UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | |
| FORM 10-Q | |
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended |
| OR | |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________ |
Commission File Number | Registrant; State of Incorporation; Address and Telephone Number | IRS Employer Identification No. |
| 1-11459 | PPL Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-2758192 |
PPL Electric Utilities Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | ||
| 23-0959590 | ||
| 333-173665 | LG&E and KU Energy LLC (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 20-0523163 |
| 1-2893 | Louisville Gas and Electric Company (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 61-0264150 |
| 1-3464 | Kentucky Utilities Company (Exact name of Registrant as specified in its charter) (Kentucky and Virginia) One Quality Street Lexington, KY 40507-1462 (502) 627-2000 | 61-0247570 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
| PPL Corporation | Yes X | No | ||
| PPL Electric Utilities Corporation | Yes X | No | ||
| LG&E and KU Energy LLC | Yes X | No | ||
| Louisville Gas and Electric Company | Yes X | No | ||
| Kentucky Utilities Company | Yes X | No |
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).
| PPL Corporation | Yes X | No | ||
| PPL Electric Utilities Corporation | Yes X | No | ||
| LG&E and KU Energy LLC | Yes X | No | ||
| Louisville Gas and Electric Company | Yes X | No | ||
| Kentucky Utilities Company | Yes X | No |
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | ||
| PPL Corporation | [ X ] | [ ] | [ | ||
| [ ] | |||||
| PPL Electric Utilities Corporation | [ ] | [ ] | [ X ] | [ ] | |
| LG&E and KU Energy LLC | [ ] | [ ] | [ X ] | [ ] | |
| Louisville Gas and Electric Company | [ ] | [ ] | [ X ] | [ ] | |
| Kentucky Utilities Company | [ ] | [ ] | [ X ] | [ ] |
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
| PPL Corporation | Yes | No X | ||
| PPL Electric Utilities Corporation | Yes | No X | ||
| LG&E and KU Energy LLC | Yes | No X | ||
| Louisville Gas and Electric Company | Yes | No X | ||
| Kentucky Utilities Company | Yes | No X |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| PPL Corporation | Common stock, $0.01 par value, | |
| PPL Electric Utilities Corporation | Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at | |
| LG&E and KU Energy LLC | PPL Corporation directly holds all of the membership interests in LG&E and KU Energy LLC. | |
| Louisville Gas and Electric Company | Common stock, no par value, 21,294,223 shares outstanding and all held by LG&E and KU Energy LLC at | |
| Kentucky Utilities Company | Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at |
This document is available free of charge at the Investor Center onInvestors section of PPL Corporation's website at www.pplweb.com. However, information on this website does not constitute a part of this Form 10-Q.
PPL ELECTRIC UTILITIES CORPORATION
LG&E ANDand KU ENERGYEnergy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBERJune 30, 2014
Table of Contents
This combined Form 10-Q is separately filed by the following Registrants in their individual capacity: PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant, except that information under "Forward-Looking Information" relating to subsidiaries of PPL Corporation is also attributed to PPL Corporation and information relating to the subsidiaries of LG&E and KU Energy LLC is also attributed to LG&E and KU Energy LLC.
Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company are references to such entities directly or to one or more of their subsidiaries, as the case may be, the financial results of which subsidiaries are consolidated into such Registrants in accordance with GAAP. This presentation has been applied where identification of particular subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.
| Page | |||||||
| i | |||||||
| 1 | |||||||
| PART I. FINANCIAL INFORMATION | |||||||
| Item 1. Financial Statements | |||||||
| PPL Corporation and Subsidiaries | |||||||
| Condensed Consolidated Statements of Income (Loss) | 3 | ||||||
| 4 | |||||||
| 5 | |||||||
| 6 | |||||||
| 8 | |||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||
| Condensed Consolidated Statements of Income | 10 | ||||||
| 11 | |||||||
| 12 | |||||||
| 14 | |||||||
| LG&E and KU Energy LLC and Subsidiaries | |||||||
| Condensed Consolidated Statements of Income | 15 | ||||||
| 16 | |||||||
| 17 | |||||||
| 18 | |||||||
| 20 | |||||||
| Louisville Gas and Electric Company | |||||
| Kentucky Utilities Company | |||||
| Combined Notes to Condensed Financial Statements (Unaudited) | ||||||
| 35 | ||||||
| 5. Income Taxes | 36 | |||||
| 6. Utility Rate Regulation | 38 | |||||
| 7. Financing Activities | 41 | |||||
| 49 | ||||||
| Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||||
| PART II. OTHER INFORMATION | ||||||
| 109 | ||||||
| Item 4. Mine Safety Disclosures | ||||||
| SIGNATURES | |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
LG&E -Louisville Gas and Electric Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas in Kentucky.
LKE
LKS
PPL- PPL Corporation, the parent holding company of PPL Electric, PPL Energy Funding, PPL Capital Funding, LKE and other subsidiaries.
PPL Brunner Island - PPL Brunner Island, LLC, a subsidiary of PPL Generation that owns generating operations in Pennsylvania.
PPL Electric- PPL Electric Utilities Corporation, a public utility subsidiary of PPL engaged in the regulated transmission and distribution of electricity in its Pennsylvania service area and that provides electricity supply to its retail customers in this area as a PLR.
PPL Energy Funding - PPL Energy Funding Corporation, a subsidiary of PPL and the parent holding company of PPL Energy Supply, PPL Global and other subsidiaries.
PPL EnergyPlusEU Services- PPL EnergyPlus, LLC,EU Services Corporation, a subsidiary of PPL Energy Supply that, marketsbeginning in 2015, provides support services and trades wholesalecorporate functions such as financial, supply chain, human resources and retail electricityinformation technology services primarily to PPL Electric and gas, and supplies energy and energy services in competitive markets.
PPL Energy Supply - PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the parent company of PPL Generation, PPL EnergyPlus and other subsidiaries.
PPL Montana - PPL Montana, LLC, an indirect subsidiary of PPL Generation that generates electricity for wholesale sales in Montana and the Pacific Northwest.
PPL SusquehannaWPD Limited - PPL Susquehanna, LLC, a subsidiary of PPL Generation that owns a nuclear-powered generating station.
Registrant(s) - refers to the Registrants named on the cover of this Report (each a "Registrant" and collectively, the "Registrants").
Subsidiary Registrant(s)- Registrants that are direct or indirect wholly owned subsidiaries of PPL: PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
WPD - refers to WPD plc and its subsidiaries together with a sister company PPL WW and PPL WEM and their subsidiaries.
WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company.
WPD plc
WPD Midlands-refers to WPD (East Midlands) and WPD (West Midlands), collectively.
WPD(South Wales) - Western Power Distribution (South Wales) plc, a British regional electricity distribution utility company.
| i |
WPD(South West) - Western Power Distribution (South West) plc, a British regional electricity distribution utility company.
WPD (West Midlands) -Western Power Distribution (West Midlands) plc, a British regional electricity distribution utility company.
WKE -Western Kentucky Energy Corp., a subsidiary of LKE that leased certain non-utility generating plants in western Kentucky until July 2009.
Other terms and abbreviations
£ - British pound sterling.
2010 Equity Unit(s) - a PPL equity unit, issued in June 2010, consisting of a 2010 Purchase Contract and, initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.625% Junior Subordinated Notes due 2018.
Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation authorizes the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, a DSIC.
Act 129 - Act 129 of 2008 that became effective in October 2008. The law amends the Pennsylvania Public Utility Code and creates an energy efficiency and conservation program and smart metering technology requirements, adopts new PLR electricity supply procurement rules, provides remedies for market misconduct and changes to the AEPS.
AFUDC- Allowance for Funds Used During Construction, the cost of equity and debt funds used to finance construction projects of regulated businesses, which is capitalized as part of construction costs.
AOCI - accumulated other comprehensive income or loss.
ARO - asset retirement obligation.
Basis
CAIR - the EPA's Clean Air Interstate Rule.
CCRCCR(s) - Coal Combustion Residuals.Residual(s). CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.
Clean Air Act - federal legislation enacted to address certain environmental issues related to air emissions, including acid rain, ozone and toxic air emissions.
Clean Water Act
COBRA -Consolidated Omnibus Budget Reconciliation Act, which provides individuals the option to temporarily continue employer group health insurance coverage after termination of employment.
CPCN - Certificate-Certificate of Public Convenience and Necessity. Authority granted by the KPSC pursuant to Kentucky Revised Statute 278.020 to provide utility service to or for the public or the construction of certain plant, equipment, property or facility for the furnishing of utility service to the public.
CSAPR - Cross-State Air Pollution Rule.
Depreciation not normalized - the flow-through income tax impact related to the state regulatory treatment of depreciation-related timing differences.
| ii |
DOJ - U.S. Department of Justice.
DPCR4 - Distribution Price Control Review 4, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2005.
DPCR5 - Distribution Price Control Review 5, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2010.
DRIP - PPL Amended and Restated Dividend Reinvestment and Direct Stock Purchase Plan.
DSIC - the Distribution System Improvement Charge authorized under Act 11, which is an alternative ratemaking mechanism providing more-timely cost recovery of qualifying distribution system capital expenditures.
DSM-Demand Side Management. Pursuant to Kentucky Revised Statute 278.285, the KPSC may determine the reasonableness of DSM plans proposed by any utility under its jurisdiction. Proposed DSM mechanisms may seek full recovery of costs and revenues lost by implementing DSM programs and/or incentives designed to provide financial rewards to the utility for implementing cost-effective DSM programs. The cost of such programs shall be assigned only to the class or classes of customers which benefit from the programs.
ECR - Environmental Cost Recovery. Pursuant to Kentucky Revised Statute 278.183, Kentucky electric utilities are entitled to the current recovery of costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements that apply to coal combustion wastes and by-products from the production of energy from coal.
EEI -Edison Electric Energy, Inc., owns and operates a coal-fired plant and a natural gas facility in southern Illinois. KU's 20% ownership interest in EEI is accounted for as an equity method investment.Institute,
ELG(s)-Effluent Limitation Guidelines, regulations promulgated by the EPA.
EPA - Environmental Protection Agency, a U.S. government agency.
EPS - earnings per share.
Equity UnitsUnit(s) - refers collectively to thea PPL equity unit, issued in April 2011, consisting of a Purchase Contract and, 2010 Equity Units.initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.32% Junior Subordinated Notes due 2019.
E.W. Brown
ESOP - Employee Stock Ownership Plan.
FGD-
Fitch- Fitch, Inc., a credit rating agency.
FTRs - financial transmission rights, which are financial instruments established to manage price risk related to electricity transmission congestion that entitle the holder to receive compensation or require the holder to remit payment for certain congestion-related transmission charges based on the level of congestion between two pricing locations, known as source and sink.
GBPGBP - British pound sterling.
GHG - greenhouse gas(es).
GLT - Gas Line Tracker. The KPSC approved LG&E's recovery of costs associated with gas service lines, gas risers, leak mitigation, and gas main replacements. Rate recovery became effective on January 1, 2013.
Holdco- Talen Energy Holdings, Inc., a Delaware corporation, which was formed for the purposes of the June 1, 2015 spinoff of PPL Energy Supply, LLC.
| iii |
IBEW - International Brotherhood of Electrical Workers.
IRS
KPSC
LIBOR
LTIIPMATS- Long Term Infrastructure Improvement Plan.
Moody's - Moody's Investors Service, Inc., a credit rating agency.
MPSC - Montana Public Service Commission.
MWhNAAQS - megawatt-hour, one thousand kilowatt-hours.
NDT - PPL Susquehanna's nuclear plant decommissioning trust.
NGCC - Natural gas-fired combined-cycle generating plant.
NorthWestern- NorthWestern Corporation, a Delaware corporation, and successor in interest to Montana Power's electricity delivery business, including Montana Power's rights and obligations under contracts with PPL Montana.
NPNS - the normal purchases and normal sales exception as permitted by derivative accounting rules. Derivatives that qualify for this exception may receive accrual accounting treatment.
NRC - Nuclear Regulatory Commission, the U.S. federal agency that regulates nuclear power facilities.
OCI - other comprehensive income or loss.
Ofgem
OVEC-
PADEP - the Pennsylvania Department of Environmental Protection, a state government agency.
PP&E- property, plant and equipment.
PPL EnergyPlus - prior to the June 1, 2015 spinoff of PPL Energy Supply, PPL EnergyPlus, LLC, a subsidiary of PPL Energy Supply that marketed and traded wholesale and retail electricity and gas, and supplied energy and energy services in competitive markets.
PPL Energy Supply - prior to the June 1, 2015 spinoff , PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the parent company of PPL EnergyPlus and other subsidiaries.
PPL Montana - prior to the June 1, 2015 spinoff of PPL Energy Supply, PPL Montana, LLC, an indirect subsidiary of PPL Energy Supply, LLC that generated electricity for wholesale sales in Montana and the Pacific Northwest.
| iv |
PUC- Pennsylvania Public Utility Commission, the state agency that regulates certain ratemaking, services, accounting and operations of Pennsylvania utilities.
Purchase Contract(s) - refers collectively to the 2010 and 2011 Purchase Contracts, which are components of the 2010 and 2011 Equity Units.
RCRA - Resource Conservation and Recovery Act of 1976.
RECs - renewable energy credits.
RFC
RIIO-ED1 - RIIO represents "Revenues = Incentive + Innovation + Outputs - Electricity Distribution.Outputs." RIIO-ED1 refers to the initial eight-year rate review period applicable to WPD commencingwhich commenced April 1, 2015.
Riverstone - Riverstone Holdings LLC, a Delaware limited liability company and ultimate parent company of the entities that own the competitive power generation business to be contributed to Talen Energy other than the competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.
RJS Power - RJS PowerGeneration Holdings LLC, a Delaware limited liability company controlled by Riverstone, that owns the competitive power generation business to be contributed directly or indirectly, by its owners to Talen Energy other than the competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.
RMC - Risk Management Committee.
S&P - Standard & Poor's Ratings Services, a credit rating agency.
Sarbanes-Oxley
SCRs
Scrubber - an air pollution control device that can remove particulates and/or gases (primarily sulfur dioxide) from exhaust gases.
SEC - the U.S. Securities and Exchange Commission, a U.S. government agency primarily responsible to protect investors and maintain the integrity of the securities markets.
SERC - SERC Reliability Corporation, one of eight regional entities with delegated authority from NERC that work to safeguard the reliability of the bulk power systems throughout North America.
SIFMA Index - the Securities Industry and Financial Markets Association Municipal Swap Index.
Smart metering technology- technology that can measure, among other things, time of electricity consumption to permit offering rate incentives for usage during lower cost or demand intervals. The use of this technology also has the potential to strengthen network reliability.
SNCR - selective non-catalytic reduction, a pollution control process for the removal of nitrogen oxide from exhaust gases using ammonia.
Talen Energy- Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone.
| v |
TC2Talen Energy Marketing- Trimble County Unit 2, a coal-fired plant located in Kentucky with a net summer capacityPPL EnergyPlus' new name subsequent to the spinoff of 732 MW. LKE indirectly owns a 75% interest (consists of LG&E's 14.25% and KU's 60.75% interests) in TC2 or 549 MW of the capacity.
Tolling agreement- agreement whereby the owner of an electricity generating facility agrees to use that facility to convert fuel provided by a third party into electricity for delivery back to the third party.
Total shareowner return
Treasury Stock Method - A method applied to calculate diluted EPS that assumes any proceeds that could be obtained upon exercise of options and warrants (and their equivalents) would be used to purchase common stock at the average market price during the relevant period.
USWA – United Steelworkers of America.
Volumetric risk - the risk that the actual load volumes provided under full-requirement sales contracts could vary significantly from forecasted volumes.
VSCC
| vi |
Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although the Registrants believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in each Registrant's 20132014 Form 10-K and Form 10-Q for the period ended June 30, 2014 and in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q, the following are among the important factors that could cause actual results to differ materially from the forward-looking statements.
| · | fuel |
| · | continuing ability to recover fuel costs and environmental expenditures in a timely manner at LG&E and KU, and natural gas supply costs at LG&E; |
| · | weather conditions affecting |
| · |
| · | the duration of and cost |
| · | transmission and distribution system conditions and operating costs; |
| · | expansion of alternative sources of electricity generation; |
| · | collective labor bargaining negotiations; |
| · | the outcome of litigation against the Registrants and their subsidiaries; |
| · | potential effects of threatened or actual terrorism, war or other hostilities, cyber-based intrusions or natural disasters; |
| · | the commitments and liabilities of the Registrants and their subsidiaries; |
| · | the effectiveness of our risk management techniques, including hedging; |
| · | our ability to attract and retain qualified employees; |
| · | volatility in market demand and prices for energy |
| · | competition in retail and wholesale power and natural gas markets; |
| · | market prices of commodity inputs for ongoing capital expenditures; |
| · | capital market conditions, including the availability of capital or credit, changes in interest rates and certain economic indices, and decisions regarding capital structure; |
| · | stock price performance of PPL; |
| · | volatility in the fair value of debt and equity securities and its impact on the value of assets in |
| · | interest rates and their effect on pension and retiree medical |
| · | volatility in or the impact of other changes in financial |
| · | new accounting requirements or new interpretations or applications of existing requirements; |
| · | changes in securities and credit ratings; |
| · | changes in foreign currency exchange rates for British pound sterling; |
| · | current and future environmental conditions, regulations and other requirements and the related costs of compliance, including environmental capital expenditures, emission allowance costs and other expenses; |
| · | changes in political, regulatory or economic conditions in states, regions or countries where the Registrants or their subsidiaries conduct business; |
| · | receipt of necessary governmental permits, approvals and rate relief; |
| · | new state, federal or foreign legislation or regulatory developments; |
| · | the outcome of any rate cases or other cost recovery or revenue filings by PPL Electric, LG&E, KU or WPD; |
| · | the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry; |
| · | the effect of any business or industry restructuring; |
| · | development of new projects, markets and technologies; |
| · | performance of new ventures; and |
| · | business dispositions or acquisitions |
Any such forward-looking statements should be considered in light of such important factors and in conjunction with other documents of the Registrants on file with the SEC.
| 1 |
New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for the Registrants to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and the Registrants undertake no obligation to update the information contained in such statement to reflect subsequent developments or information.
| 2 |
| ITEM 1. Financial Statements | |||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
| PPL Corporation and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars, except share data) | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Operating Revenues | |||||||||||||||
Utility | $ | 1,860 | $ | 1,739 | $ | 5,852 | $ | 5,344 | |||||||
Unregulated wholesale energy | 1,109 | 913 | 203 | 2,380 | |||||||||||
Unregulated retail energy | 282 | 263 | 909 | 755 | |||||||||||
Energy-related businesses | 198 | 159 | 512 | 423 | |||||||||||
Total Operating Revenues | 3,449 | 3,074 | 7,476 | 8,902 | |||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 452 | 494 | 1,701 | 1,464 | |||||||||||
Energy purchases | 859 | 555 | (284) | 1,663 | |||||||||||
Other operation and maintenance | 684 | 658 | 2,082 | 2,009 | |||||||||||
Depreciation | 307 | 284 | 913 | 845 | |||||||||||
Taxes, other than income | 92 | 86 | 283 | 261 | |||||||||||
Energy-related businesses | 186 | 151 | 492 | 403 | |||||||||||
Total Operating Expenses | 2,580 | 2,228 | 5,187 | 6,645 | |||||||||||
Operating Income | 869 | 846 | 2,289 | 2,257 | |||||||||||
Other Income (Expense) - net | 144 | (117) | 38 | 18 | |||||||||||
Interest Expense | 258 | 244 | 775 | 747 | |||||||||||
Income from Continuing Operations Before Income Taxes | 755 | 485 | 1,552 | 1,528 | |||||||||||
Income Taxes | 265 | 81 | 520 | 329 | |||||||||||
Income from Continuing Operations After Income Taxes | 490 | 404 | 1,032 | 1,199 | |||||||||||
Income (Loss) from Discontinued Operations (net of income taxes) | 7 | 7 | 10 | 30 | |||||||||||
Net Income | 497 | 411 | 1,042 | 1,229 | |||||||||||
Net Income Attributable to Noncontrolling Interests | 1 | 1 | |||||||||||||
Net Income Attributable to PPL Shareowners | $ | 497 | $ | 410 | $ | 1,042 | $ | 1,228 | |||||||
| Amounts Attributable to PPL Shareowners: | |||||||||||||||
Income from Continuing Operations After Income Taxes | $ | 490 | $ | 403 | $ | 1,032 | $ | 1,198 | |||||||
Income (Loss) from Discontinued Operations (net of income taxes) | 7 | 7 | 10 | 30 | |||||||||||
Net Income | $ | 497 | $ | 410 | $ | 1,042 | $ | 1,228 | |||||||
| Earnings Per Share of Common Stock: | |||||||||||||||
| Income from Continuing Operations After Income Taxes Available to PPL | |||||||||||||||
| Common Shareowners: | |||||||||||||||
Basic | $ | 0.73 | $ | 0.64 | $ | 1.58 | $ | 1.98 | |||||||
Diluted | $ | 0.73 | $ | 0.61 | $ | 1.56 | $ | 1.86 | |||||||
| Net Income Available to PPL Common Shareowners: | |||||||||||||||
Basic | $ | 0.74 | $ | 0.65 | $ | 1.60 | $ | 2.03 | |||||||
Diluted | $ | 0.74 | $ | 0.62 | $ | 1.57 | $ | 1.90 | |||||||
Dividends Declared Per Share of Common Stock | $ | 0.3725 | $ | 0.3675 | $ | 1.1175 | $ | 1.1025 | |||||||
Weighted-Average Shares of Common Stock Outstanding (in thousands) | |||||||||||||||
Basic | 664,432 | 631,046 | 649,561 | 601,275 | |||||||||||
Diluted | 666,402 | 664,343 | 665,501 | 662,094 | |||||||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 3 |
| PPL Corporation and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 497 | $ | 411 | $ | 1,042 | $ | 1,229 | |||||||
| Other comprehensive income (loss): | |||||||||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) | |||||||||||||||
| benefit: | |||||||||||||||
Foreign currency translation adjustments, net of tax of ($9), $8, ($3), $1 | (48) | 87 | 80 | (165) | |||||||||||
Available-for-sale securities, net of tax of $1, ($15), ($20), ($42) | (1) | 15 | 18 | 40 | |||||||||||
Qualifying derivatives, net of tax of $2, $2, $31, ($41) | (5) | (9) | (52) | 77 | |||||||||||
| Defined benefit plans: | |||||||||||||||
Net actuarial gain (loss), net of tax of ($1), $0, $1, $0 | (1) | (3) | |||||||||||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||||||
Available-for-sale securities, net of tax of $4, $1, $6, $2 | (3) | (5) | (2) | ||||||||||||
Qualifying derivatives, net of tax of $3, $11, $4, $68 | (12) | (6) | 2 | (122) | |||||||||||
| Equity investees' other comprehensive (income) loss, net of | |||||||||||||||
tax of $0, $0, $0, $0 | (1) | (1) | |||||||||||||
| Defined benefit plans: | |||||||||||||||
Prior service costs, net of tax of ($1), ($1), ($3), ($3) | 1 | 2 | 3 | 5 | |||||||||||
Net actuarial loss, net of tax of ($9), ($12), ($26), ($37) | 29 | 33 | 84 | 101 | |||||||||||
| Total other comprehensive income (loss) attributable to PPL | |||||||||||||||
Shareowners | (40) | 121 | 127 | (67) | |||||||||||
Comprehensive income (loss) | 457 | 532 | 1,169 | 1,162 | |||||||||||
Comprehensive income attributable to noncontrolling interests | 1 | 1 | |||||||||||||
Comprehensive income (loss) attributable to PPL Shareowners | $ | 457 | $ | 531 | $ | 1,169 | $ | 1,161 | |||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 4 |
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Nine Months Ended September 30, | |||||||||
| 2014 | 2013 | ||||||||
| Cash Flows from Operating Activities | |||||||||
Net income | $ | 1,042 | $ | 1,229 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation | 930 | 859 | |||||||
Amortization | 168 | 164 | |||||||
Defined benefit plans - expense | 71 | 135 | |||||||
Deferred income taxes and investment tax credits | 266 | 301 | |||||||
Unrealized (gains) losses on derivatives, and other hedging activities | 117 | 126 | |||||||
Adjustment to WPD line loss accrual | 65 | 45 | |||||||
Stock compensation expense | 52 | 45 | |||||||
Other | 38 | 2 | |||||||
| Change in current assets and current liabilities | |||||||||
Accounts receivable | (29) | (79) | |||||||
Accounts payable | (126) | (140) | |||||||
Unbilled revenues | 163 | 197 | |||||||
Fuel, materials and supplies | (60) | (14) | |||||||
Counterparty collateral | (18) | (77) | |||||||
Taxes payable | 208 | 76 | |||||||
Uncertain tax positions | 1 | (104) | |||||||
Other | (5) | (89) | |||||||
| Other operating activities | |||||||||
Defined benefit plans - funding | (322) | (505) | |||||||
Other assets | 8 | (59) | |||||||
Other liabilities | 59 | 111 | |||||||
Net cash provided by operating activities | 2,628 | 2,223 | |||||||
| Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (2,878) | (2,768) | |||||||
Expenditures for intangible assets | (74) | (61) | |||||||
Purchases of nuclear plant decommissioning trust investments | (124) | (102) | |||||||
Proceeds from the sale of nuclear plant decommissioning trust investments | 112 | 92 | |||||||
Proceeds from the receipt of grants | 164 | 5 | |||||||
Net (increase) decrease in restricted cash and cash equivalents | (187) | 13 | |||||||
Other investing activities | 13 | 33 | |||||||
Net cash provided by (used in) investing activities | (2,974) | (2,788) | |||||||
| Cash Flows from Financing Activities | |||||||||
Issuance of long-term debt | 296 | 862 | |||||||
Retirement of long-term debt | (545) | (309) | |||||||
Repurchase of common stock | (74) | ||||||||
Issuance of common stock | 1,037 | 1,409 | |||||||
Payment of common stock dividends | (718) | (645) | |||||||
Debt issuance and credit facility costs | (21) | (37) | |||||||
Contract adjustment payments | (21) | (72) | |||||||
Net increase (decrease) in short-term debt | 398 | (148) | |||||||
Other financing activities | (7) | (20) | |||||||
Net cash provided by (used in) financing activities | 419 | 966 | |||||||
