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).

New Accounting Guidance Adopted(All Registrants)

~~Accounting for Obligations Resulting from Joint and Several Liability Arrangements~~

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.

~~The adoption of this guidance did not have a significant impact on the Registrants.~~

~~Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity~~

~~Effective January 1, 2014, PPL~~ prospectively adopted accounting guidance that ~~requires~~changes the criteria for determining what should be classified as a ~~cumulative translation adjustment~~discontinued operation and the related presentation and disclosure requirements. A discontinued operation may include a component of an entity or a group of components of an entity, or a business activity.

A disposal of a component of an entity or a group of components of an entity is required to be ~~released into earnings~~reported 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 foreign~~components of an entity ~~and~~meets 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.~~

spinoff).

The initial adoption of this guidance did not have a significant impact on ~~PPL; however, the impact in future periods could be material.~~

~~Presentation of Unrecognized Tax Benefits When Net Operating Loss Carryforwards, Similar Tax Losses, or Tax Credit Carryforwards Exist~~

~~Effective January 1, 2014,~~ the Registrants ~~prospectively adopted accounting guidance that requires an unrecognized tax benefit,~~but will impact the amounts presented as discontinued operations and will enhance the related disclosure requirements related to future disposals or ~~a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset~~held for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.

~~The adoption of this guidance did not have a significant impact on the Registrants.~~

sale classifications.

3. Segment and Related Information

(PPL)

See Note 2 in PPL's ~~2013~~2014 Form 10-K for a discussion of reportable segments and related information.

In June 2014, PPL and PPL Energy Supply, which ~~primarily~~substantially 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 producer~~company 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 30~~March 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.

~~(c)~~

~~2014 includes certain costs related to the anticipated spinoff of PPL Energy Supply, including deferred income tax expense and third party costs. See Note 8 for additional information.~~

4. Earnings Per Share

(PPL)

Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock ~~method~~Method 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 ~~periods~~period ended ~~June 30~~March 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

(a)

~~The~~In 2014, the If-Converted Method was applied to the Equity Units prior to ~~settlement. See Note 7 for additional information on~~ the ~~2011 Equity Units, including the issuance of PPL common stock on May 1,~~March 2014 ~~to settle the 2011 Purchase Contracts.~~settlement.

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.

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

5. Income Taxes

Reconciliations of income taxes for the periods ended ~~June 30~~March 31 are:

(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

~~(a)~~

As a result of the spinoff announcement, PPL recorded 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. See Note 8 for additional information on the anticipated spinoff.36

~~(b)~~

~~During the three and six months ended June 30, 2014, PPL recorded income tax expense primarily attributable to the expected taxable amount of cash repatriation in 2014.~~

~~During~~

(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

Other(PPL)

In February 2015, PPL and the ~~three~~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 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 attributable~~was notified that the JCT approved PPL's settlement. Subject to a ~~revision~~final determination of interest on the refund, PPL expects to record a tax benefit in the ~~expected taxable amount~~range of ~~cash repatriation~~$20 million to $30 million in ~~2013 offset by a $19 million income~~the 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.~~

~~(c)~~

In 1997, the U.K. imposed a Windfall Profits Tax (WPT) on privatized utilities, including WPD. PPL filed its tax returns for years subsequent to its 1997 and 1998 claims for refund on the basis that the U.K. WPT was creditable. In September 2010, the U.S. Tax Court (Tax Court) ruled in PPL's favor in a dispute with the IRS, concluding that the U.K. WPT is a creditable tax for U.S. tax purposes. In January 2011, the IRS appealed the Tax Court's decision to the U.S. Court of Appeals for the Third Circuit (Third Circuit). In December 2011, the Third Circuit issued its opinion reversing the Tax Court's decision, holding that the U.K. WPT is not a creditable tax. As a result of the Third Circuit's adverse determination, PPL recorded a $39 million expense in 2011. In June 2012, the U.S. Court of Appeals for the Fifth Circuit issued a contrary opinion in an identical case involving another company. In July 2012, PPL filed a petition for a writ of certiorari seeking U.S. Supreme Court review of the Third Circuit's opinion. The Supreme Court granted PPL's petition and oral argument was held in February 2013. In May 2013, the Supreme Court reversed the Third Circuit's opinion and ruled that the WPT is a creditable tax. As a result of the Supreme Court ruling, PPL recorded a tax benefit of $44 million during the three and six months ended June 30, 2013, of which $19 million relates to interest.

(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

~~(a)~~

During the second quarter of 2014, PPL Energy Supply recorded a $9 million credit to income tax expense, comprised of a $4 million credit to income tax expense recorded in 2013 and a $5 million credit related to an adjustment to the annual estimated effective income tax rate utilized to calculate income tax expense for the three months ended March 31, 2014. The adjustment to the annual estimated effective income tax rate had no impact on income tax expense for the six months ended June 30, 2014. The adjustment related to 2013 is not material to previously-issued financial statements and is not expected to be material to the full year results for 2014.

(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

benefits.

6. Utility Rate Regulation

(All ~~Registrants except PPL Energy Supply)~~

Registrants)

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

		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.

Regulatory Matters

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 $106~~March 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

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.~~

~~Kentucky Activities~~(proceeding.

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&E~~Electric as it is in a period of significant capital investment to maintain and ~~KU)~~

~~CPCN Filings~~

~~In January 2014, LG&E~~enhance the reliability of its delivery system, including the replacement of aging distribution assets.

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 site~~increase 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 at~~is 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 allow~~PUC consolidate these two proceedings. PPL Electric cannot predict the ~~companies to assess the potential impact~~outcome of ~~certain events on their future capacity needs, including the receipt of termination~~

notices to be generally effective in 2019 from certain KU municipal wholesale customers. 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 CPCN filing. See "Federal Matters - FERC Formula Rates" below for additional information relating to the municipal wholesale customers.

~~Pennsylvania Activities~~(~~PPL and PPL Electric~~)

this proceeding.

Storm Damage Expense Rider

(SDER)

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 effective~~with a January 1, 2015 effective date and ~~will~~ initially ~~include~~including actual storm costs compared to collections ~~from~~for 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 ~~can~~was 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.~~

~~Storm Costs~~

~~In February 2013,~~Pennsylvania requesting that the Court reverse and remand the April 2014 order permitting PPL Electric ~~received an order from~~to establish the PUC granting permission to defer qualifying costs in excess of insurance recoveries associated with Hurricane Sandy. At June 30, 2014 and December 31, 2013, $29 million was included on the Balance Sheets as a regulatory asset.

~~Act 129~~

Act 129 requires Pennsylvania Electric Distribution Companies (EDCs) to meet specified goals for reduction in customer electricity usage and peak demand by specified dates. EDCs not meeting the requirements of Act 129 are subject to significant penalties.

Act 129 requires Default Service Providers (DSP) to provide electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan through auctions, requests for proposal and bilateral contracts at the sole discretion of the DSP. Act 129 requires a mix of spot market purchases, short-term contracts and long-term contracts (4 to 20 years), with long-term contracts limited to 25% of load unless otherwise approved by the PUC. A DSP is able to recover the costs associated with its default service procurement plan.

In January 2013, the PUC approved PPL Electric's DSP procurement plan for the period June 1, 2013 through May 31, 2015. In April 2014, PPL Electric filed a new DSP procurement plan with the PUC for the period June 1, 2015 through May 31, 2017. Hearings before the PUC are scheduled for August 2014. PPL Electric cannot predict the outcome of this proceeding, whichSDER. This matter remains pending before the ~~PUC.~~

Commonwealth Court. On January 15, 2015, the PUC issued a final order closing an investigation related to an OCA complaint concerning PPL Electric's October 2014 preliminary SDER calculation and modified the effective date of the SDER to February 1, 2015.

Smart Meter Rider

(SMR)

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

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 predict~~On April 30, 2015, the ~~outcome of this proceeding.~~

~~Distribution System Improvement Charge~~

~~Act 11 authorizes~~Administrative Law Judge assigned by the PUC to ~~approve two specific ratemaking mechanisms:~~review PPL Electric's Smart Meter Plan issued a recommended decision approving the ~~use of a fully projected future test year in base rate proceedings and,~~plan with minor modifications. The recommended decision is subject to ~~certain conditions, the use of a DSIC. Such alternative ratemaking procedures~~final approval by and mechanisms provide opportunity for accelerated cost-recovery and, therefore, are important to PPL Electric as it begins a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging distribution assets. In August 2012, the PUC issued a Final Implementation Order adopting procedures, guidelines and a model tariff for the implementation of Act 11. Act 11 requires utilities to file an LTIIP as a prerequisite to filing for recovery through the DSIC. The LTIIP is mandated to be a five- to ten-year plan describing projects eligible for inclusion in the DSIC.

In September 2012, PPL Electric filed its LTIIP describing projects eligible for inclusion in the DSIC and in an order entered on May 23, 2013, the PUC approved PPL Electric's proposed DSIC with an initial rate effective July 1, 2013, subject to refund after hearings. The PUC also assigned four technical recovery calculation issues to the Office of Administrative Law Judge for hearing and preparation of a recommended decision. The case remains pending before the PUC.

Federal Matters

~~FERC Formula Rates~~ ~~(PPL and PPL Electric)~~

Transmission rates are regulated by the FERC. PPL Electric's transmission revenues are billed in accordance with a FERC-approved PJM open access transmission tariff that utilizes a formula-based rate recovery mechanism. The formula rate is calculated, in part, based on financial results as reported in PPL Electric's annual FERC Form 1 filed under the FERC's Uniform System of Accounts.

PPL Electric initiated its formula rate 2012, 2011 and 2010 Annual Updates. Each update was subsequently challenged by a group of municipal customers, whose challenges were opposed by PPL Electric. Between 2011 and 2013, numerous hearings before the FERC and settlement conferences were convened in an attempt to resolve these matters. Beginning in the second half of 2013, PPL Electric and the group of municipal customers exchanged confidential settlement proposals. PPL and PPL Electric cannot predict the outcome of the foregoing proceedings, which remain pending before the FERC.

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, such~~contracts. 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.

7. Financing Activities

Credit Arrangements and Short-term Debt

(All Registrants)

The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of ~~PPL 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. The~~Sheets.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

				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

(a)

~~PPL WW's~~WPD Ltd.'s amounts borrowed at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 were USD-denominated borrowings of ~~$164~~$200 million and ~~$166~~$161 million, which bore interest at ~~1.85%~~1.87% and ~~1.87%~~1.86%. WPD (East Midlands) amounts borrowed at March 31, 2015 and December 31, 2014 were GBP-denominated borrowings which equated to $226 million and $100 million, which bore interest at 1.00% for both periods. At ~~June 30, 2014,~~March 31, 2015, the unused capacity under the U.K. credit facilities was ~~$1.8~~$1.3 billion.

(b)

At ~~June 30, 2014,~~March 31, 2015, PPL Energy Supply's and LKE's interest rates on outstanding borrowings were ~~2.04% for PPL Energy Supply~~2.12% and ~~1.65% for LKE.~~1.68%. At December 31, ~~2013,~~2014, PPL Energy Supply's and LKE's interest rates on outstanding borrowings were ~~1.79% for PPL Capital Funding~~2.05% and 1.67% ~~for LKE.~~.

~~(c)~~

In July 2014, the expiration dates for the WPD (South West), WPD (East Midlands), WPD (West Midlands), LG&E and KU syndicated credit facilities were extended to July 2019 and the PPL Electric syndicated credit facility was extended to October 2018. Also, in July 2014, PPL Energy Supply extended the expiration date for its uncommitted credit facility to July 2015.

~~In July~~

(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 issue~~first 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 fees~~reissued under the ~~credit agreement.~~

The credit agreement contains a financial covenant requiring PPL Capital Funding's debt to total capitalization not to exceed 70% (as calculated pursuant to the credit agreement), and other customary covenants. Failure to meet the covenants beyond applicable grace periods and certain other events, including the occurrence of a Change of Control (as defined in the credit agreement), could result in acceleration of due dates of any borrowings, cash collateralization of outstanding letters of credit and/or termination of the credit agreement. The credit agreement also contains certain customary representations and warranties that must be made and certain other conditions that must be met for PPL Capital Funding to borrow or to cause the issuing lender to issue letters of credit.

PPL Energy Supply Syndicated Credit Facility at March 31, 2015.

(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

~~(PPL and PPL Energy Supply)~~

		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)

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.

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.~~

~~(PPL Electric and LKE)~~

March 31, 2015.

(LKE)

See Note 11 for discussion of intercompany borrowings.

~~Long-term Debt and Equity Securities~~

(PPL)

~~In March 2014,~~

At-the-Market Stock Offering Program

On February 26, 2015, PPL ~~Capital Funding remarketed $978~~entered 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 with~~its 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 shares~~March 31, 2015, no sales of common stock ~~at $30.86 per share to settle~~under the ~~2011 Purchase Contracts. PPL received net cash proceeds of $978 million, which~~equity distribution agreements were ~~used to repay short-term debt and for general corporate purposes.~~

~~(PPL and PPL Electric)~~

made.

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.

~~Distributions~~ ~~(PPL)~~

~~In May 2014,~~February 2015, PPL declared its quarterly common stock dividend, payable ~~July~~April 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~~depend upon future earnings, cash flows, financial and legal requirements and other factors.

8. Acquisitions, Development and Divestitures

(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 ~~2013~~2014 Form 10-K for additional information.

(PPL)

Divestitures

Anticipated Spinoff of PPL Energy Supply

~~(PPL and 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 producer~~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 ~~shareowners~~Energy Supply. Substantially contemporaneous with the spinoff and ~~simultaneously combine that business with~~merger, 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 ~~Energy~~Energy. The transaction is intended to be tax-free to PPL and ~~PPL's~~its shareowners ~~will receive~~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 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 ~~number~~revolving credit or similar facility of Talen Energy ~~shares~~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 agreed thatwithin 12 months after closing ~~based~~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 ~~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.

~~(PPL, PPL Energy Supply and PPL Electric)~~

Following the announcement of the transaction to form Talen Energy, efforts ~~have been~~were 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 employee~~2015. 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 recorded~~included 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 to~~for PPL employees who have become PPL Energy Supply employees in connection with the ~~range of costs that will be incurred and when those~~transaction. 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 those~~closing date. PPL estimates these additional costs will be ~~recognized cannot be reasonably estimated at this time but could be material.~~

~~(PPL)~~

~~As a result~~in the range of ~~the spinoff announcement,~~ $30 million to $40 million.

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.

~~In addition, PPL recorded $16~~$6 million of third-party costs during the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 related to this transaction. Of these costs, $2 million were primarily for legal and accounting fees to facilitate the transaction, and are recorded in "Other Income (Expense) - net" on the Statement of ~~Income, primarily for investment bank advisory, legal,~~Income. An additional $4 million of consulting and ~~accounting fees.~~other costs were incurred to ready the new Talen Energy organization and reconfigure the remaining PPL ~~cannot~~service functions. These costs are recorded in "Other operation and maintenance" on the Statement of Income. PPL recorded $27 million of third-party costs in 2014 related to this transaction. PPL currently ~~estimate~~estimates a range of total third-party costs that will ultimately be ~~incurred; however, additional costs~~incurred of ~~at least $26~~between $60 million ~~will be recognized upon closing of the transaction.~~

and $70 million.

The assets and liabilities of ~~PPL Energy~~PPL'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 announcement~~amount 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 ~~could~~will 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's~~the Supply segment's assets and liabilities ~~exceeds its~~exceed 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.~~

(~~PPL Energy Supply)~~

~~PPL Energy~~no longer have a Supply ~~will treat the combination with RJS Power as an acquisition, as PPL Energy Supply will be considered the accounting acquirer in accordance with business combination accounting guidance.~~

segment.

Discontinued Operations

Montana Hydro Sale ~~Agreement(PPL and PPL Energy Supply)~~

In ~~September 2013,~~November 2014, PPL Montana ~~executed a definitive agreement to sell~~completed the sale to NorthWestern ~~its~~of 633 MW of hydroelectric generating facilities located in Montana ~~(with a generation capacity of 633 MW)~~ for approximately $900 million in ~~cash, subject~~cash. 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, includes~~included 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 on~~Supply segment.

Following are the ~~balance sheet.~~

~~Development~~

~~Hydroelectric Expansion Projects~~ (~~PPL and PPL Energy Supply)~~

~~In January 2014, the U.S. Department~~components of Treasury awarded $56 million for Specified Energy Property in Lieu of Tax Credits for the Rainbow hydroelectric redevelopment project in Great Falls, Montana. PPL Energy Supply accepted and accounted for the receipt of the grantDiscontinued Operations in the ~~first quarter~~Statement of 2014. PPL Energy Supply is required to recapture $60 million of investment tax credits previously recorded related to the Rainbow project as a result of the grant receipt. The impact on the financial statements for the grant receipt and recapture of investment tax credits was not significantIncome for the three ~~and six~~ months ended ~~June 30, 2014, and will not be significant in future periods.~~March 31.

In July 2014, the U.S. Department of Treasury awarded $108 million for Specified Energy Property in Lieu of Tax Credits for the Holtwood hydroelectric project in Holtwood, Pennsylvania. PPL Energy Supply accepted and will account for the receipt of the grant in the third quarter of 2014. PPL Energy Supply is required to recapture $117 million of investment tax credits previously recorded related to the Holtwood project as a result of the grant receipt. The impact on the financial statements for the grant receipt and recapture of investment tax credits is not expected to be significant in 2014 or future periods.

	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

Future Capacity Needs(PPL, LKE, LG&E and KU)

Construction activity ~~continues~~is nearing completion and testing is in progress on the previously announced NGCC unit, Cane Run Unit 7, scheduled to be operational in ~~May~~the 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 to~~at 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 asked~~final order was issued by the KPSC approving the request to ~~hold~~construct 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.

solar generating facility at E.W. Brown.

9. Defined Benefits

(PPL, ~~PPL Energy Supply~~LKE and ~~PPL Electric~~)

Effective July 1, 2014, PPL's primary defined benefit pension plan and postretirement medical plan were closed to newly hired IBEW Local 1600 employees. As such, the majority of PPL's defined benefit pension plans are now closed to newly hired employees.

~~(All Registrants except PPL Electric and KU)~~

LG&E)

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

~~(a)~~

~~See Note 10 for details of a one-time voluntary retirement window offered to certain bargaining unit employees.~~

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

March 31:

		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

(~~All Registrants except PPL)~~

PPL Electric, LG&E and KU)

In addition to the specific plans ~~they sponsor, PPL Energy Supply subsidiaries are also allocated costs of defined benefit plans sponsored by PPL Services, and~~it sponsors, LG&E is allocated costs of defined benefit plans sponsored by LKE based on ~~their~~its 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

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

~~(a)~~

The three and six months ended June 30, 2014 include $16 million and $4 million of termination benefits for PPL Energy Supply and PPL Electric related to a one-time voluntary retirement window offered to certain bargaining unit employees. See Note 10 for additional information.

		Three Months
		2015		2014
	��
PPL Electric		$	8	$	5


LG&E	3	2
KU	5	3

10. Commitments and Contingencies

(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.

