8 | $ | 89 | $ | 60 | $ | 78 | $ | 235 | ||||||
Fair value | 8 | 91 | 63 | 82 | 244 | |||||||||||
PPL Energy Supply | ||||||||||||||||
Amortized cost | $ | 8 | $ | 89 | $ | 60 | $ | 75 | $ | 232 | ||||||
Fair value | 8 | 91 | 63 | 79 | 241 |
Maturity | Maturity | Maturity | Maturity | |||||||||||||
Less Than | 1-5 | 6-10 | in Excess | |||||||||||||
1 Year | Years | Years | of 10 Years | Total | ||||||||||||
Amortized cost | $ | 11 | $ | 82 | $ | 67 | $ | 69 | $ | 229 | ||||||
Fair value | 11 | 84 | 70 | 74 | 239 |
The following table shows proceeds from and realized gains and losses on sales of available-for-sale securities for the periods ended June 30.
Three Months | Six Months | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
PPL and PPL Energy Supply | |||||||||||||
Proceeds from sales of NDT securities (a) | $ | 38 | $ | 35 | $ | 65 | $ | 59 | |||||
Other proceeds from sales | 3 | ||||||||||||
Gross realized gains (b) | 5 | 3 | 8 | 7 | |||||||||
Gross realized losses (b) | 3 | 2 | 4 | 4 |
Three Months | |||||||||||||
2015 | 2014 | ||||||||||||
Proceeds from sales of NDT securities (a) | $ | 38 | $ | 27 | |||||||||
Other proceeds from sales | 3 | ||||||||||||
Gross realized gains (b) | 5 | 3 | |||||||||||
Gross realized losses (b) | 3 | 1 |
(a) | These proceeds are used to pay income taxes and fees related to managing the trust. Remaining proceeds are reinvested in the trust. |
(b) | Excludes the impact of other-than-temporary impairment charges recognized on the Statements of Income. |
(PPL)
The after-tax changes in AOCI by component for the periodsthree months ended June 30March 31 were as follows.
Foreign | Unrealized gains (losses) | Defined benefit plans | ||||||||||||||||||||||
currency | Available- | Equity | Prior | Actuarial | Transition | |||||||||||||||||||
translation | for-sale | Qualifying | investees' | service | gain | asset | ||||||||||||||||||
adjustments | securities | derivatives | AOCI | costs | (loss) | (obligation) | Total | |||||||||||||||||
December 31, 2014 | $ | (286) | $ | 202 | $ | 20 | $ | 1 | $ | 3 | $ | (2,215) | $ | 1 | $ | (2,274) | ||||||||
Amounts arising during the period | (66) | 5 | 6 | (1) | (56) | |||||||||||||||||||
Reclassifications from AOCI | (1) | (17) | (1) | 38 | 19 | |||||||||||||||||||
Net OCI during the period | (66) | 4 | (11) | (1) | 37 | (37) | ||||||||||||||||||
March 31, 2015 | $ | (352) | $ | 206 | $ | 9 | $ | $ | 3 | $ | (2,178) | $ | 1 | $ | (2,311) | |||||||||
76 |
Foreign | Unrealized gains (losses) | Defined benefit plans | ||||||||||||||||||||||
currency | Available- | Equity | Prior | Actuarial | Transition | |||||||||||||||||||
translation | for-sale | Qualifying | investees' | service | gain | asset | ||||||||||||||||||
adjustments | securities | derivatives | AOCI | costs | (loss) | (obligation) | Total | |||||||||||||||||
PPL | ||||||||||||||||||||||||
March 31, 2014 | $ | 120 | $ | 177 | $ | 67 | $ | 1 | $ | (5) | $ | (1,790) | $ | 1 | $ | (1,429) | ||||||||
Amounts arising during the period | (3) | 14 | (1) | (2) | 8 | |||||||||||||||||||
Reclassifications from AOCI | (1) | (5) | 1 | 28 | 23 | |||||||||||||||||||
Net OCI during the period | (3) | 13 | (6) | 1 | 26 | 31 | ||||||||||||||||||
June 30, 2014 | $ | 117 | $ | 190 | $ | 61 | $ | 1 | $ | (4) | $ | (1,764) | $ | 1 | $ | (1,398) |
Foreign | Unrealized gains (losses) | Defined benefit plans | ||||||||||||||||||||||
currency | Available- | Equity | Prior | Actuarial | Transition | |||||||||||||||||||
translation | for-sale | Qualifying | investees' | service | gain | asset | ||||||||||||||||||
adjustments | securities | derivatives | AOCI | costs | (loss) | (obligation) | Total | |||||||||||||||||
December 31, 2013 | $ | (11) | $ | 173 | $ | 94 | $ | 1 | $ | (6) | $ | (1,817) | $ | 1 | $ | (1,565) | ||||||||
Amounts arising during the period | 128 | 19 | (47) | (2) | 98 | |||||||||||||||||||
Reclassifications from AOCI | (2) | 14 | 2 | 55 | 69 | |||||||||||||||||||
Net OCI during the period | 128 | 17 | (33) | 2 | 53 | 167 | ||||||||||||||||||
June 30, 2014 | $ | 117 | $ | 190 | $ | 61 | $ | 1 | $ | (4) | $ | (1,764) | $ | 1 | $ | (1,398) | ||||||||
March 31, 2013 | $ | (394) | $ | 134 | $ | 114 | $ | 1 | $ | (13) | $ | (1,989) | $ | 1 | $ | (2,146) | ||||||||
Amounts arising during the period | (7) | 2 | 24 | 19 | ||||||||||||||||||||
Reclassifications from AOCI | (1) | (36) | 2 | 34 | (1) | |||||||||||||||||||
Net OCI during the period | (7) | 1 | (12) | 2 | 34 | 18 | ||||||||||||||||||
June 30, 2013 | $ | (401) | $ | 135 | $ | 102 | $ | 1 | $ | (11) | $ | (1,955) | $ | 1 | $ | (2,128) | ||||||||
December 31, 2012 | $ | (149) | $ | 112 | $ | 132 | $ | 1 | $ | (14) | $ | (2,023) | $ | 1 | $ | (1,940) | ||||||||
Amounts arising during the period | (252) | 25 | 86 | (141) | ||||||||||||||||||||
Reclassifications from AOCI | (2) | (116) | 3 | 68 | (47) | |||||||||||||||||||
Net OCI during the period | (252) | 23 | (30) | 3 | 68 | (188) | ||||||||||||||||||
June 30, 2013 | $ | (401) | $ | 135 | $ | 102 | $ | 1 | $ | (11) | $ | (1,955) | $ | 1 | $ | (2,128) | ||||||||
PPL Energy Supply | ||||||||||||||||||||||||
March 31, 2014 | $ | 177 | $ | 83 | $ | (3) | $ | (179) | $ | 78 | ||||||||||||||
Amounts arising during the period | 14 | 14 | ||||||||||||||||||||||
Reclassifications from AOCI | (1) | (8) | 2 | (7) | ||||||||||||||||||||
Net OCI during the period | 13 | (8) | 2 | 7 | ||||||||||||||||||||
June 30, 2014 | $ | 190 | $ | 75 | $ | (3) | $ | (177) | $ | 85 | ||||||||||||||
December 31, 2013 | $ | 173 | $ | 88 | $ | (4) | $ | (180) | $ | 77 | ||||||||||||||
Amounts arising during the period | 19 | 19 | ||||||||||||||||||||||
Reclassifications from AOCI | (2) | (13) | 1 | 3 | (11) | |||||||||||||||||||
Net OCI during the period | 17 | (13) | 1 | 3 | 8 | |||||||||||||||||||
June 30, 2014 | $ | 190 | $ | 75 | $ | (3) | $ | (177) | $ | 85 | ||||||||||||||
March 31, 2013 | $ | 134 | $ | 181 | $ | (9) | $ | (261) | $ | 45 | ||||||||||||||
Amounts arising during the period | 2 | 2 | ||||||||||||||||||||||
Reclassifications from AOCI | (1) | (37) | 1 | 4 | (33) | |||||||||||||||||||
Net OCI during the period | 1 | (37) | 1 | 4 | (31) | |||||||||||||||||||
June 30, 2013 | $ | 135 | $ | 144 | $ | (8) | $ | (257) | $ | 14 | ||||||||||||||
December 31, 2012 | $ | 112 | $ | 211 | $ | (10) | $ | (265) | $ | 48 | ||||||||||||||
Amounts arising during the period | 25 | 25 | ||||||||||||||||||||||
Reclassifications from AOCI | (2) | (67) | 2 | 8 | (59) | |||||||||||||||||||
Net OCI during the period | 23 | (67) | 2 | 8 | (34) | |||||||||||||||||||
June 30, 2013 | $ | 135 | $ | 144 | $ | (8) | $ | (257) | $ | 14 |
Foreign | Unrealized gains (losses) | Defined benefit plans | ||||||||||||||||||||||
currency | Available- | Equity | Prior | Actuarial | Transition | |||||||||||||||||||
translation | for-sale | Qualifying | investees' | service | gain | asset | ||||||||||||||||||
adjustments | securities | derivatives | AOCI | costs | (loss) | (obligation) | Total | |||||||||||||||||
December 31, 2013 | $ | (11) | $ | 173 | $ | 94 | $ | 1 | $ | (6) | $ | (1,817) | $ | 1 | $ | (1,565) | ||||||||
Amounts arising during the period | 131 | 5 | (46) | 90 | ||||||||||||||||||||
Reclassifications from AOCI | (1) | 19 | 1 | 27 | 46 | |||||||||||||||||||
Net OCI during the period | 131 | 4 | (27) | 1 | 27 | 136 | ||||||||||||||||||
March 31, 2014 | $ | 120 | $ | 177 | $ | 67 | $ | 1 | $ | (5) | $ | (1,790) | $ | 1 | $ | (1,429) |
The following table presents the gains (losses) and related income taxes for reclassifications from AOCI for the periodsthree months ended June 30.March 31. The defined benefit plan components of AOCI are not reflected in their entirety in the statement of income during the periods; rather, they are included in the computation of net periodic defined benefit costs (credits). See Note 9 for additional information.
Three Months | |||||||||||||||
PPL | PPL Energy Supply | Affected Line Item on the | |||||||||||||
Details about AOCI | 2014 | 2013 | 2014 | 2013 | Statements of Income | ||||||||||
Available-for-sale securities | $ | 2 | $ | 1 | $ | 2 | $ | 1 | Other Income (Expense) - net | ||||||
Total Pre-tax | 2 | 1 | 2 | 1 | |||||||||||
Income Taxes | (1) | (1) | |||||||||||||
Total After-tax | 1 | 1 | 1 | 1 | |||||||||||
Qualifying derivatives | |||||||||||||||
Interest rate swaps | (4) | (4) | Interest Expense | ||||||||||||
Cross-currency swaps | 1 | Other Income (Expense) - net | |||||||||||||
1 | 1 | Interest Expense | |||||||||||||
Energy commodities | 5 | 73 | 5 | 73 | Unregulated wholesale energy | ||||||||||
8 | (14) | 8 | (14) | Energy purchases | |||||||||||
1 | 1 | Other | |||||||||||||
Total Pre-tax | 10 | 58 | 13 | 60 |
Three Months | |||||||||||||||
PPL | PPL Energy Supply | Affected Line Item on the | |||||||||||||
Details about AOCI | 2014 | 2013 | 2014 | 2013 | Statements of Income | ||||||||||
Income Taxes | (5) | (22) | (5) | (23) | |||||||||||
Total After-tax | 5 | 36 | 8 | 37 | |||||||||||
Defined benefit plans | |||||||||||||||
Prior service costs | (2) | (3) | (1) | ||||||||||||
Net actuarial loss | (36) | (46) | (3) | (7) | |||||||||||
Total Pre-tax | (38) | (49) | (3) | (8) | |||||||||||
Income Taxes | 9 | 13 | 1 | 3 | |||||||||||
Total After-tax | (29) | (36) | (2) | (5) | |||||||||||
Total reclassifications during the period | $ | (23) | $ | 1 | $ | 7 | $ | 33 | |||||||
Six Months | |||||||||||||||
PPL | PPL Energy Supply | Affected Line Item on the | |||||||||||||
Details about AOCI | 2014 | 2013 | 2014 | 2013 | Statements of Income | ||||||||||
Available-for-sale securities | $ | 4 | $ | 3 | $ | 4 | $ | 3 | Other Income (Expense) - net | ||||||
Total Pre-tax | 4 | 3 | 4 | 3 | |||||||||||
Income Taxes | (2) | (1) | (2) | (1) | |||||||||||
Total After-tax | 2 | 2 | 2 | 2 | |||||||||||
Qualifying derivatives | |||||||||||||||
Interest rate swaps | (7) | (9) | Interest Expense | ||||||||||||
Cross-currency swaps | (29) | 70 | Other Income (Expense) - net | ||||||||||||
1 | 1 | Interest Expense | |||||||||||||
Energy commodities | 6 | 140 | 6 | 140 | Unregulated wholesale energy | ||||||||||
15 | (30) | 15 | (30) | Energy purchases | |||||||||||
1 | 1 | 1 | 1 | Other | |||||||||||
Total Pre-tax | (13) | 173 | 22 | 111 | |||||||||||
Income Taxes | (1) | (57) | (9) | (44) | |||||||||||
Total After-tax | (14) | 116 | 13 | 67 | |||||||||||
Defined benefit plans | |||||||||||||||
Prior service costs | (4) | (5) | (2) | (3) | |||||||||||
Net actuarial loss | (72) | (93) | (5) | (13) | |||||||||||
Total Pre-tax | (76) | (98) | (7) | (16) | |||||||||||
Income Taxes | 19 | 27 | 3 | 6 | |||||||||||
Total After-tax | (57) | (71) | (4) | (10) | |||||||||||
Total reclassifications during the period | $ | (69) | $ | 47 | $ | 11 | $ | 59 |
Affected Line Item on the | ||||||||||
Details about AOCI | 2015 | 2014 | Statements of Income | |||||||
Available-for-sale securities | $ | 2 | $ | 2 | Other Income (Expense) - net | |||||
Total Pre-tax | 2 | 2 | ||||||||
Income Taxes | (1) | (1) | ||||||||
Total After-tax | 1 | 1 | ||||||||
Qualifying derivatives | ||||||||||
Interest rate swaps | (4) | (3) | Interest Expense | |||||||
Cross-currency swaps | 17 | (29) | Other Income (Expense) - net | |||||||
1 | Interest Expense | |||||||||
Energy commodities | (2) | (1) | Unregulated wholesale energy | |||||||
8 | 7 | Energy purchases | ||||||||
2 | Discontinued operations | |||||||||
1 | 1 | Other | ||||||||
Total Pre-tax | 21 | (23) | ||||||||
Income Taxes | (4) | 4 | ||||||||
Total After-tax | 17 | (19) | ||||||||
Equity investees' AOCI | 2 | Other Income (Expense) - net | ||||||||
Total Pre-tax | 2 | |||||||||
Income Taxes | (1) | |||||||||
Total After-tax | 1 | |||||||||
Defined benefit plans | ||||||||||
Prior service costs | (2) | |||||||||
Net actuarial loss | (51) | (36) | ||||||||
Total Pre-tax | (51) | (38) | ||||||||
Income Taxes | 13 | 10 | ||||||||
Total After-tax | (38) | (28) | ||||||||
Total reclassifications during the period | $ | (19) | $ | (46) |
(All Registrants)
Accounting for Revenue from Contracts with Customers
In May 2014, the FASB issued accounting guidance that establishes a comprehensive new model for the recognition of revenue from contracts with customers. This model is based on the core principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
For public business entities, this guidance can be applied using either a full retrospective or modified retrospective transition method, beginning in annual reporting periods beginning after December 15, 2016 and interim periods within those years. Early adoption is not permitted. The Registrants will adopt this guidance effective January 1, 2017.
The Registrants are currently assessing the impact of adopting this guidance, as well as the transition method they will use.
Reporting Uncertainties about an Entity's Ability to Continue as a Going Concern
In August 2014, the FASB issued accounting guidance which will require management to assess, for each interim and annual period, whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern. Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are issued.
When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, management is required to disclose information that enables users of the financial statements to understand the principal conditions or events that raised substantial doubt about the entity's ability to continue as a going concern and management's evaluation of the significance of those conditions or events. If substantial doubt about the entity's ability to continue as a going concern has been alleviated as a result of management's plan, the entity should disclose information that allows the users of the financial statements to understand those plans. If the substantial doubt about the entity's ability to continue as a going concern is not alleviated by management's plans, management's plans to mitigate the conditions or events that gave rise to the substantial doubt about the entity's ability to continue as a going concern should be disclosed, as well as a statement that there is substantial doubt the entity's ability to continue as a going concern within one year after the date the financial statements are issued.
For all entities, this guidance should be applied prospectively within the annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted.
The Registrants will adopt this guidance for the annual period ending December 31, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity
In November 2014, the FASB issued guidance that clarifies how current accounting guidance should be interpreted when evaluating the economic characteristics and risks of a host contract of a hybrid financial instrument issued in the form of a share. This guidance does not change the current criteria for determining whether separation of an embedded derivative feature from a hybrid financial instrument is required. Entities are still required to evaluate whether the economic risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria.
An entity should consider the substantive terms and features of the entire hybrid financial instrument, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract to determine whether the host contract is more akin to a debt instrument or more akin to an equity instrument. An entity should assess the relative strength of the debt-like and equity-like terms and features when determining how to weight those terms and features.
For public business entities, this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and should be applied using a modified retrospective method for existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year the guidance is adopted. Early adoption is permitted. Retrospective application is permitted but not required.
The Registrants will adopt this guidance on January 1, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
Income Statement Presentation of Extraordinary and Unusual Items
In January 2015, the FASB issued accounting guidance that eliminates the concept of extraordinary items, which requires an entity to separately classify, present in the income statement and disclose material events and transactions that are both unusual and occur infrequently. The requirement to report material events or transactions that are unusual or infrequent as a separate component of income from continuing operations has been retained, as has the requirement to separately present the nature and financial effects of each event or transaction in the income statement as a separate component of continuing operations or disclose them within the notes to the financial statements. The scope of these requirements has been expanded to include items that are both unusual and occur infrequently.
For all entities, this guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted provided that an entity applies the guidance from the beginning of the fiscal year of adoption. The guidance may be applied either retrospectively or prospectively.
78 |
The Registrants will adopt this guidance on January 1, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued accounting guidance to simplify the presentation of debt issuance costs by requiring debt issuance costs to be presented on the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with the presentation of debt discounts.
For public business entities, this guidance should be applied retrospectively for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted.
The Registrants are assessing in which period they will adopt this new guidance. The adoption of this guidance will require the Registrants to reclassify debt issuance costs from assets to long-term debt, and is not expected to have a significant impact on the Registrants.
79 |
Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
(All Registrants)
This "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" is separately filed by PPL Corporation, PPL Electric, LKE, LG&E and each of its Subsidiary Registrants.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 any Registrant when significant.
The following should be read in conjunction with the Registrants' Condensed Consolidated Financial Statements and the accompanying Notes and with the Registrants' 20132014 Form 10-K. 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, |
· | "Results of Operations" for PPL provides a |
· | "Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positions and credit profiles. This section also includes a discussion of rating agency actions. |
· | "Financial Condition - Risk Management" provides an explanation of the Registrants' risk management programs relating to market and credit risk. |
(PPL)
PPL, headquartered in Allentown, Pennsylvania, is an energy and utility holding company. Through subsidiaries, PPL delivers electricity to customers in the U.K., Pennsylvania, Kentucky, Virginia and Tennessee; delivers natural gas to customers in Kentucky; generates electricity from power plants in the northeastern, northwestern and southeastern U.S.; and markets wholesale or retail energy primarily in the northeastern and northwestern portions of the U.S.
PPL's principal subsidiaries are shown below (* denotes an SEC registrant):
PPL Corporation* | |||||||||||||||||||||||||||
PPL Capital Funding | |||||||||||||||||||||||||||
PPL Global ●Engages in the regulated distribution of electricity in the U.K. | LKE* | PPL Electric* ●Engages in the regulated transmission and distribution of electricity in Pennsylvania | PPL Energy Supply* | ||||||||||||||||||||||||
LG&E* ● Engages in the regulated generation, transmission, distribution and sale of electricity and distribution and sale of natural gas in Kentucky | KU* ● Engages in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky | PPL EnergyPlus ●Performs energy marketing and trading activities ● Purchases fuel | PPL Generation ● Engages in the competitive generation of electricity, primarily in Pennsylvania and Montana | ||||||||||||||||||||||||
U.K. Regulated Segment | Kentucky Regulated Segment | Pennsylvania Regulated Segment | Supply Segment |
PPL's reportable segments' results primarily represent the results of its related Subsidiary Registrants, except that the reportable segments are also allocated certain corporate level financing and other costs that are not included in the results of the applicable Subsidiary Registrants. The U.K. Regulated segment does not have a related Subsidiary Registrant.
In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded independent power producercompany named Talen Energy. See "Business Strategy" and "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" below for additional information.
In addition to PPL, the other Registrants included in Allentown, Pennsylvania is an indirect wholly owned subsidiary of PPL and is an energy company that through its principal subsidiaries is primarily engaged in the competitive generation and marketing of electricity in two key markets - the northeastern and northwestern U.S. PPL Energy Supply's principal subsidiariesthis filing are PPL EnergyPlus, its marketing and trading subsidiary, and PPL Generation, the owner of its generating facilities in Pennsylvania and Montana.