Effect of Exchange Rates on Cash and Cash Equivalents | 13 | (11) | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 86 | 390 | |||||||
Cash and Cash Equivalents at Beginning of Period | 1,102 | 901 | |||||||
Cash and Cash Equivalents at End of Period | $ | 1,188 | $ | 1,291 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 5 |
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 1,188 | $ | 1,102 | |||||
Restricted cash and cash equivalents | 274 | 83 | |||||||
| Accounts receivable (less reserve: 2014, $48; 2013, $64) | |||||||||
Customer | 911 | 923 | |||||||
Other | 139 | 97 | |||||||
Unbilled revenues | 676 | 835 | |||||||
Fuel, materials and supplies | 763 | 702 | |||||||
Prepayments | 117 | 153 | |||||||
Deferred income taxes | 242 | 246 | |||||||
Price risk management assets | 732 | 942 | |||||||
Assets of discontinued operations | 647 | ||||||||
Regulatory assets | 28 | 33 | |||||||
Other current assets | 43 | 37 | |||||||
Total Current Assets | 5,760 | 5,153 | |||||||
| Investments | |||||||||
Nuclear plant decommissioning trust funds | 911 | 864 | |||||||
Other investments | 36 | 43 | |||||||
Total Investments | 947 | 907 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 30,169 | 27,755 | |||||||
Less: accumulated depreciation - regulated utility plant | 5,315 | 4,873 | |||||||
Regulated utility plant, net | 24,854 | 22,882 | |||||||
| Non-regulated property, plant and equipment | |||||||||
Generation | 11,179 | 11,881 | |||||||
Nuclear fuel | 624 | 591 | |||||||
Other | 869 | 834 | |||||||
Less: accumulated depreciation - non-regulated property, plant and equipment | 6,323 | 6,172 | |||||||
Non-regulated property, plant and equipment, net | 6,349 | 7,134 | |||||||
Construction work in progress | 3,194 | 3,071 | |||||||
Property, Plant and Equipment, net | 34,397 | 33,087 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 1,253 | 1,246 | |||||||
Goodwill | 4,187 | 4,225 | |||||||
Other intangibles | 936 | 947 | |||||||
Price risk management assets | 366 | 337 | |||||||
Other noncurrent assets | 343 | 357 | |||||||
Total Other Noncurrent Assets | 7,085 | 7,112 | |||||||
Total Assets | $ | 48,189 | $ | 46,259 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 1,099 | $ | 701 | |||||
Long-term debt due within one year | 235 | 315 | |||||||
Accounts payable | 1,208 | 1,308 | |||||||
Taxes | 281 | 114 | |||||||
Interest | 354 | 325 | |||||||
Dividends | 248 | 232 | |||||||
Price risk management liabilities | 897 | 829 | |||||||
Regulatory liabilities | 92 | 90 | |||||||
Other current liabilities | 998 | 998 | |||||||
Total Current Liabilities | 5,412 | 4,912 | |||||||
Long-term Debt | 20,522 | 20,592 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 4,423 | 3,928 | |||||||
Investment tax credits | 161 | 342 | |||||||
Price risk management liabilities | 377 | 415 | |||||||
Accrued pension obligations | 952 | 1,286 | |||||||
Asset retirement obligations | 739 | 687 | |||||||
Regulatory liabilities | 1,028 | 1,048 | |||||||
Other deferred credits and noncurrent liabilities | 601 | 583 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 8,281 | 8,289 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Equity | |||||||||
Common stock - $0.01 par value (a) | 7 | 6 | |||||||
Additional paid-in capital | 9,388 | 8,316 | |||||||
Earnings reinvested | 6,017 | 5,709 | |||||||
Accumulated other comprehensive loss | (1,438) | (1,565) | |||||||
Total Equity | 13,974 | 12,466 | |||||||
Total Liabilities and Equity | $ | 48,189 | $ | 46,259 | |||||
| 6 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| June 30, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 1,100 | $ | 836 | |||||
| Long-term debt due within one year | 1,000 | 1,000 | |||||||
| Accounts payable | 902 | 995 | |||||||
| Taxes | 130 | 263 | |||||||
| Interest | 191 | 298 | |||||||
| Dividends | 250 | 249 | |||||||
| Customer deposits | 309 | 304 | |||||||
| Regulatory liabilities | 137 | 91 | |||||||
| Other current liabilities | 490 | 632 | |||||||
| Current liabilities of discontinued operations | 2,775 | ||||||||
| Total Current Liabilities | 4,509 | 7,443 | |||||||
| Long-term Debt | 17,103 | 17,173 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 3,538 | 3,227 | |||||||
| Investment tax credits | 130 | 132 | |||||||
| Accrued pension obligations | 1,078 | 1,457 | |||||||
| Asset retirement obligations | 487 | 324 | |||||||
| Regulatory liabilities | 977 | 992 | |||||||
| Other deferred credits and noncurrent liabilities | 481 | 525 | |||||||
| Noncurrent liabilities of discontinued operations | 3,963 | ||||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 6,691 | 10,620 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Equity | |||||||||
| Common stock - $0.01 par value (a) | 7 | 7 | |||||||
| Additional paid-in capital | 9,564 | 9,433 | |||||||
| Earnings reinvested | 2,654 | 6,462 | |||||||
| Accumulated other comprehensive loss | (2,284) | (2,274) | |||||||
| Total Equity | 9,941 | 13,628 | |||||||
| Total Liabilities and Equity | $ | 38,244 | $ | 48,864 | |||||
| (a) | 780,000 shares authorized; |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| PPL Corporation and Subsidiaries | ||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||
| (Millions of Dollars) | ||||||||||||||||||||||
| PPL Shareowners | ||||||||||||||||||||||
| Common | ||||||||||||||||||||||
| stock | Accumulated | |||||||||||||||||||||
| shares | Additional | other | Non- | |||||||||||||||||||
| outstanding | Common | paid-in | Earnings | comprehensive | controlling | |||||||||||||||||
| (a) | stock | capital | reinvested | loss | interests | Total | ||||||||||||||||
June 30, 2014 | 664,018 | $ | 7 | $ | 9,358 | $ | 5,768 | $ | (1,398) | $ | 13,735 | |||||||||||
Common stock issued | 635 | 21 | 21 | |||||||||||||||||||
Stock-based compensation | 9 | 9 | ||||||||||||||||||||
Net income | 497 | 497 | ||||||||||||||||||||
| Dividends and dividend | ||||||||||||||||||||||
equivalents | (248) | (248) | ||||||||||||||||||||
| Other comprehensive | ||||||||||||||||||||||
income (loss) | (40) | (40) | ||||||||||||||||||||
September 30, 2014 | 664,653 | $ | 7 | $ | 9,388 | $ | 6,017 | $ | (1,438) | $ | 13,974 | |||||||||||
December 31, 2013 | 630,321 | $ | 6 | $ | 8,316 | $ | 5,709 | $ | (1,565) | $ | 12,466 | |||||||||||
Common stock issued | 34,332 | 1 | 1,048 | 1,049 | ||||||||||||||||||
Stock-based compensation | 24 | 24 | ||||||||||||||||||||
Net income | 1,042 | 1,042 | ||||||||||||||||||||
| Dividends and dividend | ||||||||||||||||||||||
equivalents | (734) | (734) | ||||||||||||||||||||
| Other comprehensive | ||||||||||||||||||||||
income (loss) | 127 | 127 | ||||||||||||||||||||
September 30, 2014 | 664,653 | $ | 7 | $ | 9,388 | $ | 6,017 | $ | (1,438) | $ | 13,974 | |||||||||||
June 30, 2013 | 591,622 | $ | 6 | $ | 7,195 | $ | 5,863 | $ | (2,128) | $ | 18 | $ | 10,954 | |||||||||
Common stock issued | 40,117 | 1,151 | 1,151 | |||||||||||||||||||
Common stock repurchased | (1,500) | (46) | (46) | |||||||||||||||||||
Stock-based compensation | 5 | 5 | ||||||||||||||||||||
Net income | 410 | 1 | 411 | |||||||||||||||||||
| Dividends and dividend | ||||||||||||||||||||||
equivalents | (233) | (1) | (234) | |||||||||||||||||||
| Other comprehensive | ||||||||||||||||||||||
income (loss) | 121 | 121 | ||||||||||||||||||||
September 30, 2013 | 630,239 | $ | 6 | $ | 8,305 | $ | 6,040 | $ | (2,007) | $ | 18 | $ | 12,362 | |||||||||
December 31, 2012 | 581,944 | $ | 6 | $ | 6,936 | $ | 5,478 | $ | (1,940) | $ | 18 | $ | 10,498 | |||||||||
Common stock issued | 50,725 | 1,433 | 1,433 | |||||||||||||||||||
Common stock repurchased | (2,430) | (74) | (74) | |||||||||||||||||||
| Cash settlement of equity forward | ||||||||||||||||||||||
agreements | (13) | (13) | ||||||||||||||||||||
Stock-based compensation | 23 | 23 | ||||||||||||||||||||
Net income | 1,228 | 1 | 1,229 | |||||||||||||||||||
| Dividends and dividend | ||||||||||||||||||||||
equivalents | (666) | (1) | (667) | |||||||||||||||||||
| Other comprehensive | ||||||||||||||||||||||
income (loss) | (67) | (67) | ||||||||||||||||||||
September 30, 2013 | 630,239 | $ | 6 | $ | 8,305 | $ | 6,040 | $ | (2,007) | $ | 18 | $ | 12,362 | |||||||||
| 7 |
| (a) | Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 8 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| 9 |
| PPL Energy Supply, LLC and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Operating Revenues | |||||||||||||||
Unregulated wholesale energy | $ | 1,109 | $ | 913 | $ | 203 | $ | 2,380 | |||||||
Unregulated wholesale energy to affiliate | 20 | 11 | 68 | 37 | |||||||||||
Unregulated retail energy | 283 | 265 | 913 | 758 | |||||||||||
Energy-related businesses | 189 | 143 | 469 | 378 | |||||||||||
Total Operating Revenues | 1,601 | 1,332 | 1,653 | 3,553 | |||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 212 | 258 | 953 | 780 | |||||||||||
Energy purchases | 708 | 389 | (893) | 1,088 | |||||||||||
Other operation and maintenance | 232 | 232 | 746 | 714 | |||||||||||
Depreciation | 74 | 75 | 225 | 223 | |||||||||||
Taxes, other than income | 14 | 14 | 45 | 40 | |||||||||||
Energy-related businesses | 172 | 138 | 451 | 366 | |||||||||||
Total Operating Expenses | 1,412 | 1,106 | 1,527 | 3,211 | |||||||||||
Operating Income | 189 | 226 | 126 | 342 | |||||||||||
Other Income (Expense) - net | 10 | 1 | 23 | 17 | |||||||||||
Interest Expense | 31 | 37 | 95 | 123 | |||||||||||
Income from Continuing Operations Before Income Taxes | 168 | 190 | 54 | 236 | |||||||||||
Income Taxes | 74 | 71 | 16 | 91 | |||||||||||
Income from Continuing Operations After Income Taxes | 94 | 119 | 38 | 145 | |||||||||||
Income (Loss) from Discontinued Operations (net of income taxes) | 7 | 6 | 10 | 28 | |||||||||||
Net Income | 101 | 125 | 48 | 173 | |||||||||||
Net Income Attributable to Noncontrolling Interests | 1 | 1 | |||||||||||||
Net Income Attributable to PPL Energy Supply Member | $ | 101 | $ | 124 | $ | 48 | $ | 172 | |||||||
| Amounts Attributable to PPL Energy Supply Member: | |||||||||||||||
Income from Continuing Operations After Income Taxes | $ | 94 | $ | 118 | $ | 38 | $ | 144 | |||||||
Income (Loss) from Discontinued Operations (net of income taxes) | 7 | 6 | 10 | 28 | |||||||||||
Net Income | $ | 101 | $ | 124 | $ | 48 | $ | 172 | |||||||
| (a) | Net income approximates comprehensive income. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 10 |
| PPL Energy Supply, LLC and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 101 | $ | 125 | $ | 48 | $ | 173 | |||||||
| Other comprehensive income (loss): | |||||||||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) | |||||||||||||||
| benefit: | |||||||||||||||
Available-for-sale securities, net of tax of $1, ($15), ($20), ($42) | (1) | 15 | 18 | 40 | |||||||||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||||||
Available-for-sale securities, net of tax of $4, $1, $6, $2 | (3) | (5) | (2) | ||||||||||||
Qualifying derivatives, net of tax of $2, $19, $11, $63 | (5) | (29) | (18) | (96) | |||||||||||
| Defined benefit plans: | |||||||||||||||
Prior service costs, net of tax of ($1), ($1), ($2), ($2) | 1 | 1 | 2 | 3 | |||||||||||
Net actuarial loss, net of tax of $0, ($2), ($2), ($7) | 1 | 3 | 4 | 11 | |||||||||||
| Total other comprehensive income (loss) attributable to | |||||||||||||||
PPL Energy Supply Member | (7) | (10) | 1 | (44) | |||||||||||
Comprehensive income (loss) | 94 | 115 | 49 | 129 | |||||||||||
Comprehensive income attributable to noncontrolling interests | 1 | 1 | |||||||||||||
| Comprehensive income (loss) attributable to PPL Energy | |||||||||||||||
Supply Member | $ | 94 | $ | 114 | $ | 49 | $ | 128 | |||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 11 |
| PPL Energy Supply, LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Nine Months Ended September 30, | |||||||||
| 2014 | 2013 | ||||||||
| Cash Flows from Operating Activities | |||||||||
Net income | $ | 48 | $ | 173 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation | 242 | 237 | |||||||
Amortization | 117 | 111 | |||||||
Defined benefit plans - expense | 34 | 39 | |||||||
Deferred income taxes and investment tax credits | (150) | 112 | |||||||
Impairment of assets | 20 | ||||||||
Unrealized (gains) losses on derivatives, and other hedging activities | 216 | 98 | |||||||
Other | 19 | 9 | |||||||
| Change in current assets and current liabilities | |||||||||
Accounts receivable | (1) | 71 | |||||||
Accounts payable | (45) | (108) | |||||||
Unbilled revenues | 41 | 135 | |||||||
Fuel, materials and supplies | (67) | (18) | |||||||
Taxes payable | 70 | (43) | |||||||
Counterparty collateral | (18) | (77) | |||||||
Price risk management assets and liabilities | (34) | 1 | |||||||
Other | (9) | 10 | |||||||
| Other operating activities | |||||||||
Defined benefit plans - funding | (32) | (107) | |||||||
Other assets | (2) | (32) | |||||||
Other liabilities | 16 | (28) | |||||||
Net cash provided by operating activities | 465 | 583 | |||||||
| Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (276) | (341) | |||||||
Expenditures for intangible assets | (38) | (33) | |||||||
Purchases of nuclear plant decommissioning trust investments | (124) | (102) | |||||||
Proceeds from the sale of nuclear plant decommissioning trust investments | 112 | 92 | |||||||
Proceeds from the receipt of grants | 164 | 4 | |||||||
Net (increase) decrease in restricted cash and cash equivalents | (199) | 9 | |||||||
Other investing activities | 17 | 20 | |||||||
Net cash provided by (used in) investing activities | (344) | (351) | |||||||
| Cash Flows from Financing Activities | |||||||||
Retirement of long-term debt | (308) | (309) | |||||||
Contributions from member | 730 | 980 | |||||||
Distributions to member | (1,178) | (408) | |||||||
Net increase (decrease) in short-term debt | 590 | (356) | |||||||
Other financing activities | (1) | ||||||||
Net cash provided by (used in) financing activities | (166) | (94) | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (45) | 138 | |||||||
Cash and Cash Equivalents at Beginning of Period | 239 | 413 | |||||||
Cash and Cash Equivalents at End of Period | $ | 194 | $ | 551 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 12 |
| PPL Energy Supply, LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 194 | $ | 239 | |||||
Restricted cash and cash equivalents | 267 | 68 | |||||||
| Accounts receivable (less reserve: 2014, $2; 2013, $21) | |||||||||
Customer | 203 | 233 | |||||||
Other | 96 | 97 | |||||||
Accounts receivable from affiliates | 44 | 45 | |||||||
Unbilled revenues | 245 | 286 | |||||||
Fuel, materials and supplies | 425 | 358 | |||||||
Prepayments | 10 | 20 | |||||||
Deferred income taxes | 35 | ||||||||
Price risk management assets | 713 | 860 | |||||||
Assets of discontinued operations | 578 | ||||||||
Other current assets | 30 | 27 | |||||||
Total Current Assets | 2,840 | 2,233 | |||||||
| Investments | |||||||||
Nuclear plant decommissioning trust funds | 911 | 864 | |||||||
Other investments | 32 | 37 | |||||||
Total Investments | 943 | 901 | |||||||
| Property, Plant and Equipment | |||||||||
| Non-regulated property, plant and equipment | |||||||||
Generation | 11,188 | 11,891 | |||||||
Nuclear fuel | 624 | 591 | |||||||
Other | 296 | 288 | |||||||
Less: accumulated depreciation - non-regulated property, plant and equipment | 6,157 | 6,046 | |||||||
Non-regulated property, plant and equipment, net | 5,951 | 6,724 | |||||||
Construction work in progress | 408 | 450 | |||||||
Property, Plant and Equipment, net | 6,359 | 7,174 | |||||||
| Other Noncurrent Assets | |||||||||
Goodwill | 72 | 86 | |||||||
Other intangibles | 254 | 266 | |||||||
Price risk management assets | 328 | 328 | |||||||
Other noncurrent assets | 77 | 86 | |||||||
Total Other Noncurrent Assets | 731 | 766 | |||||||
Total Assets | $ | 10,873 | $ | 11,074 | |||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| June 30, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 168 | |||||||
| Long term debt due within one year | 100 | $ | 100 | ||||||
| Accounts payable | 308 | 325 | |||||||
| Accounts payable to affiliates | 81 | 70 | |||||||
| Taxes | 30 | 85 | |||||||
| Interest | 34 | 34 | |||||||
| Regulatory liabilities | 110 | 76 | |||||||
| Other current liabilities | 82 | 103 | |||||||
| Total Current Liabilities | 913 | 793 | |||||||
| Long-term Debt | 2,503 | 2,502 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 1,553 | 1,483 | |||||||
| Accrued pension obligations | 147 | 212 | |||||||
| Regulatory liabilities | 26 | 18 | |||||||
| Other deferred credits and noncurrent liabilities | 76 | 60 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,802 | 1,773 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Equity | |||||||||
| Common stock - no par value (a) | 364 | 364 | |||||||
| Additional paid-in capital | 1,810 | 1,603 | |||||||
| Earnings reinvested | 779 | 750 | |||||||
| Total Equity | 2,953 | 2,717 | |||||||
| Total Liabilities and Equity | $ | 8,171 | $ | 7,785 | |||||
| (a) | 170,000 shares authorized; 66,368 shares issued and outstanding at June 30, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 13 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Energy Supply, LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 590 | |||||||
Long-term debt due within one year | 235 | $ | 304 | ||||||
Accounts payable | 272 | 393 | |||||||
Accounts payable to affiliates | 42 | 4 | |||||||
Taxes | 101 | 31 | |||||||
Interest | 42 | 22 | |||||||
Price risk management liabilities | 850 | 750 | |||||||
Other current liabilities | 243 | 278 | |||||||
Total Current Liabilities | 2,375 | 1,782 | |||||||
Long-term Debt | 1,983 | 2,221 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,185 | 1,114 | |||||||
Investment tax credits | 27 | 205 | |||||||
Price risk management liabilities | 287 | 320 | |||||||
Accrued pension obligations | 103 | 111 | |||||||
Asset retirement obligations | 413 | 393 | |||||||
Other deferred credits and noncurrent liabilities | 135 | 130 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 2,150 | 2,273 | |||||||
| Commitments and Contingent Liabilities (Note 10) | |||||||||
Member's Equity | 4,365 | 4,798 | |||||||
Total Liabilities and Equity | $ | 10,873 | $ | 11,074 | |||||
| (a) | Shares in thousands. All common shares of PPL Electric stock are owned by PPL. |
| (b) | Includes non-cash contributions of $47 million. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 14 |
| PPL Energy Supply, LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Non- | |||||||||
| Member's | controlling | ||||||||
| equity | interests | Total | |||||||
June 30, 2014 | $ | 4,569 | $ | 4,569 | |||||
Net income | 101 | 101 | |||||||
Other comprehensive income (loss) | (7) | (7) | |||||||
Distributions | (298) | (298) | |||||||
September 30, 2014 | $ | 4,365 | $ | 4,365 | |||||
December 31, 2013 | $ | 4,798 | $ | 4,798 | |||||
Net income | 48 | 48 | |||||||
Other comprehensive income (loss) | 1 | 1 | |||||||
Contributions from member | 730 | 730 | |||||||
Distributions | (1,212) | (1,212) | |||||||
September 30, 2014 | $ | 4,365 | $ | 4,365 | |||||
June 30, 2013 | $ | 3,541 | $ | 18 | $ | 3,559 | |||
Net income | 124 | 1 | 125 | ||||||
Other comprehensive income (loss) | (10) | (10) | |||||||
Contributions from member | 875 | 875 | |||||||
Distributions | (1) | (1) | |||||||
September 30, 2013 | $ | 4,530 | $ | 18 | $ | 4,548 | |||
December 31, 2012 | $ | 3,830 | $ | 18 | $ | 3,848 | |||
Net income | 172 | 1 | 173 | ||||||
Other comprehensive income (loss) | (44) | (44) | |||||||
Contributions from member | 980 | 980 | |||||||
Distributions | (408) | (1) | (409) | ||||||
September 30, 2013 | $ | 4,530 | $ | 18 | $ | 4,548 | |||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| PPL Electric Utilities Corporation and Subsidiaries | ||||||||||||||
| (Unaudited) | ||||||||||||||
| (Millions of Dollars) | ||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||
Operating Revenues | $ | 477 | $ | 464 | $ | 1,518 | $ | 1,391 | ||||||
| Operating Expenses | ||||||||||||||
| Operation | ||||||||||||||
Energy purchases | 128 | 144 | 431 | 436 | ||||||||||
Energy purchases from affiliate | 20 | 11 | 68 | 37 | ||||||||||
Other operation and maintenance | 133 | 134 | 402 | 391 | ||||||||||
Depreciation | 47 | 45 | 137 | 132 | ||||||||||
Taxes, other than income | 25 | 25 | 80 | 77 | ||||||||||
Total Operating Expenses | 353 | 359 | 1,118 | 1,073 | ||||||||||
Operating Income | 124 | 105 | 400 | 318 | ||||||||||
Other Income (Expense) - net | 3 | 2 | 6 | 5 | ||||||||||
Interest Expense | 33 | 30 | 91 | 80 | ||||||||||
Income Before Income Taxes | 94 | 77 | 315 | 243 | ||||||||||
Income Taxes | 37 | 26 | 121 | 83 | ||||||||||
Net Income (a) | $ | 57 | $ | 51 | $ | 194 | $ | 160 | ||||||
| 15 |
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Nine Months Ended | |||||||||
| September 30, | |||||||||
| 2014 | 2013 | ||||||||
| Cash Flows from Operating Activities | |||||||||
Net income | $ | 194 | $ | 160 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation | 137 | 132 | |||||||
Amortization | 13 | 13 | |||||||
Defined benefit plans - expense | 10 | 16 | |||||||
Deferred income taxes and investment tax credits | 65 | 103 | |||||||
Other | (20) | (7) | |||||||
| Change in current assets and current liabilities | |||||||||
Accounts receivable | (45) | (14) | |||||||
Accounts payable | (25) | (42) | |||||||
Unbilled revenues | 40 | 34 | |||||||
Taxes payable | 45 | 24 | |||||||
Other | 4 | (19) | |||||||
| Other operating activities | |||||||||
Defined benefit plans - funding | (20) | (88) | |||||||
Other assets | 8 | 6 | |||||||
Other liabilities | 6 | 9 | |||||||
Net cash provided by operating activities | 412 | 327 | |||||||
| Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (700) | (688) | |||||||
Expenditures for intangible assets | (25) | (20) | |||||||
Net (increase) decrease in notes receivable from affiliates | 150 | ||||||||
Other investing activities | 13 | 11 | |||||||
Net cash provided by (used in) investing activities | (562) | (697) | |||||||
| Cash Flows from Financing Activities | |||||||||
Issuance of long-term debt | 296 | 348 | |||||||
Retirement of long-term debt | (10) | ||||||||
Contributions from parent | 95 | 205 | |||||||
Payment of common stock dividends to parent | (121) | (94) | |||||||
Net increase (decrease) in short-term debt | (20) | ||||||||
Other financing activities | (4) | (4) | |||||||
Net cash provided by (used in) financing activities | 236 | 455 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 86 | 85 | |||||||
Cash and Cash Equivalents at Beginning of Period | 25 | 140 | |||||||
Cash and Cash Equivalents at End of Period | $ | 111 | $ | 225 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 16 |
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 111 | $ | 25 | |||||
| Accounts receivable (less reserve: 2014, $18; 2013, $18) | |||||||||
Customer | 309 | 284 | |||||||
Other | 27 | 5 | |||||||
Accounts receivable from affiliates | 2 | 4 | |||||||
Notes receivable from affiliate | 150 | ||||||||
Unbilled revenues | 76 | 116 | |||||||
Materials and supplies | 35 | 35 | |||||||
Prepayments | 28 | 40 | |||||||
Deferred income taxes | 89 | 85 | |||||||
Other current assets | 13 | 22 | |||||||
Total Current Assets | 690 | 766 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 7,430 | 6,886 | |||||||
Less: accumulated depreciation - regulated utility plant | 2,523 | 2,417 | |||||||
Regulated utility plant, net | 4,907 | 4,469 | |||||||
Other, net | 2 | 2 | |||||||
Construction work in progress | 713 | 591 | |||||||
Property, Plant and Equipment, net | 5,622 | 5,062 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 772 | 772 | |||||||
Intangibles | 234 | 211 | |||||||
Other noncurrent assets | 37 | 35 | |||||||
Total Other Noncurrent Assets | 1,043 | 1,018 | |||||||
Total Assets | $ | 7,355 | $ | 6,846 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 20 | |||||||
Long term debt due within one year | 10 | ||||||||
Accounts payable | $ | 280 | 295 | ||||||
Accounts payable to affiliates | 53 | 57 | |||||||
Taxes | 52 | 51 | |||||||
Interest | 27 | 34 | |||||||
Regulatory liabilities | 81 | 76 | |||||||
Other current liabilities | 92 | 82 | |||||||
Total Current Liabilities | 585 | 625 | |||||||
Long-term Debt | 2,602 | 2,305 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,490 | 1,399 | |||||||
Accrued pension obligations | 84 | 96 | |||||||
Regulatory liabilities | 18 | 15 | |||||||
Other deferred credits and noncurrent liabilities | 59 | 57 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,651 | 1,567 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
Common stock - no par value (a) | 364 | 364 | |||||||
Additional paid-in capital | 1,435 | 1,340 | |||||||
Earnings reinvested | 718 | 645 | |||||||
Total Equity | 2,517 | 2,349 | |||||||
Total Liabilities and Equity | $ | 7,355 | $ | 6,846 | |||||
| 17 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| PPL Electric Utilities Corporation and Subsidiaries | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| (Millions of Dollars) | ||||||||||||||||
| Common | ||||||||||||||||
| stock | ||||||||||||||||
| shares | Additional | |||||||||||||||
| outstanding | Common | paid-in | Earnings | |||||||||||||
| (a) | stock | capital | reinvested | Total | ||||||||||||
June 30, 2014 | 66,368 | $ | 364 | $ | 1,435 | $ | 695 | $ | 2,494 | |||||||
Net income | 57 | 57 | ||||||||||||||
Cash dividends declared on common stock | (34) | (34) | ||||||||||||||
September 30, 2014 | 66,368 | $ | 364 | $ | 1,435 | $ | 718 | $ | 2,517 | |||||||
December 31, 2013 | 66,368 | $ | 364 | $ | 1,340 | $ | 645 | $ | 2,349 | |||||||
Net income | 194 | 194 | ||||||||||||||
Capital contributions from PPL | 95 | 95 | ||||||||||||||
Cash dividends declared on common stock | (121) | (121) | ||||||||||||||
September 30, 2014 | 66,368 | $ | 364 | $ | 1,435 | $ | 718 | $ | 2,517 | |||||||
June 30, 2013 | 66,368 | $ | 364 | $ | 1,340 | $ | 606 | $ | 2,310 | |||||||
Net income | 51 | 51 | ||||||||||||||
Cash dividends declared on common stock | (28) | (28) | ||||||||||||||
September 30, 2013 | 66,368 | $ | 364 | $ | 1,340 | $ | 629 | $ | 2,333 | |||||||
December 31, 2012 | 66,368 | $ | 364 | $ | 1,135 | $ | 563 | $ | 2,062 | |||||||
Net income | 160 | 160 | ||||||||||||||
Capital contributions from PPL | 205 | 205 | ||||||||||||||
Cash dividends declared on common stock | (94) | (94) | ||||||||||||||
September 30, 2013 | 66,368 | $ | 364 | $ | 1,340 | $ | 629 | $ | 2,333 | |||||||
| 18 |
| LG&E and KU Energy LLC and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
Operating Revenues | $ | 753 | $ | 744 | $ | 2,409 | $ | 2,226 | |||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 240 | 237 | 748 | 684 | |||||||||||
Energy purchases | 24 | 23 | 184 | 146 | |||||||||||
Other operation and maintenance | 197 | 188 | 609 | 582 | |||||||||||
Depreciation | 89 | 84 | 262 | 249 | |||||||||||
Taxes, other than income | 13 | 12 | 39 | 36 | |||||||||||
Total Operating Expenses | 563 | 544 | 1,842 | 1,697 | |||||||||||
Operating Income | 190 | 200 | 567 | 529 | |||||||||||
Other Income (Expense) - net | (2) | (4) | (6) | (6) | |||||||||||
Interest Expense | 42 | 37 | 125 | 110 | |||||||||||
Interest Expense with Affiliate | 1 | ||||||||||||||
Income from Continuing Operations Before Income Taxes | 146 | 159 | 436 | 412 | |||||||||||
Income Taxes | 55 | 59 | 165 | 153 | |||||||||||
Income from Continuing Operations After Income Taxes | 91 | 100 | 271 | 259 | |||||||||||
Income (Loss) from Discontinued Operations (net of income taxes) | 1 | ||||||||||||||
Net Income (a) | $ | 91 | $ | 100 | $ | 271 | $ | 260 | |||||||
| LG&E and KU Energy LLC and Subsidiaries | ||||||||||
| (Unaudited) | ||||||||||
| (Millions of Dollars) | ||||||||||
| Nine Months Ended September 30, | ||||||||||
| 2014 | 2013 | |||||||||
| Cash Flows from Operating Activities | ||||||||||
Net income | $ | 271 | $ | 260 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||
Depreciation | 262 | 249 | ||||||||
Amortization | 18 | 19 | ||||||||
Defined benefit plans - expense | 18 | 38 | ||||||||
Deferred income taxes and investment tax credits | 251 | 99 | ||||||||
Other | 11 | 6 | ||||||||
| Change in current assets and current liabilities | ||||||||||
Accounts receivable | (31) | (78) | ||||||||
Accounts payable | 7 | 34 | ||||||||
Accounts payable to affiliates | (2) | 1 | ||||||||
Unbilled revenues | 49 | 19 | ||||||||
Fuel, materials and supplies | 4 | 1 | ||||||||
Taxes payable | 5 | 83 | ||||||||
Accrued interest | 36 | 30 | ||||||||
Other | (10) | |||||||||
