~~PPL Energy Supply,~~

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, 2015								December 31, 2014
		Weighted -				Commercial				Weighted -		Commercial
		Average				Paper		Unused		Average		Paper
		Interest Rate		Capacity		Issuances		Capacity		Interest Rate		Issuances

PPL Electric			0.42%	$	300	$	168	$	132
LG&E			0.49%		350		259		91		0.42%	$	264
KU			0.48%		350		227		123		0.49%		236
	Total			$	1,000	$	654	$	346			$	500

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)~~

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, 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, but is subject to automatic one-year renewals under certain conditions. There were $41 million of secured obligations outstanding under this facility at June 30, 2014.

~~(PPL Electric and LKE)~~

(LKE)

See Note 11 for discussion of intercompany borrowings.

~~Long-term Debt and Equity Securities~~

(PPL)

At-The-Market Stock Offering Program

In ~~March 2014,~~February 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~~three 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 months ended June 30, ~~2014. In May 2014,~~2015, PPL issued ~~31.7 million~~421,700 shares of common stock under the program at ~~$30.86~~an average price of $33.73 per share, ~~to settle the 2011 Purchase Contracts. PPL received~~receiving net ~~cash~~ proceeds of ~~$978 million, which were used to repay short-term debt and for general corporate purposes.~~

~~(PPL and PPL Electric)~~

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.

$14 million.

Distributions~~(PPL)~~

In May ~~2014,~~2015, PPL declared its quarterly common stock dividend, payable July 1, ~~2014,~~2015, at 37.25 cents per share (equivalent to $1.49 per annum). On August 3, 2015, PPL announced that the company is increasing its common stock dividend to 37.75 cents per share on a quarterly basis (equivalent to $1.51 per annum). The increased dividend will be payable on October 1, 2015 to shareowners of record as of September 10, 2015. 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.

See Note 8 for information regarding the June 1, 2015 distribution to PPL's shareowners of a newly formed entity, Holdco, which at closing owned all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy.

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.

~~Divestitures~~

~~Anticipated~~

(PPL)

Discontinued Operations

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 spin off PPL Energy Supply and immediately combine ~~their~~it with Riverstone's competitive power generation businesses ~~into~~to form a new, stand-alone, publicly traded ~~independent power producer~~company named Talen Energy. ~~Under~~The transaction was subject to customary closing conditions, including receipt of regulatory approvals from the ~~terms~~NRC, FERC, DOJ and PUC, all of which were received by mid-April 2015. On April 29, 2015, PPL's Board of Directors declared the June 1, 2015 distribution to PPL's shareowners of record on May 20, 2015 of a newly formed entity, Holdco, which at closing owned all of the ~~agreements, at closing, PPL will spin off~~membership interests of PPL Energy Supply and all of the common stock of Talen Energy.

Immediately following the spinoff on June 1, 2015, Holdco merged with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power was contributed by its owners to become a subsidiary of Talen Energy. PPL shareowners ~~and simultaneously combine that business with RJS Power. Upon closing,~~received approximately 0.1249 shares of Talen Energy common stock for each share of PPL common stock they owned on May 20, 2015. Following completion of these transactions, PPL shareowners ~~will own~~owned 65% of Talen Energy and affiliates of Riverstone ~~will own~~owned 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~~had 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~~purposes.

PPL has no continuing ownership interest in, control of, or affiliation with Talen Energy and Talen Energy Supply (formerly PPL Energy Supply).

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Loss on Spinoff

In conjunction with the accounting for the spinoff, PPL evaluated whether the fair value of the Supply segment's net assets was less than the carrying value as of the June 1, 2015 spinoff date.

PPL considered several valuation methodologies to derive a fair value estimate of its Supply segment at the spinoff date. These methodologies included considering the closing "when-issued" Talen Energy market value on June 1, 2015 (the spinoff date), adjusted for the proportional share of the equity value attributable to the Supply segment, as well as, the valuation methods consistently used in PPL's goodwill impairment assessments - an income approach using a discounted cash flow analysis of the Supply segment and an alternative market approach considering market multiples of comparable companies.

Although the market value of Talen Energy approach utilized the most observable inputs of the three approaches, PPL considered certain limitations of the "when-issued" trading market for the spinoff transaction including the short trading duration, lack of liquidity in the market and anticipated initial Talen stock ownership base selling pressure, among other factors, and concluded that these factors limit this input being solely determinative of the fair value of the Supply segment. As such, PPL also considered the other valuation approaches in estimating the overall fair value, but ultimately assigned the highest weighting to the Talen Energy market value approach.

The following table summarizes PPL's fair value analysis:

		Weighted
		Fair Value
Approach	Weighting	(in billions)

Talen Energy Market Value	50%	$	1.4
Income/Discounted Cash Flow	30%		1.1
Alternative Market (Comparable Company)	20%		0.7
Estimated Fair Value		$	3.2

A key assumption included in the fair value estimate is the application of a control premium of 25% in the two market approaches. PPL concluded it was appropriate to apply a control premium in these approaches as the goodwill impairment testing guidance was followed in determining the estimated fair value of the Supply segment which has historically been a reporting unit for PPL. This guidance provides that the market price of an individual security (and thus the market capitalization of a reporting unit with publically traded equity securities) may not be representative of the fair value of the reporting unit. This guidance also indicates that substantial value may arise to a controlling shareholder from the ability to take advantage of synergies and other benefits that arise from control over another entity, and that the market price of a Company's individual share of stock does not reflect this additional value to a controlling shareholder. Therefore, the quoted market price need not be the sole measurement basis for determining the fair value, and including a control premium is appropriate in measuring the fair value of a reporting unit.

In determining the control premium, PPL reviewed premiums received during the last five years in market sales transactions obtained from observable independent power producer and hybrid utility transactions greater than $1 billion. Premiums for these transactions ranged from 5% to 42% with a median of approximately 25%. Given these metrics, PPL concluded a control premium of 25% to be reasonable for both of the market valuation approaches used.

Assumptions used in the discounted cash flow analysis included forward energy prices, forecasted generation, and forecasted operation and maintenance expenditures that were consistent with assumptions used in the Energy Supply portion of the recent Talen Energy business planning process and a market participant discount rate.

Using these methodologies and weightings, PPL determined the estimated fair value of the Supply segment (Classified as Level 3) was below its carrying value of $4.1 billion and recorded a loss on the spinoff of $879 million, which is reflected in discontinued operations and is ~~subject~~nondeductible for tax purposes. This amount served to ~~customary closing conditions, including receipt~~reduce the basis of ~~certain regulatory approvals by~~ the ~~NRC,~~net assets accounted for as a dividend at the ~~FERC, the DOJ and the PUC. In addition, there must be available, subject to certain conditions, at least $1 billion~~June 1, 2015 spinoff date.

Costs 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)~~

Spinoff

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

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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 June 30, 2015 and December 31, 2014, the recorded liabilities related to the separation benefits were $13 million and ~~related~~$21 million, which are included in "Other current liabilities" on the Balance Sheets.

Additional employee-related costs ~~are anticipated to be recorded in future periods. The separation 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 Services employees who became PPL Energy Supply employees in connection with the ~~range of costs that will be incurred and when those costs will be~~transaction. PPL Energy Supply 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$24 million of these costs at the spinoff closing date which are ~~expected to be reimbursed to~~reflected in discontinued operations.

As the vesting for all PPL ~~by Talen~~ Energy ~~upon closing of the transaction. As a result, a range of the separation costs associated~~Supply employees was accelerated and all remaining unrecognized compensation expense accelerated concurrently with the spinoff, ~~transaction and the timing of when those~~PPL does not expect to recognize significant future compensation costs for equity awards held by former PPL Energy Supply employees. PPL's future stock-based compensation expense will not be ~~recognized cannot be reasonably estimated at this time but could be material.~~

~~(PPL)~~

Assignificantly impacted by equity award adjustments that occurred as a result of the spinoff. Stock-based compensation expense recognized in future periods will correspond to the unrecognized compensation expense as of the date of the spinoff. Unrecognized compensation expense as of the date of the spinoff ~~announcement,~~ reflects the unamortized balance of the original grant date fair value of the equity awards held by PPL employees.

PPL recorded ~~$46~~$36 million and $42 million of ~~deferred income tax expense~~third-party costs related to this transaction during the three and six months ended June 30, ~~2014 to adjust valuation allowances on deferred tax assets~~2015. Of these costs, $29 million and $31 million were primarily for ~~state net operating loss carryforwards that~~bank advisory, legal and accounting fees to facilitate the transaction, and are reflected in discontinued operations. An additional $7 million and $11 million of consulting and other costs were ~~previously supported by~~incurred to prepare the ~~future earnings~~new Talen Energy organization for the spinoff and reconfigure the remaining PPL service functions. These costs are primarily recorded in "Other operation and maintenance" on the Statement of ~~PPL Energy Supply.~~

~~In addition,~~Income. PPL recorded $16 million of third-party costs related to this transaction during the three and six months ended June 30, ~~2014 related~~2014. No significant additional third-party costs are expected to ~~this~~be incurred.

At the close of the transaction, $72 million ($42million after-tax) of cash flow hedges, primarily unamortized losses on PPL interest rate swaps recorded in ~~"Other~~AOCI and designated as cash flow hedges of PPL Energy Supply's future interest payments, were reclassified into earnings and reflected in discontinued operations.

Continuing Involvement

As a result of the spinoff, PPL and PPL Energy Supply entered into a Transition Services Agreement (TSA) which terminates no later than two years from the spinoff date. The TSA sets forth the terms and conditions for PPL and Talen Energy to provide certain transition services to one another. PPL will provide Talen Energy certain information technology, financial and accounting, human resource and other specified services. For the period June 1, 2015 to June 30, 2015, the amounts PPL billed Talen Energy for these services were not significant. In general, the fees for the transition services allow the provider to recover its cost of the services, including overheads, but without margin or profit.

Additionally, prior to the spinoff, through the annual competitive solicitation process, PPL EnergyPlus was awarded supply contracts for a portion of the PLR generation supply for PPL Electric, which were retained by Talen Energy Marketing as part of the spinoff transaction. PPL Electric's supply contracts with Talen Energy Marketing extend through December 2015. The energy purchases were previously included in PPL Electric's Statements of Income ~~(Expense) - net"~~as "Energy purchases from affiliate" but were eliminated in PPL's Consolidated Statements of Income.

For the period June 1, 2015 to June 30, 2015, PPL Electric's energy purchases from Talen Energy Marketing were not significant and are no longer considered affiliate transactions.

Summarized Results of Discontinued Operations

The operations of the Supply segment are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the ~~Statement~~Statements of Income. Following are the components of Discontinued Operations in the Statements of Income ~~primarily~~ for ~~investment bank advisory, legal, consulting~~the periods ended June 30:

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	Three Months				Six Months
	2015		2014		2015		2014

Operating revenues	$	483	$	1,046	$	1,427	$	118
Operating expenses		561		1,006		1,328		164
Other Income (Expense) - net		(29)		(8)		(22)		(2)
Interest Expense (a)		112		50		150		98
Income (loss) before income taxes		(219)		(18)		(73)		(146)
Income tax expense (benefit)		(91)		(17)		(40)		(72)
Loss on spinoff		(879)				(879)
Income (Loss) from Discontinued Operations (net of income taxes)	$	(1,007)	$	(1)	$	(912)	$	(74)

(a)

Includes interest associated with the Supply Segment with no additional allocation as the Supply segment was sufficiently capitalized.

Summarized Assets and ~~accounting fees. PPL cannot currently estimate a range~~Liabilities of ~~total third-party costs that will ultimately be incurred; however, additional costs of at least $26 million will be recognized upon closing of the transaction.~~

Discontinued Operations

The assets and liabilities of ~~PPL Energy~~PPL's Supply ~~will continue~~segment for all periods prior to ~~be classified as "held~~the spinoff are included in "Current assets of discontinued operations", "Noncurrent assets of discontinued operations", "Current liabilities of discontinued operations" and ~~used"~~"Noncurrent liabilities of discontinued operations" on PPL's Balance ~~Sheet until the closing~~Sheet. Net assets, after recognition of the ~~transaction. The~~loss on spinoff, ~~announcement was evaluated and determined not~~of $3.2 billion were distributed to ~~be an event or~~PPL shareowners on June 1, 2015, as a ~~change in circumstance that required a recoverability test or a goodwill impairment assessment. However, an impairment loss could be recognized by PPL at~~result of the ~~spinoff date if~~completion of the ~~aggregate carrying amount~~spinoff of PPL Energy ~~Supply's~~Supply. The following major classes of assets and liabilities ~~exceeds its aggregate fair value at that date. PPL cannot currently predict whether an impairment loss will be recorded at~~were distributed and removed from PPL's Balance Sheet on June 1, 2015. Additionally, the ~~spinoff date.~~following major classes of assets and liabilities were reclassified to discontinued operations as of December 31, 2014:

			Discontinued
	Distribution at		Operations at
	June 1,		December 31,
	2015		2014
Cash and cash equivalents (a)	$	371	$	352
Restricted cash and cash equivalents		156		176
Accounts receivable and unbilled revenues		325		504
Fuels, materials and supplies		415		455
Price risk management assets		784		1,079
Other current assets		65		34
Total Current Assets		2,116		2,600

Investments		999		980
PP&E, net		6,384		6,428
Goodwill		338		338
Other intangibles		260		257
Price risk management assets		244		239
Other noncurrent assets		78		75
Total Noncurrent Assets		8,303		8,317

Total assets	$	10,419	$	10,917

Short-term debt and long-term debt due within one year	$	885	$	1,165
Accounts payable		252		361
Price risk management liabilities		763		1,024
Other current liabilities		229		225
Total Current Liabilities		2,129		2,775

Long-term debt (excluding current portion)		1,932		1,683
Deferred income taxes		1,259		1,223
Price risk management liabilities		206		193
Accrued pension obligations		244		299
Asset retirement obligations		443		415
Other deferred credits and noncurrent liabilities		103		150
Total Noncurrent Liabilities		4,187		3,963

Total liabilities	$	6,316	$	6,738
Adjustment for loss on spinoff		879
Net assets distributed	$	3,224

(a)

The distribution of PPL Energy Supply's cash and cash equivalents at June 1, 2015 is included in "Net cash provided by (used in) financing activities - discontinued operations" on the Statement of Cash Flows for the six months ended June 30, 2015.

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(~~PPL Energy Supply)~~

PPL Energy 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.

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 from the sale remained with PPL and did not transfer to ~~certain adjustments.~~Talen Energy as a result of the spinoff of PPL Energy Supply. 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~~Supply segment.

As the Montana hydroelectric power facilities were previously reported as ~~held for sale on the balance sheet.~~

~~Development~~

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

~~In January 2014, the U.S. Department~~a component 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~~the Supply Segment, the components of discontinued operations for ~~the receipt of the grant~~these facilities contained in the ~~first quarter~~Statements 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 significant for the three and six months ended June 30, 2014, and will not be significant in future periods.

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 grantIncome are included 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.

disclosure above.

Development

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

~~Construction activity continues on the previously announced NGCC unit,~~

Cane Run Unit 7 ~~scheduled~~was put into commercial operation on June 19, 2015. LG&E retired one coal-fired generating unit at the Cane Run plant in March 2015 and retired the remaining two coal-fired generating units at the plant in June 2015. LG&E incurred costs of $11 million directly related to ~~be operational in May 2015.~~ these retirements consisting of an inventory write-down and separation benefits. However, there were no gains or losses on the retirement of these units.

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 performed a remeasurement of the assets and the obligations for the PPL Retirement Plan and PPL Postretirement Benefit plans as of May 31, 2015 to allow for separation of those plans for PPL and Talen Energy as required in accordance with the spinoff transaction agreements. The net pension obligations for all active PPL Energy Supply employees and for individuals who terminated employment from PPL ~~Electric~~)

~~Effective~~Energy Supply on or after July 1, ~~2014,~~2000 were distributed and removed from PPL's ~~primary defined~~Balance Sheet. The net other postretirement benefit obligations for all active PPL Energy Supply employees were distributed and removed from PPL's Balance Sheet. In addition, the net nonqualified pension plan obligations for all PPL Energy Supply active and inactive employees were retained by PPL. As a result, PPL distributed and removed from its Balance Sheet $244 million of net accrued pension obligations and $7 million of other postretirement ~~medical plan were closed to newly hired IBEW Local 1600 employees. As such,~~benefit obligations. See Note 8 for additional information on the ~~majority~~spinoff of ~~PPL's defined benefit pension plans are now closed to newly hired employees.~~

~~(All Registrants except~~ PPL ~~Electric~~Energy Supply.

(PPL, LKE 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.
			2015 (b)		2014 (c)		2015		2014		2015 (b)		2014 (c)		2015		2014
PPL
Service cost			$	26	$	24	$	19	$	18	$	56	$	49	$	39	$	36
Interest cost				52		56		77		90		110		112		156		178
Expected return on plan assets				(69)		(72)		(129)		(132)		(145)		(144)		(260)		(262)
Amortization of:
		Prior service cost		2		5						4		10
		Actuarial (gain) loss		22		7		40		33		47		14		79		66
Net periodic defined benefit
	costs (credits) prior to
	termination benefits			33		20		7		9		72		41		14		18

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~~Table of ~~a one-time voluntary retirement window offered to certain bargaining unit employees.~~Contents

Other Postretirement Benefits
Three Months Six Months
2014 2013 2014 2013
PPL
Service cost $ 3 $ 3 $ 6 $ 7
Interest cost 8 7 16 14
Expected return on plan assets (7) (6) (13) (12)
Amortization of:
Actuarial (gain) loss 2 3
Net periodic defined benefit costs (credits) $ 4 $ 6 $ 9 $ 12

LKE
Service cost $ 1 $ 1 $ 2 $ 2
Interest cost 3 2 5 4
Expected return on plan assets (2) (1) (3) (2)
Amortization of:
Prior service cost 1 1
Net periodic defined benefit costs (credits) $ 2 $ 2 $ 5 $ 5

		Pension Benefits
		Three Months								Six Months
		U.S.				U.K.				U.S.				U.K.
		2015 (b)		2014 (c)		2015		2014		2015 (b)		2014 (c)		2015		2014
Termination benefits (a)					20								20
Net periodic defined benefit
	costs (credits)	$	33	$	40	$	7	$	9	$	72	$	61	$	14	$	18


		Pension Benefits
		Three Months				Six Months
		2015		2014		2015		2014
LKE
Service cost		$	6	$	5	$	13	$	11
Interest cost			17		16		34		33
Expected return on plan assets			(22)		(21)		(44)		(41)
Amortization of:
	Prior service cost		2		1		4		2
	Actuarial (gain) loss		9		3		17		6
Net periodic defined benefit costs (credits)		$	12	$	4	$	24	$	11

LG&E
Service cost		$	1	$	1	$	1	$	1
Interest cost			4		3		7		7
Expected return on plan assets			(5)		(5)		(10)		(10)
Amortization of:
	Prior service cost						1		1
	Actuarial (gain) loss		3		2		6		3
Net periodic defined benefit costs (credits)		$	3	$	1	$	5	$	2

(a)

Includes termination benefits of $4 million for PPL Electric. The remaining $16 million relates to PPL Energy Supply and is reflected in discontinued operations.

(b)

For the three and six months ended June 30, 2015, the total net periodic defined benefit cost include $7 million and $18 million reflected in discontinued operations related to costs allocated from PPL's plans to PPL Energy Supply prior to the spinoff.

(c)

For the three and six months ended June 30, 2014, the total net periodic defined benefit cost include $23 million and $28 million reflected in discontinued operations related to costs allocated from PPL's plans to PPL Energy Supply.