(PPL Electric)
PPL Electric, headquartered in Allentown, Pennsylvania, is a direct wholly owned subsidiary of PPL 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, and certain of its transmission activities are subject to the jurisdiction of 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.
(LKE)
LKE, 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 their separate corporate identities and serve customers in
(LG&E)
LG&E, headquartered in Louisville, Kentucky, is a wholly owned subsidiary of LKE and a regulated utility engaged in the generation, transmission, distribution and sale of electricity and distribution and sale of natural gas in Kentucky. LG&E is subject to regulation as a public utility by the KPSC, and certain of its transmission activities are subject to the jurisdiction of the FERC under the Federal Power Act.
81 |
(KU)
KU, headquartered in Lexington, Kentucky, is a wholly owned subsidiary of LKE and a regulated utility engaged in the generation, transmission, distribution and sale of electricity in Kentucky, Virginia and Tennessee. KU is subject to regulation as a public utility by the KPSC, the VSCC and the TRA, and certain of its transmission and wholesale power activities are subject to the jurisdiction of the FERC under the Federal Power Act. KU serves its Virginia customers under the Old Dominion Power name and its Kentucky and Tennessee customers under the KU name.
(All Registrants except PPL Energy Supply)
The strategy for the regulated businesses of WPD, PPL Electric, LKE, LG&E and KU is to provide efficient, reliable and safe operations and strong customer service, maintain constructive regulatory relationships and achieve timely recovery of costs.
For the U.K. regulated businesses, effective April 1, 2015 for the RIIO-ED1 price control period, 80% of network related expenditures are added to the RAV and, together with adjustments for inflation as measured by Retail Price Index (RPI) and a return on the recovery periodRAV, recovered through allowed revenue with the remaining 20% of expenditures being recovered in the current regulatory year. RAV is intended to represent expenditures that have a long-term benefit to WPD (similar to capital projects for assets placed in servicethe U.S. regulated businesses). The RAV balance at March 31, 2015 will continue to be recovered over 20 years and additions after that dateApril 1, 2023 will be extended from 20 torecovered over 45 years.years; a transitional arrangement will gradually change the life over the current price control period which commenced April 1, 2015, resulting in an expected average useful life of 35 years for RAV additions in that period. In addition, incentive targets have been adjusted in RIIO-ED1, resulting in lower overall incentive revenues available to be earned. See "Financial and Operational Developments - Other Financial and Operational Developments - RIIO-ED1 - Fast Tracking"RIIO-ED1" below for additional information.
For the U. S. regulated businesses, recovery of capital project costs is attained through various rate-making mechanisms, including periodic base rate case proceedings, FERC formula rate mechanisms, and other regulatory agency-approved recovery mechanisms. In Kentucky, the KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, gas supply clause and recovery on certain construction work-in-progress) that reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs. In Pennsylvania, the FERC transmission formula rate, DSIC mechanism and other recovery mechanisms are in place to reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs. See "Item 1. Business - Segment Information - U.K. Regulated Segment - Revenues and Regulation" in PPL's 2013 Form 10-K for changes to the regulatory framework in the U.K. applicable to WPD beginning in April 2015.
To manage financing costs and access to credit markets, and to fund capital expenditures, a key objective of the Registrants is to maintain targetedinvestment grade credit profilesratings and adequate liquidity positions. In addition, the Registrants have financial and operational risk management programs that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility related to, as applicable, changes in energy and fuel prices, interest rates, counterparty credit quality and the operating performance of generating units. To manage these risks, PPL generally uses contracts such as forwards, options, swaps and insurance contracts.
(PPL)
In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Under the terms of the agreements, at closing, PPL will spin off to PPL shareowners a newly formed entity, Holdco, which at such time will own all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy. Immediately following the spinoff, Holdco will merge with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power will be contributed by its owners to become a subsidiary of Talen Energy. Following completion of these transactions, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy. The transaction is intended to be tax-free to PPL and its shareowners for U.S. federal income tax purposes and is subject to customary closing conditions, including receipt of required regulatory approvals from the NRC, FERC, DOJ and
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PUC, all of which were received by mid-April 2015. In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn credit capacity under a revolving credit or similar facility of Talen Energy or one or more of its subsidiaries. Any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions at the time of the spinoff are excluded from this calculation.
In connection with the FERC approval, PPL and RJS Power have agreed that within 12 months after closing of the transaction, Talen Energy will divest approximately 1,300 MW of generating assets in one of two groups of assets (from PPL Energy Supply's existing portfolio, this includes either the Holtwood and Wallenpaupack hydroelectric facilities or the Ironwood facility), and limit PJM energy market offers from assets it would retain in the other group to cost-based offers.
On April 29, 2015, PPL's Board of Directors declared the distribution of Holdco to PPL's shareowners of record on May 20, 2015, with the spinoff to occur on June 1, 2015. Based on the number of shares of PPL common stock outstanding at April 29, 2015, the distribution ratio is expected to be approximately 0.125 shares of Talen common stock for each share of PPL common stock. The final ratio will be determined after the record date. The spinoff will have no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding.
Talen Energy will own and operate a diverse mix of approximately 14,000 MW (after divestitures to meet FERC market power standards) of generating capacity in certain U.S. competitive energy markets primarily in PJM and ERCOT.
Following the transaction, PPL's focus will be on its regulated utility businesses in the U.K., Kentucky and Pennsylvania, serving more than 10 million customers. PPL intends to maintain a strong balance sheet and manage its finances consistent with maintaining investment grade credit ratings and providing a competitive total shareowner return, including an attractive dividend. Excluding costs required to provide transition services to Talen Energy and following the spinoff transaction, PPL expects to reduce annual ongoing corporate support costs by approximately $75 million.
See "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" below for additional information.
The strategy for PPL Energy Supply is to optimize the value from its competitive generation asset and marketing portfolios while mitigating near-term volatility in both cash flows and earnings. PPL Energy Supply endeavors to do this by matching energy supply with load, or customer demand, under contracts of varying durations with creditworthy counterparties to capture profits while effectively managing exposure to energy and fuel price volatility, counterparty credit risk and operational risk. PPL Energy Supply is focused on maintaining profitability and positive cash flow during this current period of low energy and capacity prices.
Earnings generated by PPL's U.K. subsidiaries are subject to foreign currency translation risk. The U.K. subsidiaries also have currency exposure to the U.S. dollar to the extent they have U.S. dollar denominated debt. To manage these risks, PPL generally uses contracts such as forwards, options and cross currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts.
PPL's earnings by reportable segments for the periods ended June 30March 31, were as follows.
Three Months | Six Months | ||||||||||||||||||
2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||||
U.K. Regulated | $ | 187 | $ | 245 | (24) | $ | 393 | $ | 558 | (30) | |||||||||
Kentucky Regulated | 58 | 49 | 18 | 165 | 134 | 23 | |||||||||||||
Pennsylvania Regulated | 52 | 45 | 16 | 137 | 109 | 26 | |||||||||||||
Supply | 5 | 77 | (94) | (70) | 31 | (326) | |||||||||||||
Corporate and Other (a) | (73) | (11) | 564 | (80) | (14) | 471 | |||||||||||||
Net Income Attributable to | |||||||||||||||||||
PPL Shareowners | $ | 229 | $ | 405 | (43) | $ | 545 | $ | 818 | (33) | |||||||||
EPS - basic | $ | 0.35 | $ | 0.68 | (49) | $ | 0.84 | $ | 1.39 | (40) | |||||||||
EPS - diluted (b) | $ | 0.34 | $ | 0.63 | (46) | $ | 0.83 | $ | 1.28 | (35) |
Three Months | |||||||||||
2015 | 2014 | $ Change | |||||||||
U.K. Regulated | $ | 375 | $ | 206 | $ | 169 | |||||
Kentucky Regulated | 109 | 107 | 2 | ||||||||
Pennsylvania Regulated | 87 | 85 | 2 | ||||||||
Supply | 95 | (75) | 170 | ||||||||
Corporate and Other (a) | (19) | (7) | (12) | ||||||||
Net Income | $ | 647 | $ | 316 | $ | 331 | |||||
EPS - basic | $ | 0.97 | $ | 0.50 | $ | 0.47 | |||||
EPS - diluted (b) | $ | 0.96 | $ | 0.49 | $ | 0.47 |
(a) | 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. |
(b) | See |
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The following after-tax gains (losses), in total, which management considers special items, impacted thePPL's results of PPL's reportable segments for the periods ended June 30.March 31. See PPL's "Results of Operations - Segment Earnings" for details of each segment's special items.
Three Months | Six Months | ||||||||||||||||||
2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||||
U.K. Regulated | $ | (33) | $ | 19 | $ | (52) | $ | (91) | $ | 94 | $ | (185) | |||||||
Kentucky Regulated | 1 | 1 | 1 | 2 | (1) | ||||||||||||||
Pennsylvania Regulated | (4) | (4) | (4) | (4) | |||||||||||||||
Supply | (36) | 74 | (110) | (185) | (43) | (142) | |||||||||||||
Corporate and Other (a) | (56) | (56) | (56) | (56) | |||||||||||||||
Total PPL | $ | (128) | $ | 94 | $ | (222) | $ | (335) | $ | 53 | $ | (388) |
Three Months | |||||||||||
2015 | 2014 | $ Change | |||||||||
U.K. Regulated | $ | 39 | $ | (58) | $ | 97 | |||||
Supply (a) | 95 | (75) | 170 | ||||||||
Corporate and Other (b) | (6) | (6) | |||||||||
Total PPL | $ | 128 | $ | (133) | $ | 261 |
(a) |
(b) | Primarily includes external transaction and |
(PPL)
In anticipation of the spinoff of PPL Energy Supply, no forward looking information, including an earnings forecast, is being provided for the three and six-months ended June 30, 2014 compared with 2013, excluding the impact of special items, were due to the following factors (on an after-tax basis):
Excluding special items, lowerincluding Supply segment earnings, higher earnings are expected in 20142015 compared with 2013, primarily due2014, after adjusting 2014 to lower energy marginsinclude certain dissynergies in the Corporate and Other category that were recorded in the Supply segment. The following projections and factors underlying these projections by segment and Subsidiary Registrant are discussed below (on an after-tax basis).
(PPL's U.K. Regulated Segment)
Excluding special items, higher earnings are projected in 20142015 compared with 2013,2014, primarily driven by higher electricity delivery revenuelower income taxes, lower depreciation expense and lower pension expense,effects of foreign currency, partially offset by higher income taxes, higher depreciation and higher financing costs.
(PPL's Kentucky Regulated Segment and LKE, LG&E and KU)
Higher earnings are projected in 2015 compared with 2014, primarily driven by anticipated electric and gas base rate increases and returns on additional environmental capital investments, partially offset by higher operation and maintenance expense, higher depreciation and higher financing costs.
(PPL's Pennsylvania Regulated Segment and PPL Electric)
Excluding special items, lower earnings are projected in 20142015 compared with 2013,2014, primarily driven by higher operation and
(PPL's Supply SegmentCorporate and PPL Energy Supply)
Excluding special items, lower earningscosts are projected in 20142015 compared with 2013,2014, after adjusting 2014 to include certain dissynergies in the Corporate and Other category that were recorded in the Supply segment, primarily driven by lower energy and capacity prices, partially offset by the net benefits due to unusually cold weatherreduction of those dissynergies in the first quarter of 2014, lower financing costs2015 through corporate restructuring efforts and lower income taxes.
(All Registrants)
Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, Notes 6 and 10 to the Financial Statements and "Item 1A. Risk Factors" in this Form 10-Q (as applicable) and "Item 1. Business" and "Item 1A. Risk Factors" in the Registrants' 20132014 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.
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Economic and Market Conditions
(All Registrants except PPL Electric)
The businesses of PPL Energy Supply, LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to coal combustion residuals,CCRs, GHG, effluent limitation guidelines and MATS. See "Financial Condition - Environmental Matters" below for additional information on these requirements. These and other stringent environmental requirements, combined with low energy margins for competitive generation, have led several energy companies, including PPL, PPL Energy Supply, LKE, LG&E and KU, to announce plans either to either temporarily or permanently close, or place in long-term reserve status, and/or impair certain of their coal-fired generating plants.
(PPLPPL)
Given current and PPL Energy Supply)
(All Registrants)
The Registrants cannot predict the impact that future economic and market conditions and regulatory requirements may have on their financial condition or results of operations.
(PPL)
Anticipated Spinoff of PPL Energy Supply
Following the announcement of the transaction to form Talen Energy as discussed in "Business Strategy" above, efforts have beenwere initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans were substantially completed in 2014. The new organizational plans identified the need to resize and restructure the organizations and as a result, in 2014, estimated charges for employee separation benefits were recorded. See Note 8 in the 2014 Form 10-K for additional information. The separation benefits include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. Most separations and payment of separation benefits are expected to be completed by the end of 2014. As a result, charges for employee2015. At March 31, 2015 and December 31, 2014, the recorded liabilities related to the separation benefits were $19 million and related costs$30 million, which are anticipated to be recordedincluded in future periods. The separation"Other current liabilities" on the Balance Sheets.
Additional employee-related costs to be incurred primarily include cash severance compensation, lump sum COBRA reimbursement payments, accelerated stock-based compensation vesting,and pro-rated performance-based cash incentive and stock-based compensation awards, primarily for PPL Energy Supply employees and outplacement services. At present, there is considerable uncertainty as tofor PPL employees who have become PPL Energy Supply employees in connection with the range of costs that will be incurred and when thosetransaction. These costs will be recognized as the amount of each category of costs will depend on the number of employees leaving the company, current position and compensation level, years of service and expected separation date. Additionally, certain of these costs are expected to be reimbursed to PPL by Talen Energy upon closing of the transaction. As a result, a range of the separation costs associated withat the spinoff transaction and the timing of when thoseclosing date. PPL estimates these additional costs will be recognized cannot be reasonably estimated at this time but could be material.
PPL recorded $46 million of deferred income tax expense during the three and six months ended June 30, 2014 to adjust valuation allowances on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply.
The assets and liabilities of PPL EnergyPPL's Supply segment will continue to be classified as "held and used" on PPL's Balance Sheet until the closing of the transaction.transaction, at which time the operations of the Supply segment will be classified as discontinued operations. At the close of the transaction, unamortized losses on PPL interest rate swaps recorded in AOCI and designated as hedges of PPL Energy Supply's future interest payments will be reclassified into earnings and reflected in discontinued operations. The spinoff announcementamount of these unamortized losses deferred in AOCI at March 31, 2015 was evaluated and determined not to be an event or a change in circumstance that required a recoverability test or a$55 million after-tax.
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In conducting its annual goodwill impairment assessment. However,assessment in the fourth quarter of 2014 for its Supply segment reporting unit, PPL determined that the estimated fair value of the Supply segment exceeded its carrying value and no impairment was recognized. PPL had not identified any indicators of impairment as of March 31, 2015, but cannot predict whether an impairment loss couldwill be recorded at the spinoff date. An impairment loss would be recognized by PPL at the spinoff date if the aggregate carrying amount of PPL Energy Supply'sthe Supply segment's assets and liabilities exceeds itsexceed their aggregate fair value at that date.date and would be reflected in discontinued operations. Upon completion of this transaction, PPL cannot currently predict whether an impairment loss will be recorded at the spinoff date.
RIIO-ED1
On April 1, 2015, through March 31, 2019. See Note 6 to the Financial Statements for additional information.
Depreciation
Effective January 1, 2015, after completing a reduction of £5 per residential customer of electricity distribution revenues that otherwise would have been collected in the regulatory year beginning April 1, 2014. Full recoveryreview of the revenue reduction, together withuseful lives of its distribution network assets, WPD extended the associated carrying cost, wasweighted average useful lives of these assets to 69 years from 55 years. For the three months ended March 31, 2015, this change in useful lives resulted in lower depreciation of $20 million ($16 million after-tax or $0.02 per share). It is expected to occur during the regulatory year beginning April 1, 2015 for threeresult in an annual reduction in depreciation of the WPD DNOs, and over the eight year RIIO-ED1 regulatory period for the fourth DNO. However,approximately $81 million ($65 million after-tax or $0.10 per share) in July 2014, Ofgem decided that full recovery will occur for all WPD DNOs in the regulatory year beginning April 1, 2016. PPL projects that, as a result of this change and changes in foreign exchange rate assumptions, 2014 and 2015 earnings for its U.K. Regulated segment will now be adversely affected by $31 million and $16 million, respectively, and earnings for 2016 will be positively affected by $33 million with the remainder to be recovered in later periods.
Susquehanna Turbine Blade Inspection(PPL and PPL Energy Supply)
PPL Susquehanna continues to make modifications to address the causes of turbine blade cracking at the PPL Susquehanna nuclear plant that was first identified in 2011. In March 2014, Unit 2 completed its planned turbine inspection outage to replace blades. Unit 1 completed its planned refueling and turbine inspection outage in June 2014. Similar blade replacements were completed2014 and modifications will also be implemented to reduce the likelihood of blade cracking, including the installation ofinstalled newly designed shorter last stage blades on one of the low pressure turbines. This change allowed Unit 1 to run with reduced blade vibration and no identified cracking during 2014. In Junethe first, second and third quarters of 2014, Unit 2 was shut down for blade inspection and replacement, as well as additional maintenance. Unit 2 returned to service in early July and the
IRS Audits for 1998 - 2011
In February 2015, PPL and the IRS Appeals division reached a settlement on the amount of PPL's refund from its open audits for the years 1998 - 2011. The settlement was required to monitor blade performancebe reviewed and work withapproved by the turbine manufacturerJoint Committee on Taxation (JCT) before it is considered final. In April 2015, PPL was notified that the JCT approved PPL's settlement. Subject to identify and resolvea final determination of interest on the issues causingrefund, PPL expects to record a tax benefit in the blade cracking.
(PPL and PPL Electric)
Rate Case Proceedings
On JulyMarch 31, 2014, PPL Electric announced that it had submitted a proposal to PJM to build a new regional transmission line pursuant to the competitive solicitation process authorized by FERC Order 1000. The proposed line would run from western Pennsylvania into New York and New Jersey and also south into Maryland, covering approximately 725 miles. The line would help ensure adequate supplies of electricity to replace existing coal-fired power plants that are expected to retire. As proposed, the project would begin in 2017 and the line would be in operation between 2023 and 2025. The project is estimated to cost $4 billion to $6 billion.
Concurrently, PPL Electric can recover Hurricane Sandy storm damage costs through the SDER over a three-year period beginning January 2015. On June 20, 2014, the Office of Consumer Advocate filed a petition for reviewrequesting a waiver of the April 2014 order withDSIC cap of 5% of billed revenues and approval to increase the Commonwealth Court of Pennsylvania. The case remains pending. See "Pennsylvania Activities - Storm Damage Expense Rider" in Note 6maximum allowable DSIC from 5% to 7.5% for service rendered after January 1, 2016. PPL Electric is requesting that the Financial Statements for additional information.PUC consolidate these two proceedings and cannot predict the outcome.
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(PPL, LKE and KU)
FERC Wholesale Formula Rates (LKE and KU)
In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts, suchcontracts. Such terminations are to be effective in 2019, except in the case of one municipality with a 2017 effective date. In addition, a tenth municipality which has a previously settled termination date of 2016 has given notice that it will transfer service in June 2015. In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. In August 2014, the FERC issued an order on the interim settlement agreement allowing the proposed rates to become effective pending a final order. If approved, the settlement agreement will resolve the rate case with respect to these two municipalities, including an authorized return on equity of 10% or the return on equity awarded to other parties in this case, whichever is lower. Also in July 2014, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of their contracts. KU and the terminating municipalities continue settlement discussions in this proceeding. KU cannot currently predict the outcome of its FERC applications regarding its wholesale power agreements with the municipalities.
(PPL, LKE, LG&E and KU)
Rate Case Proceedings
On November 26, 2014, LG&E and KU filed requests with the KPSC for increases in annual base electricity rates for LG&E's electric and gas operations and KU's electric operations. On April 20, 2015, LG&E and KU, and the other parties to the proceeding, filed a unanimous settlement agreement with the KPSC. Among other things, the proposed settlement provides for increases in the annual revenue requirements associated with KU base electric rates of $125 million and LG&E base gas rates of $7 million. The annual revenue requirement associated with base electric rates at LG&E will not increase. The settlement did not establish a specific return on equity with respect to the base rates, however an authorized 10% return on equity will be utilized in the ECR and GLT mechanisms. The settlement agreement provides for deferred recovery of costs associated with Green River Units 3 and 4 through their retirement. The new regulatory asset will be amortized over three years. The settlement also provides regulatory asset treatment for the difference between pension expense currently booked in accordance with LG&E and KU's pension accounting policy and such an expense using a 15 year amortization period for actuarial gains and losses. The proposed settlement remains subject to KPSC approval. If approved, the new rates and all elements of the settlement would be effective July 1, 2015.
(PPL)
The discussion for PPL provides a review of results by reportable segment. The "Margins" discussion provides explanations of non-GAAP financial measures (Kentucky Gross Margins, Pennsylvania Gross Delivery Margins and Unregulated Gross Energy Margins) and a reconciliation of non-GAAP financial measures to "Operating Income." The "Statement of Income Analysis" discussion addresses significant changes in principal line items on PPL's Statements of Income, comparing the three and six months ended June 30, 2014March 31, 2015 with the same periodsperiod in 2013.2014. "Segment Earnings, Margins and Statement of Income Analysis" is presented separately for PPL.
