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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 |
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| FORM 10-Q |
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 20202021 |
| OR |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________ |
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Commission File Number | Registrant; State of Incorporation; Address and Telephone Number | IRS Employer Identification No. |
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| 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 |
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| 1-905 | PPL Electric Utilities Corporation (Exact name of Registrant as specified in its charter) Pennsylvania Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-0959590 |
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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 |
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| 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 |
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| 1-3464 | Kentucky Utilities Company (Exact name of Registrant as specified in its charter) (Kentucky and Virginia) One Quality Street Lexington, KY 40507-1462 (502) 627-2000 | 61-0247570 |
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol: | Name of each exchange on which registered |
| Common Stock of PPL Corporation | PPL | New York Stock Exchange |
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| Junior Subordinated Notes of PPL Capital Funding, Inc. | | |
| 2007 Series A due 2067 | PPL/67 | New York Stock Exchange |
2013 Series B due 2073 | PPX | New York Stock Exchange |
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.
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| PPL Corporation | Yes | ☒ | No | ☐ | |
| PPL Electric Utilities Corporation | Yes | ☒ | No | ☐ | |
LG&E and KU Energy LLC | Yes | ☒ | No | ☐ | |
| Louisville Gas and Electric Company | Yes | ☒ | No | ☐ | |
| Kentucky Utilities Company | Yes | ☒ | No | ☐ | |
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files).
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| PPL Corporation | Yes | ☒ | No | ☐ | |
| PPL Electric Utilities Corporation | Yes | ☒ | No | ☐ | |
LG&E and KU Energy LLC | Yes | ☒ | No | ☐ | |
| Louisville Gas and Electric Company | Yes | ☒ | No | ☐ | |
| Kentucky Utilities Company | Yes | ☒ | No | ☐ | |
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies or emerging growth companies. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| | Large accelerated
filer | Accelerated
filer | Non-accelerated
filer | Smaller reporting
company | Emerging growth company |
| PPL Corporation | ☒ | ☐ | ☐ | ☐ | ☐ |
| PPL Electric Utilities Corporation | ☐ | ☐ | ☒ | ☐ | ☐ |
LG&E and KU Energy LLC | ☐ | ☐ | ☒ | ☐ | ☐ |
| Louisville Gas and Electric Company | ☐ | ☐ | ☒ | ☐ | ☐ |
| Kentucky Utilities Company | ☐ | ☐ | ☒ | ☐ | ☐ |
If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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| PPL Corporation | ☐ | | | | |
| PPL Electric Utilities Corporation | ☐ | | | | |
LG&E and KU Energy LLC | ☐ | | | | |
| Louisville Gas and Electric Company | ☐ | | | | |
| Kentucky Utilities Company | ☐ | | | | |
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
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| PPL Corporation | Yes | ☐ | No | ☒ | |
| PPL Electric Utilities Corporation | Yes | ☐ | No | ☒ | |
LG&E and KU Energy LLC | Yes | ☐ | No | ☒ | |
| Louisville Gas and Electric Company | Yes | ☐ | No | ☒ | |
| Kentucky Utilities Company | Yes | ☐ | No | ☒ | |
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, 768,827,321750,715,902 shares outstanding at October 31, 2020.2021.
PPL Electric Utilities Corporation Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at October 31, 2020.
LG&E and KU Energy LLC PPL Corporation directly holds all of the membership interests in LG&E and KU Energy LLC.2021.
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 October 31, 2020.2021.
Kentucky Utilities Company Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at October 31, 2020.2021.
This document is available free of charge at the Investors section of PPL Corporation's website at www.pplweb.com. However, other information on this website does not constitute a part of this Form 10-Q.
PPL CORPORATION
PPL ELECTRIC UTILITIES CORPORATION
LG&E AND KU ENERGY LLC
LOUISVILLE GAS AND ELECTRIC COMPANY
KENTUCKY UTILITIES COMPANY
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 20202021
Table of Contents
This combined Form 10-Q is separately filed by the following Registrants in their individual capacity: PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant, except that information under "Forward-Looking Information" relating to subsidiaries of PPL Corporation is also attributed to PPL Corporation and information relating to the subsidiaries of LG&E and KU Energy LLC is also attributed to LG&E and KU Energy LLC.Corporation.
Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company are references to such entities directly or to one or more of their subsidiaries, as the case may be, the financial results of which subsidiaries are consolidated into such Registrants' financial statements in accordance with GAAP. This presentation has been applied where identification of particular subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.
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| PART I. FINANCIAL INFORMATION | |
| | Item 1. Financial Statements | |
| | | PPL Corporation and Subsidiaries | |
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| | | PPL Electric Utilities Corporation and Subsidiaries | |
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| | | LG&ELouisville Gas and KU Energy LLC and SubsidiariesElectric Company | |
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| | | Louisville Gas and ElectricKentucky Utilities Company | |
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| | Kentucky Utilities Company | |
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| | Combined Notes to Condensed Financial Statements (Unaudited) | |
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| | Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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| PART II. OTHER INFORMATION | |
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CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 | |
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 | |
GLOSSARY OF TERMS AND ABBREVIATIONS
PPL Corporation and its subsidiaries
KU - Kentucky Utilities Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky.
LG&E - Louisville Gas and Electric Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas in Kentucky.
LKE - LG&E and KU Energy LLC, a subsidiary of PPL and the parent of LG&E, KU and other subsidiaries.
LKS - LG&E and KU Services Company, a subsidiary of LKE that provides administrative, management, and support services primarily to LG&E and KU, as well as to LKE and its other subsidiaries.
PPL - PPL Corporation, the parent holding company of PPL Electric, PPL Energy Funding, PPL Capital Funding, LKE and other subsidiaries.
PPL Capital Funding - PPL Capital Funding, Inc., a financing subsidiary of PPL that provides financing for the operations of PPL and certain subsidiaries. Debt issued by PPL Capital Funding is fully and unconditionally guaranteed as to payment by PPL.
PPL Electric - PPL Electric Utilities Corporation, a public utility subsidiary of PPL engaged in the regulated transmission and distribution of electricity in its Pennsylvania service area and that provides electricity supply to its retail customers in this area as a PLR.
PPL Energy Funding - PPL Energy Funding Corporation, a subsidiary of PPL and the parent holding company of PPL Global and other subsidiaries.
PPL Energy Holdings - PPL Energy Holdings, LLC, a subsidiary of PPL and the parent holding company of PPL Energy Funding, LKE and other subsidiaries.
PPL EU Services - PPL EU Services Corporation, a subsidiary of PPL that provides administrative, management and support services primarily to PPL Electric.
PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Funding that, prior to the sale of the U.K. utility business on June 14, 2021, primarily through its subsidiaries, ownsowned and operatesoperated WPD, PPL's regulated electricity distribution businesses in the U.K. PPL Global was not included in the sale of the U.K. utility business on June 14, 2021.
PPL Rhode Island Holdings - PPL Rhode Island Holdings, LLC, a subsidiary of PPL Energy Holdings formed for the purpose of acquiring Narragansett Electric to which certain interests of PPL Energy Holdings in the Narragansett SPA were assigned.
PPL Services - PPL Services Corporation, a subsidiary of PPL that provides administrative, management and support services to PPL and its subsidiaries.
PPL WPD Limited - an indirectPPL WPD Limited, a U.K. subsidiary of PPL Global. Following reorganizations in October 2015 and October 2017,Prior to the sale of the U.K. utility business on June 14, 2021, PPL WPD Limited iswas an indirect parent to WPD. PPL WPD plc having previously been a sister company.Limited was not included in the sale of the U.K. utility business on June 14, 2021.
Safari Energy - Safari Energy, LLC, an indirecta subsidiary of PPL, acquired in June 2018, that provides solar energy solutions for commercial customers in the U.S.
WPD - refers to PPL WPD Limited and its subsidiaries.
WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company.
WPD plc - Western Power Distribution plc, an indirect U.K. subsidiary of PPL WPD Limited. Its principal indirectly owned subsidiaries are WPD (East Midlands), WPD (South Wales), WPD (South West) and WPD (West Midlands).
WPD (South Wales) - Western Power Distribution (South Wales) plc, a British regional electricity distribution utility company.
WPD (South West) - Western Power Distribution (South West) plc, a British regional electricity distribution utility company.
WPD (West Midlands) - Western Power Distribution (West Midlands) plc, a British regional electricity distribution utility company.
WKE - Western Kentucky Energy Corp., a subsidiary of LKE that leased certain non-regulated utility generating plants in western Kentucky until July 2009.
Other terms and abbreviations
£ - British pound sterling.
20192020 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2019.2020.
Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation authorized 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 amended the Pennsylvania Public Utility Code and created an energy efficiency and conservation program and smart metering technology requirements, adopted new PLR electricity supply procurement rules, provided remedies for market misconduct and changed the Alternative Energy Portfolio Standard (AEPS).
Act 129 Smart Meter program - PPL Electric's system wide meter replacement program that installs wireless digital meters that provide secure communication between PPL Electric and the meter as well as all related infrastructure.
Adjusted Gross Margins - a non-GAAP financial measure of performance used in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).
Advanced Metering Infrastructure - meters and meter reading infrastructure that provide two-way communication capabilities, which communicate usage and other relevant data to LG&E and KU at regular intervals, and are also able to receive information from LG&E and KU, such as software upgrades and requests to provide meter readings in real time.
AFUDC - allowance for funds used during construction. The cost of equity and debt funds used to finance construction projects of regulated businesses, which is capitalized as part of construction costs.
AOCI - accumulated other comprehensive income or loss.
ARO - asset retirement obligation.
ATM Program - at-the-market stock offering program.
CCR(s) - coal combustion residual(s). CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.
Clean Air Act - federal legislation enacted to address certain environmental issues related to air emissions, including acid rain, ozone and toxic air emissions.
Clean Water Act - federal legislation enacted to address certain environmental issues relating to water quality including effluent discharges, cooling water intake, and dredge and fill activities.
COVID-19 - the disease caused by the novel coronavirus identified in 2019 that has caused a global pandemic in 2020.pandemic.
CPCN - Certificate of Public Convenience and Necessity. Authority granted by the KPSC pursuant to Kentucky Revised Statute 278.020 to provide utility service to or for the public or the construction of certain plant, equipment, property or facility for furnishing of utility service to the public. A CPCN is required for any capital addition, subject to KPSC jurisdiction, in excess of $100 million.
CPI -consumer price index, a measure of inflation in the U.K. published monthly by the Office for National Statistics.
CPIH - consumer price index including owner-occupiers' housing costs. An aggregate measure of changes in the cost of living in the U.K., including a measure of owner-occupiers' housing costs.
Customer Choice Act - the Pennsylvania Electricity Generation Customer Choice and Competition Act, legislation enacted to restructure the state's electric utility industry to create retail access to a competitive market for generation of electricity.
DNO - Distribution Network Operator in the U.K.
DRIP - PPL Amended and Restated Dividend Reinvestment and Direct Stock Purchase and Dividend Reinvestment Plan.
DSIC - Distribution System Improvement Charge. Authorized under Act 11, which is an alternative ratemaking mechanism providing more-timely cost recovery of qualifying distribution system capital expenditures.
DSM - Demand Side Management. Pursuant to Kentucky Revised Statute 278.285, the KPSC may determine the reasonableness of DSM programs proposed by any utility under its jurisdiction. DSM programs consist of energy efficiency programs intended to reduce peak demand and delay the investment in additional power plant construction, provide customers with tools and information regarding their energy usage and support energy efficiency.
DSO - Distribution System Operation in the U.K. is the effective delivery of a range of functions and services that need to happen to run an advanced electricity distribution network. These functions cover long-term network planning; operations, real-time processes and planning, and markets and settlement. This does not focus on a single party as an operator; but recognizes roles for a range of parties to deliver DSO.
DSP - Default Service Provider.
Earnings from Ongoing Operations - a non-GAAP financial measure of earnings adjusted for the impact of special items and used in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).
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 byproducts from the production of energy from coal.
ELG(s) - Effluent Limitation Guidelines, regulations promulgated by the EPA.
EPA - Environmental Protection Agency, a U.S. government agency.
EPS - earnings per share.
FERC - Federal Energy Regulatory Commission, the U.S. federal agency that regulates, among other things, interstate transmission and wholesale sales of electricity, hydroelectric power projects and related matters.
GAAP - Generally Accepted Accounting Principles in the U.S.
GBP - British pound sterling.
GHG(s) - greenhouse gas(es).
GLT - gas line tracker. The KPSC approved mechanism for LG&E's recovery of costs associated with gas transmission lines, gas service lines, gas risers, leak mitigation, and gas main replacements.
IBEW - International Brotherhood of Electrical Workers
IRS - Internal Revenue Service, a U.S. government agency.
KPSC - Kentucky Public Service Commission, the state agency that has jurisdiction over the regulation of rates and service of utilities in Kentucky.
LIBOR - London Interbank Offered Rate.
Moody's - Moody's Investors Service, Inc., a credit rating agency.
MW - megawatt, one thousand kilowatts.
NAAQS - National Ambient Air Quality Standards periodically adopted pursuant to the Clean Air Act.
Narragansett Electric - The Narragansett Electric Company, an entity that serves electric and natural gas customers in Rhode Island. In March 2021, PPL and its subsidiary, PPL Energy Holdings announced a pending acquisition of Narragansett Electric.
NERC - North American Electric Reliability Corporation.
NPNS - the normal purchases and normal sales exception as permitted by derivative accounting rules. Derivatives that qualify for this exception may receive accrual accounting treatment.
OCI - other comprehensive income or loss.
OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LKE indirectlyLG&E owns an 8.13%a 5.63% interest (consists of LG&E's 5.63% and KU'sKU owns a 2.50% interests),interest, which isare recorded at cost. OVEC owns and operates two coal-fired power plants, the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, with combined capacities of 2,120 MW.
PLR - Provider of Last Resort, the role of PPL Electric in providing default electricity supply within its delivery area to retail customers who have not chosen to select an alternative electricity supplier under the Customer Choice Act.
PP&E - property, plant and equipment.
PPL EnergyPlus - prior to the June 1, 2015 spinoff, PPL Energy Supply, LLC, PPL EnergyPlus, LLC, a subsidiary of PPL Energy Supply that marketed and traded wholesale and retail electricity and gas and supplied energy and energy services in competitive markets.
PPL Energy Supply - prior to the June 1, 2015 spinoff, PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the indirect parent company of PPL Montana, LLC.
PPL Montana - prior to the June 1, 2015 spinoff of PPL Energy Supply, PPL Montana, LLC, an indirect subsidiary of PPL Energy Supply that generated electricity for wholesale sales in Montana and the Pacific Northwest.
PPL WPD Investments Limited – PPL WPD Investments Limited, which was, prior to the sale of the U.K. utility business on June 14, 2021, a subsidiary of PPL WPD Limited and parent to WPD plc. PPL WPD Investments Limited was included in the sale of the U.K. utility business on June 14, 2021.
PUC - Pennsylvania Public Utility Commission, the state agency that regulates certain ratemaking, services, accounting and operations of Pennsylvania utilities.
RAV - regulatory asset value. This term, used within the U.K. regulatory environment, is also commonly known as RAB or regulatory asset base. RAV is based on historical investment costs at time of privatization, plus subsequent allowed additions less annual regulatory depreciation, and represents the value on which DNOs earn a return in accordance with the regulatory cost of capital. RAV is indexed to Retail Price Index (RPI) in order to allow for the effects of inflation. RAV additions have been and continue to be based on a percentage of annual total expenditures that have a long-term benefit to WPD (similar to capital projects for the U.S. regulated businesses that are generally included in rate base).
RCRA - Resource Conservation and Recovery Act of 1976.
Registrant(s) - refers to the Registrants named on the cover of this Report (each a "Registrant" and collectively, the "Registrants").
Regulation S-X - SEC regulation governing the form and content of and requirements for financial statements required to be filed pursuant to the federal securities laws.
RIIO - Ofgem's framework for setting U.K. regulated gas and electric utility price controls which stands for "Revenues = Incentive + Innovation + Outputs." RIIO-1 refers to the first generation of price controls under the RIIO framework. RIIO-ED1 refers to the RIIO regulatory price control applicable to the operators of U.K. electricity distribution networks, the duration of which is April 2015 through March 2023. RIIO-2 refers to the second generation of price controls under the RIIO framework. RIIO-ED2 refers to the second generation of the RIIO regulatory price control applicable to the operators of U.K. electricity distribution networks, which will begin in April 2023.
Riverstone - Riverstone Holdings LLC, a Delaware limited liability company and, as of December 6, 2016, ultimate parent company of the entities that own the competitive power generation business contributed to Talen Energy.
RPI - retail price index, is a measure of inflation in the United Kingdom published monthly by the Office for National Statistics.
Sarbanes-Oxley - Sarbanes-Oxley Act of 2002, which sets requirements for management's assessment of internal controls for financial reporting. It also requires an independent auditor to make its own assessment.
Scrubber - an air pollution control device that can remove particulates and/or gases (primarily sulfur dioxide) from exhaust gases.
SEC - the U.S. Securities and Exchange Commission, a U.S. government agency primarily responsible to protect investors and maintain the integrity of the securities markets.
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.
S&P - S&P Global Ratings, a credit rating agency.
Superfund - federal environmental statute that addresses remediation of contaminated sites; states also have similar statutes.
Talen Energy - Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone, which as of December 6, 2016, became wholly owned by Riverstone.
Talen Energy Marketing - Talen Energy Marketing, LLC, the newsuccessor name of PPL EnergyPlus after the spinoff of PPL Energy Supply that marketed and traded wholesale and retail electricity and gas, and supplied energy and energy services in competitive markets, after the June 1, 2015 spinoff of PPL Energy Supply.
TCJA - Tax Cuts and Jobs Act. Comprehensive U.S. federal tax legislation enacted on December 22, 2017.
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.
U.K. utility business – PPL WPD Investments Limited and its subsidiaries, including, notably, WPD plc and the four DNOs, which substantially represented PPL's U.K. Regulated segment. The U.K. utility business was sold on June 14, 2021.
VEBA - Voluntary Employee Beneficiary Association. A tax-exempt trust under the Internal Revenue Code Section 501(c)(9) used by employers to fund and pay eligible medical, life and similar benefits.
VSCC - Virginia State Corporation Commission, the state agency that has jurisdiction over the regulation of Virginia corporations, including utilities.
WPD - Prior to the sale of the U.K. utility business on June 14, 2021, refers to PPL WPD Limited and its subsidiaries. WPD was included in the sale of the U.K. utility business on June 14, 2021.
WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company. WPD (East Midlands) was included in the sale of the U.K. utility business on June 14, 2021.
WPD plc - Western Power Distribution plc, a U.K. indirect subsidiary of PPL WPD Limited. Its principal indirectly owned subsidiaries are WPD (East Midlands), WPD (South Wales), WPD (South West) and WPD (West Midlands). WPD plc was included in the sale of the U.K. utility business on June 14, 2021.
WPD Midlands - refers to WPD (East Midlands) and WPD (West Midlands), collectively. WPD Midlands was included in the sale of the U.K. utility business on June 14, 2021.
WPD (South Wales) - Western Power Distribution (South Wales) plc, a British regional electricity distribution utility company. WPD (South Wales) was included in the sale of the U.K. utility business on June 14, 2021.
WPD (South West) - Western Power Distribution (South West) plc, a British regional electricity distribution utility company. WPD (South West) was included in the sale of the U.K. utility business on June 14, 2021.
WPD (West Midlands) - Western Power Distribution (West Midlands) plc, a British regional electricity distribution utility company. WPD (West) Midlands) was included in the sale of the U.K. utility business on June 14, 2021.
Forward-looking Information
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 20192020 Form 10-K and in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q, the following are among the important factors that could cause actual results to differ materially and adversely from the forward-looking statements:
•strategic acquisitions, dispositions, or similar transactions, including the expected acquisition of Narragansett Electric, and our ability to consummate these business transactions or realize expected benefits from them;
•the COVID-19 pandemic and its continuing impact on economic conditions and financial markets;
•other pandemic health events or other catastrophic events such as fires, earthquakes, explosions, floods, droughts, tornadoes, hurricanes, and other storms;
•strategic acquisitions, dispositions,extreme weather-related events (including events potentially caused or similar transactions, including the potential sale of our U.K. utility business, and our ability to consummate these business transactions or realize expected benefits from them;exacerbated by climate change);
•the outcome of rate cases or other cost recovery or revenue proceedings;
•changes in U.S. state or federal or U.K. tax laws or regulations;
•the direct or indirect effects on PPL or its subsidiaries or business systems of cyber-based intrusion or the threat of cyberattacks;
•significant decreases in demand for electricity in the U.S.;electricity;
•expansion of alternative and distributed sources of electricity generation and storage;
•changes in foreign currency exchange rates for British pound sterling and the related impact on unrealized gains and losses on PPL's foreign currency economic hedges;
•the effectiveness of our risk management programs, including foreign currency and interest rate hedging;
•non-achievement by WPD of performance targets set by Ofgem;
•the effect of changes in RPI on WPD's revenues and index linked debt;
•developments related to the U.K.'s withdrawal from the European Union and any responses thereto;
•the amount of WPD's pension deficit funding recovered in revenues after March 31, 2021, following the triennial pension review which began in March 2019 and is due to conclude at the end of 2020;
•defaults by counterparties or suppliers for energy, capacity, coal, natural gas or key commodities, goods or services;
•capital market conditions, including the availability of capital or credit, changes in interest rates and certain economic indices, and decisions regarding capital structure;
•a material decline in the market value of PPL's equity;
•significant decreases in the fair value of debt and equity securities and their impact on the value of assets in defined benefit plans, and the potential cash funding requirements if fair value declines;
•interest rates and their effect on pension and retiree medical liabilities, ARO liabilities and interest payable on certain debt securities;
•volatility in or the impact of other changes in financial markets and economic conditions;
•the potential impact of any unrecorded commitments and liabilities of the Registrants and their subsidiaries;
•new accounting requirements or new interpretations or applications of existing requirements;
•changes in the corporate credit ratings or securities analyst rankings of the Registrants and their securities;
•any requirement to record impairment charges pursuant to GAAP with respect to any of our significant investments;
•laws or regulations to reduce emissions of GHGs or the physical effects of climate change;
•continuing ability to access fuel supply for LG&E and KU, as well as the ability to recover fuel costs and environmental expenditures in a timely manner at LG&E and KU and natural gas supply costs at LG&E;
•weather and other conditions affecting generation, transmission and distribution operations, operating costs and customer energy use;
•war, armed conflicts, terrorist attacks, or similar disruptive events;
•changes in political, regulatory or economic conditions in states, regions or countries where the Registrants or their subsidiaries conduct business;
•receipt of necessary governmental permits and approvals;
•new state, federal or foreign legislation or regulatory developments;
•the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry;
•our ability to attract and retain qualified employees;
•the effect of any business or industry restructuring;
•development of new projects, markets and technologies;
•performance of new ventures;
•collective labor bargaining negotiations; and
•the outcome of litigation involving the Registrants and their subsidiaries.
Any forward-looking statements should be considered in light of these important factors and in conjunction with other documents of the Registrants on file with the SEC.
New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for the Registrants to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and the Registrants undertake no obligation to update the information contained in the statement to reflect subsequent developments or information.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except share data)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Operating Revenues | Operating Revenues | $ | 1,885 | | | $ | 1,933 | | | $ | 5,678 | | | $ | 5,815 | | Operating Revenues | $ | 1,512 | | | $ | 1,400 | | | $ | 4,298 | | | $ | 4,103 | |
| | Operating Expenses | Operating Expenses | | | | | Operating Expenses | | | | |
| Operation | Operation | | | | | Operation | | | | |
| Fuel | Fuel | 177 | | | 194 | | | 478 | | | 556 | | Fuel | 195 | | | 177 | | | 531 | | | 478 | |
| Energy purchases | Energy purchases | 136 | | | 150 | | | 470 | | | 538 | | Energy purchases | 167 | | | 136 | | | 524 | | | 470 | |
| Other operation and maintenance | Other operation and maintenance | 483 | | | 480 | | | 1,446 | | | 1,452 | | Other operation and maintenance | 393 | | | 346 | | | 1,164 | | | 1,054 | |
| Depreciation | Depreciation | 323 | | | 306 | | | 959 | | | 890 | | Depreciation | 274 | | | 257 | | | 810 | | | 762 | |
| Taxes, other than income | Taxes, other than income | 79 | | | 77 | | | 226 | | | 232 | | Taxes, other than income | 52 | | | 47 | | | 153 | | | 131 | |
| Total Operating Expenses | Total Operating Expenses | 1,198 | | | 1,207 | | | 3,579 | | | 3,668 | | Total Operating Expenses | 1,081 | | | 963 | | | 3,182 | | | 2,895 | |
| | Operating Income | Operating Income | 687 | | | 726 | | | 2,099 | | | 2,147 | | Operating Income | 431 | | | 437 | | | 1,116 | | | 1,208 | |
| | Other Income (Expense) - net | Other Income (Expense) - net | 52 | | | 126 | | | 253 | | | 309 | | Other Income (Expense) - net | 12 | | | 6 | | | 25 | | | 11 | |
| | Interest Expense | Interest Expense | 249 | | | 259 | | | 750 | | | 746 | | Interest Expense | 183 | | | 161 | | | 810 | | | 479 | |
| | Income Before Income Taxes | 490 | | | 593 | | | 1,602 | | | 1,710 | | |
| Income (Loss) from Continuing Operations Before Income Taxes | | Income (Loss) from Continuing Operations Before Income Taxes | 260 | | | 282 | | | 331 | | | 740 | |
| | Income Taxes | Income Taxes | 209 | | | 118 | | | 423 | | | 328 | | Income Taxes | 51 | | | 165 | | | 455 | | | 266 | |
| | Income (Loss) from Continuing Operations After Income Taxes | | Income (Loss) from Continuing Operations After Income Taxes | 209 | | | 117 | | | (124) | | | 474 | |
| | Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | | Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | (2) | | | 164 | | | (1,490) | | | 705 | |
| | | Net Income | $ | 281 | | | $ | 475 | | | $ | 1,179 | | | $ | 1,382 | | |
| Net Income (Loss) | | Net Income (Loss) | $ | 207 | | | $ | 281 | | | $ | (1,614) | | | $ | 1,179 | |
| | Earnings Per Share of Common Stock: | Earnings Per Share of Common Stock: | | Earnings Per Share of Common Stock: | |
| | | Net Income Available to PPL Common Shareowners: | | | | | | | | |
| Basic | $ | 0.37 | | | $ | 0.66 | | | $ | 1.53 | | | $ | 1.91 | | |
| Diluted | $ | 0.37 | | | $ | 0.65 | | | $ | 1.53 | | | $ | 1.89 | | |
| Basic and Diluted | | Basic and Diluted | |
| Income (Loss) from Continuing Operations After Income Taxes | | Income (Loss) from Continuing Operations After Income Taxes | $ | 0.27 | | | $ | 0.15 | | | $ | (0.16) | | | $ | 0.62 | |
| Income (Loss) from Discontinued Operations (net of income taxes) | | Income (Loss) from Discontinued Operations (net of income taxes) | — | | | 0.22 | | | (1.94) | | | 0.91 | |
| Net Income (Loss) Available to PPL Common Shareowners | | Net Income (Loss) Available to PPL Common Shareowners | $ | 0.27 | | | $ | 0.37 | | | $ | (2.10) | | | $ | 1.53 | |
| | Weighted-Average Shares of Common Stock Outstanding (in thousands) | Weighted-Average Shares of Common Stock Outstanding (in thousands) | | | | | | | | Weighted-Average Shares of Common Stock Outstanding (in thousands) | | | | | | | |
| Basic | Basic | 768,786 | | | 722,259 | | | 768,502 | | | 721,693 | | Basic | 767,733 | | | 768,786 | | | 768,781 | | | 768,502 | |
| Diluted | Diluted | 769,660 | | | 731,151 | | | 769,270 | | | 730,677 | | Diluted | 769,849 | | | 769,660 | | | 768,781 | | | 769,270 | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Net income | $ | 281 | | | $ | 475 | | | $ | 1,179 | | | $ | 1,382 | |
| | | | | | | |
| Other comprehensive income (loss): | | | | | | | |
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | | | | | | | |
| Foreign currency translation adjustments, net of tax of $0, $0, $1, $0 | 643 | | | (285) | | | 291 | | | (368) | |
| | | | | | | |
| Qualifying derivatives, net of tax of $12, ($3), $4, ($7) | (52) | | | 16 | | | (16) | | | 32 | |
| Defined benefit plans: | | | | | | | |
| | | | | | | |
| Net actuarial gain (loss), net of tax of $5, $2, $6, $4 | (16) | | | (5) | | | (17) | | | (10) | |
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | | | | | | | |
| | | | | | | |
| Qualifying derivatives, net of tax of ($12), $3, ($8), $3 | 48 | | | (22) | | | 25 | | | (25) | |
| | | | | | | |
| Defined benefit plans: | | | | | | | |
| Prior service costs, net of tax of ($1), ($1), ($1), ($1) | 0 | | | 0 | | | 2 | | | 1 | |
| Net actuarial (gain) loss, net of tax of ($12), ($5), ($35), ($16) | 52 | | | 20 | | | 146 | | | 62 | |
| Total other comprehensive income (loss) | 675 | | | (276) | | | 431 | | | (308) | |
| | | | | | | |
| Comprehensive income | $ | 956 | | | $ | 199 | | | $ | 1,610 | | | $ | 1,074 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) | $ | 207 | | | $ | 281 | | | $ | (1,614) | | | $ | 1,179 | |
| | | | | | | |
| Other comprehensive income (loss): | | | | | | | |
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | | | | | | | |
| Foreign currency translation adjustments, net of tax of $0, $0, ($123), $1 | — | | | 643 | | | 372 | | | 291 | |
| | | | | | | |
| Qualifying derivatives, net of tax of $0, $12, $11, $4 | — | | | (52) | | | (39) | | | (16) | |
| Defined benefit plans: | | | | | | | |
| | | | | | | |
| Net actuarial gain (loss), net of tax of $4, $5, $6, $6 | (12) | | | (16) | | | (18) | | | (17) | |
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | | | | | | | |
| | | | | | | |
| Qualifying derivatives, net of tax of $0, ($12), ($4), ($8) | 1 | | | 48 | | | 25 | | | 25 | |
| | | | | | | |
| Defined benefit plans: | | | | | | | |
| Prior service costs, net of tax of ($3), ($1), ($1), ($1) | 9 | | | — | | | 2 | | | 2 | |
| Net actuarial (gain) loss, net of tax of ($4), ($12), ($30), ($35) | 10 | | | 52 | | | 117 | | | 146 | |
| Reclassifications from AOCI due to sale of the U.K. utility business - (gains) losses, net of tax expense (benefit): | | | | | | | |
| Foreign currency translation adjustments, net of tax of $0, $0, $140, $0 | — | | | — | | | 786 | | | — | |
| Qualifying derivatives, net of tax of $0, $0, $0, $0 | — | | | — | | | 15 | | | — | |
| Defined benefit plans: | | | | | | | |
| Prior service costs, net of tax of $0, $0, ($2), $0 | — | | | — | | | 8 | | | — | |
| Net actuarial (gain) loss, net of tax of $0, $0, ($798), $0 | — | | | — | | | 2,769 | | | — | |
| Total other comprehensive income (loss) | 8 | | | 675 | | | 4,037 | | | 431 | |
| | | | | | | |
| Comprehensive income (loss) | $ | 215 | | | $ | 956 | | | $ | 2,423 | | | $ | 1,610 | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | Cash Flows from Operating Activities | | | |
| Net income | $ | 1,179 | | | $ | 1,382 | | |
| Net income (loss) | | Net income (loss) | $ | (1,614) | | | $ | 1,179 | |
| Loss (income) from discontinued operations (net of income taxes) | | Loss (income) from discontinued operations (net of income taxes) | 1,490 | | | (705) | |
| Income from continuing operations (net of income taxes) | | Income from continuing operations (net of income taxes) | (124) | | | 474 | |
| Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | |
| Depreciation | Depreciation | 959 | | | 890 | | Depreciation | 810 | | | 762 | |
| Amortization | Amortization | 47 | | | 60 | | Amortization | 30 | | | 40 | |
| Defined benefit plans - (income) expense | (155) | | | (198) | | |
| | Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | 355 | | | 257 | | Deferred income taxes and investment tax credits | 51 | | | 164 | |
| Unrealized (gains) losses on derivatives, and other hedging activities | 98 | | | (18) | | |
| Stock-based compensation expense | 17 | | | 24 | | |
| | Impairment of solar panels | | Impairment of solar panels | 37 | | | — | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | 395 | | | — | |
| Other | Other | (6) | | | (15) | | Other | 7 | | | 33 | |
| Change in current assets and current liabilities | Change in current assets and current liabilities | | | | Change in current assets and current liabilities | | | |
| Accounts receivable | (40) | | | 57 | | |
| | Accounts payable | Accounts payable | (35) | | | (116) | | Accounts payable | (32) | | | (33) | |
| Unbilled revenues | Unbilled revenues | 126 | | | 58 | | Unbilled revenues | 67 | | | 93 | |
| Fuel, materials and supplies | (8) | | | 9 | | |
| | Prepayments | Prepayments | (53) | | | (53) | | Prepayments | (33) | | | (43) | |
| | Taxes payable | | Taxes payable | 75 | | | 94 | |
| Regulatory assets and liabilities, net | | Regulatory assets and liabilities, net | 50 | | | (44) | |
| | Regulatory assets and liabilities, net | (44) | | | (62) | | |
| Accrued interest | 86 | | | 74 | | |
| Other current liabilities | (29) | | | (94) | | |
| Other | Other | 20 | | | (6) | | Other | 46 | | | 147 | |
| Other operating activities | Other operating activities | | Other operating activities | |
| Defined benefit plans - funding | Defined benefit plans - funding | (264) | | | (281) | | Defined benefit plans - funding | (41) | | | (61) | |
| | Other assets | Other assets | (7) | | | (24) | | Other assets | (105) | | | (7) | |
| Other liabilities | Other liabilities | 1 | | | (56) | | Other liabilities | 19 | | | (40) | |
| Net cash provided by operating activities - continuing operations | | Net cash provided by operating activities - continuing operations | 1,252 | | | 1,579 | |
| Net cash provided by operating activities - discontinued operations | | Net cash provided by operating activities - discontinued operations | 726 | | | 668 | |
| Net cash provided by operating activities | Net cash provided by operating activities | 2,247 | | | 1,888 | | Net cash provided by operating activities | 1,978 | | | 2,247 | |
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | Cash Flows from Investing Activities | | | |
| Expenditures for property, plant and equipment | Expenditures for property, plant and equipment | (2,348) | | | (2,197) | | Expenditures for property, plant and equipment | (1,460) | | | (1,690) | |
| | Purchase of investments | 0 | | | (55) | | |
| Proceeds from the sale of investments | 2 | | | 63 | | |
| | Proceeds from sale of discontinued operations, net of cash divested | | Proceeds from sale of discontinued operations, net of cash divested | 10,560 | | | — | |
| Other investing activities | Other investing activities | (12) | | | (5) | | Other investing activities | (22) | | | — | |
| Net cash used in investing activities | (2,358) | | | (2,194) | | |
| Net cash provided by (used in) investing activities - continuing operations | | Net cash provided by (used in) investing activities - continuing operations | 9,078 | | | (1,690) | |
| Net cash provided by (used in) investing activities - discontinued operations | | Net cash provided by (used in) investing activities - discontinued operations | (607) | | | (668) | |
| Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 8,471 | | | (2,358) | |
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | Cash Flows from Financing Activities | | | |
| Issuance of long-term debt | Issuance of long-term debt | 1,598 | | | 1,465 | | Issuance of long-term debt | 650 | | | 1,598 | |
| Retirement of long-term debt | Retirement of long-term debt | (975) | | | (200) | | Retirement of long-term debt | (4,606) | | | (975) | |
| | Proceeds from project financing | Proceeds from project financing | 152 | | | 0 | | Proceeds from project financing | 21 | | | 152 | |
| Issuance of common stock | Issuance of common stock | 32 | | | 49 | | Issuance of common stock | 5 | | | 32 | |
| Payment of common stock dividends | Payment of common stock dividends | (956) | | | (893) | | Payment of common stock dividends | (961) | | | (956) | |
| Purchase of treasury stock | | Purchase of treasury stock | (282) | | | — | |
| Issuance of term loan | Issuance of term loan | 300 | | | 0 | | Issuance of term loan | — | | | 300 | |
| Retirement of term loan | | Retirement of term loan | (300) | | | — | |
| Retirement of commercial paper | | Retirement of commercial paper | (73) | | | — | |
| Net increase (decrease) in short-term debt | Net increase (decrease) in short-term debt | (94) | | | (34) | | Net increase (decrease) in short-term debt | (795) | | | (213) | |
| Other financing activities | Other financing activities | (24) | | | (24) | | Other financing activities | (29) | | | (21) | |
| Net cash provided by financing activities | 33 | | | 363 | | |
| Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash | 11 | | | (10) | | |
| Net cash provided by (used in) financing activities - continuing operations | | Net cash provided by (used in) financing activities - continuing operations | (6,370) | | | (83) | |
| Net cash provided by (used in) financing activities - discontinued operations | | Net cash provided by (used in) financing activities - discontinued operations | (411) | | | 78 | |
| Contributions (to) from discontinued operations | | Contributions (to) from discontinued operations | 365 | | | 38 | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | (6,416) | | | 33 | |
| Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | | Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | 8 | | | (6) | |
| Net (Increase) Decrease in Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | | Net (Increase) Decrease in Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | 284 | | | (72) | |
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (67) | | | 47 | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 4,325 | | | (156) | |
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 836 | | | 643 | | Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 443 | | | 660 | |
| Cash, Cash Equivalents and Restricted Cash at End of Period | Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 769 | | | $ | 690 | | Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 4,768 | | | $ | 504 | |
| | Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | | Supplemental Disclosures of Cash Flow Information | | | |
| Significant non-cash transactions: | Significant non-cash transactions: | | Significant non-cash transactions: | |
| Accrued expenditures for property, plant and equipment at September 30, | Accrued expenditures for property, plant and equipment at September 30, | $ | 279 | | | $ | 363 | | Accrued expenditures for property, plant and equipment at September 30, | $ | 214 | | | $ | 228 | |
| Accrued expenditures for intangible assets at September 30, | $ | 86 | | | $ | 67 | | |
|
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,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Assets | Assets | | | | Assets | | | |
| | Current Assets | Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 746 | | | $ | 815 | | Cash and cash equivalents | $ | 4,767 | | | $ | 442 | |
| Accounts receivable (less reserve: 2020, $73; 2019, $58) | | | | |
| Accounts receivable (less reserve: 2021, $61; 2020, $71) | | Accounts receivable (less reserve: 2021, $61; 2020, $71) | | | |
| Customer | Customer | 742 | | | 687 | | Customer | 578 | | | 603 | |
| Other | Other | 88 | | | 105 | | Other | 73 | | | 86 | |
| Unbilled revenues (less reserve: 2020, $3; 2019, $0) | 382 | | | 504 | | |
| Unbilled revenues (less reserve: 2021, $2; 2020, $4) | | Unbilled revenues (less reserve: 2021, $2; 2020, $4) | 233 | | | 301 | |
| Fuel, materials and supplies | Fuel, materials and supplies | 351 | | | 332 | | Fuel, materials and supplies | 304 | | | 302 | |
| Prepayments | Prepayments | 134 | | | 79 | | Prepayments | 90 | | | 53 | |
| Price risk management assets | 136 | | | 147 | | |
| | Other current assets | Other current assets | 116 | | | 98 | | Other current assets | 92 | | | 130 | |
| Current assets held for sale (Note 9) | | Current assets held for sale (Note 9) | — | | | 18,983 | |
| Total Current Assets | Total Current Assets | 2,695 | | | 2,767 | | Total Current Assets | 6,137 | | | 20,900 | |
| | Property, Plant and Equipment | Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
| Regulated utility plant | Regulated utility plant | 45,058 | | | 42,709 | | Regulated utility plant | 30,056 | | | 29,040 | |
| Less: accumulated depreciation - regulated utility plant | Less: accumulated depreciation - regulated utility plant | 8,726 | | | 8,055 | | Less: accumulated depreciation - regulated utility plant | 6,434 | | | 6,008 | |
| Regulated utility plant, net | Regulated utility plant, net | 36,332 | | | 34,654 | | Regulated utility plant, net | 23,622 | | | 23,032 | |
| Non-regulated property, plant and equipment | Non-regulated property, plant and equipment | 490 | | | 357 | | Non-regulated property, plant and equipment | 269 | | | 237 | |
| Less: accumulated depreciation - non-regulated property, plant and equipment | Less: accumulated depreciation - non-regulated property, plant and equipment | 98 | | | 109 | | Less: accumulated depreciation - non-regulated property, plant and equipment | 41 | | | 37 | |
| Non-regulated property, plant and equipment, net | Non-regulated property, plant and equipment, net | 392 | | | 248 | | Non-regulated property, plant and equipment, net | 228 | | | 200 | |
| Construction work in progress | Construction work in progress | 1,596 | | | 1,580 | | Construction work in progress | 1,356 | | | 1,268 | |
| Property, Plant and Equipment, net | Property, Plant and Equipment, net | 38,320 | | | 36,482 | | Property, Plant and Equipment, net | 25,206 | | | 24,500 | |
| | Other Noncurrent Assets | Other Noncurrent Assets | | | | Other Noncurrent Assets | | | |
| Regulatory assets | Regulatory assets | 1,450 | | | 1,492 | | Regulatory assets | 1,286 | | | 1,262 | |
| Goodwill | Goodwill | 3,283 | | | 3,198 | | Goodwill | 716 | | | 716 | |
| Other intangibles | Other intangibles | 763 | | | 742 | | Other intangibles | 344 | | | 351 | |
| Pension benefit asset | 972 | | | 464 | | |
| Price risk management assets | 53 | | | 149 | | |
| Other noncurrent assets | 388 | | | 386 | | |
| | Other noncurrent assets (less reserve for accounts receivable: 2021, $5; 2020 $0) | | Other noncurrent assets (less reserve for accounts receivable: 2021, $5; 2020 $0) | 482 | | | 387 | |
| Total Other Noncurrent Assets | Total Other Noncurrent Assets | 6,909 | | | 6,431 | | Total Other Noncurrent Assets | 2,828 | | | 2,716 | |
| | Total Assets | Total Assets | $ | 47,924 | | | $ | 45,680 | | Total Assets | $ | 34,171 | | | $ | 48,116 | |
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,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Liabilities and Equity | Liabilities and Equity | | | | Liabilities and Equity | | | |
| | Current Liabilities | Current Liabilities | | | | Current Liabilities | | | |
| Short-term debt | Short-term debt | $ | 1,368 | | | $ | 1,151 | | Short-term debt | $ | — | | | $ | 1,168 | |
| Long-term debt due within one year | Long-term debt due within one year | 1,525 | | | 1,172 | | Long-term debt due within one year | 474 | | | 1,074 | |
| Accounts payable | Accounts payable | 864 | | | 956 | | Accounts payable | 635 | | | 745 | |
| Taxes | Taxes | 93 | | | 99 | | Taxes | 144 | | | 69 | |
| Interest | Interest | 385 | | | 294 | | Interest | 138 | | | 113 | |
| Dividends | Dividends | 319 | | | 317 | | Dividends | 318 | | | 319 | |
| Customer deposits | 298 | | | 261 | | |
| Regulatory liabilities | Regulatory liabilities | 90 | | | 115 | | Regulatory liabilities | 187 | | | 79 | |
| Other current liabilities | Other current liabilities | 500 | | | 535 | | Other current liabilities | 447 | | | 465 | |
| Current liabilities held for sale (Note 9) | | Current liabilities held for sale (Note 9) | — | | | 11,023 | |
| Total Current Liabilities | Total Current Liabilities | 5,442 | | | 4,900 | | Total Current Liabilities | 2,343 | | | 15,055 | |
| | Long-term Debt | Long-term Debt | 21,243 | | | 20,721 | | Long-term Debt | 10,665 | | | 13,615 | |
| | Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | Deferred Credits and Other Noncurrent Liabilities | | | |
| Deferred income taxes | Deferred income taxes | 3,569 | | | 3,088 | | Deferred income taxes | 3,108 | | | 2,536 | |
| Investment tax credits | Investment tax credits | 122 | | | 124 | | Investment tax credits | 120 | | | 122 | |
| Accrued pension obligations | Accrued pension obligations | 485 | | | 587 | | Accrued pension obligations | 195 | | | 189 | |
| Asset retirement obligations | Asset retirement obligations | 223 | | | 212 | | Asset retirement obligations | 160 | | | 132 | |
| Regulatory liabilities | Regulatory liabilities | 2,543 | | | 2,572 | | Regulatory liabilities | 2,452 | | | 2,530 | |
| Other deferred credits and noncurrent liabilities | Other deferred credits and noncurrent liabilities | 611 | | | 485 | | Other deferred credits and noncurrent liabilities | 552 | | | 564 | |
| Total Deferred Credits and Other Noncurrent Liabilities | Total Deferred Credits and Other Noncurrent Liabilities | 7,553 | | | 7,068 | | Total Deferred Credits and Other Noncurrent Liabilities | 6,587 | | | 6,073 | |
| | Commitments and Contingent Liabilities (Notes 7 and 11) | Commitments and Contingent Liabilities (Notes 7 and 11) | | Commitments and Contingent Liabilities (Notes 7 and 11) | 0 | | 0 |
| | Equity | Equity | | | | Equity | | | |
| Common stock - $0.01 par value (a) | Common stock - $0.01 par value (a) | 8 | | | 8 | | Common stock - $0.01 par value (a) | 8 | | | 8 | |
| Additional paid-in capital | Additional paid-in capital | 12,260 | | | 12,214 | | Additional paid-in capital | 12,290 | | | 12,270 | |
| Treasury stock | | Treasury stock | (282) | | | — | |
| Earnings reinvested | Earnings reinvested | 5,345 | | | 5,127 | | Earnings reinvested | 2,743 | | | 5,315 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (3,927) | | | (4,358) | | Accumulated other comprehensive loss | (183) | | | (4,220) | |
| Total Equity | Total Equity | 13,686 | | | 12,991 | | Total Equity | 14,576 | | | 13,373 | |
| | Total Liabilities and Equity | Total Liabilities and Equity | $ | 47,924 | | | $ | 45,680 | | Total Liabilities and Equity | $ | 34,171 | | | $ | 48,116 | |
(a)1,560,000 shares authorized, 769,723 shares issued and 760,109 shares outstanding at September 30, 2021. 1,560,000 shares authorized; 768,797 and 767,233768,907 shares issued and outstanding at September 30, 2020 and December 31, 2019.2020.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
stock
shares
outstanding (a) | | Common
stock | | Additional
paid-in
capital | | Earnings
reinvested | | Accumulated
other
comprehensive
loss | | Total |
| June 30, 2020 | 768,783 | | | $ | 8 | | | $ | 12,255 | | | $ | 5,383 | | | $ | (4,602) | | | $ | 13,044 | |
| Common stock issued | 14 | | | | | 1 | | | | | | | 1 | |
| Stock-based compensation | | | | | 4 | | | | | | | 4 | |
| Net income | | | | | | | 281 | | | | | 281 | |
| Dividends and dividend equivalents (b) | | | | | | | (319) | | | | | (319) | |
| Other comprehensive income (loss) | | | | | | | | | 675 | | | 675 | |
| | | | | | | | | | | |
| September 30, 2020 | 768,797 | | | $ | 8 | | | $ | 12,260 | | | $ | 5,345 | | | $ | (3,927) | | | $ | 13,686 | |
| | | | | | | | | | | |
| December 31, 2019 | 767,233 | | | $ | 8 | | | $ | 12,214 | | | $ | 5,127 | | | $ | (4,358) | | | $ | 12,991 | |
| Common stock issued | 1,564 | | | | | 48 | | | | | | | 48 | |
| Stock-based compensation | | | | | (2) | | | | | | | (2) | |
| Net income | | | | | | | 1,179 | | | | | 1,179 | |
| Dividends and dividend equivalents (b) | | | | | | | (959) | | | | | (959) | |
| Other comprehensive income (loss) | | | | | | | | | 431 | | | 431 | |
| Adoption of financial instrument credit losses guidance cumulative effect adjustment (Note 2), net of tax of $0 | | | | | | | (2) | | | | | (2) | |
| September 30, 2020 | 768,797 | | | $ | 8 | | | $ | 12,260 | | | $ | 5,345 | | | $ | (3,927) | | | $ | 13,686 | |
| | | | | | | | | | | |
| June 30, 2019 | 721,840 | | | $ | 7 | | | $ | 11,069 | | | $ | 4,903 | | | $ | (3,996) | | | $ | 11,983 | |
| Common stock issued | 467 | | | | | 14 | | | | | | | 14 | |
| Stock-based compensation | | | | | 4 | | | | | | | 4 | |
| Net income | | | | | | | 475 | | | | | 475 | |
| Dividends and dividend equivalents (b) | | | | | | | (298) | | | | | (298) | |
| | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | (276) | | | (276) | |
| | | | | | | | | | | |
| September 30, 2019 | 722,307 | | | $ | 7 | | | $ | 11,087 | | | $ | 5,080 | | | $ | (4,272) | | | $ | 11,902 | |
| | | | | | | | | | | |
| December 31, 2018 | 720,323 | | | $ | 7 | | | $ | 11,021 | | | $ | 4,593 | | | $ | (3,964) | | | $ | 11,657 | |
| Common stock issued | 1,984 | | | | | 61 | | | | | | | 61 | |
| Stock-based compensation | | | | | 5 | | | | | | | 5 | |
| Net income | | | | | | | 1,382 | | | | | 1,382 | |
| Dividends and dividend equivalents (b) | | | | | | | (895) | | | | | (895) | |
| | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | (308) | | | (308) | |
| | | | | | | | | | | |
| September 30, 2019 | 722,307 | | | $ | 7 | | | $ | 11,087 | | | $ | 5,080 | | | $ | (4,272) | | | $ | 11,902 | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
stock
shares
outstanding (a) | | Common
stock | | Additional
paid-in
capital | | Treasury stock | | Earnings
reinvested | | Accumulated
other
comprehensive
loss | | Total |
| June 30, 2021 | 769,564 | | | $ | 8 | | | $ | 12,281 | | | $ | — | | | $ | 2,854 | | | $ | (191) | | | $ | 14,952 | |
| Common stock issued | 159 | | | | | 4 | | | | | | | | | 4 | |
| Treasury stock acquired | (9,614) | | | | | | | (282) | | | | | | | (282) | |
| Stock-based compensation | | | | | 5 | | | | | | | | | 5 | |
| Net income (loss) | | | | | | | | | 207 | | | | | 207 | |
| Dividends and dividend equivalents (b) | | | | | | | | | (318) | | | | | (318) | |
| | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | | | 8 | | | 8 | |
| | | | | | | | | | | | | |
| September 30, 2021 | 760,109 | | | $ | 8 | | | $ | 12,290 | | | $ | (282) | | | $ | 2,743 | | | $ | (183) | | | $ | 14,576 | |
| | | | | | | | | | | | | |
| December 31, 2020 | 768,907 | | | $ | 8 | | | 12,270 | | | $ | — | | | $ | 5,315 | | | $ | (4,220) | | | $ | 13,373 | |
| Common stock issued | 816 | | | | | 24 | | | | | | | | | 24 | |
| Treasury stock acquired | (9,614) | | | | | | | (282) | | | | | | | (282) | |
| Stock-based compensation | | | | | (4) | | | | | | | | | (4) | |
| Net income (loss) | | | | | | | | | (1,614) | | | | | (1,614) | |
| Dividends and dividend equivalents (b) | | | | | | | | | (958) | | | | | (958) | |
| | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | | | 4,037 | | | 4,037 | |
| | | | | | | | | | | | | |
| September 30, 2021 | 760,109 | | | $ | 8 | | | $ | 12,290 | | | $ | (282) | | | $ | 2,743 | | | $ | (183) | | | $ | 14,576 | |
| | | | | | | | | | | | | |
| June 30, 2020 | 768,783 | | | $ | 8 | | | 12,255 | | | $ | — | | | $ | 5,383 | | | $ | (4,602) | | | $ | 13,044 | |
| Common stock issued | 14 | | | | | 1 | | | | | | | | | 1 | |
| Stock-based compensation | | | | | 4 | | | | | | | | | 4 | |
| Net income (loss) | | | | | | | | | 281 | | | | | 281 | |
| Dividends and dividend equivalents (b) | | | | | | | | | (319) | | | | | (319) | |
| | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | | | 675 | | | 675 | |
| | | | | | | | | | | | | |
| September 30, 2020 | 768,797 | | | $ | 8 | | | $ | 12,260 | | | $ | — | | | $ | 5,345 | | | $ | (3,927) | | | $ | 13,686 | |
| | | | | | | | | | | | | |
| December 31, 2019 | 767,233 | | | $ | 8 | | | 12,214 | | | $ | — | | | $ | 5,127 | | | $ | (4,358) | | | $ | 12,991 | |
| Common stock issued | 1,564 | | | | | 48 | | | | | | | | | 48 | |
| Stock-based compensation | | | | | (2) | | | | | | | | | (2) | |
| Net income (loss) | | | | | | | | | 1,179 | | | | | 1,179 | |
| Dividends and dividend equivalents (b) | | | | | | | | | (959) | | | | | (959) | |
| | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | | | 431 | | | 431 | |
| Adoption of financial instrument credit losses guidance cumulative effect adjustment | | | | | | | | | (2) | | | | | (2) | |
| September 30, 2020 | 768,797 | | | $ | 8 | | | $ | 12,260 | | | $ | — | | | $ | 5,345 | | | $ | (3,927) | | | $ | 13,686 | |
| | | | | | | | | | | | | |
(a)Shares in thousands. Each share entitles the holder to 1 vote on any question presented at any shareowners' meeting.