		Other Postretirement Benefits
		Three Months				Six Months
		2015		2014		2015		2014
PPL
Service cost		$	3	$	3	$	7	$	6
Interest cost			7		8		14		16
Expected return on plan assets			(7)		(7)		(14)		(13)
Net periodic defined benefit costs (credits)		$	3	$	4	$	7	$	9

LKE
Service cost		$	2	$	1	$	3	$	2
Interest cost			3		3		5		5
Expected return on plan assets			(2)		(2)		(3)		(3)
Amortization of:
	Prior service cost						1		1
Net periodic defined benefit costs (credits)		$	3	$	2	$	6	$	5

(~~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, 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
	2015		2014		2015		2014

PPL Electric (a)	$	8	$	10	$	16	$	15

LG&E			4			2			7			4
KU			4			1			9			4

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

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(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.~~

10. Commitments and Contingencies

(PPL)

All commitments, contingencies and guarantees associated with PPL Energy ~~Purchase Commitments~~

~~(PPL Electric)~~

~~See Note 11 for information on~~Supply and its subsidiaries were retained by Talen Energy Supply and its subsidiaries at the ~~power supply agreements between PPL EnergyPlus and PPL Electric.~~

spinoff date without recourse to PPL.

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)~~(e) 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)~~

~~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 and Pacific Corp. PPL Montana operates Colstrip on behalf of the co-owners. The suit 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.

On July 27, 2013, the Sierra Club and MEIC filed an additional Notice, identifying additional plant projects that are alleged not to be in compliance with the Clean Air Act. In September 2013, the plaintiffs filed an amended complaint. This amended complaint drops all claims regarding pre-2001 plant projects, as well as the plaintiffs' Title V and opacity claims. It does, 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. On 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. In April 2014, trial as to liability in this matter was re-scheduled to June 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.

(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,~~claim, 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. Oral argument is scheduled for August 2015. PPL, LKE and LG&E cannot predict the outcome of this ~~matter or the potential impact on operations of~~matter. LG&E retired one coal-fired unit at the Cane Run ~~plant. LG&E has previously announced that it anticipates retiring~~plant in March 2015 and the remaining two coal-fired units at ~~Cane Run before~~ the ~~end of~~plant in June 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. In July 2015, the Court held a hearing regarding various cross-motions for summary judgment which are pending. 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 that intervenes in the wholesale capacity market exclusively regulated by the FERC (the Act). 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, 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. 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 appealed to the U.S. Court of Appeals for the Third Circuit by CPV Power Development, Inc., Hess Newark, LLC and the State of New Jersey and oral argument was held on March 27, 2014. PPL, PPL Energy Supply and PPL Electric cannot predict the outcome of this proceeding or the economic impact on their businesses or operations, or the markets in which they transact business.

~~Maryland Capacity Order~~

In April 2012, the Maryland Public Service Commission (MD PSC) ordered 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 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, 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 in Maryland (District Court) challenging the MD PSC 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 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. In June 2014, the Fourth Circuit affirmed the District Court's opinion and subsequently denied the appellants' motion for rehearing.

~~Pacific Northwest Markets(PPL and PPL Energy Supply)~~

Through its subsidiaries, PPL Energy Supply made spot market bilateral sales of power in the Pacific Northwest during the period from December 2000 through June 2001. Several parties subsequently claimed refunds at FERC as a result of these sales. In June 2003, the FERC terminated proceedings to consider whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. In August 2007, the U.S. Court of Appeals for the Ninth Circuit reversed the FERC's decision and ordered the FERC to consider additional evidence. In October 2011, the FERC initiated proceedings to consider additional evidence. In July 2012, PPL Montana and the City of Tacoma, one of the two parties claiming refunds at FERC, reached a settlement whereby PPL Montana paid $75 thousand to resolve the City of Tacoma's $23 million claim. The settlement does not resolve the remaining claim outstanding at June 30, 2014 by the City of Seattle for approximately $50 million. Hearings before a FERC Administrative Law Judge (ALJ) regarding the City of Seattle's refund claims were completed in October 2013 and briefing was completed in January 2014. In March 2014, the ALJ issued an initial decision denying the City of Seattle's complaint against PPL Montana. The initial decision is pending review by the FERC.

Although PPL and its subsidiaries believe they have not engaged in any improper trading or marketing practices affecting the Pacific Northwest markets, PPL and PPL Energy Supply cannot predict the outcome of the above-described proceedings or

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.

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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 small 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.~~and in May 2015 FERC proposed to approve NERC's proposed standard. The proposal addressed many of the industry's concerns and the Registrants ~~may be required to make~~do not presently anticipate significant ~~expenditures in new equipment or modifications to their facilities~~costs to comply with the ~~new requirements. The Registrants are unable to predict the amount of any expenditures that may be required~~requirements if finalized as ~~a result of the adoption of any Reliability Standards for geomagnetic disturbances.~~

proposed.

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)~~

LKE, LG&E and KU)

Air

~~CSAPR (formerly~~

The Clean Air ~~Transport Rule)~~Act, which regulates air pollutants from mobile and ~~CAIR~~

~~In July 2011,~~stationary sources, has a significant impact on the operation of fossil fuel plants. The Clean Air Act requires the EPA ~~adopted~~periodically to review and establish concentration levels in the ~~CSAPR.~~ambient air for six criteria pollutants to protect public health and welfare. These concentration levels are known as NAAQS. The ~~CSAPR replaced~~six criteria pollutants are carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter and SO₂.

Federal environmental regulations of these criteria pollutants require states to adopt implementation plans, known as SIPs, for certain pollutants, which detail how the ~~EPA's previous CAIR which was invalidated in July 2008~~state will attain the standards that are mandated by the ~~U.S. Court~~relevant law or regulation. Each state identifies the areas within its boundaries that meet the NAAQS (attainment areas) and those that do not (non-attainment areas), and must develop a SIP both to bring non-attainment areas into compliance with the NAAQS and to maintain good air quality in attainment areas. In addition, for attainment of ~~Appeals for~~ ozone and fine particulates standards, states in

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the ~~District of Columbia Circuit (D.C. Circuit Court). CAIR subsequently was effectively reinstated by the D.C. Circuit Court in December 2008, pending finalization~~eastern portion 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~~country, including Kentucky, are subject to 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 CAIRregional program ~~with CSAPR, depending on future determinations~~developed by the EPA known as the Cross-State Air Pollution Rule. The NAAQS, future revisions to the NAAQS and SIPs implementing them, or future revisions to regional programs, may require installation of additional pollution controls, 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.~~costs of which 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 needbelieve are subject to ~~buy allowances and/or make operational changes.~~cost recovery.

Although PPL, LKE, LG&E and KU do not currently anticipate ~~that the~~significant costs ~~of meeting~~to comply with 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~~programs, changes in ~~service~~market or operating conditions could result 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~~different costs ~~of which are not anticipated to be significant.~~

than anticipated.

National Ambient Air Quality Standards

(NAAQS)

In 2008, the EPA revised the ~~National Ambient Air Quality Standard~~NAAQS for ~~ozone. As a result,~~ozone and proposed to further strengthen the standard in November 2014.The EPA is required 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. States that are not in the ozone transport region, ~~(OTR),~~ including ~~Pennsylvania,~~Kentucky, are ~~required by the Clean Air Act~~working together to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies. The PADEP has issued a draft rule requiring reasonable reductions. However, the proposal is being questioned as too lenient by the EPA, other OTR states and environmental groups. The PADEP may impose more stringent emission limits than those set forth in the proposed rule which could have a significant impact on PPL Energy Supply's Pennsylvania coal plants. The EPA is expected to further tighten the ozone standard in the near term, which may requireevaluate further nitrogen oxide ~~controls, particularly within the OTR.~~

~~In December 2012, the EPA issued final rules that tighten the National Ambient Air Quality Standard for fine particulates.~~reductions from fossil-fueled plants with SCRs. The ~~rules were challenged by industry groups,~~nature and on May 9, 2014 the D.C. Circuit Court upheld them. Under the final rules, states 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 predicted at this time.

In 2010, the EPA finalized ~~a new National Ambient Air Quality Standard~~revised NAAQS 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 are working on designations for other areas. On~~

~~April 17, 2014 the EPA proposed timeframes for completing these designations.~~ PPL, ~~PPL Energy Supply,~~ LKE, LG&E and KU anticipate that some of the measures required for compliance with ~~the CAIR~~Clean Air Act regulations governing attainment of ozone or ~~CSAPR (as discussed above), or the MATS, or the Regional Haze requirements (as discussed below),~~particulates standards, 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~~LG&E's Cane Run plant and KU's 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~~costs 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 PPL Energy Supply previously announced its intent to place the plant in long-term reserve status beginning in April 2015.

~~Until final rules are promulgated, non-attainment designations are finalized~~

Mercury 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~~

Toxics Standards (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, known as the MATS,~~plants, with an effective date of April 16, 2012. The MATS 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 of 23 states filed a petition seeking Supreme Court review of this decision. The rule provides for a three-year compliance deadline with the potential for a one-year extension as provided under the statute. LG&E, KU and PPL Energy Supply have received compliance extensions for certain plants and are considering extension requests for additional plants.

At the time the MATS rule was proposed, LG&E and KU filed requests with the KPSC for environmental cost recovery based on their expected need to install environmental controls including chemical additive and fabric-filter baghouses to remove air pollutants. Recovery of the cost of certain controls was granted by the KPSC in December 2011. LG&E's and KU's anticipated retirement of certain coal-fired electricity generating units located at Cane Run and Green River is in response to MATS and other environmental regulations. LG&E and KU are continuing to assess whether any revisions of their approved compliance plans will be necessary.

With respect to PPL Energy Supply's Pennsylvania plants, PPL Energy Supply believes that installation of chemical additive systems may be necessary at certain coal-fired plants, 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 Montana plants, modifications to the air pollution controls installed on Colstrip may be required, the cost of which is not expected to be significant. For the Corette plant, PPL Energy Supply announced in September 2012 its intention, beginning in April 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, LG&E and KU are continuing to conduct in-depth reviews of the MATS, including the potential implications to scrubber wastewater discharges. See the discussion of effluent limitations guidelines and standards below.

~~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 has been the western U.S. because the EPA had determined that the regional trading program in the eastern U.S. under the CSAPR satisfies BART requirements to reduce sulfur dioxide and nitrogen oxides. Although the D.C. Circuit Court's August 2012 decision to vacate 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, 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 limits for Corette and Colstrip Units 1 and 2. PPL Energy Supply expects to meet these tighter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations at Corette beginning in April 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~~D. C. Circuit Court (D.C. Circuit Court) in April 2014. A group of states subsequently petitioned the U.S. Supreme Court (Supreme Court) to review this decision and on June 29, 2015, the Supreme Court held that the EPA failed to properly consider costs when deciding to regulate hazardous air emissions from power plants under MATS. The Court remanded the matter to the D.C. Circuit Court. EPA's MATS rule remains in effect pending action by the D.C. Circuit Court. It is uncertain whether the D.C. Circuit Court will vacate the MATS rule, remand the rule to the EPA, or require further proceedings or actions.

LG&E and KU have installed significant controls in connection with the MATS rule and in conjunction with compliance with other environmental requirements, including fabric-filter baghouses, upgraded FGDs or chemical additive systems for which appropriate KPSC authorization and/or ECR treatment has been received. PPL, LKE, LG&E and KU cannot predict the outcome of this matter or the potential impact, if any, on ~~May 16, 2014.~~

plant operations, rate treatment or future capital or operating needs.

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. 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. 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. 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~~LKE, LG&E and ~~other owners~~KU cannot predict the outcome of ~~Colstrip.~~

these matters, and cannot estimate the impact, if any.

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)~~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.~~significant.

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~~TC2~~

Trimble County Unit 2 Air Permit ~~(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 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 for both new and existing power plants, which it expects to finalize in the third quarter of 2015. The EPA ~~issued its revised~~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 under these rules. 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.

The EPA's proposal for new ~~sources on September 20, 2013 as directed by the White House. This proposal~~power plants was ~~published~~issued in ~~the Federal Register on~~ January 8, 2014. 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 preclusion of new coal-fired plants and the compliance difficulties posed for new gas-fired plants could have a significant industry-wide impact.

The EPA's ~~proposed regulation addressing GHG emissions from~~proposal for existing ~~sources~~power plants was ~~published~~issued in ~~the Federal Register on~~ June ~~18,~~ 2014. 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~~LG&E and KU have analyzed the proposal and identified potential impacts and solutions in ~~preparation~~comments filed in December 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~~reliability implications of implementing this rule. LG&E and KU are also working closely with state regulators in the ~~October 16, 2014 deadline.~~development of Kentucky's state implementation plan. The regulation of ~~GHG~~ carbon dioxide

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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 the EPA a GHG white paper on April 10, 2014 regarding the regulation of carbon dioxide emissions under Section 111(d) of the Clean Air Act. The PADEP expects to achieve reductions required under the EPA's proposed rule by increasing efficiency at existing fossil-fuel plants and/or reducing generation. The PADEP specifically excludes demand-side energy efficiency projects (such as DSM and 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, 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 rules for existing plants. The legislation, which will next be considered by the Pennsylvania Senate, includes provisions to minimize the exposure to a federal implementation plan due to legislative delay.

(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,~~June 2011, the U.S. Supreme 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 claims against five utility companies 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~~GHGs 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~~upheld 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 Supreme Court denied a petition to reverse the Fifth Circuit's ruling. In May 2011, the plaintiffs in the Comer case later filed a substantially similar complaint ~~in federal district court in Mississippi~~ against 87a larger group of companies ~~including KU and three other indirect subsidiaries~~which was subsequently dismissed by the U. S. District Court for the Southern District 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 forMississippi. The lower court's ruling was affirmed by the Fifth Circuit ~~and~~ in May ~~2013, the Fifth Circuit affirmed the district court's dismissal of the case.~~2013. Additional litigation in federal and state courts over such issues is continuing. ~~The Registrants~~PPL, LKE, LG&E and KU cannot predict the outcome of these ~~lawsuits or estimate a range of reasonably possible losses, if any.~~

~~Renewable Energy Legislation~~

matters.

(~~All Registrants)~~

~~There has been interest in renewable energy legislation at both the state~~PPL, LKE, LG&E 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 introduced calling for an increase in Alternative Energy Portfolio Standard (AEPS) Tier 1 obligations and to create a $25 million permanent funding program for solar generation. Bills (SB 1171 and HB 100) were also introduced to add natural gas as a qualified AEPS resource, and another 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 is reviewing the state's Renewable Portfolio Standard (RPS). PPL and PPL Energy Supply cannot predict at this time whether the committee will recommend any changes to existing laws. In New Jersey, a bill (S-1475) has been introduced to increase the current RPS standard 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. PPL and PPL Energy Supply are unable to predict the outcome of this legislation at this time.

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.

KU)

Water/Waste

Coal Combustion Residuals (CCRs)~~(All Registrants except PPL Electric)~~

~~In June 2010,~~

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~~is enforceable through citizen suits. LG&E's and ~~most significantly affect any wet disposal operations. Under this approach, many of the current markets for beneficial uses would not be affected. Currently, PPL expects that several of its~~KU's 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 management practices at numerous plants throughout the power industry as it considers whether or not 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 legislation 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 to address other provisions of the rule, such as groundwater monitoring and disposal facility modifications or closings, or to implement various compliance strategies.

In connection with the final ~~requirements~~CCR rule, LG&E and KU recorded increases to existing AROs during the second quarter of ~~the EPA's CCR regulations~~2015. See Note 16 for additional information. Further increases to AROs or ~~potential~~ changes to ~~the RCRA~~current capital plans or to operating costs may be required as estimates are refined based on closure developments, groundwater monitoring results, and ~~what impact they would have on their facilities, but the financial and operational impact is expected~~regulatory or legal proceedings. Costs relating to ~~be material if CCRs~~this rule are ~~regulated as hazardous waste and significant if regulated as non-hazardous.~~

subject to rate recovery.

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~~Act. 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 have responded. 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

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legal challenges are concluded.

~~Seepages~~ See Note 6 for additional information on Kentucky Public Service Commission proceedings relating to the Trimble County Landfill.

Clean Water Act

Regulations under the federal Clean Water Act dictate permitting and ~~Groundwater Infiltration - Pennsylvania, Montana~~mitigation requirements for many of LG&E's 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 assessmentsKU's construction projects. Many of ~~seepages or groundwater infiltration at various facilities and have completed or are working with agencies~~those requirements relate 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)~~

~~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~~power plant operations, including requirements related to the ~~wastewater facilities at~~treatment of pollutants in effluents prior to discharge, 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~~temperature of ~~the waste-water treatment facilities. PPL Montana cannot predict at this time if the actions required under the AOC will create the need to adjust the existing ARO related to these facilities.~~

In September 2012, Earthjustice filed an affidavit pursuant to Montana's Major Facility Siting Act (MFSA) that sought review of the AOC by Montana's Board of Environmental Review (BER) on behalf of the Sierra Club, the MEIC,effluent discharges 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 reviewlocation, design and construction 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 MDEQ responded to the amended petition and filed partial motions to dismiss in July 2014.

~~(All Registrants except PPL Electric)~~

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

~~The EPA's final rule under 316(b) was issued on May 16, 2014. The rule contains two requirements to reduce impact to aquatic organisms at~~ cooling water intake ~~structures. The first requires all existing~~structures at generating facilities, standards intended to ~~meet standards for the reduction of mortality of~~protect aquatic organisms ~~that become trapped against~~by reducing capture in the screens attached to cooling water intake ~~screens~~structures (impingement) regardless of the levels of mortality actually occurring or the cost to achieve the standards. The second requirement is to determine and install the best technology available to reduce mortality of 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 to energy delivery reliabilityat generating facilities and the ~~remaining useful life of~~water volume brought into the ~~plant. PPL, PPL Energy Supply, LKE, LG&E and KU~~facilities (entrainment). The requirements could impose significant costs which are ~~evaluating compliance strategies but do not presently expect the compliance costs~~subject to ~~be material.~~

rate recovery.

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~~ELGs 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.~~finalized as proposed. The proposal contains alternative approaches, some of which could ~~significantly impact PPL's~~impose significant costs on LG&E's and KU's coal-fired plants. ~~PPL, PPL Energy Supply, LKE, LG&E and KU worked with industry groups~~The final regulation is expected to ~~comment on~~be issued by the ~~proposed regulation on September 20, 2013. The EPA has agreed to a new deadline for the final rule~~fourth quarter of ~~September 30, 2015 which is contingent upon the EPA meeting its deadline of December 19, 2014 for issuing its final CCR regulations.~~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 and costs could be imposed ahead of federal timelines.

Costs to comply with ELGs or technology-based limits are subject to rate recovery.

(PPL, LKE and LG&E)

Clean Water Act Section 316(b)

The EPA's final 316(b) rule for existing facilities became effective in October 2014, and regulates cooling water intake structures and their impact on aquatic organisms. States are allowed broad discretion to make site-specific determinations under the rule. The rule requires existing facilities to choose between several options to reduce the impact to aquatic organisms that become trapped against water intake screens (impingement) and to determine the intake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). Plants equipped with closed-cycle cooling, an acceptable option, would likely not incur substantial costs. Once-through systems would likely require additional technology to comply with the rule. Mill Creek Unit 1 is the only unit expected to be impacted. PPL, LKE, and LG&E are evaluating compliance strategies but do not presently expect the compliance costs, which are subject to rate recovery, to be significant.

(All Registrants)

Waters of the United States (WOTUS)

On ~~April 21, 2014,~~May 27, 2015, the EPA released a final rule on the definition of WOTUS. Although the rule was meant to clarify which streams and other bodies of water fall under the jurisdiction of EPA and the ~~U.S.~~ Army Corps of Engineers (Army Corps) published the proposed rule defining Waters of the United States (WOTUS) that could significantly expand the federal government's interpretation of what constitutes WOTUS subject to regulation under the Clean Water ~~Act.~~Act, significant ambiguity remains. The ~~comment deadline~~Registrants do not currently expect the rule to have a significant impact on their operations. Until such time as ongoing litigation is ~~October 20, 2014. If~~complete, however, the ~~definition is expanded~~Registrants are unable to predict the impact of the rule which could be substantial and include significant project delays and added costs, as ~~proposed by the EPA and the Army Corps,~~ permits and other regulatory requirements may be imposed for many ~~matters~~activities presently not covered by permitting requirements (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands)~~, the implications of which could be significant. The U.S. House and Senate~~. However, these costs are ~~considering legislation~~subject to ~~block these regulations.~~

rate recovery.