Tables analyzing changes in amounts between periods within "Segment Earnings" and "Statement of Income Analysis" are presented on a constant U.K. foreign currency exchange rate basis, where applicable, in order to isolate the impact of the change in the exchange rate on the item being explained. Results computed on a constant U.K. foreign currency exchange rate basis are calculated by translating current year results at the prior year weighted-average U.K. foreign currency exchange rate.
(Subsidiary Registrants)
The discussion for each of PPL Energy Supply, PPL Electric, LKE, LG&E and KU provides a summary of earnings. The "Margins" discussion includes a reconciliation of non-GAAP financial measures to "Operating Income" and "Statement of Income Analysis"
87 |
addresses significant changes in principal line items on the Statements of Income comparing the three and six months ended June 30, 2014March 31, 2015 with the same periodsperiod in 2013.2014. "Earnings, Margins and Statement of Income Analysis" areis presented separately for PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
(All Registrants)
The results for interim periods can be disproportionately influenced by numerous factors and developments and by seasonal variations. As such, the results of operations for interim periods do not necessarily indicate results or trends for the year or future periods.
Segment Earnings
U.K. Regulated Segment
The U.K. Regulated segment consists of PPL Global which primarily includes WPD's regulated electricity distribution operations, the results of hedging the translation of WPD's earnings from British pound sterling into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs, and allocated financing costs. The U.K. Regulated segment represents 72%58% of Net Income Attributable to PPL Shareowners for the sixthree months ended June 30, 2014March 31, 2015 and 34%33% of PPL's assets at June 30, 2014.
Net Income Attributable to PPL Shareowners for the periods ended June 30March 31 includes the following results:
Three Months | Six Months | ||||||||||||||||
2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||
Utility revenues | $ | 659 | $ | 559 | 18 | $ | 1,296 | $ | 1,197 | 8 | |||||||
Energy-related businesses | 13 | 13 | 24 | 23 | 4 | ||||||||||||
Total operating revenues | 672 | 572 | 17 | 1,320 | 1,220 | 8 | |||||||||||
Other operation and maintenance | 117 | 112 | 4 | 225 | 229 | (2) | |||||||||||
Depreciation | 87 | 72 | 21 | 170 | 146 | 16 | |||||||||||
Taxes, other than income | 40 | 36 | 11 | 78 | 73 | 7 | |||||||||||
Energy-related businesses | 8 | 7 | 14 | 15 | 14 | 7 | |||||||||||
Total operating expenses | 252 | 227 | 11 | 488 | 462 | 6 | |||||||||||
Other Income (Expense) - net | (72) | 4 | (1,900) | (96) | 124 | (177) | |||||||||||
Interest Expense | 115 | 104 | 11 | 237 | 211 | 12 | |||||||||||
Income Taxes | 46 | n/a | 106 | 113 | (6) | ||||||||||||
Net Income Attributable to PPL Shareowners | $ | 187 | $ | 245 | (24) | $ | 393 | $ | 558 | (30) |
Three Months | |||||||||||
2015 | 2014 | $ Change | |||||||||
Utility revenues | $ | 686 | $ | 637 | $ | 49 | |||||
Energy-related businesses | 11 | 11 | |||||||||
Total operating revenues | 697 | 648 | 49 | ||||||||
Other operation and maintenance | 103 | 108 | (5) | ||||||||
Depreciation | 59 | 83 | (24) | ||||||||
Taxes, other than income | 36 | 38 | (2) | ||||||||
Energy-related businesses | 7 | 7 | |||||||||
Total operating expenses | 205 | 236 | (31) | ||||||||
Other Income (Expense) - net | 88 | (24) | 112 | ||||||||
Interest Expense | 100 | 122 | (22) | ||||||||
Income Taxes | 105 | 60 | 45 | ||||||||
Net Income | $ | 375 | $ | 206 | $ | 169 |
The changes in the results of the U.K. Regulated segment between these periods were due to the factors set forth below, which reflect certain items that management considers special and effects of movements in foreign currency exchange on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of the special items.
Three Months | Six Months | ||||||
U.K. | |||||||
Utility revenues | $ | 14 | $ | 54 | |||
Other operation and maintenance | 6 | 13 | |||||
Depreciation | (7) | (13) | |||||
Interest expense | (5) | (9) | |||||
Other | (3) | ||||||
Income taxes | (3) | ||||||
U.S. | |||||||
Interest expense and other | 1 | (3) | |||||
Income taxes | (18) | (21) | |||||
Foreign currency exchange, after-tax | 3 | 5 | |||||
Special items, after-tax | (52) | (185) | |||||
Total | $ | (58) | $ | (165) |
Three Months | |||||
U.K. | |||||
Utility revenues | $ | 33 | |||
Other operation and maintenance | (3) | ||||
Depreciation | 20 | ||||
Interest expense | 5 | ||||
Income taxes | (6) | ||||
U.S. | |||||
Interest expense and other | 9 | ||||
Income taxes | 7 | ||||
Foreign currency exchange, after-tax | 7 | ||||
Special items, after-tax | 97 | ||||
Total | $ | 169 |
U.K.
· | Higher utility revenues |
· | Lower depreciation expense primarily due to a |
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The following after-tax gains (losses), which management considers special items, also impacted the U.K. Regulated segment's results during the periods ended June 30.
Income Statement | Three Months | Six Months | |||||||||||||
Line Item | 2014 | 2013 | 2014 | 2013 | |||||||||||
Other Income | |||||||||||||||
Foreign currency-related economic hedges, net of tax of $18, $3, $21, ($39) (a) | (Expense)-net | $ | (33) | $ | (5) | $ | (39) | $ | 73 | ||||||
WPD Midlands acquisition-related adjustments: | |||||||||||||||
Other Operation | |||||||||||||||
Separation benefits, net of tax of $0, $0, $0, $1 | and Maintenance | (1) | |||||||||||||
Other Operation | |||||||||||||||
Other acquisition-related adjustments, net of tax of $0, $0, $0, $0 | and Maintenance | (2) | |||||||||||||
Other: | |||||||||||||||
Windfall Profits Tax litigation (b) | Income Taxes | 43 | 43 | ||||||||||||
Change in WPD line loss accrual, net of tax of $0, $5, $13, $5 (c) | Utility Revenues | (19) | (52) | (19) | |||||||||||
Total | $ | (33) | $ | 19 | $ | (91) | $ | 94 |
Income Statement | Three Months | |||||||||
Line Item | 2015 | 2014 | ||||||||
Other Income | ||||||||||
Foreign currency-related economic hedges, net of tax of $(20), $3 (a) | (Expense)-net | $ | 37 | $ | (6) | |||||
Other operation | ||||||||||
WPD Midlands acquisition-related adjustment, net of tax of $(1), $0 | and maintenance | 2 | ||||||||
Change in WPD line loss accrual, net of tax of $0, $13 (b) | Utility | (52) | ||||||||
Total | $ | 39 | $ | (58) |
(a) Represents unrealized gains (losses) on contracts that economically hedge anticipated GBP denominated earnings.
(b) |
Kentucky Regulated Segment
The Kentucky Regulated segment consists primarily of LKE'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 Kentucky.gas. In addition, certain financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents 30%17% of Net Income Attributable to PPL Shareowners for the sixthree months ended June 30, 2014March 31, 2015 and 25%27% of PPL's assets at June 30, 2014.
Net Income Attributable to PPL Shareowners for the periods ended June 30March 31 includes the following results:
Three Months | Six Months | ||||||||||||||||
2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||
Utility revenues | $ | 722 | $ | 682 | 6 | $ | 1,656 | $ | 1,482 | 12 | |||||||
Fuel | 231 | 216 | 7 | 508 | 447 | 14 | |||||||||||
Energy purchases | 36 | 37 | (3) | 160 | 123 | 30 | |||||||||||
Other operation and maintenance | 206 | 197 | 5 | 412 | 394 | 5 | |||||||||||
Depreciation | 87 | 83 | 5 | 173 | 165 | 5 | |||||||||||
Taxes, other than income | 13 | 12 | 8 | 26 | 24 | 8 | |||||||||||
Total operating expenses | 573 | 545 | 5 | 1,279 | 1,153 | 11 | |||||||||||
Other Income (Expense) - net | (2) | n/a | (4) | (2) | 100 | ||||||||||||
Interest Expense | 53 | 61 | (13) | 108 | 116 | (7) | |||||||||||
Income Taxes | 36 | 28 | 29 | 100 | 78 | 28 | |||||||||||
Income (Loss) from Discontinued Operations | 1 | (100) | 1 | (100) | |||||||||||||
Net Income Attributable to PPL Shareowners | $ | 58 | $ | 49 | 18 | $ | 165 | $ | 134 | 23 |
Three Months | |||||||||||
2015 | 2014 | $ Change | |||||||||
Utility revenues | $ | 899 | $ | 934 | $ | (35) | |||||
Fuel | 253 | 277 | (24) | ||||||||
Energy purchases | 92 | 124 | (32) | ||||||||
Other operation and maintenance | 209 | 206 | 3 | ||||||||
Depreciation | 95 | 86 | 9 | ||||||||
Taxes, other than income | 14 | 13 | 1 | ||||||||
Total operating expenses | 663 | 706 | (43) | ||||||||
Other Income (Expense) - net | (1) | (2) | 1 | ||||||||
Interest Expense | 55 | 55 | |||||||||
Income Taxes | 71 | 64 | 7 | ||||||||
Net Income | $ | 109 | $ | 107 | $ | 2 |
The changes in the results of the Kentucky Regulated segment between these periods were due to the factors set forth below, which reflect amounts classified as Kentucky Gross Margins and certain items that management considers special on a separate linesline within the table and not in their respective Statement of Income line items. See below for additional detail of these special items.
Three Months | Six Months | |||||
Kentucky Gross Margins | $ | 24 | $ | 74 | ||
Other operation and maintenance | (7) | (18) | ||||
Depreciation | (4) | (7) | ||||
Interest expense | 8 | 8 | ||||
Other | (4) | (3) | ||||
Income taxes | (8) | (22) | ||||
Special items, after-tax | (1) | |||||
Total | $ | 9 | $ | 31 |
Three Months | ||||
Kentucky Gross Margins | $ | 14 | ||
Other operation and maintenance | (2) | |||
Depreciation | (4) | |||
Other Income (Expense) - net | 1 | |||
Income taxes | (7) | |||
Total | $ | 2 |
· | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Kentucky Gross Margins. |
· | Higher depreciation expense |
· | Higher income taxes |
Income Statement | Three Months | Six Months | |||||||||||||
Line Item | 2014 | 2013 | 2014 | 2013 | |||||||||||
EEI adjustments, net of tax of $0, $0, $0, $0 (a) | Other Income (Expense)-net | $ | 1 | $ | 1 | $ | 1 | ||||||||
LKE discontinued operations | Discontinued Operations | $ | 1 | 1 | |||||||||||
Total | $ | 1 | $ | 1 | $ | 1 | $ | 2 |
Pennsylvania Regulated Segment
The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric. In addition, certain financing costs are allocated to the Pennsylvania Regulated segment. The Pennsylvania Regulated segment represents 25%13% of Net Income Attributable to PPL Shareowners for the sixthree months ended June 30, 2014March 31, 2015 and 15%16% of PPL's assets at June 30, 2014.
Net Income Attributable to PPL Shareowners for the periods ended June 30 includes the following results: | |||||||||||||||||
Three Months | Six Months | ||||||||||||||||
2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||
Utility revenues | $ | 449 | $ | 414 | 8 | $ | 1,041 | $ | 927 | 12 | |||||||
Energy purchases | |||||||||||||||||
External | 114 | 120 | (5) | 303 | 292 | 4 | |||||||||||
Intersegment | 21 | 12 | 75 | 48 | 26 | 85 | |||||||||||
Other operation and maintenance | 135 | 124 | 9 | 269 | 257 | 5 | |||||||||||
Depreciation | 45 | 44 | 2 | 90 | 87 | 3 | |||||||||||
Taxes, other than income | 23 | 22 | 5 | 55 | 52 | 6 | |||||||||||
Total operating expenses | 338 | 322 | 5 | 765 | 714 | 7 | |||||||||||
Other Income (Expense) - net | 1 | 2 | (50) | 3 | 3 | ||||||||||||
Interest Expense | 29 | 25 | 16 | 58 | 50 | 16 | |||||||||||
Income Taxes | 31 | 24 | 29 | 84 | 57 | 47 | |||||||||||
Net Income Attributable to PPL Shareowners | $ | 52 | $ | 45 | 16 | $ | 137 | $ | 109 | 26 |
Net Income for the periods ended March 31 includes the following results: | |||||||||||
Three Months | |||||||||||
2015 | 2014 | $ Change | |||||||||
Utility revenues | $ | 630 | $ | 592 | $ | 38 | |||||
Energy purchases | |||||||||||
External | 227 | 189 | 38 | ||||||||
Intersegment | 9 | 27 | (18) | ||||||||
Other operation and maintenance | 133 | 134 | (1) | ||||||||
Depreciation | 51 | 45 | 6 | ||||||||
Taxes, other than income | 35 | 32 | 3 | ||||||||
Total operating expenses | 455 | 427 | 28 | ||||||||
Other Income (Expense) - net | 2 | 2 | |||||||||
Interest Expense | 31 | 29 | 2 | ||||||||
Income Taxes | 59 | 53 | 6 | ||||||||
Net Income | $ | 87 | $ | 85 | $ | 2 |
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 Gross Delivery Margins andon a certain item that management considers special on separate linesline and not in their respective Statement of Income line items. See below for additional detail of the special item.
Three Months | Six Months | |||||
Pennsylvania Gross Delivery Margins | $ | 28 | $ | 73 | ||
Depreciation | (2) | (4) | ||||
Interest expense | (4) | (8) | ||||
Other | (1) | |||||
Income taxes | (10) | (29) | ||||
Special item, after-tax | (4) | (4) | ||||
Total | $ | 7 | $ | 28 |
Three Months | ||||
Pennsylvania Gross Delivery Margins | $ | 13 | ||
Other operation and maintenance | 2 | |||
Depreciation | (6) | |||
Interest expense | (2) | |||
Other | 1 | |||
Income taxes | (6) | |||
Total | $ | 2 |
· | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Pennsylvania Gross Delivery Margins. |
· | Higher |
· | Higher income taxes |
Income Statement | Three Months | Six Months | |||||||||||||
Line Item | 2014 | 2013 | 2014 | 2013 | |||||||||||
Other Operation | |||||||||||||||
Separation benefits, net of tax of $2, $0, $2, $0 (a) | and Maintenance | $ | (4) | $ | (4) |
Supply Segment
The Supply segment primarily consists of PPL Energy Supply's wholesale, retail, marketing and trading activities, as well as its competitive generation operations. In addition, certain financing and other costs are allocated to the Supply segment. The Supply segment represents negative 13%15% of Net Income Attributable to PPL Shareowners for the sixthree months ended June 30, 2014March 31, 2015 and 25%22% of PPL's assets at June 30, 2014.
In June 2014, PPL and PPL Energy Supply, which primarily represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded independent power producercompany named Talen Energy. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 to the Financial Statements for additional information.
Net Income for the periods ended March 31 includes the following results: | |||||||||||
Three Months | |||||||||||
2015 | 2014 | $ Change | |||||||||
Energy revenues | |||||||||||
External (a) (b) | $ | 833 | $ | (1,107) | $ | 1,940 | |||||
Intersegment | 9 | 27 | (18) | ||||||||
Energy-related businesses | 104 | 125 | (21) | ||||||||
Total operating revenues | 946 | (955) | 1,901 | ||||||||
Fuel (a) | 351 | 482 | (131) | ||||||||
Energy purchases (a) (c) | 1 | (1,804) | 1,805 | ||||||||
Other operation and maintenance | 226 | 229 | (3) | ||||||||
Depreciation | 77 | 75 | 2 | ||||||||
Taxes, other than income | 15 | 18 | (3) | ||||||||
Energy-related businesses | 98 | 124 | (26) | ||||||||
Total operating expenses | 768 | (876) | 1,644 |
Net Income Attributable to PPL Shareowners for the periods ended June 30 includes the following results: | |||||||||||||||||
Three Months | Six Months | ||||||||||||||||
2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||
Energy revenues | |||||||||||||||||
External (a) (b) | $ | 872 | $ | 1,658 | (47) | $ | (206) | $ | 2,039 | (110) | |||||||
Intersegment | 21 | 12 | 75 | 48 | 26 | 85 | |||||||||||
Energy-related businesses | 155 | 122 | 27 | 280 | 235 | 19 | |||||||||||
Total operating revenues | 1,048 | 1,792 | (42) | 122 | 2,300 | (95) | |||||||||||
Fuel (a) | 259 | 224 | 16 | 741 | 522 | 42 | |||||||||||
Energy purchases (a) (c) | 203 | 898 | (77) | (1,601) | 699 | (329) | |||||||||||
Other operation and maintenance | 296 | 270 | 10 | 554 | 505 | 10 | |||||||||||
Depreciation | 82 | 79 | 4 | 162 | 157 | 3 | |||||||||||
Taxes, other than income | 16 | 16 | 37 | 33 | 12 | ||||||||||||
Energy-related businesses | 155 | 118 | 31 | 279 | 228 | 22 | |||||||||||
Total operating expenses | 1,011 | 1,605 | (37) | 172 | 2,144 | (92) | |||||||||||
Other Income (Expense) - net | 8 | 12 | (33) | 14 | 16 | (13) | |||||||||||
Interest Expense | 50 | 60 | (17) | 98 | 120 | (18) | |||||||||||
Income Taxes | (10) | 62 | (116) | (64) | 21 | (405) | |||||||||||
Net Income Attributable to PPL Shareowners | $ | 5 | $ | 77 | (94) | $ | (70) | $ | 31 | (326) |
90 |
Three Months | |||||||||||
2015 | 2014 | $ Change | |||||||||
Other Income (Expense) - net | 7 | 6 | 1 | ||||||||
Interest Expense | 38 | 46 | (8) | ||||||||
Income Taxes | 52 | (52) | 104 | ||||||||
Income (Loss) from Discontinued Operations | (8) | 8 | |||||||||
Net Income | $ | 95 | $ | (75) | $ | 170 |
(a) | Includes the impact from energy-related economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements for additional information. |
(b) |
(c) |
The changes in the results of the Supply segment between these periods were due to the factors set forth below, which reflect amounts classified as Unregulated Gross Energy Margins and certain other items that management considers special on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of these specialother items.
Three Months | Six Months | |||||
Unregulated Gross Energy Margins | $ | 47 | $ | 54 | ||
Other operation and maintenance | (3) | |||||
Depreciation | (3) | (5) | ||||
Interest expense | 11 | 23 | ||||
Other | (8) | (8) | ||||
Income taxes | (9) | (20) | ||||
Special items, after-tax | (110) | (142) | ||||
Total | $ | (72) | $ | (101) |
Three Months | ||||
Unregulated Gross Energy Margins | $ | (58) | ||
Other operation and maintenance | 8 | |||
Other Income (Expense) - net | 1 | |||
Interest expense | 9 | |||
Other | 2 | |||
Income taxes | 5 | |||
Energy-related businesses | 5 | |||
Discontinued operations, after-tax | 27 | |||
Other items, after-tax | 171 | |||
Total | $ | 170 |
· | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Unregulated Gross Energy Margins. |
· | Lower other operation and maintenance primarily due to lower labor costs attributable to restructuring activities. |
· | Lower interest expense |
The following after-tax gains (losses), which management considers specialreflected as "Other items, after-tax" in the table above, also impacted the Supply segment's results during the periods ended June 30.
Income Statement | Three Months | Six Months | |||||||||||||
Line Item | 2014 | 2013 | 2014 | 2013 | |||||||||||
Adjusted energy-related economic activity - net, net of tax of $16, ($51), $111, $28 | (a) | $ | (23) | $ | 76 | $ | (162) | $ | (41) | ||||||
Other Operation | |||||||||||||||
Kerr Dam Project impairment, net of tax of $0, $0, $7, $0 (b) | and Maintenance | (10) | |||||||||||||
Other: | |||||||||||||||
Change in tax accounting method related to repairs | Income Taxes | (3) | (3) | ||||||||||||
Other Operation | |||||||||||||||
Counterparty bankruptcy, net of tax of $0, ($1), $0, ($1) | and Maintenance | 1 | 1 | ||||||||||||
Other Operation | |||||||||||||||
Separation benefits, net of tax of $9, $0, $9, $0 (c) | and Maintenance | (13) | (13) | ||||||||||||
Total | $ | (36) | $ | 74 | $ | (185) | $ | (43) |
Income Statement | Three Months | |||||||||
Line Item | 2015 | 2014 | ||||||||
Adjusted energy-related economic activity - net, net of tax of $(18), $95 | (a) | $ | 27 | $ | (139) | |||||
Discontinued | ||||||||||
Kerr Dam Project impairment, net of tax of $0, $8 (b) | Operations | (10) | ||||||||
Other operation | ||||||||||
Corette closure costs, net of tax of $2, $0 (c) | and maintenance | (3) | ||||||||
Spinoff of PPL Energy Supply: | ||||||||||
Other operation | ||||||||||
Transition costs, net of tax of $0, $0 | and maintenance | (1) | ||||||||
Other operation | ||||||||||
Employee transitional services, net of tax of $1, $0 | and maintenance | (1) | ||||||||
Total | $ | 22 | $ | (149) |
(a) | Represents unrealized gains (losses), after-tax, on economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements for additional information. Amounts have been adjusted for insignificant option |
(b) | In 2014, an arbitration panel issued its final decision holding that the conveyance price payable to PPL Montana was $18 million. As a result, PPL determined the Kerr Dam Project was impaired and recorded a pre-tax charge of $18 million. See Note 13 to the Financial Statements for additional information. |
(c) |
Margins
Non-GAAP Financial Measures
Management utilizes the following non-GAAP financial measures as indicators of performance for its businesses.