Legal Matters

(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 and PPL Energy Supply)~~

(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 Energy~~NorthWestern and ~~Pacific Corp.~~PacifiCorp. PPL Montana operates Colstrip on behalf of the co-owners. The ~~suit~~complaint 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. In~~Act and, in September 2013, ~~the plaintiffs~~ filed an amended complaint. ~~This~~The amended complaint ~~drops~~dropped 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,

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-scheduled~~rescheduled to ~~June~~November 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 alleged~~alleging 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 it~~retired 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 ~~before~~plant in the ~~end~~third 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)~~

Registrants)

See Note 6 for information on regulatory matters related to utility rate regulation.

(PPL ~~PPL Energy Supply~~ and PPL Electric)

New Jersey Capacity Legislation

In January 2011, New Jersey enacted a law (the Act) that ~~intervenes~~PPL believes would intervene in the wholesale capacity market ~~exclusively regulated by the FERC (the Act). To~~to 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 been~~was 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 predict~~2015, the ~~outcome of~~U.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.~~

case.

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 is~~which, 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 order~~Order 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 order~~Order 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.

In December 2014, the Appellants filed a petition for certiorari before the U.S. Supreme Court. In March 2015, the U.S. Supreme Court requested the U.S. Solicitor General to submit briefs expressing its views as to the issues raised in this case.

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.

In June 2015, the United States Court of Appeals for the Ninth Circuit will hold oral argument on an appeal from the FERC's October 2011 order setting out the remand process that FERC has followed from 2011 to the present.

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

whether any subsidiaries

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)

~~FERC Market-Based Rate Authority~~

In 1998, the FERC authorized LG&E, KU and PPL EnergyPlus to make wholesale sales of electricity and related products at market-based rates. In those orders, the FERC directed LG&E, KU and PPL EnergyPlus, respectively, to file an updated market analysis within three years after the order, and every three years thereafter. Since then, periodic market-based rate filings with the FERC have been made by LG&E, KU, PPL EnergyPlus, PPL Electric, PPL Montana and most of PPL Generation's subsidiaries. In December 2013, PPL and these subsidiaries filed market-based rate updates for the Eastern and Western regions. In June 2014, the FERC accepted PPL and its subsidiaries' updated market power analysis finding that they qualify for continued market-based rate authority in the Western region, which acceptance became final in July 2014. The filings for the Eastern region remain pending before the FERC. The Registrants cannot predict the ultimate outcome of the update filings for the Eastern region at this time.

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.

~~As previously reported, in~~

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-proposed~~NERC 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 be~~events. 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.

Environmental Matters - Domestic

(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.

(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~~

ozone by regulating emissions of sulfur dioxide and nitrogen oxide. In ~~July 2011, the EPA adopted the CSAPR. The CSAPR replaced the EPA's previous CAIR which was invalidated in July 2008 by the~~accordance with an October 2014 U.S. Court of Appeals decision, CSAPR establishes interstate allowance trading programs for sulfur dioxide and nitrogen oxide emissions from fossil-fueled plants in two phases: Phase 1 commenced in January 2015 and Phase 2 commences in 2017. Sulfur dioxide emissions are subject to an annual trading 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). CAIR subsequently was effectively reinstated by~~EPA's CSAPR were heard before the D.C. Circuit Court in December 2008, pending finalization of the CSAPR. Like CAIR, CSAPR targeted sources in the eastern U.S. and would have required reductions in sulfur dioxide and nitrogen oxides in two phases (2012 and 2014).

In December 2011, the D.C. Circuit Court stayed implementation of the CSAPR and left CAIR in effect pending a final decision on the validity of the rule. In August 2012, the D.C. Circuit Court issued a ruling invalidating CSAPR, remanding the rule to the EPA for further action, and leaving CAIR in place during the interim. In April 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. On June 26, 2014, the DOJ filed a motion requesting the D.C. Circuit Court to lift the stay on CSAPR. The CAIR program remains in place.February 2015.

Although PPL, ~~PPL Energy Supply,~~ LKE, ~~LG&E and KU cannot predict the outcome of further regulatory and legal proceedings.~~

The Kentucky fossil-fueled generating plants meet the CAIR sulfur dioxide emission requirements by utilizing sulfur dioxide allowances (including banked allowances) and optimizing existing controls. To meet the CAIR standards for nitrogen oxide under the CAIR, the Kentucky companies will need to buy allowances and/or make operational changes. LG&E and KU do not ~~currently~~ anticipate significant costs to comply with these programs, changes in market or operating conditions could result in impacts that ~~the costs of meeting these reinstated CAIR standards will be significant.~~

PPL Energy Supply's Pennsylvania fossil-fueled generating plants meet the CAIR sulfur dioxide emission requirements with the existing scrubbers that were placed in service in 2008 and 2009. To meet the CAIR standards for nitrogen oxides, PPL Energy Supply will need to buy allowances and/or make operational changes, the costs of which are ~~not anticipated to be significant.~~

higher than anticipated.

National Ambient Air Quality Standards

The EPA is under 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. In ~~December 2012,~~January 2015, the EPA issued ~~final rules that tighten~~a policy memo to state agencies to facilitate the ~~National Ambient Air Quality Standard~~development of these plans for ~~fine particulates.~~the 2008 standard, including modeling data defining state contributions. The ~~rules were challenged by industry groups,~~implementation of such plans could have an impact on the structure and ~~on May 9, 2014~~stringency of CSAPR Phase 2 reductions (discussed above), or it could lead to the ~~D.C. Circuit Court upheld them. Under the final rules,~~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 ~~the EPA have until 2015 to identify non-attainment areas, and states have until 2020 to achieve attainment for those areas.~~

timing of any additional reductions resulting from these evaluations cannot be determined at this time.

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. ~~States~~Pursuant 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~~

~~April 17, 2014~~areas by the ~~EPA proposed timeframes for completing these designations.~~2017 or 2020 deadline depending on which designation methodology is used. PPL, ~~PPL Energy Supply,~~ LKE, LG&E and KU anticipate that some of the measures required for compliance with the ~~CAIR or~~ CSAPR (as discussed above), or the MATS, or the Regional Haze ~~requirements~~Rules (as discussed below), such as upgraded or new sulfur dioxide scrubbers at certain plants and, in the case of LG&E and KU, the previously announced retirement of coal-fired generating units at the Cane Run, Green River and Tyrone plants, will help to achieve compliance with the new sulfur dioxide standard. If additional reductions were to be required, the financial impact could be significant. The short-term impact on the Corette plant from the EPA's final designation of part of Yellowstone County in Montana as non-attainment (as noted above) is not expected to be significant, as the operations were suspended and the plant was retired in March 2015. In addition, MDEQ recently submitted a request to the EPA for a determination that this area is in attainment. If the EPA agrees with this request, then the deadlines associated with non-attainment would be suspended.

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 intent~~LG&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.~~

make further reductions towards achieving attainment.

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.

MATS

In ~~May 2011,~~February 2012, the EPA ~~published a proposed regulation~~finalized 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 coalition~~A group of 23 states ~~filed a petition seeking~~subsequently 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 extension~~one- and two-year extensions as provided under the statute. PPL, LKE, LG&E and KU ~~and PPL Energy Supply~~have 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.~~

as applicable.

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 ~~certain~~remaining 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.~~

~~With respect to~~ or KU.

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's~~PPL's Montana plants, modifications to the air pollution controls installed onat Colstrip ~~may be~~are required, the cost of which is not expected to be significant. ~~For~~Operations were suspended and the Corette plant ~~PPL Energy Supply announced~~was retired in ~~September 2012 its intention, beginning in April~~March 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.~~

~~PPL Energy Supply,~~LKE, LG&E and KU are ~~continuing to conduct~~conducting in-depth reviews of the ~~MATS, including~~EPA's amendments to the ~~potential implications~~final rule and certain proposed corrections, none of which are currently expected to ~~scrubber wastewater discharges. See the discussion of effluent limitations guidelines and standards below.~~

be significant.

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 ~~activity~~regulation has been the western U.S. ~~because~~As 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 ~~satisfies~~trading program could, in most instances, be utilized under state programs to satisfy BART requirements ~~to reduce~~for sulfur dioxide and nitrogen oxides. ~~Although~~However, the ~~D.C. Circuit Court's August 2012 decision to vacate~~EPA'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 ~~tighter~~stricter limits for Corette and Colstrip Units 1 and 2. PPL Energy Supply ~~expects to meet~~was meeting these ~~tighter~~stricter 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 ~~April~~March 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 on~~Circuit, oral argument was heard in May ~~16, 2014.~~

2014, and the parties are awaiting a decision.

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 Montour~~in 2007 and ~~Brunner Island plants,~~

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.~~

In August 2007, LG&E received information requests for the Mill Creek and Trimble County plants, and KU received requests for the Ghent plant, but they have received no further communications from the EPA since providing their responses.litigation (see "Legal Matters - Sierra Club Litigation" above). PPL, LKE, LG&E and KU 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 are~~subsidiary is found to have violated NSR regulations by significantly increasing pollutants through a major plant modification, ~~PPL, PPL Energy Supply, LKE, LG&E and KU~~the 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.

~~TC2~~

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 ~~TC2~~Trimble 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 ~~GHG~~carbon 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 ~~GHG~~carbon 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 ~~GHG~~carbon 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

emissions of other pollutants. As a result, any new sources or major modifications to an existing GHG source causing a net significant increase in ~~GHG~~carbon dioxide emissions must comply with BACT permit limits for ~~GHGs~~carbon dioxide if it would otherwise be subject to BACT or lowest achievable emissions ~~rate limits~~ratelimits due to significant increases in other pollutants.

In June 2013, President Obama released his Climate Action Plan that reiterates the goal of reducing ~~greenhouse gas~~GHG 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 ~~tighter~~more 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 related~~calls for the U.S. to ~~preparing the U.S.~~prepare for the impacts of climate ~~change~~change. Requirements related to this Plan could affect ~~PPL~~the 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.

As further described below, the EPA has proposed rules pursuant to this 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 ~~its~~a revised proposal ~~for~~to 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 ~~established~~calls for separate emission standards for coal and gas units based on the application of different

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 ~~coal~~coal-fired plants. The standard for NGCC power plants is the same as the EPA proposed in 2012 and is not continuously achievable.

The ~~EPA's~~preclusion of new coal-fired plants and the compliance difficulties posed for new gas-fired plants could have a significant industry-wide impact.

In June 2014, the EPA issued proposed ~~regulation~~regulations addressing ~~GHG~~carbon 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 analyzing~~has analyzed the proposal and identified potential impacts and solutions in ~~preparation~~comments filed on December 1, 2014. PPL also submitted Supplemental Comments to FERC through EEI, advocating for ~~submitting comments~~reliability 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 ~~GHG~~carbon 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.

~~(PPL and PPL Energy Supply)~~

~~The PADEP submitted to~~

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) of~~from 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 under~~proposed 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 (such~~their generation as ~~DSM and~~set 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 November 2008, the Governor of Kentucky issued a comprehensive energy plan including non-binding targets aimed at promoting improved energy efficiency, development of alternative energy, development of carbon capture and sequestration projects, and other actions to reduce GHG emissions. In December 2009, the Kentucky Climate Action Plan Council was established to develop an action plan addressing potential GHG reductions and related measures. In November 2011, the Council issued a final report to the Secretary of Kentucky's Energy and Environment Cabinet for consideration. The final report acknowledged that the recommendations would require additional review and analysis prior to implementation, and that many of the recommendations would likely require, in part, further legislative or regulatory actions. The impact of any such plan is not now determinable, but the costs to comply with the plan could be significant.

In April 2014, the Kentucky

General Assembly passed legislation which limits the measures ~~which~~that the Kentucky Energy and Environment Cabinet may consider in setting performance standards to comply with the EPA's regulations governing GHG emissions from existing sources. The legislation provides that such state GHG performance standards shall be based on emission reductions, efficiency measures, and other improvements available at each power plant, rather than renewable energy, end-use energy efficiency, fuel switching and re-dispatch. These statutory restrictions ~~will~~may make it more difficult for Kentucky to achieve the GHG reduction levels which the EPA has proposed for 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

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

~~(All Registrants)~~

~~There has been interest in renewable energy legislation at both the state and federal levels; however, no legislation is expected to become law in 2014 at either the federal or state levels.~~

(PPL ~~PPL Energy Supply~~ and PPL Electric)

In Pennsylvania, ~~bills were~~House Bill 100 was introduced ~~calling for an~~in 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 also~~targets. A similar bill is in the process of being introduced ~~to add natural gas as a qualified AEPS resource, and another~~in 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 Montana~~number is ~~reviewing the state's Renewable Portfolio Standard (RPS)~~available at this time). PPL and PPL ~~Energy Supply~~Electric 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 standard~~Renewable 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 to~~cannot predict the outcome of this ~~legislation at this time.~~

legislation.

(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

~~Coal Combustion Residuals (CCRs)~~

(All Registrants except PPL Electric)

~~In June 2010,~~

Coal Combustion Residuals (CCRs)

On April 17, 2015, the EPA ~~proposed two approaches to~~published 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. ~~Regulating~~The 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 waste~~non-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.~~

~~The EPA has issued information requests on CCR~~CCRs or the past management ~~practices at numerous plants throughout the power industry as it considers whether or not~~of CCRs and continued use to regulate CCRs as hazardous waste. PPL has provided information on CCR management practices at most of its plants in response to the EPA's requests. In addition, the EPA has conducted follow-up inspections to evaluate the structural stability of CCR management facilities at several PPL plants and PPL has implemented or is implementing certain actions in response to recommendations from these inspections.

The EPA is continuing to evaluate the unprecedented number of comments it received on its June 2010 proposed regulations. In October 2011, the EPA issued a Notice of Data Availability (NODA) requesting comments on selected documents it received during the comment period for the proposed regulations. On September 20, 2013, in response to the proposed Effluent Limitation Guidelines, PPL submitted comments on the proposed CCR regulations. Also, on September 3, 2013, PPL commented on a second CCR NODA seeking comment on additional information related to the EPA's proposal.

A coalition of environmental groups and two CCR recycling companies have filed lawsuits against the EPA seeking a deadline for final rulemaking and, in settlement of that litigation, the EPA has agreed to issue its final rulemaking on the Subtitle D option addressed above by December 19, 2014.

In July 2013, the U.S. House of Representatives passed House Bill H.R. 2218, the Coal Residuals and Reuse Management Act of 2013, which would preempt the EPA from issuing final CCR regulations and would set non-hazardous CCR standards under RCRA and authorize state permit programs. It remains uncertain whether similar legislationmanage waste waters will be ~~passed~~most impacted by ~~the U.S. Senate.~~this rule. The rule's requirements for covered CCR impoundments and landfills include commencement or completion of closure activities generally between three and ten years from certain triggering events. PPL, ~~PPL Energy Supply,~~ LKE, LG&E and KU ~~cannot predict at this~~also anticipate incurring capital or operation and maintenance costs prior to that time ~~the final requirements~~to address other provisions of the ~~EPA's CCR regulations~~rule, such as groundwater monitoring and disposal facility modifications, or ~~potential changes~~ to implement various compliance strategies.

PPL, LKE, LG&E and KU are reviewing the ~~RCRA~~rule and ~~what impact they would have on their facilities, but the~~are 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.

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 CCRs~~issued by the third or fourth quarter of 2015. At the present time, PPL, LKE, LG&E and KU are ~~regulated as hazardous waste~~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 significant ~~if regulated as non-hazardous.~~

and costs could be imposed ahead of federal timelines.

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 residuals~~CCRs generated at the Trimble County plant. ~~After extensive review of the permit application in~~In 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, in~~In 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 is~~all 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 and PPL Energy Supply)~~

(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.~~

this facility.

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.

Discovery is ongoing, and a bench trial is set for April 2016.

Clean Water Act 316(b)(All Registrants except PPL Electric)

~~Clean Water Act/316(b)~~

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 at~~for 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 ~~first~~rule requires ~~all~~ existing facilities to ~~meet standards for~~choose between several options to reduce the ~~reduction of mortality of~~impact 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 is~~and to determine ~~and install~~ the ~~best technology available to reduce mortality of~~intake 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 impacts~~Plants already equipped with closed-cycle cooling, an acceptable option, would likely not incur substantial costs. Once-through systems would likely

require additional technology to ~~energy delivery reliability~~comply 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.

~~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. The EPA has indicated that it will coordinate these regulations with the regulation of CCRs discussed above. The proposal contains alternative approaches, some of which could significantly impact PPL's coal-fired plants. PPL, PPL Energy Supply, LKE, LG&E and KU worked with industry groups to comment on the proposed regulation on September 20, 2013. The EPA has agreed to a new deadline for the final rule of September 30, 2015 which is contingent upon the EPA meeting its deadline of December 19, 2014 for issuing its final CCR regulations. 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 significant and costs could be imposed ahead of federal timelines.

(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 ~~the~~a proposed rule defining ~~Waters of the United States (WOTUS)~~WOTUS that could ~~significantly~~greatly 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.~~

this regulation. Until a final rule is issued, the Registrants cannot predict the outcome of the pending rulemaking. A final rule is expected by summer 2015.

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 and PPL Energy Supply)~~

(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

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 KU~~PPL'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

parties alleging impacts from PPL's operations and undertake similar actions necessary to resolve environmental matters ~~which~~that arise in the course of normal operations. Based on analyses to date, resolution of these environmental matters is not expected to have a significant adverse impact on ~~these Registrants' operations.~~

the operations of PPL, PPL Electric, LG&E and KU.

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.~~

PPL, PPL Electric, LG&E and KU.

Environmental Matters - WPD(PPL)~~(PPL)~~

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.

Other

Nuclear Insurance(PPL)~~(PPL and PPL Energy Supply)~~

The Price-Anderson Act is a United States Federal law ~~which governs~~governing 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.~~

~~Pennsylvania Coal Plants(PPL and PPL Energy Supply)~~

~~In the fourth quarter of 2013, management tested the Brunner Island and Montour plants for impairment and concluded neither was impaired as of December~~million at March 31, ~~2013. There were no events or changes in circumstances that indicated a recoverability test was required~~2015. Effective April 1, 2015, this maximum assessment increased to ~~be performed in 2014. The carrying value of the Pennsylvania coal-fired generation assets was $2.5 billion as of June 30, 2014 ($1.3 billion for Brunner Island and $1.2 billion for Montour).~~

~~Labor Unions(PPL,~~$55 million. PPL Energy Supply ~~and PPL Electric~~)

In May 2014, PPL's, PPL Energy Supply's and PPL Electric's bargaining agreement with its largest IBEW local expired. PPL, PPL Energy Supply and PPL Electric finalized a new three-year labor agreement with the IBEW local in May 2014 and the agreement was ratified in early June 2014.

~~As part of efforts to~~has additional coverage that, under certain conditions, may reduce ~~operations and maintenance expenses, the new agreement offered a one-time voluntary retirement window to certain bargaining unit employees. The benefits offered under~~ this provision are consistent with the standard separation program benefits for bargaining unit employees. As a result, for the three and six months ended June 30, 2014, the following estimated separation benefits were recorded:

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

The separation benefits were recorded in "Other operation and maintenance" on the Statement of Income. The pension benefits are accrued in "Accrued pension obligations" and the severance compensation is accrued in "Other current liabilities" on the Balance Sheet at June 30, 2014. Substantially all of the severance compensation will be paid in the third and fourth quarters of 2014. The remaining terms of the new labor agreement are not expected to have a significant impact on the financial results of PPL, PPL Energy Supply or PPL Electric.

exposure.