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~~has postponed the release of the revised regulations ~~in November 2014. PCBs are found, in varying degrees, in all of the Registrants' operations.~~to March 2016. The Registrants cannot predict at

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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)~~

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) 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 (KEEC) 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~~KEEC issued a final order upholding the ~~permit. In December 2010,~~permit which was subsequently appealed by the environmental ~~groups appealed the order to the Trimble Circuit Court, but the case was subsequently transferred to the Franklin Circuit Court.~~groups. In September 2013, the ~~court~~Franklin Circuit Court reversed the ~~Cabinet~~KEEC 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~~and the KEEC appealed the order to the Kentucky Court of Appeals. In July 2015, the Court of Appeals upheld the lower court ruling. LG&E and the KEEC have moved for rehearing. PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or ~~estimate a range of reasonably possible losses,~~the potential impact, if ~~any.~~

any, on plant operations or future capital or operating needs.

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~~Should the EPA require different or additional measures in the future, however, 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 investigating, responding to agency inquiries, remediating, or have completed the remediation of, 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.~~significant. 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.

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Other

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

The Price-Anderson Act is a United States Federal law which governs 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. It also seeks to limit the liability of nuclear reactor owners for such claims from any single incident. Effective September 10, 2013, 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, facilities at the Susquehanna plant 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 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).

~~Labor Unions(PPL, 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 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.

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.~~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" and "Indemnification of lease termination and other divestitures." The total recorded liability at June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, was ~~$25~~$24 million and $26 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
	June 30, 2015			Date
PPL
Indemnifications related to the WPD Midlands acquisition			(a)
WPD indemnifications for entities in liquidation and sales of assets	$	12	(b)	2018
WPD guarantee of pension and other obligations of unconsolidated entities		121	(c)

PPL Electric
Guarantee of inventory value		28	(d)	2016

LKE
Indemnification of lease termination and other divestitures		301	(e)	2021 - 2023

LG&E and KU
LG&E and KU guarantee of shortfall related to OVEC			(f)

(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,~~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 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 to a guarantee of one-third of the divested entity's debt. The purchaser provided a cross-indemnity, secured by a lien on the purchaser's stock of the divested entity. The exposure noted reflects principal only.

~~(g)~~

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)~~

(e)

LKE provides certain indemnifications ~~the most significant of which relate to the termination of the WKE lease in July 2009. These guarantees cover~~covering the due and punctual payment, performance and discharge by each party of its respective ~~present and future~~ obligations. The most comprehensive of these guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under ~~the WKE~~a 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a ~~cumulative~~ maximum exposure of $200 ~~million. Certain~~million, exclusive of certain items such as government fines and penalties that fall outside the ~~cumulative~~ cap. Another WKE-related LKE guarantee covers other indemnifications related to the purchase price of excess power, 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~~matter. In October 2014, 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 December 2012 order of the Henderson Circuit Court, confirming the arbitration award. On May 30, 2014, the Court of Appeals issued an opinion affirming the lower court decision, but LKE's indemnitee has filed a Petition for Rehearing with the Court of Appeals. 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)~~Table of Contents

indemnitee filed a motion for discretionary review with the Kentucky Supreme Court seeking to overturn the arbitration decision. LKE believes its indemnification obligations in this matter remain subject to various uncertainties, including additional legal, arbitration and contractual developments, as well as future prices, availability and demand for the subject excess power. 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; 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 indemnification circumstances, but does not currently expect such outcomes to result in significant losses above the amounts recorded.

(f)

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" bythrough May 31, 2015, the period through which PPL Electric and PPL EnergyPlus were affiliated entities. As a result of the June 1, 2015 spinoff of PPL Energy Supply and creation of Talen Energy, PPL EnergyPlus (renamed Talen Energy Marketing) is no longer an affiliate of PPL Electric.

PPL Electric's purchases from Talen Energy Marketing subsequent to May 31, 2015 are purchases from an unaffiliated third party.

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~~Wholesale suppliers are required to post collateral with PPL Electric when: (a) the market price of electricity to be delivered by ~~PPL EnergyPlus~~the wholesale suppliers 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 an established credit limit and was required to post an insignificant amount of collateral at June 30, 2014. 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 Talen Energy Marketing, formerly PPL EnergyPlus.

~~At June 30, 2014,~~ See Note 8 for additional information regarding the spinoff of PPL Energy ~~Supply had a net credit exposure of $24 million from~~ Supply.

Support Costs(PPL Electric, ~~from its commitment as a PLR supplier~~LKE, LG&E and ~~from the sale of its accounts receivable to PPL Electric.~~

~~Support Costs~~KU)~~(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, and believe these amounts are reasonable, including amounts applied to accounts that are further distributed between capital and expense.

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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				Six Months
	2015		2014		2015		2014

PPL Electric from PPL Services	$	25	$	38	$	55	$	79
LKE from PPL Services		4		4		8		8
PPL Electric from PPL EU Services		17				32

LG&E from LKS			53			57			104			105
KU from LKS			58			59			114			112

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~~At June 30, ~~2014~~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, ~~and December 31, 2013, $16~~$59 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~~2015 and December 31, ~~2013~~2014 were ~~2.15%~~1.68% 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~~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)~~

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

68

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

(PPL)

"Other Income (Expense) - net" for the three and six months ended June 30, 2015 and 2014 consisted primarily of losses on economic foreign currency exchange contracts. See Note 14 for additional information on these derivatives.

(PPL Electric, LKE, LG&E and ~~2013 for PPL Energy Supply is primarily the earnings on securities in NDT funds.~~ KU)

The components of "Other Income (Expense) - net" for the three and six months ended June 30, ~~2014~~2015 and ~~2013~~2014 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, ~~2014~~2015 and ~~2013,~~2014, 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.

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Recurring Fair Value Measurements

The assets and liabilities measured at fair value, excluding assets and liabilities of discontinued operations at December 31, 2014, were:

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

			June 30, 2015								December 31, 2014
			Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
PPL
Assets
	Cash and cash equivalents		$	846	$	846					$	1,399	$	1,399
	Short-term investments											120		120
	Restricted cash and cash equivalents (a)			32		32						31		31
	Price risk management assets (b):
		Foreign currency contracts		93			$	93				130			$	130
		Cross-currency swaps		63				63				29				28	$	1
	Total price risk management assets			156				156				159				158		1
	Auction rate securities (c)			2					$	2		2						2
Total assets			$	1,036	$	878	$	156	$	2	$	1,711	$	1,550	$	158	$	3

Liabilities
	Price risk management liabilities (b):
		Interest rate swaps	$	104			$	104			$	156			$	156
		Foreign currency contracts		20				20				2				2
		Cross-currency swaps										3				3
	Total price risk management liabilities		$	124			$	124			$	161			$	161

PPL Electric
Assets
	Cash and cash equivalents		$	28	$	28					$	214	$	214
	Restricted cash and cash equivalents (a)			2		2						3		3
Total assets			$	30	$	30					$	217	$	217

LKE

Assets
	Cash and cash equivalents		$	13	$	13					$	21	$	21
	Cash collateral posted to counterparties (d)			9		9						21		21
Total assets			$	22	$	22					$	42	$	42

Liabilities
	Price risk management liabilities:
		Interest rate swaps	$	91			$	91			$	114			$	114
Total price risk management liabilities			$	91			$	91			$	114			$	114

LG&E
Assets
	Cash and cash equivalents		$	7	$	7					$	10	$	10
	Cash collateral posted to counterparties (d)			9		9						21		21
Total assets			$	16	$	16					$	31	$	31

Liabilities
	Price risk management liabilities:
		Interest rate swaps	$	68			$	68			$	81			$	81
Total price risk management liabilities			$	68			$	68			$	81			$	81

KU
Assets
	Cash and cash equivalents		$	6	$	6					$	11	$	11
Total assets			$	6	$	6					$	11	$	11

Liabilities
	Price risk management liabilities:
		Interest rate swaps	$	23			$	23			$	33			$	33
Total price risk management liabilities			$	23			$	23			$	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)~~

(b)

Included in "Other current assets", "Other current liabilities", "Other noncurrent assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.

(c)

Included in "Other noncurrent assets" on the Balance Sheets.

A reconciliation of net assets and liabilities classified as Level 3 for the periods ended June 30, 2014 is as follows:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Six Months
Energy Auction Cross- Energy Auction Cross-
Commodities, Rate Currency Commodities, Rate Currency
net Securities Swaps Total net Securities Swaps Total
PPL
Balance at beginning of
period $ 17 $ 16     $ 33 $ 24 $ 19     $ 43
Total realized/unrealized
gains (losses)
Included in earnings 72         72 (63)         (63)
Included in OCI (a)                         $ (1) (1)
Purchases (6)         (6) (6)         (6)
Sales                     (3)     (3)
Settlements (9)         (9) 119         119
Transfers out of Level 3                         1 1
Balance at end of period $ 74 $ 16     $ 90 $ 74 $ 16 $     $ 90

PPL Energy Supply
Balance at beginning of
period $ 17 $ 13 $ 30 $ 24 $ 16 $ 40
Total realized/unrealized
gains (losses)
Included in earnings 72     72 (63)     (63)
Purchases (6)     (6) (6)     (6)
Sales                 (3) (3)
Settlements (9)     (9) 119     119
Balance at end of period $ 74 $ 13     $ 87 $ 74 $ 13     $ 87

(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)~~

"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~~

~~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)~~

~~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~~

~~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)~~

~~Discounted cash flow~~

~~Modeled from SIFMA Index~~

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

~~PPL Energy Supply~~

~~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)~~

~~Discounted cash flow~~

~~Modeled from SIFMA Index~~

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

~~(a)~~

~~For energy commodities and auction rate securities, the range and weighted average represent the percentage of fair value derived from the unobservable inputs.~~59

~~(b)~~

~~As the forward price~~Table 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.Contents

~~(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).

~~Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the periods 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

~~Price Risk Management Assets/Liabilities - Energy Commodities~~ (~~PPL and PPL Energy Supply)~~

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). 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 were changes in the availability of market information and changes in the significance of the unobservable inputs utilized in the valuation of the contract. As the delivery period of a contract becomes closer, market information may become available. When this occurs, the model's unobservable inputs are replaced with observable market information.

Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps (PPL, LKE, LG&E and KU)

To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency exchange risk, PPL uses foreign currency contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency

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 and 2013 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.~~Chief Financial Officer (CFO). 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)~~

~~NDT Funds~~

~~The market approach is used to measure the fair value of equity securities held in the NDT 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, 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. 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 and PPL Energy Supply)~~

~~The following nonrecurring fair value measurement occurred during~~

See Note 8 for information regarding the ~~six months ended June 30, 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

~~(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" on PPL's and PPL Energy Supply's 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)~~

~~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 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, 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 proprietary PPL model) to assess theestimated 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~~segment's net assets as of the ~~Kerr Dam Project to be $29 million at March 31, 2014.~~

The assets were valued by the PPL Energy Supply Financial Department, which reports to the President of PPL Energy Supply. Accounting personnel, who report to the CFO, interpreted the analysis to appropriately classify the assets in the fair value hierarchy.

June 1, 2015 spinoff date.

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.~~below, excluding long-term debt of discontinued operations at December 31, 2014. 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.~~

	June 30, 2015				December 31, 2014
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value

PPL	$	18,103	$	20,211	$	18,173	$	20,466
PPL Electric		2,603		2,855		2,602		2,990
LKE		4,567		4,810		4,567		4,946
LG&E		1,353		1,408		1,353		1,455
KU		2,091		2,222		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)~~

At June 30, 2014, PPL and PPL Energy Supply had credit exposure of $805 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 credit exposure was reduced to $340 million. The top ten counterparties including their affiliates accounted for $192 million, or 56%, of these exposures. Seven of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 65% of the top ten exposures. The remaining counterparties are 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, 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, and 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.

analyses.

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~~

Table of Contents

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~~following summarizes the market risks that affect PPL and its Subsidiary Registrants.

~~PPL~~

~~Energy Supply~~

~~Electric~~

~~LKE~~

~~LG&E~~

~~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~~

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

M	~~= The regulatory environments for PPL's regulated entities, by definition, significantly mitigate market risk.~~

Commodity price risk

PPL is exposed to commodity price risk through its domestic subsidiaries as described below. ~~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. PPL and WPD ~~holds~~hold 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~~debt. PPL, 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 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 credit risk stems from commodity derivatives for multi-year contracts for energy sales and purchases. 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.

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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~~

PPL, LKE, LG&E and ~~PPL Energy Supply's obligation to return counterparty cash collateral under master netting arrangements was $13 million and $9 million at June 30, 2014 and December 31, 2013.~~

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

2014.

PPL, ~~posted $25 million and~~ LKE and LG&E posted $9 million and $21 million of cash collateral under master netting arrangements at June 30, ~~2014. PPL, LKE~~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. PPL Electric and~~ 2014.

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

2014.

See "Offsetting Derivative ~~Investments"~~Instruments" 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)~~

~~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 in their competitive generation assets, as well as the extent of their 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 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 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 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 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 were no active cash flow hedges during the three and six months ended June 30, 2014. At June 30, 2014, 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. 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 were no such reclassifications for the three and six months ended June 30, 2014 and 2013.

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

~~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 range in maturity through 2019.

Examples of economic activity may include hedges on sales of baseload generation, certain purchase contracts used to supply full-requirement sales contracts, FTRs or basis swaps used to hedge basis risk associated with the sale of competitive generation or supplying full-requirement sales contracts, Spark Spread hedging contracts, retail electric and natural gas activities, and fuel oil swaps used to hedge price escalation clauses in coal transportation and other fuel-related contracts. PPL Energy Supply also uses options, which include the sale of call options and the purchase of put options tied to a particular generating unit. Since the physical generating capacity is owned, price exposure is generally capped at the price at which the generating unit would be dispatched and therefore does not expose PPL Energy Supply to uncovered market price risk.

~~The unrealized gains (losses) for economic activity for the periods ended June 30 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

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

~~Commodity Volumes~~

~~At June 30, 2014, 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

~~(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~~2015, PPL held an aggregate notional value in interest rate swap contracts ~~range in maturity through 2026 for PPL's domestic interest rate swaps. These swaps had 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~~ $1.3 billion that range in maturity through 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 expense is recorded.

At June 30, 2015, PPL held an aggregate notional value in cross-currency interest rate 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, PPL had no hedge ineffectiveness associated with interest rate derivatives. There were insignificant amounts of hedge ineffectiveness associated with interest rate derivatives for the six months ended June 30, 2014 and three and six months ended June 30, 2013.

Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time period and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedged transaction is probable of not occurring.

As a result of the June 1, 2015 spinoff of PPL Energy Supply, all PPL cash flow hedges associated with PPL Energy Supply were ineffective and discontinued and therefore, reclassified into earnings and reflected in discontinued operations for the three and six months ended June 30, 2015. See Note 8 for additional information.There were no such reclassifications for the three months ended June 30, 2014. For the six months ended June 30, 2014, PPL had an insignificant amount reclassified into earnings associated with discontinued cash flow hedges. ~~There were no such reclassifications for the three months ended June 30, 2014 and the three and six months ended June 30, 2013.~~

Table of Contents

At June 30, ~~2014,~~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 ~~$(13)~~$(29) million. 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 June 30, 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,~~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~~2015 had a notional amount of ~~£306~~£134 million (approximately ~~$494~~$221 million based on contracted rates). The settlement dates of these contracts range from November ~~2014~~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,~~2015, PPL had ~~$(16)~~$13 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,~~2015, the total exposure hedged by PPL was approximately ~~£1.7~~£1.6 billion (approximately ~~$2.8~~$2.5 billion based on contracted rates). These contracts had termination dates ranging from July ~~2014~~2015 through December ~~2016.~~

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~~2015 and December 31, 2013. PPL and PPL Energy Supply have 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 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 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.2014.

Table of Contents

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

Sheets, excluding derivative instruments of discontinued operations.

						June 30, 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)					$	59			$	5			$	94			$	5
			Cross-currency swaps (b)			$	28										3
			Foreign currency
				contracts			12			$	42		17	$	12			$	67
					Total current		40		59		42		22		12		97		67		5
Noncurrent:
	Price Risk Management
		Assets/Liabilities (a):
			Interest rate swaps (b)										40				14				43
			Cross-currency swaps (b)				35								29
			Foreign currency
				contracts							39		3		5				46		2
					Total noncurrent		35				39		43		34		14		46		45
Total derivatives						$	75	$	59	$	81	$	65	$	46	$	111	$	113	$	50

(a)

~~Represents the location~~Included in "Other current assets", "Other current liabilities", "Other noncurrent assets" and "Other deferred credits and noncurrent liabilities" 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 ended June 30, ~~2014.~~

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)

2015.

Three Months

Six Months

Gain (Loss)

Recognized

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

(2)

Interest expense

(3)

(7)

Discontinued

operations

(77)

Cross-currency swaps

Interest expense

Other income

(expense) - net

Commodity contracts

Discontinued

operations

Total

(70)

Net Investment Hedges:

Foreign currency contracts

(17)

(1)

~~(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 2014.64

~~(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 quarterTable of ~~2014.~~Contents

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	$	(102)	$	(14)
Interest rate swaps	Interest expense		(2)		(4)
	Total	$	(104)	$	(18)


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	$	7	$	3

Hedging Instruments	Regulatory Liabilities/Assets	Three Months		Six Months

Interest rate swaps	Regulatory assets - noncurrent	$	76	$	20

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)~~

2014.

Three Months

Six Months

Gain (Loss)

Recognized

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)

Cross-currency swaps

(16)

Interest expense

Other income

(expense) - net

(29)

Commodity contracts

Discontinued

operations

Total

(5)

(76)

(15)

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)
	Total	$	(74)	$	(100)

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)

(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.

June 30, 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.

~~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)~~

~~(b)~~

~~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 ended June 30, ~~2013.~~

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

Interest rate swaps Regulatory liabilities - noncurrent $ 48 $ 58

2015.

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

Interest rate swaps	Regulatory assets - noncurrent	$	76	$	20

(LG&E)

The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.

June 30, 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

2015.


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

Interest rate swaps	Regulatory assets - noncurrent	$	38	$	10

(KU)

The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.

June 30, 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

2015.

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

Interest rate swaps	Regulatory assets - noncurrent	$	38	$	10

(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, 2015

December 31, 2014

Assets

Liabilities

Assets

Liabilities

Current:

Price Risk Management

Assets/Liabilities (a):

Interest rate swaps

Total current

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

Table of Contents

					June 30, 2015			December 31, 2014
					Assets	Liabilities			Assets	Liabilities
Noncurrent:
	Price Risk Management
		Assets/Liabilities (a):
			Interest rate swaps				40				43
				Total noncurrent			40				43
Total derivatives						$	45			$	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 ended June 30, 2015.