91 |
· | "Kentucky Gross Margins" is a single financial performance measure of the |
· | "Pennsylvania Gross Delivery Margins" is a single financial performance measure of the |
· | "Unregulated Gross Energy Margins" is a single financial performance measure of the Supply segment's |
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 the operations and analyze actual results compared with budget and, in certain cases, to measure certain corporate financial goals used to determine variable compensation.
Reconciliation of Non-GAAP Financial Measures
The following table contains 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 periods ended June 30.
2014 Three Months | 2013 Three Months | |||||||||||||||||||||||||||||||||||
Unregulated | Unregulated | |||||||||||||||||||||||||||||||||||
Kentucky | PA Gross | Gross | Kentucky | PA Gross | Gross | |||||||||||||||||||||||||||||||
Gross | Delivery | Energy | Operating | Gross | Delivery | Energy | Operating | |||||||||||||||||||||||||||||
Margins | Margins | Margins | Other (a) | Income (b) | Margins | Margins | Margins | Other (a) | Income (b) | |||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||||||||||
Utility | $ | 722 | $ | 449 | $ | 659 | (c) | $ | 1,830 | $ | 682 | $ | 414 | $ | 559 | (c) | $ | 1,655 | ||||||||||||||||||
PLR intersegment utility | ||||||||||||||||||||||||||||||||||||
revenue (expense) (d) | (21) | $ | 21 | (12) | $ | 12 | ||||||||||||||||||||||||||||||
Unregulated wholesale energy | 684 | (93) | (e) | 591 | 812 | 589 | (e) | 1,401 | ||||||||||||||||||||||||||||
Unregulated retail energy | 277 | 3 | (e) | 280 | 237 | 20 | (e) | 257 | ||||||||||||||||||||||||||||
Energy-related businesses | 173 | 173 | 137 | 137 | ||||||||||||||||||||||||||||||||
Total Operating Revenues | 722 | 428 | 982 | 742 | 2,874 | 682 | 402 | 1,061 | 1,305 | 3,450 | ||||||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||||||
Fuel | 231 | 266 | (6) | (e) | 491 | 216 | 223 | 2 | (e) | 441 | ||||||||||||||||||||||||||
Energy purchases | 36 | 114 | 246 | (45) | (e) | 351 | 37 | 120 | 420 | 474 | (e) | 1,051 | ||||||||||||||||||||||||
Other operation and | ||||||||||||||||||||||||||||||||||||
maintenance | 25 | 23 | 6 | 687 | 741 | 23 | 21 | 3 | 651 | 698 | ||||||||||||||||||||||||||
Depreciation | 2 | 310 | 312 | 2 | 284 | 286 | ||||||||||||||||||||||||||||||
Taxes, other than income | 21 | 10 | 62 | 93 | 19 | 10 | 57 | 86 | ||||||||||||||||||||||||||||
Energy-related businesses | 2 | 166 | 168 | 130 | 130 | |||||||||||||||||||||||||||||||
Total Operating Expenses | 294 | 158 | 530 | 1,174 | 2,156 | 278 | 160 | 656 | 1,598 | 2,692 | ||||||||||||||||||||||||||
Total | $ | 428 | $ | 270 | $ | 452 | $ | (432) | $ | 718 | $ | 404 | $ | 242 | $ | 405 | $ | (293) | $ | 758 |
2014 Six Months | 2013 Six Months | |||||||||||||||||||||||||||||||||||
Unregulated | Unregulated | |||||||||||||||||||||||||||||||||||
Kentucky | PA Gross | Gross | Kentucky | PA Gross | Gross | |||||||||||||||||||||||||||||||
Gross | Delivery | Energy | Operating | Gross | Delivery | Energy | Operating | |||||||||||||||||||||||||||||
Margins | Margins | Margins | Other (a) | Income (b) | Margins | Margins | Margins | Other (a) | Income (b) | |||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||||||||||
Utility | $ | 1,656 | $ | 1,041 | $ | 1,295 | (c) | $ | 3,992 | $ | 1,482 | $ | 927 | $ | 1,196 | (c) | $ | 3,605 | ||||||||||||||||||
PLR intersegment utility | ||||||||||||||||||||||||||||||||||||
revenue (expense) (d) | (48) | $ | 48 | (26) | $ | 26 | ||||||||||||||||||||||||||||||
Unregulated wholesale energy | 47 | (885) | (e) | (838) | 1,778 | (234) | (e) | 1,544 | ||||||||||||||||||||||||||||
Unregulated retail energy | 655 | (26) | (e) | 629 | 483 | 11 | (e) | 494 | ||||||||||||||||||||||||||||
Energy-related businesses | 314 | 314 | 264 | 264 | ||||||||||||||||||||||||||||||||
Total Operating Revenues | 1,656 | 993 | 750 | 698 | 4,097 | 1,482 | 901 | 2,287 | 1,237 | 5,907 | ||||||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||||||
Fuel | 508 | 747 | (6) | (e) | 1,249 | 447 | 522 | 1 | (e) | 970 | ||||||||||||||||||||||||||
Energy purchases | 160 | 303 | (973) | (633) | (e) | (1,143) | 123 | 292 | 857 | (164) | (e) | 1,108 | ||||||||||||||||||||||||
Other operation and | ||||||||||||||||||||||||||||||||||||
maintenance | 48 | 48 | 13 | 1,329 | 1,438 | 48 | 43 | 8 | 1,275 | 1,374 | ||||||||||||||||||||||||||
Depreciation | 3 | 614 | 617 | 2 | 568 | 570 | ||||||||||||||||||||||||||||||
Taxes, other than income | 1 | 50 | 23 | 123 | 197 | 47 | 18 | 117 | 182 | |||||||||||||||||||||||||||
Energy-related businesses | 4 | 302 | 306 | 252 | 252 | |||||||||||||||||||||||||||||||
Total Operating Expenses | 720 | 401 | (186) | 1,729 | 2,664 | 620 | 382 | 1,405 | 2,049 | 4,456 | ||||||||||||||||||||||||||
Total | $ | 936 | $ | 592 | $ | 936 | $ | (1,031) | $ | 1,433 | $ | 862 | $ | 519 | $ | 882 | $ | (812) | $ | 1,451 |
92 |
2015 Three Months | 2014 Three Months | |||||||||||||||||||||||||||||||||||
Unregulated | Unregulated | |||||||||||||||||||||||||||||||||||
Kentucky | PA Gross | Gross | Kentucky | PA Gross | Gross | |||||||||||||||||||||||||||||||
Gross | Delivery | Energy | Operating | Gross | Delivery | Energy | Operating | |||||||||||||||||||||||||||||
Margins | Margins | Margins | Other (a) | Income (b) | Margins | Margins | Margins | Other (a) | Income (b) | |||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||||||||||
Utility | $ | 899 | $ | 630 | $ | 685 | (c) | $ | 2,214 | $ | 934 | $ | 592 | $ | 636 | (c) | $ | 2,162 | ||||||||||||||||||
PLR intersegment utility | ||||||||||||||||||||||||||||||||||||
revenue (expense) (d) | (9) | $ | 9 | (27) | $ | 27 | ||||||||||||||||||||||||||||||
Unregulated wholesale energy | 614 | (93) | (e) | 521 | (665) | (792) | (e) | (1,457) | ||||||||||||||||||||||||||||
Unregulated retail energy | 324 | (14) | (e) | 310 | 377 | (29) | (e) | 348 | ||||||||||||||||||||||||||||
Energy-related businesses | 120 | 120 | 141 | 141 | ||||||||||||||||||||||||||||||||
Total Operating Revenues | 899 | 621 | 947 | 698 | 3,165 | 934 | 565 | (261) | (44) | 1,194 | ||||||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||||||
Fuel | 253 | 351 | 604 | 277 | 481 | 758 | ||||||||||||||||||||||||||||||
Energy purchases | 92 | 227 | 152 | (150) | (e) | 321 | 124 | 189 | (1,219) | (588) | (e) | (1,494) | ||||||||||||||||||||||||
Other operation and | ||||||||||||||||||||||||||||||||||||
maintenance | 24 | 26 | 4 | 614 | 668 | 23 | 25 | 7 | 613 | 668 | ||||||||||||||||||||||||||
Depreciation | 7 | 286 | 293 | 2 | 298 | 300 | ||||||||||||||||||||||||||||||
Taxes, other than income | 1 | 33 | 12 | 55 | 101 | 29 | 13 | 59 | 101 | |||||||||||||||||||||||||||
Energy-related businesses | 2 | 109 | 111 | 2 | 136 | 138 | ||||||||||||||||||||||||||||||
Total Operating Expenses | 377 | 286 | 521 | 914 | 2,098 | 426 | 243 | (716) | 518 | 471 | ||||||||||||||||||||||||||
Income (Loss) from | ||||||||||||||||||||||||||||||||||||
Discontinued Operations | 29 | (29) | (f) | |||||||||||||||||||||||||||||||||
Total | $ | 522 | $ | 335 | $ | 426 | $ | (216) | $ | 1,067 | $ | 508 | $ | 322 | $ | 484 | $ | (591) | $ | 723 |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
(c) | Primarily represents WPD's utility revenue. |
(d) | Primarily related to PLR supply sold by PPL EnergyPlus to PPL Electric. |
(e) | Includes energy-related economic activity, which is subject to fluctuations in value due to market price volatility. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements. Amounts have been adjusted for insignificant option premiums. |
(f) | Represents the revenues associated with the hydroelectric generating facilities located in Montana that are classified as discontinued operations. These revenues are not reflected in "Operating Income" on the Statements of Income. |
Changes in Non-GAAP Financial Measures
The following table shows the non-GAAP financial measures by PPL's reportable segment and by component, as applicable, for the periodsthree months ended June 30March 31 as well as the change between periods. The factors that gave rise to the changes are described following the table.
Three Months | Six Months | |||||||||||||||||||
2014 | 2013 | Change | 2014 | 2013 | Change | |||||||||||||||
Kentucky Regulated | ||||||||||||||||||||
Kentucky Gross Margins | ||||||||||||||||||||
LG&E | $ | 196 | $ | 183 | $ | 13 | $ | 422 | $ | 385 | $ | 37 | ||||||||
KU | 232 | 221 | 11 | 514 | 477 | 37 | ||||||||||||||
LKE | $ | 428 | $ | 404 | $ | 24 | $ | 936 | $ | 862 | $ | 74 | ||||||||
Pennsylvania Regulated | ||||||||||||||||||||
Pennsylvania Gross Delivery Margins | ||||||||||||||||||||
Distribution | $ | 189 | $ | 183 | $ | 6 | $ | 438 | $ | 407 | $ | 31 | ||||||||
Transmission | 81 | 59 | 22 | 154 | 112 | 42 | ||||||||||||||
Total | $ | 270 | $ | 242 | $ | 28 | $ | 592 | $ | 519 | $ | 73 | ||||||||
Supply | ||||||||||||||||||||
Unregulated Gross Energy Margins | ||||||||||||||||||||
Eastern U.S. | $ | 400 | $ | 349 | $ | 51 | $ | 835 | $ | 769 | $ | 66 | ||||||||
Western U.S. | 52 | 56 | (4) | 101 | 113 | (12) | ||||||||||||||
Total | $ | 452 | $ | 405 | $ | 47 | $ | 936 | $ | 882 | $ | 54 |
Three Months | |||||||||||
2015 | 2014 | $ Change | |||||||||
Kentucky Regulated | |||||||||||
Kentucky Gross Margins | |||||||||||
LG&E | $ | 230 | $ | 226 | $ | 4 | |||||
KU | 292 | 282 | 10 | ||||||||
LKE | $ | 522 | $ | 508 | $ | 14 |
Pennsylvania Regulated | |||||||||||
Pennsylvania Gross Delivery Margins | |||||||||||
Distribution | $ | 242 | $ | 249 | $ | (7) | |||||
Transmission | 93 | 73 | 20 | ||||||||
Total | $ | 335 | $ | 322 | $ | 13 |
Supply | |||||||||||
Unregulated Gross Energy Margins | |||||||||||
Eastern U.S. | $ | 405 | $ | 435 | $ | (30) | |||||
Western U.S. | 21 | 49 | (28) | ||||||||
Total | $ | 426 | $ | 484 | $ | (58) |
Kentucky Gross Margins
Kentucky Gross Margins increased for the three months ended June 30, 2014 compared with 2013 primarily due to returns on additional environmental capital investments of $14$18 million ($610 million at LG&E and $8 million at KU), and higher volumesdemand revenue of $5$7 million ($6 million at KU and $1 million at LG&E.&E) partially offset by lower sales volume of $10 million ($6 million at KU and $4 million at LG&E). The change in volumessales volume was primarily attributable to favorablemilder winter weather conditions in 2015 compared to 2014.
93 |
Pennsylvania Gross Delivery Margins
Distribution
Distribution margins decreased primarily due to a $12 million benefit fromrecorded in the first quarter of 2014 as a result of a change in estimate of a regulatory liability partially offset by a $10 million favorable effect of unusually cold weather in the first quarter of 2014 and a $9$4 million favorable effect of distribution improvement capital investments. See "Pennsylvania Activities - Storm Damage Expense Rider" in Note 6 to the Financial Statements for additional information.
Transmission
Transmission margins increased primarily due to increased investment in plant and the recovery of additional costs through the FERC formula based rates.
Unregulated Gross Energy Margins
Eastern U.S.
Eastern margins increased for the three months ended June 30, 2014 compared with 2013decreased primarily due to favorable asset availabilitylower capacity prices of $76$69 million, unrealized gainsunusually cold weather conditions in 2014 as discussed below of $38 million, net change on certain commodity positions of $42$28 million and higher capacity pricesfull-requirement sales contracts of $27$22 million, partially offset by lowerhigher baseload energy prices of $109 million.
During the first quarter of 2014, the PJM region experienced unusually cold weather conditions, higher demand and congestion patterns, causing rising natural gas and electricity prices in spot and near-term forward markets. Due to these market dynamics, PPL Energy Supply captured opportunities on unhedged generation, which were offset primarily offsetby losses incurred by under-hedged full-requirement sales contracts and retail electric. The net benefit,electric portfolios which were not fully hedged or able to be fully hedged given the extreme load conditions and lack of market liquidity.
Western U.S.
Western margins decreased primarily due to the aforementioned weather and related market dynamics, was $38 million forsale of the six months ended June 30, 2014 compared with 2013.
Statement of Income Analysis -- | |||||||||
Utility Revenues | |||||||||
The increase (decrease) in utility revenues for the periods ended June 30, 2014 compared with 2013 was due to: | |||||||||
Three Months | Six Months | ||||||||
Domestic: | |||||||||
PPL Electric (a) | $ | 35 | $ | 114 | |||||
LKE (b) | 40 | 174 | |||||||
Total Domestic | 75 | 288 | |||||||
U.K.: | |||||||||
Price (c) | 52 | 120 | |||||||
Foreign currency exchange rates | 59 | 85 | |||||||
Volume (d) | (33) | (56) | |||||||
Line loss accrual adjustments (e) | 24 | (41) | |||||||
Other | (2) | (9) | |||||||
Total U.K. | 100 | 99 | |||||||
Total | $ | 175 | $ | 387 |
Statement of Income Analysis -- | |||||||
Utility Revenues | |||||||
The increase (decrease) in utility revenues for the period ended March 31, 2015 compared with 2014 was due to: | |||||||
Three Months | |||||||
Domestic: | |||||||
PPL Electric (a) | $ | 38 | |||||
LKE (b) | (35) | ||||||
Total Domestic | 3 | ||||||
U.K.: | |||||||
Price (c) | 42 | ||||||
Foreign currency exchange rates | (48) | ||||||
Volume | (10) | ||||||
Line loss accrual adjustments (d) | 65 | ||||||
Total U.K. | 49 | ||||||
Total | $ | 52 |
(a) | See "Pennsylvania Gross Delivery Margins" for further information. |
(b) | See "Kentucky Gross Margins" for further information. |
(c) | The |
(d) | The |
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items and their related increase (decrease) during the periodsperiod ended June 30, 2014March 31, 2015 compared with 20132014 are included above within "Margins" and are not discussed separately.
Three Months | |||||
Unregulated wholesale energy (a) | $ | 1,978 | |||
Unregulated retail energy | (38) | ||||
Fuel | (154) | ||||
Energy purchases (b) | 1,815 |
Three Months | Six Months | ||||||
Unregulated wholesale energy (a) | $ | (810) | $ | (2,382) | |||
Unregulated retail energy | 23 | 135 | |||||
Fuel | 50 | 279 | |||||
Energy purchases (b) | (700) | (2,251) |
94 |
(a) |
(b) |
Energy-Related Businesses
Net contributions from energy-related businesses increased by $6 million for the period ended March 31, 2015 compared with 2014 primarily due to higher margins on existing construction projects at the mechanical contracting and engineering subsidiaries.
Other Operation and Maintenance | ||||||
The increase (decrease) in other operation and maintenance for the | ||||||
Three Months | ||||||
Domestic: | ||||||
Fossil and hydroelectric plants (a) | $ | 4 | ||||
PPL EnergyPlus (b) | (9) | |||||
PPL Electric storm costs | (10) | |||||
PPL Electric Act 129 | 5 | |||||
External transition costs associated with the spinoff of | 4 | |||||
Uncollectible accounts | 3 | |||||
Other | 9 | |||||
U.K.: | ||||||
Network maintenance | (5) | |||||
Foreign currency exchange rates | (7) | |||||
Pension | (4) | |||||
Engineering management | 9 | |||||
WPD Midlands acquisition-related adjustment | (3) | |||||
Other | 4 | |||||
Total | $ |
Other Operation and Maintenance | |||||||
The increase (decrease) in other operation and maintenance for the periods ended June 30, 2014 compared with 2013 was due to: | |||||||
Three Months | Six Months | ||||||
Domestic: | |||||||
PPL Susquehanna (a) | $ | 11 | $ | 18 | |||
PPL Energy Supply fossil and hydroelectric plants (b) | (9) | 11 | |||||
PPL Electric PUC-reportable storms | 1 | 10 | |||||
PPL Electric payroll-related costs | (5) | (8) | |||||
LKE generation maintenance outages | 3 | 6 | |||||
LKE storm expense | 3 | 9 | |||||
Separation benefits (c) | 29 | 29 | |||||
Other | 6 | (6) | |||||
U.K.: | |||||||
Network maintenance (d) | 7 | 16 | |||||
Foreign currency exchange rates | 10 | 14 | |||||
Pension | (8) | (17) | |||||
Engineering management | (3) | (9) | |||||
Separation benefits | (3) | ||||||
Other | (2) | (6) | |||||
Total | $ | 43 | $ | 64 |
(a) | The increase |
(b) | The decrease |
Depreciation
Depreciation increaseddecreased by $26 million and $47$7 million for the three and six months ended June 30, 2014March 31, 2015 compared with 2013,2014, primarily due to a $20 million reduction from an extension of the WPD network asset lives partially offset by additions to PP&E, net.
Taxes, Other Than Income | |||||||
The increase (decrease) in taxes, other than income for the periods ended June 30, 2014 compared with 2013 was due to: | |||||||
Three Months | Six Months | ||||||
Pennsylvania gross receipts tax (a) | $ | 3 | $ | 9 | |||
Foreign currency exchange rates | 4 | 5 | |||||
Domestic property tax | 1 | ||||||
Total | $ | 7 | $ | 15 |
Other Income (Expense) - net
Other income (expense) - net decreasedincreased by $95 million and $240$118 million for the three and six months ended June 30, 2014March 31, 2015 compared with 2013,2014, primarily due to an increase of $76 million and $219$112 million from realized and unrealized lossesgains on foreign currency contracts to economically hedge GBP denominated earnings from WPD. The three and six months ended June 30, 2014 were also impacted by $16 million of transaction costs related to the anticipated spinoff of PPL Energy Supply.
See Note 12 to the Financial Statements for additional information.
Interest Expense | |||||||
The increase (decrease) in interest expense for the periods ended June 30, 2014 compared with 2013 was due to: | |||||||
Three Months | Six Months | ||||||
Loss on extinguishment of debt (a) | $ | (10) | $ | (1) | |||
Net amortization of debt discounts, premiums and issuance costs | (4) | ||||||
Capitalized interest and debt component of AFUDC (b) | 4 | 9 | |||||
Foreign currency exchange rates | 9 | 13 | |||||
Other | (3) | (4) | |||||
Total | $ | $ | 13 |
Interest Expense | |||||
The increase (decrease) in interest expense for the period ended March 31, 2015 compared with 2014 was due to: | |||||
Three Months | |||||
Loss on extinguishment of debt (a) | $ | (9) | |||
Foreign currency exchange rates | (7) | ||||
Other | 1 | ||||
Total | $ | (15) |
(a) | In March 2014, |
Income Taxes | |||||
The increase (decrease) in income taxes for the period ended March 31, 2015 compared with | |||||
95 |
Income Taxes | |||||||
The increase (decrease) in income taxes for the periods ended June 30, 2014 compared with 2013 was due to: | |||||||
Three Months | Six Months | ||||||
Change in pre-tax income at current period tax rates | $ | (68) | $ | (120) | |||
State valuation allowance adjustments (a) | 46 | 46 | |||||
Federal income tax credits | 2 | 5 | |||||
Federal and state tax reserve adjustments (b) | 39 | 40 | |||||
U.S. income tax on foreign earnings - net of foreign tax credit (c) | 17 | 26 | |||||
Foreign tax return adjustments | 4 | 4 | |||||
State deferred tax rate change | 3 | 3 | |||||
Impact of lower UK income tax rates | (3) | (8) | |||||
Other | 5 | ||||||
Total | $ | 40 | $ | 1 |
Three Months | |||||
Change in pre-tax income at current period tax rates | $ | 165 | |||
Valuation allowance adjustments | 3 | ||||
U.S. income tax | (12) | ||||
Intercompany interest on U.K. financing entities | (6) | ||||
Impact of |
6 | |||||
Other | (2) | ||||
Total | $ | 154 |
See Note 5 to the Financial Statements for additional information.