| Other operating activities | ||||||||||
Defined benefit plans - funding | (43) | (159) | ||||||||
Settlement of interest rate swaps | 98 | |||||||||
Other assets | 9 | |||||||||
Other liabilities | 5 | 14 | ||||||||
Net cash provided by operating activities | 851 | 723 | ||||||||
| Cash Flows from Investing Activities | ||||||||||
Expenditures for property, plant and equipment | (843) | (891) | ||||||||
Net (increase) decrease in notes receivable from affiliates | 70 | |||||||||
Other investing activities | 2 | |||||||||
Net cash provided by (used in) investing activities | (773) | (889) | ||||||||
| Cash Flows from Financing Activities | ||||||||||
Net increase (decrease) in notes payable with affiliates | 22 | 27 | ||||||||
Net increase (decrease) in short-term debt | 103 | 87 | ||||||||
Debt issuance and credit facility costs | (3) | |||||||||
Distributions to member | (327) | (116) | ||||||||
Contributions from member | 139 | 146 | ||||||||
Net cash provided by (used in) financing activities | (66) | 144 | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 12 | (22) | ||||||||
Cash and Cash Equivalents at Beginning of Period | 35 | 43 | ||||||||
Cash and Cash Equivalents at End of Period | $ | 47 | $ | 21 | ||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| LG&E and KU Energy LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| June 30, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 561 | $ | 575 | |||||
| Long-term debt due within one year | 900 | 900 | |||||||
| Notes payable with affiliates | 59 | 41 | |||||||
| Accounts payable | 346 | 399 | |||||||
| Accounts payable to affiliates | 8 | 2 | |||||||
| Customer deposits | 52 | 52 | |||||||
| Taxes | 59 | 36 | |||||||
| Price risk management liabilities | 5 | 5 | |||||||
| Price risk management liabilities with affiliates | 46 | 66 | |||||||
| Regulatory liabilities | 27 | 15 | |||||||
| Interest | 24 | 23 | |||||||
| Other current liabilities | 113 | 131 | |||||||
| Total Current Liabilities | 2,200 | 2,245 | |||||||
| Long-term Debt | 3,667 | 3,667 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 1,406 | 1,241 | |||||||
| Investment tax credits | 129 | 131 | |||||||
| Accrued pension obligations | 274 | 305 | |||||||
| Asset retirement obligations | 437 | 274 | |||||||
| Regulatory liabilities | 951 | 974 | |||||||
| Price risk management liabilities | 40 | 43 | |||||||
| Other deferred credits and noncurrent liabilities | 215 | 268 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 3,452 | 3,236 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Member's equity | 4,329 | 4,248 | |||||||
| Total Liabilities and Equity | $ | 13,648 | $ | 13,396 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| LG&E and KU Energy LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 47 | $ | 35 | |||||
| Accounts receivable (less reserve: 2014, $25; 2013, $22) | |||||||||
Customer | 219 | 224 | |||||||
Other | 44 | 20 | |||||||
Unbilled revenues | 131 | 180 | |||||||
Fuel, materials and supplies | 274 | 278 | |||||||
Prepayments | 28 | 21 | |||||||
Notes receivable from affiliates | 70 | ||||||||
Deferred income taxes | 69 | 159 | |||||||
Regulatory assets | 25 | 27 | |||||||
Other current assets | 4 | 3 | |||||||
Total Current Assets | 841 | 1,017 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 9,399 | 8,526 | |||||||
Less: accumulated depreciation - regulated utility plant | 996 | 778 | |||||||
Regulated utility plant, net | 8,403 | 7,748 | |||||||
Other, net | 4 | 3 | |||||||
Construction work in progress | 1,812 | 1,793 | |||||||
Property, Plant and Equipment, net | 10,219 | 9,544 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 481 | 474 | |||||||
Goodwill | 996 | 996 | |||||||
Other intangibles | 185 | 221 | |||||||
Price risk management assets from affiliates | 6 | ||||||||
Other noncurrent assets | 99 | 98 | |||||||
Total Other Noncurrent Assets | 1,767 | 1,789 | |||||||
Total Assets | $ | 12,827 | $ | 12,350 | |||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| LG&E and KU Energy LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 348 | $ | 245 | |||||
Notes payable with affiliates | 22 | ||||||||
Accounts payable | 429 | 346 | |||||||
Accounts payable to affiliates | 1 | 3 | |||||||
Customer deposits | 51 | 50 | |||||||
Taxes | 44 | 39 | |||||||
Price risk management liabilities | 4 | 4 | |||||||
Regulatory liabilities | 11 | 14 | |||||||
Interest | 59 | 23 | |||||||
Other current liabilities | 113 | 111 | |||||||
Total Current Liabilities | 1,082 | 835 | |||||||
Long-term Debt | 4,566 | 4,565 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,131 | 965 | |||||||
Investment tax credits | 132 | 135 | |||||||
Accrued pension obligations | 116 | 152 | |||||||
Asset retirement obligations | 275 | 245 | |||||||
Regulatory liabilities | 1,010 | 1,033 | |||||||
Price risk management liabilities | 38 | 32 | |||||||
Price risk management liabilities with affiliates | 4 | ||||||||
Other deferred credits and noncurrent liabilities | 243 | 238 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 2,949 | 2,800 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Member's equity | 4,230 | 4,150 | |||||||
Total Liabilities and Equity | $ | 12,827 | $ | 12,350 | |||||
| 19 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 20 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| Louisville Gas and Electric Company | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Operating Revenues | |||||||||||||||
Retail and wholesale | $ | 334 | $ | 332 | $ | 1,096 | $ | 1,003 | |||||||
Electric revenue from affiliate | 13 | 11 | 74 | 46 | |||||||||||
Total Operating Revenues | 347 | 343 | 1,170 | 1,049 | |||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 99 | 100 | 320 | 284 | |||||||||||
Energy purchases | 20 | 18 | 167 | 129 | |||||||||||
Energy purchases from affiliate | 3 | 2 | 11 | 6 | |||||||||||
Other operation and maintenance | 94 | 93 | 286 | 278 | |||||||||||
Depreciation | 39 | 37 | 116 | 110 | |||||||||||
Taxes, other than income | 6 | 6 | 19 | 18 | |||||||||||
Total Operating Expenses | 261 | 256 | 919 | 825 | |||||||||||
Operating Income | 86 | 87 | 251 | 224 | |||||||||||
Other Income (Expense) - net | (1) | (3) | (3) | ||||||||||||
Interest Expense | 13 | 10 | 37 | 30 | |||||||||||
Income Before Income Taxes | 73 | 76 | 211 | 191 | |||||||||||
Income Taxes | 27 | 27 | 78 | 69 | |||||||||||
Net Income (a) | $ | 46 | $ | 49 | $ | 133 | $ | 122 | |||||||
| 21 |
| (a) | Net income equals comprehensive income. |
CONDENSED STATEMENTS OF CASH FLOWS | ||||||||||
| Louisville Gas and Electric Company | ||||||||||
| (Unaudited) | ||||||||||
| (Millions of Dollars) | ||||||||||
| Nine Months Ended September 30, | ||||||||||
| 2014 | 2013 | |||||||||
| Cash Flows from Operating Activities | ||||||||||
Net income | $ | 133 | $ | 122 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||
Depreciation | 116 | 110 | ||||||||
Amortization | 9 | 9 | ||||||||
Defined benefit plans - expense | 7 | 13 | ||||||||
Deferred income taxes and investment tax credits | 31 | 22 | ||||||||
Other | (2) | 10 | ||||||||
| Change in current assets and current liabilities | ||||||||||
Accounts receivable | (8) | (20) | ||||||||
Accounts payable | 8 | 18 | ||||||||
Accounts payable to affiliates | (4) | 7 | ||||||||
Unbilled revenues | 27 | 10 | ||||||||
Fuel, materials and supplies | 5 | 2 | ||||||||
Taxes payable | 10 | 32 | ||||||||
Accrued Interest | 9 | 3 | ||||||||
Other | 1 | 9 | ||||||||
| Other operating activities | ||||||||||
Defined benefit plans - funding | (12) | (45) | ||||||||
Settlement of interest rate swaps | 49 | |||||||||
Other assets | 1 | 9 | ||||||||
Other liabilities | (4) | 2 | ||||||||
Net cash provided by operating activities | 327 | 362 | ||||||||
| Cash Flows from Investing Activities | ||||||||||
Expenditures for property, plant and equipment | (422) | (376) | ||||||||
Net cash provided by (used in) investing activities | (422) | (376) | ||||||||
| Cash Flows from Financing Activities | ||||||||||
Net increase (decrease) in short-term debt | 123 | 17 | ||||||||
Debt issuance and credit facility costs | (1) | |||||||||
Payment of common stock dividends to parent | (83) | (67) | ||||||||
Contributions from parent | 73 | 54 | ||||||||
Net cash provided by (used in) financing activities | 112 | 4 | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 17 | (10) | ||||||||
Cash and Cash Equivalents at Beginning of Period | 8 | 22 | ||||||||
Cash and Cash Equivalents at End of Period | $ | 25 | $ | 12 | ||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 22 |
| Louisville Gas and Electric Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 25 | $ | 8 | |||||
| Accounts receivable (less reserve: 2014, $2; 2013, $2) | |||||||||
Customer | 93 | 102 | |||||||
Other | 12 | 9 | |||||||
Unbilled revenues | 58 | 85 | |||||||
Accounts receivable from affiliates | 10 | ||||||||
Fuel, materials and supplies | 149 | 154 | |||||||
Prepayments | 5 | 7 | |||||||
Regulatory assets | 23 | 17 | |||||||
Other current assets | 2 | 3 | |||||||
Total Current Assets | 377 | 385 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 3,606 | 3,383 | |||||||
Less: accumulated depreciation - regulated utility plant | 429 | 332 | |||||||
Regulated utility plant, net | 3,177 | 3,051 | |||||||
Construction work in progress | 912 | 651 | |||||||
Property, Plant and Equipment, net | 4,089 | 3,702 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 305 | 303 | |||||||
Goodwill | 389 | 389 | |||||||
Other intangibles | 102 | 120 | |||||||
Price risk management assets from affiliates | 3 | ||||||||
Other noncurrent assets | 34 | 35 | |||||||
Total Other Noncurrent Assets | 833 | 847 | |||||||
Total Assets | $ | 5,299 | $ | 4,934 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| CONDENSED BALANCE SHEETS | |||||||||
| Louisville Gas and Electric Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 143 | $ | 20 | |||||
Accounts payable | 250 | 166 | |||||||
Accounts payable to affiliates | 20 | 24 | |||||||
Customer deposits | 24 | 24 | |||||||
Taxes | 21 | 11 | |||||||
Price risk management liabilities | 4 | 4 | |||||||
Regulatory liabilities | 9 | 9 | |||||||
Interest | 15 | 6 | |||||||
Other current liabilities | 33 | 32 | |||||||
Total Current Liabilities | 519 | 296 | |||||||
Long-term Debt | 1,353 | 1,353 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 613 | 582 | |||||||
Investment tax credits | 37 | 38 | |||||||
Accrued pension obligations | 9 | 19 | |||||||
Asset retirement obligations | 69 | 68 | |||||||
Regulatory liabilities | 471 | 482 | |||||||
Price risk management liabilities | 38 | 32 | |||||||
Price risk management liabilities with affiliates | 2 | ||||||||
Other deferred credits and noncurrent liabilities | 105 | 104 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,344 | 1,325 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
Common stock - no par value (a) | 424 | 424 | |||||||
Additional paid-in capital | 1,437 | 1,364 | |||||||
Earnings reinvested | 222 | 172 | |||||||
Total Equity | 2,083 | 1,960 | |||||||
Total Liabilities and Equity | $ | 5,299 | $ | 4,934 | |||||
| 23 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| Louisville Gas and Electric Company | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| (Millions of Dollars) | ||||||||||||||||
| Common | ||||||||||||||||
| stock | ||||||||||||||||
| shares | Additional | |||||||||||||||
| outstanding | Common | paid-in | Earnings | |||||||||||||
| (a) | stock | capital | reinvested | Total | ||||||||||||
June 30, 2014 | 21,294 | $ | 424 | $ | 1,417 | $ | 199 | $ | 2,040 | |||||||
Net income | 46 | 46 | ||||||||||||||
Capital contributions from LKE | 20 | 20 | ||||||||||||||
Cash dividends declared on common stock | (23) | (23) | ||||||||||||||
September 30, 2014 | 21,294 | $ | 424 | $ | 1,437 | $ | 222 | $ | 2,083 | |||||||
December 31, 2013 | 21,294 | $ | 424 | $ | 1,364 | $ | 172 | $ | 1,960 | |||||||
Net income | 133 | 133 | ||||||||||||||
Capital contributions from LKE | 73 | 73 | ||||||||||||||
Cash dividends declared on common stock | (83) | (83) | ||||||||||||||
September 30, 2014 | 21,294 | $ | 424 | $ | 1,437 | $ | 222 | $ | 2,083 | |||||||
June 30, 2013 | 21,294 | $ | 424 | $ | 1,332 | $ | 133 | $ | 1,889 | |||||||
Net income | 49 | 49 | ||||||||||||||
Cash dividends declared on common stock | (19) | (19) | ||||||||||||||
September 30, 2013 | 21,294 | $ | 424 | $ | 1,332 | $ | 163 | $ | 1,919 | |||||||
December 31, 2012 | 21,294 | $ | 424 | $ | 1,278 | $ | 108 | $ | 1,810 | |||||||
Net income | 122 | 122 | ||||||||||||||
Capital contributions from LKE | 54 | 54 | ||||||||||||||
Cash dividends declared on common stock | (67) | (67) | ||||||||||||||
September 30, 2013 | 21,294 | $ | 424 | $ | 1,332 | $ | 163 | $ | 1,919 | |||||||
| 24 |
| CONDENSED BALANCE SHEETS | |||||||||
| Louisville Gas and Electric Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| June 30, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 259 | $ | 264 | |||||
| Long-term debt due within one year | 250 | 250 | |||||||
| Accounts payable | 210 | 240 | |||||||
| Accounts payable to affiliates | 16 | 20 | |||||||
| Customer deposits | 25 | 25 | |||||||
| Taxes | 28 | 19 | |||||||
| Price risk management liabilities | 5 | 5 | |||||||
| Price risk management liabilities with affiliates | 23 | 33 | |||||||
| Regulatory liabilities | 15 | 10 | |||||||
| Interest | 6 | 6 | |||||||
| Other current liabilities | 41 | 42 | |||||||
| Total Current Liabilities | 878 | 914 | |||||||
| Long-term Debt | 1,103 | 1,103 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 777 | 700 | |||||||
| Investment tax credits | 35 | 36 | |||||||
| Accrued pension obligations | 36 | 57 | |||||||
| Asset retirement obligations | 109 | 66 | |||||||
| Regulatory liabilities | 446 | 458 | |||||||
| Price risk management liabilities | 40 | 43 | |||||||
| Other deferred credits and noncurrent liabilities | 97 | 111 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,540 | 1,471 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
| Common stock - no par value (a) | 424 | 424 | |||||||
| Additional paid-in capital | 1,541 | 1,521 | |||||||
| Earnings reinvested | 259 | 229 | |||||||
| Total Equity | 2,224 | 2,174 | |||||||
| Total Liabilities and Equity | $ | 5,745 | $ | 5,662 | |||||
| (a) | 75,000 shares authorized; 21,294 shares issued and outstanding at June 30, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| Kentucky Utilities Company | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Operating Revenues | |||||||||||||||
Retail and wholesale | $ | 419 | $ | 412 | $ | 1,313 | $ | 1,223 | |||||||
Electric revenue from affiliate | 3 | 2 | 11 | 6 | |||||||||||
Total Operating Revenues | 422 | 414 | 1,324 | 1,229 | |||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 141 | 137 | 428 | 400 | |||||||||||
Energy purchases | 4 | 5 | 17 | 17 | |||||||||||
Energy purchases from affiliate | 13 | 11 | 74 | 46 | |||||||||||
Other operation and maintenance | 97 | 91 | 302 | 286 | |||||||||||
Depreciation | 50 | 46 | 145 | 138 | |||||||||||
Taxes, other than income | 7 | 6 | 20 | 18 | |||||||||||
Total Operating Expenses | 312 | 296 | 986 | 905 | |||||||||||
Operating Income | 110 | 118 | 338 | 324 | |||||||||||
Other Income (Expense) - net | (1) | (2) | (1) | (1) | |||||||||||
Interest Expense | 19 | 17 | 58 | 51 | |||||||||||
Income Before Income Taxes | 90 | 99 | 279 | 272 | |||||||||||
Income Taxes | 34 | 36 | 106 | 101 | |||||||||||
Net Income (a) | $ | 56 | $ | 63 | $ | 173 | $ | 171 | |||||||
| 25 |
| Shares in thousands. All common shares of LG&E stock are |
| Kentucky Utilities Company | ||||||||||
| (Unaudited) | ||||||||||
| (Millions of Dollars) | ||||||||||
| Nine Months Ended September 30, | ||||||||||
| 2014 | 2013 | |||||||||
| Cash Flows from Operating Activities | ||||||||||
Net income | $ | 173 | $ | 171 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||
Depreciation | 145 | 138 | ||||||||
Amortization | 8 | 9 | ||||||||
Defined benefit plans - expense | 4 | 16 | ||||||||
Deferred income taxes and investment tax credits | 129 | 73 | ||||||||
Other | 11 | (3) | ||||||||
| Change in current assets and current liabilities | ||||||||||
Accounts receivable | (11) | (46) | ||||||||
Accounts payable | 6 | 25 | ||||||||
Accounts payable to affiliates | 4 | (9) | ||||||||
Unbilled revenues | 22 | 9 | ||||||||
Fuel, materials and supplies | (1) | (1) | ||||||||
Taxes payable | (12) | 39 | ||||||||
Accrued interest | 18 | 15 | ||||||||
Other | (8) | (3) | ||||||||
| Other operating activities | ||||||||||
Defined benefit plans - funding | (4) | (62) | ||||||||
Settlement of interest rate swaps | 49 | |||||||||
Other assets | (2) | (2) | ||||||||
Other liabilities | 4 | 1 | ||||||||
Net cash provided by operating activities | 486 | 419 | ||||||||
| Cash Flows from Investing Activities | ||||||||||
Expenditures for property, plant and equipment | (418) | (512) | ||||||||
Other investing activities | 2 | |||||||||
Net cash provided by (used in) investing activities | (418) | (510) | ||||||||
| Cash Flows from Financing Activities | ||||||||||
Net increase (decrease) in short-term debt | (20) | 70 | ||||||||
Debt issuance and credit facility costs | (1) | |||||||||
Payment of common stock dividends to parent | (112) | (83) | ||||||||
Contributions from parent | 66 | 92 | ||||||||
Net cash provided by (used in) financing activities | (67) | 79 | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 1 | (12) | ||||||||
Cash and Cash Equivalents at Beginning of Period | 21 | 21 | ||||||||
Cash and Cash Equivalents at End of Period | $ | 22 | $ | 9 | ||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 26 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| 27 |
| Kentucky Utilities Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 22 | $ | 21 | |||||
| Accounts receivable (less reserve: 2014, $3; 2013, $4) | |||||||||
Customer | 126 | 122 | |||||||
Other | 8 | 9 | |||||||
Unbilled revenues | 73 | 95 | |||||||
Fuel, materials and supplies | 125 | 124 | |||||||
Prepayments | 11 | 4 | |||||||
Regulatory assets | 2 | 10 | |||||||
Other current assets | 3 | 6 | |||||||
Total Current Assets | 370 | 391 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 5,793 | 5,143 | |||||||
Less: accumulated depreciation - regulated utility plant | 567 | 446 | |||||||
Regulated utility plant, net | 5,226 | 4,697 | |||||||
Other, net | 1 | 1 | |||||||
Construction work in progress | 897 | 1,139 | |||||||
Property, Plant and Equipment, net | 6,124 | 5,837 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 176 | 171 | |||||||
Goodwill | 607 | 607 | |||||||
Other intangibles | 83 | 101 | |||||||
Price risk management assets from affiliates | 3 | ||||||||
Other noncurrent assets | 59 | 56 | |||||||
Total Other Noncurrent Assets | 928 | 935 | |||||||
Total Assets | $ | 7,422 | $ | 7,163 | |||||
| (a) | Net income approximates comprehensive income. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| CONDENSED BALANCE SHEETS | |||||||||
| Kentucky Utilities Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| September 30, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 130 | $ | 150 | |||||
Accounts payable | 166 | 159 | |||||||
Accounts payable to affiliates | 29 | 25 | |||||||
Customer deposits | 27 | 26 | |||||||
Taxes | 21 | 33 | |||||||
Regulatory liabilities | 2 | 5 | |||||||
Interest | 29 | 11 | |||||||
Other current liabilities | 38 | 36 | |||||||
Total Current Liabilities | 442 | 445 | |||||||
Long-term Debt | 2,091 | 2,091 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 786 | 658 | |||||||
Investment tax credits | 95 | 97 | |||||||
Accrued pension obligations | 2 | 11 | |||||||
Asset retirement obligations | 206 | 177 | |||||||
Regulatory liabilities | 539 | 551 | |||||||
Price risk management liabilities with affiliates | 2 | ||||||||
Other deferred credits and noncurrent liabilities | 89 | 89 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,719 | 1,583 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
Common stock - no par value (a) | 308 | 308 | |||||||
Additional paid-in capital | 2,571 | 2,505 | |||||||
Accumulated other comprehensive income (loss) | 1 | ||||||||
Earnings reinvested | 291 | 230 | |||||||
Total Equity | 3,170 | 3,044 | |||||||
Total Liabilities and Equity | $ | 7,422 | $ | 7,163 | |||||
| 28 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| Kentucky Utilities Company | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| (Millions of Dollars) | |||||||||||||||||
| Common | Accumulated | ||||||||||||||||
| stock | other | ||||||||||||||||
| shares | Additional | comprehensive | |||||||||||||||
| outstanding | Common | paid-in | Earnings | income | |||||||||||||
| (a) | stock | capital | reinvested | (loss) | Total | ||||||||||||
June 30, 2014 | 37,818 | $ | 308 | $ | 2,571 | $ | 261 | $ | 3,140 | ||||||||
Net income | 56 | 56 | |||||||||||||||
Cash dividends declared on common stock | (26) | (26) | |||||||||||||||
September 30, 2014 | 37,818 | $ | 308 | $ | 2,571 | $ | 291 | $ | 3,170 | ||||||||
December 31, 2013 | 37,818 | $ | 308 | $ | 2,505 | $ | 230 | $ | 1 | $ | 3,044 | ||||||
Net income | 173 | 173 | |||||||||||||||
Capital contributions from LKE | 66 | 66 | |||||||||||||||
Cash dividends declared on common stock | (112) | (112) | |||||||||||||||
Other comprehensive income (loss) | (1) | (1) | |||||||||||||||
September 30, 2014 | 37,818 | $ | 308 | $ | 2,571 | $ | 291 | $ | $ | 3,170 | |||||||
June 30, 2013 | 37,818 | $ | 308 | $ | 2,440 | $ | 179 | $ | 1 | $ | 2,928 | ||||||
Net income | 63 | 63 | |||||||||||||||
Cash dividends declared on common stock | (28) | (28) | |||||||||||||||
September 30, 2013 | 37,818 | $ | 308 | $ | 2,440 | $ | 214 | $ | 1 | $ | 2,963 | ||||||
December 31, 2012 | 37,818 | $ | 308 | $ | 2,348 | $ | 126 | $ | 1 | $ | 2,783 | ||||||
Net income | 171 | 171 | |||||||||||||||
Capital contributions from LKE | 92 | 92 | |||||||||||||||
Cash dividends declared on common stock | (83) | (83) | |||||||||||||||
September 30, 2013 | 37,818 | $ | 308 | $ | 2,440 | $ | 214 | $ | 1 | $ | 2,963 | ||||||
| 29 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 30 |
| CONDENSED BALANCE SHEETS | |||||||||
| Kentucky Utilities Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| June 30, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 227 | $ | 236 | |||||
| Long-term debt due within one year | 250 | 250 | |||||||
| Accounts payable | 124 | 141 | |||||||
| Accounts payable to affiliates | 36 | 47 | |||||||
| Customer deposits | 27 | 27 | |||||||
| Taxes | 28 | 14 | |||||||
| Price risk management liabilities with affiliates | 23 | 33 | |||||||
| Regulatory liabilities | 12 | 5 | |||||||
| Interest | 12 | 11 | |||||||
| Other current liabilities | 42 | 41 | |||||||
| Total Current Liabilities | 781 | 805 | |||||||
| Long-term Debt | 1,841 | 1,841 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 987 | 884 | |||||||
| Investment tax credits | 94 | 95 | |||||||
| Accrued pension obligations | 43 | 59 | |||||||
| Asset retirement obligations | 328 | 208 | |||||||
| Regulatory liabilities | 505 | 516 | |||||||
| Other deferred credits and noncurrent liabilities | 64 | 101 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 2,021 | 1,863 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
| Common stock - no par value (a) | 308 | 308 | |||||||
| Additional paid-in capital | 2,596 | 2,596 | |||||||
| Accumulated other comprehensive income (loss) | (1) | ||||||||
| Earnings reinvested | 338 | 302 | |||||||
| Total Equity | 3,241 | 3,206 | |||||||
| Total Liabilities and Equity | $ | 7,884 | $ | 7,715 | |||||
| (a) | 80,000 shares authorized; 37,818 shares issued and outstanding at June 30, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 31 |
| (a) | Shares in thousands. All common shares of KU stock are owned by LKE. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
Combined Notes to Condensed Financial Statements (Unaudited)
Capitalized terms and abbreviations appearing in the unaudited combined notes to condensed financial statements are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for their related activities and disclosures.disclosure. Within combined disclosures, amounts are disclosed for any Registrant when significant.
The accompanying unaudited condensed financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotesfootnote disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation in accordance with GAAP are reflected in the condensed financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed. Each Registrant's Balance Sheet at December 31, 20132014 is derived from that Registrant's 20132014 audited Balance Sheet. The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in each Registrant's 20132014 Form 10-K. The results of operations for the three and ninesix months ended SeptemberJune 30, 20142015 are not necessarily indicative of the results to be expected for the full year ending December 31, 20142015 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.
The classification of certain prior period amounts has been changed to conform to the presentation in the SeptemberJune 30, 20142015 financial statements.
(PPL)
"Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income includes the activities of PPL Montana's hydroelectric generating facilities expectedEnergy Supply, substantially representing PPL's Supply segment, which was spun off and distributed to be sold in the fourth quarter of 2014. "Assets of discontinued operations"PPL shareowners on the Balance Sheet at September 30, 2014, includes the related assets. Corresponding amounts at December 31, 2013,June 1, 2015. PPL Energy Supply's assets and liabilities have not been reclassified on the Balance Sheet asat December 31, 2014 to assets and liabilities of that date. See Note 8 for additional information.discontinued operations. The assets and liabilities were distributed and removed from PPL's Balance Sheets in the second quarter of 2015. In addition, the Statements of Cash Flows do not separately report the cash flows of the Discontinued Operations.
(All Registrants)
The following accounting policy disclosures represent updates to Note 1 into each indicated Registrant's 20132014 Form 10-K and should be read in conjunction with those disclosures.
In accordance with a PUC-approved purchase of accounts receivable program, designed to facilitate competitive markets for electricity in Pennsylvania, PPL Electric purchases certain accounts receivable from alternative electricity suppliers (including PPL EnergyPlus) at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. ��The purchased accounts receivable are initially recorded at fair value using a market approach based on the purchase price paid and are classified as Level 2 in the fair value hierarchy. During the three and ninesix months ended SeptemberJune 30, 2014,2015, PPL Electric purchased $260$276 million and $874$607 million of accounts receivable from unaffiliated third parties and $77$53 million and $261$146 million from
| 33 |
Depreciation (PPL)
Effective January 1, 2015, after completing a review of the useful lives of its distribution network assets, WPD extended the weighted average useful lives of these assets to 69 years from 55 years. For the three 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).
Reporting of Discontinued Operations
Effective January 1, 2014, the Registrants retrospectively adopted accounting guidance for the recognition, measurement and disclosure of certain obligations resulting from joint and several liability arrangements when the amount of the obligation is fixed at the reporting date. If the obligation is determined to be in the scope of this guidance, it will be measured as the sum of the amount the reporting entity agreed to pay on the basis of its arrangements among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. This guidance also requires additional disclosures for these obligations.
A disposal of a component of an entity or a group of components of an entity is required to be presentedreported 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 statementsresults 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).
As a result of the spinoff on June 1, 2015, PPL Energy Supply has been reported as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting datediscontinued operation under the tax law of the applicable jurisdiction to settle anynew discontinued operations guidance. See Note 8 for additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.
(PPL)
See Note 2 in PPL's 20132014 Form 10-K for a discussion of reportable segments and related information.