	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	$	7	$	3

The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the periods 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.~~

Location of Gain (Loss) Recognized in
Derivative Instruments Income on Derivatives Three Months Six Months

Interest rate swaps Interest expense $ (2) $ (4)

Location of Gain (Loss) Recognized in
Derivative Instruments Regulatory Assets Three Months Six Months

Interest rate swaps Regulatory assets - noncurrent $ 11 $ 15

(~~All Registrants except~~ PPL, ~~Electric)~~

LKE, LG&E and KU)

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 an 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~~set off 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, 2015
Treasury Derivatives
	PPL	$	156	$	64		$	92	$	124	$	64	$	9	$	51
	LKE									91				9		82
	LG&E									68				9		59
	KU									23						23

Table of Contents

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
December 31, 2014
Treasury Derivatives
	PPL	$	159	$	65		$	94	$	161	$	65	$	21	$	75
	LKE									114				20		94
	LG&E									81				20		61
	KU									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~~LKE and ~~KU)~~

LG&E)

At June 30, ~~2014,~~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	$	42	$	28	$	28
Aggregate fair value of collateral posted on these derivative instruments			9		9		9
Aggregate fair value of additional collateral requirements in the event of
	a credit downgrade below investment grade (a)		33		19		19

~~(a)~~

(a)

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

~~(b)~~

During the second quarter of 2014, PPL Energy Supply experienced a downgrade in its corporate credit ratings to 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 months ended June 30, ~~2014~~2015 was due to the effect of foreign currency exchange rates on the U.K. Regulated segment.

16. Asset Retirement Obligations

(PPL, LKE, LG&E and KU)

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

Table of Contents

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

		PPL		LKE		LG&E		KU

Balance at December 31, 2014		$	336	$	285	$	74	$	211
	Accretion		8		7		2		5
	Changes in estimated cash flow or settlement date		163		163		46		117
	Effect of foreign currency exchange rates		(2)
	Obligations settled		(2)		(2)		(2)
Balance at June 30, 2015		$	503	$	453	$	120	$	333

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

~~(PPL~~2014.

In connection with the final CCR rule, LG&E and ~~PPL Energy Supply)~~

~~The most significant ARO~~KU recorded ~~by PPL Energy Supply relates~~increases of $162 million ($45 million at LG&E and $117 million at KU) to the ~~decommissioning~~existing AROs during the second quarter of ~~the Susquehanna nuclear plant. Assets in the NDT funds~~2015. Further increases to AROs or changes to current capital plans or to operating costs may be required as estimates are ~~legally restricted for purposes of settling this ARO. See Notes 13~~refined based on closure developments, groundwater monitoring results and ~~17 for additional information on these assets.~~

(regulatory or legal proceedings. PPL, LKE, LG&E and ~~KU)~~

KU believe relevant costs relating to this rule are subject to rate recovery. See Note 10 for information on the final CCR rule.

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)~~

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.

88

~~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

~~See Note 13 for details on the securities held by the NDT funds.~~

~~There were no securities with credit losses at June 30, 2014 and December 31, 2013.~~

~~The following table shows the scheduled maturity dates of debt securities held at June 30, 2014.~~

Maturity Maturity Maturity Maturity
Less Than 1-5 6-10 in Excess
1 Year Years Years of 10 Years Total
PPL
Amortized cost $ 8 $ 89 $ 60 $ 78 $ 235
Fair value 8 91 63 82 244

PPL Energy Supply
Amortized cost $ 8 $ 89 $ 60 $ 75 $ 232
Fair value 8 91 63 79 241

~~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

~~(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)~~

LKE)

The after-tax changes in AOCI by component for the periods ended June 30 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
PPL
March 31, 2015		$	(352)	$	206	$	9	$		$	3	$	(2,178)	$	1	$	(2,311)
Amounts arising during the period			(83)		2		21				(6)		53				(13)
Reclassifications from AOCI					(1)		27						38				64
Net OCI during the period			(83)		1		48				(6)		91				51
Distribution of PPL Energy
	Supply (Note 8)				(207)		(55)						238				(24)
June 30, 2015		$	(435)	$		$	2	$		$	(3)	$	(1,849)	$	1	$	(2,284)

December 31, 2014		$	(286)	$	202	$	20	$	1	$	3	$	(2,215)	$	1	$	(2,274)
Amounts arising during the period			(149)		7		27				(6)		52				(69)
Reclassifications from AOCI					(2)		10		(1)				76				83
Net OCI during the period			(149)		5		37		(1)		(6)		128				14
Distribution of PPL Energy
	Supply (Note 8)				(207)		(55)						238				(24)
June 30, 2015		$	(435)	$		$	2	$		$	(3)	$	(1,849)	$	1	$	(2,284)

March 31, 2014		$	120	$	177	$	67	$	1	$	(5)	$	(1,790)	$	1	$	(1,429)
Amounts arising during the period			(3)		14		(1)						(2)				8
Reclassifications from AOCI					(1)		(5)				1		28				23
Net OCI during the period			(3)		13		(6)				1		26				31
June 30, 2014		$	117	$	190	$	61	$	1	$	(4)	$	(1,764)	$	1	$	(1,398)

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)

LKE
March 31, 2015								$	(1)	$	(8)	$	(36)			$	(45)
Amounts arising during the period													(8)				(8)
Reclassifications from AOCI											1						1
Net OCI during the period											1		(8)				(7)
June 30, 2015								$	(1)	$	(7)	$	(44)			$	(52)

Table of Contents

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, 2014						$	(8)	$	(37)		$	(45)
Amounts arising during the period									(8)			(8)
Reclassifications from AOCI				$	(1)		1		1			1
Net OCI during the period					(1)		1		(7)			(7)
June 30, 2015				$	(1)	$	(7)	$	(44)		$	(52)

March 31, 2014						$	(2)	$	14		$	12
Amounts arising during the period									(2)			(2)
Net OCI during the period									(2)			(2)
June 30, 2014						$	(2)	$	12		$	10

December 31, 2013				$	1	$	(2)	$	14		$	13
Amounts arising during the period									(2)			(2)
Reclassifications from AOCI					(1)							(1)
Net OCI during the period					(1)				(2)			(3)
June 30, 2014						$	(2)	$	12		$	10

(PPL)

The following table presents the gains (losses) and related income taxes for reclassifications from AOCI for the periods ended June 30. 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				Six Months				Affected Line Item on the
Details about AOCI		2015		2014		2015		2014		Statements of Income

Available-for-sale securities		$	2	$	2	$	4	$	4	Other Income (Expense) - net
Total Pre-tax			2		2		4		4
Income Taxes			(1)		(1)		(2)		(2)
Total After-tax			1		1		2		2

Qualifying derivatives
	Interest rate swaps		(3)		(4)		(7)		(7)	Interest Expense
			(77)				(77)			Discontinued operations
	Cross-currency swaps		15				32		(29)	Other Income (Expense) - net
			1		1		2		1	Interest Expense
	Energy commodities		13		13		20		22	Discontinued operations
Total Pre-tax			(51)		10		(30)		(13)
Income Taxes			24		(5)		20		(1)
Total After-tax			(27)		5		(10)		(14)

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)				(4)
	Net actuarial loss		(50)		(36)		(101)		(72)
Total Pre-tax			(50)		(38)		(101)		(76)
Income Taxes			12		9		25		19
Total After-tax			(38)		(29)		(76)		(57)

Total reclassifications during the period		$	(64)	$	(23)	$	(83)	$	(69)

Table of Contents

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

~~19.~~18. New Accounting Guidance Pending Adoption

(All Registrants)

~~Reporting of Discontinued Operations~~

Accounting for Revenue from Contracts with Customers

In ~~April~~May 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.

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~~

This guidance can be applied using either a full retrospective or modified retrospective transition ~~method, beginning~~method. The FASB has affirmed a recent proposal to defer the effective date of the standard by one year, which for public business entities, would result in initial application of this guidance in annual reporting periods beginning after December 15, ~~2016~~2017 and interim periods within those years. ~~Early adoption~~The proposed standard allows entities to early adopt the guidance as of the original effective date of the standard, which for public business entities is ~~not permitted. The~~annual reporting periods beginning after December 15, 2016. Pending the FASB's issuance of the effective date deferral, the Registrants ~~will~~expect to adopt this guidance effective January 1, ~~2017.~~

2018.

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.

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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 will adopt this guidance on January 1, 2016. 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.

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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~~2015 with the same periods 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~~a utility holding company. ~~Through~~PPL, through its regulated utility subsidiaries, ~~PPL~~ delivers electricity to customers in the U.K., Pennsylvania, Kentucky, Virginia and Tennessee; delivers natural gas to customers in Kentucky; and generates electricity from power plants in ~~the northeastern, northwestern~~Kentucky. In June 2014, PPL and ~~southeastern U.S.;~~PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. The transaction was completed on June 1, 2015. See "Financial and ~~markets wholesale or retail energy primarily in the northeastern~~Operational Developments - Other Financial and ~~northwestern portions~~Operational Developments - Spinoff of ~~the U.S.~~PPL Energy Supply" below for additional information.

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PPL's principal subsidiaries are shown below (* denotes an SEC registrant):

PPL Corporation*

PPL Capital Funding

PPL ~~Capital Funding~~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 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

U.K.
Regulated Segment

Kentucky
Regulated Segment

LG&E*

Pennsylvania
● ~~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~~the Subsidiary Registrants, except that the reportable segments are also allocated certain corporate level financing and other costs that are not included in the results of the applicable Subsidiary Registrants. The U.K. Regulated segment does not have a related Subsidiary Registrant.

(

In addition to 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 named Talen Energy. See "Business Strategy" and "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" below for additional information.

~~(PPL Energy Supply)~~

~~PPL Energy Supply, headquartered~~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,~~Tennessee Regulatory Authority, 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.

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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 under 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 RAV, recovered through allowed revenue with the ~~recovery period~~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 recoverable life during the current eight-year price control period, 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~~total available incentive ~~revenues available to be earned.~~revenues. 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~~achieved through various rate-making mechanisms, including periodic base rate case proceedings, annual 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~~

To manage financing costs and ~~Regulation" in PPL's 2013 Form 10-K for changes~~access to credit markets, and to fund capital expenditures, a key objective of the ~~regulatory framework in~~Registrants is to maintain investment grade credit ratings and adequate liquidity positions. In addition, the ~~U.K.~~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, as applicable, to ~~WPD beginning~~changes in ~~April 2015.~~

interest rates, foreign currency exchange rates and counterparty credit quality. To manage these risks, PPL generally uses contracts such as forwards, options, and swaps.

(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~~of their 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~~

Following the June 1, 2015 spinoff of PPL Energy Supply, PPL has no continuing ownership interest in, control of, or affiliation with Talen Energy and ~~access~~Talen Energy Supply (formerly, PPL Energy Supply). The transaction is intended to ~~credit markets,~~be tax-free to PPL and ~~to fund capital expenditures, a key objective of~~its shareowners for U.S. federal income tax purposes.

Going forward, PPL's focus will be on its regulated utility businesses in the ~~Registrants is~~U.K., Kentucky and Pennsylvania, serving more than 10 million customers. PPL intends to maintain ~~targeted credit profiles and liquidity positions. In addition, the Registrants have financial and operational risk management programs that, among other things, are designed to monitor~~a strong balance sheet and manage ~~exposure~~its finances consistent with maintaining investment grade credit ratings and providing a competitive total shareowner return, including an attractive dividend. Excluding costs required to ~~earnings~~provide transition services to Talen Energy and ~~cash flow volatility related~~following the spinoff transaction, PPL expects to ~~as applicable, changes in energy~~reduce annual ongoing corporate support costs by approximately $75 million.

See "Financial and ~~fuel prices, interest rates, counterparty credit quality~~Operational Developments - Other Financial and ~~the operating performance~~Operational Developments - Costs of ~~generating units. To manage these risks, PPL generally uses contracts such as forwards, options, swaps~~Spinoff" and ~~insurance contracts.~~"Loss on Spinoff" below for additional information.

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Financial and Operational Developments

Earnings (PPL)

PPL's earnings by reportable segments for the periods ended June 30 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						Six Months
		2015		2014		$ Change		2015		2014		$ Change

U.K. Regulated		$	190	$	187	$	3	$	565	$	393	$	172
Kentucky Regulated			47		58		(11)		156		165		(9)
Pennsylvania Regulated			49		52		(3)		136		137		(1)
Corporate and Other (a)			(36)		(67)		31		(55)		(76)		21
Income from Continuing Operations
	After Income Taxes		250		230		20		802		619		183
Discontinued Operations (b)			(1,007)		(1)		(1,006)		(912)		(74)		(838)
Net Income (Loss)		$	(757)	$	229	$	(986)	$	(110)	$	545	$	(655)

Income from Continuing Operations
	After Income Taxes
EPS - basic		$	0.37	$	0.35		0.02	$	1.20	$	0.96	$	0.24
EPS - diluted (c)		$	0.37	$	0.34		0.03	$	1.19	$	0.94	$	0.25
Net Income (Loss)
EPS - basic		$	(1.13)	$	0.35		(1.48)	$	(0.17)	$	0.84	$	(1.01)
EPS - diluted (c)		$	(1.13)	$	0.34		(1.47)	$	(0.17)	$	0.83	$	(1.00)

(a)

Primarily ~~represents~~includes unallocated corporate-level 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~~costs. Also includes certain costs related to the ~~anticipated~~ spinoff of PPL Energy Supply. See the following table of special items for additional information.

(b)

As a result of the spinoff of PPL Energy Supply, substantially representing PPL's Supply segment, the earnings of the Supply segment are included in Discontinued Operations. Included is an $879 million charge reflecting the difference between PPL's recorded value for the Supply segment and its estimated fair value as of the spinoff date, determined in accordance with applicable accounting rules under GAAP.See ~~"2011 Equity Units" below and~~Note 8 to the Financial Statements for additional information.

(c)

See 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. 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						Six Months
	2015		2014		Change		2015		2014		$ Change

U.K. Regulated	$	(53)	$	(33)	$	(20)	$	(14)	$	(91)	$	77
Kentucky Regulated		(12)		1		(13)		(12)		1		(13)
Pennsylvania Regulated				(4)		4				(4)		4
Corporate and Other (a)		(14)		(50)		36		(20)		(52)		32
Discontinued Operations (b)		(1,007)		(1)		(1,006)		(912)		(74)		(838)
Total PPL	$	(1,086)	$	(87)	$	(999)	$	(958)	$	(220)	$	(738)

(a)

~~Includes~~2015 primarily includes transition costs related to the spinoff of PPL Energy Supply. 2014 primarily includes $46 million of deferred income tax expense to adjust valuation allowances that were previously supported by the earnings of PPL Energy Supply. See Note 8 for additional information on ~~deferred tax assets for state net operating loss carryforwards and $10 million, after-tax,~~the spinoff.

(b)

As a result of ~~transactions costs related to~~ the ~~anticipated~~ spinoff of PPL Energy ~~Supply.~~Supply, substantially representing PPL's Supply segment, the earnings of the Supply segment are included in Discontinued Operations and considered to be a special item. Included is an $879 million charge reflecting the difference between PPL's recorded value for the Supply segment and its estimated fair value as of the spinoff date, determined in accordance with applicable accounting rules under GAAP. See Note 8 to the Financial Statements for additional information.

~~The changes~~

2015 Outlook

(PPL)

Excluding special items, higher earnings are expected in ~~PPL's reportable segments results for the three and six-months ended June 30, 2014~~2015 compared with ~~2013, excluding~~2014, after adjusting 2014 to include certain dissynergies in the ~~impact of special items, were due~~Corporate and Other category related to the spinoff of PPL Energy Supply. This increase is primarily attributed to increases in the U.K. Regulated and Kentucky Regulated segments and lower Corporate and Other charges. The following projections and factors underlying these projections (on an after-tax basis):

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

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.76

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 quarterTable of ~~2014, partially offset by higher operation and maintenance expense driven by storm-related expenses and timing of generation maintenance outages.~~Contents

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)~~

Excluding special items, lower earnings are expected in 2014 compared with 2013, primarily due to lower energy margins in the Supply segment. The factors underlying these projections by segment and Subsidiary Registrant are discussed below (on an after-tax basis).

(PPL's U.K. Regulated Segment)

Excluding special items, higher earnings are projected in ~~2014~~2015 compared with ~~2013,~~2014, primarily driven by ~~higher electricity delivery revenue~~lower income taxes and lower ~~pension~~depreciation expense, partially offset by ~~higher income taxes, higher depreciation and higher financing costs.~~

lower utility revenue as WPD 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 fully hedged.

(PPL's Kentucky Regulated Segment and LKE, LG&E and KU)

Excluding special items, higher earnings are projected in 2015 compared with 2014, primarily driven by electric and gas base rate increases effective July 1, 2015, 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 related to the spinoff of PPL Energy Supply, 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

Regulatory Requirements

(

~~Economic~~PPL, LKE, LG&E and ~~Market Conditions~~

(~~All Registrants except PPL Electric)~~

KU)

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~~ELGs 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 to ~~either temporarily or permanently~~ close ~~or place in long-term reserve status, and/or impair~~ certain of their coal-fired generating plants.

(~~PPL and PPL Energy Supply)~~

As a result of ~~current economic~~the environmental requirements discussed above, LKE projects $2.2 billion ($1.1 billion each at LG&E and ~~market conditions,~~KU) in capital investment over the ~~announced transaction~~next five years and anticipates retiring two coal-fired units at KU no later than early 2016 with ~~affiliates~~a combined summer capacity rating of ~~Riverstone~~161 MW. LG&E retired a 240 MW coal-fired unit in March 2015 and two additional coal-fired units, with a combined summer capacity rating of 323 MW, in June 2015 at the Cane Run plant. The retirement of these units is not expected to ~~form Talen Energy,~~have a material impact on the financial condition or results of operations of PPL, ~~Energy Supply's current sub-investment grade credit rating~~LKE, LG&E and Talen Energy's expected sub-investment grade credit rating, PPL Energy Supply is reviewing its business and operational plans. This review includes 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.

KU.

(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.

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~~Anticipated~~

(PPL)

Spinoff of PPL Energy Supply

(

In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to spin off PPL Energy Supply and immediately combine it with Riverstone's competitive power generation businesses to form a new, stand-alone, publicly traded company named Talen Energy. The transaction was subject to customary closing conditions, including receipt of regulatory approvals from the NRC, FERC, DOJ and PUC, all of which were received by mid-April 2015. On April 29, 2015, PPL's Board of Directors declared the June 1, 2015 distribution to PPL's shareowners of record on May 20, 2015 of a newly formed entity, Holdco, which at closing owned all of the membership interests of PPL ~~Electric)~~Energy Supply and all of the common stock of Talen Energy.

Immediately following the spinoff on June 1, 2015, Holdco merged with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power was contributed by its owners to become a subsidiary of Talen Energy. PPL shareowners received approximately 0.1249 shares of Talen Energy common stock for each share of PPL common stock they owned on May 20, 2015. Following completion of these transactions, PPL shareowners owned 65% of Talen Energy and affiliates of Riverstone owned 35%. The spinoff had 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.

PPL has no continuing ownership interest in, control of, or affiliation with Talen Energy and Talen Energy Supply (formerly PPL Energy Supply).

Loss on Spinoff

In conjunction with the accounting for the spinoff, PPL evaluated whether the fair value of the Supply segment's net assets was less than the carrying value as of the June 1, 2015 spinoff date.

PPL considered several valuation methodologies to derive a fair value estimate of its Supply segment at the spinoff date. These methodologies included considering the closing "when-issued" Talen Energy market value on June 1, 2015 (the spinoff date) adjusted for the proportional share of the equity value attributable to the Supply segment, as well as the valuation methods consistently used in PPL's goodwill impairment assessments - an income approach using a discounted cash flow analysis of the Supply segment and an alternative market approach considering market multiples of comparable companies.

The following table summarizes PPL's fair value analysis:

			Weighted
			Fair Value
Approach	Weighting		(in billions)

Talen Energy Market Value	50%	$	1.4
Income/Discounted Cash Flow	30%		1.1
Alternative Market (Comparable Company)	20%		0.7
Estimated Fair Value		$	3.2

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Company's individual share of stock does not reflect this additional value to a controlling shareholder. Therefore, the quoted market price need not be the sole measurement basis for determining the fair value, and including a control premium is appropriate in measuring the fair value of a reporting unit.