Income (Loss) from Discontinued Operations (net of income taxes)
Income Analysis
Earnings | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Net Income (Loss) Attributable to PPL Energy Supply Member | $ | 13 | $ | 86 | $ | (53) | $ | 48 | |||||
Special items, gains (losses), after-tax | (36) | 74 | (185) | (43) |
Three Months | Six Months | |||||
Unregulated Gross Energy Margins | $ | 47 | $ | 54 | ||
Other operation and maintenance | (3) | |||||
Depreciation | (3) | (5) | ||||
Interest expense | 11 | 23 | ||||
Other | (8) | (8) | ||||
Income taxes | (10) | (20) | ||||
Special items, after-tax | (110) | (142) | ||||
Total | $ | (73) | $ | (101) |
2014 Three Months | 2013 Three Months | ||||||||||||||||||||||
Unregulated | Unregulated | ||||||||||||||||||||||
Gross Energy | Operating | Gross Energy | Operating | ||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | |||||||||||||||||||||||
Unregulated wholesale energy | $ | 684 | $ | (93) | (c) | $ | 591 | $ | 812 | $ | 589 | (c) | $ | 1,401 | |||||||||
Unregulated wholesale energy | |||||||||||||||||||||||
to affiliate | 21 | 21 | 12 | 12 | |||||||||||||||||||
Unregulated retail energy | 277 | 4 | (c) | 281 | 237 | 20 | (c) | 257 | |||||||||||||||
Energy-related businesses | 155 | 155 | 122 | 122 | |||||||||||||||||||
Total Operating Revenues | 982 | 66 | 1,048 | 1,061 | 731 | 1,792 | |||||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Fuel | 266 | (7) | (c) | 259 | 223 | 1 | (c) | 224 | |||||||||||||||
Energy purchases | 246 | (43) | (c) | 203 | 420 | 478 | (c) | 898 | |||||||||||||||
Other operation and maintenance | 6 | 290 | 296 | 3 | 267 | 270 | |||||||||||||||||
Depreciation | 82 | 82 | 79 | 79 | |||||||||||||||||||
Taxes, other than income | 10 | 6 | 16 | 10 | 6 | 16 | |||||||||||||||||
Energy-related businesses | 2 | 153 | 155 | 118 | 118 | ||||||||||||||||||
Total Operating Expenses | 530 | 481 | 1,011 | 656 | 949 | 1,605 | |||||||||||||||||
Total | $ | 452 | $ | (415) | $ | 37 | $ | 405 | $ | (218) | $ | 187 |
2014 Six Months | 2013 Six Months | |||||||||||||||||||||||
Unregulated | Unregulated | |||||||||||||||||||||||
Gross Energy | Operating | Gross Energy | Operating | |||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | |||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||
Unregulated wholesale energy | $ | 47 | $ | (885) | (c) | $ | (838) | $ | 1,778 | $ | (234) | (c) | $ | 1,544 | ||||||||||
Unregulated wholesale energy | ||||||||||||||||||||||||
to affiliate | 48 | 48 | 26 | 26 | ||||||||||||||||||||
Unregulated retail energy | 655 | (23) | (c) | 632 | 483 | 12 | (c) | 495 | ||||||||||||||||
Energy-related businesses | 280 | 280 | 235 | 235 | ||||||||||||||||||||
Total Operating Revenues | 750 | (628) | 122 | 2,287 | 13 | 2,300 | ||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Fuel | 747 | (6) | (c) | 741 | 522 | (c) | 522 | |||||||||||||||||
Energy purchases | (973) | (628) | (c) | (1,601) | 857 | (158) | (c) | 699 | ||||||||||||||||
Other operation and maintenance | 13 | 541 | 554 | 8 | 497 | 505 | ||||||||||||||||||
Depreciation | 162 | 162 | 157 | 157 | ||||||||||||||||||||
Taxes, other than income | 23 | 14 | 37 | 18 | 15 | 33 | ||||||||||||||||||
Energy-related businesses | 4 | 275 | 279 | 228 | 228 | |||||||||||||||||||
Total Operating Expenses | (186) | 358 | 172 | 1,405 | 739 | 2,144 | ||||||||||||||||||
Total | $ | 936 | $ | (986) | $ | (50) | $ | 882 | $ | (726) | $ | 156 |
Three Months | Six Months | ||||||
Unregulated wholesale energy (a) | $ | (810) | $ | (2,382) | |||
Unregulated wholesale energy to affiliate | 9 | 22 | |||||
Unregulated retail energy | 24 | 137 | |||||
Fuel | 35 | 219 | |||||
Energy purchases (b) | (695) | (2,300) |
Other Operation and Maintenance | ||||||
The increase (decrease) in other operation and maintenance for the periods ended June 30, 2014 compared with 2013 was due to: | ||||||
Three Months | Six Months | |||||
PPL Susquehanna (a) | $ | 11 | $ | 18 | ||
Fossil hydroelectric plants (b) | (9) | 11 | ||||
PPL EnergyPlus | 4 | 4 | ||||
Separation benefits (c) | 23 | 23 | ||||
Other | (3) | (7) | ||||
Total | $ | 26 | $ | 49 |
Interest Expense | |||||||
The increase (decrease) in interest expense for the periods ended June 30, 2014 compared with 2013 was due to: | |||||||
Three Months | Six Months | ||||||
Long-term debt interest expense (a) | $ | (14) | $ | (28) | |||
Capitalized interest (b) | 4 | 8 | |||||
Other | (1) | (3) | |||||
Total | $ | (11) | $ | (23) |
Income Taxes | ||||||
The increase (decrease) in income taxes for the periods ended June 30, 2014 compared with 2013 was due to: | ||||||
Three Months | Six Months | |||||
Change in pre-tax income at current period tax rates | $ | (68) | $ | (86) | ||
Federal and state tax reserve adjustments | (6) | (5) | ||||
State deferred tax rate change | 3 | 3 | ||||
Other | 1 | 4 | ||||
Total | $ | (70) | $ | (84) |
Earnings | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Net Income | $ | 52 | $ | 45 | $ | 137 | $ | 109 | |||||
Special item, gains (losses), after-tax | (4) | (4) |
Earnings | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
Net Income | $ | 87 | $ | 85 |
Earnings increased slightly for the three and six-month periodsmonth period in 20142015 compared with 2013 increased,2014 primarily due to higher transmission margins from returns on additional transmission capital investments, and the recovery of additional costs through FERC formula based rates, partially offset by higher interestdepreciation expense. Earnings for the six-month period in 2014 compared with 2013 also include higher distribution margins primarily due to unusually cold weather in theThe first quarter of 2014 returns on additional distribution improvement capital investments and a benefitalso benefited from a change in estimate of a regulatory liability.
The table below quantifies the changes in the components of Net Income between these periods, which reflects amounts classified as Pennsylvania Gross Delivery Margins andon a certain item that management considers special on separate lines within the tableline and not in their respective Statement of Income line items. See PPL's Results of Operations - Segment Earnings - Pennsylvania Regulated Segment" for details of the special item.
Three Months | Six Months | |||||
Pennsylvania Gross Delivery Margins | $ | 28 | $ | 73 | ||
Depreciation | (2) | (4) | ||||
Interest expense | (4) | (8) | ||||
Other | (1) | |||||
Income taxes | (10) | (29) | ||||
Special item, after-tax | (4) | (4) | ||||
Total | $ | 7 | $ | 28 |
Three Months | ||||
Pennsylvania Gross Delivery Margins | $ | 13 | ||
Other operation and maintenance | 2 | |||
Depreciation | (6) | |||
Other | 1 | |||
Interest expense | (2) | |||
Income taxes | (6) | |||
Total | $ | 2 |
Margins
"Pennsylvania Gross Delivery Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods.
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended June 30.
2015 Three Months | 2014 Three Months | ||||||||||||||||||||
PA Gross | PA Gross | ||||||||||||||||||||
Delivery | Operating | Delivery | Operating | ||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||
Operating Revenues | $ | 630 | $ | 630 | $ | 592 | $ | 592 | |||||||||||||
Operating Expenses | |||||||||||||||||||||
Energy purchases | 227 | 227 | 189 | 189 | |||||||||||||||||
Energy purchases from affiliate | 9 | 9 | 27 | 27 | |||||||||||||||||
Other operation and maintenance | 26 | $ | 107 | 133 | 25 | $ | 109 | 134 | |||||||||||||
Depreciation | 51 | 51 | 45 | 45 | |||||||||||||||||
Taxes, other than income | 33 | 2 | 35 | 29 | 3 | 32 | |||||||||||||||
Total Operating Expenses | 295 | 160 | 455 | 270 | 157 | 427 | |||||||||||||||
Total | $ | 335 | $ | (160) | $ | 175 | $ | 322 | $ | (157) | $ | 165 |
2014 Three Months | 2013 Three Months | ||||||||||||||||||||
PA Gross | PA Gross | ||||||||||||||||||||
Delivery | Operating | Delivery | Operating | ||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||
Operating Revenues | $ | 449 | $ | 449 | $ | 414 | $ | 414 | |||||||||||||
Operating Expenses | |||||||||||||||||||||
Energy purchases | 114 | 114 | 120 | 120 | |||||||||||||||||
Energy purchases from affiliate | 21 | 21 | 12 | 12 | |||||||||||||||||
Other operation and maintenance | 23 | $ | 112 | 135 | 21 | $ | 103 | 124 | |||||||||||||
Depreciation | 45 | 45 | 44 | 44 | |||||||||||||||||
Taxes, other than income | 21 | 2 | 23 | 19 | 3 | 22 | |||||||||||||||
Total Operating Expenses | 179 | 159 | 338 | 172 | 150 | 322 | |||||||||||||||
Total | $ | 270 | $ | (159) | $ | 111 | $ | 242 | $ | (150) | $ | 92 |
2014 Six Months | 2013 Six Months | ||||||||||||||||||||
PA Gross | PA Gross | ||||||||||||||||||||
Delivery | Operating | Delivery | Operating | ||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||
Operating Revenues | $ | 1,041 | $ | 1,041 | $ | 927 | $ | 927 | |||||||||||||
Operating Expenses | |||||||||||||||||||||
Energy purchases | 303 | 303 | 292 | 292 | |||||||||||||||||
Energy purchases from affiliate | 48 | 48 | 26 | 26 | |||||||||||||||||
Other operation and maintenance | 48 | $ | 221 | 269 | 43 | $ | 214 | 257 | |||||||||||||
Depreciation | 90 | 90 | 87 | 87 | |||||||||||||||||
Taxes, other than income | 50 | 5 | 55 | 47 | 5 | 52 | |||||||||||||||
Total Operating Expenses | 449 | 316 | 765 | 408 | 306 | 714 | |||||||||||||||
Total | $ | 592 | $ | (316) | $ | 276 | $ | 519 | $ | (306) | $ | 213 |
96 |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items and their related increase (decrease) during the periodsperiod ended June 30, 2014March 31, 2015 compared with 20132014 are included above within "Margins" and are not discussed separately.
Three Months | Six Months | ||||||
Operating revenues | $ | 35 | $ | 114 | |||
Energy purchases | (6) | 11 | |||||
Energy purchases from affiliate | 9 | 22 |
Other Operation and Maintenance | ||||||
The increase (decrease) in other operation and maintenance for the periods ended June 30, 2014 compared with 2013 was due to: | ||||||
Three Months | Six Months | |||||
Payroll-related costs | $ | (5) | $ | (8) | ||
Vegetation management | 2 | 5 | ||||
PUC-reportable storms | 1 | 10 | ||||
Act 129 | 3 | (1) | ||||
Separation benefits (a) | 6 | 6 | ||||
Other | 4 | |||||
Total | $ | 11 | $ | 12 |
Three Months | |||||
Operating revenues | $ | 38 | |||
Energy purchases | 38 | ||||
Energy purchases from affiliate | (18) |
Other Operation and Maintenance | |||||
The increase (decrease) in other operation and maintenance for the | |||||
Three Months | |||||
Vegetation management | $ | (2) | |||
Storm costs | (10) | ||||
Act 129 | 5 | ||||
Uncollectible accounts | 3 | ||||
Corporate service costs | 3 | ||||
Total | $ | (1) |
Depreciation
Depreciation increased by $4 million and $8$6 million for the three and six months ended June 30, 2014March 31, 2015 compared with 2013,2014, primarily due to a debt issuance in July 2013.
Income Taxes | ||||
The increase (decrease) in income taxes for the period ended March 31, 2015 compared with 2014 was due to: | ||||
Three Months | ||||
Change in pre-tax income at current period tax rates | $ | 5 | ||
Other | 1 | |||
Total | $ | 6 |
See Note 5 to5to the Financial Statements for additional information.
Earnings | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Net Income | $ | 65 | $ | 64 | $ | 180 | $ | 160 | |||||
Special items, gains (losses), after-tax | 1 | 1 | 1 | 2 |
Earnings | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
Net Income | $ | 117 | $ | 115 |
Earnings increased slightly for the three-monththree month period in 20142015 compared with 20132014 primarily due to returns on additional environmental capital investments and higher sales volumes due to favorable weather conditions. Earnings increased for the six-month period in 2014 compared with 2013 primarily due to returns on additional environmental capital investments, higher sales volumes, higher demand revenue and higher off-system sales, partially offset by lower sales volume, higher operationdepreciation expense and maintenance expense driven by storm-related expenses and timing of generation maintenance outages.higher income tax expense. The changeschange in volumes and demand revenue weresales volume was primarily dueattributable to unusually coldmilder winter weather conditions during the first quarter ofin 2015 compared to 2014.
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins and certain items that management considers special on a separate linesline within the table and not in their respective Statement of Income line items. See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated Segment" for details of the special items.
97 |
Three Months | Six Months | |||||
Margins | $ | 24 | $ | 74 | ||
Other operation and maintenance | (7) | (18) | ||||
Depreciation | (4) | (7) | ||||
Interest expense | (4) | (9) | ||||
Other | (4) | (3) | ||||
Income taxes | (4) | (16) | ||||
Special items, after-tax | (1) | |||||
Total | $ | 1 | $ | 20 |
Three Months | ||||
Margins | $ | 14 | ||
Other operation and maintenance | (2) | |||
Depreciation | (4) | |||
Other Income (Expense)- net | 1 | |||
Income taxes | (7) | |||
Total | $ | 2 |
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, LKE's Margins are referred to as "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended June 30.
2014 Three Months | 2013 Three Months | ||||||||||||||||||||||
Operating | Operating | ||||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | $ | 722 | $ | 722 | $ | 682 | $ | 682 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Fuel | 231 | 231 | 216 | 216 | |||||||||||||||||||
Energy purchases | 36 | 36 | 37 | 37 | |||||||||||||||||||
Other operation and maintenance | 25 | $ | 181 | 206 | 23 | $ | 174 | 197 | |||||||||||||||
Depreciation | 2 | 85 | 87 | 2 | 81 | 83 | |||||||||||||||||
Taxes, other than income | 13 | 13 | 12 | 12 | |||||||||||||||||||
Total Operating Expenses | 294 | 279 | 573 | 278 | 267 | 545 | |||||||||||||||||
Total | $ | 428 | $ | (279) | $ | 149 | $ | 404 | $ | (267) | $ | 137 |
2014 Six Months | 2013 Six Months | ||||||||||||||||||||||
Operating | Operating | ||||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | $ | 1,656 | $ | 1,656 | $ | 1,482 | $ | 1,482 | |||||||||||||||
Fuel | 508 | 508 | 447 | 447 | |||||||||||||||||||
Energy purchases | 160 | 160 | 123 | 123 | |||||||||||||||||||
Other operation and maintenance | 48 | $ | 364 | 412 | 48 | $ | 346 | 394 | |||||||||||||||
Depreciation | 3 | 170 | 173 | 2 | 163 | 165 | |||||||||||||||||
Taxes, other than income | 1 | 25 | 26 | 24 | 24 | ||||||||||||||||||
Total Operating Expenses | 720 | 559 | 1,279 | 620 | 533 | 1,153 | |||||||||||||||||
Total | $ | 936 | $ | (559) | $ | 377 | $ | 862 | $ | (533) | $ | 329 |
2015 Three Months | 2014 Three Months | ||||||||||||||||||||||
Operating | Operating | ||||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | $ | 899 | $ | 899 | $ | 934 | $ | 934 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Fuel | 253 | 253 | 277 | 277 | |||||||||||||||||||
Energy purchases | 92 | 92 | 124 | 124 | |||||||||||||||||||
Other operation and maintenance | 24 | $ | 185 | 209 | 23 | $ | 183 | 206 | |||||||||||||||
Depreciation | 7 | 88 | 95 | 2 | 84 | 86 | |||||||||||||||||
Taxes, other than income | 1 | 13 | 14 | 13 | 13 | ||||||||||||||||||
Total Operating Expenses | 377 | 286 | 663 | 426 | 280 | 706 | |||||||||||||||||
Total | $ | 522 | $ | (286) | $ | 236 | $ | 508 | $ | (280) | $ | 228 |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses included in "Margins"
The following Statement of Income line items and their related increase (decrease)decrease during the periodsperiod ended June 30, 2014March 31, 2015 compared with 20132014 are included above within "Margins" and are not discussed separately.
Three Months | Six Months | ||||||
Operating revenues | $ | 40 | $ | 174 | |||
Fuel | 15 | 61 | |||||
Energy purchases | (1) | 37 |
Other Operation and Maintenance | ||||||
The increase (decrease) in other operation and maintenance expense for the periods ended June 30, 2014 compared with 2013 was due to: | ||||||
Three Months | Six Months | |||||
Timing and scope of generation maintenance outages | $ | 3 | $ | 6 | ||
Storm expenses | 3 | 9 | ||||
Other | 3 | 3 | ||||
Total | $ | 9 | $ | 18 |
Three Months | |||||
Operating revenues | $ | 35 | |||
Fuel | 24 | ||||
Energy purchases | 32 |
Depreciation
Depreciation increased by $4 million and $8$9 million for the three and six months ended June 30, 2014March 31, 2015 compared with 20132014 primarily due to additions to PP&E, net.
Income Taxes
Income taxes increased by $5 million and $10$7 million for the three and six months ended June 30, 2014March 31, 2015 compared with 2013 primarily due to the issuance of $500 million First Mortgage Bonds in November 2013.
98 |
Earnings | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Net Income | $ | 35 | $ | 29 | $ | 87 | $ | 73 |
Earnings | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
Net Income | $ | 53 | $ | 52 |
Earnings increased slightly for the three-monththree month period in 20142015 compared with 20132014 primarily due to returns fromon additional environmental capital investments and higher sales volumes due to favorable weather conditions. Earnings increased for the six-month period in 2014 compared with 2013 primarily due to returns from additional environmental capital investments, higher sales volume, higher demand revenue and higher off-system sales partially offset by increased operationlower sales volume and maintenance expense driven by storm-related expenses.higher depreciation expense. The changeschange in volumes and demand revenue weresales volume was primarily attributable to unusually coldmilder winter weather conditions during the first quarter ofin 2015 compared to 2014.
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins on a separate line within the table and not in their respective Statement of Income line items.
Three Months | Six Months | |||||
Margins | $ | 13 | $ | 37 | ||
Other operation and maintenance | 2 | (4) | ||||
Depreciation | (2) | (4) | ||||
Interest expense | (2) | (4) | ||||
Other | (1) | (2) | ||||
Income taxes | (4) | (9) | ||||
Total | $ | 6 | $ | 14 |
Three Months | ||||
Margins | $ | 4 | ||
Other operation and maintenance | 2 | |||
Depreciation | (2) | |||
Other Income (Expense) - net | 1 | |||
Interest expense | (1) | |||
Income taxes | (3) | |||
Total | $ | 1 |
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, LG&E's Margins are included in "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended June 30.