(b)Dividends declared per share of common stock were $0.4150$0.415 and $1.2450$1.245 for the three and nine months ended September 30, 20202021 and $0.4125 and $1.2375 for the three and ninemonths ended September 30, 2019.2020.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| | |
| THIS PAGE INTENTIONALLY LEFT BLANK. |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Operating Revenues | Operating Revenues | $ | 586 | | | $ | 590 | | | $ | 1,748 | | | $ | 1,756 | | Operating Revenues | $ | 627 | | | $ | 586 | | | $ | 1,769 | | | $ | 1,748 | |
| | Operating Expenses | Operating Expenses | | | | | Operating Expenses | | | | |
| Operation | Operation | | | | | Operation | | | | |
| Energy purchases | Energy purchases | 118 | | | 132 | | | 373 | | | 413 | | Energy purchases | 143 | | | 118 | | | 402 | | | 373 | |
| | Other operation and maintenance | Other operation and maintenance | 122 | | | 137 | | | 388 | | | 417 | | Other operation and maintenance | 147 | | | 122 | | | 400 | | | 388 | |
| Depreciation | Depreciation | 102 | | | 99 | | | 301 | | | 290 | | Depreciation | 105 | | | 102 | | | 322 | | | 301 | |
| Taxes, other than income | Taxes, other than income | 30 | | | 29 | | | 78 | | | 84 | | Taxes, other than income | 30 | | | 30 | | | 88 | | | 78 | |
| Total Operating Expenses | Total Operating Expenses | 372 | | | 397 | | | 1,140 | | | 1,204 | | Total Operating Expenses | 425 | | | 372 | | | 1,212 | | | 1,140 | |
| | Operating Income | Operating Income | 214 | | | 193 | | | 608 | | | 552 | | Operating Income | 202 | | | 214 | | | 557 | | | 608 | |
| | Other Income (Expense) - net | Other Income (Expense) - net | 7 | | | 7 | | | 15 | | | 18 | | Other Income (Expense) - net | 6 | | | 7 | | | 16 | | | 15 | |
| | Interest Income from Affiliate | Interest Income from Affiliate | 1 | | | 1 | | | 2 | | | 3 | | Interest Income from Affiliate | 2 | | | 1 | | | 2 | | | 2 | |
| | Interest Expense | Interest Expense | 44 | | | 43 | | | 130 | | | 126 | | Interest Expense | 39 | | | 44 | | | 124 | | | 130 | |
| | Income Before Income Taxes | Income Before Income Taxes | 178 | | | 158 | | | 495 | | | 447 | | Income Before Income Taxes | 171 | | | 178 | | | 451 | | | 495 | |
| | Income Taxes | Income Taxes | 44 | | | 40 | | | 125 | | | 114 | | Income Taxes | 45 | | | 44 | | | 116 | | | 125 | |
| | Net Income (a) | Net Income (a) | $ | 134 | | | $ | 118 | | | $ | 370 | | | $ | 333 | | Net Income (a) | $ | 126 | | | $ | 134 | | | $ | 335 | | | $ | 370 | |
(a)Net income equals comprehensive income.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | Cash Flows from Operating Activities | | | |
| Net income | Net income | $ | 370 | | | $ | 333 | | Net income | $ | 335 | | | $ | 370 | |
| Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | |
| Depreciation | Depreciation | 301 | | | 290 | | Depreciation | 322 | | | 301 | |
| Amortization | Amortization | 21 | | | 18 | | Amortization | 14 | | | 21 | |
| Defined benefit plans - expense (income) | Defined benefit plans - expense (income) | (1) | | | 0 | | Defined benefit plans - expense (income) | (7) | | | (1) | |
| Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | 68 | | | 70 | | Deferred income taxes and investment tax credits | 75 | | | 68 | |
| Other | Other | 0 | | | (14) | | Other | (15) | | | — | |
| Change in current assets and current liabilities | Change in current assets and current liabilities | | | | Change in current assets and current liabilities | | | |
| Accounts receivable | Accounts receivable | (35) | | | 34 | | Accounts receivable | (24) | | | (35) | |
| Accounts payable | Accounts payable | (7) | | | (46) | | Accounts payable | (39) | | | (7) | |
| Unbilled revenues | Unbilled revenues | 54 | | | 28 | | Unbilled revenues | 37 | | | 54 | |
| Materials and supplies | Materials and supplies | (23) | | | (7) | | Materials and supplies | 3 | | | (23) | |
| Prepayments | Prepayments | (30) | | | (36) | | Prepayments | (32) | | | (30) | |
| Regulatory assets and liabilities, net | Regulatory assets and liabilities, net | (31) | | | (42) | | Regulatory assets and liabilities, net | 81 | | | (31) | |
| Taxes payable | 4 | | | (4) | | |
| | Other | Other | (3) | | | (13) | | Other | 5 | | | 1 | |
| Other operating activities | Other operating activities | | | | Other operating activities | | | |
| Defined benefit plans - funding | Defined benefit plans - funding | (21) | | | (21) | | Defined benefit plans - funding | (21) | | | (21) | |
| Other assets | Other assets | (20) | | | 11 | | Other assets | (18) | | | (20) | |
| Other liabilities | Other liabilities | 9 | | | 8 | | Other liabilities | (12) | | | 9 | |
| Net cash provided by operating activities | Net cash provided by operating activities | 656 | | | 609 | | Net cash provided by operating activities | 704 | | | 656 | |
| | Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | Cash Flows from Investing Activities | | | |
| Expenditures for property, plant and equipment | Expenditures for property, plant and equipment | (840) | | | (815) | | Expenditures for property, plant and equipment | (680) | | | (840) | |
| Expenditures for intangible assets | (5) | | | (4) | | |
| | Increase in notes receivable from affiliate | Increase in notes receivable from affiliate | — | | | (546) | | Increase in notes receivable from affiliate | (575) | | | — | |
| Other investing activities | Other investing activities | 1 | | | 4 | | Other investing activities | (1) | | | (4) | |
| Net cash used in investing activities | Net cash used in investing activities | (844) | | | (1,361) | | Net cash used in investing activities | (1,256) | | | (844) | |
| | Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | Cash Flows from Financing Activities | | | |
| Issuance of long-term debt | Issuance of long-term debt | 0 | | | 393 | | Issuance of long-term debt | 650 | | | — | |
| | Retirement of long-term debt | | Retirement of long-term debt | (400) | | | — | |
| Contributions from parent | Contributions from parent | 740 | | | 400 | | Contributions from parent | 1,075 | | | 740 | |
| Return of capital to parent | Return of capital to parent | (745) | | | 0 | | Return of capital to parent | (500) | | | (745) | |
| Payment of common stock dividends to parent | Payment of common stock dividends to parent | (323) | | | (276) | | Payment of common stock dividends to parent | (251) | | | (323) | |
| Net increase in short-term debt | Net increase in short-term debt | 280 | | | 0 | | Net increase in short-term debt | — | | | 280 | |
| Other financing activities | Other financing activities | 0 | | | (5) | | Other financing activities | (3) | | | — | |
| Net cash used in financing activities | (48) | | | 512 | | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 571 | | | (48) | |
| | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (236) | | | (240) | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 19 | | | (236) | |
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 264 | | | 269 | | Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 40 | | | 264 | |
| Cash, Cash Equivalents and Restricted Cash at End of Period | Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 28 | | | $ | 29 | | Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 59 | | | $ | 28 | |
| | Supplemental Disclosure of Cash Flow Information | Supplemental Disclosure of Cash Flow Information | | Supplemental Disclosure of Cash Flow Information | |
| Significant non-cash transactions: | Significant non-cash transactions: | | Significant non-cash transactions: | |
| Accrued expenditures for property, plant and equipment at September 30, | Accrued expenditures for property, plant and equipment at September 30, | $ | 150 | | | $ | 168 | | Accrued expenditures for property, plant and equipment at September 30, | $ | 131 | | | $ | 150 | |
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,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Assets | Assets | | | | Assets | | | |
| | Current Assets | Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 26 | | | $ | 262 | | Cash and cash equivalents | $ | 59 | | | $ | 40 | |
| Accounts receivable (less reserve: 2020, $38; 2019, $28) | | | | |
| Accounts receivable (less reserve: 2021, $30; 2020, $41) | | Accounts receivable (less reserve: 2021, $30; 2020, $41) | | | |
| Customer | Customer | 298 | | | 258 | | Customer | 295 | | | 311 | |
| Other | Other | 18 | | | 22 | | Other | 27 | | | 17 | |
| Accounts receivable from affiliates | Accounts receivable from affiliates | 10 | | | 11 | | Accounts receivable from affiliates | 11 | | | 10 | |
| | Unbilled revenues (less reserve: 2020, $1; 2019, $0) | 80 | | | 134 | | |
| Notes receivable from affiliate | | Notes receivable from affiliate | 575 | | | — | |
| Unbilled revenues (less reserve: 2021, $1; 2020, $2) | | Unbilled revenues (less reserve: 2021, $1; 2020, $2) | 84 | | | 121 | |
| Materials and supplies | Materials and supplies | 64 | | | 33 | | Materials and supplies | 59 | | | 59 | |
| Prepayments | Prepayments | 36 | | | 6 | | Prepayments | 41 | | | 9 | |
| Regulatory assets | Regulatory assets | 28 | | | 26 | | Regulatory assets | 32 | | | 40 | |
| Other current assets | Other current assets | 15 | | | 9 | | Other current assets | 16 | | | 13 | |
| Total Current Assets | Total Current Assets | 575 | | | 761 | | Total Current Assets | 1,199 | | | 620 | |
| | Property, Plant and Equipment | Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
| Regulated utility plant | Regulated utility plant | 13,240 | | | 12,589 | | Regulated utility plant | 13,927 | | | 13,514 | |
| Less: accumulated depreciation - regulated utility plant | Less: accumulated depreciation - regulated utility plant | 3,276 | | | 3,078 | | Less: accumulated depreciation - regulated utility plant | 3,387 | | | 3,297 | |
| Regulated utility plant, net | Regulated utility plant, net | 9,964 | | | 9,511 | | Regulated utility plant, net | 10,540 | | | 10,217 | |
| | Construction work in progress | Construction work in progress | 635 | | | 597 | | Construction work in progress | 629 | | | 592 | |
| Property, Plant and Equipment, net | Property, Plant and Equipment, net | 10,599 | | | 10,108 | | Property, Plant and Equipment, net | 11,169 | | | 10,809 | |
| | Other Noncurrent Assets | Other Noncurrent Assets | | | | Other Noncurrent Assets | | | |
| Regulatory assets | Regulatory assets | 708 | | | 726 | | Regulatory assets | 510 | | | 541 | |
| Intangibles | Intangibles | 265 | | | 263 | | Intangibles | 269 | | | 268 | |
| Other noncurrent assets | 66 | | | 43 | | |
| Pension benefit asset | | Pension benefit asset | 49 | | | 12 | |
| Other noncurrent assets (less reserve for accounts receivable: 2021, $5; 2020, $0) | | Other noncurrent assets (less reserve for accounts receivable: 2021, $5; 2020, $0) | 124 | | | 74 | |
| Total Other Noncurrent Assets | Total Other Noncurrent Assets | 1,039 | | | 1,032 | | Total Other Noncurrent Assets | 952 | | | 895 | |
| | Total Assets | Total Assets | $ | 12,213 | | | $ | 11,901 | | Total Assets | $ | 13,320 | | | $ | 12,324 | |
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,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Liabilities and Equity | Liabilities and Equity | | | | Liabilities and Equity | | | |
| | Current Liabilities | Current Liabilities | | | | Current Liabilities | | | |
| Short-term debt | $ | 280 | | | $ | 0 | | |
| | Long-term debt due within one year | Long-term debt due within one year | 400 | | | 0 | | Long-term debt due within one year | $ | 474 | | | $ | 400 | |
| Accounts payable | Accounts payable | 394 | | | 438 | | Accounts payable | 351 | | | 428 | |
| Accounts payable to affiliates | Accounts payable to affiliates | 39 | | | 32 | | Accounts payable to affiliates | 44 | | | 39 | |
| Taxes | Taxes | 17 | | | 13 | | Taxes | 16 | | | 17 | |
| Interest | Interest | 47 | | | 41 | | Interest | 45 | | | 39 | |
| Regulatory liabilities | Regulatory liabilities | 73 | | | 96 | | Regulatory liabilities | 146 | | | 68 | |
| Other current liabilities | Other current liabilities | 88 | | | 93 | | Other current liabilities | 103 | | | 105 | |
| Total Current Liabilities | Total Current Liabilities | 1,338 | | | 713 | | Total Current Liabilities | 1,179 | | | 1,096 | |
| | Long-term Debt | Long-term Debt | 3,587 | | | 3,985 | | Long-term Debt | 4,009 | | | 3,836 | |
| | Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | Deferred Credits and Other Noncurrent Liabilities | | | |
| Deferred income taxes | Deferred income taxes | 1,539 | | | 1,447 | | Deferred income taxes | 1,656 | | | 1,559 | |
| Accrued pension obligations | Accrued pension obligations | 151 | | | 179 | | Accrued pension obligations | 8 | | | 8 | |
| Regulatory liabilities | Regulatory liabilities | 582 | | | 599 | | Regulatory liabilities | 565 | | | 578 | |
| Other deferred credits and noncurrent liabilities | Other deferred credits and noncurrent liabilities | 142 | | | 146 | | Other deferred credits and noncurrent liabilities | 120 | | | 123 | |
| Total Deferred Credits and Other Noncurrent Liabilities | Total Deferred Credits and Other Noncurrent Liabilities | 2,414 | | | 2,371 | | Total Deferred Credits and Other Noncurrent Liabilities | 2,349 | | | 2,268 | |
| | Commitments and Contingent Liabilities (Notes 7 and 11) | Commitments and Contingent Liabilities (Notes 7 and 11) | | Commitments and Contingent Liabilities (Notes 7 and 11) | 0 | | 0 |
| | Equity | Equity | | | | Equity | | | |
| Common stock - 0 par value (a) | 364 | | | 364 | | |
| Common stock - no par value (a) | | Common stock - no par value (a) | 364 | | | 364 | |
| Additional paid-in capital | Additional paid-in capital | 3,553 | | | 3,558 | | Additional paid-in capital | 4,328 | | | 3,753 | |
| Earnings reinvested | Earnings reinvested | 957 | | | 910 | | Earnings reinvested | 1,091 | | | 1,007 | |
| Total Equity | Total Equity | 4,874 | | | 4,832 | | Total Equity | 5,783 | | | 5,124 | |
| | Total Liabilities and Equity | Total Liabilities and Equity | $ | 12,213 | | | $ | 11,901 | | Total Liabilities and Equity | $ | 13,320 | | | $ | 12,324 | |
(a)170,000 shares authorized; 66,368 shares issued and outstanding at September 30, 20202021 and December 31, 2019.2020.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | | Common
stock
shares
outstanding
(a) | | Common
stock | | Additional
paid-in
capital | | Earnings
reinvested | | Total |
| June 30, 2021 | | June 30, 2021 | 66,368 | | | $ | 364 | | | $ | 4,503 | | | $ | 1,015 | | | $ | 5,882 | |
| Net income | | Net income | | 126 | | | 126 | |
| Capital contributions from parent | | Capital contributions from parent | | 325 | | | 325 | |
| Return of capital to parent | | Return of capital to parent | | (500) | | | (500) | |
| Dividends declared on common stock | | Dividends declared on common stock | | (50) | | | (50) | |
| September 30, 2021 | | September 30, 2021 | 66,368 | | | $ | 364 | | | $ | 4,328 | | | $ | 1,091 | | | $ | 5,783 | |
| | December 31, 2020 | | December 31, 2020 | 66,368 | | | $ | 364 | | | $ | 3,753 | | | $ | 1,007 | | | $ | 5,124 | |
| Net income | | Net income | | 335 | | | 335 | |
| Capital contributions from parent | | Capital contributions from parent | | 1,075 | | | 1,075 | |
| Return of capital to parent | | Return of capital to parent | | (500) | | | (500) | |
| Dividends declared on common stock | | Dividends declared on common stock | | (251) | | | (251) | |
| September 30, 2021 | | September 30, 2021 | 66,368 | | | $ | 364 | | | $ | 4,328 | | | $ | 1,091 | | | $ | 5,783 | |
| | | Common
stock
shares
outstanding
(a) | | Common
stock | | Additional
paid-in
capital | | Earnings
reinvested | | Total | | | | | | | | | | |
| June 30, 2020 | June 30, 2020 | 66,368 | | | $ | 364 | | | $ | 3,553 | | | $ | 900 | | | $ | 4,817 | | June 30, 2020 | 66,368 | | | $ | 364 | | | $ | 3,553 | | | $ | 900 | | | $ | 4,817 | |
| Net income | Net income | | 134 | | | 134 | | Net income | | 134 | | | 134 | |
| Capital contributions from parent | Capital contributions from parent | | 485 | | | 485 | | Capital contributions from parent | | 485 | | | 485 | |
| Return of capital to parent | Return of capital to parent | | (485) | | | (485) | | Return of capital to parent | | (485) | | | (485) | |
| Dividends declared on common stock | Dividends declared on common stock | | (77) | | | (77) | | Dividends declared on common stock | | (77) | | | (77) | |
| September 30, 2020 | September 30, 2020 | 66,368 | | | $ | 364 | | | $ | 3,553 | | | $ | 957 | | | $ | 4,874 | | September 30, 2020 | 66,368 | | | $ | 364 | | | $ | 3,553 | | | $ | 957 | | | $ | 4,874 | |
| | December 31, 2019 | December 31, 2019 | 66,368 | | | $ | 364 | | | $ | 3,558 | | | $ | 910 | | | $ | 4,832 | | December 31, 2019 | 66,368 | | | $ | 364 | | | $ | 3,558 | | | $ | 910 | | | $ | 4,832 | |
| Net income | Net income | | 370 | | | 370 | | Net income | | 370 | | | 370 | |
| Capital contributions from parent | | 740 | | | 740 | | |
| | Capital contributions from PPL | | Capital contributions from PPL | | 740 | | | 740 | |
| Return of capital to parent | Return of capital to parent | | (745) | | | (745) | | Return of capital to parent | | (745) | | | (745) | |
| Dividends declared on common stock | Dividends declared on common stock | | (323) | | | (323) | | Dividends declared on common stock | | (323) | | | (323) | |
| September 30, 2020 | September 30, 2020 | 66,368 | | | $ | 364 | | | $ | 3,553 | | | $ | 957 | | | $ | 4,874 | | September 30, 2020 | 66,368 | | | $ | 364 | | | $ | 3,553 | | | $ | 957 | | | $ | 4,874 | |
| | June 30, 2019 | 66,368 | | | $ | 364 | | | $ | 3,158 | | | $ | 939 | | | $ | 4,461 | | |
| Net income | | 118 | | | 118 | | |
| Capital contributions from parent | | 400 | | | 400 | | |
| Dividends declared on common stock | | (61) | | | (61) | | |
| September 30, 2019 | 66,368 | | | $ | 364 | | | $ | 3,558 | | | $ | 996 | | | $ | 4,918 | | |
| | December 31, 2018 | 66,368 | | | $ | 364 | | | $ | 3,158 | | | $ | 939 | | | $ | 4,461 | | |
| Net income | | 333 | | | 333 | | |
| Capital contributions from parent | | 400 | | | 400 | | |
| Dividends declared on common stock | | (276) | | | (276) | | |
| September 30, 2019 | 66,368 | | | $ | 364 | | | $ | 3,558 | | | $ | 996 | | | $ | 4,918 | | |
(a)Shares in thousands. All common shares of PPL Electric stock are owned by PPL.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Operating Revenues | $ | 806 | | | $ | 844 | | | $ | 2,331 | | | $ | 2,421 | |
| | | | | | | |
| Operating Expenses | | | | | | | |
| Operation | | | | | | | |
| Fuel | 177 | | | 194 | | | 478 | | | 556 | |
| Energy purchases | 18 | | | 19 | | | 97 | | | 125 | |
| Other operation and maintenance | 205 | | | 205 | | | 616 | | | 627 | |
| Depreciation | 152 | | | 144 | | | 452 | | | 402 | |
| Taxes, other than income | 21 | | | 19 | | | 57 | | | 55 | |
| Total Operating Expenses | 573 | | | 581 | | | 1,700 | | | 1,765 | |
| | | | | | | |
| Operating Income | 233 | | | 263 | | | 631 | | | 656 | |
| | | | | | | |
| Other Income (Expense) - net | 1 | | | 2 | | | 3 | | | 2 | |
| | | | | | | |
| Interest Expense | 56 | | | 57 | | | 172 | | | 169 | |
| | | | | | | |
| Interest Expense with Affiliate | 10 | | | 7 | | | 25 | | | 23 | |
| | | | | | | |
| Income Before Income Taxes | 168 | | | 201 | | | 437 | | | 466 | |
| | | | | | | |
| Income Taxes | 31 | | | 43 | | | 82 | | | 78 | |
| | | | | | | |
| Net Income (a) | $ | 137 | | | $ | 158 | | | $ | 355 | | | $ | 388 | |
(a)Net income approximates comprehensive income.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Net income | $ | 137 | | | $ | 158 | | | $ | 355 | | | $ | 388 | |
| | | | | | | |
| Other comprehensive income (loss): | | | | | | | |
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | | | | | | | |
| Defined benefit plans: | | | | | | | |
| Net actuarial gain (loss), net of tax of $3, $0, $3, $0 | (8) | | | 0 | | | (9) | | | (2) | |
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | | | | | | | |
| | | | | | | |
| Defined benefit plans: | | | | | | | |
| Prior service costs, net of tax of $0, $0, $0, $0 | 0 | | | 0 | | | 1 | | | 1 | |
| Net actuarial (gain) loss, net of tax of $2, $0, $3, $0 | 5 | | | 0 | | | 7 | | | (1) | |
| Total other comprehensive income (loss) | (3) | | | 0 | | | (1) | | | (2) | |
| | | | | | | |
| Comprehensive income | $ | 134 | | | $ | 158 | | | $ | 354 | | | $ | 386 | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2020 | | 2019 |
| Cash Flows from Operating Activities | | | |
| Net income | $ | 355 | | | $ | 388 | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | |
| Depreciation | 452 | | | 402 | |
| Amortization | 14 | | | 20 | |
| Defined benefit plans - expense | 11 | | | 9 | |
| Deferred income taxes and investment tax credits | 58 | | | 78 | |
| Other | (1) | | | (2) | |
| Change in current assets and current liabilities | | | |
| Accounts receivable | (8) | | | 13 | |
| Accounts payable | (20) | | | (34) | |
| Accounts payable to affiliates | 7 | | | 6 | |
| Unbilled revenues | 37 | | | 5 | |
| Fuel, materials and supplies | 21 | | | 16 | |
| Regulatory assets and liabilities, net | (15) | | | (19) | |
| | | |
| Taxes payable | 0 | | | (7) | |
| Accrued interest | 42 | | | 57 | |
| Other | (32) | | | (31) | |
| Other operating activities | | | |
| Defined benefit plans - funding | (28) | | | (34) | |
| Expenditures for asset retirement obligations | (59) | | | (67) | |
| | | |
| Other assets | (2) | | | (4) | |
| Other liabilities | 40 | | | 17 | |
| Net cash provided by operating activities | 872 | | | 813 | |
| Cash Flows from Investing Activities | | | |
| Expenditures for property, plant and equipment | (710) | | | (761) | |
| Other investing activities | 3 | | | 0 | |
| Net cash used in investing activities | (707) | | | (761) | |
| Cash Flows from Financing Activities | | | |
| Net increase in notes payable with affiliate | 3 | | | 16 | |
| Issuance of long-term debt with affiliate | 550 | | | 0 | |
| Issuance of long-term debt | 498 | | | 705 | |
| Retirement of long-term debt | (975) | | | (200) | |
| Acquisition of outstanding bonds | 0 | | | (40) | |
| Remarketing of reacquired bonds | 0 | | | 40 | |
| Net decrease in short-term debt | (43) | | | (413) | |
| Distributions to member | (194) | | | (206) | |
| Contributions from member | 0 | | | 63 | |
| Other financing activities | (6) | | | (11) | |
| Net cash used in financing activities | (167) | | | (46) | |
| Net Increase (Decrease) in Cash and Cash Equivalents | (2) | | | 6 | |
| Cash and Cash Equivalents at Beginning of Period | 27 | | | 24 | |
| Cash and Cash Equivalents at End of Period | $ | 25 | | | $ | 30 | |
| | | |
| Supplemental Disclosure of Cash Flow Information | | | |
| | | |
| | | |
| | | |
| Significant non-cash transactions: | | | |
| Accrued expenditures for property, plant and equipment at September 30, | $ | 78 | | | $ | 107 | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | | | | | | | | |
| September 30,
2020 | | December 31,
2019 |
| Assets | | | |
| | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 25 | | | $ | 27 | |
| Accounts receivable (less reserve: 2020, $30; 2019, $28) | | | |
| Customer | 269 | | | 260 | |
| Other | 63 | | | 71 | |
| | | |
| Unbilled revenues (less reserve: 2020, $1; 2019, $0) | 127 | | | 164 | |
| Fuel, materials and supplies | 230 | | | 250 | |
| Prepayments | 34 | | | 30 | |
| | | |
| Regulatory assets | 54 | | | 41 | |
| | | |
| Other current assets | 1 | | | 2 | |
| Total Current Assets | 803 | | | 845 | |
| | | |
| Property, Plant and Equipment | | | |
| Regulated utility plant | 15,259 | | | 14,646 | |
| Less: accumulated depreciation - regulated utility plant | 2,627 | | | 2,356 | |
| Regulated utility plant, net | 12,632 | | | 12,290 | |
| Construction work in progress | 735 | | | 794 | |
| Property, Plant and Equipment, net | 13,367 | | | 13,084 | |
| | | |
| Other Noncurrent Assets | | | |
| Regulatory assets | 742 | | | 766 | |
| Goodwill | 996 | | | 996 | |
| Other intangibles | 63 | | | 69 | |
| Other noncurrent assets | 117 | | | 171 | |
| Total Other Noncurrent Assets | 1,918 | | | 2,002 | |
| | | |
| Total Assets | $ | 16,088 | | | $ | 15,931 | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | | | | | | | | |
| | September 30,
2020 | | December 31,
2019 |
| Liabilities and Equity | | | |
| | | |
| Current Liabilities | | | |
| Short-term debt | $ | 345 | | | $ | 388 | |
| Long-term debt due within one year | 424 | | | 975 | |
| Notes payable with affiliates | 153 | | | 150 | |
| Accounts payable | 253 | | | 316 | |
| Accounts payable to affiliates | 18 | | | 11 | |
| Customer deposits | 64 | | | 62 | |
| Taxes | 58 | | | 58 | |
| Price risk management liabilities | 2 | | | 4 | |
| Regulatory liabilities | 17 | | | 19 | |
| Interest | 82 | | | 40 | |
| Asset retirement obligations | 44 | | | 70 | |
| Other current liabilities | 134 | | | 153 | |
| Total Current Liabilities | 1,594 | | | 2,246 | |
| | | |
| Long-term Debt | | | |
| Long-term debt | 4,449 | | | 4,377 | |
| Long-term debt to affiliate | 1,200 | | | 650 | |
| Total Long-term Debt | 5,649 | | | 5,027 | |
| | | |
| Deferred Credits and Other Noncurrent Liabilities | | | |
| Deferred income taxes | 1,156 | | | 1,069 | |
| Investment tax credits | 122 | | | 124 | |
| Price risk management liabilities | 24 | | | 17 | |
| Accrued pension obligations | 163 | | | 233 | |
| Asset retirement obligations | 163 | | | 145 | |
| Regulatory liabilities | 1,961 | | | 1,973 | |
| Other deferred credits and noncurrent liabilities | 154 | | | 155 | |
| Total Deferred Credits and Other Noncurrent Liabilities | 3,743 | | | 3,716 | |
| | | |
| Commitments and Contingent Liabilities (Notes 7 and 11) | | | |
| | | |
| Member's Equity | 5,102 | | | 4,942 | |
| | | |
| Total Liabilities and Equity | $ | 16,088 | | | $ | 15,931 | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
| | | | | |
| Member's
Equity |
June 30, 2020 | $ | 5,022 | |
Net income | 137 | |
| |
Distributions to member | (54) | |
| |
Other comprehensive income (loss) | (3) | |
September 30, 2020 | $ | 5,102 | |
| |
December 31, 2019 | $ | 4,942 | |
Net income | 355 | |
| |
Distributions to member | (194) | |
| |
Other comprehensive income (loss) | (1) | |
September 30, 2020 | $ | 5,102 | |
| |
June 30, 2019 | $ | 4,877 | |
Net income | 158 | |
| |
Distributions to member | (69) | |
| |
September 30, 2019 | $ | 4,966 | |
| |
December 31, 2018 | $ | 4,723 | |
Net income | 388 | |
Contributions from member | 63 | |
Distributions to member | (206) | |
Other comprehensive income | (2) | |
September 30, 2019 | $ | 4,966 | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| | |
THIS PAGE INTENTIONALLY LEFT BLANK.
|
CONDENSED STATEMENTS OF INCOME
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Operating Revenues | Operating Revenues | | | | | | | | Operating Revenues | | | | | | | |
| Retail and wholesale | Retail and wholesale | $ | 362 | | | $ | 380 | | | $ | 1,075 | | | $ | 1,105 | | Retail and wholesale | $ | 393 | | | $ | 362 | | | $ | 1,147 | | | $ | 1,075 | |
| Electric revenue from affiliate | Electric revenue from affiliate | 1 | | | 2 | | | 17 | | | 21 | | Electric revenue from affiliate | 2 | | | 1 | | | 18 | | | 17 | |
| Total Operating Revenues | Total Operating Revenues | 363 | | | 382 | | | 1,092 | | | 1,126 | | Total Operating Revenues | 395 | | | 363 | | | 1,165 | | | 1,092 | |
| | Operating Expenses | Operating Expenses | | | | | | | | Operating Expenses | | | | | | | |
| Operation | Operation | | | | | | | | Operation | | | | | | | |
| Fuel | Fuel | 64 | | | 79 | | | 188 | | | 226 | | Fuel | 70 | | | 64 | | | 203 | | | 188 | |
| Energy purchases | Energy purchases | 13 | | | 14 | | | 83 | | | 110 | | Energy purchases | 19 | | | 13 | | | 108 | | | 83 | |
| Energy purchases from affiliate | Energy purchases from affiliate | 8 | | | 2 | | | 16 | | | 6 | | Energy purchases from affiliate | 8 | | | 8 | | | 16 | | | 16 | |
| Other operation and maintenance | Other operation and maintenance | 93 | | | 92 | | | 277 | | | 282 | | Other operation and maintenance | 97 | | | 93 | | | 290 | | | 277 | |
| Depreciation | Depreciation | 64 | | | 61 | | | 193 | | | 168 | | Depreciation | 72 | | | 64 | | | 206 | | | 193 | |
| Taxes, other than income | Taxes, other than income | 11 | | | 10 | | | 30 | | | 29 | | Taxes, other than income | 12 | | | 11 | | | 34 | | | 30 | |
| Total Operating Expenses | Total Operating Expenses | 253 | | | 258 | | | 787 | | | 821 | | Total Operating Expenses | 278 | | | 253 | | | 857 | | | 787 | |
| | Operating Income | Operating Income | 110 | | | 124 | | | 305 | | | 305 | | Operating Income | 117 | | | 110 | | | 308 | | | 305 | |
| | Other Income (Expense) - net | Other Income (Expense) - net | (1) | | | 0 | | | (1) | | | (1) | | Other Income (Expense) - net | 2 | | | (1) | | | 3 | | | (1) | |
| | Interest Expense | Interest Expense | 22 | | | 22 | | | 66 | | | 65 | | Interest Expense | 20 | | | 22 | | | 61 | | | 66 | |
| | Income Before Income Taxes | Income Before Income Taxes | 87 | | | 102 | | | 238 | | | 239 | | Income Before Income Taxes | 99 | | | 87 | | | 250 | | | 238 | |
| | Income Taxes | Income Taxes | 16 | | | 22 | | | 47 | | | 51 | | Income Taxes | 17 | | | 16 | | | 48 | | | 47 | |
| | Net Income (a) | Net Income (a) | $ | 71 | | | $ | 80 | | | $ | 191 | | | $ | 188 | | Net Income (a) | $ | 82 | | | $ | 71 | | | $ | 202 | | | $ | 191 | |
(a)Net income equals comprehensive income.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED STATEMENTS OF CASH FLOWS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | Cash Flows from Operating Activities | | | |
| Net income | Net income | $ | 191 | | | $ | 188 | | Net income | $ | 202 | | | $ | 191 | |
| Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | |
| Depreciation | Depreciation | 193 | | | 168 | | Depreciation | 206 | | | 193 | |
| Amortization | Amortization | 6 | | | 13 | | Amortization | 1 | | | 6 | |
| Defined benefit plans - expense | Defined benefit plans - expense | 2 | | | 0 | | Defined benefit plans - expense | — | | | 2 | |
| Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | 1 | | | 45 | | Deferred income taxes and investment tax credits | 4 | | | 1 | |
| Other | 0 | | | 2 | | |
| | Change in current assets and current liabilities | Change in current assets and current liabilities | | | | Change in current assets and current liabilities | | | |
| Accounts receivable | Accounts receivable | 6 | | | 13 | | Accounts receivable | 4 | | | 6 | |
| Accounts receivable from affiliates | Accounts receivable from affiliates | 7 | | | 9 | | Accounts receivable from affiliates | (2) | | | 7 | |
| Accounts payable | Accounts payable | (23) | | | (10) | | Accounts payable | 19 | | | (23) | |
| Accounts payable to affiliates | Accounts payable to affiliates | (8) | | | (5) | | Accounts payable to affiliates | (13) | | | (8) | |
| Unbilled revenues | Unbilled revenues | 22 | | | 4 | | Unbilled revenues | 19 | | | 22 | |
| Fuel, materials and supplies | Fuel, materials and supplies | 9 | | | 7 | | Fuel, materials and supplies | (7) | | | 9 | |
| Regulatory assets and liabilities, net | Regulatory assets and liabilities, net | 5 | | | (5) | | Regulatory assets and liabilities, net | (14) | | | 5 | |
| | Taxes payable | Taxes payable | (1) | | | 0 | | Taxes payable | 5 | | | (1) | |
| Accrued interest | Accrued interest | 18 | | | 22 | | Accrued interest | 17 | | | 18 | |
| Other | Other | (13) | | | (15) | | Other | (8) | | | (13) | |
| Other operating activities | Other operating activities | | | | Other operating activities | | | |
| Defined benefit plans - funding | Defined benefit plans - funding | (6) | | | (6) | | Defined benefit plans - funding | (3) | | | (6) | |
| Expenditures for asset retirement obligations | Expenditures for asset retirement obligations | (12) | | | (22) | | Expenditures for asset retirement obligations | (19) | | | (12) | |
| | Other assets | Other assets | (1) | | | (1) | | Other assets | (3) | | | (1) | |
| Other liabilities | Other liabilities | 23 | | | 10 | | Other liabilities | 4 | | | 23 | |
| Net cash provided by operating activities | Net cash provided by operating activities | 419 | | | 417 | | Net cash provided by operating activities | 412 | | | 419 | |
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | Cash Flows from Investing Activities | | | |
| Expenditures for property, plant and equipment | Expenditures for property, plant and equipment | (329) | | | (323) | | Expenditures for property, plant and equipment | (339) | | | (329) | |
| Net cash used in investing activities | Net cash used in investing activities | (329) | | | (323) | | Net cash used in investing activities | (339) | | | (329) | |
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | Cash Flows from Financing Activities | | | |
| Net increase in notes payable to affiliates | | Net increase in notes payable to affiliates | 284 | | | — | |
| | Issuance of long-term debt | 0 | | | 399 | | |
| Retirement of long-term debt | 0 | | | (200) | | |
| Acquisition of outstanding bonds | 0 | | | (40) | | |
Remarketing of reacquired bonds | 0 | | | 40 | | |
| | Net decrease in short-term debt | Net decrease in short-term debt | (32) | | | (180) | | Net decrease in short-term debt | (221) | | | (32) | |
| Retirement of commercial paper | | Retirement of commercial paper | (41) | | | — | |
| Payment of common stock dividends to parent | Payment of common stock dividends to parent | (115) | | | (130) | | Payment of common stock dividends to parent | (139) | | | (115) | |
| Contributions from parent | Contributions from parent | 53 | | | 25 | | Contributions from parent | 44 | | | 53 | |
| Other financing activities | Other financing activities | (1) | | | (6) | | Other financing activities | (2) | | | (1) | |
| Net cash used in financing activities | Net cash used in financing activities | (95) | | | (92) | | Net cash used in financing activities | (75) | | | (95) | |
| Net Increase (Decrease) in Cash and Cash Equivalents | (5) | | | 2 | | |
| Net Decrease in Cash and Cash Equivalents | | Net Decrease in Cash and Cash Equivalents | (2) | | | (5) | |
| Cash and Cash Equivalents at Beginning of Period | Cash and Cash Equivalents at Beginning of Period | 15 | | | 10 | | Cash and Cash Equivalents at Beginning of Period | 7 | | | 15 | |
| Cash and Cash Equivalents at End of Period | Cash and Cash Equivalents at End of Period | $ | 10 | | | $ | 12 | | Cash and Cash Equivalents at End of Period | $ | 5 | | | $ | 10 | |
| | Supplemental Disclosure of Cash Flow Information | Supplemental Disclosure of Cash Flow Information | | Supplemental Disclosure of Cash Flow Information | |
| | Significant non-cash transactions: | Significant non-cash transactions: | | Significant non-cash transactions: | |
| Accrued expenditures for property, plant and equipment at September 30, | Accrued expenditures for property, plant and equipment at September 30, | $ | 43 | | | $ | 53 | | Accrued expenditures for property, plant and equipment at September 30, | $ | 40 | | | $ | 43 | |
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,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Assets | Assets | | | | Assets | | | |
| | Current Assets | Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 10 | | | $ | 15 | | Cash and cash equivalents | $ | 5 | | | $ | 7 | |
| Accounts receivable (less reserve: 2020, $2; 2019, $1) | | | | |
| Accounts receivable (less reserve: 2021, $2; 2020, $2) | | Accounts receivable (less reserve: 2021, $2; 2020, $2) | | | |
| Customer | Customer | 118 | | | 121 | | Customer | 121 | | | 127 | |
| Other | Other | 31 | | | 41 | | Other | 35 | | | 35 | |
| Unbilled revenues (less reserve: 2020, $0; 2019, $0) | 54 | | | 76 | | |
| Unbilled revenues (less reserve: 2021, $1; 2020, $1) | | Unbilled revenues (less reserve: 2021, $1; 2020, $1) | 60 | | | 79 | |
| Accounts receivable from affiliates | Accounts receivable from affiliates | 12 | | | 18 | | Accounts receivable from affiliates | 19 | | | 16 | |
| Fuel, materials and supplies | Fuel, materials and supplies | 113 | | | 122 | | Fuel, materials and supplies | 126 | | | 119 | |
| Prepayments | Prepayments | 16 | | | 14 | | Prepayments | 16 | | | 14 | |
| | Regulatory assets | Regulatory assets | 23 | | | 25 | | Regulatory assets | 24 | | | 23 | |
| Other current assets | Other current assets | 2 | | | 1 | | Other current assets | — | | | 1 | |
| | Total Current Assets | Total Current Assets | 379 | | | 433 | | Total Current Assets | 406 | | | 421 | |
| | Property, Plant and Equipment | Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
| Regulated utility plant | Regulated utility plant | 6,571 | | | 6,372 | | Regulated utility plant | 7,053 | | | 6,735 | |
| Less: accumulated depreciation - regulated utility plant | Less: accumulated depreciation - regulated utility plant | 978 | | | 846 | | Less: accumulated depreciation - regulated utility plant | 1,155 | | | 1,020 | |
| Regulated utility plant, net | Regulated utility plant, net | 5,593 | | | 5,526 | | Regulated utility plant, net | 5,898 | | | 5,715 | |
| Construction work in progress | Construction work in progress | 366 | | | 297 | | Construction work in progress | 290 | | | 320 | |
| Property, Plant and Equipment, net | Property, Plant and Equipment, net | 5,959 | | | 5,823 | | Property, Plant and Equipment, net | 6,188 | | | 6,035 | |
| | Other Noncurrent Assets | Other Noncurrent Assets | | | | Other Noncurrent Assets | | | |
| Regulatory assets | Regulatory assets | 360 | | | 380 | | Regulatory assets | 362 | | | 351 | |
| Goodwill | Goodwill | 389 | | | 389 | | Goodwill | 389 | | | 389 | |
| Other intangibles | Other intangibles | 37 | | | 41 | | Other intangibles | 31 | | | 35 | |
| Other noncurrent assets | Other noncurrent assets | 97 | | | 67 | | Other noncurrent assets | 115 | | | 114 | |
| Total Other Noncurrent Assets | Total Other Noncurrent Assets | 883 | | | 877 | | Total Other Noncurrent Assets | 897 | | | 889 | |
| | Total Assets | Total Assets | $ | 7,221 | | | $ | 7,133 | | Total Assets | $ | 7,491 | | | $ | 7,345 | |
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,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Liabilities and Equity | Liabilities and Equity | | | | Liabilities and Equity | | | |
| | Current Liabilities | Current Liabilities | | | | Current Liabilities | | | |
| Short-term debt | Short-term debt | $ | 206 | | | $ | 238 | | Short-term debt | $ | — | | | $ | 262 | |
| Long-term debt due within one year | Long-term debt due within one year | 292 | | | 0 | | Long-term debt due within one year | — | | | 292 | |
| | Notes payable to affiliates | | Notes payable to affiliates | 284 | | | — | |
| Accounts payable | Accounts payable | 125 | | | 172 | | Accounts payable | 148 | | | 153 | |
| Accounts payable to affiliates | Accounts payable to affiliates | 26 | | | 31 | | Accounts payable to affiliates | 22 | | | 31 | |
| Customer deposits | Customer deposits | 32 | | | 31 | | Customer deposits | 31 | | | 32 | |
| Taxes | Taxes | 32 | | | 33 | | Taxes | 37 | | | 32 | |
| Price risk management liabilities | Price risk management liabilities | 2 | | | 4 | | Price risk management liabilities | 2 | | | 2 | |
| Regulatory liabilities | Regulatory liabilities | 5 | | | 2 | | Regulatory liabilities | 30 | | | — | |
| Interest | Interest | 33 | | | 15 | | Interest | 32 | | | 15 | |
| Asset retirement obligations | Asset retirement obligations | 14 | | | 24 | | Asset retirement obligations | 12 | | | 10 | |
| Other current liabilities | Other current liabilities | 40 | | | 47 | | Other current liabilities | 48 | | | 50 | |
| Total Current Liabilities | Total Current Liabilities | 807 | | | 597 | | Total Current Liabilities | 646 | | | 879 | |
| | Long-term Debt | Long-term Debt | 1,714 | | | 2,005 | | Long-term Debt | 2,006 | | | 1,715 | |
| | Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | Deferred Credits and Other Noncurrent Liabilities | | | |
| Deferred income taxes | Deferred income taxes | 712 | | | 697 | | Deferred income taxes | 737 | | | 716 | |
| Investment tax credits | Investment tax credits | 33 | | | 34 | | Investment tax credits | 32 | | | 33 | |
| Price risk management liabilities | Price risk management liabilities | 24 | | | 17 | | Price risk management liabilities | 17 | | | 21 | |
| | Asset retirement obligations | Asset retirement obligations | 63 | | | 49 | | Asset retirement obligations | 77 | | | 57 | |
| Regulatory liabilities | Regulatory liabilities | 885 | | | 883 | | Regulatory liabilities | 830 | | | 882 | |
| Other deferred credits and noncurrent liabilities | Other deferred credits and noncurrent liabilities | 92 | | | 89 | | Other deferred credits and noncurrent liabilities | 91 | | | 94 | |
| Total Deferred Credits and Other Noncurrent Liabilities | Total Deferred Credits and Other Noncurrent Liabilities | 1,809 | | | 1,769 | | Total Deferred Credits and Other Noncurrent Liabilities | 1,784 | | | 1,803 | |
| | Commitments and Contingent Liabilities (Notes 7 and 11) | Commitments and Contingent Liabilities (Notes 7 and 11) | | Commitments and Contingent Liabilities (Notes 7 and 11) | 0 | | 0 |
| | Stockholder's Equity | Stockholder's Equity | | | | Stockholder's Equity | | | |
| Common stock - 0 par value (a) | 424 | | | 424 | | |
| Common stock - no par value (a) | | Common stock - no par value (a) | 424 | | | 424 | |
| Additional paid-in capital | Additional paid-in capital | 1,873 | | | 1,820 | | Additional paid-in capital | 1,967 | | | 1,923 | |
| Earnings reinvested | Earnings reinvested | 594 | | | 518 | | Earnings reinvested | 664 | | | 601 | |
| Total Equity | Total Equity | 2,891 | | | 2,762 | | Total Equity | 3,055 | | | 2,948 | |
| | Total Liabilities and Equity | Total Liabilities and Equity | $ | 7,221 | | | $ | 7,133 | | Total Liabilities and Equity | $ | 7,491 | | | $ | 7,345 | |
(a)75,000 shares authorized; 21,294 shares issued and outstanding at September 30, 20202021 and December 31, 2019.2020.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED STATEMENTS OF EQUITY
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
| | | | | Common
stock
shares
outstanding
(a) | | Common
stock | | Additional
paid-in
capital | | Earnings
reinvested | | Total |
| June 30, 2021 | | June 30, 2021 | 21,294 | | | $ | 424 | | | $ | 1,967 | | | $ | 612 | | | $ | 3,003 | |
| Net income | | Net income | | 82 | | | 82 | |
| | Cash dividends declared on common stock | | Cash dividends declared on common stock | | (30) | | | (30) | |
| September 30, 2021 | | September 30, 2021 | 21,294 | | | $ | 424 | | | $ | 1,967 | | | $ | 664 | | | $ | 3,055 | |
| | December 31, 2020 | | December 31, 2020 | 21,294 | | | $ | 424 | | | $ | 1,923 | | | $ | 601 | | | $ | 2,948 | |
| Net income | | Net income | | 202 | | | 202 | |
| Capital contributions from parent | | Capital contributions from parent | | 44 | | | 44 | |
| Cash dividends declared on common stock | | Cash dividends declared on common stock | | (139) | | | (139) | |
| September 30, 2021 | | September 30, 2021 | 21,294 | | | $ | 424 | | | $ | 1,967 | | | $ | 664 | | | $ | 3,055 | |
| | | Common
stock
shares
outstanding
(a) | | Common
stock | | Additional
paid-in
capital | | Earnings
reinvested | | Total | | | | | | | | | | |
| June 30, 2020 | June 30, 2020 | 21,294 | | | $ | 424 | | | $ | 1,873 | | | $ | 562 | | | $ | 2,859 | | June 30, 2020 | 21,294 | | | $ | 424 | | | $ | 1,873 | | | $ | 562 | | | $ | 2,859 | |
| Net income | Net income | | 71 | | | 71 | | Net income | | 71 | | | 71 | |
| | Cash dividends declared on common stock | Cash dividends declared on common stock | | (39) | | | (39) | | Cash dividends declared on common stock | | (39) | | | (39) | |
| September 30, 2020 | September 30, 2020 | 21,294 | | | $ | 424 | | | $ | 1,873 | | | $ | 594 | | | $ | 2,891 | | September 30, 2020 | 21,294 | | | $ | 424 | | | $ | 1,873 | | | $ | 594 | | | $ | 2,891 | |
| | December 31, 2019 | December 31, 2019 | 21,294 | | | $ | 424 | | | $ | 1,820 | | | $ | 518 | | | $ | 2,762 | | December 31, 2019 | 21,294 | | | $ | 424 | | | $ | 1,820 | | | $ | 518 | | | $ | 2,762 | |
| Net income | Net income | | 191 | | | 191 | | Net income | | 191 | | | 191 | |
| Capital contributions from parent | Capital contributions from parent | | 53 | | | 53 | | Capital contributions from parent | | 53 | | | 53 | |
| Cash dividends declared on common stock | Cash dividends declared on common stock | | (115) | | | (115) | | Cash dividends declared on common stock | | (115) | | | (115) | |
| September 30, 2020 | September 30, 2020 | 21,294 | | | $ | 424 | | | $ | 1,873 | | | $ | 594 | | | $ | 2,891 | | September 30, 2020 | 21,294 | | | $ | 424 | | | $ | 1,873 | | | $ | 594 | | | $ | 2,891 | |
| | June 30, 2019 | 21,294 | | | $ | 424 | | | $ | 1,820 | | | $ | 505 | | | $ | 2,749 | | |
| Net income | | 80 | | | 80 | | |
| | Cash dividends declared on common stock | | (59) | | | (59) | | |
| September 30, 2019 | 21,294 | | | $ | 424 | | | $ | 1,820 | | | $ | 526 | | | $ | 2,770 | | |
| | December 31, 2018 | 21,294 | | | $ | 424 | | | $ | 1,795 | | | $ | 468 | | | $ | 2,687 | | |
| Net income | | 188 | | | 188 | | |
| Capital contributions from parent | | 25 | | | 25 | | |
| Cash dividends declared on common stock | | (130) | | | (130) | | |
| September 30, 2019 | 21,294 | | | $ | 424 | | | $ | 1,820 | | | $ | 526 | | | $ | 2,770 | | |
(a)Shares in thousands. All common shares of LG&E stock are owned by LKE.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| | |
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|
CONDENSED STATEMENTS OF INCOME
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Operating Revenues | Operating Revenues | | | | | | | | Operating Revenues | | | | | | | |
| Retail and wholesale | Retail and wholesale | $ | 444 | | | $ | 464 | | | $ | 1,256 | | | $ | 1,316 | | Retail and wholesale | $ | 486 | | | $ | 444 | | | $ | 1,358 | | | $ | 1,256 | |
| Electric revenue from affiliate | Electric revenue from affiliate | 8 | | | 2 | | | 16 | | | 6 | | Electric revenue from affiliate | 8 | | | 8 | | | 16 | | | 16 | |
| Total Operating Revenues | Total Operating Revenues | 452 | | | 466 | | | 1,272 | | | 1,322 | | Total Operating Revenues | 494 | | | 452 | | | 1,374 | | | 1,272 | |
| | Operating Expenses | Operating Expenses | | | | | | | | Operating Expenses | | | | | | | |
| Operation | Operation | | | | | | | | Operation | | | | | | | |
| Fuel | Fuel | 113 | | | 115 | | | 290 | | | 330 | | Fuel | 125 | | | 113 | | | 328 | | | 290 | |
| Energy purchases | Energy purchases | 5 | | | 5 | | | 14 | | | 15 | | Energy purchases | 5 | | | 5 | | | 14 | | | 14 | |
| Energy purchases from affiliate | Energy purchases from affiliate | 1 | | | 2 | | | 17 | | | 21 | | Energy purchases from affiliate | 2 | | | 1 | | | 18 | | | 17 | |
| Other operation and maintenance | Other operation and maintenance | 105 | | | 107 | | | 316 | | | 320 | | Other operation and maintenance | 110 | | | 105 | | | 336 | | | 316 | |
| Depreciation | Depreciation | 88 | | | 83 | | | 258 | | | 233 | | Depreciation | 94 | | | 88 | | | 273 | | | 258 | |
| Taxes, other than income | Taxes, other than income | 10 | | | 9 | | | 27 | | | 26 | | Taxes, other than income | 10 | | | 10 | | | 31 | | | 27 | |
| Total Operating Expenses | Total Operating Expenses | 322 | | | 321 | | | 922 | | | 945 | | Total Operating Expenses | 346 | | | 322 | | | 1,000 | | | 922 | |
| | Operating Income | Operating Income | 130 | | | 145 | | | 350 | | | 377 | | Operating Income | 148 | | | 130 | | | 374 | | | 350 | |
| | Other Income (Expense) - net | Other Income (Expense) - net | 1 | | | 4 | | | 2 | | | 4 | | Other Income (Expense) - net | 1 | | | 1 | | | 5 | | | 2 | |
| | Interest Expense | Interest Expense | 28 | | | 28 | | | 85 | | | 82 | | Interest Expense | 27 | | | 28 | | | 81 | | | 85 | |
| | Income Before Income Taxes | Income Before Income Taxes | 103 | | | 121 | | | 267 | | | 299 | | Income Before Income Taxes | 122 | | | 103 | | | 298 | | | 267 | |
| | Income Taxes | Income Taxes | 19 | | | 26 | | | 50 | | | 62 | | Income Taxes | 23 | | | 19 | | | 57 | | | 50 | |
| | Net Income (a) | Net Income (a) | $ | 84 | | | $ | 95 | | | $ | 217 | | | $ | 237 | | Net Income (a) | $ | 99 | | | $ | 84 | | | $ | 241 | | | $ | 217 | |
(a)Net income equals comprehensive income.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED STATEMENTS OF CASH FLOWS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | Cash Flows from Operating Activities | | | |
| Net income | Net income | $ | 217 | | | $ | 237 | | Net income | $ | 241 | | | $ | 217 | |
| Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | |
| Depreciation | Depreciation | 258 | | | 233 | | Depreciation | 273 | | | 258 | |
| Amortization | Amortization | 6 | | | 7 | | Amortization | 5 | | | 6 | |
| | Defined benefit plans - expense | | Defined benefit plans - expense | (2) | | | — | |
| Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | 20 | | | 44 | | Deferred income taxes and investment tax credits | — | | | 20 | |
| Other | Other | (1) | | | (3) | | Other | (1) | | | (1) | |
| Change in current assets and current liabilities | Change in current assets and current liabilities | | | | Change in current assets and current liabilities | | | |
| Accounts receivable | Accounts receivable | (22) | | | 0 | | Accounts receivable | (6) | | | (22) | |
| | Accounts receivable from affiliates | | Accounts receivable from affiliates | 1 | | | — | |
| Accounts payable | Accounts payable | 7 | | | (16) | | Accounts payable | (4) | | | 7 | |
| Accounts payable to affiliates | Accounts payable to affiliates | (18) | | | (14) | | Accounts payable to affiliates | (4) | | | (18) | |
| Unbilled revenues | Unbilled revenues | 15 | | | 1 | | Unbilled revenues | 17 | | | 15 | |
| Fuel, materials and supplies | Fuel, materials and supplies | 12 | | | 9 | | Fuel, materials and supplies | 4 | | | 12 | |
| Regulatory assets and liabilities, net | Regulatory assets and liabilities, net | (20) | | | (14) | | Regulatory assets and liabilities, net | (16) | | | (20) | |
| | Taxes payable | Taxes payable | 1 | | | 5 | | Taxes payable | 9 | | | 1 | |
| Accrued interest | Accrued interest | 23 | | | 28 | | Accrued interest | 25 | | | 23 | |
| Other | Other | (15) | | | (6) | | Other | (17) | | | (15) | |
| Other operating activities | Other operating activities | | | | Other operating activities | | | |
| Defined benefit plans - funding | Defined benefit plans - funding | (1) | | | (3) | | Defined benefit plans - funding | (1) | | | (1) | |
| Expenditures for asset retirement obligations | Expenditures for asset retirement obligations | (47) | | | (45) | | Expenditures for asset retirement obligations | (27) | | | (47) | |
| | Other assets | Other assets | 0 | | | (2) | | Other assets | 2 | | | — | |
| Other liabilities | Other liabilities | 11 | | | 10 | | Other liabilities | 5 | | | 11 | |
| Net cash provided by operating activities | Net cash provided by operating activities | 446 | | | 471 | | Net cash provided by operating activities | 504 | | | 446 | |
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | Cash Flows from Investing Activities | | | |
| Expenditures for property, plant and equipment | Expenditures for property, plant and equipment | (381) | | | (436) | | Expenditures for property, plant and equipment | (400) | | | (381) | |
| | Other investing activities | Other investing activities | 3 | | | 0 | | Other investing activities | 4 | | | 3 | |
| Net cash used in investing activities | Net cash used in investing activities | (378) | | | (436) | | Net cash used in investing activities | (396) | | | (378) | |
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | Cash Flows from Financing Activities | | | |
| Net increase in notes payable to affiliates | | Net increase in notes payable to affiliates | 208 | | | — | |
| Issuance of long-term debt | Issuance of long-term debt | 498 | | | 306 | | Issuance of long-term debt | — | | | 498 | |
| Retirement of long-term debt | Retirement of long-term debt | (500) | | | 0 | | Retirement of long-term debt | — | | | (500) | |
| Net decrease in short-term debt | Net decrease in short-term debt | (11) | | | (233) | | Net decrease in short-term debt | (171) | | | (11) | |
| Retirement of commercial paper | | Retirement of commercial paper | (32) | | | — | |
| Payment of common stock dividends to parent | Payment of common stock dividends to parent | (145) | | | (167) | | Payment of common stock dividends to parent | (186) | | | (145) | |
| Contributions from parent | Contributions from parent | 98 | | | 68 | | Contributions from parent | 60 | | | 98 | |
| Other financing activities | Other financing activities | (5) | | | (5) | | Other financing activities | (1) | | | (5) | |
| Net cash used in financing activities | Net cash used in financing activities | (65) | | | (31) | | Net cash used in financing activities | (122) | | | (65) | |
| Net Increase in Cash and Cash Equivalents | 3 | | | 4 | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | Net Increase (Decrease) in Cash and Cash Equivalents | (14) | | | 3 | |
| Cash and Cash Equivalents at Beginning of Period | Cash and Cash Equivalents at Beginning of Period | 12 | | | 14 | | Cash and Cash Equivalents at Beginning of Period | 22 | | | 12 | |
| Cash and Cash Equivalents at End of Period | Cash and Cash Equivalents at End of Period | $ | 15 | | | $ | 18 | | Cash and Cash Equivalents at End of Period | $ | 8 | | | $ | 15 | |
| | Supplemental Disclosure of Cash Flow Information | Supplemental Disclosure of Cash Flow Information | | Supplemental Disclosure of Cash Flow Information | |
| | Significant non-cash transactions: | Significant non-cash transactions: | | Significant non-cash transactions: | |
| Accrued expenditures for property, plant and equipment at September 30, | Accrued expenditures for property, plant and equipment at September 30, | $ | 35 | | | $ | 54 | | Accrued expenditures for property, plant and equipment at September 30, | $ | 43 | | | $ | 35 | |
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,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Assets | Assets | | | | Assets | | | |
| | Current Assets | Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 15 | | | $ | 12 | | Cash and cash equivalents | $ | 8 | | | $ | 22 | |
| Accounts receivable (less reserve: 2020, $1; 2019, $1) | | | | |
| Accounts receivable (less reserve: 2021, $1; 2020, $1) | | Accounts receivable (less reserve: 2021, $1; 2020, $1) | | | |
| Customer | Customer | 151 | | | 139 | | Customer | 158 | | | 156 | |
| Other | Other | 38 | | | 27 | | Other | 7 | | | 30 | |
| Unbilled revenues (less reserve: 2020, $1; 2019, $0) | 73 | | | 88 | | |
| | Unbilled revenues (less reserve: 2021, $1; 2020, $1) | | Unbilled revenues (less reserve: 2021, $1; 2020, $1) | 80 | | | 97 | |
| Accounts receivable from affiliates | | Accounts receivable from affiliates | — | | | 1 | |
| | Fuel, materials and supplies | Fuel, materials and supplies | 117 | | | 128 | | Fuel, materials and supplies | 120 | | | 123 | |
| Prepayments | Prepayments | 16 | | | 14 | | Prepayments | 18 | | | 15 | |
| | Regulatory assets | Regulatory assets | 31 | | | 16 | | Regulatory assets | 4 | | | 36 | |
| Other current assets | Other current assets | 0 | | | 1 | | Other current assets | — | | | 1 | |
| | Total Current Assets | Total Current Assets | 441 | | | 425 | | Total Current Assets | 395 | | | 481 | |
| | Property, Plant and Equipment | Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
| Regulated utility plant | Regulated utility plant | 8,673 | | | 8,262 | | Regulated utility plant | 9,093 | | | 8,808 | |
| Less: accumulated depreciation - regulated utility plant | Less: accumulated depreciation - regulated utility plant | 1,644 | | | 1,507 | | Less: accumulated depreciation - regulated utility plant | 1,892 | | | 1,690 | |
| Regulated utility plant, net | Regulated utility plant, net | 7,029 | | | 6,755 | | Regulated utility plant, net | 7,201 | | | 7,118 | |
| Construction work in progress | Construction work in progress | 369 | | | 496 | | Construction work in progress | 393 | | | 321 | |
| Property, Plant and Equipment, net | Property, Plant and Equipment, net | 7,398 | | | 7,251 | | Property, Plant and Equipment, net | 7,594 | | | 7,439 | |
| | Other Noncurrent Assets | Other Noncurrent Assets | | | | Other Noncurrent Assets | | | |
| Regulatory assets | Regulatory assets | 382 | | | 386 | | Regulatory assets | 414 | | | 370 | |
| Goodwill | Goodwill | 607 | | | 607 | | Goodwill | 607 | | | 607 | |
| Other intangibles | Other intangibles | 27 | | | 28 | | Other intangibles | 23 | | | 26 | |
| Other noncurrent assets | Other noncurrent assets | 125 | | | 128 | | Other noncurrent assets | 155 | | | 149 | |
| Total Other Noncurrent Assets | Total Other Noncurrent Assets | 1,141 | | | 1,149 | | Total Other Noncurrent Assets | 1,199 | | | 1,152 | |
| | Total Assets | Total Assets | $ | 8,980 | | | $ | 8,825 | | Total Assets | $ | 9,188 | | | $ | 9,072 | |
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,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Liabilities and Equity | Liabilities and Equity | | | | Liabilities and Equity | | | |
| | Current Liabilities | Current Liabilities | | | | Current Liabilities | | | |
| Short-term debt | Short-term debt | $ | 139 | | | $ | 150 | | Short-term debt | $ | — | | | $ | 203 | |
| Long-term debt due within one year | Long-term debt due within one year | 132 | | | 500 | | Long-term debt due within one year | — | | | 132 | |
| Notes payable to affiliates | | Notes payable to affiliates | 208 | | | — | |
| Accounts payable | Accounts payable | 109 | | | 121 | | Accounts payable | 92 | | | 121 | |
| Accounts payable to affiliates | Accounts payable to affiliates | 39 | | | 52 | | Accounts payable to affiliates | 44 | | | 43 | |
| Customer deposits | Customer deposits | 32 | | | 31 | | Customer deposits | 32 | | | 32 | |
| Taxes | Taxes | 27 | | | 26 | | Taxes | 38 | | | 29 | |
| Regulatory liabilities | Regulatory liabilities | 12 | | | 17 | | Regulatory liabilities | 11 | | | 11 | |
| Interest | Interest | 43 | | | 20 | | Interest | 44 | | | 19 | |
| Asset retirement obligations | Asset retirement obligations | 30 | | | 46 | | Asset retirement obligations | 29 | | | 40 | |
| Other current liabilities | Other current liabilities | 45 | | | 51 | | Other current liabilities | 48 | | | 59 | |
| Total Current Liabilities | Total Current Liabilities | 608 | | | 1,014 | | Total Current Liabilities | 546 | | | 689 | |
| | Long-term Debt | Long-term Debt | 2,485 | | | 2,123 | | Long-term Debt | 2,618 | | | 2,486 | |
| | Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | Deferred Credits and Other Noncurrent Liabilities | | | |
| Deferred income taxes | Deferred income taxes | 828 | | | 792 | | Deferred income taxes | 856 | | | 835 | |
| Investment tax credits | Investment tax credits | 89 | | | 90 | | Investment tax credits | 87 | | | 88 | |
| | Asset retirement obligations | Asset retirement obligations | 100 | | | 96 | | Asset retirement obligations | 83 | | | 75 | |
| Regulatory liabilities | Regulatory liabilities | 1,076 | | | 1,090 | | Regulatory liabilities | 1,057 | | | 1,070 | |
| Other deferred credits and noncurrent liabilities | Other deferred credits and noncurrent liabilities | 50 | | | 46 | | Other deferred credits and noncurrent liabilities | 44 | | | 47 | |
| Total Deferred Credits and Other Noncurrent Liabilities | Total Deferred Credits and Other Noncurrent Liabilities | 2,143 | | | 2,114 | | Total Deferred Credits and Other Noncurrent Liabilities | 2,127 | | | 2,115 | |
| | Commitments and Contingent Liabilities (Notes 7 and 11) | Commitments and Contingent Liabilities (Notes 7 and 11) | | Commitments and Contingent Liabilities (Notes 7 and 11) | 0 | | 0 |
| | Stockholder's Equity | Stockholder's Equity | | | | Stockholder's Equity | | | |
| Common stock - 0 par value (a) | 308 | | | 308 | | |
| Common stock - no par value (a) | | Common stock - no par value (a) | 308 | | | 308 | |
| Additional paid-in capital | Additional paid-in capital | 2,827 | | | 2,729 | | Additional paid-in capital | 2,917 | | | 2,857 | |
| | Earnings reinvested | Earnings reinvested | 609 | | | 537 | | Earnings reinvested | 672 | | | 617 | |
| Total Equity | Total Equity | 3,744 | | | 3,574 | | Total Equity | 3,897 | | | 3,782 | |
| | Total Liabilities and Equity | Total Liabilities and Equity | $ | 8,980 | | | $ | 8,825 | | Total Liabilities and Equity | $ | 9,188 | | | $ | 9,072 | |
(a)80,000 shares authorized; 37,818 shares issued and outstanding at September 30, 20202021 and December 31, 2019.2020.
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED STATEMENTS OF EQUITY
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
| | | | | Common
stock
shares
outstanding
(a) | | Common
stock | | Additional
paid-in
capital | | Earnings
reinvested | | | Total |
| June 30, 2021 | | June 30, 2021 | 37,818 | | | $ | 308 | | | $ | 2,917 | | | $ | 648 | | | | $ | 3,873 | |
| Net income | | Net income | | 99 | | | | 99 | |
| | Cash dividends declared on common stock | | Cash dividends declared on common stock | | (75) | | | | (75) | |
| | September 30, 2021 | | September 30, 2021 | 37,818 | | | $ | 308 | | | $ | 2,917 | | | $ | 672 | | | | $ | 3,897 | |
| | December 31, 2020 | | December 31, 2020 | 37,818 | | | $ | 308 | | | $ | 2,857 | | | $ | 617 | | | | $ | 3,782 | |
| Net income | | Net income | | 241 | | | | 241 | |
| Capital contributions from parent | | Capital contributions from parent | | 60 | | | | 60 | |
| Cash dividends declared on common stock | | Cash dividends declared on common stock | | (186) | | | | (186) | |
| | September 30, 2021 | | September 30, 2021 | 37,818 | | | $ | 308 | | | $ | 2,917 | | | $ | 672 | | | | $ | 3,897 | |
| | | Common
stock
shares
outstanding
(a) | | Common
stock | | Additional
paid-in
capital | | Earnings
reinvested | | | Total | | | | | | | | | | | |
| June 30, 2020 | June 30, 2020 | 37,818 | | | $ | 308 | | | $ | 2,766 | | | $ | 581 | | | | $ | 3,655 | | June 30, 2020 | 37,818 | | | $ | 308 | | | $ | 2,766 | | | $ | 581 | | | | $ | 3,655 | |
| Net income | Net income | | 84 | | | | 84 | | Net income | | 84 | | | | 84 | |
| Capital contributions from parent | Capital contributions from parent | | 61 | | | | 61 | | Capital contributions from parent | | 61 | | | | 61 | |
| Cash dividends declared on common stock | Cash dividends declared on common stock | | (56) | | | | (56) | | Cash dividends declared on common stock | | (56) | | | | (56) | |
| | September 30, 2020 | September 30, 2020 | 37,818 | | | $ | 308 | | | $ | 2,827 | | | $ | 609 | | | | $ | 3,744 | | September 30, 2020 | 37,818 | | | $ | 308 | | | $ | 2,827 | | | $ | 609 | | | | $ | 3,744 | |
| | December 31, 2019 | December 31, 2019 | 37,818 | | | $ | 308 | | | $ | 2,729 | | | $ | 537 | | | | $ | 3,574 | | December 31, 2019 | 37,818 | | | $ | 308 | | | $ | 2,729 | | | $ | 537 | | | | $ | 3,574 | |
| Net income | Net income | | 217 | | | | 217 | | Net income | | 217 | | | | 217 | |
| Capital contributions from parent | Capital contributions from parent | | 98 | | | | 98 | | Capital contributions from parent | | 98 | | | | 98 | |
| Cash dividends declared on common stock | Cash dividends declared on common stock | | (145) | | | | (145) | | Cash dividends declared on common stock | | (145) | | | | (145) | |
| | September 30, 2020 | September 30, 2020 | 37,818 | | | $ | 308 | | | $ | 2,827 | | | $ | 609 | | | | $ | 3,744 | | September 30, 2020 | 37,818 | | | $ | 308 | | | $ | 2,827 | | | $ | 609 | | | | $ | 3,744 | |
| | June 30, 2019 | 37,818 | | | $ | 308 | | | $ | 2,729 | | | $ | 524 | | | | $ | 3,561 | | |
| Net income | | 95 | | | | 95 | | |
| | Cash dividends declared on common stock | | (76) | | | | (76) | | |
| | September 30, 2019 | 37,818 | | | $ | 308 | | | $ | 2,729 | | | $ | 543 | | | | $ | 3,580 | | |
| | December 31, 2018 | 37,818 | | | $ | 308 | | | $ | 2,661 | | | $ | 473 | | | | $ | 3,442 | | |
| Net income | | 237 | | | | 237 | | |
| Capital contributions from parent | | 68 | | | | 68 | | |
| Cash dividends declared on common stock | | (167) | | | | (167) | | |
| | September 30, 2019 | 37,818 | | | $ | 308 | | | $ | 2,729 | | | $ | 543 | | | | $ | 3,580 | | |
(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)
Index to Combined Notes to Condensed Financial Statements
The notes to the condensed financial statements that follow are a combined presentation. The following list indicates the Registrants to which the notes apply:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Registrant |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| 1. Interim Financial Statements | | x | | x | | x | | x | | x |
| 2. Summary of Significant Accounting Policies | | x | | x | | x | | x | | x |
| 3. Segment and Related Information | | x | | x | | x | | x | | x |
| 4. Revenue from Contracts with Customers | | x | | x | | x | | x | | x |
| 5. Earnings Per Share | | x | | | | | | | | |
| 6. Income Taxes | | x | | x | | x | | x | | x |
| 7. Utility Rate Regulation | | x | | x | | x | | x | | x |
| 8. Financing Activities | | x | | x | | x | | x | | x |
| | | | | | | | | | |
| 9. Acquisitions, Development and Divestitures | | x | | | | | | | | |
| 10. Defined Benefits | | x | | x | | x | | x | | x |
| 11. Commitments and Contingencies | | x | | x | | x | | x | | x |
| 12. Related Party Transactions | | | | x | | x | | x | | x |
| 13. Other Income (Expense) - net | | x | | x | | | | | | |
| 14. Fair Value Measurements | | x | | x | | x | | x | | x |
| 15. Derivative Instruments and Hedging Activities | | x | | x | | x | | x | | x |
| 16. Asset Retirement Obligations | | x | | | | x | | x | | x |
| 17. Accumulated Other Comprehensive Income (Loss) | | x | | | | x | | | | |
| | | | | | | | | | |
1. Interim Financial Statements
(All Registrants)
Capitalized terms and abbreviations appearing in the unaudited combined notes to condensed financial statements are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.
The accompanying unaudited condensed financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnote 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, 20192020 is derived from that Registrant's 20192020 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 20192020 Form 10-K. The results of operations for the three and nine months ended September 30, 20202021 are not necessarily indicative of the results to be expected for the full year ending December 31, 20202021 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.
(PPL)
On March 17, 2021, PPL WPD Limited entered into a share purchase agreement to sell PPL's U.K. utility business, which substantially represented PPL's U.K. Regulated segment, to a subsidiary of National Grid plc. The sale was completed on
June 14, 2021. The results of operations of the U.K. utility business are classified as Discontinued Operations on PPL's Statements of Income. The assets and liabilities of the U.K. utility business as of December 31, 2020 have been classified as
assets and liabilities held for sale on PPL's Balance Sheets. PPL has elected to separately report the cash flows of continuing and discontinued operations on the Statements of Cash Flows. Unless otherwise noted, the notes to these financial statements exclude amounts related to discontinued operations and assets and liabilities held for sale for all periods presented. See Note 9 for additional information.
On July 1, 2021, LKE redeemed, at par, its $250 million 4.375% Senior Notes due 2021 and on July 9, 2021, LKE filed a Form 15 with the SEC to suspend its duty to file reports under sections 13 and 15(d) of the Securities Exchange Act of 1934. As a result, beginning with the June 30, 2021 Form 10-Q, LKE was no longer reported as a Registrant.
2. Summary of Significant Accounting Policies
(All Registrants)
The following accounting policy disclosures represent updates to Note 1 in each Registrant's 20192020 Form 10-K and should be read in conjunction with those disclosures.
Restricted Cash and Cash Equivalents (PPL and PPL Electric)(PPL)
Reconciliation of Cash, Cash Equivalents and Restricted Cash
The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash reported within the Balance Sheets that sum to the total of the same amounts shown on the Statements of Cash Flows:
| | | PPL | | PPL Electric | | PPL |
| | September 30,
2020 | | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 | | | September 30,
2021 | | | December 31,
2020 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 746 | | | | $ | 815 | | | $ | 26 | | | $ | 262 | | | Cash and cash equivalents | $ | 4,767 | | | | $ | 442 | |
| Restricted cash - current (a) | Restricted cash - current (a) | 3 | | | | 3 | | | 2 | | | 2 | | | Restricted cash - current (a) | 1 | | | | 1 | |
| Restricted cash - noncurrent (a) | 20 | | | | 18 | | | 0 | | | 0 | | | |
| Total Cash, Cash Equivalents and Restricted Cash | Total Cash, Cash Equivalents and Restricted Cash | $ | 769 | | | | $ | 836 | | | $ | 28 | | | $ | 264 | | | Total Cash, Cash Equivalents and Restricted Cash | $ | 4,768 | | | | $ | 443 | |
(a)Bank deposits and other cash equivalents that are restricted by agreement or that have been clearly designated for a specific purpose are classified as restricted cash. On the Balance Sheets, the current portion of restricted cash is included in "Other current assets," while the noncurrent portion is included in "Other noncurrent assets."