Guarantees and Other Assurances

(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.

(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, 2014~~March 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)

(a)

Indemnifications related to certain liabilities, including a specific unresolved tax issue and those relating to properties and assets owned by the seller that were transferred to WPD Midlands in connection with the acquisition. A cross indemnity has been received from the seller on the tax issue.The maximum exposure and expiration of these indemnifications cannot be estimated because the maximum potential liability is not capped and the expiration date is not specified in the transaction documents.

(b)

Indemnification to the liquidators and certain others for existing liabilities or expenses or liabilities arising during the liquidation process. The indemnifications are limited to distributions made from the subsidiary to its parent either prior or subsequent to liquidation or are not explicitly stated in the agreements. The indemnifications generally expire two to seven years subsequent to the date of dissolution of the entities. The exposure noted only includes those cases where the agreements provide for specific limits.

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.

(c)

Relates to certain obligations of discontinued or modified electric associations that were guaranteed at the time of privatization by the participating members. Costs are allocated to the members and can be reallocated if an existing member becomes insolvent. At ~~June 30, 2014,~~March 31, 2015, WPD has recorded an estimated discounted liability for which the expected payment/performance is probable. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements, and as a result, the exposure has been estimated.

(d)

Standby letter of credit arrangements under PPL Energy Supply's credit facilities for the purposes of protecting various third parties against nonperformance by PPL. This is not a guarantee by PPL on a consolidated basis.

~~(e)~~

Indemnifications are governed by the specific sales agreement and include breach of the representations, warranties and covenants, and liabilities for certain other matters. ~~PPL Energy Supply's~~The maximum exposure with respect to certain indemnifications and the expiration of the indemnifications cannot be estimated because the maximum potential liability is not capped by the transaction documents and the expiration date is based on the applicable statute of limitations. The exposure and expiration date noted is based on those cases in which the agreements provide for specific limits.

~~(f)~~

~~Relates~~ The exposure at March 31, 2015 includes amounts related to ~~a guarantee of one-third~~the sale of the ~~divested entity's debt. The purchaser provided a cross-indemnity, secured by a lien on~~Montana Hydroelectric facilities. See Note 8 for additional information related to the ~~purchaser's stock of the divested entity. The exposure noted reflects principal only.~~sale.

~~(g)~~

(e)

A third party logistics firm provides inventory procurement and fulfillment services. The logistics firm has title to the inventory, however, upon termination of the contracts, PPL Electric has guaranteed to purchase any remaining inventory that has not been used or sold.

~~(h)~~

(f)

LKE provides certain indemnifications, the most significant of which relate to the termination of the WKE lease in July 2009. These guarantees cover the due and punctual payment, performance and discharge by each party of its respective present and future obligations. The most comprehensive of these WKE-related guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under the WKE Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a cumulative maximum exposure of $200 million. Certain items such as government fines and penalties fall outside the cumulative cap. Another WKE-related LKE guarantee covers other indemnifications, has ~~contested the applicability of the indemnification requirement relating to one matter presented by~~ a ~~counterparty under this guarantee. Another guarantee with~~term expiring in 2023, and a maximum exposure of $100 ~~million covering other indemnifications expires in 2023.~~million. In May 2012, LKE's indemnitee received an unfavorable arbitration panel's decision ~~affecting~~interpreting this matter, which granted LKE's indemnitee certain rights of first refusal to purchase excess power at a market-based price rather than at an absolute fixed price. In January 2013, LKE's indemnitee commenced a proceeding in the Kentucky Court of Appeals appealing ~~the~~a December 2012 order of the Henderson Circuit Court, confirming the arbitration award. OnIn May ~~30,~~ 2014, the Court of Appeals issued an opinion affirming the lower court ~~decision, but~~decision. LKE's indemnitee ~~has~~ filed a ~~Petition~~Motion for ~~Rehearing~~Discretionary Review with the Kentucky Supreme Court ~~of Appeals.~~in October 2014. LKE believes its indemnification obligations in this matter remain subject to various uncertainties, including potential for additional legal challenges regarding the arbitration decision as well as future prices, availability and demand for the subject excess power. LKE continues to evaluate various legal and commercial options with respect to this indemnification matter. The ultimate outcomes of the WKE termination-related indemnifications cannot be predicted at this time. Additionally, LKE has indemnified various third parties related to historical obligations for other divested subsidiaries and affiliates. The indemnifications vary by entity and the maximum exposures range from being capped at the sale price to no specified maximum; ~~however, LKE is not aware of formal claims under such indemnities made by any party at this time.~~ LKE could be required to perform on these indemnifications in the event of covered losses or liabilities being claimed by an indemnified party. LKE cannot predict the ultimate outcomes of such indemnification circumstances, but does not currently expect such outcomes to result in significant losses above the amounts recorded.

~~(i)~~

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.

(g)

Pursuant to the OVEC power purchase contract, LG&E and KU are obligated to pay for their share of OVEC's excess debt service, post-retirement and decommissioning costs, as well as any shortfall from amounts currently included within a demand charge designed and currently expected to cover these costs over the term of the contract.The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" and "Guarantees and Other Assurances" in Note 1513 in PPL's, LKE's, LG&E's and KU's ~~2013~~2014 Form 10-K for additional information on the OVEC power purchase contract.

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.

11. Related Party Transactions

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 ~~between~~from PPL EnergyPlus ~~and PPL Electric~~ are included in ~~the~~PPL 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 has~~does not have an established credit ~~limit and~~limit. 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.

~~At June 30, 2014, PPL Energy Supply had a net credit exposure of $24 million from PPL Electric from its commitment as a PLR supplier and from the sale of its accounts receivable to PPL Electric.~~

Support Costs(All Registrants except PPL)

~~Both~~

PPL Services and LKS provide ~~the~~their 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 ~~subsidiaries~~recipients as direct support costs. General costs that cannot be directly attributed to a specific ~~subsidiary~~entity are allocated and charged to the respective ~~subsidiaries~~recipients as indirect support costs. PPL Services ~~uses~~and 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.

Intercompany Borrowings(LKE)~~(PPL Electric and LKE)~~

A PPL Electric subsidiary periodically holds revolving demand notes from certain affiliates. At June 30, 2014, there was no balance outstanding. At December 31, 2013, $150 million was outstanding and was reflected in "Notes receivable from affiliate" on the Balance Sheet. The interest rates on borrowings are equal to one-month LIBOR plus a spread. The interest rate on the outstanding borrowing at December 31, 2013, was 1.92%. Interest earned on these revolving facilities was not significant for the three and six months ended June 30, 2014 and 2013.

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, 2014~~At March 31, 2015 and December 31, ~~2013.~~

~~LKE maintains an agreement with a PPL affiliate that has a $300 million borrowing limit whereby LKE can loan funds on a short-term basis at market-based rates. At June 30,~~ 2014, $40 and ~~December 31, 2013, $16 million and $70~~$41 million were outstanding and were reflected in "Notes ~~receivable from~~payable with affiliates" on the consolidated Balance Sheets. The interest rate on ~~the loan based on the PPL affiliate's credit rating~~borrowings is ~~currently~~ equal to one-month LIBOR plus a spread. The interest rates on the outstanding borrowing at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 were ~~2.15%~~1.67% and ~~2.17%~~1.65%. Interest ~~income~~ on ~~this note~~the revolving line of credit was not significant for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013.~~

2014.

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.

Other(~~All Registrants except~~ PPL Electric, LG&E and ~~LKE)~~

KU)

See Note 9 for discussions regarding intercompany allocations associated with defined benefits.

12. Other Income (Expense) - net

~~(All Registrants)~~

(PPL)

The components of "Other Income (Expense) - net" for the periods ended ~~June 30 was:~~

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

~~"Other Income (Expense) - net" for the three and six months ended June 30, 2014 and 2013 for PPL Energy Supply is primarily the earnings on securities in NDT funds.~~ March 31 were:

		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)

(All Registrants except PPL)

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 ~~are~~were not significant.

13. Fair Value Measurements and Credit Concentration

(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. Transfers~~basis.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 ~~2013~~2014 Form 10-K for information on the levels in the fair value hierarchy.

Recurring Fair Value Measurements

The assets and liabilities measured at fair value were:

				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

			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.

(b)

Included in "Other investments" 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.

(d)

Included in "Other noncurrent assets" on the Balance Sheets. Represents cash collateral posted to offset the exposure with counterparties related to certain interest rate swaps under master netting arrangements that are not offset.

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)

"Energy Commodities, net" and "Cross-Currency Swaps" are included in "Qualifying derivatives" and "Auction Rate Securities" are included in "Available-for-sale securities" on the Statements of Comprehensive Income.

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

~~(a)~~

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:

~~June 30, 2014~~March 31, 2015

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~~

~~14% - 100% (35%)~~

~~Power sales contracts (c)~~

~~(63)~~

~~Discounted cash flow~~

~~Proprietary model used to calculate forward prices~~

~~14% - 100% (79%)~~

~~FTR purchase contracts (d)~~

~~Discounted cash flow~~

~~Historical settled prices used to model forward prices~~

~~100% (100%)~~

~~Heat rate options (e)~~

~~124~~

~~Discounted cash flow~~

~~Proprietary model used to calculate forward prices~~

~~22% - 100% (44%)~~

~~Auction rate securities (f)~~

~~Discounted cash flow~~

~~Modeled from SIFMA Index~~

~~58% - 75% (67%)~~

~~PPL Energy Supply~~

Energy commodities

Natural gas contracts (b)

7 49

Discounted cash flow

Proprietary model used to calculate forward prices

~~14%~~11% - 100% ~~(35%~~(43%)

Power sales contracts (c)

~~(63)~~1

Discounted cash flow

Proprietary model used to calculate forward prices

~~14%~~10% - 100% ~~(79%)~~

~~FTR purchase contracts (d)~~

~~Discounted cash flow~~

~~Historical settled prices used to model forward prices~~

~~100% (100%~~(82%)

Heat rate options (e)

~~124~~ 79

Discounted cash flow

Proprietary model used to calculate forward prices

22% - ~~100% (44%~~44% (40%)

Auction rate securities (f)

~~Discounted cash flow~~

~~Modeled from SIFMA Index~~

~~59% - 75% (68%)~~

~~December 31, 2013~~

~~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~~

~~10% - 100% (86%)~~

~~Power sales contracts (c)~~

~~(12)~~

~~Discounted cash flow~~

~~Proprietary model used to calculate forward prices~~

~~100% - 100% (100%)~~

~~Auction rate securities (f)~~

19 10

Discounted cash flow

Modeled from SIFMA Index

~~10%~~41% - ~~80% (63%~~69% (53%)

December 31, 2014

Fair Value, net

Range

Asset

Valuation

Unobservable

(Weighted

(Liability)

Technique

Input(s)

Average) (a)

PPL ~~Energy Supply~~

Energy commodities

Natural gas contracts (b)

36 59

Discounted cash flow

Proprietary model used to calculate forward prices

~~10%~~11% - 100% ~~(86%~~(52%)

Power sales contracts (c)

~~(12)~~(1)

Discounted cash flow

Proprietary model used to calculate forward prices

~~100%~~10% - 100% (59%)

FTR purchase contracts (d)

Discounted cash flow

Historical settled prices used to model forward prices

100% (100%)

Heat rate options (e)

Discounted cash flow

Proprietary model used to calculate forward prices

23% - 51% (45%)

Auction rate securities (f)

16 10

Discounted cash flow

Modeled from SIFMA Index

~~10%~~44% - ~~80%~~69% (63%)

Cross-currency swaps (g)

Discounted cash flow

Credit valuation adjustment

15% (15%)

(a)

For energy commodities and auction rate securities, the range and weighted average represent the percentage of fair value derived from the unobservable inputs. For cross-currency swaps, the range and weighted average represent the percentage change in fair value due to the unobservable inputs used in the model to calculate the credit valuation adjustment.

(b)

As the forward price of natural gas increases/(decreases), the fair value of purchase contracts increases/(decreases). As the forward price of natural gas increases/(decreases), the fair value of sales contracts (decreases)/increases.

(c)

As forward market prices increase/(decrease), the fair value of contracts (decreases)/increases. As volumetric assumptions for contracts in a gain position increase/(decrease), the fair value of contracts increases/(decreases). As volumetric assumptions for contracts in a loss position increase/(decrease), the fair value of the contracts (decreases)/increases.

(d)

As the forward implied spread increases/(decreases), the fair value of the contracts increases/(decreases).

(e)

The proprietary model used to calculate fair value incorporates market heat rates, correlations and volatilities. As the market implied heat rate increases/(decreases), the fair value of the contracts increases/(decreases).

(f)

The model used to calculate fair value incorporates an assumption that the auctions will continue to fail. As the modeled forward rates of the SIFMA Index increase/(decrease), the fair value of the securities increases/(decreases).

(g)

The credit valuation adjustment incorporates projected probabilities of default and estimated recovery rates. As the credit valuation adjustment increases/(decreases), the fair value of the swaps (decreases)/increases.

Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the ~~periods~~three 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(~~PPL and PPL Energy Supply)~~PPL)

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.

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 ~~2013~~2015 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.

contracts.

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

contracts. An income approach is used to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., LIBOR and government security rates) and forward foreign currency exchange rates (e.g., GBP), as well as inputs that may not be observable, such as credit valuation adjustments. In certain cases, market information cannot practicably be obtained to value credit risk and therefore internal models are relied upon. These models use projected probabilities of default and estimated recovery rates based on historical observances. When the credit valuation adjustment is significant to the overall valuation, the contracts are classified as Level 3. For PPL, the primary reason for the transfers between Level 2 and Level 3 during ~~2014~~2015 and ~~2013~~2014 was the change in the significance of the credit valuation adjustment. Cross-currency swaps are valued by PPL's Treasury ~~department, which reports to the CFO.~~department. Accounting personnel ~~who also report to the CFO,~~ interpret analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.

~~(PPL and PPL Energy Supply)~~

(PPL)

NDT Funds

The market approach is used to measure the fair value of equity securities held in ~~the NDT~~theNDT 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

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.

Nonrecurring Fair Value Measurements(PPL)~~(PPL and PPL Energy Supply)~~

The following nonrecurring fair value measurement occurred during the ~~six~~three 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.

(b)

The loss on the Kerr Dam Project was recorded in the Supply segment and included in ~~"Other operation and maintenance"~~"Income (Loss) from Discontinued Operations (net of income taxes)" on ~~PPL's and PPL Energy Supply's~~the 2014 Statement of Income.

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

Discounted cash flow

Proprietary model used to calculate plant value

38% (38%)

~~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)~~

~~PPL and PPL Energy Supply~~

~~Kerr Dam Project~~

~~March 31, 2014~~

~~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

~~As disclosed in Note 11 in PPL's and PPL Energy Supply's 2013 Form 10-K,~~

PPL Montana ~~holds~~previously 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 Montana~~for 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 Kerr Dam Project was included in the sale of the Montana Hydroelectric facilities and the assets were removed from the Balance Sheet. See Note 8 for additional information.

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.

Financial Instruments Not Recorded at Fair Value(All Registrants)

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 are~~Long-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

~~(a)~~

~~Included in "Other current liabilities" on the Balance Sheets.~~

	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.

Credit Concentration Associated with Financial Instruments

(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 and PPL Energy Supply)~~

(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's~~PPL'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. ~~Seven~~Eight 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)

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.

(LKE, LG&E and KU)

At ~~June 30, 2014,~~March 31, 2015, LKE's, LG&E's and KU's credit exposure was not significant.

14. Derivative Instruments and Hedging Activities

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/or~~and 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

~~PPL~~LKE

LG&E

~~PPL~~

~~Energy Supply~~

~~Electric~~

~~LKE~~

~~LG&E~~

~~Commodity price risk (including basis and~~

Commodity price risk (including basis and volumetric risk)

Interest rate risk:

Debt issuances

Defined benefit plans

NDT securities

Equity securities price risk:

Defined benefit plans

NDT securities

Future stock transactions

Foreign currency risk - WPD investment and

earnings

= PPL ~~and PPL Energy Supply~~ actively ~~mitigate~~mitigates market risks through ~~their~~its risk management programs described above.

= 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. ~~Volumetric~~WPD is exposed to volumetric risk which is significantly mitigated ~~at WPD~~ as a result of the method of regulation in the U.K.

PPL ~~Energy Supply~~ is exposed to commodity price risk for energy and energy-related products associated with the sale of electricity from its generating assets and other electricity and gas marketing activities and the purchase of fuel and fuel-related commodities for generating assets, as well as for proprietary trading activities.

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 ~~gas supply~~ and environmental expenses. In addition, LG&E's rates include certain mechanisms for gas supply. These mechanisms generally provide for timely recovery of market price and volumetric fluctuations associated with these expenses.

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. ~~This risk for PPL Electric, LG&E and KU is significantly mitigated due to recovery mechanisms in place.~~

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 ~~Energy Supply~~ is exposed to interest rate risk associated with debt securities held by the NDT.

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 ~~and PPL Energy Supply are~~is exposed to equity securities price risk in the NDT funds.

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 inof U.K. affiliates.

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.

The majority of ~~PPL and PPL Energy Supply's~~PPL'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, 2014~~March 31, 2015 and December 31, ~~2013.~~

2014.

PPL Electric, LKE and LG&E had no obligation to return cash collateral under master netting arrangements at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013.~~

2014.

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, LKE~~March 31, 2015 and ~~LG&E had posted $22 million of cash collateral under master netting arrangements at~~ December 31, ~~2013.~~

~~PPL Energy Supply posted an insignificant amount of cash collateral under master netting arrangements at June 30, 2014 and did not post any cash collateral at December 31, 2013.~~ 2014.

PPL Electric and KU did not post any cash collateral under master netting arrangements at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013.~~

2014.

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.

~~(PPL and PPL Energy Supply)~~

(PPL)

Commodity Price Risk (Non-trading)

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 ~~maintain~~maintains in ~~their~~its competitive generation assets, as well as the extent of ~~their~~its marketing activities. Several factors influence price levels and volatilities. These factors include, but are not

limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation/transmission availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations.

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 ~~7,369~~6,496 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 ~~3,309~~3,252 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.

~~PPL and~~

PPL Energy Supply ~~enter~~enters 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 their~~segregates 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. ~~There~~In 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. There~~occurring.There were no such reclassifications for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~2013.~~

~~For the three and six months ended June 30, 2014 and 2013, hedge ineffectiveness associated with energy derivatives was insignificant.~~

2014.

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, 2014~~March 31, 2015 range in maturity through ~~2019.~~

2020.

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 30~~March 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

Commodity Price Risk (Trading)

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 million~~insignificant for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 and ~~were insignificant for the same periods in 2013.~~

2014.

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

		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.

(b)

Represents balance of the current year.

Interest Rate Risk

(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, outstanding~~March 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 domestic~~2045. 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 had~~expense is recorded.

At March 31, 2015, PPL held an aggregate notional value ~~of $475 million at June 30, 2014.~~

~~At June 30, 2014, PPL held a notional position~~ in cross-currency interest rate ~~swaps totaling~~swap contracts of $1.3 billion that range in maturity from 2016 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.