2014 Three Months | 2013 Three Months | ||||||||||||||||||||||
Operating | Operating | ||||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | $ | 344 | $ | 344 | $ | 316 | $ | 316 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Fuel | 104 | 104 | 88 | 88 | |||||||||||||||||||
Energy purchases, including affiliate | 31 | 31 | 34 | 34 | |||||||||||||||||||
Other operation and maintenance | 12 | $ | 82 | 94 | 10 | $ | 84 | 94 | |||||||||||||||
Depreciation | 1 | 38 | 39 | 1 | 36 | 37 | |||||||||||||||||
Taxes, other than income | 7 | 7 | 6 | 6 | |||||||||||||||||||
Total Operating Expenses | 148 | 127 | 275 | 133 | 126 | 259 | |||||||||||||||||
Total | $ | 196 | $ | (127) | $ | 69 | $ | 183 | $ | (126) | $ | 57 |
2014 Six Months | 2013 Six Months | ||||||||||||||||||||||
Operating | Operating | ||||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | $ | 823 | $ | 823 | $ | 706 | $ | 706 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Fuel | 221 | 221 | 184 | 184 | |||||||||||||||||||
Energy purchases, including affiliate | 155 | 155 | 115 | 115 | |||||||||||||||||||
Other operation and maintenance | 24 | $ | 168 | 192 | 21 | $ | 164 | 185 | |||||||||||||||
Depreciation | 1 | 76 | 77 | 1 | 72 | 73 | |||||||||||||||||
Taxes, other than income | 13 | 13 | 12 | 12 | |||||||||||||||||||
Total Operating Expenses | 401 | 257 | 658 | 321 | 248 | 569 | |||||||||||||||||
Total | $ | 422 | $ | (257) | $ | 165 | $ | 385 | $ | (248) | $ | 137 |
2015 Three Months | 2014 Three Months | ||||||||||||||||||||||
Operating | Operating | ||||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | $ | 439 | $ | 439 | $ | 479 | $ | 479 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Fuel | 103 | 103 | 117 | 117 | |||||||||||||||||||
Energy purchases, including affiliate | 91 | 91 | 124 | 124 | |||||||||||||||||||
Other operation and maintenance | 11 | $ | 85 | 96 | 11 | $ | 87 | 98 | |||||||||||||||
Depreciation | 3 | 39 | 42 | 1 | 37 | 38 | |||||||||||||||||
Taxes, other than income | 1 | 6 | 7 | 6 | 6 | ||||||||||||||||||
Total Operating Expenses | 209 | 130 | 339 | 253 | 130 | 383 | |||||||||||||||||
Total | $ | 230 | $ | (130) | $ | 100 | $ | 226 | $ | (130) | $ | 96 |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses included in "Margins"
The following Statement of Income line items and their related increase (decrease)decrease during the periodsperiod ended June 30, 2014March 31, 2015 compared with 20132014 are included above within "Margins" and are not discussed separately.
99 |
Three Months | Six Months | ||||||
Retail and wholesale | $ | 18 | $ | 91 | |||
Electric revenue from affiliate | 10 | 26 | |||||
Fuel | 16 | 37 | |||||
Energy purchases | (2) | 36 | |||||
Energy purchases from affiliate | (1) | 4 |
Three Months | |||||
Retail and wholesale | $ | 25 | |||
Electric revenue from affiliate | 15 | ||||
Fuel | 14 | ||||
Energy purchases | 30 | ||||
Energy purchases from affiliate | 3 |
Depreciation
Depreciation increased by $2 million and $4 million for the three and six months ended June 30, 2014March 31, 2015 compared with 20132014 primarily due to additions to PP&E, net.
Earnings | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Net Income | $ | 40 | $ | 44 | $ | 117 | $ | 108 | |||||
Special item, gains (losses), after-tax | 1 | 1 | 1 | 1 |
Earnings | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
Net Income | $ | 78 | $ | 77 |
Earnings increased slightly for the three-monththree month period in 20142015 compared with 2013 primarily due to returns on additional environmental capital investments. Earnings increased for the six-month period in 2014 compared with 2013 primarily due to returns on additional environmental capital investments higher sales volumes and higher demand revenue partially offset by other operationlower sales volume, higher expenses related to scheduled maintenance outages and maintenance expense driven by the timing of generation maintenance outages.higher depreciation expense. The changeschange in volumes and demand revenue weresales volume was primarily attributable to unusually coldmilder winter weather conditions during the first quarter ofin 2015 compared to 2014.
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins andon a certain item that management considers special on separate linesline within the table and not in their respective Statement of Income line items.
Three Months | Six Months | |||||
Margins | $ | 11 | $ | 37 | ||
Other operation and maintenance | (9) | (13) | ||||
Depreciation | (1) | (2) | ||||
Interest expense | (3) | (5) | ||||
Other | (3) | (1) | ||||
Income taxes | (7) | |||||
Special item - EEI adjustments, after-tax | 1 | |||||
Total | $ | (4) | $ | 9 |
Three Months | ||||
Margins | $ | 10 | ||
Other operation and maintenance | (5) | |||
Depreciation | (2) | |||
Other Income (Expense)- net | (1) | |||
Income taxes | (1) | |||
Total | $ | 1 |
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, KU's Margins are included in "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended June 30.
2014 Three Months | 2013 Three Months | ||||||||||||||||||||||
Operating | Operating | ||||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | $ | 404 | $ | 404 | $ | 383 | $ | 383 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Fuel | 127 | 127 | 128 | 128 | |||||||||||||||||||
Energy purchases, including affiliate | 31 | 31 | 20 | 20 | |||||||||||||||||||
Other operation and maintenance | 13 | $ | 94 | 107 | 13 | $ | 85 | 98 | |||||||||||||||
Depreciation | 1 | 46 | 47 | 1 | 45 | 46 | |||||||||||||||||
Taxes, other than income | 6 | 6 | 6 | 6 | |||||||||||||||||||
Total Operating Expenses | 172 | 146 | 318 | 162 | 136 | 298 | |||||||||||||||||
Total | $ | 232 | $ | (146) | $ | 86 | $ | 221 | $ | (136) | $ | 85 |
2014 Six Months | 2013 Six Months | ||||||||||||||||||||||
Operating | Operating | ||||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | $ | 902 | $ | 902 | $ | 815 | $ | 815 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Fuel | 287 | 287 | 263 | 263 | |||||||||||||||||||
Energy purchases, including affiliate | 74 | 74 | 47 | 47 | |||||||||||||||||||
Other operation and maintenance | 24 | $ | 181 | 205 | 27 | $ | 168 | 195 | |||||||||||||||
Depreciation | 2 | 93 | 95 | 1 | 91 | 92 | |||||||||||||||||
Taxes, other than income | 1 | 12 | 13 | 12 | 12 | ||||||||||||||||||
Total Operating Expenses | 388 | 286 | 674 | 338 | 271 | 609 | |||||||||||||||||
Total | $ | 514 | $ | (286) | $ | 228 | $ | 477 | $ | (271) | $ | 206 |
2015 Three Months | 2014 Three Months | ||||||||||||||||||||||
Operating | Operating | ||||||||||||||||||||||
Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
Operating Revenues | $ | 485 | $ | 485 | $ | 498 | $ | 498 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Fuel | 150 | 150 | 160 | 160 | |||||||||||||||||||
Energy purchases, including affiliate | 26 | 26 | 43 | 43 | |||||||||||||||||||
Other operation and maintenance | 13 | $ | 91 | 104 | 12 | $ | 86 | 98 | |||||||||||||||
Depreciation | 4 | 49 | 53 | 1 | 47 | 48 | |||||||||||||||||
Taxes, other than income | 7 | 7 | 7 | 7 | |||||||||||||||||||
Total Operating Expenses | 193 | 147 | 340 | 216 | 140 | 356 | |||||||||||||||||
Total | $ | 292 | $ | (147) | $ | 145 | $ | 282 | $ | (140) | $ | 142 |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
100 |
Statement of Income Analysis --
Certain Operating Revenues and Expenses included in "Margins"
The following Statement of Income line items and their related increase (decrease)decrease during the periodsperiod ended June 30, 2014March 31, 2015 compared with 20132014 are included above within "Margins" and are not discussed separately.
Three Months | Six Months | ||||||
Retail and wholesale | $ | 22 | $ | 83 | |||
Electric revenue from affiliate | (1) | 4 | |||||
Fuel | (1) | 24 | |||||
Energy purchases | 1 | 1 | |||||
Energy purchases from affiliate | 10 | 26 |
Other Operation and Maintenance | ||||||
The increase (decrease) in other operation and maintenance expense for the periods ended June 30, 2014 compared with 2013 was due to: | ||||||
Three Months | Six Months | |||||
Timing and scope of generation maintenance outages | $ | 4 | $ | 7 | ||
Storm expenses | 2 | 2 | ||||
Other | 3 | 1 | ||||
Total | $ | 9 | $ | 10 |
Retail and wholesale | $ | 10 | |||
Electric revenue from affiliate | 3 | ||||
Fuel | 10 | ||||
Energy purchases | 2 | ||||
Energy purchases from affiliate | 15 |
Other Operation and Maintenance | |||||||
The | |||||||
Three Months | |||||||
Timing and scope of generation maintenance | $ | 2 | |||||
Pension | 3 | ||||||
Storm expenses | (2) | ||||||
Other | 3 | ||||||
Total | $ | 6 |
(All Registrants) | ||||||||||||||||||
The Registrants had the following at: | ||||||||||||||||||
PPL | ||||||||||||||||||
PPL (a) | Energy Supply | PPL Electric | LKE | LG&E | KU | |||||||||||||
June 30, 2014 | ||||||||||||||||||
Cash and cash equivalents | $ | 1,269 | $ | 264 | $ | 149 | $ | 23 | $ | 5 | $ | 18 | ||||||
Notes receivable from affiliates | 16 | |||||||||||||||||
Short-term debt | 808 | 324 | 320 | 70 | 175 | |||||||||||||
December 31, 2013 | ||||||||||||||||||
Cash and cash equivalents | $ | 1,102 | $ | 239 | $ | 25 | $ | 35 | $ | 8 | $ | 21 | ||||||
Notes receivable from affiliates | 150 | 70 | ||||||||||||||||
Short-term debt | 701 | 20 | 245 | 20 | 150 |
Depreciation
Depreciation increased by $5 million for the three months ended March 31, 2015 compared with 2014 primarily due to additions to PP&E, net.
(a) | At |
Net cash provided by (used in) operating, investing and financing activities for the six-month periodsthree month period ended June 30,March 31, and the changes between periods, were as follows.
101 |
PPL Energy | ||||||||||||||||||
PPL | Supply | PPL Electric | LKE | LG&E | KU | |||||||||||||
2014 | ||||||||||||||||||
Operating activities | $ | 1,583 | $ | 290 | $ | 148 | $ | 516 | $ | 202 | $ | 297 | ||||||
Investing activities | (2,103) | (403) | (295) | (501) | (248) | (305) | ||||||||||||
Financing activities | 671 | 138 | 271 | (27) | 43 | 5 | ||||||||||||
2013 | ||||||||||||||||||
Operating activities | $ | 947 | $ | 227 | $ | 115 | $ | 297 | $ | 186 | $ | 190 | ||||||
Investing activities | (1,834) | (282) | (455) | (568) | (226) | (340) | ||||||||||||
Financing activities | 710 | (93) | 224 | 251 | 31 | 139 |
PPL Energy | ||||||||||||||||||
PPL | Supply | PPL Electric | LKE | LG&E | KU | |||||||||||||
Change - Cash Provided (Used) | ||||||||||||||||||
Operating activities | $ | 636 | $ | 63 | $ | 33 | $ | 219 | $ | 16 | $ | 107 | ||||||
Investing activities | (269) | (121) | 160 | 67 | (22) | 35 | ||||||||||||
Financing activities | (39) | 231 | 47 | (278) | 12 | (134) |
PPL | PPL Electric | LKE | LG&E | KU | |||||||||||
2015 | |||||||||||||||
Operating activities | $ | 673 | $ | (45) | $ | 451 | $ | 251 | $ | 229 | |||||
Investing activities | (990) | (225) | (317) | (173) | (144) | ||||||||||
Financing activities | (97) | 91 | (115) | (71) | (73) | ||||||||||
2014 | |||||||||||||||
Operating activities | $ | 931 | $ | (4) | $ | 310 | $ | 149 | $ | 191 | |||||
Investing activities | (1,183) | (42) | (206) | (116) | (154) | ||||||||||
Financing activities | 392 | 63 | (109) | (32) | (37) | ||||||||||
Change - Cash Provided (Used) | |||||||||||||||
Operating activities | $ | (258) | $ | (41) | $ | 141 | $ | 102 | $ | 38 | |||||
Investing activities | 193 | (183) | (111) | (57) | 10 | ||||||||||
Financing activities | (489) | 28 | (6) | (39) | (36) |
Operating Activities
The components of the change in cash provided by (used in) operating activities for the sixthree months ended June 30, 2014March 31, 2015 compared with 20132014 were as follows.
PPL Energy | |||||||||||||||||||||
PPL | Supply | PPL Electric | LKE | LG&E | KU | ||||||||||||||||
Change - Cash Provided (Used) | |||||||||||||||||||||
Net income | $ | (273) | $ | (101) | $ | 28 | $ | 20 | $ | 14 | $ | 9 | |||||||||
Non-cash components | 234 | (37) | (46) | 52 | (5) | 14 | |||||||||||||||
Working capital | 300 | 58 | (14) | 31 | (20) | 5 | |||||||||||||||
Defined benefit funding | 250 | 74 | 69 | 116 | 34 | 58 | |||||||||||||||
Other operating activities | 125 | 69 | (4) | (7) | 21 | ||||||||||||||||
Total | $ | 636 | $ | 63 | $ | 33 | $ | 219 | $ | 16 | $ | 107 |
PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||||
Change - Cash Provided (Used) | ||||||||||||||||||
Net income | $ | 331 | $ | 2 | $ | 2 | $ | 1 | $ | 1 | ||||||||
Non-cash components | (255) | 31 | 50 | 15 | ||||||||||||||
Working capital | (171) | (31) | 126 | 68 | 37 | |||||||||||||
Defined benefit plan funding | (136) | (14) | (15) | (13) | (12) | |||||||||||||
Other operating activities | (27) | 2 | (3) | (4) | (3) | |||||||||||||
Total | $ | (258) | $ | (41) | $ | 141 | $ | 102 | $ | 38 |
(PPL)
PPL had a $258 million decrease in cash provided by operating activities in 2015 compared with 2014.
· | Net income improved by $331 million between the periods. However, this included an additional $255 million of net non-cash benefits, including a $331 million decrease in unrealized losses on hedging activities, which was partially offset by a $150 million increase in deferred income tax expense. The net $76 million increase from net income and non-cash components in 2015 compared with 2014 reflects higher revenues in the U.K. and higher margins in the Pennsylvania and Kentucky regulated segments. |
· | The $171 million decrease in cash from changes in working capital was primarily due to decreases in accounts payable, in part due to lower swaps payable and the impact of market price changes on electric trading and timing of payments. The decrease also reflects lower taxes payable and other current liabilities. These cash outflows were partially offset by the positive impact of lower unbilled revenues. |
· | Defined benefit plan funding was $136 million higher in 2015. |
(PPL Electric)
PPL Electric had a $41 million increase in cash from changesused in operating activities in 2015 compared with 2014.
· | Net income improved by $2 million between the periods. There was no change in net non-cash components of net income. |
· | The $31 million decline in cash from changes in working capital was partially due to a decrease in accounts payable with affiliates (primarily due to lower federal income taxes payable to PPL) partially offset by a decrease in accounts receivable. |
· | Defined benefit plan funding was $14 million higher in 2015. |
(LKE)
LKE had a decrease in customer and other accounts receivable (primarily due to changes in customer rates and changes in income tax receivables) and a reduction in collateral returned to counterparties.
102 |
· | LKE's non-cash components of net income included a $9 million increase in depreciation expense due to additional assets in service since the first quarter of 2014, a $1 million increase in deferred income taxes primarily due to an increase in accelerated depreciation over book depreciation of $34 million, partially offset by a decrease in utilization of Federal net operating losses of $36 million, and a net $21 million change in regulatory assets and regulatory liabilities due to the timing of rate recovery mechanisms. |
· | The increase in cash from working capital was driven primarily by a decrease in income tax receivable as a result of receiving payment from PPL for the use of excess tax depreciation deductions in 2014, a decrease in coal inventory due to fewer purchases and a decrease in natural gas stored underground due to increased withdrawals, partially offset by a decrease in accounts payable due to the timing of fuel purchases. |
(LG&E)
LG&E had a $54$102 million increase in deferred income taxes primarily due to utilization of netcash provided by operating losses. activities in 2015 compared with 2014.
· | LG&E's non-cash components of net income included a $4 million increase in depreciation expense due to additional assets in service since the first quarter of 2014, a $25 million increase in deferred income taxes primarily due to an increase in accelerated depreciation over book depreciation of $18 million, and a net $18 million increase in regulatory assets and regulatory liabilities due to the timing of rate recovery mechanisms. |
· | The increase in cash from working capital was driven primarily by a decrease in income tax receivable as a result of receiving payment from LKE for the use of excess tax depreciation deductions in 2014, a decrease in accounts receivable from affiliates due to timing of intercompany settlements associated with capital expenditures and inventory, a decrease in coal inventory due to fewer purchases and a decrease in natural gas stored underground due to increased withdrawals, partially offset by a decrease in accounts payable due to the timing of fuel purchases. |
(KU)
KU had a $38 million increase in cash from changesprovided by operating activities in components of working capital was driven primarily by the change in accounts receivable and unbilled revenues due to weather and higher rates, and lower fuel inventory due to weather, offset by a decrease in accounts payable due to timing of fuel purchases.
· | KU's non-cash components of net income included a $5 million increase in depreciation expense due to additional assets in service since the first quarter of 2014 and a $9 million increase in deferred income taxes primarily due to an increase in accelerated depreciation over book depreciation of $16 million, offset by a $6 million Federal net operating loss accrual. |
· | The increase in cash from working capital was driven primarily by a decrease in income tax receivable as a result of receiving payments from LKE for the use of excess tax depreciation deductions in 2014, and a decrease in coal inventory due to fewer purchases, partially offset by a decrease in accounts payable due to the timing of fuel purchases and a decrease in accounts payable to affiliates due to timing of intercompany settlements associated with capital expenditures and inventory. |
Investing Activities
(All Registrants)
Expenditures for Property, Plant and Equipment
The primary use of cash within investing activities is expenditures for PP&E. The change in these expenditures for the sixthree months ended June 30, 2014March 31, 2015 compared with 20132014 was as follows.
PPL Energy | ||||||||||||||||||
PPL | Supply | PPL Electric | LKE | LG&E | KU | |||||||||||||
(Increase) Decrease | $ | (57) | $ | 65 | $ | 15 | $ | 23 | $ | (13) | $ | 36 |
PPL | PPL Electric | LKE | LG&E | KU | |||||||||||
(Increase) Decrease | $ | (50) | $ | (23) | $ | (49) | $ | (57) | $ | 6 |
The increase in expenditures for PP&E for PPL was primarily due to higher project costs to enhance system reliability at WPD and the changes in project expenditures at PPL Energy Supply,Electric, LG&E and KU.KU, partially offset by lower expenditures at WPD. The decreaseincrease in expenditures atfor PPL Energy SupplyElectric was partiallyprimarily due to expenditures madeincreases in 2013expenditures for the Holtwood hydroelectric expansionNortheast Pocono reliability project, smart grid projects and other various projects, partially offset by the near completion of the Susquehanna-Roseland transmission project. The increase in expenditures for LG&E was primarily due to environmental air projects at LG&E's Mill Creek plant, and GLT projects, partially offset by lower expenditures for the construction of Cane Run Unit 7. The decrease in expenditures for KU was related to lower expenditures for the construction of Cane Run Unit 7 and environmental CCR projects at KU's Ghent and E.W. Brown plants, partially offset by higher expenditures for environmental air projects at KU's Ghent and E.W. Brown plants.
103 |
Other Significant Changes in Components of Investing Activities
For PPL, and PPL Energy Supply, the change in investing activities for the sixthree months ended June 30, 2014March 31, 2015 compared with 20132014 reflects increasesdecreases of $234$324 million in additional cash restricted cash and cash equivalents. These changes were primarily related to increased cashfor collateral requirements in 2014 of $257 million to support PPL Energy Supply's commodity hedging program primarily due to higher forward prices. PPL Energy Supply borrowed under its short-term credit facilities to help fund these increased collateral requirements.
PPL also had investing inflows of $56 million for the three months ended March 31, 2014 from U.S. Department of Treasury grants for the Rainbow hydroelectric expansion projects.
PPL Electric received for$150 million during the three months ended March 31, 2014 on notes receivable from affiliates of $150 million.
Financing Activities
(All Registrants)
The components of the change in cash provided by (used in) financing activities for the sixthree months ended June 30, 2014March 31, 2015 compared with 20132014 was as follows.
PPL Energy | |||||||||||||||||||
PPL | Supply | PPL Electric | LKE | LG&E | KU | ||||||||||||||
Change - Cash Provided (Used) | |||||||||||||||||||
Long-term debt issuances/retirements, net | $ | (384) | $ | 286 | |||||||||||||||
Stock issuances/redemptions, net | 786 | ||||||||||||||||||
Dividends | (44) | (21) | $ | (12) | $ | (31) | |||||||||||||
Capital contributions/distributions, net | $ | 119 | (110) | $ | (179) | (1) | (26) | ||||||||||||
Change in short-term debt, net | (456) | 105 | (105) | (52) | 25 | (77) | |||||||||||||
Other financing activities | 59 | 7 | (3) | (47) | |||||||||||||||
Total | $ | (39) | $ | 231 | $ | 47 | $ | (278) | $ | 12 | $ | (134) |
PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||
Change - Cash Provided (Used) | ||||||||||||||||
Long-term debt issuances/retirements, net | $ | 238 | $ | 10 | ||||||||||||
Stock issuances/redemptions, net | 20 | |||||||||||||||
Dividends | (16) | (12) | $ | 4 | $ | 7 | ||||||||||
Capital contributions/distributions, net | (15) | $ | 41 | (40) | ||||||||||||
Change in short-term debt, net | (745) | 45 | (46) | (43) | (3) | |||||||||||
Other financing activities | 14 | (1) | ||||||||||||||
Total | $ | (489) | $ | 28 | $ | (6) | $ | (39) | $ | (36) |
For LKE, the change in Otherthree months ended March 31, 2015, PPL required $489 million less cash from financing activities forprimarily due to lower cash requirements to support PPL Energy Supply's commodity hedging program and the sixability to use cash from operating activities and cash-on-hand to support the significant capital expenditure programs of its subsidiaries.