Costs of Spinoff

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 June 30, 2015 and December 31, 2014, the recorded liabilities related to the separation benefits were $13 million and ~~related~~$21 million, which are included in "Other current liabilities" on the Balance Sheets.

Additional employee-related costs ~~are anticipated to be recorded in future periods. The separation 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 Services employees who became PPL Energy Supply employees in connection with the ~~range of costs that will be incurred and when those costs will be~~transaction. PPL Energy Supply 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$24 million 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 with~~at the spinoff ~~transaction and the timing of when those costs will be recognized cannot be reasonably estimated at this time but could be material.~~

~~(PPL)~~

~~As a result of the spinoff announcement,~~ closing date which are reflected in discontinued operations.

At the close of the transaction, $72 million ($42million after-tax) of cash flow hedges, primarily unamortized losses on PPL interest rate swaps recorded in ~~"Other Income (Expense) - net"~~AOCI and designated as cash flow hedges of PPL Energy Supply's future interest payments, were reclassified into earnings and reflected in discontinued operations.

Discontinued Operations

The operations of the Supply segment are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the ~~Statement~~Statements of Income, primarily for investment bank advisory, legal, consulting and accounting fees. PPL cannot currently estimate a range of total third-party costs that will ultimately be incurred; however, additional costs of at least $26 million will be recognized upon closing of the transaction.

Income.

Net assets, after recognition of the ~~transaction. The~~loss on spinoff, ~~announcement was evaluated and determined not~~of $3.2 billion were distributed to ~~be an event or~~PPL shareowners on June 1, 2015, as a ~~change in circumstance that required a recoverability test or a goodwill impairment assessment. However, an impairment loss could be recognized by PPL at~~result of the ~~spinoff date if~~completion of the ~~aggregate carrying amount~~spinoff of PPL Energy ~~Supply's assets and liabilities exceeds its aggregate fair value at that date. PPL cannot currently predict whether an impairment loss will be recorded at~~Supply.

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See Note 8 to the financial statements for additional information related to the spinoff ~~date.~~

(of 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~~Supply.

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 and six months ended June 30, 2015, this change in useful lives resulted in lower depreciation of $22 million ($17 million after-tax or $0.03 per share) and $42 million ($33 million after-tax or $0.05 per share). It is expected to ~~occur during~~result in an annual reduction in depreciation of approximately $86 million ($68 million after-tax or $0.10 per share) in 2015.

IRS Audits for 1998 - 2011

In February 2015, PPL and the ~~regulatory year beginning April 1, 2015 for three~~IRS Appeals division reached a settlement on the amount of ~~the WPD DNOs, and over the eight year RIIO-ED1 regulatory period~~PPL's refund from its open audits for the ~~fourth DNO. However, in July 2014, Ofgem decided~~years 1998 - 2011. In April 2015, PPL was notified that ~~full recovery will occur for all WPD DNOs in~~ the ~~regulatory year beginning April 1, 2016.~~Joint Committee on Taxation approved PPL's settlement. In the second quarter of 2015, PPL ~~projects that, as~~recorded a ~~result~~tax benefit 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$23 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~~includes an estimate 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 testinterest on the ~~Kerr Dam Project and recorded an impairment charge~~refund. Of this amount, $11 million is reflected in continuing operations. Final determination of ~~$18 million ($10 million after-tax) to reduce~~interest on the ~~carrying amount to its fair value, at that time, of $29 million. See Note 13 to~~refund is still pending from the ~~Financial Statements for additional information.~~

~~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 and modifications will also be implemented to reduce the likelihood of blade cracking, including the installation of shorter last stage blades on one of the low pressure turbines. In June 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~~

financial impact of the Unit 2 outage was not material. PPL Susquehanna will continue to monitor blade performance and work with the turbine manufacturer to identify and resolve the issues causing the blade cracking.

~~Regional Transmission Expansion Plan~~IRS.

(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 requested that the ~~Financial Statements for additional information.~~

PUC consolidate these two proceedings and the Administrative Law Judge granted PPL Electric's request.

(PPL, LKE and KU)

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

In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements ~~contracts, 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 has become a transmission-only customer as of 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~~approval of the formula rate with a true-up provision and authorizing a return on equity of 10% or the return on equity awarded to other parties in this case, whichever is lower. ~~Also in~~In July ~~2014,~~2015, KU ~~made a contractually required filing with the FERC that addressed certain rate recovery matters affecting~~and the nine terminating municipalities ~~during~~reached a settlement in principle which, subject to FERC approval, would resolve

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open matters, including providing for certain refunds, approving the ~~remaining term~~formula rate with a true-up provision, and authorizing a 10.25% return on equity. An unresolved matter with one terminating municipality may be the subject of ~~their contracts.~~further negotiations or proceedings. KU cannot ~~currently~~ predict the ultimate outcome of ~~its~~these FERC ~~applications~~proceedings regarding its wholesale power agreements with the ~~municipalities.~~

municipalities, but does not currently anticipate significant remaining refunds beyond amounts already recorded.

(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 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. The settlement agreement was approved by the KPSC on June 30, 2015. Among other things, the settlement provides for increases in the annual revenue requirements associated with KU base electricity rates of $125 million and LG&E base gas rates of $7 million. The annual revenue requirement associated with base electricity rates at LG&E was not changed. Although the settlement did not establish a specific return on equity with respect to the base rates, 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 pension expense using a 15 year amortization period for actuarial gains and losses. The new rates and all elements of the settlement became effective July 1, 2015.

(LKE and KU)

On June 30, 2015, KU filed an application with the VSCC to increase annual Virginia base electricity revenue by approximately $7.2 million, representing an increase of 10.1%. KU's application is based on an authorized 10.5% return on equity. Subject to regulatory review and approval, new rates would become effective April 1, 2016.

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 and 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~~2015 with the same periods 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~~2015 with the same periods 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.

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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%~~70% of ~~Net~~PPL's Income ~~Attributable to PPL Shareowners~~from Continuing Operations After Income Taxes for the six months ended June 30, ~~2014~~2015 and ~~34%~~42% of PPL's assets at June 30, ~~2014.~~

2015.

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 $ 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)

results.

		Three Months						Six Months
		2015		2014			$ Change	2015		2014		$ Change

Utility revenues		$	575	$	659	$	(84)	$	1,261	$	1,296	$	(35)
Energy-related businesses			12		13		(1)		23		24		(1)
	Total operating revenues		587		672		(85)		1,284		1,320		(36)
Other operation and maintenance			96		117		(21)		199		225		(26)
Depreciation			59		87		(28)		118		170		(52)
Taxes, other than income			37		40		(3)		73		78		(5)
Energy-related businesses			8		8				15		15
	Total operating expenses		200		252		(52)		405		488		(83)
Other Income (Expense) - net			(100)		(72)		(28)		(12)		(96)		84
Interest Expense			103		115		(12)		203		237		(34)
Income Taxes			(6)		46		(52)		99		106		(7)
Net Income		$	190	$	187	$	3	$	565	$	393	$	172

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~~

		Three Months		Six Months

U.K.
	Utility revenues	$	(21)	$	12
	Other operation and maintenance		11		7
	Depreciation		22		42
	Interest expense		1		7
	Other		(1)		(1)
	Income taxes		7		1
U.S.
	Interest expense and other		2		11
	Income taxes		11		19
Foreign currency exchange, after-tax			(9)		(3)
Special items, after-tax			(20)		77
Total		$	3	$	172

U.K.

Lower utility revenues for the three month period primarily due to $33 million from the April 1, 2015 price decrease primarily resulting from the commencement of RIIO-ED1, partially offset by $12 million of higher volume primarily due to weather.

Higher utility revenues for the ~~three-month~~six month period primarily due to ~~a $52~~$46 million ~~impact~~ from the April 1, 2014 ~~and 2013~~ price ~~increases,~~increase, partially offset by ~~$33~~$37 million ~~of lower volume due primarily to weather.~~

~~Higher utility revenues for the six-month period primarily due to a $120 million impact~~ from the April 1, ~~2014 and 2013~~2015 price ~~increases, partially offset by $56 million~~decrease primarily resulting from the commencement of ~~lower volume due primarily to weather and $7 million from adverse customer mix.~~RIIO-ED1.

Lower other operation and maintenance for the ~~six-month~~three 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.

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~~Higher~~Lower depreciation expense for the three and ~~six-month~~six month periods primarily due to ~~PP&E additions.~~a $22 million and $42 million impact of an extension of the network asset lives. See Note 2 to the Financial Statements for additional information.

U.S.

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

~~U.S.~~

·	~~Higher~~Lower income taxes for the three and ~~six-month~~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.~~decreases in taxable dividends.

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

Income Statement Three Months Six Months
Line Item 2014 2013 2014 2013

Other Income
Foreign currency-related economic hedges, net of tax of $18, $3, $21, ($39) (a) (Expense)-net $ (33) $ (5) $ (39) $ 73
WPD Midlands acquisition-related adjustments:
Other Operation
Separation benefits, net of tax of $0, $0, $0, $1 and Maintenance             (1)
Other Operation
Other acquisition-related adjustments, net of tax of $0, $0, $0, $0 and Maintenance             (2)
Other:
Windfall Profits Tax litigation (b) Income Taxes     43     43
Change in WPD line loss accrual, net of tax of $0, $5, $13, $5 (c) Utility Revenues     (19) (52) (19)
Total $ (33) $ 19 $ (91) $ 94

	Income Statement	Three Months				Six Months
	Line Item	2015		2014		2015		2014

	Other Income
Foreign currency-related economic hedges, net of tax of $38, $18, $18, $21 (a)	(Expense)-net	$	(71)	$	(33)	$	(34)	$	(39)
	Other operation
WPD Midlands acquisition-related adjustment, net of tax of $0, $0, ($1), $0	and maintenance						2
Change in WPD line loss accrual, net of tax of $0, $0, $0, $13(b)	Utility								(52)
Settlement of certain income tax positions (c)	Income Taxes		18				18
Total		$	(53)	$	(33)	$	(14)	$	(91)

(a)

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

(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.

(c)

Relates to the April 2015 settlement of open audits for the years 1998-2011. See Note 5 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%~~19% of ~~Net~~PPL's Income ~~Attributable to PPL Shareowners~~from Continuing Operations After Income Taxes for the six months ended June 30, ~~2014~~2015 and ~~25%~~35% of PPL's assets at June 30, ~~2014.~~

2015.

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

results.

		Three Months						Six Months
		2015		2014		$ Change		2015		2014		$ Change

Utility revenues		$	714	$	722	$	(8)	$	1,613	$	1,656	$	(43)
Fuel			214		231		(17)		467		508		(41)
Energy purchases			28		36		(8)		120		160		(40)
Other operation and maintenance			214		206		8		423		412		11
Depreciation			94		87		7		189		173		16
Taxes, other than income			15		13		2		29		26		3
	Total operating expenses		565		573		(8)		1,228		1,279		(51)
Other Income (Expense) - net			(5)		(2)		(3)		(6)		(4)		(2)
Interest Expense			56		53		3		111		108		3
Income Taxes			41		36		5		112		100		12
Net Income		$	47	$	58	$	(11)	$	156	$	165	$	(9)

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 separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of ~~these~~the special items.

	Three Months		Six Months

Kentucky Gross Margins	$	10	$	23
Other operation and maintenance		(9)		(10)
Depreciation				(3)
Taxes, other than income		(1)		(2)
Other income (expense) - net		2		3
Interest expense		(3)		(3)
Income taxes		3		(4)
Special items		(13)		(13)
Total	$	(11)	$	(9)

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

Table of Contents

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$5 million of higher pension expense attributed to the change in mortality tables and lower discount rate in 2015 and $10 million of higher costs ~~due~~directly related to the ~~timing~~Cane Run units' retirements consisting of an inventory write-down and ~~scope~~separation benefits, partially offset by $4 million of ~~scheduled generation maintenance outages and higher~~lower storm ~~expenses of $3 million.~~expenses.

Higher other operation and maintenance for the six month period primarily due to $6$9 million of higher pension expense attributed to the change in mortality tables and lower discount rate in 2015 and $11 million of higher costs ~~due~~directly related to the ~~timing~~Cane Run units' retirements consisting of an inventory write-down 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 2013separation benefits, partially offset by ~~increased expense due to the issuance~~$10 million of ~~$500 million First Mortgage Bonds in November 2013.~~lower storm expenses.

·	~~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 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

	Income Statement	Three Months				Six Months
	Line Item	2015		2014		2015		2014

EEI adjustments, net of tax of $0, $0, $0, $0 (a)	Other Income (Expense)-net			$	1			$	1
LKE acquisition-related adjustment (b)	Other Income (Expense)-net	$	(4)			$	(4)
Certain valuation allowances (c)	Income Taxes		(8)				(8)
Total		$	(12)	$	1	$	(12)	$	1

(a)

~~Impact recorded at~~Recorded by KU.

~~104~~

(b)

Recorded at PPL and allocated to the Kentucky Regulated segment. The amount represents a settlement between E.ON AG (a German corporation and the indirect parent of E.ON US Investments Corp., the former parent of LKE) and PPL for a tax matter.

(c)

Recorded at LKE and represents a valuation allowance against tax credits expiring in 2016 and 2017 that are more likely than not to expire before being utilized.

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%~~17% of ~~Net~~PPL's Income ~~Attributable to PPL Shareowners~~from Continuing Operations After Income Taxes for the six months ended June 30, ~~2014~~2015 and ~~15%~~21% 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

2015.

Net Income for the periods ended June 30 includes the following results.

		Three Months						Six Months
		2015		2014		$ Change		2015		2014		$ Change

Utility revenues		$	476	$	449	$	27	$	1,106	$	1,041	$	65
Energy purchases
	External		138		114		24		365		303		62
	Intersegment		5		21		(16)		14		48		(34)
Other operation and maintenance			140		135		5		273		269		4
Depreciation			52		45		7		103		90		13
Taxes, other than income			25		23		2		60		55		5
	Total operating expenses		360		338		22		815		765		50
Other Income (Expense) - net			2		1		1		4		3		1
Interest Expense			33		29		4		64		58		6
Income Taxes			36		31		5		95		84		11
Net Income		$	49	$	52	$	(3)	$	136	$	137	$	(1)

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 a certain item 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 the special ~~item.~~

items.

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

Table of Contents

	Three Months		Six Months

Pennsylvania Gross Delivery Margins	$	13	$	26
Other operation and maintenance		(8)		(6)
Depreciation		(7)		(13)
Interest expense		(4)		(6)
Other		2		3
Income taxes		(3)		(9)
Special item, after-tax		4		4
Total	$	(3)	$	(1)

See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Pennsylvania Gross Delivery Margins.

Higher other operation and maintenance expense for the three month period primarily due to higher corporate service costs.

Higher other operation and maintenance expense for the six month period primarily due to $9 million of higher corporate service costs, partially offset by $6 million of lower storm costs.

Higher depreciation expense for the three and six month periods primarily due to PP&E additions, net related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure.

Higher interest expense for the three and ~~six-month~~six month periods primarily due to the issuance of first mortgage bonds in ~~July 2013.~~June2014.

Higher income taxes for the three month period primarily due to federal and ~~six-month periods~~state tax reserve adjustments.

Higher income taxes for the six month period primarily due to higher pre-tax ~~income.~~income and federal and state tax reserve adjustments.

The following after-tax ~~gains (losses)~~(loss), 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)

	Income Statement	Three Months			Six Months
	Line Item	2015	2014		2015	2014

	Other operation
Separation benefits, net of tax of $0, $2, $0, $2 (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% of Net Income Attributable to PPL Shareowners for the six months ended June 30, 2014 and 25% of PPL's assets at June 30, 2014.

~~105~~

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 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 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)

~~(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 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 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)

·	~~See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Unregulated Gross Energy Margins.~~

·	~~Lower interest expense for the three and six-month periods primarily due to the repayment of debt in July and December 2013.~~

·	~~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 items, 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)

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

~~(b)~~

~~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 the new agreement, estimated bargaining unit one-time voluntary retirement benefits were recorded. See Note 10 to the Financial Statements for additional information.

~~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~~Table 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", "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). "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 theContents

~~107~~

~~delivery period that was hedged. Adjusted energy-related economic activity includes the ineffective portion of qualifying cash flow hedges and premium amortization~~

provided as a PLR, are offset with minimal impact on earnings. Costs associated with ~~options. Unrealized gains~~these mechanisms are recorded in "Energy purchases," "Other operation and ~~losses related to this activity~~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 ~~deferred and included~~reflected in ~~"Unregulated Gross Energy Margins" over~~"Energy purchases from affiliate" in the ~~delivery period~~reconciliation tables. As a result of the ~~item that was hedged or upon realization.~~

spinoff of PPL Energy Supply and creation of Talen Energy on June 1, 2015, PPL EnergyPlus (renamed Talen Energy Marketing) is no longer an affiliate of PPL Electric. PPL Electric's purchases from Talen Energy Marketing subsequent to May 31, 2015 are reflected in "Energy Purchases" in the reconciliation tables. This measure represents the revenues from the Pennsylvania Regulated segment's and PPL Electric's electricity delivery operations.

These measures are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to analyze and report their results of operations. Management believes these measures provide additional useful criteria to make investment decisions. These performance measures are used, in conjunction with other information, by senior management and PPL's Board of Directors to manage 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~~

				2015 Three Months									2014 Three Months

				Kentucky		PA Gross							Kentucky		PA Gross
				Gross		Delivery					Operating		Gross		Delivery					Operating
				Margins		Margins		Other (a)			Income (b)		Margins		Margins		Other (a)			Income (b)
Operating Revenues
	Utility			$	714	$	476	$	575	(c)	$	1,765	$	722	$	449	$	659	(c)	$	1,830
	Energy-related businesses								16			16						19			19
			Total Operating Revenues		714		476		591			1,781		722		449		678			1,849

Operating Expenses
	Fuel				214							214		231				1			232
	Energy purchases				28		138		4			170		36		114		21			171
	Energy purchases from affiliate						5		(5)							21		(21)
	Other operation and
		maintenance			24		27		403			454		25		23		399			447
	Depreciation				9				207			216		2				228			230
	Taxes, other than income				1		23		52			76				21		56			77
	Energy-related businesses								13			13						14			14
			Total Operating Expenses		276		193		674			1,143		294		179		698			1,171
Total				$	438	$	283	$	(83)		$	638	$	428	$	270	$	(20)		$	678

				2015 Six Months									2014 Six Months

				Kentucky		PA Gross							Kentucky		PA Gross
				Gross		Delivery					Operating		Gross		Delivery					Operating
				Margins		Margins		Other (a)			Income (b)		Margins		Margins		Other (a)			Income (b)
Operating Revenues
	Utility			$	1,613	$	1,106	$	1,260	(c)	$	3,979	$	1,656	$	1,041	$	1,295	(c)	$	3,992
	Energy-related businesses								32			32						35			35
			Total Operating Revenues		1,613		1,106		1,292			4,011		1,656		1,041		1,330			4,027

Operating Expenses
	Fuel				467							467		508							508
	Energy purchases				120		365		14			499		160		303		47			510
	Energy purchases from affiliate						14		(14)							48		(48)
	Other operation and
		maintenance			49		53		795			897		48		48		791			887
	Depreciation				16				416			432		3				452			455
	Taxes, other than income				2		56		104			162		1		50		109			160
	Energy-related businesses								26			26						28			28
			Total Operating Expenses		654		488		1,341			2,483		720		449		1,379			2,548
Total				$	959	$	618	$	(49)		$	1,528	$	936	$	592	$	(49)		$	1,479

(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.~~86

~~(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.Table of Contents

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 ended June 30 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						Six Months
		2015		2014		$ Change		2015		2014		$ Change
Kentucky Regulated
Kentucky Gross Margins
	LG&E	$	206	$	196	$	10	$	436	$	422	$	14
	KU		232		232				523		514		9
LKE		$	438	$	428	$	10	$	959	$	936	$	23


Pennsylvania Regulated
Pennsylvania Gross Delivery Margins
	Distribution	$	193	$	189	$	4	$	435	$	438	$	(3)
	Transmission		90		81		9		183		154		29
Total		$	283	$	270	$	13	$	618	$	592	$	26

Kentucky Gross Margins

Kentucky Gross Margins increased for the three months ended June 30, ~~2014~~2015 compared with ~~2013~~2014 primarily due to returns on additional environmental capital investments of ~~$14~~$12 million ($69 million at LG&E and $8$3 million at KU)~~, and higher volumes of $5 million at LG&E. The change in volumes was primarily attributable to favorable weather conditions in 2014.~~

Kentucky Gross Margins increased for the six months ended June 30, ~~2014~~2015 compared with ~~2013~~2014 primarily due to returns on additional environmental capital investments of ~~$27~~$30 million ($1119 million at LG&E and ~~$16 million at KU), higher volumes of $25 million ($7 million at LG&E and $18~~$11 million at KU), higher demand revenue of $9$7 million ($52 million at LG&E and $4$5 million at KU) ~~and higher off-system~~partially offset by lower sales volume of $10 million ($4 million at LG&E ~~of $7 million.~~and $6 million at KU). The ~~changes~~change in sales volumes ~~and demand revenue~~ were ~~primarily attributable to unusually cold~~driven by milder winter weather conditions in ~~the first quarter of~~2015 compared to 2014.