For the three months ended ~~June 30, 2014,~~March 31, 2015, PPL had no hedge ineffectiveness associated with interest rate ~~derivatives. There were~~derivatives and an insignificant ~~amounts of hedge ineffectiveness associated with interest rate derivatives~~amount for the ~~six~~three months ended ~~June 30, 2014 and three and six months ended June 30, 2013.~~

March 31, 2014.

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, PPL~~occurring.PPL had ~~an insignificant amount reclassified associated with discontinued cash flow hedges. There were~~ no such reclassifications for the three months ended ~~June 30, 2014~~March 31, 2015 associated with discontinued cash flow hedges and an insignificant amount reclassified for the three ~~and six~~ months ended ~~June 30, 2013.~~

March 31, 2014.

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 ~~payments~~expense is recorded.

(LKE, LG&E and KU)

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.

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 ~~when~~at 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.

Foreign Currency Risk

(PPL)

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, 2014~~March 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 2014~~May 2015 through June 2016.

Additionally, a PPL Global subsidiary that has a U.S. dollar functional currency entered into GBP intercompany loans payable with PPL WEM subsidiaries that have GBP functional currency. The loans qualify as a net investment hedge for the PPL Global subsidiary. As such, the foreign currency gains and losses on the intercompany loans for the PPL Global subsidiary are recorded to the foreign currency translation adjustment component of OCI.

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.

~~At June 30, 2014,~~March 31, 2015, PPL had ~~$(16)~~$24 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI, compared to ~~an insignificant amount~~$14 million at December 31, ~~2013.~~

2014.

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 2014~~April 2015 through ~~December 2016.~~

March 2017.

Accounting and Reporting

(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

changes in fair values of LG&E's and KU's interest rate swaps that are recognized as regulatory ~~assets.~~assets or regulatory liabilities. See Note 6 for amounts recorded in regulatory assets and regulatory liabilities at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013. PPL and~~2014. PPL Energy Supply ~~have~~has many physical and financial commodity purchases and sales contracts that economically hedge commodity price risk but do not receive hedge accounting treatment. As such, realized and unrealized gains (losses) on these contracts are recorded currently in earnings. Generally each contract is considered a unit of account and PPL ~~and PPL Energy Supply present~~presents gains (losses) on physical and financial commodity sales contracts in "Unregulated wholesale energy" or "Unregulated retail energy" and (gains) losses on physical and financial commodity purchase contracts in "Fuel" or "Energy purchases" on the Statements of Income. Certain of the economic hedging strategies employed by PPL Energy Supply utilize a combination of financial purchases and sales contracts which are similarly reported gross as an expense and revenue, respectively, on ~~the~~PPL's Statements of Income. PPL ~~Energy Supply~~ records realized hourly net sales or purchases of physical power with PJM in its Statements of Income as "Unregulated wholesale energy" if in a net sales position and "Energy purchases" if in a net purchase position.

See Notes 1 and 1917 in each Registrant's ~~2013~~2014 Form 10-K for additional information on accounting policies related to derivative instruments.

(PPL)

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.

(b)

Excludes accrued interest, if applicable.

The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the ~~periods~~three months ended ~~June 30, 2014.~~

March 31.

									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)

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)

(a)

~~The six-month period ended June 30,~~ 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold ~~weather experienced in the first quarter of 2014.~~weather.

(b)

~~The six-month period ended June 30,~~ 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold ~~weather experienced in the first quarter of 2014.~~weather.

~~The following tables present the pre-tax effect of derivative instruments recognized in income, OCI, or regulatory assets and regulatory liabilities for the periods ended June 30, 2013.~~

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

~~(PPL Energy Supply)~~

(LKE)

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

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

122

(a)

Represents the location on the Balance Sheets.

~~The following tables present the pre-tax effect of derivative instruments recognized in income or OCI for the periods ended June 30, 2014.~~

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)

~~(a)~~

The six-month period ended June 30, 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather experienced in the first quarter of 2014.

~~(b)~~

The six-month period ended June 30, 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather experienced in the first quarter of 2014.

~~The following tables present the pre-tax effect of derivative instruments recognized in income or OCI for the periods ended June 30, 2013.~~

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

~~(LKE)~~

The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory ~~liabilities~~assets for the ~~periods~~three months ended ~~June 30, 2013.~~

Derivative Instruments Location of Gain (Loss) Three Months Six Months

Interest rate swaps Regulatory liabilities - noncurrent $ 48 $ 58

March 31.

	Location of Gain (Loss) Recognized in
Derivative Instruments	Regulatory Assets	2015		2014

Interest rate swaps	Regulatory assets - noncurrent	$	(56)

(LG&E)

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

(a)

Represents the location on the Balance Sheets.

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)

(KU)

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

(a)

Represents the location on the Balance Sheets.

Derivative Instruments Location of Gain (Loss) Three Months Six Months

Interest rate swaps Regulatory liabilities - noncurrent $ 24 $ 29

March 31.

	Location of Gain (Loss) Recognized in
Derivative Instruments	Regulatory Assets	2015		2014

Interest rate swaps	Regulatory assets - noncurrent	$	(28)

(LKE and LG&E)

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 instruments~~cash flow hedges that are recognized in income or regulatory assets for the ~~periods~~three 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)

~~The following tables present the pre-tax effect of derivatives not designated as hedging instruments recognized in income or regulatory assets for the periods ended June 30, 2013.~~

March 31.

	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)

(All Registrants except PPL Electric)

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

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

Credit Risk-Related Contingent Features

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, ~~obligation~~LKE'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

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)~~

(a)

Includes the effect of net receivables and payables already recorded on the Balance Sheet.

~~(b)~~

~~During the second quarter of 2014,~~ (b)

PPL Energy ~~Supply experienced a downgrade in its corporate~~Supply's credit ~~ratings to~~rating is currently below investment grade. Amounts related to PPL Energy Supply represent net liability positions subject to further adequate assurance features.

15. Goodwill

(PPL)

The change in the carrying amount of goodwill for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 was due to the effect of foreign currency exchange rates on the U.K. Regulated segment.

16.  Asset Retirement Obligations

(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

16. Asset Retirement Obligations

(All Registrants except PPL Electric)

The changes in the carrying amounts of AROs were as follows.


		PPL		LKE		LG&E		KU

Balance at December 31, 2014		$	761	$	285	$	74	$	211
	Accretion		12		3		1		2
	Effect of foreign currency exchange rates		(1)
	Obligations settled		(1)		(1)		(1)
Balance at March 31, 2015		$	771	$	287	$	74	$	213

Substantially all of the ARO balances are classified as noncurrent at ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013.~~

~~(PPL and PPL Energy Supply)~~

~~The~~2014.

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)

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.~~

the assets in the NDT funds that are legally restricted for the purposes of settling this ARO.

(All Registrants except PPL ~~LKE, LG&E and KU)~~

Electric)

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.

17. Available-for-Sale Securities

~~(PPL and PPL Energy Supply)~~

(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

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, 2014~~March 31, 2015 and December 31, ~~2013.~~

2014.

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

March 31, 2015.

	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

March 31.

	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.

18. Accumulated Other Comprehensive Income (Loss)

~~(PPL and PPL Energy Supply)~~

(PPL)

The after-tax changes in AOCI by component for the ~~periods~~three months ended ~~June 30~~March 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)

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 ~~periods~~three 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)

19. New Accounting Guidance Pending Adoption

(All Registrants)

~~Reporting of Discontinued Operations~~

In April 2014, the Financial Accounting Standards Board (FASB) issued accounting guidance that changes the criteria for determining what should be classified as a discontinued operation and also changes the related presentation and disclosure requirements. A discontinued operation may include a component of an entity or a group of components of an entity, or a business activity.

A disposal of a component of an entity or a group of components of an entity is required to be reported 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 or group of components of an entity meets 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 (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 a distribution to owners in a spinoff).

For public business entities, this guidance should be applied prospectively to all disposals (or classifications as held for sale) of components of an entity that occur within the annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted.

91

The Registrants are assessing in which period they will adopt this new guidance. The new guidance will impact the amounts presented as discontinued operations on the Statements of Income and will enhance the related disclosure requirements.

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.

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.

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' ~~2013~~2014 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, ~~a summary of PPL's earnings,~~ a description of key factors expected to impact future earnings and a discussion of important financial and operational developments.

"Results of Operations" for PPL provides a ~~more~~ detailed analysis of earnings by segment, and for ~~the Subsidiary Registrants~~ PPL Electric, LKE, LG&E and KU,includes a summary of earnings. For all Registrants, "Margins" provides explanations of non-GAAP financial measures and "Statement of Income Analysis" addresses significant changes in principal line items on the Statements of Income, comparing the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 with the same ~~periods~~period in ~~2013.~~2014.

"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.

Overview

Introduction

(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.

~~(PPL and PPL Energy Supply)~~

~~(PPL Energy Supply)~~

Beginning in the first quarter of 2015, PPL Energy Supply ~~headquartered~~is filing a separate Form 10-Q.

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.~~

as follows.

(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

Kentucky under their respective names. KU also serves customers in Virginia under the Old Dominion Power name and in Tennessee under the KU name.

(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.

(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.

Business Strategy

~~(PPL and PPL Energy Supply)~~

In recognition of the dramatic changes in the wholesale power markets, PPL performed an in-depth analysis of its business mix to determine the best available opportunities to maximize the value of its competitive generation business for shareowners. As a result, 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 producer named Talen Energy. Under the terms of the agreements, at closing, PPL will spin off PPL Energy Supply to PPL shareowners and simultaneously combine that business with RJS Power. Upon closing, 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 and PPL's shareowners will receive a number of Talen Energy shares at closing based on the number of PPL shares owned as of 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. Talen Energy will own and operate a diverse mix of approximately 14,000 MW (after proposed divestitures to meet FERC market power tests) of generating capacity in certain U.S. competitive energy markets primarily in PJM and ERCOT.

Following the transaction, PPL will focus solely on its regulated utilities businesses in the U.K., Kentucky and Pennsylvania, serving more than 10 million customers. PPL intends to maintain a strong balance sheet and to manage its finances consistent with maintaining investment grade credit ratings and providing a competitive total shareowner return, including an attractive dividend. In connection with the transaction, and following any required transition services period, PPL is targeting to reduce its annual corporate support costs by an estimated $185 million. This includes $110 million of corporate support costs to be transferred to Talen Energy and $75 million from workforce reduction and other corporate cost savings.

See "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" and "Part II. Other Information - Item 1A. Risk Factors" 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.

(All ~~Registrants except PPL Energy Supply)~~

Registrants)

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.

These regulated businesses also focus on providing competitively priced energy to customers and achieving stable, long-term growth in earnings and rate base, or RAV, as applicable. Both rate base and RAV are expected to grow for the foreseeable future as a result of significant capital expenditure programs to maintain existing assets and to improve system reliability and, for LKE, LG&E and KU, to comply with federal and state environmental regulations related to coal-fired electricity generation facilities. ~~Future RAV for WPD will also be affected by RIIO-ED1,~~

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 period~~RAV, 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 service~~the U.S. regulated businesses). The RAV balance at March 31, 2015 will continue to be recovered over 20 years and additions after ~~that date~~April 1, 2023 will be ~~extended from 20 to~~recovered 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.

~~Recovery~~

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.

~~(PPL)~~

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.

~~(All Registrants)~~

To manage financing costs and access to credit markets, and to fund capital expenditures, a key objective of the Registrants is to maintain ~~targeted~~investment grade credit ~~profiles~~ratings 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)

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.

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.

Financial and Operational Developments

Earnings (PPL)

PPL's earnings by reportable segments for the periods ended ~~June 30~~March 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)

follows:

	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. ~~2014~~2015 includes certain costs related to the anticipated spinoff of PPL Energy Supply. See the following table of special items for additional information.

(b)

See ~~"2011 Equity Units" below and~~ Note 4 to the Financial Statements for information on the Equity Units' impact on the calculation of diluted EPS.

The following after-tax gains (losses), in total, which management considers special items, impacted ~~the~~PPL'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)

~~Includes $46 million~~As a result of ~~deferred income tax expense~~the anticipated spinoff of PPL Energy Supply, substantially representing PPL's Supply segment, management is now considering the operating results of the Supply segment to ~~adjust valuation allowances on deferred tax assets~~be a special item. See Note 8 to the Financial Statements for ~~state net operating loss carryforwards~~additional information.

(b)

Primarily includes external transaction and ~~$10 million, after-tax, of transactions~~transition costs related to the anticipated spinoff of PPL Energy Supply. See Note 8 to the Financial Statements for additional information.

~~The changes in PPL's reportable segments results~~

2015 Outlook

(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):~~

Decrease at the U.K. Regulated segment for the three-month period was primarily due to higher U.S. income taxes due to a 2013 favorable tax ruling and the adverse impact of weather on utility revenues, partially offset by higher utility revenues from the April 1, 2014 and 2013 price increases and lower pension expense. Increase for the six-month period was primarily due to higher utility revenues from the April 1, 2014 and 2013 price increases, lower pension expense and lower U.K. income taxes, partially offset by the adverse impact of weather on utility revenues, higher U.S. income taxes due to a 2013 favorable tax ruling, higher network maintenance and higher depreciation expense.

Increase at the Kentucky Regulated segment for the three-month period was primarily due to returns on additional environmental capital investments, partially offset by higher operation and maintenance expense. Increase for the six-month period was primarily due to returns on additional capital investments and higher sales volumes due to unusually cold weather in the first quarter of 2014, partially offset by higher operation and maintenance expense driven by storm-related expenses and timing of generation maintenance outages.

Increases at the Pennsylvania Regulated segment for the three and six-month periods were primarily due to higher transmission margins from returns on additional capital investments and the recovery of additional costs through FERC formula based rates, partially offset by higher interest expense. Increase for the six-month period also includes higher distribution margins primarily due to unusually cold weather in the first quarter of 2014, returns on additional distribution improvement capital investments and a benefit from a change in estimate of a regulatory liability.

Increases at the Supply segment for the three and six-month periods were primarily due to unrealized gains on certain commodity positions, higher Eastern margins from higher capacity prices, improved availability of baseload power plants and lower interest expense, partially offset by lower baseload energy prices. Earnings for the six-month period were also favorably impacted by net benefits from unusually cold weather in the first quarter of 2014, partially offset by lower western U.S. margins.

~~See "Results of Operations" below for further discussion of PPL's reportable segments and analysis of results of operations.~~

~~2014 Outlook~~

~~(PPL)~~

Supply segment.

Excluding special items, ~~lower~~including Supply segment earnings, higher earnings are expected in ~~2014~~2015 compared with ~~2013, primarily due~~2014, after adjusting 2014 to ~~lower energy margins~~include 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).

are provided for PPL's other segments and the Corporate and Other category and the related Registrants.

(PPL's U.K. Regulated Segment)

Excluding special items, higher earnings are projected in ~~2014~~2015 compared with ~~2013,~~2014, primarily driven by ~~higher electricity delivery revenue~~lower 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.~~

lower utility revenue as Western Power Distribution transitions to a new eight-year price control period (RIIO-ED1) effective April 1, 2015. The remaining 2015 foreign currency earnings exposure for this segment is 97 percent hedged.

(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 ~~2014~~2015 compared with ~~2013,~~2014, primarily driven by higher operation and

maintenance expense, higher depreciation, ~~and~~ higher financing costs ~~partially offset by returns on additional environmental capital investments and increased sales volumes.~~

~~(PPL's Pennsylvania Regulated Segment and PPL Electric)~~

~~Excluding special items, higher earnings are projected in 2014 compared with 2013, primarily driven by higher transmission margins, returns on distribution improvement capital investments~~ and a benefit ~~from~~recorded in the first quarter of 2014 for a change in estimate of a regulatory liability, partially offset by higher ~~financing costs~~transmission margins and ~~higher income taxes.~~

returns on distribution improvement capital investments.

(PPL's ~~Supply Segment~~Corporate and ~~PPL Energy Supply)~~

Other Category)

Excluding special items, lower ~~earnings~~costs are projected in ~~2014~~2015 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 weather~~reduction of those dissynergies in ~~the first quarter of 2014, lower financing costs~~2015 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' ~~2013~~2014 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

Other Financial and Operational Developments

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.

(~~PPL~~PPL)

Given current and ~~PPL Energy Supply)~~

In the fourth quarter of 2013, management tested the Brunner Island and Montour plants for impairment and concluded neither was impaired as of December 31, 2013. There were no events or changes in circumstances that indicated a recoverability test was required to be performed in 2014. The carrying value of the Pennsylvania coal-fired generation assets was $2.5 billion as of June 30, 2014 ($1.3 billion for Brunner Island and $1.2 billion for Montour).

~~As a result of current~~forecasted economic and market conditions, the announced transaction with affiliates of Riverstone to form Talen Energy, PPL Energy Supply's current sub-investment grade credit rating and Talen Energy's expected sub-investment grade credit rating, PPL Energy Supply ~~is reviewing~~will continue to monitor its business and operational ~~plans. This review includes~~plans, including capital and operation and maintenance expenditures, its hedging strategies and potential plant modifications to burn lower cost fuels. See "Margins - Changes in Non-GAAP Financial Measures - Unregulated Gross Energy Margins" below for additional information on energy margins. ~~Full-year 2014 energy margins are projected to be lower compared to 2013 due to a higher average hedge price in 2013, partially offset by higher pricing on unhedged generation.~~

(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

(~~PPL, PPL Energy Supply and PPL Electric)~~

Following the announcement of the transaction to form Talen Energy as discussed in "Business Strategy" above, efforts ~~have been~~were 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 employee~~2015. 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 recorded~~included in ~~future periods. The separation~~"Other current liabilities" on the Balance Sheets.

~~(PPL)~~

~~As a result~~in the range of ~~the spinoff announcement,~~ $30 million to $40 million.

and $70 million.

(~~PPL Energy Supply)~~

~~Montana Hydro Sale Agreement (PPL and PPL Energy Supply)~~

In September 2013, PPL Montana executed a definitive agreement to sell to NorthWestern 633 MW of hydroelectric generating facilities located in Montana for $900 million in cash, subject to certain adjustments. 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. The sale is not expected to close before the fourth quarter of 2014.

(~~PPL)~~

~~Ofgem Review of Line Loss Calculation~~

In March 2014, Ofgem issued its final decision on the methodology to be used by all network operators to calculate the final line loss incentives and penalties for the DPCR4, which ended in March 2010. As a result, in the first quarter of 2014 WPD recorded an increase of $65 million to its existing liability with a reduction to "Utility" revenues on the Statement of Income. 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. WPD's total recorded liability at June 30, 2014 was $106

~~million, all of which will be refunded to customers beginning~~segment.