For the three months ended June 30,March 31, 2015, PPL Electric required $28 million more cash from financing activities. In the first quarter of 2014, comparedPPL Electric financed its capital expenditures program with 2013 was due toproceeds from a $47$150 million borrowing in 2013 included in notes payablenote with affiliates.
See Note 7 to the Financial Statements in this Form 10-Q for information on 20142015 short and long-term debt activity, equity transactions and PPL dividends. See the Registrants' 20132014 Form 10-K for information on 20132014 activity.
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. At June 30, 2014,March 31, 2015, the total committed borrowing capacity and the use of that capacity under these credit facilities was as follows.
External (All Registrants)
Letters of | |||||||||||||
Credit | |||||||||||||
and | |||||||||||||
Committed | Commercial | Unused | |||||||||||
Capacity | Borrowed | Paper Issued | Capacity | ||||||||||
PPL Capital Funding Credit Facilities | $ | 750 | $ | 32 | $ | 718 | |||||||
PPL Energy Supply Credit Facility | 3,000 | $ | 600 | 267 | 2,133 | ||||||||
PPL Electric Credit Facility | 300 | 86 | 214 | ||||||||||
LKE Credit Facility | 75 | 75 | |||||||||||
LG&E Credit Facility | 500 | 216 | 284 | ||||||||||
KU Credit Facilities | 598 | 391 | 207 | ||||||||||
Total LKE | 1,173 | 75 | 607 | 491 | |||||||||
Total U.S. Credit Facilities (a) | $ | 5,223 | $ | 675 | $ | 992 | $ | 3,556 | |||||
Total U.K. Credit Facilities (b) | £ | 1,055 | £ | 277 | £ | 778 |
Letters of | |||||||||||||
Credit | |||||||||||||
and | |||||||||||||
Committed | Commercial | Unused | |||||||||||
Capacity | Borrowed | Paper Issued | Capacity | ||||||||||
PPL Capital Funding Credit Facilities | $ | 450 | $ | 11 | $ | 439 | |||||||
PPL Energy Supply Credit Facilities | 3,150 | $ | 175 | 407 | 2,568 | ||||||||
PPL Electric Credit Facility | 300 | 1 | 299 | ||||||||||
LKE Credit Facility | 75 | 75 | |||||||||||
LG&E Credit Facility | 500 | 70 | 430 | ||||||||||
KU Credit Facilities | 598 | 373 | 225 | ||||||||||
Total LKE | 1,173 | 75 | 443 | 655 | |||||||||
Total U.S. Credit Facilities (a) | $ | 5,073 | $ | 250 | $ | 862 | $ | 3,961 | |||||
Total U.K. Credit Facilities (b) | £ | 1,055 | £ | 97 | £ | 958 |
104 |
(a) | The commitments under the U.S. 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 - |
(b) | The |
The commitments under the U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than |
As a result of the proposed spinoff transaction, PPL Energy Supply is in the process of syndicatinghas syndicated a $1.85 billion credit facility which is currently fully committed. This syndicated credit facility will replace the existing $3 billion PPL Energy Supply syndicated credit facility and will be effective upon closing of the spinoff transaction. See "Overview - Business Strategy" and "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" above for additional information.
See Note 7 to the Financial Statements for further discussion of the Registrants' credit facilities.
Intercompany (All Registrants except PPL)
Committed | Unused | ||||||||
Capacity | Borrowed | Capacity | |||||||
PPL Energy Supply Credit Facility | $ | 200 | $ | 200 | |||||
PPL Electric Credit Facility | 100 | 100 | |||||||
LKE Credit Facility | 225 | 225 | |||||||
LG&E Money Pool (a) | 500 | 500 | |||||||
KU Money Pool (a) | 500 | 500 |
Committed | Other Used | Unused | ||||||||||
Capacity | Borrowed | Capacity | Capacity | |||||||||
LKE Credit Facility | $ | 225 | $ | 40 | $ | 185 | ||||||
LG&E Money Pool (a) | 500 | $ | 216 | 284 | ||||||||
KU Money Pool (a) | 500 | 193 | 307 |
(a) | LG&E and KU participate in an intercompany money pool agreement whereby LKE, LG&E and/or KU make available funds up to $500 million at an interest rate based on a market index of commercial paper issues. However, the FERC has issued a maximum short-term debt limit for each utility at $500 million from any source. |
See Note 11 to the Financial Statements for further discussion of intercompany credit facilities.
Commercial Paper(All Registrants)
PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund their short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility.
Commercial | ||||||||||
Paper | Unused | |||||||||
Capacity | Issuances | Capacity | ||||||||
PPL Energy Supply | $ | 750 | $ | 149 | $ | 601 | ||||
PPL Electric | 300 | 300 | ||||||||
LG&E | 350 | 70 | 280 | |||||||
KU | 350 | 175 | 175 | |||||||
Total LKE | 700 | 245 | 455 | |||||||
Total PPL | $ | 1,750 | $ | 394 | $ | 1,356 |
Commercial | ||||||||||
Paper | Unused | |||||||||
Capacity | Issuances | Capacity | ||||||||
PPL Electric | $ | 300 | $ | 85 | $ | 215 | ||||
LG&E | 350 | 216 | 134 | |||||||
KU | 350 | 193 | 157 | |||||||
Total LKE | 700 | 409 | 291 | |||||||
Total PPL | $ | 1,000 | $ | 494 | $ | 506 |
Long-term Debt and Equity Securities(PPL and PPL Electric)
Debt | Net Stock | ||||||||||
Issuances (a) | Retirements | Issuances | |||||||||
PPL | $ | 296 | $ | 239 | $ | 1,017 | |||||
PPL Electric | 296 | 10 | |||||||||
Non-cash Transactions: | |||||||||||
PPL (b) | $ | 750 | $ | 750 |
In May 2014,February 2015, PPL declared its quarterly common stock dividend, payable JulyApril 1, 2014,2015, at 37.25 cents per share (equivalent to $1.49 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial and legal requirements and other factors.
Rating Agency Actions
(All Registrants)
Moody's, S&P and Fitch have periodically reviewreviewed the credit ratings onof 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.
105 |
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, S&P and Fitch 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.
The rating agencies have taken the following actions related to the Registrants and their subsidiaries during 2014:
In January 2014, Moody's affirmed its ratings and revised its outlook to stable for PPL.
Ratings Triggers
(All Registrants except PPL Electric)
Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, 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, PPL Energy Supply's, LKE's, LG&E's or KU's or their subsidiaries' credit rating, as applicable, were to fall below investment grade. See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral requirements for PPL, PPL Energy Supply, LKE and LG&E for derivative contracts in a net liability position at June 30, 2014.
(All Registrants)
For additional information on the Registrants' liquidity and capital resources, see "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Registrants' 20132014 Form 10-K.
Market Risk
(All Registrants)
See Notes 13 and 14 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 disclosures are not precise indicators of expected future losses, but only indicators of possible losses under normal market conditions at a given confidence level.
Commodity Price Risk (Non-trading)
(PPL, LKE, LG&E and KU)
LG&E's and KU's retail electric and natural gas rates and municipal wholesale electric rates are set by regulatory commissions and the fuel costs incurred are directly recoverable from customers. As a result, LG&E and KU are subject to commodity price risk for only a small portion of on-goingtheir business operations. LG&E and KU sell excess economic generation to maximize the value of the physical assets at times when the assets are not required to serve LG&E's or KU's customers. See Note 14to the Financial Statements for additional information.
(PPL and PPL Electric)
PPL Electric is exposed to market price and volumetric risks from its obligation as a PLR. The PUC has approved a cost recovery mechanism that allows PPL Electric to pass through to customers the cost associated with fulfilling its PLR obligation. This cost recovery mechanism substantially eliminates PPL Electric's exposure to market price risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement energy supply contracts for the majority of its
106 |
PLR obligations. These supply contracts transfer the volumetric risk associated with the PLR obligation to the energy suppliers.
(PPL)
PPL Energy Supply segregates its non-trading activities into two categories: hedge activity and economic activity. Transactions that are accounted for as hedge activity qualify for hedge accounting treatment. The economic activity category includes transactions that address a specific risk, but were not eligible for hedge accounting or for which hedge accounting was not elected. This activity includes the changes in fair value of positions used to hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and full-requirement sales and retail contracts. This economic activity is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power). Although they do not receive hedge accounting treatment, these transactions are considered non-trading activity. See Note 14 to the Financial Statements for additional information.
To hedge the impact of market price volatility on PPL Energy Supply's energy-related assets, liabilities and other contractual arrangements, PPL Energy Supply both sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts. PPL Energy Supply's non-trading commodity derivative contracts range in maturity through 2019.
The following tables sets forth the changes in the net fair value of non-trading commodity derivative contracts for the periodsperiod ended June 30.March 31. See Notes 13 and 14 to the Financial Statements for additional information.
Gains (Losses) | ||||||||||||
Three Months | Six Months | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Fair value of contracts outstanding at the beginning of the period | $ | (141) | $ | 229 | $ | 107 | $ | 473 | ||||
Contracts realized or otherwise settled during the period | (20) | (100) | 485 | (237) | ||||||||
Fair value of new contracts entered into during the period (a) | 19 | 37 | 3 | 46 | ||||||||
Other changes in fair value | (36) | 119 | (773) | 3 | ||||||||
Fair value of contracts outstanding at the end of the period | $ | (178) | $ | 285 | $ | (178) | $ | 285 |
Gains (Losses) | |||||||
Three Months | |||||||
2015 | 2014 | ||||||
Fair value of contracts outstanding at the beginning of the period | $ | 53 | $ | 107 | |||
Contracts realized or otherwise settled during the period | 133 | 505 | |||||
Fair value of new contracts entered into during the period (a) | (5) | (16) | |||||
Other changes in fair value | (92) | (737) | |||||
Fair value of contracts outstanding at the end of the period | $ | 89 | $ | (141) |
(a) | Represents the fair value of contracts at the end of the quarter of their inception. |
The following table segregates the net fair value of non-trading commodity derivative contracts at June 30, 2014,March 31, 2015, based on the observability of the information used to determine the fair value.
Net Asset (Liability) | ||||||||||||||||
Maturity | Maturity | |||||||||||||||
Less Than | Maturity | Maturity | in Excess | Total Fair | ||||||||||||
1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | ||||||||||||
Source of Fair Value | ||||||||||||||||
Prices based on significant observable inputs (Level 2) | $ | (159) | $ | (12) | $ | 8 | $ | 1 | $ | (162) | ||||||
Prices based on significant unobservable inputs (Level 3) | (21) | 4 | 1 | (16) | ||||||||||||
Fair value of contracts outstanding at the end of the period | $ | (180) | $ | (8) | $ | 9 | $ | 1 | $ | (178) |
Net Asset (Liability) | ||||||||||||||||
Maturity | Maturity | |||||||||||||||
Less Than | Maturity | Maturity | in Excess | Total Fair | ||||||||||||
1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | ||||||||||||
Source of Fair Value | ||||||||||||||||
Prices based on significant observable inputs (Level 2) | $ | 53 | $ | (34) | $ | 13 | $ | 32 | ||||||||
Prices based on significant unobservable inputs (Level 3) | 32 | 23 | 2 | 57 | ||||||||||||
Fair value of contracts outstanding at the end of the period | $ | 85 | $ | (11) | $ | 15 | $ | 89 |
PPL Energy Supply sells electricity, capacity and related services and buys fuel on a forward basis to hedge the value of energy from its generation assets. If PPL Energy Supply were unable to deliver firm capacity and energy or to accept the delivery of fuel under its agreements, under certain circumstances it could be required to pay liquidating damages. These damages would be based on the difference between the market price and the contract price of the commodity. Depending on price changes in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, nonperformance by counterparties (or their counterparties) with which it has energy contracts and other factors could affect PPL Energy Supply's ability to meet its obligations, or cause significant increases in the market price of replacement energy. Although PPL Energy Supply attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty nonperformance in the future.
Commodity Price Risk (Trading)
PPL Energy Supply's trading commodity derivative contracts range in maturity through 2020. The following table sets forth changes in the net fair value of trading commodity derivative contracts for the periods ended June 30.March 31. See Notes 13 and 14 to the Financial Statements for additional information.
Gains (Losses) | ||||||||||||
Three Months | Six Months | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Fair value of contracts outstanding at the beginning of the period | $ | 31 | $ | 15 | $ | 11 | $ | 29 | ||||
Contracts realized or otherwise settled during the period | (3) | (3) | (2) | |||||||||
Fair value of new contracts entered into during the period (a) | (5) | (4) | (18) | (16) | ||||||||
Other changes in fair value | 49 | 7 | 82 | 7 | ||||||||
Fair value of contracts outstanding at the end of the period | $ | 72 | $ | 18 | $ | 72 | $ | 18 |
107 |
Gains (Losses) | |||||||
Three Months | |||||||
2015 | 2014 | ||||||
Fair value of contracts outstanding at the beginning of the period | $ | 48 | $ | 11 | |||
Contracts realized or otherwise settled during the period | (30) | ||||||
Fair value of new contracts entered into during the period (a) | (7) | (13) | |||||
Other changes in fair value | 35 | 33 | |||||
Fair value of contracts outstanding at the end of the period | $ | 46 | $ | 31 |
(a) | Represents the fair value of contracts at the end of the quarter of their inception. |
The following table segregates the net fair value of trading commodity derivative contracts at June 30, 2014,March 31, 2015, based on the observability of the information used to determine the fair value.
Net Asset (Liability) | |||||||||||||||
Maturity | Maturity | ||||||||||||||
Less Than | Maturity | Maturity | in Excess | Total Fair | |||||||||||
1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | |||||||||||
Source of Fair Value | |||||||||||||||
Prices based on significant observable inputs (Level 2) | $ | (2) | $ | (19) | $ | 3 | $ | (18) | |||||||
Prices based on significant unobservable inputs (Level 3) | 4 | 29 | $ | 36 | 21 | 90 | |||||||||
Fair value of contracts outstanding at the end of the period | $ | 2 | $ | 10 | $ | 36 | $ | 24 | $ | 72 |
Net Asset (Liability) | |||||||||||||||
Maturity | Maturity | ||||||||||||||
Less Than | Maturity | Maturity | in Excess | Total Fair | |||||||||||
1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | |||||||||||
Source of Fair Value | |||||||||||||||
Prices based on significant observable inputs (Level 2) | $ | (6) | $ | (11) | $ | (9) | $ | (26) | |||||||
Prices based on significant unobservable inputs (Level 3) | 4 | 33 | 33 | $ | 2 | 72 | |||||||||
Fair value of contracts outstanding at the end of the period | $ | (2) | $ | 22 | $ | 24 | $ | 2 | $ | 46 |
VaR Models
A VaR model is utilized to measure commodity price risk in unregulated gross energy margins for the non-trading and trading portfolios. VaR is a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level. VaR is calculated using a Monte Carlo simulation technique based on a five-day holding period at a 95% confidence level. Given the company's disciplined hedging program, the non-trading VaR exposure is expected to be limited in the short-term. The VaR for portfolios using end-of-month results for the sixthree months ended June 30, 2014March 31, 2015 was as follows.
Non-Trading | |||||||
Trading VaR | VaR | ||||||
95% Confidence Level, Five-Day Holding Period | |||||||
Period End | $ | 9 | $ | 15 | |||
Average for the Period | 9 | 10 | |||||
High | 10 | 15 | |||||
Low | 8 | 5 |
Trading | Non-Trading | ||||||
95% Confidence Level, Five-Day Holding Period | |||||||
Period End | $ | 4 | $ | 12 | |||
Average for the Period | 4 | 10 | |||||
High | 4 | 12 | |||||
Low | 4 | 8 |
The trading portfolio includes all proprietary trading positions, regardless of the delivery period. All positions not considered proprietary trading are considered non-trading. The non-trading portfolio includes the entire portfolio, including generation, with delivery periods through the next 12 months. Both the trading and non-trading VaR computations exclude FTRs due to the absence of reliable spot and forward markets. The fair value of the non-trading and trading FTR positions was insignificant at June 30, 2014.
Interest Rate Risk (All Registrants)
The Registrants and their subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. The Registrants and their subsidiaries utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of their debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolios due to changes in the absolute level of interest rates.
The following interest rate hedges were outstanding at June 30, 2014.
Effect of a | ||||||||||||
Fair Value, | 10% Adverse | Maturities | ||||||||||
Exposure | Net - Asset | Movement | Ranging | |||||||||
Hedged | (Liability) (a) | in Rates (b) | Through | |||||||||
PPL | ||||||||||||
Cash flow hedges | ||||||||||||
Interest rate swaps (c) | $ | 475 | $ | (11) | $ | (15) | 2026 | |||||
Cross-currency swaps (d) | 1,262 | (48) | (177) | 2028 | ||||||||
Economic hedges | ||||||||||||
Interest rate swaps (e) | 179 | (43) | (3) | 2033 | ||||||||
LKE and LG&E | ||||||||||||
Economic hedges | ||||||||||||
Interest rate swaps (e) | 179 | (43) | (3) | 2033 |
108 |
Effect of a | ||||||||||||
Fair Value, | 10% Adverse | Maturities | ||||||||||
Exposure | Net - Asset | Movement | Ranging | |||||||||
Hedged | (Liability) (a) | in Rates (b) | Through | |||||||||
PPL | ||||||||||||
Cash flow hedges | ||||||||||||
Interest rate swaps (c) | $ | 1,600 | $ | (183) | $ | (54) | 2045 | |||||
Cross-currency swaps (d) | 1,262 | 47 | (162) | 2028 | ||||||||
Economic hedges | ||||||||||||
Interest rate swaps (e) | 179 | (52) | (3) | 2033 |
LKE | ||||||||||||
Cash flow hedges | ||||||||||||
Interest rate swaps (c) | 1,000 | (122) | (40) | 2045 | ||||||||
Economic hedges | ||||||||||||
Interest rate swaps (e) | 179 | (52) | (3) | 2033 | ||||||||
LG&E | ||||||||||||
Cash flow hedges | ||||||||||||
Interest rate swaps (c) | 500 | (61) | (20) | 2045 | ||||||||
Economic hedges | ||||||||||||
Interest rate swaps (e) | 179 | (52) | (3) | 2033 | ||||||||
KU | ||||||||||||
Cash flow hedges | ||||||||||||
Interest rate swaps (c) | 500 | (61) | (20) | 2045 |
(a) | Includes accrued interest, if applicable. |
(b) | Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. Sensitivities represent a 10% adverse movement in interest rates, except for cross-currency swaps which also includes foreign currency exchange rates. |
(c) | Changes in the fair value of such cash flow hedges are recorded in equity or as regulatory assets or regulatory liabilities, if recoverable through regulated rates, and reclassified into earnings in the same period during which the item being hedged affects earnings. |
(d) | Cross-currency swaps are utilized to hedge the principal and interest payments of WPD's U.S. dollar-denominated senior notes. Changes in the fair value of these instruments are recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings. |
(e) | Realized changes in the fair value of such economic hedges are recoverable through regulated rates and any subsequent changes in the fair value of these derivatives are included in regulatory assets or regulatory liabilities. |
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 at June 30, 2014March 31, 2015 is shown below.
PPL Energy | PPL | ||||||||||||||||||
PPL | Supply | Electric | LKE | LG&E | KU | ||||||||||||||
Increase in interest | Not | Not | Not | Not | Not | Not | |||||||||||||
expense | Significant | Significant | Significant | Significant | Significant | Significant | |||||||||||||
Increase in fair value | |||||||||||||||||||
of debt | $ | 768 | $ | 45 | $ | 135 | $ | 141 | $ | 44 | $ | 83 |
PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||
Increase in interest expense | Not | Not | Not | Not | Not | |||||||||||
Significant | Significant | Significant | Significant | Significant | ||||||||||||
Increase in fair value of debt | $ | 662 | $ | 128 | $ | 133 | $ | 43 | $ | 79 |
Foreign Currency Risk (PPL)
PPL is exposed to foreign currency risk, primarily through investments in U.K. affiliates. In addition, PPL's domestic operations may make purchases of equipment in currencies other than U.S. dollars.
PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected earnings.
The following foreign currency hedges were outstanding at June 30, 2014.