Current Expected Credit Losses
(All Registrants)
Financing receivable collectability is evaluated using a combination of factors, including past due status based on contractual terms, trends in write-offs and the age of the receivable. Specific events, such as bankruptcies, are also considered when applicable. Adjustments to the reserve for credit losses are made when necessary based on the results of analysis, the aging of receivables and historical and industry trends. The Registrants periodically evaluate the impact of observable external factors on the collectability of the financing receivables to determine if adjustments to the reserve for credit losses should be made based on current conditions or reasonable and supportable forecasts.
Accounts receivable are written off in the period in which the receivable is deemed uncollectible.
(PPL and PPL Electric)
PPL Electric has identified one class of financing receivables, “accounts receivable-customer”, which includes financing receivables for all billed and unbilled sales with residential and non-residential customers. All other financing receivables are classified as other. Within the credit loss model for the residential customer accounts receivables, customers are disaggregated based on their projected propensity to pay, which is derived from historical trends and the current activity of the individual customer accounts. Conversely, the non-residential customer accounts receivables are not further segmented due to the varying nature of the individual customers, which lack readily identifiable risk characteristics for disaggregation.
(PPL, LKE, LG&E and KU)
LKE, LG&E and KU have identified one class of financing receivables, “accounts receivable-customer”, which includes financing receivables for all billed and unbilled sales with customers. All other financing receivables are classified as other.
(All Registrants)
The following table shows changes in the allowance for credit losses for the nine months ended September 30, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Balance at
Beginning of Period (a) | | Charged to Income | | Deductions (b) | | Balance at
End of Period |
| PPL | | | | | | | |
| Accounts Receivable - Customer and Unbilled Revenue | $ | 30 | | | $ | 22 | | | $ | 9 | | | $ | 43 | |
| Other (c) | 27 | | | 2 | | | 0 | | | 29 | |
| | | | | | | |
| | | | | | | | | |
| | Balance at
Beginning of Period (a) | | Charged to Income | | Deductions (b) | | Balance at
End of Period | | Balance at
Beginning of Period | | Charged to Income | | Deductions (a) | | Balance at
End of Period |
| PPL Electric | | | | | | | | |
| Accounts Receivable - Customer and Unbilled Revenue | $ | 25 | | | $ | 12 | | | $ | 3 | | | $ | 34 | | |
| PPL | | PPL | | | | | | | |
| Accounts Receivable - Customer and Unbilled Revenue (c) | | Accounts Receivable - Customer and Unbilled Revenue (c) | $ | 44 | | | $ | 9 | | | $ | 17 | | | $ | 36 | |
Other | Other | 1 | | | 1 | | | 0 | | | 2 | | Other | 28 | | | 1 | | | — | | | 29 | |
| | LKE | | | | | | | | |
| Accounts Receivable - Customer and Unbilled Revenue | $ | 2 | | | $ | 7 | | | $ | 5 | | | $ | 4 | | |
| Other (c) | 26 | | | 1 | | | 0 | | | 27 | | |
| PPL Electric | | PPL Electric | | | | | | | |
| Accounts Receivable - Customer and Unbilled Revenue (c) | | Accounts Receivable - Customer and Unbilled Revenue (c) | $ | 39 | | | $ | 4 | | | $ | 11 | | | $ | 32 | |
| Other | | Other | 1 | | | — | | | — | | | 1 | |
| | LG&E | LG&E | | | | | | | | LG&E | | | | | | | |
| Accounts Receivable - Customer and Unbilled Revenue | Accounts Receivable - Customer and Unbilled Revenue | $ | 1 | | | $ | 4 | | | $ | 3 | | | $ | 2 | | Accounts Receivable - Customer and Unbilled Revenue | $ | 3 | | | $ | 1 | | | $ | 2 | | | $ | 2 | |
| | Other | | Other | — | | | 1 | | | — | | | 1 | |
| | KU | KU | | | | | | | | KU | | | | | | | |
| Accounts Receivable - Customer and Unbilled Revenue | Accounts Receivable - Customer and Unbilled Revenue | $ | 1 | | | $ | 3 | | | $ | 2 | | | $ | 2 | | Accounts Receivable - Customer and Unbilled Revenue | $ | 2 | | | $ | 4 | | | $ | 4 | | | $ | 2 | |
|
(a)Reflects cumulative-effect adjustment upon adoption of current expected credit loss guidance.
(b)Primarily related to uncollectible accounts receivable written off.
(c)(b)Primarily related to receivables at WKE,Western Kentucky Energy Corp., a subsidiary of LKE, which are fully reserved.
(c)Includes $5 million related to Noncurrent Accounts Receivable – Customer included in “Other noncurrent assets” on the PPL and PPL Electric Balance Sheets at September 30, 2021.
Income Taxes
The TCJA included new provisions requiring that certain income, referred to as global intangible low-tax income (GILTI), earned by certain foreign subsidiaries must be included in the gross income of their U.S. shareholder. Accounting guidance allows a policy election regarding the timing of inclusion of GILTI in an entity’s financial statements. The election may be either to record deferred taxes for expected GILTI in future periods or record such taxes as a current-period expense when incurred. PPL has elected to record the tax effect of expected GILTI inclusions and thus, records deferred taxes relating to such inclusions.
In light of the disposition of PPL's U.K. utility business, indefinite reinvestment is no longer relevant. As such, PPL realized the outside book-tax basis difference in those assets. Accordingly, in June 2021, a current tax liability was recorded to reflect the estimated tax cost associated with the realization of that basis difference.
See Note 6 for additional discussion regarding income taxes.
Asset Impairment (Excluding Investments)
(PPL, LKE, LG&E and KU)
PPL, LKE, LG&E and KU review goodwill for impairment at the reporting unit level annually or more frequently when events or circumstances indicate that the carrying amount of a reporting unit may be greater than the unit's fair value. PPL's, LKE's, LG&E's and KU's reporting units are primarily at the operating segment level.(PPL)
During the three month periodmonth-period ended March 31, 2020, PPL, LKE, LG&EJune 30, 2021, Safari Energy determined that the carrying value of its solar panel inventory would not be fully recoverable due to a decrease in the net realizable value of the modules. The decrease was due primarily to the combination of the three following factors: (1) a continued decrease in the fair value of the modules on hand due to more efficient modules being available on the market, (2) the federal government's extension of certain investment tax credits which make modules on the open market eligible for those credits at higher levels of credits and KU(3) an increase in commodity prices for materials used in various types of solar projects, all of which place pressure on the economics of those projects, making the cost of Safari's solar panels uncompetitive. As a result, Safari Energy recorded a loss of $37 million ($28 million after-tax) in June 2021 to record the solar panels at fair value. The loss was recorded to "Other operation and maintenance" expense on the Statement of Income. Solar panel inventories of $49 million are included in "Other noncurrent assets" on PPL's Balance Sheet at September 30, 2021.
PPL considered whether the economic events associated with COVID-19, which resulted in PPL’s shares experiencing volatility and a decrease in market value,circumstances that led to the impairment of Safari Energy's solar panels would more likely than not reduce the fair value of the Registrants’PPL's Distributed Energy Resources reporting unitsunit below theirits carrying amounts. See "Risks and Uncertainties" in Note 11 for additional information about COVID-19.amount. Based on ourPPL's assessment, a quantitative impairment test was not required, for the LKE, LG&E and KU reporting units, but was required for the U.K. Regulated segment reporting unit, the allocatedhowever, a goodwill of which was $2.5 billion at March 31, 2020. The test did not indicate impairment of the reporting unit.
During the three month periods ended June 30, 2020 and September 30, 2020, no goodwill impairment triggers were identified. However, an impairment charge could occur in future periods if PPL’s share pricethere is a degradation of expected future cash flows or any of the assumptionsunfavorable movements in discount rates or market multiples used in determining fair value of the reporting units are negatively impacted.
(PPL)
On August 10, 2020, PPL announced that it is initiating a formal process to sell its U.K. utility business. As a result of the potential sale, PPL assessed the recoverability of the assets of its U.K. utility business. See Note 9 for additional information.
New Accounting Guidance Adopted
(All Registrants)
Accounting for Financial Instrument Credit Losses
Effective January 1, 2020, the Registrants adopted accounting guidance, using a modified retrospective approach, that requires the use of a current expected credit loss (CECL) model for the measurement of credit losses on financial instruments within the scope of the guidance, which includes accounts receivable. The CECL model requires an entity to measure credit losses using historical information, current information and reasonable and supportable forecasts of future events, rather than the incurred loss impairment model required under previous GAAP. The adoption of this guidance did not have a material impact on the Registrants.
Accounting for Implementation Costs in a Cloud Computing Service Arrangement
Effective January 1, 2020, the Registrants prospectively adopted accounting guidance that requires a customer in a cloud computing hosting arrangement that is a service contract to capitalize implementation costs consistent with internal-use software guidance for non-service arrangements. The guidance requires these capitalized implementation costs to be amortized over the term of the hosting arrangement to the statement of income line item where the service arrangement costs are recorded. The guidance also prescribes the financial statement classification of the capitalized implementation costs and cash flows associated with the arrangement. The adoption of this guidance did not have a material impact on the Registrants.
(PPL, LKE, LG&E and KU)
Simplifying the Test for Goodwill Impairment
Effective January 1, 2020, the Registrants adopted accounting guidance that simplifies the test for goodwill impairment by eliminating the second step of the quantitative test. The second step of the quantitative test required a calculation of the implied fair value of goodwill, which was determined in the same manner as the amount of goodwill in a business combination. Under the new guidance, the fair value of a reporting unit will be compared with the carrying value and an impairment charge will be recognized if the carrying amount exceeds the fair value of the reporting unit. The adoption of this guidance did not have a material impact on the Registrants.value.
3. Segment and Related Information
(PPL)
See Note 2 in PPL's 20192020 Form 10-K for a discussion of reportable segments and related information.
On March 17, 2021, PPL WPD Limited entered into a share purchase agreement to sell PPL's U.K. utility business, which substantially represented PPL's U.K. Regulated segment. As a result, PPL determined segment information for the U.K. Regulated segment would no longer be provided beginning with the March 31, 2021 Form 10-Q. The sale of the U.K. utility business was completed on June 14, 2021. See Note 9 for additional information.
Income Statement data for the segments and reconciliation to PPL's consolidated results for the periods ended September 30 are as follows:
| | | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | Operating Revenues from external customers | Operating Revenues from external customers | | | | | | | | Operating Revenues from external customers | | | | | | | |
| U.K. Regulated | $ | 485 | | | $ | 491 | | | $ | 1,575 | | | $ | 1,615 | | |
| Kentucky Regulated | Kentucky Regulated | 806 | | | 844 | | | 2,331 | | | 2,421 | | Kentucky Regulated | $ | 879 | | | $ | 806 | | | $ | 2,505 | | | $ | 2,331 | |
| Pennsylvania Regulated | Pennsylvania Regulated | 586 | | | 590 | | | 1,748 | | | 1,756 | | Pennsylvania Regulated | 627 | | | 586 | | | 1,769 | | | 1,748 | |
| Corporate and Other | Corporate and Other | 8 | | | 8 | | | 24 | | | 23 | | Corporate and Other | 6 | | | 8 | | | 24 | | | 24 | |
| Total | Total | $ | 1,885 | | | $ | 1,933 | | | $ | 5,678 | | | $ | 5,815 | | Total | $ | 1,512 | | | $ | 1,400 | | | $ | 4,298 | | | $ | 4,103 | |
| | Net Income | Net Income | | | | | | | | Net Income | | | | | | | |
| U.K. Regulated (a) | $ | 55 | | | $ | 236 | | | $ | 574 | | | $ | 784 | | |
| Kentucky Regulated | 129 | | | 150 | | | 330 | | | 364 | | |
| Pennsylvania Regulated | 135 | | | 118 | | | 371 | | | 333 | | |
| Corporate and Other | (38) | | | (29) | | | (96) | | | (99) | | |
| | Kentucky Regulated (a) | | Kentucky Regulated (a) | $ | 159 | | | $ | 129 | | | $ | 389 | | | $ | 330 | |
| Pennsylvania Regulated (a) | | Pennsylvania Regulated (a) | 126 | | | 135 | | | 335 | | | 371 | |
| Corporate and Other (a)(b)(c) | | Corporate and Other (a)(b)(c) | (76) | | | (147) | | | (848) | | | (227) | |
| Discontinued Operations (d) | | Discontinued Operations (d) | (2) | | | 164 | | | (1,490) | | | 705 | |
| Total | Total | $ | 281 | | | $ | 475 | | | $ | 1,179 | | | $ | 1,382 | | Total | $ | 207 | | | $ | 281 | | | $ | (1,614) | | | $ | 1,179 | |
(a)Includes unrealized gainsBeginning in 2021, corporate level financing costs are no longer allocated to the reportable segments and are being reported in Corporate and Other. For the three and nine months ended September 30, 2020, corporate level financing costs of $8 million, net of $2 million of income taxes, and $25 million, net of $6 million of income taxes, were allocated to the Kentucky Regulated segment. For the three and nine months ended September 30, 2020, an immaterial amount of financing costs were allocated to the Pennsylvania Regulated segment.
(b)The amounts for the periods ended September 30, 2020 have been adjusted for certain costs that were previously included in the U.K. Regulated segment.
(c)2021 includes losses from hedging foreign currency economic activity.the extinguishment of PPL Capital Funding debt. See Note 158 for additional information.
(d)See Note 9 for additional information.
The following provides Balance Sheet data for the segments and reconciliation to PPL's consolidated Balance Sheets as of:
| | | September 30,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Assets | Assets | | | | Assets | | | |
| U.K. Regulated (a) (b) | $ | 19,183 | | | $ | 17,622 | | |
| Kentucky Regulated | Kentucky Regulated | 15,754 | | | 15,597 | | Kentucky Regulated | $ | 16,250 | | | $ | 15,943 | |
| Pennsylvania Regulated | Pennsylvania Regulated | 12,225 | | | 11,918 | | Pennsylvania Regulated | 13,350 | | | 12,347 | |
| Corporate and Other (c) | 762 | | | 543 | | |
| Corporate and Other (a) | | Corporate and Other (a) | 4,571 | | | 843 | |
| Assets Held for Sale (b) | | Assets Held for Sale (b) | — | | | 18,983 | |
| Total | Total | $ | 47,924 | | | $ | 45,680 | | Total | $ | 34,171 | | | $ | 48,116 | |
(a)Includes $14.2 billion and $13.2 billion of net PP&E as of September 30, 2020 and December 31, 2019. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP.
(b)Includes $2.6 billion and $2.5 billion of goodwill as of September 30, 2020 and December 31, 2019. The change is due to the effect of foreign currency exchange rates.
(c)Primarily consists of unallocated items, including cash, PP&E, goodwill, the elimination of inter-segment transactions as well as the assets of Safari Energy.
(b)See Note 9 for additional information.
(PPL Electric, LKE, LG&E and KU)
PPL Electric has two operating segments, distribution and transmission, which are aggregated into a single reportable segment. LKE, LG&E and KU are individually single operating and reportable segments.
4. Revenue from Contracts with Customers
(All Registrants)
See Note 3 in PPL's 2019the Registrants' 2020 Form 10-K for a discussion of the principal activities from which the Registrants and PPL’s segments generate their revenues.
The following tables reconcile "Operating Revenues" included in each Registrant's Statement of Income with revenues generated from contracts with customers for the periods ended September 30.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Three Months |
| PPL | | PPL Electric | | LKE | | LG&E | | KU |
| Operating Revenues (a) | $ | 1,885 | | | $ | 586 | | | $ | 806 | | | $ | 363 | | | $ | 452 | |
| Revenues derived from: | | | | | | | | | |
| Alternative revenue programs (b) | (1) | | | (5) | | | 4 | | | 2 | | | 2 | |
| Other (c) | (5) | | | 0 | | | (4) | | | (2) | | | (2) | |
| Revenues from Contracts with Customers | $ | 1,879 | | | $ | 581 | | | $ | 806 | | | $ | 363 | | | $ | 452 | |
| |
| 2019 Three Months |
| PPL | | PPL Electric | | LKE | | LG&E | | KU |
| Operating Revenues (a) | $ | 1,933 | | | $ | 590 | | | $ | 844 | | | $ | 382 | | | $ | 466 | |
| Revenues derived from: | | | | | | | | | |
| Alternative revenue programs (b) | 8 | | | 2 | | | 6 | | | 4 | | | 2 | |
| Other (c) | (11) | | | (3) | | | (6) | | | (3) | | | (3) | |
| Revenues from Contracts with Customers | $ | 1,930 | | | $ | 589 | | | $ | 844 | | | $ | 383 | | | $ | 465 | |
| | | 2020 Nine Months | | 2021 Three Months |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU | | PPL | | PPL Electric | | LG&E | | KU |
| Operating Revenues (a) | Operating Revenues (a) | $ | 5,678 | | | $ | 1,748 | | | $ | 2,331 | | | $ | 1,092 | | | $ | 1,272 | | Operating Revenues (a) | $ | 1,512 | | | $ | 627 | | | $ | 395 | | | $ | 494 | |
| Revenues derived from: | Revenues derived from: | | Revenues derived from: | |
| Alternative revenue programs (b) | Alternative revenue programs (b) | (12) | | | (6) | | | (6) | | | (2) | | | (4) | | Alternative revenue programs (b) | 19 | | | 22 | | | (1) | | | (2) | |
| Other (c) | Other (c) | (22) | | | (3) | | | (14) | | | (6) | | | (8) | | Other (c) | (4) | | | — | | | (2) | | | (2) | |
| Revenues from Contracts with Customers | Revenues from Contracts with Customers | $ | 5,644 | | | $ | 1,739 | | | $ | 2,311 | | | $ | 1,084 | | | $ | 1,260 | | Revenues from Contracts with Customers | $ | 1,527 | | | $ | 649 | | | $ | 392 | | | $ | 490 | |
| | | 2019 Nine Months | | 2020 Three Months |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU | | PPL | | PPL Electric | | LG&E | | KU |
| Operating Revenues (a) | Operating Revenues (a) | $ | 5,815 | | | $ | 1,756 | | | $ | 2,421 | | | $ | 1,126 | | | $ | 1,322 | | Operating Revenues (a) | $ | 1,400 | | | $ | 586 | | | $ | 363 | | | $ | 452 | |
| Revenues derived from: | Revenues derived from: | | Revenues derived from: | |
| Alternative revenue programs (b) | Alternative revenue programs (b) | (18) | | | (4) | | | (14) | | | (1) | | | (13) | | Alternative revenue programs (b) | (1) | | | (5) | | | 2 | | | 2 | |
| Other (c) | Other (c) | (30) | | | (8) | | | (16) | | | (7) | | | (9) | | Other (c) | (4) | | | — | | | (2) | | | (2) | |
| Revenues from Contracts with Customers | Revenues from Contracts with Customers | $ | 5,767 | | | $ | 1,744 | | | $ | 2,391 | | | $ | 1,118 | | | $ | 1,300 | | Revenues from Contracts with Customers | $ | 1,395 | | | $ | 581 | | | $ | 363 | | | $ | 452 | |
| | | | 2021 Nine Months |
| | | PPL | | PPL Electric | | LG&E | | KU |
| Operating Revenues (a) | | Operating Revenues (a) | $ | 4,298 | | | $ | 1,769 | | | $ | 1,165 | | | $ | 1,374 | |
| Revenues derived from: | | Revenues derived from: | |
| Alternative revenue programs (b) | | Alternative revenue programs (b) | 62 | | | 68 | | | (2) | | | (4) | |
| Other (c) | | Other (c) | (15) | | | — | | | (7) | | | (8) | |
| Revenues from Contracts with Customers | | Revenues from Contracts with Customers | $ | 4,345 | | | $ | 1,837 | | | $ | 1,156 | | | $ | 1,362 | |
| | | | 2020 Nine Months |
| | | PPL | | PPL Electric | | LG&E | | KU |
| Operating Revenues (a) | | Operating Revenues (a) | $ | 4,103 | | | $ | 1,748 | | | $ | 1,092 | | | $ | 1,272 | |
| Revenues derived from: | | Revenues derived from: | |
| Alternative revenue programs (b) | | Alternative revenue programs (b) | (12) | | | (6) | | | (2) | | | (4) | |
| Other (c) | | Other (c) | (17) | | | (3) | | | (6) | | | (8) | |
| Revenues from Contracts with Customers | | Revenues from Contracts with Customers | $ | 4,074 | | | $ | 1,739 | | | $ | 1,084 | | | $ | 1,260 | |
(a)PPL includes $485 million and $1,575 million for the three and nine months ended September 30, 2020 and $491 million and $1,615 million for the three and nine months ended September 30, 2019 of revenues from external customers reported by the U.K. Regulated segment. PPL Electric and LKE representrepresents revenues from external customers reported by the Pennsylvania Regulated segment and LG&E and KU, net of intercompany power sales and transmission revenues, represent revenues from external customers reported by the Kentucky Regulated segments.segment. Kentucky Regulated segment revenues from contracts with customers were $872 million and $2,484 million for the three and nine month periods ended September 30, 2021 and $806 million and $2,311 million for the three and nine month periods ended September 30, 2020. See Note 3 for additional information.
(b)Alternative revenue programs include the transmission formula rate for PPL Electric, the ECR and DSM programs for LG&E and KU, the GLT program and gas supply clause incentive mechanism for LG&E, and the generation formula rate for KU. For PPL Electric, the three months and nine months ended September 30, 2021 include a $13 million and $64 million reserve recorded for a reduction in the transmission formula rate return on equity. See Note 7 for additional information. This line item shows the over/under collection of these rate mechanisms with over-collections of revenue shown as positive amounts in the table above and under-collections shown as negative amounts.
(c)Represents additional revenues outside the scope of revenues from contracts with customers, such as lease and other miscellaneous revenues.
The following tables show revenues from contracts with customers disaggregated by customer class for the periods ended September 30.
| | | 2020 Three Months | | 2021 Three Months |
| | PPL (d) | | PPL Electric (d) | | LKE | | LG&E | | KU | | PPL | | PPL Electric | | LG&E | | KU |
| Licensed energy suppliers (a) | $ | 440 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | |
| | Residential | Residential | 651 | | | 303 | | | 348 | | | 173 | | | 175 | | Residential | $ | 684 | | | $ | 324 | | | $ | 180 | | | $ | 180 | |
| Commercial | Commercial | 310 | | | 79 | | | 231 | | | 112 | | | 119 | | Commercial | 345 | | | 95 | | | 123 | | | 127 | |
| Industrial | Industrial | 156 | | | 13 | | | 143 | | | 47 | | | 96 | | Industrial | 168 | | | 14 | | | 46 | | | 108 | |
| Other (b) | 130 | | | 12 | | | 66 | | | 28 | | | 38 | | |
| Other (a) | | Other (a) | 100 | | | 13 | | | 37 | | | 44 | |
| Wholesale - municipality | Wholesale - municipality | 7 | | | 0 | | | 7 | | | 0 | | | 7 | | Wholesale - municipality | 7 | | | — | | | — | | | 7 | |
| Wholesale - other (c) | 11 | | | 0 | | | 11 | | | 3 | | | 17 | | |
| Wholesale - other (b) | | Wholesale - other (b) | 20 | | | — | | | 6 | | | 24 | |
| Transmission | Transmission | 174 | | | 174 | | | 0 | | | 0 | | | 0 | | Transmission | 203 | | | 203 | | | — | | | — | |
| Revenues from Contracts with Customers | Revenues from Contracts with Customers | $ | 1,879 | | | $ | 581 | | | $ | 806 | | | $ | 363 | | | $ | 452 | | Revenues from Contracts with Customers | $ | 1,527 | | | $ | 649 | | | $ | 392 | | | $ | 490 | |
| | 2019 Three Months | |
| PPL | | PPL Electric | | LKE | | LG&E | | KU | |
| Licensed energy suppliers (a) | $ | 454 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | |
| Residential | 708 | | | 352 | | | 356 | | | 177 | | | 179 | | |
| Commercial | 346 | | | 97 | | | 249 | | | 123 | | | 126 | | |
| Industrial | 164 | | | 16 | | | 148 | | | 47 | | | 101 | | |
| Other (b) | 128 | | | 12 | | | 73 | | | 31 | | | 42 | | |
| Wholesale - municipality | 6 | | | 0 | | | 6 | | | 0 | | | 6 | | |
| Wholesale - other (c) | 12 | | | 0 | | | 12 | | | 5 | | | 11 | | |
| Transmission | 112 | | | 112 | | | 0 | | | 0 | | | 0 | | |
| Revenues from Contracts with Customers | $ | 1,930 | | | $ | 589 | | | $ | 844 | | | $ | 383 | | | $ | 465 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Three Months |
| PPL | | PPL Electric | | LG&E | | KU |
| | | | | | | |
| Residential | $ | 651 | | | $ | 303 | | | $ | 173 | | | $ | 175 | |
| Commercial | 310 | | | 79 | | | 112 | | | 119 | |
| Industrial | 156 | | | 13 | | | 47 | | | 96 | |
| Other (a) | 86 | | | 12 | | | 28 | | | 38 | |
| Wholesale - municipality | 7 | | | — | | | — | | | 7 | |
| Wholesale - other (b) | 11 | | | — | | | 3 | | | 17 | |
| Transmission | 174 | | | 174 | | | — | | | — | |
| Revenues from Contracts with Customers | $ | 1,395 | | | $ | 581 | | | $ | 363 | | | $ | 452 | |
| | | | | | | |
| 2021 Nine Months |
| PPL | | PPL Electric | | LG&E | | KU |
| | | | | | | |
| Residential | $ | 2,025 | | | $ | 964 | | | $ | 529 | | | $ | 532 | |
| Commercial | 955 | | | 260 | | | 351 | | | 344 | |
| Industrial | 474 | | | 39 | | | 135 | | | 300 | |
| Other (a) | 284 | | | 38 | | | 102 | | | 120 | |
| Wholesale - municipality | 18 | | | — | | | — | | | 18 | |
| Wholesale - other (b) | 53 | | | — | | | 39 | | | 48 | |
| Transmission | 536 | | | 536 | | | — | | | — | |
| Revenues from Contracts with Customers | $ | 4,345 | | | $ | 1,837 | | | $ | 1,156 | | | $ | 1,362 | |
| | | | | | | |
| 2020 Nine Months |
| PPL | | PPL Electric | | LG&E | | KU |
| | | | | | | |
| Residential | $ | 1,948 | | | $ | 937 | | | $ | 509 | | | $ | 502 | |
| Commercial | 896 | | | 234 | | | 336 | | | 326 | |
| Industrial | 434 | | | 33 | | | 130 | | | 271 | |
| Other (a) | 256 | | | 38 | | | 84 | | | 110 | |
| Wholesale - municipality | 15 | | | — | | | — | | | 15 | |
| Wholesale - other (b) | 28 | | | — | | | 25 | | | 36 | |
| Transmission | 497 | | | 497 | | | — | | | — | |
| Revenues from Contracts with Customers | $ | 4,074 | | | $ | 1,739 | | | $ | 1,084 | | | $ | 1,260 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Nine Months |
| PPL (d) | | PPL Electric (d) | | LKE | | LG&E | | KU |
| Licensed energy suppliers (a) | $ | 1,472 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Residential | 1,948 | | | 937 | | | 1,011 | | | 509 | | | 502 | |
| Commercial | 896 | | | 234 | | | 662 | | | 336 | | | 326 | |
| Industrial | 434 | | | 33 | | | 401 | | | 130 | | | 271 | |
| Other (b) | 354 | | | 38 | | | 194 | | | 84 | | | 110 | |
| Wholesale - municipality | 15 | | | 0 | | | 15 | | | 0 | | | 15 | |
| Wholesale - other (c) | 28 | | | 0 | | | 28 | | | 25 | | | 36 | |
| Transmission | 497 | | | 497 | | | 0 | | | 0 | | | 0 | |
| Revenues from Contracts with Customers | $ | 5,644 | | | $ | 1,739 | | | $ | 2,311 | | | $ | 1,084 | | | $ | 1,260 | |
| | | | | | | | | |
| 2019 Nine Months |
| PPL | | PPL Electric | | LKE | | LG&E | | KU |
| Licensed energy suppliers (a) | $ | 1,520 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Residential | 2,058 | | | 1,060 | | | 998 | | | 504 | | | 494 | |
| Commercial | 967 | | | 279 | | | 688 | | | 352 | | | 336 | |
| Industrial | 470 | | | 48 | | | 422 | | | 134 | | | 288 | |
| Other (b) | 360 | | | 39 | | | 209 | | | 93 | | | 116 | |
| Wholesale - municipality | 38 | | | 0 | | | 38 | | | 0 | | | 38 | |
| Wholesale - other (c) | 36 | | | 0 | | | 36 | | | 35 | | | 28 | |
| Transmission | 318 | | | 318 | | | 0 | | | 0 | | | 0 | |
| Revenues from Contracts with Customers | $ | 5,767 | | | $ | 1,744 | | | $ | 2,391 | | | $ | 1,118 | | | $ | 1,300 | |
(a)Represents customers of WPD.
(b)Primarily includes revenues from pole attachments, street lighting, other public authorities and other non-core businesses.
(c)(b)Includes wholesale power and transmission revenues. LG&E and KU amounts include intercompany power sales and transmission revenues, which are eliminated upon consolidation at LKE.
(d)In the fourth quarter of 2019, management deemed it appropriate to present the revenue offset associated with network integration transmission service (NITS) as distribution revenue rather than transmission revenue.Kentucky Regulated segment.
As discussed in Note 2 in PPL's 20192020 Form 10-K, PPL segments its business by geographic location. Revenues from external customers for each segment/geographic location are reconciled to revenues from contracts with customers in the footnotes to the tables above. PPL Electric's revenues from contracts with customers are further disaggregated by distribution and transmission, which were $407 million and $174 million for the three months ended September 30, 2020 and $1.2 billion and $497 million for the nine months ended September 30, 2020. PPL Electric's revenue from contracts with customers disaggregated by distribution and transmission were $477 million and $112 million for the three months ended September 30, 2019 and $1.4 billion and $318 million for the nine months ended September 30, 2019.
Contract receivables from customers are primarily included in "Accounts receivable - Customer", "Unbilled revenues", and "Unbilled revenues""Other noncurrent assets" on the Balance Sheets.
The following table shows the accounts receivable and unbilled revenues balances that were impaired for the periods ended September 30.
| | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| PPL | PPL | $ | 8 | | | $ | 11 | | | $ | 22 | | | $ | 22 | | PPL | $ | 7 | | | $ | 7 | | | $ | 9 | | | $ | 19 | |
| PPL Electric | PPL Electric | 3 | | | 8 | | | 12 | | | 14 | | PPL Electric | 3 | | | 3 | | | 4 | | | 12 | |
| LKE | 4 | | | 2 | | | 7 | | | 5 | | |
| LG&E | LG&E | 3 | | | 1 | | | 4 | | | 2 | | LG&E | 1 | | | 3 | | | 1 | | | 4 | |
| KU | KU | 1 | | | 1 | | | 3 | | | 3 | | KU | 3 | | | 1 | | | 4 | | | 3 | |
The following table shows the balances and certain activity of contract liabilities resulting from contracts with customers.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric | | LKE | | LG&E | | KU |
| Contract liabilities at December 31, 2019 | $ | 44 | | | $ | 21 | | | $ | 9 | | | $ | 5 | | | $ | 4 | |
| Contract liabilities at September 30, 2020 | 40 | | | 18 | | | 9 | | | 5 | | | 4 | |
| Revenue recognized during the nine months ended September 30, 2020 that was included in the contract liability balance at December 31, 2019 | 28 | | | 9 | | | 9 | | | 5 | | | 4 | |
| | | | | | | | | |
| Contract liabilities at December 31, 2018 | $ | 42 | | | $ | 23 | | | $ | 9 | | | $ | 5 | | | $ | 4 | |
| Contract liabilities at September 30, 2019 | 42 | | | 19 | | | 9 | | | 5 | | | 4 | |
| Revenue recognized during the nine months ended September 30, 2019 that was included in the contract liability balance at December 31, 2018 | 31 | | | 11 | | | 9 | | | 5 | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric | | LG&E | | KU |
| Contract liabilities at December 31, 2020 | $ | 40 | | | $ | 23 | | | $ | 5 | | | $ | 6 | |
| Contract liabilities at September 30, 2021 | 37 | | | 21 | | | 6 | | | 6 | |
| Revenue recognized during the nine months ended September 30, 2021 that was included in the contract liability balance at December 31, 2020 | 24 | | | 11 | | | 5 | | | 6 | |
| | | | | | | |
| Contract liabilities at December 31, 2019 | $ | 37 | | | $ | 21 | | | $ | 5 | | | $ | 4 | |
| Contract liabilities at September 30, 2020 | 32 | | | 18 | | | 5 | | | 4 | |
| Revenue recognized during the nine months ended September 30, 2020 that was included in the contract liability balance at December 31, 2019 | 21 | | | 9 | | | 5 | | | 4 | |
Contract liabilities result from recording contractual billings in advance for customer attachments to the Registrants' infrastructure and payments received in excess of revenues earned to date. Advanced billings for customer attachments are recognized as revenue ratably over the billing period. Payments received in excess of revenues earned to date are recognized as revenue as services are delivered in subsequent periods.
At September 30, 2020,2021, PPL had $40$48 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately $40$42 million within the next 12 months.
5. Earnings Per Share
(PPL)
Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securitiesshare-based payment awards were converted to common shares as calculated using the Two-Class Method or Treasury Stock Method. Incremental non-participating securities that have a dilutive impact are detailed in the table below. These dilutive securities include the PPL common stock forward sale agreements, which were settled in 2019. The forward sale
agreements were dilutive under the Treasury Stock Method to the extent the average stock price of PPL's common shares exceeded the forward sale price prescribed in the agreements.
Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended September 30 used in the EPS calculation are:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Income (Numerator) | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income | $ | 281 | | | $ | 475 | | | $ | 1,179 | | | $ | 1,382 | |
| Less amounts allocated to participating securities | 0 | | | 0 | | | 1 | | | 2 | |
| Net income available to PPL common shareowners - Basic and Diluted | $ | 281 | | | $ | 475 | | | $ | 1,178 | | | $ | 1,380 | |
| | | | | | | |
| Shares of Common Stock (Denominator) | | | | | | | |
| Weighted-average shares - Basic EPS | 768,786 | | | 722,259 | | | 768,502 | | | 721,693 | |
| Add incremental non-participating securities: | | | | | | | |
| Share-based payment awards | 874 | | | 1,106 | | | 768 | | | 1,009 | |
| Forward sale agreements | 0 | | | 7,786 | | | 0 | | | 7,975 | |
| Weighted-average shares - Diluted EPS | 769,660 | | | 731,151 | | | 769,270 | | | 730,677 | |
| | | | | | | |
| Basic EPS | | | | | | | |
| | | | | | | |
| | | | | | | |
| Net Income available to PPL common shareowners | $ | 0.37 | | | $ | 0.66 | | | $ | 1.53 | | | $ | 1.91 | |
| | | | | | | |
| Diluted EPS | | | | | | | |
| | | | | | | |
| | | | | | | |
| Net Income available to PPL common shareowners | $ | 0.37 | | | $ | 0.65 | | | $ | 1.53 | | | $ | 1.89 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Income (Numerator) | | | | | | | |
| | | | | | | |
| | | | | | | |
| Income (loss) from continuing operations after income taxes available to PPL common shareowners - Basic and Diluted | $ | 209 | | | $ | 117 | | | $ | (124) | | | $ | 474 | |
| | | | | | | |
| Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic and Diluted | $ | (2) | | | $ | 164 | | | $ | (1,490) | | | $ | 705 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) available to PPL common shareowners - Basic and Diluted | $ | 207 | | | $ | 281 | | | $ | (1,614) | | | $ | 1,179 | |
| | | | | | | |
| Shares of Common Stock (Denominator) | | | | | | | |
| Weighted-average shares - Basic EPS | 767,733 | | | 768,786 | | | 768,781 | | | 768,502 | |
| | | | | | | |
| Add: Dilutive share-based payment awards (a) | 2,116 | | | 874 | | | — | | | 768 | |
| | | | | | | |
| Weighted-average shares - Diluted EPS | 769,849 | | | 769,660 | | | 768,781 | | | 769,270 | |
| | | | | | | |
| Basic and Diluted EPS | | | | | | | |
| Available to PPL common shareowners: | | | | | | | |
| Income from continuing operations after income taxes | $ | 0.27 | | | $ | 0.15 | | | $ | (0.16) | | | $ | 0.62 | |
| Income (loss) from discontinued operations (net of income taxes) | — | | | 0.22 | | | (1.94) | | | 0.91 | |
| Net Income (Loss) available to PPL common shareowners | $ | 0.27 | | | $ | 0.37 | | | $ | (2.10) | | | $ | 1.53 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(a) All share-based payment awards were excluded from dilutive shares under the Treasury Stock Method for the nine months ended September 30, 2021, as their effect would have been anti-dilutive due to the loss from continuing operations.
For the periods ended September 30, PPL issued common stock related to stock-based compensation plans and the DRIP as follows (in thousands):
| | | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Stock-based compensation plans | Stock-based compensation plans | 14 | | | 38 | | | 621 | | | 680 | | Stock-based compensation plans | 158 | | | 14 | | | 816 | | | 621 | |
| DRIP | DRIP | 0 | | | 430 | | | 943 | | | 1,305 | | DRIP | — | | | — | | | — | | | 943 | |
See Note 8 for common stock repurchased under an authorized share repurchase program.
For the periods ended September 30, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| 2020 | | 2019 | | 2020 | | 2019 |
| Stock-based compensation awards | 364 | | | 0 | | | 595 | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| 2021 | | 2020 | | 2021 | | 2020 |
| Stock-based compensation awards | 135 | | | 364 | | | 2,339 | | | 595 | |
6. Income Taxes
Reconciliations of income tax expense (benefit) for the periods ended September 30 are as follows.
| | | (PPL) | (PPL) | (PPL) |
| | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 103 | | | $ | 125 | | | $ | 336 | | | $ | 359 | | |
| Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 21% | | Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 21% | $ | 55 | | | $ | 59 | | | $ | 70 | | | $ | 155 | |
| Increase (decrease) due to: | Increase (decrease) due to: | | | | | | | | Increase (decrease) due to: | | | | | | | |
State income taxes, net of federal income tax benefit | State income taxes, net of federal income tax benefit | 15 | | | 13 | | | 39 | | | 34 | | State income taxes, net of federal income tax benefit | 17 | | | 15 | | | 12 | | | 39 | |
Valuation allowance adjustments | Valuation allowance adjustments | 7 | | | 7 | | | 20 | | | 21 | | Valuation allowance adjustments | 5 | | | 7 | | | 39 | | | 19 | |
| Impact of lower U.K. income tax rates | 2 | | | (6) | | | (18) | | | (20) | | |
| | Impact of the U.K. Finance Acts on deferred tax balances (a)(b) | Impact of the U.K. Finance Acts on deferred tax balances (a)(b) | 104 | | | (5) | | | 101 | | | (8) | | Impact of the U.K. Finance Acts on deferred tax balances (a)(b) | — | | | 104 | | | 383 | | | 101 | |
| | Depreciation and other items not normalized | 0 | | | (2) | | | (4) | | | (5) | | |
| | Amortization of excess deferred federal and state income taxes | Amortization of excess deferred federal and state income taxes | (11) | | | (9) | | | (34) | | | (30) | | Amortization of excess deferred federal and state income taxes | (18) | | | (11) | | | (38) | | | (34) | |
| Federal and state income tax return adjustments | Federal and state income tax return adjustments | (9) | | | 0 | | | (9) | | | 1 | | Federal and state income tax return adjustments | (4) | | | (9) | | | (4) | | | (9) | |
| Interest benefit on U.K. financing entities | (3) | | | (3) | | | (8) | | | (9) | | |
| Officers compensation disallowance | 1 | | | 0 | | | 5 | | | 2 | | |
| Kentucky recycling credit, net of federal income tax expense (b) | 0 | | | 0 | | | 0 | | | (20) | | |
| | Other | Other | 0 | | | (2) | | | (5) | | | 3 | | Other | (4) | | | — | | | (7) | | | (5) | |
| Total increase (decrease) | Total increase (decrease) | 106 | | | (7) | | | 87 | | | (31) | | Total increase (decrease) | (4) | | | 106 | | | 385 | | | 111 | |
| Total income tax expense (benefit) | Total income tax expense (benefit) | $ | 209 | | | $ | 118 | | | $ | 423 | | | $ | 328 | | Total income tax expense (benefit) | $ | 51 | | | $ | 165 | | | $ | 455 | | | $ | 266 | |
(a) The U.K. corporationIn 2021, PPL recorded a $31 million state deferred tax rate was scheduledbenefit on a net operating loss and an offsetting valuation allowance in connection with the loss on extinguishment associated with a tender offer to be reduced from 19% to 17%, effective April 1, 2020. On March 11, 2020,purchase and retire PPL Capital Funding's outstanding Senior Notes. See Note 8 for additional information on the tender offer.
(b)The U.K. Finance Act 2020, included a cancellation offormally enacted on July 22, 2020, cancelled the U.K. corporation tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19%. The Finance Act for financial years 2020 was formally enacted on July 22, 2020.and 2021. The primary impact of the cancellation of the corporationcorporate tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.$102 million in the third quarter of 2020.
(b) During
The U.K. Finance Act 2021, formally enacted on June 10, 2021, increased the U.K. corporation tax rate from 19% to 25%, effective April 1, 2023. The primary impact of the corporation tax rate increase was an increase in deferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a corresponding deferred tax expense of $383 million, which was recognized in continuing operations in the second quarter of 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. A portion of this amount has been reserved due to insufficient Kentucky taxable income projected at LKE.
| | | | | | | | | | | | | | | | | | | | | | | |
| (PPL Electric) | | | | | | | |
| | Three Months | | Nine Months |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 37 | | | $ | 33 | | | $ | 104 | | | $ | 94 | |
| Increase (decrease) due to: | | | | | | | |
| State income taxes, net of federal income tax benefit | 14 | | | 13 | | | 39 | | | 36 | |
| Federal and state income tax return adjustments | (4) | | | 0 | | | (4) | | | 1 | |
| Depreciation and other items not normalized | 0 | | | (2) | | | (4) | | | (5) | |
| Amortization of excess deferred federal and state income taxes | (4) | | | (4) | | | (12) | | | (12) | |
| | | | | | | |
| | | | | | | |
| Other | 1 | | | 0 | | | 2 | | | 0 | |
| Total increase (decrease) | 7 | | | 7 | | | 21 | | | 20 | |
| Total income tax expense (benefit) | $ | 44 | | | $ | 40 | | | $ | 125 | | | $ | 114 | |
| | (LKE) | | | | | |
| (PPL Electric) | | (PPL Electric) | | | | |
| | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 35 | | | $ | 42 | | | $ | 92 | | | $ | 98 | | Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 36 | | | $ | 37 | | | $ | 95 | | | $ | 104 | |
| Increase (decrease) due to: | Increase (decrease) due to: | | | | | | | | Increase (decrease) due to: | | | | | | | |
| State income taxes, net of federal income tax benefit | State income taxes, net of federal income tax benefit | 7 | | | 8 | | | 17 | | | 18 | | State income taxes, net of federal income tax benefit | 13 | | | 14 | | | 36 | | | 39 | |
| Amortization of investment tax credit | (1) | | | (1) | | | (2) | | | (2) | | |
| Federal and state income tax return adjustments | | Federal and state income tax return adjustments | — | | | (4) | | | — | | | (4) | |
| Depreciation and other items not normalized | | Depreciation and other items not normalized | — | | | — | | | (4) | | | (4) | |
| Amortization of excess deferred federal and state income taxes | | Amortization of excess deferred federal and state income taxes | (5) | | | (4) | | | (11) | | | (12) | |
| | Valuation allowance adjustments (a) | 0 | | | 0 | | | 0 | | | 3 | | |
| Amortization of excess deferred federal and state income taxes | (7) | | | (5) | | | (20) | | | (17) | | |
| Federal and state income tax return adjustments | (5) | | | 1 | | | (5) | | | 1 | | |
| Kentucky recycling credit, net of federal income tax expense (a) | 0 | | | 0 | | | 0 | | | (20) | | |
| Other | Other | 2 | | | (2) | | | 0 | | | (3) | | Other | 1 | | | 1 | | | — | | | 2 | |
| Total increase (decrease) | Total increase (decrease) | (4) | | | 1 | | | (10) | | | (20) | | Total increase (decrease) | 9 | | | 7 | | | 21 | | | 21 | |
| Total income tax expense (benefit) | Total income tax expense (benefit) | $ | 31 | | | $ | 43 | | | $ | 82 | | | $ | 78 | | Total income tax expense (benefit) | $ | 45 | | | $ | 44 | | | $ | 116 | | | $ | 125 | |
(a)During the second quarter of 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. A portion of this amount has been reserved due to insufficient Kentucky taxable income projected at LKE. | | | | | | | | | | | | | | | | | | | | | | | |
| (LG&E) | | | | | | | |
| | Three Months | | Nine Months |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 21 | | | $ | 18 | | | $ | 53 | | | $ | 50 | |
| Increase (decrease) due to: | | | | | | | |
| State income taxes, net of federal income tax benefit | 4 | | | 3 | | | 10 | | | 9 | |
| | | | | | | |
| Amortization of excess deferred federal and state income taxes | (7) | | | (3) | | | (13) | | | (8) | |
| Federal and state income tax return adjustments | — | | | (2) | | | — | | | (2) | |
| | | | | | | |
| Other | (1) | | | — | | | (2) | | | (2) | |
| Total increase (decrease) | (4) | | | (2) | | | (5) | | | (3) | |
| Total income tax expense (benefit) | $ | 17 | | | $ | 16 | | | $ | 48 | | | $ | 47 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | (LG&E) | | | | | |
| (KU) | | (KU) | | | | |
| | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 18 | | | $ | 21 | | | $ | 50 | | | $ | 50 | | Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 26 | | | $ | 22 | | | $ | 63 | | | $ | 56 | |
| Increase (decrease) due to: | Increase (decrease) due to: | | | | | | | | Increase (decrease) due to: | | | | | | | |
| State income taxes, net of federal income tax benefit | State income taxes, net of federal income tax benefit | 3 | | | 4 | | | 9 | | | 9 | | State income taxes, net of federal income tax benefit | 5 | | | 4 | | | 12 | | | 11 | |
| Valuation allowance adjustments (a) | 0 | | | 0 | | | 0 | | | 15 | | |
| | Amortization of excess deferred federal and state income taxes | Amortization of excess deferred federal and state income taxes | (3) | | | (2) | | | (8) | | | (7) | | Amortization of excess deferred federal and state income taxes | (6) | | | (4) | | | (14) | | | (12) | |
| Federal and state income tax return adjustments | Federal and state income tax return adjustments | (2) | | | 1 | | | (2) | | | 1 | | Federal and state income tax return adjustments | (1) | | | (3) | | | (1) | | | (3) | |
| Kentucky recycling credit, net of federal income tax expense (a) | 0 | | | 0 | | | 0 | | | (15) | | |
| | Other | Other | 0 | | | (2) | | | (2) | | | (2) | | Other | (1) | | | — | | | (3) | | | (2) | |
| Total increase (decrease) | Total increase (decrease) | (2) | | | 1 | | | (3) | | | 1 | | Total increase (decrease) | (3) | | | (3) | | | (6) | | | (6) | |
| Total income tax expense (benefit) | Total income tax expense (benefit) | $ | 16 | | | $ | 22 | | | $ | 47 | | | $ | 51 | | Total income tax expense (benefit) | $ | 23 | | | $ | 19 | | | $ | 57 | | | $ | 50 | |
(a)During the second quarter of 2019, LG&E recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. This amount has been reserved due to insufficient Kentucky taxable income projected at LG&E.
| | | | | | | | | | | | | | | | | | | | | | | |
| (KU) | | | | | | | |
| | Three Months | | Nine Months |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 22 | | | $ | 25 | | | $ | 56 | | | $ | 63 | |
| Increase (decrease) due to: | | | | | | | |
| State income taxes, net of federal income tax benefit | 4 | | | 5 | | | 11 | | | 12 | |
| Valuation allowance adjustments (a) | 0 | | | 0 | | | 0 | | | 5 | |
| Amortization of excess deferred federal and state income taxes | (4) | | | (3) | | | (12) | | | (10) | |
| Federal and state income tax return adjustments | (3) | | | 0 | | | (3) | | | 0 | |
| Kentucky recycling credit, net of federal income tax expense (a) | 0 | | | 0 | | | 0 | | | (5) | |
| Other | 0 | | | (1) | | | (2) | | | (3) | |
| Total increase (decrease) | (3) | | | 1 | | | (6) | | | (1) | |
| Total income tax expense (benefit) | $ | 19 | | | $ | 26 | | | $ | 50 | | | $ | 62 | |
(a)During the second quarter of 2019, KU recorded a deferred income tax benefit associated with a project placed into service that prepares a generation waste material for reuse and, as a result, qualifies for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. This amount has been reserved due to insufficient Kentucky taxable income projected at KU.
Other
2020 TCJA Regulatory Update Net Operating Loss and Tax Credit Carryforwards(All (All Registrants)
In July 2020,PPL utilized federal net operating losses of $1,111 million and tax credit carryforwards of $272 million in June 2021 as a result of the IRS issued final and new proposed regulations relating to limitationscompletion of the sale of the U.K. utility business on interest deductibility forJune 14, 2021. The related deferred tax purposes. The Registrants will apply the final regulations beginningassets decreased by approximately $506 million, with a corresponding reduction in the 2021 tax year. The proposed regulations will apply in the year in which the regulations are issued in final form, which is expected to be in 2021 or later. The Registrants are evaluating the final and proposed regulations, but do not expect the regulations to have a material impact on the Registrants’ financial condition or results of operations.current income taxes.
7. Utility Rate Regulation
(All Registrants)
The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.
| | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric |
| September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 |
| Current Regulatory Assets: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Plant outage costs | $ | 44 | | | $ | 32 | | | $ | 0 | | | $ | 0 | |
| Gas supply clause | 4 | | | 8 | | | 0 | | | 0 | |
| Smart meter rider | 17 | | | 13 | | | 17 | | | 13 | |
| | | | | | | |
| | | | | | | |
| Transmission formula rate | 9 | | | 3 | | | 9 | | | 3 | |
| Transmission service charge | 2 | | | 10 | | | 2 | | | 10 | |
| Other | 6 | | | 1 | | | 0 | | | 0 | |
| Total current regulatory assets (a) | $ | 82 | | | $ | 67 | | | $ | 28 | | | $ | 26 | |
| | | | | | | |
| Noncurrent Regulatory Assets: | | | | | | | |
| Defined benefit plans | $ | 750 | | | $ | 800 | | | $ | 450 | | | $ | 467 | |
| | | | | | | |
| Storm costs | 27 | | | 39 | | | 9 | | | 15 | |
| Unamortized loss on debt | 33 | | | 41 | | | 11 | | | 18 | |
| Interest rate swaps | 26 | | | 22 | | | 0 | | | 0 | |
| Terminated interest rate swaps | 77 | | | 81 | | | 0 | | | 0 | |
| Accumulated cost of removal of utility plant | 237 | | | 220 | | | 237 | | | 220 | |
| AROs | 297 | | | 279 | | | 0 | | | 0 | |
| Act 129 compliance rider | 0 | | | 6 | | | 0 | | | 6 | |
| Other | 3 | | | 4 | | | 1 | | | 0 | |
| Total noncurrent regulatory assets | $ | 1,450 | | | $ | 1,492 | | | $ | 708 | | | $ | 726 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric |
| September 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| Current Regulatory Assets: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Plant outage costs | $ | — | | | $ | 46 | | | $ | — | | | $ | — | |
| Gas supply clause | 12 | | | 4 | | | — | | | — | |
| Smart meter rider | 15 | | | 17 | | | 15 | | | 17 | |
| | | | | | | |
| Storm damage expense rider | 4 | | | — | | | 4 | | | — | |
| Transmission formula rate | 11 | | | 15 | | | 11 | | | 15 | |
| Gas line tracker | 7 | | | 4 | | | — | | | — | |
| Storm costs | 2 | | | 7 | | | 2 | | | 7 | |
| | | | | | | |
| Generation formula rate | 3 | | | 2 | | | — | | | — | |
| Other | 6 | | | 4 | | | — | | | 1 | |
| Total current regulatory assets | $ | 60 | | | $ | 99 | | | $ | 32 | | | $ | 40 | |
| | | | | | | |
| Noncurrent Regulatory Assets: | | | | | | | |
| Defined benefit plans | $ | 555 | | | $ | 570 | | | $ | 274 | | | $ | 290 | |
| | | | | | | |
| Storm costs | 12 | | | 17 | | | — | | | — | |
| Unamortized loss on debt | 25 | | | 30 | | | 4 | | | 8 | |
| Interest rate swaps | 19 | | | 23 | | | — | | | — | |
| Terminated interest rate swaps | 71 | | | 75 | | | — | | | — | |
| Accumulated cost of removal of utility plant | 232 | | | 240 | | | 232 | | | 240 | |
| AROs | 312 | | | 300 | | | — | | | — | |
| | | | | | | |
| Plant outage costs | 55 | | | — | | | — | | | — | |
| Other | 5 | | | 7 | | | — | | | 3 | |
| Total noncurrent regulatory assets | $ | 1,286 | | | $ | 1,262 | | | $ | 510 | | | $ | 541 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric |
| September 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| Current Regulatory Liabilities: | | | | | | | |
| Generation supply charge | $ | 11 | | | $ | 21 | | | $ | 11 | | | $ | 21 | |
| Transmission service charge | 26 | | | 1 | | | 26 | | | 1 | |
| | | | | | | |
| Environmental cost recovery | — | | | 4 | | | — | | | — | |
| Universal service rider | 16 | | | 22 | | | 16 | | | 22 | |
| | | | | | | |
| Fuel adjustment clause | — | | | 5 | | | — | | | — | |
| TCJA customer refund | 22 | | | 11 | | | 22 | | | 11 | |
| Storm damage expense rider | — | | | 6 | | | — | | | 6 | |
| Act 129 compliance rider | 7 | | | 7 | | | 7 | | | 7 | |
| Transmission formula rate return on equity reserve (a) | 64 | | | — | | | 64 | | | — | |
| Economic relief billing credit (b) | 38 | | | — | | | — | | | — | |
| Other | 3 | | | 2 | | | — | | | — | |
| Total current regulatory liabilities | $ | 187 | | | $ | 79 | | | $ | 146 | | | $ | 68 | |
| | | | | | | |
| | | |
| | | | | | | |
| Noncurrent Regulatory Liabilities: | | | | | | | |
| Accumulated cost of removal of utility plant | $ | 669 | | | $ | 653 | | | $ | — | | | $ | — | |
| Power purchase agreement - OVEC | 36 | | | 43 | | | — | | | — | |
| Net deferred taxes | 1,609 | | | 1,690 | | | 539 | | | 560 | |
| Defined benefit plans | 74 | | | 60 | | | 26 | | | 18 | |
| Terminated interest rate swaps | 64 | | | 66 | | | — | | | — | |
| Other | — | | | 18 | | | — | | | — | |
| Total noncurrent regulatory liabilities | $ | 2,452 | | | $ | 2,530 | | | $ | 565 | | | $ | 578 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric |
| September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 |
| Current Regulatory Liabilities: | | | | | | | |
| Generation supply charge | $ | 23 | | | $ | 23 | | | $ | 23 | | | $ | 23 | |
| | | | | | | |
| | | | | | | |
| Environmental cost recovery | 6 | | | 5 | | | 0 | | | 0 | |
| Universal service rider | 14 | | | 9 | | | 14 | | | 9 | |
| | | | | | | |
| Fuel adjustment clause | 8 | | | 8 | | | 0 | | | 0 | |
| TCJA customer refund | 21 | | | 61 | | | 21 | | | 59 | |
| Storm damage expense rider | 7 | | | 5 | | | 7 | | | 5 | |
| Act 129 compliance rider | 8 | | | 0 | | | 8 | | | 0 | |
| Other | 3 | | | 4 | | | 0 | | | 0 | |
| Total current regulatory liabilities | $ | 90 | | | $ | 115 | | | $ | 73 | | | $ | 96 | |
| | | | | | | |
| | | |
| | | | | | | |
| Noncurrent Regulatory Liabilities: | | | | | | | |
| Accumulated cost of removal of utility plant | $ | 648 | | | $ | 640 | | | $ | 0 | | | $ | 0 | |
| Power purchase agreement - OVEC | 45 | | | 51 | | | 0 | | | 0 | |
| Net deferred taxes | 1,705 | | | 1,756 | | | 565 | | | 588 | |
| Defined benefit plans | 59 | | | 51 | | | 17 | | | 11 | |
| Terminated interest rate swaps | 66 | | | 68 | | | 0 | | | 0 | |
| Other | 20 | | | 6 | | | 0 | | | 0 | |
| Total noncurrent regulatory liabilities | $ | 2,543 | | | $ | 2,572 | | | $ | 582 | | | $ | 599 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | LG&E | | KU |
| September 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| Current Regulatory Assets: | | | | | | | |
| | | | | | | |
| Gas supply clause | $ | 12 | | | $ | 4 | | | $ | — | | | $ | — | |
| Gas line tracker | 7 | | | 4 | | | — | | | — | |
| Plant outage costs | — | | | 12 | | | — | | | 34 | |
| Generation formula rate | — | | | — | | | 3 | | | 2 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other | 5 | | | 3 | | | 1 | | | — | |
| Total current regulatory assets | $ | 24 | | | $ | 23 | | | $ | 4 | | | $ | 36 | |
| | | | | | | |
| Noncurrent Regulatory Assets: | | | | | | | |
| Defined benefit plans | $ | 175 | | | $ | 174 | | | $ | 106 | | | $ | 106 | |
| Storm costs | 8 | | | 11 | | | 4 | | | 6 | |
| Unamortized loss on debt | 13 | | | 13 | | | 8 | | | 9 | |
| Interest rate swaps | 19 | | | 23 | | | — | | | — | |
| Terminated interest rate swaps | 42 | | | 44 | | | 29 | | | 31 | |
| AROs | 87 | | | 85 | | | 225 | | | 215 | |
| Plant outage costs | 15 | | | — | | | 40 | | | — | |
| Other | 3 | | | 1 | | | 2 | | | 3 | |
| Total noncurrent regulatory assets | $ | 362 | | | $ | 351 | | | $ | 414 | | | $ | 370 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | LKE | | LG&E | | KU |
| September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 |
| Current Regulatory Assets: | | | | | | | | | | | |
| | | | | | | | | | | |
| Plant outage costs | $ | 44 | | | $ | 32 | | | $ | 14 | | | $ | 16 | | | $ | 30 | | | $ | 16 | |
| | | | | | | | | | | |
| Gas supply clause | 4 | | | 8 | | | 4 | | | 8 | | | 0 | | | 0 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other | 6 | | | 1 | | | 5 | | | 1 | | | 1 | | | 0 | |
| Total current regulatory assets | $ | 54 | | | $ | 41 | | | $ | 23 | | | $ | 25 | | | $ | 31 | | | $ | 16 | |
| | | | | | | | | | | |
| Noncurrent Regulatory Assets: | | | | | | | | | | | |
| Defined benefit plans | $ | 300 | | | $ | 333 | | | $ | 179 | | | $ | 206 | | | $ | 121 | | | $ | 127 | |
| Storm costs | 18 | | | 24 | | | 11 | | | 14 | | | 7 | | | 10 | |
| Unamortized loss on debt | 22 | | | 23 | | | 13 | | | 14 | | | 9 | | | 9 | |
| Interest rate swaps | 26 | | | 22 | | | 26 | | | 22 | | | 0 | | | 0 | |
| Terminated interest rate swaps | 77 | | | 81 | | | 45 | | | 47 | | | 32 | | | 34 | |
| AROs | 297 | | | 279 | | | 85 | | | 76 | | | 212 | | | 203 | |
| | | | | | | | | | | |
| Other | 2 | | | 4 | | | 1 | | | 1 | | | 1 | | | 3 | |
| Total noncurrent regulatory assets | $ | 742 | | | $ | 766 | | | $ | 360 | | | $ | 380 | | | $ | 382 | | | $ | 386 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| LG&E | | KU |
| September 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| Current Regulatory Liabilities: | | | | | | | |
| Environmental cost recovery | $ | — | | | $ | — | | | $ | — | | | $ | 4 | |
| | | | | | | |
| | | | | | | |
| Fuel adjustment clause | — | | | — | | | — | | | 5 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Economic relief billing credit (b) | 29 | | | — | | | 9 | | | — | |
| Other | 1 | | | — | | | 2 | | | 2 | |
| Total current regulatory liabilities | $ | 30 | | | $ | — | | | $ | 11 | | | $ | 11 | |
| | | | | | | |
| Noncurrent Regulatory Liabilities: | | | | | | | |
| Accumulated cost of removal of utility plant | $ | 277 | | | $ | 274 | | | $ | 392 | | | $ | 379 | |
| | | | | | | |
| Power purchase agreement - OVEC | 25 | | | 30 | | | 11 | | | 13 | |
| Net deferred taxes | 495 | | | 528 | | | 575 | | | 602 | |
| Defined benefit plans | 1 | | | — | | | 47 | | | 42 | |
| | | | | | | |
| Terminated interest rate swaps | 32 | | | 33 | | | 32 | | | 33 | |
| Other | — | | | 17 | | | — | | | 1 | |
| Total noncurrent regulatory liabilities | $ | 830 | | | $ | 882 | | | $ | 1,057 | | | $ | 1,070 | |
(a)See “Regulatory Matters - Federal Matters - PPL Electric Transmission Formula Rate Return on Equity” below for additional information.
(b)Represents regulatory liabilities to be returned to customers through June 30, 2022, as agreed to in the Kentucky rate case, in recognition of the economic impact of COVID-19. See "Regulatory Matters – Kentucky Activities – Rate Case Proceedings" below for additional information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LKE | | LG&E | | KU |
| September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 |
| Current Regulatory Liabilities: | | | | | | | | | | | |
| Environmental cost recovery | $ | 6 | | | $ | 5 | | | $ | 2 | | | $ | 1 | | | $ | 4 | | | $ | 4 | |
| Demand side management | 2 | | | 3 | | | 1 | | | 1 | | | 1 | | | 2 | |
| | | | | | | | | | | |
| Fuel adjustment clause | 8 | | | 8 | | | 2 | | | 0 | | | 6 | | | 8 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other | 1 | | | 3 | | | 0 | | | 0 | | | 1 | | | 3 | |
| Total current regulatory liabilities | $ | 17 | | | $ | 19 | | | $ | 5 | | | $ | 2 | | | $ | 12 | | | $ | 17 | |
| | | | | | | | | | | |
| Noncurrent Regulatory Liabilities: | | | | | | | | | | | |
Accumulated cost of removal
of utility plant | $ | 648 | | | $ | 640 | | | $ | 271 | | | $ | 266 | | | $ | 377 | | | $ | 374 | |
| | | | | | | | | | | |
| Power purchase agreement - OVEC | 45 | | | 51 | | | 31 | | | 35 | | | 14 | | | 16 | |
| Net deferred taxes | 1,140 | | | 1,168 | | | 532 | | | 544 | | | 608 | | | 624 | |
| Defined benefit plans | 42 | | | 40 | | | 0 | | | 0 | | | 42 | | | 40 | |
| | | | | | | | | | | |
| Terminated interest rate swaps | 66 | | | 68 | | | 33 | | | 34 | | | 33 | | | 34 | |
| Other | 20 | | | 6 | | | 18 | | | 4 | | | 2 | | | 2 | |
| Total noncurrent regulatory liabilities | $ | 1,961 | | | $ | 1,973 | | | $ | 885 | | | $ | 883 | | | $ | 1,076 | | | $ | 1,090 | |
(a)For PPL, these amounts are included in "Other current assets" on the Balance Sheets.
Regulatory Matters
Kentucky Activities(PPL, LG&E and KU)
Rate Case Proceedings
(PPL, LKE, LG&E and KU)
On October 23,November 25, 2020, LG&E and KU filed notices of intentrequests with the KPSC to file applications for proposed adjustments of general electrican increase in annual electricity and gas revenues of approximately $331 million ($131 million and $170 million in electricity revenues at LG&E and KU and $30 million in gas revenues at LG&E). The revenue increases would be an increase of 11.6% and 10.4% in electricity revenues at LG&E and KU, and an increase of 8.3% in gas revenues at LG&E. In recognition of the economic impact of COVID-19, LG&E and KU requested approval of a one-year billing credit which will credit customers approximately $53 million ($41 million at LG&E and $12 million at KU). The billing credit represents the return to customers of certain regulatory liabilities on LG&E’s and KU’s Balance Sheets and serves to partially mitigate the rate increases during the first year in which the new rates on or after November 25, 2020. are in effect.