RIIO-ED1

On April 1, 2015, ~~through March 31, 2019. See Note 6 to the Financial Statements for additional information.~~

~~RIIO-ED1 - Fast Trackin~~g

~~In February 2014, WPD elected to accept the decision of Ofgem to set the real cost of equity to be used during~~ the RIIO-ED1 eight-year price control period ~~at 6.4% compared to 6.7% proposed by WPD, and remain in the fast-track process. The change in the cost of equity is not expected to have a significant impact on the results of operations~~commenced for ~~PPL. Also, in~~WPD's four DNOs. In February 2014, Ofgem published formal confirmation that WPD's Business Plans submitted by its four DNOs ~~have been~~under RIIO-ED1 were accepted as submitted, or ~~"fast-tracked,~~"fast-tracked." ~~for the eight-year price control period starting April 1, 2015.~~ Fast tracking affords several benefits to the WPD DNOs including the ability to collect additional revenue equivalent to 2.5% of total annual ~~expenditure~~expenditures during the eight-year price control period, or approximately ~~$35~~$43 million annually, greater revenue certainty and a higher level of cost savings retention. ~~The deadline to challenge the fast tracking occurred in June 2014 and no third parties have filed objections.~~ See "Item 1. Business - Segment Information - U.K. Regulated Segment" of PPL's ~~2013~~2014 Form 10-K for additional information on RIIO-ED1.

~~Distribution Revenue Reduction~~

~~As discussed in PPL's 2013 Form 10-K, in December 2013, WPD and other U.K. DNOs announced agreements with the U.K. Department of Energy and Climate Change and Ofgem to~~

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 recovery~~review of the ~~revenue reduction, together with~~useful lives of its distribution network assets, WPD extended the ~~associated carrying cost, was~~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). It is expected to ~~occur during the regulatory year beginning April 1, 2015 for three~~result 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.

~~2011 Equity Units~~

In March 2014, PPL Capital Funding remarketed $978 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 with 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 3.184% of 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. In May 2014, PPL issued 31.7 million shares of common stock at $30.86 per share to settle the 2011 Purchase Contracts. PPL received net cash proceeds of $978 million, which were used to repay short-term debt and for general corporate purposes.

~~Kerr Dam Project Arbitration Decision and Impairment~~ ~~(PPL Energy Supply)~~

PPL Montana holds 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 Montana is $18 million. As a result of the decision, in the first quarter of 2014 PPL Energy Supply performed a recoverability test on the Kerr Dam Project and recorded an impairment charge of $18 million ($10 million after-tax) to reduce the carrying amount to its fair value, at that time, of $29 million. See Note 13 to the Financial Statements for additional information.

2015.

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 completed~~2014 and ~~modifications will also be implemented to reduce the likelihood of blade cracking, including the installation of~~installed 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 ~~June~~the 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~~

~~100~~

The financial impact of the Unit 2 ~~outage~~outages was not material. Based on the positive experience on Unit 1, the same short blade modifications are currently being installed on two of the three turbines on Unit 2 during the spring 2015 scheduled refueling outage. All remaining turbine blade modifications are scheduled to be performed during planned refueling and maintenance outages. Inspections will be performed over the next several maintenance cycles to validate the performance of the modifications and ensure that the problem has been corrected. PPL Susquehanna ~~will continue~~does not expect additional unscheduled turbine maintenance outages after these modifications are complete.

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 performance~~be reviewed and ~~work with~~approved by the ~~turbine manufacturer~~Joint 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 resolve~~a final determination of interest on the ~~issues causing~~refund, PPL expects to record a tax benefit in the ~~blade cracking.~~

~~Regional Transmission Expansion Plan~~range of $20 million to $30 million in the second quarter of 2015 related to the settlement of previously unrecognized tax benefits.

(PPL and PPL Electric)

Rate Case Proceedings

On ~~July~~March 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.

~~Storm Damage Expense Rider (SDER)~~ ~~(PPL Electric)~~

~~In its December 28, 2012 final rate case order, the PUC directed PPL Electric to file a proposed SDER. In March 2013,~~2015, PPL Electric filed ~~its proposed SDER~~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 ~~as part of that filing, requested recovery of the 2012 qualifying storm costs related~~is expected to ~~Hurricane Sandy. On April 3, 2014, the PUC issued a final order approving the SDER. The SDER will be~~become effective on January 1, ~~2015 and will initially include actual storm costs compared to collections from December 2013 through November 2014. As~~2016. PPL Electric's application includes a ~~result~~request for an authorized return-on-equity of ~~the order, PPL Electric reduced its regulatory liability by $12 million related to collections in excess~~10.95%. The application is based on a fully projected future test year of ~~costs incurred from~~ January 1, ~~2013 to November 30, 2013 that are not required to be refunded to customers. Also, as part of the order,~~2016 through December 31, 2016.

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 review~~requesting a waiver of the ~~April 2014 order with~~DSIC 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 6~~maximum 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.

(PPL, LKE and KU)

FERC Wholesale Formula Rates ~~(LKE and KU)~~

(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.

Results of Operations

(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, 2014~~March 31, 2015 with the same ~~periods~~period 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.

~~101~~

(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"

addresses significant changes in principal line items on the Statements of Income comparing the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 with the same ~~periods~~period in ~~2013.~~2014. "Earnings, Margins and Statement of Income Analysis" ~~are~~is 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.

PPL: Segment Earnings, Margins and Statement of Income Analysis

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 ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 and ~~34%~~33% of PPL's assets at ~~June 30, 2014.~~

March 31, 2015.

Net Income ~~Attributable to PPL Shareowners~~ for the periods ended ~~June 30~~March 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)

~~102~~

~~U.K.~~

		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 ~~for the three-month period~~ primarily due to ~~a $52~~$42 million ~~impact~~ from the April 1, 2014 ~~and 2013~~ price ~~increases,~~increase, partially offset by ~~$33~~$10 million of lower ~~volume due primarily to weather.~~volume.

	~~Higher utility revenues for the six-month period~~
	·	Lower depreciation expense primarily due to a ~~$120~~$20 million impact ~~from~~of an extension of the ~~April 1, 2014 and 2013 price increases, partially offset by $56 million of lower volume due primarily~~network asset lives. See Note 2 to ~~weather and $7 million from adverse customer mix.~~the Financial Statements for additional information.

·	Lower other operation and maintenance for the six-month period primarily due to $17 million of lower pension expense and $9 million of lower engineering management expense, partially offset by $16 million of higher network maintenance expense.

·	~~Higher depreciation expense for the three and six-month periods primarily due to PP&E additions.~~

·	~~Higher interest expense for the three and six-month periods primarily due to the October 2013 debt issuance.~~

~~U.S.~~

·	Higher income taxes for the three and six-month periods primarily due to a $19 million 2013 adjustment related to a ruling obtained from the IRS impacting the recalculation of 2010 U.K. earnings and profits.

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

March 31.

	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.

~~(a)~~

~~Represents unrealized gains (losses) on contracts that economically hedge anticipated earnings denominated in GBP.~~

(b)

In May 2013, the U.S. Supreme Court reversed the December 2011 ruling, by the U.S. Court of Appeals for the Third Circuit, concerning the creditability for income tax purposes of the U.K. Windfall Profits Tax. As a result of the U.S. Supreme Court ruling, PPL recorded an income tax benefit during the three and six months ended June 30, 2013. See Note 5 to the Financial Statements for additional information.

~~(c)~~

WPD Midlands recorded an adjustment to its line loss accrual in June 2013 based on information provided by Ofgem regarding the calculation of line loss incentive/penalty for all network operators related to DPCR4, a price control period that ended prior to PPL's acquisition of WPD Midlands. In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties ~~mechanism.~~ mechanism.As a result, WPD increased its existing liability by $65 million, pre-tax, for over-recovery of line losses. See Note 6 to the Financial Statements for additional information.

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 ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 and ~~25%~~27% of PPL's assets at ~~June 30, 2014.~~

March 31, 2015.

Net Income ~~Attributable to PPL Shareowners~~ for the periods ended ~~June 30~~March 31 includes the following results:

~~103~~

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 ~~lines~~line 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 other operation and maintenance for the three month period primarily due to $3 million of higher costs due to the timing and scope of scheduled generation maintenance outages and higher storm expenses of $3 million.

·	Higher other operation and maintenance for the six month period primarily due to $6 million of higher costs due to the timing and scope of scheduled generation maintenance outages and higher storm expenses of $9 million.

·	Higher depreciation expense ~~for the three and six month periods~~ primarily due to PP&E additions, net.

Lower interest expense for the three and six month periods primarily due to the remarketing of the PPL Capital Funding Junior Subordinated Notes component of the 2010 Equity Units and simultaneous exchange into Senior Notes in the second quarter of 2013 partially offset by increased expense due to the issuance of $500 million First Mortgage Bonds in November 2013.

·	Higher income taxes ~~for the three and six month periods primarily~~ due to higher pre-tax ~~income.~~income which increased income taxes by $4 million and the establishment of a valuation allowance on a deferred tax asset of $3 million.

~~The following after-tax gains (losses), which management considers special items, also impacted the Kentucky Regulated segment's results during the periods ended June 30.~~

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

~~(a)~~

~~Impact recorded at KU.~~

~~104~~

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 ~~six~~three months ended ~~June 30, 2014~~March 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

March 31, 2015.

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 ~~and~~on a ~~certain item that management considers special on~~ separate ~~lines~~line 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 ~~interest~~depreciation expense ~~for the three and six-month periods~~ primarily due to transmission PP&E additions, net as well as additions related to the ~~issuance~~ongoing efforts to ensure the reliability of ~~first mortgage bonds in July 2013.~~the delivery system and the replacement of aging infrastructure.

Higher income taxes ~~for the three and six-month periods~~ primarily due to higher pre-tax income.

~~The following after-tax gains (losses), which management considers a special item, also impacted the Pennsylvania Regulated segment's results during the periods ended June 30.~~

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)

~~(a)~~

In June 2014, PPL Electric's largest IBEW local ratified a new three-year labor agreement. In connection with the new agreement, estimated bargaining unit one-time voluntary retirement benefits were recorded. See Note 10 to the Financial Statements for additional information.

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 ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 and ~~25%~~22% of PPL's assets at ~~June 30, 2014.~~

~~105~~

March 31, 2015.

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 producer~~company 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)

	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 ~~special~~other 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 ~~for the three and six-month periods~~ primarily due to certain PPL Capital Funding debt no longer being associated with the ~~repayment~~Supply segment in 2015 and represents a dissynergy for PPL related to the spinoff of ~~debt in July and December 2013.~~PPL Energy Supply.

·	~~Higher income taxes for the three and six-month periods primarily due to higher pre-tax income.~~

The following after-tax gains (losses), ~~which management considers special~~reflected as "Other items, after-tax" in the table above, also impacted the Supply segment's results during the periods ended ~~June 30.~~

~~106~~

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)

March 31.

		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 ~~premiums of $2 million, $0, $4 million and $1 million.~~premiums.

(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)

~~In June 2014, PPL Energy Supply's largest IBEW local ratified a new three-year labor agreement. In connection with~~Operations were suspended and the ~~new agreement, estimated bargaining unit one-time voluntary retirement benefits were recorded. See Note 10 to the Financial Statements for additional information.~~Corette plant was retired in March 2015.

Margins

Non-GAAP Financial Measures

Management utilizes the following non-GAAP financial measures as indicators of performance for its businesses.

"Kentucky Gross Margins" is a single financial performance measure of the ~~Kentucky Regulated segment's, LKE's, LG&E's and KU's~~ electricity generation, transmission and distribution operations of the Kentucky Regulated segment, LKE, LG&E and KU, as well as the Kentucky Regulated segment's, LKE's and LG&E's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded as "Other operation and maintenance" on the Statements of Income) are deducted from revenues. In addition, certain other expenses, recorded as "Other operation and maintenance", "Depreciation" and ~~"Depreciation"~~"Taxes, other than income" on the Statements of Income, associated with approved cost recovery mechanisms are offset against the recovery of those expenses, which are included in revenues. These mechanisms allow for direct recovery of these expenses and, in some cases, returns on capital investments and performance incentives. As a result, this measure represents the net revenues from ~~the~~ electricity and gas operations.

"Pennsylvania Gross Delivery Margins" is a single financial performance measure of the ~~Pennsylvania Regulated segment's and PPL Electric's~~ electricity delivery operations of the Pennsylvania Regulated segment and PPL Electric, which includes transmission and distribution activities. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance," which is primarily Act 129 costs, and "Taxes, other than income," which is primarily gross receipts tax. This performance measure includes PLR energy purchases by PPL Electric from PPL EnergyPlus, which are reflected in "PLR intersegment utility revenue (expense)" in the reconciliation table below (in "Energy purchases from affiliate" in PPL Electric's reconciliation table). As a result, this measure represents the net revenues from the Pennsylvania Regulated segment's and PPL Electric's electricity delivery operations.

"Unregulated Gross Energy Margins" is a single financial performance measure of the Supply segment's ~~and PPL Energy Supply's~~ competitive energy activities, which are managed on a geographic basis. In calculating this measure, energy revenues, including operating revenues associated with certain businesses classified as discontinued operations, are offset by the cost of fuel, energy purchases, certain other operation and maintenance expenses, primarily ancillary charges, gross receipts tax, recorded in "Taxes, other than income," and operating expenses associated with certain businesses classified as discontinued operations. This performance measure is relevant due to the volatility in the individual revenue and expense lines on the Statements of Income that comprise "Unregulated Gross Energy Margins." This volatility stems from a number of factors, including the required netting of certain transactions with ISOs and significant fluctuations in unrealized gains and losses. Such factors could result in gains or losses being recorded in either "Unregulated wholesale ~~energy",~~energy," "Unregulated retail energy" or "Energy purchases" on the Statements of Income. This performance measure includes PLR revenues from energy sales to PPL Electric by PPL EnergyPlus, which are reflected in "PLR intersegment utility revenue (expense)" in the reconciliation table ~~below (in "Unregulated wholesale energy to affiliate" in PPL Energy Supply's reconciliation table).~~below. "Unregulated Gross Energy Margins" excludes adjusted energy-related economic activity, which includes the changes in fair value of positions used to economically hedge a portion of the economic value of the competitive generation assets, full-requirement sales contracts and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. Adjusted energy-related economic activity includes the ineffective portion of qualifying cash flow hedges and premium amortization associated with options. Unrealized gains and losses related to this activity are deferred and included in "Unregulated Gross Energy Margins" over the delivery period of the item that was hedged or upon realization.

~~107~~

delivery period that was hedged. Adjusted energy-related economic activity includes the ineffective portion of qualifying cash flow hedges and premium amortization associated with options. Unrealized gains and losses related to this activity are deferred and included in "Unregulated Gross Energy Margins" over the delivery period of the item that was hedged or upon realization.

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.~~

budget.

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

~~108~~

March 31.

				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 ~~periods~~three months ended ~~June 30~~March 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 ~~volumes~~demand 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 ~~volumes~~sales volume was primarily attributable to ~~favorable~~milder winter weather conditions in 2015 compared to 2014.

Kentucky Gross Margins increased for the six months ended June 30, 2014 compared with 2013 primarily due to returns on additional environmental capital investments of $27 million ($11 million at LG&E and $16 million at KU), higher volumes of $25 million ($7 million at LG&E and $18 million at KU), higher demand revenue of $9 million ($5 million at LG&E and $4 million at KU) and higher off-system sales at LG&E of $7 million. The changes in volumes and demand revenue were primarily attributable to unusually cold weather conditions in the first quarter of 2014.

Pennsylvania Gross Delivery Margins

Distribution

~~Margins increased for the six months ended June 30, 2014 compared with 2013~~

Distribution margins decreased primarily due to a $12 million benefit ~~from~~recorded 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~~

~~Margins increased for the three~~investments and ~~six months ended June 30, 2014 compared with 2013~~a $4 million impact of favorable weather.

Transmission

Transmission margins increased primarily due to increased ~~investment in plant and the recovery of additional costs through the FERC formula based rates.~~

~~109~~

capital investments.

Unregulated Gross Energy Margins

Eastern U.S.

Eastern margins ~~increased for the three months ended June 30, 2014 compared with 2013~~decreased primarily due to ~~favorable asset availability~~lower capacity prices of ~~$76~~$69 million, ~~unrealized gains~~unusually cold weather conditions in 2014 as discussed below of $38 million, net change on ~~certain~~ commodity positions of ~~$42~~$28 million and ~~higher capacity prices~~full-requirement sales contracts of ~~$27~~$22 million, partially offset by ~~lower~~higher baseload energy prices of ~~$109 million.~~

~~Eastern margins increased for the six months ended June 30, 2014 compared with 2013 primarily due to higher capacity prices of $101 million, unrealized gains on certain commodity positions of $60~~$75 million and favorable asset ~~availability~~performance of ~~$50 million, partially offset by lower baseload energy prices of $201~~$49 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 ~~offset~~by 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 for~~sale of the ~~six months ended June 30, 2014 compared with 2013.~~

~~Western U.S.~~

~~Western margins decreased for the six months ended June 30, 2014 compared with 2013 primarily due to lower availability of coal units.~~

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

Montana hydroelectric generating facilities in November 2014.

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 ~~three and six-month periods were impacted by~~increase was due to a price ~~increases~~increase effective April 1, ~~2014 and April 1, 2013.~~2014.

(d)

The ~~decrease for the three and six-month periods~~increase was ~~primarily~~ due to ~~the unusually cold weather in 2013.~~

~~(e)~~

The three and six-month periods were impacted by unfavorable accrual adjustments in 2013 based on Ofgem's consultation documents on the DPCR4 line loss incentives and penalties. The six-month period was also impacted by unfavorable accrual adjustments in 2014 based on Ofgem's final decision on ~~this matter in March 2014.~~the DPCR4 line loss incentives and penalties. See Note 6 to the Financial Statements for additional information.

Certain Operating Revenues and Expenses Included in "Margins"

The following Statement of Income line items and their related increase (decrease) during the ~~periods~~period ended ~~June 30, 2014~~March 31, 2015 compared with ~~2013~~2014 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)

(a)

~~The six-month period ended June 30,~~ 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather ~~experienced in the first quarter of 2014.~~

~~110~~

(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 ~~first quarter~~period ended March 31, 2015 compared with 2014 was due to:

		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 ~~2014.~~PPL Energy Supply		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 ~~for the three- and six-month periods~~ was primarily due to ~~refueling outage costs.~~costs related to the retirement of the Corette plant in March 2015.

(b)

The decrease ~~for the three-month period~~ was primarily due to ~~the elimination of rent expense associated with the Colstrip lease which was terminated in December 2013. The increase for the six-month period was due~~lower labor costs attributable to the Kerr Dam Project impairment of $18 million recorded in March 2014, partially offset by the elimination of rent expense associated with the Colstrip lease termination of $10 million. See Note 13 to the Financial Statements for additional information on the Kerr Dam Project impairment.restructuring activities.

~~(c)~~

Bargaining unit one-time voluntary retirement benefits were recorded as a result of the ratification of the IBEW Local 1600 three year labor agreement in June 2014. See Note 10 to the Financial Statements for additional information.

~~(d)~~

~~The increase for the three-and six-month periods was primarily due to vegetation management and fault repair due to increased 2014 storm activity.~~

Depreciation

Depreciation ~~increased~~decreased by ~~$26 million and $47~~$7 million for the three ~~and six~~ months ended ~~June 30, 2014~~March 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

~~(a)~~

The increase for the three- and six-month periods is primarily due to higher retail electric revenues. This tax is included in "Unregulated Gross Energy Margins" and "Pennsylvania Gross Delivery Margins."