Effect of a | ||||||||||||
10% | ||||||||||||
Adverse | ||||||||||||
Movement | ||||||||||||
in Foreign | ||||||||||||
Fair Value, | Currency | Maturities | ||||||||||
Exposure | Net - Asset | Exchange | Ranging | |||||||||
Hedged | (Liability) | Rates (a) | Through | |||||||||
Net investment hedges (b) | £ | 306 | $ | (27) | $ | (52) | 2016 | |||||
Economic hedges (c) | 1,750 | (147) | (285) | 2016 |
Effect of a | ||||||||||||
10% | ||||||||||||
Adverse | ||||||||||||
Movement | ||||||||||||
in Foreign | ||||||||||||
Fair Value, | Currency | Maturities | ||||||||||
Exposure | Net - Asset | Exchange | Ranging | |||||||||
Hedged | (Liability) | Rates (a) | Through | |||||||||
Net investment hedges (b) | £ | 217 | $ | 34 | $ | (32) | 2016 | |||||
Economic hedges (c) | 1,306 | 169 | (177) | 2017 |
(a) | Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. |
(b) | To protect the value of a portion of its net investment in WPD, PPL executes forward contracts to sell GBP. |
(c) | To economically hedge the translation of expected earnings denominated in GBP to U.S. |
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NDT Funds - Securities Price Risk (PPL and PPL Energy Supply)
In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the PPL Susquehanna nuclear plant (Susquehanna). At June 30, 2014,March 31, 2015, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on the Balance Sheet. The mix of securities is designed to provide returns sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are primarily exposed to changes in interest rates. PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At June 30, 2014,March 31, 2015, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $70$74 million reduction in the fair value of the trust assets. See Notes 13 and 17 to the Financial Statements for additional information regarding the NDT funds.
Credit Risk(All Registrants)
See Notes 13 and 14 to the Financial Statements in this Form 10-Q and "Risk Management - Credit Risk" in the Registrants' 20132014 Form 10-K for additional information.
The value of the British pound sterling fluctuates in relation to the U.S. dollar. Changes in this exchange rate resulted in a foreign currency translation gainloss of $140$77 million for the sixthree months ended June 30, 2014,March 31, 2015, which primarily reflected a $349$199 million increasedecrease to PP&E and goodwill offset by an increasea decrease of $209$122 million to net liabilities. Changes in this exchange rate resulted in a foreign currency translation lossgain of $269$135 million for the sixthree months ended June 30, 2013,March 31, 2014, which primarily reflected a $714$334 million reductionincrease to PP&E and goodwill offset by a reductionan increase of $445$199 million to net liabilities. The impact of foreign currency translation is recorded in AOCI.
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 11 to the Financial Statements for additional information on related party transactions for PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
(All Registrants)
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options. See Note 8 to the Financial Statements for information on the more significant activities.
(PPL)
See Note 8 to the Financial Statements for information on the anticipated spinoff of PPL Energy Supply.
(All Registrants)
Extensive federal, state and local environmental laws and regulations are applicable to PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of the Registrants' businesses. The cost of compliance or alleged non-compliance cannot be predicted with certainty but could be material. 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 cost for their products or their demand for the Registrants' services.
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The following is a discussion of the more significant environmental matters. See Note 10 to the Financial Statements in this Form 10-Q and "Item 1. Business - Environmental Matters" in the Registrants' 2013 Form 10-K for additional information on environmental matters.
Climate Change
Physical effects associated with climate change could include the impact of changes in weather patterns, such as storm frequency and intensity, and the resultant potential damage, as applicable, to the Registrants' generation assets, electricity transmission and delivery systems, as well as impacts on the Registrants' customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where PPL, PPL Energy Supply, LKE, LG&E and KU have hydroelectric generating facilities or where river water is used to cool their fossil and nuclear (as applicable) powered generators. The Registrants cannot currently predict whether their businesses will experience these potential risks or estimate the cost of their related consequences.
In June 2013, President Obama released his Climate Action Plan which reiterates the goal of reducing GHG emissions in the U.S. through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing tightermore restrictive energy efficiency standards. Also, by Presidential Memorandum,Additionally, the Climate Action Plan calls for the U.S. to prepare for the impacts of climate change. Requirements related to this plan could affect the Registrants and others in the industry as modifications may be needed to electricity delivery systems to improve the ability to withstand major storms in order to meet those requirements. As further described below, the EPA was directedhas proposed rules pursuant to issuethis directive, which it expects to finalize in the second or third quarter of 2015. The EPA has also announced that it will develop a federal implementation plan which would apply to any states that fail to submit an acceptable state implementation plan. The EPA's authority to promulgate these regulations under Section 111 of the Clean Air Act when the sources are already regulated under Section 112 is under challenge in the D.C. Circuit Court. Oral arguments were heard on April 16, 2015.
In January 2014, the EPA issued a revised proposal forto regulate carbon dioxide emissions from new power plants (a prior proposal was issued in 2012) by September 20, 2013, with a final rule to be issued in a timely fashion thereafter, and to issue proposed standards for existing power plants by June 1, 2014 with a final rule by June 1, 2015. The EPA was further directed to require that states develop implementation plans for existing plants by June 30, 2016.
In June 2014, the EPA issued a proposed regulation addressing GHGcarbon dioxide emissions from existing power plants was published in the Federal Register on June 18, 2014, making the comment deadline October 16, 2014.plants. The existing plant proposal contains very stringent, state-specific rate-based reduction goals to be achieved in two phases (2020-2029 and 2030 and beyond). The EPA believes it has offered some flexibility to the states as to how state compliance plans can be crafted, including the option to demonstrate compliance on a mass basis and through multi-state collaborations. The EPA is also proposing potential state plan extensions based on the type of plan filed (single or through a multi-state collaboration, however, the EPA's proposed broad definition of the "best system of emission reduction" (BSER) substantially limits this flexibility.multi-state). PPL is analyzinghas analyzed the proposal and identified potential impacts and solutions in preparationcomments filed on December 1, 2014. PPL also submitted Supplemental Comments to FERC through EEI, advocating for submitting commentsreliability coordination and relief in response to technical conferences hosted by FERC on the agency by the October 16, 2014 deadline.reliability implications of implementing this rule. The regulation of GHGcarbon dioxide emissions from existing plants could have a significant industry-wide impact depending on the structure and stringency of the final rule and state implementation plans.
Waters of the United States
In April 21, 2014, the EPA and the U.S. Army Corps of Engineers published a proposed rule whichthat could greatly expandsexpand the Clean Water Act definition of Waters of the United States. Comments are due by October 20, 2014. If the definition is expanded as proposed, permits and other regulatory requirements may be imposed for many matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. BothThe EPA plans to make certain changes to the proposed regulation based on comments received. The U.S. House and Senate are considering legislation to block this regulation.
Coal Combustion Residuals (CCRs)
On April 17, 2015, the EPA proposed two approaches topublished its final rule regulating CCRs, imposing extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants and not closed. Under the rule, the EPA will regulate CCRs as non-hazardous under Subtitle D of RCRA and allow beneficial use of CCRs, with some restrictions. The CCR rule will become effective on October 14, 2015. This self-implementing rule requires posting of compliance documentation on a publicly accessible website and is enforceable through citizen suits. PPL expects that its plants using surface impoundments for management and disposal andof CCRs or the past management of CCRs (as either hazardousand continued use to manage waste waters will be most impacted by this rule. The rule's requirements for covered CCR impoundments and landfills include commencement or non-hazardous waste) under RCRA. Under a litigation settlement agreement involvingcompletion of closure activities generally between three and ten years from certain environmental groups,triggering events. PPL, LKE, LG&E and KU also anticipate incurring capital or operation and maintenance
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costs prior to that time to address other provisions of the EPA has agreedrule, such as groundwater monitoring and disposal facility modifications, or to issueimplement various compliance strategies.
PPL, LKE, LG&E and KU are reviewing the rule and are still evaluating its final rulemaking by December 2014. Regulations could impact handling, disposal and/or beneficial use of CCRs. Recent ash spills that have occurred within the utility industry may precipitate more stringent regulation of both active and legacy CCR sites. The financial and operational impactimpact. It is expected that these requirements will result in increases to existing AROs which will be material if CCRsrecorded in the second quarter of 2015. PPL, LKE, LG&E and KU are regulatednot yet able to determine an estimate of the expected increases to the existing AROs. PPL, LKE, LG&E and KU believe relevant costs relating to this rule are subject to future rate recovery before the respective state regulatory agencies, or the FERC, as hazardous waste, and significant if regulated as non-hazardous.
Effluent Limitation Guidelines (ELGs)
In June 2013, the EPA published proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash transport water and metal cleaning waste waters, as well as new limits for scrubber wastewater and landfill leachate. The EPA's proposed ELG regulations also contain some requirements that would affect the inspection and operation of CCR facilities, if finalized as proposed. The proposal contains several alternative approaches, some of which could significantly impact PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's coal-fired plants. The final regulation is expected to be issued by September 2015, which is contingent upon the EPA meeting its deadline for issuing the final CCR regulation.third or fourth quarter of 2015. At the present time, PPL, PPL Energy Supply, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant. Pending finalization of the ELGs, certain states (including Pennsylvania and Kentucky) and environmental groups are proposing more stringent technology-based limits in permit renewals. Depending on the final limits imposed, the costs of compliance could be significantvary significantly from the current capital expenditures projections and costs could be imposed ahead of federal timelines.
Clean Water Act/Act 316(b)
The EPA's final 316(b) rule for existing facilities became effective in October 2014, and regulates cooling water intake structures and their impact on aquatic organisms. States are allowed considerable authority to make site-specific determinations under the EPA issued its finalrule. The rule under 316(b) ofrequires existing facilities to choose between several options to reduce the Clean Water Act. It willimpact to aquatic organisms that become effective upon publication which is expected in July. The regulation appliestrapped against water intake screens (impingement) and to nearly all PPL-owned steam electric generation plants in Pennsylvania, Kentucky, and Montana, even thosedetermine the intake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). Plants already equipped with closed-cycle cooling, systems. The rule requires Best Technology Availablean acceptable option, would likely not incur substantial costs. Once-through systems would likely require additional technology to reduce mortality of aquatic organisms thatcomply with the rule. Mill Creek Unit 1 and Brunner Island (all units) are pulled into the plant cooling water system (entrainment), and imposes standards for reduction of mortality of aquatic organisms trapped on water intake screens (impingement). For some plants, studies required by the rule willonly units expected to be used to determine the proper technology for compliance.impacted. PPL, PPL Energy Supply, LKE, LG&E and KU are evaluating compliance strategies but do not presently expect the compliance costs to be material.
MATS
In February 2012, the EPA finalized the MATS rule requiring fossil-fuel fired plants to reduce emissions of mercury and other hazardous air pollutants by April 16, 2015. The rule which was challenged by industry groups and states, and was upheld by the D.C. Circuit Court in April 2014. A group of states subsequently petitioned the U.S. Supreme Court to review this decision and on March 25, 2015, oral arguments were heard as to one issue - whether or not EPA unreasonably refused to consider costs when determining whether the MATS regulation was appropriate and necessary. A U.S. Supreme Court decision is expected by June 30, 2015. The EPA has subsequently proposed changes torule provides for a three-year compliance deadline with the rule with respect to new sources to addresspotential for one- and two-year extensions as provided under the concern that the rule effectively precludes construction of any new coal-fired plants.statute. PPL, PPL Energy Supply, LKE, LG&E and KU are generally well-positioned to comply with MATS, primarily due to recent investments inhave completed installation or upgrading of relevant environmental controls at affected plants or have received compliance extensions, as applicable.
PPL Energy Supply and approved ECR plans to install additional controls at somebelieves that installation of LG&E's and KU's Kentucky plants. Additionally, PPL Energy Supply is evaluating chemical additive systems for mercury controland other controls may be necessary at Brunner Island, andcertain coal-fired plants in Pennsylvania, the capital cost of which is not expected to be significant. PPL continues to analyze the potential impact of MATS on operating costs. With respect to PPL's Montana plants, modifications to existingthe air pollution controls installed at Colstrip for improved particulate matter reductions. In September 2012, PPL Energy Supply announced its intentionare required, the cost of which is not expected to place itsbe significant. Operations were suspended and the Corette plant was retired in long-term reserve status beginning in AprilMarch 2015 due to expected market conditions and the costs to comply with MATS. The Corette plant asset group was determined to be impaired in December 2013. See "Applicationthe MATS requirements.
LG&E's March 2015 retirement of Critical Accounting Policies - Asset Impairment (Excluding Investments)" in PPL'sone coal-fired generating unit at Cane Run and PPL Energy Supply's 2013 Form 10 K for additional information. Also, LG&E, KU and PPL Energy Supply have received compliance extensions for certain plants in Kentucky and Pennsylvania and are considering extension requests for additional plants.
CSAPR
The EPA's CSAPR addresses the interstate transport of fine particulates and CAIR
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program and nitrogen oxide emissions are subject to annual and ozone season programs. Oral arguments pertaining to outstanding challenges to the District of Columbia Circuit (D.C. Circuit Court) stayed implementation ofEPA's CSAPR leaving CAIR in place. Subsequently, in August 2012,were heard before the D.C. Circuit Court vacated and remanded CSAPR back to the EPA for further rulemaking, again leaving CAIR in place in the interim. On April 29, 2014, the U.S. Supreme Court reversed and remanded the D.C. Circuit Court's August 2012 decision which may result in new or revised emission reduction requirements, including the possible replacement of the CAIR program with CSAPR, depending on future determinations by the EPA and the courts.during February 2015.
Although PPL, PPL Energy Supply, LKE, LG&E and KU do not currently anticipate that theincurring significant costs of meeting CSAPR requirements will be significant.
Regional Haze
Under the EPA's regional haze programs (developed to eliminate man-made visibility degradation by 2064), states are required to make reasonable progress every decade through the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977. ForTo date, the focus of regional haze regulation has been on the western U.S. As for the eastern U.S., the EPA had determined that region-wide reductions under the CSAPR trading program could, in most instances, be utilized byunder state programs to satisfy BART requirements for sulfur dioxide and nitrogen oxides. AlthoughHowever, the August 2012 decisionEPA's determination is being challenged by the D.C. Circuit Courtenvironmental groups and others.
LG&E's Mill Creek Units 3 and 4 are required to vacate and remand CSAPR has been reversed by the U.S. Supreme Court, future decisions by EPA and the courts will determine whether power plants locatedreduce sulfuric acid mist emissions because they were determined to have a regional haze impact. These reductions are required in the eastern U.S., including PPL Energy Supply's plants in Pennsylvania andregional haze state implementation plan that the Kentucky Division for Air Quality submitted to the EPA. LG&E's and KU's plants in Kentucky, will&E is currently installing sorbent injection technology to comply with these reductions, the costs of which are not expected to be subject to further reductions in those pollutants in accordance with BART requirements.
In Montana, the EPA signed its finalfinalized a Federal Implementation Plan (FIP) of the Regional Haze Rules for Montana in September 2012, with tighterstricter emissions limits for PPL Energy Supply's Colstrip Units 1 & 2 based on the installation of new controls (no limits or additional controls were specified for Colstrip Units 3 & 4), and tighterstricter emission limits for the Corette plant (which are not based on additional controls). The cost of the potential additional controls for Colstrip Units 1 & 2 if required, could be significant. PPL Energy Supply expects to meetwas meeting the tighterstricter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations atand the retirement of Corette beginning in AprilMarch 2015 (see "MATS" discussion above). Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit and oral arguments occurred in May 2014.
National Ambient Air Quality Standards
In 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, states in the ozone transport region (OTR), including Pennsylvania, are required by the Clean Air Act to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies.technologies (RACT). The PADEP has issuedis finalizing a draftRACT rule in 2015 requiring reasonable reductions. However,some fossil-fueled plants to operate at more stringent nitrogen oxide emission rates. The EPA proposed to further strengthen the proposalozone standard in November 2014, which could lead to further nitrogen oxide reductions for PPL's fossil-fueled plants within the OTR. The EPA is being questioned as too lenientunder court order to finalize the standard by October 1, 2015. States are also obligated to address interstate transport issues associated with new ozone standards through the establishment of "good neighbor" state implementation plans for those states that are found to contribute significantly to another states' non-attainment. The EPA recently sent a policy memo to state agencies to facilitate the development of these plans for the 2008 standard, including modeling data showing which states are contributing. The implementation of such plans could have an impact on the structure and stringency of CSAPR Phase 2 reductions (discussed above), or it could lead to the development of a new ozone transport rule. Non-OTR states, including Kentucky, are working together to evaluate further nitrogen oxide reductions from fossil-fueled plants with SCRs. The nature and timing of any additional reductions resulting from these evaluations cannot be determined at this time.
In 2010, the EPA other OTR states and environmental groups. The PADEP may imposefinalized a new, more stringent emission limits than those set forth in the proposed rule which could have a significant impact on PPL Energy Supply's Pennsylvania coal plants.
In December 2012, the EPA finalized a new, more stringent, annual National Ambient Air Quality Standard for fine particulates. The rules were challenged by the D.C. Circuit Court and upheld in May 2014. Final designations for otherthe 2012
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particulate standard were published in January 2015. Non-attainment areas accordingin Pennsylvania and Kentucky were identified; however, EPA recently approved state implementation plan revisions for both states that improved these classifications. PPL Energy Supply, LG&E and KU plants in Pennsylvania and Kentucky will not be expected to the timeline outlined in the EPA's Data Requirements Rule issued in April 2014.
See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.
Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following table summarizes the accounting policies by Registrant that 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. See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrants' 20132014 Form 10-K for a discussion of each critical accounting policy.
PPL | ||||||||||||||||||||
PPL | KU | |||||||||||||||||||
Defined Benefits | X | X | X | X | X | |||||||||||||||
Loss Accruals | X | X | X | X | X | |||||||||||||||
Income Taxes | X | X | X | X | X | |||||||||||||||
Asset Impairments (Excluding Investments) | X | X | X | X | ||||||||||||||||
AROs | X | X | X | X | ||||||||||||||||
Price Risk Management | X | X | X | X | ||||||||||||||||
Regulatory Assets and Liabilities | X | X | X | X | X | |||||||||||||||
Revenue Recognition - unbilled revenue | X | X | X | X |
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PPL Corporation
PPL Electric Utilities Corporation
LG&E and KU Energy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company
Reference is made to "Risk Management" in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations."
(a) Evaluation of disclosure controls and procedures.
The Registrants' principal executive officers and principal financial officers, based on their evaluation of the Registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of June 30, 2014,March 31, 2015, the Registrants' disclosure controls and procedures are effective to ensure that material information relating to the Registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this quarterly report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officers, to allow for timely decisions regarding required disclosure.
(b) Change in internal controls over financial reporting.
The Registrants' principal executive officers and principal financial officers have concluded that there were no changes in the Registrants' internal control over financial reporting during the Registrants' secondfirst fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrants' internal control over financial reporting.
PPL Corporation
Following the announcement of the transaction to spin off PPL Energy Supply, LLC to form Talen Energy, management determined the appropriate staffing for Talen Energy and for PPL and its subsidiaries. During the three months ended March 31, 2015, staffing changes, including the consolidation of certain positions and transition of responsibilities, resulted in changes in certain individuals responsible for executing internal controls. However, changes to system applications, business processes and the associated internal controls were not significant. Management has taken steps to minimize the risk from the changes in individuals executing internal controls.
PART II. OTHER INFORMATION
For information regarding pending administrative and judicial proceedings involving regulatory, environmental and other matters, which information is incorporated by reference into this Part II, see:
· | "Item 3. Legal Proceedings" in each Registrant's | ||
· | Notes 6 and 10 to the Financial Statements. |
There have been no material changes in the Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the 2013Registrants' 2014 Form 10-K.
Not applicable.
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The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits havehas heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
- | ||
1(b) | - | |
- | ||
*[_]10(a) | - | Service Agreement, dated |
- | Amendment | |
- | PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends | |
- |
PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends | ||||
- | LG&E and KU Energy LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges | |||
- | Louisville Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges | |||
- | Kentucky Utilities Company Computation of Ratio of Earnings to Fixed Charges | |||
*31(a) | - | PPL Corporation's principal executive officer | ||
- | PPL Corporation's principal financial officer | |||
- | ||||
PPL Electric Utilities Corporation's principal executive officer | ||||
- | PPL Electric Utilities Corporation's principal financial officer | |||
- | LG&E and KU Energy LLC's principal executive officer | |||
- | LG&E and KU Energy LLC's principal financial officer | |||
- | Louisville Gas and Electric Company's principal executive officer | |||
- | Louisville Gas and Electric Company's principal financial officer | |||
- | Kentucky Utilities Company's principal executive officer | |||
- | Kentucky Utilities Company's principal financial officer | |||
*32(a) | - | PPL Corporation's principal executive officer and principal financial officer | ||
- | ||||
PPL Electric Utilities Corporation's principal executive officer and principal financial officer | ||||
- | LG&E and KU Energy LLC's principal executive officer and principal financial officer | |||
- | Louisville Gas and Electric Company's principal executive officer and principal financial officer | |||
- | Kentucky Utilities Company's principal executive officer and principal financial officer | |||
101.INS | - | XBRL Instance Document |
101.SCH | - | XBRL Taxonomy Extension Schema |
101.CAL | - | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | - | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | - | XBRL Taxonomy Extension Label Linkbase |
101.PRE | - | XBRL Taxonomy Extension Presentation Linkbase |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.
PPL Corporation | ||
(Registrant) | ||
Date: | /s/ Stephen K. Breininger | |
Stephen K. Breininger | ||
Vice President and Controller | ||
(Principal Accounting Officer) | ||
PPL Electric Utilities Corporation | ||
(Registrant) | ||
Date: | /s/ Dennis A. Urban, Jr. | |
Dennis A. Urban, Jr. | ||
Controller | ||
(Principal Financial Officer and Principal Accounting Officer) |
LG&E and KU Energy LLC | ||
(Registrant) | ||
Louisville Gas and Electric Company | ||
(Registrant) | ||
Kentucky Utilities Company | ||
(Registrant) | ||
Date: | /s/ Kent W. Blake | |
Kent W. Blake Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) |
118