On June 2014,1, 2015, PPL andcompleted the spinoff of PPL Energy Supply, which primarily representssubstantially represented PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses intosegment. As a new, stand-alone, publicly traded company named Talen Energy. The transaction is expected to close in the first or second quarter of 2015. Upon completionresult of this transaction, PPL will no longer havehas a Supply segment. See Note 8 for additional information.
| Three Months | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Income Statement Data | ||||||||||||||||
| Revenues from external customers | ||||||||||||||||
| U.K. Regulated | $ | 644 | $ | 543 | $ | 1,964 | $ | 1,763 | ||||||||
| Kentucky Regulated | 753 | 744 | 2,409 | 2,226 | ||||||||||||
| Pennsylvania Regulated | 477 | 463 | 1,516 | 1,388 | ||||||||||||
| Supply (a) | 1,571 | 1,321 | 1,575 | 3,516 | ||||||||||||
| Corporate and Other | 4 | 3 | 12 | 9 | ||||||||||||
| Total | $ | 3,449 | $ | 3,074 | $ | 7,476 | $ | 8,902 | ||||||||
| Intersegment electric revenues | ||||||||||||||||
| Supply | $ | 20 | $ | 11 | $ | 68 | $ | 37 | ||||||||
| Net Income Attributable to PPL Shareowners | ||||||||||||||||
| U.K. Regulated (a) | $ | 295 | $ | 183 | $ | 688 | $ | 741 | ||||||||
| Kentucky Regulated | 82 | 93 | 247 | 227 | ||||||||||||
| Pennsylvania Regulated | 57 | 51 | 194 | 160 | ||||||||||||
| Supply (a) | 86 | 91 | 16 | 122 | ||||||||||||
| Corporate and Other (b) | (23) | (8) | (103) | (22) | ||||||||||||
| Total | $ | 497 | $ | 410 | $ | 1,042 | $ | 1,228 | ||||||||
| September 30, | December 31, | ||||||
| 2014 | 2013 | ||||||
| Balance Sheet Data | |||||||
| Assets | |||||||
| U.K. Regulated | $ | 16,543 | $ | 15,895 | |||
| Kentucky Regulated | 12,493 | 12,016 | |||||
| Pennsylvania Regulated | 7,355 | 6,846 | |||||
| Supply | 11,210 | 11,408 | |||||
| Corporate and Other (c) | 588 | 94 | |||||
| Total assets | $ | 48,189 | $ | 46,259 | |||
| Three Months | Six Months | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Income Statement Data | ||||||||||||||||
| Revenues from external customers | ||||||||||||||||
| U.K. Regulated | $ | 587 | $ | 672 | $ | 1,284 | $ | 1,320 | ||||||||
| Kentucky Regulated | 714 | 722 | 1,613 | 1,656 | ||||||||||||
| Pennsylvania Regulated | 476 | 448 | 1,106 | 1,039 | ||||||||||||
| Corporate and Other | 4 | 7 | 8 | 12 | ||||||||||||
| Total | $ | 1,781 | $ | 1,849 | $ | 4,011 | $ | 4,027 | ||||||||
| Net Income (loss) | ||||||||||||||||
| U.K. Regulated (a) | $ | 190 | $ | 187 | $ | 565 | $ | 393 | ||||||||
| Kentucky Regulated | 47 | 58 | 156 | 165 | ||||||||||||
| Pennsylvania Regulated | 49 | 52 | 136 | 137 | ||||||||||||
| Corporate and Other (b) | (36) | (67) | (55) | (76) | ||||||||||||
| Discontinued Operations (c) | (1,007) | (1) | (912) | (74) | ||||||||||||
| Total | $ | (757) | $ | 229 | $ | (110) | $ | 545 | ||||||||
| 34 |
| June 30, | December 31, | ||||||
| 2015 | 2014 | ||||||
| Balance Sheet Data | |||||||
| Assets | |||||||
| U.K. Regulated | $ | 15,973 | $ | 16,005 | |||
| Kentucky Regulated | 13,314 | 13,062 | |||||
| Pennsylvania Regulated | 8,171 | 7,785 | |||||
| Corporate and Other (d) | 786 | 1,095 | |||||
| Discontinued Operations (c) | 10,917 | ||||||
| Total assets | $ | 38,244 | $ | 48,864 | |||
| (a) | Includes unrealized gains and losses from economic activity. See Note 14 for additional information. |
(PPL)
Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock methodMethod or the If-Converted Method, as applicable. Incremental non-participating securities that have a dilutive impact are detailed in the table below.
| Three Months | Six Months | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||
| Income (Numerator) | |||||||||||||||
| Income from continuing operations after income taxes | $ | 250 | $ | 230 | $ | 802 | $ | 619 | |||||||
| Less amounts allocated to participating securities | 1 | 1 | 2 | 3 | |||||||||||
| Income from continuing operations after income taxes available to PPL | |||||||||||||||
| common shareowners - Basic | 249 | 229 | 800 | 616 | |||||||||||
| Plus interest charges (net of tax) related to Equity Units (a) | 9 | ||||||||||||||
| Income from continuing operations after income taxes available to PPL | |||||||||||||||
| common shareowners - Diluted | $ | 249 | $ | 229 | $ | 800 | $ | 625 | |||||||
| Income (loss) from discontinued operations (net of income taxes) available | |||||||||||||||
| to PPL common shareowners - Basic and Diluted | $ | (1,007) | $ | (1) | $ | (912) | $ | (74) | |||||||
| Net income (loss) | $ | (757) | $ | 229 | $ | (110) | $ | 545 | |||||||
| Less amounts allocated to participating securities | 1 | 1 | 2 | 3 | |||||||||||
| Net income (loss) available to PPL common shareowners - Basic | (758) | 228 | (112) | 542 | |||||||||||
| Plus interest charges (net of tax) related to Equity Units (a) | 9 | ||||||||||||||
| Net income (loss) available to PPL common shareowners - Diluted | $ | (758) | $ | 228 | $ | (112) | $ | 551 | |||||||
| Shares of Common Stock (Denominator) | |||||||||||||||
| Weighted-average shares - Basic EPS | 668,415 | 653,132 | 667,698 | 642,002 | |||||||||||
| Add incremental non-participating securities: | |||||||||||||||
| Share-based payment awards | 2,871 | 2,100 | 2,315 | 1,806 | |||||||||||
| Equity Units (a) | 10,560 | 21,119 | |||||||||||||
| Weighted-average shares - Diluted EPS | 671,286 | 665,792 | 670,013 | 664,927 | |||||||||||
| Basic EPS | |||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||
| Income from continuing operations after income taxes | $ | 0.37 | $ | 0.35 | $ | 1.20 | $ | 0.96 | |||||||
| Income (loss) from discontinued operations (net of income taxes) | (1.50) | (1.37) | (0.12) | ||||||||||||
| Net Income (Loss) Available to PPL common shareowners | $ | (1.13) | $ | 0.35 | $ | (0.17) | $ | 0.84 | |||||||
| Diluted EPS | |||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||
| Income from continuing operations after income taxes | $ | 0.37 | $ | 0.34 | $ | 1.19 | $ | 0.94 | |||||||
| Income (loss) from discontinued operations (net of income taxes) | (1.50) | (1.36) | (0.11) | ||||||||||||
| Net Income (Loss) Available to PPL common shareowners | $ | (1.13) | $ | 0.34 | $ | (0.17) | $ | 0.83 | |||||||
| Three Months | Nine Months | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Income (Numerator) | |||||||||||||||
| Income from continuing operations after income taxes attributable to PPL | |||||||||||||||
| shareowners | $ | 490 | $ | 403 | $ | 1,032 | $ | 1,198 | |||||||
| Less amounts allocated to participating securities | 2 | 2 | 5 | 6 | |||||||||||
| Income from continuing operations after income taxes available to PPL | |||||||||||||||
| common shareowners - Basic | 488 | 401 | 1,027 | 1,192 | |||||||||||
| Plus interest charges (net of tax) related to Equity Units (a) | 7 | 9 | 37 | ||||||||||||
| Income from continuing operations after income taxes available to PPL | |||||||||||||||
| common shareowners - Diluted | $ | 488 | $ | 408 | $ | 1,036 | $ | 1,229 | |||||||
| Income (loss) from discontinued operations (net of income taxes) available | |||||||||||||||
| to PPL common shareowners - Basic and Diluted | $ | 7 | $ | 7 | $ | 10 | $ | 30 | |||||||
| Three Months | Nine Months | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Net income attributable to PPL shareowners | $ | 497 | $ | 410 | $ | 1,042 | $ | 1,228 | |||||||
| Less amounts allocated to participating securities | 2 | 2 | 5 | 6 | |||||||||||
| Net income available to PPL common shareowners - Basic | 495 | 408 | 1,037 | 1,222 | |||||||||||
| Plus interest charges (net of tax) related to Equity Units (a) | 7 | 9 | 37 | ||||||||||||
| Net income available to PPL common shareowners - Diluted | $ | 495 | $ | 415 | $ | 1,046 | $ | 1,259 | |||||||
| Shares of Common Stock (Denominator) | |||||||||||||||
| Weighted-average shares - Basic EPS | 664,432 | 631,046 | 649,561 | 601,275 | |||||||||||
| Add incremental non-participating securities: | |||||||||||||||
| Share-based payment awards | 1,970 | 1,163 | 1,860 | 1,035 | |||||||||||
| Equity Units (a) | 32,134 | 14,080 | 59,171 | ||||||||||||
| Forward sale agreements | 613 | ||||||||||||||
| Weighted-average shares - Diluted EPS | 666,402 | 664,343 | 665,501 | 662,094 | |||||||||||
| Basic EPS | |||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||
| Income from continuing operations after income taxes | $ | 0.73 | $ | 0.64 | $ | 1.58 | $ | 1.98 | |||||||
| Income (loss) from discontinued operations (net of income taxes) | 0.01 | 0.01 | 0.02 | 0.05 | |||||||||||
| Net Income Available to PPL common shareowners | $ | 0.74 | $ | 0.65 | $ | 1.60 | $ | 2.03 | |||||||
| Diluted EPS | |||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||
| Income from continuing operations after income taxes | $ | 0.73 | $ | 0.61 | $ | 1.56 | $ | 1.86 | |||||||
| Income (loss) from discontinued operations (net of income taxes) | 0.01 | 0.01 | 0.01 | 0.04 | |||||||||||
| Net Income Available to PPL common shareowners | $ | 0.74 | $ | 0.62 | $ | 1.57 | $ | 1.90 | |||||||
| 35 |
| Three Months | Nine Months | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||
| Stock-based compensation plans (a) | 210 | 85 | 2,228 | 1,469 | ||||||||||
| ESOP | 275 | |||||||||||||
| DRIP | 425 | 425 | 549 | |||||||||||
| Three Months | Six Months | |||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||
| Stock-based compensation plans (a) | 992 | 922 | 2,437 | 2,018 | ||||||||||
| DRIP | 424 | 843 | ||||||||||||
| (a) | Includes stock options exercised, vesting of performance units, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors. |
| Three Months | Nine Months | |||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| Stock options | 527 | 1,136 | 1,901 | 4,793 | ||||||||
| Performance units | 1 | 73 | ||||||||||
| Restricted stock units | 41 | 39 | ||||||||||
| Three Months | Six Months | |||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||
| Stock options | 348 | 790 | 1,085 | 2,060 | ||||||||
| Performance units | 1 | 73 | 1 | |||||||||
| Restricted stock units | 61 | |||||||||||
| (PPL) | ||||||||||||||||
| Three Months | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
| Income Taxes at statutory tax rate - 35% | $ | 264 | $ | 170 | $ | 543 | $ | 535 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 27 | 11 | 21 | 27 | ||||||||||||
| State valuation allowance adjustments (a) | 3 | 38 | 49 | 38 | ||||||||||||
| Impact of lower U.K. income tax rates (b) | (50) | (38) | (126) | (101) | ||||||||||||
| U.S. income tax on foreign earnings - net of foreign tax credit (c) | 26 | 10 | 47 | 5 | ||||||||||||
| Federal and state tax reserve adjustments (d) | (1) | (1) | (41) | |||||||||||||
| Federal and state income tax return adjustments | 2 | (4) | 2 | (4) | ||||||||||||
| Impact of the U.K. Finance Acts on deferred tax balances (b) | (93) | (93) | ||||||||||||||
| Federal income tax credits | (3) | (3) | (8) | |||||||||||||
| Amortization of investment tax credit | (1) | (5) | (5) | |||||||||||||
| Depreciation not normalized | (3) | (2) | (7) | (6) | ||||||||||||
| Intercompany interest on U.K. financing entities | (2) | (2) | (6) | (7) | ||||||||||||
| Other | (5) | 5 | (11) | |||||||||||||
| Total increase (decrease) | 1 | (89) | (23) | (206) | ||||||||||||
| Total income taxes | $ | 265 | $ | 81 | $ | 520 | $ | 329 | ||||||||
| (PPL) | ||||||||||||||||
| Three Months | Six Months | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
| Income Taxes at statutory tax rate - 35% | $ | 112 | $ | 139 | $ | 382 | $ | 333 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 9 | 3 | 29 | 16 | ||||||||||||
| Valuation allowance adjustments (a) | 5 | 46 | 8 | 46 | ||||||||||||
| Impact of lower U.K. income tax rates | (36) | (31) | (98) | (76) | ||||||||||||
| U.S. income tax on foreign earnings - net of foreign tax credit (b) | 10 | (1) | 21 | |||||||||||||
| Federal and state tax reserve adjustments (c) | (12) | (1) | (12) | (1) | ||||||||||||
| Intercompany interest on U.K. financing entities | (3) | (1) | (11) | (3) | ||||||||||||
| Other | (4) | 1 | (9) | (3) | ||||||||||||
| Total increase (decrease) | (41) | 27 | (94) | |||||||||||||
| Total income taxes | $ | 71 | $ | 166 | $ | 288 | $ | 333 | ||||||||
| (c) |
| (PPL Electric) | ||||||||||||||||
| Three Months | Six Months | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Federal income tax on Income Before Income Taxes at statutory | ||||||||||||||||
| tax rate - 35% | $ | 30 | $ | 29 | $ | 81 | $ | 77 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 4 | 4 | 14 | 12 | ||||||||||||
| Federal and state tax reserve adjustments | 2 | (1) | 2 | (1) | ||||||||||||
| Depreciation not normalized | (1) | (1) | (2) | (3) | ||||||||||||
| Other | 1 | (1) | ||||||||||||||
| Total increase (decrease) | 6 | 2 | 14 | 7 | ||||||||||||
| Total income taxes | $ | 36 | $ | 31 | $ | 95 | $ | 84 | ||||||||
| 36 |
| (PPL Energy Supply) | ||||||||||||||||
| Three Months | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
| Income Taxes at statutory tax rate - 35% | $ | 59 | $ | 67 | $ | 19 | $ | 83 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 16 | 6 | (3) | 8 | ||||||||||||
| State valuation allowance adjustments | 4 | 4 | ||||||||||||||
| Federal and state tax reserve adjustments | (1) | 6 | ||||||||||||||
| Federal income tax credits | (3) | (3) | (5) | (6) | ||||||||||||
| State deferred tax rate change | 3 | |||||||||||||||
| Other | 3 | (3) | 2 | (4) | ||||||||||||
| Total increase (decrease) | 15 | 4 | (3) | 8 | ||||||||||||
| Total income taxes | $ | 74 | $ | 71 | $ | 16 | $ | 91 | ||||||||
| (PPL Electric) | ||||||||||||||||
| Three Months | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Federal income tax on Income Before Income Taxes at statutory | ||||||||||||||||
| tax rate - 35% | $ | 33 | $ | 27 | $ | 110 | $ | 85 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 5 | 5 | 17 | 13 | ||||||||||||
| Federal and state tax reserve adjustments | (2) | (1) | (6) | |||||||||||||
| Depreciation not normalized | (2) | (2) | (5) | (6) | ||||||||||||
| Other | 1 | (2) | (3) | |||||||||||||
| Total increase (decrease) | 4 | (1) | 11 | (2) | ||||||||||||
| Total income taxes | $ | 37 | $ | 26 | $ | 121 | $ | 83 | ||||||||
| (LKE) | ||||||||||||||||
| Three Months | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
| Income Taxes at statutory tax rate - 35% | $ | 51 | $ | 56 | $ | 153 | $ | 144 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 6 | 6 | 16 | 14 | ||||||||||||
| Amortization of investment tax credit | (1) | (1) | (3) | (3) | ||||||||||||
| Other | (1) | (2) | (1) | (2) | ||||||||||||
| Total increase (decrease) | 4 | 3 | 12 | 9 | ||||||||||||
| Total income taxes | $ | 55 | $ | 59 | $ | 165 | $ | 153 | ||||||||
| (LG&E) | ||||||||||||||||
| Three Months | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Federal income tax on Income Before Income Taxes at statutory | ||||||||||||||||
| tax rate - 35% | $ | 26 | $ | 27 | $ | 74 | $ | 67 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 3 | 3 | 8 | 7 | ||||||||||||
| Other | (2) | (3) | (4) | (5) | ||||||||||||
| Total increase (decrease) | 1 | 4 | 2 | |||||||||||||
| Total income taxes | $ | 27 | $ | 27 | $ | 78 | $ | 69 | ||||||||
| (KU) | ||||||||||||||||
| Three Months | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Federal income tax on Income Before Income Taxes at statutory | ||||||||||||||||
| tax rate - 35% | $ | 32 | $ | 35 | $ | 98 | $ | 95 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 3 | 4 | 10 | 10 | ||||||||||||
| Other | (1) | (3) | (2) | (4) | ||||||||||||
| Total increase (decrease) | 2 | 1 | 8 | 6 | ||||||||||||
| Total income taxes | $ | 34 | $ | 36 | $ | 106 | $ | 101 | ||||||||
| (LKE) | ||||||||||||||||
| Three Months | Six Months | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
| Income Taxes at statutory tax rate - 35% | $ | 37 | $ | 37 | $ | 104 | $ | 102 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 4 | 4 | 11 | 10 | ||||||||||||
| Valuation allowance adjustment (a) | 5 | 8 | ||||||||||||||
| Other | (1) | (2) | (2) | |||||||||||||
| �� | Total increase (decrease) | 8 | 4 | 17 | 8 | |||||||||||
| Total income taxes | $ | 45 | $ | 41 | $ | 121 | $ | 110 | ||||||||
| (a) | Represents a valuation allowance against tax credits expiring in 2016 and 2017 that are more likely than not to expire before being utilized. |
| (LG&E) | ||||||||||||||||
| Three Months | Six Months | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Federal income tax on Income Before Income Taxes at statutory | ||||||||||||||||
| tax rate - 35% | $ | 20 | $ | 20 | $ | 50 | $ | 48 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 2 | 2 | 5 | 5 | ||||||||||||
| Other | (1) | (2) | ||||||||||||||
| Total increase (decrease) | 2 | 1 | 5 | 3 | ||||||||||||
| Total income taxes | $ | 22 | $ | 21 | $ | 55 | $ | 51 | ||||||||
| (KU) | ||||||||||||||||
| Three Months | Six Months | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Federal income tax on Income Before Income Taxes at statutory | ||||||||||||||||
| tax rate - 35% | $ | 22 | $ | 23 | $ | 66 | $ | 66 | ||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 2 | 2 | 7 | 7 | ||||||||||||
| Other | 1 | (2) | (1) | |||||||||||||
| Total increase (decrease) | 2 | 3 | 5 | 6 | ||||||||||||
| Total income taxes | $ | 24 | $ | 26 | $ | 71 | $ | 72 | ||||||||
Unrecognized Tax Benefits(PPL)
Changes to unrecognized tax benefits for the periods ended June 30 were as follows.
| Three Months | Six Months | ||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||
| PPL | |||||||||||||
| Beginning of period | $ | 20 | $ | 22 | $ | 20 | $ | 22 | |||||
| Additions based on tax positions of prior years | 1 | 1 | |||||||||||
| Reductions based on tax positions of prior years | (2) | (2) | |||||||||||
| Settlements | (15) | (15) | |||||||||||
| End of period | $ | 5 | $ | 21 | $ | 5 | $ | 21 | |||||
In February 2015, PPL and the IRS Appeals division reached a settlement on the amount of PPL's refund from its open audits for the years 1998 - 2011. In April 2015, PPL was notified that the Joint Committee on Taxation approved PPL's settlement. In the second quarter of 2015, PPL recorded a tax benefit of $23 million, which includes an estimate of interest on the refund. Of this amount, $11 million is reflected in continuing operations. Final determination of interest on the refund is still pending from the IRS.
| 37 |
(All Registrants except PPL Energy Supply)
| PPL | PPL Electric | ||||||||||||
| June 30, | December 31, | June 30, | December 31, | ||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||
| Current Regulatory Assets: | |||||||||||||
| Environmental cost recovery | $ | 16 | $ | 5 | |||||||||
| Gas supply clause | 1 | 15 | |||||||||||
| Transmission service charge | 7 | 6 | $ | 7 | $ | 6 | |||||||
| Other | 10 | 11 | 3 | 6 | |||||||||
| Total current regulatory assets (a) | $ | 34 | $ | 37 | $ | 10 | $ | 12 | |||||
| Noncurrent Regulatory Assets: | |||||||||||||
| Defined benefit plans | $ | 745 | $ | 720 | $ | 417 | $ | 372 | |||||
| Taxes recoverable through future rates | 319 | 316 | 319 | 316 | |||||||||
| Storm costs | 108 | 124 | 38 | 46 | |||||||||
| Unamortized loss on debt | 74 | 77 | 46 | 49 | |||||||||
| Interest rate swaps | 98 | 122 | |||||||||||
| Accumulated cost of removal of utility plant | 125 | 114 | 125 | 114 | |||||||||
| AROs | 91 | 79 | |||||||||||
| Other | 9 | 10 | 1 | ||||||||||
| Total noncurrent regulatory assets | $ | 1,569 | $ | 1,562 | $ | 946 | $ | 897 | |||||
| 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 | |||||
| LKE | LG&E | KU | |||||||||||||||||
| June 30, | December 31, | June 30, | December 31, | June 30, | December 31, | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||
| Environmental cost recovery | $ | 16 | $ | 5 | $ | 9 | $ | 4 | $ | 7 | $ | 1 | |||||||
| Gas supply clause | 1 | 15 | 1 | 15 | |||||||||||||||
| Fuel adjustment clause | 4 | 2 | 2 | ||||||||||||||||
| Other | 7 | 1 | 7 | 1 | |||||||||||||||
| Total current regulatory assets | $ | 24 | $ | 25 | $ | 10 | $ | 21 | $ | 14 | $ | 4 | |||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||
| Defined benefit plans | $ | 328 | $ | 348 | $ | 203 | $ | 215 | $ | 125 | $ | 133 | |||||||
| Storm costs | 70 | 78 | 39 | 43 | 31 | 35 | |||||||||||||
| Unamortized loss on debt | 28 | 28 | 18 | 18 | 10 | 10 | |||||||||||||
| Interest rate swaps | 98 | 122 | 75 | 89 | 23 | 33 | |||||||||||||
| AROs | 91 | 79 | 33 | 28 | 58 | 51 | |||||||||||||
| Other | 8 | 10 | 2 | 4 | 6 | 6 | |||||||||||||
| Total noncurrent regulatory assets | $ | 623 | $ | 665 | $ | 370 | $ | 397 | $ | 253 | $ | 268 | |||||||
| PPL | PPL Electric | ||||||||||||
| September 30, | December 31, | September 30, | December 31, | ||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||
| Current Regulatory Assets: | |||||||||||||
| Environmental cost recovery | $ | 3 | $ | 7 | |||||||||
| Gas supply clause | 20 | 10 | |||||||||||
| Fuel adjustment clause | 2 | ||||||||||||
| Demand side management | 8 | ||||||||||||
| Other | 5 | 6 | $ | 3 | $ | 6 | |||||||
| Total current regulatory assets | $ | 28 | $ | 33 | $ | 3 | $ | 6 | |||||
| Noncurrent Regulatory Assets: | |||||||||||||
| Defined benefit plans | $ | 486 | $ | 509 | $ | 250 | $ | 257 | |||||
| Taxes recoverable through future rates | 313 | 306 | 313 | 306 | |||||||||
| Storm costs | 130 | 147 | 47 | 53 | |||||||||
| Unamortized loss on debt | 79 | 85 | 51 | 57 | |||||||||
| Interest rate swaps | 54 | 44 | |||||||||||
| Accumulated cost of removal of utility plant | 111 | 98 | 111 | 98 | |||||||||
| AROs | 72 | 44 | |||||||||||
| Other | 8 | 13 | 1 | ||||||||||
| Total noncurrent regulatory assets | $ | 1,253 | $ | 1,246 | $ | 772 | $ | 772 | |||||
| Current Regulatory Liabilities: | |||||||||||||
| Generation supply charge | $ | 33 | $ | 23 | $ | 33 | $ | 23 | |||||
| Gas supply clause | 4 | 3 | |||||||||||
| Transmission service charge | 2 | 8 | 2 | 8 | |||||||||
| Fuel adjustment clause | 1 | 4 | |||||||||||
| Transmission formula rate | 42 | 20 | 42 | 20 | |||||||||
| Universal service rider | 10 | 10 | |||||||||||
| Storm damage expense | 1 | 14 | 1 | 14 | |||||||||
| Gas line tracker | 5 | 6 | |||||||||||
| Other | 4 | 2 | 3 | 1 | |||||||||
| Total current regulatory liabilities | $ | 92 | $ | 90 | $ | 81 | $ | 76 | |||||
| Noncurrent Regulatory Liabilities: | |||||||||||||
| Accumulated cost of removal of utility plant | $ | 697 | $ | 688 | |||||||||
| Coal contracts (a) | 69 | 98 | |||||||||||
| Power purchase agreement - OVEC (a) | 94 | 100 | |||||||||||
| Net deferred tax assets | 27 | 30 | |||||||||||
| Act 129 compliance rider | 18 | 15 | $ | 18 | $ | 15 | |||||||
| Defined benefit plans | 29 | 26 | |||||||||||
| Interest rate swaps | 90 | 86 | |||||||||||
| Other | 4 | 5 | |||||||||||
| Total noncurrent regulatory liabilities | $ | 1,028 | $ | 1,048 | $ | 18 | $ | 15 | |||||
| LKE | LG&E | KU | |||||||||||||||||
| September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||
| Environmental cost recovery | $ | 3 | $ | 7 | $ | 3 | $ | 2 | $ | 5 | |||||||||
| Gas supply clause | 20 | 10 | 20 | 10 | |||||||||||||||
| Fuel adjustment clause | 2 | 2 | |||||||||||||||||
| Demand side management | 8 | 3 | 5 | ||||||||||||||||
| Other | 2 | $ | 2 | ||||||||||||||||
| Total current regulatory assets | $ | 25 | $ | 27 | $ | 23 | $ | 17 | $ | 2 | $ | 10 | |||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||
| Defined benefit plans | $ | 236 | $ | 252 | $ | 159 | $ | 164 | $ | 77 | $ | 88 | |||||||
| Storm costs | 83 | 94 | 45 | 51 | 38 | 43 | |||||||||||||
| Unamortized loss on debt | 28 | 28 | 18 | 18 | 10 | 10 | |||||||||||||
| Interest rate swaps | 54 | 44 | 52 | 44 | 2 | ||||||||||||||
| AROs | 72 | 44 | 27 | 21 | 45 | 23 | |||||||||||||
| Other | 8 | 12 | 4 | 5 | 4 | 7 | |||||||||||||
| Total noncurrent regulatory assets | $ | 481 | $ | 474 | $ | 305 | $ | 303 | $ | 176 | $ | 171 | |||||||
| Current Regulatory Liabilities: | ||||||||||||||||||||
| Gas supply clause | $ | 4 | $ | 3 | $ | 4 | $ | 3 | ||||||||||||
| Fuel adjustment clause | 1 | 4 | $ | 1 | $ | 4 | ||||||||||||||
| Gas line tracker | 5 | 6 | 5 | 6 | ||||||||||||||||
| Other | 1 | 1 | 1 | 1 | ||||||||||||||||
| Total current regulatory liabilities | $ | 11 | $ | 14 | $ | 9 | $ | 9 | $ | 2 | $ | 5 | ||||||||
| LKE | LG&E | KU | ||||||||||||||||||
| September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||
| Noncurrent Regulatory Liabilities: | ||||||||||||||||||||
| Accumulated cost of removal | ||||||||||||||||||||
| of utility plant | $ | 697 | $ | 688 | $ | 305 | $ | 299 | $ | 392 | $ | 389 | ||||||||
| Coal contracts (a) | 69 | 98 | 30 | 43 | 39 | 55 | ||||||||||||||
| Power purchase agreement - OVEC (a) | 94 | 100 | 65 | 69 | 29 | 31 | ||||||||||||||
| Net deferred tax assets | 27 | 30 | 24 | 26 | 3 | 4 | ||||||||||||||
| Defined benefit plans | 29 | 26 | 29 | 26 | ||||||||||||||||
| Interest rate swaps | 90 | 86 | 45 | 43 | 45 | 43 | ||||||||||||||
| Other | 4 | 5 | 2 | 2 | 2 | 3 | ||||||||||||||
| Total noncurrent regulatory liabilities | $ | 1,010 | $ | 1,033 | $ | 471 | $ | 482 | $ | 539 | $ | 551 | ||||||||
| 38 |
| LKE | LG&E | KU | ||||||||||||||||||
| June 30, | December 31, | June 30, | December 31, | June 30, | December 31, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
| Current Regulatory Liabilities: | ||||||||||||||||||||
| Demand side management | $ | 12 | $ | 2 | $ | 5 | $ | 1 | $ | 7 | $ | 1 | ||||||||
| Gas supply clause | 9 | 6 | 9 | 6 | ||||||||||||||||
| Fuel adjustment clause | 4 | 4 | ||||||||||||||||||
| Gas line tracker | 1 | 3 | 1 | 3 | ||||||||||||||||
| Other | 1 | 4 | 1 | 4 | ||||||||||||||||
| Total current regulatory liabilities | $ | 27 | $ | 15 | $ | 15 | $ | 10 | $ | 12 | $ | 5 | ||||||||
| Noncurrent Regulatory Liabilities: | ||||||||||||||||||||
| Accumulated cost of removal | ||||||||||||||||||||
| of utility plant | $ | 693 | $ | 693 | $ | 303 | $ | 302 | $ | 390 | $ | 391 | ||||||||
| Coal contracts (b) | 38 | 59 | 16 | 25 | 22 | 34 | ||||||||||||||
| Power purchase agreement - OVEC (b) | 88 | 92 | 60 | 63 | 28 | 29 | ||||||||||||||
| Net deferred tax assets | 24 | 26 | 23 | 24 | 1 | 2 | ||||||||||||||
| Defined benefit plans | 21 | 16 | 21 | 16 | ||||||||||||||||
| Interest rate swaps | 84 | 84 | 42 | 42 | 42 | 42 | ||||||||||||||
| Other | 3 | 4 | 2 | 2 | 1 | 2 | ||||||||||||||
| Total noncurrent regulatory liabilities | $ | 951 | $ | 974 | $ | 446 | $ | 458 | $ | 505 | $ | 516 | ||||||||
| (a) | For PPL, these amounts are included in "Other current assets" on the Balance Sheets. |
| (b) | These liabilities were recorded as offsets to certain intangible assets that were recorded at fair value upon the acquisition of LKE by PPL. |
U. K. Activities
(PPL))RIIO-ED1
On April 1, 2015, the RIIO-ED1 eight-year price control period commenced for WPD's four DNOs. See "Item 1. Business - Segment Information - U. K. Regulated Segment" of PPL's 2014 Form 10-K for additional information on RIIO-ED1.
Ofgem Review of Line Loss Calculation
In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, during the first quarter of 2014 WPD increased its existing liability by $65 million for over-recovery of line losses with a reduction to "Utility" revenues on the Statement of Income. The total recordedWPD began refunding the liability at September 30, 2014 was $105 million, all of which will be refunded to customers fromon April 1, 2015 and will continue through March 31, 2019. The recorded liability at December 31, 2013June 30, 2015 was $74$88 million. Other activity impacting the liability included reductions in the liability that have been included in tariffs and foreign exchange movements. In June 2014, WPD applied for judicial review of certain of Ofgem's decisions related to closing out the DPCR4 line loss mechanism. The court has set a hearing for November 20, 2014 to hear WPD's application for permission to seek judicial review. 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. PPL cannot predict the outcome of this matter.