LG&E’s and KU’s applications also included a request for a CPCN to deploy Advanced Metering Infrastructure across LG&E’s and KU’s service territories in Kentucky.
The applications will also include requestswere based on a forecasted test year of July 1, 2021 through June 30, 2022 and requested an authorized return on equity of 10.0%.
On April 19, 2021, LG&E and KU entered into an agreement with all intervening parties to the proceedings resolving all matters in their applications, with the explicit exception of LG&E's and KU's net metering proposals. The agreement proposed increases in annual revenues of $217 million ($77 million and $116 million in electricity revenues at LG&E and KU and $24 million in gas revenues at LG&E) based on an authorized return on equity of 9.55%. The proposal included an authorized 9.35% return on equity for the ECR and GLT mechanisms. The agreement did not modify the requested one-year billing credit. The agreement proposed that the KPSC should grant LG&E’s and KU’s request for a CPCN to deploy Advanced Metering Infrastructure and proposed the establishment of a Retired Asset Recovery rider (RAR) to provide for recovery of and return on the remaining investment in certain electric generating units upon their retirement over a ten-year period following retirement. In respect of the RAR rider, the agreement proposed that LG&E and KU will continue to use currently approved depreciation rates for Mill Creek Units 1 and 2 and Brown Unit 3. The agreement also proposed a four-year "stay-out" commitment from LG&E and KU to refrain from effective base rate increases before July 1, 2025, subject to certain exceptions.
On June 30, 2021, the KPSC issued orders approving the proposed agreement filed in April 2021, with certain modifications. The orders provide for increases in annual revenues of $199 million ($73 million and $106 million in electricity revenues at LG&E and KU and $20 million in gas revenues at LG&E) based on an authorized return on equity of 9.425%. The order grants the requested authorized 9.35% return on equity for the ECR and GLT mechanisms and does not modify the requested one-year billing credit. The orders approve the CPCN to deploy Advanced Metering Infrastructure and provide regulatory asset treatment for the remaining net book value of legacy meters upon full implementation of the Advanced Metering Infrastructure program. The orders also approve the establishment of the RAR rider and accepted the four-year "stay-out". The orders, however, disallowed certain legal costs that were included in the settlement. On July 23, 2021, LG&E and KU filed motions for partial rehearing and clarification of the return on equity, the disallowed legal costs and certain other matters.matters related to the KPSC's orders. On August 12, 2021, the KPSC granted rehearing and clarification of the disallowed legal costs and certain other matters and denied rehearing and clarification of the return on equity. On September 24, 2021, the KPSC issued orders providing adjustments to previous net metering proposals. These adjustments did not impact the previously ordered annual revenue increases. PPL, LG&E and KU cannot predict the outcome of these potential proceedings.
ECR Filings (PPL, LKE, LG&Ethe remaining issues subject to partial rehearing and KU)
On March 31, 2020, LG&E and KU submitted applications to the KPSC for ECR rate treatment regarding upcoming environmental construction projects relating to the EPA's regulations addressing ELGs. The construction projects are expected to begin in 2021 and continue through 2024 and are estimated to cost approximately $405 million ($153 million at LG&E and $252 million at KU). The applications requested an authorized 9.725% return on equity with respect to these projects consistent with the 2018 Kentucky rate cases approved in April 2019. On September 29, 2020, the KPSC issued orders approving the ECR applications, permitting an authorized return on equity of 9.2% for the applicable projects.clarification.
Pennsylvania Activities
Act 129 (PPL and PPL Electric)
The Pennsylvania Public Utility Code requires electric distribution companies, including PPL Electric, to act as a DSP, which provides electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan. A DSP is able to recover the costs associated with its default service procurement plan.Act 129
In March 2020,Act 129 requires Pennsylvania Electric Distribution Companies (EDCs) to meet, by specified dates, specified goals for reduction in customer electricity usage and peak demand. EDCs not meeting the requirements of Act 129 are subject to significant penalties. PPL Electric filed a Petition for Approval of a new default service program and procurement plan with the PUC its Act 129 Phase IV Energy Efficiency and Conservation Plan (Phase IV Act 129 Plan) on November 30, 2020, for the five-year period starting June 1, 2021 throughand ending on May 31, 2025. Hearings were held in August 2020. In October 2020,2026. PPL Electric's Phase IV Act 129 Plan was approved by the Administrative Law Judge made a recommended decision which remains pending before the PUC. PPL Electric cannot predict the outcome of this proceeding.PUC at its March 25, 2021, public meeting.
Federal Matters
Challenge to PPL Electric Transmission Formula Rate Return on Equity
(PPL and PPL Electric)
On May 21, 2020, PP&L Industrial Customer Alliance (PPLICA) filed a complaint with the FERC alleging that PPL Electric's base return on equity (ROE) of 11.18% used to determine PPL Electric's formula transmission rate iswas unjust and unreasonable, and proposing an alternative ROE of 8.0% based on its interpretation of FERC Opinion No. 569. However, also on May 21, 2020, the FERC issued Opinion No. 569-A in response to numerous requests for rehearing of Opinion No. 569, which revised the method for analyzing base ROE. On June 10, 2020, PPLICA filed a Motion to Supplement the May 21, 2020 complaint in which PPLICA continued to allege that PPL Electric’s base ROE is unjust and unreasonable, but revised its analysis of PPL Electric's base ROE to reflect the guidance provided in Opinion No. 569-A. The amended complaint proposed an updated alternative ROE of 8.5% and also requested that the FERC preserve the original refund effective date as established by the filing of the original complaint on May 21, 2020. Several parties have filed motions to intervene, including one party who filed Comments in Support of the original complaint.unreasonable.
On July 10, 2020,August 20, 2021, PPL Electric filed its Answerentered into a settlement agreement (the "Settlement") with PPLICA and supporting Testimonyall other parties, including intervenors, with respect to the complaint filed by PPLICA filings arguing that the FERC should deny the original and amended complaints as they are without merit and fail to demonstrate the existing base ROE is unjust and unreasonable. In addition, PPL Electric contended any refund effective date should be set for no earlier than June 10, 2020 and PPLICA's proposed replacement ROE should be rejected.on May 21, 2020.
On October 15, 2020,The key aspects of the FERC issued an order on the PPLICA complaints which established hearing and settlement procedures, set a refund effective dateSettlement include:
•changes to PPL Electric’s base ROE:
◦beginning as of May 21, 2020 and grantedcontinuing through May 31, 2022, the motionsROE shall be 9.90%;
◦beginning on June 1, 2022 and continuing through May 31, 2023, the ROE shall be 9.95%;
◦beginning on June 1, 2023, the ROE shall be 10.00%, which shall continue in effect unless and until changed as permitted by the terms of the Settlement;
•changes the equity component of PPL Electric’s capital structure to intervene.be the lower of (i) PPL Electric’s actual equity component, calculated in accordance with the formula rate template, or (ii) 56.00%;
•allows modification of the current rate year of June 1 to May 31 to a calendar year of January 1 to December 31; and
•allows modification of the current formula rate based on a historic test year to a projected test year.
Refunds will be paid by PPL Electric continuesbased on the difference between charges that were calculated using the ROE in effect at the time and reduced charges calculated using the ROE provided for in the Settlement, plus interest at the FERC interest rate. In the three and nine months ended September 30, 2021, PPL Electric recorded a revenue reserve of $13 million ($10 million after-tax) and $64 million ($46 million after-tax) representing revenue subject to believe its ROErefund for the period May 21, 2020 through September 30, 2021. The reserve recorded in the nine months ended September 30, 2021, includes $28 million ($20 million after-tax) related to the period from May 21, 2020 to December 31, 2020.
The Settlement is justsubject to review and reasonable and that it has meritorious defenses againstaction by the original and amended complaints. At this time, FERC, including approval, denial or modification. PPL Electric cannot predict the outcome of this matter or the rangeFERC’s review of possible losses, if any, that may be incurred. However, revenue earned from May 21, 2020 through the settlement of this matter may be subject to refund. A change of 50 basis points to the base ROE would impact PPL Electric's net income by approximately $12 million on an annual basis.Settlement.
While the FERC's review of the settlement is pending, on October 15, 2021, PPL Electric filed a request to the FERC Chief Administrative Law Judge for authorization to implement interim rates to reflect the agreed-to base ROE in the Settlement effective December 1, 2021. The requested interim settlement rates were accepted on October 20, 2021.
FERC Transmission Rate Filing
(PPL, LKE, LG&E and KU)
In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application sought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky municipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the ongoing credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject to FERC review and approval. In July 2019, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KU filed requests for rehearing and clarification on the two September orders.mechanism. In September 2020, the FERC issued its orders in the rehearing process that modified the discussion in, and set aside portionsvarious aspects of the September 2019 orders which had approved future termination of the credits, including adjusting factors impactingwhich customer arrangements are covered by the proposed transition mechanism.mechanism and respective future periods or dates for termination of credits. In OctoberNovember 2020, boththe FERC denied the parties' rehearing requests. In November 2020 and January 2021, LG&E and KU and other parties filed separate motions for rehearing and clarification regarding FERC’sappealed the September 2020 orders. A FERC decision on these rehearing requests is expected byand November 18, 2020. Certain other petitions for review of the FERC's2020 orders have been filed by multiple parties, including LG&E and KU, withat the D.C. Circuit Court of Appeals. The appellate proceedings are continuing, and also include certain additional prior pending petitions for review relating to the matter. On January 15, 2021, LG&E and KU made a filing seeking FERC acceptance of a new proposal for a transition mechanism. On March 16, 2021, the FERC accepted the filed transition mechanism agreements effective on March 17, 2021 but subject to refund, and established hearing and settlement procedures. LG&E and KU cannot predict the outcome of thesethe respective
appellate and FERC proceedings. LG&E and KU currently receive recovery of the waivers and credits provided through other rate mechanisms.
(PPLmechanisms and PPL Electric)
In April 2020, PPL Electric filed its annual transmission formulasuch rate updaterecovery would be anticipated to be adjusted consistent with potential changes or terminations of the FERC, reflecting a revised revenue requirement that took effect in June 2020.
waivers and credits, as such become effective.
Other
Purchase of Receivables Program (PPL and PPL Electric)
In accordance with a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers at a discount, which reflects a provision for credit losses.uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. During the three and nine months ended September 30, 2020,2021, PPL Electric purchased $303$309 million and $854$883 million of accounts receivable from alternative suppliers. During the three and nine months ended September 30, 2019,2020, PPL Electric purchased $308$303 million and $927$854 million of accounts receivable from alternative suppliers.
8. Financing Activities
Credit Arrangements and Short-term Debt
(All Registrants)
The Registrants maintain credit facilities to enhance liquidity, provide credit support and act as a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, PPL's arrangements listed below include the credit facilities and commercial paper programs of PPL Electric, LKE, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE.KU. The amounts listed in the borrowed column below are recorded as "Short-term debt" on the Balance Sheets except for borrowings under PPL Capital Funding'sFunding’s term loan agreement due March 2022, which are reflected in "Long-term debt" on the Balance Sheets.“Long-term debt” at December 31, 2020. The following credit facilities were in place at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | Expiration
Date | | Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper
Issued | | Unused
Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper
Issued |
| PPL | | | | | | | | | | | | | |
| U.K. | | | | | | | | | | | | | |
| WPD plc | | | | | | | | | | | | | |
| Syndicated Credit Facility (a) | Jan. 2023 | | £ | 210 | | | £ | 150 | | | £ | 0 | | | £ | 58 | | | £ | 155 | | | £ | 0 | |
| WPD (South West) | | | | | | | | | | | | | |
| Syndicated Credit Facility (b) | May 2023 | | 220 | | | 118 | | | 0 | | | 102 | | | 40 | | | 0 | |
| WPD (South Wales) | | | | | | | | | | | | | |
| Syndicated Credit Facility | May 2023 | | 125 | | | 0 | | | 0 | | | 125 | | | 0 | | | 0 | |
| WPD (East Midlands) | | | | | | | | | | | | | |
| Syndicated Credit Facility | May 2023 | | 250 | | | 0 | | | 0 | | | 250 | | | 0 | | | 0 | |
| WPD (West Midlands) | | | | | | | | | | | | | |
| Syndicated Credit Facility (c) | May 2023 | | 250 | | | 64 | | | 0 | | | 186 | | | 48 | | | 0 | |
| Uncommitted Credit Facilities | | | 100 | | | 0 | | | 4 | | | 96 | | | 0 | | | 4 | |
| Total U.K. Credit Facilities (d) | | | £ | 1,155 | | | £ | 332 | | | £ | 4 | | | £ | 817 | | | £ | 243 | | | £ | 4 | |
| U.S. | | | | | | | | | | | | | |
| PPL Capital Funding | | | | | | | | | | | | | |
| Syndicated Credit Facility | Jan. 2024 | | $ | 1,450 | | | $ | 0 | | | $ | 0 | | | $ | 1,450 | | | $ | 0 | | | $ | 450 | |
| | | | | | | | | | | | | |
| Term Loan Credit Facility | Mar. 2021 | | 200 | | | 200 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Bilateral Credit Facility | Mar. 2021 | | 50 | | | 0 | | | 0 | | | 50 | | | 0 | | | 0 | |
| Bilateral Credit Facility | Mar. 2021 | | 50 | | | 0 | | | 15 | | | 35 | | | 0 | | | 15 | |
| Term Loan Credit Facility | Mar. 2021 | | 100 | | | 100 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Term Loan Credit Facility | Mar. 2022 | | 100 | | | 100 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total PPL Capital Funding Credit Facilities | | | $ | 1,950 | | | $ | 400 | | | $ | 15 | | | $ | 1,535 | | | $ | 0 | | | $ | 465 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | Expiration
Date | | Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper
Issued | | Unused
Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper
Issued |
| | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | | | | | |
| Syndicated Credit Facility | Jan. 2024 | | $ | 650 | | | $ | 0 | | | $ | 281 | | | $ | 369 | | | $ | 0 | | | $ | 1 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | |
| Syndicated Credit Facility | Jan. 2024 | | $ | 500 | | | $ | 0 | | | $ | 206 | | | $ | 294 | | | $ | 0 | | | $ | 238 | |
| | | | | | | | | | | | | |
| Total LG&E Credit Facilities | | | $ | 500 | | | $ | 0 | | | $ | 206 | | | $ | 294 | | | $ | 0 | | | $ | 238 | |
| | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | |
| Syndicated Credit Facility | Jan. 2024 | | $ | 400 | | | $ | 0 | | | $ | 139 | | | $ | 261 | | | $ | 0 | | | $ | 150 | |
| | | | | | | | | | | | | |
| Total KU Credit Facilities | | | $ | 400 | | | $ | 0 | | | $ | 139 | | | $ | 261 | | | $ | 0 | | | $ | 150 | |
(a) The amounts borrowed at September 30, 2020 and December 31, 2019 were USD-denominated borrowings of $200 million for both periods, which bore interest at 0.98% and 2.52%. The interest rates on the borrowings are equal to one-month USD LIBOR plus a margin. The unused capacity reflects the amounts borrowed in GBP of £152 million as of the date borrowed.
(b) The amounts borrowed at September 30, 2020 and December 31, 2019 were GBP-denominated borrowings which equated to $158 million and $51 million and bore interest at 0.56% and 1.09%. The interest rate on the borrowing are equal to one-month GBP LIBOR plus a margin.
(c) The amounts borrowed at September 30, 2020 and December 31, 2019 were GBP-denominated borrowings which equated to $86 million and $62 million and bore interest at 0.56% and 1.11%. The interest rates on the borrowings are equal to one-month GBP LIBOR plus a margin.
(d) At September 30, 2020, the unused capacity under the U.K. credit facilities was $1.1 billion.
(PPL)
In March 2020, PPL Capital Funding entered into a $200 million term loan credit facility expiring in March 2021 and borrowed the full principal amount under the facility at an initial interest rate of 1.96%. The applicable interest rate on borrowings fluctuates periodically and is based on LIBOR plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes.
In April 2020, PPL Capital Funding entered into a $100 million term loan credit facility expiring in March 2021 and borrowed the full principal amount under the facility at an initial interest rate of 1.73%. The applicable interest rate on borrowings fluctuates periodically and is based on LIBOR plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| | Expiration
Date | | Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper
Issued | | Unused
Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper
Issued |
| PPL | | | | | | | | | | | | | |
| PPL Capital Funding | | | | | | | | | | | | | |
| Syndicated Credit Facility | Jan. 2024 | | $ | 1,450 | | | $ | — | | | $ | — | | | $ | 1,450 | | | $ | — | | | $ | 402 | |
| | | | | | | | | | | | | |
| Bilateral Credit Facility | Mar. 2022 | | 50 | | | — | | | — | | | 50 | | | — | | | — | |
| Bilateral Credit Facility | Mar. 2022 | | 50 | | | — | | | 15 | | | 35 | | | — | | | 15 | |
| Term Loan Credit Facility | Mar. 2022 | | — | | | — | | | — | | | — | | | 100 | | | — | |
| Term Loan Credit Facility | Mar. 2021 | | — | | | — | | | — | | | — | | | 100 | | | — | |
| Term Loan Credit Facility | Mar. 2021 | | — | | | — | | | — | | | — | | | 200 | | | — | |
| Total PPL Capital Funding Credit Facilities | | | $ | 1,550 | | | $ | — | | | $ | 15 | | | $ | 1,535 | | | $ | 400 | | | $ | 417 | |
| | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | | | | | |
| Syndicated Credit Facility | Jan. 2024 | | $ | 650 | | | $ | — | | | $ | 1 | | | $ | 649 | | | $ | — | | | $ | 1 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | |
| Syndicated Credit Facility | Jan. 2024 | | $ | 500 | | | $ | — | | | $ | — | | | $ | 500 | | | $ | — | | | $ | 262 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | |
| Syndicated Credit Facility | Jan. 2024 | | $ | 400 | | | $ | — | | | $ | — | | | $ | 400 | | | $ | — | | | $ | 203 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
PPL has guaranteed PPL Capital Funding's obligations under these credit agreements.
(All Registrants)
PPL,Funding, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's credit facilities. The following commercial paper programs were in place at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| Weighted -
Average
Interest Rate | | Capacity | | Commercial
Paper
Issuances | | Unused
Capacity | | Weighted -
Average
Interest Rate | | Commercial
Paper
Issuances |
| PPL Capital Funding | 0% | | $ | 1,500 | | | $ | 0 | | | $ | 1,500 | | | 2.13% | | $ | 450 | |
PPL Electric | 0.16% | | 650 | | | 280 | | | 370 | | | | | 0 | |
| LG&E | 0.20% | | 350 | | | 206 | | | 144 | | | 2.07% | | 238 | |
| KU | 0.19% | | 350 | | | 139 | | | 211 | | | 2.02% | | 150 | |
| Total | | | $ | 2,850 | | | $ | 625 | | | $ | 2,225 | | | | | $ | 838 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| Weighted -
Average
Interest Rate | | Capacity | | Commercial
Paper
Issuances | | Unused
Capacity | | Weighted -
Average
Interest Rate | | Commercial
Paper
Issuances |
| PPL Capital Funding | | | $ | 1,500 | | | $ | — | | | $ | 1,500 | | | 0.25% | | $ | 402 | |
PPL Electric | | | 650 | | | — | | | 650 | | | | | — | |
| LG&E (a) | | | 425 | | | — | | | 425 | | | 0.28% | | 262 | |
| KU | | | 350 | | | — | | | 350 | | | 0.28% | | 203 | |
| Total | | | $ | 2,925 | | | $ | — | | | $ | 2,925 | | | | | $ | 867 | |
(a)In March 2021, the capacity for the LG&E commercial paper program was increased from $350 million to $425 million.
(PPL Electric, LKE, LG&E, and KU)
See Note 12 for discussion of intercompany borrowings.
Long-term Debt
(PPL)
In April 2020,2021, PPL Capital Funding entered into arepaid its $100 million term loan credit facility expiring in March 2022 and borrowed the full principal amount under the facility at an initial interest rate of 1.72%. The applicable interest rate on borrowings fluctuates periodically and is based on LIBOR plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes.2022.
In April 2020,June 2021, PPL Capital Funding issuedcommenced a tender offer to purchase for cash and retire (1) any and all of its outstanding 4.20% Senior Notes due 2022, 3.50% Senior Notes due 2022, 3.40% Senior Notes due 2023 and 3.95% Senior Notes due 2024 and (2) up to $1 billion aggregate purchase price of its outstanding 4.70% Senior Notes due 2043, 5.00% Senior Notes due 2044, 4.00% Senior Notes due 2047, 4.125% Senior Notes due 2030. PPL Capital Funding received proceeds of $993 million, net of a discount2030 and underwriting fees, which were used to repay short-term debt and for general corporate purposes.
PPL has guaranteed PPL Capital Funding's obligations under the credit agreement and notes.3.10% Senior Notes due 2026.
In October 2020, WPD (South Wales) issued £250June 2021, in connection with the tender offer, PPL Capital Funding retired $1,962 million combined aggregate principal amount of 1.625%its outstanding Senior Notes for $2,293 million aggregate cash purchase price that included the tender premium and accrued interest. These Senior Notes had a weighted average interest rate of 4.14%. The loss on extinguishment associated with the transaction was $322 million, which included the tender premium, bank fees and unamortized fees, hedges and discounts. This loss on extinguishment was recorded to "Interest Expense" on the Statements of Income.
In July 2021, PPL Capital Funding redeemed the remaining $1,072 million combined aggregate principal amount of its outstanding 4.20% Senior Notes due 2035. WPD (South Wales) received proceeds2022, 3.50% Senior Notes due 2022, 3.40% Senior Notes due 2023 and 3.95% Senior Notes due 2024 that had not been validly tendered for an aggregate cash purchase price of £247$1,133 million, which equated to $319included make-whole premiums and accrued interest. These Senior Notes had a weighted average interest rate of 3.71%. The loss on extinguishment associated with the transaction was $58 million, at the time of issuance, net ofwhich included make-whole premiums, unamortized fees, hedges and a discount. The proceeds will be used to repay the £150discounts. PPL Capital Funding also redeemed its $450 million of 9.25%5.90% Junior Subordinated Notes due in November 2020 and for general corporate purposes.2073 at par. The loss on extinguishment associated with this transaction was $15 million, which included unamortized fees.
In July 2021, LKE redeemed at par the $250 million 4.375% Senior Notes due 2021.
(PPL and PPL Electric)
In October 2020, PPL Electric issued $250 million of First Mortgage Bonds, Floating Rate Series due 2023. PPL Electric received proceeds of $249 million, net of discounts and underwriting fees, which will be used to repay short-term debt and for general corporate purposes.
In October 2020, the Pennsylvania Economic Development Financing Authority (PEDFA) remarketed $90 million of Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) due 2023, previously issued on behalf of PPL Electric. The bonds were remarketed at a long-term rate and will bear interest at 0.40% through their maturity date of October 1, 2023.
(PPL and LKE)
In August 2020, LKE redeemed $475 million of 3.75% senior notes due November 2020.
(PPL, LKE and LG&E)
In September 2020,April 2021, the Louisville/Jefferson County Metro Government of Trimble, Kentucky remarketed $125$128 million of Pollution Control Revenue Refunding Bonds, 20162003 Series A due 20442033 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.30%2.00% through their mandatory purchasematurity date of SeptemberOctober 1, 2027.2033.
In September 2020,May 2021, the Louisville/Jefferson County Metro Government of Trimble, Kentucky remarketed $23$35 million of Pollution Control Revenue Bonds, 2001 Series AB due 20262027 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 0.90%1.35% through their maturity date of November 1, 2027.
In May 2021, the Louisville/Jefferson County Metro Government of Kentucky remarketed $35 million of Pollution Control Revenue Bonds, 2001 Series B due 2027 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.35% through their maturity date of November 1, 2027.
In June 2021, LG&E converted the $31 million of Louisville/Jefferson County Metro Government of Kentucky Environmental Facilities Revenue Refunding Bonds, 2007 Series A issued on its behalf to a weekly interest rate, as permitted under loan documents. The bonds mature on June 1, 2033.
In June 2021, LG&E converted the $35 million of Louisville/Jefferson County Metro Government, of Kentucky Environmental Facilities Revenue Refunding Bonds, 2007 Series B issued on its behalf to a weekly interest rate, as permitted under loan documents. The bonds mature on June 1, 2033.
In September 2021, the County of Trimble, Kentucky remarketed $28 million of Pollution Control Revenue Bonds, 2001 Series A due 2026, previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 0.625% through their maturity date of September 1, 2026.
(PPL LKE and KU)
In June 2020, KU issued $5002021, the County of Carroll, Kentucky remarketed $54 million of 3.30%Environmental Facilities Revenue Refunding Bonds, 2006 Series B due 2034 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 2.125% though their maturity date of October 1, 2034.
In June 2021, the County of Carroll, Kentucky remarketed $78 million of Environmental Facilities Revenue Bonds 2008 Series A due 2032 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 2.00% through their maturity date of February 1, 2032.
(PPL and PPL Electric)
In June 2021, PPL Electric issued $650 million of First Mortgage Bonds, Floating Rate Series due 2050. KU2024. PPL Electric received proceeds of $493$647 million, net of discounts and underwriting fees, which were initially used to repay short-term debt and for other general corporate purposes, pending application to the redemption of KU’s 3.25%redeem its $400 million outstanding First Mortgage Bonds, 3% Series due 2021 in August 2020.July 2021 and for general corporate purposes.
(PPL)
Equity Securities
Share Repurchase
In August 2020, KU redeemed $500 million2021, PPL's Board of 3.25% First Mortgage Bonds due November 2020.Directors authorized share repurchases of up to $3 billion of PPL common shares. PPL currently expects to repurchase approximately $1 billion by the end of 2021. The actual amount repurchased will depend on various factors, including PPL’s share price, market conditions, and the determination of other uses for the proceeds from the sale of the U.K. utility business, including for incremental capital expenditures. PPL may purchase shares on each trading day subject to market conditions and principles of best execution.
49During the three and nine months ended September 30, 2021, PPL repurchased 9.6 million shares at a cost of $282 million.
Equity SecuritiesCommission fees incurred, which have been included in the cost of repurchases above, were insignificant through October 31, 2021.
ATM Program
In February 2018, PPL entered into an equity distribution agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of $1.0 billion of its common stock through an at-the-market offering program, including a forward sales component. The compensation paid to the selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. There were 0no issuances under the ATM program for the nine months ended September 30, 2020.2021. The ATM program expired in February 2021.
Distributions
In August 2020,2021, PPL declared a quarterly common stock dividend, payable October 1, 2020,2021, of 41.5 cents per share (equivalent to $1.66 per annum). Future dividends, declared at the discretion of the Board of Directors, will depend upon future earnings, cash flows, financial and legal requirements and other factors.
9. Acquisitions, Development and Divestitures
(PPL)
Discontinued Operations
Sale of the U.K. Utility Business
On August 10, 2020,March 17, 2021, PPL announced that it has initiatedWPD Limited (WPD Limited) entered into a formal processshare purchase agreement (WPD SPA) to sell itsPPL's U.K. utility business.business to National Grid Holdings One plc (National Grid U.K.), a subsidiary of National Grid plc. Pursuant to the WPD SPA, National Grid U.K. would acquire 100% of the issued share capital of PPL notedWPD Investments Limited (WPD Investments) for £7.8 billion in cash. WPD Limited would also receive an additional amount of £548,000 for each day during the period from January 1, 2021 to the closing date if the dividends usually declared by WPD Investments to WPD Limited are not paid for that there can be no assurance of any specific outcome, including whether the sale process will result in the completion of any potential transaction, the timing or terms thereof, the value or benefits that may be realized or the effect that any potential transaction will have on future financial results.period.
As a result ofOn June 14, 2021, the potential sale PPL assessed the recoverability of the assets of its U.K. utility business. PPL prepared a probability-weighted undiscounted cash flow estimate as of September 30, 2020 that considered the likelihood of the possible outcomes of the sale process, including the possibility of not selling the U.K. utility business. The resulting cash flow analysis exceeded the carrying value of the assets of the U.K. utility business. A change in the possible outcomes of the sale process could result in the carrying value of the assets of the U.K. utility business not being recoverable, which could result in an impairment in future periods.was completed. The U.K. utility business will continue to be classified as heldtransaction resulted in cash proceeds of $10.7 billion inclusive of foreign currency hedges executed by PPL. PPL received net proceeds, after taxes and used until it meets the criteria to be classified as held for sale, which includes management obtaining a commitment to a plan to sell from its Boardfees, of Directors.$10.4 billion.
ShouldWPD Limited and National Grid U.K. each made customary representations and warranties in the WPD SPA. National Grid U.K., at its expense, purchased warranty and indemnity insurance. WPD Limited agreed to indemnify National Grid U.K. for certain tax related matters. See Note 11 for additional information. PPL has not had and will not have any significant involvement with the U.K. utility business meetafter completion of the criteria to be classified as held for sale in a future period, PPL will be required at that time to comparesale.
Loss on Sale
The following table summarizes the estimated fair valuepre-tax loss recorded upon completion of its investmentthe sale.
| | | | | |
| Loss on sale for the nine month period ended September 30, 2021 |
| Sales proceeds, net of realized foreign currency hedge losses (a) | $ | 10,732 | |
| Unrealized foreign currency hedge losses recognized in 2020 | 125 | |
| Less: Costs to sell (b) | 69 | |
| Less: Carrying value (c) | 12,397 | |
| Loss on sale | $ | (1,609) | |
(a)Includes the fixed and additional consideration of £7,881 million specified in the U.K. utility business, less costsWPD SPA, converted at a spot rate of $1.4107 per GBP, offset by $386 million of realized foreign currency hedge losses to sell,hedge the proceeds from the sale.
(b)Includes bank advisory, legal and accounting fees to its carrying value for impairment purposes. The measurement of PPL’sfacilitate the transaction.
(c)Represents the carrying value of the U.K. utility business will includeat the time of sale and includes the realization of accumulated other comprehensive losses,AOCI of $3.6 billion, which could arisearose primarily from currency translation adjustments and defined benefit plans associated with the U.K. utility business.
Summarized Results of Discontinued Operations
The operations of the U.K. utility business are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income. Following are the components of discontinued operations in the Statements of Income for the periods ended September 30:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months | | Nine Months |
| 2021 | | 2020 | | 2021 | | 2020 |
| Operating Revenues | $ | — | | | $ | 485 | | | $ | 1,344 | | | $ | 1,575 | |
| Operating Expenses | — | | | 235 | | | 466 | | | 684 | |
| Other Income (Expense) - net | — | | | 46 | | | 202 | | | 242 | |
| Interest Expense (a) | — | | | 88 | | | 209 | | | 271 | |
| Income before income taxes | — | | | 208 | | | 871 | | | 862 | |
| Gain (Loss) on sale | — | | | — | | | (1,609) | | | — | |
| Income taxes | 2 | | | 44 | | | 752 | | | 157 | |
| Income (Loss) from Discontinued Operations (net of income taxes) | $ | (2) | | | $ | 164 | | | $ | (1,490) | | | $ | 705 | |
(a)No interest from corporate level debt was allocated to discontinued operations.
Summarized Assets and Liabilities Held for Sale
The following major classes of assets and liabilities of the U.K. utility business were reclassified on PPL's Balance Sheet to "Current assets held for sale" and "Current liabilities held for sale" as of December 31, 2020:
| | | | | | | | | | | |
| | | Held for Sale at December 31, 2020 |
| Cash and cash equivalents | | | $ | 266 | |
| Accounts receivable and unbilled revenues | | | 389 | |
| Price risk management assets | | | 146 | |
| Property, plant and equipment, net (a) | | | 14,392 | |
| Goodwill | | | 2,558 | |
| Other intangibles | | | 413 | |
| Pension benefit asset | | | 682 | |
| Other assets | | | 137 | |
| Total Assets | | | $ | 18,983 | |
| | | |
| Short-term debt and long-term debt due within one year | | | $ | 994 | |
| Accounts payable | | | 220 | |
| Customer deposits | | | 217 | |
| Accrued interest | | | 190 | |
| | | |
| Long-term debt | | | 7,938 | |
| Total deferred income taxes | | | 1,032 | |
| Price risk management liabilities | | | 137 | |
| Other deferred credits and liabilities | | | 295 | |
| Total Liabilities | | | $ | 11,023 | |
| | | |
| Net assets (b) | | | $ | 7,960 | |
(a)Depreciation of fixed assets ceased upon classification as held for sale in the first quarter of 2021.
(b)The net assets and liabilities held for sale exclude $4.0 billion of AOCI related to the U.K. utility business that are required to be included in the carrying value of an entity classified as held for sale when assessing impairment and determining the gain or loss on sale. Prior to the sale, AOCI related to the U.K. utility business was reported as a component of PPL’s equity.
Acquisitions
Share Purchase Agreement to Acquire Narragansett Electric
On March 17, 2021, PPL and its subsidiary, PPL Energy Holdings, entered into a share purchase agreement (Narragansett SPA) with National Grid USA (National Grid U.S.), a subsidiary of National Grid plc to acquire 100% of the outstanding shares of common stock of Narragansett Electric for approximately $3.8 billion in cash. On May 3, 2021, an Assignment and Assumption Agreement was entered into by PPL, PPL Energy Holdings, PPL Rhode Island Holdings and National Grid U.S. whereby certain interests of PPL Energy Holdings in the Narragansett SPA were assigned to and assumed by PPL Rhode Island Holdings. Pursuant to that Assignment and Assumption Agreement, PPL Rhode Island Holdings became the purchasing entity under the Narragansett SPA. The acquisition is expected to be funded with proceeds from the sale of the U.K. utility business. PPL has agreed to guarantee all obligations of PPL Energy Holdings and PPL Rhode Island Holdings under the Narragansett SPA and the related Assignment and Assumption Agreement.
The closing of the acquisition, which is currently expected to occur by March 2022, is subject to the receipt of certain U.S. regulatory approvals or waivers, including, among others, authorizations or waivers from the Rhode Island Division of Public Utilities and Carriers, the Massachusetts Department of Public Utilities, the Federal Communications Commission (FCC), and the FERC, as well as review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary conditions to closing, including the execution and delivery of certain related transaction documents. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the acquisition, expired on June 2, 2021. On July 14, 2021, the FCC consented to the Transfer of Control Application for the transfer of control of certain communications licenses held by Narragansett Electric from National Grid U.S. to PPL. The Massachusetts Department of Public Utilities granted a waiver of jurisdiction with respect to the acquisition on July 16, 2021. On September 23, 2021, the FERC issued an order authorizing, as consistent with the public interest, the disposition of jurisdictional facilities that will result in PPL Rhode Island Holdings, LLC, acquiring 100% of the outstanding shares of common stock of Narragansett Electric. The regulatory approvals and waiver remain subject to any applicable appeal periods. The remaining required regulatory approval from the Rhode Island Division of Public Utilities and Carriers is proceeding as expected.
PPL Energy Holdings and PPL Rhode Island Holdings and National Grid U.S. have each made customary representations, warranties and covenants in the Narragansett SPA, including, among others, customary indemnification provisions and covenants by National Grid U.S. to conduct the Narragansett Electric business in the ordinary course between the execution of the Narragansett SPA and the closing of the acquisition. The consummation of the transaction is not subject to a financing condition.
In connection with the acquisition, National Grid U.S. and one or more of its subsidiaries and Narragansett Electric will enter into a transition services agreement, pursuant to which National Grid U.S. and/or one or more of its affiliates will agree to provide certain transition services to Narragansett Electric and its affiliates to facilitate the operation of Narragansett Electric following the consummation of the acquisition and the transition of operations to PPL, as agreed upon in the Narragansett SPA.
10. Defined Benefits
(PPL, LKE and LG&E)(PPL)
Certain net periodic defined benefit costs are applied to accounts that are further distributed among capital, expense, regulatory assets and regulatory liabilities, 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 and its subsidiaries LKE, and LG&E for the periods ended September 30:
| | | Pension Benefits | | | | | | | | | | | | | | | | | | | | |
| | | Three Months | | Nine Months | | Pension Benefits |
| | | U.S. | | U.K. | | U.S. | | U.K. | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| PPL | PPL | | | | | | | | | | | | | | | | PPL | | | | | | | |
| Service cost | Service cost | $ | 14 | | | $ | 13 | | | $ | 22 | | | $ | 17 | | | $ | 42 | | | $ | 38 | | | $ | 66 | | | $ | 51 | | Service cost | $ | 14 | | | $ | 14 | | | $ | 42 | | | $ | 42 | |
| Interest cost | Interest cost | 35 | | | 41 | | | 36 | | | 45 | | | 109 | | | 123 | | | 107 | | | 140 | | Interest cost | 30 | | | 35 | | | 91 | | | 109 | |
| Expected return on plan assets | Expected return on plan assets | (62) | | | (62) | | | (155) | | | (144) | | | (185) | | | (184) | | | (464) | | | (442) | | Expected return on plan assets | (64) | | | (62) | | | (191) | | | (185) | |
| Amortization of: | Amortization of: | | Amortization of: | |
| Prior service cost | Prior service cost | 3 | | | 2 | | | 1 | | | 1 | | | 7 | | | 6 | | | 1 | | | 1 | | Prior service cost | 2 | | | 3 | | | 6 | | | 7 | |
| Actuarial loss | Actuarial loss | 23 | | | 15 | | | 52 | | | 22 | | | 67 | | | 42 | | | 158 | | | 69 | | Actuarial loss | 21 | | | 23 | | | 70 | | | 67 | |
| Net periodic defined benefit costs (credits) before settlements | Net periodic defined benefit costs (credits) before settlements | 13 | | | 9 | | | (44) | | | (59) | | | 40 | | | 25 | | | (132) | | | (181) | | Net periodic defined benefit costs (credits) before settlements | 3 | | | 13 | | | 18 | | | 40 | |
| Settlements (a) | Settlements (a) | 13 | | | 0 | | | 0 | | | 0 | | | 13 | | | 1 | | | 0 | | | 0 | | Settlements (a) | 14 | | | 13 | | | 14 | | | 13 | |
| | Net periodic defined benefit costs (credits) | Net periodic defined benefit costs (credits) | $ | 26 | | | $ | 9 | | | $ | (44) | | | $ | (59) | | | $ | 53 | | | $ | 26 | | | $ | (132) | | | $ | (181) | | Net periodic defined benefit costs (credits) | $ | 17 | | | $ | 26 | | | $ | 32 | | | $ | 53 | |
|
(a)Due Settlement charges were incurred due to the amount of lump sum payment distributions from the LKE qualified pension plan, an estimated settlement charge of $13 million for the three and nine months ended September 30, 2020 was incurred.plan. In accordance with existing regulatory accounting treatment, LG&E and KU have primarily maintained the settlement charge in regulatory assets to be amortized over fifteen years. The portion of the settlement attributed to LKE's unregulated operations has been charged to expense.
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits |
| Three Months | | Nine Months |
| | 2020 | | 2019 | | 2020 | | 2019 |
| LKE | | | | | | | |
| Service cost | $ | 6 | | | $ | 5 | | | $ | 18 | | | $ | 16 | |
| Interest cost | 14 | | | 16 | | | 43 | | | 49 | |
| Expected return on plan assets | (25) | | | (25) | | | (75) | | | (76) | |
| Amortization of: | | | | | | | |
| Prior service cost | 2 | | | 2 | | | 6 | | | 6 | |
| Actuarial loss (a) | 11 | | | 7 | | | 30 | | | 17 | |
| | | | | | | |
| | | | | | | |
| Net periodic defined benefit costs (credits) before settlements | 8 | | | 5 | | | 22 | | | 12 | |
| Settlements (b) | 13 | | | 0 | | | 13 | | | 0 | |
| Net periodic defined benefit costs (credits) (c) | $ | 21 | | | $ | 5 | | | $ | 35 | | | $ | 12 | |
(a) As a result of treatment approved by the KPSC, the difference between actuarial loss calculated in accordance with LKE's accounting policy and actuarial loss calculated using a 15-year amortization period was $3 million and $9 million for the three and nine months ended September 30, 2020 and $2 million and $3 million for the three and nine months ended September 30, 2019. This difference is recorded as a regulatory asset.
(b) Due to the amount of lump sum payment distributions from the LKE qualified pension plan, an estimated settlement charge of $13 million for the three and nine months ended September 30, 2020 was incurred. In accordance with existing regulatory accounting treatment, LG&E and KU have primarily maintained the settlement charge in regulatory assets to be amortized over fifteen years. The portion of the settlement attributed to LKE's unregulated operations has been charged to expense.
(c) Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $5 million for the three and nine months ended September 30, 2019 was incurred. In accordance with existing regulatory accounting treatment, LG&E maintained the settlement charge in regulatory assets. The amount is being amortized over fifteen years.
| | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits |
| | | | Three Months | | | Nine Months |
| | | | 2019 (a) | | | 2019 (a) |
| LG&E | | | | | | |
| Service cost | | | $ | 0 | | | | $ | 1 | |
| Interest cost | | | 2 | | | | 8 | |
| Expected return on plan assets | | | (5) | | | | (16) | |
| Amortization of: | | | | | | |
| Prior service cost | | | 1 | | | | 4 | |
| Actuarial loss (b) | | | 4 | | | | 7 | |
| | | | | | |
| | | | | | |
| Net periodic defined benefit costs (c) | | | $ | 2 | | | | $ | 4 | |
(a) The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan, sponsored by LKE.
(b) As a result of treatment approved by the KPSC, the difference between actuarial loss calculated in accordance with LG&E's accounting policy and actuarial loss calculated using a 15-year amortization period was $1 million and $2 million for the three and nine months ended September 30, 2019. This difference is recorded as a regulatory asset.
(c) Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $5 million for the three and nine months ended September 30, 2019 was incurred. In accordance with existing regulatory accounting treatment, LG&E maintained the settlement charge in regulatory assets. The amount is being amortized over fifteen years.
| | | | Other Postretirement Benefits | | Other Postretirement Benefits |
| | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| PPL | PPL | | | | | | | | PPL | | | | | | | |
| Service cost | Service cost | $ | 2 | | | $ | 2 | | | $ | 5 | | | $ | 4 | | Service cost | $ | 2 | | | $ | 2 | | | $ | 5 | | | $ | 5 | |
| Interest cost | Interest cost | 4 | | | 5 | | | 14 | | | 16 | | Interest cost | 4 | | | 4 | | | 12 | | | 14 | |
| Expected return on plan assets | Expected return on plan assets | (5) | | | (5) | | | (16) | | | (14) | | Expected return on plan assets | (6) | | | (5) | | | (18) | | | (16) | |
| Amortization of: | Amortization of: | | Amortization of: | |
| Prior service cost | Prior service cost | 0 | | | 0 | | | 1 | | | 0 | | Prior service cost | — | | | — | | | 1 | | | 1 | |
| Actuarial loss | Actuarial loss | 0 | | | 1 | | | 0 | | | 1 | | Actuarial loss | (1) | | | — | | | (1) | | | — | |
| Net periodic defined benefit costs | Net periodic defined benefit costs | $ | 1 | | | $ | 3 | | | $ | 4 | | | $ | 7 | | Net periodic defined benefit costs | $ | (1) | | | $ | 1 | | | $ | (1) | | | $ | 4 | |
| | LKE | | | | | |
| Service cost | $ | 1 | | | $ | 1 | | | $ | 3 | | | $ | 3 | | |
| Interest cost | 2 | | | 2 | | | 6 | | | 6 | | |
| Expected return on plan assets | (2) | | | (2) | | | (7) | | | (6) | | |
| Amortization of: | | |
| Prior service cost | 1 | | | 0 | | | 1 | | | 1 | | |
| Actuarial gain | (1) | | | 0 | | | (1) | | | (1) | | |
| Net periodic defined benefit costs | $ | 1 | | | $ | 1 | | | $ | 2 | | | $ | 3 | | |
|
(PPL Electric, LG&E and KU)
PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services and LG&E and KU are allocated costs of defined benefit plans sponsored by LKE. LG&E and KU are also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 12 for additional information on costs allocated to LG&E and KU from LKS. These allocations are based on participation in those plans, which management believes are reasonable. For the periods ended September 30, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2020 | | 2019 | | 2020 | | 2019 |
| PPL Electric | $ | 3 | | | $ | 3 | | | $ | 9 | | | $ | 8 | |
| LG&E (a) | 9 | | | 1 | | | 14 | | | 3 | |
| KU | 4 | | | 0 | | | 5 | | | 0 | |
(a) Allocations to LG&E increased in 2020 primarily due to the merger of plans sponsored by LKE and LG&E effective January 1, 2020 into the LG&E and KU Pension Plan. | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2021 | | 2020 | | 2021 | | 2020 |
| PPL Electric | $ | — | | | $ | 3 | | | $ | 2 | | | $ | 9 | |
| LG&E | 6 | | | 9 | | | 7 | | | 14 | |
| KU | 1 | | | 4 | | | — | | | 5 | |
(All Registrants)
The non-service cost components of net periodic defined benefit costs (credits) (interest cost, expected return on plan assets, amortization of prior service cost and amortization of actuarial gain and loss) are presented in "Other Income (Expense) - net" on the Statements of Income. See Note 13 for additional information.
Cash Flows - U.S. Pension Plans
(PPL, LKE and LG&E)
During the nine months ended September 30, 2020, LKE contributed $22 million to its pension plans. LKE anticipates making $23 million in additional contributions in the fourth quarter of 2020.
11. Commitments and Contingencies
Legal Matters
(All Registrants)
PPL and its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities, unless otherwise noted.
Talen Litigation (PPL)
Background
In September 2013, one of PPL's former subsidiaries, PPL Montana entered into an agreement to sell its hydroelectric generating facilities. In June 2014, PPL and PPL Energy Supply, the parent company of PPL Montana, entered into various definitive agreements with affiliates of Riverstone to spin off PPL Energy Supply and ultimately combine it with Riverstone's competitive power generation businesses to form a stand-alone company named Talen Energy. In November 2014, after executing the spinoff agreements but prior to the closing of the spinoff transaction, PPL Montana closed the sale of its hydroelectric generating facilities. Subsequently, on June 1, 2015, the spinoff of PPL Energy Supply was completed. Following the spinoff transaction, PPL had no continuing ownership interest in or control of PPL Energy Supply. In connection with the spinoff transaction, PPL Montana became Talen Montana, LLC (Talen Montana), a subsidiary of Talen Energy. Talen Energy Marketing also became a subsidiary of Talen Energy as a result of the June 2015 spinoff of PPL Energy Supply. Talen Energy has owned and operated both Talen Montana and Talen Energy Marketing since the spinoff. At the time of the spinoff, affiliates of Riverstone acquired a 35% ownership interest in Talen Energy. Riverstone subsequently acquired the remaining interests in Talen Energy in a take private transaction in December 2016.
Talen Montana Retirement Plan and Talen Energy Marketing, LLC, Individually and on Behalf of All Others Similarly Situated v. PPL Corporation et al.
On October 29, 2018, Talen Montana Retirement Plan and Talen Energy Marketing filed a putative class action complaint on behalf of current and contingent creditors of Talen Montana who allegedly suffered harm or allegedly will suffer reasonably foreseeable harm as a result of a November 2014 distribution of proceeds from the sale of then-PPL Montana's hydroelectric generating facilities. The action was filed in the Sixteenth Judicial District of the State of Montana, Rosebud County, against PPL and certain of its affiliates and current and former officers and directors (Talen Putative Class Action). Plaintiff asserts claims for, among other things, fraudulent transfer, both actual and constructive; recovery against subsequent transferees; civil conspiracy; aiding and abetting tortious conduct; and unjust enrichment. Plaintiff is seeking avoidance of the purportedly fraudulent transfer, unspecified damages, including punitive damages, the imposition of a constructive trust, and other relief. In December 2018, PPL removed the Talen Putative Class Action from the Sixteenth Judicial District of the State of Montana to the United States District Court for the District of Montana, Billings Division (MT Federal Court). In January 2019, the plaintiff moved to remand the Talen Putative Class Action back to state court, and dismissed without prejudice all current and former PPL Corporation directors from the case. In September 2019, the MT Federal Court granted plaintiff's motion to remand the case back to state court. Although, the PPL defendants petitioned the Ninth Circuit Court of Appeals to grant an appeal of the remand decision, in November 2019, the Ninth Circuit Court of Appeals denied that request and in December 2019, Talen Montana Retirement Plan filed a Second Amended Complaint in the Sixteenth Judicial District of the State of Montana, Rosebud County, which removed Talen Energy Marketing as a plaintiff. In January 2020, PPL defendants filed a motion to dismiss the Second Amended Complaint or, in the alternative, to stay the proceedings pending the resolution of the below mentioned Delaware Action. The Court held a hearing on June 24, 2020 regarding the motion to dismiss.motions. On September 11, 2020, the Court granted PPL defendants' alternative Motion for a Stay of the proceedings.
PPL Corporation et al. vs. Riverstone Holdings LLC, Talen Energy Corporation et al.
On November 30, 2018, PPL, certain PPL affiliates, and certain current and former officers and directors (PPL plaintiffs) filed a complaint in the Court of Chancery of the State of Delaware seeking various forms of relief against Riverstone, Talen Energy and certain of their affiliates (Delaware Action), in response to and as part of the defense strategy for an action filed by Talen Montana, LLC (the Talen Direct Action, since dismissed) and the Talen Putative Class Action described above (together, the Montana Actions) originally filed in Montana state court in October 2018. In the complaint, the PPL plaintiffs ask the Delaware Court of Chancery for declaratory and injunctive relief. This includes a declaratory judgment that, under the separation
agreement governing the spinoff of PPL Energy Supply, all related claims that arise must be heard in Delaware; that the statute of limitations in Delaware and the spinoff agreement bar these claims at this time; that PPL is not liable for the claims in either the Talen Direct Action or the Talen Putative Class Action as PPL Montana was solvent at all relevant times; and that the separation agreement requires that Talen Energy indemnify PPL for all losses arising from the debts of Talen Montana, among other things. PPL's complaint also seeks damages against Riverstone for interfering with the separation agreement and against Riverstone affiliates for breach of the implied covenant of good faith and fair dealing. The complaint was subsequently amended on January 11, 2019 and March 20, 2019, to include, among other things, claims related to indemnification with respect to the Montana Actions, request a declaration that the Montana Actions are time-barred under the spinoff agreements, and allege additional facts to support the tortious interference claim. In April 2019, the defendants filed motions to dismiss the amended complaint. In July 2019, the Court heard oral arguments from the parties regarding the motions to dismiss, and in October 2019, the Delaware Court of Chancery issued an opinion sustaining all of the PPL plaintiffs' claims except for the claim for breach of implied covenant of good faith and fair dealing. As a result of the dismissal of the Talen Direct Action in December 2019, in January 2020, Talen Energy filed a new motion to dismiss five of the remaining eight claims in the amended complaint. The Court heard oral argument on theTalen's motion to dismiss on May 28, 2020, and on June 22, 2020, issued an opinion denying the motion in its entirety. Discovery is proceeding, and a trial has been scheduled for June 2021.February 2022.
With respect to each of the Talen-related matters described above, PPL believes that the 2014 distribution of proceeds was made in compliance with all applicable laws and that PPL Montana was solvent at all relevant times. Additionally, the agreements entered into in connection with the spinoff, which PPL and affiliates of Talen Energy and Riverstone negotiated and executed prior to the 2014 distribution, directly address the treatment of the proceeds from the sale of PPL Montana's hydroelectric generating facilities; in those agreements, Talen Energy and Riverstone definitively agreed that PPL was entitled to retain the proceeds.
PPL believes that it has meritorious defenses to the claims made in the Talen Putative Class Action and intends to continue to vigorously defend against this action. The Talen Putative Class Action andwas stayed at an early stage of litigation. While the Delaware Action are both in early stages of litigation;is progressing, at this time PPL cannot predict the outcome of either of these matters or estimate the range of possible losses, if any, that PPL might incur as a result of the claims, although they could be material.
(PPL LKE and LG&E)
Cane Run Environmental Claims
In December 2013, 6 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 (U.S. District Court) alleging violations of the Clean Air Act, RCRA, and common law claims of nuisance, trespass and negligence. In July 2014, the U.S. District Court
dismissed the RCRA claims and all but 1 Clean Air Act claim, but declined to dismiss the common law tort claims. In February 2017, the U.S. District Court dismissed PPL as a defendant and dismissed the final federal claim against LG&E, and in April 2017, issued an Order declining to exercise supplemental jurisdiction on the state law claims dismissing the case in its entirety. In June 2017, the plaintiffs filed a class action complaint in Jefferson County, Kentucky Circuit Court, against LG&E alleging state law nuisance, negligence and trespass tort claims. The plaintiffs seek compensatory and punitive damages for alleged property damage due to purported plant emissions on behalf of a class of residents within 1 to 3 miles of the plant.On January 8, 2020, the Jefferson Circuit Court issued an order denying the plaintiffs’ request for class certification. On January 14, 2020, the plaintiffs filed a notice of appeal in the Kentucky Court of Appeals. On December 11, 2020, the Court of Appeals issued an order affirming the lower court’s denial of class certification. In December 2020, plaintiffs filed a petition for discretionary review with oral arguments scheduledthe Kentucky Supreme Court. On April 20, 2021, the Kentucky Supreme Court denied further review of the lower court order. The case was remanded to the Jefferson Circuit Court for November 17, 2020. PPL, LKE andthe claims of the three remaining petitioners. LG&E cannot predicthas agreed to a settlement with each of the outcome of this matter andthree remaining petitioners for an estimateamount that will not have a significant impact on LG&E's operations or range of possible losses cannot be determined.financial condition.
(PPL LKE and KU)
E.W. Brown Environmental Claims
In July 2017, the Kentucky Waterways Alliance and the Sierra Club filed a citizen suit complaint against KU in the U.S. District Court for the Eastern District of Kentucky (U.S. District Court) alleging discharges at the E.W. Brown plant in violation of the Clean Water Act and the plant's water discharge permit and alleging contamination that may present an imminent and substantial endangerment in violation of the RCRA. The plaintiffs' suit relates to prior notices of intent to file a citizen suit submitted in October and November 2015 and October 2016. These plaintiffs sought injunctive relief ordering KU
to take all actions necessary to comply with the Clean Water Act and RCRA, including ceasing the discharges in question, abating effects associated with prior discharges and eliminating the alleged imminent and substantial endangerment. These plaintiffs also sought assessment of civil penalties and an award of litigation costs and attorney fees. In December 2017, the U.S. District Court issued an Order dismissing the Clean Water Act and RCRA complaints against KU in their entirety. In January 2018, the plaintiffs appealed the dismissal Order to the U.S. Court of Appeals for the Sixth Circuit. In September 2018, the U.S. Court of Appeals for the Sixth Circuit issued its ruling affirming the lower court's decision to dismiss the Clean Water Act claims but reversing its dismissal of the RCRA claims against KU and remanding the latter to the U.S. District Court. In October 2018, KU filed a petition for rehearing to the U.S. Court of Appeals for the Sixth Circuit regarding the RCRA claims. In November 2018, the U.S. Court of Appeals for the Sixth Circuit denied KU's petition for rehearing regarding the RCRA claims. In January 2019, KU filed an answer to plaintiffs’ complaint in the U.S. District Court. A trial has been scheduledIn May 2021, the U.S. District Court issued an order granting KU's motion for summary judgment and dismissed the case. In June 2021, the plaintiffs appealed the district court's order to begin in February 2021. PPL, LKEthe U.S. Court of Appeals for the Sixth Circuit. In September 2021, the parties entered into a settlement agreement, providing for dismissal of the appellate proceedings and KU cannot predict the outcomerelease of these matters and an estimate or range of possible losses cannot be determined.other claims.
KU is undertaking extensive remedial measures at the E.W. Brown plant including work preparing for closure of the former ash pond, implementation of a groundwater remedial action plan and performance of a corrective action plan including aquatic study of adjacent surface waters and risk assessment. The aquatic study and risk assessment are being undertaken pursuant to a 2017 agreed Order with the Kentucky Energy and Environment Cabinet (KEEC). KU conducted sampling of Herrington Lake in 2017 and 2018. In June 2019, KU submitted to the KEEC the required aquatic study and risk assessment, conducted by an independent third-party consultant, finding that discharges from the E.W. Brown plant have not had any significant impact on Herrington Lake and that the water in the lake is safe for recreational use and meets safe drinking water standards. However, untilOn May 31, 2021, the KEEC assessesapproved the studyreport and issues any regulatory determinations, PPL, LKEreleased a response to public comments. On August 6, 2021, KU submitted a Supplemental Remedial Alternatives Analysis (SRAA) report to the KEEC that outlines proposed additional fish, water, and KU are unable to determine whether additional remedial measuressediment testing. The KEEC will be required atreview the E.W. Brown plant.submitted SRAA report.
Air
Sulfuric Acid Mist Emissions (PPL LKE and LG&E)
In June 2016, the EPA issued a notice of violation under the Clean Air Act alleging that LG&E violated applicable rules relating to sulfuric acid mist emissions at its Mill Creek plant. The notice alleges failure to install proper controls, failure to operate the facility consistent with good air pollution control practice and causing emissions exceeding applicable requirements or constituting a nuisance or endangerment. LG&E believes it has complied with applicable regulations during the relevant time period. On July 31, 2020, the U.S. Department of Justice and Louisville Metro Air Pollution Control District filed a complaint in the U.S. District Court for the Western District of Kentucky alleging violations specified in the EPA notice of violation and seeking civil penalties and injunctive relief. In October 2020, LG&E filed a motion to dismiss the complaint. In OctoberDecember 2020, the U.S. Department of Justice indicated plans to fileand the Louisville Metro Air Pollution Control District filed an amended complaint, as authorized by an agreed ordercomplaint. In February 2021, LG&E filed a renewed motion to dismiss regarding the amended complaint. In June 2021, the U.S. District Court approved the parties' request for a three-month stay in connection with settlement discussions occurring among the parties. In September 2021, the parties reached a tentative agreement providing for dismissal of the court action, the payment by LG&E of a penalty amount and parties.performance of a supplemental environmental project (SEP). The parties are currently in the process of obtaining required approvals from the U.S. Department of Justice, the U.S. District Court, the EPA and Louisville Metro Air Pollution Control District for the resulting consent decree. PPL LKE and LG&E are unable to predict the final outcome of this matter orbut do not believe the potentialmatter, including the agreed penalty and SEP, will have a significant impact on LG&E's operations of the Mill Creek plant, including increased capital or operating costs, and potential civil penalties or remedial measures, if any. An estimate or range of possible losses cannot be determined.financial condition.
Water/Waste
(PPL, LKE, LG&E and KU)
ELGs
In 2015, the EPA finalized ELGs for wastewater discharge permits for new and existing steam electricity generating facilities. These guidelines require deployment of additional control technologies providing physical, chemical and biological treatment and mandate operational changes including "no discharge" requirements for certain wastewaters. The implementation date for individual generating stations was to be determined by the states on a case-by-case basis according to criteria provided by the
EPA. Legal challenges to the final rule were consolidated before the U.S. Court of Appeals for the Fifth Circuit. In April 2017, the EPA announced that it would grant petitions for reconsideration of the rule. In September 2017, the EPA issued a rule to postpone the compliance date for certain requirements. On October 13, 2020, the EPA published final revisions to its best available technology standards for certain wastewaters and potential extensions to compliance dates. dates (the Reconsideration Rule).
The rule willis expected to be implemented by the states or applicable permitting authorities in the course of their normal permitting activities. LG&E and KU have developedare currently implementing responsive compliance strategies and schedules. Certain aspects of these compliance plans and estimates relate to developments in state water quality standards, which are separate from the ELG rule or its implementation. Certain costs are included in the Registrants' capital plans and expected to be recovered from customers through rate recovery mechanisms, but additional costs and recovery will depend on further regulatory developments at the state level. See Note 7 for additional information regarding LG&E’sIn August 2021, the EPA published a notice of rulemaking initiative announcing that it will propose revisions to the Reconsideration Rule and KU’s applications for ECR rate treatmentdetermine "whether more stringent limitations and standards are appropriate." Compliance with the Reconsideration Rule is required during the pendency of construction costs relating to regulations addressing ELGs.the rulemaking process.
CCRs
In 2015, the EPA issued a final rule governing management of CCRs which include fly ash, bottom ash and sulfur dioxide scrubber wastes. The CCR Rule imposes extensive new requirements for certain CCR impoundments and landfills, including public notifications, location restrictions, design and operating standards, groundwater monitoring and corrective action requirements, and closure and post-closure care requirements, and specifies restrictions relating to the beneficial use of CCRs. In July 2018, the EPA issued a final rule extending the deadline for closure of certain impoundments and adopting other substantive changes. In August 2018, the D.C. Circuit Court of Appeals vacated and remanded portions of the CCR Rule. In December 2019, the EPA addressed the deficiencies identified by the court and proposed amendments to change the closure deadline. In August 2020, the EPA published a final rule extending the deadline to initiate closure to April 11, 2021, while providing for certain extensions. The EPA has announced that additionalis conducting ongoing rulemaking actions regarding various other amendments to the rule are planned.rule. Certain ongoing legal challenges to various provisions of the CCR Rule have been held in abeyance pending review by the EPA pursuant to the President's executive order. PPL, LKE, LG&E and KU are unable to predict the outcome of the ongoing litigation and rulemaking or potential impacts on current LG&E and KU compliance plans. The Registrants are currently finalizing closure plans and schedules.
In January 2017, Kentucky issued a new state rule relating to CCR management, effective May 2017, aimed at reflecting the requirements of the federal CCR rule. As a result of a subsequent legal challenge, in January 2018, the Franklin County, Kentucky Circuit Court issued an opinion invalidating certain procedural elements of the rule. LG&E and KU presently operate their facilities under continuing permits authorized under the former program and do not currently anticipate material impacts as a result of the judicial ruling. The Kentucky Energy and Environmental Cabinet has announced it intends to propose new state rules aimed at addressing procedural deficiencies identified by the court and providing the regulatory framework necessary for operation of the state program in lieu of the federal CCR Rule. Associated costs are expected to be subject to rate recovery.
LG&E and KU received KPSC approval for a compliance plan providing for the closure of impoundments at the Mill Creek, Trimble County, E.W. Brown, and Ghent stations, and construction of process water management facilities at those plants. In addition to the foregoing measures required for compliance with the federal CCR rule, KU also received KPSC approval for its plans to close impoundments at the retired Green River, Pineville and Tyrone plants to comply with applicable state law. Since 2017,As of April 2021, LG&E and KU have commenced closure of manyall of the subject impoundments and have completed closure of some of their smaller impoundments. LG&E and KU expect to commence closure of the remaining impoundments no later than April 2021. LG&E and KU generally expect to complete impoundment closures within five years of commencement, although a longer period may be required to complete closure of some facilities. Associated costs are expected to be subject to rate recovery.
In connection with the final CCR rule, LG&E and KU recorded adjustments to existing AROs beginning in 2015 and continue to record adjustments as required. See Note 16 for additional information. Further changes to AROs, current capital plans or operating costs may be 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.
(All Registrants)
Superfund and Other Remediation
PPL Electric, LG&E and KU are potentially responsible for investigating and remediating contamination under the federal Superfund program and similar state programs. Actions are under way at certain sites including former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated by, or currently owned by predecessors or affiliates of, PPL Electric, LG&E and KU. PPL Electric is potentially responsible for a share of clean-up costs at certain sites including the
Columbia Gas Plant site and the Brodhead site. Clean-upCleanup actions have been or are being undertaken at all of these sites as requested by governmental agencies, the costs of which have not been and are not expected to be significant to PPL Electric.
As of September 30, 20202021 and December 31, 2019,2020, PPL Electric had a recorded liability of $10 million representing its best estimate of the probable loss to be incurred to remediate the sites identified above. Depending on the outcome of investigations at
identified sites where investigations have not begun or been completed, or developments at sites for which information is incomplete, additional costs of remediation could be incurred. PPL Electric, LG&E and KU lack sufficient information about such additional sites to estimate any potential liability or range of reasonably possible losses, if any, related to these sites. Such costs, however, are not currently expected to be significant.