See Note 2 to the Financial Statements for additional information on the extension of WPD network asset lives.

Other Income (Expense) - net

Other income (expense) - net ~~decreased~~increased by ~~$95 million and $240~~$118 million for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 compared with ~~2013,~~2014, primarily due to an increase of ~~$76 million and $219~~$112 million from realized and unrealized ~~losses~~gains 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.

~~111~~

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, ~~a $9 million loss was recorded related to~~ PPL Capital ~~Funding's remarketing~~Funding remarketed and ~~debt exchange of the~~exchanged junior subordinated notes that were originally issued in April 2011 as a component of ~~the~~PPL's 2011 Equity ~~Units~~Units.

Income Taxes

The increase (decrease) in income taxes for the period ended March 31, 2015 compared with ~~a $10 million loss recorded in May 2013 related to a similar transaction for the 2010 Equity Units.~~2014 was due to:

~~(b)~~

~~Primarily due to the Holtwood hydroelectric expansion project placed in service in November 2013.~~

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

~~(a)~~	~~As a result of the spinoff announcement, PPL recorded deferred~~	Three Months

Change in pre-tax income at current period tax rates		$	165
Valuation allowance adjustments			3
U.S. income tax ~~expense during the three and six months ended June 30, 2014 to adjust valuation allowances~~ on ~~deferred~~foreign earnings net of foreign tax ~~assets primarily for state net operating loss carryforwards that were previously supported by the future earnings~~credit			(12)
Intercompany interest on U.K. financing entities			(6)
Impact of ~~PPL Energy Supply.~~

~~(b)~~	~~In May 2013, the U.S. Supreme Court reversed the December 2011 ruling by the U.S. Court of Appeals for the Third Circuit, concerning the creditability, for~~lower U.K. income tax purposes, of the U.K. Windfall Profits Tax. As a result of this decision, PPL recorded a tax benefit of $44 million during the three and six months ended June 30, 2013. See Note 5 to the Financial Statements for additional information.rates		6
Other			(2)
Total		$	154

~~(c)~~

During the three and six months ended June 30, 2013, PPL recorded a tax benefit of $19 million associated with a ruling obtained from the IRS impacting the recalculation of 2010 U.K. earnings and profits.

See Note 5 to the Financial Statements for additional information.

~~PPL Energy Supply: Earnings, Margins and Statement~~

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)

~~Excluding special items, earnings~~(Loss) from Discontinued Operations (net of income taxes) for the three ~~and six-month periods~~months ended March 31, 2014 includes the results of operations of the Montana hydroelectric generating facilities, which were sold in 2014 compared with 2013 were higher, primarily due to unrealized gains on certain commodity positions, higher Eastern margins from higher capacity prices, favorable asset availability and lower interest expense, partially offset by lower baseload energy prices and higher income taxes. Earnings for the six-month period were also favorably impacted by net benefits from unusually cold weather in the first quarter of 2014, partially offset by lower western U.S. margins.

The table below quantifies the changes in the components of Net Income (Loss) Attributable to PPL Energy Supply Member between these periods, which reflect amounts classified as Unregulated Gross Energy Margins and certain items that management considers special on separate lines within the table and not in their respective Statement of Income line items.November 2014. See ~~PPL's "Results of~~"Discontinued Operations - ~~Segment Earnings - Supply Segment" for details of the special items.~~

~~112~~

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)

~~Margins~~

"Unregulated Gross Energy 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~~Montana Hydro Sale" in ~~this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended June 30.~~

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

~~(a)~~

~~Represents amounts excluded from Margins.~~

~~(b)~~

~~As reported on the Statements of Income.~~

~~(c)~~

~~113~~

~~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 periods ended June 30, 2014 compared with 2013 are included above within "Margins" and are not discussed separately.

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)

~~(a)~~

~~(b)~~

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

~~(a)~~

~~The increase for the three and six-month periods is primarily due to refueling outage costs.~~

~~(b)~~

The decrease for the three-month period is primarily due to the elimination of rent expense associated with the Colstrip lease which was terminated in December 2013. The increase for the six-month period is primarily due to the Kerr Dam Project impairment of $18 million, recorded in March 2014, partially offset by the elimination of rent expense associated with the Colstrip lease termination of $10 million. See Note 13 to the Financial Statements for additional information on the Kerr Dam Project impairment.

~~(c)~~

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)

~~(a)~~

~~The decrease was primarily due to the repayment of debt in July and December 2013.~~

~~(b)~~

~~The increase was primarily due to the Holtwood hydroelectric expansion project placed in service in November 2013.~~

~~See~~ Note 58 to the Financial Statements for additional information.

~~114~~

PPL Electric: Earnings, Margins and Statement of Income Analysis

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)

~~Excluding a special item, earnings~~

Earnings
	Three Months Ended
	March 31,
	2015		2014

Net Income	$	87	$	85

Earnings increased slightly for the three ~~and six-month periods~~month period in ~~2014~~2015 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 ~~interest~~depreciation expense. ~~Earnings for the six-month period in 2014 compared with 2013 also include higher distribution margins primarily due to unusually cold weather in the~~The first quarter of 2014 ~~returns on additional distribution improvement capital investments and a benefit~~also 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 ~~and~~on a ~~certain item that management considers special on~~ separate ~~lines within the table~~line 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.~~

March 31.

			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

~~115~~

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

(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"

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

~~(a)~~	~~Bargaining unit one-time voluntary retirement benefits were recorded as a result of~~	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 ~~ratification of the IBEW Local 1600 three year labor agreement in June 2014. See Note 10 to the Financial Statements for additional information.~~period ended March 31, 2015 compared with 2014 was due to:

	Three Months


Vegetation management	$	(2)
Storm costs		(10)
Act 129		5
Uncollectible accounts		3
Corporate service costs		3
Total	$	(1)

~~Interest Expense~~

~~Interest expense~~

Depreciation

Depreciation increased by ~~$4 million and $8~~$6 million for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 compared with ~~2013,~~2014, primarily due to ~~a debt issuance in July 2013.~~

~~Income Taxes~~

~~Income taxes increased by $7 million and $27 million for the three and six months ended June 30, 2014 compared with 2013, primarily due~~transmission PP&E additions, net as well as additions related to the ~~change in pre-tax income at current period tax rates.~~

ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure.

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 to~~5to the Financial Statements for additional information.

~~116~~

LKE: Earnings, Margins and Statement of Income Analysis

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

~~Excluding special items, earnings~~

Earnings
	Three Months Ended
	March 31,
	2015		2014

Net Income	$	117	$	115

Earnings increased slightly for the ~~three-month~~three month period in ~~2014~~2015 compared with ~~2013~~2014 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 ~~operation~~depreciation expense and ~~maintenance expense driven by storm-related expenses and timing of generation maintenance outages.~~higher income tax expense. The ~~changes~~change in ~~volumes and demand revenue were~~sales volume was primarily ~~due~~attributable to ~~unusually cold~~milder winter weather conditions ~~during the first quarter of~~in 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 ~~lines~~line 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.~~

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."

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

~~117~~

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

March 31.

			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 ~~periods~~period ended ~~June 30, 2014~~March 31, 2015 compared with ~~2013~~2014 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, 2014~~March 31, 2015 compared with ~~2013~~2014 primarily due to additions to PP&E, net.

~~Interest Expense~~

~~Interest expense~~

Income Taxes

Income taxes increased by ~~$5 million and $10~~$7 million for the three ~~and six~~ months ended ~~June 30, 2014~~March 31, 2015 compared with ~~2013 primarily due to the issuance of $500 million First Mortgage Bonds in November 2013.~~

~~Income Taxes~~

~~Income taxes increased by $4 million and $16 million for the three and six months ended June 30,~~ 2014 ~~compared with 2013 primarily~~ due to the change in pre-tax income ~~at current period~~of $4 million and the establishment of a valuation allowance on a deferred tax ~~rates.~~asset of $3 million.

~~118~~

LG&E: Earnings, Margins and Statement of Income Analysis

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-month~~three month period in ~~2014~~2015 compared with ~~2013~~2014 primarily due to returns ~~from~~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 from additional environmental capital investments, higher sales volume, higher demand revenue and higher off-system sales partially offset by ~~increased operation~~lower sales volume and ~~maintenance expense driven by storm-related expenses.~~higher depreciation expense. The ~~changes~~change in ~~volumes and demand revenue were~~sales volume was primarily attributable to ~~unusually cold~~milder winter weather conditions ~~during the first quarter of~~in 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."

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

~~119~~

March 31.

			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"

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

~~Other Operation and Maintenance~~

~~Other operation and maintenance expense increased by $7 million for the six months ended June 30, 2014 compared with 2013 primarily due to storm expenses.~~

	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, 2014~~March 31, 2015 compared with ~~2013~~2014 primarily due to additions to PP&E, net.

~~Interest Expense~~

Interest expense increased by $2 million and $4 million for the three and six months ended June 30, 2014 compared with 2013 primarily due to the issuance of $250 million First Mortgage Bonds in November 2013.

~~Income Taxes~~

~~Income taxes increased by $4 million and $9 million for the three and six months ended June 30, 2014 compared with 2013 primarily due to the change in pre-tax income at current period tax rates.~~

KU: Earnings, Margins and Statement of Income Analysis

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

~~Excluding a special item, earnings~~

Earnings
	Three Months Ended
	March 31,
	2015		2014

Net Income	$	78	$	77

Earnings increased slightly for the ~~three-month~~three month period in ~~2014~~2015 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 operation~~lower sales volume, higher expenses related to scheduled maintenance outages and ~~maintenance expense driven by the timing of generation maintenance outages.~~higher depreciation expense. The ~~changes~~change in ~~volumes and demand revenue were~~sales volume was primarily attributable to ~~unusually cold~~milder winter weather conditions ~~during the first quarter of~~in 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~~on a ~~certain item that management considers special on~~ separate ~~lines~~line within the table and not in their respective Statement of Income line items.

~~120~~

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."

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

March 31.

			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"

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

~~121~~

~~Interest Expense~~

Interest expense increased by $3 million and $5 million for the three and six months ended June 30, 2014 compared with 2013 primarily due to the issuance of $250 million First Mortgage Bonds in November 2013.

~~Income Taxes~~

~~Income taxes increased by $7 million for the six months ended June 30, 2014 compared with 2013 primarily due to the change in pre-tax income at current period tax rates.~~

	~~Financial Condition~~Three Months

Retail and wholesale	$	10
Electric revenue from affiliate		3
Fuel		10
Energy purchases		2
Energy purchases from affiliate		15

Other Operation and Maintenance

The ~~remainder of this Item 2~~increase (decrease) in ~~this Form 10-Q is presented on a combined basis, providing information, as applicable,~~other operation and maintenance expense for ~~all Registrants.~~the period ended March 31, 2015 compared with 2014 was due to:

	Three Months

Timing and scope of generation maintenance	$	2
Pension		3
Storm expenses		(2)
Other		3
Total	$	6

Liquidity and Capital Resources

(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.

Financial Condition

The remainder of this Item 2 in this Form 10-Q is presented on a combined basis, providing information, as applicable, for all Registrants.

Liquidity and Capital Resources

(All Registrants)

The Registrants had the following at:

	PPL (a)		PPL Electric		LKE		LG&E		KU
March 31, 2015
Cash and cash equivalents	$	1,335	$	35	$	40	$	17	$	23
Short-term investments		135
Short-term debt		1,595		85		484		216		193
Notes payable with affiliates						40

December 31, 2014
Cash and cash equivalents	$	1,751	$	214	$	21	$	10	$	11
Short-term investments		120
Short-term debt		1,466				575		264		236
Notes payable with affiliates						41

(a)

At ~~June 30, 2014, $462~~March 31, 2015, $416 million of cash and cash equivalents were denominated in GBP. If these amounts would be remitted as dividends, PPL ~~may be subject to additional~~would not anticipate a material incremental U.S. ~~taxes, net of allowable foreign income~~ tax ~~credits.~~cost. Historically, dividends paid by foreign subsidiaries have been limited to distributions of the current year's earnings. See Note 5 to the Financial Statements in PPL's ~~2013~~2014 Form 10-K for additional information on undistributed earnings of WPD.

Net cash provided by (used in) operating, investing and financing activities for the ~~six-month periods~~three 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

~~122~~

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 ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 compared with ~~2013~~2014 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 changes~~used 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.~~

~~(PPL Energy Supply)~~

~~The~~$141 million increase in cash from changes in components of working capital was primarily due to a decrease in prepayments (primarily due to higher federal income tax payments in 2013) and a reduction in collateral returned to counterparties, partially offsetprovided by ~~an increase in net cash paid related to power options. The change in cash from other~~ operating activities ~~was partially due to cash payments made~~ in ~~2013 on PPL Montana's operating lease arrangement related to partial interests in Units 1, 2 and 3 of the Colstrip coal-fired electric generating facility that was terminated in December 2013.~~2015 compared with 2014.

102

~~(PPL Electric)~~

~~The decrease in non-cash components of net income primarily consisted of deferred income tax benefits.~~

~~(LKE)~~

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 net~~cash 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 changes~~provided 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.

~~(LG&E)~~

LG&E's increase in cash from changes in components of working capital was driven primarily by the change in accounts receivable and unbilled revenues due to weather and higher rates, offset by a decrease in accounts payable due to timing of fuel purchases.

~~(KU)~~

~~KU's non-cash components of net income included a $17 million increase in deferred income taxes primarily due to utilization of net operating losses.~~

~~123~~

2015 compared with 2014.

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 ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 compared with ~~2013~~2014 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 ~~decrease~~increase in expenditures atfor PPL ~~Energy Supply~~Electric was ~~partially~~primarily due to ~~expenditures made~~increases in ~~2013~~expenditures for the ~~Holtwood hydroelectric expansion~~Northeast 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 ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 compared with ~~2013~~2014 reflects ~~increases~~decreases of ~~$234~~$324 million in additional cash restricted ~~cash and cash equivalents. These changes were primarily related to increased cash~~for 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.~~

~~For PPL Electric, the change in investing activities~~program. This was primarily due to ~~cash~~an increase in forward prices in the three months ended March 31, 2014.

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.~~

affiliates.

Financing Activities

(All Registrants)

The components of the change in cash provided by (used in) financing activities for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 compared with ~~2013~~2014 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 Other~~three months ended March 31, 2015, PPL required $489 million less cash from financing activities ~~for~~primarily due to lower cash requirements to support PPL Energy Supply's commodity hedging program and the ~~six~~ability 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, ~~compared~~PPL Electric financed its capital expenditures program with ~~2013 was due to~~proceeds from a ~~$47~~$150 million ~~borrowing in 2013 included in notes payable~~note with ~~affiliates.~~

an affiliate. In the first quarter of 2015, PPL Electric financed its capital expenditures program with cash-on-hand and additional short-term debt.

See Note 7 to the Financial Statements in this Form 10-Q for information on ~~2014~~2015 short and long-term debt activity, equity transactions and PPL dividends. See the Registrants' ~~2013~~2014 Form 10-K for information on ~~2013~~2014 activity.

~~124~~

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.~~

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 - ~~10%, PPL Energy Supply - 10%~~7%, PPL Electric - 6%7%, LKE - ~~12%~~21%, LG&E - 6%7% and KU - ~~22%~~37%.

(b)

The ~~amount~~amounts borrowed at ~~June 30, 2014 was a~~March 31, 2015 were USD-denominated ~~borrowing~~borrowings of ~~$164~~$200 million and GPB-denominated borrowings which equated to $226 million. At ~~June 30, 2014,~~March 31, 2015, the USD equivalent of unused capacity under the U.K. committed credit facilities was ~~$1.6~~$1.2 billion.

The commitments under the U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than ~~13%~~14% of the total committed capacity.

As a result of the proposed spinoff transaction, PPL Energy Supply ~~is in the process of syndicating~~has 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.

During the second quarter of 2014, PPL Energy Supply's corporate credit rating was lowered to below investment grade. At June 30, 2014, the additional collateral posted as a result of the downgrade was $176 million. PPL Energy Supply primarily issued letters of credit under its credit facilities noted above to post the required collateral. PPL Energy Supply continues to have adequate access to the capital markets and adequate capacity under its credit facilities and does not expect a material change in its financing costs as a result of the downgrade.

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

(LKE, LG&E and KU)

	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.

~~125~~

Commercial Paper(All Registrants)

~~PPL Energy Supply,~~

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.

~~Outstanding~~ The following commercial paper ~~issuances are reflected~~programs were in ~~"Short-term debt" on the Balance Sheets. At June 30, 2014, the available capacity and the use of that capacity was as follows:~~

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

place at March 31, 2015:

				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)~~

~~The long-term debt and equity securities activity through June 30, 2014 was:~~

Debt Net Stock
Issuances (a) Retirements Issuances

PPL $ 296 $ 239 $ 1,017
PPL Electric 296 10

Non-cash Transactions:
PPL (b) $ 750 $ 750

~~(a)~~

~~Issuances are net of pricing discounts, where applicable and exclude the impact of debt issuance costs.~~

~~(b)~~

~~Represents the remarketing of Junior Subordinated Notes that were issued as a component of PPL's 2011 Equity Units.~~

Common Stock Dividends(PPL)

In ~~May 2014,~~February 2015, PPL declared its quarterly common stock dividend, payable ~~July~~April 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 ~~review~~reviewed 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:~~

~~126~~

~~(PPL)~~

2015:

In January ~~2014, Moody's affirmed its ratings and revised its outlook to stable for PPL.~~

~~In March 2014, Moody's, S&P and~~2015, Fitch assigned ratings of Baa3, BBB- and BBB, respectively, to PPL Capital Funding's $350 million 3.95% Senior Notes due 2024 and $400 million 5.00% Senior Notes due 2044. Fitch also assigned a stable outlook to these notes.

~~In April 2014, Moody's affirmed its ratings with a stable outlook for PPL WEM, WPD (East Midlands), WPD (West Midlands), PPL WW, WPD (South Wales) and WPD (South West).~~

~~In April 2014, Fitch affirmed its ratings with a stable outlook for PPL and PPL Capital Funding.~~

~~In June 2014, Moody's affirmed its ratings and revised its outlook to positive for PPL and PPL Capital Funding.~~

~~In June 2014, S&P affirmed~~withdrew its ratings for PPL, PPL Capital Funding, PPL ~~WEM, WPD (East Midlands), WPD (West Midlands), PPL WW, WPD (South Wales) and WPD (South West) and placed the issuers on CreditWatch with positive implications.~~

~~In June 2014, Fitch affirmed its ratings with a stable outlook for PPL and PPL Capital Funding.~~

~~(PPL and PPL Energy Supply)~~

~~In April 2014, Fitch affirmed its ratings with a negative outlook for PPL Energy Supply.~~

In May 2014, S&P lowered its long-term issuer rating and senior unsecured rating from BBB to BB+ and its commercial paper rating and short-term issuer rating from A-2 to A-3 with a stable outlook for PPL Energy Supply.

In June 2014, Moody's lowered its senior unsecured rating from Baa2 to Ba1 and its commercial paper rating and short-term issuer rating from P-2 to Not Prime with a negative outlook for PPL Energy Supply. Moody's also assigned a Corporate Family Rating of Ba1, a Probability of Default Rating of Ba1-PD and a Speculative Grade Liquidity rating of SGL-1 to PPL Energy Supply.