Rate Case Proceedings
On November 26, 2014, LG&E and KU filed an application for a CPCN with the KPSC requesting approval to build an NGCC generating unit, Green River Unit 5, at KU's Green River generating site and a solar generating facility at the E. W. Brown generating site. In April 2014, LG&E and KU filed a motion to hold further proceedings in abeyance to allow the companies to assess the potential impact of certain events on their future capacity needs, including the receipt of termination notices to be generally effective in 2019 from certain KU municipal wholesale customers. In August 2014, LG&E and KU submitted a motion to withdraw their request to construct the Green River NGCC and the KPSC issued an order granting that request. LG&E's and KU's CPCN application continues to request approval to construct the E. W. Brown solar generating facility. LG&E and KU entered into a stipulation in this proceeding agreeing to certain matters with some interveners. A hearing is scheduled to be held in November 2014, and a final order is anticipated before the end of the year. See "Federal Matters - FERC Wholesale Formula Rates" below for additional information relating to the municipal wholesale customers.
KPSC Landfill Proceedings
On May 22, 2015, LG&E and KU filed an application with the KPSC for a declaratory order that the existing CPCN and ECR approvals regarding the initial phases of construction and rate recovery of the landfill for management of CCRs at the
| 39 |
Trimble County Station remain in effect. The current design of the proposed landfill provides for construction in substantially the same location as originally proposed with approximately the same storage capacity and expected useful life. On May 20, 2015, the owner of an underground limestone mine filed a complaint with the KPSC requesting it to revoke the CPCN for the Trimble County landfill and limit recovery of costs for the Ghent Station landfill on the grounds that, as a result of cost increases, the proposed landfill no longer constitutes the least cost alternative for CCR management. The KPSC has initiated its own investigation, consolidated the proceedings, and ordered an accelerated procedural schedule. Although the companies continue to believe that the landfills at the Trimble County and Ghent stations are the least cost options and the CPCN and prior KPSC determinations provide the necessary regulatory authority to proceed with construction of the landfill and obtain cost recovery, LG&E and KU are currently unable to predict the outcome or impact of the pending proceedings.
Pennsylvania Activities(PPL and PPL Electric)
Act 11 authorizes the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate increasesproceedings and, subject to certain conditions, the use of a Distribution System Improvement Charge (DSIC). Such alternative ratemaking procedures and mechanisms provide opportunity for accelerated cost-recovery and, therefore, are important to PPL Electric as it is in a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging distribution assets.
Rate Case Proceeding
On March 31, 2015, PPL Electric filed a request with the PUC for an increase in its annual distribution revenue requirement of approximately $167.5 million. The proposal would result in electricity rate increases of 2.7% at LG&E and 9.6% at KU and a gas rate increase of 4.2% at LG&E3.9% on a total bill basis and wouldis expected to become effective in July 2015. LG&E's and KU's applications each includeon January 1, 2016. PPL Electric's application includes a request for an authorized returns-on-equityreturn-on-equity of 10.50%10.95%. The applications areapplication is based on a forecastedfully projected future test year of JulyJanuary 1, 20152016 through June 30,December 31, 2016. LG&E and KUPPL Electric cannot predict the outcome of these proceedings.
Distribution System Improvement Charge (DSIC)
On March 31, 2015, PPL Electric
Storm Damage Expense Rider
In its December 28, 2012 final rate case order, the PUC directed PPL Electric to file a proposed Storm Damage Expense Rider (SDER).SDER. The SDER is a reconcilable automatic adjustment clause under which PPL Electric annually will compare actual storm costs to storm costs allowed in base rates and refund or recoup any differences from customers. In March 2013, PPL Electric filed its proposed SDER with the PUC and, as part of that filing, requested recovery of the 2012 qualifying storm costs related to Hurricane Sandy. PPL Electric proposed that the SDER become effective January 1, 2013 at a zero rate with qualifying storm costs incurred in 2013 and the 2012 Hurricane Sandy costs included in rates effective January 1, 2014. As of December 31, 2013, PPL Electric had a $14 million regulatory liability balance for amounts expected to be refunded to customers for revenues collected to cover storm costs in excess of actual storm costs incurred during 2013. In April 2014, the PUC issued a final order approving the SDER. The SDER will be effectivewith a January 1, 2015 effective date and initially includeincluding actual storm costs compared to collections fromfor December 2013 through November 2014. As a result, of the order, PPL Electric reduced its regulatory liability by $12 million.million in March 2014. Also, as part of the April 2014 order, PPL Electric canwas authorized to recover Hurricane Sandy storm damage costs through the SDER of $29 million over a three-year period beginning January 1, 2015.
On June 20, 2014, the Office of Consumer Advocate (OCA) filed a petition for review of the April 2014 order with the Commonwealth Court of Pennsylvania. The case remains pending. See "Storm Costs" below for additional information on Hurricane Sandy costs.
| 40 |
Smart Meter Rider
Act 129 also requires installation of smart meters for new construction, upon the request of consumers and at their cost, or on a depreciation schedule not exceeding 15 years. Under Act 129, EDCs are able to recover the costs of providing smart metering technology. All of PPL Electric's metered customers currently have advanced meters installed at their service locations capable of many of the functions required under Act 129. PPL Electric conducted pilot projects and technical evaluations of its current advanced metering technology and concluded that the current technology does not meet all of the requirements of Act 129 requirements.129. PPL Electric recovered the cost of its evaluations through a cost recovery mechanism, the Smart Meter Rider (SMR).Rider. In August 2013, PPL Electric filed with the PUC an annual report describing the actions it was taking under its Smart Meter Plan during 2013 and its planned actions for 2014. PPL Electric also submitted revised SMR charges that became effective January 1, 2014. OnIn June 30, 2014, PPL Electric filed its final Smart Meter Plan with the PUC. In that plan, PPL Electric proposes to replace all of its current meters with advanced meters that meet the Act 129 requirements. Full deployment of the new meters is expected to be complete by the end of 2019. The total cost of the project is estimated to be approximately $450 million.million, of which approximately $328 million is expected to be capital. PPL Electric proposes to recover these costs through the SMR which the PUC previously has approved for recovery of such costs. The PUC assigned PPL Electric's plan to anOn April 30, 2015, the Administrative Law Judge for hearings and preparation of a recommended decision. PPL Electric cannot predict the outcome of this proceeding.
Federal Matters
FERC Formula Rates (PPL and PPL Electric)
In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts. 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 authorizedapproval 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 inIn July 2014,2015, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affectingand the nine terminating municipalities duringreached a settlement in principle which, subject to FERC approval, would resolve open matters, including providing for certain refunds, approving the remaining termformula 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. KU and the terminating municipalities continue settlement discussions in this proceeding.further negotiations or proceedings. KU cannot currently predict the ultimate outcome of itsthese FERC applicationsproceedings regarding its wholesale power agreements with the municipalities.
Credit Arrangements and Short-term Debt
(All Registrants)
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of PPL Energy Supply, PPL Electric, LKE, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE. The amounts borrowed below are recorded as "Short-term debt" on the Balance Sheets. TheSheets.The following credit facilities were in place at:
| September 30, 2014 | December 31, 2013 | |||||||||||||||||||||||||
| Letters of | Letters of | |||||||||||||||||||||||||
| Credit Issued | Credit Issued | |||||||||||||||||||||||||
| and | and | |||||||||||||||||||||||||
| Commercial | Commercial | |||||||||||||||||||||||||
| Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
| Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||
| U.K. | ||||||||||||||||||||||||||
| PPL WW Syndicated | ||||||||||||||||||||||||||
| Credit Facility | Dec. 2016 | £ | 210 | £ | 97 | £ | 113 | £ | 103 | |||||||||||||||||
| WPD (South West) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 245 | 245 | |||||||||||||||||||||||
| WPD (East Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 300 | 300 | |||||||||||||||||||||||
| WPD (West Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 300 | 300 | |||||||||||||||||||||||
| Uncommitted Credit Facilities | 105 | £ | 5 | 100 | £ | 5 | ||||||||||||||||||||
| Total U.K. Credit Facilities (a) | £ | 1,160 | £ | 97 | £ | 5 | £ | 1,058 | £ | 103 | £ | 5 | ||||||||||||||
| U.S. | ||||||||||||||||||||||||||
| PPL Capital Funding | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 300 | $ | 300 | |||||||||||||||||||||
| Syndicated Credit Facility (b) | Nov. 2018 | 300 | 300 | $ | 270 | |||||||||||||||||||||
| Bilateral Credit Facility | Mar. 2015 | 150 | 150 | |||||||||||||||||||||||
| Uncommitted Credit Facility | 65 | 65 | ||||||||||||||||||||||||
| Total PPL Capital Funding Credit Facilities | $ | 815 | $ | 815 | $ | 270 | ||||||||||||||||||||
| PPL Energy Supply | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Nov. 2017 | $ | 3,000 | $ | 590 | $ | 82 | $ | 2,328 | $ | 29 | |||||||||||||||
| Letter of Credit Facility | Mar. 2015 | 150 | 113 | 37 | 138 | |||||||||||||||||||||
| Uncommitted Credit Facilities | 175 | 74 | 101 | 77 | ||||||||||||||||||||||
| Total PPL Energy Supply Credit Facilities | $ | 3,325 | $ | 590 | $ | 269 | $ | 2,466 | $ | 244 | ||||||||||||||||
| PPL Electric | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 300 | $ | 1 | $ | 299 | $ | 21 | |||||||||||||||||
| LKE | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Oct. 2018 | $ | 75 | $ | 75 | $ | 75 | |||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 500 | $ | 143 | $ | 357 | $ | 20 | |||||||||||||||||
| KU | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 400 | $ | 130 | $ | 270 | $ | 150 | |||||||||||||||||
| Letter of Credit Facility (c) | May 2016 | 198 | 198 | 198 | ||||||||||||||||||||||
| Total KU Credit Facilities | $ | 598 | $ | 328 | $ | 270 | $ | 348 | ||||||||||||||||||
| 41 |
| June 30, 2015 | December 31, 2014 | |||||||||||||||||||||||||
| Letters of | Letters of | |||||||||||||||||||||||||
| Credit | Credit | |||||||||||||||||||||||||
| and | and | |||||||||||||||||||||||||
| Commercial | Commercial | |||||||||||||||||||||||||
| Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
| Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||
| U.K. | ||||||||||||||||||||||||||
| WPD plc | ||||||||||||||||||||||||||
| Syndicated Credit Facility | Dec. 2016 | £ | 210 | £ | 130 | £ | 80 | £ | 103 | |||||||||||||||||
| WPD (South West) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 245 | 245 | |||||||||||||||||||||||
| WPD (East Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 300 | 112 | 188 | 64 | |||||||||||||||||||||
| WPD (West Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 300 | 300 | |||||||||||||||||||||||
| Uncommitted Credit Facilities | 65 | £ | 4 | 61 | £ | 5 | ||||||||||||||||||||
| Total U.K. Credit Facilities (a) | £ | 1,120 | £ | 242 | £ | 4 | £ | 874 | £ | 167 | £ | 5 | ||||||||||||||
| U.S. | ||||||||||||||||||||||||||
| PPL Capital Funding | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 300 | $ | 300 | |||||||||||||||||||||
| Syndicated Credit Facility | Nov. 2018 | 300 | 300 | |||||||||||||||||||||||
| Bilateral Credit Facility | Mar. 2016 | 150 | $ | 20 | 130 | $ | 21 | |||||||||||||||||||
| Uncommitted Credit Facility | 65 | 1 | 64 | 1 | ||||||||||||||||||||||
| Total PPL Capital Funding Credit Facilities | $ | 815 | $ | 21 | $ | 794 | $ | 22 | ||||||||||||||||||
| PPL Electric | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 300 | $ | 169 | $ | 131 | $ | 1 | |||||||||||||||||
| LKE | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Oct. 2018 | $ | 75 | $ | 75 | $ | 75 | |||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 500 | $ | 259 | $ | 241 | $ | 264 | |||||||||||||||||
| KU | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 400 | $ | 227 | $ | 173 | $ | 236 | |||||||||||||||||
| Letter of Credit Facility | Oct. 2017 | 198 | 198 | 198 | ||||||||||||||||||||||
| Total KU Credit Facilities | $ | 598 | $ | 425 | $ | 173 | $ | 434 | ||||||||||||||||||
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
| 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 | |||||||||||||||
| 42 |
| September 30, 2014 | December 31, 2013 | ||||||||||||||||||||||
| Weighted - | Commercial | Weighted - | Commercial | ||||||||||||||||||||
| Average | Paper | Unused | Average | Paper | |||||||||||||||||||
| Interest Rate | Capacity | Issuances | Capacity | Interest Rate | Issuances | ||||||||||||||||||
| PPL Electric | $ | 300 | $ | 300 | 0.23% | $ | 20 | ||||||||||||||||
| LG&E | 0.29% | 350 | $ | 143 | 207 | 0.29% | 20 | ||||||||||||||||
| KU | 0.29% | 350 | 130 | 220 | 0.32% | 150 | |||||||||||||||||
| Total | $ | 1,000 | $ | 273 | $ | 727 | $ | 190 | |||||||||||||||
(LKE)
See Note 11 for discussion of intercompany borrowings.
(PPL)
At-The-Market Stock Offering Program
In March 2014,February 2015, PPL Capital Funding remarketed $978entered into two separate equity distribution agreements, pursuant to which PPL may sell, from time to time, up to an aggregate of $500 million of 4.32% Junior Subordinated Notes due 2019 that were originally issued in April 2011 as a component of PPL's 2011 Equity Units. In connection withits common stock. During the remarketing, PPL Capital Funding retired $228 million of the 4.32% Junior Subordinated Notes due 2019three 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 ninesix months ended SeptemberJune 30, 2014. In May 2014,2015, PPL issued 31.7 million421,700 shares of common stock under the program at $30.86an average price of $33.73 per share, to settle the 2011 Purchase Contracts. PPL receivedreceiving net cash proceeds of $978 million, which were used to repay short-term debt and for general corporate purposes.
Distributions
In August 2014, PPL Energy Supply repaid the entire $300 million principal amount of its 5.40% Senior Notes upon maturity.
(All Registrants)
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options. Any resulting transactions may impact future financial results. See Note 8 in the 20132014 Form 10-K for additional information.
Discontinued Operations
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 theirit with Riverstone's competitive power generation businesses intoto form a new, stand-alone, publicly traded company named Talen Energy. UnderThe transaction was subject to customary closing conditions, including receipt of regulatory approvals from the termsNRC, 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 to PPL shareowners the parentmembership interests of PPL Energy Supply recently formed for purposesand all of this transaction, which by mergingthe common stock of Talen Energy.
Immediately following the spinoff on June 1, 2015, Holdco merged with a special purpose subsidiary of Talen Energy, will immediately thereafter becomewith Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy.Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power will bewas contributed directly or indirectly, 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 will ownowned 65% of Talen Energy and affiliates of Riverstone will ownowned 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 havehad 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 purposespurposes.
PPL has no continuing ownership interest in, control of, or affiliation with Talen Energy and Talen Energy Supply (formerly PPL Energy Supply).
| 43 |
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 subjectnondeductible for tax purposes. This amount served to customary closing conditions, including receiptreduce the basis of certain regulatory approvals by the NRC, FERC, DOJ and PUC. In addition, there must be available, subject to certain conditions,net assets accounted for as a dividend at least $1 billionthe 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.
Following the announcement of the transaction to form Talen Energy, efforts 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 third quarterneed 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
| 44 |
reimbursement payments and outplacement services. Most separations and payment of 2014 and staffing selectionsseparation benefits are in progress and expected to be completed by the end of 2014.
| PPL Energy | PPL | ||||||||
| PPL | Supply | Electric | |||||||
| Separation benefits | $ | 30 | $ | 12 | $ | 1 | |||
| Number of positions | 265 | 100 | 10 | ||||||
Additional employee-related costs incurred include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. As staffing selections are completed, revisions to the estimated costs will be recognized primarily in the fourth quarter of 2014.
As the vesting for all PPL Energy Supply estimateemployees was accelerated and all remaining unrecognized compensation expense accelerated concurrently with the spinoff, 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 significantly 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 reflects the unamortized balance of the original grant date fair value of the equity awards held by PPL employees.
PPL recorded $36 million and $42 million of third-party costs related to this transaction during the three and six months ended June 30, 2015. Of these costs, $29 million and $31 million were primarily for 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 willwere incurred to prepare the 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 Income. PPL recorded $16 million of third-party costs related to this transaction during the three and six months ended June 30, 2014. No significant additional third-party costs are expected to 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 the rangeAOCI and designated as cash flow hedges of $30 million to $40 million.
Continuing Involvement
As a result of the spinoff, announcement, PPL recorded $3 million and $49 million of deferred income tax expense during the three and nine months ended September 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.
Additionally, prior to be $880 million.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 sale includes 11 hydroelectric power facilities and related assets,energy purchases were previously included in PPL Electric's Statements of Income 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.
| Three Months | Nine Months | ||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||
| Operating revenues | $ | 33 | $ | 31 | $ | 103 | $ | 110 | |||||
| Operating expenses | 20 | 20 | 77 | 59 | |||||||||
| Operating income (loss) | 13 | 11 | 26 | 51 | |||||||||
| Interest expense (a) | 2 | 2 | 6 | 8 | |||||||||
| Income (loss) before income taxes | 11 | 9 | 20 | 43 | |||||||||
| Income tax expense (benefit) | 4 | 3 | 10 | 15 | |||||||||
| Income (Loss) from Discontinued Operations | $ | 7 | $ | 6 | $ | 10 | $ | 28 | |||||
| 45 |
| 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 Liabilities of Discontinued Operations
The major classesassets and liabilities of "AssetsPPL's Supply segment for all periods prior to the spinoff are included in "Current assets of discontinued operations", "Noncurrent assets of discontinued operations", "Current liabilities of discontinued operations" and "Noncurrent liabilities of discontinued operations" on thePPL's Balance Sheet at September 30, 2014, were $544 million of PP&E, net and $82 million of Goodwill for PPL ($14 million for PPL Energy Supply). Corresponding amounts at December 31, 2013 were $614 million of PP&E, net, and similar amounts for Goodwill, which have not been reclassified on the Balance Sheet as of that date.
| 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 | ||||
| 46 |
Montana Hydro Sale
In November 2014, PPL Montana completed the sale to NorthWestern of 633 MW of hydroelectric generating facilities located in Montana for approximately $900 million in cash. The proceeds from the receipt of the grant in the third quarter of 2014.sale remained with PPL Energy Supply was requiredand did not transfer to recapture $117 million of investment tax credits previously recorded related to the Holtwood projectTalen Energy as a result of the grant receipt.spinoff of PPL Energy Supply. The impact onsale included 11 hydroelectric power facilities and related assets, included in the financial statementsSupply segment.
As the Montana hydroelectric power facilities were previously reported as a component of PPL Energy Supply and the Supply Segment, the components of discontinued operations for these facilities contained in the grant receipt and recaptureStatements of investment tax credits was not significant forIncome are included in the three and nine months ended September 30, 2014, and will not be significant in future periods.
Cane Run Unit 7 scheduledwas 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 was to have approximately 700 MW of capacity at a cost of $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 at a cost of approximately $36 million. In AugustDecember 2014, LG&E and KU submitted a motion to withdraw theirfinal order was issued by the KPSC approving the request to construct the Green River NGCC and the KPSC issued an order granting that request. LG&E's and KU's CPCN application continues to request approval to construct the E. W. Brown solar generating facility. A final Order is anticipated during the first quarter of 2015.
(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
(PPL, LKE and KU)
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 SeptemberJune 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 | Nine Months | |||||||||||||||||||||||||
| U.S. | U.K. | U.S. | U.K. | |||||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
| PPL | ||||||||||||||||||||||||||
| Service cost | $ | 26 | $ | 31 | $ | 18 | $ | 18 | $ | 77 | $ | 94 | $ | 54 | $ | 52 | ||||||||||
| Interest cost | 58 | 53 | 90 | 79 | 175 | 160 | 268 | 238 | ||||||||||||||||||
| Expected return on plan assets | (75) | (73) | (133) | (115) | (224) | (220) | (395) | (346) | ||||||||||||||||||
| Amortization of: | ||||||||||||||||||||||||||
| Prior service cost | 5 | 6 | 15 | 17 | ||||||||||||||||||||||
| Actuarial (gain) loss | 8 | 20 | 34 | 37 | 23 | 60 | 100 | 112 | ||||||||||||||||||
| Net periodic defined benefit | ||||||||||||||||||||||||||
| costs (credits) prior to | ||||||||||||||||||||||||||
| termination benefits | 22 | 37 | 9 | 19 | 66 | 111 | 27 | 56 | ||||||||||||||||||
| Termination benefits (a) | (7) | 13 | ||||||||||||||||||||||||
| Net periodic defined benefit | ||||||||||||||||||||||||||
| costs (credits) | $ | 15 | $ | 37 | $ | 9 | $ | 19 | $ | 79 | $ | 111 | $ | 27 | $ | 56 | ||||||||||
| 47 |
| Pension Benefits | ||||||||||||||
| Three Months | Nine Months | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||
| PPL Energy Supply | ||||||||||||||
| Service cost | $ | 1 | $ | 1 | $ | 4 | $ | 5 | ||||||
| Interest cost | 3 | 2 | 7 | 6 | ||||||||||
| Expected return on plan assets | (3) | (2) | (8) | (7) | ||||||||||
| Amortization of: | ||||||||||||||
| Actuarial (gain) loss | 1 | 1 | 2 | |||||||||||
| Net periodic defined benefit costs (credits) | $ | 1 | $ | 2 | $ | 4 | $ | 6 | ||||||
| LKE | ||||||||||||||
| Service cost | $ | 5 | $ | 6 | $ | 16 | $ | 19 | ||||||
| Interest cost | 17 | 16 | 50 | 47 | ||||||||||
| Expected return on plan assets | (21) | (20) | (62) | (61) | ||||||||||
| Amortization of: | ||||||||||||||
| Prior service cost | 1 | 1 | 3 | 3 | ||||||||||
| Actuarial (gain) loss | 4 | 8 | 10 | 25 | ||||||||||
| Net periodic defined benefit costs (credits) | $ | 6 | $ | 11 | $ | 17 | $ | 33 | ||||||
| LG&E | ||||||||||||||
| Service cost | $ | 1 | $ | 1 | $ | 2 | ||||||||
| Interest cost | $ | 4 | 3 | 11 | 10 | |||||||||
| Expected return on plan assets | (4) | (5) | (14) | (15) | ||||||||||
| Amortization of: | ||||||||||||||
| Prior service cost | 1 | 1 | 2 | 2 | ||||||||||
| Actuarial (gain) loss | 1 | 3 | 4 | 10 | ||||||||||
| Net periodic defined benefit costs (credits) | $ | 2 | $ | 3 | $ | 4 | $ | 9 | ||||||
| Other Postretirement Benefits | |||||||||||||
| Three Months | Nine Months | ||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||
| PPL | |||||||||||||
| Service cost | $ | 3 | $ | 4 | $ | 9 | $ | 11 | |||||
| Interest cost | 8 | 7 | 24 | 21 | |||||||||
| Expected return on plan assets | (6) | (6) | (19) | (18) | |||||||||
| Amortization of: | |||||||||||||
| Actuarial (gain) loss | 1 | 4 | |||||||||||
| Net periodic defined benefit costs (credits) | $ | 5 | $ | 6 | $ | 14 | $ | 18 | |||||
| LKE | |||||||||||||
| Service cost | $ | 1 | $ | 2 | $ | 3 | $ | 4 | |||||
| Interest cost | 2 | 2 | 7 | 6 | |||||||||
| Expected return on plan assets | (1) | (2) | (4) | (4) | |||||||||
| Amortization of: | |||||||||||||
| Prior service cost | 1 | 1 | 2 | 2 | |||||||||
| Net periodic defined benefit costs (credits) | $ | 3 | $ | 3 | $ | 8 | $ | 8 | |||||
| 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. |
| 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 | |||||
In addition to the specific plans they sponsor, PPL Energy Supply subsidiaries are also allocated costs of defined benefit plans sponsored by PPL Services, andit sponsors, LG&E is allocated costs of defined benefit plans sponsored by LKE based on theirits participation in those plans, which management believes are reasonable. PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services and KU is allocated costs of defined benefit plans sponsored by LKE based on their participation in those plans, which management believes are reasonable.For the periods ended SeptemberJune 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 | Nine Months | |||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| PPL Energy Supply (a) | $ | 2 | $ | 11 | $ | 32 | $ | 34 | ||||
| PPL Electric (a) | 3 | 9 | 18 | 27 | ||||||||
| LG&E | 2 | 3 | 6 | 9 | ||||||||
| KU | 2 | 4 | 6 | 13 | ||||||||
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(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, 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 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 statute, butfederal statute. In December 2014, the U.S. Court of Appeals for the Sixth Circuit has yet to acceptissued an order granting appellate review regarding the caseabove matter and such issues as may appropriately be presented by the parties and determined by the court. Oral argument is scheduled for review.August 2015. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on operations ofmatter. LG&E retired one coal-fired unit at the Cane Run plant. LG&E has previously announced that it anticipates retiringplant in March 2015 and the remaining two coal-fired units at Cane Run before the end ofplant in June 2015.
Mill Creek Environmental Claims
In May 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
See Note 6 for information on regulatory matters related to utility rate regulation.
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.
In October 2012, the FERC initiated its consideration of proposed changes to Reliability Standards to address the impacts of geomagnetic disturbances on the reliable operation of the bulk-power system, which might, among other things, lead to a requirement to install equipment that blocks geomagnetically induced currents on implicated transformers. OnIn May 16, 2013, FERC issued Order No. 779, requiring NERC to submit two types of Reliability Standards for FERC's approval. The first type would require certain owners and operators of the nation's electricity infrastructure, such as the Registrants, to develop and implement operational procedures to mitigate the effects of geomagnetic disturbances on the bulk-power system. This NERC-proposedNERC proposed standard was filed by NERC with FERC for approval in January 2014, and was approved onin June 19, 2014. The second type is to require owners and operators of the bulk-power system to assess certain geomagnetic disturbance events and develop and implement plans to protect the bulk-power system from those events and must beevents. This proposal was filed by NERC with FERC for approval by January 22, 2015.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 makedo not presently anticipate significant expenditures in new equipment or modifications to their facilitiescosts to comply with the new requirements. The Registrants are unable to predict the amount of any expenditures that may be requiredrequirements if finalized as a result of the adoption of any Reliability Standards for geomagnetic disturbances.
(All Registrants)
Due to the environmental issues discussed below or other environmental matters, it may be necessary for the Registrants to modify, curtail, replace or cease operation of certain facilities or performance of certain operations to comply with statutes, regulations and other requirements of regulatory bodies or courts. In addition, legal challenges to new environmental permits or rules add to the uncertainty of estimating the future cost impact of these permits and rules.
LG&E and KU are entitled to recover, through the ECR mechanism, certain costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements which are applicable to coal combustion wastes and by-products from facilities that generate electricity from coal in accordance with approved compliance plans. Costs not covered by the ECR mechanism for LG&E and KU and all such costs for PPL Electric are subject to rate recovery before the companies' respective state regulatory authorities, or the FERC, if applicable. Because PPL Electric does not own any generating plants, its exposure to related environmental compliance costs is reduced. As PPL Energy Supply is not a rate-regulated entity, it cannot seek to recover environmental compliance costs through the mechanism of rate recovery. PPL, PPL Electric, LKE, LG&E and KU can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.
(All Registrants except PPL, Electric)
Air
The Clean Air Transport Rule)Act, which regulates air pollutants from mobile and CAIR
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 2008state will attain the standards that are mandated by the U.S. Courtrelevant 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 Districteastern portion of Columbia Circuit (D.C. Circuit Court). The CAIR subsequently was effectively reinstatedthe country, including Kentucky, are subject to a regional program developed by the D.C. Circuit Court in December 2008, pending finalization ofEPA known as the CSAPR. Like the CAIR, the 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).
Although PPL, PPL Energy Supply, LKE, LG&E and KU do not currently anticipate significant compliance costs howeverto comply with these analyses will be reviewed under currentprograms, changes in market andor operating conditions to make further assessments on compliance impacts.
In 2008, the EPA revised the National Ambient Air Quality StandardNAAQS 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 Actworking together to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies. The PADEP has issued a draft rule requiring reasonable reduction; 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 reductions particularly within the OTR.
In 2010, the EPA finalized a new National Ambient Air Quality Standardrevised 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. In April 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 CAIRClean Air Act regulations governing attainment of ozone or the 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 theLG&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 impactcosts 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.
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.
In May 2011,February 2012, the EPA published a proposed regulationfinalized the MATS rule requiring stringent reductions of mercury and other hazardous air pollutants from fossil-fuel fired power plants. In February 2012, the EPA published the final rule, 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 PPL Energy Supply has a pending request, which was submitted on September 15, 2014, for its Colstrip plant.
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 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 Montourin 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. The EPA request remains an open matter. In September 2012, PPL Montana received an information request from the MDEQ regarding Colstrip Unit 1 and other projects. MDEQ formally suspended this request on June 6, 2014, in consideration of pending litigation (see "Legal Matters - Sierra Club Litigation" above). PPL and PPL Energy Supply cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.