The EPA is evaluating the risks associated with polycyclic aromatic hydrocarbons and naphthalene, chemical by-products of coal gas manufacturing. As a result, individual states may establish stricter standards for water quality and soil cleanup, that 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 KUThe Registrants cannot reasonably estimate a range of possible losses, if any, related to these matters.
Regulatory Issues
(All Registrants)
See Note 7 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 electric system in North America. The FERC oversees this process and independently enforces the Reliability Standards.
The Reliability Standards have the force and effect of law and apply to certain users of the bulk electric system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties for certain violations.
PPL Electric, LG&E and KU monitor their compliance with the Reliability Standards and self-report or self-log potential violations of applicable reliability requirements whenever identified, and submit accompanying mitigation plans, as required. The resolution of a small number of potential violations is pending. Penalties incurred to date have not been significant. Any Regional Reliability Entity 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 an estimate or range of possible losses cannot be determined.
Gas - Security Directives(PPL and LG&E)
In May and July of 2021, the Department of Homeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain notified owners and operators of natural gas pipeline facilities (including local distribution companies) that TSA has determined to be critical. The first security directive required notified owners/operators to implement cybersecurity incident reporting to the DHS, designate a cybersecurity coordinator, and perform a gap assessment of current entity cybersecurity practices against certain voluntary TSA security guidelines and report relevant results and proposed mitigation to applicable DHS agencies. The second security directive requires notified entities to implement a significant number of specified cyber security controls and processes. LG&E does not believe the security directives will have a significant impact on LG&E’s operations or financial condition.
Other
Labor Union Agreements
(LKEPPL and KU)PPL Electric)
For PPL and PPL Electric, labor agreement negotiations with the IBEW are expected to commence in the first quarter of 2022. The current five-year agreement expires in May 2022.
(KU)
KU has 70 employees that are represented by the IBEW labor union. On August 2020,1, 2021, KU and the United Steelworkers of AmericaIBEW ratified a three-yearthree-year labor agreement through August 2023. The agreement covers approximately 48 employees.2024. The terms of the new labor agreement are not expected to have a significant impact on the financial results of LKE or KU.
(LKE and LG&E)
On November 4, 2020, LG&E and the IBEW reached an agreement in principle regarding a new three-year collective bargaining agreement. The proposed agreement is to be submitted to a vote of IBEW union members during early November 2020. The agreement covers approximately 640 employees. The terms of the proposed labor agreement are not expected to have a significant impact on the financial results of LKE or LG&E. The Registrants cannot predict the ultimate outcome of this matter.
Guarantees and Other Assurances
(All Registrants)
In the normal course of business, the Registrants enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies. These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.
(PPL)
PPL fully and unconditionally guarantees all of the debt securities and loan obligations of PPL Capital Funding.
(All Registrants)
The table below details guarantees provided as of September 30, 2020.2021. "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," for which PPL has a total recorded liability of $5 million at September 30, 2020 and December 31, 2019.remote. For reporting purposes, on a consolidated basis, allthe guarantees of PPL Electric, LKE, LG&E and KU also apply to PPL, and allinclude the guarantees of LG&E and KU also apply to LKE.its subsidiary Registrants.
| | | | | | | | | | | | | | |
| Exposure at September 30, 2020 | | Expiration
Date |
| PPL | | | | |
| WPD indemnifications for entities in liquidation and sales of assets | $ | 10 | | (a) | | 2022 |
| WPD guarantee of pension and other obligations of unconsolidated entities | 90 | | (b) | | |
| LKE | | | | |
| Indemnification of lease termination and other divestitures | 200 | | (c) | | 2021 |
| LG&E and KU | | | | |
| LG&E and KU obligation of shortfall related to OVEC | | (d) | | |
| | | | | | | | | | | | | | |
| Exposure at September 30, 2021 | | Expiration
Date |
| PPL | | | | |
| Indemnifications related to the sale of the U.K. utility business | £ | 7,881 | | (a) | | 2021 |
| Indemnifications related to certain tax liabilities related to the sale of the U.K. utility business | £ | 50 | | (b) | | 2028 |
| LG&E and KU | | | | |
| LG&E and KU obligation of shortfall related to OVEC | | (c) | | |
(a)IndemnificationPPL WPD Limited agreed to provide a standard indemnity regarding “leakage” amounts, which includes amounts taken out of the liquidators and certain others for existing liabilitiessold assets through dividends, return of capital, bonuses or expensessimilar method, received or liabilities arisingwaived by WPD (or its affiliates defined as members of the Sellers Group in the SPA) during the liquidation process.period from April 1, 2020 through June 14, 2021, except such amounts permitted under the WPD SPA. The indemnifications are limited to distributions made from the subsidiary to its parent either prior or subsequent to liquidation or are not explicitly stated in the agreements. The indemnifications generally expire 2 to 7 years subsequent to the date of dissolutionamount of the entities. The exposure noted only includes those cases wherecap on this indemnity is the agreements provide for specific limits.
In connection with their sales of various businesses,amount paid to PPL 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. Additionally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.Limited at closing.
(b)RelatesPPL WPD Limited entered into a Tax Deed dated June 9, 2021 in which it agreed to a tax indemnity regarding certain potential tax liabilities of the entities sold with respect to periods prior to the completion of the sale, subject to customary exclusions and limitations. Because National Grid Holdings One plc, the buyer, agreed to purchase indemnity insurance, the amount of the cap on the indemnity for these liabilities is £1, except with respect to certain obligationssurrenders of discontinued or modified electric associations that were guaranteed at the time of privatization by the participating members. Costs are allocated to the members and can be reallocated if an existing member becomes insolvent. At September 30, 2020, WPD has recorded an estimated discounted liabilitytax losses, for which the expected payment/performance is probable. Neither the expiration date nor the maximum amount of potential payments for certain obligationsthe cap on the indemnity is explicitly stated in the related agreements, and as a result, the exposure has been estimated.£50 million.
(c)LKE provides certain indemnifications covering the due and punctual payment, performance and discharge by each party of its respective obligations. The most comprehensive of these guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under a 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a maximum exposure of $200 million exclusive of certain items such as government fines and penalties that may exceed the maximum. 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 the various indemnification scenarios, but does not expect such outcomes to result in significant losses above the amounts recorded.
(d)Pursuant to the OVEC power purchase contract, LG&E and KU are obligated to pay for their share of OVEC's excess debt service, post-retirement and decommissioning costs, as well as any shortfall from amounts included within a demand charge designed and expected to cover these costs over the term of the contract. LKE'sPPL's proportionate share of OVEC's outstanding debt was $105$94 million at September 30, 2020,2021, consisting of LG&E's share of $73$65 million and KU's share of $32$29 million. The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" in Note 1314 in PPL's, LKE's, LG&E's and KU's 20192020 Form 10-K for additional information on the OVEC power purchase contract.
In March 2018, a sponsor with a 4.85% pro-rata share of OVEC obligations filed for bankruptcy under Chapter 11 and, in August 2018, received a rejection order for the OVEC power purchase contract in the bankruptcy proceeding. OVEC and other entities challenged the contract rejection, the
bankruptcy plan confirmation and regulatory aspects of the plan in various forums. In May 2020, OVEC and the relevant sponsor announced a settlement resolving all disputed matters in the bankruptcy and other proceedings, including providing that the sponsor will withdraw its request to reject the power purchase agreement. The settlement was implemented in July 2020. Periodically, OVEC and certain of its sponsors, including LG&E and KU, may consider certain potential additional credit support actions to preserve OVEC's access to credit markets, including establishing or continuing debt reserve accounts or other changes involving OVEC's existing short and long-term debt.
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.
Risks and Uncertainties (All Registrants)
The COVID-19 pandemic has disrupted the U.S. and global economies and continues to present extraordinary challenges to businesses, communities, workforces and markets. In the U.S. and throughout the world, governmental authorities have taken urgent and extensive actions to contain the spread of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures have included quarantines, stay-at-home orders, travel restrictions, reduced operations or closures of businesses, schools and governmental agencies, and legislative or regulatory actions to address health or other pandemic-related concerns, allconcerns. Many restrictions that had been imposed are in the process of whichbeing lifted but may be reenacted in the future. These actions have the potential to adversely impact the Registrants' business and operations, especially if these measures remain in effect for a prolonged period of time.
To date, the Registrants have not experienced a significantthere has been no material impact on their business, results ofthe Registrants’ operations, financial condition, liquidity operations or on their supply chain as a result of COVID-19; however, the duration and severity of the outbreak and its ultimate effects on the global economy, the financial markets, or the Registrants’ workforce, customers and suppliers are uncertain. A protracted slowdown of broad sectors of the economy, prolonged or pervasive restrictions on businesses and their workforces, or significant changes in legislation or regulatory policy to address the COVID-19 pandemic all present significant risks to the Registrants. These or other unpredictable events resulting from the pandemic could further reduce customer demand for electricity and gas, impact the Registrants’ employees and supply chains, result in an increase in certain costs, delay payments or increase bad debts, or result in changes in the fair value of their assets and liabilities, which could materially and adversely affect the Registrants’ business, results of operations, financial condition or liquidity.
12. Related Party Transactions
Support Costs (PPL Electric, LKE, LG&E and KU)
PPL Services, PPL EU Services and LKS provide PPL, PPL Electric, LKE,the Registrants, their respective subsidiaries including LG&E and KU, and each other with administrative, management and support services. For all services companies, the costs of directly assignable and attributable services are charged to the respective recipients as direct support costs. General costs that cannot be directly assigned or attributed to a specific entity are allocated and charged to the respective recipients as indirect support costs. PPL Services and PPL EU Services use a three-factor methodology that includes the applicable recipients' invested capital, operation and maintenance expenses and number of employees to allocate indirect costs. PPL Services may also use a ratio of overall direct and indirect costs or a weighted average cost ratio. 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 September 30, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2020 | | 2019 | | 2020 | | 2019 |
PPL Electric from PPL Services | $ | 11 | | | $ | 14 | | | $ | 37 | | | $ | 43 | |
| LKE from PPL Services | 6 | | | 6 | | | 19 | | | 20 | |
| PPL Electric from PPL EU Services | 44 | | | 38 | | | 126 | | | 112 | |
| LG&E from LKS | 43 | | | 37 | | | 125 | | | 112 | |
| KU from LKS | 45 | | | 42 | | | 132 | | | 126 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2021 | | 2020 | | 2021 | | 2020 |
PPL Electric from PPL Services | $ | 15 | | | $ | 11 | | | $ | 36 | | | $ | 37 | |
| PPL Electric from PPL EU Services | 48 | | | 44 | | | 147 | | | 126 | |
| LG&E from LKS | 40 | | | 43 | | | 126 | | | 125 | |
| KU from LKS | 43 | | | 45 | | | 132 | | | 132 | |
In addition to the charges for services noted above, LKS makes payments on behalf of LG&E and KU for fuel purchases and other costs for products or services provided by third parties. 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 LKEPPL and LG&E and KU are reimbursed through LKS.
Intercompany Borrowings
(PPL Electric)
PPL Energy Funding maintains a $650$1,200 million revolving line of credit with a PPL Electric subsidiary. At September 30, 2021, PPL Energy Funding had borrowings outstanding in the amount of $575 million. This balance is reflected in "Notes receivable from affiliate" on the PPL Electric balance sheet. NaN balance was outstanding at September 30, 2020 and December 31, 2019.2020. The interest rates on borrowings are equal to one-month LIBOR plus a spread. Interest income is reflected in "Interest Income from Affiliate" on the Income Statements.
(LKE)
LKE maintains a $375 million revolving line of credit with a PPL Energy Funding subsidiary whereby LKE can borrow funds on a short-term basis at market-based rates. The interest rates on borrowings are equal to one-month LIBOR plus a spread. At September 30, 2020 and December 31, 2019, $153 million and $150 million were outstanding and reflected in "Notes payable with affiliates" on the Balance Sheets. The interest rates on the outstanding borrowings at September 30, 2020 and December 31, 2019 were 1.66% and 3.20%. Interest expense on the revolving line of credit was $1 million and $4 million for the three and nine months ended September 30, 2020 and $2 million and $5 million for the three and nine months ended September 30, 2019.
LKE maintains an agreement with a PPL affiliate that has a $300 million borrowing limit whereby LKE can loan funds on a short-term basis at market-based rates. NaN balance was outstanding at September 30, 2020 and December 31, 2019. The interest rate on the loan is based on the PPL affiliate's credit rating and equal to one-month LIBOR plus a spread.
LKE maintains ten-year notes of $400 million and $250 million with a PPL affiliate with interest rates of 3.5% and 4%. At September 30, 2020 and December 31, 2019, the notes were reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on the $400 million note was $4 million and $11 million for the three and nine months ended September 30, 2020 and 2019. Interest expense on the $250 million note was $3 million and $8 million for the three and nine months ended September 30, 2020 and 2019.
In May 2020, LKE entered into a $450 million term loan credit agreement with a PPL affiliate whereby LKE could borrow funds on a short-term basis at market-based rates. Interest on borrowings is determined as the lower of the daily rate for 30-day non-financial commercial paper programs plus a spread or one-month LIBOR plus a spread. The agreement expired on August 31, 2020. NaN balances were outstanding at September 30, 2020. Interest expense on borrowings was not significant for the three and nine months ended September 30, 2020.
In August 2020, LKE entered into a ten-year note of $550 million with a PPL affiliate with an interest rate of 4.125%. At September 30, 2020, this note was reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on the note was $3 million for the three and nine months ended September 30, 2020.
(LG&E and KU)
LG&E participates in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to $750 millionthe difference between LG&E's FERC borrowing limit and LG&E's commercial paper limit at an interest rate based on the lower of a market index of commercial paper issues. NaNissues and two additional rate options based on LIBOR. LG&E's money pool borrowing limit is $325 million. At September 30, 2021, LG&E had borrowings outstanding from LKE in the amount of $284 million. This balance is reflected in "Notes payable to affiliates" on the LG&E balance sheets. No balances were outstanding at September 30, 2020 and December 31, 2019.2020.
KU participates in an intercompany money pool agreement whereby LKE and/or LG&E make available to KU funds up to $650 millionthe difference between KU's FERC borrowing limit and KU's commercial paper limit at an interest rate based on the lower of a market index of commercial paper issues. NaNissues and two additional rate options based on LIBOR. KU's money pool borrowing limit is $300 million. At September 30, 2021, KU had borrowings outstanding from LKE in the amount of $208 million. This balance is reflected in "Notes payable to affiliates" on the KU balance sheets. No balances were outstanding at September 30, 2020 and December 31, 2019.2020.
VEBA Funds Receivable (PPL Electric)
In May 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA, to be used to pay medical claims of active bargaining unit employees. Based on PPL Electric's participation in PPL’s Other Postretirement Benefit plan, PPL Electric was allocated a portion of the excess funds from PPL Services. These funds have been recorded as an intercompany receivable on PPL Electric's Balance Sheets. The receivable balance decreases as PPL Electric pays incurred medical claims and is reimbursed by PPL Services. The intercompany receivable balance associated with these funds was $27$14 million as of September 30, 2020,2021, of which $10 million was reflected in "Accounts receivable from affiliates" and $17$4 million was reflected in "Other noncurrent assets" on the PPL Electric Balance Sheet. The intercompany receivable balance associated with these funds was $32$22 million as of December 31, 2019,2020, of which $10 million was reflected in "Accounts receivable from affiliates" and $22$12 million was reflected in "Other noncurrent assets" on the PPL Electric Balance Sheet.balance sheets.
Other (PPL Electric, LG&E and KU)
See Note 10 for discussions regarding intercompany allocations associated with defined benefits.
13. Other Income (Expense) - net
(PPL)
The details of "Other Income (Expense) - net" for the periods ended September 30, were:
| | | | Three Months | | Nine Months | | | Three Months | | Nine Months | |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 | | 2021 | | 2020 | |
| Other Income | Other Income | | | | | | | | | Other Income | | | | | | | | |
| Economic foreign currency exchange contracts (Note 15) | $ | (19) | | | $ | 44 | | | $ | 44 | | | $ | 56 | | | |
| | Defined benefit plans - non-service credits (Note 10) | Defined benefit plans - non-service credits (Note 10) | 67 | | | 77 | | | 202 | | | 237 | | | Defined benefit plans - non-service credits (Note 10) | $ | 6 | | | $ | 1 | | | $ | 18 | | | $ | 4 | | |
| Interest income | 1 | | | 3 | | | 3 | | | 12 | | | |
| Interest Income | | Interest Income | 6 | | | — | | | 10 | | | 1 | | |
| AFUDC - equity component | AFUDC - equity component | 6 | | | 6 | | | 14 | | | 17 | | | AFUDC - equity component | 4 | | | 7 | | | 13 | | | 15 | | |
| | Miscellaneous | Miscellaneous | 0 | | | 1 | | | 2 | | | 6 | | | Miscellaneous | 2 | | | 1 | | | 7 | | | 3 | | |
| Total Other Income | Total Other Income | 55 | | | 131 | | | 265 | | | 328 | | | Total Other Income | 18 | | | 9 | | | 48 | | | 23 | | |
| Other Expense | Other Expense | | | | | | | | | Other Expense | | | | | | | | |
| | Charitable contributions | Charitable contributions | 0 | | | 1 | | | 2 | | | 3 | | | Charitable contributions | — | | | — | | | 2 | | | 2 | | |
| | Miscellaneous | Miscellaneous | 3 | | | 4 | | | 10 | | | 16 | | | Miscellaneous | 6 | | | 3 | | | 21 | | | 10 | | |
| Total Other Expense | Total Other Expense | 3 | | | 5 | | | 12 | | | 19 | | | Total Other Expense | 6 | | | 3 | | | 23 | | | 12 | | |
| Other Income (Expense) - net | Other Income (Expense) - net | $ | 52 | | | $ | 126 | | | $ | 253 | | | $ | 309 | | | Other Income (Expense) - net | $ | 12 | | | $ | 6 | | | $ | 25 | | | $ | 11 | | |
0(PPL Electric)
The details of "Other Income (Expense) - net" for the periods ended September 30, were:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months | | Nine Months |
| 2020 | | 2019 | | 2020 | | 2019 |
| Other Income | | | | | | | |
| AFUDC - equity component | $ | 6 | | | $ | 6 | | | $ | 14 | | | $ | 17 | |
| Defined benefit plans - non-service credits (Note 10) | 1 | | | 1 | | | 3 | | | 3 | |
| Interest income | 1 | | | 0 | | | 1 | | | 1 | |
| Total Other Income | 8 | | | 7 | | | 18 | | | 21 | |
| Other Expense | | | | | | | |
| Charitable contributions | 0 | | | 0 | | | 1 | | | 2 | |
| Miscellaneous | 1 | | | 0 | | | 2 | | | 1 | |
| Total Other Expense | 1 | | | 0 | | | 3 | | | 3 | |
| Other Income (Expense) - net | $ | 7 | | | $ | 7 | | | $ | 15 | | | $ | 18 | |
14. Fair Value Measurements
(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. See Note 1 in each Registrant's 20192020 Form 10-K for information on the levels in the fair value hierarchy.
Recurring Fair Value Measurements
The assets and liabilities measured at fair value were:
| | | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
| | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| PPL | PPL | | | | | | | | | | | | | | | | PPL | | | | | | | | | | | | | | | |
| Assets | Assets | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 746 | | | $ | 746 | | | $ | 0 | | | $ | 0 | | | $ | 815 | | | $ | 815 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | $ | 4,767 | | | $ | 4,767 | | | $ | — | | | $ | — | | | $ | 442 | | | $ | 442 | | | $ | — | | | $ | — | |
| Restricted cash and cash equivalents (a) | Restricted cash and cash equivalents (a) | 22 | | | 22 | | | 0 | | | 0 | | | 21 | | | 21 | | | 0 | | | 0 | | Restricted cash and cash equivalents (a) | 1 | | | 1 | | | — | | | — | | | 1 | | | 1 | | | — | | | — | |
| Special use funds (a): | Special use funds (a): | | Special use funds (a): | |
| | Money market fund | | Money market fund | 3 | | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Commingled debt fund measured at NAV (b) | Commingled debt fund measured at NAV (b) | 27 | | | — | | | — | | | — | | | 29 | | | — | | | — | | | — | | Commingled debt fund measured at NAV (b) | 23 | | | — | | | — | | | — | | | 26 | | | — | | | — | | | — | |
| Commingled equity fund measured at NAV (b) | Commingled equity fund measured at NAV (b) | 27 | | | — | | | — | | | — | | | 27 | | | — | | | — | | | — | | Commingled equity fund measured at NAV (b) | 20 | | | — | | | — | | | — | | | 25 | | | — | | | — | | | — | |
| Total special use funds | Total special use funds | 54 | | | 0 | | | 0 | | | 0 | | | 56 | | | 0 | | | 0 | | | 0 | | Total special use funds | 46 | | | 3 | | | — | | | — | | | 51 | | | — | | | — | | | — | |
| Price risk management assets (c): | | | | | | | | | | | | | | | | |
| Foreign currency contracts | 42 | | | 0 | | | 42 | | | 0 | | | 142 | | | 0 | | | 142 | | | 0 | | |
| Cross-currency swaps | 147 | | | 0 | | | 147 | | | 0 | | | 154 | | | 0 | | | 154 | | | 0 | | |
| Total price risk management assets | 189 | | | 0 | | | 189 | | | 0 | | | 296 | | | 0 | | | 296 | | | 0 | | |
| | Total assets | Total assets | $ | 1,011 | | | $ | 768 | | | $ | 189 | | | $ | 0 | | | $ | 1,188 | | | $ | 836 | | | $ | 296 | | | $ | 0 | | Total assets | $ | 4,814 | | | $ | 4,771 | | | $ | — | | | $ | — | | | $ | 494 | | | $ | 443 | | | $ | — | | | $ | — | |
| | Liabilities | Liabilities | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | |
| Price risk management liabilities (c): | Price risk management liabilities (c): | | | | | | | | | | | | | | | | Price risk management liabilities (c): | | | | | | | | | | | | | | | |
| Interest rate swaps | Interest rate swaps | $ | 34 | | | $ | 0 | | | $ | 34 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | Interest rate swaps | $ | 19 | | | $ | — | | | $ | 19 | | | $ | — | | | $ | 23 | | | $ | — | | | $ | 23 | | | $ | — | |
| Foreign currency contracts | 1 | | | 0 | | | 1 | | | 0 | | | 5 | | | 0 | | | 5 | | | 0 | | |
| Total price risk management liabilities | Total price risk management liabilities | $ | 35 | | | $ | 0 | | | $ | 35 | | | $ | 0 | | | $ | 26 | | | $ | 0 | | | $ | 26 | | | $ | 0 | | Total price risk management liabilities | $ | 19 | | | $ | — | | | $ | 19 | | | $ | — | | | $ | 23 | | | $ | — | | | $ | 23 | | | $ | — | |
| | PPL Electric | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 26 | | | $ | 26 | | | $ | 0 | | | $ | 0 | | | $ | 262 | | | $ | 262 | | | $ | 0 | | | $ | 0 | | |
| Restricted cash and cash equivalents (a) | 2 | | | 2 | | | 0 | | | 0 | | | 2 | | | 2 | | | 0 | | | 0 | | |
| Total assets | $ | 28 | | | $ | 28 | | | $ | 0 | | | $ | 0 | | | $ | 264 | | | $ | 264 | | | $ | 0 | | | $ | 0 | | |
| | LKE | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 25 | | | $ | 25 | | | $ | 0 | | | $ | 0 | | | $ | 27 | | | $ | 27 | | | $ | 0 | | | $ | 0 | | |
| Cash collateral posted to counterparties (d) | 1 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
| Total assets | $ | 26 | | | $ | 26 | | | $ | 0 | | | $ | 0 | | | $ | 27 | | | $ | 27 | | | $ | 0 | | | $ | 0 | | |
|
| | | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
| | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Liabilities | | | | | | | | | | | | | |
| Price risk management liabilities: | | | | | | | | | | | | | |
| Interest rate swaps | $ | 26 | | | $ | 0 | | | $ | 26 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | |
| Total price risk management liabilities | $ | 26 | | | $ | 0 | | | $ | 26 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | |
| PPL Electric | | PPL Electric | | | | | | | | | | | | | | | |
| Assets | | Assets | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | Cash and cash equivalents | $ | 59 | | | $ | 59 | | | $ | — | | | $ | — | | | $ | 40 | | | $ | 40 | | | $ | — | | | $ | — | |
| | Total assets | | Total assets | $ | 59 | | | $ | 59 | | | $ | — | | | $ | — | | | $ | 40 | | | $ | 40 | | | $ | — | | | $ | — | |
| | LG&E | LG&E | | | | | | | | | | | | | LG&E | | | | | | | | | | | | |
| Assets | Assets | | | | | | | | | | | | | Assets | | | | | | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 10 | | | $ | 10 | | | $ | 0 | | | $ | 0 | | | $ | 15 | | | $ | 15 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | $ | 5 | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 7 | | | $ | 7 | | | $ | — | | | $ | — | |
| Cash collateral posted to counterparties (d) | 1 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
| | Total assets | Total assets | $ | 11 | | | $ | 11 | | | $ | 0 | | | $ | 0 | | | $ | 15 | | | $ | 15 | | | $ | 0 | | | $ | 0 | | Total assets | $ | 5 | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 7 | | | $ | 7 | | | $ | — | | | $ | — | |
| | Liabilities | Liabilities | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | |
| Price risk management liabilities: | Price risk management liabilities: | | | | | | | | | | | | | Price risk management liabilities: | | | | | | | | | | | | |
| Interest rate swaps | Interest rate swaps | $ | 26 | | | $ | 0 | | | $ | 26 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | Interest rate swaps | $ | 19 | | | $ | — | | | $ | 19 | | | $ | — | | | $ | 23 | | | $ | — | | | $ | 23 | | | $ | — | |
| Total price risk management liabilities | Total price risk management liabilities | $ | 26 | | | $ | 0 | | | $ | 26 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | | $ | 21 | | | $ | 0 | | Total price risk management liabilities | $ | 19 | | | $ | — | | | $ | 19 | | | $ | — | | | $ | 23 | | | $ | — | | | $ | 23 | | | $ | — | |
| | KU | KU | | | | | | | | | | | | | | | | KU | | | | | | | | | | | | | | | |
| Assets | Assets | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 15 | | | $ | 15 | | | $ | 0 | | | $ | 0 | | | $ | 12 | | | $ | 12 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | $ | 8 | | | $ | 8 | | | $ | — | | | $ | — | | | $ | 22 | | | $ | 22 | | | $ | — | | | $ | — | |
| Total assets | Total assets | $ | 15 | | | $ | 15 | | | $ | 0 | | | $ | 0 | | | $ | 12 | | | $ | 12 | | | $ | 0 | | | $ | 0 | | Total assets | $ | 8 | | | $ | 8 | | | $ | — | | | $ | — | | | $ | 22 | | | $ | 22 | | | $ | — | | | $ | — | |
(a)Current portion is includedIncluded in "Other current assets" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets.
(b)In accordance with accounting guidance, certain investments that are measured at fair value using net asset value per share (NAV), or its equivalent, have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Balance Sheets.
(c)Current portion is included in "Price risk management assets" and "Other current liabilities" and noncurrent portion is included in "Price risk management assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.
(d)Included in "Other noncurrent assets" on the Balance Sheets. Represents cash collateral posted to offset the exposure with counterparties related to certain interest rate swaps under master netting arrangements that are not offset.
Special Use Funds
(PPL)
The special use funds are investments restricted for paying active union employee medical costs. In May 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA to be used to pay medical claims of active bargaining unit employees. The funds are invested primarily in commingled debt and equity funds measured at NAV and are classified as investments in equity securities. Changes in fair value of the funds are recorded to the Statements of Income.
Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps
(PPL, LKE, LG&E and KU)
To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency exchange risk, PPL usesused 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.
Financial Instruments Not Recorded at Fair Value (All Registrants)
The carrying amounts of long-term debt on the Balance Sheets and their estimated fair values are set forth below. Long-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| Carrying
Amount (a) | | Fair Value | | Carrying
Amount (a) | | Fair Value |
| PPL | $ | 22,768 | | | $ | 28,085 | | | $ | 21,893 | | | $ | 25,481 | |
| PPL Electric | 3,587 | | | 5,030 | | | 3,985 | | | 4,589 | |
| LKE | 6,073 | | | 7,588 | | | 6,002 | | | 6,766 | |
| LG&E | 2,006 | | | 2,490 | | | 2,005 | | | 2,278 | |
| KU | 2,617 | | | 3,310 | | | 2,623 | | | 3,003 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| Carrying
Amount (a) | | Fair Value | | Carrying
Amount (a) | | Fair Value |
| PPL | $ | 11,139 | | | $ | 13,091 | | | $ | 14,689 | | | $ | 17,774 | |
| PPL Electric | 4,483 | | | 5,296 | | | 4,236 | | | 5,338 | |
| LG&E | 2,006 | | | 2,387 | | | 2,007 | | | 2,499 | |
| KU | 2,618 | | | 3,157 | | | 2,618 | | | 3,334 | |
(a)Amounts are net of debt issuance costs.
The carrying amounts of other current financial instruments (except for long-term debt due within one year) approximate their fair values because of their short-term nature.
15. Derivative Instruments and Hedging Activities
Risk Management Objectives
(All Registrants)
PPL has a risk management policy approved by the Board of Directors to manage market risk associated with commodities, interest rates on debt issuances and foreign exchange (including price, liquidity and volumetric risk) and credit risk (including non-performance risk and payment default risk). The Risk Management Committee, comprised of senior management and chaired by the Senior Director-Risk Management, oversees the risk management function. Key risk control activities designed to ensure compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions, verification of risk and transaction limits, value-at-risk analyses (VaR, a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level) and the coordination and reporting of the Enterprise Risk Management program.
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, interest rates and foreign currency exchange rates. Many of these contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.
The following summarizes the market risks that affect PPL and its subsidiaries.
Interest Rate Risk
•PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. Prior to the sale of the U.K. utility business on June 14, 2021, PPL and WPD holdheld over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. PPL LKE and LG&E utilize over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt. PPL, WPD, LKE, LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates, when appropriate, in connection with future debt issuances.
•PPL and its subsidiaries are exposed to interest rate risk associated with debt securities and derivatives 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, prior to the sale of the U.K. utility business on June 14, 2021, for certain plans at WPD due to the recovery methods in place.
Foreign Currency Risk (PPL)
•Prior to the sale of the U.K. utility business on June 14, 2021, PPL iswas exposed to foreign currency exchange risk primarily associated with its investments in and earnings of U.K. affiliates.
(All Registrants)
Commodity Price Risk
PPL is exposed to commodity price risk through its domestic subsidiaries as described below.
•PPL Electric is required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk is insignificant and mitigated through its PUC-approved cost recovery mechanism and full-requirement supply agreements to serve its PLR customers which transfer the risk to energy suppliers.
•LG&E's and KU's rates include certain mechanisms for fuel, fuel-related expenses and energy purchases. In addition, LG&E's rates include a mechanism for natural gas supply expenses. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.
Volumetric Risk
Volumetric risk is the risk related to the changes in volume of retail sales due to weather, economic conditions or other factors. PPL is exposed to volumetric risk through its subsidiaries as described below.
•Prior to the sale of the U.K. utility business on June 14, 2021, WPD iswas exposed to volumetric risk which iswas significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control regulations, recovery of such exposure occurs on a two year lag. See Note 1 in PPL's 20192020 Form 10-K for additional information on revenue recognition under RIIO-ED1.
•PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.
Equity Securities Price Risk
•PPL and its subsidiaries are exposed to equity securities price risk associated with the fair value of the defined benefit plans' assets. This risk is significantly mitigated at the regulated domestic utilities and, prior to the sale of the U.K. utility business on June 14, 2021, for certain plans at WPD due to the recovery methods in place.
•PPL is exposed to equity securities price risk from future stock sales and/or purchases.
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 PPL Electric, LG&E or KU defaults on its obligation, those Registrants 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, thereby mitigating the financial risk for these entities.
PPL and its subsidiaries have credit policies in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use of master netting agreements or provisions. These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements. PPL and its subsidiaries may request additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit.
Master Netting Arrangements (PPL, LKE, LG&E and KU)
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 had a $9 million0 obligation and $14 millionan immaterial obligation to return cash collateral under master netting arrangements at September 30, 20202021 and December 31, 2019.2020.
LKE, PPL had 0 obligation to post cash collateral under master netting arrangements at September 30, 2021 and December 31, 2020.
LG&E and KU had 0 obligation to return cash collateral under master netting arrangements at September 30, 20202021 and December 31, 2019.2020.
PPL, LKE and LG&E posted $1 million of cash collateral under master netting arrangements at September 30, 2020.and KU had 0 obligation to post cash collateral under master netting arrangements at September 30, 2020. PPL, LKE, LG&E2021 and KU had 0 obligation to post cash collateral under master netting arrangements at December 31, 2019.2020.
See "Offsetting Derivative Instruments" below for a summary of derivative positions presented in the balance sheets where a right of setoff exists under these arrangements.
Interest Rate Risk
(All Registrants)
PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. A variety of financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of the debt portfolios 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. In addition, the interest rate risk of certain subsidiaries is potentially mitigated as a result of the existing regulatory framework or the timing of rate cases.
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. AtPPL had no such contracts at September 30, 2020, PPL held an aggregate notional value in interest rate swap contracts of £126 million (approximately $168 million based on spot rates) that mature in 2035 to hedge interest payments on WPD's £250 million debt issuance which occurred in October 2020.2021.
AtAs of September 30, 2020,2021, PPL held anhad no aggregate notional value in cross-currency interest rate swap contracts of $702contracts. In March 2021, $500 million that range in maturity from 2021 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.notes were repaid prior to maturity and $500 million notional value of cross-currency interest rate swap contracts matured.
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 not probable of occurring.
For the three and nine months ended September 30, 20202021 and 2019,2020, PPL had 0no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges.
At September 30, 2020,2021, the amount of accumulated net unrecognized after-tax gains (losses) on qualifying derivatives expected to be reclassified into earnings during the next 12 months is insignificant. Amounts are reclassified as the hedged interest expense is recorded.
Economic Activity (PPL LKE and LG&E)
LG&E enters into interest rate swap contracts that economically hedge interest payments. Because realized gains and losses from the swaps, including terminated swap contracts, 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 September 30, 2020,2021, LG&E held contracts with a notional amount of $147$64 million that rangemature in maturity through 2033.
Foreign Currency Risk (PPL)
Prior to the sale of the U.K. utility business on June 14, 2021, PPL iswas exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL hashad adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions, including the previously announced potential sale of its U.K. utility business and net investments. In addition, PPL entersentered into financial instruments to protect against foreign currency translation risk of expected GBP earnings.
Net Investment Hedges
Prior to the sale of the U.K. utility business on June 14, 2021, PPL entersentered into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. There were no contracts outstanding at September 30, 2020.2021.
At September 30, 2020 and December 31, 2019,2020, PPL had $33 million and $32 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI. The remaining balance was transferred out of AOCI and realized in discontinued operations as a result of the sale of the U.K. utility business.
Economic Activity
Prior to the sale of the U.K. utility business on June 14, 2021, PPL entersentered into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At September 30, 2020,earnings and anticipated transactions, including the total exposure hedged by PPL was approximately £340 million (approximately $482 million based on contracted rates). These contracts have termination dates ranging from October 2020 through July 2021.sale of its U.K. utility business.
Accounting and Reporting
(All Registrants)
All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected. NPNS contracts include certain full requirement purchase contracts and other physical purchase contracts. Changes in the fair value of derivatives not designated as NPNS are recognized in earnings unless specific hedge accounting criteria are met and designated as such, except for the changes in fair values of LG&E's interest rate swaps that are recognized as regulatory assets or regulatory liabilities. See Note 7 for amounts recorded in regulatory assets and regulatory liabilities at September 30, 20202021 and December 31, 2019.2020.
See Note 1 in each Registrant's 20192020 Form 10-K for additional information on accounting policies related to derivative instruments.
(PPL)
The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| Derivatives designated as
hedging instruments | | Derivatives not designated
as hedging instruments | | Derivatives designated as
hedging instruments | | Derivatives not designated
as hedging instruments |
| | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities |
| Current: | | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | | |
| Assets/Liabilities (a): | | | | | | | | | | | | | | | |
| Interest rate swaps (b) | $ | 0 | | | $ | 8 | | | $ | 0 | | | $ | 2 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4 | |
| Cross-currency swaps (b) | 94 | | | 0 | | | 0 | | | 0 | | | 5 | | | 0 | | | 0 | | | 0 | |
| Foreign currency contracts | 0 | | | 0 | | | 42 | | | 1 | | | 0 | | | 0 | | | 142 | | | 5 | |
| Total current | 94 | | | 8 | | | 42 | | | 3 | | | 5 | | | 0 | | | 142 | | | 9 | |
| Noncurrent: | | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | | |
| Assets/Liabilities (a): | | | | | | | | | | | | | | | |
| Interest rate swaps (b) | 0 | | | 0 | | | 0 | | | 24 | | | 0 | | | 0 | | | 0 | | | 17 | |
| Cross-currency swaps (b) | 53 | | | 0 | | | 0 | | | 0 | | | 149 | | | 0 | | | 0 | | | 0 | |
| Foreign currency contracts | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total noncurrent | 53 | | | 0 | | | 0 | | | 24 | | | 149 | | | 0 | | | 0 | | | 17 | |
| Total derivatives | $ | 147 | | | $ | 8 | | | $ | 42 | | | $ | 27 | | | $ | 154 | | | $ | 0 | | | $ | 142 | | | $ | 26 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| Derivatives designated as
hedging instruments | | Derivatives not designated
as hedging instruments | | Derivatives designated as
hedging instruments | | Derivatives not designated
as hedging instruments |
| | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities |
| Current: | | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | | |
| Assets/Liabilities: | | | | | | | | | | | | | | | |
| Interest rate swaps (a) (b) | $ | — | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2 | |
| | | | | | | | | | | | | | | |
| Cross-currency swaps (c) | — | | | — | | | — | | | — | | | 94 | | | — | | | — | | | — | |
| Foreign currency contracts (c) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 137 | |
| | | | | | | | | | | | | | | |
| Total current | — | | | — | | | — | | | 2 | | | 94 | | | — | | | — | | | 139 | |
| Noncurrent: | | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | | |
| Assets/Liabilities: | | | | | | | | | | | | | | | |
| Interest rate swaps (a) (b) | — | | | — | | | — | | | 17 | | | — | | | — | | | — | | | 21 | |
| Cross-currency swaps (c) | — | | | — | | | — | | | — | | | 52 | | | — | | | — | | | — | |
| Total noncurrent | — | | | — | | | — | | | 17 | | | 52 | | | — | | | — | | | 21 | |
| Total derivatives | $ | — | | | $ | — | | | $ | — | | | $ | 19 | | | $ | 146 | | | $ | — | | | $ | — | | | $ | 160 | |
(a)Current portion is included in "Price risk management assets" and "Other current liabilities" and noncurrent portion is included in "Price risk management assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.
(b)Excludes accrued interest, if applicable.
(c)Included in "Current assets held for sale" and "Current liabilities held for sale" on the Balance Sheets.
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the period ended September 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months | | Nine Months | | | | Three Months | | Nine Months |
Derivative
Relationships | | Derivative Gain
(Loss) Recognized in
OCI | | Derivative Gain
(Loss) Recognized in
OCI | | Location of
Gain (Loss)
Recognized
in Income
on Derivative | | Gain (Loss)
Reclassified
from AOCI
into Income | | Gain (Loss)
Reclassified
from AOCI
into
Income |
| Cash Flow Hedges: | | | | | | | | | | |
| Interest rate swaps | | $ | — | | | $ | — | | | Interest expense | | $ | (1) | | | $ | 12 | |
| | | | | | | | | | |
| | | | | | Income (Loss) from Discontinued Operations (net of taxes) | | — | | | (2) | |
| Cross-currency swaps | | — | | | (50) | | | Income (Loss) from Discontinued Operations (net of taxes) | | — | | | (39) | |
| Total | | $ | — | | | $ | (50) | | | | | $ | (1) | | | $ | (29) | |
| | | | | | | | | | | | | | | | | | | | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized in
Income on Derivative | | Three Months | | Nine Months |
| Foreign currency contracts | | Income (Loss) from Discontinued Operations (net of taxes) | | $ | — | | | $ | (266) | |
| Interest rate swaps | | Interest expense | | — | | | (2) | |
| | | Total | | $ | — | | | $ | (268) | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets | | Three Months | | Nine Months |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | 1 | | | $ | 4 | |
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the period ended September 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months | | Nine Months | | | | Three Months | | Nine Months |
Derivative
Relationships | | Derivative Gain
(Loss) Recognized in
OCI | | Derivative Gain
(Loss) Recognized in
OCI | | Location of
Gain (Loss)
Recognized
in Income
on Derivative | | Gain (Loss)
Reclassified
from AOCI
into Income | | Gain (Loss)
Reclassified
from AOCI
into
Income |
| Cash Flow Hedges: | | | | | | | | | | |
| Interest rate swaps | | $ | 3 | | | $ | (7) | | | Interest expense | | $ | (4) | | | $ | (9) | |
| Cross-currency swaps | | (67) | | | (13) | | | Other income (expense) - net | | (56) | | | (24) | |
| | | | | | | | | | |
| Total | | $ | (64) | | | $ | (20) | | | | | $ | (60) | | | $ | (33) | |
| Net Investment Hedges: | | | | | | | | | | |
| Foreign currency contracts | | $ | 0 | | | $ | 1 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized in
Income on Derivative | | Three Months | | Nine Months |
| Foreign currency contracts | | Other income (expense) - net | | $ | (19) | | | $ | 44 | |
| Interest rate swaps | | Interest expense | | (1) | | | (4) | |
| | | Total | | $ | (20) | | | $ | 40 | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets | | Three Months | | Nine Months |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | 2 | | | $ | (5) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months | | Nine Months | | | | Three Months | | Nine Months |
Derivative
Relationships | | Derivative Gain
(Loss) Recognized in
OCI | | Derivative Gain
(Loss) Recognized in
OCI | | Location of
Gain (Loss)
Recognized
in Income
on Derivative | | Gain (Loss)
Reclassified
from AOCI
into Income | | Gain (Loss)
Reclassified
from AOCI
into Income |
| Cash Flow Hedges: | | | | | | | | | | |
| Interest rate swaps | | $ | 3 | | | $ | (7) | | | Interest expense | | $ | (3) | | | $ | (7) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Income (Loss) from Discontinued Operations (net of taxes) | | (1) | | | (2) | |
| Cross-currency swaps | | (67) | | | (13) | | | Income (Loss) from Discontinued Operations (net of taxes) | | (56) | | | (24) | |
| Total | | $ | (64) | | | $ | (20) | | | | | $ | (60) | | | $ | (33) | |
| Net Investment Hedges: | | | | | | | | | | |
| Foreign currency contracts in discontinued operations | | $ | — | | | $ | 1 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized in
Income on Derivative | | Three Months | | Nine Months |
| Foreign currency contracts | | Income (Loss) from Discontinued operations (net of taxes) | | $ | (19) | | | $ | 44 | |
| Interest rate swaps | | Interest expense | | (1) | | | (4) | |
| | | Total | | $ | (20) | | | $ | 40 | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets | | Three Months | | Nine Months |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | 2 | | | $ | (5) | |
| | | | | | |
| | | | | | |
| | | | | | |
The following tables presenttable presents the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilitiescash flow hedge activity on the Statement of Income for the period ended September 30, 2019.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months | | Nine Months | | | | Three Months | | Nine Months |
Derivative
Relationships | | Derivative Gain
(Loss) Recognized in
OCI | | Derivative Gain
(Loss) Recognized in
OCI | | Location of
Gain (Loss)
Recognized
in Income
on Derivative | | Gain (Loss)
Reclassified
from AOCI
into Income | | Gain (Loss)
Reclassified
from AOCI
into Income |
| Cash Flow Hedges: | | | | | | | | | | |
| Interest rate swaps | | $ | (22) | | | $ | (30) | | | Interest expense | | $ | (2) | | | $ | (6) | |
| | | | | | | | | | |
| Cross-currency swaps | | 41 | | | 69 | | | Other income (expense) - net | | 27 | | | 34 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total | | $ | 19 | | | $ | 39 | | | | | $ | 25 | | | $ | 28 | |
| Net Investment Hedges: | | | | | | | | | | |
| Foreign currency contracts | | $ | 0 | | | $ | 1 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized in
Income on Derivative | | Three Months | | Nine Months |
| Foreign currency contracts | | Other income (expense) - net | | $ | 44 | | | $ | 56 | |
| Interest rate swaps | | Interest expense | | (1) | | | (3) | |
| | | Total | | $ | 43 | | | $ | 53 | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets | | Three Months | | Nine Months |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | (2) | | | $ | (5) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships | |
| Three Months | | Nine Months | |
| Interest Expense | | Income (Loss) from Discontinued Operations (net of income taxes) | | Interest Expense | | | | Income (Loss) from Discontinued Operations (net of income taxes) | |
| Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded | $ | 183 | | | $ | (2) | | | $ | 810 | | | | | $ | (1,490) | | |
| The effects of cash flow hedges: | | | | | | | | | | |
| Gain (Loss) on cash flow hedging relationships: | | | | | | | | | | |
| Interest rate swaps: | | | | | | | | | | |
| Amount of gain (loss) reclassified from AOCI to income | (1) | | | — | | | 12 | | | | | (2) | | |
| Cross-currency swaps: | | | | | | | | | | |
| Hedged items | — | | | — | | | — | | | | | 39 | | |
| Amount of gain (loss) reclassified from AOCI to Income | — | | | — | | | — | | | | | (39) | | |
The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended September 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships | |
| Three Months | | Nine Months | |
| Interest Expense | | Other Income (Expense) - net | | Interest Expense | | Other Income (Expense) - net | |
|
| Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded | $ | 249 | | | $ | 52 | | | $ | 750 | | | $ | 253 | | |
| The effects of cash flow hedges: | | | | | | | | |
| Gain (Loss) on cash flow hedging relationships: | | | | | | | | |
| Interest rate swaps: | | | | | | | | |
| Amount of gain (loss) reclassified from AOCI to income | (4) | | | 0 | | | (9) | | | 0 | | |
| Cross-currency swaps: | | | | | | | | |
| Hedged items | 0 | | | 56 | | | 0 | | | 24 | | |
| Amount of gain (loss) reclassified from AOCI to income | 0 | | | (56) | | | 0 | | | (24) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships | |
| Three Months | | Nine Months | |
| Interest Expense | | Income (Loss) from Discontinued Operations (net of taxes) | | Interest Expense | | | | Income (Loss) from Discontinued Operations (net of taxes) | |
| Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded | $ | 161 | | | $ | 164 | | | $ | 479 | | | | | $ | 705 | | |
| The effects of cash flow hedges: | | | | | | | | | | |
| Gain (Loss) on cash flow hedging relationships: | | | | | | | | | | |
| Interest rate swaps: | | | | | | | | | | |
| Amount of gain (loss) reclassified from AOCI to income | (3) | | | (1) | | | (7) | | | | | (2) | | |
| Cross-currency swaps: | | | | | | | | | | |
| Hedged items | — | | | 56 | | | — | | | | | 24 | | |
| Amount of gain (loss) reclassified from AOCI to Income | — | | | (56) | | | — | | | | | (24) | | |
The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended September 30, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships | |
| Three Months | | Nine Months | |
| Interest Expense | | Other Income (Expense) - net | | Interest Expense | | Other Income (Expense) - net | |
|
| Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded | $ | 259 | | | $ | 126 | | | $ | 746 | | | $ | 309 | | |
| The effects of cash flow hedges: | | | | | | | | |
| Gain (Loss) on cash flow hedging relationships: | | | | | | | | |
| Interest rate swaps: | | | | | | | | |
| Amount of gain (loss) reclassified from AOCI to income | (2) | | | 0 | | | (6) | | | 0 | | |
| Cross-currency swaps: | | | | | | | | |
| Hedged items | 0 | | | (27) | | | 0 | | | (34) | | |
| Amount of gain (loss) reclassified from AOCI to income | 0 | | | 27 | | | 0 | | | 34 | | |
(LKE and LG(LG&E)
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
| | | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
| | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities |
| Current: | Current: | | | | | | | | Current: | | | | | | | |
| Price Risk Management | Price Risk Management | | | | | | | | Price Risk Management | | | | | | | |
| Assets/Liabilities: | Assets/Liabilities: | | | | | | | | Assets/Liabilities: | | | | | | | |
| Interest rate swaps | Interest rate swaps | $ | 0 | | | $ | 2 | | | $ | 0 | | | $ | 4 | | Interest rate swaps | $ | — | | | $ | 2 | | | $ | — | | | $ | 2 | |
| | Total current | Total current | 0 | | | 2 | | | 0 | | | 4 | | Total current | — | | | 2 | | | — | | | 2 | |
| Noncurrent: | Noncurrent: | | | | | | | | Noncurrent: | | | | | | | |
| Price Risk Management | Price Risk Management | | | | | | | | Price Risk Management | | | | | | | |
| Assets/Liabilities: | Assets/Liabilities: | | | | | | | | Assets/Liabilities: | | | | | | | |
| Interest rate swaps | Interest rate swaps | 0 | | | 24 | | | 0 | | | 17 | | Interest rate swaps | — | | | 17 | | | — | | | 21 | |
| Total noncurrent | Total noncurrent | 0 | | | 24 | | | 0 | | | 17 | | Total noncurrent | — | | | 17 | | | — | | | 21 | |
| Total derivatives | Total derivatives | $ | 0 | | | $ | 26 | | | $ | 0 | | | $ | 21 | | Total derivatives | $ | — | | | $ | 19 | | | $ | — | | | $ | 23 | |
The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the period ended September 30, 2020.2021.
| | | | | Location of Gain (Loss) Recognized in | | | | | | | Location of Gain (Loss) Recognized in | | | | |
| Derivative Instruments | Derivative Instruments | | Income on Derivatives | | Three Months | | Nine Months | Derivative Instruments | | Income on Derivatives | | Three Months | | Nine Months |
| Interest rate swaps | Interest rate swaps | | Interest expense | | $ | (1) | | | $ | (4) | | Interest rate swaps | | Interest expense | | $ | — | | | $ | (2) | |
| | | | Location of Gain (Loss) Recognized in | | | | | | | Location of Gain (Loss) Recognized in | | | | |
| Derivative Instruments | Derivative Instruments | | Regulatory Assets | | Three Months | | Nine Months | Derivative Instruments | | Regulatory Assets | | Three Months | | Nine Months |
| Interest rate swaps | Interest rate swaps | | Regulatory assets - noncurrent | | $ | 2 | | | $ | (5) | | Interest rate swaps | | Regulatory assets - noncurrent | | $ | 1 | | | $ | 4 | |
The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the period ended September 30, 2019.2020.
| | | | | Location of Gain (Loss) Recognized in | | | | | | | Location of Gain (Loss) Recognized in | | | | |
| Derivative Instruments | Derivative Instruments | | Income on Derivatives | | Three Months | | Nine Months | Derivative Instruments | | Income on Derivatives | | Three Months | | Nine Months |
| Interest rate swaps | Interest rate swaps | | Interest expense | | $ | (1) | | | $ | (3) | | Interest rate swaps | | Interest expense | | $ | (1) | | | $ | (4) | |
| | | | Location of Gain (Loss) Recognized in | | | | | | | Location of Gain (Loss) Recognized in | | | | |
| Derivative Instruments | Derivative Instruments | | Regulatory Assets | | Three Months | | Nine Months | Derivative Instruments | | Regulatory Assets | | Three Months | | Nine Months |
| Interest rate swaps | Interest rate swaps | | Regulatory assets - noncurrent | | $ | (2) | | | $ | (5) | | Interest rate swaps | | Regulatory assets - noncurrent | | $ | 2 | | | $ | (5) | |
(PPL, LKE, LG&E and KU)
Offsetting Derivative Instruments
PPL, LKE, LG&E and KU or certain of their subsidiaries have master netting arrangements in place and also enter into agreements pursuant to which they purchase or sell 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 set off amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.
PPL, 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 | | |
| Gross | | Derivative
Instruments | | Cash
Collateral
Received | | Net | | Gross | | Derivative
Instruments | | Cash
Collateral
Pledged | | Net |
| September 30, 2021 | | | | | | | | | | | | | | | |
| Treasury Derivatives | | | | | | | | | | | | | | | |
| PPL | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 19 | | | $ | — | | | $ | — | | | $ | 19 | |
| LG&E | — | | | — | | | — | | | — | | | 19 | | | — | | | — | | | 19 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Assets | | Liabilities |
| | | | Eligible for Offset | | | | | | Eligible for Offset | | |
| Gross | | Derivative
Instruments | | Cash
Collateral
Received | | Net | | Gross | | Derivative
Instruments | | Cash
Collateral
Pledged | | Net |
| September 30, 2020 | | | | | | | | | | | | | | | |
| Treasury Derivatives | | | | | | | | | | | | | | | |
| PPL | $ | 189 | | | $ | 1 | | | $ | 9 | | | $ | 179 | | | $ | 35 | | | $ | 1 | | | $ | 1 | | | $ | 33 | |
| LKE | 0 | | | 0 | | | 0 | | | 0 | | | 26 | | | 0 | | | 1 | | | 25 | |
| LG&E | 0 | | | 0 | | | 0 | | | 0 | | | 26 | | | 0 | | | 1 | | | 25 | |
| | | | Assets | | Liabilities | | Assets | | Liabilities |
| | | | | Eligible for Offset | | | | | | Eligible for Offset | | | | | | Eligible for Offset | | | | | | Eligible for Offset | | |
| | Gross | | Derivative
Instruments | | Cash
Collateral
Received | | Net | | Gross | | Derivative
Instruments | | Cash
Collateral
Pledged | | Net | | Gross | | Derivative
Instruments | | Cash
Collateral
Received | | Net | | Gross | | Derivative
Instruments | | Cash
Collateral
Pledged | | Net |
| December 31, 2019 | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2020 | | | | | | | | | | | | | | | |
| Treasury Derivatives | Treasury Derivatives | | | | | | | | | | | | | | Treasury Derivatives | | | | | | | | | | | | | |
| PPL | PPL | $ | 296 | | | $ | 5 | | | $ | 14 | | | $ | 277 | | | $ | 26 | | | $ | 5 | | | $ | 0 | | | $ | 21 | | PPL | $ | 146 | | | $ | 34 | | | $ | — | | | $ | 112 | | | $ | 160 | | | $ | 34 | | | $ | — | | | $ | 126 | |
| LKE | 0 | | | 0 | | | 0 | | | 0 | | | 21 | | | 0 | | | 0 | | | 21 | | |
| LG&E | LG&E | 0 | | | 0 | | | 0 | | | 0 | | | 21 | | | 0 | | | 0 | | | 21 | | LG&E | — | | | — | | | — | | | — | | | 23 | | | — | | | — | | | 23 | |
Credit Risk-Related Contingent Features
Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, LKE, LG&E and KU or certain of their subsidiaries. Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade. Some of these features also would allow the counterparty to require additional collateral upon each downgrade in 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, LKE's, LG&E's and KU's obligations under the 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.
(PPL, LKE and LG&E)(PPL)
At September 30, 2020,2021, there were no derivative contracts in a net liability position that contain credit risk-related contingent features, collateral posted on those positions and the related effect of a decrease in credit ratings below investment grade are summarized as follows:grade.
| | | | | | | | | | | | | | | | | |
| | PPL | | LKE | | LG&E |
| Aggregate fair value of derivative instruments in a net liability position with credit risk-related contingent features | $ | 6 | | | $ | 1 | | | $ | 1 | |
| Aggregate fair value of collateral posted on these derivative instruments | 0 | | | 0 | | | 0 | |
| Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a) | 6 | | | 1 | | | 1 | |
16. Asset Retirement Obligations
(PPL, LKE, LG&E and KU)
PPL's, LKE's, LG&E's and KU's ARO liabilities are primarily related to CCR closure costs. See Note 11 for information on the CCR rule. LG&E also has AROs related to natural gas mains and wells. LG&E's and KU's transmission and distribution lines largely operate under perpetual property easement agreements, which do not generally require restoration upon removal of the property. Therefore, no material AROs are recorded for transmission and distribution assets. For LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, at the time of retirement, the related ARO regulatory asset is offset against the associated cost of removal regulatory liability, PP&E and ARO liability.
The changes in the carrying amounts of AROs were as follows.
| | | | PPL | | LKE | | LG&E | | KU | | PPL | | LG&E | | KU |
| Balance at December 31, 2019 | $ | 282 | | | $ | 215 | | | $ | 73 | | | $ | 142 | | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 182 | | | $ | 67 | | | $ | 115 | |
| Accretion | Accretion | 13 | | | 12 | | | 4 | | | 8 | | Accretion | 12 | | | 4 | | | 8 | |
| | Changes in estimated timing or cost | Changes in estimated timing or cost | 35 | | | 44 | | | 16 | | | 28 | | Changes in estimated timing or cost | 50 | | | 34 | | | 16 | |
| Effect of foreign currency exchange rates | 1 | | | 0 | | | 0 | | | 0 | | |
| Obligations settled | Obligations settled | (64) | | | (64) | | | (16) | | | (48) | | Obligations settled | (43) | | | (16) | | | (27) | |
| Balance at September 30, 2020 | $ | 267 | | | $ | 207 | | | $ | 77 | | | $ | 130 | | |
| Balance at September 30, 2021 | | Balance at September 30, 2021 | $ | 201 | | | $ | 89 | | | $ | 112 | |
17. Accumulated Other Comprehensive Income (Loss)
(PPL and LKE)(PPL)
The after-tax changes in AOCI by component for the periods ended September 30 were as follows.
| | | | Foreign
currency
translation
adjustments | | | Unrealized gains (losses)
on qualifying
derivatives | | | Defined benefit plans | | | | Foreign
currency
translation
adjustments | | | Unrealized gains (losses)
on qualifying
derivatives | | | Defined benefit plans | | |
| | | | | Prior
service
costs | | Actuarial
gain
(loss) | | Total | | | | | Prior
service
costs | | Actuarial
gain
(loss) | | Total |
| PPL | PPL | | | | | | | | | | | | PPL | | | | | | | | | | | |
| June 30, 2021 | | June 30, 2021 | $ | — | | | | $ | — | | | | $ | (15) | | | $ | (176) | | | $ | (191) | |
| Amounts arising during the period | | Amounts arising during the period | — | | | | — | | | | — | | | (12) | | | (12) | |
| Reclassifications from AOCI | | Reclassifications from AOCI | — | | | | 1 | | | | 9 | | | 10 | | | 20 | |
| | Net OCI during the period | | Net OCI during the period | — | | | | 1 | | | | 9 | | | (2) | | | 8 | |
| September 30, 2021 | | September 30, 2021 | $ | — | | | | $ | 1 | | | | $ | (6) | | | $ | (178) | | | $ | (183) | |
| | December 31, 2020 | | December 31, 2020 | $ | (1,158) | | | | $ | — | | | | $ | (16) | | | $ | (3,046) | | | $ | (4,220) | |
| Amounts arising during the period | | Amounts arising during the period | 372 | | | | (39) | | | | — | | | (18) | | | 315 | |
| Reclassifications from AOCI | | Reclassifications from AOCI | — | | | | 25 | | | | 2 | | | 117 | | | 144 | |
| Reclassifications from AOCI due to the sale of the U.K. utility business (Note 9) | | Reclassifications from AOCI due to the sale of the U.K. utility business (Note 9) | 786 | | | | 15 | | | | 8 | | | 2,769 | | | 3,578 | |
| Net OCI during the period | | Net OCI during the period | 1,158 | | | | 1 | | | | 10 | | | 2,868 | | | 4,037 | |
| September 30, 2021 | | September 30, 2021 | $ | — | | | | $ | 1 | | | | $ | (6) | | | $ | (178) | | | $ | (183) | |
| | June 30, 2020 | June 30, 2020 | $ | (1,777) | | | | $ | 8 | | | | $ | (16) | | | $ | (2,817) | | | $ | (4,602) | | June 30, 2020 | $ | (1,777) | | | | $ | 8 | | | | $ | (16) | | | $ | (2,817) | | | $ | (4,602) | |
| Amounts arising during the period | Amounts arising during the period | 643 | | | | (52) | | | | 0 | | | (16) | | | 575 | | Amounts arising during the period | 643 | | | | (52) | | | | — | | | (16) | | | 575 | |
| Reclassifications from AOCI | Reclassifications from AOCI | 0 | | | | 48 | | | | 0 | | | 52 | | | 100 | | Reclassifications from AOCI | — | | | | 48 | | | | — | | | 52 | | | 100 | |
| Net OCI during the period | Net OCI during the period | 643 | | | | (4) | | | | 0 | | | 36 | | | 675 | | Net OCI during the period | 643 | | | | (4) | | | | — | | | 36 | | | 675 | |
| September 30, 2020 | September 30, 2020 | $ | (1,134) | | | | $ | 4 | | | | $ | (16) | | | $ | (2,781) | | | $ | (3,927) | | September 30, 2020 | $ | (1,134) | | | | $ | 4 | | | | $ | (16) | | | $ | (2,781) | | | $ | (3,927) | |
| | December 31, 2019 | December 31, 2019 | $ | (1,425) | | | | $ | (5) | | | | $ | (18) | | | $ | (2,910) | | | $ | (4,358) | | December 31, 2019 | $ | (1,425) | | | | $ | (5) | | | | $ | (18) | | | $ | (2,910) | | | $ | (4,358) | |
| Amounts arising during the period | Amounts arising during the period | 291 | | | | (16) | | | | 0 | | | (17) | | | 258 | | Amounts arising during the period | 291 | | | | (16) | | | | — | | | (17) | | | 258 | |
| Reclassifications from AOCI | Reclassifications from AOCI | 0 | | | | 25 | | | | 2 | | | 146 | | | 173 | | Reclassifications from AOCI | — | | | | 25 | | | | 2 | | | 146 | | | 173 | |
| Net OCI during the period | Net OCI during the period | 291 | | | | 9 | | | | 2 | | | 129 | | | 431 | | Net OCI during the period | 291 | | | | 9 | | | | 2 | | | 129 | | | 431 | |
| September 30, 2020 | September 30, 2020 | $ | (1,134) | | | | $ | 4 | | | | $ | (16) | | | $ | (2,781) | | | $ | (3,927) | | September 30, 2020 | $ | (1,134) | | | | $ | 4 | | | | $ | (16) | | | $ | (2,781) | | | $ | (3,927) | |
| | June 30, 2019 | $ | (1,616) | | | | $ | 6 | | | | $ | (18) | | | $ | (2,368) | | | $ | (3,996) | | |
| Amounts arising during the period | (285) | | | | 16 | | | | 0 | | | (5) | | | (274) | | |
| Reclassifications from AOCI | 0 | | | | (22) | | | | 0 | | | 20 | | | (2) | | |
| Net OCI during the period | (285) | | | | (6) | | | | 0 | | | 15 | | | (276) | | |
| September 30, 2019 | $ | (1,901) | | | | $ | 0 | | | | $ | (18) | | | $ | (2,353) | | | $ | (4,272) | | |
| | December 31, 2018 | $ | (1,533) | | | | $ | (7) | | | | $ | (19) | | | $ | (2,405) | | | $ | (3,964) | | |
| Amounts arising during the period | (368) | | | | 32 | | | | 0 | | | (10) | | | (346) | | |
| Reclassifications from AOCI | 0 | | | | (25) | | | | 1 | | | 62 | | | 38 | | |
| Net OCI during the period | (368) | | | | 7 | | | | 1 | | | 52 | | | (308) | | |
| September 30, 2019 | $ | (1,901) | | | | $ | 0 | | | | $ | (18) | | | $ | (2,353) | | | $ | (4,272) | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign
currency
translation
adjustments | | | | Unrealized gains (losses)
on qualifying
derivatives | | | | Defined benefit plans | | |
| | | | | | | Prior
service
costs | | Actuarial
gain
(loss) | | Total |
| LKE | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | $ | (8) | | | $ | (83) | | | $ | (91) | |
| Amounts arising during the period | | | | | | | | | 0 | | | (8) | | | (8) | |
| Reclassifications from AOCI | | | | | | | | | 0 | | | 5 | | | 5 | |
| Net OCI during the period | | | | | | | | | 0 | | | (3) | | | (3) | |
| September 30, 2020 | | | | | | | | | $ | (8) | | | $ | (86) | | | $ | (94) | |
| | | | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | $ | (9) | | | $ | (84) | | | $ | (93) | |
| Amounts arising during the period | | | | | | | | | 0 | | | (9) | | | (9) | |
| Reclassifications from AOCI | | | | | | | | | 1 | | | 7 | | | 8 | |
| Net OCI during the period | | | | | | | | | 1 | | | (2) | | | (1) | |
| September 30, 2020 | | | | | | | | | $ | (8) | | | $ | (86) | | | $ | (94) | |
| | | | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | $ | (8) | | | $ | (83) | | | $ | (91) | |
| Amounts arising during the period | | | | | | | | | 0 | | | 0 | | | 0 | |
| Reclassifications from AOCI | | | | | | | | | 0 | | | 0 | | | 0 | |
| Net OCI during the period | | | | | | | | | 0 | | | 0 | | | 0 | |
| September 30, 2019 | | | | | | | | | $ | (8) | | | $ | (83) | | | $ | (91) | |
| | | | | | | | | | | | | |
| December 31, 2018 | | | | | | | | | $ | (9) | | | $ | (80) | | | $ | (89) | |
| Amounts arising during the period | | | | | | | | | 0 | | | (2) | | | (2) | |
| Reclassifications from AOCI | | | | | | | | | 1 | | | (1) | | | 0 | |
| Net OCI during the period | | | | | | | | | 1 | | | (3) | | | (2) | |
| September 30, 2019 | | | | | | | | | $ | (8) | | | $ | (83) | | | $ | (91) | |
The following table presents PPL's gains (losses) and related income taxes for reclassifications from AOCI for the periods ended September 30.
| | | | | Three Months | | Nine Months | | Affected Line Item on the | | | Three Months | | Nine Months | | Affected Line Item on the |
| Details about AOCI | Details about AOCI | | 2020 | | 2019 | | 2020 | | 2019 | | Statements of Income | Details about AOCI | | 2021 | | 2020 | | 2021 | | 2020 | | Statements of Income |
| | Qualifying derivatives | Qualifying derivatives | | | | | | | | | | | Qualifying derivatives | | | | | | | | | | |
| Interest rate swaps | Interest rate swaps | | $ | (4) | | | $ | (2) | | | $ | (9) | | | $ | (6) | | | Interest Expense | Interest rate swaps | | $ | (1) | | | $ | (3) | | | $ | 12 | | | $ | (7) | | | Interest Expense |
| | | | — | | | (1) | | | (2) | | | (2) | | | Income (Loss) from Discontinued Operations (net of income taxes) |
| Cross-currency swaps | Cross-currency swaps | | (56) | | | 27 | | | (24) | | | 34 | | | Other Income (Expense) - net | Cross-currency swaps | | — | | | (56) | | | (39) | | | (24) | | | Income (Loss) from Discontinued Operations (net of income taxes) |
| | Total Pre-tax | Total Pre-tax | | (60) | | | 25 | | | (33) | | | 28 | | | Total Pre-tax | | (1) | | | (60) | | | (29) | | | (33) | | |
| Income Taxes | Income Taxes | | 12 | | | (3) | | | 8 | | | (3) | | | | Income Taxes | | — | | | 12 | | | 4 | | | 8 | | | |
| Total After-tax | Total After-tax | | (48) | | | 22 | | | (25) | | | 25 | | | | Total After-tax | | (1) | | | (48) | | | (25) | | | (25) | | | |
| | | Defined benefit plans | Defined benefit plans | | | | | | | | | | Defined benefit plans | | | | | | | | | |
| Prior service costs (a) | Prior service costs (a) | | (1) | | | (1) | | | (3) | | | (2) | | | Prior service costs (a) | | (12) | | | (1) | | | (3) | | | (3) | | |
| Net actuarial loss (a) | Net actuarial loss (a) | | (64) | | | (25) | | | (181) | | | (78) | | | Net actuarial loss (a) | | (14) | | | (64) | | | (147) | | | (181) | | |
| Total Pre-tax | Total Pre-tax | | (65) | | | (26) | | | (184) | | | (80) | | | Total Pre-tax | | (26) | | | (65) | | | (150) | | | (184) | | |
| Income Taxes | Income Taxes | | 13 | | | 6 | | | 36 | | | 17 | | | Income Taxes | | 7 | | | 13 | | | 31 | | | 36 | | |
| Total After-tax | Total After-tax | | (52) | | | (20) | | | (148) | | | (63) | | | Total After-tax | | (19) | | | (52) | | | (119) | | | (148) | | |
| | Sale of the U.K. utility business (Note 9) | | Sale of the U.K. utility business (Note 9) | |
| Foreign currency translation adjustments | | Foreign currency translation adjustments | | — | | | — | | | (646) | | | — | | | Income (Loss) from Discontinued Operations (net of income taxes) |
| Qualifying derivatives | | Qualifying derivatives | | — | | | — | | | (15) | | | — | | | Income (Loss) from Discontinued Operations (net of income taxes) |
| Defined benefit plans | | Defined benefit plans | | — | | | — | | | (3,577) | | | — | | | Income (Loss) from Discontinued Operations (net of income taxes) |
| Total Pre-tax | | Total Pre-tax | | — | | | — | | | (4,238) | | | — | | |
| Income Taxes | | Income Taxes | | — | | | — | | | 660 | | | — | | |
| Total After-tax | | Total After-tax | | — | | | — | | | (3,578) | | | — | | |
| Total reclassifications during the period | Total reclassifications during the period | | $ | (100) | | | $ | 2 | | | $ | (173) | | | $ | (38) | | | Total reclassifications during the period | | $ | (20) | | | $ | (100) | | | $ | (3,722) | | | $ | (173) | | |
(a) These AOCI components are included in the computation of net periodic defined benefit cost. See Note 10 for additional information.