~~In June 2014, S&P lowered its long-term issuer rating and senior unsecured rating from BB+ to BB and its commercial paper rating and short-term issuer rating from A-3 to B for PPL~~ Energy Supply, ~~and placed the issuer on CreditWatch with negative implications.~~

In June 2014, Fitch lowered its long-term issuer default rating and senior unsecured debt rating from BBB- to BB and its commercial paper rating and short-term issuer default rating from F3 to B for PPL Energy Supply and placed the issuer on Rating Watch Negative.

~~(PPL and PPL Electric)~~

In January 2014, Moody's upgraded its long-term issuer rating and senior unsecured rating from Baa2 to Baa1 and senior secured rating from A3 to A2, affirmed its commercial paper rating and revised its outlook to stable for PPL Electric.

~~In April 2014, Fitch affirmed its ratings with a stable outlook for PPL Electric.~~

~~In June 2014, S&P affirmed its ratings for~~ PPL Electric, ~~and placed the issuer on CreditWatch with positive implications.~~

In June 2014, Moody's, S&P, and Fitch assigned ratings of A2, A- and A-, respectively, to PPL Electric's $300 million 4.125% First Mortgage Bonds due 2044. Fitch also assigned a stable outlook to these notes.

~~(PPL,~~ LKE, LG&E, and ~~KU)~~

~~In January 2014, Moody's affirmed its ratings and revised its outlook to stable for LKE.~~

~~127~~

In January 2014, Moody's upgraded its long-term issuer ratings and senior unsecured ratings from Baa1 to A3 and senior secured ratings from A2 to A1, affirmed its commercial paper ratings and revised its outlook to stable for LG&E and KU.

In February 2014, Moody's affirmed its ratings for KU's 2000 Series A Solid Waste Disposal Facility Revenue Bonds, KU's 2004 Series A and 2008 Series A Environmental Facilities Revenue Bonds and KU's 2006 Series B Environmental Facilities Revenue Refunding Bonds.

~~In April 2014, Fitch affirmed its ratings with a stable outlook for LKE, LG&E and KU.~~

~~In June 2014, S&P affirmed its ratings for LKE, LG&E and KU and placed the issuers on CreditWatch with positive implications.~~

~~In June 2014, Moody's affirmed its ratings and revised its outlook to positive for LKE.~~

In June 2014, S&P affirmed its ratings for KU's 2000 Series A Solid Waste Disposal Facility Revenue Bonds, KU's 2004 Series A and 2008 Series A Environmental Facilities Revenue Bonds and KU's 2006 Series B Environmental Facilities Revenue Refunding Bonds and placed them on CreditWatch with positive implications.

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.~~

~~Capital Expenditures~~

~~(PPL)~~

Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions. In the second quarter of 2014, PPL increased its projected capital spending for the period 2014 through 2018 related to distribution facilities by approximately $0.3 billion from the previously disclosed $1.9 billion projection included in PPL's 2013 Form 10-K. The increased projected capital spending results from a change in the forecasted foreign currency exchange rate for WPD expenditures that increased each yearly estimate by approximately $70 million.

~~(PPL, LKE, LG&E and KU)~~

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 at KU's Green River generating site. See Note 8 to the Financial Statements for additional information.

March 31, 2015.

(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' ~~2013~~2014 Form 10-K.

Risk Management

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.

~~128~~

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-going~~their 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 and PPL Energy Supply)~~

(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.~~

2020.

The following tables sets forth the changes in the net fair value of non-trading commodity derivative contracts for the ~~periods~~period 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.

~~129~~

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

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	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 ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 was as follows.

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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.~~

insignificantat March 31, 2015.

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.~~

March 31, 2015.

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

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						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, 2014~~March 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

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PPL

PPL Electric

LKE

LG&E

Increase in interest expense

Not

Significant

Increase in fair value of debt

662

128

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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

March 31, 2015.

					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. ~~The positions outstanding exclude the amount of intercompany loans classified as net investment hedges. See Note 14 to the Financial Statements for additional information.~~

(c)

To economically hedge the translation of expected earnings denominated in GBP to U.S. ~~dollars, PPL enters into a combination of average rate forwards and average rate options to sell GBP.~~dollars.

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NDT Funds - Securities Price Risk ~~(PPL and PPL Energy Supply)~~

(PPL)

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' ~~2013~~2014 Form 10-K for additional information.

Foreign Currency Translation (PPL)

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 ~~gain~~loss of ~~$140~~$77 million for the ~~six~~three months ended ~~June 30, 2014,~~March 31, 2015, which primarily reflected a ~~$349~~$199 million ~~increase~~decrease to PP&E and goodwill offset by ~~an increase~~a decrease of ~~$209~~$122 million to net liabilities. Changes in this exchange rate resulted in a foreign currency translation ~~loss~~gain of ~~$269~~$135 million for the ~~six~~three months ended ~~June 30, 2013,~~March 31, 2014, which primarily reflected a ~~$714~~$334 million ~~reduction~~increase to PP&E and goodwill offset by ~~a reduction~~an increase of ~~$445~~$199 million to net liabilities. The impact of foreign currency translation is recorded in AOCI.

Related Party Transactions(All Registrants)

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.

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Acquisitions, Development and Divestitures

(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 and PPL Energy Supply)~~

(PPL)

See Note 8 to the Financial Statements for information on the anticipated spinoff of PPL Energy ~~Supply.~~

Supply and the completed Montana hydro sale.

Environmental Matters

(All ~~Registrants)~~

Registrants except PPL Electric)

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 ~~tighter~~more 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 directed~~has proposed rules pursuant to ~~issue~~this 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 ~~for~~to 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.

~~The EPA's revised proposal for new sources was published in the Federal Register on January 8, 2014.~~plants. The proposed limits for ~~coal~~coal-fired plants can only be achieved through carbon capture and sequestration, a technology that is not presently commercially viable and, therefore, effectively preclude the construction of new ~~coal~~coal-fired plants. The proposed standards for new ~~gas~~gas-fired plants may also not be continuously achievable.

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The ~~EPA's~~preclusion of new coal-fired plants and the compliance difficulties posed for new gas-fired plants could have a significant industry-wide impact.

In June 2014, the EPA issued a proposed regulation addressing ~~GHG~~carbon 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 analyzing~~has analyzed the proposal and identified potential impacts and solutions in ~~preparation~~comments filed on December 1, 2014. PPL also submitted Supplemental Comments to FERC through EEI, advocating for ~~submitting comments~~reliability 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 ~~GHG~~carbon 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.

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 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 related to preparing the U.S. for the impacts of climate change could affect PPL, PPL Electric, LKE, LG&E and KU and others in the industry as modifications to electricity delivery systems to improve the ability to withstand major storms may be needed in order to meet those requirements.

Waters of the United States

On (WOTUS)

In April ~~21,~~ 2014, the EPA and the U.S. Army Corps of Engineers published a proposed rule ~~which~~that could greatly ~~expands~~expand 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. ~~Both~~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 this regulation.

~~(All~~ Until a final rule is issued, the Registrants ~~except PPL Electric)~~

cannot predict the outcome of the pending rulemaking. A final rule is expected by summer 2015.

Coal Combustion Residuals (CCRs)

~~In June 2010,~~

On April 17, 2015, the EPA ~~proposed two approaches to~~published 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 ~~and~~of CCRs or the past management of CCRs ~~(as either hazardous~~and 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 involving~~completion 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

111

costs prior to that time to address other provisions of the ~~EPA has agreed~~rule, such as groundwater monitoring and disposal facility modifications, or to ~~issue~~implement 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 ~~impact~~impact. It is expected that these requirements will result in increases to existing AROs which will be ~~material if CCRs~~recorded in the second quarter of 2015. PPL, LKE, LG&E and KU are ~~regulated~~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 ~~hazardous waste, and significant if regulated as non-hazardous.~~

applicable.

Effluent Limitation 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 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 significant~~vary significantly from the current capital expenditures projections and costs could be imposed ahead of federal timelines.

Clean Water ~~Act/~~Act 316(b)

~~On May 19,~~

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 final~~rule. The rule ~~under 316(b) of~~requires existing facilities to choose between several options to reduce the ~~Clean Water Act. It will~~impact to aquatic organisms that become ~~effective upon publication which is expected in July. The regulation applies~~trapped against water intake screens (impingement) and to ~~nearly all PPL-owned steam electric generation plants in Pennsylvania, Kentucky, and Montana, even those~~determine 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 Available~~an acceptable option, would likely not incur substantial costs. Once-through systems would likely require additional technology to ~~reduce mortality of aquatic organisms that~~comply 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.

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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 to~~rule provides for a three-year compliance deadline with the ~~rule with respect to new sources to address~~potential 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 in~~have 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 some~~believes that installation of ~~LG&E's and KU's Kentucky plants. Additionally, PPL Energy Supply is evaluating~~ chemical additive systems ~~for mercury control~~and other controls may be necessary at ~~Brunner Island, and~~certain 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 ~~existing~~the air pollution controls installed at Colstrip ~~for improved particulate matter reductions. In September 2012, PPL Energy Supply announced its intention~~are required, the cost of which is not expected to ~~place its~~be significant. Operations were suspended and the Corette plant was retired in ~~long-term reserve status beginning in April~~March 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 "Application~~the MATS requirements.

LG&E's March 2015 retirement of ~~Critical Accounting Policies - Asset Impairment (Excluding Investments)" in PPL's~~one 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.

LG&E's and KU's anticipated ~~retirements~~retirement of remaining coal-fired electricity generating units located at ~~the~~ Cane Run and Green River ~~plants~~in 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 or KU.

CSAPR

The EPA's CSAPR addresses the interstate transport of fine particulates and ~~CAIR~~

~~In 2011, the EPA finalized its CSAPR~~ozone by regulating emissions of ~~nitrogen oxide and~~ sulfur dioxide ~~through new allowance trading programs which were to be implemented in two phases (2012~~ and ~~2014). Like its predecessor, the CAIR, CSAPR targeted sources in the eastern U.S.~~nitrogen oxide. In ~~December 2011, the~~accordance with an October 2014 U.S. Court of Appeals decision, CSAPR establishes interstate allowance trading programs for sulfur dioxide and nitrogen oxide emissions from fossil-fueled plants in two phases: Phase 1 commenced in January 2015 and Phase 2 commences in 2017. Sulfur dioxide emissions are subject to an annual trading

112

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 of~~EPA'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 the~~incurring significant costs ~~of meeting CSAPR requirements will be significant.~~

~~PPL, PPL Energy Supply, LKE, LG&E and KU plants in Pennsylvania and Kentucky will continue~~ to comply with ~~CAIR through optimization of existing controls, balanced with emission allowance purchases.~~

these programs, changes in market or operating conditions could result in impacts that are higher than anticipated.

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. ~~For~~To 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. ~~Although~~However, the ~~August 2012 decision~~EPA's determination is being challenged by ~~the D.C. Circuit Court~~environmental 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 located~~reduce 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 and~~regional 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.~~

~~The~~significant.

In Montana, the EPA ~~signed its final~~finalized a Federal Implementation Plan (FIP) of the Regional Haze Rules ~~for Montana~~ in September 2012, with ~~tighter~~stricter 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 ~~tighter~~stricter 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 meet~~was meeting the ~~tighter~~stricter 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 ~~April~~March 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.~~

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litigation is ongoing.

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~~is finalizing a ~~draft~~RACT 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 ~~proposal~~ozone 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 lenient~~under 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 impose~~finalized 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.~~

~~During 2010 and 2012, the EPA issued new~~ ambient air ~~standards~~standard for sulfur dioxide and ~~particulates, respectively.~~required states to identify areas that meet the standard and areas that are in "non-attainment". In July 2013, the EPA ~~preliminarily designated~~finalized non-attainment designations for parts of the country, including part of Jefferson County in Kentucky and part of Yellowstone County in Montana. Attainment is due for both areas by 2018. Pursuant to a consent decree between the EPA and Sierra Club approved on March 2, 2015, states are working to finalize designations for other areas by the 2017 or 2020 deadline depending on which designation methodology is used. PPL, PPL Energy Supply, LKE, LG&E and KU anticipate that some of the measures required for compliance with the CSAPR, the MATS, or the Regional Haze Rules (as discussed above), such as ~~a partial non-attainment area for~~upgraded or new sulfur ~~dioxide. Final designations of non-attainment areas may occur in 2014. Existing environmental plans for LG&E's and KU's Kentucky plants, including announced retirements of~~dioxide scrubbers at certain plants and, ~~ECR-approved~~in the case of LG&E and KU, the previously announced retirement of coal-fired generating units at the Cane Run, Green River and Tyrone plants, will help to achieve compliance with the new or upgraded scrubbers or baghouses at other plants, may aid in achievement of eventual ambient air requirements. However, depending upon the specifics of final non-attainment designations and consequent compliance plans,sulfur dioxide standard. If additional ~~controls may~~reductions were to be required, the financial impact ~~of which~~ could be significant. ~~States are working~~The short-term impact on the Corette plant from the EPA's final designation of part of Yellowstone County in Montana as non-attainment is not expected to be significant, as the plant's operations were suspended and the plant was retired in March 2015. In addition, MDEQ submitted a request to the EPA for a determination that this area is in attainment. If the EPA agrees with this request, then the deadlines associated with non-attainment would be suspended.

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 ~~other~~the 2012

113

particulate standard were published in January 2015. Non-attainment areas ~~according~~in 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.~~

make further reductions towards achieving attainment.

New Accounting Guidance (All Registrants)

See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.

Application of Critical Accounting Policies(All Registrants)

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' ~~2013~~2014 Form 10-K for a discussion of each critical accounting policy.

PPL

~~PPL~~

PPL

~~Energy Supply~~Electric

~~Electric~~LKE

~~LKE~~LG&E

~~LG&E~~

Defined Benefits

Loss Accruals

Income Taxes

Asset Impairments (Excluding Investments)

AROs

Price Risk Management

Regulatory Assets and Liabilities

Revenue Recognition - unbilled revenue

114

~~136~~

PPL Corporation

~~PPL Energy Supply, LLC~~

PPL Electric Utilities Corporation

LG&E and KU Energy LLC

Louisville Gas and Electric Company

Kentucky Utilities Company

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Reference is made to "Risk Management" in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations."

Item 4. Controls and Procedures

(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' ~~second~~first 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

Item 1. Legal Proceedings

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 ~~2013~~2014 Form 10-K; and
	·		Notes 6 and 10 to the Financial Statements.

Item 1A. Risk Factors

~~PPL Corporation and PPL Energy Supply, LLC~~

The proposed spinoff of PPL Energy Supply and combination with RJS Power are contingent upon the satisfaction of a number of conditions and may present difficulties that could have an adverse effect on us.

The proposed spinoff of the business of PPL Energy Supply and the subsequent combination with RJS Power to form Talen Energy are complex transactions, subject to various conditions, and may be affected by unanticipated developments or changes in market conditions. We expect Talen Energy to file a registration statement with the SEC that will contain detailed information regarding Talen Energy. Completion of the proposed spinoff of PPL Energy Supply and subsequent combination with RJS Power will be contingent upon a number of factors, including that (i) PPL receives a favorable opinion of tax counsel as described below; (ii) the SEC declares effective Talen Energy's registration statement relating to the registration of Talen Energy common stock and no SEC stop order suspending effectiveness of the registration statement be in effect prior to the PPL Energy Supply spinoff; (iii) the Talen Energy common stock be authorized for listing on the New York Stock

~~137~~

Exchange; (iv) certain regulatory approvals, including approval by the NRC and the FERC, a Hart-Scott-Rodino review and certain approvals by the PUC be obtained and (v) there 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 spinoff and subsequent combination with RJS Power may be terminated by mutual written consent of the parties or subject to certain other circumstances, including the failure to complete these transactions by June 30, 2015 or, if the required regulatory approvals have not been obtained at such time but the other conditions to the consummation of these transactions have been or are capable of being satisfied, December 31, 2015. For these and other reasons, the spinoff and the subsequent combination may not be completed on the terms or within the expected timeframe that we announced, if at all. Further, if the spinoff and the subsequent combination are completed, such transactions may not achieve the intended results.
If the proposed spinoff of the business of PPL Energy Supply does not qualify as a tax-free spinoff under Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"), including as a result of subsequent acquisitions of stock of PPL or Talen Energy, then PPL and/or its shareowners may be required to pay substantial U.S. federal income taxes.
The proposed spinoff of the business of PPL Energy Supply and the subsequent combination with RJS Power are conditioned upon PPL's receipt of an opinion of tax counsel to the effect that, among other matters, the spinoff will qualify as tax-free under Section 355 of the Code to PPL and its shareowners for U.S. federal income tax purposes. Receipt of the opinion of tax counsel will satisfy a condition to completion of the spinoff and subsequent combination. An opinion of tax counsel is not binding on the IRS. Accordingly, the IRS may reach conclusions with respect to the spinoff that are different from the conclusions reached in the opinion. PPL is not aware of any facts or circumstances that would cause the factual statements or representations on which the opinion will be based to be materially different from the facts at the time of the spinoff. If, notwithstanding the receipt of the opinion of tax counsel, the IRS were to determine the spinoff to be taxable, PPL would, and its shareowners may, depending on their individual circumstances, recognize a tax liability that could be substantial.
In addition, the spinoff will be taxable to PPL pursuant to Section 355(e) of the Code if there is a 50% or more change in ownership of either PPL or Talen Energy, directly or indirectly, as part of a plan or series of related transactions that include the spinoff. Because PPL's shareowners will collectively own more than 50% of Talen Energy's common stock following the spinoff and subsequent combination, the combination alone will not cause the spinoff to be taxable to PPL under Section 355(e) of the Code. However, Section 355(e) of the Code might apply if acquisitions of stock of PPL before or after the spinoff, or of Talen Energy after the combination, are considered to be part of a plan or series of related transactions that include the spinoff. PPL is not aware of any such plan or series of transactions that include the spinoff.
~~PPL may not be successful in realizing the full amount of annual savings anticipated to be available as a result of the proposed spinoff of PPL Energy Supply.~~
In connection with the spinoff of PPL Energy Supply, and following any required transition services period, PPL is targeting to reduce its annual corporate support costs by an estimated $185 million. This includes $110 million of corporate support costs to be transferred to Talen Energy and $75 million from workforce reductions and other corporate cost savings. If for any reason PPL cannot realize all or a significant portion of the $75 million corporate cost savings it could have an adverse effect on PPL's results of operations, including PPL's ability to maintain or increase its dividend to shareowners.

~~PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company~~

There have been no material changes in the Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the ~~2013~~Registrants' 2014 Form 10-K.

Item 4. Mine Safety Disclosures

Not applicable.