Pennsylvania Gross Delivery Margins

Distribution

Margins increased for the six months ended June 30, 2014 compared with 2013 primarily due to a $12 million benefit from a change in estimate of a regulatory liability, a $10 million favorable effect of unusually cold weather in the first quarter of 2014 and a $9 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 and six months ended June 30, 2014 compared with 2013 primarily due to increased investment in plant and the recovery of additional costs through the FERC formula based rates.

~~109~~

~~Unregulated Gross Energy Margins~~

~~Eastern U.S.~~

~~Eastern~~

Distribution margins increased for the three months ended June 30, ~~2014~~2015 compared with ~~2013~~2014, primarily due to a $4 million favorable ~~asset availability~~effect of ~~$76 million, unrealized gains on certain commodity positions of $42 million and higher capacity prices of $27 million, partially offset by lower baseload energy prices of $109 million.~~

~~Eastern~~distribution improvement capital investments.

Distribution margins ~~increased~~were relatively flat for the six months ended June 30, ~~2014~~2015 compared with ~~2013 primarily~~2014, due to ~~higher capacity prices~~a $8 million favorable effect of ~~$101~~distribution improvement capital investments and a $7 million ~~unrealized gains on certain commodity positions~~impact of ~~$60 million and~~ favorable ~~asset availability of $50 million, partially~~weather, primarily offset by ~~lower baseload energy prices of $201 million.~~

~~During~~a $12 million benefit recorded in 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~~as a result of a change in spot and near-term forward markets. Due to these market dynamics, PPL Energy Supply captured opportunities on unhedged generation, which were primarily offset by under-hedged full-requirement sales contracts and retail electric. The net benefit, due to the aforementioned weather and related market dynamics, was $38 millionestimate of a regulatory liability.

Transmission

Transmission margins increased for the three and six ~~months~~month periods ended June 30, ~~2014~~2015 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.~~

increased capital investment.

Statement of Income Analysis --

Utility Revenues

The increase (decrease) in utility revenues for the periods ended June 30, 2015 compared with 2014 was due to:

		Three Months		Six Months
Domestic:
	PPL Electric (a)	$	27	$	65
	LKE (b)		(8)		(43)
	Total Domestic		19		22

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

Table of Contents

		Three Months		Six Months
U.K.:
	Price (c)		(33)		9
	Foreign currency exchange rates		(63)		(110)
	Volume		12		1
	Line loss accrual adjustments (d)				65
	Total U.K.		(84)		(35)
Total		$	(65)	$	(13)

(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 price increases effective April 1, 2014 and April 1, 2013.~~

~~(d)~~(c)

The decrease for the three ~~and six-month periods~~month period was primarily due to a price decrease effective April 1, 2015 resulting from the ~~unusually cold weather in 2013.~~commencement of RIIO-ED1. The increase for the six month period was due to a price increase effective April 1, 2014, partially offset by a price decrease effective April 1, 2015.

~~(e)~~

(d)

The ~~three and six-month periods were impacted by unfavorable accrual adjustments in 2013 based on Ofgem's consultation documents on~~increase for the ~~DPCR4 line loss incentives and penalties. The six-month~~six month period was ~~also impacted by~~due to 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)~~decrease during the periods ended June 30, ~~2014~~2015 compared with ~~2013~~2014 are included above within "Margins" and are not discussed separately.

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)~~

~~110~~

~~(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
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.~~

~~(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 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)~~

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.~~

	Three Months		Six Months

Fuel	$	(18)	$	(41)
Energy purchases		(1)		(11)

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended June 30, 2015 compared with 2014 was due to:

		Three Months		Six Months
Domestic:
	Cane Run retired units	$	10	$	11
	Uncollectible accounts		3		6
	External transition costs associated with the spinoff of PPL Energy Supply		7		11
	Other		7		8
U.K.:
	Network maintenance		(9)		(15)
	Foreign currency exchange rates		(10)		(17)
	Pension		(4)		(7)
	Engineering management				9
	WPD Midlands acquisition-related adjustment				(3)
	Other		3		7
Total		$	7	$	10

Depreciation

Depreciation ~~increased~~decreased by ~~$26~~$14 million and ~~$47~~$23 million for the three and six months ended June 30, ~~2014~~2015 compared with ~~2013,~~2014, primarily due to a $22 million and $42 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."

net primarily at the domestic utilities. 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 by ~~$95~~$28 million and ~~$240~~increased by $89 million for the three and six months ended June 30, ~~2014~~2015 compared with ~~2013,~~2014, primarily due to ~~an increase of $76 million and $219 million from~~changes in realized and unrealized losses 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.~~

Interest Expense

The increase (decrease) in interest expense for the periods ended June 30, 2015 compared with 2014 was due to:

~~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

Table of Contents

	Three Months		Six Months

Long-term debt interest expense			$	5
Loss on extinguishment of debt (a)				(9)
Net amortization of debt discounts, premiums and issuance costs	$	11		11
Capitalized interest and debt component of AFUDC		5		7
Foreign currency exchange rates		(10)		(17)
Other		1		3
Total	$	7	$

(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 compared with a $10 million loss recorded in May 2013 related to a similar transaction for the 2010~~ Equity Units.

Income Taxes

The increase (decrease) in income taxes for the periods ended June 30, 2015 compared with 2014 was due to:

	Three Months		Six Months

Change in pre-tax income at current period tax rates	$	(24)	$	46
Valuation allowance adjustments (a)		(41)		(38)
Federal and state tax reserve adjustments (b)		(11)		(11)
U.S. income tax on foreign earnings net of foreign tax credit (c)		(10)		(22)
Intercompany interest on U.K. financing entities		(2)		(8)
Reduction in U.K. income tax rates		(2)		(6)
Other		(5)		(6)
Total	$	(95)	$	(45)

~~(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 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.

(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 this decision, PPL recorded a tax benefit of $44 million duringDuring the three and six months ended June 30, ~~2013. See Note 5~~2015, PPL recorded a tax benefit to adjust the ~~Financial Statements~~settled refund amount approved by Joint Committee on Taxation for ~~additional information.~~the open audit years 1998-2011.

(c)

During the three and six months ended June 30, ~~2013,~~2015, PPL recorded lower income tax expense due to a ~~tax benefit of $19 million associated with a ruling obtained from the IRS impacting the recalculation of 2010 U.K. earnings and profits.~~decrease in taxable dividends.

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 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 forsix months ended June 30, 2015 includes the ~~six-month period were also favorably impacted by net benefits from unusually cold weather in the first quarter~~results of ~~2014, partially offset by lower western U.S. margins.~~

~~The table below quantifies the changes in the components~~operations of ~~Net Income (Loss) Attributable to~~ PPL Energy Supply, ~~Member between these periods,~~ which ~~reflect amounts classified as Unregulated Gross Energy Margins~~was spun off from PPL on June 1, 2015 and ~~certain items that management considers special on separate lines within the table and not~~substantially represents PPL's former Supply segment. See "Discontinued Operations" in ~~their respective Statement of Income line items. See PPL's "Results of 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 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)

Earnings
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014

Net Income	$	49	$	52	$	136	$	137
Special item, gains (losses), after-tax				(4)				(4)

Excluding a special item, earnings decreased 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 capital investments~~other operation and ~~the recovery of additional costs through FERC formula based rates,~~maintenance expense and higher depreciation expense, partially offset by higher ~~interest expense. Earnings~~margins from additional transmission capital investments and returns on distribution improvement capital investments.

Excluding a special item, earnings decreased for the ~~six-month~~six month period in ~~2014~~2015 compared with ~~2013 also include higher distribution margins~~2014 primarily due to ~~unusually cold weather~~higher other operation and maintenance expense, higher depreciation expense, higher interest expense and a benefit recorded in the first quarter of 2014 for a change in the estimate of a regulatory liability, partially offset by higher margins from additional transmission capital investments, returns on ~~additional~~ distribution improvement capital investments and ~~a benefit from a change in estimate of a regulatory liability.~~

favorable weather.

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 ~~a certain~~an item that management considers special on separate lines within the table 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.~~

Table of Contents

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		Six Months

Pennsylvania Gross Delivery Margins	$	13	$	26
Other operation and maintenance		(8)		(6)
Depreciation		(7)		(13)
Other		2		3
Interest expense		(4)		(6)
Income taxes		(3)		(9)
Special item, after-tax (a)		4		4
Total	$	(3)	$	(1)

(a)

See PPL's "Results of Operations - Segment Earnings - Pennsylvania Regulated Segment" for details.

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.

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

			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			$	476			$	476	$	449			$	449

Operating Expenses
	Energy purchases			138				138		114				114
	Energy purchases from affiliate			5				5		21				21
	Other operation and maintenance			27	$	113		140		23	$	112		135
	Depreciation					52		52				45		45
	Taxes, other than income			23		2		25		21		2		23
		Total Operating Expenses		193		167		360		179		159		338
Total			$	283	$	(167)	$	116	$	270	$	(159)	$	111

			2015 Six Months						2014 Six Months
			PA Gross						PA Gross
			Delivery				Operating		Delivery				Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)
Operating Revenues			$	1,106			$	1,106	$	1,041			$	1,041

Operating Expenses
	Energy purchases			365				365		303				303
	Energy purchases from affiliate			14				14		48				48
	Other operation and maintenance			53	$	220		273		48	$	221		269
	Depreciation					103		103				90		90
	Taxes, other than income			56		4		60		50		5		55
		Total Operating Expenses		488		327		815		449		316		765
Total			$	618	$	(327)	$	291	$	592	$	(316)	$	276

(a)

Represents amounts excluded from Margins.

(b)

As reported on the Statements of Income.

Statement of Income Analysis --

Certain Operating Revenues and Expenses Included in "Margins"

The following Statement of Income line items and their related increase (decrease) during the periods ended June 30, ~~2014~~2015 compared with ~~2013~~2014 are included above within "Margins" and are not discussed separately.

Three Months Six Months

Operating revenues $ 35 $ 114
Energy purchases (6) 11
Energy purchases from affiliate 9 22

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended June 30, 2014 compared with 2013 was due to:

Three Months Six Months

Payroll-related costs $ (5) $ (8)
Vegetation management 2 5
PUC-reportable storms 1 10
Act 129 3 (1)
Separation benefits (a) 6 6
Other 4
Total $ 11 $ 12

~~(a)~~

~~Bargaining unit one-time voluntary retirement benefits were recorded as a result~~Table 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.~~Contents

~~Interest Expense~~

~~Interest expense~~

	Three Months		Six Months

Operating revenues	$	27	$	65
Energy purchases		24		62
Energy purchases from affiliate		(16)		(34)

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended June 30, 2015 compared with 2014 was due to:

	Three Months		Six Months


Vegetation management			$	(2)
Storm costs	$	2		(8)
Act 129		(2)		3
Uncollectible accounts		3		6
Corporate service costs		6		9
Bargaining unit one-time voluntary retirement benefits		(6)		(6)
Other		2		2
Total	$	5	$	4

Depreciation

Depreciation increased by $4$7 million and $8$13 million for the three and six months ended June 30, ~~2014~~2015 compared with ~~2013,~~2014, primarily due to ~~a debt issuance in July 2013.~~

~~Income Taxes~~

~~Income taxes~~PP&E additions, net related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure.

Interest Expense

Interest expense increased by $7$4 million and ~~$27~~$6 million for the three and six months ended June 30, ~~2014~~2015 compared with ~~2013,~~2014, primarily due to the ~~change~~issuance of first mortgage bonds in ~~pre-tax income at current period tax rates.~~

June 2014.

Income Taxes

The increase in income taxes for the periods ended June 30, 2015 compared with 2014 was due to:

	Three Months		Six Months

Change in pre-tax income at current period tax rates	$	1	$	6
Federal and state tax reserve adjustments		3		3
Other		1		2
Total	$	5	$	11

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

Earnings
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014

Net Income	$	60	$	65	$	177	$	180
Special items, gains (losses), after-tax		(8)		1		(8)		1

Excluding special items, earnings increased for the ~~three-month period~~three and six month periods in ~~2014~~2015 compared with ~~2013~~2014 primarily due to higher 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 higher other operation and maintenance expense ~~driven by storm-related expenses~~ and ~~timing of generation maintenance outages.~~lower sales volumes. 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.

Table of Contents

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 separate lines 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		Six Months

Margins	$	10	$	23
Other operation and maintenance		(9)		(10)
Depreciation				(3)
Taxes, other than income		(1)		(2)
Other income (expense)- net		2		3
Interest expense		(2)		(2)
Income taxes		4		(3)
Special items, after-tax (a)		(9)		(9)
Total	$	(5)	$	(3)

(a)

See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated Segment" for details of special items.

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

			2015 Three Months						2014 Three Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	714			$	714	$	722			$	722

Operating Expenses
	Fuel			214				214		231				231
	Energy purchases			28				28		36				36
	Other operation and maintenance			24	$	190		214		25	$	181		206
	Depreciation			9		85		94		2		85		87
	Taxes, other than income			1		14		15				13		13
		Total Operating Expenses		276		289		565		294		279		573
Total			$	438	$	(289)	$	149	$	428	$	(279)	$	149

			2015 Six Months						2014 Six Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	1,613			$	1,613	$	1,656			$	1,656

Operating Expenses
	Fuel			467				467		508				508
	Energy purchases			120				120		160				160
	Other operation and maintenance			49	$	374		423		48	$	364		412
	Depreciation			16		173		189		3		170		173
	Taxes, other than income			2		27		29		1		25		26
		Total Operating Expenses		654		574		1,228		720		559		1,279
Total			$	959	$	(574)	$	385	$	936	$	(559)	$	377

(a)

Represents amounts excluded from Margins.

(b)

As reported on the Statements of Income.

Table of Contents

Statement of Income Analysis --

Certain Operating Revenues and Expenses included in "Margins"

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		Six Months

Operating revenues	$	8	$	43
Fuel		17		41
Energy purchases		8		40

Other Operation and Maintenance

The increase in other operation and maintenance expense for the periods ended June 30, 2015 compared with 2014 was due to:

	Three Months		Six Months

Cane Run retired units	$	10	$	11
Pension		5		9
Storm costs		(4)		(10)
Other		(3)		1
Total	$	8	$	11

Depreciation

Depreciation increased by ~~$4 million and $8 million for the three and six months ended June 30, 2014 compared with 2013 primarily due to additions to PP&E, net.~~

~~Interest Expense~~

Interest expense increased by $5 million and $10 million for the three and six months ended June 30, 2014 compared with 2013 primarily due to the issuance of $500 million First Mortgage Bonds in November 2013.

~~Income Taxes~~

~~Income taxes increased by $4~~$7 million and $16 million for the three and six months ended June 30, ~~2014~~2015 compared with ~~2013~~2014 primarily due to additions to PP&E, net.

Income Taxes

Income taxes increased $11 million for the six months ended June 30, 2015 compared with 2014 due to the establishment of a valuation allowance on a deferred tax asset of $8 million and the change in pre-tax income at current period tax rates.

~~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				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014

Net Income	$	35	$	35	$	88	$	87

Earnings ~~increased~~were substantially the same for the ~~three-month period~~three and six month periods 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~~higher other operation and maintenance expense ~~driven by storm-related expenses.~~and lower sales volume. 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	$	10	$	14
Other operation and maintenance		(11)		(9)
Depreciation		2		1
Taxes, other than income		1
Other income (expense) - net				1
Interest expense		(1)		(2)
Income taxes		(1)		(4)
Total	$		$	1

Table of Contents

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

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~~

			2015 Three Months						2014 Three Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	331			$	331	$	344			$	344

Operating Expenses
	Fuel			82				82		104				104
	Energy purchases, including affiliate			28				28		31				31
	Other operation and maintenance			10	$	93		103		12	$	82		94
	Depreciation			4		36		40		1		38		39
	Taxes, other than income			1		6		7				7		7
		Total Operating Expenses		125		135		260		148		127		275
Total			$	206	$	(135)	$	71	$	196	$	(127)	$	69

			2015 Six Months						2014 Six Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	770			$	770	$	823			$	823

Operating Expenses
	Fuel			185				185		221				221
	Energy purchases, including affiliate			119				119		155				155
	Other operation and maintenance			22	$	177		199		24	$	168		192
	Depreciation			7		75		82		1		76		77
	Taxes, other than income			1		13		14				13		13
		Total Operating Expenses		334		265		599		401		257		658
Total			$	436	$	(265)	$	171	$	422	$	(257)	$	165

(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~~

	Three Months		Six Months

Retail and wholesale	$	3	$	(22)
Electric revenue from affiliate		(16)		(31)
Fuel		(22)		(36)
Energy purchases		(6)		(36)
Energy purchases from affiliate		3

Table of Contents

	Three Months		Six Months

Cane Run retired units	$	10	$	11
Pension		3		5
Storm costs		(1)		(5)
Other		(3)		(4)
Total	$	9	$	7

Depreciation

Depreciation increased by $7$5 million for the six months ended June 30, ~~2014~~2015 compared with ~~2013 primarily due to storm expenses.~~

~~Depreciation~~

~~Depreciation increased by $2 million and $4 million for the three and six months ended June 30,~~ 2014 ~~compared with 2013~~ 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~~2015 compared with ~~2013~~2014 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

Earnings
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014

Net Income	$	39	$	40	$	117	$	117
Special items, gains (losses), after-tax				1				1

Excluding a special item, earnings ~~increased~~were substantially the same for the ~~three-month period~~three and six month periods in ~~2014~~2015 compared with ~~2013~~2014 primarily due to higher other operation and maintenance expense offset by an increase in 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 and maintenance expense driven by the timing of generation maintenance outages. The changes in volumes and demand revenue were primarily attributable to unusually cold weather conditions during the first quarter of 2014.