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, PPL Electric, LKE, LG&E and KU. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for individual Registrants when significant.
The following should be read in conjunction with the Registrants' Condensed Consolidated Financial Statements and the accompanying Notes and with the Registrants' 20192020 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 and a discussion of important financial and operational developments.
•"Results of Operations" for all Registrants includes a "Statement of Income Analysis," which discusses significant changes in principal line items on the Statements of Income, comparing the three and nine months ended September 30, 20202021 with the same periods in 2019. For2020. The PPL "Results of Operations" also includes "Segment Earnings" and "Adjusted Gross Margins," which provide a detailed analysis of earnings by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Adjusted Gross Margins" and provide explanations of the non-GAAP financial measures and a reconciliation of the non-GAAP financial measures to the most comparable GAAP measure.
•"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.
•"Application of Critical Accounting Policies" provides an update to PPL's critical accounting policies disclosed in PPL's 2020 Form 10-K.
Overview
Introduction
(PPL)
PPL, headquartered in Allentown, Pennsylvania, is a utility holding company. PPL, through its regulated utility subsidiaries, delivers electricity to customers in the U.K., Pennsylvania, Kentucky and Virginia; delivers natural gas to customers in Kentucky; and generates electricity from power plants in Kentucky.
PPL's principal subsidiaries are shown below (* denotes a Registrant).
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| | | | | | | PPL Corporation* | | | | | | | |
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Provides financing for the operations of PPL and certain subsidiaries
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| | PPL Global Engages in the regulated distribution of electricity in the U.K.
| | | LKE*
| | | PPL Electric*
Engages in the regulated transmission and distribution of electricity in Pennsylvania | | | LKE A holding company that owns regulated utility operations through its subsidiaries, LG&E and KU. | | | PPL Capital Funding Provides financing for the operations of PPL and certain subsidiaries | |
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| | | | | LG&E* Engages in the regulated generation, transmission, distribution and sale of electricity and regulated distribution and sale of natural gas in Kentucky | | | KU* Engages in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky | | | | |
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| | U.K.Pennsylvania
Regulated Segment | | | Kentucky
Regulated Segment | | | Pennsylvania
Regulated Segment | |
PPL's reportable segments' results primarily represent the results of PPL Global, LKE and PPL Electric, except that in 2020 the reportable segments arewere also allocated certain corporate level financing and other costs that arewere not included in the results of PPL Global, LKE and PPL Electric. PPL Global is not a Registrant. Unaudited annual consolidated financial statements forIn 2021, corporate level financing costs are no longer being allocated to the U.K. Regulated segment are furnished by PPL on a Form 8-K with the SEC.reportable segments.
In addition to PPL, the other Registrants included in this filing are as follows.
(PPL Electric)
PPL Electric, headquartered in Allentown, Pennsylvania, is a 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 the FERC under the Federal Power Act. PPL Electric delivers electricity in its Pennsylvania service area and provides electricity supply to retail customers in that area as a PLR under the Customer Choice Act.
(LKE)
LKE, acquired in 2010 and headquartered in Louisville, Kentucky, is a wholly owned subsidiary of PPL and a holding company that owns regulated utility operations through its subsidiaries, LG&E and KU, which constitute substantially all of LKE's assets. LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain separate corporate identities and serve customers in Kentucky under their respective names. KU also serves customers in Virginia under the Old Dominion Power name.
(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 and Virginia. KU is subject to regulation as a public
utility by the KPSC and the VSCC, 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 Kentucky customers under the KU name and its Virginia customers under the Old Dominion Power name.
Business Strategy
(All Registrants)
PPL operates seven fully regulated, high-performing utilities. These utilities are located in the U.K., Pennsylvania and Kentucky, in constructive regulatory jurisdictions with distinct regulatory structures and customer classes. PPL believes this business portfolio positions the company well for continued success and provides earnings and dividend growth potential.
PPL's strategy, and that ofwhich is supported by the other Registrants, is to deliver best-in-sectorachieve industry-leading performance in safety, reliability, customer satisfaction and operational performance, invest inefficiency; to advance a sustainableclean energy future, provide superior customer service,transition while maintaining affordability and reliability; to maintain a strong financial foundation and engagecreate long-term value for our shareowners; to foster a diverse and develop its people. PPL's business plan is designedexceptional workplace; and to achieve growth by providing efficient, reliable and safe operations andbuild strong customer service, maintaining constructive regulatory relationships and achieving timely recovery of costs. These businesses are expected to achieve strong, long-term growthcommunities in rate base in the U.S. and RAV in the U.K. Rate base growth is being driven by planned significant capital expenditures to maintain existing assets and 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.areas that we serve.
For the U.S. businesses, centralCentral to PPL's strategy is recovering capital project costs efficiently through various rate-making mechanisms, including periodic base rate case proceedings using forward test years, annual FERC formula rate mechanisms and other regulatory agency-approved recovery mechanisms designed to limit regulatory lag. In Kentucky, the KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, and gas supply clause) and recovery on construction work-in-progress that reduce regulatory lag and provide timely recovery of and return on, as appropriate, prudently incurred costs. In addition, the KPSC requires a utility to obtain a CPCN prior to constructing a facility, unless the construction is an ordinary extension of existing facilities in the usual course of business or does not involve sufficient capital expenditures to materially affect the utility's financial condition. Although such KPSC proceedings do not directly address cost recovery issues, the KPSC, in awarding a CPCN, concludes that the public convenience and necessity require the construction of the facility on the basis that the facility is the lowest reasonable cost alternative to address the need. In Pennsylvania, the FERC transmission formula rate, DSIC mechanism, Smart Meter Rider and other recovery mechanisms operate to reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs.
To manage financing costs and access to credit markets, and to fund capital expenditures,In March 2021, PPL entered into definitive agreements that strategically reposition the company as a key objectiveU.S.-based energy company focused on building the utilities of the Registrants isfuture. These transactions are intended to maintain their investment gradestrengthen PPL’s credit ratingsmetrics, enhance long-term earnings growth and adequate liquidity positions. In addition,predictability, and provide the Registrants havecompany with greater financial flexibility to invest in sustainable energy solutions. See Note 9 to the Financial Statements, and operational risk management programs that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility, as applicable, related to changes in interest rates, foreign currency exchange rates and counterparty credit quality. To manage these risks, PPL generally uses contracts such as forwards, options and swaps. See "Financial Condition - Risk Management" below for further information.
Earnings generated by PPL's U.K. subsidiaries are subject to foreign currency translation risk. Because WPD's earnings represent such a significant portion of PPL's consolidated earnings, PPL enters into foreign currency contracts to economically hedge the value"Sale of the GBP versusU.K. Utility Business," "Share Purchase Agreement to Acquire Narragansett Electric" and "Use of Proceeds from the U.S. dollar. These hedges do not receive hedge accounting treatment under GAAP. SeeSale of the U.K. Utility Business" discussions in "Financial and Operational Developments - U.K. Withdrawal from European Union"Developments" below for additional discussion of the U.K. earnings hedging activity.
The U.K. subsidiaries also have currency exposure to the U.S. dollar to the extent of their U.S. dollar denominated debt. To manage these risks, PPL generally uses contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts.
As discussed above, a key component of this strategy is to maintain constructive relationships with regulators in all jurisdictions in which the Registrants operate (U.K., U.S. federal and state). This is supported by a strong culture of integrity and delivering on commitments to customers, regulators and shareowners, and a commitment to continue to improve customer service, reliability and operational efficiency.
Financial and Operational Developments
(PPL)
Initiation
Sale of Formal Process to Sellthe U.K. Utility Business (PPL)
On August 10, 2020,March 17, 2021, PPL announced that it has initiatedWPD Limited (WPD Limited) entered into a formal processshare purchase agreement (WPD SPA) to sell itsPPL's U.K. utility business.business to National Grid Holdings One plc (National Grid U.K.), a subsidiary of National Grid plc. Pursuant to the WPD SPA, National Grid U.K. would acquire 100% of the issued share capital of PPL notedWPD Investments Limited (WPD Investments) for £7.8 billion in cash. WPD Limited would also receive an additional amount of £548,000 for each day during the period from January 1, 2021 to the closing date if the dividends usually declared by WPD Investments to WPD Limited are not paid for that there can be no assurance of any specific outcome, including whether the sale process will result in the completion of any potential transaction, the timing or terms thereof, the value or benefits that may be realized or the effect that any potential transaction will have on future financial results.period.
As a result of the potential sale, PPL assessed the recoverability of the assets of its U.K. utility business. PPL prepared a probability-weighted undiscounted cash flow estimate as of September 30, 2020 that considered the likelihood of the possible outcomes ofOn June 14, 2021, the sale process, including the possibility of not selling the U.K. utility business. business was completed.The transaction resulted in cash proceeds of $10.7 billion inclusive of foreign currency hedges executed by PPL. PPL received net proceeds, after taxes and fees, of $10.4 billion,resulting cash flow analysis exceededin a pre-tax loss on sale of $1.6 billion. See Note 9 to the carrying value ofFinancial Statements for additional information on the assetssale of the U.K. utility business. A change in the possible outcomes of the sale process could result in the carrying value of the assets of the U.K. utility business not being recoverable, which could result in an impairment in future periods.The U.K. utility business will continue to be classified as held and used until it meets the criteria to be classified as held for sale, which includes management obtaining a commitment to a plan to sell from its Board of Directors.
Should theWPD Limited and National Grid U.K. utility business meet the criteria to be classified as held for sale in a future period, PPL will be required at that time to compare the estimated fair value of its investmenteach made customary representations and warranties in the WPD SPA. National Grid U.K., at its expense, purchased warranty and indemnity insurance. WPD Limited agreed to indemnify National Grid U.K. utility business, less costs to sell, to its carrying value for impairment purposes. The measurement of PPL’s carrying value of the U.K. utility business will include the realization of accumulated other comprehensive losses, which could arise from currency translation adjustments and defined benefit plans associated with the U.K. utility business.
Outbreak of COVID-19(All Registrants)
The continued spread of COVID-19 has led to global economic disruption and volatility in financial markets. The Registrants have taken significant steps to mitigate the potential spread of COVID-19 to our customers, suppliers and employees. PPL has successfully implemented its company-wide pandemic plan, which guides the emergency response. Business continuity and other precautionary measures have been taken to ensure we can continue to safely provide reliable electricity and gas service to our customers. The Registrants have implemented social distancing measures for all employees including work from home arrangements where possible and continue to implement strong physical and cyber security measures to ensure that systems function effectively to serve operational and remote workforce needs. The Registrants continue to monitor developments affecting their workforces and customers and will take additional actions as appropriate to respond to changing conditions and mitigate the impacts.
This is a rapidly evolving situation that could lead to extended disruption of economic activity in the Registrants’ markets for an undetermined period of time. Lock-down or closure of non-essential businesses has occurred in each of the Registrants’ service territories, which has resulted in reductions in commercial and industrial demand and an increase in residential demand for electricity service. The impact of this net reduction in load has not been material to the Registrants' year to date 2020 financial condition. The impact on future periods will depend upon various factors, including the pace and extent to which the Registrants' jurisdictions reopen their economies and community response to the reopening of businesses as well as the extent that businesses continue work from home protocols. We cannot predict these factors and therefore cannot quantify the overall impact COVID-19 will have on our 2020 results of operations.
The Registrants are committed to supporting their customers and communities and have followed federal and state mandates to suspend disconnections for non-payment and new late fees, reconnect service for customers who had previously been disconnected and develop late payment plans with customers, where appropriate. The Registrants have experienced an increase in aged accounts receivable, resulting in an increase in credit losses.certain tax related matters. See "Current Expected Credit Losses" in Note 211 to the Financial Statements for additional information. The RegistrantsPPL has not had and will continue to monitor cash receipts and accounts receivable aging to determine if further increases in their allowance for uncollectible accounts are required.not have any significant involvement with the U.K. utility business after completion of the sale.
At September 30, 2020,
Share Purchase Agreement to Acquire Narragansett Electric
On March 17, 2021, PPL and its subsidiary, PPL Energy Holdings, entered into a share purchase agreement (Narragansett SPA) with National Grid USA (National Grid U.S.), a subsidiary of National Grid plc to acquire 100% of the Registrants hadoutstanding shares of common stock of Narragansett Electric for approximately $3.6$3.8 billion in cash. On May 3, 2021, an Assignment and Assumption Agreement was entered into by PPL, PPL Energy Holdings, PPL Rhode Island Holdings and National Grid U.S. whereby certain interests of combined unused credit facility capacity.In addition, PPL Capital Funding,Energy Holdings in the Narragansett SPA were assigned to and assumed by PPL Electric, LG&ERhode Island Holdings. Pursuant to that Assignment and KU may,Assumption Agreement, PPL Rhode Island Holdings became the purchasing entity under the Narragansett SPA. The acquisition is expected to be funded with proceeds from the sale of the U.K. utility business. PPL has agreed to guarantee all obligations of PPL Energy Holdings and PPL Rhode Island Holdings under the Narragansett SPA and the related Assignment and Assumption Agreement.
The closing of the acquisition, which is currently expected to occur by March 2022, is subject to the receipt of certain U.S. regulatory approvals or waivers, and other customary conditions increase their syndicated credit facilities in an aggregate amountto closing. To date, four of upthe five required regulatory approvals or waivers have been received. The regulatory approvals and waiver remain subject to $1 billion. In April 2020, PPL Capital Funding issued $1 billion in senior notes. In June 2020, KU issued $500 millionany applicable appeal periods. The remaining required regulatory approval from the Rhode Island Division of First Mortgage Bonds due 2050. In October 2020, PPL Electric issued $250 millionPublic Utilities and Carriers is proceeding as expected. The consummation of First Mortgage Bonds, Floating Rate Series due 2023. the transaction is not subject to a financing condition.
In October 2020, WPD (South Wales) issued £250 million of 1.625% Senior
77See Note 9 to the Financial Statements for additional information on the Narragansett SPA.
Notes due 2035.
PPL announced its intent to use the proceeds from the sale of the U.K. utility business to acquire Narragansett Electric, as discussed above, further strengthen its balance sheet and enhance opportunities for growth. The announcement included plans to reduce outstanding debt, to repurchase shares and invest in incremental capital at PPL's utilities or in renewables.
To date, the following actions have been taken:
• BasedPPL Capital Funding paid $3.876 billion to tender and/or redeem an aggregate total of $3.484 billion of outstanding debt during June and July of 2021, resulting in a loss on available liquidityextinguishment of $73 million and access to capital markets,$395 million for the Registrants do not anticipate a significant impact on their financial condition or liquidity,three and do not foresee difficultiesnine months ended September 30, 2021. See "Long Term Debt" in accessing the capital markets in the near-term. See Note 8 to the Financial Statements for additional information.
The Registrants have assessedPPL's Board of Directors authorized share repurchases of up to $3 billion of PPL common shares. PPL currently expects to repurchase $1 billion of shares by the fair valueend of their assets and liabilities and no impairment charges were required. See “Goodwill Assessment” below for additional information on the interim goodwill impairment test performed for the U.K. Regulated segment reporting unit in the first quarter of 2020.
PPL’s pension plans continue to be well-funded as its liability-driven investment strategy and active management function to mitigate investment losses resulting from market volatility.
In response to COVID-19, on March 27, 2020, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). PPL evaluated the provisions of the CARES Act and believes there is no significant effect on its financial statements. Certain tax provisions may result in immaterial cash benefits in 2020.
To date, there has been no material impact on the Registrants’ business, financial condition, liquidity or on their supply chain as a result of COVID-19. For2021. During the three and nine months ended September 30, 2020,2021, PPL repurchased 9.6 million shares at a cost of $282 million. From October 1 to October 31, 2021, PPL repurchased an additional 9.4 million shares at a cost of $269 million. See "Equity Securities" in Note 8 to the following estimated changes in revenue and incremental costs incurred resulted from the impact of COVID-19:
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| | | Three Months | | Nine Months | | Three Months | | Nine Months |
| PPL | | | $ | (33) | | | $ | (94) | | | $ | 6 | | | $ | 26 | |
| WPD | | | (30) | | | (70) | | | 4 | | | 19 | |
| LKE | | | (3) | | | (24) | | | — | | | 5 | |
| LG&E | | | (5) | | | (14) | | | — | | | 2 | |
| KU | | | 2 | | | (10) | | | — | | | 3 | |
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WPD tariffs•PPL continues to develop its capital expenditure plans and currently is considering plans to invest at least $1 billion in additional regulated utility capital expenditures through 2025 needed to maintain and improve reliability and resiliency, to support modernization and to advance a sustainable energy future. Capital expenditure plans must be reviewed and approved by the Board of Directors, therefore, the amounts and dates noted are setsubject to recover allowed revenues. Any under-recoveries, including the estimated amounts shown above, will be added to revenue, with interest, in future years through K-factor. See discussion of K-factor in “Item 1. Business” of PPL’s 2019 Form 10-K.The impact on revenue and incremental COVID-19 related costs were not significant at PPL Electric.change.
The ultimate severity or durationPPL will continue to evaluate the best use of the outbreak or its effects on the global economy, the capital markets, or the Registrants’ workforce, contractors, customers and suppliers is uncertain. The Registrants cannot predict the ultimate impact COVID-19 will have on their financial position, results of operations, cash flows or liquidity.proceeds to maximize shareowner value.
Goodwill Assessment (PPL, LKE, LG&E and KU)(PPL)
The COVID-19 pandemic has disrupted the U.S. and global economies and continues to present extraordinary challenges to businesses, communities, workforces and markets. In the U.S. and throughout the world, governmental authorities have taken urgent and extensive actions to contain the spread of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures have included quarantines, stay-at-home orders, travel restrictions, reduced operations or closures of businesses, schools and governmental agencies, and legislative or regulatory actions to address health or other pandemic-related concerns, all of which have the potential to adversely impact the Registrants' business and operations, especially if these measures remain in effect for a prolonged period of time. PPL’s shares have experienced volatility and a decrease in market value since the outbreak of COVID-19.LKE Debt Redemption
DuringOn July 1, 2021, LKE redeemed, at par, its $250 million 4.375% Senior Notes due 2021 and on July 9, 2021, LKE filed a Form 15 with the three month period ended March 31, 2020, PPL, LKE, LG&ESEC to suspend its duty to file reports under sections 13 and KU considered whether these events would more likely than not reduce the fair value15(d) of the Registrants’ reporting units below their carrying amounts. Based on our assessment,Securities Exchange Act of 1934. As a quantitative impairment testresult, beginning with the June 30, 2021 Form 10-Q, LKE was not required for the LKE, LG&E and KU reporting units, but was required for the U.K. Regulated segment reporting unit, the allocated goodwill of which was $2.5 billion at March 31, 2020. The test did not indicate impairment of the reporting unit.no longer reported as a Registrant.
Management used both discounted cash flows and market multiples, including implied RAV premiums, which required significant assumptions, to estimate the fair value of the reporting units. Significant assumptions used in the discounted cash flows include discount and growth rates, the finalization of RIIO-ED2, and projected operating and capital cash flows. Projected operating and capital cash flows are based on the internal business plans, which assume the occurrence of certain
future events. Significant assumptions used in the market multiples include sector market performance and comparable transactions.
A high degree of judgment is required to develop estimates related to fair value conclusions. A decrease in the forecasted cash flows of 10%, an increase in the discount rate of 10%, or a 10% decrease in the market multiples would not have resulted in an impairment of goodwill for the U.K. Regulated segment reporting unit.
During the three month periods ended June 30, 2020 and September 30, 2020, no goodwill impairment triggers were identified. However, an impairment charge could occur in future periods if PPL’s share price or any of the assumptions used in determining fair value of the reporting units are negatively impacted.
U.K. Corporation Tax Rate Change(PPL)
The U.K. Finance Act 2021, formally enacted on June 10, 2021, increased the U.K. corporation tax rate was scheduled to be reduced from 19% to 17%25%, effective April 1, 2020. On March 11, 2020, the U.K. Finance Act 2020 included a cancellation of the tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19%. The Finance Act 2020 was formally enacted on July 22, 2020.2023. The primary impact of the cancellation of the corporation tax rate reductionincrease was an increase in deferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a corresponding deferred tax expense of $106 million.$383 million, which was recognized in continuing operations in the second quarter of 2021.
U.S. Tax Reform (All Registrants)
In July 2020, the IRS issued final and new proposed regulations relating to limitations on interest deductibility for tax purposes. The Registrants will apply the final regulations beginning in the 2021 tax year. The proposed regulations will apply in the year in which the regulations are issued in final form, which is expected to be in 2021 or later. The Registrants are evaluating the final and proposed regulations, but do not expect the regulations to have a material impact on the Registrants’ financial condition or results of operations.
U.K. Withdrawal from European Union (PPL)
In March 2017, the U.K. Government invoked Article 50 (Article 50) of the Lisbon Treaty, formally beginning the two-year period for the U.K. to negotiate an agreement specifying the terms of its withdrawal from the European Union (EU), popularly referred to as Brexit. After repeated extensions, in October 2019, the EU agreed to extend the Article 50 process until January 31, 2020. Following an early general election in December 2019, which resulted in a substantial Conservative Party Parliamentary majority, the U.K. and EU Parliaments voted to approve the EU withdrawal agreement negotiated by Prime Minister Boris Johnson.
The U.K. formally left the EU on January 31, 2020, entering a transition period that is scheduled to end on December 31, 2020. During the transition period, the U.K. will seek to negotiate a free trade arrangement with the EU and also negotiate new trade terms with countries outside of the EU. The deadline for the U.K. requesting an extension to the transition period passed on June 30, 2020. Significant uncertainty continues to surround the outcome of the transition period. PPL believes that its greatest risks relate to any extended period of depressed value of the GBP or the potential further decline in the value of the GBP compared to the U.S. dollar. A decline in the value of the GBP compared to the U.S. dollar will reduce the value of WPD's earnings to PPL.
PPL has executed hedges to mitigate the foreign exchange risk to its U.K. earnings. As of September 30, 2020, PPL's foreign exchange exposure related to budgeted earnings is 100% hedged for 2020 at an average rate of $1.45 per GBP.
PPL cannot predict the impact, in either the short-term or long-term, on foreign exchange rates or PPL's financial condition that may be experienced as a result of the actions taken by the U.K. government to withdraw from the EU, although such impacts could be material.
PPL does not expect the financial condition and results of operations of WPD, itself, to change significantly as a result of Brexit. The regulatory environment and operation of WPD's businesses are not expected to change. RIIO-ED1, the current price control, with allowed revenues agreed with Ofgem runs through March 2023. The impact of a slower economy or recession on WPD would be mitigated in part because U.K. regulation provides that any reduction in the volume of electricity delivered will be recovered in allowed revenues in future periods through the K-factor adjustment. See "Item 1. Business - Segment Information - U.K. Regulated Segment" in PPL's 2019 Form 10-K for additional information on the current price control and K-factor adjustment. In addition, an increase in inflation would have a positive effect on revenues and RAV as annual inflation adjustments are applied to both revenues and RAV (and real returns are earned on inflated RAV). This impact, however, would
be partially offset by higher operation and maintenance expenses and interest expense on index-linked debt. With respect to access to financing, WPD has substantial borrowing capacity under existing credit facilities and expects to continue to have access to all major financial markets. With respect to access to and cost of equipment and other materials, WPD management continues to review U.K. government issued advice on preparations for Brexit and has taken actions to mitigate potential increasing costs and disruption to its critical sources of supply. Additionally, less than 1% of WPD's employees are non-U.K. EU nationals and no change in their domicile is expected.
Regulatory Requirements
(All Registrants)
The Registrants cannot predict the impact that future regulatory requirements may have on their financial condition or results of operations.
(PPL, LKE, LG&E and KU)
The businesses of LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to CCRs, GHG, and ELGs. See Notes 7, 11 and 16 to the Financial Statements for a discussion of these significant environmental matters. These and other stringent environmental requirements led PPL, LKE, LG&E and KU to retire approximately 1,200 MW of coal-fired generating plants in Kentucky since 2010.
RIIO-2 Framework (PPL)
In 2018, Ofgem issued its consultation document As part of the long-term generation planning process, LG&E and KU evaluate a range of factors including the impact of potential stricter environmental regulations, fuel price scenarios, the cost of replacement generation, continued operations and major maintenance costs and the risk of major equipment failures in determining when to retire generation assets. As a result of environmental requirements and aging infrastructure, LG&E anticipates retiring two older coal-fired units at the Mill Creek Plant and KU anticipates retiring one coal-fired unit at the E.W. Brown plant. Mill Creek Unit 1 has 300 MW of capacity and is expected to be retired in 2024. Mill Creek Unit 2 and E.W. Brown Unit 3 have capacities of 297 MW and 412 MW and are expected to be retired in 2028. LG&E and KU anticipate earning recovery of and return on any remaining net book value of these assets through the RIIO-2 framework, covering all U.K. gas and electricity transmission and distribution price controls. The current electricity distribution price control, RIIO-ED1, continues through March 31, 2023 and will not be impacted byRetired Asset Recovery (RAR) rider. See Note 7 to the RIIO-2 consultation process. Later in 2018, Ofgem published its decision following its RIIO-2 framework consultation after consideration of comments received including those from WPD and PPL.
In August 2019, Ofgem published an open letter seeking views on its proposed sector specific approach onFinancial Statements for additional information related to the RIIO-ED2 framework. WPD and PPL provided responses to this open letter. In December 2019, Ofgem published its decision on the RIIO-ED2 framework, thus confirming the following points in its RIIO-2 and RIIO-ED2 framework decision documents:RAR rider.
•RIIO-ED2 will be a five-year price control period, compared to eight years in the current RIIO-ED1 price control.
•CPI or CPIH will be used for inflation measurement in calculating both RAV and allowed returns rather than RPI.
•The baseline allowed return on equity will be set using the same methodology in all RIIO-2 sectors. The new methodology includes; (a) an equity indexation, whereby the allowed return on equity is updated to reflect changes in the risk-free rate, and (b) potentially setting the allowed return 0.5% below the expected return.
•Full debt indexation will be retained.
•The early settlement process (fast tracking) will be removed and replaced with an alternative mechanism to incentivize high-quality, rigorous and ambitious business plans.
•The Totex incentive rate will be based on a confidence level for setting baseline cost allowances.
•A new enhanced engagement model will be introduced requiring distribution companies to set up a customer engagement group to provide Ofgem with a public report of local stakeholders’ views on the companies’ business plans. Ofgem will also establish an independent RIIO-2 challenge group comprised of consumer experts to provide Ofgem with a public report on companies’ business plans.
•There will be no change to the existing depreciation policy of using economic asset lives as the basis for depreciating RAV as part of base revenue calculations. WPD is currently transitioning to 45-year asset lives for new additions in RIIO-ED1 based on Ofgem’s extensive review of asset lives in RIIO-ED1.
•A focus of RIIO-2 will be on whole-system outcomes. Ofgem intends for network companies and system operators to work together to ensure the energy system as a whole is efficient and delivers the best value to consumers. Ofgem is undertaking further work to clarify the definition of whole-system and the appropriate roles of the network companies in supporting this objective. Ofgem is still undecided on how DSO functions are to be treated. Ofgem will include a DSO reopener to reassess progress made in the establishment of DSO activities.
On July 30, 2020 Ofgem published its consultation on the RIIO-ED2 price control methodology which Ofgem will use to apply its framework decisions listed above. Some of the key aspects in Ofgem’s consultation include:
•Proposing a suite of Net-Zero related investment and innovation mechanisms, including a Net Zero re-opener, to ensure that RIIO-ED2 is adaptable and can keep pace with changes in the wider policy and technological environment.
•Consulting on four different models for managing strategic investment to enable more flexibility within the price control and allow DNOs to adapt their investment plans to keep pace with Net Zero.
•Consulting on debt allowance proposals including the debt allowance calibration, the index used, and a possible additional cost of borrowing allowance.
•Consulting on whether the three-stage equity indexation methodology for baseline allowance returns proposed in the Gas Distribution and Transmission Draft Determination should equally apply to the ED sector and if the estimation approach for systematic risk should differ for ED2.
•Proposing to introduce a suite of reforms to define and regulate the distribution system operation. In the first instance, those reforms will apply to DNOs.
WPD and PPL continue to be fully engaged in the RIIO-ED2 process. The comment period on the July 30, 2020 consultation closed on October 1, 2020, which WPD provided a response to, and a decision on the RIIO-ED2 Sector Specific Methodology will be made in December 2020. Final Determinations for RIIO-ED2 will be made in December 2022. The RIIO-ED2 price control will come into effect on April 1, 2023. PPL cannot predict the outcome of this process or the long-term impact the final RIIO-ED2 price control will have on its financial condition or results of operations.
Challenge to PPL Electric Transmission Formula Rate Return on Equity
(PPL and PPL Electric)
On May 21, 2020, PP&L Industrial Customer Alliance (PPLICA) filed a complaint with the FERC alleging that PPL Electric's base return on equity (ROE) of 11.18% used to determine PPL Electric's formula transmission rate iswas unjust and unreasonable,unreasonable.
On August 20, 2021, PPL Electric entered into a settlement agreement (the "Settlement") with PPLICA and proposing an alternative ROE of 8.0% based on its interpretation of FERC Opinion No. 569. However, alsoall other parties, including intervenors, with respect to the complaint filed by PPLICA on May 21, 2020,2020.
The key aspects of the FERC issued Opinion No. 569-A in responseSettlement include:
•changes to numerous requests for rehearing of Opinion No. 569, which revised the method for analyzing base ROE. On June 10, 2020, PPLICA filed a Motion to Supplement the May 21, 2020 complaint in which PPLICA continued to allege that PPL Electric’s base ROE is unjust and unreasonable, but revised its analysis of PPL Electric's base ROE to reflect the guidance provided in Opinion No. 569-A. The amended complaint proposed an updated alternative ROE of 8.5% and also requested that the FERC preserve the original refund effective date as established by the filing of the original complaint on May 21, 2020. Several parties have filed motions to intervene, including one party who filed Comments in Support of the original complaint.ROE:
On July 10, 2020, PPL Electric filed its Answer and supporting Testimony to the PPLICA filings arguing that the FERC should deny the original and amended complaintsbeginning as they are without merit and fail to demonstrate the existing base ROE is unjust and unreasonable. In addition, PPL Electric contended any refund effective date should be set for no earlier than June 10, 2020 and PPLICA's proposed replacement ROE should be rejected.
On October 15, 2020, the FERC issued an order on the PPLICA complaints which established hearing and settlement procedures, set a refund effective date of May 21, 2020 and grantedcontinuing through May 31, 2022, the motionsROE shall be 9.90%;
◦beginning on June 1, 2022 and continuing through May 31, 2023, the ROE shall be 9.95%;
◦beginning on June 1, 2023, the ROE shall be 10.00%, which shall continue in effect unless and until changed as permitted by the terms of the Settlement;
•changes the equity component of PPL Electric’s capital structure to intervene.be the lower of (i) PPL Electric’s actual equity component, calculated in accordance with the formula rate template, or (ii) 56.00%;
•allows modification of the current rate year of June 1 to May 31 to a calendar year of January 1 to December 31; and
•allows modification of the current formula rate based on a historic test year to a projected test year.
Refunds will be paid by PPL Electric continuesbased on the difference between charges that were calculated using the ROE in effect at the time and reduced charges calculated using the ROE provided for in the Settlement, plus interest at the FERC interest rate. In the three and nine months ended September 30, 2021, PPL Electric recorded a revenue reserve of $13 million ($10 million after-tax) and $64 million ($46 million after-tax) representing revenue subject to believe itsrefund for the period May 21, 2020 through September 30, 2021. The reserve recorded for the nine months ended September 30, 2021, includes $28 million ($20 million after-tax) related to the period from May 21, 2020 to December 31, 2020.
The impact of the lower ROE and formula rate modifications included in the Settlement, once fully-enacted beginning on June 1, 2023, is justexpected to reduce net income by $25 - $30 million on an annual basis. The Settlement is subject to review and reasonable and that it has meritorious defenses againstaction by the original and amended complaints. At this time, FERC, including approval, denial or modification. PPL Electric cannot predict the outcome of this matter or the rangeFERC’s review of possible losses, if any, that may be incurred. However, revenue earned from May 21, 2020 through the settlement of this matter may be subject to refund. A change of 50 basis points to the base ROE would impact PPL Electric's net income by approximately $12 million on an annual basis.
Settlement.
FERC Transmission Rate Filing
While the FERC's review of the settlement is pending, on October 15, 2021, PPL Electric filed a request to the FERC Chief Administrative Law Judge for authorization to implement interim rates to reflect the agreed-to base ROE in the Settlement effective December 1, 2021. The requested interim settlement rates were accepted on October 20, 2021.
FERC Transmission Rate Filing (PPL, LKE, LG&E and KU)
In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application sought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at
issue are generally waivers or credits granted to a limited number of Kentucky municipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the ongoing credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject to FERC review and approval. In July 2019, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KU filed requests for rehearing and clarification on the two September orders.mechanism. In September 2020, the FERC issued its orders in the rehearing process that modified the discussion in, and set aside portionsvarious aspects of the September 2019 orders which had approved future termination of the credits, including adjusting factors impactingwhich customer arrangements are covered by the proposed transition mechanism.mechanism and respective future periods or dates for termination of credits. In OctoberNovember 2020, boththe FERC denied the parties' rehearing requests. In November 2020 and January 2021, LG&E and KU and other parties filed separate motions for rehearing and clarification regarding FERC’sappealed the September 2020 orders. A FERC decision on these rehearing requests is expected byand November 18, 2020. Certain other petitions for review of the FERC's2020 orders have been filed by multiple parties, including LG&E and KU, withat the D.C. Circuit Court of Appeals. The appellate proceedings are continuing, and also include certain additional prior pending petitions for review relating to the matter. On January 15, 2021, LG&E and KU made a filing seeking FERC acceptance of a new proposal for a transition mechanism. On March 16, 2021, the FERC accepted the filed transition mechanism agreements effective on March 17, 2021 but subject to refund, and established hearing and settlement procedures. LG&E and KU cannot predict the outcome of thesethe respective appellate and FERC proceedings. LG&E and KU currently receive recovery of the waivers and credits provided through other rate mechanisms.
(PPLmechanisms and PPL Electric)
In April 2020, PPL Electric filed its annual transmission formulasuch rate updaterecovery would be anticipated to be adjusted consistent with potential changes or terminations of the FERC, reflecting a revised revenue requirement that took effect in June 2020.waivers and credits, as such become effective.
Rate Case Proceedings
(PPL, LKE, LG&E and KU)
On October 23,November 25, 2020, LG&E and KU filed notices of intentrequests with the KPSC to file applications for proposed adjustments of general electrican increase in annual electricity and gas revenues of approximately $331 million ($131 million and $170 million in electricity revenues at LG&E and KU and $30 million in gas revenues at LG&E). The revenue increases would be an increase of 11.6% and 10.4% in electricity revenues at LG&E and KU, and an increase of 8.3% in gas revenues at LG&E. In recognition of the economic impact of COVID-19, LG&E and KU requested approval of a one-year billing credit which will credit customers approximately $53 million ($41 million at LG&E and $12 million at KU). The billing credit represents the return to customers of certain regulatory liabilities on LG&E’s and KU’s Balance Sheets and serves to partially mitigate the rate increases during the first year in which the new rates on or after November 25, 2020. are in effect.
LG&E’s and KU’s applications also included a request for a CPCN to deploy Advanced Metering Infrastructure across LG&E’s and KU’s service territories in Kentucky.
The applications will also include requestswere based on a forecasted test year of July 1, 2021 through June 30, 2022 and requested an authorized return on equity of 10.0%.
On April 19, 2021, LG&E and KU entered into an agreement with all intervening parties to the proceedings resolving all matters in their applications, with the explicit exception of LG&E's and KU's net metering proposals. The agreement proposed increases in annual revenues of $217 million ($77 million and $116 million in electricity revenues at LG&E and KU and $24 million in gas revenues at LG&E) based on an authorized return on equity of 9.55%. The proposal included an authorized 9.35% return on equity for the ECR and GLT mechanisms. The agreement did not modify the requested one-year billing credit. The agreement proposed that the KPSC should grant LG&E’s and KU’s request for a CPCN to deploy Advanced Metering Infrastructure and proposed the establishment of a Retired Asset Recovery rider (RAR) to provide for recovery of and return on the remaining investment in certain electric generating units upon their retirement over a ten-year period following retirement. In respect of the RAR rider, the agreement proposed that LG&E and KU will continue to use currently approved depreciation rates for Mill Creek Units 1 and 2 and Brown Unit 3. The agreement also proposed a four-year "stay-out" commitment from LG&E and KU to refrain from effective base rate increases before July 1, 2025, subject to certain exceptions.
On June 30, 2021, the KPSC issued orders approving the proposed agreement filed in April 2021, with certain modifications. The orders provide for increases in annual revenues of $199 million ($73 million and $106 million in electricity revenues at LG&E and KU and $20 million in gas revenues at LG&E) based on an authorized return on equity of 9.425%. The order grants the requested authorized 9.35% return on equity for the ECR and GLT mechanisms and does not modify the requested one-year billing credit. The orders approve the CPCN to deploy Advanced Metering Infrastructure and provide regulatory asset treatment for the remaining net book value of legacy meters upon full implementation of the Advanced Metering Infrastructure program. The orders also approve the establishment of the RAR rider and accepted the four-year "stay-out". The orders, however, disallowed certain legal costs that were included in the settlement. On July 23, 2021, LG&E and KU filed motions for partial rehearing and clarification of the return on equity, the disallowed legal costs and certain other matters.matters related to the KPSC's orders. On August 12, 2021, the KPSC granted rehearing and clarification of the disallowed legal costs and certain other matters and denied rehearing and clarification of the return on equity. On September 24, 2021, the KPSC issued orders providing adjustments to previous net metering proposals. These adjustments did not impact the previously ordered annual revenue increases. PPL, LG&E and KU cannot predict the outcome of these potential proceedings.the remaining issues subject to partial rehearing and clarification.
(LKEand KU)(KU)
In July 2019,On August 31, 2021, KU filed a request with the VSCC for an annual increase in annual Virginia base electricity revenuesrates of approximately $13 million, representing$12 million. KU's request is based on an increase of 18.2%. In January 2020, KU reached a partial settlement agreement including an increase in annual Virginia base electricity revenues of $9 million effective May 1, 2020, representing an increase of 12.9%. A hearingauthorized 10.4% return on the settlementequity. Subject to regulatory review and certain tariff provisions was held in January 2020. On April 6, 2020, the VSCC issued an order approving the settlement and Hearing Examiner tariff provision recommendations. KU implemented theapproval, new rates on Maywould become effective June 1, 2020.2022.
Results of Operations
(PPL)
The "Statement of Income Analysis" discussion below describes significant changes in principal line items on PPL'sthe Statements of Income, comparing the three and nine months ended September 30, 20202021 with the same periods in 2019.2020. The "Segment Earnings" and "Adjusted Gross Margins" discussions for PPL provide a review of results by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Adjusted Gross Margins," and provide explanations of the non-GAAP financial measures and a reconciliation of those measures to the most comparable GAAP measure.
Tables analyzing changes in amounts between periods within "Statement of Income Analysis," "Segment Earnings" and "Adjusted Gross Margins" are presented on a constant GBP to U.S. dollar 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 GBP to U.S. dollar exchange rate basis are calculated by translating current year results at the prior year weighted-average GBP to U.S. dollar exchange rate.
(PPL Electric, LKE, LG&E and KU)
A "Statement of Income Analysis" is presented separately for PPL Electric, LKE, LG&E and KU. The "Statement of Income Analysis" discussion below describes significant changes in principal line items on the Statements of Income, comparing the three and nine months ended September 30, 20202021 with the same periods in 2019.2020.
(All Registrants)
The results for interim periods can be disproportionately influenced by numerous factors and developments and by seasonal variations. As such, the results of operations for interim periods do not necessarily indicate results or trends for the year or future periods.
PPL: Statement of Income Analysis, Segment Earnings and Adjusted Gross Margins
Statement of Income Analysis
Net income for the periods ended September 30 includes the following results:
| | | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change | | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
| Operating Revenues | Operating Revenues | $ | 1,885 | | | $ | 1,933 | | | $ | (48) | | | $ | 5,678 | | | $ | 5,815 | | | $ | (137) | | Operating Revenues | $ | 1,512 | | | $ | 1,400 | | | $ | 112 | | | $ | 4,298 | | | $ | 4,103 | | | $ | 195 | |
| Operating Expenses | Operating Expenses | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | |
| Operation | Operation | | Operation | |
| Fuel | Fuel | 177 | | | 194 | | | (17) | | | 478 | | | 556 | | | (78) | | Fuel | 195 | | | 177 | | | 18 | | | 531 | | | 478 | | | 53 | |
| Energy purchases | Energy purchases | 136 | | | 150 | | | (14) | | | 470 | | | 538 | | | (68) | | Energy purchases | 167 | | | 136 | | | 31 | | | 524 | | | 470 | | | 54 | |
| Other operation and maintenance | Other operation and maintenance | 483 | | | 480 | | | 3 | | | 1,446 | | | 1,452 | | | (6) | | Other operation and maintenance | 393 | | | 346 | | | 47 | | | 1,164 | | | 1,054 | | | 110 | |
| Depreciation | Depreciation | 323 | | | 306 | | | 17 | | | 959 | | | 890 | | | 69 | | Depreciation | 274 | | | 257 | | | 17 | | | 810 | | | 762 | | | 48 | |
| Taxes, other than income | Taxes, other than income | 79 | | | 77 | | | 2 | | | 226 | | | 232 | | | (6) | | Taxes, other than income | 52 | | | 47 | | | 5 | | | 153 | | | 131 | | | 22 | |
| Total Operating Expenses | Total Operating Expenses | 1,198 | | | 1,207 | | | (9) | | | 3,579 | | | 3,668 | | | (89) | | Total Operating Expenses | 1,081 | | | 963 | | | 118 | | | 3,182 | | | 2,895 | | | 287 | |
| Other Income (Expense) - net | Other Income (Expense) - net | 52 | | | 126 | | | (74) | | | 253 | | | 309 | | | (56) | | Other Income (Expense) - net | 12 | | | 6 | | | 6 | | | 25 | | | 11 | | | 14 | |
| Interest Expense | Interest Expense | 249 | | | 259 | | | (10) | | | 750 | | | 746 | | | 4 | | Interest Expense | 183 | | | 161 | | | 22 | | | 810 | | | 479 | | | 331 | |
| Income (Loss) from Continuing Operations Before Income Taxes | | Income (Loss) from Continuing Operations Before Income Taxes | 260 | | | 282 | | | (22) | | | 331 | | | 740 | | | (409) | |
| Income Taxes | Income Taxes | 209 | | | 118 | | | 91 | | | 423 | | | 328 | | | 95 | | Income Taxes | 51 | | | 165 | | | (114) | | | 455 | | | 266 | | | 189 | |
| | Net Income | $ | 281 | | | $ | 475 | | | $ | (194) | | | $ | 1,179 | | | $ | 1,382 | | | $ | (203) | | |
| Income (Loss) from Continuing Operations After Income Taxes | | Income (Loss) from Continuing Operations After Income Taxes | 209 | | | 117 | | | 92 | | | (124) | | | 474 | | | (598) | |
| Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | | Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | (2) | | | 164 | | | (166) | | | (1,490) | | | 705 | | | (2,195) | |
| Net Income (Loss) | | Net Income (Loss) | $ | 207 | | | $ | 281 | | | $ | (74) | | | $ | (1,614) | | | $ | 1,179 | | | $ | (2,793) | |
Operating Revenues
The increase (decrease) in operating revenues was due to:
| | | | | | | | | | | |
| Three Months | | Nine Months |
| Domestic: | | | |
| PPL Electric Distribution price (a) | $ | (16) | | | $ | (16) | |
| PPL Electric Distribution volumes (b) | 6 | | | (11) | |
| PPL Electric PLR (c) | (13) | | | (38) | |
| PPL Electric Transmission Formula Rate (d) | 24 | | | 63 | |
| | | |
| LKE Retail Rates (e) | — | | | 64 | |
| LKE ECR (f) | — | | | 28 | |
| LKE Fuel and other energy prices (g) | (3) | | | (42) | |
| LKE Municipal supply (h) | — | | | (28) | |
| LKE Volumes (i) | (33) | | | (84) | |
| | | |
| | | |
| | | |
| | | |
| LKE Demand (j) | (8) | | | (32) | |
| Other | 1 | | | (1) | |
| Total Domestic | (42) | | | (97) | |
| U.K.: | | | |
| Price | (4) | | | 19 | |
| Volumes (j) | (22) | | | (62) | |
| Foreign currency exchange rates | 14 | | | (3) | |
| Engineering recharge income | 8 | | | 7 | |
| Other | (2) | | | (1) | |
| Total U.K. | (6) | | | (40) | |
| Total | $ | (48) | | | $ | (137) | |
| | | | | | | | | | | |
| Three Months | | Nine Months |
| | | |
| PPL Electric distribution price (a) | $ | 13 | | | $ | 6 | |
| PPL Electric distribution volume (b) | — | | | 19 | |
| PPL Electric PLR (c) | 27 | | | 33 | |
| PPL Electric transmission formula rate (d) | 1 | | | (35) | |
| | | |
| LG&E retail rates (e) | 22 | | | 22 | |
| | | |
LG&E volumes (f) | 7 | | | 31 | |
| LG&E fuel and other energy prices (g) | 7 | | | 23 | |
| | | |
| LG&E economic relief billing credit, net of amortization of $6, $6 | (6) | | | (6) | |
| KU retail rates (e) | 27 | | | 27 | |
| KU volumes (f) | 4 | | | 38 | |
| KU fuel and other energy prices (g) | 12 | | | 24 | |
| KU demand | 2 | | | 8 | |
| | | |
| | | |
| | | |
| | | |
| KU economic relief billing credit, net of amortization of $0, $0 | (3) | | | (3) | |
| Other | (1) | | | 8 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | $ | 112 | | | $ | 195 | |
(a)The distribution price variances areincreases were primarily due to reconcilable cost recovery mechanisms approved by the PUC.higher distribution rider prices.
(b)The increase for the nine months ended September 30, 2021 was primarily due to favorable customer usage.
(c)The increase for the three months ended September 30, 2021 was due to higher prices and favorable customer volumes, partially offset by unfavorable weather. The increase for the nine months ended September 30, 2021 was primarily due to favorable volumes, partially offset by higher customer shopping.
(d)The increase for the three months ended September 30, 2021 was primarily due to additional transmission capital investments and return of related depreciation expense, partially offset by a reserve recorded for a reduction in the transmission formula rate return on equity. The decrease for the nine months ended September 30, 20202021 was primarily due to warmer weathera reserve recorded for a reduction in the first quarter of 2020,transmission formula rate return on equity and a lower PPL zonal peak load billing factor, partially offset by warmer weather inreturns on additional transmission capital investments and return of related depreciation expense. See Note 7 to the third quarter of 2020.Financial Statements for additional information on the transmission formula rate return on equity reserve.
(c)(e)The decrease forincreases were due to new base rates approved by the three months ended September 30, 2020 was primarily the result of lower energy prices, partially offset by higher volumes of non-shopping customers and favorable weather. The decrease for the nine months ended September 30, 2020 was primarily the result of lower energy prices and unfavorable weather, partially offset by higher volumes of non-shopping customers in 2020.KPSC effective July 1, 2021.
(d)(f)The increases were primarily due to returns on additional capital investments.favorable weather.
(g)The increase wasincreases were primarily due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.
(f)The increase was primarily due to higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.
(g)The decreases were primarily due to lower recoveries of fuel and energy purchases due to lowerhigher commodity costs.
(h)The decrease was primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.
(i)The decreases were primarily due to weather.
(j)The decreases were primarily due to COVID-19.
Fuel
Fuel decreased $17increased $18 million for the three months ended September 30, 20202021 compared with 2019,2020, primarily due to an $13a $3 million decreaseincrease in commodity costs and a $2 million increase in volumes driven by weatherhigher off-system sales at LG&E and a $2$12 million decreaseincrease in commodity costs.costs at KU.
Fuel decreased $78increased $53 million for the nine months ended September 30, 20202021 compared with 2019,2020, primarily due to a $43an $11 million decreaseincrease in volumes driven by weather and a $27$3 million decreaseincrease in commodity costs at LG&E and a $20 million increase in commodity costs and a $9an $18 million decreaseincrease in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.weather at KU.
Energy Purchases
Energy purchases decreased $14increased $31 million for the three months ended September 30, 20202021 compared with 2019,2020, primarily due to lower$19 million in higher PLR prices of $21 million, partially offset by higher PLR volumes of $7 million at PPL Electric.Electric and a $6 million increase at LG&E primarily due to an increase in commodity costs.
Energy purchases decreased $68increased $54 million for the nine months ended September 30, 20202021 compared with 2019,2020, primarily due to lowerhigher PLR pricesvolumes of $54 million, partially offset by higher transmission enhancement expenses of $12$20 million at PPL Electric, as well as a $22$13 million decrease due to lowerincrease in commodity costs and a $9 million increase in gas volumes driven by weather at LKE.LG&E.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
| | | | | | | | | | | |
| | Three Months | | Nine Months |
| Domestic: | | | |
| | | |
| | | |
| | | |
| PPL Electric Act 129 | $ | (5) | | | $ | (12) | |
| PPL Electric bad debts | (7) | | | (3) | |
| | | |
| | | |
| | | |
| PPL Electric universal service rider | (4) | | | (8) | |
| PPL Electric canceled projects | — | | | 9 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| LKE plant operations and maintenance | (1) | | | (9) | |
| | | |
| | | |
| LKE COVID-19 impact | — | | | 5 | |
| Storm costs | 8 | | | (15) | |
| | | |
| | | |
| Other | (6) | | | (10) | |
| U.K.: | | | |
| Pension | 2 | | | 5 | |
| Foreign currency exchange rates | 4 | | | (2) | |
| | | |
| Third-party engineering | 8 | | | 8 | |
| Engineering management | (1) | | | 4 | |
| COVID-19 impact | 4 | | | 19 | |
| Other | 1 | | | 3 | |
| Total | $ | 3 | | | $ | (6) | |
| | | | | | | | | | | |
| Three Months | | Nine Months |
| PPL Electric canceled projects | $ | — | | | $ | (11) | |
| PPL Electric bad debts | 1 | | | (8) | |
| PPL Electric storm costs | 14 | | | 18 | |
| | | |
| PPL Electric universal service programs | 5 | | | 9 | |
| PPL Electric inventory adjustments | 1 | | | 6 | |
| | | |
| | | |
| LG&E plant operations and maintenance | — | | | 4 | |
| LG&E gas distribution operations and maintenance | — | | | 2 | |
| LG&E plant outages | 2 | | | 2 | |
| KU plant operations and maintenance | — | | | 8 | |
| KU distribution operations and maintenance | — | | | 4 | |
| KU transmission operations and maintenance | 1 | | | 4 | |
| KU plant outages | 2 | | | 2 | |
| Solar panel impairment (Note 2) | — | | | 37 | |
| Charges related to the sale of the U.K. utility business | — | | | 8 | |
| Charges related to the acquisition of Narragansett Electric | 11 | | | 14 | |
| Payroll-related | 4 | | | 6 | |
| Other | 6 | | | 5 | |
| Total | $ | 47 | | | $ | 110 | |
| | | |
Depreciation
The increase in depreciation was due to:
| | | | Three Months | | Nine Months | | Three Months | | Nine Months |
| Additions to PP&E, net | Additions to PP&E, net | $ | 12 | | | $ | 38 | | Additions to PP&E, net | $ | 7 | | | $ | 32 | |
| Foreign currency exchange rates | 2 | | | (1) | | |
| Depreciation rates (a) | — | | | 26 | | |
| Depreciation rate change effective July 2021 | | Depreciation rate change effective July 2021 | 5 | | | 5 | |
| Cost of removal and salvage amortization | | Cost of removal and salvage amortization | 3 | | | 9 | |
| Other | Other | 3 | | | 6 | | Other | 2 | | | 2 | |
| Total | Total | $ | 17 | | | $ | 69 | | Total | $ | 17 | | | $ | 48 | |
(a)Higher depreciation rates were effective May 1, 2019 at LG&E and KU.Table of ContentsTaxes, Other Than Income
The increase (decrease) in taxes, other than income was due to:
| | | | | | | | | | | |
| | Three Months | | Nine Months |
| State gross receipts tax (a) | $ | — | | | $ | 10 | |
| Domestic property tax expense | 2 | | | 8 | |
| Other | 3 | | | 4 | |
| Total | $ | 5 | | | $ | 22 | |
(a) The increase was primarily due to a favorable settlement of 2008-2010 gross receipts tax assessments in 2020.
Other Income (Expense) - net
The increase (decrease) in other income (expense) - net was due to:
| | | Three Months | | Nine Months | | Three Months | | Nine Months |
| Economic foreign currency exchange contracts (Note 15) | $ | (63) | | | $ | (12) | | |
| Defined benefit plans - non-service credits (Note 10) | Defined benefit plans - non-service credits (Note 10) | (10) | | | (35) | | Defined benefit plans - non-service credits (Note 10) | $ | 5 | | | $ | 14 | |
| | Interest income | | Interest income | 6 | | | 9 | |
| Other | Other | (1) | | | (9) | | Other | (5) | | | (9) | |
| Total | Total | $ | (74) | | | $ | (56) | | Total | $ | 6 | | | $ | 14 | |
Interest Expense
The increase (decrease) in interest expense was due to:
| | | | | | | | | | | |
| Three Months | | Nine Months |
| Long-term debt interest expense | $ | (6) | | | $ | 20 | |
| Short-term debt interest expense | (8) | | | (15) | |
| Foreign currency exchange rates | 3 | | | — | |
| Other | 1 | | | (1) | |
| Total | $ | (10) | | | $ | 4 | |
| | | | | | | | | | | |
| | Three Months | | Nine Months |
| Loss on extinguishment of debt (Note 8) | $ | 73 | | | $ | 395 | |
| Long-term debt | (44) | | | (50) | |
| Other | (7) | | | (14) | |
| Total | $ | 22 | | | $ | 331 | |
Income Taxes
The increase (decrease) in income taxes was due to:
| | | | | | | | | | | |
| Three Months | | Nine Months |
| Change in pre-tax income | $ | (12) | | | $ | (16) | |
| Federal and state income tax return adjustments | (9) | | | (10) | |
| Impact of the U.K. Finance Acts on deferred tax balances (a) | 109 | | | 109 | |
| Amortization of excess deferred income taxes | (2) | | | (4) | |
| Kentucky recycling credit, net of federal income tax expense (b) | — | | | 20 | |
| | | |
| Other | 5 | | | (4) | |
| Total | $ | 91 | | | $ | 95 | |
| | | | | | | | | | | |
| Three Months | | Nine Months |
| Change in pre-tax income | $ | (3) | | | $ | (113) | |
| | | |
| Valuation allowance adjustments (a) | (2) | | | 20 | |
| Impact of the U.K. Finance Acts on deferred tax balances (b) | (104) | | | 282 | |
| | | |
| | | |
| Other | (5) | | | — | |
| Total | $ | (114) | | | $ | 189 | |
(a) In 2021, PPL recorded a $31 million state deferred tax benefit on a net operating loss and an offsetting valuation allowance in connection with the loss on extinguishment associated with a tender offer to purchase and retire PPL Capital Funding's outstanding Senior Notes. See Note 8 to the Financial Statements for additional information on the tender offer.
(a)(b)The U.K. corporation tax rate was scheduled to be reduced from 19% to 17%, effective April 1, 2020. On March 11, 2020, the U.K. Finance Act 2020, included a cancellation offormally enacted on July 22, 2020, cancelled the U.K. corporation tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19%. The Finance Act for financial years 2020 was formally enacted on July 22, 2020.and 2021. The primary impact of the cancellation of the corporationcorporate tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.$102 million in the third quarter of 2020.
(b)
During
The U.K. Finance Act 2021, formally enacted on June 10, 2021, increased the U.K. corporation tax rate from 19% to 25%, effective April 1, 2023. The primary impact of the corporation tax rate increase was an increase in deferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a corresponding deferred tax expense of $383 million, which was recognized in continuing operations in the second quarter of 2019, LKE recorded a deferred2021.
Income (Loss) from Discontinued Operations (net of income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. A portion of this amount has been reserved due to insufficient Kentucky taxable income projected at LKE.taxes)
Income (Loss) from discontinued operations (net of income taxes) decreased $166 million for the three months ended September 30, 2021 compared with 2020. The decrease was due to the completion of the sale of the U.K. utility business in the second quarter of 2021.
Income (Loss) from discontinued operations (net of income taxes) decreased $2,195 million for the nine months ended September 30, 2021 compared with 2020. The decrease was attributable primarily to a loss on sale of $1,609 million and an increase in income tax expense of $595 million in 2021.
See "Discontinued Operations" in Note 9 to the Financial Statements for summarized results of the operations of the U.K. utility business.
Segment Earnings
PPL's Net Income by reportable segment for the periods ended September 30 was as follows:
| | | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change | | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
| U.K. Regulated | $ | 55 | | | $ | 236 | | | $ | (181) | | | $ | 574 | | | $ | 784 | | | $ | (210) | | |
| | Kentucky Regulated | Kentucky Regulated | 129 | | | 150 | | | (21) | | | 330 | | | 364 | | | (34) | | Kentucky Regulated | $ | 159 | | | $ | 129 | | | $ | 30 | | | $ | 389 | | | $ | 330 | | | $ | 59 | |
| Pennsylvania Regulated | Pennsylvania Regulated | 135 | | | 118 | | | 17 | | | 371 | | | 333 | | | 38 | | Pennsylvania Regulated | 126 | | | 135 | | | (9) | | | 335 | | | 371 | | | (36) | |
Corporate and Other (a)(b) | Corporate and Other (a)(b) | (38) | | | (29) | | | (9) | | | (96) | | | (99) | | | 3 | | Corporate and Other (a)(b) | (76) | | | (147) | | | 71 | | | (848) | | | (227) | | | (621) | |
| | Discontinued Operations (c) | | Discontinued Operations (c) | (2) | | | 164 | | | (166) | | | (1,490) | | | 705 | | | (2,195) | |
| Net Income | Net Income | $ | 281 | | | $ | 475 | | | $ | (194) | | | $ | 1,179 | | | $ | 1,382 | | | $ | (203) | | Net Income | $ | 207 | | | $ | 281 | | | $ | (74) | | | $ | (1,614) | | | $ | 1,179 | | | $ | (2,793) | |
(a)Primarily represents financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments, which are presented to reconcile segment information to PPL's consolidated results.
(b)The amounts for the periods ended September 30, 2020 have been adjusted for certain costs that were previously included in the U.K. Regulated segment.
(c)See Note 9 to the Financial Statements for additional information.
Earnings from Ongoing Operations
Management utilizes "Earnings from Ongoing Operations" as a non-GAAP financial measure that should not be considered as an alternative to net income, an indicator of operating performance determined in accordance with GAAP. PPL believes that Earnings from Ongoing Operations is useful and meaningful to investors because it provides management's view of PPL's earnings performance as another criterion in making investment decisions. In addition, PPL's management uses Earnings from Ongoing Operations in measuring achievement of certain corporate performance goals, including targets for certain executive incentive compensation. Other companies may use different measures to present financial performance.
Earnings from Ongoing Operations is adjusted for the impact of special items. Special items are presented in the financial tables on an after-tax basis with the related income taxes on special items separately disclosed. Income taxes on special items, when applicable, are calculated based on the statutory tax rate of the entity where the activity is recorded. Special items may include items such as:
• Unrealized gains or losses on foreign currency economic hedges (as discussed below).
• Gains and losses on sales of assets not in the ordinary course of business.
• Impairment charges.
• Significant workforce reduction and other restructuring effects.
• Acquisition and divestiture-related adjustments.
• Significant losses on early extinguishment of debt.
• Other charges or credits that are, in management's view, non-recurring or otherwise not reflective of the company's ongoing operations.
Unrealized gains or losses on foreign currency economic hedges include the changes in fair value of foreign currency contracts used to hedge GBP-denominated anticipated earnings. The changes in fair value of these contracts are recognized immediately within GAAP earnings. Management believes that excluding these amounts from Earnings from Ongoing Operations until
settlement of the contracts provides a better matching of the financial impacts of those contracts with the economic value of PPL's underlying hedged earnings. See Note 15 to the Financial Statements and "Risk Management" below for additional information on foreign currency economic activity.
PPL's Earnings from Ongoing Operations by reportable segment for the periods ended September 30 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| U.K. Regulated | $ | 213 | | | $ | 205 | | | $ | 8 | | | $ | 767 | | | $ | 773 | | | $ | (6) | |
| Kentucky Regulated | 129 | | | 150 | | | (21) | | | 334 | | | 364 | | | (30) | |
| Pennsylvania Regulated | 136 | | | 118 | | | 18 | | | 372 | | | 333 | | | 39 | |
| Corporate and Other | (28) | | | (28) | | | — | | | $ | (82) | | | (95) | | | 13 | |
| Earnings from Ongoing Operations | $ | 450 | | | $ | 445 | | | $ | 5 | | | $ | 1,391 | | | $ | 1,375 | | | $ | 16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
| | | | | | | | | | | |
| Kentucky Regulated | $ | 159 | | | $ | 129 | | | $ | 30 | | | $ | 385 | | | $ | 334 | | | $ | 51 | |
| Pennsylvania Regulated | 126 | | | 136 | | | (10) | | | 355 | | | 372 | | | (17) | |
| Corporate and Other (a) | (8) | | | (37) | | | 29 | | | (97) | | | (113) | | | 16 | |
| | | | | | | | | | | |
| Earnings from Ongoing Operations | $ | 277 | | | $ | 228 | | | $ | 49 | | | $ | 643 | | | $ | 593 | | | $ | 50 | |
(a)The amounts for the periods ended September 30, 2020 have been adjusted for certain costs that were previously included in the U.K. Regulated segment.
See "Reconciliation of Earnings from Ongoing Operations" below for a reconciliation of this non-GAAP financial measure to Net Income.
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 GBP into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs and certain acquisition-related financing costs. The U.K. Regulated segment represents 49% of PPL's Net Income for the nine months ended September 30, 2020 and 40% of PPL's assets at September 30, 2020.
Net Income and Earnings from Ongoing Operations for the periods ended September 30 include the following results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months | | Nine Months |
| 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| Operating revenues | $ | 485 | | | $ | 491 | | | $ | (6) | | | $ | 1,575 | | | $ | 1,615 | | | $ | (40) | |
| Other operation and maintenance | 141 | | | 125 | | | 16 | | | 412 | | | 376 | | | 36 | |
| Depreciation | 66 | | | 60 | | | 6 | | | 197 | | | 186 | | | 11 | |
| Taxes, other than income | 32 | | | 32 | | | — | | | 95 | | | 96 | | | (1) | |
| Total operating expenses | 239 | | | 217 | | | 22 | | | 704 | | | 658 | | | 46 | |
| Other Income (Expense) - net | 46 | | | 120 | | | (74) | | | 241 | | | 289 | | | (48) | |
| Interest Expense | 97 | | | 110 | | | (13) | | | 296 | | | 305 | | | (9) | |
| Income Taxes | 140 | | | 48 | | | 92 | | | 242 | | | 157 | | | 85 | |
| Net Income | 55 | | | 236 | | | (181) | | | 574 | | | 784 | | | (210) | |
| Less: Special Items | (158) | | | 31 | | | (189) | | | (193) | | | 11 | | | (204) | |
| Earnings from Ongoing Operations | $ | 213 | | | $ | 205 | | | $ | 8 | | | $ | 767 | | | $ | 773 | | | $ | (6) | |
The following after-tax gains (losses), which management considers special items, impacted the U.K. Regulated segment's results and are excluded from Earnings from Ongoing Operations during the periods ended September 30.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Income Statement Line Item | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | 2020 | | 2019 |
| Foreign currency economic hedges, net of tax of $14, ($8), $20, ($4) (a) | Other Income (Expense) - net | | $ | (53) | | | $ | 31 | | | $ | (76) | | | $ | 15 | |
| COVID-19 impact, net of tax of $1, $0, $4, $0 (b) | Other operation and maintenance | | (3) | | | — | | | (15) | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| U.K. tax rate change (c) | Income Taxes | | (102) | | | — | | | (102) | | | — | |
| Other, net of tax of $0, $0, $0, $1 (d) | Other operation and maintenance | | — | | | — | | | — | | | (4) | |
| | | | | | | | | |
| | | | | | | | | |
| Total Special Items | | | $ | (158) | | | $ | 31 | | | $ | (193) | | | $ | 11 | |
(a)Unrealized gains (losses) on contracts that economically hedge anticipated GBP-denominated earnings.
(b)Incremental costs for labor not chargeable to capital projects due to U.K. government lockdown restrictions, purchases of personal protective equipment and other safety related actions associated with the COVID-19 pandemic.
(c)The U.K. Finance Act 2020, formally enacted on July 22, 2020, canceled the reduction of the corporation tax rate from 19% to 17%. See Note 6 to the Financial Statements for additional information.
(d) Settlement of a contractual dispute.
The changes in the components of the U.K. Regulated segment's results between these periods are due to the factors set forth below, which reflect amounts classified as U.K. Adjusted Gross Margins, the items that management considers special and the
effects of movements in foreign currency exchange, including the effects of foreign currency hedge contracts, on separate lines and not in their respective Statement of Income line items.
| | | | | | | | | | | |
| | Three Months | | Nine Months |
| U.K. | | | |
| U.K. Adjusted Gross Margins | $ | (27) | | | $ | (44) | |
| Other operation and maintenance | — | | | (16) | |
| Depreciation | (5) | | | (12) | |
| Other Income (Expense) - net | (12) | | | (35) | |
| Interest expense | 15 | | | 9 | |
| | | |
| Income taxes | (2) | | | 15 | |
| U.S. | | | |
| Income taxes | (1) | | | (3) | |
| Other | — | | | (1) | |
| Foreign currency exchange, after-tax | 40 | | | 81 | |
| Earnings from Ongoing Operations | 8 | | | (6) | |
| Special items, after-tax | (189) | | | (204) | |
| Net Income | $ | (181) | | | $ | (210) | |
U.K.
•See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of U.K. Adjusted Gross Margins.
•Higher other operation and maintenance expense for the nine month period primarily due to increases in various costs that were not individually significant in comparison to the prior year.
•Lower other income (expense) - net for the three and nine month periods primarily due to lower pension income.
•Lower interest expense for the three month period primarily due to interest on the index-linked bonds.
•Higher income taxes for the three month period primarily due to a $7 million impact from the tax rate change, partially offset by $6 million lower income taxes due to lower pre-tax income.
Kentucky Regulated Segment
The Kentucky Regulated segment consists primarily of LKE'sthe regulated electricity generation, transmission and distribution operations conducted by LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents 28% of PPL's Net Income for the nine months ended September 30, 2020 and 33% of PPL's assets at September 30, 2020.
Net Income and Earnings from Ongoing Operations for the periods ended September 30 include the following results.
|
|
| Three Months | | Nine Months |
| Three Months | | Nine Months |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change | | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
| Operating revenues | Operating revenues | $ | 806 | | | $ | 844 | | | $ | (38) | | | $ | 2,331 | | | $ | 2,421 | | | $ | (90) | | Operating revenues | $ | 879 | | | $ | 806 | | | $ | 73 | | | $ | 2,505 | | | $ | 2,331 | | | $ | 174 | |
| Fuel | Fuel | 177 | | | 194 | | | (17) | | | 478 | | | 556 | | | (78) | | Fuel | 195 | | | 177 | | | 18 | | | 531 | | | 478 | | | 53 | |
| Energy purchases | Energy purchases | 18 | | | 19 | | | (1) | | | 97 | | | 125 | | | (28) | | Energy purchases | 24 | | | 18 | | | 6 | | | 122 | | | 97 | | | 25 | |
| Other operation and maintenance | Other operation and maintenance | 205 | | | 205 | | | — | | | 616 | | | 627 | | | (11) | | Other operation and maintenance | 219 | | | 205 | | | 14 | | | 654 | | | 616 | | | 38 | |
| Depreciation | Depreciation | 152 | | | 144 | | | 8 | | | 452 | | | 402 | | | 50 | | Depreciation | 166 | | | 152 | | | 14 | | | 480 | | | 452 | | | 28 | |
| Taxes, other than income | Taxes, other than income | 21 | | | 19 | | | 2 | | | 57 | | | 55 | | | 2 | | Taxes, other than income | 22 | | | 21 | | | 1 | | | 65 | | | 57 | | | 8 | |
| Total operating expenses | Total operating expenses | 573 | | | 581 | | | (8) | | | 1,700 | | | 1,765 | | | (65) | | Total operating expenses | 626 | | | 573 | | | 53 | | | 1,852 | | | 1,700 | | | 152 | |
| Other Income (Expense) - net | Other Income (Expense) - net | 1 | | | 2 | | | (1) | | | 3 | | | 2 | | | 1 | | Other Income (Expense) - net | 1 | | | 1 | | | — | | | 7 | | | 3 | | | 4 | |
| Interest Expense | Interest Expense | 76 | | | 74 | | | 2 | | | 228 | | | 222 | | | 6 | | Interest Expense | 48 | | | 56 | | | (8) | | | 149 | | | 172 | | | (23) | |
| Interest Expense with Affiliate (a) | | Interest Expense with Affiliate (a) | 14 | | | 20 | | | (6) | | | 39 | | | 56 | | | (17) | |
| Income Taxes | Income Taxes | 29 | | | 41 | | | (12) | | | 76 | | | 72 | | | 4 | | Income Taxes | 33 | | | 29 | | | 4 | | | 83 | | | 76 | | | 7 | |
| Net Income | Net Income | 129 | | | 150 | | | (21) | | | 330 | | | 364 | | | (34) | | Net Income | 159 | | | 129 | | | 30 | | | 389 | | | 330 | | | 59 | |
| Less: Special Items | Less: Special Items | — | | | — | | | — | | | (4) | | | — | | | (4) | | Less: Special Items | — | | | — | | | — | | | 4 | | | (4) | | | 8 | |
| Earnings from Ongoing Operations | Earnings from Ongoing Operations | $ | 129 | | | $ | 150 | | | $ | (21) | | | $ | 334 | | | $ | 364 | | | $ | (30) | | Earnings from Ongoing Operations | $ | 159 | | | $ | 129 | | | $ | 30 | | | $ | 385 | | | $ | 334 | | | $ | 51 | |
The following after-tax gains (losses), which management considers special items, impacted the Kentucky Regulated segment's results and are excluded from Earnings from Ongoing Operations during the periods ended September 30.
| | | Income Statement Line Item | | Three Months | | Nine Months | | Income Statement Line Item | | Three Months | | Nine Months |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | COVID-19 impact, net of tax of $0, $0, $1, $0 (a) | Other operation and maintenance | | $ | — | | | $ | — | | | $ | (4) | | | $ | — | | |
| Valuation allowance adjustment (a) | | Valuation allowance adjustment (a) | Income Taxes | | $ | — | | | $ | — | | | $ | 4 | | | $ | — | |
| COVID-19 impact, net of tax of $0, $0, $0, $1 (b) | | COVID-19 impact, net of tax of $0, $0, $0, $1 (b) | Other operation and maintenance | | — | | | — | | | — | | | (4) | |
| | Total Special Items | Total Special Items | | $ | — | | | $ | — | | | $ | (4) | | | $ | — | | Total Special Items | | $ | — | | | $ | — | | | $ | 4 | | | $ | (4) | |
(a)Adjustment of valuation allowances related to certain tax credits recorded in 2017 as a result of the TCJA.
(b)Incremental costs for outside services, customer payment processing, personal protective equipment and other safety related actions associated with the COVID-19 pandemic.
The changes in the components of the Kentucky Regulated segment's results between these periods were due to the factors set forth below, which reflect amounts classified as Kentucky Adjusted Gross Margins and the items that management considers special on separate lines and not in their respective Statement of Income line items.
| | | | | | | | | | | |
| | Three Months | | Nine Months |
| Kentucky Adjusted Gross Margins | $ | (26) | | | $ | (14) | |
| Other operation and maintenance | — | | | 12 | |
| Depreciation | (2) | | | (17) | |
| Taxes, other than income | (2) | | | (1) | |
| Other Income (Expense) - net | (1) | | | 1 | |
| Interest Expense | (2) | | | (6) | |
| Income Taxes | 12 | | | (5) | |
| Earnings from Ongoing Operations | (21) | | | (30) | |
| Special items, after-tax | — | | | (4) | |
| Net Income | $ | (21) | | | $ | (34) | |
| | | | | | | | | | | |
| | Three Months | | Nine Months |
| Kentucky Adjusted Gross Margins | $ | 79 | | | $ | 112 | |
| Other operation and maintenance | (17) | | | (38) | |
| Depreciation | (41) | | | (49) | |
| Taxes, other than income | (1) | | | (8) | |
| Other Income (Expense) - net | — | | | 4 | |
| Interest Expense | 8 | | | 23 | |
| Interest Expense with Affiliate | 6 | | | 17 | |
| Income Taxes | (4) | | | (10) | |
| Earnings from Ongoing Operations | 30 | | | 51 | |
| Special items, after-tax | — | | | 8 | |
| Net Income | $ | 30 | | | $ | 59 | |
•See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Kentucky Adjusted Gross Margins.
•Lower income taxesHigher other operation and maintenance expense for the three month period primarily due to lower pre-tax income.a $4 million increase in plant outage expenses and a $3 million increase due to certain ECR expenses transferred to base rates as a result of the 2020 Kentucky rate case and various support costs and other items that were not individually significant.
•Higher income taxesother operation and maintenance expense for the nine month period primarily due to a deferred income tax benefit recorded$13 million increase in 2019administrative and general expenses, an $8 million increase in plant operations and maintenance, a $4 million increase in plant outage expenses, a $3 million increase due to certain ECR and GLT expenses transferred to base rates as a result of the 2020 Kentucky rate case and various support costs and other items that were not individually significant.
•Higher depreciation expense for the three month period due to a $30 million increase related to certain ECR and GLT depreciation expenses transferred to base rates as a result of the 2020 Kentucky recycling creditrate case, a $7 million increase due to additional assets placed into service, net of $17retirements and a $4 million partially offset by lower income taxincrease due to higher depreciation rates, effective July 1, 2021.
•Higher depreciation expense for the nine month period due to a $30 million increase related to certain ECR and GLT depreciation expenses transferred to base rates as a result of $6the 2020 Kentucky rate case, a $15 million increase due to additional assets placed into service, net of retirements and a $4 million increase due to higher depreciation rates, effective July 1, 2021.
•Lower interest expense, inclusive of affiliate interest, for the three month period primarily due to interest costs allocated to the Kentucky Regulated segment in 2020 that were not allocated in 2021.
•Lower interest expense, inclusive of affiliate interest, for the nine month period primarily due to $31 million of interest costs allocated to the Kentucky regulated segment in 2020 that were not allocated in 2021 and a $7 million decrease due to lower pre-tax income.interest rates.
Pennsylvania Regulated Segment
The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric. In addition, certain costs are allocated to the Pennsylvania Regulated segment. The Pennsylvania Regulated segment represents 31% of PPL's Net Income for the nine months ended September 30, 2020 and 26% of PPL's assets at September 30, 2020.
Net Income and Earnings from Ongoing Operations for the periods ended September 30 include the following results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months | | Nine Months |
| 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| Operating revenues | $ | 586 | | | $ | 590 | | | $ | (4) | | | $ | 1,748 | | | $ | 1,756 | | | $ | (8) | |
| Energy purchases | 118 | | | 132 | | | (14) | | | 373 | | | 413 | | | (40) | |
| Other operation and maintenance | 122 | | | 137 | | | (15) | | | 388 | | | 417 | | | (29) | |
| Depreciation | 102 | | | 99 | | | 3 | | | 301 | | | 290 | | | 11 | |
| Taxes, other than income | 30 | | | 29 | | | 1 | | | 78 | | | 84 | | | (6) | |
| Total operating expenses | 372 | | | 397 | | | (25) | | | 1,140 | | | 1,204 | | | (64) | |
| Other Income (Expense) - net | 8 | | | 8 | | | — | | | 17 | | | 21 | | | (4) | |
| Interest Expense | 44 | | | 43 | | | 1 | | | 130 | | | 126 | | | 4 | |
| Income Taxes | 43 | | | 40 | | | 3 | | | 124 | | | 114 | | | 10 | |
| Net Income | 135 | | | 118 | | | 17 | | | 371 | | | 333 | | | 38 | |
| Less: Special Item | (1) | | | — | | | (1) | | | (1) | | | — | | | (1) | |
| Earnings from Ongoing Operations | $ | 136 | | | $ | 118 | | | $ | 18 | | | $ | 372 | | | $ | 333 | | | $ | 39 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months | | Nine Months |
| 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
| Operating revenues | $ | 627 | | | $ | 586 | | | $ | 41 | | | $ | 1,769 | | | $ | 1,748 | | | $ | 21 | |
| Energy purchases | 143 | | | 118 | | | 25 | | | 402 | | | 373 | | | 29 | |
| Other operation and maintenance | 147 | | | 122 | | | 25 | | | 400 | | | 388 | | | 12 | |
| Depreciation | 105 | | | 102 | | | 3 | | | 322 | | | 301 | | | 21 | |
| Taxes, other than income | 30 | | | 30 | | | — | | | 88 | | | 78 | | | 10 | |
| Total operating expenses | 425 | | | 372 | | | 53 | | | 1,212 | | | 1,140 | | | 72 | |
| Other Income (Expense) - net | 8 | | | 8 | | | — | | | 18 | | | 17 | | | 1 | |
| Interest Expense | 39 | | | 44 | | | (5) | | | 124 | | | 130 | | | (6) | |
| Income Taxes | 45 | | | 43 | | | 2 | | | 116 | | | 124 | | | (8) | |
| Net Income | 126 | | | 135 | | | (9) | | | 335 | | | 371 | | | (36) | |
| Less: Special Item | — | | | (1) | | | 1 | | | (20) | | | (1) | | | (19) | |
| Earnings from Ongoing Operations | $ | 126 | | | $ | 136 | | | $ | (10) | | | $ | 355 | | | $ | 372 | | | $ | (17) | |
The following after-tax gains (losses), which management considers special items, impacted the Pennsylvania Regulated segment's results and are excluded from Earnings from Ongoing Operations during the periods ended September 30.
| | | Income Statement Line Item | | Three Months | | Nine Months | | Income Statement Line Item | | Three Months | | Nine Months |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | COVID-19 impact, net of tax of $0, $0, $0, $0 (a) | Other operation and maintenance | | $ | (1) | | | $ | — | | | $ | (1) | | | $ | — | | |
| | Transmission formula rate return on equity reserve, net of tax of $0, $0, $8, $0 (a) | | Transmission formula rate return on equity reserve, net of tax of $0, $0, $8, $0 (a) | Operating revenues | | $ | — | | | $ | — | | | $ | (20) | | | $ | — | |
| COVID impact, net of tax of $0, $0, $0, $0 (b) | | COVID impact, net of tax of $0, $0, $0, $0 (b) | Other operation and maintenance | | — | | | (1) | | | — | | | (1) | |
| | Total Special Items | Total Special Items | | $ | (1) | | | $ | — | | | $ | (1) | | | $ | — | | Total Special Items | | $ | — | | | $ | (1) | | | $ | (20) | | | $ | (1) | |
(a) Represents the portion of the reserve recognized in the September 30, 2021 Statements of Income related to the period from May 21, 2020 through December 31, 2020. See Note 7 to the Financial Statements for additional information.
(b) Incremental costs for outside services, personal protective equipment and other safety related actions associated with the COVID-19 pandemic.
The changes in the components of the Pennsylvania Regulated segment's results between these periods are due to the factors set forth below, which reflect amounts classified as Pennsylvania Adjusted Gross Margins and the items that management considers special on a separate linelines and not in their respective Statement of Income line items.
| | | Three Months | | Nine Months | | Three Months | | Nine Months |
| Pennsylvania Adjusted Gross Margins | Pennsylvania Adjusted Gross Margins | $ | 17 | | | $ | 52 | | Pennsylvania Adjusted Gross Margins | $ | 4 | | | $ | (7) | |
| Other operation and maintenance | Other operation and maintenance | 9 | | | 7 | | Other operation and maintenance | (13) | | | 4 | |
| Depreciation | Depreciation | (4) | | | (9) | | Depreciation | (4) | | | (15) | |
| Taxes, other than income | Taxes, other than income | — | | | 7 | | Taxes, other than income | 1 | | | (6) | |
| | Other Income (Expense) - net | Other Income (Expense) - net | — | | | (4) | | Other Income (Expense) - net | — | | | 1 | |
| Interest Expense | Interest Expense | (1) | | | (4) | | Interest Expense | 5 | | | 6 | |
| Income Taxes | Income Taxes | (3) | | | (10) | | Income Taxes | (3) | | | — | |
| Earnings from Ongoing Operations | Earnings from Ongoing Operations | 18 | | | 39 | | Earnings from Ongoing Operations | (10) | | | (17) | |
| Special Item, after tax | Special Item, after tax | (1) | | | (1) | | Special Item, after tax | 1 | | | (19) | |
| Net Income | Net Income | $ | 17 | | | $ | 38 | | Net Income | $ | (9) | | | $ | (36) | |
•See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Pennsylvania Adjusted Gross Margins.
•LowerHigher other operation and maintenance expense for the three month period primarily due to higher Corporate support costs of $7 million and higher nonrecoverable storm costs of $5 million.
•Lower other operation and maintenance expense for the nine month period primarily due to lower canceled project write-offs of $11 million and lower bad debt expense.expense of $8 million, partially offset by higher nonrecoverable storm costs of $6 million and higher inventory adjustments of $6 million.
•Higher depreciation expense for the nine month period primarily due to higher cost of removal and salvage amortization of $9 million and additional assets placed in service, net of retirements of $7 million.
Reconciliation of Earnings from Ongoing Operations
The following tables contain after-tax gains (losses), in total, which management considers special items, that are excluded from Earnings from Ongoing Operations and a reconciliation to PPL's "Net Income" for the periods ended September 30.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 Three Months |
| | | KY
Regulated | | PA
Regulated | | Corporate
and Other | | Discontinued Operations (a) | | | | Total |
| Net Income | | | $ | 159 | | | $ | 126 | | | $ | (76) | | | $ | (2) | | | | | $ | 207 | |
| Less: Special Item (expense) benefit: | | | | | | | | | | | | | |
| Income (loss) from Discontinued Operations (a) | | | — | | | — | | | — | | | (2) | | | | | (2) | |
| Talen litigation costs, net of tax of $1 (b) | | | — | | | — | | | (1) | | | — | | | | | (1) | |
| Strategic corporate initiatives, net of tax of $0 (c) | | | — | | | — | | | (1) | | | — | | | | | (1) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Acquisition integration, net of tax of $3 (e) | | | — | | | — | | | (9) | | | — | | | | | (9) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Loss on early extinguishment of debt, net of tax of $16 (h) | | | — | | | — | | | (57) | | | — | | | | | (57) | |
| | | | | | | | | | | | | |
| Total Special Items | | | — | | | — | | | (68) | | | (2) | | | | | (70) | |
| Earnings from Ongoing Operations | | | $ | 159 | | | $ | 126 | | | $ | (8) | | | $ | — | | | | | $ | 277 | |
| | | | | | | | | | | | | |
| | | 2020 Three Months |
| | | KY
Regulated | | PA
Regulated | | Corporate
and Other (i) | | Discontinued Operations (a) | | | | Total |
| Net Income | | | $ | 129 | | | $ | 135 | | | $ | (147) | | | $ | 164 | | | | | $ | 281 | |
| Less: Special Item (expense) benefit: | | | | | | | | | | | | | |
| Income (loss) from Discontinued Operations (a) | | | — | | | — | | | — | | | 164 | | | | | 164 | |
| Talen litigation costs, net of tax of $1 (b) | | | — | | | — | | | (2) | | | — | | | | | (2) | |
| COVID-19 impact, net of tax of $0, $0, $0 | | | — | | | (1) | | | (1) | | | — | | | | | (2) | |
| Strategic corporate initiatives, net of tax of $2 (c) | | | — | | | — | | | (5) | | | — | | | | | (5) | |
| U.K. tax rate change (f) | | | — | | | — | | | (102) | | | — | | | | | (102) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total Special Items | | | — | | | (1) | | | (110) | | | 164 | | | | | 53 | |
| Earnings from Ongoing Operations | | | $ | 129 | | | $ | 136 | | | $ | (37) | | | $ | — | | | | | $ | 228 | |
| | | | | | | | | | | | | |
| | | 2021 Nine Months |
| | | KY
Regulated | | PA
Regulated | | Corporate
and Other | | Discontinued Operations (a) | | | | Total |
| Net Income | | | $ | 389 | | | $ | 335 | | | $ | (848) | | | $ | (1,490) | | | | | $ | (1,614) | |
| Less: Special Items (expense) benefit: | | | | | | | | | | | | | |
| Income (loss) from Discontinued Operations (a) | | | — | | | — | | | — | | | (1,494) | | | | | (1,494) | |
| Talen litigation costs, net of tax of $3 (b) | | | — | | | — | | | (10) | | | — | | | | | (10) | |
| Strategic corporate initiatives, net of tax of $1 (c) | | | — | | | — | | | (3) | | | — | | | | | (3) | |
| Valuation allowance adjustment (d) | | | 4 | | | — | | | (4) | | | 4 | | | | | 4 | |
| Transmission formula rate return on equity reserve, net of tax of $8 | | | — | | | (20) | | | — | | | — | | | | | (20) | |
| Acquisition integration, net of tax of $4 (e) | | | — | | | — | | | (11) | | | — | | | | | (11) | |
| U.K. tax rate change (f) | | | — | | | — | | | (383) | | | — | | | | | (383) | |
| Solar panel impairment, net of tax of $9 (g) | | | — | | | — | | | (28) | | | — | | | | | (28) | |
| Loss on early extinguishment of debt, net of tax of $83 (h) | | | — | | | — | | | (312) | | | — | | | | | (312) | |
| | | | | | | | | | | | | |
| Total Special Items | | | 4 | | | (20) | | | (751) | | | (1,490) | | | | | (2,257) | |
| Earnings from Ongoing Operations | | | $ | 385 | | | $ | 355 | | | $ | (97) | | | $ | — | | | | | $ | 643 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Three Months |
| U.K.
Regulated | | KY
Regulated | | PA
Regulated | | Corporate
and Other | | | | Total |
| Net Income | $ | 55 | | | $ | 129 | | | $ | 135 | | | $ | (38) | | | | | $ | 281 | |
| Less: Special Item (expense) benefit: | | | | | | | | | | | |
| Foreign currency economic hedges, net of tax of $14 | (53) | | | — | | | — | | | — | | | | | (53) | |
| Talen litigation costs, net of tax of $1 (a) | — | | | — | | | — | | | (2) | | | | | (2) | |
| COVID-19 impact, net of tax of $1, $0, $0, $0 | (3) | | | — | | | (1) | | | (1) | | | | | (5) | |
| | | | | | | | | | | |
| U.K. tax rate change | (102) | | | — | | | — | | | — | | | | | (102) | |
| Strategic corporate initiatives, net of tax of $2 (b) | — | | | — | | | — | | | (7) | | | | | (7) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total Special Items | (158) | | | — | | | (1) | | | (10) | | | | | (169) | |
| Earnings from Ongoing Operations | $ | 213 | | | $ | 129 | | | $ | 136 | | | $ | (28) | | | | | $ | 450 | |
| | | | | | | | | | | |
| 2019 Three Months |
| U.K.
Regulated | | KY
Regulated | | PA
Regulated | | Corporate
and Other | | | | Total |
| Net Income | $ | 236 | | | $ | 150 | | | $ | 118 | | | $ | (29) | | | | | $ | 475 | |
| Less: Special Item (expense) benefit: | | | | | | | | | | | |
| Foreign currency economic hedges, net of tax of ($8) | 31 | | | — | | | — | | | — | | | | | 31 | |
| Talen litigation costs, net of tax of $0 (a) | — | | | — | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total Special Items | 31 | | | — | | | — | | | (1) | | | | | 30 | |
| Earnings from Ongoing Operations | $ | 205 | | | $ | 150 | | | $ | 118 | | | $ | (28) | | | | | $ | 445 | |
| | | | | | | | | | | |
| 2020 Nine Months |
| U.K.
Regulated | | KY
Regulated | | PA
Regulated | | Corporate
and Other | | | | Total |
| Net Income | $ | 574 | | | $ | 330 | | | $ | 371 | | | $ | (96) | | | | | $ | 1,179 | |
| Less: Special Items (expense) benefit: | | | | | | | | | | | |
| Foreign currency economic hedges, net of tax of $20 | (76) | | | — | | | — | | | — | | | | | (76) | |
| Talen litigation costs, net of tax of $2 (a) | — | | | — | | | — | | | (6) | | | | | (6) | |
| COVID-19 impact, net of tax of $4, $1, $0, $0 | (15) | | | (4) | | | (1) | | | (1) | | | | | (21) | |
| | | | | | | | | | | |
| U.K. tax rate change | (102) | | | — | | | — | | | — | | | | | (102) | |
| Strategic corporate initiatives, net of tax of $2 (b) | — | | | — | | | — | | | (7) | | | | | (7) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total Special Items | (193) | | | (4) | | | (1) | | | (14) | | | | | (212) | |
| Earnings from Ongoing Operations | $ | 767 | | | $ | 334 | | | $ | 372 | | | $ | (82) | | | | | $ | 1,391 | |
| | | | | | | | | | | |
| 2019 Nine Months |
| U.K.
Regulated | | KY
Regulated | | PA
Regulated | | Corporate
and Other | | | | Total |
| Net Income | $ | 784 | | | $ | 364 | | | $ | 333 | | | $ | (99) | | | | | $ | 1,382 | |
| Less: Special Items (expense) benefit: | | | | | | | | | | | |
| Foreign currency economic hedges, net of tax of ($4) | 15 | | | — | | | — | | | — | | | | | 15 | |
| Talen litigation costs, net of tax of $1 (a) | — | | | — | | | — | | | (4) | | | | | (4) | |
| Other, net of tax of $1 | (4) | | | — | | | — | | | — | | | | | (4) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total Special Items | 11 | | | — | | | — | | | (4) | | | | | 7 | |
| Earnings from Ongoing Operations | $ | 773 | | | $ | 364 | | | $ | 333 | | | $ | (95) | | | | | $ | 1,375 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 Nine Months |
| | | KY
Regulated | | PA
Regulated | | Corporate
and Other (i) | | Discontinued Operations (a) | | | | Total |
| Net Income | | | $ | 330 | | | $ | 371 | | | $ | (227) | | | $ | 705 | | | | | $ | 1,179 | |
| Less: Special Items (expense) benefit: | | | | | | | | | | | | | |
| Income (loss) from Discontinued Operations (a) | | | — | | | — | | | — | | | 705 | | | | | 705 | |
| Talen litigation costs, net of tax of $2 (b) | | | — | | | — | | | (6) | | | — | | | | | (6) | |
| COVID-19 impact, net of tax of $1, $0, $0 | | | (4) | | | (1) | | | (1) | | | — | | | | | (6) | |
| Strategic corporate initiatives, net of tax of $2 (c) | | | — | | | — | | | (5) | | | — | | | | | (5) | |
| U.K. tax rate change (f) | | | — | | | — | | | (102) | | | — | | | | | (102) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total Special Items | | | (4) | | | (1) | | | (114) | | | 705 | | | | | 586 | |
| Earnings from Ongoing Operations | | | $ | 334 | | | $ | 372 | | | $ | (113) | | | $ | — | | | | | $ | 593 | |
|
(a)See Note 9 to the Financial Statements for additional information.
(b)PPL incurred legal expenses related to litigation with its former affiliate, Talen Montana. See Note 11 to the Financial Statements for additional information.
(b)(c)Costs related to the processsale of the U.K. utility business.
(d)Adjustment of valuation allowances related to sell WPD, announced on August 10, 2020. Similar costs of $4 million, after-tax, were incurredcertain tax credits recorded in 2019, but not treated2017 as a special item.result of the TCJA.
(e)Costs related to the integration of Narragansett Electric. See Note 9 to the Financial Statements for additional information.
(f)Impact of the U.K. Finance Acts on deferred federal and state income taxes. See Note 6 to the Financial Statements for additional information.
(g)See Note 2 to the Financial Statements for additional information.
(h)See Note 8 to the Financial Statements for additional information.
(i)The amounts for the periods ended September 30, 2020 have been adjusted for certain costs that were previously included in the U.K. Regulated segment.
Adjusted Gross Margins
Management also utilizes the following non-GAAP financial measures as indicators of performance for its businesses:
•"U.K. Adjusted Gross Margins" is a single financial performance measure of the electricity distribution operations of the U.K. Regulated segment. In calculating this measure, direct costs such as connection charges from National Grid, which owns and manages the electricity transmission network in England and Wales, and Ofgem license fees (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from operating revenues, as they are costs passed through to customers. As a result, this measure represents the net revenues from the delivery of electricity across WPD's distribution network in the U.K. and directly related activities.
•"Kentucky Adjusted Gross Margins" is a single financial performance measure of the electricity generation, transmission and distribution operations of the Kentucky Regulated segment, as well as the Kentucky Regulated segment's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from operating revenues. In addition, certain other expenses, recorded in "Other operation and maintenance," "Depreciation" and "Taxes, other than income" on the Statements of Income, associated with approved cost recovery mechanisms are offset against the recovery of those expenses, which are included in revenues. These mechanisms allow for direct recovery of these expenses and, in some cases, returns on capital investments and performance incentives. As a result, this measure represents the net revenues from electricity and gas operations.
•"Pennsylvania Adjusted Gross Margins" is a single financial performance measure of the electricity transmission and distribution operations of the Pennsylvania Regulated segment. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance" (which are primarily Act 129, Storm Damage and Universal Service program costs), "Depreciation" (which is primarily related to the Act 129 Smart Meter program) and "Taxes, other than income" (which is primarily gross receipts tax) on the Statements of Income. This measure represents the net revenues from the Pennsylvania Regulated segment's electricity delivery operations.
These measures are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to analyze and report their results of operations. Management believes these measures provide additional useful criteria to make investment decisions. These performance measures are used, in conjunction with other information, by senior management and PPL's Board of Directors to manage operations and analyze actual results compared with budget.
Changes in Adjusted Gross Margins
The following table shows Adjusted Gross Margins by PPL's reportable segment and by component, as applicable for the periods ended September 30 as well as the change between periods. The factors that gave rise to the changes are described following the table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| U.K. Regulated | | | | | | | | | | | |
| U.K. Adjusted Gross Margins | $ | 431 | | | $ | 446 | | | $ | (15) | | | $ | 1,445 | | | $ | 1,492 | | | $ | (47) | |
| Impact of changes in foreign currency exchange rates | | | | | 12 | | | | | | | (3) | |
| U.K. Adjusted Gross Margins excluding impact of foreign currency exchange rates | | | | | $ | (27) | | | | | | | $ | (44) | |
| | | | | | | | | | | |
| Kentucky Regulated | | | | | | | | | | | |
| | | | | | | | | | | |
| Kentucky Adjusted Gross Margins | $ | 546 | | | $ | 572 | | | $ | (26) | | | $ | 1,572 | | | $ | 1,586 | | | $ | (14) | |
| | | | | | | | | | | |
| Pennsylvania Regulated | | | | | | | | | | | |
| Pennsylvania Adjusted Gross Margins | | | | | | | | | | | |
| Distribution | $ | 225 | | | $ | 232 | | | $ | (7) | | | $ | 685 | | | $ | 696 | | | $ | (11) | |
| Transmission | 179 | | | 155 | | | 24 | | | 503 | | | 440 | | | 63 | |
| Total Pennsylvania Adjusted Gross Margins | $ | 404 | | | $ | 387 | | | $ | 17 | | | $ | 1,188 | | | $ | 1,136 | | | $ | 52 | |
U.K. Adjusted Gross Margins
U.K. Adjusted Gross Margins, excluding the impact of changes in foreign currency exchange rates, decreased for the three months ended September 30, 2020, compared with 2019, primarily due to $22 million of lower volumes, of which $30 million
was due to the COVID-19 lockdown restrictions that were effective beginning the latter half of March 2020 and $4 million from the April 1, 2020 price decrease.
U.K. Adjusted Gross Margins, excluding the impact of changes in foreign currency exchange rates, decreased for the nine months ended September 30, 2020, compared with 2019, primarily due to $62 million of lower volumes, of which $70 million was due to the COVID-19 lockdown restrictions that were effective beginning the latter half of March 2020, partially offset by $19 million from the April 1, 2019 and 2020 price changes. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
| Kentucky Regulated | | | | | | | | | | | |
| | | | | | | | | | | |
| Kentucky Adjusted Gross Margins | $ | 625 | | | $ | 546 | | | $ | 79 | | | $ | 1,684 | | | $ | 1,572 | | | $ | 112 | |
| | | | | | | | | | | |
| Pennsylvania Regulated | | | | | | | | | | | |
| Pennsylvania Adjusted Gross Margins | | | | | | | | | | | |
| Distribution | $ | 228 | | | $ | 225 | | | $ | 3 | | | $ | 686 | | | $ | 685 | | | $ | 1 | |
| Transmission | 180 | | | 179 | | | 1 | | | 495 | | | 503 | | | (8) | |
| Total Pennsylvania Adjusted Gross Margins | $ | 408 | | | $ | 404 | | | $ | 4 | | | $ | 1,181 | | | $ | 1,188 | | | $ | (7) | |
Kentucky Adjusted Gross Margins
Kentucky Adjusted Gross Margins decreasedincreased for the three months ended September 30, 20202021 compared with 2019,2020, primarily due to $18higher base rates of $49 million and environmental and gas cost recoveries added to base rates of $33 million, partially offset by $9 million of decreasedlower adjusted gross margins as a result of the economic relief billing credit.
Kentucky Adjusted Gross Margins increased for the nine months ended September 30, 2021 compared with 2020, primarily due to higher base rates of $49 million, environmental and gas cost recoveries added to base rates of $33 million, $26 million of higher sales volumes primarily due to weather, and $8$9 million of lowerhigher commercial and industrial demand revenue primarily due to the impacts of COVID-19.COVID-19 in 2020, partially offset by $9 million of lower adjusted gross margins as a result of the economic relief billing credit.
Kentucky Adjusted Gross Margins decreased forThe increase in base rates was the nine months ended September 30, 2020 compared with 2019, due to $36 millionresult of decreased sales volumes primarily due to weather, $32 million of lower commercial and industrial demand revenue primarily due to impacts of COVID-19 and a $17 million decrease due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019, partially offset by higher retailnew rates approved by the KPSC effective MayJuly 1, 2019 of $64 million, inclusive2021. The environmental and gas cost recoveries added to base rates were the result of the terminationtransfer of certain ECR and GLT expenses into base rates as a result of the TCJA bill credit mechanism.2020 Kentucky rate case. This transfer results in depreciation and other operation and maintenance expenses associated with the ECR and GLT programs being excluded from margins in the second half of 2021, while the recovery of such costs remain in Kentucky Gross Margins through base rates.
Pennsylvania Adjusted Gross Margins
Distribution
Distribution Adjusted Gross Margins decreasedincreased for the three andmonths ended September 30, 2021 compared with 2020. Higher sales volumes of $8 million were partially offset by unfavorable weather of $7 million.
Distribution Adjusted Gross Margins increased for the nine months ended September 30, 2020,2021 compared with 2019. No items were individually significant in comparison2020, primarily due to the prior year.$13 million of higher sales volumes, partially offset by $8 million of lower returns on distribution system improvement capital investments.
Transmission
Transmission Adjusted Gross Margins increased for the three and nine months ended September 30, 2020,2021 compared with 2019,2020, primarily due to $5 million of returns on additional transmission capital investments focused on replacing aging infrastructure and improving reliability.reliability and $5 million return of related depreciation expense. Offsetting these favorable items was a $13 million decrease due to a reserve recorded for a reduction in the transmission formula rate return on equity. See Note 7 to the Financial Statements for additional information on the transmission formula rate return on equity reserve.
Transmission Adjusted Gross Margins decreased for the nine months ended September 30, 2021 compared with 2020, primarily due to a $28 million decrease as a result of a lower PPL zonal peak load billing factor and a $36 million decrease due to a reserve recorded for a reduction in the transmission formula rate return on equity. Partially offsetting these unfavorable items was $39 million of returns on additional transmission capital investments focused on replacing aging infrastructure and improving reliability and $15 million return of related depreciation expense. See Note 7 to the Financial Statements for additional information on the transmission formula rate return on equity reserve.
Reconciliation of Adjusted Gross Margins
The following tables contain the components from the Statement of Income that are included in the non-GAAP financial measures and a reconciliation to PPL's "Operating Income" for the periods ended September 30.
| | | | 2020 Three Months | | | 2021 Three Months |
| | U.K.
Adjusted Gross
Margins | | Kentucky
Adjusted Gross
Margins | | Pennsylvania Adjusted Gross
Margins | | Other (a) | | Operating
Income (b) | | | Kentucky
Adjusted Gross
Margins | | Pennsylvania Adjusted Gross
Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | Operating Revenues | $ | 476 | | (c) | $ | 806 | | | $ | 586 | | | $ | 17 | | | $ | 1,885 | | Operating Revenues | | $ | 879 | | | $ | 628 | | | $ | 5 | | | $ | 1,512 | |
| Operating Expenses | Operating Expenses | | | | | | Operating Expenses | | | | |
| Fuel | Fuel | — | | | 177 | | | — | | | — | | | 177 | | Fuel | | 195 | | | — | | | — | | | 195 | |
| Energy purchases | Energy purchases | — | | | 18 | | | 118 | | | — | | | 136 | | Energy purchases | | 24 | | | 143 | | | — | | | 167 | |
| Energy purchases from affiliate | — | | | — | | | — | | | — | | |
| | Other operation and maintenance | Other operation and maintenance | 45 | | | 25 | | | 23 | | | 390 | | | 483 | | Other operation and maintenance | | 22 | | | 35 | | | 336 | | | 393 | |
| Depreciation | Depreciation | — | | | 39 | | | 13 | | | 271 | | | 323 | | Depreciation | | 12 | | | 12 | | | 250 | | | 274 | |
| Taxes, other than income | Taxes, other than income | — | | | 1 | | | 28 | | | 50 | | | 79 | | Taxes, other than income | | 1 | | | 30 | | | 21 | | | 52 | |
| Total Operating Expenses | Total Operating Expenses | 45 | | | 260 | | | 182 | | | 711 | | | 1,198 | | Total Operating Expenses | | 254 | | | 220 | | | 607 | | | 1,081 | |
| Total | Total | $ | 431 | | | $ | 546 | | | $ | 404 | | | $ | (694) | | | $ | 687 | | Total | | $ | 625 | | | $ | 408 | | | $ | (602) | | | $ | 431 | |
| | | | | | 2020 Three Months |
| | | | Kentucky
Adjusted Gross
Margins | | Pennsylvania Adjusted Gross
Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | | Operating Revenues | | $ | 806 | | | $ | 586 | | | $ | 8 | | | $ | 1,400 | |
| Operating Expenses | | Operating Expenses | | | | | |
| Fuel | | Fuel | | 177 | | | — | | | — | | | 177 | |
| Energy purchases | | Energy purchases | | 18 | | | 118 | | | — | | | 136 | |
| | Other operation and maintenance | | Other operation and maintenance | | 25 | | | 23 | | | 298 | | | 346 | |
| Depreciation | | Depreciation | | 39 | | | 13 | | | 205 | | | 257 | |
| Taxes, other than income | | Taxes, other than income | | 1 | | | 28 | | | 18 | | | 47 | |
| Total Operating Expenses | | Total Operating Expenses | | 260 | | | 182 | | | 521 | | | 963 | |
| Total | | Total | | $ | 546 | | | $ | 404 | | | $ | (513) | | | $ | 437 | |
| | | | | 2021 Nine Months |
| | | | Kentucky
Adjusted Gross
Margins | | Pennsylvania Adjusted Gross
Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | | Operating Revenues | | $ | 2,505 | | | $ | 1,797 | | | $ | (4) | | | $ | 4,298 | |
| Operating Expenses | | Operating Expenses | | |
| Fuel | | Fuel | | 531 | | | — | | | — | | | 531 | |
| Energy purchases | | Energy purchases | | 122 | | | 402 | | | — | | | 524 | |
| | Other operation and maintenance | | Other operation and maintenance | | 71 | | | 86 | | | 1,007 | | | 1,164 | |
| Depreciation | | Depreciation | | 93 | | | 44 | | | 673 | | | 810 | |
| Taxes, other than income | | Taxes, other than income | | 4 | | | 84 | | | 65 | | | 153 | |
| Total Operating Expenses | | Total Operating Expenses | | 821 | | | 616 | | | 1,745 | | | 3,182 | |
| Total | | Total | | $ | 1,684 | | | $ | 1,181 | | | $ | (1,749) | | | $ | 1,116 | |
|
| | | | 2019 Three Months | | | 2020 Nine Months |
| | U.K.
Adjusted Gross
Margins | | Kentucky
Adjusted Gross
Margins | | Pennsylvania Adjusted Gross
Margins | | Other (a) | | Operating
Income (b) | | | Kentucky
Adjusted Gross
Margins | | Pennsylvania Adjusted Gross
Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | Operating Revenues | $ | 481 | | (c) | $ | 844 | | | $ | 590 | | | $ | 18 | | | $ | 1,933 | | Operating Revenues | | $ | 2,331 | | | $ | 1,748 | | | $ | 24 | | | $ | 4,103 | |
| Operating Expenses | Operating Expenses | | | | | | | Operating Expenses | | |
| Fuel | Fuel | — | | | 194 | | | — | | | — | | | 194 | | Fuel | | 478 | | | — | | | — | | | 478 | |
| Energy purchases | Energy purchases | — | | | 19 | | | 132 | | | (1) | | | 150 | | Energy purchases | | 97 | | | 373 | | | — | | | 470 | |
| | Other operation and maintenance | Other operation and maintenance | 35 | | | 25 | | | 30 | | | 390 | | | 480 | | Other operation and maintenance | | 66 | | | 69 | | | 919 | | | 1,054 | |
| Depreciation | Depreciation | — | | | 33 | | | 14 | | | 259 | | | 306 | | Depreciation | | 114 | | | 38 | | | 610 | | | 762 | |
| Taxes, other than income | Taxes, other than income | — | | | 1 | | | 27 | | | 49 | | | 77 | | Taxes, other than income | | 4 | | | 80 | | | 47 | | | 131 | |
| Total Operating Expenses | Total Operating Expenses | 35 | | | 272 | | | 203 | | | 697 | | | 1,207 | | Total Operating Expenses | | 759 | | | 560 | | | 1,576 | | | 2,895 | |
| Total | Total | $ | 446 | | | $ | 572 | | | $ | 387 | | | $ | (679) | | | $ | 726 | | Total | | $ | 1,572 | | | $ | 1,188 | | | $ | (1,552) | | | $ | 1,208 | |
| | 2020 Nine Months | |
| U.K.
Adjusted Gross
Margins | | Kentucky
Adjusted Gross
Margins | | Pennsylvania Adjusted Gross
Margins | | Other (a) | | Operating
Income (b) | |
| Operating Revenues | $ | 1,547 | | (c) | $ | 2,331 | | | $ | 1,748 | | | $ | 52 | | | $ | 5,678 | | |
| Operating Expenses | | |
| Fuel | — | | | 478 | | | — | | | — | | | 478 | | |
| Energy purchases | — | | | 97 | | | 373 | | | — | | | 470 | | |
| Energy purchases from affiliate | — | | | — | | | — | | | — | | | — | | |
| Other operation and maintenance | 102 | | | 66 | | | 69 | | | 1,209 | | | 1,446 | | |
| Depreciation | — | | | 114 | | | 38 | | | 807 | | | 959 | | |
| Taxes, other than income | — | | | 4 | | | 80 | | | 142 | | | 226 | | |
| Total Operating Expenses | 102 | | | 759 | | | 560 | | | 2,158 | | | 3,579 | | |
| Total | $ | 1,445 | | | $ | 1,572 | | | $ | 1,188 | | | $ | (2,106) | | | $ | 2,099 | | |
| | | 2019 Nine Months | |
| U.K.
Adjusted Gross
Margins | | Kentucky
Adjusted Gross
Margins | | Pennsylvania Adjusted Gross
Margins | | Other (a) | | Operating
Income (b) | |
| Operating Revenues | $ | 1,586 | | (c) | $ | 2,421 | | | $ | 1,756 | | | $ | 52 | | | $ | 5,815 | | |
| Operating Expenses | | |
| Fuel | — | | | 556 | | | — | | | — | | | 556 | | |
| Energy purchases | — | | | 125 | | | 413 | | | — | | | 538 | | |
| | Other operation and maintenance | 94 | | | 70 | | | 92 | | | 1,196 | | | 1,452 | | |
| Depreciation | — | | | 81 | | | 36 | | | 773 | | | 890 | | |
| Taxes, other than income | — | | | 3 | | | 79 | | | 150 | | | 232 | | |
| Total Operating Expenses | 94 | | | 835 | | | 620 | | | 2,119 | | | 3,668 | | |
| Total | $ | 1,492 | | | $ | 1,586 | | | $ | 1,136 | | | $ | (2,067) | | | $ | 2,147 | | |
(a)Represents amounts excluded from Adjusted Gross Margins.
(b)As reported on the Statements of Income.
(c)Excludes ancillary revenues of $9 million and $28 million for the three and nine months ended September 30, 2020 and $10 million and $29 million for the three and nine months ended September 30, 2019.
PPL Electric: Statement of Income Analysis
Statement of Income Analysis
Net income for the periods ended September 30 includes the following results.
| | | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change | | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
| Operating Revenues | Operating Revenues | $ | 586 | | | $ | 590 | | | $ | (4) | | | $ | 1,748 | | | $ | 1,756 | | | $ | (8) | | Operating Revenues | $ | 627 | | | $ | 586 | | | $ | 41 | | | $ | 1,769 | | | $ | 1,748 | | | $ | 21 | |
| Operating Expenses | Operating Expenses | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | |
| Operation | Operation | | Operation | |
| Energy purchases | Energy purchases | 118 | | | 132 | | | (14) | | | 373 | | | 413 | | | (40) | | Energy purchases | 143 | | | 118 | | | 25 | | | 402 | | | 373 | | | 29 | |
| | Other operation and maintenance | Other operation and maintenance | 122 | | | 137 | | | (15) | | | 388 | | | 417 | | | (29) | | Other operation and maintenance | 147 | | | 122 | | | 25 | | | 400 | | | 388 | | | 12 | |
| Depreciation | Depreciation | 102 | | | 99 | | | 3 | | | 301 | | | 290 | | | 11 | | Depreciation | 105 | | | 102 | | | 3 | | | 322 | | | 301 | | | 21 | |
| Taxes, other than income | Taxes, other than income | 30 | | | 29 | | | 1 | | | 78 | | | 84 | | | (6) | | Taxes, other than income | 30 | | | 30 | | | — | | | 88 | | | 78 | | | 10 | |
| Total Operating Expenses | Total Operating Expenses | 372 | | | 397 | | | (25) | | | 1,140 | | | 1,204 | | | (64) | | Total Operating Expenses | 425 | | | 372 | | | 53 | | | 1,212 | | | 1,140 | | | 72 | |
| Other Income (Expense) - net | Other Income (Expense) - net | 7 | | | 7 | | | — | | | 15 | | | 18 | | | (3) | | Other Income (Expense) - net | 6 | | | 7 | | | (1) | | | 16 | | | 15 | | | 1 | |
| Interest Income from Affiliate | Interest Income from Affiliate | 1 | | | 1 | | | — | | | 2 | | | 3 | | | (1) | | Interest Income from Affiliate | 2 | | | 1 | | | 1 | | | 2 | | | 2 | | | — | |
| Interest Expense | Interest Expense | 44 | | | 43 | | | 1 | | | 130 | | | 126 | | | 4 | | Interest Expense | 39 | | | 44 | | | (5) | | | 124 | | | 130 | | | (6) | |
| Income Taxes | Income Taxes | 44 | | | 40 | | | 4 | | | 125 | | | 114 | | | 11 | | Income Taxes | 45 | | | 44 | | | 1 | | | 116 | | | 125 | | | (9) | |
| Net Income | Net Income | $ | 134 | | | $ | 118 | | | $ | 16 | | | $ | 370 | | | $ | 333 | | | $ | 37 | | Net Income | $ | 126 | | | $ | 134 | | | $ | (8) | | | $ | 335 | | | $ | 370 | | | $ | (35) | |
Operating Revenues
The increase (decrease) in operating revenues was due to:
| | | Three Months | | Nine Months | | Three Months | | Nine Months |
| Distribution price (a) | Distribution price (a) | $ | (16) | | | $ | (16) | | Distribution price (a) | $ | 13 | | | $ | 6 | |
| Distribution volumes (b) | 6 | | | (11) | | |
| Distribution volume (b) | | Distribution volume (b) | — | | | 19 | |
| PLR (c) | PLR (c) | (13) | | | (38) | | PLR (c) | 27 | | | 33 | |
| Transmission Formula Rate (d) | 24 | | | 63 | | |
| Transmission formula rate (d) | | Transmission formula rate (d) | 1 | | | (35) | |
| | Other | Other | (5) | | | (6) | | Other | — | | | (2) | |
| Total | Total | $ | (4) | | | $ | (8) | | Total | $ | 41 | | | $ | 21 | |
(a)The distribution price variances areincreases were primarily due to reconcilable cost recovery mechanisms approved by the PUC.higher distribution rider prices.
(b)The increase for the nine months ended September 30, 2021 was primarily due to favorable customer usage.
(c)The increase for the three months ended September 30, 2021 was due to higher prices and favorable customer volumes, partially offset by unfavorable weather. The increase for the nine months ended September 30, 2021 was primarily due to favorable volumes, partially offset by higher customer shopping.
(d)The increase for the three months ended September 30, 2021 was primarily due to additional transmission capital investments and return of related depreciation expense, partially offset by a reserve recorded for a reduction in the transmission formula rate return on equity. The decrease for the nine months ended September 30, 20202021 was primarily due to warmer weathera reserve recorded for a reduction in the first quartertransmission formula rate return on equity and a lower
PPL zonal peak load billing factor, partially offset by warmer weather in the third quarter of 2020.
(c)The decrease for the three months ended September 30, 2020 was primarily the result of lower energy prices, partially offset by higher volumes of non-shopping customers and favorable weather. The decrease for the nine months ended September 30, 2020 was primarily the result of lower energy prices and unfavorable weather, partially offset by higher volumes of non-shopping customers in 2020.
(d)The increases were primarily due to returns on additional transmission capital investments.investments and return of related depreciation expense. See Note 7 to the Financial Statements for additional information on the transmission formula rate return on equity reserve.
Energy Purchases
Energy purchases decreased $14increased $25 million for the three months ended September 30, 20202021 compared with 2019,2020, primarily due to lowerhigher PLR prices of $21 million, partially offset by higher PLR volumes of $7$19 million.
Energy purchases decreased $40increased $29 million for the nine months ended September 30, 20202021 compared with 2019,2020, primarily due to lowerhigher PLR volumes of $20 million and higher PLR prices of $54 million, partially offset by higher transmission enhancement expenses of $12$4 million.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
| | | | | | | | | | | |
| Three Months | | Nine Months |
| Act 129 | $ | (5) | | | $ | (12) | |
| Storm costs | 8 | | | (9) | |
| Universal service rider | (4) | | | (8) | |
| Bad debts | (7) | | | (3) | |
| | | |
| | | |
| | | |
| | | |
| Canceled projects | — | | | 9 | |
| | | |
| | | |
| | | |
| | | |
| Other | (7) | | | (6) | |
| Total | $ | (15) | | | $ | (29) | |
Income Taxes
The increase (decrease) in income taxes was due to:
| | | | | | | | | | | |
| Three Months | | Nine Months |
| Change in pre-tax income at current period tax rates | $ | 5 | | | $ | 13 | |
| | | |
| | | |
| | | |
| Federal and state tax return adjustments | (4) | | | (5) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other | 3 | | | 3 | |
| Total | $ | 4 | | | $ | 11 | |
LKE: Statement of Income Analysis
Statement of Income Analysis
Net income for the periods ended September 30 includes the following results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| Operating Revenues | $ | 806 | | | $ | 844 | | | $ | (38) | | | $ | 2,331 | | | $ | 2,421 | | | $ | (90) | |
| Operating Expenses | | | | | | | | | | | |
| Operation | | | | | | | | | | | |
| Fuel | 177 | | | 194 | | | (17) | | | 478 | | | 556 | | | (78) | |
| Energy purchases | 18 | | | 19 | | | (1) | | | 97 | | | 125 | | | (28) | |
| Other operation and maintenance | 205 | | | 205 | | | — | | | 616 | | | 627 | | | (11) | |
| Depreciation | 152 | | | 144 | | | 8 | | | 452 | | | 402 | | | 50 | |
| Taxes, other than income | 21 | | | 19 | | | 2 | | | 57 | | | 55 | | | 2 | |
| Total Operating Expenses | 573 | | | 581 | | | (8) | | | 1,700 | | | 1,765 | | | (65) | |
| Other Income (Expense) - net | 1 | | | 2 | | | (1) | | | 3 | | | 2 | | | 1 | |
| Interest Expense | 56 | | | 57 | | | (1) | | | 172 | | | 169 | | | 3 | |
| Interest Expense with Affiliate | 10 | | | 7 | | | 3 | | | 25 | | | 23 | | | 2 | |
| Income Taxes | 31 | | | 43 | | | (12) | | | 82 | | | 78 | | | 4 | |
| Net Income | $ | 137 | | | $ | 158 | | | $ | (21) | | | $ | 355 | | | $ | 388 | | | $ | (33) | |
Operating Revenues
The increase (decrease) in operating revenues was due to:
| | | | | | | | | | | | |
| Three Months | | Nine Months | |
| Volumes (a) | $ | (33) | | | $ | (84) | | |
| | | | |
| Fuel and other energy prices (b) | (3) | | | (42) | | |
| Demand (c) | (8) | | | (32) | | |
| Municipal supply (d) | — | | | (28) | | |
| Retail rates (e) | — | | | 64 | | |
| ECR (f) | — | | | 28 | | |
| Other | 6 | | | 4 | | |
| Total | $ | (38) | | | $ | (90) | | |
(a)The decreases were primarily due to weather.
(b)The decreases were primarily due to lower recoveries of fuel and energy purchases due to lower commodity costs.
(c)The decreases were primarily due to COVID-19.
(d)The decrease was primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.
(e)The increase was primarily due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.
(f)The increase was primarily due to higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.
Fuel
Fuel decreased $17 million for the three months ended September 30, 2020 compared with 2019, primarily due to a $13 million decrease in volumes driven by weather and a $2 million decrease in commodity costs.
Fuel decreased $78 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a $43 million decrease in volumes driven by weather, a $27 million decrease in commodity costs and a $9 million decrease in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.
Energy Purchases
Energy purchases decreased $28 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a decrease in commodity costs. | | | | | | | | | | | |
| Three Months | | Nine Months |
| Storm costs | $ | 14 | | | $ | 18 | |
| Universal service programs | 5 | | | 9 | |
| Inventory adjustments | 1 | | | 6 | |
| Support costs | 7 | | | 2 | |
| Bad debts | 1 | | | (8) | |
| Canceled projects | — | | | (11) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other | (3) | | | (4) | |
| Total | $ | 25 | | | $ | 12 | |
Depreciation
Depreciation increased $8 million for the three months ended September 30, 2020 compared with 2019, primarilyThe increase in depreciation was due to additional assets placed into service, net of retirements.to:
Depreciation increased $50 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a $26 million increase related to higher depreciation rates effective May 1, 2019 and a $21 million increase related to additional assets placed into service, net of retirements.
Income taxes
Income taxes decreased $12 million for the three months ended September 30, 2020 compared with 2019, primarily due to lower pre-tax income.
Income taxes increased $4 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a deferred income tax benefit recorded in 2019 related to a Kentucky recycling credit of $17 million, partially offset by lower income tax expense of $7 million due to lower pre-tax income.
| | | | | | | | | | | |
| Three Months | | Nine Months |
| Additions of PP&E, net | $ | — | | | $ | 12 | |
| Cost of removal and salvage amortization | 3 | | | 9 | |
| Total | $ | 3 | | | $ | 21 | |
| | | |
| | | |
| | | |
| | | |
| | | |
LG&E: Statement of Income Analysis
Statement of Income Analysis
Net income for the periods ended September 30 includes the following results.
| | | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change | | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
| Operating Revenues | Operating Revenues | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | |
| Retail and wholesale | Retail and wholesale | $ | 362 | | | $ | 380 | | | $ | (18) | | | $ | 1,075 | | | $ | 1,105 | | | $ | (30) | | Retail and wholesale | $ | 393 | | | $ | 362 | | | $ | 31 | | | $ | 1,147 | | | $ | 1,075 | | | $ | 72 | |
| Electric revenue from affiliate | Electric revenue from affiliate | 1 | | | 2 | | | (1) | | | 17 | | | 21 | | | (4) | | Electric revenue from affiliate | 2 | | | 1 | | | 1 | | | 18 | | | 17 | | | 1 | |
| Total Operating Revenues | Total Operating Revenues | 363 | | | 382 | | | (19) | | | 1,092 | | | 1,126 | | | (34) | | Total Operating Revenues | 395 | | | 363 | | | 32 | | | 1,165 | | | 1,092 | | | 73 | |
| Operating Expenses | Operating Expenses | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | |
| Operation | Operation | | Operation | |
| Fuel | Fuel | 64 | | | 79 | | | (15) | | | 188 | | | 226 | | | (38) | | Fuel | 70 | | | 64 | | | 6 | | | 203 | | | 188 | | | 15 | |
| Energy purchases | Energy purchases | 13 | | | 14 | | | (1) | | | 83 | | | 110 | | | (27) | | Energy purchases | 19 | | | 13 | | | 6 | | | 108 | | | 83 | | | 25 | |
| Energy purchases from affiliate | Energy purchases from affiliate | 8 | | | 2 | | | 6 | | | 16 | | | 6 | | | 10 | | Energy purchases from affiliate | 8 | | | 8 | | | — | | | 16 | | | 16 | | | — | |
| Other operation and maintenance | Other operation and maintenance | 93 | | | 92 | | | 1 | | | 277 | | | 282 | | | (5) | | Other operation and maintenance | 97 | | | 93 | | | 4 | | | 290 | | | 277 | | | 13 | |
| Depreciation | Depreciation | 64 | | | 61 | | | 3 | | | 193 | | | 168 | | | 25 | | Depreciation | 72 | | | 64 | | | 8 | | | 206 | | | 193 | | | 13 | |
| Taxes, other than income | Taxes, other than income | 11 | | | 10 | | | 1 | | | 30 | | | 29 | | | 1 | | Taxes, other than income | 12 | | | 11 | | | 1 | | | 34 | | | 30 | | | 4 | |
| Total Operating Expenses | Total Operating Expenses | 253 | | | 258 | | | (5) | | | 787 | | | 821 | | | (34) | | Total Operating Expenses | 278 | | | 253 | | | 25 | | | 857 | | | 787 | | | 70 | |
| Other Income (Expense) - net | Other Income (Expense) - net | (1) | | | — | | | (1) | | | (1) | | | (1) | | | — | | Other Income (Expense) - net | 2 | | | (1) | | | 3 | | | 3 | | | (1) | | | 4 | |
| Interest Expense | Interest Expense | 22 | | | 22 | | | — | | | 66 | | | 65 | | | 1 | | Interest Expense | 20 | | | 22 | | | (2) | | | 61 | | | 66 | | | (5) | |
| Income Taxes | Income Taxes | 16 | | | 22 | | | (6) | | | 47 | | | 51 | | | (4) | | Income Taxes | 17 | | | 16 | | | 1 | | | 48 | | | 47 | | | 1 | |
| Net Income | Net Income | $ | 71 | | | $ | 80 | | | $ | (9) | | | $ | 191 | | | $ | 188 | | | $ | 3 | | Net Income | $ | 82 | | | $ | 71 | | | $ | 11 | | | $ | 202 | | | $ | 191 | | | $ | 11 | |
Operating Revenues
The increase (decrease) in operating revenues was due to:
| | | Three Months | | Nine Months | | Three Months | | Nine Months |
| Volumes (a) | Volumes (a) | $ | (20) | | | $ | (44) | | Volumes (a) | $ | 7 | | | $ | 30 | |
| Fuel and other energy prices (b) | | Fuel and other energy prices (b) | 7 | | | 23 | |
| Retail rates (c) | | Retail rates (c) | 22 | | | 22 | |
| | Fuel and other energy prices (b) | (1) | | | (22) | | |
| Demand (c) | (4) | | | (13) | | |
| Retail rates (d) | — | | | 27 | | |
| ECR (e) | 1 | | | 13 | | |
| Economic relief billing credit, net of amortization of $6, $6 | | Economic relief billing credit, net of amortization of $6, $6 | (6) | | | (6) | |
| | | Other | Other | 5 | | | 5 | | Other | 2 | | | 4 | |
| Total | Total | $ | (19) | | | $ | (34) | | Total | $ | 32 | | | $ | 73 | |
(a)The decreasesincreases were primarily due to favorable weather.
(b)The decreasesincreases were primarily due to lowerhigher recoveries of fuel and energy purchases due to lowerhigher commodity costs.
(c)The decreasesincreases were primarily due to COVID-19.
(d)The increase was primarily due to highernew base rates inclusive ofapproved by the termination of the TCJA bill credit mechanism,KPSC effective MayJuly 1, 2019.
(e)The increase for the nine month period was primarily due to higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.2021.
Fuel
Fuel decreased $15increased $6 million for the three months ended September 30, 20202021 compared with 2019,2020, primarily due to a decrease$3 million increase in commodity costs and a $2 million increase in volumes driven by weather.higher off-system sales.
Fuel decreased $38increased $15 million for the nine months ended September 30, 20202021 compared with 2019,2020, primarily due to a $32an $11 million decreaseincrease in volumes driven by weather and a $6$3 million decreaseincrease in commodity costs.
Energy Purchases
Energy purchases decreased $27increased $6 million for the ninethree months ended September 30, 20202021 compared with 2019,2020, primarily due to a decreasean increase in commodity costs.
Energy Purchases from affiliate
Energy purchases from affiliate increased $6 million and $10 million for the three and nine months ended September 30, 2020 compared with 2019, primarily due to the timing of generation maintenance outages.
Depreciation
Depreciation increased $25 million for the nine months ended September 30, 20202021 compared with 2019,2020, primarily due to a $13 million increase related to higher depreciation rates effective May 1, 2019in commodity costs and an $11a $9 million increase related to additional assets placed into service, net of retirements.in gas volumes driven by weather.
Other Operation and Maintenance
Income taxes decreased $6The increase in other operation and maintenance was due to:
| | | | | | | | | | | |
| Three Months | | Nine Months |
| | | |
| Plant operations and maintenance | $ | — | | | $ | 4 | |
| Gas distribution operations and maintenance | — | | | 2 | |
| Plant outages | 2 | | | 2 | |
| Other | 2 | | | 5 | |
| Total | $ | 4 | | | $ | 13 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Depreciation
Depreciation increased $8 million for the three months ended September 30, 20202021 compared with 2019,2020, primarily due to lower pre-tax income.a $4 million increase driven by additional assets placed into service, net of retirements, and a $3 million increase driven by higher depreciation rates effective July 1, 2021.
Depreciation increased $13 million for the nine months ended September 30, 2021 compared with 2020, primarily due to a $9 million increase driven by additional assets placed into service, net of retirements, and a $3 million increase driven by higher depreciation rates effective July 1, 2021.
KU: Statement of Income Analysis
Statement of Income Analysis
Net income for the periods ended September 30 includes the following results.
| | | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change | | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
| Operating Revenues | Operating Revenues | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | |
| Retail and wholesale | Retail and wholesale | $ | 444 | | | $ | 464 | | | $ | (20) | | | $ | 1,256 | | | $ | 1,316 | | | $ | (60) | | Retail and wholesale | $ | 486 | | | $ | 444 | | | $ | 42 | | | $ | 1,358 | | | $ | 1,256 | | | $ | 102 | |
| Electric revenue from affiliate | Electric revenue from affiliate | 8 | | | 2 | | | 6 | | | 16 | | | 6 | | | 10 | | Electric revenue from affiliate | 8 | | | 8 | | | — | | | 16 | | | 16 | | | — | |
| Total Operating Revenues | Total Operating Revenues | 452 | | | 466 | | | (14) | | | 1,272 | | | 1,322 | | | (50) | | Total Operating Revenues | 494 | | | 452 | | | 42 | | | 1,374 | | | 1,272 | | | 102 | |
| Operating Expenses | Operating Expenses | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | |
| Operation | Operation | | Operation | |
| Fuel | Fuel | 113 | | | 115 | | | (2) | | | 290 | | | 330 | | | (40) | | Fuel | 125 | | | 113 | | | 12 | | | 328 | | | 290 | | | 38 | |
| Energy purchases | Energy purchases | 5 | | | 5 | | | — | | | 14 | | | 15 | | | (1) | | Energy purchases | 5 | | | 5 | | | — | | | 14 | | | 14 | | | — | |
| Energy purchases from affiliate | Energy purchases from affiliate | 1 | | | 2 | | | (1) | | | 17 | | | 21 | | | (4) | | Energy purchases from affiliate | 2 | | | 1 | | | 1 | | | 18 | | | 17 | | | 1 | |
| Other operation and maintenance | Other operation and maintenance | 105 | | | 107 | | | (2) | | | 316 | | | 320 | | | (4) | | Other operation and maintenance | 110 | | | 105 | | | 5 | | | 336 | | | 316 | | | 20 | |
| Depreciation | Depreciation | 88 | | | 83 | | | 5 | | | 258 | | | 233 | | | 25 | | Depreciation | 94 | | | 88 | | | 6 | | | 273 | | | 258 | | | 15 | |
| Taxes, other than income | Taxes, other than income | 10 | | | 9 | | | 1 | | | 27 | | | 26 | | | 1 | | Taxes, other than income | 10 | | | 10 | | | — | | | 31 | | | 27 | | | 4 | |
| Total Operating Expenses | Total Operating Expenses | 322 | | | 321 | | | 1 | | | 922 | | | 945 | | | (23) | | Total Operating Expenses | 346 | | | 322 | | | 24 | | | 1,000 | | | 922 | | | 78 | |
| Other Income (Expense) - net | Other Income (Expense) - net | 1 | | | 4 | | | (3) | | | 2 | | | 4 | | | (2) | | Other Income (Expense) - net | 1 | | | 1 | | | — | | | 5 | | | 2 | | | 3 | |
| Interest Expense | Interest Expense | 28 | | | 28 | | | — | | | 85 | | | 82 | | | 3 | | Interest Expense | 27 | | | 28 | | | (1) | | | 81 | | | 85 | | | (4) | |
| Income Taxes | Income Taxes | 19 | | | 26 | | | (7) | | | 50 | | | 62 | | | (12) | | Income Taxes | 23 | | | 19 | | | 4 | | | 57 | | | 50 | | | 7 | |
| Net Income | Net Income | $ | 84 | | | $ | 95 | | | $ | (11) | | | $ | 217 | | | $ | 237 | | | $ | (20) | | Net Income | $ | 99 | | | $ | 84 | | | $ | 15 | | | $ | 241 | | | $ | 217 | | | $ | 24 | |
Operating Revenues
The increase (decrease) in operating revenues was due to:
| | | | | | | | | | | | |
| Three Months | | Nine Months | |
| Volumes (a) | $ | (9) | | | $ | (33) | | |
| Municipal supply (b) | — | | | (28) | | |
| Fuel and other energy prices (c) | (2) | | | (20) | | |
| | | | |
| Demand (d) | (4) | | | (19) | | |
| Retail rates (e) | — | | | 37 | | |
| ECR (f) | (1) | | | 15 | | |
| Other | 2 | | | (2) | | |
| Total | $ | (14) | | | $ | (50) | | |
| | | | | | | | | | | | |
| Three Months | | Nine Months | |
| Volumes (a) | $ | 4 | | | $ | 36 | | |
| Retail rates (b) | 27 | | | 27 | | |
| | | | |
| Fuel and other energy prices (c) | 12 | | | 24 | | |
| | | | |
| Demand | 2 | | | 8 | | |
| Economic relief billing credit, net of amortization of $0, $0 | (3) | | | (3) | | |
| | | | |
| | | | |
| | | | |
| Other | — | | | 10 | | |
| Total | $ | 42 | | | $ | 102 | | |
(a)The decreasesincreases were primarily due to favorable weather.
(b)The decrease was primarilyincreases were due to new base rates approved by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.KPSC effective July 1, 2021.
(c)The decreasesincreases were primarily due to lowerhigher recoveries of fuel and energy purchases due to lowerhigher commodity costs.
(d)The decreases were primarily due to COVID-19.
(e)The increase was primarily due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.
(f)The increase for the nine month period was primarily due to higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.
Fuel
Fuel decreased $40increased $12 million for the three months ended September 30, 2021 compared with 2020, primarily due to an increase in commodity costs.
Fuel increased $38 million for the nine months ended September 30, 20202021 compared with 2019,2020, primarily due to a $21$20 million decreaseincrease in commodity costs and an $11$18 million decreaseincrease in volumes driven by weatherweather.
Other Operation and a $9 million decreaseMaintenance
The increase in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.other operation and maintenance was due to:
| | | | | | | | | | | |
| Three Months | | Nine Months |
| Plant operations and maintenance | $ | — | | | $ | 8 | |
| Distribution operations and maintenance | — | | | 4 | |
| Transmission operations and maintenance | 1 | | | 4 | |
| Plant outages | 2 | | | 2 | |
| Other | 2 | | | 2 | |
| Total | $ | 5 | | | $ | 20 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Depreciation
Depreciation increased $5$6 million for the three months ended September 30, 20202021 compared with 2019,2020, primarily due to a $3 million increase driven by additional assets placed into service, net of retirements.retirements, and a $2 million increase driven by higher depreciation rates effective July 1, 2021.
Depreciation increased $25$15 million for the nine months ended September 30, 20202021 compared with 2019,2020, primarily due to a $13an $11 million increase related to higher depreciation rates effective May 1, 2019 and a $10 million increase related todriven by additional assets placed into service, net of retirements.
Income taxes
Income taxes decreased $7retirements, and a $2 million and $12 million for the three and nine months ended September 30, 2020 compared with 2019, primarily due to lower pre-tax income.increase driven by higher depreciation rates effective July 1, 2021.
Financial Condition
The remainder of this Item 2 in this Form 10-Q is presented on a combined basis, providing information, as applicable, for all Registrants.
Liquidity and Capital Resources
(All Registrants)
The Registrants had the following at:
| | | | PPL (a) | | PPL Electric | | LKE | | LG&E | | KU | | PPL | | PPL Electric | | LG&E | | KU |
| September 30, 2020 | | | | | | | | | | |
| September 30, 2021 | | September 30, 2021 | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 746 | | | $ | 26 | | | $ | 25 | | | $ | 10 | | | $ | 15 | | Cash and cash equivalents | $ | 4,767 | | | $ | 59 | | | $ | 5 | | | $ | 8 | |
| | Short-term debt | Short-term debt | 1,368 | | | 280 | | | 345 | | | 206 | | | 139 | | Short-term debt | — | | | — | | | — | | | — | |
| Long-term debt due within one year | Long-term debt due within one year | 1,525 | | | 400 | | | 424 | | | 292 | | | 132 | | Long-term debt due within one year | 474 | | | 474 | | | — | | | — | |
| Notes payable with affiliates | | — | | | 153 | | | — | | | — | | |
| Notes payable to affiliates | | Notes payable to affiliates | | — | | | 284 | | | 208 | |
| | December 31, 2019 | | | | | | | | | | |
| December 31, 2020 | | December 31, 2020 | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 815 | | | $ | 262 | | | $ | 27 | | | $ | 15 | | | $ | 12 | | Cash and cash equivalents | $ | 442 | | | $ | 40 | | | $ | 7 | | | $ | 22 | |
| Short-term debt | Short-term debt | 1,151 | | | — | | | 388 | | | 238 | | | 150 | | Short-term debt | 1,168 | | | — | | | 262 | | | 203 | |
| Long-term debt due within one year | Long-term debt due within one year | 1,172 | | | — | | | 975 | | | — | | | 500 | | Long-term debt due within one year | 1,074 | | | 400 | | | 292 | | | 132 | |
| Notes payable with affiliates | | — | | | 150 | | | — | | | — | | |
| Notes payable to affiliates | | Notes payable to affiliates | | — | | | — | | | — | |
(PPL)
(a)
At September 30, 2020, $237 million
The Statements of Cash Flows separately report the cash flows of discontinued operations. The "Operating Activities",
"Investing Activities" and "Financing Activities" sections below include only the cash equivalents were denominated in GBP. If these amounts would be remitted as dividends, PPL would not anticipate an incremental U.S. tax cost. See Note 6 to the Financial Statements in PPL's 2019 Form 10-K for additional information on undistributed earningsflows of WPD. continuing operations.
(All Registrants)
Net cash provided by (used in) operating, investing and financing activities for the nine month periods ended September 30, and the changes between periods, were as follows.
| | | | PPL | | PPL Electric | | LKE | | LG&E | | KU | | PPL | | PPL Electric | | LG&E | | KU |
| 2020 | | | | | | | | | | |
| 2021 | | 2021 | | | | | | | |
| Operating activities | Operating activities | $ | 2,247 | | | $ | 656 | | | $ | 872 | | | $ | 419 | | | $ | 446 | | Operating activities | $ | 1,252 | | | $ | 704 | | | $ | 412 | | | $ | 504 | |
| Investing activities | Investing activities | (2,358) | | | (844) | | | (707) | | | (329) | | | (378) | | Investing activities | 9,078 | | | (1,256) | | | (339) | | | (396) | |
| Financing activities | Financing activities | 33 | | | (48) | | | (167) | | | (95) | | | (65) | | Financing activities | (6,370) | | | 571 | | | (75) | | | (122) | |
| 2019 | | | | | | | | | | |
| 2020 | | 2020 | | | | | | | |
| Operating activities | Operating activities | $ | 1,888 | | | $ | 609 | | | $ | 813 | | | $ | 417 | | | $ | 471 | | Operating activities | $ | 1,579 | | | $ | 656 | | | $ | 419 | | | $ | 446 | |
| Investing activities | Investing activities | (2,194) | | | (1,361) | | | (761) | | | (323) | | | (436) | | Investing activities | (1,690) | | | (844) | | | (329) | | | (378) | |
| Financing activities | Financing activities | 363 | | | 512 | | | (46) | | | (92) | | | (31) | | Financing activities | (83) | | | (48) | | | (95) | | | (65) | |
| Change - Cash Provided (Used) | Change - Cash Provided (Used) | | | | | | | | | | Change - Cash Provided (Used) | | | | | | | |
| Operating activities | Operating activities | $ | 359 | | | $ | 47 | | | $ | 59 | | | $ | 2 | | | $ | (25) | | Operating activities | $ | (327) | | | $ | 48 | | | $ | (7) | | | $ | 58 | |
| Investing activities | Investing activities | (164) | | | 517 | | | 54 | | | (6) | | | 58 | | Investing activities | 10,768 | | | (412) | | | (10) | | | (18) | |
| Financing activities | Financing activities | (330) | | | (560) | | | (121) | | | (3) | | | (34) | | Financing activities | (6,287) | | | 619 | | | 20 | | | (57) | |
Operating Activities
The components of the change in cash provided by (used in) operating activities for the nine months ended September 30, 20202021 compared with 20192020 were as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric | | LKE | | LG&E | | KU |
| Change - Cash Provided (Used) | | | | | | | | | |
| Net income | $ | (203) | | | $ | 37 | | | $ | (33) | | | $ | 3 | | | $ | (20) | |
| Non-cash components | 315 | | | 25 | | | 27 | | | (26) | | | 2 | |
| Working capital | 156 | | | 15 | | | 26 | | | 2 | | | (10) | |
| Defined benefit plan funding | 17 | | | — | | | 6 | | | — | | | 2 | |
| Other operating activities | 74 | | | (30) | | | 33 | | | 23 | | | 1 | |
| Total | $ | 359 | | | $ | 47 | | | $ | 59 | | | $ | 2 | | | $ | (25) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric | | LG&E | | KU |
| Change - Cash Provided (Used) | | | | | | | |
| Net income | $ | (598) | | | $ | (35) | | | $ | 11 | | | $ | 24 | |
| Non-cash components | 331 | | | — | | | 9 | | | (8) | |
| Working capital | (41) | | | 102 | | | (2) | | | 26 | |
| Defined benefit plan funding | 20 | | | — | | | 3 | | | — | |
| Other operating activities | (39) | | | (19) | | | (28) | | | 16 | |
| Total | $ | (327) | | | $ | 48 | | | $ | (7) | | | $ | 58 | |
(PPL)
PPL's cash provided by operating activities in 2020 increased $3592021 decreased $327 million compared with 2019.2020.
•Net income decreased $203$598 million between the periods and included an increase in non-cash charges of $315$331 million. The increase in non-cash charges was primarily due to an increase in depreciation expense (primarily due to higher depreciation ratesthe loss on extinguishment of debt and additional assets placed into service, netthe impairment of retirements), an increase in deferred income taxes (due to the cancellation of the U.K. corporation tax rate reduction, book versus tax plant timing differences and Federal net operating losses) and an increase in unrealized gains on derivatives, and other hedging activities,solar panels, partially offset by a decrease in amortization expense.deferred income taxes and investment tax credits.
•The $156$41 million increasedecrease in cash from changes in working capital was primarily due to an increase in accounts payable (primarily due to timing of disbursement of payments), a decrease in unbilled revenues, (primarily due to weather),a decrease in taxes payable, and an increasea decrease in other current liabilities,accrued interest, partially offset by an increase in accounts receivableregulatory liabilities (primarily due to PPL Electric's transmission formula rate return on equity reserve and the timing of receipts) and an increase in materials and supplies (primarily due to a contract termination and subsequent guaranteed purchase of inventory from a third-party logistics firm).
•The $74 million increase in cash provided by other operating activities was driven primarily by an increase in other liabilities (primarily related to regulatory liabilities and deferral of payroll taxes)rate recovery mechanisms).
(PPL Electric)
PPL Electric's cash provided by operating activities in 20202021 increased $47$48 million compared with 2019.2020.
•Net income increased $37decreased $35 million between the periods and included an increase in non-cash components of $25 million. The increase in non-cash components was primarily due to an increase in depreciation expense and an increase in other expenses (primarily due to an increase in canceled projects).periods.
•The $15$102 million increase in cash from changes in working capital was primarily due to an increase in regulatory liabilities (primarily due to the transmission formula rate return on equity reserve and the timing of rate recovery mechanisms) and a decrease in unbilled revenuesmaterials and supplies (primarily due to weather)a decrease in transmission capital projects material), an increasepartially offset by a decrease in accounts payable (primarily due to timing of payments), and a decrease in.
other net current assets and current liabilities, partially offset by an increase in accounts receivable (primarily due to the timing of receipts).
•The $30$19 million decrease in cash provided by other operating activities was driven primarily by an increasea decrease in non-current assets (primarily related to prepayments).accrued pension obligations.
(LKE)(LG&E)
LKE'sLG&E's cash provided by operating activities in 2020 increased $592021 decreased $7 million compared with 2019.2020.
•Net income decreased $33increased $11 million between the periods and included an increase in non-cash components of $27$9 million. The increase in non-cash components was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements)retirements and higher depreciation rates effective July 1, 2021).
•The decrease in cash from changes in working capital was due to an increase in net regulatory assets (primarily due to the timing of rate recovery mechanisms), an increase in fuels, materials and supplies (primarily due to higher commodity costs) and an increase in accounts receivable from affiliates (primarily due to timing of payments), partially offset by an increase in accounts payable (primarily due to timing of payments).
•The decrease in cash provided by other operating activities was driven by a decrease in other liabilities (primarily related to regulatory liabilities).
(KU)
KU's cash provided by operating activities in 2021 increased $58 million compared with 2020.
•Net income increased $24 million between the periods and included a decrease in non-cash components of $8 million. The decrease in non-cash components was driven by a decrease in deferred income tax expense (primarily duerelated to book versus tax plant timing differences), partially offset by an increase in depreciation expense (primarily due to additional assets placed into service, net of retirements and higher depreciation rates effective July 1, 2021).
•The increase in cash from changes in working capital was primarily driven bydue to a decrease in unbilled revenueaccounts receivable (primarily due to weather)the impacts of COVID-19) and an increase in accounts payable (primarily due to timing of payments), partially offset by an increase in accounts receivable (primarily due to increase in aged receivables due to COVID-19 related disconnection moratoriums) and a decrease in interest payableaffiliates (primarily due to timing of payments).
•The increase in cash provided by other operating activities was driven primarily by an increase in other liabilities (primarily related to regulatory liabilities and deferral of payroll taxes).
(LG&E)
LG&E's cash provided by operating activities in 2020 increased $2 million compared with 2019.
•Net income increased $3 million between the periods and included a decrease in non-cash components of $26 million. The decrease in non-cash components was primarily driven by a decrease in deferred income tax expense (primarily due to book versus tax plant timing differences), partially offset by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).
•The increase in cash from changes in working capital was primarily driven by a decrease in unbilled revenues (primarily due to weather) and net regulatory assets (primarily due to the timing of rate recovery mechanisms), partially offset by a decrease in accounts payable (primarily due to timing of payments) and an increase in accounts receivables (primarily due to increase in aged receivables due to COVID-19 related disconnection moratoriums).
•The increase in cash provided by other operating activities was driven primarily by an increase in other liabilities (primarily related to regulatory liabilities) and a decrease in ARO expenditures.
(KU)
KU's cash provided by operating activities in 2020 decreased $25 million compared with 2019.
•Net income decreased $20 million between the periods and included an increase in non-cash charges of $2 million. The increase in non-cash components was driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements), partially offset by a decrease in deferred income tax expense (primarily due to book versus tax plant timing differences).
•The decrease in cash from changes in working capital was primarily driven by an increase in accounts receivable (primarily due to increase in aged receivables due to COVID-19 related disconnection moratoriums) and a decrease in other current liabilities (primarily due to timing of payments), partially offset by an increase in accounts payable (primarily due to timing of payments) and a decrease in unbilled revenues (primarily due to weather).
Investing Activities
(All Registrants)
The components of the change in cash provided by (used in) investing activities for the nine months ended September 30, 20202021 compared with 20192020 were as follows.
| | | | PPL | | PPL Electric | | LKE | | LG&E | | KU | | PPL | | PPL Electric | | LG&E | | KU |
| Change - Cash Provided (Used) | Change - Cash Provided (Used) | | | | | | | | | | Change - Cash Provided (Used) | | | | | | | |
| Expenditures for PP&E | Expenditures for PP&E | $ | (151) | | | $ | (25) | | | $ | 51 | | | $ | (6) | | | $ | 55 | | Expenditures for PP&E | $ | 230 | | | $ | 160 | | | $ | (10) | | | $ | (19) | |
| | Purchase of investments | 55 | | | — | | | — | | | — | | | — | | |
| Proceeds from the sale of investments | (61) | | | — | | | — | | | — | | | — | | |
| | Proceeds from sale of discontinued operations, net of cash divested | | Proceeds from sale of discontinued operations, net of cash divested | 10,560 | | | — | | | — | | | — | |
| Notes receivable from affiliate | Notes receivable from affiliate | — | | | 546 | | | — | | | — | | | — | | Notes receivable from affiliate | — | | | (575) | | | — | | | — | |
| Other investing activities | Other investing activities | (7) | | | (4) | | | 3 | | | — | | | 3 | | Other investing activities | (22) | | | 3 | | | — | | | 1 | |
| Total | Total | $ | (164) | | | $ | 517 | | | $ | 54 | | | $ | (6) | | | $ | 58 | | Total | $ | 10,768 | | | $ | (412) | | | $ | (10) | | | $ | (18) | |
For PPL, the increasedecrease in expenditures for PP&E was due to higherlower project expenditures at WPDPPL Electric and PPL Electric,Safari Energy, partially offset by a decreasean increase in project expenditures at LKE, LG&E and KU. The increase in expenditures at WPD was primarily due to an increase in expenditures to enhance system reliability. The increasedecrease in expenditures at PPL Electric was primarily due to timing differences on capital spending projects related to the ongoing efforts to improve reliability and replace aging infrastructure. The decrease in expenditures at LKESafari Energy was primarily due to decreasedtiming differences on capital spending for environmental water projects at LG&E and KU's Trimble County plant, LG&E's Mill Creek plant and KU's Ghent plant, partially offset by spending on gas transmission projects at LG&E and spending on various other projectsprojects. The increase in expenditures at LG&E and KU that are not individually significant.was primarily due to higher spending on ELG projects.
(For PPL, Electric)on June 14, 2021, the sale of the U.K. utility business was completed.The transaction resulted in cash proceeds of $10,732 million inclusive of foreign currency hedges executed by PPL. See Note 9 to the Financial Statements for additional information.
For PPL Electric, the changechanges in "Notes receivable from affiliate" activity resulted from the funding in 2019 of $546$575 million to an affiliate for general corporate purposes. See Note 12 to the Financial Statements for further discussion of intercompany borrowings.
Financing Activities
(All Registrants)
The components of the change in cash provided by (used in) financing activities for the nine months ended September 30, 20202021 compared with 20192020 were as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| Change - Cash Provided (Used) | | | | | | | | | |
| Debt issuance/retirement, net | $ | (642) | | | $ | (393) | | | $ | (982) | | | $ | (199) | | | $ | (308) | |
| Debt issuance/retirement with affiliate, net | | | — | | | 550 | | | — | | | — | |
| | | | | | | | | |
| Proceeds from project financing | 152 | | | — | | | — | | | — | | | — | |
| Stock issuances/redemptions, net | (17) | | | — | | | — | | | — | | | — | |
| Dividends | (63) | | | (47) | | | — | | | 15 | | | 22 | |
| Capital contributions/distributions, net | — | | | (405) | | | (51) | | | 28 | | | 30 | |
| Issuance of term loan | 300 | | | — | | | — | | | — | | | — | |
| Change in short-term debt, net | (60) | | | 280 | | | 370 | | | 148 | | | 222 | |
| Notes payable with affiliate | | | — | | | (13) | | | — | | | — | |
| Other financing activities | — | | | 5 | | | 5 | | | 5 | | | — | |
| Total | $ | (330) | | | $ | (560) | | | $ | (121) | | | $ | (3) | | | $ | (34) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LG&E | | KU |
| Change - Cash Provided (Used) | | | | | | | |
| Debt issuance/retirement, net | $ | (4,579) | | | $ | 250 | | | $ | — | | | $ | 2 | |
| | | | | | | |
| | | | | | | |
| Proceeds from project financing | (131) | | | — | | | — | | | — | |
| Stock issuances/redemptions, net | (27) | | | — | | | — | | | — | |
| Dividends | (5) | | | 72 | | | (24) | | | (41) | |
| Purchase of treasury stock | (282) | | | — | | | — | | | — | |
| Capital contributions/distributions, net | — | | | 580 | | | (9) | | | (38) | |
| Issuance of term loan | (300) | | | — | | | — | | | — | |
| Retirement of term loan | (300) | | | — | | | — | | | — | |
| Change in short-term debt, net | (582) | | | (280) | | | (189) | | | (160) | |
| Retirement of commercial paper | (73) | | | — | | | (41) | | | (32) | |
| Net increase in notes payable with affiliate | — | | | — | | | 284 | | | 208 | |
| Other financing activities | (8) | | | (3) | | | (1) | | | 4 | |
| Total | $ | (6,287) | | | $ | 619 | | | $ | 20 | | | $ | (57) | |
See Note 8 to the Financial Statements in this Form 10-Q for information on 20202021 short-term and long-term debt activity, equity transactions and PPL dividends. See Note 8 to the Financial Statements in the Registrants' 20192020 Form 10-K for information on 20192020 activity.
Credit Facilities
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. Amounts borrowed under these credit facilities are reflected in "Short-term debt" on the Balance Sheets except for borrowings of $100 million under PPL Capital Funding's term loan agreement due in March 2022, which are reflected in "Long-term Debt" on the Balance Sheets. At September 30, 2020,2021, the total committed borrowing capacity under credit facilities and the borrowings under these facilities were:
External
| | | Committed
Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper Issued | | Unused
Capacity | | Committed
Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper Issued | | Unused
Capacity |
| PPL Capital Funding Credit Facilities | PPL Capital Funding Credit Facilities | $ | 1,900 | | | $ | 400 | | | $ | — | | | $ | 1,500 | | PPL Capital Funding Credit Facilities | $ | 1,550 | | | $ | — | | | $ | 15 | | | $ | 1,535 | |
| PPL Electric Credit Facility | PPL Electric Credit Facility | 650 | | | — | | | 281 | | | 369 | | PPL Electric Credit Facility | 650 | | | — | | | 1 | | | 649 | |
| | | LG&E Credit Facilities | LG&E Credit Facilities | 500 | | | — | | | 206 | | | 294 | | LG&E Credit Facilities | 500 | | | — | | | — | | | 500 | |
| KU Credit Facilities | KU Credit Facilities | 400 | | | — | | | 139 | | | 261 | | KU Credit Facilities | 400 | | | — | | | — | | | 400 | |
| Total LKE | 900 | | | — | | | 345 | | | 555 | | |
| Total U.S. Credit Facilities (a) | $ | 3,450 | | | $ | 400 | | | $ | 626 | | | $ | 2,424 | | |
| Total U.K. Credit Facilities (b) | £ | 1,055 | | | £ | 332 | | | £ | — | | | £ | 721 | | |
| Total Credit Facilities (a) | | Total Credit Facilities (a) | $ | 3,100 | | | $ | — | | | $ | 16 | | | $ | 3,084 | |
|
(a)The commitments under the U.S. credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than the following percentages of the total committed capacity: PPL - 12%7%, PPL Electric - 6%, LKE - 7%, LG&E - 7% and KU - 7%.
(b)The amounts borrowed at September 30, 2020 were a USD-denominated borrowing of $200 million and GBP-denominated borrowings of £182 million which equated to $243 million. The unused capacity reflects the amounts borrowed in GBP of £152 million as of the date borrowed. At September 30, 2020, the USD equivalent of unused capacity under the U.K. committed credit facilities was $1 billion.
The commitments under the U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than 14% of the total committed capacity.
See Note 8 to the Financial Statements for further discussion of the Registrants' credit facilities.
Intercompany (LKE, LG(LG&E and KU)
|
|
| Committed
Capacity | | Borrowed | | Non-affiliate Used
Capacity | | Unused
Capacity |
| Committed
Capacity | | Borrowed | | Commercial Paper Program
Capacity | | Unused
Capacity |
| LKE Credit Facility | $ | 375 | | | $ | 153 | | | $ | — | | | $ | 222 | | |
| | LG&E Money Pool (a) | LG&E Money Pool (a) | 750 | | | — | | | 206 | | | 544 | | LG&E Money Pool (a) | $ | 750 | | | $ | 284 | | | $ | 425 | | | $ | 41 | |
| KU Money Pool (a) | KU Money Pool (a) | 650 | | | — | | | 139 | | | 511 | | KU Money Pool (a) | 650 | | | 208 | | | 350 | | | 92 | |
(a)LG&E and KU participate in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E, funds up to $750 million and LKE and/or LG&E make available to KU funds up to $650 million,the difference between LG&E's and KU's FERC borrowing limit and LG&E's and KU's commercial paper capacity limit, at an interest rate based on the lower of a market index of commercial paper issues. However, the FERC has issued a maximum aggregate short-term debt limit at $750 million for LG&Eissues and $650 million for KU from all covered sources.two additional rate options based on LIBOR.
See Note 12 to the Financial Statements for further discussion of intercompany credit facilities.
Commercial Paper (All Registrants)
PPL, PPL Electric, LG&E and KUThe Registrants maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's credit facility. The following commercial paper programs were in place at September 30, 2020:2021:
| | | Capacity | | Commercial
Paper
Issuances | | Unused
Capacity | | Capacity | | Commercial
Paper
Issuances | | Unused
Capacity |
| PPL Capital Funding | PPL Capital Funding | $ | 1,500 | | | $ | — | | | $ | 1,500 | | PPL Capital Funding | $ | 1,500 | | | $ | — | | | $ | 1,500 | |
| PPL Electric | PPL Electric | 650 | | | 280 | | | 370 | | PPL Electric | 650 | | | — | | | 650 | |
| LG&E | LG&E | 350 | | | 206 | | | 144 | | LG&E | 425 | | | — | | | 425 | |
| KU | KU | 350 | | | 139 | | | 211 | | KU | 350 | | | — | | | 350 | |
| Total LKE | 700 | | | 345 | | | 355 | | |
| Total PPL | Total PPL | $ | 2,850 | | | $ | 625 | | | $ | 2,225 | | Total PPL | $ | 2,925 | | | $ | — | | | $ | 2,925 | |
(a)In March 2021, the capacity for the LG&E commercial paper program was increased from $350 million to $425 million.
Long-term Debt (All Registrants)
See Note 8 to the Financial Statements for information regarding the Registrants’ long-term debt activities.
(PPL)
Equity Securities Activities
Share Repurchase
In August 2021, PPL's Board of Directors authorized share repurchases of up to $3 billion of PPL common shares. PPL currently expects to repurchase approximately $1 billion by the end of 2021. The actual amount repurchased will depend on various factors, including PPL’s share price, market conditions, and the determination of other uses for the proceeds from the sale of the U.K. utility business, including for incremental capital expenditures. PPL may purchase shares on each trading day subject to market conditions and principles of best execution.
During the three and nine months ended September 30, 2021, PPL repurchased 9.6 million shares at a cost of $282 million.
From October 1 to October 31, 2021, PPL repurchased an additional 9.4 million shares at a cost of $269 million.
Commission fees incurred, which have been included in the cost of repurchases above, were insignificant through October 31, 2021.
See Note 8 to the Financial Statements for information regarding the Registrants’ equity securities activities.
ATM
In February 2018, PPL entered into an equity distribution agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of $1.0 billion of its common stock through an at-the-market offering program;program, including a forward sales component. The compensation paid to the selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. There were no issuances under the ATM program for the nine months ended September 30, 2020.2021. The ATM program expired in February 2021.
Common Stock Dividends
In August 2020,2021, PPL declared a quarterly common stock dividend, payable October 1, 2020,2021, of 41.5 cents per share (equivalent to $1.66 per annum). Future dividends, declared at the discretion of the Board of Directors, will depend upon future earnings, cash flows, financial and legal requirements and other factors.
Rating Agency Actions
(All Registrants)
Moody's and S&P periodically review the credit ratings of the debt of the Registrants and their subsidiaries. Based on their respective independent reviews, the rating agencies may make certain ratings revisions or ratings affirmations.
A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues. The credit ratings of the Registrants and their subsidiaries are based on information provided by the Registrants and other sources. The ratings of Moody's and S&P are not a recommendation to buy, sell or hold any securities of the Registrants or their subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities.
The credit ratings of the Registrants and their subsidiaries affect their liquidity, access to capital markets and cost of borrowing under their credit facilities. A downgrade in the Registrants' or their subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets. The Registrants and their subsidiaries have no credit rating triggers that would result in the reduction of access to capital markets or the acceleration of maturity dates of outstanding debt.
The rating agencies have taken the following actions related to the Registrants and their subsidiaries during 2020:2021:
(PPL)
In April 2020,March 2021, Moody's revised its outlook to positive for PPL and PPL Capital Funding.
(PPL and PPL Electric)
In March 2021, S&P revised its outlook to positive for PPL Electric.
In June 2021, Moody’s and S&P assigned ratings of Baa2A1 and BBB+A to PPL Capital Funding’s $1 billion 4.125% Senior NotesElectric’s $650 million First Mortgage Bonds, Floating Rate Series, due 2030.2024. The notesbonds were issued April 1, 2020.on June 24, 2021.
(PPL LKE and LG&E)
In August 2020, Moody'sMarch 2021, Moody’s and S&P assigned ratings of A1 and A to the Louisville/Jefferson County Metro Government, Kentucky’s $128 million 2.00% Pollution Control Revenue Bonds, 2003 Series A, due 2033, previously issued on behalf of LG&E. The bonds were remarketed April 1, 2021.
In March 2021, Moody’s assigned a rating of A1 and in April 2021, S&P assigned a rating of A to the Louisville/Jefferson County Metro Government, Kentucky’s $35 million 1.35% Pollution Control Revenue Bonds, 2001 Series B, due 2027, previously issued on behalf of LG&E. The bonds were remarketed May 3, 2021.
In March 2021, Moody’s assigned a rating of A1 and in April 2021, S&P assigned a rating of A to the County of Trimble, Kentucky’s $35 million 1.35% Pollution Control Revenue Bonds, 2001 Series B, due 2027, previously issued on behalf of LG&E. The bonds were remarketed May 3, 2021.
In May 2021, Moody’s and S&P assigned ratings ofA1/P-2 and A/A-2 to the Louisville/Jefferson County Metro Government, Kentucky’s $31 million Environmental Facilities Revenue Refunding Bonds, 2007 Series A, due 2033, previously issued on behalf of LG&E. The bonds were remarketed June 1, 2021.
In May 2021, Moody’s and S&P assigned ratings of A1/P-2 and A/A-2 to Louisville/Jefferson County Metro Government, Kentucky’s $35 million Environmental Facilities Revenue Refunding Bonds, 2007 Series B, due 2033, previously issued on behalf of LG&E. The bonds were remarketed June 1, 2021.
In August 2021, Moody's and S&P assigned ratings of A1 and A to the County of Trimble, Kentucky's $23$28 million 0.90%0.625% Pollution Control Revenue Bonds, 2001 Series A, due 2026, previously issued on behalf of LG&E. The bonds were remarketed September 3, 2020.1, 2021.
In August 2020, Moody's and S&P assigned ratings
(PPL LKE and KU)
In May 2020,2021, Moody's and S&P assigned ratings of A1 and A to KU's $500the County of Carroll, Kentucky's $78 million 3.30% First Mortgage2.00% Environmental Facilities Revenue Bonds, 2008 Series A, due 2050.2032, previously issued on behalf of KU. The bonds were issuedremarketed June 3, 2020.
(PPL and PPL Electric)1, 2021.
In September 2020,May 2021, Moody's and S&P assigned ratings of A1 and A to PPL Electric's $250County of Carroll, Kentucky's $54 million First Mortgage2.125% Environmental Facilities Revenue Bonds, Floating Rate2006 Series B, due 2023. The bonds were issued October 1, 2020.
In September 2020, Moody's and S&P assigned ratings of A1 and A to PEDFA's $90 million Pollution Control Revenue Refunding Bonds, Series 2008, due 2023,2034, previously issued on behalf of PPL Electric.KU. The bonds were remarketed OctoberJune 1, 2020.2021.
Ratings Triggers
(PPL, LKE, LG&E and KU)
Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, and interest rate and foreign currency instruments, (for PPL), contain provisions that require the posting of additional collateral or permit the counterparty to terminate the contract, if PPL's, LKE's, LG&E's or KU's or their subsidiaries' credit rating, as applicable, were to fall below investment grade. See Note 15 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral requirements for PPL LKE and LG&E for derivative contracts in a net liability position at September 30, 2020.2021.
(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' 20192020 Form 10-K.
Risk Management
Market Risk
(All Registrants)
See Notes 14 and 15 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.
The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These are not precise indicators of expected future losses, but are rather only indicators of possible losses under normal market conditions at a given confidence level.
Interest Rate Risk
The RegistrantsPPL and theirits subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. The Registrants and their subsidiaries utilize variousA variety of financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of theirthe debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under thePPL's risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfoliosportfolio due to changes in the absolute level ofbenchmark interest rates. In addition, the interest rate risk of certain subsidiaries is potentially mitigated as a result of the existing regulatory framework or the timing of rate cases.
The following interest rate hedges were outstanding at September 30, 2020.2021.
| | | Exposure
Hedged | | Fair Value,
Net - Asset
(Liability) (a) | | Effect of a
10% Adverse
Movement
in Rates (b) | | Maturities
Ranging
Through | | Exposure
Hedged | | Fair Value,
Net - Asset
(Liability) (a) | | Effect of a
10% Adverse
Movement
in Rates (b) | | Maturities
Ranging
Through |
| PPL | PPL | | | | | | | | PPL | | | | | | | |
| Cash flow hedges | | | | | | | | |
| | Economic hedges | | Economic hedges | | | | | | | |
| Interest rate swaps (c) | Interest rate swaps (c) | $ | 168 | | | $ | (7) | | | $ | (1) | | | 2035 | Interest rate swaps (c) | $ | 64 | | | $ | (19) | | | $ | (1) | | | 2033 |
| | Cross-currency swaps (c) | 702 | | | 149 | | | (70) | | | 2028 | |
| Economic hedges | | | | | | | | |
| Interest rate swaps (d) | 147 | | | (26) | | | — | | | 2033 | |
| LKE | | | | | | | | |
| Economic hedges | | | | | | | | |
| Interest rate swaps (d) | 147 | | | (26) | | | — | | | 2033 | |
| LG&E | LG&E | | | | | | | | LG&E | | | | | | | |
| Economic hedges | Economic hedges | | | | | | | | Economic hedges | | | | | | | |
| Interest rate swaps (d) | 147 | | | (26) | | | — | | | 2033 | |
| Interest rate swaps (c) | | Interest rate swaps (c) | 64 | | | (19) | | | (1) | | | 2033 |
(a)Includes accrued interest, if applicable.
(b)Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. Sensitivities represent a 10% adverse movement in interest rates, except for cross-currency swaps which also includes a 10% adverse movement in foreign currency exchange rates.
(c)Changes in the fair value of these instruments are recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings.
(d)Realized changes in the fair value of such economic hedges are recoverable through regulated rates and any subsequent changes in the fair value of these derivatives are included in regulatory assets or regulatory liabilities.
The Registrants are exposed to a potential increase in interest expense and to changes in the fair value of their debt portfolios. The estimated impact of a 10% adverse movement in interest rates on interest expense at September 30, 20202021 was insignificant for PPL, PPL Electric, LKE, LG&E and KU. The estimated impact of a 10% adverse movement in interest rates on the fair value of debt at September 30, 20202021 is shown below.
| | | | | |
| | 10% Adverse
Movement
in Rates |
| PPL | $ | 611390 | |
| PPL Electric | 180 | |
LKE | 205164 | |
| LG&E | 7773 | |
| KU | 122113 | |
Foreign Currency Risk (PPL)
Prior to the sale of the U.K. utility business on June 14, 2021, PPL iswas exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. Under itsPPL had adopted a foreign currency risk management program PPL is permitted to enter into financial instrumentsdesigned to hedge certain foreign currency exposures, including translation risk of expected earnings, firm commitments, recognized assets or liabilities, anticipated transactions, including the previously announced potential sale of its U.K. utility business and net investments.
The following In addition, PPL entered into financial instruments to protect against foreign currency hedges were outstanding at September 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Exposure
Hedged | | Fair Value,
Net - Asset
(Liability) | | Effect of a
10%
Adverse
Movement
in Foreign
Currency
Exchange
Rates (a) | | Maturities
Ranging
Through |
| | | | | | | |
| Economic hedges (b) | £ | 340 | | | $ | 41 | | | $ | (30) | | | 2021 |
(a)Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.
(b)To economically hedge the translation risk of expected earnings denominated in GBP.GBP earnings.
(All Registrants)
Commodity Price Risk
PPL is exposed to commodity price risk through its domestic subsidiaries as described below.
•PPL Electric is required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk is insignificant and mitigated through its PUC-approved cost recovery mechanism and full-requirement supply agreements to serve its PLR customers which transfer the risk to energy suppliers.
•LG&E's and KU's rates include certain mechanisms for fuel, fuel-related expenses and energy purchases. In addition, LG&E's rates include a mechanism for natural gas supply expenses. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.
Volumetric Risk
Volumetric risk is the risk related to the changes in volume of retail sales due to weather, economic conditions or other factors. PPL is exposed to volumetric risk through its subsidiaries as described below.
•Prior to the sale of the U.K. utility business on June 14, 2021, WPD iswas exposed to volumetric risk which iswas significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control regulations,
recovery of such exposure occurs on a two year lag. See Note 1 in PPL's 20192020 Form 10-K for additional information on revenue recognition under RIIO-ED1.
•PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.
Credit Risk (All Registrants)
See Notes 14 and 15 to the Financial Statements in this Form 10-Q and "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Risk Management - Credit Risk" in the Registrants' 20192020 Form 10-K for additional information.
Foreign Currency Translation (PPL)
The value of the British pound sterling fluctuates in relation to the U.S. dollar. The impact of foreign currency translation is recorded in AOCI. Changes in this exchange rate resulted in a pre-tax foreign currency translation gain of $495 million for the nine months ended September 30, 2021, which primarily reflected a $856 million increase to PP&E, a $151 million increase to goodwill and a $36 million increase to other net assets, partially offset by a $467 million increase to long-term debt, a $61 million increase to deferred income taxes and a $20 million increase to long term debt due within one year. Changes in this exchange rate resulted in a pre-tax foreign currency translation gain of $292 million for the nine months ended September 30, 2020, which primarily reflected a $477 million increase to PP&E, ana $85 million increase to goodwill a $46 million increase to other net assets, partially offset by a $229 million increase to long-term debt and a $48 million increase to long term debt due within one year, and a $39 million increase to deferred income taxes. Changes in this exchange rate resulted in
As a result of the sale of the U.K. utility business on June 14, 2021, accumulated foreign currency translation losslosses of $369$786 million were removed from PPL’s Balance Sheets and realized as a component of “Income (Loss) from Discontinued Operations (net of income taxes)” on PPL’s Statements of Income (Loss) for the nine months ended SeptemberJune 30, 2019, which primarily reflected a $599 million decrease2021. See Note 9 to PP&E, a $114 million decrease to goodwill and a $16 million decrease to other net assets, partially offset by a $360 million decrease to long-term debt. The impact of foreign currency translation is recorded in AOCI.the Financial Statements for additional information.
Related Party Transactions (All Registrants)
The Registrants are not aware of any material ownership interests or operating responsibility by senior management in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with the Registrants. See Note 12 to the Financial Statements for additional information on related party transactions for PPL Electric, LKE, LG&E and KU.
Acquisitions, Development and Divestitures (All Registrants)
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with, modify or terminate the projects. Any resulting transactions may impact future financial results. See Note 9 to the Financial Statements for information on significant activities.
Environmental Matters (All Registrants)
Extensive federal, state and local environmental laws and regulations are applicable to PPL's, PPL Electric's, LKE's, LG&E's and KU'sthe Registrants air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of the Registrants' businesses. The costs of compliance or alleged non-compliance cannot be predicted with certainty but could be significant. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. Many of these environmental law considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the costs for their products or their demand for the Registrants' services. Increased capital and operating costs are subject to rate recovery. PPL, PPL Electric, LKE, LG&E and KUThe Registrants can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.
See "Environmental Matters" in Item 1. "Business" in the Registrants' 20192020 Form 10-K for information about environmental laws and regulations affecting the Registrants' business. See "Legal Matters" in Note 11 to the Financial Statements for a discussion of the more significant environmental claims. See "Financial Condition - Liquidity and Capital Resources - Forecasted Uses of Cash - Capital Expenditures" in "Item 7. Combined Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Registrants' 20192020 Form 10-K for information on projected environmental capital expenditures for 20202021 through 2024.2025. See Note 16 to the Financial Statements for information related to the impacts of CCRs on AROs.
(PPL, LKE, LG&E and KU)
The information below represents an update to “Item 1. Business – Environmental Matters – Air – NAAQS” and "Item 1. Business -– Environmental Matters - Water/Waste - Clean Water Act Jurisdiction"– Air – Climate Change" in the Registrants' 20192020 Form 10-K.
NAAQS(PPL, LG&E and KU)
In October 2020,March 2021, the EPA released proposedfinal revisions to the Cross-State Air Pollution Rule (CSAPR) providing for reductions in ozone season nitrogen oxide emissions for 2021 and subsequent years from sources in 12 states, including Kentucky. Additionally, the EPA reversed its previous approval of the Kentucky State Implementation Plan with respect to these requirements. The CSAPR revisions are aimed at ensuring compliance with the 2008 ozone NAAQS, so additional nitrogen oxide emission reductions could potentially be required for compliance with the revised 2015 ozone NAAQS. PPL, LKE,LG&E and KU are currently assessing the potential impact of the CSAPR revisions on operations, but such impact is not expected to be material. Pursuant to the President’s executive order, the EPA is currently reviewing its previous determinations made in December 2020 to retain the existing NAAQS for ozone and particulate matter without change.
PPL, LG&E, and KU are unable to determine the impact of the rule on operations until the rule is finalized, and certainpredict future emission reductions that may be required by future federal rules or state implementation determinations are made by the EPA and Kentucky.actions. Compliance with the NAAQS, CSAPR and related requirements may require installation of additional pollution controls or other compliance actions, inclusive of retirements, the costs of which PPL, LKE, LG&E and KU believe would be subject to rate recovery.
Climate Change (All Registrants)
Clean Water Act Jurisdiction
Environmental groupsThe Biden administration is undertaking wide-ranging efforts to address climate change. Recent government actions and others have claimed that discharges to groundwater from leaking CCR impoundments at power plants are subject to Clean Water Act permitting. A citizen suit raising such claims has been filed against KU with respect topolicy developments, including the E.W. Brown plant, as discussed under “Legal Matters” - “E.W. Brown Environmental Claims” in Note 10 to the Financial Statements. On April 12, 2019, the EPA released regulatory clarification finding that Clean Water Act jurisdiction does not cover such discharges to groundwater. On January 23, 2020, the EPAPresident’s announced a final rule modifying the jurisdictional scope of the Clean Water Act. The announced rule revises the definition of the "Waters of the United States," including a revision to exclude groundwater from the definition. In April 2020, the U.S. Supreme Court issued a ruling that Clean Water Act jurisdiction may apply to certain discharges to groundwater that result in the functional equivalentgoal of a direct discharge to navigable waters. PPL, LKE, LG&E,carbon free electricity sector by 2035, could have far-reaching impacts on PPL’s business operations, products, and KUservices. All of these developments, including the Build Back Better Agenda with a green power incentive and penalty structure, are unaware of any unpermitted releases frompreliminary or ongoing in nature and the Registrants cannot predict their facilities that are subject to Clean Water Act jurisdiction, but future guidance from the EPA and judicial rulings could potentially subject certain releases from CCR impoundments and landfills to additional permitting and remediation requirements, which could impose substantial costs. If any, associated costs are expected to be subject to rate recovery. PPL, LKE, LG&E and KU are unable to predict thefinal outcome or financialultimate impact of future regulatory proceedings and litigation.on operations.
New Accounting Guidance (All Registrants)
See Note 2 to the Financial Statements for a discussion ofThere has been no new accounting guidance adopted.adopted in 2021 and there is no new significant accounting guidance pending adoption as of September 30, 2021.
Application of Critical Accounting Policies (All Registrants)
Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following table summarizes the accounting policies by Registrant that are particularly important to an understanding of the reported financial condition or results of operations and require management to make estimates or other judgments of matters that are inherently uncertain. See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrants' 20192020 Form 10-K for a discussion of each critical accounting policy.
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| | PPL | | Electric | | LKE | | LG&E | | KU |
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| Defined Benefits | X | | X | | X | | X | | X |
| Income Taxes | X | | X | | X | | X | | X |
| Regulatory Assets and Liabilities | X | | X | | X | | X | | X |
| Price Risk Management | X | | | | | | | | |
GoodwillAsset Impairment (Excluding Investments) | X | | | | X | | X | | X |
| AROs | X | | | | X | | X | | X |
| Revenue Recognition - Unbilled Revenue | | | | | | X | | X | | X |
Following is an update to the critical accounting policies disclosed in PPL's 2020 Form 10-K.
Income Taxes (PPL)
Significant management judgment is required in developing the Registrants' provision for income taxes, primarily due to the uncertainty related to tax positions taken or expected to be taken on tax returns, valuation allowances on deferred tax assets, as well as whether the undistributed earnings of WPD were considered indefinitely reinvested.
Additionally, significant management judgment is required to determine the amount of benefit recognized related to an uncertain tax position. On a quarterly basis, uncertain tax positions are reassessed by considering information known as of the reporting date. Based on management's assessment of new information, a tax benefit may subsequently be recognized for a previously unrecognized tax position, a previously recognized tax position may be derecognized, or the benefit of a previously recognized tax position may be remeasured. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements in the future.
The need for valuation allowances to reduce deferred tax assets also requires significant management judgment. Valuation allowances are initially recorded and reevaluated each reporting period by assessing the likelihood of the ultimate realization of a deferred tax asset. Management considers several factors in assessing the expected realization of a deferred tax asset, including the reversal of temporary differences, future taxable income and ongoing prudent and feasible tax planning strategies. Any tax planning strategy utilized in this assessment must meet the recognition and measurement criteria utilized to account for an uncertain tax position. When evaluating the need for valuation allowances, the uncertainty posed by political risk on such factors is also considered by management. The amount of deferred tax assets ultimately realized may differ materially from the estimates utilized in the computation of valuation allowances and may materially impact the financial statements in the future.
The TCJA included new provisions requiring that certain income, referred to as global intangible low-taxed income (GILTI), earned by certain foreign subsidiaries be included in the gross income of their U.S. shareholder. Accounting guidance allows a policy election regarding the timing of inclusion of GILTI in an entity’s financial statements. The election may be either to record deferred taxes for expected GILTI in future periods or record such taxes as a current-period expense when incurred. PPL has elected to record the tax effect of expected GILTI inclusions and thus, records deferred taxes relating to such inclusions.
In light of the sale of PPL's U.K. utility business, indefinite reinvestment is no longer relevant. As such, PPL realized the outside book-tax basis difference in those assets. Accordingly, in June 2021, a current tax liability was recorded reflecting the estimated tax cost associated with the realization of that basis difference.
See Note 6 to the Financial Statements for income tax disclosures.
PPL Corporation
PPL Electric Utilities Corporation
LG&E and KU Energy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to "Risk Management" in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations."
Item 4. Controls and Procedures
Although the COVID-19 pandemic prompted the Registrants to make certain procedural adjustments to accommodate an increased remote workforce, PPL’s accounting and reporting systems and functions were well prepared to perform necessary accounting and reporting activities as of September 30, 20202021 and to maintain the effectiveness of its disclosure controls and procedures and internal control over financial reporting.
(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 September 30, 2020,2021, the Registrants' disclosure controls and procedures are effective to ensure that material information relating to the Registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this quarterly report has been prepared. The principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officers, to allow for timely decisions regarding required disclosure.
(b) Change in internal controls over financial reporting.
The Registrants' principal executive officers and principal financial officers have concluded that there were no changes in the Registrants' internal controls over financial reporting during the Registrants' third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrants' internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal, tax, regulatory, environmental or other administrative proceedings that became reportable events or were pending in the third quarter of 20202021 see:
•"Item 3. Legal Proceedings" in each Registrant's 20192020 Form 10-K; and
•Notes 6, 7 and 11 to the Financial Statements.
Item 1A. Risk Factors
There have been no material changes in the Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the Registrants' 20192020 Form 10-K, except for10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of PPL Corporation Equity Securities by the following:Issuer and Affiliated Purchasers (PPL)
The COVID-19 pandemic and resultant impact on business and economic conditions could negatively affect our business.following table provides information about PPL's purchases of equity securities that are registered by PPL Corporation pursuant to Section 12 of the Exchange Act of 1934 for the quarter ended September 30, 2021:
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| Period | Total Number of Shares (or Units) Purchased | | Average Price Paid per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (a) |
| July 1 to July 31, 2021 | — | | | $ | — | | | — | | | $ | — | |
| August 1 to August 31, 2021 | 2,710,711 | | | 29.22 | | | 2,710,711 | | | 2,920,781,525 | |
| September 1 to September 30, 2021 | 8,046,246 | | | 29.16 | | | 8,046,246 | | | 2,686,179,221 | |
| Total (b) | 10,756,957 | | | $ | 29.17 | | | 10,756,957 | | | $ | 2,686,179,221 | |
The COVID-19 pandemic has disrupted(a)PPL Corporation's Board of Directors approved a share repurchase plan in August 2021. See "Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial and Operational Developments - Use of Proceeds from the U.S. and global economies and continues to present extraordinary challenges to businesses, communities, workforces and markets. In the U.S. and throughout the world, governmental authorities have taken urgent and extensive actions to contain the spreadSale of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures have included quarantines, stay-at-home orders, travel restrictions, reduced operations or
Table(b)Includes 1,142,890 shares purchased by a third party on behalf of Contentsclosures of businesses, schoolsPPL in September 2021. The shares were settled and governmental agencies, and executive, legislative or regulatory actionstransferred to address health or other pandemic-related concerns.
Until COVID-19 is contained or an effective vaccine is identified and widely-available, the COVID-19 virus poses significant risks to the health and welfare of the Registrants’ customers, employees, contractors and suppliers, and to the conduct of their business. Mandates to stay at home, shelterPPL in place, or quarantine and resulting lock-down or closures of non-essential businesses could reduce demand for electricity and gas, or cause shifts in demand between residential, commercial and industrial customers that could negatively impact the Registrants’ financial condition. Customers experiencing financial strain from unemployment, furloughs, or reduced work hours may not be able to pay their bills on a timely basis, which could negatively impact our liquidity. Continued economic disruption may further depress the GBP to U.S. dollar exchange rate and increase PPL's foreign exchange exposure. New or changing legislation or regulatory orders may unfavorably impact the Registrants or the utility industry generally.
All of these factors have the potential to materially and adversely affect the Registrants’ business and operations, especially if they remain in effect for a prolonged period of time. At this time, the Registrants’ cannot predict the extent to which these or other pandemic-related factors may affect their business, earnings or other financial results, as it depends on the duration and scope of the outbreak, the measures undertaken in response and other future developments, all of which are highly uncertain. In addition to the factors discussed above, investors should be aware that other COVID-19-related risks may emerge in the future and may prove to be significant. Investors should carefully consider the discussion of COVID-19 related items presented in this Quarterly Report and the risks presented in the Registrants’ Annual Report on Form 10-K for 2019, especially to the extent that the COVID-19 pandemic may exacerbate or increase those risks.
Item 4. Mine Safety Disclosures
Not applicable.
Item 6. Exhibits
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)-23 are incorporated herein by reference. Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
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| - | Final Terms, dated October 5, 2020, of Western Power Distribution (South Wales) plc £250,000,000 1.625 per cent Fixed Rate Notes due 2035 under the £4,000,000,000 Euro Medium Term Note Programme (Exhibit 1.1. to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 8, 2020) |
| - | Supplemental Indenture No. 22, dated as of September 15, 2020, to Indenture, dated as of August 1, 2000, among PPL Electric Utilities CorporationTransition and the Bank of New York Mellon, as Trustee (Exhibit 4(a) to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 1, 2020) |
| - | SubscriptionRetirement Agreement dated October 5, 2020,August 12, 2021, by and among Western Power Distribution (South Wales) plc as Issuer, Barclays Bank plc, Lloyds Bank Corporate Markets plc, MUFG Securities EMEA plc, Natwest Markets plc as Joint Lead Managers (Exhibit 4.1 toPaul W. Thompson, LG&E and KU Services Company, and PPL Corporation Form 8-K Report (File No. 1-11459) dated October 8, 2020) |
| - | Amended and Restated Trust Deed, dated August 21, 2020, by and among Western Power Distribution (East Midlands) plc, Western Power Distribution (South Wales) plc, Western Power Distribution (South West) plc and Western Power Distribution (West Midlands) plc as Issuers, and HSBC Corporate Trustee Company (UK) Limited as Note Trustee (Exhibit 4.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 8, 2020) |
| - | £4,000,000,000 Euro Medium Term Note Programme entered into by Western Power Distribution (East Midlands) plc, Western Power Distribution (South Wales) plc, Western Power Distribution (South West) plc and Western Power Distribution (West Midlands) plc dated as of August 21, 2020 (Exhibit 4.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 8, 2020 |
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Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2020,2021, filed by the following officers for the following companies: |
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| - | PPL Corporation's principal executive officer |
| - | PPL Corporation's principal financial officer |
| - | PPL Electric Utilities Corporation's principal executive officer |
| - | PPL Electric Utilities Corporation's principal financial officer |
| - | LG&E and KU Energy LLC's principal executive officer |
| - | LG&E and KU Energy LLC's principal financial officer |
| - | Louisville Gas and Electric Company's principal executive officer |
| - | Louisville Gas and Electric Company's principal financial officer |
| - | Kentucky Utilities Company's principal executive officer |
| - | Kentucky Utilities Company's principal financial officer |
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Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2020,2021, furnished by the following officers for the following companies: |
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| - | PPL Corporation's principal executive officer and principal financial officer |
| - | PPL Electric Utilities Corporation's principal executive officer and principal financial officer |
| - | LG&E and KU Energy LLC's principal executive officer and principal financial officer |
| - | Louisville Gas and Electric Company's principal executive officer and principal financial officer |
| - | Kentucky Utilities Company's principal executive officer and principal financial officer |
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| 101.INS | - | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | - | XBRL Taxonomy Extension Schema |
| 101.CAL | - | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | - | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | - | XBRL Taxonomy Extension Label Linkbase |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.
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| | PPL Corporation |
| | (Registrant) | |
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| Date: | November 5, 20204, 2021 | /s/ Marlene C. Beers | |
| | Marlene C. Beers
Vice President and Controller | |
| | (Principal Accounting Officer) | |
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| | PPL Electric Utilities Corporation |
| | (Registrant) | |
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| Date: | November 5, 20204, 2021 | /s/ Stephen K. Breininger | |
| | Stephen K. Breininger
Vice President-Finance and Regulatory Affairs and Controller | |
| | (Principal Financial Officer and Principal Accounting Officer) | |
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| | LG&E and KU Energy LLC |
| | (Registrant) | |
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| | Louisville Gas and Electric Company |
| | (Registrant) | |
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| | Kentucky Utilities Company |
| | (Registrant) | |
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| Date: | November 5, 20204, 2021 | /s/ Kent W. Blake | |
| | Kent W. Blake
Chief Financial Officer | |
| | (Principal Financial Officer and Principal Accounting Officer) | |