115

~~Item 5. Other Information~~

~~PPL Corporation~~

~~On July 31, 2014, the Board of Directors (Board) of PPL elected Rodney C. Adkins a director of PPL, effective August 1, 2014, for a term expiring at PPL's Annual Meeting of Shareowners in 2015.~~

Mr. Adkins will retire from International Business Machines Corporation (IBM) at the end of 2014 after more than 33 years of service for that company. Mr. Adkins is currently serving as Senior Vice President with a focus on special corporate

~~138~~

projects and key client relationships.  Until April 2014, Mr. Adkins served as Senior Vice President for Corporate Strategy since 2013, leading continuous transformation and developing strategies and plans linked to a new era of computing, new markets and new clients for IBM.  Prior to that, since 2009, Mr. Adkins was Senior Vice President of IBM's Systems and Technology Group (STG), and prior to that, since 2007, Mr. Adkins served as Senior Vice President of IBM's STG development and manufacturing.

Mr. Adkins serves on the boards of United Parcel Service, Inc., W. W. Grainger, Inc., the national board of the Smithsonian Institution and the board of directors of the National Action Council for Minorities in Engineering.  The Board expects to appoint Mr. Adkins as a member of the Board's Audit Committee in 2015.  The Board has determined that Mr. Adkins satisfies the requirements for "independence" as set forth in PPL's Independence Guidelines and the applicable rules of the New York Stock Exchange.  Mr. Adkins is 55 years old.
As a non-employee director, Mr. Adkins will receive the same compensation paid to other non-employee directors of PPL in accordance with the policies and procedures previously approved by the Board for non-employee directors.  There were no arrangements or understandings pursuant to which Mr. Adkins was elected, nor are there any relationships or related transactions between PPL and Mr. Adkins to be disclosed under applicable rules of the Securities and Exchange Commission.

~~139~~

Item 6. Exhibits

The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits ~~have~~has 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.

~~2(a)~~ 1(a)	-	~~Separation~~Equity Distribution Agreement, dated February 26, 2015, by and among PPL Corporation ~~Talen Energy Holdings, Inc., Talen Energy Corporation, PPL Energy Supply, LLC, Raven Power Holdings LLC, C/R Energy Jade, LLC~~ and ~~Sapphire Power Holdings LLC., dated as of June 9, 2014~~Merrill Lynch, Pierce, Fenner & Smith Incorporated (Exhibit ~~2.1~~1.1 to PPL ~~Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated June 12, 2014)~~
~~2(b)~~	-	Transaction Agreement among PPL Corporation, Talen Energy Holdings, Inc., Talen Energy Corporation, PPL Energy Supply, LLC, Talen Energy Merger Sub, Inc., C/R Energy Jade, LLC, Sapphire Power Holdings LLC. and Raven Power Holdings LLC, dated as of June 9, 2014 (Exhibit 2.2 to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated June 12, 2014)
~~4(a)~~	-	~~Supplemental Indenture No. 16, dated as of June 1, 2014, of PPL Electric Utilities Corporation to The Bank of New York Mellon, as Trustee (Exhibit 4(a) to PPL Electric Utilities~~ Corporation Form 8-K Report (File No. ~~1-905)~~1-11459) dated ~~June 5, 2014)~~ February 26, 2015)
*[_]10(a) 1(b)	-	~~Amendment No. 5 to Executive Deferred Compensation Plan,~~Equity Distribution Agreement, dated ~~as of May 8, 2014~~
~~10(b)~~	-	~~Employee Matters Agreement~~February 26, 2015, by and among PPL Corporation ~~Talen Energy Corporation, C/R Energy Jade,~~and Morgan Stanley & Co. LLC ~~Sapphire Power Holdings LLC. and Raven Power Holdings LLC, dated as of June 9, 2014~~ (Exhibit ~~10.1~~1.2 to PPL ~~Energy Supply, LLC~~Corporation Form 8-K Report (File No. ~~1-32944)~~1-11459) dated ~~June 12, 2014)~~ February 26, 2015)
*~~10(c)~~1(c)	-	~~First Amendment, dated as~~Final Terms of ~~July 22, 2014, to Amended and Restated Letter of Credit Issuance and Reimbursement~~the Western Power Distribution (East Midlands) plc £25,000,000 1.676% Index Linked Notes due September 24, 2052 under the £3,000,000,000 Euro Medium Term Note Programme
*[_]10(a)	-	Service Agreement, dated ~~as of August 30, 2013, by and between PPL Energy Supply, LLC and Canadian Imperial Bank of Commerce, New York Agency~~
*10(d)	-	$300,000,000 Revolving Credit Agreement, dated as of July 28, 2014, among PPL Capital Funding, Inc., as the Borrower, PPL Corporation, as the Guarantor, the Lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender
*10(e)	-	$300,000,000 Amended and Restated Revolving Credit Agreement, dated as of July 28, 2014, among PPL Electric Utilities Corporation, as the Borrower, the Lenders from time to time thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender
*10(f)	-	$400,000,000 Amended and Restated Revolving Credit Agreement, dated as of July 28, 2014, among Kentucky Utilities Company, as the Borrower, the Lenders from time to time thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender
*10(g)	-	$500,000,000 Amended and Restated Revolving Credit Agreement, dated as of July 28, 2014, among Louisville Gas and Electric Company, the Lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender
*10(h)	-	~~Amendment and Restatement Agreement, dated July 29, 2014,~~March 16, 2015, between Western Power Distribution (South West) plc and the banks party thereto, as Bookrunners and Mandated Lead Arrangers, HSBC Bank plc and Mizuho Bank, Ltd., as Joint Coordinators, and Mizuho Bank, Ltd., as Facility Agent, relating to the £245,000,000 Multicurrency Revolving Credit Facility Agreement originally dated January 12, 2012 Robert A. Symons
*~~10(i)~~[_]10(b)	-	Amendment ~~and Restatement Agreement,~~No. 6 to PPL Corporation Directors Deferred Compensation Plan, dated ~~July 29, 2014, between Western Power Distribution (East Midlands) plc and the banks party thereto~~,as ~~Bookrunners and Mandated Lead Arrangers, HSBC Bank plc and Mizuho Bank Ltd., as Joint Coordinators, and Bank~~ of ~~America Merrill Lynch International Limited~~, ~~as Facility Agent~~, ~~relating to the £300,000,000 Multicurrency Revolving Credit Facility Agreement originally dated~~ April ~~4, 2011~~ 15, 2015
*10(j)	-	~~Amendment and Restatement Agreement, dated July 29, 2014, between Western Power Distribution (West Midlands) plc and the banks party thereto~~, ~~as Bookrunners and Mandated Lead Arrangers, HSBC Bank plc and Mizuho Bank Ltd., as Joint Coordinators, and Bank of America Merrill Lynch International Limited~~, ~~as Facility Agent~~, ~~relating to the £300,000,000 Multicurrency Revolving Credit Facility Agreement originally dated April 4, 2011~~
*12(a)	-	PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
*12(b)	-	~~PPL Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges~~

~~140~~

*12(c)	-	PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
*~~12(d)~~12(c)	-	LG&E and KU Energy LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*~~12(e)~~12(d)	-	Louisville Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges
*~~12(f)~~12(e)	-	Kentucky Utilities Company Computation of Ratio of Earnings to Fixed Charges

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended ~~June 30, 2014,~~March 31, 2015, filed by the following officers for the following companies:

*31(a)	-	PPL Corporation's principal executive officer
*31(b)	-	PPL Corporation's principal financial officer
*31(c)	-	~~PPL Energy Supply, LLC's principal executive officer~~
*31(d)	-	~~PPL Energy Supply, LLC's principal financial officer~~
*31(e)	-	PPL Electric Utilities Corporation's principal executive officer
*~~31(f)~~31(d)	-	PPL Electric Utilities Corporation's principal financial officer
*~~31(g)~~31(e)	-	LG&E and KU Energy LLC's principal executive officer
*~~31(h)~~31(f)	-	LG&E and KU Energy LLC's principal financial officer
*~~31(i)~~31(g)	-	Louisville Gas and Electric Company's principal executive officer
*~~31(j)~~31(h)	-	Louisville Gas and Electric Company's principal financial officer
*~~31(k)~~31(i)	-	Kentucky Utilities Company's principal executive officer
*~~31(l)~~31(j)	-	Kentucky Utilities Company's principal financial officer

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended ~~June 30, 2014,~~March 31, 2015, furnished by the following officers for the following companies:

*32(a)	-	PPL Corporation's principal executive officer and principal financial officer
*32(b)	-	~~PPL Energy Supply, LLC's principal executive officer and principal financial officer~~
*32(c)	-	PPL Electric Utilities Corporation's principal executive officer and principal financial officer
*~~32(d)~~32(c)	-	LG&E and KU Energy LLC's principal executive officer and principal financial officer
*~~32(e)~~32(d)	-	Louisville Gas and Electric Company's principal executive officer and principal financial officer
*~~32(f)~~32(e)	-	Kentucky Utilities Company's principal executive officer and principal financial officer

~~101.INS~~116

101.INS	-	XBRL Instance Document ~~for 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~~
101.SCH	-	XBRL Taxonomy Extension Schema ~~for 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~~
101.CAL	-	XBRL Taxonomy Extension Calculation Linkbase ~~for 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~~
101.DEF	-	XBRL Taxonomy Extension Definition Linkbase ~~for 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~~
101.LAB	-	XBRL Taxonomy Extension Label Linkbase ~~for 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~~
101.PRE	-	XBRL Taxonomy Extension Presentation Linkbase ~~for 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~~

117

~~141~~

SIGNATURES

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)~~

	~~PPL Energy Supply, LLC~~
	(Registrant)



Date: ~~July 31, 2014~~May 7, 2015	/s/ Stephen K. Breininger
	Stephen K. Breininger
	Vice President and Controller
	(Principal Accounting Officer)



	PPL Electric Utilities Corporation
	(Registrant)



Date: ~~July 31, 2014~~May 7, 2015	/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: ~~July 31, 2014~~May 7, 2015	/s/ Kent W. Blake
	Kent W. Blake Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

~~142~~

118

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 ~~June 30, 2014~~March 31, 2015
OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________

Commission File Number	Registrant; State of Incorporation; Address and Telephone Number	IRS Employer Identification No.

1-11459	PPL Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151	23-2758192

~~1-32944~~1-905	PPL ~~Energy Supply, LLC~~ Electric Utilities Corporation (Exact name of Registrant as specified in its charter) ~~(Delaware)~~ (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151	~~23-3074920~~

~~1-905~~	~~PPL Electric Utilities Corporation~~ ~~(Exact name of Registrant as specified in its charter)~~ ~~(Pennsylvania)~~ ~~Two North Ninth Street~~ ~~Allentown, PA 18101-1179~~ ~~(610) 774-5151~~	23-0959590

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

	Large accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company
PPL Corporation	[ X ]	[ ]	[ ]	~~[ ]~~
~~PPL Energy Supply, LLC~~	~~[ ]~~	~~[ ]~~	~~[ X~~ ]	[ ]
PPL Electric Utilities Corporation	[ ]	[ ]	[ X ]	[ ]
LG&E and KU Energy LLC	[ ]	[ ]	[ X ]	[ ]
Louisville Gas and Electric Company	[ ]	[ ]	[ X ]	[ ]
Kentucky Utilities Company	[ ]	[ ]	[ X ]	[ ]

PPL Corporation	Yes	No X
~~PPL Energy Supply, LLC~~	~~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

				Page

GLOSSARY OF TERMS AND ABBREVIATIONS				i
FORWARD-LOOKING INFORMATION				1
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		PPL Corporation and Subsidiaries
			Condensed Consolidated Statements of Income	3
			Condensed Consolidated Statements of Comprehensive Income	3	4
			Condensed Consolidated Statements of ~~Comprehensive Income~~Cash Flows	4	5
			Condensed Consolidated ~~Statements of Cash Flows~~Balance Sheets	5	6
			~~Condensed Consolidated Balance Sheets~~	6
			Condensed Consolidated Statements of Equity	8
		~~PPL Energy Supply, LLC and Subsidiaries~~
			~~Condensed Consolidated Statements of Income~~	9
			~~Condensed Consolidated Statements of Comprehensive Income~~	10
			~~Condensed Consolidated Statements of Cash Flows~~	11
			~~Condensed Consolidated Balance Sheets~~	12
			~~Condensed Consolidated Statements of Equity~~	14
		PPL Electric Utilities Corporation and Subsidiaries
			Condensed Consolidated Statements of Income	10
			Condensed Consolidated Statements of ~~Income~~Cash Flows	16	11
			Condensed Consolidated ~~Statements of Cash Flows~~Balance Sheets	17	12
			~~Condensed Consolidated Balance Sheets~~	18
			Condensed Consolidated Statements of ~~Stockholder's~~ Equity	20	14
		LG&E and KU Energy LLC and Subsidiaries
			Condensed Consolidated Statements of Income	16
			Condensed Consolidated Statements of ~~Income~~Cash Flows	22	17
			Condensed Consolidated ~~Statements of Cash Flows~~Balance Sheets	23	18
			~~Condensed Consolidated Balance Sheets~~	24
			Condensed Consolidated Statements of Equity	26	20

PPL Corporation	Yes X	No
~~PPL Energy Supply, LLC~~	~~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

	PPL Corporation	Common stock, $0.01 par value, ~~664,381,143~~668,107,248 shares outstanding at ~~July 25, 2014.~~

	~~PPL Energy Supply, LLC~~	~~PPL Corporation indirectly holds all of the membership interests in PPL Energy Supply, LLC.~~April 30, 2015.

	PPL Electric Utilities Corporation	Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at ~~July 25, 2014.~~April 30, 2015.

	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 ~~July 25, 2014.~~April 30, 2015.

	Kentucky Utilities Company	Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at ~~July 25, 2014.~~April 30, 2015.

Louisville Gas and Electric Company
	Condensed Statements of Income	2822
	Condensed Statements of Cash Flows	2923
	Condensed Balance Sheets	3024
	Condensed Statements of Equity	3226
Kentucky Utilities Company
	Condensed Statements of Income	3428
	Condensed Statements of Cash Flows	3529
	Condensed Balance Sheets	3630
	Condensed Statements of Equity	3832

Combined Notes to Condensed Financial Statements (Unaudited)
	1. Interim Financial Statements			3933
	2. Summary of Significant Accounting Policies			3933
	3. Segment and Related Information			34
	4. Earnings Per Share			35
	5. Income Taxes			36
	6. Utility Rate Regulation			37
	7. Financing Activities			40
	~~4. Earnings Per Share~~8. Acquisitions, Development and Divestitures			41
~~5. Income Taxes~~			42
	~~6. Utility Rate Regulation~~9. Defined Benefits			44
	~~7. Financing Activities~~10. Commitments and Contingencies			4745
	~~8. Acquisitions, Development and Divestitures~~11. Related Party Transactions			5058
	~~9. Defined Benefits~~			52
~~10. Commitments and Contingencies~~			53
~~11. Related Party Transactions~~			67
12. Other Income (Expense) - net			6859
	13. Fair Value Measurements and Credit Concentration			6959
	14. Derivative Instruments and Hedging Activities			65
	15. Goodwill			75
	16. Asset Retirement Obligations			75
	17. Available-for-Sale Securities			75
	18. Accumulated Other Comprehensive Income (Loss)			76
	~~15. Goodwill~~			88
~~16. Asset Retirement Obligations~~			88
~~17. Available-for-Sale Securities~~			88
~~18. Accumulated Other Comprehensive Income (Loss)~~			89
19. New Accounting Guidance Pending Adoption			9177
Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
	Overview			9380
		Introduction		9380
		Business Strategy		9582
		Financial and Operational Developments		9683
			PPL Corporation and Subsidiaries - Earnings	9683
			~~2014~~2015 Outlook	9784
			Other Financial and Operational Developments	9885
	Results of Operations			~~101~~87
		PPL Corporation and Subsidiaries - Segment Earnings, Margins and Statement of Income Analysis		~~102~~88
		~~PPL Energy Supply, LLC and Subsidiaries - Earnings, Margins and Statement of Income Analysis~~		~~112~~
	PPL Electric Utilities Corporation and Subsidiaries - Earnings, Margins and Statement of Income Analysis		~~115~~96
		LG&E and KU Energy LLC and Subsidiaries - Earnings, Margins and Statement of Income Analysis		~~117~~97
		Louisville Gas and Electric Company - Earnings, Margins and Statement of Income Analysis		~~119~~99
		Kentucky Utilities Company - Earnings, Margins and Statement of Income Analysis		~~120~~100
	Financial Condition			~~122~~101
		Liquidity and Capital Resources		~~122~~101
		Risk Management		~~128~~106
		Foreign Currency Translation		~~132~~110
		Related Party Transactions		~~132~~110
		Acquisitions, Development and Divestitures		~~133~~110
		Environmental Matters		~~133~~110
	New Accounting Guidance			~~136~~114
	Application of Critical Accounting Policies			~~136~~114

		Item 3. Quantitative and Qualitative Disclosures About Market Risk		~~137~~115
		Item 4. Controls and Procedures		~~137~~115
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			~~137~~115
	Item 1A. Risk Factors			~~137~~115
	Item 4. Mine Safety Disclosures			~~138~~115
	~~Item 5. Other Information~~			~~138~~
	Item 6. Exhibits		~~140~~116
SIGNATURES				~~142~~118
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES				~~143~~119
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002				~~149~~124
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002				~~161~~134

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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.

CONDENSED CONSOLIDATED BALANCE SHEETS
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

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except share data)
			Three Months Ended March 31,
			2015		2014
Operating Revenues
	Utility		$	2,214	$	2,162
	Unregulated wholesale energy			521		(1,457)
	Unregulated retail energy			310		348
	Energy-related businesses			120		141
	Total Operating Revenues			3,165		1,194

Operating Expenses
	Operation
		Fuel		604		758
		Energy purchases		321		(1,494)
		Other operation and maintenance		668		668
	Depreciation			293		300
	Taxes, other than income			101		101
	Energy-related businesses			111		138
	Total Operating Expenses			2,098		471

Operating Income				1,067		723

Other Income (Expense) - net				95		(23)

Interest Expense				247		262

Income from Continuing Operations Before Income Taxes				915		438

Income Taxes				268		114

Income from Continuing Operations After Income Taxes				647		324

Income (Loss) from Discontinued Operations (net of income taxes)						(8)

Net Income			$	647	$	316


Earnings Per Share of Common Stock:
	Income from Continuing Operations After Income Taxes Available to PPL
	Common Shareowners:
		Basic	$	0.97	$	0.51
		Diluted	$	0.96	$	0.50
	Net Income Available to PPL Common Shareowners:
		Basic	$	0.97	$	0.50
		Diluted	$	0.96	$	0.49

Dividends Declared Per Share of Common Stock			$	0.3725	$	0.3725

Weighted-Average Shares of Common Stock Outstanding(in thousands)
		Basic		666,974		630,749
		Diluted		668,732		663,939

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
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

		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

(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 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

				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

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

	Carrying		Fair Value Measurement Using
	Amount (a)			Level 3		Loss (b)
PPL and PPL Energy Supply
Kerr Dam Project	$	47		$	29	$	18

Derivative Instruments	Location of Gain (Loss)	Three Months		Six Months

Interest rate swaps	Regulatory liabilities - noncurrent	$	48	$	58

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

					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

16. Asset Retirement Obligations

(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

				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

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

Liquidity and Capital Resources

(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

		Debt				Net Stock
		Issuances (a)		Retirements		Issuances

	PPL	$	296	$	239	$	1,017
	PPL Electric		296		10

Non-cash Transactions:
	PPL (b)	$	750	$	750