The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins and a certain item that management considers special on separate lines 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		Six Months

Margins	$		$	9
Other operation and maintenance		(1)		(5)
Depreciation		(3)		(5)
Taxes, other than income		(2)		(2)
Other income (expense)- net		1
Interest expense		1		1
Income taxes		2		1
Special item, after-tax		1		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

Table of Contents

			2015 Three Months						2014 Three Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	396			$	396	$	404			$	404

Operating Expenses
	Fuel			132				132		127				127
	Energy purchases, including affiliate			13				13		31				31
	Other operation and maintenance			14	$	95		109		13	$	94		107
	Depreciation			5		49		54		1		46		47
	Taxes, other than income					8		8				6		6
		Total Operating Expenses		164		152		316		172		146		318
Total			$	232	$	(152)	$	80	$	232	$	(146)	$	86

			2015 Six Months						2014 Six Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	881			$	881	$	902			$	902

Operating Expenses
	Fuel			282				282		287				287
	Energy purchases, including affiliate			39				39		74				74
	Other operation and maintenance			27	$	186		213		24	$	181		205
	Depreciation			9		98		107		2		93		95
	Taxes, other than income			1		14		15		1		12		13
		Total Operating Expenses		358		298		656		388		286		674
Total			$	523	$	(298)	$	225	$	514	$	(286)	$	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"

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~~

	Three Months		Six Months

Retail and wholesale	$	(11)	$	(21)
Electric revenue from affiliate		3
Fuel		5		(5)
Energy purchases		(2)		(4)
Energy purchases from affiliate		(16)		(31)

Other Operation and Maintenance

The increase in other operation and maintenance expense for the periods ended June 30, 2015 compared with 2014 was due to:

	Three Months		Six Months

Pension	$	3	$	6
Cane Run 7 operations		1		1
Timing and scope of generation maintenance		(1)		1
Storm costs		(3)		(5)
Other		2		5
Total	$	2	$	8

Depreciation

Depreciation increased by $3$7 million and $5$12 million for the three and six months ended June 30, ~~2014~~2015 compared with ~~2013~~2014 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~~additions to ~~the change in pre-tax income at current period tax rates.~~

PP&E, net.

~~Financial Condition~~

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

Contents

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

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 expect to continue to have adequate liquidity available through operating cash flows, cash and cash equivalents, credit facilities and commercial paper issuances.


The Registrants had the following at:

	PPL (a)		PPL Electric		LKE		LG&E		KU
June 30, 2015
Cash and cash equivalents	$	846	$	28	$	13	$	7	$	6
Short-term debt		1,100		168		561		259		227
Notes payable with affiliates						59

December 31, 2014
Cash and cash equivalents	$	1,399	$	214	$	21	$	10	$	11
Short-term investments		120
Short-term debt		836				575		264		236
Notes payable with affiliates						41

(a)

At June 30, ~~2014, $462~~2015, $226 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 from continuing operations for the ~~six-month periods~~six month period ended June 30, and the changes between periods, were as follows.

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	$	970	$	76	$	703	$	389	$	360
Investing activities		(1,575)		(483)		(626)		(349)		(275)
Financing activities		(71)		221		(85)		(43)		(90)

2014
Operating activities	$	1,293	$	148	$	517	$	203	$	297
Investing activities		(1,700)		(295)		(502)		(249)		(305)
Financing activities		349		271		(27)		43		5

Change - Cash Provided (Used)
Operating activities	$	(323)	$	(72)	$	186	$	186	$	63
Investing activities		125		(188)		(124)		(100)		30
Financing activities		(420)		(50)		(58)		(86)		(95)

Operating Activities

The components of the change in cash provided by (used in) operating activities from continuing operations for the six months ended June 30, ~~2014~~2015 compared with ~~2013~~2014 were as follows.


		PPL		PPL Electric		LKE		LG&E		KU

Change - Cash Provided (Used)
	Net income	$	183	$	(1)	$	(3)	$	1
	Non-cash components		(67)		21		43		74	$	5
	Working capital		(314)		(96)		188		118		104
	Defined benefit plan funding		(103)		(14)		(23)		(15)		(16)
	Other operating activities		(22)		18		(19)		8		(30)
Total		$	(323)	$	(72)	$	186	$	186	$	63

Table of Contents

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 had a $323 million decrease in cash provided by operating activities from continuing operations in 2015 compared with 2014.

Income from continuing operations improved by $183 million between the periods. This was offset by $67 million less net non-cash expenses. The net $116 million increase from net income and non-cash components in 2015 compared with 2014 reflects higher margins in the Pennsylvania and Kentucky regulated segments and lower income taxes.

The $314 million decrease in cash from changes in working capital was primarily due to a decrease in taxes payable, primarily due to higher income tax payments in 2015. The decrease also reflects lower other current liabilities and an increase in prepayments.

Defined benefit plan funding was $103 million higher in 2015.

(PPL Electric)

PPL Electric had a $72 million decrease in cash provided by operating activities in 2015 compared with 2014.

The $96 million decline in cash from changes in working capital was partially due to decreases in taxes payable (primarily due to higher income tax payments in 2015) and prepayment of gross receipts tax, partially offset by a decrease in accounts receivable.

Defined benefit plan funding was $14 million higher in 2015.

(LKE)

LKE had a $186 million increase in cash ~~from changes~~provided by operating activities in ~~components of working capital was partially~~2015 compared with 2014.

LKE's non-cash components of net income included a $16 million increase in depreciation expense due to additional assets in service since the second quarter of 2014, and a net $17 million increase in current 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, an increase in taxes payable due to timing of payments, and net changes in accounts receivable and unbilled revenue due to colder winter weather in 2014, partially offset by a decrease in accounts payable due to the timing of fuel purchases and payments.

(LG&E)

LG&E 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~~$186 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.~~

~~(PPL Electric)~~

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

~~(LKE)~~

~~LKE's~~2015 compared with 2014.

LG&E's non-cash components of net income included a $5 million increase in depreciation expense due to additional assets in service since the second quarter of 2014, a net $23 million increase in current regulatory assets and regulatory liabilities due to the timing of rate recovery mechanisms, and a $38 million increase in deferred income taxes. The increase in deferred income taxes was primarily due to an increase in accelerated tax depreciation over book depreciation of $54 million, partially offset by an increase of $15 million of net operating loss.

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, an increase in taxes payable due to timing of payments, a decrease in accounts receivable from affiliates due to timing of intercompany settlements associated with capital expenditures, inventory, and energy sales to KU, and net changes in accounts receivable and unbilled revenue due to colder winter weather in 2014, partially offset by a decrease in accounts payable due to the timing of fuel purchases and payments.

(KU)

KU had a ~~$54~~$63 million increase in ~~deferred income taxes primarily due to utilization of net~~cash provided by operating ~~losses. The increase~~activities 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, and lower fuel inventory due to weather, offset by a decrease in accounts payable due to timing of fuel purchases.2015 compared with 2014.

KU's non-cash components of net income included a $12 million increase in depreciation expense due to additional assets in service since the second quarter of 2014, partially offset by a net $6 million increase in current regulatory assets and regulatory liabilities due to the timing of rate recovery mechanisms.

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~~(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~~

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, an increase in taxes payable due to timing of payments, net changes in accounts receivable and unbilled revenue due to colder winter weather in 2014, and an increase in accounts payable due to the timing of fuel purchases and payments, partially offset by a decrease in accounts payable to affiliates due to timing of intercompany settlements associated with capital expenditures, inventory, and energy purchases from LG&E.

Investing Activities

(All Registrants)

Expenditures for Property, Plant and Equipment

Investment in PP&E is the primary investing activity of the registrants. The ~~primary use of cash within investing activities is~~change in expenditures for PP~~&E. The change in these expenditures~~&E for the six months ended June 30, ~~2014~~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	$	(1)	$	(44)	$	(74)	$	(100)	$	26

For PPL, increases in project expenditures at PPL Electric and LG&E, were offset by lower expenditures at WPD and KU. The increase in expenditures for ~~PP&E for~~ PPL Electric was primarily due to ~~higher~~the Northeast Pocono reliability project, ~~costs to enhance system reliability at WPD~~smart grid projects and other various projects, partially offset by the ~~changes in project expenditures at PPL Energy Supply, LG&E and KU. The decrease in expenditures at PPL Energy Supply was partially due to expenditures made in 2013 for~~completion of the ~~Holtwood hydroelectric expansion~~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 7.7 which was put into commercial operation in June 2015. The decrease in expenditures for KU was related to lower expenditures for the construction of Cane Run Unit 7, environmental air projects 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.

Other Significant Changes in Components of Investing Activities

~~For~~

(PPL)

PPL received $135 million during the three and six months ended June 30, 2015 from the sale of short-term investments.

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

PPL Electric received $150 million during the ~~change in investing activities for the~~three and six months ended June 30, 2014 compared with 2013 reflects increases of $234 million in restricted cash and cash equivalents. These changes were primarily related to increased cash 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 was primarily due to cash received for~~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 from continuing operations for the six months ended June 30, ~~2014~~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	$	31	$	(286)
	Stock issuances/redemptions, net		(934)
	Dividends		(30)		(20)			$	2	$	5
	Capital contributions/distributions, net				65	$	13		(33)		(66)
	Change in short-term debt, net		493		188		(89)		(55)		(34)
	Other financing activities		20		3		18
	Total	$	(420)	$	(50)	$	(58)	$	(86)	$	(95)

For ~~LKE, the change in Other financing activities for~~ the six months ended June 30, ~~2014 compared with 2013 was~~2015, PPL required $420 million less cash from financing activities primarily due to ~~a $47 million borrowing~~the ability to use cash-on-hand in ~~2013 included in notes payable~~conjunction with ~~affiliates.~~cash from operating activities to support the significant capital expenditure programs of its subsidiaries.

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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,~~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 $ 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

						Letters of
						Credit
						and
		Committed				Commercial		Unused
		Capacity		Borrowed		Paper Issued		Capacity

PPL Capital Funding Credit Facilities		$	750			$	20	$	730
PPL Electric Credit Facility			300				169		131

LKE Credit Facility			75	$	75
LG&E Credit Facility			500				259		241
KU Credit Facilities			598				425		173
Total LKE			1,173		75		684		414
	Total U.S. Credit Facilities (a)	$	2,223	$	75	$	873	$	1,275

Total U.K. Credit Facilities (b)		£	1,055	£	242			£	813

(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%~~13%, 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~~2015 were USD-denominated ~~borrowing~~borrowings of ~~$164~~$200 million and GPB-denominated borrowings which equated to $171 million. At June 30, ~~2014,~~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 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	$	59			$	166
LG&E Money Pool (a)		500			$	259		241
KU Money Pool (a)		500				227		273

(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~~place 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

~~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

2015:

~~(a)~~

~~Issuances are net of pricing discounts, where applicable and exclude the impact of debt issuance costs.~~100

~~(b)~~

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

				Commercial
				Paper		Unused
		Capacity		Issuances		Capacity

PPL Electric		$	300	$	168	$	132

LG&E			350		259		91
KU			350		227		123
Total LKE			700		486		214
	Total PPL	$	1,000	$	654	$	346

(PPL)

At-the-Market Stock Offering Program

During the three and six months ended June 30, 2015, PPL issued 421,700 shares of common stock under the program at an average price of $33.73 per share, receiving net proceeds of $14 million.

See Note 7 to the Financial Statements for additional information.

Common Stock Dividends~~(PPL)~~

In May ~~2014,~~2015, PPL declared its quarterly common stock dividend, payable July 1, ~~2014,~~2015, at 37.25 cents per share (equivalent to $1.49 per annum). On August 3, 2015, PPL announced that the company is increasing its common stock dividend to 37.75 cents per share on a quarterly basis (equivalent to $1.51 per annum). The increased dividend will be payable on October 1, 2015 to shareowners of record as of September 10, 2015. 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.

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~~2015, Fitch withdrew its ratings ~~and revised its outlook to stable~~ for ~~PPL.~~

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

KU.

(PPL)

In ~~April 2014,~~May 2015, Moody's ~~affirmed its~~upgraded the following ratings with a stable ~~outlook~~outlook:

the long-term issuer rating from Baa3 to Baa2 for PPL;

the senior unsecured rating from Baa3 to Baa2 for PPL Capital Funding; and

the junior subordinated rating from Ba1 to Baa3 for PPL Capital Funding.

In May 2015, Fitch affirmed and withdrew its ratings for PPL ~~WEM,~~UK Distribution Holdings Limited (formerly known as PPL WW), WPD (South Wales) and WPD (South West).

In June 2015, S&P upgraded the following ratings with a stable outlook:

the long-term issuer rating from BBB to A- for PPL;

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the senior unsecured rating from BBB- to BBB+ for PPL Capital Funding; and

the junior subordinated rating from BB+ to BBB for PPL Capital Funding.

In June 2015, S&P affirmed the short-term ratings for WPD plc, WPD (East Midlands), WPD (West Midlands), ~~PPL WW,~~ WPD (South Wales) and WPD (South West).

~~In April 2014, Fitch affirmed its~~ S&P also upgraded the following ratings with a stable ~~outlook~~outlook:

the long-term issuer rating from BBB to A- for WPD plc, WPD (East Midlands), WPD (West Midlands), WPD (South Wales) and WPD (South West);

the senior unsecured rating from BBB- to BBB+ for WPD plc; and

the senior unsecured rating from BBB to A- for WPD (East Midlands), WPD (West Midlands), WPD (South Wales) and WPD (South West).

(PPL and PPL ~~Capital Funding.~~

Electric)

In ~~June 2014,~~May 2015, Moody's affirmed its ratings and revised its outlook to positive for PPL ~~and PPL Capital Funding.~~

Electric.

In June ~~2014,~~2015, S&P affirmed its ~~ratings for PPL, PPL Capital Funding, PPL WEM, WPD (East Midlands), WPD (West Midlands), PPL WW, WPD (South Wales)~~commercial paper rating and ~~WPD (South West) and placed~~upgraded the ~~issuers on CreditWatch with positive implications.~~

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

Electric:

the long-term issuer rating from BBB to A-; and

the senior secured rating from A- to A.

(PPL, LKE, LG&E and ~~PPL Energy Supply)~~

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

KU)

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,~~2015, 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~~the following ratings with a stable outlook for ~~PPL Electric.~~

LKE:

the long-term issuer rating from Baa2 to Baa1; and

the senior unsecured rating from Baa2 to Baa1.

In June ~~2014,~~2015, 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~~ S&P also upgraded the following ratings with a stable ~~outlook for LKE, LG&E and KU.~~

outlook:

the long-term issuer ratings from BBB to A- for LKE, LG&E and KU;

the senior secured ratings from A- to A for LG&E and KU; and

the senior unsecured rating from BBB- to BBB+ for LKE.

In June ~~2014,~~2015, S&P ~~affirmed~~upgraded 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~~from AA+ to ~~positive for LKE.~~

~~In June 2014, S&P affirmed its ratings~~AAA 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~~removed them onfrom CreditWatch with positive implications.

Ratings Triggers

(~~All Registrants except~~ PPL, ~~Electric)~~

LKE, LG&E and KU)

Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, 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.

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.

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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 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 14 to the Financial Statements for additional information.

~~(PPL and PPL Electric)~~

PPL Electric is exposed to market price and volumetric risks from its obligation as 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 PLR obligations. These supply contracts transfer the volumetric risk associated with the PLR obligation to the energy suppliers.

~~(PPL and PPL Energy Supply)~~

PPL Energy Supply segregates its non-trading activities into two categories: hedge activity and economic activity. Transactions that are accounted for as hedge activity qualify for hedge accounting treatment. The economic activity category includes transactions that address a specific risk, but were not eligible for hedge accounting or for which hedge accounting was not elected. This activity includes the changes in fair value of positions used to hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and full-requirement sales and retail contracts. This economic activity is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power). Although they do not receive hedge accounting treatment, these transactions are considered non-trading activity. See Note 14 to the Financial Statements for additional information.

To hedge the impact of market price volatility on PPL Energy Supply's energy-related assets, liabilities and other contractual arrangements, PPL Energy Supply both sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts. PPL Energy Supply's non-trading commodity derivative contracts range in maturity through 2019.

The following tables sets forth the changes in the net fair value of non-trading commodity derivative contracts for the periods ended June 30. 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

~~(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, 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)

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. 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

~~(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, 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

~~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 months ended June 30, 2014 was as follows.

~~130~~

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

The trading portfolio includes all proprietary trading positions, regardless of the delivery period. All positions not considered proprietary trading are considered non-trading. The non-trading portfolio includes the entire portfolio, including generation, with delivery periods through the next 12 months. Both the trading and non-trading VaR computations exclude FTRs due to the absence of reliable spot and forward markets. The fair value of the non-trading and trading FTR positions was insignificant at June 30, 2014.

Interest Rate Risk ~~(All Registrants)~~

The Registrants and their subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. The Registrants and their subsidiaries utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of their debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolios due to changes in the absolute level of interest rates.

The following interest rate hedges were outstanding at June 30, ~~2014.~~

Effect of a
Fair Value, 10% Adverse Maturities
Exposure Net - Asset Movement Ranging
Hedged (Liability) (a) in Rates (b) Through
PPL
Cash flow hedges
Interest rate swaps (c) $ 475 $ (11) $ (15) 2026
Cross-currency swaps (d) 1,262 (48) (177) 2028
Economic hedges
Interest rate swaps (e) 179 (43) (3) 2033
LKE and LG&E
Economic hedges
Interest rate swaps (e) 179 (43) (3) 2033

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)	$	1,300	$	(59)	$	(52)	2045
	Cross-currency swaps (d)		1,262		63		(159)	2028
Economic hedges
	Interest rate swaps (e)		179		(45)		(3)	2033
LKE
Cash flow hedges
	Interest rate swaps (c)		1,000		(46)		(44)	2045
Economic hedges
	Interest rate swaps (e)		179		(45)		(3)	2033
LG&E
Cash flow hedges
	Interest rate swaps (c)		500		(23)		(22)	2045
Economic hedges
	Interest rate swaps (e)		179		(45)		(3)	2033
KU
Cash flow hedges
	Interest rate swaps (c)		500		(23)		(22)	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 on interest expense at June 30, ~~2014~~2015 was insignificant for PPL, PPL Electric, LKE, LG&E and KU. The estimated impact of a 10% adverse movement in interest rates on the fair value of debt at June 30, 2015 is shown below.

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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

~~131~~

	10% Adverse
	Movement
	in Rates

PPL	$	630
PPL Electric		131
LKE		135
LG&E		43
KU		81

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~~Under its risk management program, ~~designed~~PPL may enter into financial instruments to hedge certain foreign currency exposures, including translation risk of expected earnings, 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

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)	£	134	$	12	$	(21)	2016
Economic hedges (c)		1,571		61		(230)	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.

~~NDT Funds - Securities~~

Commodity Price Risk ~~(PPL~~(Non-trading)

(PPL, LKE, LG&E and ~~PPL Energy Supply)~~

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the PPL Susquehanna nuclear plant (Susquehanna). At June 30, 2014, these funds were invested primarily in domestic equity securitiesKU)

LG&E's and ~~fixed-rate, fixed-income securities~~KU's retail electric and natural gas rates and municipal wholesale electric rates 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,set by regulatory commissions and the ~~values~~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 ~~fixed-rate, fixed-income securities are primarily exposed~~their business operations. LG&E and KU sell excess economic generation to ~~changes in interest rates. PPL actively monitors~~maximize the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At June 30, 2014, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $70 million reduction in the fair value of the ~~trust assets.~~physical assets at times when the assets are not required to serve LG&E's or KU's customers. See ~~Notes 13 and 17~~ Note 14to the Financial Statements for additional ~~information regarding~~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 ~~NDT funds.~~

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 PLR obligations. These supply contracts transfer the volumetric risk associated with the PLR obligation to the energy suppliers.

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 loss of $149 million for the six months ended June 30, 2015, which primarily reflected a $376 million decrease to PP&E and goodwill offset by a decrease of $227 million to net liabilities. Changes in this exchange rate

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resulted in a foreign currency translation gain of $140 million for the six months ended June 30, 2014, which primarily reflected a $349 million increase to PP&E and goodwill offset by an increase of $209 million to net liabilities. Changes in this exchange rate resulted in a foreign currency translation loss of $269 million for the six months ended June 30, 2013, which primarily reflected a $714 million reduction to PP&E and goodwill offset by a reduction of $445 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.

~~132~~

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.