If any PPL subsidiaries aresubsidiary is found to have violated NSR regulations by significantly increasing pollutants through a major plant modification, PPL, PPL Energy Supply, LKE, LG&E and KUthe subsidiary would, among other things, be required to meet stringent permit limits reflecting Best Available Control Technology (BACT) for pollutants meeting the National Ambient Air Quality Standards (NAAQS)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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Trimble County Unit 2 Air Permit
The Sierra Club and other environmental groups petitioned the Kentucky Environmental and Public Protection Cabinet to overturn the air permit issued for the TC2Trimble County Unit 2 baseload coal-fired generating unit, but the agency upheld the permit in an order issued in September 2007. In response to subsequent petitions by environmental groups, the EPA ordered certain non-material changes to the permit which, in January 2010, were incorporated into a final revised permit issued by the Kentucky Division for Air Quality. In March 2010, the environmental groups petitioned the EPA to object to the revised state permit. Until the EPA issues a final ruling on the pending petition and all available appeals are exhausted, PPL, LKE, LG&E and KU cannot predict the outcome of this matter or the potential impact on plant operations, including increased capital costs, if any.
Climate Change
(All Registrants)
As a result of the April 2007 U.S. Supreme Court decision that the EPA has authority under the Clean Air Act to regulate GHGcarbon dioxide emissions from new motor vehicles, in April 2010 the EPA and the U.S. Department of Transportation issued new light-duty vehicle emissions standards that applied beginning with 2012 model year vehicles. The EPA also clarified that this standard, beginning in 2011, authorized regulation of GHGcarbon dioxide emissions from stationary sources under the NSR and Title V operating permit provisions of the Clean Air Act. The EPA's rules were challenged in court and on June 23, 2014, the U.S. Supreme Court ruled that the EPA has the authority to regulate GHGcarbon dioxide emissions under these provisions of the Clean Air Act but only for stationary sources that would otherwise have been subject to these provisions due to significant increases in emissions of other pollutants. As a result, any new sources or major modifications to an existing GHG source causing a net significant increase in GHGcarbon dioxide emissions must comply with BACT permit limits for GHGscarbon 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 gasGHG emissions in the U.S. "in the range of" 17% below 2005 levels by 2020 through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing tightermore restrictive energy efficiency standards. Also, by Presidential Memorandum, the EPA was directed to issue a revised proposal for new power plants (a prior proposal was issued in 2012) by September 20, 2013, with a final rule in a timely fashion thereafter, and to issue proposed standards for existing plants by June 1, 2014 with a final rule to be issued by June 1, 2015. The EPA was further directed to require that states develop implementation plans for existing plants by June 30, 2016. The Administration's increase in its estimate of the "social cost of carbon" (which is used to calculate benefits associated with proposed regulations) from $23.80 to $38 per metric ton in 2015 may also lead to more costly regulatory requirements. Additionally, the Climate Action Plan requirements relatedcalls for the U.S. to preparing the U.S.prepare for the impacts of climate changechange. Requirements related to this Plan could affect 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.
The EPA's proposal for new power plants was issued in January 8, 2014. Unlike the EPA's prior proposal, the EPA'sThe revised proposal establishedcalls 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 coalcoal-fired plants. The standard for NGCC power plants is the same as the EPA proposed in 2012 and is not continuously achievable.
The EPA's proposed regulation addressing GHG emissions fromproposal for existing power plants under Section 111(d) of the Clean Air Act was publishedissued 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
| 52 |
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, LKE, LG&E and KU)
In April 2014, the Kentucky General Assembly passed legislation which limits the measures whichthat 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 willmay make it more difficult for Kentucky to achieve the GHG reduction levels which the EPA has proposed for Kentucky.
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 claimsGHGs 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 overturnupheld 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
(All Registrants)
Water/Waste
Coal Combustion Residuals (CCRs)
On April 17, 2015, the EPA proposed two approaches topublished its final rule regulating the disposal and management of CCRs (as either hazardous or non-hazardous) under the RCRA.CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. RegulatingThe rule will become effective on October 14, 2015. It imposes extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants and not closed. Under the rule, the EPA will regulate CCRs as a hazardous wastenon-hazardous under Subtitle CD of the RCRA would materially increase costs and result in early retirements of many coal-fired plants, as it would require plants to retrofit their operations to comply with full hazardous waste requirements for the generation of CCRs and associated waste waters through generation, transportation and disposal. This would also have a negative impact on theallow beneficial use of CCRs, with some restrictions. This self-implementing rule requires posting of compliance documentation on a publicly accessible website and could eliminate existing markets for CCRs. The EPA's proposed approach to regulate CCRs as non-hazardous waste under Subtitle D of the RCRA would mainly affect disposalis 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 itsKU'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.
In connection with the final requirementsCCR rule, LG&E and KU recorded increases to existing AROs during the second quarter of the EPA's CCR regulations2015. See Note 16 for additional information. Further increases to AROs or potential changes to the RCRAcurrent 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 expectedregulatory or legal proceedings. Costs relating to be material if CCRsthis rule are regulated as hazardous waste and significant if regulated as non-hazardous.
Trimble County Landfill(PPL, LKE, LG&E and KU)
In May 2011, LG&E submitted an application for a special waste landfill permit to handle coal combustion residualsCCRs generated at the Trimble County plant. After extensive review of the permit application inIn May 2013, the Kentucky Division of Waste Management denied the permit application on the grounds that the proposed facility would violate the Kentucky Cave Protection Act because it would eliminate an on-site karst feature considered to be a cave. After assessing additional options for managing coal combustion residuals, inAct. 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.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 all permits are issued and any resulting
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legal challenges are concluded.
Clean Water Act
Regulations under the federal Clean Water Act dictate permitting and Groundwater Infiltration - Pennsylvania, Montanamitigation requirements for many of LG&E's and Kentucky
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 regulationsELGs 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'simpose significant costs on LG&E's and KU's coal-fired plants. The EPA has agreedfinal regulation is expected to a new deadline forbe issued by the final rulefourth 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.
(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. IfAct, significant ambiguity remains. The Registrants do not currently expect the definitionrule to have a significant impact on their operations. Until such time as ongoing litigation is expandedcomplete, however, the 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 mattersactivities 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 legislationsubject to block these regulations.
Other Issues
The EPA is reassessing its polychlorinated biphenyls (PCB) regulations under the Toxic Substance Control Act, which currently allow certain PCB articles to remain in use. In April 2010, the EPA issued an Advanced Notice of Proposed Rulemaking for changes to these regulations. This rulemaking could lead to a phase-out of all or some PCB-containing equipment. The EPA is planning to proposehas postponed the release of the revised regulations in 2015. 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, 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 CabinetKEEC 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 courtFranklin Circuit Court reversed the CabinetKEEC order upholding the permit and remanded the permit to the agency for further proceedings. In October 2013, LG&E filed a notice of appeal withand 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.
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, shouldShould 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 KUPPL's subsidiaries undertake remedial action in response to notices of violations, spills or other releases at various on-site and off-site locations, negotiate with the EPA and state and local agencies regarding actions necessary for compliance with applicable requirements, negotiate with property owners and other third parties alleging impacts from PPL's operations and undertake similar actions necessary to resolve environmental matters whichthat 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.
Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in significant additional costs for the Registrants.
WPD's distribution businesses are subject to environmental regulatory and statutory requirements. PPL believes that WPD has taken and continues to take measures to comply with the applicable laws and governmental regulations for the protection of the environment.
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| PPL Energy | PPL | ||||||||
| PPL | Supply | Electric | |||||||
| Pension Benefits | $ | 13 | $ | 11 | $ | 2 | |||
| Severance Compensation | 7 | 6 | 1 | ||||||
| Total Separation Benefits | $ | 20 | $ | 17 | $ | 3 | |||
| Number of Employees | 121 | 105 | 15 | ||||||
(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 SeptemberJune 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 SeptemberJune 30, 20142015 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 | |||||
| September 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 | 125 | (c) | ||||
| PPL Energy Supply | ||||||
| Letters of credit issued on behalf of affiliates | 27 | (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 | 33 | (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) | |||||
| In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers |
| make reasonable efforts to terminate the guarantees. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties. |
| (d) |
| 56 |
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.
The Registrants provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of indemnification or warranties related to services or equipment and vary in duration. The amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, no significant payments have been made with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.
PPL, on behalf of itself and certain of its subsidiaries, maintains insurance that covers liability assumed under contract for bodily injury and property damage. The coverage provides maximum aggregate coverage of $225 million. This insurance may be applicable to obligations under certain of these contractual arrangements.
PLR Contracts/Purchase of Accounts Receivable(PPL Energy Supply and PPL Electric)
PPL Electric holds competitive solicitations for PLR generation supply. PPL EnergyPlus has been awarded a portion of the PLR generation supply through these competitive solicitations. The sales and purchases betweenfrom PPL EnergyPlus and PPL Electric are included in thePPL Electric's Statements of Income as "Unregulated wholesale energy to affiliate" by PPL Energy Supply and as "Energy purchases from affiliate" 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.
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 isWholesale suppliers are required to post collateral with PPL Electric when: (a) the market price of electricity to be delivered by PPL EnergyPlusthe 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
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.
PPL Services and LKS provide thetheir respective PPL and LKE subsidiaries with administrative, management and support services. Where applicable,In 2015, PPL EU Services was formed to provide the majority of financial, supply chain, human resources and facilities management services primarily to PPL Electric. PPL Services will continue to provide certain corporate functions. For all service companies, the costs of these services are charged to the respective subsidiariesrecipients as direct support costs. General costs that cannot be directly attributed to a specific subsidiaryentity are allocated and charged to the respective subsidiariesrecipients as indirect support costs. PPL Services usesand PPL EU Services use a three-factor methodology that includes the subsidiaries'applicable recipients' invested capital, operation and maintenance expenses and number of employees to allocate indirect costs. LKS bases its indirect allocations on the subsidiaries' number of employees, total assets, revenues, number of customers and/or other statistical information.PPL Services, PPL EU Services and LKS charged the following amounts for the periods ended SeptemberJune 30, and believe these amounts are reasonable, including amounts applied to accounts that are further distributed between capital and expense.
| 57 |
| Three Months | Nine Months | |||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| PPL Energy Supply from PPL Services | $ | 49 | $ | 52 | $ | 161 | $ | 161 | ||||
| PPL Electric from PPL Services | 34 | 37 | 113 | 109 | ||||||||
| LKE from PPL Services | 3 | 3 | 11 | 11 | ||||||||
| LG&E from LKS | 49 | 53 | 154 | 159 | ||||||||
| KU from LKS | 55 | 36 | 167 | 146 | ||||||||
| 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.
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. At June 30, 2015 and December 31, 2014, $59 million and $41 million were outstanding and were reflected in "Notes payable with affiliates" on the consolidated Balance Sheets. The interest rate on borrowings is equal to one-month LIBOR plus a spread. At September 30, 2014, $22 million was outstanding and was reflected in "Notes payable with affiliates" on the Balance Sheet. The interest raterates on the outstanding borrowing at SeptemberJune 30, 2014 was 1.66%. There was no balance outstanding at2015 and December 31, 2013.2014 were 1.68% and 1.65%. Interest on the revolving line of credit was not significant for the three and ninesix months ended SeptemberJune 30, 20142015 and 2013.
Intercompany Derivatives
(LKE, LG&E and KU)Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL. These hedging instruments have terms identical to forward-starting swaps entered into by PPL with third parties. See Note 14 for additional information on intercompany derivatives.
See Note 9 for discussions regarding intercompany allocations associated with defined benefits.
| Three Months | Nine Months | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||
| PPL | ||||||||||||||
| Other Income | ||||||||||||||
| Earnings on securities in NDT funds | $ | 11 | $ | 4 | $ | 23 | $ | 14 | ||||||
| Interest income | 1 | 4 | 2 | |||||||||||
| AFUDC - equity component | 3 | 3 | 8 | 8 | ||||||||||
| Miscellaneous | 4 | 8 | 10 | |||||||||||
| Total Other Income | 18 | 8 | 43 | 34 | ||||||||||
| Other Expense | ||||||||||||||
| Economic foreign currency exchange contracts (Note 14) | (134) | 117 | (38) | (6) | ||||||||||
| Charitable contributions | 3 | 5 | 12 | 13 | ||||||||||
| Transaction costs related to spinoff of PPL Energy Supply (Note 8) | 2 | 18 | ||||||||||||
| Miscellaneous | 3 | 3 | 13 | 9 | ||||||||||
| Total Other Expense | (126) | 125 | 5 | 16 | ||||||||||
| Other Income (Expense) - net | $ | 144 | $ | (117) | $ | 38 | $ | 18 | ||||||
(PPL)
"Other Income (Expense) - net" for the three and ninesix months ended SeptemberJune 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 was primarily earnings on securities in NDT funds. KU)
The components of "Other Income (Expense) - net" for the three and ninesix months ended SeptemberJune 30, 20142015 and 20132014 for PPL Electric, LKE, LG&E and KU were not significant.
(All Registrants)
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). A market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models), and/or a cost approach (generally, replacement cost) are used to measure the fair value of an asset or liability, as appropriate. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk. The fair value of a group of financial assets and liabilities is measured on a net basis. Transfersbasis.Transfers between levels are recognized at end-of-reporting-period values. During the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, there were no transfers between Level 1 and Level 2. See Note 1 in each Registrant's 20132014 Form 10-K for information on the levels in the fair value hierarchy.
| 58 |
Recurring Fair Value Measurements
| September 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 | $ | 1,188 | $ | 1,188 | $ | 1,102 | $ | 1,102 | |||||||||||||||||||
| Restricted cash and cash equivalents (a) | 324 | 324 | 134 | 134 | |||||||||||||||||||||||
| Price risk management assets: | |||||||||||||||||||||||||||
| Energy commodities | 1,041 | 4 | $ | 945 | $ | 92 | 1,188 | 3 | $ | 1,123 | $ | 62 | |||||||||||||||
| Interest rate swaps | 6 | 6 | 91 | 91 | |||||||||||||||||||||||
| Foreign currency contracts | 51 | 51 | |||||||||||||||||||||||||
| Total price risk management assets | 1,098 | 4 | 1,002 | 92 | 1,279 | 3 | 1,214 | 62 | |||||||||||||||||||
| September 30, 2014 | December 31, 2013 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| NDT funds: | |||||||||||||||||||||||||||
| Cash and cash equivalents | 17 | 17 | 14 | 14 | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||
| U.S. large-cap | 582 | 432 | 150 | 547 | 409 | 138 | |||||||||||||||||||||
| U.S. mid/small-cap | 83 | 35 | 48 | 81 | 33 | 48 | |||||||||||||||||||||
| Debt securities | |||||||||||||||||||||||||||
| U.S. Treasury | 98 | 98 | 95 | 95 | |||||||||||||||||||||||
| U.S. government sponsored agency | 6 | 6 | 6 | 6 | |||||||||||||||||||||||
| Municipality | 77 | 77 | 77 | 77 | |||||||||||||||||||||||
| Investment-grade corporate | 40 | 40 | 38 | 38 | |||||||||||||||||||||||
| Other | 6 | 6 | 5 | 5 | |||||||||||||||||||||||
| Receivables (payables), net | 2 | 2 | 1 | (1) | 2 | ||||||||||||||||||||||
| Total NDT funds | 911 | 582 | 329 | 864 | 550 | 314 | |||||||||||||||||||||
| Auction rate securities (b) | 13 | 13 | 19 | 19 | |||||||||||||||||||||||
| Total assets | $ | 3,534 | $ | 2,098 | $ | 1,331 | $ | 105 | $ | 3,398 | $ | 1,789 | $ | 1,528 | $ | 81 | |||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Energy commodities | $ | 1,137 | $ | 2 | $ | 1,063 | $ | 72 | $ | 1,070 | $ | 4 | $ | 1,028 | $ | 38 | |||||||||||
| Interest rate swaps | 64 | 64 | 36 | 36 | |||||||||||||||||||||||
| Foreign currency contracts | 26 | 26 | 106 | 106 | |||||||||||||||||||||||
| Cross-currency swaps | 47 | 47 | 32 | 32 | |||||||||||||||||||||||
| Total price risk management liabilities | $ | 1,274 | $ | 2 | $ | 1,200 | $ | 72 | $ | 1,244 | $ | 4 | $ | 1,202 | $ | 38 | |||||||||||
| PPL Energy Supply | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 194 | $ | 194 | $ | 239 | $ | 239 | |||||||||||||||||||
| Restricted cash and cash equivalents (a) | 284 | 284 | 85 | 85 | |||||||||||||||||||||||
| Price risk management assets: | |||||||||||||||||||||||||||
| Energy commodities | 1,041 | 4 | $ | 945 | $ | 92 | 1,188 | 3 | $ | 1,123 | $ | 62 | |||||||||||||||
| Total price risk management assets | 1,041 | 4 | 945 | 92 | 1,188 | 3 | 1,123 | 62 | |||||||||||||||||||
| NDT funds: | |||||||||||||||||||||||||||
| Cash and cash equivalents | 17 | 17 | 14 | 14 | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||
| U.S. large-cap | 582 | 432 | 150 | 547 | 409 | 138 | |||||||||||||||||||||
| U.S. mid/small-cap | 83 | 35 | 48 | 81 | 33 | 48 | |||||||||||||||||||||
| Debt securities | |||||||||||||||||||||||||||
| U.S. Treasury | 98 | 98 | 95 | 95 | |||||||||||||||||||||||
| U.S. government sponsored agency | 6 | 6 | 6 | 6 | |||||||||||||||||||||||
| Municipality | 77 | 77 | 77 | 77 | |||||||||||||||||||||||
| Investment-grade corporate | 40 | 40 | 38 | 38 | |||||||||||||||||||||||
| Other | 6 | 6 | 5 | 5 | |||||||||||||||||||||||
| Receivables (payables), net | 2 | 2 | 1 | (1) | 2 | ||||||||||||||||||||||
| Total NDT funds | 911 | 582 | 329 | 864 | 550 | 314 | |||||||||||||||||||||
| Auction rate securities (b) | 10 | 10 | 16 | 16 | |||||||||||||||||||||||
| Total assets | $ | 2,440 | $ | 1,064 | $ | 1,274 | $ | 102 | $ | 2,392 | $ | 877 | $ | 1,437 | $ | 78 | |||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Energy commodities | $ | 1,137 | $ | 2 | $ | 1,063 | $ | 72 | $ | 1,070 | $ | 4 | $ | 1,028 | $ | 38 | |||||||||||
| Total price risk management liabilities | $ | 1,137 | $ | 2 | $ | 1,063 | $ | 72 | $ | 1,070 | $ | 4 | $ | 1,028 | $ | 38 | |||||||||||
| PPL Electric | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 111 | $ | 111 | $ | 25 | $ | 25 | |||||||||||||||||||
| Restricted cash and cash equivalents (c) | 3 | 3 | 12 | 12 | |||||||||||||||||||||||
| Total assets | $ | 114 | $ | 114 | $ | 37 | $ | 37 | |||||||||||||||||||
| LKE | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 47 | $ | 47 | $ | 35 | $ | 35 | |||||||||||||||||||
| Price risk management assets: | |||||||||||||||||||||||||||
| Interest rate swaps | 6 | $ | 6 | ||||||||||||||||||||||||
| Cash collateral posted to counterparties (d) | 20 | 20 | 22 | 22 | |||||||||||||||||||||||
| Total assets | $ | 73 | $ | 67 | $ | 6 | $ | 57 | $ | 57 | |||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 46 | $ | 46 | $ | 36 | $ | 36 | |||||||||||||||||||
| Total price risk management liabilities | $ | 46 | $ | 46 | $ | 36 | $ | 36 | |||||||||||||||||||
| September 30, 2014 | December 31, 2013 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 25 | $ | 25 | $ | 8 | $ | 8 | |||||||||||||||||||
| Price risk management assets: | |||||||||||||||||||||||||||
| Interest rate swaps | 3 | $ | 3 | ||||||||||||||||||||||||
| Cash collateral posted to counterparties (d) | 20 | 20 | 22 | 22 | |||||||||||||||||||||||
| Total assets | $ | 48 | $ | 45 | $ | 3 | $ | 30 | $ | 30 | |||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 44 | $ | 44 | $ | 36 | $ | 36 | |||||||||||||||||||
| Total price risk management liabilities | $ | 44 | $ | 44 | $ | 36 | $ | 36 | |||||||||||||||||||
| KU | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 22 | $ | 22 | $ | 21 | $ | 21 | |||||||||||||||||||
| Price risk management assets: | |||||||||||||||||||||||||||
| Interest rate swaps | 3 | $ | 3 | ||||||||||||||||||||||||
| Total assets | $ | 25 | $ | 22 | $ | 3 | $ | 21 | $ | 21 | |||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 2 | $ | 2 | |||||||||||||||||||||||
| Total price risk management liabilities | $ | 2 | $ | 2 | |||||||||||||||||||||||
| 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 "Other current assets" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
| (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 September 30, 2014 is as follows: | ||||||||||||||||||||||||||||
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
| Three Months | Nine 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 | $ | 74 | $ | 16 | $ | 90 | $ | 24 | $ | 19 | $ | 43 | ||||||||||||||||
| Total realized/unrealized | ||||||||||||||||||||||||||||
| gains (losses) | ||||||||||||||||||||||||||||
| Included in earnings | (84) | (84) | (147) | (147) | ||||||||||||||||||||||||
| Included in OCI (a) | $ | (1) | (1) | |||||||||||||||||||||||||
| Purchases | (6) | (6) | ||||||||||||||||||||||||||
| Sales | 67 | (3) | 64 | 67 | (6) | 61 | ||||||||||||||||||||||
| Settlements | (37) | (37) | 82 | 82 | ||||||||||||||||||||||||
| Transfers out of Level 3 | 1 | 1 | ||||||||||||||||||||||||||
| Balance at end of period | $ | 20 | $ | 13 | $ | 33 | $ | 20 | $ | 13 | $ | $ | 33 | |||||||||||||||
| PPL Energy Supply | ||||||||||||||||||||||||||||
| Balance at beginning of | ||||||||||||||||||||||||||||
| period | $ | 74 | $ | 13 | $ | 87 | $ | 24 | $ | 16 | $ | 40 | ||||||||||||||||
| Total realized/unrealized | ||||||||||||||||||||||||||||
| gains (losses) | ||||||||||||||||||||||||||||
| Included in earnings | (84) | (84) | (147) | (147) | ||||||||||||||||||||||||
| Purchases | (6) | (6) | ||||||||||||||||||||||||||
| Sales | 67 | (3) | 64 | 67 | (6) | 61 | ||||||||||||||||||||||
| Settlements | (37) | (37) | 82 | 82 | ||||||||||||||||||||||||
| Balance at end of period | $ | 20 | $ | 10 | $ | 30 | $ | 20 | $ | 10 | $ | 30 | ||||||||||||||||
| A reconciliation of net assets and liabilities classified as Level 3 for the periods ended September 30, 2013 is as follows: | ||||||||||||||||||||||||||||
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
| Three Months | Nine 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 | $ | 40 | $ | 19 | $ | 3 | $ | 62 | $ | 22 | $ | 16 | $ | 1 | $ | 39 | ||||||||||||
| Total realized/unrealized | ||||||||||||||||||||||||||||
| gains (losses) | ||||||||||||||||||||||||||||
| Included in earnings | 18 | 18 | 23 | 23 | ||||||||||||||||||||||||
| Included in OCI (a) | (2) | (2) | 1 | 1 | ||||||||||||||||||||||||
| Sales | (2) | (2) | ||||||||||||||||||||||||||
| Settlements | (2) | (2) | 1 | 1 | ||||||||||||||||||||||||
| Transfers into Level 3 | (7) | (7) | 1 | 3 | 3 | 7 | ||||||||||||||||||||||
| Transfers out of Level 3 | (2) | (1) | (3) | 2 | (5) | (3) | ||||||||||||||||||||||
| Balance at end of period | $ | 47 | $ | 19 | $ | $ | 66 | $ | 47 | $ | 19 | $ | $ | 66 | ||||||||||||||
| PPL Energy Supply | ||||||||||||||||||||||||||||
| Balance at beginning of | ||||||||||||||||||||||||||||
| period | $ | 40 | $ | 16 | $ | 56 | $ | 22 | $ | 13 | $ | 35 | ||||||||||||||||
| Total realized/unrealized | ||||||||||||||||||||||||||||
| gains (losses) | ||||||||||||||||||||||||||||
| Included in earnings | 18 | 18 | 23 | 23 | ||||||||||||||||||||||||
| Sales | (2) | (2) | ||||||||||||||||||||||||||
| Settlements | (2) | (2) | 1 | 1 | ||||||||||||||||||||||||
| Transfers into Level 3 | (7) | (7) | 1 | 3 | 4 | |||||||||||||||||||||||
| Transfers out of Level 3 | (2) | (2) | 2 | 2 | ||||||||||||||||||||||||
| Balance at end of period | $ | 47 | $ | 16 | $ | 63 | $ | 47 | $ | 16 | $ | 63 | ||||||||||||||||
| Three Months | ||||||||||||||||||||||||
| Energy Commodities, net | ||||||||||||||||||||||||
| Unregulated | Unregulated | Energy | ||||||||||||||||||||||
| Wholesale Energy | Retail Energy | Fuel | Purchases | |||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||
| PPL and PPL Energy Supply | ||||||||||||||||||||||||
| Total gains (losses) included in earnings | $ | (102) | $ | 3 | $ | 16 | $ | 3 | $ | 3 | $ | 2 | $ | 9 | ||||||||||
| Change in unrealized gains (losses) relating | ||||||||||||||||||||||||
| to positions still held at the reporting date | 6 | 17 | 13 | 3 | 1 | |||||||||||||||||||
| Nine Months | ||||||||||||||||||||||||
| Energy Commodities, net | ||||||||||||||||||||||||
| Unregulated | Unregulated | Energy | ||||||||||||||||||||||
| Wholesale Energy | Retail Energy | Fuel | Purchases | |||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||
| PPL and PPL Energy Supply | ||||||||||||||||||||||||
| Total gains (losses) included in earnings | $ | (133) | $ | (7) | $ | (35) | $ | 18 | $ | 3 | $ | 21 | $ | 9 | ||||||||||
| Change in unrealized gains (losses) relating | ||||||||||||||||||||||||
| to positions still held at the reporting date | 5 | 7 | (12) | 18 | (3) | 5 | ||||||||||||||||||
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.
| Carrying | Fair Value Measurements Using | |||||||||
| Amount (a) | Level 3 | Loss (b) | ||||||||
| PPL and PPL Energy Supply | ||||||||||
| Kerr Dam Project | $ | 47 | $ | 29 | $ | 18 | ||||
| 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 | $ | 29 | Discounted cash flow | Proprietary model used to calculate plant value | 38% (38%) | |||||||
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 areLong-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.
| September 30, 2014 | December 31, 2013 | ||||||||||||
| Carrying | Carrying | ||||||||||||
| Amount | Fair Value | Amount | Fair Value | ||||||||||
| Contract adjustment payments (a) | |||||||||||||
| PPL | $ | 21 | $ | 22 | |||||||||
| Long-term debt | |||||||||||||
| PPL | $ | 20,757 | $ | 22,854 | 20,907 | 22,177 | |||||||
| PPL Energy Supply | 2,218 | 2,267 | 2,525 | 2,658 | |||||||||
| PPL Electric | 2,602 | 2,919 | 2,315 | 2,483 | |||||||||
| LKE | 4,566 | 4,920 | 4,565 | 4,672 | |||||||||
| LG&E | 1,353 | 1,443 | 1,353 | 1,372 | |||||||||
| KU | 2,091 | 2,287 | 2,091 | 2,155 | |||||||||
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
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
| 60 |
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 belowfollowing summarizes the market risks that affect PPL and its Subsidiary Registrants.
| · | PPL is exposed to commodity price risk through its domestic subsidiaries as described below. WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K. |
| · | PPL Electric is exposed to commodity price risk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the volumetric risk associated with the PLR obligation to the energy suppliers. |
| · | LG&E's and KU's rates include certain mechanisms for fuel |
Interest rate risk
| · | PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. PPL and WPD |
| · | 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. |
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. |
| · | 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 of 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.
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 through applicable rate mechanisms, thus mitigating the financial risk for these entities.
| 61 |
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, LKE, LG&E and PPL Energy Supply's obligation to return counterparty cash collateral under master netting arrangements was $10 million and $9 million at September 30, 2014 and December 31, 2013.
PPL, LKE and LG&E posted $20$9 million and $22$21 million of cash collateral under master netting arrangements at SeptemberJune 30, 20142015 and December 31, 2013.
KU did not post any cash collateral under master netting arrangements at SeptemberJune 30, 20142015 and December 31, 2013.
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.
| Three Months | Nine Months | ||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||
| Operating Revenues | |||||||||||||
| Unregulated wholesale energy | $ | 299 | $ | (49) | $ | (581) | $ | (281) | |||||
| Unregulated retail energy | 2 | (2) | (20) | 10 | |||||||||
| Operating Expenses | |||||||||||||
| Fuel | (9) | 3 | (3) | (2) | |||||||||
| Energy purchases | (217) | 37 | 402 | 192 | |||||||||
| Volumes (a) | ||||||||||
| Commodity | Unit of Measure | 2014 (b) | 2015 | 2016 | Thereafter | |||||
| Power | MWh | (12,324,114) | (32,192,825) | (1,488,139) | 5,457,755 | |||||
| Capacity | MW-Month | (4,070) | (5,554) | 501 | 9 | |||||
| Gas | MMBtu | 46,661,053 | 59,985,428 | 34,896,181 | 6,831,035 | |||||
| FTRs | MW-Month | 1,457 | 3,051 | |||||||
| Oil | Barrels | (141,236) | 374,062 | 328,837 | 274,872 | |||||
(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 SeptemberJune 30, 2014,2015, PPL held an
At SeptemberJune 30, 2014,2015, 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.
Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time period and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedged transaction is probable of not occurring. For
As a result of the nineJune 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 SeptemberJune 30, 2014, PPL had an insignificant amount reclassified associated with discontinued cash flow hedges. There2015. See Note 8 for additional information.There were no such reclassifications for the three months ended SeptemberJune 30, 2014. For the six months ended June 30, 2014, and the three and nine months ended SeptemberPPL had an insignificant amount reclassified into earnings associated with discontinued cash flow hedges.
| 62 |
At June 30, 2013.
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 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. For the three and nine months ended SeptemberAt June 30, 2014, there was no hedge ineffectiveness recorded for the interest rate derivatives. At September 30, 2014,2015, the total notional amount of forward starting interest rate swaps outstanding was $650 million$1 billion (LG&E and KU each held contracts of $325$500 million). The swaps range in maturity through 2045. In October 2014, additional forward-starting swaps with PPL were entered into with notional amounts totaling $350 million ($175 million each for LG&E and KU). These swaps also 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 at the time the underlying hedged interest expense is recorded. At SeptemberJune 30, 2014,2015, LG&E held contracts with a notional amount of $179 million that range in maturity through 2033.
PPL is exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected GBP earnings.
Net Investment Hedges
PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. The contracts outstanding at SeptemberJune 30, 20142015 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 20142015 through June 2016.
At SeptemberJune 30, 2014, the outstanding balances of the intercompany loans were £34 million (approximately $56 million based on spot rates). For the three and nine months ended September 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 nine months ended September 30, 2013, PPL recognized $(9) million and $(3) million of net investment hedge gains (losses) on the intercompany loans in the foreign currency translation adjustment component of OCI.
Economic Activity
PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At SeptemberJune 30, 2014,2015, the total exposure hedged by PPL was approximately £1.6 billion (approximately $2.6$2.5 billion based on contracted rates). These contracts had termination dates ranging from October 2014July 2015 through December 2016.
(All Registrants)
All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected. NPNS contracts for PPL and PPL Energy Supply include certain full-requirement sales contracts, other physical purchase and sales contracts and certain retail energy and physical capacity contracts, and for PPL Electric include certain full-requirement purchase contracts and other physical purchase contracts. Changes in the fair value of derivatives not designated as NPNS are recognized currently in earnings unless specific hedge accounting criteria are met and designated as such, except for the changes in fair values of LG&E's and KU's interest rate swaps that are recognized as regulatory assets or regulatory liabilities. See Note 6 for amounts recorded in regulatory assets and regulatory liabilities at SeptemberJune 30, 20142015 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.
| 63 |
See Notes 1 and 1917 in each Registrant's 20132014 Form 10-K for additional information on accounting policies related to derivative instruments.
| September 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) | $ | 15 | $ | 4 | $ | 82 | $ | 4 | |||||||||||||||||||||
| Cross-currency swaps (b) | 6 | $ | 4 | ||||||||||||||||||||||||||
| Foreign currency | |||||||||||||||||||||||||||||
| contracts | 7 | $ | 19 | 15 | 16 | 55 | |||||||||||||||||||||||
| Commodity contracts | 713 | 850 | $ | 860 | 750 | ||||||||||||||||||||||||
| Total current | 28 | 732 | 869 | 82 | 20 | 860 | 809 | ||||||||||||||||||||||
| September 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 | ||||||||||||||||||||||
| Noncurrent: | |||||||||||||||||||||||||||||
| Price Risk Management | |||||||||||||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||||||||||||
| Interest rate swaps (b) | 6 | 7 | 38 | 9 | 32 | ||||||||||||||||||||||||
| Cross-currency swaps (b) | 41 | 28 | |||||||||||||||||||||||||||
| Foreign currency | |||||||||||||||||||||||||||||
| contracts | 6 | 26 | 4 | 4 | 31 | ||||||||||||||||||||||||
| Commodity contracts | 328 | 287 | 328 | 320 | |||||||||||||||||||||||||
| Total noncurrent | 12 | 48 | 354 | 329 | 9 | 32 | 328 | 383 | |||||||||||||||||||||
| Total derivatives | $ | 12 | $ | 76 | $ | 1,086 | $ | 1,198 | $ | 91 | $ | 52 | $ | 1,188 | $ | 1,192 | |||||||||||||
| 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) |
| Three Months | Nine 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 | Nine Months | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||||||
| Interest rate swaps | $ | (5) | $ | (65) | Interest expense | $ | (5) | $ | (14) | $ | 2 | |||||||||||||
| Cross-currency swaps | (2) | (18) | Interest expense | 1 | ||||||||||||||||||||
| Other income | ||||||||||||||||||||||||
| �� | (expense) - net | 12 | (17) | |||||||||||||||||||||
| Commodity contracts | Unregulated wholesale | |||||||||||||||||||||||
| energy | (2) | (1) | ||||||||||||||||||||||
| Energy purchases | 8 | 23 | ||||||||||||||||||||||
| Depreciation | 1 | 2 | ||||||||||||||||||||||
| Discontinued | ||||||||||||||||||||||||
| operations | 1 | 6 | ||||||||||||||||||||||
| Total | $ | (7) | $ | (83) | $ | 15 | $ | $ | 2 | |||||||||||||||
| Net Investment Hedges: | ||||||||||||||||||||||||
| Foreign currency contracts | $ | 25 | $ | 7 | ||||||||||||||||||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
| Hedging Instruments | Income on Derivative | Three Months | Nine Months | |||||
| Foreign currency contracts | Other income (expense) - net | $ | 134 | $ | 38 | |||
| Interest rate swaps | Interest expense | (2) | (6) | |||||
| Commodity contracts | Unregulated wholesale energy (a) | 617 | (2,520) | |||||
| Unregulated retail energy | 18 | (34) | ||||||
| Fuel | (8) | (1) | ||||||
| Energy purchases (b) | (505) | 1,937 | ||||||
| Discontinued operations | 2 | 4 | ||||||
| Total | $ | 256 | $ | (582) | ||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized as | |||||||
| Hedging Instruments | Regulatory Liabilities/Assets | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (6) | |||||
| Derivatives Designated as | Location of Gain (Loss) Recognized as | |||||||
| Hedging Instruments | Regulatory Liabilities/Assets | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | (4) | |||
| Regulatory liabilities - noncurrent | 6 | 6 | ||||||
| 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 | $ | 17 | $ | (2) | Interest expense | $ | (3) | $ | (7) | |||||||||||||||
| Discontinued | ||||||||||||||||||||||||
| operations | $ | (77) | $ | (77) | ||||||||||||||||||||
| Cross-currency swaps | 15 | 36 | Interest expense | 1 | 2 | |||||||||||||||||||
| Other income | ||||||||||||||||||||||||
| (expense) - net | 15 | 32 | ||||||||||||||||||||||
| Commodity contracts | Discontinued | |||||||||||||||||||||||
| operations | 6 | 7 | 13 | 7 | ||||||||||||||||||||
| Total | $ | 32 | $ | 34 | $ | 19 | $ | (70) | $ | 40 | $ | (70) | ||||||||||||
| Net Investment Hedges: | ||||||||||||||||||||||||
| Foreign currency contracts | $ | (17) | $ | (1) | ||||||||||||||||||||
| 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 SeptemberJune 30, 2013. 2014.
| Three Months | Nine 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 | Nine Months | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||||||
| Interest rate swaps | $ | 25 | $ | 102 | Interest expense | $ | (5) | $ | (14) | |||||||||||||||
| Cross-currency swaps | (36) | 16 | Interest expense | (1) | ||||||||||||||||||||
| Other income | ||||||||||||||||||||||||
| (expense) - net | (25) | 45 | ||||||||||||||||||||||
| Commodity contracts | Unregulated | |||||||||||||||||||||||
| wholesale energy | 54 | 178 | $ | 1 | ||||||||||||||||||||
| Energy purchases | (11) | (41) | ||||||||||||||||||||||
| Depreciation | 1 | 2 | ||||||||||||||||||||||
| Discontinued | ||||||||||||||||||||||||
| operations | 4 | 20 | ||||||||||||||||||||||
| Total | $ | (11) | $ | 118 | $ | 17 | $ | 190 | $ | 1 | ||||||||||||||
| Net Investment Hedges: | ||||||||||||||||||||||||
| Foreign currency contracts | $ | (22) | $ | (5) | ||||||||||||||||||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
| Hedging Instruments | Income on Derivative | Three Months | Nine Months | |||||
| Foreign currency contracts | Other income (expense) - net | $ | (117) | $ | 6 | |||
| Interest rate swaps | Interest expense | (2) | (6) | |||||
| Commodity contracts | Unregulated wholesale energy | 114 | 139 | |||||
| Unregulated retail energy | 3 | 18 | ||||||
| Fuel | 4 | 2 | ||||||
| Energy purchases | (86) | (99) | ||||||
| Discontinued operations | 4 | 13 | ||||||
| Total | $ | (80) | $ | 73 | ||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized as | |||||||
| Hedging Instruments | Regulatory Liabilities/Assets | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | 2 | $ | 18 | |||
| Derivatives Designated as | Location of Gain (Loss) Recognized as | |||||||
| Hedging Instruments | Regulatory Liabilities/Assets | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 12 | $ | 70 | |||
| 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) | |||||||||||||||||||||||
| Commodity contracts | Discontinued | |||||||||||||||||||||||
| operations | 13 | 22 | ||||||||||||||||||||||
| 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) | |||||
| 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) | |||
| September 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 | $ | 713 | $ | 850 | $ | 860 | $ | 750 | |||||||||
| Total current | 713 | 850 | 860 | 750 | |||||||||||||
| Noncurrent: | |||||||||||||||||
| Price Risk Management | |||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||
| Commodity contracts | 328 | 287 | 328 | 320 | |||||||||||||
| Total noncurrent | 328 | 287 | 328 | 320 | |||||||||||||
| Total derivatives | $ | 1,041 | $ | 1,137 | $ | 1,188 | $ | 1,070 | |||||||||
| Three Months | Nine 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 | Nine Months | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||||||
| Commodity contracts | Unregulated wholesale | |||||||||||||||||||||||
| energy | $ | (2) | $ | (1) | ||||||||||||||||||||
| Energy purchases | 8 | 23 | ||||||||||||||||||||||
| Depreciation | 1 | |||||||||||||||||||||||
| Discontinued | ||||||||||||||||||||||||
| operations | 1 | 6 | ||||||||||||||||||||||
| Total | $ | 7 | $ | 29 | ||||||||||||||||||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
| Hedging Instruments | Income on Derivative | Three Months | Nine Months | |||||
| Commodity contracts | Unregulated wholesale energy (a) | $ | 617 | $ | (2,520) | |||
| Unregulated retail energy | 18 | (34) | ||||||
| Fuel | (8) | (1) | ||||||
| Energy purchases (b) | (505) | 1,937 | ||||||
| Discontinued operations | 2 | 4 | ||||||
| Total | $ | 124 | $ | (614) | ||||
| Three Months | Nine 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 | Nine Months | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||||||
| Unregulated | ||||||||||||||||||||||||
| Commodity contracts | wholesale energy | $ | 54 | $ | 178 | $ | 1 | |||||||||||||||||
| Energy purchases | (11) | (41) | ||||||||||||||||||||||
| Depreciation | 1 | 2 | ||||||||||||||||||||||
| Discontinued | ||||||||||||||||||||||||
| operations | 4 | 20 | ||||||||||||||||||||||
| Total | $ | 48 | $ | 159 | $ | 1 | ||||||||||||||||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
| Hedging Instruments | Income on Derivative | Three Months | Nine Months | |||||
| Commodity contracts | Unregulated wholesale energy | $ | 114 | $ | 139 | |||
| Unregulated retail energy | 3 | 18 | ||||||
| Fuel | 4 | 2 | ||||||
| Energy purchases | (86) | (99) | ||||||
| Discontinued operations | 4 | 13 | ||||||
| Total | $ | 39 | $ | 73 | ||||
| September 30, 2014 | December 31, 2013 | ||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||||
| Noncurrent: | |||||||||||||||||||
| Price Risk Management | |||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||
| Interest rate swaps | $ | 6 | $ | 4 | |||||||||||||||
| Derivative Instruments | Location of Gain (Loss) | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | (4) | |||
| Derivative Instruments | Location of Gain (Loss) | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 6 | $ | 6 | |||
| Derivative Instruments | Location of Gain (Loss) | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 12 | $ | 70 | |||
| September 30, 2014 | December 31, 2013 | ||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||||
| Noncurrent: | |||||||||||||||||||
| Price Risk Management | |||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||
| Interest rate swaps | $ | 3 | $ | 2 | |||||||||||||||
| June 30, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 46 | $ | 66 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
| 65 |
| Derivative Instruments | Location of Gain (Loss) | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (2) | $ | (2) | |||
| Derivative Instruments | Location of Gain (Loss) | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 3 | $ | 3 | |||
| Derivative Instruments | Location of Gain (Loss) | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 6 | $ | 35 | |||
| Derivative Instruments | Location of Gain (Loss) | Three Months | Six Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | 76 | $ | 20 | |||
| September 30, 2014 | December 31, 2013 | ||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||||
| Noncurrent: | |||||||||||||||||||
| Price Risk Management | |||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||
| Interest rate swaps | $ | 3 | $ | 2 | |||||||||||||||
| June 30, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 23 | $ | 33 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
| Derivative Instruments | Location of Gain (Loss) | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (2) | $ | (2) | |||
| Derivative Instruments | Location of Gain (Loss) | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 3 | $ | 3 | |||
| Derivative Instruments | Location of Gain (Loss) | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 6 | $ | 35 | |||
| Derivative Instruments | Location of Gain (Loss) | Three Months | Six Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | 38 | $ | 10 | |||
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 | $ | 23 | $ | 33 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets for the periods ended June 30, 2015.
| Derivative Instruments | Location of Gain (Loss) | Three Months | Six Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | 38 | $ | 10 | |||
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 | $ | 5 | $ | 5 | ||||||||||||||
| Total current | 5 | 5 | ||||||||||||||||
| September 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 | |||||||||||||||
| 66 |
| 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. |
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Income on Derivatives | Three Months | Nine Months | |||||
| Interest rate swaps | Interest expense | $ | (2) | $ | (6) | |||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (6) | |||||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Income on Derivatives | Three Months | Six Months | |||||
| Interest rate swaps | Interest expense | $ | (2) | $ | (4) | |||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | Three Months | Six Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | 7 | $ | 3 | |||
The following tables present the pre-tax effect of derivatives not designated as hedging instrumentscash flow hedges that are recognized in income or regulatory assets for the periods ended SeptemberJune 30, 2013.
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Income on Derivatives | Three Months | Nine Months | |||||
| Interest rate swaps | Interest expense | $ | (2) | $ | (6) | |||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | Three Months | Nine Months | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | 2 | $ | 18 | |||
| 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) | |||
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 setoffset 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 | |||||||||||||||||||||||
| 67 |
| Assets | Liabilities | ||||||||||||||||||||||||||
| Eligible for Offset | Eligible for Offset | ||||||||||||||||||||||||||
| Cash | Cash | ||||||||||||||||||||||||||
| Derivative | Collateral | Derivative | Collateral | ||||||||||||||||||||||||
| Gross | Instruments | Received | Net | Gross | Instruments | Pledged | Net | ||||||||||||||||||||
| September 30, 2014 | |||||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||
| Energy Commodities | $ | 1,041 | $ | 915 | $ | 9 | $ | 117 | $ | 1,137 | $ | 915 | $ | 102 | $ | 120 | |||||||||||
| Treasury Derivatives | 57 | 46 | 11 | 137 | 46 | 21 | 70 | ||||||||||||||||||||
| Total | $ | 1,098 | $ | 961 | $ | 9 | $ | 128 | $ | 1,274 | $ | 961 | $ | 123 | $ | 190 | |||||||||||
| PPL Energy Supply | |||||||||||||||||||||||||||
| Energy Commodities | $ | 1,041 | $ | 915 | $ | 9 | $ | 117 | $ | 1,137 | $ | 915 | $ | 102 | $ | 120 | |||||||||||
| LKE | ||||||||||||||||||||||||||
| Treasury Derivatives | $ | 6 | $ | 4 | $ | 2 | $ | 46 | $ | 4 | $ | 19 | $ | 23 | ||||||||||||
| LG&E | ||||||||||||||||||||||||||
| Treasury Derivatives | $ | 3 | $ | 2 | $ | 1 | $ | 44 | $ | 2 | $ | 19 | $ | 23 | ||||||||||||
| KU | ||||||||||||||||||||||||||
| Treasury Derivatives | $ | 3 | $ | 2 | $ | 1 | $ | 2 | $ | 2 | ||||||||||||||||
| 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 | |||||||||||||||||||||||
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 (i.e., below BBB- for S&P or Fitch, or Baa3 for Moody's).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, and assuming no assignment to an investment grade affiliate were allowed, most of these credit contingent features require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization on derivative instruments in net liability positions.
Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of PPL's, obligationLKE's, LG&E's, and KU's obligations under the contract.contracts. A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity. This would typically 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, ElectricLKE and KU)
| PPL | ||||||||||||||
| PPL | Energy Supply | LKE | LG&E | |||||||||||
| Aggregate fair value of derivative instruments in a net liability | ||||||||||||||
| position with credit risk-related contingent features | $ | 179 | $ | 118 | $ | 27 | $ | 27 | ||||||
| Aggregate fair value of collateral posted on these derivative instruments | 119 | 99 | 20 | 20 | ||||||||||
| Aggregate fair value of additional collateral requirements in the event of | ||||||||||||||
| a credit downgrade below investment grade (a) | 91 | (b) | 49 | (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) | Includes the effect of net receivables and payables already recorded on the Balance Sheet. |
| (PPL) | ||||||||||||||
| The changes in the carrying amounts of goodwill by segment were as follows. | ||||||||||||||
| U.K. Regulated | Kentucky Regulated | Supply | Total | |||||||||||
| Balance at December 31, 2013 (a) | $ | 3,143 | $ | 662 | $ | 420 | $ | 4,225 | ||||||
| Allocation to discontinued operations (b) | (82) | (82) | ||||||||||||
| Effect of foreign currency exchange rates | 44 | 44 | ||||||||||||
| Balance at September 30, 2014 (a) | $ | 3,187 | $ | 662 | $ | 338 | $ | 4,187 | ||||||
(PPL)
The change in the carrying amount of goodwill for the ninesix months ended SeptemberJune 30, 20142015 was due to goodwill allocated to the Montana hydroelectric generating facilities which meteffect of foreign currency exchange rates on the held for sale criteria at September 30, 2014. See Note 8 for additional information.
| 16. Asset Retirement Obligations | ||||||||||||||
| (PPL, LKE, LG&E and KU) | ||||||||||||||
| The changes in the carrying amounts of AROs were as follows. | ||||||||||||||
| 68 |
| (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 | 34 | 23 | 10 | 3 | 7 | ||||||||||||
| Obligations incurred | 14 | 13 | 1 | 1 | |||||||||||||
| Changes in estimated cash flow or settlement date | 11 | (12) | 23 | 1 | 22 | ||||||||||||
| Effect of foreign currency exchange rates | 1 | ||||||||||||||||
| Obligations settled | (8) | (5) | (3) | (3) | |||||||||||||
| Balance at September 30, 2014 | $ | 757 | $ | 423 | $ | 283 | $ | 75 | $ | 208 | |||||||
| 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 SeptemberJune 30, 20142015 and December 31, 2013.
| September 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 | $ | 17 | $ | 17 | $ | 14 | $ | 14 | |||||||||||||||||||||
| Equity securities | 281 | $ | 384 | 665 | 265 | $ | 363 | 628 | |||||||||||||||||||||
| Debt securities | 217 | 11 | $ | 1 | 227 | 217 | 7 | $ | 3 | 221 | |||||||||||||||||||
| Receivables/payables, net | 2 | 2 | 1 | 1 | |||||||||||||||||||||||||
| Total NDT funds | $ | 517 | $ | 395 | $ | 1 | $ | 911 | $ | 497 | $ | 370 | $ | 3 | $ | 864 | |||||||||||||
| Auction rate securities | |||||||||||||||||||||||||||||
| PPL | $ | 14 | $ | 1 | $ | 13 | $ | 20 | $ | 1 | $ | 19 | |||||||||||||||||
| PPL Energy Supply | 11 | 1 | 10 | 17 | 1 | 16 | |||||||||||||||||||||||
| Maturity | Maturity | Maturity | Maturity | |||||||||||||
| Less Than | 1-5 | 6-10 | in Excess | |||||||||||||
| 1 Year | Years | Years | of 10 Years | Total | ||||||||||||
| PPL | ||||||||||||||||
| Amortized cost | $ | 13 | $ | 85 | $ | 58 | $ | 75 | $ | 231 | ||||||
| Fair value | 13 | 87 | 61 | 79 | 240 | |||||||||||
| PPL Energy Supply | ||||||||||||||||
| Amortized cost | $ | 13 | $ | 85 | $ | 58 | $ | 72 | $ | 228 | ||||||
| Fair value | 13 | 87 | 61 | 76 | 237 | |||||||||||
| Three Months | Nine Months | ||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||
| PPL and PPL Energy Supply | |||||||||||||
| Proceeds from sales of NDT securities (a) | $ | 47 | $ | 33 | $ | 112 | $ | 92 | |||||
| Other proceeds from sales | 3 | 6 | |||||||||||
| Gross realized gains (b) | 9 | 3 | 17 | 10 | |||||||||
| Gross realized losses (b) | 2 | 2 | 6 | 6 | |||||||||
(PPL and PPL Energy Supply)
The after-tax changes in AOCI by component for the periods ended SeptemberJune 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) | ||||||||||||||||
| 69 |
| 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 | ||||||||||||||||||||||||
| June 30, 2014 | $ | 117 | $ | 190 | $ | 61 | $ | 1 | $ | (4) | $ | (1,764) | $ | 1 | $ | (1,398) | ||||||||
| Amounts arising during the period | (48) | (1) | (5) | (1) | (55) | |||||||||||||||||||
| Reclassifications from AOCI | (3) | (12) | 1 | 29 | 15 | |||||||||||||||||||
| Net OCI during the period | (48) | (4) | (17) | 1 | 28 | (40) | ||||||||||||||||||
| September 30, 2014 | $ | 69 | $ | 186 | $ | 44 | $ | 1 | $ | (3) | $ | (1,736) | $ | 1 | $ | (1,438) | ||||||||
| December 31, 2013 | $ | (11) | $ | 173 | $ | 94 | $ | 1 | $ | (6) | $ | (1,817) | $ | 1 | $ | (1,565) | ||||||||
| Amounts arising during the period | 80 | 18 | (52) | (3) | 43 | |||||||||||||||||||
| Reclassifications from AOCI | (5) | 2 | 3 | 84 | 84 | |||||||||||||||||||
| Net OCI during the period | 80 | 13 | (50) | 3 | 81 | 127 | ||||||||||||||||||
| September 30, 2014 | $ | 69 | $ | 186 | $ | 44 | $ | 1 | $ | (3) | $ | (1,736) | $ | 1 | $ | (1,438) | ||||||||
| June 30, 2013 | $ | (401) | $ | 135 | $ | 102 | $ | 1 | $ | (11) | $ | (1,955) | $ | 1 | $ | (2,128) | ||||||||
| Amounts arising during the period | 87 | 15 | (9) | 93 | ||||||||||||||||||||
| Reclassifications from AOCI | (6) | (1) | 2 | 33 | 28 | |||||||||||||||||||
| Net OCI during the period | 87 | 15 | (15) | (1) | 2 | 33 | 121 | |||||||||||||||||
| September 30, 2013 | $ | (314) | $ | 150 | $ | 87 | $ | $ | (9) | $ | (1,922) | $ | 1 | $ | (2,007) | |||||||||
| December 31, 2012 | $ | (149) | $ | 112 | $ | 132 | $ | 1 | $ | (14) | $ | (2,023) | $ | 1 | $ | (1,940) | ||||||||
| Amounts arising during the period | (165) | 40 | 77 | (48) | ||||||||||||||||||||
| Reclassifications from AOCI | (2) | (122) | (1) | 5 | 101 | (19) | ||||||||||||||||||
| Net OCI during the period | (165) | 38 | (45) | (1) | 5 | 101 | (67) | |||||||||||||||||
| September 30, 2013 | $ | (314) | $ | 150 | $ | 87 | $ | $ | (9) | $ | (1,922) | $ | 1 | $ | (2,007) | |||||||||
| PPL Energy Supply | ||||||||||||||||||||||||
| June 30, 2014 | $ | 190 | $ | 75 | $ | (3) | $ | (177) | $ | 85 | ||||||||||||||
| Amounts arising during the period | (1) | (1) | ||||||||||||||||||||||
| Reclassifications from AOCI | (3) | (5) | 1 | 1 | (6) | |||||||||||||||||||
| Net OCI during the period | (4) | (5) | 1 | 1 | (7) | |||||||||||||||||||
| September 30, 2014 | $ | 186 | $ | 70 | $ | (2) | $ | (176) | $ | 78 | ||||||||||||||
| December 31, 2013 | $ | 173 | $ | 88 | $ | (4) | $ | (180) | $ | 77 | ||||||||||||||
| Amounts arising during the period | 18 | 18 | ||||||||||||||||||||||
| Reclassifications from AOCI | (5) | (18) | 2 | 4 | (17) | |||||||||||||||||||
| Net OCI during the period | 13 | (18) | 2 | 4 | 1 | |||||||||||||||||||
| September 30, 2014 | $ | 186 | $ | 70 | $ | (2) | $ | (176) | $ | 78 | ||||||||||||||
| June 30, 2013 | $ | 135 | $ | 144 | $ | (8) | $ | (257) | $ | 14 | ||||||||||||||
| Amounts arising during the period | 15 | 15 | ||||||||||||||||||||||
| Reclassifications from AOCI | (29) | 1 | 3 | (25) | ||||||||||||||||||||
| Net OCI during the period | 15 | (29) | 1 | 3 | (10) | |||||||||||||||||||
| September 30, 2013 | $ | 150 | $ | 115 | $ | (7) | $ | (254) | $ | 4 | ||||||||||||||
| December 31, 2012 | $ | 112 | $ | 211 | $ | (10) | $ | (265) | $ | 48 | ||||||||||||||
| Amounts arising during the period | 40 | 40 | ||||||||||||||||||||||
| Reclassifications from AOCI | (2) | (96) | 3 | 11 | (84) | |||||||||||||||||||
| Net OCI during the period | 38 | (96) | 3 | 11 | (44) | |||||||||||||||||||
| September 30, 2013 | $ | 150 | $ | 115 | $ | (7) | $ | (254) | $ | 4 | ||||||||||||||
| 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 | ||||||||||||||||||
The following table presents the gains (losses) and related income taxes for reclassifications from AOCI for the periods ended SeptemberJune 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) | |||||||
| 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 | $ | 7 | $ | 1 | $ | 7 | $ | 1 | Other Income (Expense) - net | ||||||
| Total Pre-tax | 7 | 1 | 7 | 1 | |||||||||||
| Income Taxes | (4) | (1) | (4) | (1) | |||||||||||
| Total After-tax | 3 | 3 | |||||||||||||
| Qualifying derivatives | |||||||||||||||
| Interest rate swaps | (5) | (5) | Interest Expense | ||||||||||||
| Cross-currency swaps | 12 | (25) | Other Income (Expense) - net | ||||||||||||
| (1) | Interest Expense | ||||||||||||||
| Energy commodities | (2) | 54 | (2) | 54 | Unregulated wholesale energy | ||||||||||
| 8 | (11) | 8 | (11) | Energy purchases | |||||||||||
| 1 | 4 | 1 | 4 | Discontinued operations | |||||||||||
| 1 | 1 | 1 | Other | ||||||||||||
| Total Pre-tax | 15 | 17 | 7 | 48 | |||||||||||
| Income Taxes | (3) | (11) | (2) | (19) | |||||||||||
| Total After-tax | 12 | 6 | 5 | 29 | |||||||||||
| Equity investees' AOCI | 1 | Other Income (Expense) - net | |||||||||||||
| Total Pre-tax | 1 | ||||||||||||||
| Income Taxes | |||||||||||||||
| Total After-tax | 1 | ||||||||||||||
| Defined benefit plans | |||||||||||||||
| Prior service costs | (2) | (3) | (2) | (2) | |||||||||||
| Net actuarial loss | (38) | (45) | (1) | (5) | |||||||||||
| Total Pre-tax | (40) | (48) | (3) | (7) | |||||||||||
| Income Taxes | 10 | 13 | 1 | 3 | |||||||||||
| Total After-tax | (30) | (35) | (2) | (4) | |||||||||||
| Total reclassifications during the period | $ | (15) | $ | (28) | $ | 6 | $ | 25 | |||||||
| Nine Months | |||||||||||||||
| PPL | PPL Energy Supply | Affected Line Item on the | |||||||||||||
| Details about AOCI | 2014 | 2013 | 2014 | 2013 | Statements of Income | ||||||||||
| Available-for-sale securities | $ | 11 | $ | 4 | $ | 11 | $ | 4 | Other Income (Expense) - net | ||||||
| Total Pre-tax | 11 | 4 | 11 | 4 | |||||||||||
| Income Taxes | (6) | (2) | (6) | (2) | |||||||||||
| Total After-tax | 5 | 2 | 5 | 2 | |||||||||||
| Qualifying derivatives | |||||||||||||||
| Interest rate swaps | (12) | (14) | Interest Expense | ||||||||||||
| Cross-currency swaps | (17) | 45 | Other Income (Expense) - net | ||||||||||||
| 1 | Interest Expense | ||||||||||||||
| Energy commodities | (1) | 178 | (1) | 178 | Unregulated wholesale energy | ||||||||||
| 23 | (41) | 23 | (41) | Energy purchases | |||||||||||
| 6 | 20 | 6 | 20 | Discontinued operations | |||||||||||
| 2 | 2 | 1 | 2 | Other | |||||||||||
| Total Pre-tax | 2 | 190 | 29 | 159 | |||||||||||
| Income Taxes | (4) | (68) | (11) | (63) | |||||||||||
| Total After-tax | (2) | 122 | 18 | 96 | |||||||||||
| Equity investees' AOCI | 1 | Other Income (Expense) - net | |||||||||||||
| Total Pre-tax | 1 | ||||||||||||||
| Income Taxes | �� | ||||||||||||||
| Total After-tax | 1 | ||||||||||||||
| Defined benefit plans | |||||||||||||||
| Prior service costs | (6) | (8) | (4) | (5) | |||||||||||
| Net actuarial loss | (110) | (138) | (6) | (18) | |||||||||||
| Total Pre-tax | (116) | (146) | (10) | (23) | |||||||||||
| Income Taxes | 29 | 40 | 4 | 9 | |||||||||||
| Total After-tax | (87) | (106) | (6) | (14) | |||||||||||
| Total reclassifications during the period | $ | (84) | $ | 19 | $ | 17 | $ | 84 | |||||||
(All Registrants)
Accounting for Revenue from Contracts with Customers
In AprilMay 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.
This guidance can be applied using either a full retrospective or modified retrospective transition method, beginningmethod. 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, 20162017 and interim periods within those years. Early adoptionThe 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. Theannual reporting periods beginning after December 15, 2016. Pending the FASB's issuance of the effective date deferral, the Registrants willexpect to adopt this guidance effective January 1, 2017.
The Registrants are currently assessing the impact of adopting this guidance, as well as the transition method they will use.
Reporting Uncertainties about an Entity's Ability to Continue as a Going Concern
In August 2014, the FASB issued accounting guidance which will require management to assess, for each interim and annual period, whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern. Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are issued.
When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, management is required to disclose information that enables users of the financial statements to understand the principal conditions or events that raised substantial doubt about the entity's ability to continue as a going concern and management's evaluation of the significance of those conditions or events. If substantial doubt about the entity's ability to continue as a going concern has been alleviated as a result of management's plan, the entity should disclose information that allows the users of the financial statements to understand those plans. If the substantial doubt about the entity's ability to continue as a going concern is not alleviated by management's plans, management's plans to mitigate the conditions or events that gave rise to the substantial doubt about the entity's ability to continue as a going concern should be disclosed, as well as a statement that there is substantial doubt the entity's ability to continue as a going concern within one year after the date the financial statements are issued.
For all entities, this guidance should be applied prospectively within the annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted.
The Registrants are assessing in which period they will adopt this new guidance.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.
| 71 |
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 Registrants are currently assessingadoption of this guidance which 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' 20132014 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted.
"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:
| · | "Overview" provides a description of each Registrant's business strategy, |
| · | "Results of Operations" for PPL provides a |
| · | "Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positions and credit profiles. This section also includes a discussion of rating agency actions. |
| · | "Financial Condition - Risk Management" provides an explanation of the Registrants' risk management programs relating to market and credit risk. |
(PPL)
PPL, headquartered in Allentown, Pennsylvania, is an energy anda utility holding company. ThroughPPL, 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, northwesternKentucky. 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 northeasternOperational Developments - Other Financial and northwestern portionsOperational Developments - Spinoff of the U.S.PPL Energy Supply" below for additional information.
| 73 |
PPL's principal subsidiaries are shown below (* denotes an SEC registrant):
| PPL Corporation* | |||||||||||||||||||||||||||||||||
| PPL Capital Funding | |||||||||||||||||||||||||||||||||
PPL ●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 | |||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Pennsylvania | |||||||||||||||||||||||||||||||||
PPL's reportable segments' results primarily represent the results of its relatedthe 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)
(PPL Electric)
PPL Electric, headquartered in Allentown, Pennsylvania, is a direct wholly owned subsidiary of PPL and a regulated public utility that is an electricity transmission and distribution service provider in eastern and central Pennsylvania. PPL Electric is subject to regulation as a public utility by the PUC, and certain of its transmission activities are subject to the jurisdiction of FERC under the Federal Power Act. PPL Electric delivers electricity in its Pennsylvania service area and provides electricity supply to retail customers in that area as a PLR under the Customer Choice Act.
(LKE)
LKE, headquartered in Louisville, Kentucky, is a wholly owned subsidiary of PPL and a holding company that owns regulated utility operations through its subsidiaries, LG&E and KU, which constitute substantially all of LKE's assets. LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain their separate corporate identities and serve customers in
(LG&E)
LG&E, headquartered in Louisville, Kentucky, is a wholly owned subsidiary of LKE and a regulated utility engaged in the generation, transmission, distribution and sale of electricity and distribution and sale of natural gas in Kentucky. LG&E is subject to regulation as a public utility by the KPSC, and certain of its transmission activities are subject to the jurisdiction of the FERC under the Federal Power Act.
(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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(All Registrants except PPL Energy Supply)
The strategy for the regulated businesses of WPD, PPL Electric, LKE, LG&E and KU is to provide efficient, reliable and safe operations and strong customer service, maintain constructive regulatory relationships and achieve timely recovery of costs. 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 periodremaining 20% of expenditures being recovered in the current regulatory year. RAV is intended to represent expenditures that have a long-term benefit to WPD (similar to capital projects for assets placed in servicethe U.S. regulated businesses). The RAV balance at March 31, 2015 will continue to be recovered over 20 years and additions after that dateApril 1, 2023 will be extended from 20 torecovered over 45 years.years; a transitional arrangement will gradually change the 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 overalltotal 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.
For the U. S. regulated businesses, recovery of capital project costs is attainedachieved 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 changesaccess to credit markets, and to fund capital expenditures, a key objective of the regulatory framework inRegistrants 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 beginningchanges in April 2015.
(PPL)
Earnings generated by PPL's U.K. subsidiaries are subject to foreign currency translation risk. The U.K. subsidiaries also have currency exposure to the U.S. dollar to the extent they haveof 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.
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 accessTalen 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 ofits shareowners for U.S. federal income tax purposes.
Going forward, PPL's focus will be on its regulated utility businesses in the Registrants isU.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 monitora strong balance sheet and manage exposureits finances consistent with maintaining investment grade credit ratings and providing a competitive total shareowner return, including an attractive dividend. Excluding costs required to earningsprovide transition services to Talen Energy and cash flow volatility relatedfollowing the spinoff transaction, PPL expects to as applicable, changes in energyreduce annual ongoing corporate support costs by approximately $75 million.
See "Financial and fuel prices, interest rates, counterparty credit qualityOperational Developments - Other Financial and the operating performanceOperational Developments - Costs of generating units. To manage these risks, PPL generally uses contracts such as forwards, options, swapsSpinoff" and insurance contracts."Loss on Spinoff" below for additional information.
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PPL's earnings by reportable segments for the periods ended SeptemberJune 30 were as follows:
| Three Months | Nine Months | ||||||||||||||||||
| 2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||||
| U.K. Regulated | $ | 295 | $ | 183 | 61 | $ | 688 | $ | 741 | (7) | |||||||||
| Kentucky Regulated | 82 | 93 | (12) | 247 | 227 | 9 | |||||||||||||
| Pennsylvania Regulated | 57 | 51 | 12 | 194 | 160 | 21 | |||||||||||||
| Supply | 86 | 91 | (5) | 16 | 122 | (87) | |||||||||||||
| Corporate and Other (a) | (23) | (8) | 188 | (103) | (22) | 368 | |||||||||||||
| Net Income Attributable to | |||||||||||||||||||
| PPL Shareowners | $ | 497 | $ | 410 | 21 | $ | 1,042 | $ | 1,228 | (15) | |||||||||
| EPS - basic | $ | 0.74 | $ | 0.65 | 14 | $ | 1.60 | $ | 2.03 | (21) | |||||||||
| EPS - diluted (b) | $ | 0.74 | $ | 0.62 | 19 | $ | 1.57 | $ | 1.90 | (17) | |||||||||
| 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 |
| (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 |
| (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 PPL's results for the periods ended SeptemberJune 30. See PPL's "Results of Operations –- Segment Earnings" for details of each segment's special items.
| Three Months | Nine Months | ||||||||||||||||||
| 2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||||
| U.K. Regulated | $ | 111 | $ | (16) | $ | 127 | $ | 20 | $ | 78 | $ | (58) | |||||||
| Kentucky Regulated | (1) | (1) | 2 | (2) | |||||||||||||||
| Pennsylvania Regulated | 2 | 2 | (2) | (2) | |||||||||||||||
| Supply | 41 | (6) | 47 | (144) | (49) | (95) | |||||||||||||
| Corporate and Other (a) | (17) | (17) | (73) | (73) | |||||||||||||||
| Total PPL | $ | 136 | $ | (22) | $ | 158 | $ | (199) | $ | 31 | $ | (230) | |||||||
| 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) |
| (b) | As a result of |
(PPL)
Excluding special items, higher earnings are expected in PPL's reportable segments results for the three and nine months ended September 30, 20142015 compared with 2013, excluding2014, after adjusting 2014 to include certain dissynergies in the impact of special items, were dueCorporate 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):
(PPL's U.K. Regulated Segment)
Excluding special items, higher earnings are projected in 20142015 compared with 2013,2014, primarily driven by higher electricity delivery revenuelower income taxes and lower pensiondepreciation expense, partially offset by higher income taxes, higher depreciation and higher financing costs.
(PPL's Kentucky Regulated Segment and LKE, LG&E and KU)
Excluding special items, lowerhigher earnings are projected in 20142015 compared with 2013,2014, 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, partially offset by returns on additional environmental capital investments and increased sales volumes.
(PPL's Pennsylvania Regulated Segment and PPL Electric)
Excluding special items, higherlower earnings are projected in 20142015 compared with 2013,2014, primarily driven by higher transmission margins, returns on distribution improvement capital investmentsoperation and maintenance expense, higher depreciation, higher financing costs and a benefit fromrecorded in the first quarter of 2014 for a change in estimate of a regulatory liability, partially offset by higher financing coststransmission margins and higher income taxes.
(PPL's Supply SegmentCorporate and PPL Energy Supply)
Excluding special items, lower earningscosts are projected in 20142015 compared with 2013,2014, after adjusting 2014 to include certain dissynergies in the Corporate and Other category 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 weatherreduction of those dissynergies in the first quarter of 2014, lower financing costs2015 through corporate restructuring efforts and lower income taxes.
(All Registrants)
Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, Notes 6 and 10 to the Financial Statements and "Item 1A. Risk Factors" in this Form 10-Q (as applicable) and "Item 1. Business" and "Item 1A. Risk Factors" in the Registrants' 20132014 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.
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 guidelinesELGs and MATS. See "Financial Condition - Environmental Matters" below for additional information on these requirements. These and other stringent environmental requirements combined with low energy margins for competitive generation, have led several energy companies, including PPL, PPL Energy Supply, LKE, LG&E and KU, to announce plans either to temporarily or permanently close or place in long-term reserve status, and/or impair certain of their coal-fired generating plants.
As a result of current economicthe 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 transactionnext five years and anticipates retiring two coal-fired units at KU no later than early 2016 with affiliatesa combined summer capacity rating of Riverstone161 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 ratingLKE, 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.
(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.
| 77 |
(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 PPL Electric
Immediately following the spinoff on June 1, 2015, Holdco merged with a new three-year labor agreementspecial purpose subsidiary of Talen Energy, with IBEW local 1600 in May 2014Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy 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. As a result, in the second quarter of 2014, estimated separation benefits of $29 million were recorded ($23 million for PPL Energy Supply and $6 million for PPL Electric). During the three months ended September 30, 2014, based on final employee acceptances of the offer, PPL reduced the previously recorded estimated amounts by $9 million ($6 million for PPL Energy Supply and $3 million for PPL Electric). As a result, for the nine months ended September 30, 2014, the following total separation benefits have been recorded.
| PPL Energy | |||||||||
| PPL | Supply | PPL Electric | |||||||
| Pension Benefits | $ | 13 | $ | 11 | $ | 2 | |||
| Severance Compensation | 7 | 6 | 1 | ||||||
| Total Separation Benefits | $ | 20 | $ | 17 | $ | 3 | |||
| Number of Employees | 121 | 105 | 15 | ||||||
PPL has no continuing ownership interest in, control of, or affiliation with Talen Energy and Talen 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.
Although the market value of Talen Energy approach utilized the most observable inputs of the three approaches, PPL Electric)
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
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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.
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 nondeductible for tax purposes. This amount served to reduce the basis of the net assets accounted for as a dividend at the June 1, 2015 spinoff date.
Costs of Spinoff
Following the announcement of the transaction to form Talen Energy as discussed in "Business Strategy" above, efforts 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 the third quarter of 2014 and staffing selections are in progress and expected to be completed by the end of 2014.
| PPL Energy | PPL | ||||||||
| PPL | Supply | Electric | |||||||
| Separation benefits | $ | 30 | $ | 12 | $ | 1 | |||
| Number of positions | 265 | 100 | 10 | ||||||
Additional employee-related costs will be recognizedincurred primarily in the fourth quarter of 2014.
PPL recorded $3$36 million and $49$42 million of deferred income tax expensethird-party costs related to this transaction during the three and ninesix months ended SeptemberJune 30, 2014 to adjust valuation allowances on deferred tax assets2015. Of these costs, $29 million and $31 million were primarily for state net operating loss carryforwards thatbank 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 byincurred to prepare the future earningsnew 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.
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 StatementStatements of Income, for investment bank advisory, legal, consulting and accounting fees. PPL currently estimates a range of total third-party costs that will ultimately be incurred of between $60 million and $70 million.
The assets and liabilities of PPL EnergyPPL's Supply will continuesegment for all periods prior to be classified as "heldthe 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 closingSheet.
Net assets, after recognition of the transaction. Theloss on spinoff, announcement was evaluated and determined notof $3.2 billion were distributed to be an event orPPL 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 atresult of the spinoff date ifcompletion of the aggregate carrying amountspinoff 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 the spinoff date.Supply.
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See Note 8 to the Financial Statementsfinancial statements for additional information including the components of Discontinued Operations in the Statements of Income and Balance Sheets.
RIIO-ED1
On April 1, 2015, through March 31, 2019. See Note 6 to the Financial Statements for additional information.
Depreciation
Effective January 1, 2015, after completing a reduction of £5 per residential customer of electricity distribution revenues that otherwise would have been collected in the regulatory year beginning April 1, 2014. Full recoveryreview of the revenue reduction, together withuseful lives of its distribution network assets, WPD extended the associated carrying cost, wasweighted average useful lives of these assets to 69 years from 55 years. For the three 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 duringresult 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 threeIRS Appeals division reached a settlement on the amount of the WPD DNOs, and over the eight year RIIO-ED1 regulatory periodPPL's refund from its open audits for the fourth DNO. However, in July 2014, Ofgem decided that full recovery will occur for all WPD DNOs in the regulatory year beginningyears 1998 - 2011. In April 1, 2016.2015, PPL projects that, as a result of this change and changes in foreign exchange rate assumptions, 2014 and 2015 earnings for its U.K. Regulated segment will now be adversely affected by $31 million and $16 million, respectively, and earnings for 2016 will be positively affected by $33 million with the remainder to be recovered in later periods.
(PPL and PPL Electric)
Rate Case Proceedings
On March 2013,31, 2015, PPL Electric filed its proposed SDERa 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 relatedis expected to Hurricane Sandy. In April 2014, the PUC issued a final order approving the SDER. The SDER will bebecome effective on January 1, 2015 and initially include actual storm costs compared to collections from December 2013 through November 2014. As2016. PPL Electric's application includes a resultrequest for an authorized return-on-equity of the order, PPL Electric reduced its regulatory liability by $12 million related to collections in excess10.95%. 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 reviewrequesting a waiver of the April 2014 order withDSIC cap of 5% of billed revenues and approval to increase the Commonwealth Court of Pennsylvania. The case remains pending. See "Pennsylvania Activities - Storm Damage Expense Rider" in Note 6maximum allowable DSIC from 5% to 7.5% for service rendered after January 1, 2016. PPL Electric requested that the Financial Statements for additional information.
(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 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 authorizedapproval 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 inIn July 2014,2015, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affectingand the nine terminating municipalities duringreached 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 termformula 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. KU and the terminating municipalities continue settlement discussions in this proceeding.further negotiations or proceedings. KU cannot currently predict the ultimate outcome of itsthese FERC applicationsproceedings regarding its wholesale power agreements with the municipalities.
(PPL, LKE, LG&E and KU)
Rate Case Proceedings
On November 4,26, 2014, LG&E and KU announced that on November 26, 2014, they anticipate filingfiled 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 approximately $30$125 million atand LG&E and approximately $153 million at KU and an increase in annual base gas rates of approximately $14 million at LG&E.$7 million. The proposedannual revenue requirement associated with base rate increases would result in electricity rate increases of 2.7%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 9.6% atGLT 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 and a gas ratefiled an application with the VSCC to increase annual Virginia base electricity revenue by approximately $7.2 million, representing an increase of 4.2% at LG&E10.1%. KU's application is based on an authorized 10.5% return on equity. Subject to regulatory review and approval, new rates would become effective in July 2015. LG&E's and KU's applications each include a request for authorized returns-on-equity of 10.50%. The applications are based on a forecasted test year of JulyApril 1, 2015 through June 30, 2016. LG&E and KU cannot predict the outcome of these proceedings.
(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 ninesix months ended SeptemberJune 30, 20142015 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
(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 ninesix months ended SeptemberJune 30, 20142015 with the same periods in 2013.2014. "Earnings, Margins and Statement of Income Analysis" 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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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 66%70% of NetPPL's Income Attributable to PPL Shareownersfrom Continuing Operations After Income Taxes for the ninesix months ended SeptemberJune 30, 20142015 and 34%42% of PPL's assets at SeptemberJune 30, 2014.
Net Income Attributable to PPL Shareowners for the periods ended SeptemberJune 30 includes the following results:
| Three Months | Nine Months | ||||||||||||||||
| 2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||
| Utility revenues | $ | 632 | $ | 534 | 18 | $ | 1,928 | $ | 1,731 | 11 | |||||||
| Energy-related businesses | 12 | 9 | 33 | 36 | 32 | 13 | |||||||||||
| Total operating revenues | 644 | 543 | 19 | 1,964 | 1,763 | 11 | |||||||||||
| Other operation and maintenance | 110 | 111 | (1) | 335 | 340 | (1) | |||||||||||
| Depreciation | 86 | 73 | 18 | 256 | 219 | 17 | |||||||||||
| Taxes, other than income | 41 | 36 | 14 | 119 | 109 | 9 | |||||||||||
| Energy-related businesses | 8 | 7 | 14 | 23 | 21 | 10 | |||||||||||
| Total operating expenses | 245 | 227 | 8 | 733 | 689 | 6 | |||||||||||
| Other Income (Expense) - net | 136 | (117) | (216) | 40 | 7 | 471 | |||||||||||
| Interest Expense | 115 | 102 | 13 | 352 | 313 | 12 | |||||||||||
| Income Taxes | 125 | (86) | (245) | 231 | 27 | 756 | |||||||||||
| Net Income Attributable to PPL Shareowners | $ | 295 | $ | 183 | 61 | $ | 688 | $ | 741 | (7) | |||||||
| 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 | Nine Months | ||||||
| U.K. | |||||||
| Utility revenues | $ | 21 | $ | 75 | |||
| Other operation and maintenance | 7 | 19 | |||||
| Depreciation | (4) | (18) | |||||
| Interest expense | (6) | (15) | |||||
| Other | (2) | ||||||
| Income taxes | (13) | (16) | |||||
| U.S. | |||||||
| Interest expense and other | 2 | 1 | |||||
| Income taxes | (14) | (36) | |||||
| Foreign currency exchange, after-tax | (8) | (3) | |||||
| Special items, after-tax | 127 | (58) | |||||
| Total | $ | 112 | $ | (53) | |||
| 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.
| · |
| · | Higher utility revenues for the six month period primarily due to $46 million from the April 1, 2014 price increase, partially offset by |
| · | Lower other operation and maintenance for the three month period primarily due to |
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| · |
U.S.
| · |
The following after-tax gains (losses), which management considers special items, also impacted the U.K. Regulated segment's results during the periods ended SeptemberJune 30.
| Income Statement | Three Months | Nine Months | |||||||||||||
| Line Item | 2014 | 2013 | 2014 | 2013 | |||||||||||
| Other Income | |||||||||||||||
| Foreign currency-related economic hedges, net of tax of ($60), $44, ($39), $5 (a) | (Expense)-net | $ | 111 | $ | (82) | $ | 72 | $ | (8) | ||||||
| WPD Midlands acquisition-related adjustments: | |||||||||||||||
| Other Operation | |||||||||||||||
| Separation benefits, net of tax of $0, $1, $0, $1 | and Maintenance | (2) | (4) | ||||||||||||
| 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 | |||||||||||||
| Change in WPD line loss accrual, net of tax of $0, $5, $13, $10 (c) | Utility Revenues | (16) | (52) | (35) | |||||||||||
| Change in U.K. income tax rate (d) | Income Taxes | 84 | 84 | ||||||||||||
| Total | $ | 111 | $ | (16) | $ | 20 | $ | 78 | |||||||
| 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 |
| (b) |
| Relates to the April 2015 settlement of |
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 addition, certain financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents 24%19% of NetPPL's Income Attributable to PPL Shareownersfrom Continuing Operations After Income Taxes for the ninesix months ended SeptemberJune 30, 20142015 and 26%35% of PPL's assets at SeptemberJune 30, 2014.
Net Income Attributable to PPL Shareowners for the periods ended SeptemberJune 30 includes the following results:
| Three Months | Nine Months | ||||||||||||||||
| 2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||
| Utility revenues | $ | 753 | $ | 744 | 1 | $ | 2,409 | $ | 2,226 | 8 | |||||||
| Fuel | 240 | 237 | 1 | 748 | 684 | 9 | |||||||||||
| Energy purchases | 24 | 23 | 4 | 184 | 146 | 26 | |||||||||||
| Other operation and maintenance | 197 | 188 | 5 | 609 | 582 | 5 | |||||||||||
| Depreciation | 89 | 84 | 6 | 262 | 249 | 5 | |||||||||||
| Taxes, other than income | 13 | 12 | 8 | 39 | 36 | 8 | |||||||||||
| Total operating expenses | 563 | 544 | 3 | 1,842 | 1,697 | 9 | |||||||||||
| Other Income (Expense) - net | (2) | (4) | (50) | (6) | (6) | ||||||||||||
| Interest Expense | 56 | 49 | 14 | 164 | 165 | (1) | |||||||||||
| Income Taxes | 50 | 54 | (7) | 150 | 132 | 14 | |||||||||||
| Income (Loss) from Discontinued Operations | n/a | 1 | (100) | ||||||||||||||
| Net Income Attributable to PPL Shareowners | $ | 82 | $ | 93 | (12) | $ | 247 | $ | 227 | 9 | |||||||
| 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 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 | Nine Months | |||||
| Kentucky Gross Margins | $ | 3 | $ | 76 | ||
| Other operation and maintenance | (8) | (26) | ||||
| Depreciation | (4) | (10) | ||||
| Interest expense | (7) | 1 | ||||
| Other | 2 | (1) | ||||
| Income taxes | 4 | (18) | ||||
| Special items, after-tax | (1) | (2) | ||||
| Total | $ | (11) | $ | 20 | ||
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| · | See "Margins |
| · | Higher other operation and maintenance for the three month period primarily due to |
| · | Higher other operation and maintenance for the |
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.
Pennsylvania Regulated Segment The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric.
2015. Net Income for the periods ended June 30 includes the following results.
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
The following after-tax
Margins
Non-GAAP Financial Measures Management utilizes the following non-GAAP financial measures as indicators of performance for its businesses.
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 "Energy purchases from affiliate" in the reconciliation tables. As a result of the 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. 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
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
Kentucky Gross Margins Kentucky Gross Margins increased for the three months ended Kentucky Gross Margins increased for the Pennsylvania Gross Delivery Margins Distribution Distribution margins increased for the Distribution margins were relatively flat for the six months ended June 30, 2015 compared with 2014, due to a $8 million favorable effect of distribution improvement capital investments and a estimate of a regulatory liability. Transmission Transmission margins increased for the three and
Certain Operating Revenues and Expenses Included in "Margins" The following Statement of Income line items and their related
Depreciation Depreciation
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 $28 million and increased by $89 million for the three and six months ended June 30, 2015 compared with 2014, primarily due to changes in realized and unrealized losses on foreign currency contracts to economically hedge GBP denominated earnings from WPD.
See Note 5 to the Financial Statements for additional information. Income (Loss) from Discontinued Operations (net of income taxes) Income (Loss) from Discontinued Operations (net of income taxes)
Excluding a special item, earnings decreased for the three month period in Excluding a special item, earnings decreased for the margins from additional transmission capital investments, returns on distribution improvement capital investments and 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 within the table and not in their respective Statement of Income line items.
Margins "Pennsylvania Gross Delivery Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods. The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended
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
Depreciation Depreciation increased by $7 million and $13 million for the three and six months ended June 30, 2015 compared with 2014, 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. Interest Expense Interest expense increased by
2014.
See Note
Excluding special items, earnings increased for the three and six month
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
Margins "Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, LKE's Margins are referred to as "Kentucky Gross Margins." The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended
Statement of Income Analysis -- Certain Operating Revenues and Expenses included in "Margins" The following Statement of Income line items and their related
Depreciation Depreciation increased by Income Taxes Income taxes increased
Earnings 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.
Margins "Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, LG&E's Margins are included in "Kentucky Gross Margins." The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended
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
Depreciation Depreciation increased by Income Taxes Income taxes increased by
Excluding a special item, earnings were substantially the same for the three and six month 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
Margins "Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, KU's Margins are included in "Kentucky Gross Margins." The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended
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
Depreciation Depreciation increased by
Net cash provided by (used in) operating, investing and financing activities from continuing operations for the
Operating Activities The components of the change in cash provided by (used in) operating activities from continuing operations for the
(PPL) PPL had a $323 million decrease in cash provided by operating activities from continuing operations in 2015 compared with 2014.
(PPL Electric) PPL Electric had a $72 million decrease in cash provided by operating activities in 2015 compared with 2014.
(LKE) LKE had a $186 million increase in cash
(LG&E) LG&E had a
(KU) KU had a
Investing Activities (All Registrants) Expenditures for Property, Plant and Equipment Investment in PP&E is the primary
For PPL, Other Significant Changes in Components of Investing Activities (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 Electric) PPL Electric received $150 million during the Financing Activities (All Registrants) The components of the change in cash provided by (used in) financing activities from continuing operations for the
For the
See Note 7 to the Financial Statements in this Form 10-Q for information on 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 follows: External (All Registrants)
See Note 7 to the Financial Statements for further discussion of the Registrants' credit facilities. Intercompany (LKE, LG&E and KU)
See Note 11 to the Financial Statements for further discussion of intercompany credit facilities. Commercial Paper(All Registrants) PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund
2015:
(PPL) At-the-Market Stock Offering Program During the three and six months ended June 30, 2015, PPL See Note 7 to Financial Statements for additional information. Common Stock Dividends In Rating Agency Actions (All Registrants) Moody's, S&P and Fitch have periodically 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 2015. In January (PPL) In May 2015, Moody's upgraded the following ratings with a stable outlook:
In May 2015, Fitch affirmed and withdrew its ratings for PPL . In June
In outlook:
(PPL and PPL Electric) In PPL Electric. In June
(PPL, LKE, LG&E and KU) In May 2015, Moody's upgraded the following ratings with a stable outlook for LKE:
In June 2015, S&P affirmed its commercial paper ratings for LG&E and KU. S&P also upgraded the following ratings with a stable outlook:
In June 2015, S&P upgraded its ratings from AA+ to 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 Ratings Triggers (PPL, LKE, LG&E and KU) Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, 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, 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'
Market Risk (All Registrants) See Notes 13 and 14 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations. The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of possible losses under normal market conditions at a given confidence level.
Interest Rate Risk 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
2015.
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
Foreign Currency Risk (PPL) PPL is exposed to foreign currency risk primarily through investments in U.K. affiliates. The following foreign currency hedges were outstanding at
2015.
Commodity Price Risk (PPL, LKE, LG&E and LG&E's and (PPL and PPL Electric) PPL Electric is exposed to market price and volumetric risks from its obligation as a PLR. The PUC has approved a cost recovery mechanism that allows PPL Electric to pass through to customers the cost associated with fulfilling its PLR obligation. This cost recovery mechanism substantially eliminates PPL Electric's exposure to market price risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement energy supply contracts for the majority of its 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' 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
resulted in a foreign currency translation gain of $140 million for the six months ended June 30, 2014, which primarily reflected a 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 (All Registrants) The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options. See Note 8 to the Financial Statements for information on the more significant activities. (PPL) See Note 8 to the Financial Statements for information on the (All Registrants) Extensive federal, state and local environmental laws and regulations are applicable to PPL's, 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 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, 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
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 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 Waters of the United States (WOTUS) On (PPL, LKE, LG&E and KU) Coal Combustion Residuals (CCRs) On April 17, 2015, the EPA implement various compliance strategies. In 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) 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
regulation is expected to be issued by Mercury and Air Toxics Standards (MATS) In February 2012, the EPA finalized the MATS rule requiring 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, rate treatment or future capital or operating needs. National Ambient Air Quality Standards (NAAQS) In 2008, the EPA revised the In 2010, See Notes 2 and 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'
PPL Corporation PPL Electric Utilities Corporation LG&E and KU Energy LLC Louisville Gas and Electric Company Kentucky Utilities Company Reference is made to "Risk Management" in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations." (a) Evaluation of disclosure controls and procedures. The Registrants' principal executive officers and principal financial officers, based on their evaluation of the Registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of (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' 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. 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:
There have been no material changes in the Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the
Not applicable. The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits 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.
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.
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