Environmental Matters

(All Registrants)

Extensive federal, state and local environmental laws and regulations are applicable to PPL's, ~~PPL Energy Supply's,~~ LKE's, LG&E's and KU's air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of the Registrants' businesses. The cost of compliance or alleged non-compliance cannot be predicted with certainty but could be ~~material.~~significant. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. Many of these environmental law considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the cost for their products or their demand for the Registrants' services.

Increased capital and operating costs are subject to 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.

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~~2014 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.~~generators, as applicable. 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 for both new power plants and existing power plants, which it expects to finalize in the third quarter of 2015. The EPA has also announced that it will develop a ~~revised~~federal implementation plan which would apply to any states that fail to submit an

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acceptable state implementation plan under these rules. 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.

The EPA's proposal for 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. 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.

~~133~~

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

The EPA's ~~proposed regulation addressing GHG emissions from~~proposal for existing power plants was ~~published~~issued in ~~the Federal Register on~~ June ~~18, 2014, making the comment deadline October 16,~~ 2014. 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. PPL is analyzing~~multi-state). LG&E and KU have analyzed the proposal and identified potential impacts and solutions in ~~preparation~~comments filed in December 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~~reliability implications of implementing this rule. LG&E and KU are also working closely with state regulators in the ~~October 16, 2014 deadline.~~development of Kentucky's state implementation plan. 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

(WOTUS)

On ~~April 21, 2014,~~May 27, 2015, the EPA released a final rule on the definition of WOTUS. Although the rule was meant to clarify which streams and other bodies of water fall under the jurisdiction of EPA and the ~~U.S.~~ Army Corps of Engineers ~~published a proposed rule which greatly expands~~under the Clean Water Act, ~~definition of Waters~~significant ambiguity remains. The Registrants do not currently expect the rule to have a significant impact on their operations. Until such time as ongoing litigation is complete, however, the Registrants are unable to predict the impact of the ~~United States. Comments are due by October 20, 2014. If the definition is expanded~~rule which could be substantial and include significant project delays and added costs, as ~~proposed,~~ permits and other regulatory requirements may be imposed for many ~~matters~~activities presently not covered by permitting requirements (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands)~~, the implications of which could be significant. Both the U.S. House~~. However, these costs are subject to rate recovery.

(PPL, LKE, LG&E and ~~Senate are considering legislation to block this regulation.~~

~~(All Registrants except PPL Electric)~~

KU)

Coal Combustion Residuals (CCRs)

~~In June 2010,~~

On April 17, 2015, the EPA ~~proposed two approaches to~~published its final rule regulating CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. 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 ~~disposal and management of CCRs (as either hazardous or non-hazardous waste) under RCRA. Under a litigation settlement agreement involving certain environmental groups,~~rule, the EPA ~~has agreed to issue its final rulemaking by December 2014. Regulations could impact handling, disposal and/or~~will regulate CCRs as non-hazardous under Subtitle D of RCRA and allow beneficial use of ~~CCRs. Recent ash spills~~CCRs, with some restrictions. This self-implementing rule requires posting of compliance documentation on a publicly accessible website and is enforceable through citizen suits. LG&E's and KU's plants using surface impoundments for management and disposal of CCRs will be most impacted by 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, LKE, LG&E and KU also anticipate incurring capital or operation and maintenance costs prior to that ~~have occurred within~~time to address other provisions of the ~~utility industry may precipitate more stringent regulation of both active~~rule, such as groundwater monitoring and ~~legacy CCR sites. The financial and operational impact is expected~~disposal facility modifications or closings, or to ~~be material if CCRs are regulated as hazardous waste, and significant if regulated as non-hazardous.~~

implement various compliance strategies.

In ~~July 2013,~~connection with 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~~rule, LG&E and ~~set rules governing state programs. It remains uncertain whether similar legislation would~~KU recorded increases to existing AROs during the second quarter of 2015. See Note 16 for additional information. Further increases to AROs or changes to current capital plans or to operating costs may be ~~passed by the U.S. Senate.~~

required as estimates are refined based on closure developments, groundwater monitoring results and regulatory or legal proceedings. Costs relating to this rule are subject to rate recovery.

Effluent Limitation Guidelines (ELGs)

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regulation is expected to be issued by ~~September 2015, which is contingent upon~~ the ~~EPA meeting its deadline for issuing the final CCR regulation.~~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 and costs could be imposed ahead of federal timelines.

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

~~On May 19, 2014, the EPA issued its final rule under 316(b) of the Clean Water Act. It will become effective upon publication which is expected in July. The regulation applies~~ Costs to ~~nearly all PPL-owned steam electric generation plants in Pennsylvania, Kentucky,~~comply with ELGs or technology-based limits are subject to rate recovery.

Mercury and Montana, even those equipped with closed-cycle cooling systems. The rule requires Best Technology Available to reduce mortality of aquatic organisms that 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 will be used to determine the proper technology for compliance. PPL, PPL Energy Supply, LKE, LG&E and KU are evaluating compliance strategies but do not presently expect the compliance costs to be material.

~~134~~

~~MATS~~

Air Toxics Standards (MATS)

In February 2012, the EPA finalized the MATS rule requiring ~~fossil-fuel fired plants to reduce emissions~~reductions of mercury and other hazardous air pollutants byfrom fossil-fuel fired power plants, with an effective date of April 16, ~~2015.~~2012. The MATS rule ~~which~~ was challenged by industry groups and states and was upheld by the D.C. Circuit Court in April 2014. The EPA has subsequently proposed changes to the rule with respect to new sources to address the concern that the rule effectively precludes construction of any new coal-fired plants. PPL, PPL Energy Supply, LKE, LG&E and KU are generally well-positioned to comply with MATS, primarily due to recent investments in environmental controls at PPL Energy Supply and approved ECR plans to install additional controls at some of LG&E's and KU's Kentucky plants. Additionally, PPL Energy Supply is evaluating chemical additive systems for mercury control at Brunner Island, and modifications to existing controls at Colstrip for improved particulate matter reductions. In September 2012, PPL Energy Supply announced its intention to place its Corette plant in long-term reserve status beginning in April 2015 due to expected market conditions and costs to comply with MATS. The Corette plant asset group was determined to be impaired in December 2013. See "Application of Critical Accounting Policies - Asset Impairment (Excluding Investments)" in PPL's 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 of generating units at the Cane Run and Green River plants are in response to MATS and other environmental regulations.~~

~~CSAPR and CAIR~~

In 2011, the EPA finalized its CSAPR 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. In December 2011, the U.S. Court of Appeals for the ~~District of Columbia~~D.C. Circuit Court (D.C. Circuit Court) ~~stayed implementation~~in April 2014. A group of ~~CSAPR, leaving CAIR~~states subsequently petitioned the U.S. Supreme Court (Supreme Court) to review this decision and on June 29,2015, the Supreme Court held that the EPA failed to properly consider costs when deciding to regulate hazardous air emissions from power plants under MATS. The Court remanded the matter to the D.C. Circuit Court. EPA's MATS rule remains in ~~place. Subsequently, in August 2012,~~effect pending action by the D.C. Circuit Court. It is uncertain whether the D.C. Circuit Court ~~vacated and remanded CSAPR back~~will vacate the MATS rule, remand the rule to the EPA, ~~for~~or require further ~~rulemaking, again leaving CAIR~~proceedings or actions.

LG&E and KU have installed significant controls in ~~place~~connection with the MATS rule and 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~~conjunction with compliance with other environmental requirements, including ~~the possible replacement of the CAIR program with CSAPR, depending on future determinations by the EPA and the courts.~~fabric-filter baghouses, upgraded FGDs or chemical additive systems for which appropriate KPSC authorization and/or ECR treatment has been received. PPL, ~~PPL Energy Supply,~~ LKE, LG&E and KU ~~do not currently anticipate that~~cannot predict the ~~costs~~outcome 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.~~

~~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 the eastern U.S., the EPA had determined that region-wide reductions under the CSAPR trading program could be utilized by state programs to satisfy BART requirements for sulfur dioxide and nitrogen oxides. Although the August 2012 decision by the D.C. Circuit Court 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 in the eastern U.S., including PPL Energy Supply's plants in Pennsylvania and LG&E's and KU's plants in Kentucky, will be subject to further reductions in those pollutants in accordance with BART requirements.

The EPA signed its final Federal Implementation Plan (FIP) of the Regional Haze Rules for Montana in September 2012, with tighter emissions limits for PPL Energy Supply's Colstrip Units 1 & 2 based on the installation of new controls (no limitsthis matter or ~~additional controls were specified for Colstrip Units 3 & 4), and tighter 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,~~impact, if ~~required, could be significant. PPL Energy Supply expects to meet the tighter permit limits at Corette without~~ any, ~~significant changes to~~on plant operations, although other requirements have led to the planned suspension of operations at Corette beginning in April 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.

~~135~~

rate treatment or future capital or operating needs.

National Ambient Air Quality Standards

(NAAQS)

In 2008, the EPA revised the ~~National Ambient Air Quality Standard~~NAAQS for ~~ozone. As a result,~~ozone and proposed to further strengthen the standard in November 2014.The EPA is required 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. States that are not in the ozone transport region, ~~(OTR),~~ including ~~Pennsylvania,~~Kentucky, are ~~required by the Clean Air Act~~working together to ~~impose~~evaluate further nitrogen oxide reductions from fossil-fueled plants with SCRs. The nature and timing of any additional reductions in nitrogen oxide emissions based upon reasonably available control technologies. The PADEP has issued a draft rule requiring reasonable reductions. However, the proposal is being questioned as too lenient byresulting from these evaluations cannot be predicted at this time.

In 2010, the EPA other OTR states and environmental groups. The PADEP may impose more stringent emission limits than those set forth in the proposed rule which could have a significant impact on PPL Energy Supply's Pennsylvania coal plants.

~~During 2010 and 2012, the EPA issued new ambient air standards~~finalized revised NAAQS for sulfur dioxide and ~~particulates, respectively.~~required states to identify areas that meet those standards 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 ~~Kentucky,~~in Kentucky. Attainment must be achieved by 2018. PPL, LKE, LG&E and KU anticipate that some of the measures required for compliance with Clean Air Act regulations governing attainment of ozone or particulates standards, 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~~the previously announced retirement of coal-fired generating units, at LG&E's Cane Run plant and KU's 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~~costs could be significant. ~~States~~Such costs are ~~working on designations for other areas according~~subject to ~~the timeline outlined in the EPA's Data Requirements Rule issued in April 2014.~~

rate recovery.

New Accounting Guidance (All Registrants)

See Notes 2 and 1918 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

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~~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,~~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 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 six months ended June 30, 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.~~10-K, except that as a result of the June 1, 2015 spinoff by PPL of PPL Energy Supply, the risk factors disclosed under the heading "Risks Related to Supply Segment" at pages 26 through 31 of the Registrants' 2014 Form 10-K are no longer applicable.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchase of Equity Securities during the Second Quarter of 2015:

(a)

(b)

(c)

(d)

Maximum Number (or

Approximate Dollar

Total Number of

Value) of Shares

Shares (or Units)

(or Units) that May

Total Number of

Average Price

Purchased as Part of

Yet Be Purchased

Shares (or Units)

Paid per Share

Publicly Announced

Under the Plans

Period

Purchased (1)

(or Unit)

Plans of Programs

or Programs

April 1 to April 30, 2015

18,576

$33.66

May 1 to May 31, 2015

June 1 to June 30, 2015

18,569

$34.77

Total

37,145

$34.21

(1)

Represents shares of common stock withheld by PPL at the request of its executive officers to pay income taxes upon the vesting of the officers' restricted stock awards, as permitted under the terms of PPL's Incentive Compensation Plan and Incentive Compensation Plan for Key Employees.

Item 4. Mine Safety Disclosures

Not applicable.

~~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)~~ 3(a)	-	~~Separation Agreement among~~Amended and Restated Articles of Incorporation of 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~~effective as of ~~June 9, 2014~~May 21, 2015 (Exhibit ~~2.1~~3(i) 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)~~ May 27, 2015)
*[_]10(a) 3(b)	-	~~Amendment No. 5 to Executive Deferred Compensation Plan, dated~~Bylaws of PPL Corporation, effective as of May ~~8, 2014~~
~~10(b)~~	-	~~Employee Matters Agreement among~~21, 2015 (Exhibit 3(ii) to PPL Corporation ~~Talen Energy Corporation, C/R Energy Jade, LLC, Sapphire Power Holdings LLC. and Raven Power Holdings LLC, dated as of June 9, 2014 (Exhibit 10.1 to PPL Energy Supply, LLC~~ Form 8-K Report (File No. ~~1-32944)~~1-11459) dated May 27, 2015)
*4(a)	-	Amendment No. 11 to the PPL Employee Stock Ownership Plan, dated May 11, 2015
[_]10(a)	-	Form of Retention Agreement, dated May 6, 2015, among PPL Corporation, PPL Services Corporation and Robert J. Grey (Exhibit 99.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 7, 2015)
[_]10(b)	-	Form of Grant Letter dated May 29, 2015 (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated June ~~12, 2014)~~ 1, 2015)
*10(c)	-	First Amendment, dated as of July 22, 2014, to Amended and Restated Letter of Credit Issuance and Reimbursement 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, 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
*10(i)	-	~~Amendment and Restatement Agreement, 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~~
*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

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Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended June 30, ~~2014,~~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,~~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	-	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~~

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~~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~~August 3, 2015	/s/ Stephen K. Breininger
	Stephen K. Breininger
	Vice President and Controller
	(Principal Accounting Officer)



	PPL Electric Utilities Corporation
	(Registrant)



Date: ~~July 31, 2014~~August 3, 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~~August 3, 2015	/s/ Kent W. Blake
	Kent W. Blake Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

111

~~142~~

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~~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 (Loss)	3
			Condensed Consolidated Statements of Comprehensive Income (Loss)	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	15
			Condensed Consolidated Statements of Comprehensive Income	22	16
			Condensed Consolidated Statements of Cash Flows	23	17
			Condensed Consolidated Balance Sheets	24	18
			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~~669,969,737 shares outstanding at July ~~25, 2014.~~

	~~PPL Energy Supply, LLC~~	~~PPL Corporation indirectly holds all of the membership interests in PPL Energy Supply, LLC.~~24, 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.~~24, 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.~~24, 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.~~24, 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			4034
	4. Earnings Per Share			35
	5. Income Taxes			36
	6. Utility Rate Regulation			38
	7. Financing Activities			41
	~~5. Income Taxes~~8. Acquisitions, Development and Divestitures			4243
	~~6. Utility Rate Regulation~~9. Defined Benefits			44
~~7. Financing Activities~~			47
	~~8. Acquisitions, Development~~10. Commitments and ~~Divestitures~~Contingencies			5049
	~~9. Defined Benefits~~11. Related Party Transactions			5257
	~~10. Commitments and Contingencies~~			53
~~11. Related Party Transactions~~			67
12. Other Income (Expense) - net			6858
	13. Fair Value Measurements and Credit Concentration			58
	14. Derivative Instruments and Hedging Activities			60
	15. Goodwill			68
	16. Asset Retirement Obligations			68
	17. Accumulated Other Comprehensive Income (Loss)			69
	~~14. Derivative Instruments and Hedging Activities~~			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			9171
Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
	Overview			9373
		Introduction		9373
		Business Strategy		9575
		Financial and Operational Developments		9676
			PPL Corporation and Subsidiaries - Earnings	9676
			~~2014~~2015 Outlook	9776
			Other Financial and Operational Developments	9877
	Results of Operations			~~101~~81
		PPL Corporation and Subsidiaries - Segment Earnings, Margins and Statement of Income Analysis		~~102~~82
		~~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~~89
		LG&E and KU Energy LLC and Subsidiaries - Earnings, Margins and Statement of Income Analysis		~~117~~91
		Louisville Gas and Electric Company - Earnings, Margins and Statement of Income Analysis		~~119~~93
		Kentucky Utilities Company - Earnings, Margins and Statement of Income Analysis		~~120~~95
	Financial Condition			~~122~~97
		Liquidity and Capital Resources		~~122~~97
		Risk Management		~~128~~103
		Foreign Currency Translation		~~132~~104
		Related Party Transactions		~~132~~105
		Acquisitions, Development and Divestitures		~~133~~105
		Environmental Matters		~~133~~105
	New Accounting Guidance			~~136~~107
	Application of Critical Accounting Policies			~~136~~107

		Item 3. Quantitative and Qualitative Disclosures About Market Risk	~~137~~108
		Item 4. Controls and Procedures	~~137~~108
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings		~~137~~108
	Item 1A. Risk Factors		~~137~~108
	Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		109
	Item 4. Mine Safety Disclosures		~~138~~109
	Item ~~5. Other Information~~6. Exhibits		~~138~~109
	~~Item 6. Exhibits~~	~~140~~

SIGNATURES	111
~~SIGNATURES~~	~~142~~
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES		~~143~~112
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002	~~149~~117
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002	~~161~~127

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.

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except share data)

			Three Months Ended				Six Months Ended
			June 30,				June 30,
			2015		2014		2015		2014
Operating Revenues
	Utility		$	1,765	$	1,830	$	3,979	$	3,992
	Energy-related businesses			16		19		32		35
	Total Operating Revenues			1,781		1,849		4,011		4,027

Operating Expenses
	Operation
		Fuel		214		232		467		508
		Energy purchases		170		171		499		510
		Other operation and maintenance		454		447		897		887
	Depreciation			216		230		432		455
	Taxes, other than income			76		77		162		160
	Energy-related businesses			13		14		26		28
	Total Operating Expenses			1,143		1,171		2,483		2,548

Operating Income				638		678		1,528		1,479

Other Income (Expense) - net				(102)		(74)		(14)		(103)

Interest Expense				215		208		424		424

Income from Continuing Operations Before Income Taxes				321		396		1,090		952

Income Taxes				71		166		288		333

Income from Continuing Operations After Income Taxes				250		230		802		619

Income (Loss) from Discontinued Operations (net of income taxes) (Note 8)				(1,007)		(1)		(912)		(74)

Net Income (Loss)			$	(757)	$	229	$	(110)	$	545

Earnings Per Share of Common Stock:
	Income from Continuing Operations After Income Taxes Available to PPL
	Common Shareowners:
		Basic	$	0.37	$	0.35	$	1.20	$	0.96
		Diluted	$	0.37	$	0.34	$	1.19	$	0.94
	Net Income (Loss) Available to PPL Common Shareowners:
		Basic	$	(1.13)	$	0.35	$	(0.17)	$	0.84
		Diluted	$	(1.13)	$	0.34	$	(0.17)	$	0.83

Dividends Declared Per Share of Common Stock			$	0.3725	$	0.3725	$	0.7450	$	0.7450

Weighted-Average Shares of Common Stock Outstanding(in thousands)
		Basic		668,415		653,132		667,698		642,002
		Diluted		671,286		665,792		670,013		664,927

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

(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

Current Regulatory Liabilities:
	Generation supply charge	$	31	$	28	$	31	$	28
	Demand side management		12		2
	Gas supply clause		9		6
	Transmission formula rate		66		42		66		42
	Storm damage expense		10		3		10		3
	Other		9		10		3		3
Total current regulatory liabilities		$	137	$	91	$	110	$	76

Noncurrent Regulatory Liabilities:
	Accumulated cost of removal of utility plant	$	693	$	693
	Coal contracts (b)		38		59
	Power purchase agreement - OVEC (b)		88		92
	Net deferred tax assets		24		26
	Act 129 compliance rider		26		18	$	26	$	18
	Defined benefit plans		21		16
	Interest rate swaps		84		84
	Other		3		4
Total noncurrent regulatory liabilities		$	977	$	992	$	26	$	18

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

				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

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

		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

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

		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

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

					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

	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

	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)

Other Operation and Maintenance

The increase in other operation and maintenance expense for the periods ended June 30, 2015 compared with 2014 was due to: