See Note 2 to the Financial Statements for additional financial information about the segments.
(All Registrants except PPL)
PPL Energy Supply, PPL Electric, LKE, LG&E and KU each operate withinKU)
PPL Electric has two operating segments that are aggregated into a single reportable segment. LKE, LG&E and KU are individually single operating and reportable segments.
U.K. Regulated Segment(PPL)
· | U.K. Regulated Segment (PPL)
|
| |
| Consists of PPL Global which primarily includes WPD's regulated electricity distribution operations, the results of hedging the translation of WPD's earnings from British pound sterling into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs and allocatedConsists of PPL Global, which primarily includes WPD's regulated electricity distribution operations, the results of hedging the translation of WPD's earnings from British pound sterling into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs and acquisition-related financing costs. |
WPD, through indirect wholly owned subsidiaries, operates four of the 15 regulated distribution networks providing electricity service in the U.K. The number of network customers (end-users) served by WPD totals 7.8 million across 21,600 square miles in south Wales and southwest and central England.
Details of revenue by categoryRevenues, in millions, for the years ended December 31 are shown below.
| | | 2014 | | 2013 | | 2012 |
| | | Revenue | | % of Revenue | | Revenue | | % of Revenue | | Revenue | | % of Revenue |
| Utility revenues | | $ | 2,573 | | | 98 | | $ | 2,359 | | | 98 | | $ | 2,289 | | | 98 |
| Energy-related businesses | | | 48 | | | 2 | | | 44 | | | 2 | | | 47 | | | 2 |
| Total | | $ | 2,621 | | | 100 | | $ | 2,403 | | | 100 | | $ | 2,336 | | | 100 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Operating Revenues | $ | 2,207 |
| | $ | 2,410 |
| | $ | 2,621 |
|
The majority of WPD's utilityoperating revenue is known as DUoS and is fromgenerated by providing regulated electricity distribution services to licensed third party energy suppliers who pay WPD for the use theof WPD's distribution network to transfer electricity to theirthe suppliers' customers, the end-users.
WPD's energy-related business revenues include ancillary activities that support the distribution business.Franchise and Licenses
The operations of WPD's principal subsidiaries, WPD (South West), WPD (South Wales), WPD (East Midlands) and WPD (West Midlands), are regulated by Ofgem under the direction of the Gas and Electricity Markets Authority. The Electricity Act 1989 provides the fundamental framework offor electricity companies and established licenses that require each of the DNOs to develop, maintain and operate efficient distribution networks. WPD operates under a regulatory year that begins April 1 and ends March 31 of each year.
WPD is authorized by Ofgem to provide electricity distribution services within its concession areas and service territories, subject to certain conditions and obligations. For instance, WPD is subject to Ofgem regulation with respect to the regulated revenue it can earn and the quality of service it must provide, and WPD can be fined or have its licenses revoked if it does not meet the mandated standard of service.
Ofgem has formal powers to propose modifications to each distribution license. In January 2014, Ofgem and WPD agreed to a reduction of £5 per residential end-user in the 2014/15 regulatory year to be recovered in the 2016/201717 regulatory year. See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview - U.K. Distribution Revenue Reduction" for additional information. In May 2014, Ofgem made license changes as part
Although WPD operates in non-exclusive concession areas in the U.K., it currently faces little competition with respect to end-users connected to its network. WPD's four distribution businesses are, therefore, regulated monopolies, which operate under regulatory price controls.
Ofgem has establishedadopted a price control mechanism that providesestablishes the amount of base demand revenue that a regulated businessWPD can earn, subject to certain true-ups, and provides for an increase or reduction in revenues based on incentives or penalties for exceeding or underperformingperformance relative to pre-established targets. WPD's allowed revenue primarily includes base demand revenue (adjusted for inflation using RPI), performance incentive revenues or penalties, adjustments for over- or under-recovery from prior periods and adjustments related to the DPCR4 line loss close out.
WPD is currently operating under DPCR5the eight-year price control period of RIIO-ED1, which is effective for the period fromcommenced on April 1, 2010 through March 31, 2015.
In October 2010, Ofgem announced changes to the regulatory framework that will be effective for the U.K. electricity distribution sector, including WPD, beginning April 2015. Throughout the following discussion of this regulatoryThe RIIO framework the use of the term "customers" refers to the end-users of WPD's regulated distribution networks. The framework, known as RIIO (Revenues = Incentives + Innovation + Outputs), is intended to:
·encourage DNOs to deliver safe, reliable and sustainable network service at long-term value to customers;
·enable DNOs to finance the required investment in a timely and efficient way; and
·remunerate DNOs according to their delivery for customers.customers;
increase emphasis on outputs and incentives;
enhance stakeholder engagement including network customers;
provide a stronger incentive framework to encourage more efficient investment and innovation; and
continue to stimulate innovation.
InAdditionally, from a financial perspective the RIIO-ED1 framework:
regulates revenues for the DNOs in real terms using 2012/13 prices;
inflates revenue components using the RPI beginning March 31, 2013, which has the effect of inflating RAV, with respect to base demand revenue;
splits the recovery of Totex between immediate recovery (called "fast pot") and deferred recovery as an addition to extending the RAV (called "slow pot");
provides DNOs with a general pass-through for costs over which the DNOs have no control (i.e., Ofgem fees, National Grid transmission charges and property taxes);
provides a tax allowance based on Ofgem's notional tax charge, which may not equal the actual corporate tax paid;
extends the recovery period for depreciation of RAV additions after April 1, 2015 from a 20 year life as used under DPCR5, to 45 years, with a transitional arrangement that will gradually increase the average asset life for RAV additions during RIIO-ED1 to approximately 35 years. The RAV as of March 31, 2015 will continue to be depreciated over 20 years. The asset lives used to determine depreciation expense for U.S. GAAP purposes are not the same as those used for the depreciation of the RAV in setting revenues and, as such, vary by asset type and are based on the expected useful lives of the assets;
provides successful DNOs an incentive to be fast-tracked through the regulatory approval process, equivalent to 2.5% of Totex during the 8-year price control period from fiveperiod; and
maintains an incentive scheme for DNOs to eight years,be rewarded or penalized for performance in the areas of reliability and customer satisfaction, but places a maximum cap on the amount of incentive revenues that can be earned by a DNO.
The key components of WPD's four Ofgem-accepted RIIO-ED1 business plans are:
| · | increased emphasis on outputs and incentives; |
all four DNO business plans were accepted for fast-track status (fast-track incentive is worth approximately $35 million annually for WPD assuming a $1.30/£ foreign currency exchange rate); | · | enhanced stakeholder engagement including network customers; |
WPD received a higher level of cost savings retention, which was established at 70% for WPD compared to approximately 55% for slow-tracked DNOs; | · | a stronger incentive framework to encourage more efficient investment and innovation; |
a cost of debt recovery comprised of a 10-year trailing average debt allowance, to be adjusted annually, compared to a 20-year trailing average for slow-tracked DNOs applied to 65% of RAV; | · | replacement of the current Low Carbon Network Fund to continue to stimulate innovation; |
a return on regulatory equity (RORE) allowance with an equity ratio of 35% of RAV and a cost of equity rate of 6.4% compared to 6.0% for slow-tracked DNOs; | · | depreciation of RAV for additions after April 1, 2015 will be extended from 20 years to 45 years, with a transitional arrangement that will gradually change the life over the price control period that will result in an average life of 35 years for RAV additions during RIIO-ED1. RAV at March 31, 2015 will continue to be depreciated over 20 years. The asset lives used to determine depreciation expense for U.S. GAAP purposes are not the same as those used for the depreciation of the RAV and as such vary by asset type and are based on the expected useful lives of the assets;
|
a Totex split of 80% slow pot and 20% fast pot; | · | the ability for DNOs to be fast-tracked through the process, providing several benefits to the qualified DNOs, including the ability to collect the fast-track incentive, which is additional revenue equivalent to 2.5% of total annual expenditures during the 8-year price control period (approximately $43 million annually for WPD), greater revenue certaintyrecovery of approximately 80% of pension deficit funding for certain of WPD's defined benefit pension plans; and a higher level of cost savings retention; and |
| · | capital return comprised of a 10 year trailing average debt allowance, to be adjusted annually, and an equity allowance determined by Ofgem with a debt to equity ratio of 65:35. The real cost of equity determined by Ofgem for fast-tracked DNOs was 6.4% and 6.0% for slow-tracked DNOs and will be uplifted by inflation as measured by the Retail Price Index (RPI) to determine the nominal cost of equity. |
incentive targets that are significantly more stringent than those set under DPCR5, reducing the expected incentive revenues WPD can earn in RIIO-ED1 compared to DPCR5.
In November 2013, Ofgem determined that the 8-year
WPD's combined business plans include funding for total expenditures of all fourapproximately $16.6 billion over the eight-year period (assuming a $1.30/£ foreign currency exchange rate), broken down as follows:
Totex - $11.0 billion ($8.8 billion additions to RAV; $2.2 billion fast pot);
Pension deficit funding - $1.6 billion;
Cost of WPD's DNOs were suitable for accelerated consideration or "fast tracking"debt recovery - $1.3 billion;
Property taxes, Ofgem fees and as a result merited early settlement of their price controls for the 8-year RIIO-ED1 period starting April 1, 2015. This was confirmed in February 2014.National Grid transmissions charges - $2.1 billion; and
Corporate income taxes recovery - $600 million.
The U.K. regulatory structure is an incentive-based structure in contrast to the typical U.S. regulatory structure, which operates on a cost-recovery model. The base demand revenue that a DNO can earn in each year of athe current price control period is the sum of: (i) the regulator's determination of efficient operating costs, including certain pension deficit funding, (ii)
a return on capital from RAV plus an annual adjustment for inflation as determined by the RPI, (iii) RAV;
a return of capital from RAV (i.e., depreciation), (iv) ;
the fast pot recovery;
pension deficit funding;
an allowance for taxationcash taxes paid less a potential reduction for tax benefits from excess leverage (v)if a DNO is levered more than 65% Debt/RAV;
certain pass-through costs over which the DNO has no control;
certain legacy price control adjustments from preceding price control periods, and (vi) certain pass-through costs over whichincluding the DNO has no control. Asinformation quality incentive (also known as the rolling RAV incentive);
fast-track incentive - because WPD's four DNOs were fast-tracked through the price control review process for RIIO-ED1, their base demand revenue also includes the fast-track incentive discussed above. The RIIO-ED1above;
profiling adjustments - these adjustments do not affect the total base demand revenue in real terms over the eight-year price control will also include anperiod, but change the year in which the revenue is earned;
adjustments from the Annual Iteration Process. This will allowProcess (AIP), discussed further below; and
adjustments for inflation true-ups, discussed further below.
In addition to base demand revenue, WPD's allowed revenue primarily includes:
an increase or reduction in revenues based on incentives or penalties for actual performance against pre-established targets from prior periods;
adjustments for over- or under-recovery of allowed revenue from prior periods; and
a reduction in revenue related to be updated during the price control for financial adjustments covering tax, pension and cost of debt issues, adjustments relating to actual and allowed total expenditure together with the total cost incentive mechanism and the information quality incentive (IQI) discussed below, and legacy price control adjustments from preceding price control periods. This process calculates an incremental change to base revenue, known as the "MOD." RIIO-ED1 prices will be set using a forecast of RPI which is trued up 2 years later.
DPCR4 line loss close out.
During DPCR5, the prior price control review period, WPD's total base demand revenue for the five-year period was profiled in a manner that resulted in a weighted-average increase of about 5.5% per year for all four DNOs. In the first year of RIIO-ED1, base demand revenue will decreasedecreased by about 11.8% primarily due to a change in the profiling approachmethodology and a lower weighted-average cost of capital. For each regulatory year thereafter, baseBase demand revenue will then increase by approximately 2.5% per annum before inflation for regulatory years up to March 31, 2018 and by approximately 1% per annum before inflation for each regulatory year thereafter for the remainder of RIIO-ED1.
As the regulatory model is incentive based rather than a cost recovery model, WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP. Therefore, the accounting treatment of adjustments to base demand revenue and/or allowed revenue is evaluated based on revenue recognition and contingency accounting guidance.
Base Demand Revenue True-up Mechanisms
Unlike prior price control reviews, base demand revenue under RIIO-ED1 will be adjusted during the price control period. The most significant of those adjustments are:
Inflation True-Up - The base demand revenue for the RIIO-ED1 period was set in 2012/13 prices. Therefore an inflation factor as determined by forecasted RPI, provided by HM Treasury, is applied to base demand revenue. Forecasted RPI is trued up to actuals and affects future base demand revenue two regulatory years later. This revenue change is called the "TRU" adjustment.
| |
| ◦ | The TRU for the 2015/16 regulatory year was a $40 million reduction to revenue and will reduce base demand revenue in calendar years 2017 and 2018 by $27 million and $13 million, respectively. |
| |
| ◦ | The projected TRU for the 2016/17 regulatory year is a $6 million reduction to revenue and will reduce base demand revenue in calendar years 2018 and 2019 by $4 million and $2 million, respectively. |
Annual Iteration Process - The RIIO-ED1 price control period also includes an Annual Iteration Process (AIP). This will allow future base demand revenues agreed with the regulator as part of the price control review to be updated
during the price control period for financial adjustments including tax, pensions and cost of debt, legacy price control adjustments from preceding price control periods and adjustments relating to actual and allowed total expenditure together with the Totex Incentive Mechanism (TIM). Under the TIM, WPD's DNOs are able to retain 70% of any amounts not spent against the RIIO-ED1 plan and bear 70% of any over-spends. The AIP calculates an incremental change to base demand revenue, known as the "MOD" adjustment.
| |
| ◦ | The MOD provided by Ofgem in November 2016 included the TIM for the 2015/16 regulatory year as well as the cost of debt calculation based on the 10-year trailing average to October 2016. This MOD of $15 million will reduce base demand revenue in calendar years 2017 and 2018 by $10 million and $5 million, respectively. |
| |
| ◦ | The projected MOD for the 2016/17 regulatory year is a $52 million reduction to revenue and will reduce base demand revenue in calendar years 2018 and 2019 by $35 million and $17 million, respectively. |
As both MOD and TRU are changes to future base demand revenues as determined by Ofgem, these adjustments are recognized as a component of revenues in future years in which service is provided and revenues are collected or returned to customers. PPL's projected earnings per share growth rate through 2020 includes both the TRU and MOD for regulatory year 2015/16 and the estimated TRU and MOD for 2016/17.
Allowed Revenue Components
In addition to base demand revenue, certain other items are added or subtracted to arrive at allowed revenue. The most significant of these are discussed below.
During the price control period, WPD's revenue is decoupled from volume. However, in any fiscal period, WPD's revenue could be negatively affected if its tariffs and the volume delivered do not fully recover the allowed revenue for a particular period. Conversely, WPD could also over-recover revenue. Over and under-recoveries are added or subtracted to base demand revenue in future years. Over and under-recovered amounts arising from 2014/15 onwards and refunded/recovered under RIIO-ED1 will be refunded/recovered on a two year lag (previously one year). Therefore the 2014/15 over/ under-recovery adjustment will occur in 2016/17 instead of in 2015/16. In 2016/17, WPD will recover the £5 per residential network customer reduction provided for in 2014/15 as that amount is currently considered an under-recovery. Under applicable U.S. GAAP, WPD does not record a receivable for under-recoveries, but does record a liability for over-recoveries. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP. See Note 1 to the Financial Statements for additional information.
Incentives: Ofgem has established incentive mechanismsincentives to provide significant opportunities for DNO's to enhance overall returns by improving network efficiency, reliability and customer service. Some of the more significant incentives that may affect allowed revenue include:
Interruptions Incentive Scheme (IIS) - This incentive mechanisms include:has two major components: (1) Customer interruptions (CIs) and (2) Customer minutes lost (CMLs), and both are designed to incentivize the DNOs to invest in and operate their networks to manage and reduce both the frequency and duration of power outages. The IIS target under RIIO-ED1 is divided into interruptions caused by planned and unplanned work. The target for planned interruptions is calculated as the annual average level of planned interruptions and minutes lost over a previous three-year period. The targets for unplanned interruptions for RIIO-ED1 are specified in the DNOs license, and targets for both the CIs and CMLs become more demanding each year.
· | Information Quality Incentive (IQI) - The IQI is designed to incentivize the DNOs to provide good quality information in the business plans they submit to Ofgem during the price control review process and to execute their business plans as submitted. The IQI eliminates the distinction between capital expenditure and operating expense and instead focuses on total expenditure: |
| · | DPCR5 - 85% of all network related expenditure is allocated to RAV and currently recovered over 20 years through the regulatory depreciation of RAV and 15% is recovered in the year of expenditure together with business support, non-operational capital expenditures and traffic management expenditures. The IQI provides for incentives or penalties at the end of DPCR5 under the rolling RAV incentive mechanism based on the ratio of actual expenditures to the expenditures submitted to Ofgem that were the basis for the revenues allowed for the five-year price control period. In addition, at the beginning of DPCR5, WPD was awarded $301 million in IQI revenue of which $222 million will be included in revenue throughout the current price control period with the balance recovered over 20 years through the RAV mechanism. |
| · | RIIO-ED1 - 80% of total costs will be allocated to RAV with 20% recovered in the year of expenditure. As a result of being fast-tracked, WPD's DNOs are able to retain 70% of any amounts not spent against the RIIO-ED1 plan and bear 70% of any over-spends. The cost incentive or penalty mechanism will be calculated each year on a 2 year lag basis as part of the annual MOD process discussed above. |
· | Interruptions Incentive Scheme (IIS) - This incentive has two major components: (1) Customer interruptions (CIs) and (2) Customer minutes lost (CMLs), and both are designed to incentivize the DNOs to invest and operate their networks to manage and reduce both the frequency and duration of power outages. During DPCR5 the target for each DNO is based on a benchmark of data from the last four years of the prior price control period. The IIS target under RIIO-ED1 will be divided into interruptions caused by planned and unplanned work. The target for planned work will be calculated as the annual average level of planned interruptions and minutes lost over a previous three year period. The target for unplanned interruptions for the first year of RIIO-ED1 is specified in the DNO's license and targets for both the CIs and CMLs become more demanding each year.
|
·In addition to the IIS, the broad measure of customer service is enhanced.enhanced in RIIO-ED1. This broad measure encompasses:
| · | customer satisfaction in supply interruptions, connections and general inquiries; |
| · | stakeholder engagement; and |
| · | delivery of social obligations. |
The following table shows the amount of incentive revenue, primarily from IIS, whichthat WPD has earned since the beginning of DPCR5:during DPCR5 and RIIO-ED1:
|
| | | | | | |
| | | Incentive Earned | | Regulatory Year Ended Incentive |
| Regulatory Year Ended | | (in millions) | | Included in Revenue |
| March 2012 | | $ | 83 |
| | March 2014 |
| March 2013 | | 104 |
| | March 2015 |
| March 2014 | | 117 |
| | March 2016 |
| March 2015 | | 110 |
| | March 2017 |
| March 2016 | | 99 |
| | March 2018 |
Based on applicable GAAP, incentive revenues are recorded in revenues when they are billed to customers.
| | | Incentive Earned | | Regulatory Year Ended Incentive |
| Regulatory Year Ended | | (in millions) | | Included in Revenue |
| | | | | | |
| March 2011 | | $ | 30 | | March 2013 |
| March 2012 | | | 83 | | March 2014 |
| March 2013 | | | 104 | | March 2015 |
| March 2014 | | | 125 | | March 2016 |
DPCR4 Line Loss Adjustment
For regulatory years 2015/16 through 2018/19, allowed revenue will also be reduced to reflect Ofgem's final decision on the DPCR4 line loss incentives and penalties mechanism. WPD has a liability recorded related to this future revenue reduction;reduction and, therefore, this will not impact future earnings. See Note 6 to the Financial Statements for additional information.
Correction Factor
During the price control period, WPD sets its tariffs to recover allowed revenue. However, in any fiscal period, WPD's revenue could be negatively affected if its tariffs and the volume delivered do not fully recover the allowed revenue for a particular
period. Conversely, WPD could over-recover revenue. Over and under-recoveries are subtracted from or added to allowed revenue in future years, known as the "Correction Factor" or "K-factor." Over and under-recovered amounts arising for periods beginning with the 2014/15 regulatory year and refunded/recovered under RIIO-ED1 will be refunded/recovered on a two year lag (previously one year). Therefore, the 2014/15 over/under-recovery adjustment will occur in the 2016/17 regulatory year. Under this mechanism, in the 2016/17 regulatory year, WPD will recover the £5 per residential network customer reduction given through reduced tariffs in 2014/15. As a result, revenues were positively affected by $39 million in calendar year 2016 and are projected to be positively affected by $16 million in calendar year 2017.
Historically, tariffs have been set a minimum of three months prior to the beginning of the regulatory year (April 1). In February 2015, Ofgem determined that, beginning with the 2017/18 regulatory year, tariffs would be established a minimum of fifteen months in advance. Therefore, in December 2015, WPD was required to establish tariffs for 2016/17 and 2017/18. This change will potentially increase volatility in future revenue forecasts due to the need to forecast components of allowed revenue including MOD, TRU, K-factor and incentive revenues.
See Note 1 to the Financial Statements for additional information on revenue recognition.
See "Item 1A. Risk Factors - Risks Related to U.K. Regulated Segment" for additional information on the risks associated with the U.K. Regulated Segment.
WPD provides regulated electricity distribution services to licensed third party energy suppliers (its customers) who use the networkWPD's networks to transfer electricity to their customers, the end-users. WPD bills the energy suppliersuppliers for this service and the supplier is responsible for billing theits end-users. Ofgem requires that all licensed electricity distributors and suppliers become parties to the Distribution Connection and Use of System Agreement. This agreement specifies how creditworthiness will be determined and, as a result, whether the supplier needs to collateralize for its payment obligations.
· | Kentucky Regulated Segment (PPL)
|
| |
| Consists of the operations of LKE, which owns and operates regulated public utilities engaged in the generation, transmission, distribution and sale of electricity and distribution and sale of natural gas, representing primarily the activities of LG&E and KU. In addition, certain financing costs are allocated to the Kentucky Regulated segment. |
Kentucky Regulated Segment(PPL)
Consists of the operations of LKE, which owns and operates regulated public utilities engaged in the generation, transmission, distribution and sale of electricity and distribution and sale of natural gas, representing primarily the activities of LG&E and KU. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment.
(PPL, LKE, LG&E and KU)
LG&E and KU, direct subsidiaries of LKE, are engaged in the regulated generation, transmission, distribution and sale of electricity in Kentucky and, in KU's case, Virginia and Tennessee. LG&E also engages in the distribution and sale of natural gas in Kentucky. LG&E provides electric service to approximately 400,000407,000 customers in Louisville and adjacent areas in Kentucky, covering approximately 700 square miles in nine counties and provides natural gas service to approximately 321,000324,000 customers in its electric service area and eight additional counties in Kentucky. KU provides electric service to approximately 515,000521,000 customers in 77 counties in central, southeastern and western Kentucky, approximately 28,000 customers in five counties in southwestern Virginia, and fewer than tenfour customers in Tennessee, covering approximately 4,800 non-contiguous square miles. KU also sells wholesale electricity to 1211 municipalities in Kentucky under load following contracts. In Virginia, KU operates under the name Old Dominion Power Company.
Details of operating revenues, in millions, by customer class for the years ended December 31 are shown below.
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Revenue | | % of Revenue | | Revenue | | % of Revenue | | Revenue | | % of Revenue |
| LKE | | | | | | | | | | | |
| Commercial | $ | 834 |
| | 27 |
| | $ | 816 |
| | 26 |
| | $ | 815 |
| | 26 |
|
| Industrial | 601 |
| | 19 |
| | 628 |
| | 20 |
| | 627 |
| | 20 |
|
| Residential | 1,261 |
| | 40 |
| | 1,245 |
| | 40 |
| | 1,281 |
| | 40 |
|
| Retail - other | 288 |
| | 9 |
| | 267 |
| | 9 |
| | 279 |
| | 9 |
|
| Wholesale - municipal | 116 |
| | 4 |
| | 114 |
| | 4 |
| | 109 |
| | 3 |
|
| Wholesale - other (a) | 41 |
| | 1 |
| | 45 |
| | 1 |
| | 57 |
| | 2 |
|
| Total | $ | 3,141 |
| | 100 |
| | $ | 3,115 |
| | 100 |
| | $ | 3,168 |
| | 100 |
|
| | | 2014 | | 2013 | | 2012 |
| | | | | | % of | | | | | % of | | | | | % of |
| | | Revenue | | Revenue | | Revenue | | Revenue | | Revenue | | Revenue |
| LKE | | | | | | | | | | | | | | | | | | |
| Commercial | | $ | 815 | | | 26 | | $ | 770 | | | 26 | | $ | 723 | | | 26 |
| Industrial | | | 627 | | | 20 | | | 587 | | | 20 | | | 551 | | | 20 |
| Residential | | | 1,281 | | | 40 | | | 1,205 | | | 40 | | | 1,071 | | | 39 |
| Retail - other | | | 279 | | | 9 | | | 260 | | | 9 | | | 270 | | | 10 |
| Wholesale - municipal | | | 109 | | | 3 | | | 110 | | | 4 | | | 102 | | | 4 |
| Wholesale - other (a) | | | 57 | | | 2 | | | 44 | | | 1 | | | 42 | | | 1 |
| Total | | $ | 3,168 | | | 100 | | $ | 2,976 | | | 100 | | $ | 2,759 | | | 100 |
| | | | | | | | | | | | | | | | | | | |
| | | 2014 | | 2013 | | 2012 |
| | | | | | % of | | | | | % of | | | | | % of |
| | | Revenue | | Revenue | | Revenue | | Revenue | | Revenue | | Revenue |
| LG&E | | | | | | | | | | | | | | | | | | |
| Commercial | | $ | 433 | | | 28 | | $ | 405 | | | 29 | | $ | 374 | | | 28 |
| Industrial | | | 194 | | | 13 | | | 186 | | | 13 | | | 170 | | | 13 |
| Residential | | | 650 | | | 43 | | | 614 | | | 44 | | | 548 | | | 41 |
| Retail - other | | | 130 | | | 8 | | | 119 | | | 8 | | | 131 | | | 10 |
| Wholesale - other (a) (b) | | | 126 | | | 8 | | | 86 | | | 6 | | | 101 | | | 8 |
| Total | | $ | 1,533 | | | 100 | | $ | 1,410 | | | 100 | | $ | 1,324 | | | 100 |
| | | | | | | | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | | | | | | |
| Commercial | | $ | 382 | | | 22 | | $ | 365 | | | 22 | | $ | 349 | | | 23 |
| Industrial | | | 433 | | | 25 | | | 401 | | | 25 | | | 381 | | | 25 |
| Residential | | | 631 | | | 36 | | | 591 | | | 36 | | | 523 | | | 34 |
| Retail - other | | | 149 | | | 9 | | | 141 | | | 9 | | | 139 | | | 9 |
| Wholesale - municipal | | | 109 | | | 6 | | | 110 | | | 7 | | | 102 | | | 7 |
| Wholesale - other (a) (b) | | | 33 | | | 2 | | | 27 | | | 1 | | | 30 | | | 2 |
| Total | | $ | 1,737 | | | 100 | | $ | 1,635 | | | 100 | | $ | 1,524 | | | 100 |
| |
| (a) | Includes wholesale power and transmission revenues. |
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Revenue | | % of Revenue | | Revenue | | % of Revenue | | Revenue | | % of Revenue |
| LG&E | | | | | | | | | | | |
| Commercial | $ | 442 |
| | 31 |
| | $ | 436 |
| | 30 |
| | $ | 433 |
| | 28 |
|
| Industrial | 185 |
| | 13 |
| | 199 |
| | 14 |
| | 194 |
| | 13 |
|
| Residential | 627 |
| | 44 |
| | 633 |
| | 44 |
| | 650 |
| | 43 |
|
| Retail - other | 135 |
| | 9 |
| | 117 |
| | 8 |
| | 130 |
| | 8 |
|
| Wholesale - other (a) (b) | 41 |
| | 3 |
| | 59 |
| | 4 |
| | 126 |
| | 8 |
|
| Total | $ | 1,430 |
| | 100 |
| | $ | 1,444 |
| | 100 |
| | $ | 1,533 |
| | 100 |
|
| |
| (a) | Includes wholesale power and transmission revenues. |
| |
| (b) | Includes intercompany power sales and transmission revenues, which are eliminated upon consolidation at LKE. |
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Revenue | | % of Revenue | | Revenue | | % of Revenue | | Revenue | | % of Revenue |
| KU | | | | | | | | | | | |
| Commercial | $ | 392 |
| | 22 |
| | $ | 380 |
| | 22 |
| | $ | 382 |
| | 22 |
|
| Industrial | 416 |
| | 24 |
| | 429 |
| | 25 |
| | 433 |
| | 25 |
|
| Residential | 634 |
| | 36 |
| | 612 |
| | 35 |
| | 631 |
| | 36 |
|
| Retail - other | 153 |
| | 9 |
| | 150 |
| | 9 |
| | 149 |
| | 9 |
|
| Wholesale - municipal | 116 |
| | 7 |
| | 114 |
| | 7 |
| | 109 |
| | 6 |
|
| Wholesale - other (a) (b) | 38 |
| | 2 |
| | 43 |
| | 2 |
| | 33 |
| | 2 |
|
| Total | $ | 1,749 |
| | 100 |
| | $ | 1,728 |
| | 100 |
| | $ | 1,737 |
| | 100 |
|
| |
| (a) | Includes wholesale power and transmission revenues. |
| |
| (b) | Includes intercompany power sales and transmission revenues, which are eliminated upon consolidation at LKE. |
LG&E and KU provide electricity delivery service, and LG&E provides natural gas distribution service, in their respective service territories pursuant to certain franchises, licenses, statutory service areas, easements and other rights or permissions granted by state legislatures, cities or municipalities or other entities.
There are currently no other electric public utilities operating within the electric service areas of LKE. From time to time, bills are introduced into the Kentucky General Assembly which seek to authorize, promote or mandate increased distributed generation, customer choice or other developments. Neither the Kentucky General Assembly nor the KPSC has adopted or approved a plan or timetable for retail electric industry competition in Kentucky. The nature or timing of legislative or regulatory actions, if any, regarding industry restructuring and their impact on LKE, which may be significant, cannot currently be predicted. Virginia, formerly a deregulated jurisdiction, has enacted legislation that implemented a hybrid model of cost-based regulation. KU's operations in Virginia have been and remain regulated.
Alternative energy sources such as electricity, oil, propane and other fuels provide indirect competition forindirectly impact LKE's natural gas revenues of LKE.revenues. Marketers may also compete to sell natural gas to certain large end-users. LG&E's natural gas tariffs include gas price pass-through mechanisms relating to its sale of natural gas as a commodity; therefore, customer natural gas purchases from alternative suppliers do not generally impact LG&E's profitability. However, someSome large industrial and commercial customers, however, may physically bypass LG&E's facilities and seek delivery service directly from interstate pipelines or other natural gas distribution systems.
At December 31, 2014,2016, LKE owned, controlled or had a minority ownership interest in generating capacity (summer rating) of 8,0878,011 MW, of which 3,3422,916 MW related to LG&E and 4,7455,095 MW related to KU, in Kentucky, Indiana, and Ohio. See "Item 2. Properties - Kentucky Regulated Segment" for a complete list of LKE's generating facilities.
The system capacity of LKE's owned or controlled generation is based upon a number of factors, including the operating experience and physical condition of the units, and may be revised periodically to reflect changes in circumstances.
During 2014,2016, LKE's Kentucky power plants generated the following amounts of electricity.
| | GWh |
| Fuel Source | LKE | | LG&E | | KU |
| Coal (a) | 33,768 | | 14,944 | | 18,824 |
| Oil / Gas | 1,505 | | 522 | | 983 |
| Hydro | 344 | | 272 | | 72 |
| Total (b) | 35,617 | | 15,738 | | 19,879 |
10 |
| | | | | | | | |
| | GWh |
| Fuel Source | LKE | | LG&E | | KU |
| Coal (a) | 28,029 |
| | 11,722 |
| | 16,307 |
|
| Oil / Gas | 6,357 |
| | 1,463 |
| | 4,894 |
|
| Hydro | 408 |
| | 321 |
| | 87 |
|
| Total (b) | 34,794 |
| | 13,506 |
| | 21,288 |
|
| |
| (a) | Includes 896864 GWh of power generated by and purchased from OVEC for LKE, 620598 GWh for LG&E and 276266 GWh for KU. |
| |
| (b) | This generation represents a 1.4%0.1% increase for LKE, a 5.4% increase0.6% decrease for LG&E and a 1.6% decrease0.4% increase for KU from 20132015 output. |
AThe majority of LG&E's and KU's generated electricity was used to supply itstheir retail and KU's municipal customer base.
LG&E and KU jointly dispatch their generation units with the lowest cost generation used to serve their retail and municipal customers. When LG&E has excess generation capacity after serving its own retail customers and its generation cost is lower than that of KU, KU purchases electricity from LG&E. When&E and vice versa.
As a result of environmental requirements, KU has excess generationretired two coal-fired units, with a combined capacity after serving its own retailof 161 MW, at the Green River plant in September 2015. LG&E retired a 240 MW coal-fired unit in March 2015 and municipal customers and its generation cost is lower than thattwo additional coal-fired units, with a combined capacity of LG&E, LG&E purchases electricity from KU.
See "Item 2. Properties - Kentucky Regulated Segment" for additional information regarding LG&E's and KU's323 MW, in June 2015 at the Cane Run Unit 7 which is currently underplant. KU retired a 71 MW coal-fired unit at the Tyrone plant in 2013. In June 2016, LG&E and KU completed construction activities and LG&E's and KU's CPCN application to constructplaced into commercial operation a 10 MW solar generating facility at the E.W. Brown generating site. As a result of environmental requirements,
In 2016, LG&E and KU anticipate retiring five older coal-fired electric generating units atreceived approval from the Cane Run plantKPSC to develop a 4 MW solar share facility to service a solar share program. The solar share program is an optional, voluntary program that allows customers to subscribe capacity in 2015 and the Green River plantsolar share facility. Construction is expected to begin, in 2016, which have a combined summer capacity rating of 724 MW. In addition, KU retired the remaining 71 MW coal-fired unit at the Tyrone plant in February 2013 and retired a 12 MW gas-fired unit at the Haefling plant in December 2013.500-kilowatt phases, when subscription is complete.
Coal is expectedcontinues to be the predominant fuel used by LG&E and KU for baseload generation for the foreseeable future. However, natural gas will playAs a more significant role starting in 2015 whenresult of Cane Run Unit 7 is expected to bebeing placed into operation as baseload generation.during 2015, natural gas is also a prominent fuel. The natural gas for this generating unit will be contracted from suppliers separatelyis purchased using contractual arrangements separate from LG&E's natural gas customers.distribution operations. Natural gas and oil will continue to be used for intermediate and peaking capacity and flame stabilization in coal-fired boilers.
Fuel inventory is maintained at levels estimated to be necessary to avoid operational disruptions at coal-fired generating units. Reliability of coal deliveries can be affected from time to time by a number of factors including fluctuations in demand, coal mine production issues and other supplier or transporter operating difficulties. To enhance the reliability of natural gas supply, LG&E and KU have secured long-term pipeline capacity on the interstate pipeline serving the new NGCC unit at Cane Run and six simple cycle combustion turbine units.
LG&E and KU have entered into coal supply agreements with various suppliers for coal deliveries through 20192023 and normally augment their coal supply agreements with spot market purchases, as needed.
For their existing units, LG&E and KU expect for the foreseeable future to purchase most of their coal from western Kentucky, southern Indiana and southern Illinois. In 2015 and beyond, LG&E and KU maycontinue to purchase certain quantities of ultra-low sulfur content coal from Wyoming for blending at TC2.Trimble County Unit 2. Coal is delivered to the generating plants primarily by barge truck and rail.
To enhance the reliability of natural gas supply, LG&E and KU have secured firm long-term pipeline transport capacity with contracts of various durations from 2019 to 2024 on the interstate pipeline serving Cane Run Unit 7. This pipeline also serves the six simple cycle combustion turbine units located at the Trimble County site as well as four other simple cycle units at the Cane Run and Paddy's Run sites. LG&E has also secured long-term firm pipeline transport capacity on an interstate pipeline for the summer months through October 2018 to serve an additional simple cycle gas turbine operated under a tolling agreement. For the seven simple cycle combustion turbines at the E.W. Brown facility, no firm long-term pipeline transport capacity has been purchased due to the facility being interconnected to two pipelines and some of the units having dual fuel capability.
LG&E and KU have firm contracts for a portion of the natural gas fuel for Cane Run Unit 7 for delivery in future months. The bulk of the natural gas fuel remains purchased on the spot market.
(PPL, LKE and LG&E)
| Natural Gas Distribution Supply |
Five underground natural gas storage fields, with a current working natural gas capacity of approximately 15 Bcf,billion cubic feet (Bcf), are used in providing natural gas service to LG&E's firm sales customers. By using natural gas storage facilities, LG&E avoids the costs typically associated with more expensive pipeline transportation capacity to serve peak winter heating loads. Natural gas is stored during the summer season for withdrawal during the following winter heating season. Without this storage capacity, LG&E would be required to purchase additional natural gas and pipeline transportation services during winter months when customer demand increases and the prices for natural gas supply and transportation services are typicallycan be expected to be at their highest. Several suppliers under contracts of varying duration provide competitively priced natural gas. At December 31, 2014,2016, LG&E had 12 Bcf of natural gas stored underground with a carrying value of $54$42 million.
LG&E has a portfolio of supply arrangements of varying durations and terms with a number of suppliersthat provide competitively priced natural gas designed to meet its firm sales obligations. These natural gas supply arrangements include pricing provisions that are market-responsive. In tandem with pipeline transportation services, these natural gas supplies provide the reliability and flexibility necessary to serve LG&E's natural gas customers.
LG&E purchases natural gas supply transportation services from two pipelines. LG&E has contracts with one pipeline that are subject to termination by LG&E between 20152018 and 2020.2021. Total winter season capacity under these contracts is 194,900184,900 MMBtu/day and summer season capacity is 88,00060,000 MMBtu/day. Additionally,With this same pipeline, LG&E also has another contract for pipeline capacity through 2026 in the amount of 60,000 MMBtu/day during both the winter and summer seasons. LG&E has a contract with the same pipeline for the month of January 2015 with a total capacity of 35,000 MMBtu/day, and asingle contract with a second pipeline with a total capacity of 20,000 MMBtu/day during both the winter and summer seasons that expires in October 2018.
LG&E expects to purchase natural gas supplies for its gas distribution operations from onshore producing regions in South Texas, East Texas, North Louisiana and Arkansas, as well as gas originating in the Rockies, Marcellus and Utica production areas.
(PPL, LKE, LG&E and KU)
LG&E and KU contract with the Tennessee Valley Authority to act as their transmission reliability coordinator and contract with TranServ International, Inc. to act as their independent transmission operator.
In February 2013, LG&E and KU submitted a compliance filing to the FERC reflecting their participation with other utilities in the Southeastern Regional Transmission Planning group relating to certain FERC Order 1000 requirements. FERC Order 1000, issued in July 2011, establishes certain procedural and substantive requirements relating to participation, cost allocation and non-incumbent developer aspects of regional and inter-regional electric transmission planning activities. Rates
LG&E is subject to the jurisdiction of the KPSC and the FERC, and KU is subject to the jurisdiction of the KPSC, the FERC the VSCC and the TRA.VSCC. LG&E and KU operate under a FERC-approved open access transmission tariff (OATT).tariff.
LG&E's and KU's Kentucky base rates are calculated based on a return on capitalization (common equity, long-term debt and short-term debt) including adjustments for certain net investments and costs recovered separately through other means. As such, LG&E and KU generally earn a return on regulatory assets.assets in Kentucky.
KU's Virginia base rates are calculated based on a return on rate base (net utility plant plus working capital less deferred taxes and miscellaneous deductions). AllAs all regulatory assets and liabilities, except the levelized fuel factor, are excluded from the return on rate base utilized in the calculation of Virginia base rates; therefore,rates, no return is earned on the related assets.
KU's rates to 1211 municipal customers for wholesale power requirements are calculated based on annual updates to a formula rate that utilizes a return on rate base (net utility plant plus working capital less deferred taxes and miscellaneous deductions). AllAs all regulatory assets and liabilities are excluded from the return on rate base utilized in the development of municipal rates; therefore,rates, no return is earned on the related assets. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts. Such terminations are to be effective in 2019, except in the case of one municipality with a 2017 effective date. In addition, a tenth municipality has a previously settled termination date of 2016.
See Note 6 to the Financial Statements for additional information on cost recovery mechanisms.
Rate Case
On November 26, 2014,23, 2016, LG&E and KU filed requests with the KPSC for increases in annual base electricity rates of approximately $30 million at LG&E and approximately $153$103 million at KU and an increase in annual base electricity and gas rates of approximately $94 million and $14 million at LG&E. The proposed base rate increases would result in an electricity rate increase of 6.4% at KU and
electricity and gas rate increases of 2.7% at LG&E8.5% and 9.6% at KU and a gas rate increase of 4.2% at LG&E and would&E. New rates are expected to become effective inon July 2015.1, 2017. LG&E's and KU's applications each include requests for CPCNs for implementing an Advanced Metering System and a request for authorized returns-on-equity of 10.5%.Distribution Automation program. The applications are based on a forecasted test year of July 1, 20152017 through June 30, 2016.2018 and a requested return on equity of 10.23%. A number of parties have been granted intervention requests in the proceedings. Data discovery and the filing of written testimony will continue through April 2017. A public hearing on the applications is scheduled to commence on April 21, 2015.May 2, 2017. LG&E and KU cannot predict the outcome of these proceedings.
On October 31, 2016, KU filed a request with the FERC to modify its formula rates to provide for the recovery of CCR impoundment closure costs from its departing municipal customers. On December 30, 2016, the FERC accepted the revised rate schedules providing recovery of the costs effective December 31, 2016, subject to refund, and established limited hearing and settlement judge procedures relating to determining the applicable amortization period.
· | Pennsylvania Regulated Segment (PPL)
|
| |
| Includes the regulated electricity delivery operations of PPL Electric. |
See Note 6 to the Financial Statements for additional information on cost recovery mechanisms.
Pennsylvania Regulated Segment(PPL)
Consists of PPL Electric, a regulated public utility engaged in the distribution and transmission of electricity.
(PPL and PPL Electric)
PPL Electric delivers electricity to approximately 1.4 million customers in a 10,000-square mile territory in 29 counties of eastern and central Pennsylvania. PPL Electric also provides electricity supply to retail customers in this area as a PLR under the Customer Choice Act.
Details of revenues, in millions, by customer class for the years ended December 31 are shown below.
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Revenue | | % of Revenue | | Revenue | | % of Revenue | | Revenue | | % of Revenue |
| Distribution | | | | | | | | | | | |
| Residential | $ | 1,327 |
| | 61 |
| | $ | 1,338 |
| | 63 |
| | $ | 1,285 |
| | 63 |
|
| Industrial | 42 |
| | 2 |
| | 58 |
| | 3 |
| | 52 |
| | 3 |
|
| Commercial | 338 |
| | 16 |
| | 377 |
| | 18 |
| | 367 |
| | 18 |
|
| Other (a) | (4 | ) | | — |
| | (44 | ) | | (2 | ) | | 5 |
| | — |
|
| Transmission | 453 |
| | 21 |
| | 395 |
| | 18 |
| | 335 |
| | 16 |
|
| Total | $ | 2,156 |
| | 100 |
| | $ | 2,124 |
| | 100 |
| | $ | 2,044 |
| | 100 |
|
| |
| (a) | Includes regulatory over- or under-recovery reconciliation mechanisms, pole attachment revenues and street lighting, offset by contra revenue associated with the network integration transmission service expense. |
| | | | 2014 | | 2013 | | 2012 |
| | | | Revenue | | % of Revenue | | Revenue | | % of Revenue | | Revenue | | % of Revenue |
| Distribution | | | | | | | | | | | | | | | | | | |
| | Residential | | $ | 1,285 | | | 63 | | $ | 1,215 | | | 65 | | $ | 1,108 | | | 63 |
| | Industrial | | | 52 | | | 3 | | | 52 | | | 3 | | | 53 | | | 3 |
| | Commercial | | | 367 | | | 18 | | | 363 | | | 19 | | | 366 | | | 21 |
| | Other | | | 5 | | | | | | (11) | | | | | | 26 | | | 1 |
| Transmission | | | 335 | | | 16 | | | 251 | | | 13 | | | 210 | | | 12 |
| | Total | | $ | 2,044 | | | 100 | | $ | 1,870 | | | 100 | | $ | 1,763 | | | 100 |
| Franchise, Licenses and Other Regulations |
PPL Electric is authorized to provide electric public utility service throughout its service area as a result of grants by the Commonwealth of Pennsylvania in corporate charters to PPL Electric and companies, which it has succeeded and as a result of certification by the PUC. PPL Electric is granted the right to enter the streets and highways by the Commonwealth subject to certain conditions. In general, such conditions have been met by ordinance, resolution, permit, acquiescence or other action by an appropriate local political subdivision or agency of the Commonwealth.
Pursuant to authorizations from the Commonwealth of Pennsylvania and the PUC, PPL Electric operates a regulated distribution monopoly in its service area. Accordingly, PPL Electric does not face competition in its electricity distribution business. Pursuant to the Customer Choice Act, generation of electricity is a competitive business in Pennsylvania, and PPL Electric does not own or operate any generation facilities.
The PPL Electric transmission business, operating under a FERC-approved PJM Open Access Transmission Tariff, is subject to competition pursuant to FERC Order 1000 from entities that are not incumbent PJM transmission owners with respect to the construction and ownership of transmission facilities within PJM.
Rates and Regulation
Transmission
PPL Electric's transmission facilities are within PJM, which operates the electricity transmission network and electric energy market in the Mid-Atlantic and Midwest regions of the U.S.
PJM serves as a FERC-approved RTORegional Transmission Operator (RTO) to promote greater participation and competition in the region it serves. In addition to operating the electricity transmission network, PJM also administers regional markets for energy, capacity and ancillary services. A primary objective of any RTO is to separate the operation of, and access to, the transmission grid from market participants that buy or sell electricity in the same markets. Electric utilities continue to own the transmission assets and to receive their share of transmission revenues, but the RTO directs the control and operation of the transmission facilities. Certain types of transmission investment are subject to competitive processes outlined in the PJM tariff.
As a transmission owner, PPL Electric's transmission revenues are recovered through PJM and billed in accordance with a FERC approved tariffFERC-approved Open Access Transmission Tariff that allows recovery of incurred transmission costs, a return on transmission-related plant and an automatic annual update based on a formula-based rate recovery mechanism. Under this formula, rate mechanism. rates are put into effect in June of each year based upon prior year actual expenditures and current year forecasted capital additions. Rates are then adjusted the following year to reflect actual annual expenses and capital additions, as reported in PPL Electric’s annual FERC Form 1, filed under the FERC’s Uniform System of Accounts. Any difference between the revenue requirement in effect for the prior year and actual expenditures incurred for that year is recorded as a regulatory asset or regulatory liability.
As a PLR, PPL Electric also purchases transmission services from PJM. See "PLR" below.
See Note 6 to the Financial Statements for additional information on rate mechanisms.
Distribution
PPL Electric's distribution base rates are calculated based on a return on rate base (net utility plant plus a cash working capital allowance less plant-related deferred taxes and other miscellaneous additions and deductions). All regulatory assets and liabilities are excluded from the return on rate base; therefore, no return is earned on the related assets unless specifically provided for by the PUC. Currently, PPL Electric's Smart Meter rider and the DSIC are the only regulatory assets earningriders authorized to earn a return. Certain operating expenses are also included in PPL Electric's distribution base rates including wages and benefits, other operation and maintenance expenses, depreciation and taxes.
Pennsylvania's AEPSAlternative Energy Portfolio Standard (AEPS) requires electricity distribution companies and electricity generation suppliers to obtain from alternative energy resources a portion of the electricity sold to retail customers in Pennsylvania from alternative energy sources.Pennsylvania. Under the default service procurement plans approved by the PUC, PPL Electric purchases all of the alternative energy generation supply it needs to comply with the AEPS.
Act 129 created an energy efficiency and conservation program, a demand side management program, smart metering technology requirements, new PLR generation supply procurement rules, remedies for market misconduct and changes to the existing AEPS.
Act 11 authorizes the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, the use of a DSIC. Such alternative ratemaking procedures and mechanisms provide opportunity for accelerated cost-recovery and, therefore, are important to PPL Electric as it is in a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging assets. In January 2013, PPL Electric filed a petition requesting permissionhas utilized the fully projected future test year mechanism in the 2015 base rate proceeding. PPL has had the ability to establish a DSIC. In May 2013,utilize the PUC approved PPL Electric's proposed DSIC with an initial rate effectiverecovery mechanism since July 1, 2013, subject to refund after hearings. The PUC also assigned four technical recovery calculation issues to the Office of Administrative Law Judge for hearing and preparation of a recommended decision. In August 2014, the presiding Administrative Law Judge issued a recommended decision which would not have a significant impact on PPL Electric. This matter remains pending before the PUC.2013.
See "Regulatory Matters - Pennsylvania Activities" in Note 6 to the Financial Statements for additional information regarding Act 129 Act 11 and other legislative and regulatory impacts.
PLR
The Customer Choice Act requires Electric Distribution Companies (EDCs), including PPL Electric, or an alternative supplier approved by the PUC to act as a PLR of electricity supply for customers who do not choose to shop for supply with a competitive supplier and provides that electricity supply costs will be recovered by the PLR pursuant to regulations established byPUC regulations. In
2016, the PUC. As of December 31, 2014, the following average percentages of PPL Electric's customer load were provided by competitive suppliers: 50%49% of residential, 83%86% of small commercial and industrial and 99% of large commercial and industrial customers. The PUC continues to be interested in expanding the competitive market for electricity. See "Regulatory Matters - Pennsylvania Activities"Activities - Act 129" in Note 6 to the Financial Statements for additional information.
PPL Electric's cost of electricity generation is based on a competitive solicitation process. The PUC approved PPL Electric's default service plan for the period June 20132015 through May 2015,2017, which includesincluded 4 solicitations for electricity supply held semiannually in April and October, annually.October. The PUC approved PPL Electric's default service plan for the period June 2017 through May 2021, which includes a total of 8 solicitations for electricity supply held semiannually in April and October. Pursuant to this plan,both the current and future plans, PPL Electric contracts for all of the electricity supply for residential smallcustomers and commercial and small industrial customers, large commercial and large industrial customers who elect to take that service from PPL Electric. These solicitations include a mix of 12-6- and 9-month12-month fixed-price load-following contracts for residential and small commercial and small industrial customers, and 12-month real-time pricing contracts for large commercial and large industrial customers to fulfill PPL Electric's obligation to provide customer electricity supply as a PLR. In April 2014, PPL Electric filed a new Default Service Plan with the PUC for the period of June 1, 2015 through May 31, 2017. The petition was approved by the PUC on January 15, 2015.
Numerous alternative suppliers have offered to provide generation supply in PPL Electric's service territory. Since the cost of generation supply is a pass-through cost for PPL Electric, its financial results are not impacted if its customers purchase electricity supply from these alternative suppliers. See "Energy Purchase Commitments" in Note 13 to the Financial Statements for additional information regarding PPL Electric's solicitations.
· | Supply SegmentCorporate and Other (PPL) |
| |
| Consists primarily of the activities of PPL Energy Supply's subsidiaries, PPL Generation and PPL EnergyPlus. PPL Generation owns and operates competitive domestic power plants to generate electricity and acquires and develops competitive domestic generation projects. PPL EnergyPlus markets and trades electricity, natural gas, and other energy-related products in competitive wholesale and retail markets. In addition, certain financing and other costs are allocated to the Supply segment. Upon completion of the anticipated spinoff of PPL Energy Supply in 2015, PPL will no longer have a Supply segment. See "Anticipated Spinoff of PPL Energy Supply" above for additional information. |
(PPL and PPL Energy Supply)
PPL Energy Supply's generation assets are primarily located in Pennsylvania and Montana. PPL Energy Supply enters into energy and energy-related contracts to hedge the variability of expected cash flows associated with its generating units and marketing activities, as well as for trading purposes. PPL EnergyPlus sells the electricity produced by PPL Energy Supply's generation plants based on prevailing market rates. PPL Energy Supply's total expected generation in 2015 is anticipated to be used to meet its committed contractual sales. PPL Energy Supply has also entered into commitments of varying quantities and terms for 2016 and beyond.
Details of revenue by category for the years ended December 31, are shown below.
| | | | 2014 | | 2013 | | 2012 |
| | | | Revenue | | % of Revenue | | Revenue | | % of Revenue | | Revenue | | % of Revenue |
| Energy | | | | | | | | | | | | | | | | | | |
| | Unregulated wholesale energy (a) | | $ | 1,892 | | | 51 | | $ | 2,960 | | | 65 | | $ | 4,054 | | | 76 |
| | Unregulated retail energy | | | 1,243 | | | 33 | | | 1,027 | | | 23 | | | 844 | | | 16 |
| | Total energy | | | 3,135 | | | 84 | | | 3,987 | | | 88 | | | 4,898 | | | 92 |
| Energy-related businesses (b) | | | 601 | | | 16 | | | 527 | | | 12 | | | 448 | | | 8 |
| Total | | $ | 3,736 | | | 100 | | $ | 4,514 | | | 100 | | $ | 5,346 | | | 100 |
(a) | Included in these amounts for 2014, 2013 and 2012 are $84 million, $51 million and $78 million of wholesale electricity sales to an affiliate, PPL Electric, which are eliminated in consolidation for PPL. |
(b) | Energy-related businesses primarily support the generation, marketing and trading businesses of PPL Energy Supply. Their activities include developing renewable energy projects and providing energy-related products and services to commercial and industrial customers through their mechanical contracting and services subsidiaries. Energy-related businesses for PPL's Supply segment had additional revenues not related to PPL Energy Supply of $13 million for 2012, which are not included in this table. |
PPL Energy Supply owned or controlled generating capacity (summer rating) of 9,896 MW at December 31, 2014. Generating capacity controlled by PPL Generation and other PPL Energy Supply subsidiaries includes power obtained through PPL EnergyPlus' power purchase agreements. See "Item 2. Properties - Supply Segment" for details of PPL Energy Supply's generating capacity.
During 2014, PPL Energy Supply owned or controlled power plants that generated the following amounts of electricity.
| | | | GWh |
| Fuel Source | | Northeastern | | Northwestern | | Total |
| | | | | | | | |
| Nuclear | | 16,903 | | | | 16,903 |
| Oil / Gas | | 11,080 | | | | 11,080 |
| Coal | | 16,074 | | 4,030 | | 20,104 |
| Hydro (a) | | 931 | | 3,318 | | 4,249 |
| Renewables (b) | | 413 | | | | 413 |
| Total | | 45,401 | | 7,348 | | 52,749 |
(a) | The Northwestern amount reflects generation from hydroelectric generating facilities that were sold by PPL Montana to NorthWestern in November 2014. See Note 8 to the Financial Statements for additional information. |
(b) | PPL Energy Supply subsidiaries own or control renewable energy projects located in Pennsylvania, New Jersey, Vermont and New Hampshire with a generating capacity (summer rating) of 25 MW. PPL EnergyPlus sells the energy, capacity and RECs produced by these plants into the wholesale market as well as to commercial and industrial customers. |
PPL Energy Supply's generation subsidiaries are EWGs that sell electricity into wholesale markets. EWGs are subject to regulation by the FERC, which has authorized these EWGs to sell the electricity generated at market-based prices. This electricity is sold to PPL EnergyPlus under FERC-jurisdictional power purchase agreements. PPL Susquehanna is subject to the jurisdiction of the NRC in connection with the operation of the Susquehanna nuclear units. Certain of PPL Energy Supply's other subsidiaries are subject to the jurisdiction of the NRC in connection with the operation of their fossil plants with respect to certain level and density monitoring devices. Certain operations of PPL Generation's subsidiaries are also subject to OSHA and comparable state statutes.
Coal
Pennsylvania
PPL EnergyPlus actively manages PPL Energy Supply's coal requirements by purchasing coal principally from mines located in northern Appalachia.
During 2014, PPL Generation purchased 5.6 million tons of coal required for its wholly owned Pennsylvania plants. Coal inventory is maintained at levels estimated to be necessary to avoid operational disruptions at coal-fired generating units. Reliability of coal deliveries can be affected from time to time by a number of factors including fluctuations in demand, coal mine production issues and other supplier or transporter operating difficulties. PPL Generation, by and through its agent PPL EnergyPlus, has agreements in place that will provide more than 16 million tons of PPL Generation's projected coal needs for the Pennsylvania power plants from 2015 through 2018 and augments its coal supply agreements with spot market purchases, as needed.
A PPL Generation subsidiary owns a 12.34% interest in the Keystone plant and a 16.25% interest in the Conemaugh plant. PPL Generation owns a 12.34% interest in Keystone Fuels, LLC and a 16.25% interest in Conemaugh Fuels, LLC. The Keystone plant contracts with Keystone Fuels, LLC for its coal requirements, which provided 4.5 million tons of coal to the Keystone plant in 2014. The Conemaugh plant requirements are purchased under contract from Conemaugh Fuels, LLC, which provided 4.5 million tons of coal to the Conemaugh plant in 2014.
All wholly owned PPL Generation coal plants within Pennsylvania are equipped with scrubbers, which use limestone in their operations. Acting as agent for PPL Generation, PPL EnergyPlus has entered into limestone contracts with suppliers that will provide for those plants' requirements through 2016. During 2014, 430,000 tons of limestone were delivered to Brunner Island and Montour under these contracts. Annual limestone requirements range from approximately 400,000-500,000 tons.
Montana
PPL Montana owns a 30% interest in Colstrip Unit 3 and NorthWestern owns a 30% interest in Colstrip Unit 4. PPL Montana and NorthWestern have a sharing agreement that governs each party's responsibilities and rights relating to the operation of Colstrip Units 3 and 4. Under the terms of that agreement, each party is responsible for 15% of the total non-coal operating and construction costs of Colstrip Units 3 and 4, regardless of whether a particular cost is specific to Colstrip Unit 3 or 4 and is entitled to take up to 15% of the available generation from Units 3 and 4. Each party is responsible for its own coal costs. PPL Montana, with the other Colstrip owners, is party to contracts to purchase 100% of its coal requirements with defined coal quality characteristics and specifications. PPL Montana, with the other Colstrip Units 1 and 2 owner, has a long-term purchase and supply agreement with the current supplier for Units 1 and 2, which provides these units 85% to 100% of their coal requirements (at owners' option) from January 2015 through December 2019. PPL Montana, with the other Colstrip Units 3 and 4 owners, has a long-term coal supply contract for Units 3 and 4, which provides these units 100% of their coal requirements through December 2019.
These units were originally built containing scrubbers and PPL Montana has entered into a long-term contract to purchase the limestone requirements for these units. The contract extends through December 2030.
Coal supply contracts are in place to purchase low-sulfur coal with defined quality characteristics and specifications for PPL Montana's Corette plant. The contracts covered 100% of the plant's coal requirements in 2014 and similar contracts are in place to supply 100% of the expected coal requirements through the suspension of plant operations scheduled for no later than April 2015. The plant is expected to be retired in August 2015.
Oil and Natural Gas
Pennsylvania
PPL Generation's Martins Creek Units 3 and 4 burn both oil and natural gas. During 2014, 100% of the physical gas requirements for the Martins Creek units were purchased on the spot market using either delivered supply or a combination of spot market supply and short-term capacity and oil requirements were supplied from inventory and replenished by purchases made in the spot market. At December 31, 2014, there were no long-term agreements for oil or natural gas for these units.
Short-term and long-term gas transportation contracts are in place for approximately 38% of the maximum daily requirements of the Lower Mt. Bethel combined-cycle facility.
For PPL's Ironwood combined-cycle facility, PPL EnergyPlus has long-term transportation contracts that can deliver up to approximately 25% of Ironwood's maximum daily gas requirements. Daily gas requirements can also be met through a combination of short-term transportation capacity release transactions coupled with upstream supply.
In addition, PPL EnergyPlus has secured long-term natural gas supply for approximately 10% of the combined needs of Ironwood and Lower Mt. Bethel through 2016.
Nuclear
The nuclear fuel cycle consists of several material and service components: the mining and milling of uranium ore to produce uranium concentrates; the conversion of these concentrates into uranium hexafluoride, a gas component; the enrichment of the hexafluoride gas; the fabrication of fuel assemblies for insertion and use in the reactor core; and the temporary storage and final disposal of spent nuclear fuel.
PPL Susquehanna has a portfolio of supply contracts, with varying expiration dates, for nuclear fuel materials and services. These contracts are expected to provide sufficient fuel to permit Unit 1 to operate into the first quarter of 2020 and Unit 2 to operate into the first quarter of 2019. PPL Susquehanna anticipates entering into additional contracts to ensure continued operation of the nuclear units.
Federal law requires the U.S. government to provide for the permanent disposal of commercial spent nuclear fuel, but there is no definitive date by which a repository will be operational. As a result, it was necessary to expand Susquehanna's on-site spent fuel storage capacity. To support this expansion, PPL Susquehanna contracted for the design and construction of a spent fuel storage facility employing dry cask fuel storage technology. The facility is modular, so that additional storage capacity can be added as needed. The facility began receiving spent nuclear fuel in 1999. PPL Susquehanna estimates, under current operating conditions, that there is sufficient storage capacity in the spent nuclear fuel pools and the on-site spent fuel storage facility at Susquehanna to accommodate spent fuel discharged through approximately 2017. If necessary, the on-site spent fuel storage facility can be expanded, assuming appropriate regulatory approvals are obtained, such that, together, the spent fuel pools and the expanded dry fuel storage facility will accommodate all of the spent fuel expected to be discharged through 2044, the current licensed life of the plant.
In 1996, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the Nuclear Waste Policy Act imposed on the DOE an unconditional obligation to begin accepting spent nuclear fuel on or before January 31, 1998. In January 2004, PPL Susquehanna filed suit in the U.S. Court of Federal Claims for unspecified damages suffered as a result of the DOE's breach of its contract to accept and dispose of spent nuclear fuel. In May 2011, PPL Susquehanna entered into a settlement agreement with the U.S. Government relating to PPL Susquehanna's lawsuit. The settlement included reimbursement of certain costs to store spent nuclear fuel at the Susquehanna plant incurred from 1998 through December 31, 2013, and PPL Susquehanna received payments for its claimed costs for those periods. In exchange, PPL Susquehanna waived any claims against the U.S. Government for costs paid or injuries sustained related to storing spent nuclear fuel at the Susquehanna plant through December 31, 2013. In January 2014, PPL Susquehanna entered into a new agreement with the DOE to extend the settlement agreement on the same terms as the prior agreement for an additional three years to the end of 2016.
PPL EnergyPlus sells the capacity and electricity produced by PPL Generation subsidiaries, and buys and sells purchased power, capacity, ancillary services, FTRs, natural gas, oil, uranium, emission allowances and RECs in competitive wholesale and competitive retail markets.
PPL EnergyPlus transacts in competitive retail energy markets, and buys and sells electricity and natural gas supply, to meet the diverse needs of business customers. PPL EnergyPlus sells retail electricity supply to business customers in Delaware, the District of Columbia, Maryland, Montana, New Jersey, Ohio and Pennsylvania and sells retail natural gas supply to business customers in Delaware, Maryland, New Jersey, and Pennsylvania. The company also offers electricity supply to select residential customers in Pennsylvania. Although retail energy revenues continue to grow, the net margins related to these activities are not currently a significant component of PPL Energy Supply's margins.
Within the constraints of its hedging policy, PPL EnergyPlus actively manages its portfolios of energy and energy-related products to optimize their value and to limit exposure to price fluctuations. See Note 17 to the Financial Statements for more information.
Since the early 1990s, there has been increased competition in U.S. energy markets because of federal and state competitive market initiatives. Although some states, such as Pennsylvania and Montana, have created a competitive market for electricity generation, other states continue to consider different types of regulatory initiatives concerning competition in the power and gas industries. Some states that were considering creating competitive markets have slowed their plans or postponed further consideration. In addition, states that have created competitive markets have, from time to time, considered new market rules and re-regulation measures that could result in more limited opportunities for competitive energy suppliers. Interest in re-regulation, however, has slowed due to recent declining power prices. As such, the markets in which PPL Energy Supply participates are highly competitive.
PPL Energy Supply faces competition in wholesale markets for available energy, capacity and ancillary services. Competition is impacted by electricity and fuel prices, congestion along the power grid, governmental mandates for new generation, new market entrants, construction of new generating assets, technological advances in power generation, the actions of environmental and other regulatory authorities and other factors. PPL Energy Supply primarily competes with other electricity suppliers based on its ability to aggregate generation supply at competitive prices from different sources and to efficiently utilize transportation from third-party pipelines and transmission from electric utilities and ISOs. Competitors in wholesale power markets include regulated utilities, industrial companies, NUGs, competitive subsidiaries of regulated utilities and other energy marketers. See "Item 1A. Risk Factors - Risks Related to Supply Segment", "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" and Notes 13 and 17 to the Financial Statements for more information concerning the risks faced with respect to competitive energy markets.
See "Energy Marketing" above for a discussion of PPL EnergyPlus' licenses in various states. PPL EnergyPlus has a license from the DOE to export electric energy to Canada. PPL EnergyPlus also has a permit from the National Energy Board of Canada to export firm and interruptible energy from Canada to the U.S.
PPL Susquehanna operates Units 1 and 2 pursuant to NRC operating licenses that expire in 2042 for Unit 1 and in 2044 for Unit 2.
In 2008, a PPL Energy Supply subsidiary, PPL Bell Bend, LLC, submitted a COLA to the NRC for a new nuclear generating unit (Bell Bend) to be built adjacent to the Susquehanna plant. Also in 2008, the COLA was formally docketed and accepted for review by the NRC. PPL Bell Bend, LLC does not expect to complete the COLA review process with the NRC prior to 2018. See Note 8 to Financial Statements for additional information.
PPL Holtwood operates the Holtwood and Wallenpaupack hydroelectric generating plants pursuant to FERC-granted licenses that expire in 2030 and 2045, respectively.
· | Other Corporate Functions (PPL)
|
PPL Services provides corporate functions such as financial, legal, supply chain, human resourcesPPL subsidiaries with administrative, management and information technologysupport services. MostThe costs of PPL Services' coststhese services are charged directly to the respective PPL subsidiariesrecipients for the services provided or indirectly charged to applicable subsidiariesrecipients based on an average of the subsidiaries'recipients' relative invested capital, operation and maintenance expenses and number of employees.
Upon completion of the anticipated spinoff of PPL Energy Supply and any related transition services to Talen Energy, the remaining corporate functions that would be provided by PPL Services would primarily be in support of PPL Electric. As a result, a newly created centralized services company has been formed, PPL EU Services, which will provide the majority of corporate functions such as financial, supply chain, human resources and information technology services to PPL Electric. Significant portions of the various corporate functions within PPL Services will be transferred to PPL EU Services during 2015 and 2016 as the transition services agreements with Talen Energy expire. Most of PPL EU Services' costs will be charged directly to PPL Electric for the services provided, with limited amounts charged back to PPL Services and its affiliates. PPL Services will continue to provide certain limited corporate functions, as the size of the organization is being reduced from approximately 1,200 employees to less than 200 employees after the transition services with Talen Energy are complete.
PPL Capital Funding, PPL's financing subsidiary, provides financing for the operations of PPL and certain subsidiaries. PPL's growth in rate-regulated businesses provides the organization with an enhanced corporate level financing alternative, through PPL Capital Funding, that further enables PPL to cost effectively support targeted credit profiles across all of PPL's rated companies. As a result, PPL plans to further utilize PPL Capital Funding as a source of capital in future financings, in addition to continued direct financing by the operating companies.
Unlike PPL Services and PPL EU Services, PPL Capital Funding's costs are not generally charged to PPL subsidiaries. Costs are charged directly to PPL. However, PPL Capital Funding participated significantly in the financing for the acquisitions of LKE and WPD Midlands and certain associated financing costs were allocated to the Kentucky Regulated and U.K. Regulated segments. The associated financing costs, as well as the financing costs associated with prior issuances of certain other PPL Capital Funding securities, have been assigned to the appropriate segments for purposes of PPL management's assessment of segment performance. The financing costs associated primarily with PPL Capital Funding's securities issuances beginning in 2013, and beyond, with certain exceptions, including the remarketing of the debt component of the 2010 and 2011 Equity Units, have not been directly assigned or allocated to any segment.
See "Anticipated Spinoff of PPL Energy Supply" above for information on the expected reductions of $75 million in corporate support costs in connection with the spinoff transaction.
(All Registrants)
SEASONALITY
The demand for and market prices of electricity and natural gas are affected by weather. As a result, the Registrants' operating results in the future may fluctuate substantially on a seasonal basis, especially when more severe weather conditions such as heat waves or extreme winter weather make such fluctuations more pronounced. The pattern of this fluctuation may change depending on the type and location of the facilities owned, the retail load served and the terms of contracts to purchase or sell electricity.owned. See "Financial Condition - Environmental"Environmental Matters" in "Item 7. Combined Management's Discussion and Analysis ofNote 13 to the Financial Condition and Results of Operations"Statements for additional information regarding climate change.
See "Financial Condition" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for this information.
CAPITAL EXPENDITURE REQUIREMENTS
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" for information
concerning projected capital expenditure requirements for 20152017 through 2019.2021. See Note 13 to the Financial Statements for additional information concerning the potential impact on capital expenditures from environmental matters.
The Registrants are subject to certain existing and developing federal, regional, state and local laws and regulations with respect to air and water quality, land use and other environmental matters. The EPA is in the process of proposing and finalizing an unprecedented number ofhas issued numerous environmental regulations relating to air, water and waste that will directly affect the electricityelectric power industry. These initiatives cover air, water and waste. 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" for information on projected environmental capital expenditures for the years 2015-2019.2017 through 2021. Also, see "Environmental Matters" in Note 13 to the Financial Statements for additional information. To comply with environmental requirements, PPL's forecast for environmental capital expenditures reflects a best estimate projection of expenditures that may be required within the next five years. Such projections are $2.4 billion for PPL, including $2.2 billion for LKE ($1.1 billion each for LG&Einformation and KU), and $192 million for PPL Energy Supply. Actual costs (including capital, emission allowance purchases and operational modifications) may be significantly lower or higher depending on the final compliance requirements and market conditions. PPL's and LKE's subsidiaries may also incur capital expenditures and operating expenses, which are not now determinable, but could be significant. Most environmental compliance costs incurred by LG&E and KU are subject to recovery through a rate recovery mechanism. See Note 6 to the Financial Statements for additional information.information related to the recovery of environmental compliance costs.
At December 31, 2014,2016, PPL and its subsidiaries had the following full-time employees.
PPL Energy Supply (a) | | 4,156 |
PPL Electric | | 2,122 |
LKE | | |
| KU | | 949 |
| LG&E | | 1,029 |
| LKS | | 1,504 |
| Total LKE | | 3,482 |
PPL Global (primarily WPD) | | 6,473 |
PPL Services and other | | 1,158 |
Total PPL | | 17,391 |
employees and employees represented by labor unions.(a) | Includes labor union employees of mechanical contracting subsidiaries, whose numbers tend to fluctuate due to the nature of this business. |
|
| | | | | | | | |
| | Total Full-Time Employees | | Number of Union Employees | | Percentage of Total Workforce |
| PPL | 12,689 |
| | 6,274 |
| | 49 | % |
| PPL Electric | 1,837 |
| | 1,150 |
| | 63 | % |
| LKE | 3,507 |
| | 819 |
| | 23 | % |
| LG&E | 1,023 |
| | 696 |
| | 68 | % |
| KU | 919 |
| | 123 |
| | 13 | % |
PPL's domestic workforce has 2,173 employees, or 36%, that are members of labor unions. A three-year bargaining agreement with the IBEW labor union, which expires in May 2017, covers 1,150 PPL Electric employees and 204 other employees. LG&E has 696 employees and KU has 69 employees that are represented by an IBEW labor union. LG&E and KU have three-year labor agreements with the IBEW, which expire in November 2017 and August 2018. The KU IBEW agreement includes a wage reopener in 2017. KU has 54 employees that are represented by a United Steelworkers of America (USWA) labor union, under an agreement that expires in August 2017.
| At December 31, 2014, the breakdown of the total workforce that is represented by labor unions was: |
| | | | | |
| | | Number of Employees | | Percent of Total Workforce |
| | | | | |
| PPL (a) | | 9,062 | | 52% |
| PPL Energy Supply | | 2,482 | | 60% |
| PPL Electric | | 1,319 | | 62% |
| LKE | | 855 | | 25% |
| LG&E | | 714 | | 69% |
| KU | | 141 | | 15% |
(a) | Includes 4,076 employees of WPD who are members of labor unions (or 63% of PPL's U.K. workforce). WPD recognizes four unions, the largest of which represents 41% of its union workforce. WPD's Electricity Business Agreement, which covers 4,001WPD has 4,101 employees who are members of labor unions (or 62% of PPL's U.K. workforce). WPD recognizes four unions, the largest of which represents 41% of its union workforce. WPD's Electricity Business Agreement, which covers 4,035 union employees, may be amended by agreement between WPD and the unions and can be terminated with 12 months' notice by either side. |
See "Anticipated Spinoff of PPL Energy Supply" in Note 8 to the Financial Statements and "Labor Union Agreements" in Note 13 to the Financial Statements for details on the elimination of approximately 430 domestic positions at PPL, PPL Energy Supply and PPL Electric.
PPL's Internet website is www.pplweb.com. Under the InvestorInvestors heading of that website, PPL provides access to all SEC filings of the Registrants (including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(d) or 15(d)) free of charge, as soon as reasonably practicable after filing with the SEC. Additionally, the Registrants' filings are available at the SEC's website (www.sec.gov) and at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549, or by calling 1-800-SEC-0330.
The Registrants face various risks associated with their businesses. Our businesses, financial condition, cash flows or results of operations could be materially adversely affected by any of these risks. In addition, this report also contains forward-looking and other statements about our businesses that are subject to numerous risks and uncertainties. See "Forward-Looking Information," "Item 1. Business," "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 13 to the Financial Statements for more information concerning the risks described below and for other risks, uncertainties and factors that could impact our businesses and financial results.
As used in this Item 1A., the terms "we," "our" and "us" generally refer to PPL and its consolidated subsidiaries taken as a whole, or to PPL Energy Supply and its consolidated subsidiaries taken as a whole within the Supply segment discussions, or PPL Electric and its consolidated subsidiaries taken as a whole within the Pennsylvania Regulated segment discussion, or LKE and its consolidated subsidiaries taken as a whole within the Kentucky Regulated segment discussion.
(PPL and PPL Energy Supply)(PPL)
Risks Relating to Our Agreement to Spin off PPL Energy Supply and Form Talen Energy Corporation
The proposed spinoffthe Spinoff of PPL Energy Supply and the combination with RJS Power are contingent upon the satisfaction of a number of conditions and may present situations that could have an adverse effect on us.
The proposed spinoff of PPL Energy Supply and the subsequent combination with RJS Power to form Talen Energy are complex transactions, subject to various conditions, and may be affected by unanticipated developments or changes in market conditions. On November 5, 2014, Talen Energy filed a registration statement with the SEC containing detailed information regarding Talen Energy. Completion of the proposed spinoff of PPL Energy Supply and subsequent combination with RJS Power will be contingent upon a number of factors, including that (i) PPL receives a favorable legal opinion of tax counsel as described below; (ii) the SEC declares effective Talen Energy's registration statement relating to registrationFormation of Talen Energy common stock and no SEC stop order suspending effectiveness of the registration statement be in effect prior to the PPL Energy Supply spinoff; (iii) the Talen Energy common stock be authorized for listing on the New York Stock Exchange; (iv) certain regulatory approvals have been obtained, including approval by the NRC and the FERC, Hart-Scott-Rodino clearance and certain approvals by the PUC and (v) there be, subject to certain conditions, at least $1 billion of undrawn credit capacity under a revolving credit facility or similar facility available to Talen Energy and its subsidiaries (for purposes of which any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions then outstanding shall not be considered as drawn against such facility). The spinoff and subsequent combination may be terminated by mutual written consent of the parties or subject to certain other circumstances, including the failure to complete these transactions by June 30, 2015 or, if the required regulatory approvals have not been obtained at such time but the other conditions to the consummation of these transactions have been or are capable of being satisfied, December 31, 2015. For these and other reasons, the spinoff and subsequent combination may not be completed on the terms or within the expected timeframe, if at all.Corporation
If the proposed spinoff of PPL Energy Supply does not qualify as a tax-free distribution under Sections 355 and 368 of the Internal Revenue Code of 1986, as amended (the "Code"), including as a result of subsequent acquisitions of stock of PPL or Talen Energy, then PPL and/or its shareowners may be required to pay substantial U.S. federal income taxes.
Among other requirements, the completion of the proposedJune 1, 2015 spinoff of PPL Energy Supply and subsequent combination with RJS Power iswas conditioned upon PPL's receipt of a legal opinion of tax counsel to the effect that the spinoff will qualify as a reorganization pursuant to Section 368(a)(1)(D) and a tax-free distribution pursuant to Section 355 of the Code. Although receipt of such legal opinion will satisfywas a condition to completion of the spinoff and subsequent combination, that legal opinion willis not be binding on the IRS. Accordingly, the IRS maycould reach conclusions that are different from those in the conclusions reached in suchtax opinion. PPL is not aware of any facts or circumstances that would cause the factual statements or representations on which the legal opinion will be based to be materially different from the facts at the time of the spinoff. If, notwithstanding the receipt of such opinion, the IRS were to determine the Distributiondistribution to be taxable (including as a result of the subsequent acquisition of Talen Energy by affiliates of Riverstone on December 6, 2016 (the "Talen Acquisition")), PPL would, and its shareowners could, depending on their individual circumstances, recognize a tax liability that could be substantial. In addition, notwithstanding the receipt of such opinion, if the IRS were to determine the Mergermerger to be taxable (including as a result of the Talen Acquisition), PPL shareowners may, depending on their individual circumstances, recognize a tax liability that could be material.
In addition, the spinoff willwould be taxable to PPL pursuant to Section 355(e) of the Code if there iswere a 50% or greater change in ownership (by vote or value) of either PPL or Talen Energy (including as a result of the Talen Acquisition), directly or indirectly, as part of a plan or series of related transactions that include the spinoff. Because PPL's shareowners will collectively ownowned more than 50% of Talen Energy's common stock following the spinoff and subsequent combination with RJS Power, the combination alone willwould not cause the spinoff to be taxable to PPL under Section 355(e) of the Code. However, Section 355(e) of the Code might apply if acquisitions of stock of PPL before or after the spinoff, or of Talen Energy after the combination are(including the Talen Acquisition), were considered to be part of a plan or series of related transactions that include the spinoff. PPL is not aware of any such plan or series of transactions that include the spinoff.
PPL may not be successful in realizing the full amount of anticipated annual savings as a result of the proposed spinoff of PPL Energy Supply.
In connection with the spinoffclosing of PPL Energy Supply, and following any required transition services period, PPL is targeting to reduce its annual corporate support costs by an estimated $185 million. This includes $110 million of corporate support costs to be either eliminated or transferred tothe Talen Acquisition, Talen Energy and $75 millionwas required to deliver to PPL a legal opinion of corporate support costs to be eliminated as a result of workforce and other corporate cost reductions. If for any reason PPL cannot realize all or a significant portiontax counsel concluding that the Talen Acquisition would not affect the tax-free status of the $75 million corporate cost savings itspinoff. As described above, such legal opinion is not binding on the IRS, and accordingly, the IRS could have an adverse effect on PPL's cash flows and results of operations.reach conclusions that are different from those expressed in the legal opinion.
Risks related to our U.K. Segment
Our U.K. distribution business contributes more than 50%a significant amount of PPL's total annual net incomeearnings and exposes us to the following additional risks related to operating outside the U.S., including risks associated with changes in U.K. laws and regulations, taxes, economic conditions and political conditions and policies of the U.K. government and the European Union. These risks may reduceadversely impact the results of operations fromof our U.K. distribution business or affect our ability to access U.K. revenues for payment of distributions or for other corporate purposes in the U.S.
changes in laws or regulations relating to U.K. operations, including rate regulations, operational performance and tax laws and regulations;
changes in government policies, personnel or approval requirements;
changes in general economic conditions affecting the U.K.;
· | changes in laws or regulations relating to U.K. operations, including rate regulations, operational performance and tax laws and regulations; |
· | changes in government policies, personnel or approval requirements; |
· | changes in general economic conditions affecting the U.K.; |
· | regulatory reviews of tariffs for distribution companies; |
· | changes in labor relations; |
· | limitations on foreign investment or ownership of projects and returns or distributions to foreign investors; |
· | limitations on the ability of foreign companies to borrow money from foreign lenders and lack of local capital or loans; |
· | changes in U.S. tax law applicable to taxation of foreign earnings; and |
regulatory reviews of tariffs for distribution companies;
changes in labor relations;
limitations on foreign investment or ownership of projects and returns or distributions to foreign investors;
limitations on the ability of foreign companies to borrow money from foreign lenders and lack of local capital or loans;
changes in U.S. tax law applicable to taxation of foreign earnings;
compliance with U.S. foreign corrupt practices laws; and
prolonged periods of low inflation or deflation.
PPL's earnings may be adversely affected as a result of the June 23, 2016 referendum in the U.K. to withdraw from the European Union.
Significant uncertainty exists concerning the effects of the June 23, 2016 referendum in favor of the U.K. withdrawal from the European Union, including the nature and duration of negotiations between the U.K. and European Union as to the terms of any withdrawal. PPL cannot predict the impact, either short-term or long-term, on foreign exchange rates or PPL’s long-term financial condition that may be experienced as a result of any actions that may be taken by the U.K. government to withdraw from the European Union, although such impacts could be significant.
We are subject to increased foreign currency exchange rate risks because a majoritysignificant portion of our cash flows and reported earnings are currently generated by our U.K. business operations.
These risks relate primarily to changes in the relative value of the British pound sterling and the U.S. dollar between the time we initially invest U.S. dollars in our U.K. businesses, and our strategy to hedge against such changes, and the time that cash is repatriated to the U.S. from the U.K., including cash flows from our U.K. businesses that may be distributed to PPL or used for repayments of intercompany loans or other general corporate purposes. In addition, PPL's consolidated reported earnings on a U.S. GAAP basis may be subject to increased earnings translation risk, which is the result of the conversion of earnings as reported in our U.K. businesses on a British pound sterling basis to a U.S. dollar basis in accordance with U.S. GAAP requirements.
Our U.K. segment is subject to inflationary risks.
Our U.K. distribution business is subject to the risks associated with fluctuations in RPI in the U.K., which is a measure of inflation.
In RIIO-ED1, WPD's base demand revenue was established by Ofgem in 2012/13 prices. Base demand revenue is then increased by RPI for each year to arrive at the amount of revenue WPD can collect in tariffs. The RPI is forecasted and subject to true-up in subsequent years. The fluctuations between forecasted and actual RPI can then result in variances in base demand revenue. While WPD also has debt that is indexed to RPI and certain components of operations and maintenance expense are affected by inflation, these may not offset changes in base demand revenue and offsets would likely affect different calendar years. Further, as RAV is indexed to RPI under U.K. regulations, a reduction in RPI could adversely affect the debt/RAV ratio, potentially limiting future borrowings at WPD's holding company.
Our U.K. delivery business is subject to risks with respect to rate regulation andrevenue variability based on operational performance.
Our U.K. delivery businesses are rate-regulated and operate under an incentive-based regulatory framework. Managing operational risk isand delivering agreed-upon performance are critical to the U.K. Regulated segment's financial performance. Disruption to these distribution networks could reduce profitability both directly by incurring costs for network restoration and also through the system of penalties and rewards that Ofgem administers relating to customer service levels.
A failure by any of our U.K. regulated businesses to comply with the terms of a distribution license may lead to the issuance of an enforcement order by Ofgem that could have an adverse impact on PPL.
Ofgem has powers to levy fines of up to ten percent of revenue for any breach of a distribution license or, in certain circumstances, such as insolvency, the distribution license itself may be revoked. Ofgem also has formal powers to propose modifications to each distribution license and there can be no assurance that a restrictive modification will not be introduced in the future, which could have an adverse effect on the operations and financial condition of the U.K. regulated businesses and PPL.
(PPL PPL Energy Supply and LKE)
Risk Related to Registrant Holding Companies
PPL Energy Supply's and LKE'sLKE are holding companies and their cash flows and ability to meet their obligations with respect to indebtedness and under guarantees, and PPL's ability to pay dividends, largely depends on the financial performance of their respective subsidiaries and, as a result, is effectively subordinated to all existing and future liabilities of those subsidiaries.
PPL PPL Energy Supply and LKE are holding companies and conduct their operations primarily through subsidiaries. Substantially all of the consolidated assets of these Registrants are held by their subsidiaries. Accordingly, these Registrants' cash flows and ability to meet debt and guaranty obligations, as well as PPL's ability to pay dividends, are largely dependent upon the earnings of those subsidiaries and the distribution or other payment of such earnings in the form of dividends, distributions, loans, advances or repayment of loans and advances. The subsidiaries are separate and distinct legal entities and have no obligation to pay dividends or distributions to their parents or to make funds available for such a payment. The ability of the Registrants' subsidiaries to pay dividends or distributions in the future will depend on the subsidiaries' future earnings and cash flows and the needs of their businesses, and may be restricted by their obligations to holders of their outstanding debt and other creditors, as well as any contractual or legal restrictions in effect at such time, including the requirements of state corporate law applicable to payment of dividends and distributions, and regulatory requirements, including restrictions on the ability of PPL Electric, LG&E and KU to pay dividends under Section 305(a) of the Federal Power Act.
Because PPL PPL Energy Supply and LKE are holding companies, their debt and guaranty obligations are effectively subordinated to all existing and future liabilities of their subsidiaries. Although certain agreements to which certain subsidiaries are parties limit their ability to incur additional indebtedness, PPL PPL Energy Supply and LKE and their subsidiaries retain the ability to incur substantial additional indebtedness and other liabilities. Therefore, PPL's PPL Energy Supply's and LKE's rights and the rights of their creditors, including rights of any debt holders, to participate in the assets of any of their subsidiaries, in the event that such a subsidiary is liquidated or reorganized, will be subject to the prior claims of such subsidiary's creditors. In addition, if PPL elects to receive distributions of earnings from its foreign operations, PPL may incur U.S. income taxes, net of any available foreign tax credits, on such amounts.
(All Registrants except PPL Energy Supply)Electric, LG&E and KU)
Risks Related to Domestic Regulated Utility Operations
Our domestic regulated utility businesses face many of the same risks, in addition to those risks that are unique to each of the Kentucky Regulated segment and the Pennsylvania Regulated segment. Set forth below are risk factors common to both domestic regulated segments, followed by sections identifying separately the risks specific to each of these segments.
The operation of our businesses is subject to cyber-based security and integrity risks.
Numerous functions affecting the efficient operation of our businesses are dependent on the secure and reliable storage, processing and communication of electronic data and the use of sophisticated computer hardware and software systems. The operation of our transmission and distribution operations, as well as our generation plants, are all reliant on cyber-based technologies and, therefore, subject to the risk that such systems could be the target of disruptive actions, principally by terrorists or vandals, or otherwise be compromised by unintentional events. As a result, operations could be interrupted, property could be damaged and sensitive customer information lost or stolen, causing us to incur significant losses of revenues, other substantial liabilities and damages, costs to replace or repair damaged equipment and damage to our reputation.
Our profitability is highly dependent on our ability to recover the costs of providing energy and utility services to our customers and earn an adequate return on our capital investments. Regulators may not approve the rates we request and existing rates may be challenged.
The rates we charge our utility customers must be approved by one or more federal or state regulatory commissions, including the FERC, KPSC, VSCC TRA and PUC. Although rate regulation is generally premised on the recovery of prudently incurred costs and a reasonable rate of return on invested capital, there can be no assurance that regulatory authorities will consider all of our costs to have been prudently incurred or that the regulatory process by which rates are determined will always result in rates that achieve full or timely recovery of our costs or an adequate return on our capital investments. Federal or state agencies, intervenersintervenors and other permitted parties may challenge our current or future rate requests, structures or mechanisms, and ultimately reduce, alter or limit our current rates or futurethe rates we seek.receive. Although our rates are generally regulated based on an analysis of our costs incurred in a base year or based on future projected costs, the rates we are allowed to charge may or may not match our costs
at any given time. Our domestic regulated utility businesses are subject to substantial capital expenditure requirements over the next several years, which will likely require rate increase requests to the regulators. If our costs are not adequately recovered through rates, it could have an adverse effect on our business, results of operations, cash flows and financial condition.
Our domestic utility businesses are subject to significant and complex governmentalregulation.
In addition to regulating the rates we charge, various federal and state regulatory authorities regulate many aspects of our domestic utility operations, including:
· | the terms and conditions of our service and operations; |
· | financial and capital structure matters; |
· | siting, construction and operation of facilities; |
· | mandatory reliability and safety standards under the Energy Policy Act of 2005 and other standards of conduct; |
· | accounting, depreciation and cost allocation methodologies; |
· | acquisition and disposal of utility assets and issuance of securities; and |
· | various other matters, including energy efficiency. |
Such regulations or changes thereto may subject us to higher operating costs or increased capital expenditures and failure to comply could result in sanctions or possible penalties which may not be recoverable from customers.
Changes in transmission and wholesale power market structures could increase costs or reduce revenues.
Wholesale revenues fluctuate with regional demand, fuel prices and contracted capacity. Changes to transmission and wholesale power market structures and prices may occur in the future, are not predictable and may result in unforeseen effects on energy purchases and sales, transmission and related costs or revenues. These can include commercial or regulatory changes affecting power pools, exchanges or markets in which our domestic utilities participate.
Our domestic regulated businesses undertake significant capital projects and these activities are subjectto unforeseen costs, delays or failures, as well as risk of inadequate recovery ofresulting costs.
The domestic regulated utility businesses are capital intensive and require significant investments in energy generation (in the case of LG&E and KU) and transmission, distribution and other infrastructure projects, such as projects for environmental compliance and system reliability. The completion of these projects without delays or cost overruns is subject to risks in many areas, including:
· | approval, licensing and permitting; |
· | land acquisition and the availability of suitable land; |
· | skilled labor or equipment shortages; |
· | construction problems or delays, including disputes with third-party intervenors; |
· | increases in commodity prices or labor rates; |
· | environmental considerations and regulations; |
· | weather and geological issues; and |
· | political, labor and regulatory developments. |
Failure to complete our capital projects on schedule or on budget, or at all, could adversely affect our financial performance, operations and future growth if such expenditures are not granted rate recovery by our regulators.
We are subject to the risk that our workforce and its knowledge base may become depleted in coming years.
PPL isWe are experiencing an increase in attrition due primarily to the number of retiring employees, with the risk that critical knowledge will be lost and that it may be difficult to replace departed personnel, and to attract and retain new personnel, due to a declining trend in the number of available skilled workers and an increase in competition for such workers.
We are or may be subject to costs of remediation of environmental contamination at facilities owned or operated by our former subsidiaries.
We may be subject to liability for the costs of environmental remediation of property now or formerly owned by us with respect to substances that we may have generated regardless of whether the liabilities arose before, during or after the time we owned or operated the facilities. We also have current or previous ownership interests in sites associated with the production of manufactured gas for which we may be liable for additional costs related to investigation, remediation and monitoring of these sites. Remediation activities associated with our former manufactured gas plant operations are one source of such costs. Citizen groups or others may bring litigation regarding environmental issues including claims of various types, such as property damage, personal injury and citizen challenges to compliance decisions on the enforcement of environmental requirements, which could subject us to penalties, injunctive relief and the cost of litigation. We cannot predict the amount and timing of all future expenditures (including the potential or magnitude of fines or penalties) related to such environmental matters, although they could be material.
Risks Specific to Kentucky Regulated Segment
(PPL, LKE, LG&E and KU)
The costs of compliance with, and liabilities under, environmental laws aresignificant and are subject to continuing changes.
Extensive federal, state and local environmental laws and regulations are applicable to LG&E's and KU's generation business, including its air emissions, water discharges and the management of hazardous and solid waste,wastes, among other business-related activities, and the costs of compliance or alleged non-compliance cannot be predicted but could be material. In addition, our costs may increase significantly if the requirements or scope of environmental laws, 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 forfeitures, operationsoperational changes, permit limitations or other restrictions. At some of our older generating facilities it may be uneconomic for us to install necessary pollution control equipment, which could cause us to retire those units. Market prices for energy and capacity also affect this cost-effectiveness analysis. Many of these environmental law considerations are also applicable to the operations of our key suppliers or customers, such as coal producers and industrial power users, and may impact the costs of their products and demand for our services.
Ongoing changes in environmental regulations or their implementation requirements and our related compliance strategies entail a number of uncertainties.
The environmental standards governing LG&E's and KU's businesses, particularly as applicable to coal-fired generation and related activities, continue to be subject to uncertainties due to ongoing rulemakingsrulemaking and other regulatory developments, legislative activities and litigation.litigation, administrative or permit challenges. Revisions to applicable standards, changes in compliance deadlines and invalidation of rules on appeal may require major changes in compliance strategies, operations or assets and adjustments to prior plans. Depending on the extent, frequency and timing of such changes, the companies may be subject to inconsistent requirements under multiple regulatory programs, compressed windows for decision-making and short compliance deadlines that may require new technologies or aggressive schedules for construction, permitting and other regulatory approvals. Under such circumstances, the companies may face higher risks of unsuccessful implementation of environmental-related business plans, noncompliance with applicable environmental rules, delayed or incomplete rate recovery or increased costs of implementation.
We are subject to operational, regulatory and other risks regarding certain significant developments in environmental regulation affecting coal-fired generation facilities.
Certain regulatory initiatives have been implemented or are under development which could represent significant developments or changes in environmental regulation and compliance costs or risk associated with the combustion of coal as occurs at LG&E's and KU's coal-fired generation facilities. In particular, such developments include the federal Clean Power Plan regulations governing greenhouse gas emissions at existing or new generation facilities, the federal Coal Combustion Residuals regulations governing coal by-product storage activities and the federal Effluent Limitations Guidelines governing water discharge activities. Such initiatives have the potential to require significant changes in generation portfolio composition and in coal combustion byproduct handling and disposal or water treatment and release facilities and methods from those historically used or currently available. Consequently, such developments may involve increased risks relating to the uncertain cost, efficacy and reliability of new technologies, equipment or methods. Compliance with such regulations could result in significant changes to LG&E's and KU's operations or commercial practices and material additional capital or operating expenditures. Such circumstances could also involve higher risks of compliance violations or of variations in rate or regulatory treatment when compared to existing frameworks.
Risks Specific to Pennsylvania Regulated Segment
(PPL and PPL Electric)
We plan to selectively pursue growth of our transmission and distribution capacity, which involves a number of uncertainties and may not achieve the desired financial results.
We plan to pursue expansion of our transmission and distribution capacity over the next several years. We plan to do this through the potential construction or acquisition of transmission and distribution projects and capital investments to upgrade transmission and distribution infrastructure. These types of projects involve numerous risks. With respect to the construction or acquisition of transmission and distribution projects, we may be required to expend significant sums for preliminary engineering, permitting, resource exploration, legal and other expenses before it can be established whether a project is feasible, economically attractive or capable of being financed. Expansion in our regulated businesses is dependent on future load or service requirements and subject to applicable regulatory processes. The success of
both a new or acquired project would likely be contingent, among other things, upon the negotiation of satisfactory construction contracts, obtaining acceptable financing and maintaining acceptable credit ratings, as well as receipt of required and appropriate governmental approvals. If we were unable to complete construction or expansion of a project, we may not be able to recover our investment in the project.
We face competition for transmission projects, which could adversely affect our rate base growthgrowth.
FERC Order 1000, issued in July 2011, establishes certain procedural and substantive requirements relating to participation, cost allocation and non-incumbent developer aspects of regional and inter-regional electric transmission planning activities. The PPL Electric transmission business, operating under a FERC-approved PJM Open Access Transmission Tariff, (OATT), is subject to competition pursuant to FERC Order 1000 from entities that are not incumbent PJM transmission owners with respect to the construction and ownership of transmission facilities within PJM. Increased competition can result in lower rate base growth.
We could be subject to higher costs and/or penalties related to Pennsylvania Conservation and Energy Efficiency Programs.
PPL Electric is subject to Act 129 which contains requirements for energy efficiency and conservation programs and for the use of smart metering technology, imposes PLR electricity supply procurement rules, provides remedies for market misconduct, and made changes to the existing AEPS.Alternative Energy Portfolio Standard. The law also requires electric utilities to meet specified goals for reduction in customer electricity usage and peak demand. Utilities not meeting these Act 129 requirements are subject to significant penalties that cannot be recovered in rates. Numerous factors outside of our control could prevent compliance with these requirements and result in penalties to us.
Risks Related to Supply Segment
(PPL and PPL Energy Supply)
We face intense competition in the competitive power generation market, which may adversely affect our ability to operate profitably and generate positive cash flow.
Our generation business is dependent on our ability to operate successfully in a competitive environment and is not assured of any rate of return on capital investments through a regulated rate structure. Competition is affected by electricity and fuel prices, new market entrants, construction by others of generating assets and transmission capacity, technological advances in power generation, the actions of environmental and other regulatory authorities and other factors. These competitive factors may negatively affect our ability to sell electricity and related products and services, as well as the prices that we receive for such products and services, which could adversely affect our results of operations and our ability to grow our business.
We sell our available energy and capacity into competitive wholesale markets through contracts of varying duration. Competition in the wholesale power markets occurs principally on the basis of the price of products and, to a lesser extent, reliability and availability. We believe that the commencement of commercial operation of new electricity generating facilities in the regional markets where we own or control generation capacity and the evolution of demand side management resources will continue to increase competition in the wholesale electricity market in those regions, which could have an adverse effect on electricity and capacity prices.
We also face competition in the wholesale markets for generation capacity and ancillary services. We primarily compete with other electricity suppliers based on our ability to aggregate supplies at competitive prices from different sources and to efficiently utilize transportation from third-party pipelines and transmission from electric utilities, ISOs and RTOs. We also compete against other energy marketers on the basis of relative financial condition and access to credit sources, and our competitors may have greater financial resources than we have.
Competitors in the wholesale power markets in which PPL Generation subsidiaries and PPL EnergyPlus operate include regulated utilities, industrial companies, non-utility generators, competitive subsidiaries of regulated utilities and financial institutions.
We are exposed to operational, price and credit risks associated with selling and marketing products in the wholesale and retail electricity markets.
We purchase and sell electricity in wholesale markets under market-based rates throughout the U.S. and also enter into short-term agreements to market available electricity and capacity from our generation assets with the expectation of profiting from market price fluctuations. If we are unable to deliver firm capacity and electricity under these agreements, we could be required to pay damages. These damages would generally be based on the difference between the market price to acquire replacement capacity or electricity and the contract price of any undelivered capacity or electricity. Depending on price volatility in the wholesale electricity markets, such damages could be significant. Extreme weather conditions, unplanned generation facility outages, environmental compliance costs, transmission disruptions and other factors could affect our ability to meet our obligations or cause significant increases in the market price of replacement capacity and electricity.
Our wholesale power agreements typically include provisions requiring us to post collateral for the benefit of our counterparties if the market price of energy varies from the contract prices in excess of certain pre-determined amounts. We currently believe that we have sufficient liquidity to fulfill our potential collateral obligations under these power contracts. However, our obligation to post collateral could exceed the amount of our facilities or our ability to increase our facilities
could be limited by financial markets or other factors. See Note 7 to the Financial Statements for a discussion of credit facilities.
We also face credit risk that counterparties with whom we contract in both the wholesale and retail markets will default in their performance, in which case we may have to sell our electricity into a lower-priced market or make purchases in a higher-priced market than existed at the inception of the contract. Whenever feasible, we attempt to mitigate these risks using various means, including agreements that require our counterparties to post collateral for our benefit if the market price of energy varies from the contract price in excess of certain pre-determined amounts. However, there can be no assurance that we will avoid counterparty nonperformance risk, including bankruptcy, which could adversely impact our ability to meet our obligations to other parties, which could in turn subject us to claims for damages.
Adverse changes in commodity prices and related costs may decrease our future energy margins, which could adversely affect our earnings and cash flows.
Our energy margins, or the amount by which our revenues from the sale of power exceed our costs to supply power, are impacted by changes in market prices for electricity, fuel, fuel transportation, emission allowances, RECs, electricity capacity and related congestion charges and other costs. Unlike most commodities, the limited ability to store electricity requires that it must be consumed at the time of production. As a result, wholesale market prices for electricity may fluctuate substantially over relatively short time periods and can be unpredictable. Among the factors that influence such prices are:
· | supply of electricity available from current or new generation resources; |
· | variable production costs, primarily fuel (and associated transportation costs) and emission allowance expense for the generation resources used to meet the demand for electricity; |
· | transmission capacity and service into, or out of, markets served; |
· | changes in the regulatory framework for wholesale power markets; |
· | liquidity in the wholesale electricity market, as well as general creditworthiness of key participants in the market; and |
· | weather and economic conditions affecting demand for or the price of electricity or the facilities necessary to deliver electricity. |
Our risk management policy and programs relating to electricity and fuel prices, interest rates and counterparty credit and non-performance risks may not work as planned, and we may suffer economic losses despite such programs.
We actively manage the market risk inherent in our generation and energy marketing activities, as well as our debt and counterparty credit positions. We have implemented procedures to monitor compliance with our risk management policy and programs, including independent validation of transaction and market prices, verification of risk and transaction limits, portfolio stress tests, sensitivity analyses and daily portfolio reporting of various risk management metrics. Nonetheless, our risk management programs may not work as planned. For example, actual electricity and fuel prices may be significantly different or more volatile than the historical trends and assumptions upon which we based our risk management calculations. Additionally, unforeseen market disruptions could decrease market depth and liquidity, negatively impacting our ability to enter into new transactions. We enter into financial contracts to hedge commodity basis risk, and as a result are exposed to the risk that the correlation between delivery points could change with actual physical delivery. Similarly, interest rates could change in significant ways that our risk management procedures were not designed to address. As a result, we cannot always predict the impact that our risk management decisions may have on us if actual events result in greater losses or costs than our risk models predict or greater volatility in our earnings and financial position.
In addition, our trading, marketing and hedging activities are exposed to counterparty credit risk and market liquidity risk. We have adopted a credit risk management policy and program to evaluate counterparty credit risk. However, if counterparties fail to perform, we may be forced to enter into alternative arrangements at then-current market prices. In that event, our financial results could be adversely affected.
We do not always hedge against risks associated with electricity and fuel price volatility.
We attempt to mitigate risks associated with satisfying our contractual electricity sales obligations by either reserving generation capacity to deliver electricity or purchasing the necessary financial or physical products and services through competitive markets to satisfy our net firm sales contracts. We also routinely enter into contracts, such as fuel and electricity purchase and sale commitments, to hedge our exposure to fuel requirements and other electricity-related commodities. However, based on economic and other considerations, we may decide not to hedge the entire exposure of our operations
from commodity price risk. To the extent we do not hedge against commodity price risk and applicable commodity prices change in ways that would be adverse to us, our results of operations and financial position may be adversely affected. To the extent we do hedge against commodity price risk, those hedges may not ultimately prove to be effective.
The accounting for our hedging activities may increase the volatility in our quarterly and annual financial results.
We engage in commodity-related marketing and price-risk management activities in order to physically and financially hedge our exposure to market risk with respect to electricity sales from our generation assets, fuel utilized by those assets and emission allowances.
We generally attempt to balance our fixed-price physical and financial purchases and sales commitments in terms of contract volumes and the timing of performance and delivery obligations through the use of financial and physical derivative contracts. These derivatives are recorded on the balance sheet at fair value with changes in the fair value resulting from fluctuations in the underlying commodity prices immediately recognized in earnings, unless the derivative qualifies for cash flow hedge accounting treatment or the NPNS exception. Whether a derivative qualifies for cash flow hedge accounting treatment depends upon it meeting specific criteria used to determine if the cash flow hedge is and will remain appropriate for the term of the derivative. Specific criteria are also required in order to elect the NPNS exception, which permits qualifying hedges to be treated under the accrual accounting method. All economic hedges may not necessarily qualify for cash flow hedge accounting treatment or the NPNS exception, or we may elect not to utilize cash flow hedge accounting or the NPNS exception. As a result, our quarterly and annual results are subject to significant fluctuations caused by changes in market prices.
Changes in technology may negatively impact the value of our power plants.
A basic premise of our generation business is that generating electricity at central power plants achieves economies of scale and produces electricity at relatively low prices. There are alternate technologies to supply electricity, most notably fuel cells, micro turbines, batteries, windmills and photovoltaic (solar) cells, the development of which has been expanded due to global climate change concerns. Research and development activities are ongoing to seek improvements in alternate technologies. It is possible that advances will reduce the cost of alternative generation to a level that is equal to or below that of certain central station production. Also, as new technologies are developed and become available, the quantity and pattern of electricity usage (the "demand") by customers could decline, with a corresponding decline in revenues derived by generators. These alternative energy sources could result in a decline to the dispatch and capacity factors of our plants. As a result of all of these factors, the value of our generation facilities could be significantly reduced.
The full-requirements sales contracts that PPL EnergyPlus is awarded do not provide for specific levels of load and actual load significantly below or above our forecasts could adversely affect our energy margins.
We generally hedge our full-requirements sales contracts with our own generation or energy purchases from third parties. If the actual load is significantly lower than the expected load, we may be required to resell power at a lower price than was contracted for to supply the load obligation, resulting in a financial loss. Alternatively, a significant increase in load could adversely affect our energy margins because we are required under the terms of full-requirements sales contracts to provide the energy necessary to fulfill increased demand at the contract price, which could be lower than the cost to procure additional energy on the open market. Therefore, any significant decrease or increase in load compared with our forecasts could have a material adverse effect on our results of operations and financial position.
We may experience disruptions in our fuel supply, which could adversely affect our ability to operate our generation facilities.
We purchase fuel and other products consumed during the production of electricity (such as coal, natural gas, oil, water, uranium, lime, limestone and other chemicals) from a number of suppliers. Delivery of these fuels to our facilities is dependent upon the continuing financial viability of contractual counterparties as well as the infrastructure (including rail lines, rail cars, barge facilities, roadways, riverways and natural gas pipelines) available to serve each generation facility. As a result, we are subject to the risks of disruptions or curtailments in the production of power at our generation facilities if fuel is unavailable at any price or if a counterparty fails to perform or if there is a disruption in the fuel delivery infrastructure. Disruption in the delivery of fuel, including disruptions as a result of weather, transportation difficulties, global demand and supply dynamics, labor relations, environmental regulations or the financial viability of our fuel suppliers, could adversely affect our ability to operate our facilities, which could result in lower sales and/or higher costs and thereby adversely affect our results of operations.
Unforeseen changes in the price of coal and natural gas could cause us to incur excess coal inventories and contract termination costs.
Extraordinarily low natural gas prices could cause natural gas to be the more cost-competitive fuel compared to coal for generating electricity. Because we enter into guaranteed supply contracts to provide for the amount of coal needed to operate our base load coal-fired generating facilities, we may experience periods where we hold excess amounts of coal if fuel pricing results in our reducing or idling coal-fired generating facilities in favor of operating available alternative natural gas-fired generating facilities. In addition, we may incur costs to terminate supply contracts for coal in excess of our generating requirements.
If the services provided by the transmission facilities that deliver the wholesale power from our generation facilities are inadequate, our ability to sell and deliver wholesale power may be materially adversely affected. Furthermore, any changes in the structure and operation of, or the various pricing limitations imposed by, the RTOs and ISOs that operate these transmission facilities may adversely affect the profitability of our generation facilities.
We do not own or control the transmission facilities required to sell the wholesale power from our generation facilities. If the transmission service from these facilities is unavailable or disrupted, or if the transmission capacity infrastructure is inadequate, our ability to sell and deliver wholesale power may be materially adversely affected. RTOs and ISOs provide transmission services, administer transparent and competitive power markets and maintain system reliability. Many of these RTOs and ISOs operate in the real-time and day ahead markets in which we sell energy. The RTOs and ISOs that oversee most of the wholesale power markets impose, and in the future may continue to impose, offer caps and other mechanisms to guard against the potential exercise of market power in these markets as well as price limitations. These types of price limitations and other regulatory mechanisms may adversely affect the profitability of our generation facilities that sell energy and capacity into the wholesale power markets. Problems or delays that may arise in the formation and operation of maturing RTOs and similar market structures, or changes in geographic scope, rules or market operations of existing RTOs, may also affect our ability to sell, the prices we receive or the cost to transmit power produced by our generating facilities. Rules governing the various regional power markets may also change from time to time, which could affect our costs or revenues. As a result, our financial condition, results of operations and cash flows may be materially adversely affected.
The FERC has issued regulations that require wholesale electricity transmission services to be offered on an open-access, non-discriminatory basis. Although these regulations are designed to encourage competition in wholesale market transactions for electricity, there is the potential that fair and equal access to transmission systems will not be available or that transmission capacity will not be available in the amounts we require. We cannot predict the timing of industry changes as a result of these initiatives or the adequacy of transmission facilities in specific markets or whether ISOs and RTOs in applicable markets will efficiently operate transmission networks and provide related services.
Because our generation facilities are part of interconnected regional grids, we face the risk of blackout due to a disruption on a neighboring interconnected system.
Major electric power blackouts are possible and have occurred, which could disrupt electrical service for extended periods of time. If a blackout were to occur, the impact could result in interruptions to our operations, increased costs to replace existing contractual obligations, the possibility of regulatory investigations and potential operational risks to our facilities. Additionally, in response to the blackout, there could be changes or developments in applicable regulations or market structures that could have longer-term impact on our business and results of operations.
Despite federal and state deregulation initiatives, our generation business is still subject to extensive regulation, which may increase our costs, reduce our revenues, or prevent or delay operation of our facilities.
Our generation subsidiaries sell electricity into the wholesale market. Generally, our generation subsidiaries and our marketing subsidiaries are subject to regulation by the FERC. The FERC has authorized us to sell generation from our facilities and power from our marketing subsidiaries at market-based prices. The FERC retains the authority to modify or withdraw our market-based rate authority and to impose "cost of service" rates if it determines that the market is not competitive, that we possess market power or that we are not charging just and reasonable rates. Any reduction by the FERC in the rates we may receive or any unfavorable regulation of our business by state regulators could materially adversely affect our results of operations. See "Regulatory Issues - FERC Market-Based Rate Authority" in Note 13 to the Financial Statements for information regarding recent court decisions that could impact the FERC's market-based rate authority program.
In addition, the acquisition, construction, ownership and operation of electricity generation facilities require numerous permits, approvals, licenses and certificates from federal, state and local governmental agencies. We may not be able to obtain or maintain all required regulatory approvals. If there is a delay in obtaining any required regulatory approvals or if we fail to obtain or maintain any required approval or fail to comply with any applicable law or regulation, the operation of our assets and our sales of electricity could be prevented or delayed or become subject to additional costs.
Our costs to comply with existing and new environmental and related worker health and safety laws are expected to continue to be significant, and we plan to incur significant capital expenditures for pollution control improvements that could adversely affect our profitability and liquidity or cause the continued operation of certain generation facilities to be uneconomic.
Our business is subject to extensive federal, state and local statutes, rules and regulations relating to environmental protection and worker health and safety. Numerous governmental authorities, such as the EPA and analogous state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly response actions. These laws and regulations may impose numerous obligations that are applicable to our operations, including the acquisition of permits to conduct regulated activities, the incurrence of capital or operating expenditures to limit or prevent releases of hazardous materials from our operations, the imposition of specific standards addressing worker protection, and the imposition of substantial liabilities and remedial obligations for pollution or contamination resulting from our operations. To comply with existing and future environmental requirements and as a result of voluntary pollution control measures we may take, we have spent and expect to spend substantial amounts in the future on environmental control and compliance. Failure to comply with these laws, regulations and permits may result in joint and several, strict liability for administrative, civil and/or criminal penalties, the imposition of remedial obligations, and the issuance of injunctions limiting or preventing some or all of our operations. Private parties may also have the right to pursue legal actions to enforce compliance, as well as to seek damages for non-compliance, with environmental laws, regulations and permits or for personal injury or property damage.
Our operations also pose risks of environmental liability due to leakage, migration, releases or spills of hazardous substances to surface or subsurface soils, surface water or groundwater. Certain environmental laws impose strict as well as joint and several liability (that could result in an entity paying more than its fair share) for costs required to remediate and restore sites where hazardous substances, hydrocarbons, or solid wastes have been stored or released. We may be required to remediate contaminated properties currently or formerly owned or operated by us or facilities of third parties that received waste generated by our operations regardless of whether such contamination resulted from the conduct of others or from consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of our operations.
The trend of more expansive and stringent environmental legislation and regulations applied to the power generation industry could continue, resulting in increased costs of doing business and consequently affecting profitability. Many states and environmental groups have challenged certain federal laws and regulations relating to air emissions, water discharge and intake requirements, and management of CCRs as not being sufficiently strict. As a result, state and federal regulations have been proposed or adopted that would impose more stringent restrictions, which could require us to significantly increase capital and operating expenditures for additional environmental controls. At some of our older generating facilities it may be uneconomic for us to install necessary environmental controls to comply with new or proposed regulations, which could cause us to retire those units.
We may not be able to obtain or maintain all environmental regulatory approvals necessary for our planned capital projects which are necessary to our business. If there is a delay in obtaining any required environmental regulatory approval or if we fail to obtain, maintain or comply with any such approval, operations at our affected facilities could be halted, reduced or subjected to additional costs.
We are subject to certain risks associated with nuclear generation, including the risk that our Susquehanna nuclear plant could become subject to increased security or safety requirements that would increase capital and operating expenditures, uncertainties regarding spent nuclear fuel, and uncertainties associated with decommissioning our plant at the end of its licensed life.
Nuclear generation accounted for about 32% of PPL Energy Supply's 2014 competitive power generation output. The risks of nuclear generation generally include:
· | the potential harmful effects on the environment and human health from the operation of nuclear facilities and the storage, handling and disposal of radioactive materials; |
· | limitations on the amounts and types of insurance commercially available to cover losses and liabilities that might arise in connection with nuclear operations; and |
· | uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives. The licenses for our two nuclear units expire in 2042 and 2044. See Note 19 to the Financial Statements for additional information on the ARO related to the decommissioning. |
The NRC has broad authority under federal law to impose licensing requirements, including security, safety and employee-related requirements for the operation of nuclear generation facilities. In the event of noncompliance, the NRC has authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. In addition, revised security or safety requirements promulgated by the NRC, particularly in response to the 2011 incident in Fukushima, Japan, could necessitate substantial capital or operating expenditures at our Susquehanna nuclear plant. There also remains substantial uncertainty regarding the temporary storage and permanent disposal of spent nuclear fuel, which could result in substantial additional costs to us that cannot be predicted. In addition, although we have no reason to anticipate a serious nuclear incident at our Susquehanna nuclear plant, if an incident did occur, any resulting operational loss, damages and injuries could have a material adverse effect on our results of operations, cash flows and financial condition. See Note 13 to the Financial Statements for a discussion of nuclear insurance.
We plan to optimize our competitive power generation operations, which involves a number of uncertainties and may not achieve the desired financial results.
We plan to optimize our competitive power generation operations. We plan to do this through the construction of new power plants or modification of existing power plants, and the potential closure of certain existing plants and acquisition of plants that may become available for sale. These types of projects involve numerous risks. Any planned power plant modifications could result in cost overruns, reduced plant efficiency and higher operating and other costs. With respect to the construction of new plants or modification of existing plants, we may be required to expend significant sums for preliminary engineering, permitting, resource exploration, legal and other expenses before it can be established whether a project is feasible, economically attractive or capable of being financed. The success of both a new or acquired project would likely be contingent, among other things, upon obtaining acceptable financing and maintaining acceptable credit ratings, as well as receipt of required and appropriate governmental approvals. If we were unable to complete construction or expansion of a project, we may not be able to recover our investment in the project. Furthermore, we might be unable to operate any new or modified plants as efficiently as projected, which could result in higher than projected operating and other costs and reduced earnings.
Risks Related to All Segments
(All Registrants)
The operation of our businesses is subject to cyber-based security and integrity risk.
Numerous functions affecting the efficient operation of our businesses are dependent on the secure and reliable storage, processing and communication of electronic data and the use of sophisticated computer hardware and software systems. The operation of our generation plants, including the Susquehanna nuclear plant, and of our energy and fuel trading businesses, as well as our transmission and distribution operations are all reliant on cyber-based technologies and, therefore, subject to the risk that such systems could be the target of disruptive actions, principally by terrorists or vandals, or otherwise be compromised by unintentional events. As a result, operations could be interrupted, property could be damaged and sensitive customer information lost or stolen, causing us to incur significant losses of revenues, other substantial liabilities and damages, costs to replace or repair damaged equipment and damages to our reputation.
Adverse economic conditions could adversely affect our financial condition and results of operations.
Adverse economic conditions and the declines in wholesale energy prices, partially resulting from adverse economic conditions, have significantly impacted our earnings. The breadth and depth of these negative economic conditions had a wide-ranging impact on the U.S. business environment, including our businesses. In addition, adverse economic conditions also reduce the demand for electricity and natural gas and/or reduce our customers' ability to pay their bills. This reduced demand continues to impact the key domestic wholesale energy markets we serve (such as PJM) and our Pennsylvania and Kentucky utility businesses. The combination of lower demand for power and increased supply of natural gas has put downward price pressure on wholesale energy
markets in general, further impacting our energy marketing results. In general, economic and commodity market conditions will continue to impact our unhedged future energy margins, utility profits, liquidity, earnings growth and overall financial condition.
Increases in electricity prices and/or a weak economy, can lead to changes in legislative and regulatory policy, including the promotion of energy efficiency, conservation and distributed generation or self-generation, which may adversely impact our business.
Energy consumption is significantly impacted by overall levels of economic activity and costs of energy supplies. Economic downturns or periods of high energy supply costs can lead to changes in or the development of legislative and regulatory policy designed to promote reductions in energy consumption and increased energy efficiency, alternative and renewable energy sources, and distributed or self-generation by customers. This focus on conservation, energy efficiency and self-generation may result in a decline in electricity demand, which could in turn adversely affect our business.
We could be negatively affected by rising interest rates, downgrades to our credit ratings, adverse credit market conditions or other negative developments in our ability to access capital markets.
In the ordinary course of business, we are reliant upon adequate long-term and short-term financing to fund our significant capital expenditures, debt service and operating needs. As a capital-intensive business, we are sensitive to developments in interest rates, credit rating considerations, insurance, security or collateral requirements, market liquidity and credit availability and refinancing opportunities necessary or advisable to respond to credit market changes. Changes in these conditions could result in increased costs and decreased availability of credit.
A downgrade in our credit ratings could negatively affect our ability to access capital and increase the cost of maintaining our credit facilities and any new debt.
Credit ratings assigned by Moody's and S&P to our businesses and their financial obligations have a significant impact on the cost of capital incurred by our businesses. A ratings downgrade could increase our short-term borrowing costs and negatively affect our ability to fund liquidity needs and access new long-term debt at acceptable interest rates. See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Liquidity and Capital Resources - Ratings Triggers" for additional information on the financial impact of a downgrade in our credit ratings.
Disruption in financial markets could adversely affect our financial condition and results of operations.
Our businesses are heavily dependent on credit and access to capital, among other things, for financing capital expenditures and providing collateral to support hedging in our energy marketing business. Regulations under the Dodd-Frank Act in the U.S. and Basel III in Europe may impose costly additional requirements on our businesses and the businesses of others with whom we contract, such as banks or other counterparties, or simply result in increased costs to conduct our business or access sources of capital and liquidity upon which the conduct of our businesses is dependent.
We could be negatively affected by rising interest rates, downgrades to our credit ratings, adverse credit market conditions or other negative developments in our ability to access capital markets.
In the ordinary course of business, we are reliant upon adequate long-term and short-term financing to fund our significant capital expenditures, debt service and operating needs. As a capital-intensive business, we are sensitive to developments in interest rates, credit rating considerations, insurance, security or collateral requirements, market liquidity and credit availability and refinancing opportunities necessary or advisable to respond to credit market changes. Changes in these conditions could result in increased costs and decreased availability of credit.
Our operating revenues could fluctuate on a seasonal basis, especially as a result of extreme weather conditions.
Our businesses are subject to seasonal demand cycles. For example, in some markets demand for, and market prices of, electricity peak during hot summer months, while in other markets such peaks occur in cold winter months. As a result, our overall operating results may fluctuate substantially on a seasonal basis if weather conditions such as heat waves, extreme cold,
unseasonably mild weather or severe storms occur. The patterns of these fluctuations may change depending on the type and location of our facilities and the terms of our contracts to sell electricity.facilities.
Operating expenses could be affected by weather conditions, including storms, as well as by significant man-made or accidentaldisturbances, including terrorism or natural disasters.
Weather and these other factors can significantly affect our profitability or operations by causing outages, damaging infrastructure and requiring significant repair costs. Storm outages and damage often directly decrease revenues and increase expenses, due to reduced usage and restoration costs.
Our businesses are subject to physical, market and economic risks relating to potentialeffects of climate change.
Climate change may produce changes in weather or other environmental conditions, including temperature or precipitation levels, and thus may impact consumer demand for electricity. In addition, the potential physical effects of climate change,
such as increased frequency and severity of storms, floods, and other climatic events, could disrupt our operations and cause us to incur significant costs in preparingto prepare for or respondingrespond to these effects. These or other meteorological changes could lead to increased operating costs, capital expenses or power purchase costs. Greenhouse gas regulation could increase the cost of electricity, particularly power generated by fossil fuels, and such increases could have a depressive effect on regional economies. Reduced economic and consumer activity in our service areas -- both generally and specific to certain industries and consumers accustomed to previously lower cost power -- could reduce demand for the power we generate, market and deliver. Also, demand for our energy-related services could be similarly lowered by consumers' preferences or market factors favoring energy efficiency, low-carbon power sources or reduced electricity usage.
We cannot predict the outcome of the legal proceedings and investigations currently being conducted with respect to our current and past business activities. An adverse determination could have a material adverse effect on our financial condition, results of operations or cash flows.
We are involved in legal proceedings, claims and litigation and subject to ongoing state and federal investigations arising out of our business operations, the most significant of which are summarized in "Federal Matters" in Note 6 and "Legal Matters," "Regulatory Issues" and "Environmental Matters - Domestic" in Note 13 to the Financial Statements. We cannot predict the ultimate outcome of these matters, nor can we reasonably estimate the costs or liabilities that could potentially result from a negative outcome in each case.
Significant increases in our operation and maintenance expenses, including health care and pension costs, could adversely affect our future earnings and liquidity.
We continually focus on limiting and reducing our operation and maintenance expenses. However, we expect to continue to face increased cost pressures in our operations. Increased costs of materials and labor may result from general inflation, increased regulatory requirements (especially in respect of environmental regulations), the need for higher-cost expertise in the workforce or other factors. In addition, pursuant to collective bargaining agreements, we are contractually committed to provide specified levels of health care and pension benefits to certain current employees and retirees. We provide a similar level of benefits to our management employees. These benefits give rise to significant expenses. Due to general inflation with respect to such costs, the aging demographics of our workforce and other factors, we have experienced significant health care cost inflation in recent years, and we expect our health care costs, including prescription drug coverage, to continue to increase despite measures that we have taken and expect to take to require employees and retirees to bear a higher portion of the costs of their health care benefits. In addition, we expect to continue to incur significant costs with respect to the defined benefit pension plans for our employees and retirees. The measurement of our expected future health care and pension obligations, costs and liabilities is highly dependent on a variety of assumptions, most of which relate to factors beyond our control. These assumptions include investment returns, interest rates, health care cost trends, inflation rates, benefit improvements, salary increases and the demographics of plan participants. If our assumptions prove to be inaccurate, our future costs and cash contribution requirements to fund these benefits could increase significantly.
We may be required to record impairment charges in the future for certain of our investments, which could adversely affect our earnings.
Under GAAP, we are required to test our recorded goodwill and indefinite-lived intangible assets for impairment on an annual basis, or more frequently if events or circumstances indicate that these assets may be impaired. Although no impairments were recorded based on our annual review in the fourth quarter of 2014, we are unable to predict whether future impairment charges may be necessary.
We also review our long-lived tangible and finite-lived intangible assets, including equity investments, for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable. See Notes 1 and 16 to the Financial Statements for additional information on impairment charges taken and analysis performed during the reporting periods. We are unable to predict whether impairment charges, or other losses on sales of other assets or businesses, may occur in future years.
We may incur liabilities in connection with discontinued operations.
In connection with various divestitures, and certain other transactions, we have indemnified or guaranteed parties against certain liabilities. These indemnities and guarantees relate, among other things, to liabilities which may arise with respect to the period during which we or our subsidiaries operated a divested business, and to certain ongoing contractual relationships and entitlements with respect to which we or our subsidiaries made commitments in connection with the divestiture. See "Guarantees and Other Assurances" in Note 13 to the Financial Statements.
We are subject to liability risks relating to our generation,transmission and distribution operations.
The conduct of our physical and commercial operations subjects us to many risks, including risks of potential physical injury, property damage or other financial liability, caused to or by employees, customers, contractors, vendors, contractual or financial counterparties and other third parties.
Our facilities may not operate as planned, which may increase our expenses and decrease our revenues and have an adverse effect on our financial performance.
Operation of power plants, transmission and distribution facilities, information technology systems and other assets and activities subjects us to a variety of risks, including the breakdown or failure of equipment, accidents, security breaches, viruses or outages affecting information technology systems, labor disputes, obsolescence, delivery/transportation problems and disruptions of fuel supply and performance below expected levels. These events may impact our ability to conduct our businesses efficiently and lead to increased costs, expenses or losses. Operation of our delivery systems below our expectations may result in lost revenue and increased expense, including higher maintenance costs, which may not be recoverable from customers. Planned and unplanned outages at our power plants may require us to purchase power at then-current market prices to satisfy our commitments or, in the alternative, pay penalties and damages for failure to satisfy them.
Although we maintain customary insurance coverage for certain of these risks, no assurance can be given that such insurance coverage will be sufficient to compensate us fully in the event losses occur.
We are subject to risks associated with federal and state tax laws and regulations.
Changes in tax law as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact our results of operations. We are required to make judgments in order to estimate our obligations to taxing authorities. These tax obligations include income, property, gross receipts and franchise, sales and use, employment-related and other taxes. We also estimate our ability to utilize tax benefits and tax credits. Due to the revenue needs of the jurisdictions in which our businesses operate, various tax and fee increases may be proposed or considered. We cannot predict whether such tax legislation or regulation will be introduced or enacted or the effect of any such changes on our businesses. If enacted, any changes could increase tax expense and could have a significant negative impact on our results of operations and cash flows.
We are required to obtain, and to comply with, government permits and approvals.
We are required to obtain, and to comply with, numerous permits, approvals, licenses and certificates from federal, state and local governmental agencies. The process of obtaining and renewing necessary permits can be lengthy and complex and can sometimes result in the establishment of permit conditions that make the project or activity for which the permit was sought unprofitable or otherwise unattractive. In addition, such permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits or approvals, or failure to comply with any applicable laws or regulations, may result in the delay or temporary suspension of our operations and electricity sales or the curtailment of our power delivery and may subject us to penalties and other sanctions. Although various regulators routinely renew existing licenses, renewal could be denied or jeopardized by various factors, including failure to provide adequate financial assurance for closure; failure to comply with environmental, health and safety laws and regulations or permit conditions; local community, political or other opposition; and executive, legislative or regulatory action.
Our cost or inability to obtain and comply with the permits and approvals required for our operations could have a material adverse effect on our operations and cash flows. In addition, new environmental legislation or regulations, if enacted, or changed interpretations of existing laws may elicit claims that historical routine modification activities at our facilities violated applicable laws and regulations. In addition to the possible imposition of fines in such cases, we may be required to undertake significant capital investments in pollution control technology and obtain additional operating permits or approvals, which could have an adverse impact on our business, results of operations, cash flows and financial condition.
War, other armed conflicts or terrorist attacks could have a material adverse effect on our business.
War, terrorist attacks and unrest have caused and may continue to cause instability in the world's financial and commercial markets and have contributed to high levels of volatility in prices for oil and gas. Instability and unrest in the Middle East, Afghanistan, Ukraine and Iraq, as well as threats of war or other armed conflict elsewhere, may cause further disruption to
financial and commercial markets and contribute to even higher levels of volatility in prices for oil and gas. In addition, unrest in the Middle East Afghanistan, Ukraine and Iraq could lead to acts of terrorism in the United States, the United Kingdom or elsewhere, and acts of terrorism could be directed against companies such as ours. Armed conflicts and terrorism and their effects on us or our markets may significantly affect our business and results of operations in the future. In addition, we may incur increased costs for security, including additional physical plant security and security personnel or additional capability following a terrorist incident.
We are subject to counterparty performance, credit or other risk in their provision of goods or services to us, which could adversely affect our ability to operate our facilities or conduct business activities.
We purchase from a variety of suppliers energy, capacity, fuel, natural gas, transmission service and certain commodities used in the physical operation of our businesses, as well as goods or services, including information technology rights and services, used in the administration of our businesses. Delivery of these goods and services is dependent on the continuing operational performance and financial viability of our contractual counterparties and also the markets, infrastructure or third-parties they use to provide such goods and services to us. As a result, we are subject to the risks of disruptions, curtailments or increased costs in the operation of our businesses if such goods or services are unavailable or become subject to price spikes or if a counterparty fails to perform. Such disruptions could adversely affect our ability to operate our facilities or deliver our services and collect our revenues, which could result in lower sales and/or higher costs and thereby adversely affect our results of operations. The performance of coal markets and producers may be the subject of increased counterparty risk to LKE, LG&E and KU currently due to weaknesses in such markets and suppliers. The coal industry is subject to increasing competitive pressures from natural gas markets and new or more stringent environmental regulation, including greenhouse gases or other air emissions, combustion byproducts and water inputs or discharges. Consequently, the coal industry faces increased production costs or closed customer markets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
None.
ITEM 2. PROPERTIES
U.K. Regulated Segment (PPL)
For a description of WPD's service territory, see "Item 1. Business - General - Segment Information - U.K. Regulated Segment." WPD has electric distribution lines in public streets and highways pursuant to legislation and rights-of-way secured from property owners. At December 31, 2014,2016, WPD's distribution system in the U.K. includes 1,6241,792 substations with a total capacity of 6872 million kVA, 56,88256,294 circuit miles of overhead lines and 80,67282,776 underground cable miles.
Kentucky Regulated Segment (PPL, LKE, LG&E and KU)
LG&E's and KU's properties consist primarily of regulated generation facilities, electricelectricity transmission and distribution assets and natural gas transmission and distribution assets in Kentucky. The capacity of generation units is based on a number of factors, including the operating experience and physical condition of the units, and may be revised periodically to reflect changed circumstances. The electricelectricity generating capacity at December 31, 20142016 was:
| | | | | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | |
| | | | Total MW | | Ownership or | | | | Ownership or | | | | Ownership or |
| | | | Capacity | | Lease Interest | | | | Lease Interest | | | | Lease Interest |
| Primary Fuel/Plant | | Summer | | in MW | | % Ownership | | in MW | | % Ownership | | in MW |
| | | | | | | | | | | | | | |
| Coal | | | | | | | | | | | | |
| | Ghent - Units 1- 4 | | 1,932 | | 1,932 | | | | | | 100.00 | | 1,932 |
| | Mill Creek - Units 1- 4 | | 1,472 | | 1,472 | | 100.00 | | 1,472 | | | | |
| | E.W. Brown - Units 1-3 | | 682 | | 682 | | | | | | 100.00 | | 682 |
| | Cane Run - Units 4 - 6 | | 563 | | 563 | | 100.00 | | 563 | | | | |
| | Trimble County - Unit 1 (a) | | 511 | | 383 | | 75.00 | | 383 | | | | |
| | Trimble County - Unit 2 (a) | | 732 | | 549 | | 14.25 | | 104 | | 60.75 | | 445 |
| | Green River - Units 3- 4 | | 161 | | 161 | | | | | | 100.00 | | 161 |
| | OVEC - Clifty Creek (b) | | 1,164 | | 95 | | 5.63 | | 66 | | 2.50 | | 29 |
| | OVEC - Kyger Creek (b) | | 956 | | 78 | | 5.63 | | 54 | | 2.50 | | 24 |
| | | | 8,173 | | 5,915 | | | | 2,642 | | | | 3,273 |
| Natural Gas/Oil | | | | | | | | | | | | |
| | E.W. Brown Unit 5 (c) | | 134 | | 134 | | 53.00 | | 71 | | 47.00 | | 63 |
| | E.W. Brown Units 6 - 7 (d) | | 292 | | 292 | | 38.00 | | 111 | | 62.00 | | 181 |
| | E.W. Brown Units 8 - 11 (c) | | 484 | | 484 | | | | | | 100.00 | | 484 |
| | Trimble County Units 5 - 6 | | 314 | | 314 | | 29.00 | | 91 | | 71.00 | | 223 |
| | Trimble County Units 7 - 10 | | 628 | | 628 | | 37.00 | | 232 | | 63.00 | | 396 |
| | Paddy's Run Units 11 - 12 | | 35 | | 35 | | 100.00 | | 35 | | | | |
| | Paddy's Run Unit 13 | | 147 | | 147 | | 53.00 | | 78 | | 47.00 | | 69 |
| | Haefling - Units 1 - 2 | | 24 | | 24 | | | | | | 100.00 | | 24 |
| | Zorn Unit | | 14 | | 14 | | 100.00 | | 14 | | | | |
| | Cane Run Unit 11 | | 14 | | 14 | | 100.00 | | 14 | | | | |
| | | | 2,086 | | 2,086 | | | | 646 | | | | 1,440 |
| Hydro | | | | | | | | | | | | |
| | Ohio Falls - Units 1-8 | | 54 | | 54 | | 100.00 | | 54 | | | | |
| | Dix Dam - Units 1-3 | | 32 | | 32 | | | | | | 100.00 | | 32 |
| | | | 86 | | 86 | | | | 54 | | | | 32 |
| | | | | | | | | | | | | | |
Total | | 10,345 | | 8,087 | | | | 3,342 | | | | 4,745 |
|
| | | | | | | | | | | | |
| | | | | LKE | | LG&E | | KU |
| Primary Fuel/Plant | | Total MW Capacity Summer | | Ownership or Other Interest in MW | | % Ownership or Other Interest | | Ownership or Other Interest in MW | | % Ownership or Other Interest | | Ownership or Other Interest in MW |
| Coal | | | | | | | | | | | | |
| Ghent - Units 1- 4 | | 1,917 | | 1,917 | | | | | | 100.00 | | 1,917 |
| Mill Creek - Units 1- 4 | | 1,465 | | 1,465 | | 100.00 | | 1,465 | | | | |
| E.W. Brown - Units 1-3 | | 681 | | 681 | | | | | | 100.00 | | 681 |
| Trimble County - Unit 1 (a) | | 493 | | 370 | | 75.00 | | 370 | | | | |
| Trimble County - Unit 2 (a) | | 732 | | 549 | | 14.25 | | 104 | | 60.75 | | 445 |
| OVEC - Clifty Creek (b) | | 1,164 | | 95 | | 5.63 | | 66 | | 2.50 | | 29 |
| OVEC - Kyger Creek (b) | | 956 | | 78 | | 5.63 | | 54 | | 2.50 | | 24 |
| | | 7,408 | | 5,155 | | | | 2,059 | | | | 3,096 |
| Natural Gas/Oil | | | | | | | | | | | | |
| E.W. Brown Unit 5 (c) | | 130 | | 130 | | 53.00 | | 69 | | 47.00 | | 61 |
| E.W. Brown Units 6 - 7 | | 292 | | 292 | | 38.00 | | 111 | | 62.00 | | 181 |
| E.W. Brown Units 8 - 11 (c) | | 484 | | 484 | | | | | | 100.00 | | 484 |
| Trimble County Units 5 - 6 | | 318 | | 318 | | 29.00 | | 92 | | 71.00 | | 226 |
| Trimble County Units 7 - 10 | | 636 | | 636 | | 37.00 | | 235 | | 63.00 | | 401 |
| Paddy's Run Units 11 - 12 | | 35 | | 35 | | 100.00 | | 35 | | | | |
| Paddy's Run Unit 13 | | 147 | | 147 | | 53.00 | | 78 | | 47.00 | | 69 |
| Haefling - Units 1 - 2 | | 24 | | 24 | | | | | | 100.00 | | 24 |
| Zorn Unit | | 14 | | 14 | | 100.00 | | 14 | | | | |
| Cane Run Unit 7 | | 662 | | 662 | | 22.00 | | 146 | | 78.00 | | 516 |
| Cane Run Unit 11 | | 14 | | 14 | | 100.00 | | 14 | | | | |
| | | 2,756 | | 2,756 | | | | 794 | | | | 1,962 |
| Hydro | | | | | | | | | | | | |
| Ohio Falls - Units 1-8 | | 60 | | 60 | | 100.00 | | 60 | | | | |
| Dix Dam - Units 1-3 | | 32 | | 32 | | | | | | 100.00 | | 32 |
| | | 92 | | 92 | | | | 60 | | | | 32 |
| Solar | | | | | | | | | | | | |
| E.W. Brown Solar (d) | | 8 | | 8 | | 39.00 | | 3 | | 61.00 | | 5 |
| | | | | | | | | | | | | |
| Total | | 10,264 | | 8,011 | | | | 2,916 | | | | 5,095 |
| |
| (a) | Trimble County Unit 1 and Trimble County Unit 2 are jointly owned with Illinois Municipal Electric Agency and Indiana Municipal Power Agency. Each owner is entitled to its proportionate share of the units' total output and funds its proportionate share of capital, fuel and other operating costs. See Note 12 to the Financial Statements for additional information. |
| |
| (b) | This unit isThese units are owned by OVEC. LG&E and KU have a power purchase agreement that entitles LG&E and KU to their proportionate share of thethese unit's total output and LG&E and KU fund their proportionate share of fuel and other operating costs. Clifty Creek is located in Indiana and Kyger Creek is located in Ohio. See Note 13 to the Financial Statements for additional information. |
| |
| (c) | There is an inlet air cooling system attributable to these units. This inlet air cooling system is not jointly owned; however, it is used to increase production on the units to which it relates, resulting in an additional 10 MW of capacity for LG&E and an additional 88 MW of capacity for KU. |
| |
| (d) | IncludesThis unit is a sale-leaseback interest through December 2017 on two combustion turbines. LG&E10 MW facility and KU provided funds to fully defease the lease including the purchase price for the period up to the exercise dateachieves such production. The 8 MW solar facility summer capacity rating is reflective of an early purchase option contained inaverage expected output across the lease. LG&E and KU may exercisepeak hours during the early purchase option in 2015. The financial statement treatment of this transaction issummer period based on average weather conditions at the same as if LG&E and KU had retained their ownership interests.solar facility. |
For a description of LG&E's and KU's service areas, see "Item 1. Business - General - Segment Information - Kentucky Regulated Segment." At December 31, 2014,2016, LG&E's transmission system included in the aggregate, 45 substations (32(31 of which are shared with the distribution system) with a total capacity of 8 million kVA and 675669 pole miles of lines. LG&E's distribution system included 97 substations (32(31 of which are shared with the transmission system) with a total capacity of
5 6 million kVA, 3,8813,894 circuit miles of overhead lines and 2,4522,520 underground cable miles. KU's transmission system included 138142 substations (58(60 of which are shared with the distribution system) with a total capacity of 14 million kVA and 4,0794,068 pole miles of lines. KU's distribution system included 479474 substations (58(60 of which are shared with the transmission system) with a total capacity of 7 million kVA, 14,084 14,030circuit miles of overhead lines and 2,375 2,443underground cable miles.
LG&E's natural gas transmission system includes 4,3384,363 miles of gas distribution mains and 395401 miles of gas transmission mains, consisting of 255264 miles of gas transmission pipeline, 126119 miles of gas transmission storage lines, 1418 miles of gas combustion turbine lines and one mile of gas transmission pipeline in regulator facilities. Five underground natural gas storage fields, with a total working natural gas capacity of approximately 15 Bcf, are used in providing natural gas service to ultimate consumers. KU's service area includes an additional 11 miles of gas transmission pipeline providing gas supply to natural gas combustion turbine electricity generating units.
Substantially all of LG&E's and KU's respective real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity and, in the case of LG&E, the storage and distribution of natural gas, is subject to the lien of either the LG&E 2010 Mortgage Indenture or the KU 2010 Mortgage Indenture. See Note 7 to the Financial Statements for additional information.
LG&E and KU continuously reexamine development projects based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them or pursue other options. In 2016, LG&E and KU planreceived approval from the KPSC to implementdevelop a 4 MW solar share facility to service a solar share program. The solar share program is an optional, voluntary program that allows customers to subscribe capacity in the following capacity increases and decreases at the following plants locatedsolar share facility. Construction is expected to begin, in Kentucky.
500-kilowatt phases, when subscription is complete.
| | | | | | LG&E | | KU | | |
| | | | Total Net | | | | | | | | | | Year of |
| | | | Summer MW | | | | | | | | | | Incremental |
| | | | Capacity | | | | Ownership or | | | | Ownership or | | Capacity |
| | | | Increase / | | | | Lease Interest | | | | Lease Interest | | Increase / |
| Primary Fuel/Plant | | (Decrease) | | % Ownership | | in MW | | % Ownership | | in MW | | Decrease |
| | | | | | | | | | | | | | |
| Coal | | | | | | | | | | | | |
| | Cane Run - Units 4-6 - (a) | | (563) | | 100.00 | | (563) | | | | | | 2015 |
| | Green River - Units 3-4 - (b) | | (161) | | | | | | 100.00 | | (161) | | 2016 |
| | Total Capacity Decreases | | (724) | | | | (563) | | | | (161) | | |
| | | | | | | | | | | | | |
| Natural Gas | | | | | | | | | | | | |
| | Cane Run - Unit 7 (c) | | 640 | | 22.00 | | 141 | | 78.00 | | 499 | | 2015 |
| | Bluegrass Unit 3 (d) | | 165 | | 100.00 | | 165 | | | | | | 2015 |
| | | | | | | | | | | | | |
| Solar | | | | | | | | | | | | |
| | E.W. Brown (e) | | 10 | | 39.00 | | 4 | | 61.00 | | 6 | | 2016 |
| | Total Capacity Increases | | 815 | | | | 310 | | | | 505 | | |
| | | | | | | | | | | | | | |
(a) | LG&E anticipates retiring these units by the end of 2015. See Notes 8 and 13 to the Financial Statements for additional information. |
(b) | KU had anticipated retiring these units by the end of 2015, however KU received a waiver from the Commonwealth of Kentucky to operate these units until April 2016. See Notes 8 and 13 to the Financial Statements for additional information. |
(c) | In May 2012, LG&E and KU received approval to build this unit at the existing Cane Run site. See Note 8 to the Financial Statements for additional information. |
(d) | On August 26, 2014, LG&E and KU entered into a Capacity Purchase and Tolling Agreement with Bluegrass Generation Company, LLC. This agreement, which is effective May 1, 2015 through April 30, 2019, is an operating lease in which LG&E and KU will purchase capacity produced up to 165 MW for 30 hours each year. |
(e) | In December 2014, LG&E and KU received approval from the KPSC to build this unit at the existing E.W. Brown site. See Note 8 to the Financial Statements for additional information. |
Pennsylvania Regulated Segment (PPL and PPL Electric)
For a description of PPL Electric's service territory, see "Item 1. Business - General - Segment Information - Pennsylvania Regulated Segment." PPL Electric hadhas electric transmission and distribution lines in public streets and highways pursuant to franchises and rights-of-way secured from property owners. At December 31, 2014,2016, PPL Electric's transmission system includes 4347 substations with a total capacity of 2325 million kVA and 3,989 pole5,314 circuit miles in service. PPL Electric's distribution system includes 352350 substations with a total capacity of 13 million kVA, 37,21137,291 circuit miles of overhead lines and 8,3208,494 underground cablecircuit miles. All of PPL Electric's facilities are located in Pennsylvania. Substantially all of PPL Electric's distribution properties and certain transmission properties are subject to the lien of the PPL Electric 2001 Mortgage Indenture. See Note 7 to the Financial Statements for additional information.
See Note 8 to the Financial Statements for information on the Regional Transmission Line Expansion Plan.
Supply Segment(PPL and PPL Energy Supply)
In June 2014, PPL and PPL Energy Supply, which primarily represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 to the Financial Statements for additional information.
The capacity of generation units is based on a number of factors, including the operating experience and physical conditions of the units, and may be revised periodically to reflect changed circumstances. PPL Energy Supply's electric generating capacity (summer rating) at December 31, 2014 was as follows.
| | | | | | | | | PPL Energy Supply's | | |
| Primary Fuel/Plant | | Total MW Capacity | | % Ownership | | Ownership in MW | | Location |
| | | | | | | | | | | |
| Natural Gas/Oil | | | | | | | | |
| | Martins Creek | | 1,700 | | 100.00 | | 1,700 | | Pennsylvania |
| | Ironwood | | 660 | | 100.00 | | 660 | | Pennsylvania |
| | Lower Mt. Bethel | | 538 | | 100.00 | | 538 | | Pennsylvania |
| | Combustion turbines | | 354 | | 100.00 | | 354 | | Pennsylvania |
| | | | | 3,252 | | | | 3,252 | | |
| | | | | | | | | | | |
| Coal | | | | | | | | |
| | Montour | | 1,504 | | 100.00 | | 1,504 | | Pennsylvania |
| | Brunner Island | | 1,411 | | 100.00 | | 1,411 | | Pennsylvania |
| | Colstrip Units 1 & 2 (a) | | 614 | | 50.00 | | 307 | | Montana |
| | Conemaugh (a) | | 1,711 | | 16.25 | | 278 | | Pennsylvania |
| | Colstrip Unit 3 (a) | | 740 | | 30.00 | | 222 | | Montana |
| | Keystone (a) | | 1,710 | | 12.34 | | 211 | | Pennsylvania |
| | Corette (b) | | 148 | | 100.00 | | 148 | | Montana |
| | | | | 7,838 | | | | 4,081 | | |
| | | | | | | | | | | |
| Nuclear | | | | | | | | |
| | Susquehanna (a) | | 2,494 | | 90.00 | | 2,245 | | Pennsylvania |
| | | | | | | | | | | |
| Hydro | | | | | | | | |
| | Holtwood | | 249 | | 100.00 | | 249 | | Pennsylvania |
| | Wallenpaupack | | 44 | | 100.00 | | 44 | | Pennsylvania |
| | | | | 293 | | | | 293 | | |
| | | | | | | | | | | |
| Qualifying Facilities | | | | | | | | |
| | Renewables (c) | | 16 | | 100.00 | | 16 | | Pennsylvania |
| | Renewables | | 9 | | 100.00 | | 9 | | Various |
| | | | | 25 | | | | 25 | | |
| | | | | | | | | | | |
Total | | 13,902 | | | | 9,896 | | |
(a) | This unit is jointly owned. Each owner is entitled to its proportionate share of the unit's total output and funds its proportionate share of fuel and other operating costs. See Note 12 to the Financial Statements for additional information. |
(b) | Operations will be suspended at the Corette plant by April 2015 and the plant is expected to be retired in August 2015. |
(c) | Includes facilities owned, controlled or for which PPL Energy Supply has the rights to the output. |
As a condition of obtaining FERC approval of the spinoff transaction, certain of the above plants will be divested. See "Item 1. Business - General - Anticipated Spinoff of PPL Energy Supply" for additional information.
Amounts guaranteed by PPL Montour and PPL Brunner Island in connection with an $800 million secured energy marketing and trading facility are secured by liens on the generating facilities owned by PPL Montour and PPL Brunner Island. See Note 7 to the Financial Statements for additional information.
ITEM 3. LEGAL PROCEEDINGS See Notes 5, 6 and 13 to the Financial Statements for information regarding legal, tax litigation, regulatory and environmental proceedings and matters.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Liquidity and Capital Resources - Forecasted Uses of Cash" for information regarding certain restrictions on the ability to pay dividends for all Registrants.
PPL Corporation
Additional information for this item is set forth in the sections entitled "Quarterly Financial, Common Stock Price and Dividend Data," "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" and "Shareowner and Investor Information" of this report. At January 30, 2015,31, 2017, there were 62,42358,194 common stock shareowners of record.
There were no purchases by PPL of its common stock during the fourth quarter of 2014.2016.
PPL Energy Supply, LLC
There is no established public trading market for PPL Energy Supply's membership interests. PPL Energy Funding, a direct wholly owned subsidiary of PPL, owns all of PPL Energy Supply's outstanding membership interests. Distributions on the membership interests will be paid as determined by PPL Energy Supply's Board of Managers.
PPL Energy Supply made cash distributions to PPL Energy Funding of $1.9 billion in 2014 and $408 million in 2013.
PPL Electric Utilities Corporation
There is no established public trading market for PPL Electric's common stock, as PPL owns 100% of the outstanding common shares. Dividends paid to PPL on those common shares are determined by PPL Electric's Board of Directors. PPL Electric paid common stock dividends to PPL of $158$288 million in 20142016 and $127$181 million in 2013.2015.
LG&E and KU Energy LLC
There is no established public trading market for LKE's membership interests. PPL owns all of LKE's outstanding membership interests. Distributions on the membership interests will beare paid as determined by LKE's Board of Directors. LKE made cash distributions to PPL of $436$316 million in 20142016 and $254$219 million in 2013.2015.
Louisville Gas and Electric Company
There is no established public trading market for LG&E's common stock, as LKE owns 100% of the outstanding common shares. Dividends paid to LKE on those common shares are determined by LG&E's Board of Directors. LG&E paid common stock dividends to LKE of $112$128 million in 20142016 and $99$119 million in 2013.2015.
Kentucky Utilities Company
There is no established public trading market for KU's common stock, as LKE owns 100% of the outstanding common shares. Dividends paid to LKE on those common shares are determined by KU's Board of Directors. KU paid common stock dividends to LKE of $148$248 million in 20142016 and $124$153 million in 2013.2015.
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA |
| | | | | | | | | | | | | | | | | | | |
| PPL Corporation (a) (b) | | | 2014 | | | 2013 | | | 2012 | | | 2011 (c) | | | 2010 (c) |
| | | | | | | | | | | | | | | | | | | |
Income Items (in millions) | | | | | | | | | | | | | | | |
| | Operating revenues | | $ | 11,499 | | $ | 11,721 | | $ | 12,132 | | $ | 12,580 | | $ | 8,370 |
| | Operating income | | | 3,272 | | | 2,278 | | | 3,026 | | | 2,950 | | | 1,826 |
| | Income from continuing operations after income taxes | | | | | | | | | | | | | | | |
| | | attributable to PPL shareowners | | | 1,583 | | | 1,096 | | | 1,486 | | | 1,399 | | | 937 |
| | Net income attributable to PPL shareowners | | | 1,737 | | | 1,130 | | | 1,526 | | | 1,495 | | | 938 |
Balance Sheet Items (in millions) (d) | | | | | | | | | | | | | | | |
| | Total assets | | | 48,864 | | | 46,259 | | | 43,634 | | | 42,648 | | | 32,837 |
| | Short-term debt | | | 1,466 | | | 701 | | | 652 | | | 578 | | | 694 |
| | Long-term debt | | | 20,391 | | | 20,907 | | | 19,476 | | | 17,993 | | | 12,663 |
| | Noncontrolling interests | | | | | | | | | 18 | | | 268 | | | 268 |
| | Common equity | | | 13,628 | | | 12,466 | | | 10,480 | | | 10,828 | | | 8,210 |
| | Total capitalization | | | 35,485 | | | 34,074 | | | 30,626 | | | 29,667 | | | 21,835 |
| Financial Ratios | | | | | | | | | | | | | | | |
| | Return on average common equity - % | | | 13.0 | | | 9.8 | | | 13.8 | | | 14.9 | | | 13.3 |
| | Ratio of earnings to fixed charges (e) | | | 3.1 | | | 2.1 | | | 2.9 | | | 2.9 | | | 2.6 |
| Common Stock Data | | | | | | | | | | | | | | | |
| | Number of shares outstanding - Basic (in thousands) | | | | | | | | | | | | | | | |
| | | | Year-end | | | 665,849 | | | 630,321 | | | 581,944 | | | 578,405 | | | 483,391 |
| | | | Weighted-average | | | 653,504 | | | 608,983 | | | 580,276 | | | 550,395 | | | 431,345 |
| | Income from continuing operations after income taxes | | | | | | | | | | | | | | | |
| | | available to PPL common shareowners - Basic EPS | | $ | 2.41 | | $ | 1.79 | | $ | 2.55 | | $ | 2.53 | | $ | 2.16 |
| | Income from continuing operations after income taxes | | | | | | | | | | | | | | | |
| | | available to PPL common shareowners - Diluted EPS | | $ | 2.38 | | $ | 1.71 | | $ | 2.54 | | $ | 2.53 | | $ | 2.16 |
| | Net income available to PPL common shareowners - | | | | | | | | | | | | | | | |
| | | Basic EPS | | $ | 2.64 | | $ | 1.85 | | $ | 2.61 | | $ | 2.71 | | $ | 2.17 |
| | Net income available to PPL common shareowners - | | | | | | | | | | | | | | | |
| | | Diluted EPS | | $ | 2.61 | | $ | 1.76 | | $ | 2.60 | | $ | 2.70 | | $ | 2.17 |
| | Dividends declared per share of common stock | | $ | 1.49 | | $ | 1.47 | | $ | 1.44 | | $ | 1.40 | | $ | 1.40 |
| | Book value per share (d) | | $ | 20.47 | | $ | 19.78 | | $ | 18.01 | | $ | 18.72 | | $ | 16.98 |
| | Market price per share (d) | | $ | 36.33 | | $ | 30.09 | | $ | 28.63 | | $ | 29.42 | | $ | 26.32 |
| | Dividend payout ratio - % (f) | | | 57 | | | 84 | | | 55 | | | 52 | | | 65 |
| | Dividend yield - % (g) | | | 4.1 | | | 4.9 | | | 5.0 | | | 4.8 | | | 5.3 |
| | Price earnings ratio (f) (g) | | | 13.9 | | | 17.1 | | | 11.0 | | | 10.9 | | | 12.1 |
| Sales Data - GWh | | | | | | | | | | | | | | | |
| | Domestic - Electric energy supplied - retail | | | 46,368 | | | 44,564 | | | 42,379 | | | 40,147 | | | 14,595 |
| | Domestic - Electric energy supplied - wholesale (h) | | | 57,355 | | | 61,124 | | | 54,958 | | | 63,701 | | | 74,105 |
| | Domestic - Electric energy delivered - retail | | | 68,569 | | | 67,848 | | | 66,931 | | | 67,806 | | | 42,463 |
| | U.K. - Electric energy delivered | | | 75,813 | | | 78,219 | | | 77,467 | | | 58,245 | | | 26,820 |
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
|
| | | | | | | | | | | | | | | | | | | | |
| PPL Corporation (a) (b) | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Income Items (in millions) | | | | | | | | | | |
| Operating revenues | | $ | 7,517 |
| | $ | 7,669 |
| | $ | 7,852 |
| | $ | 7,263 |
| | $ | 6,856 |
|
| Operating income | | 3,048 |
| | 2,831 |
| | 2,867 |
| | 2,561 |
| | 2,228 |
|
| Income from continuing operations after income taxes attributable to PPL shareowners | | 1,902 |
| | 1,603 |
| | 1,437 |
| | 1,368 |
| | 1,114 |
|
Income (loss) from discontinued operations (net of income taxes) (f) | | — |
| | (921 | ) | | 300 |
| | (238 | ) | | 412 |
|
| Net income attributable to PPL shareowners (f) | | 1,902 |
| | 682 |
| | 1,737 |
| | 1,130 |
| | 1,526 |
|
Balance Sheet Items (in millions) | | | | | | | | | | |
| Total assets (d) | | 38,315 |
| | 39,301 |
| | 48,606 |
| | 45,889 |
| | 43,509 |
|
| Short-term debt (d) | | 923 |
| | 916 |
| | 836 |
| | 701 |
| | 296 |
|
| Long-term debt (d) | | 18,326 |
| | 19,048 |
| | 18,054 |
| | 18,269 |
| | 16,120 |
|
| Noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | 18 |
|
| Common equity (d) | | 9,899 |
| | 9,919 |
| | 13,628 |
| | 12,466 |
| | 10,480 |
|
| Total capitalization (d) | | 29,148 |
| | 29,883 |
| | 32,518 |
| | 31,436 |
| | 26,914 |
|
| Financial Ratios | | | | | | | | | | |
| Return on common equity - % (d)(f) | | 19.2 |
| | 5.8 |
| | 13.0 |
| | 9.8 |
| | 13.8 |
|
| Ratio of earnings to fixed charges (c) | | 3.8 |
| | 2.8 |
| | 2.8 |
| | 2.4 |
| | 2.1 |
|
| Common Stock Data | | | | | | | | | | |
| Number of shares outstanding - Basic (in thousands) | | | | | | | | | | |
| Year-end | | 679,731 |
| | 673,857 |
| | 665,849 |
| | 630,321 |
| | 581,944 |
|
| Weighted-average | | 677,592 |
| | 669,814 |
| | 653,504 |
| | 608,983 |
| | 580,276 |
|
Income from continuing operations after income taxes available to PPL common shareowners - Basic EPS | | $ | 2.80 |
| | $ | 2.38 |
| | $ | 2.19 |
| | $ | 2.24 |
| | $ | 1.91 |
|
Income from continuing operations after income taxes available to PPL common shareowners - Diluted EPS | | $ | 2.79 |
| | $ | 2.37 |
| | $ | 2.16 |
| | $ | 2.12 |
| | $ | 1.90 |
|
| Net income available to PPL common shareowners - Basic EPS | | $ | 2.80 |
| | $ | 1.01 |
| | $ | 2.64 |
| | $ | 1.85 |
| | $ | 2.61 |
|
| Net income available to PPL common shareowners - Diluted EPS | | $ | 2.79 |
| | $ | 1.01 |
| | $ | 2.61 |
| | $ | 1.76 |
| | $ | 2.60 |
|
| Dividends declared per share of common stock | | $ | 1.52 |
| | $ | 1.50 |
| | $ | 1.49 |
| | $ | 1.47 |
| | $ | 1.44 |
|
| Book value per share (d) | | $ | 14.56 |
| | $ | 14.72 |
| | $ | 20.47 |
| | $ | 19.78 |
| | $ | 18.01 |
|
| Market price per share | | $ | 34.05 |
| | $ | 34.13 |
| | $ | 36.33 |
| | $ | 30.09 |
| | $ | 28.63 |
|
| Dividend payout ratio - % (e)(f) | | 55 |
| | 149 |
| | 57 |
| | 84 |
| | 55 |
|
| Dividend yield - % (g) | | 4.5 |
| | 4.4 |
| | 4.1 |
| | 4.9 |
| | 5.0 |
|
| Price earnings ratio (e)(f)(g) | | 12.2 |
| | 33.8 |
| | 13.9 |
| | 17.1 |
| | 11.0 |
|
| Sales Data - GWh | | | | | | | | | | |
| Domestic - Electric energy supplied - wholesale | | 2,177 |
| | 2,241 |
| | 2,365 |
| | 2,383 |
| | 2,304 |
|
| Domestic - Electric energy delivered - retail | | 67,474 |
| | 67,798 |
| | 68,569 |
| | 67,848 |
| | 66,931 |
|
| U.K. - Electric energy delivered | | 74,728 |
| | 75,907 |
| | 75,813 |
| | 78,219 |
| | 77,467 |
|
(a) | |
| (a) | The earnings each year were affected by several items that management considers special. See "Results of Operations - Segment Results"Earnings" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for a description of special items in 2014, 20132016, 2015 and 2012.2014. The earnings were also affected by the salesspinoff of various businesses.PPL Energy Supply and the sale of the Montana hydroelectric generating facilities. See Note 8 to the Financial Statements for a discussion of discontinued operations in 2014, 20132015 and 2012.2014. |
| |
| (b) | | See "Item 1A. Risk Factors" and Notes 1, 6 and 13 to the Financial Statements for a discussion of uncertainties that could affect PPL's future financial condition. |
(c) | | 2011 includes eight months of WPD Midlands activity following the April 1, 2011 acquisition, as PPL consolidates WPD on a one-month lag. 2010 includes two months of LKE activity following the November 1, 2010 acquisition. |
(d) | | As of each respective year-end. |
(e) | (c) | Computed using earnings and fixed charges of PPL and its subsidiaries. Fixed charges consist of interest on short-short and long-term debt, amortization of debt discount, expense and premium - net,premium-net, other interest charges, the estimated interest component of operating rentals and preferred securities distributions of subsidiaries. See Exhibit 12(a) for additional information. |
(f) | |
| (d) | 2015 reflects the impact of the spinoff of PPL Energy Supply and a $3.2 billion related dividend. |
| |
| (f) | 2015 includes an $879 million loss on the spinoff of PPL Energy Supply, reflecting the difference between PPL's recorded value for the Supply segment and the estimated fair value determined in accordance with the applicable accounting rules under GAAP. 2015 also includes five months of Supply segment earnings, compared to 12 months in 2014. |
| |
| (g) | | Based on year-end market prices. |
(h) | | GWh are included until the transaction closing for facilities that were sold. |
| | |
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Item 6 is omitted as PPL Energy Supply, PPL Electric, LKE, LG&E and KU meet the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K.
Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
(All Registrants)
This combined "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" is separately filed by PPL, CorporationPPL Electric, LKE, LG&E and each of its Subsidiary Registrants.KU. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrantindividual Registrants when significant.
The following should be read in conjunction with the Registrants' Financial Statements and the accompanying Notes. 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.
· | "Overview" provides a description of each Registrant's business strategy, a description of key factors expected to impact future earnings and a discussion of important financial and operational developments. |
· | "Results of Operations" for PPL provides a detailed analysis of earnings by segment, and for the Subsidiary Registrants, includes a summary of earnings. For all Registrants, "Margins" provides explanations of non-GAAP financial measures and "Statement of Income Analysis" addresses significant changes in principal line items on the Statements of Income, comparing 2014 with 2013 and 2013 with 2012. |
· | "Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positions and credit profiles. This section also includes a discussion of forecasted sources and uses of cash and 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 overview of the accounting policies that are particularly important to the results of operations and financial condition of the Registrants and that require their management to make significant estimates, assumptions and other judgments of inherently uncertain matters. |
"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 2016 with 2015 and 2015 with 2014. For PPL, "Results of Operations" also includes "Segment Earnings" and "Margins" which provide a detailed analysis of earnings by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Margins" and provides explanations of the non-GAAP financial measures and a reconciliation of the non-GAAP financial measures to the most comparable GAAP measure. The "2017 Outlook" discussion identifies key factors expected to impact 2017 earnings. For PPL Electric, LKE, LG&E and KU, a summary of earnings is also provided.
"Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positions and credit profiles. This section also includes a discussion of forecasted sources and uses of cash and 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 overview of the accounting policies that are particularly important to the results of operations and financial condition of the Registrants and that require their management to make significant estimates, assumptions and other judgments of inherently uncertain matters.
Overview
For a description of the Registrants and their businesses, see "Item 1. Business."
Business StrategyOn June 1, 2015, PPL completed the spinoff of PPL Energy Supply, which combined its competitive power generation businesses with those of Riverstone to form a new, stand-alone, publicly traded company named Talen Energy. See Note 8 to the Financial Statements for additional information.
Business Strategy
(All Registrants exceptRegistrants)
Following the June 1, 2015 spinoff of PPL Energy Supply)Supply, PPL completed its strategic transformation to a fully regulated business model consisting of seven diverse, high-performing utilities. These utilities are located in the U.K., Pennsylvania and Kentucky and each jurisdiction has different regulatory structures and customer classes. The Company believes this diverse portfolio provides strong earnings and dividend growth potential that will create significant value for its shareowners and positions PPL well for continued growth and success.
The strategy for the regulated
PPL's businesses of WPD, PPL Electric, LKE, LG&E and KU isplan to provideachieve growth by providing efficient, reliable and safe operations and strong customer service, maintainmaintaining constructive regulatory relationships and achieveachieving timely recovery of costs. These regulated businesses also focus on providing competitively priced energyare expected to customers and achieving stable,achieve strong, long-term growth in earnings and rate base, or RAV, as applicable. Both rate base and RAV, are expected to grow for the foreseeable future as a result ofapplicable, driven by planned significant capital expenditure programsexpenditures to maintain existing assets and to improve system reliability and, for LKE, LG&E and KU, to comply with federal and state environmental regulations related to coal-fired electricity generation facilities. Future RAV for WPD will also be affected by RIIO-ED1, effective April 1, 2015, as the recovery period for assets placed in service after that date will be extended from 20 to 45 years, with a transitional arrangement that will gradually change the life over the price control period that will result in an average life of 35 years for RAV additions during RIIO-ED1. The RAV balanceAdditionally, significant transmission rate base growth is expected through at March 31, 2015 will continue to be recovered over 20 years. In addition, incentive targets have been adjusted in RIIO-ED1, resulting in lower overall incentive revenues available to be earned. See "Financial
and Operational Developments - Other Financial and Operational Developments - RIIO-ED1 - Fast Tracking" below for additional information.least 2020 at PPL Electric.
For the U. S. regulatedU.S. businesses, recovery ofour strategy is to recover capital project costs is attainedefficiently 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.mechanisms designed to limit regulatory lag. In Kentucky, the KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, gas supply clause and recovery on certain construction work-in-progress) that reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs. In 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 outlay 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 are in place to reduce regulatory lag and provide for timely recovery of and a return on as appropriate, prudently incurred costs.
ForRate base growth in the domestic utilities is expected to result in earnings growth for the foreseeable future. In 2017, earnings from the U.K. regulated businesses, during the rate review period applicable for the eight year period beginning April 1, 2015, 80% of network related expendituresRegulated segment are addedexpected to decline mainly due to the unfavorable impact of lower GBP to U.S. dollar exchange rates. RAV and, together with adjustments for inflation and a return on the RAV, recovered through allowed revenue over 35 years (45 years for additions after April 1, 2023); RAVgrowth is intended to represent expenditures that have a long-term benefit to WPD (similar to capital projects for the U.S. regulated businesses) with other expenditures being recoveredexpected in the current year. The RAV balance at March 31, 2015 will continueU.K. Regulated segment through the RIIO-ED1 price control period and to be recovered over 20 years.
(PPL)
Earnings generated by PPL's U.K. subsidiaries are subject to foreign currency translation risk. The U.K. subsidiaries also have currency exposure to the U.S. dollar to the extent they have U.S. dollar denominated debt. To manage these risks, PPL generally uses contracts such as forwards, options and cross currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts.
(PPL and PPL Energy Supply)
In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Under the terms of the agreements, at closing, PPL will spin off to PPL shareowners a newly formed entity, Talen Energy Holdings, Inc. (Holdco), which at such time will own all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy. Immediately following the spinoff, Holdco will merge with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power will be contributed by its owners to become a subsidiary of Talen Energy. Following completion of these transactions, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interestresult in control of, or affiliation with Talen Energy.
earnings growth after 2017.See "Item 1. Business" "Item 1A. Risk Factors" and "Financial and Operational Developments - Other Financial and Operational DevelopmentsSegment Information - Anticipated Spinoff of PPL Energy Supply" belowU.K. Regulated Segment" for additional information.
The strategy for PPL Energy Supply is to optimize the value from its competitive generation asset and marketing portfolios while mitigating near-term volatility in both cash flows and earnings. PPL Energy Supply endeavors to do this by matching energy supply with load, or customer demand, under contracts of varying durations with creditworthy counterparties to capture profits while effectively managing exposure to energy and fuel price volatility, counterparty credit risk and operational risk. PPL Energy Supply is focusedinformation on maintaining profitability and positive cash flow during this current period of low energy and capacity prices.
(All Registrants)RIIO-ED1.
To manage financing costs and access to credit markets, and to fund capital expenditures, a key objective of the Registrants is to maintain targetedtheir investment grade credit profilesratings and adequate liquidity positions. In addition, the Registrants have financial and operational risk management programs that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility, as applicable, related to as applicable, changes in energy and fuel prices, interest rates, foreign currency exchange rates and counterparty credit quality and the operating performance of generating units.quality. To manage these risks, PPL generally uses contracts such as forwards, options swaps and insurance contracts.
Financial and Operational Developments
PPL's earnings by reportable segment were as follows:
| | | | | | | | | | | | | | $ Change |
| | | | 2014 | | 2013 | | 2012 | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | | | | | | | | | | |
| U.K. Regulated | | $ | 982 | | $ | 922 | | $ | 803 | | $ | 60 | | $ | 119 |
| Kentucky Regulated | | | 312 | | | 307 | | | 177 | | | 5 | | | 130 |
| Pennsylvania Regulated | | | 263 | | | 209 | | | 132 | | | 54 | | | 77 |
| Supply (a) | | | 307 | | | (272) | | | 414 | | | 579 | | | (686) |
| Corporate and Other (b) | | | (127) | | | (36) | | | | | | (91) | | | (36) |
| Net Income Attributable to PPL Shareowners | | $ | 1,737 | | $ | 1,130 | | $ | 1,526 | | $ | 607 | | $ | (396) |
| EPS - basic | | $ | 2.64 | | $ | 1.85 | | $ | 2.61 | | $ | 0.79 | | $ | (0.76) |
| EPS - diluted (c) | | $ | 2.61 | | $ | 1.76 | | $ | 2.60 | | $ | 0.85 | | $ | (0.84) |
(a) | In November 2014, PPL Montana completed the sale of 633MW of hydroelectric generating facilities to NorthWestern. PPL recognized a pre-tax gain of $237 million ($137 million after-tax) as a result of the transaction. 2013 includes a charge of $697 million ($413 million after-tax) for the termination of the operating lease of the Colstrip coal-fired electricity generating facility and an impairment charge of $65 million ($39 million after-tax) for the Corette coal-fired plant and related emission allowances. See Notes 8 and 16 to the Financial Statements for additional information. |
(b) | Primarily represents financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments, which are presented to reconcile segment information to PPL's consolidated results. 2014 includes most of the costs related to the anticipated spinoff of PPL Energy Supply. See the following table of special items for additional information. For 2012, there were no significant amounts in this category. |
(c) | See "2011 Equity Units" below and Note 4 to the Financial Statements for information on the Equity Units' impact on the calculation of 2014 and 2013 diluted EPS. |
The following after-tax gains (losses), in total, which management considers special items, impacted PPL's results.
| | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | |
| U.K. Regulated | | $ | 75 | | $ | 67 | | $ | 107 |
| Kentucky Regulated | | | | | | 3 | | | (16) |
| Pennsylvania Regulated | | | (2) | | | | | | |
| Supply | | | 110 | | | (531) | | | 18 |
| Corporate and Other (a) | | | (75) | | | | | | |
| Total PPL | | $ | 108 | | $ | (461) | | $ | 109 |
(a) | 2014 includes $46 million of deferred income tax expense to adjust valuation allowances on deferred tax assets for state net operating loss carryforwards, $17 million of external transition and transaction costs and $12 million of PPL Services' separation benefits related to the anticipated spinoff of PPL Energy Supply. See Note 8 to the Financial Statements for additional information. |
swaps. See "Results of Operations""Financial Condition - Risk Management" below for further discussion of PPL's results of operations and details of special items by reportable segments and analysis of the consolidated results of operations.
(PPL)
Higher earnings are expected in 2015 compared with 2014, after adjusting for special items, certain dissynergies reflected in the Corporate and Other category previously recorded in the Supply segment, and earnings from the Supply segment. The factors underlying these projections by segment and Subsidiary Registrant are discussed below (on an after-tax basis).
(PPL's U.K. Regulated Segment)
Higher earnings are projected in 2015 compared with 2014, primarily driven by lower income taxes and a more favorable foreign currency exchange rate, partially offset by lower utility revenue.
(PPL's Kentucky Regulated Segment and LKE, LG&E and KU)
Higher earnings are projected in 2015 compared with 2014, primarily driven by anticipated electric and gas base rate increases and returns on additional environmental capital investments, partially offset by higher operation and maintenance expense, higher depreciation and higher financing costs.
(PPL's Pennsylvania Regulated Segment and PPL Electric)
Lower earnings are projected in 2015 compared with 2014, primarily driven by higher operation and maintenance expense, higher depreciation and higher financing costs, partially offset by higher transmission margins and returns on distribution improvement capital investments.
(PPL's Supply Segment and PPL Energy Supply)
In anticipation of the spinoff of PPL Energy Supply, no forward looking information, including an earnings forecast, is being provided for PPL's Supply segment and PPL Energy Supply for 2015.
(PPL's Corporate and Other Category)
Lower costs are projected in 2015 compared with 2014, primarily driven by the reduction of dissynergies related to the Supply business spinoff through corporate restructuring efforts and lower income taxes.
(All Registrants)information.
Earnings in future periodsgenerated by PPL's U.K. subsidiaries are subject to various risks and uncertainties. See "Forward-Looking Information," "Item 1. Business," "Item 1A. Risk Factors," the rest of this Item 7, and Notes 1, 6 and 13foreign currency translation risk. Due to the Financial Statements (as applicable)significant earnings contributed from WPD, PPL enters into foreign currency contracts to economically hedge the value of the GBP versus the U.S. dollar. These hedges do not receive hedge accounting treatment under GAAP. See "Financial and Operational Developments - U.K. Membership in European Union" for a discussion of the risks, uncertaintiesU.K. earnings hedging activity in the third and factors that may impact future earnings.fourth quarters of 2016.
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 we operate (U.K., U.S. federal and state). This is supported by our strong culture of integrity and delivering on commitments to customers, regulators and shareowners, and a commitment to continue to improve our customer service, reliability and efficiency of operations.
Financial and Operational Developments
U.S. Tax Reform (All Registrants)
EconomicTax reform has been discussed as a high priority of the new U.S. presidential administration. Significant uncertainty exists as to the ultimate changes that may be made, the timing of those changes and Market Conditionsthe related impact to PPL's financial condition or results of operations. The Company is working with industry groups and carefully monitoring related developments in an effort both to have input to the legislative process where possible and plan effectively to respond to any forthcoming changes in a manner that will optimize value for ratepayers and shareowners.
U.K. Membership in European Union (All Registrants except PPL Electric)(PPL)
Significant uncertainty exists concerning the effects of the June 23, 2016 referendum in favor of the U.K. withdrawal from the European Union (EU). In October 2016, the U.K. Prime Minister, Theresa May, announced her intent to invoke Article 50 of the Lisbon Treaty (Article 50) by March 31, 2017. Article 50 specifies that if a member state decides to withdraw from the EU, it should notify the European Council of its intention to leave the EU, negotiate the terms of withdrawal and establish the legal grounds for its future relationship with the EU. Article 50 provides two years from the date of the Article 50 notification to conclude negotiations. Failure to complete negotiations within two years, unless negotiations are extended, would result in the treaties governing the EU no longer being applicable to the U.K. with there being no agreement in place governing the U.K.'s relationship with the EU. Under the terms of Article 50, negotiations can only be extended beyond two years if all of the 27 remaining EU states agree to an extension. Any withdrawal agreement will need to be approved by both the European Council and the European Parliament. There remains significant uncertainty as to whether the events referred to in the Prime Minister's announcement will occur within the times suggested as well as the ultimate outcome of the withdrawal negotiations and the related impact on the U.K. economy and the GBP to U.S. dollar exchange rate.
In response to the decrease in the GBP to U.S. dollar exchange rate that occurred subsequent to the U.K.'s vote to withdraw from the EU, PPL has executed additional hedges to mitigate the foreign currency exposure to the Company's U.K. earnings. In the third quarter of 2016, PPL settled existing hedges related to 2017 and 2018 anticipated earnings, resulting in receipt of approximately $310 million of cash, and entered into new hedges at market rates. The notional amount of the settled hedges was approximately £1.3 billion (approximately $2.0 billion based on contracted rates) with termination dates from January 2017 through November 2018. The settlement did not have a significant impact on net income as the hedge values were previously marked to fair value and recognized in "Other Income (Expense) - net" on the Statement of Income.
Additionally, in the third and fourth quarters of 2016, PPL restructured existing hedges related to 2016 and 2017 anticipated earnings and entered into additional hedges using forward contracts for 2018. This restructuring did not have a significant impact on 2016 net income as the hedge values continue to be marked to fair value. As of January 31, 2017, PPL's foreign currency exposure related to budgeted earnings is 92% hedged for 2017 at an average rate of $1.21 per GBP, 87% hedged for 2018 at an average rate of $1.42 per GBP and 50% hedged for 2019 at an average rate of $1.34 per GBP.
PPL cannot predict either the short-term or long-term impact to foreign currency exchange rates or long-term impact on PPL's financial condition that may be experienced as a result of any actions that may be taken by the U.K. government to withdraw from the EU, although such impacts could be significant.
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 PPL Energy Supply, LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to coal combustion residuals,CCRs, GHG, effluent limitation guidelinesELGs, MATS and MATS.the Clean Power Plan. See "Financial Condition - Environmental Matters" below for additional information on thesethe CCRs requirements. See Note 6, Note 13 and Note 19 to the Financial Statements for a discussion of the other significant environmental matters. These and other stringent environmental requirements combined with low energy margins for competitive generation, have led several energy companies, including PPL, PPL Energy Supply, LKE, LG&E and KU to announce plans to either temporarily or permanently close or place in long-term reserve status, and/or impair certainretire approximately 800 MW of their coal-fired generating plants.plants in Kentucky, primarily in 2015.
(PPL and PPL Energy Supply)
As a result of current economic and market conditions, the announced transaction with affiliates of Riverstone to form Talen Energy, PPL Energy Supply's current sub-investment grade credit rating and Talen Energy's expected sub-investment grade credit rating, PPL Energy Supply continues to monitor its business and operational plans, including capital and operation and maintenance expenditures, its hedging strategies and potential plant modifications to burn lower cost fuels. See "Margins - Changes in Non-GAAP Financial Measures - Unregulated Gross Energy Margins" below for additional information on energy margins. 2014 energy margins were lower compared to 2013 due to a higher average hedge price in 2013, partially offset by higher pricing on unhedged generation.
(PPL, LKE, LG&E and KU)
AsAlso as a result of the environmental requirements discussed above, LKE projects $2.2$1.4 billion ($1.10.6 billion each at LG&E and $0.8 billion at KU) in environmental capital investment over the next five years and anticipates retiring five coal-fired units (three at LG&E in 2015 and two at KU in 2016) with a combined summer capacity ratingyears. See PPL's "Financial Condition - Forecasted Uses of 724 MW (563 MW at LG&E and 161 MW at KU). KU retired a 71 MW coal-fired unit at the Tyrone plant in February 2013 and a 12 MW gas-fired unit at the Haefling plant in December 2013. The retirement of these units is not expected to have a material impact on the financial condition or results of operations of PPL, LKE, LG&E and KU. See Note 8 to the Financial Statements for additional information regarding the anticipated retirement of these units as well as the construction of a NGCC in Kentucky expected to be operational in May 2015 and a 10 MW solar facility expected to be operational in 2016.
The KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, gas supply clause and recovery on certain construction work-in-progress) that provide for timely recovery of prudently incurred costs (including
costs associated with environmental requirements). The Kentucky utility businesses are impacted by changes in customer usage levels, which can be driven by a number of factors including weather conditions and economic factors that impact the load utilized by customers.
(All Registrants)
The Registrants cannot predict the impact that future economic and market conditions and regulatory requirements may have on their financial condition or results of operations.
Labor Union Agreements
(PPL, PPL Energy Supply and PPL Electric)
PPL, PPL Energy Supply and PPL Electric finalized a new three-year labor agreement with IBEW local 1600 in May 2014 and the agreement was ratified in early June 2014. As part of efforts to reduce operations and maintenance expenses, the new agreement offered a one-time voluntary retirement window to certain bargaining unit employees. As a result, for the year ended December 31, 2014, the following total separation benefits have been recorded.
| | | | | | | | | | |
| | | | | | PPL Energy | | |
| | | PPL | | Supply | | PPL Electric |
| | | | | | | | | | |
| Pension Benefits | | $ | 13 | | $ | 11 | | $ | 2 |
| Severance Compensation | | | 7 | | | 6 | | | 1 |
| Total Separation Benefits | | $ | 20 | | $ | 17 | | $ | 3 |
| | | | | | | | | | |
| Number of Employees | | | 123 | | | 105 | | | 17 |
The separation benefits are included in "Other operation and maintenance" on the Statement of Income. The liability for pension benefits is included in "Accrued pension obligations" on the Balance Sheet at December 31, 2014. All of the severance compensation was paid in 2014. The remaining terms of the new labor agreement are not expected to have a significant impact on the financial results of PPL, PPL Energy Supply or PPL Electric.
Anticipated Spinoff of PPL Energy Supply
(PPL, PPL Energy Supply and PPL Electric)
Following the announcement of the transaction to form Talen Energy as discussed in "Item 1. BusinessCash - General - Anticipated Spinoff of PPL Energy Supply"Capital Expenditures", efforts were initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans and staffing selections were substantially completed in 2014.
The new organizational plans identify the need to resize and restructure the organizations. As a result, during 2014, charges for employee separation benefits were recorded in "Other operation and maintenance" on the Statement of Income and in "Other current liabilities" on the Balance Sheet as follows.
| | | | | | PPL Energy | | PPL |
| | | PPL | | Supply | | Electric |
| | | | | | | | | | |
| Separation benefits | | $ | 36 | | $ | 16 | | $ | 1 |
| Number of positions | | | 306 | | | 112 | | | 14 |
The separation benefits incurred include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. Most separations and payment of separation benefits are expected to occur in 2015.
Additional employee-related costs to be incurred primarily include accelerated stock-based compensation and pro-rated performance-based cash incentive and stock-based compensation awards primarily for PPL Energy Supply employees and for PPL employees who will become PPL Energy Supply employees in connection with the transaction. These costs will primarily be recognized at the spinoff closing date. PPL and PPL Energy Supply estimate these additional costs will be in the range of $30 million to $40 million.
(PPL)
As a result of the spinoff announcement, PPL recorded $50 million of deferred income tax expense in 2014 to adjust valuation allowances on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply.
In addition, PPL recorded $27 million of third-party costs in 2014 related to this transaction. Of these costs, $19 million were primarily for investment bank advisory, legal and accounting fees to facilitate the transaction, and are recorded in "Other Income (Expense) - net" on the Statement of Income. An additional $8 million of consulting and other costs were incurred to ready the new Talen Energy organization and reconfigure the remaining PPL service functions. These costs are recorded in "Other operation and maintenance" on the Statement of Income. PPL currently estimates a range of total third-party costs that will ultimately be incurred of between $60 million and $70 million.
The assets and liabilities of PPL Energy Supply will continue to be classified as "held and used" on PPL's Balance Sheet until the closing of the transaction. In conducting its annual goodwill impairment assessment in the fourth quarter of 2014 for its Supply segment reporting unit, PPL determined that the estimated fair value of PPL Energy Supply exceeded its carrying value and no impairment was recognized. However, an impairment loss could be recognized by PPL at the spinoff date if the aggregate carrying amount of PPL Energy Supply's assets and liabilities exceeds its aggregate fair value at that date. PPL cannot predict whether an impairment loss will be recorded at the spinoff date.
(PPL Energy Supply)
In accordance with business combination accounting guidance, PPL Energy Supply will treat the combination with RJS Power as an acquisition and PPL Energy Supply will be considered the acquirer of RJS Power.
Montana Hydro Sale (PPL and PPL Energy Supply)
In November 2014, PPL Montana completed the sale to NorthWestern of 633 MW of hydroelectric generating facilities located in Montana for approximately $900 million in cash. As a result of the sale, PPL and PPL Energy Supply recorded gains of $237 million ($137 million after-tax) and $306 million ($206 million after-tax), included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the 2014 Statement of Income. See Note 8 to the Financial Statements for additional information including the components of Discontinued Operations.
(PPL)
Ofgem Review of Line Loss Calculation
In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, during the first quarter of 2014, WPD increased its existing liability by $65 million for over-recovery of line losses with a reduction to "Utility" revenues on the Statement of Income. In June 2014, WPD applied for judicial review of certain of Ofgem's decisions related to closing out the DPCR4 line loss mechanism but was denied permission to apply for judicial review and WPD now considers the matter closed. The recorded liability at December 31, 2014 was $99 million. The total recorded liability will be refunded to customers from April 1, 2015 through March 31, 2019. See Note 6 to the Financial Statementsand Note 13 for additional information.
(RIIO-ED1 - Fast TrackingPPL)
In February 2014, WPD elected to accept the decision
U.K. Distribution Revenue Reduction
In December 2013, WPD and other U.K. DNOs announced agreements with the U.K. Department of Energy and Climate Change and Ofgem to a reduction of £5 per residential customer of electricity distribution revenues that otherwise would have been collected in the regulatory year beginning April 1, 2014. Full recovery of the revenue reduction in GBP, together with the associated carrying cost was expected to occur during the regulatory year beginning April 1, 2015 for three of the WPD DNOs, and over the eight year RIIO-ED1 regulatory period for the fourth DNO. However, in July 2014, Ofgem decided that full recovery will occur for all WPD DNOs in the regulatory year beginningwhich began April 1, 2016. EarningsRevenues for the U.K. Regulated segment were adversely affected by $31$19 million ($15 million after-tax or $0.02 per share) in 2015 and $40 million ($31 million after-tax or $0.05 per share) in 2014. Revenues for the U.K. Regulated segment were positively affected by $39 million ($31 million after-tax or $0.05 per share) in 2016. PPL projects earnings in 2015 will be adversely affected by $15 million and earningsrevenues for 20162017 will be positively affected by $32$16 million with($13 million after-tax or $0.02 per share).
U.K. Tax Rate Change
The U.K. Finance Act 2016, enacted in September 2016, reduced the remainderU.K. statutory income tax rate effective April 1, 2020 from 18% to be recovered in later periods.
2011 Equity Units
In March 2014, PPL Capital Funding remarketed $978 million of 4.32% Junior Subordinated Notes due 2019 that were originally issued in April 2011 as a component of PPL's 2011 Equity Units. In connection with the remarketing, PPL Capital Funding retired $228 million of the 4.32% Junior Subordinated Notes due 2019 and issued $350 million of 2.189% Junior Subordinated Notes due 2017 and $400 million of 3.184% Junior Subordinated Notes due 2019. Simultaneously the newly issued Junior Subordinated Notes were exchanged for $350 million of 3.95% Senior Notes due 2024 and $400 million of 5.00% Senior Notes due 2044. In May 2014, PPL issued 31.7 million shares of common stock at $30.86 per share to settle the 2011 Purchase Contracts. PPL received net cash proceeds of $978 million, which were used to repay short-term debt and for general corporate purposes.
Kerr Dam Project Arbitration Decision and Impairment (PPL Energy Supply)
PPL Montana previously held a joint operating license issued for the Kerr Dam Project, which was sold to NorthWestern as part of the Montana hydro sale in November 2014. Between 2015 and 2025, the Confederated Salish and Kootenai Tribes of the Flathead Nation (the Tribes) have the option to purchase, hold and operate the Kerr Dam Project. In March 2014, an arbitration panel issued its final decision holding that the conveyance price payable by the Tribes for the Kerr Dam Project is $18 million.17%. As a result of the decisionthis change, PPL reduced its net deferred tax liabilities and the Tribes having given noticerecognized an income tax benefit of their intent$42 million in 2016. Of this amount, $37 million relates to exercise the option,deferred taxes recorded in the first quarter of 2014 PPL Energy Supply recorded an impairment charge of $18 million ($10 million after-tax) to reduce the carrying amount to its fair value. See Note 16 to the Financial Statements for additional information on the impairment. Additionally,prior years and is treated as a result of a guarantee included in the sale agreement with NorthWestern, if the Tribes exercise their option and purchase the Kerr Dam Project for $18 million as expected, PPL Montana must pay NorthWestern $12 million, which is recorded as a liability on the Balance Sheet at December 31, 2014.special item.
U.K. Foreign Tax Credits
Susquehanna Turbine Blade Inspection (PPL and PPL Energy Supply)will amend certain prior year U.S. federal income tax returns to claim foreign tax credits, rather than deduct foreign taxes, resulting in an income tax benefit of approximately $35 million recognized in the fourth quarter of 2016. This decision was prompted by changes to the Company's most recent business plan.
PPL Susquehanna continuesDiscount Rate Change for U.K. Pension Plans
In selecting the discount rate for its U.K. pension plans, WPD historically used a single weighted-average discount rate in the calculation of net periodic defined benefit cost. WPD began using individual spot rates to make modifications to addressmeasure service cost and interest cost for the causescalculation of turbine blade cracking at the PPL Susquehanna nuclear plant first identifiednet periodic defined benefit cost in 2011. Unit 1 completed its planned refueling and turbine inspection outage2016. In 2016, this change in June 2014 and installed newly designed shorter last stage bladesdiscount rate resulted in lower net periodic defined benefit costs recognized on onePPL's Statement of the low pressure turbines. This change allowed Unit 1 to run with reduced blade vibration and no cracking during 2014. In the first, second and third quartersIncome of 2014, Unit 2 was shut down$43 million ($34 million after-tax or $0.05 per share). See "Application of Critical Accounting Policies-Defined Benefits" for blade inspection and replacement, as well as additional maintenance. The financial impact of the Unit 2 outages was not material. Based on the positive experience on Unit 1, the same short blade modification will be installed on two of the three turbines on Unit 2 during the scheduled refueling outage in spring 2015. PPL Susquehanna continues to monitor blade performance and work with the turbine manufacturer to identify and resolve the issues causing blade cracking.information.
Regional Transmission Expansion Plan(PPL and PPL Electric)
In July 2014, PPL Electric announced that it had submittedProject Compass, a proposal to PJM to buildconstruct a new regionalmulti-state transmission line. As currently proposed,In October 2015, PPL Electric filed an interconnection application with the New York Independent System Operator for the first segment of the project which contains a proposed 95-mile, $500 million to $600 million line between Blakely, Pennsylvania, and Ramapo, New York. The proposed line is pursuing approval of this project from Pennsylvania, New Jersey,intended to provide significant economic benefits for electricity customers in New York and Maryland.also to provide grid reliability and grid security benefits for electricity customers in both states. The proposal envisions construction to begin in 2021 and for the project to be in operation by 2023. Numerous approvals will be required, including, among others, the public utility commissions of Pennsylvania and New York, the New York Independent System Operator, PJM, and FERC. As originally proposed linein 2014, Project Compass would have run from western Pennsylvania into New York and New Jersey and also south into Maryland, covering approximately 725 miles. The proposed line would enhance the ability to move power inter-regionally and intra-regionally improving reliability andmiles at an estimated cost effectiveness. As proposed, the project would begin in 2017 and the line would be in operation between 2023 and 2025. The project is estimated to costof $4 billion to $6 billion and requires numerous approvals from FERC, PJMbillion. The project has been revised to include about 475 miles of transmission line in Pennsylvania and New York Independent System Operator.at an estimated cost of $3 billion to $4 billion. Beyond this segment, no schedule is proposed for the rest of the project. There can be no assurance however, that the projectthis segment of Project Compass will be approved as proposed. Additionally, PPL Electric is continuing to study the project and may modify it in the future.
Storm Damage Expense Rider (SDER) (PPL Electric)
In its December 28, 2012 final rate case order, the PUC directed PPL Electric to file a proposed SDER. In March 2013, PPL Electric filed its proposed SDER with the PUC and, as part of that filing, requested recovery of the 2012 qualifying storm costs The capital expenditures related to Hurricane Sandy. In April 2014,this project are excluded from the PUC issued a final order approving the SDER with a January 1, 2015 effective dateCapital Expenditures table included in "Liquidity and initially including actual storm costs compared to collections from December 2013 through November 2014. As a resultCapital Resources-Forecasted Uses of the order, PPL Electric reduced its 2013 regulatory liability by $12 million related to collections in excess of costs incurred from January 1, 2013 to November 30, 2013 that are not required to be refunded to customers. Also, as part of the order, PPL Electric was authorized to recover Hurricane Sandy storm damage costs through the SDER over a three-year period beginning January 2015. On June 20, 2014, the Office of Consumer Advocate (OCA) filed a petition for review of the April 2014 order with the Commonwealth Court of Pennsylvania. On December 3, 2014, the OCA filed a complaint against PPL Electric's initial SDER filing. In January 2015, the PUC issued a final order closing the investigation and modifying the effective date of the SDER to February 1, 2015. See "Pennsylvania Activities - Storm Damage Expense Rider" in Note 6 to the Financial Statements for additional information.Cash" below.
FERC Wholesale Formula Rates (LKE and KU)
In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts. Such terminations are to be effective in 2019, except in the case of one municipality with a 2017 effective date. In addition, a tenth municipality has a previously settled termination date of 2016. In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. In August 2014, the FERC issued an order on the interim settlement agreement allowing the proposed rates to become effective pending a final order. If approved, the settlement agreement will resolve the rate case with respect to these two municipalities, including an authorized return on equity of 10% or the return on equity awarded to other parties in this case, whichever is lower. Also in July 2014, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of their contracts. KU and the terminating municipalities continue settlement discussions in this proceeding. KU cannot currently predict the outcome of its FERC applications regarding its wholesale power agreements with the municipalities.
Rate Case Proceedings (PPL, LKE, LG&E and KU)
On November 26, 2014,23, 2016, LG&E and KU filed requests with the KPSC for increases in annual base electricity rates of approximately $30 million at LG&E and approximately $153$103 million at KU and an increase in annual base electricity and gas rates of approximately $94 million and $14 million at LG&E. The proposed base rate increases would result in an electricity rate increase of 6.4% at KU and electricity and gas rate increases of 2.7% at LG&E8.5% and 9.6% at KU and a gas rate increase of 4.2% at LG&E and would&E. New rates are expected to become effective inon July 2015.1, 2017. LG&E's and KU's applications each include requests for CPCNs for implementing an Advanced Metering System and a request for authorized returns-on-equity of 10.50%.Distribution Automation program. The applications are based on a forecasted test year of July 1, 20152017 through June 30, 2016.2018 and a requested return on equity of 10.23%. A number of parties have been granted intervention requests in the proceedings. Data
discovery and the filing of written testimony will continue through April 2017. A public hearing on the applications is scheduled to commence on April 21, 2015.May 2, 2017. LG&E and KU cannot predict the outcome of these proceedings.
On October 31, 2016, KU filed a request with the FERC to modify its formula rates to provide for the recovery of CCR impoundment closure costs from its departing municipal customers. On December 30, 2016, the FERC accepted the revised rate schedules providing recovery of the costs effective December 31, 2016, subject to refund, and established limited hearing and settlement judge procedures relating to determining the applicable amortization period.
Discontinued Operations (PPL)
The operations of PPL's Supply segment prior to its June 1, 2015 spinoff are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the 2015 and 2014 Statements of Income.
See Note 8 to the Financial Statements for additional information related to the spinoff of PPL Energy Supply, including the components of Discontinued Operations.
Results of Operations
(PPL)
The discussion for PPL provides a review of results by reportable segment. The "Margins" discussion provides explanations of non-GAAP financial measures (Kentucky Gross Margins, Pennsylvania Gross Delivery Margins and Unregulated Gross Energy Margins) and a reconciliation of non-GAAP financial measures to "Operating Income." The "Statement of Income Analysis" discussion addressesbelow describes significant changes in principal line items on PPL's Statements of Income, comparing year-to-year changes. The "Segment Earnings, MarginsEarnings" and Statement"Margins" discussions for PPL provide a review of Income Analysis" is presented separately for PPL.results by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Margins," and provide explanations of the non-GAAP financial measures and a reconciliation of those measures to the most comparable GAAP measure. The "2017 Outlook" discussion identifies key factors expected to impact 2017 earnings.
Tables analyzing changes in amounts between periods within "Statement of Income Analysis," "Segment Earnings" and "Statement of Income Analysis""Margins" are presented on a constant U.K. foreign currencyGBP 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 U.K. foreign currencyGBP to U.S. dollar exchange rate basis are calculated by translating current year results at the prior year weighted-average U.K. foreign currencyGBP to U.S. dollar exchange rate.
(Subsidiary Registrants)
The discussion for each of PPL Energy Supply, PPL Electric, LKE, LG&E and KUKU)
A "Statement of Income Analysis, Earnings and Margins" 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 year-to-year changes. The "Earnings" discussion provides a summary of earnings. The "Margins" discussion includes a reconciliation of non-GAAP financial measures to "Operating Income" and "StatementIncome."
PPL: Statement of Income Analysis" are presented separately for PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
PPLAnalysis, Segment Earnings Margins and MarginsStatement of Income Analysis
Net income for the years ended December 31 includes the following results.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Operating Revenues | $ | 7,517 |
| | $ | 7,669 |
| | $ | 7,852 |
| | $ | (152 | ) | | $ | (183 | ) |
| Operating Expenses | | | | | | | | | |
| Operation | | | | | | | | | |
| Fuel | 791 |
| | 863 |
| | 965 |
| | (72 | ) | | (102 | ) |
| Energy purchases | 706 |
| | 855 |
| | 924 |
| | (149 | ) | | (69 | ) |
| Other operation and maintenance | 1,745 |
| | 1,938 |
| | 1,856 |
| | (193 | ) | | 82 |
|
| Depreciation | 926 |
| | 883 |
| | 923 |
| | 43 |
| | (40 | ) |
| Taxes, other than income | 301 |
| | 299 |
| | 317 |
| | 2 |
| | (18 | ) |
| Total Operating Expenses | 4,469 |
| | 4,838 |
| | 4,985 |
| | (369 | ) | | (147 | ) |
| Other Income (Expense) - net | 390 |
| | 108 |
| | 105 |
| | 282 |
| | 3 |
|
| Interest Expense | 888 |
| | 871 |
| | 843 |
| | 17 |
| | 28 |
|
| Income Taxes | 648 |
| | 465 |
| | 692 |
| | 183 |
| | (227 | ) |
| Income from Continuing Operations After Income Taxes | 1,902 |
| | 1,603 |
| | 1,437 |
| | 299 |
| | 166 |
|
| Income (Loss) from Discontinued Operations (net of income taxes) | — |
| | (921 | ) | | 300 |
| | 921 |
| | (1,221 | ) |
| Net Income | $ | 1,902 |
| | $ | 682 |
| | $ | 1,737 |
| | $ | 1,220 |
| | $ | (1,055 | ) |
Operating Revenues
The increase (decrease) in operating revenues was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Domestic: | | | |
| PPL Electric Distribution price (a) | $ | 126 |
| | $ | 22 |
|
| PPL Electric Distribution volume | (9 | ) | | (4 | ) |
| PPL Electric PLR Revenue (b) | (135 | ) | | 15 |
|
| PPL Electric Transmission Formula Rate | 59 |
| | 60 |
|
| LKE Base rates | 68 |
| | 64 |
|
| LKE Volumes | 1 |
| | (85 | ) |
| LKE Fuel and other energy prices (b) | (81 | ) | | (113 | ) |
| LKE ECR | 39 |
| | 86 |
|
| Other | (17 | ) | | (17 | ) |
| Total Domestic | 51 |
| | 28 |
|
| U.K.: | | | |
| Price | 98 |
| | (99 | ) |
| Volume | (36 | ) | | 5 |
|
| Line loss accrual adjustments (c) | — |
| | 65 |
|
| Foreign currency exchange rates | (255 | ) | | (188 | ) |
| Other | (10 | ) | | 6 |
|
| Total U.K. | (203 | ) | | (211 | ) |
| Total | $ | (152 | ) | | $ | (183 | ) |
| |
| (a) | Distribution rate case effective January 1, 2016, resulted in increases of $160 million for the year ended December 31, 2016. |
| |
| (b) | Decreases due to lower recoveries of fuel and energy purchases primarily as a result of lower commodity costs at LKE and lower energy purchase prices at PPL Electric. |
| |
| (c) | In 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism, which resulted in a $65 million reduction to Operating Revenues in 2014. See Note 6 to the Financial Statements for additional information. |
Fuel
Fuel decreased $72 million in 2016 compared with 2015 primarily due to a decrease in market prices for coal and natural gas.
Fuel decreased $102 million in 2015 compared with 2014 due to a $57 million decrease in volumes, driven by milder weather during the fourth quarter of 2015, and a $45 million decrease in commodity costs as a result of a decrease in market prices for coal and natural gas.
Energy Purchases
Energy purchases decreased $149 million in 2016 compared with 2015 primarily due to a $124 million decrease in PLR prices and a $12 million decrease in PLR volumes at PPL Electric, a $9 million decrease in the market price of natural gas and a $5 million decrease in natural gas volumes at LKE.
Energy purchases decreased $69 million in 2015 compared with 2014 primarily due to a $38 million decrease in the market price of natural gas and a $30 million decrease in natural gas volumes at LKE.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Domestic: | |
| | |
|
| LKE plant operations and maintenance (a) | $ | (19 | ) | | $ | 9 |
|
| LKE pension expense | (12 | ) | | 14 |
|
| PPL Electric payroll-related costs | (26 | ) | | 2 |
|
| PPL Electric Act 129 | (15 | ) | | 9 |
|
| PPL Electric contractor related expenses | 7 |
| | 7 |
|
| PPL Electric vegetation management | 4 |
| | 7 |
|
| PPL Electric universal service programs | 3 |
| | 6 |
|
| Storm costs | 6 |
| | (18 | ) |
| Bad debts | (5 | ) | | — |
|
| Third-party costs related to the spinoff of PPL Energy Supply (Note 8) | (13 | ) | | 5 |
|
| Separation benefits related to the spinoff of PPL Energy Supply (Note 8) | (8 | ) | | (12 | ) |
| Corporate costs previously included in discontinued operations (b) | 8 |
| | 27 |
|
| Stock compensation expense | (6 | ) | | 3 |
|
| Other | 18 |
| | 26 |
|
| U.K.: | |
| | |
|
| Pension expense (c) | (86 | ) | | (14 | ) |
| Foreign currency exchange rates | (33 | ) | | (33 | ) |
| Third-party engineering | (8 | ) | | 7 |
|
| Engineering management | 7 |
| | 19 |
|
| National Grid exit charges | (2 | ) | | 11 |
|
| Other | (13 | ) | | 7 |
|
| Total | $ | (193 | ) | | $ | 82 |
|
| |
| (a) | Includes a $29 million reduction of costs in 2016 due to the retirement of Cane Run and Green River coal units partially offset by $5 million of additional costs for Cane Run Unit 7 plant operations. |
| |
| (b) | The increase in 2015 compared with 2014 was due to the corporate costs allocated to PPL Energy Supply (and included in discontinued operations) prior to the spin. As a result of the spinoff on June 1, 2015, these corporate costs now remain in continuing operations. |
| |
| (c) | The decrease in 2016 compared with 2015 was primarily due to an increase in expected returns on higher asset balances and lower interest costs due to a change in the discount rate methodology. |
Depreciation
The increase (decrease) in depreciation was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Additions to PP&E, net | $ | 76 |
| | $ | 77 |
|
| Foreign currency exchange rates | (27 | ) | | (19 | ) |
| Network asset useful life extension (a) | — |
| | (84 | ) |
| Other | (6 | ) | | (14 | ) |
| Total | $ | 43 |
| | $ | (40 | ) |
| |
| (a) | Effective January 1, 2015, after completion of a review of the useful lives of its distribution network assets, WPD extended the weighted average useful lives of these assets to 69 years from 55 years resulting in lower depreciation. |
Taxes, Other Than Income
The increase (decrease) in taxes, other than income was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| State gross receipts tax (a) | $ | 11 |
| | $ | (14 | ) |
| Domestic property tax expense | 4 |
| | 5 |
|
| Foreign currency exchange rates | (15 | ) | | (11 | ) |
| Other | 2 |
| | 2 |
|
| Total | $ | 2 |
| | $ | (18 | ) |
| |
| (a) | 2015 includes the settlement of the 2011 gross receipts tax audit that resulted in the reversal of $17 million of previously recognized reserves. |
Other Income (Expense) - net
Other income (expense) - net increased $282 million in 2016 compared with 2015 and increased $3 million in 2015 compared with 2014 primarily due to changes in realized and unrealized gains on foreign currency contracts to economically hedge GBP denominated earnings from WPD.
Interest Expense
The increase (decrease) in interest expense was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Long-term debt interest expense (a) | $ | 63 |
| | $ | 61 |
|
| Hedging activities and ineffectiveness | (4 | ) | | (4 | ) |
| Loss on extinguishment of debt (b) | — |
| | (9 | ) |
| Foreign currency exchange rates | (43 | ) | | (26 | ) |
| Other | 1 |
| | 6 |
|
| Total | $ | 17 |
| | $ | 28 |
|
| |
| (a) | The increase in 2016 compared with 2015 was primarily due to debt issuances at WPD in November 2015, LG&E and KU in September 2015 and PPL Capital Funding in May 2016 as well as higher interest rates on bonds refinanced in September 2015 at LG&E and KU. |
The increase in 2015 compared with 2014 was primarily due to 2015 including interest expense related to certain PPL Energy Funding debt that was previously associated with PPL's former Supply segment and included in "Income (Loss) from Discontinued Operations (net of income taxes) in 2014.
| |
| (b) | In March 2014, a $9 million loss was recorded related to PPL Capital Funding's remarketing and debt exchange of the junior subordinated notes originally issued in April 2011 as a component of the 2011 Equity Units. |
Income Taxes
The increase (decrease) in income taxes was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Change in pre-tax income at current period tax rates | $ | 184 |
| | $ | (18 | ) |
| Valuation allowance adjustments (a) | (8 | ) | | (31 | ) |
| Federal and state tax reserve adjustments (b) | 22 |
| | (21 | ) |
| U.S. income tax on foreign earnings net of foreign tax credit (c) | (50 | ) | | (55 | ) |
| U.K. Finance Act adjustments (d) | 42 |
| | (90 | ) |
| Interest benefit on U.K. financing activities | 3 |
| | (15 | ) |
| Stock-based compensation (e) | (10 | ) | | — |
|
| Other | — |
| | 3 |
|
| Total | $ | 183 |
| | $ | (227 | ) |
| |
| (a) | During 2016, PPL recorded deferred tax expense for valuation allowances primarily related to the increase in Pennsylvania net operating loss carryforwards expected to be unutilized. |
During 2015, PPL recorded $24 million of deferred income tax expense related to deferred tax valuation allowances. PPL recorded state deferred income tax expense of $12 million primarily related to increased Pennsylvania net operating loss carryforwards expected to be unutilized and $12 million of federal deferred income tax expense primarily related to federal tax credit carryforwards that are expected to expire as a result of lower future taxable earnings due to the extension of bonus depreciation.
As a result of the PPL Energy Supply spinoff announcement, PPL recorded $50 million of deferred income tax expense during 2014 to adjust the valuation allowance on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply. See Note 8 to the Financial Statements for additional information on the spinoff.
| |
| (b) | During 2015, PPL recorded a $9 million tax benefit related to a planned amendment of a prior period tax return and a $12 million tax benefit related to the settlement of the IRS audit for the tax years 1998-2011. |
| |
| (c) | During 2016, PPL recorded lower income taxes primarily attributable to foreign tax credit carryforwards, arising from a decision to amend prior year tax returns to claim foreign tax credits rather than deduct foreign taxes. This decision was prompted by changes to the Company's most recent business plan. |
During 2015, PPL recorded lower income taxes primarily due to a decrease in taxable dividends.
During 2014, PPL recorded $47 million of income tax expense primarily attributable to taxable dividends.
| |
| (d) | The U.K.’s Finance Act 2016, enacted in September 2016, reduces the U.K. statutory income tax rate from 18% to 17% effective April 1, 2020. As a result, PPL reduced its net deferred tax liabilities and recognized a $42 million deferred tax benefit in 2016. |
The U.K.'s Finance Act 2015, enacted in November 2015, reduces the U.K. statutory income tax rate from 20% to 19% effective April 1, 2017 and from 19% to 18% effective April 1, 2020. As a result, PPL reduced its net deferred tax liabilities and recognized a $90 million deferred tax benefit in 2015 related to both rate decreases.
| |
| (e) | During 2016, PPL recorded lower income tax expense related to the application of new stock-based compensation accounting guidance. See Note 1 of the Financial Statements for additional information. |
See Note 5 to the Financial Statements for additional information on income taxes.
Income (Loss) from Discontinued Operations (net of income taxes)
Income (Loss) from Discontinued Operations (net of income taxes) for 2015 and 2014 includes the results of operations of PPL Energy Supply, which was spun off from PPL on June 1, 2015 and substantially represents PPL's former Supply segment. See "Discontinued Operations" in Note 8 to the Financial Statements for additional information.
Segment Earnings
PPL's net income by reportable segments were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| U.K. Regulated | $ | 1,246 |
| | $ | 1,121 |
| | $ | 982 |
| | $ | 125 |
| | $ | 139 |
|
| Kentucky Regulated | 398 |
| | 326 |
| | 312 |
| | 72 |
| | 14 |
|
| Pennsylvania Regulated | 338 |
| | 252 |
| | 263 |
| | 86 |
| | (11 | ) |
| Corporate and Other (a) | (80 | ) | | (96 | ) | | (120 | ) | | 16 |
| | 24 |
|
| Discontinued Operations (b) | — |
| | (921 | ) | | 300 |
| | 921 |
| | (1,221 | ) |
| Net Income | $ | 1,902 |
| | $ | 682 |
| | $ | 1,737 |
| | $ | 1,220 |
| | $ | (1,055 | ) |
| |
| (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. 2015 and 2014 include certain costs related to the spinoff of PPL Energy Supply. See Note 8 to the Financial Statements for additional information. |
| |
| (b) | As a result of the spinoff of PPL Energy Supply, substantially representing PPL's former Supply segment, the earnings of the Supply segment prior to the spinoff are included in Discontinued Operations. 2015 includes an $879 million charge reflecting the difference between PPL's recorded value for the Supply segment and its estimated fair value as of the spinoff date, determined in accordance with the applicable accounting rules under GAAP. See Note 8 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 effective tax rate of the entity where the activity is recorded. Earnings from Ongoing Operations for 2014 also reflects, within the Corporate and Other category, the impact of spinoff dissynergies that, if not mitigated, would remain with PPL after completion of the spinoff. Special items include:
Unrealized gains or losses on foreign currency-related economic hedges (as discussed below).
Supply segment discontinued operations.
Gains and losses on sales of assets not in the ordinary course of business.
Impairment charges.
Workforce reduction and other restructuring effects.
Acquisition and divestiture-related adjustments.
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 17 to the Financial Statements and "Risk Management" below for additional information on foreign currency-related economic activity.
PPL's Earnings from Ongoing Operations by reportable segment were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| U.K. Regulated | $ | 1,015 |
| | $ | 968 |
| | $ | 907 |
| | $ | 47 |
| | $ | 61 |
|
| Kentucky Regulated | 398 |
| | 343 |
| | 312 |
| | 55 |
| | 31 |
|
| Pennsylvania Regulated | 338 |
| | 252 |
| | 265 |
| | 86 |
| | (13 | ) |
| Corporate and Other (a)(b) | (77 | ) | | (74 | ) | | (135 | ) | | (3 | ) | | 61 |
|
| Earnings from Ongoing Operations | $ | 1,674 |
| | $ | 1,489 |
| | $ | 1,349 |
| | $ | 185 |
| | $ | 140 |
|
| |
| (a) | 2014 was adjusted to include costs that were previously allocated to the Supply segment that would remain with PPL after the completion of the transaction, if left unmitigated. |
| |
| (b) | Costs were lower in 2015 compared with 2014 primarily due to the benefits of corporate restructuring. |
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 British pound sterlingGBP into U.S. dollars, and certain costs, such as U.S.
income taxes, administrative costs, and allocatedcertain acquisition-related financing costs. The U.K. Regulated segment represents 57%66% of PPL's Net Income Attributable to PPL Shareowners for 20142016 and 33%38% of PPL's assets at December 31, 2014.2016.
Net Income Attributable to PPL Shareowners includesand Earnings from Ongoing Operations include the following results:
| | | | | | | | | | | | | $ Change |
| | | | 2014 | | 2013 | | 2012 | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | | | | | | | | |
| Utility revenues | | $ | 2,573 | | $ | 2,359 | | $ | 2,289 | | 214 | | 70 |
| Energy-related businesses | | | 48 | | | 44 | | | 47 | | 4 | | (3) |
| | Total operating revenues | | | 2,621 | | | 2,403 | | | 2,336 | | 218 | | 67 |
| Other operation and maintenance | | | 451 | | | 470 | | | 451 | | (19) | | 19 |
| Depreciation | | | 337 | | | 300 | | | 279 | | 37 | | 21 |
| Taxes, other than income | | | 157 | | | 147 | | | 147 | | 10 | | |
| Energy-related businesses | | | 31 | | | 29 | | | 34 | | 2 | | (5) |
| | Total operating expenses | | | 976 | | | 946 | | | 911 | | 30 | | 35 |
| Other Income (Expense) - net | | | 127 | | | (39) | | | (51) | | 166 | | 12 |
| Interest Expense | | | 461 | | | 425 | | | 421 | | 36 | | 4 |
| Income Taxes | | | 329 | | | 71 | | | 150 | | 258 | | (79) |
| Net Income Attributable to PPL Shareowners | | $ | 982 | | $ | 922 | | $ | 803 | | 60 | | 119 |
The changes in the results of the U.K. Regulated segment between these periods were due to the factors set forth below, which reflect certain items that management considers special and effects of movements in foreign currency exchange on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of the special items.
| | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| U.K. | | | | | | |
| | Utility revenues | | $ | 92 | | $ | 240 |
| | Other operation and maintenance | | | 46 | | | (40) |
| | Depreciation | | | (19) | | | (25) |
| | Interest expense | | | (15) | | | (10) |
| | Other | | | 4 | | | 1 |
| | Income taxes | | | (24) | | | |
| U.S. | | | | | | |
| | Interest expense and other | | | 4 | | | (1) |
| | Income taxes | | | (41) | | | 1 |
| Foreign currency exchange, after-tax | | | 5 | | | (7) |
| Special items, after-tax | | | 8 | | | (40) |
| Total | | $ | 60 | | $ | 119 |
· | Higher utility revenues in 2014 compared with 2013 primarily due to $194 million from the April 1, 2014 and 2013 price increases, partially offset by $88 million from lower volume due primarily to weather and $8 million from lower third-party engineering revenue. |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Operating revenues | $ | 2,207 |
| | $ | 2,410 |
| | $ | 2,621 |
| | $ | (203 | ) | | $ | (211 | ) |
| Other operation and maintenance | 344 |
| | 477 |
| | 482 |
| | (133 | ) | | (5 | ) |
| Depreciation | 233 |
| | 242 |
| | 337 |
| | (9 | ) | | (95 | ) |
| Taxes, other than income | 135 |
| | 148 |
| | 157 |
| | (13 | ) | | (9 | ) |
| Total operating expenses | 712 |
| | 867 |
| | 976 |
| | (155 | ) | | (109 | ) |
| Other Income (Expense) - net | 386 |
| | 123 |
| | 127 |
| | 263 |
| | (4 | ) |
| Interest Expense | 402 |
| | 417 |
| | 461 |
| | (15 | ) | | (44 | ) |
| Income Taxes | 233 |
| | 128 |
| | 329 |
| | 105 |
| | (201 | ) |
| Net Income | 1,246 |
| | 1,121 |
| | 982 |
| | 125 |
| | 139 |
|
| Less: Special Items | 231 |
| | 153 |
| | 75 |
| | 78 |
| | 78 |
|
| Earnings from Ongoing Operations | $ | 1,015 |
| | $ | 968 |
| | $ | 907 |
| | $ | 47 |
| | $ | 61 |
|
| Higher utility revenues in 2013 compared with 2012 primarily due to the April 1, 2013 and 2012 price increases. |
· | Lower other operation and maintenance in 2014 compared with 2013 primarily due to $38 million from lower pension expense and $9 million from lower third-party engineering expense. |
| Higher other operation and maintenance for 2013 compared with 2012 primarily due to higher network maintenance expense. |
· | Higher depreciation expense for both periods primarily due to PP&E additions, net. |
· | Higher interest expense in 2014 compared with 2013 primarily due to an October 2013 debt issuance. |
| Higher interest expense in 2013 compared with 2012 primarily due to debt issuances in April 2012 and October 2013. |
· | Higher income taxes in 2014 compared with 2013 primarily due to higher pre-tax income. |
| Income taxes in 2013 compared with 2012 were flat despite higher pre-tax income primarily due to lower U.K. tax rates. |
· | Higher income taxes in 2014 compared with 2013 primarily due to a $19 million increase primarily in taxable dividends and a $19 million benefit in 2013 related to an IRS ruling regarding 2010 U.K. earnings and profits calculations. |
| Lower income taxes in 2013 compared with 2012 primarily due to a $42 million adjustment related to an IRS ruling regarding 2010 U.K. earnings and profits calculations, partially offset by a $27 million increase in taxable dividends. |
The following after-tax gains (losses), which management considers special items, also impacted the U.K. Regulated segment's results.results and are excluded from Earnings from Ongoing Operations.
|
| | | | | | | | | | | | | |
| | Income Statement Line Item | | 2016 | | 2015 | | 2014 |
| Foreign currency-related economic hedges, net of tax of $4, ($30), ($68) (a) | Other Income (Expense) - net | | $ | (8 | ) | | $ | 55 |
| | $ | 127 |
|
| Settlement of foreign currency contracts, net of tax of ($108), $0, $0 (b) | Other Income (Expense) - net | | 202 |
| | — |
| | — |
|
| Change in U.K. tax rate (c) | Income Taxes | | 37 |
| | 78 |
| | — |
|
| WPD Midlands acquisition-related adjustment, net of tax of $0, ($1), $0 | Other operation and maintenance | | — |
| | 2 |
| | — |
|
| Settlement of certain income tax positions (d) | Income Taxes | | — |
| | 18 |
| | — |
|
| Change in WPD line loss accrual, net of tax of $0, $0, $13 (e) | Operating Revenues | | — |
| | — |
| | (52 | ) |
| Total | | | $ | 231 |
| | $ | 153 |
| | $ | 75 |
|
| | | | Income Statement | | | | | | | | | |
| | | | Line Item | | 2014 | | 2013 | | 2012 |
| | Other Income | | | | | | | | | |
| Foreign currency-related economic hedges, net of tax of ($68), $15, $18 (a) | (Expense) - net | | $ | 127 | | $ | (29) | | $ | (33) |
| WPD Midlands acquisition-related adjustments: | | | | | | | | | | |
| | | | Other operation | | | | | | | | | |
| | Separation benefits, net of tax of $0, $1, $4 (b) | and maintenance | | | | | | (4) | | | (11) |
| | Other acquisition-related adjustments, net of tax of $0, ($2), ($1) | | | | | | | 8 | | | 2 |
| Other: | | | | | | | | | | |
| | Change in U.K. income tax rate (c) | Income Taxes | | | | | | 84 | | | 75 |
| | Windfall Profits Tax litigation (d) | Income Taxes | | | | | | 43 | | | |
| | Change in WPD line loss accrual, net of tax of $13, $10, ($23) (e) | Utility | | | (52) | | | (35) | | | 74 |
| Total | | | $ | 75 | | $ | 67 | | $ | 107 |
| |
| (a) | Represents unrealized gains (losses) on contracts that economically hedge anticipated GBP-denominated earnings. 2016 includes the reversal of $310 million ($202 million after-tax) of unrealized gains related to the settlement of 2017 and 2018 contracts. |
| |
| (b) | Represents severance compensationIn 2016, PPL settled 2017 and early retirement deficiency costs2018 foreign currency contracts, resulting in $310 million of cash received ($202 million after-tax). The settlement did not have a material impact on net income as the contracts were previously marked to fair value and recognized in "Other Income (Expense) - net" on the Statement of Income. See Note 17 to the Financial Statements for additional information. |
| |
| (c) | The U.K. Finance ActActs of 2013, enacted in July 2013,2016 and 2015 reduced the U.K.'s statutory income tax rate from 23% to 21%, effective April 1, 2014 and from 21% to 20%, effective April 1, 2015. The U.K. Finance Act of 2012, enacted in July 2012, reduced the U.K. statutory income tax rate from 25% to 24% retroactive to April 1, 2012 and from 24% to 23% effective April 1, 2013.rates. As a result, PPL reduced its net deferred tax liability and recognized a deferred tax benefit in 20132016 and 2012. |
(d) | In May 2013, the U.S. Supreme Court reversed the December 2011 ruling by the U.S. Court of Appeals for the Third Circuit concerning the creditability of the U.K. Windfall Profits Tax for U.S. Federal income tax purposes. As a result, PPL recorded a $43 million income tax benefit in 2013.2015. See Note 5 to the Financial Statements for additional information. |
| |
| (d) | Relates to the April 2015 settlement of the IRS audit for the tax years 1998-2011. See Note 5 to the Financial Statements for additional information. |
| |
| (e) | In November 2012, Ofgem issued additional consultation on the final DPCR4 line loss close-out that published values for each DNO. Based on this, WPD Midlands reduced its line loss liability for DPCR4 and DPCR5 by a total of $97 million, pre-tax, in 2012. In 2013, WPD Midlands increased its line loss accrual by $45 million, pre-tax, based on additional information provided by Ofgem regarding the calculation. In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, during 2014 WPD increased its existing liability by $65 million, pre-tax, for over-recovery of line losses. See Note 6 to the Financial Statements for additional information. |
The changes in the components of the U.K. Regulated segment's results between these periods were due to the factors set forth below, which reflect amounts classified as U.K. 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.
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| U.K. | |
| | |
|
| Gross margins | $ | 62 |
| | $ | (110 | ) |
| Other operation and maintenance | 94 |
| | (14 | ) |
| Depreciation | (18 | ) | | 76 |
|
| Interest expense | (28 | ) | | 3 |
|
| Other | (3 | ) | | (5 | ) |
| Income taxes | (18 | ) | | 48 |
|
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| U.S. | | | |
|
| Interest expense and other | (2 | ) | | 12 |
|
| Income taxes | 41 |
| | 55 |
|
| Foreign currency exchange, after-tax | (81 | ) | | (4 | ) |
| Earnings from Ongoing Operations | 47 |
| | 61 |
|
| Special items, after-tax | 78 |
| | 78 |
|
| Net Income | $ | 125 |
| | $ | 139 |
|
U.K.
See "Margins - Changes in Margins" for an explanation of U.K. Gross Margins.
Lower other operation and maintenance expense in 2016 compared with 2015 primarily due to $86 million from lower pension expense due to an increase in estimated returns on higher asset balances and lower interest costs due to a change in the discount rate methodology.
Lower depreciation expense in 2015 compared with 2014 primarily due to an $84 million impact of an extension of the network asset lives. See Note 1 to the Financial Statements for additional information.
Lower income taxes in 2015 compared with 2014 primarily due to $25 million from lower U.K. tax rates and $11 million from lower pre-tax income.
U.S.
Lower income taxes in 2016 compared with 2015 primarily due to a benefit related to foreign tax credit carryforwards.
Lower income taxes in 2015 compared with 2014 primarily due to decreases in taxable dividends.
Kentucky Regulated Segment
The Kentucky Regulated segment consists primarily of LKE's regulated electricity generation, transmission and distribution operations of LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents 18%21% of PPL's Net Income Attributable to PPL Shareowners for 20142016 and 27%37% of PPL's assets at December 31, 2014.2016.
Net Income and Earnings from Ongoing Operations include the following results. |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Operating revenues | $ | 3,141 |
| | $ | 3,115 |
| | $ | 3,168 |
| | $ | 26 |
| | $ | (53 | ) |
| Fuel | 791 |
| | 863 |
| | 965 |
| | (72 | ) | | (102 | ) |
| Energy purchases | 171 |
| | 184 |
| | 253 |
| | (13 | ) | | (69 | ) |
| Other operation and maintenance | 804 |
| | 837 |
| | 815 |
| | (33 | ) | | 22 |
|
| Depreciation | 404 |
| | 382 |
| | 354 |
| | 22 |
| | 28 |
|
| Taxes, other than income | 62 |
| | 57 |
| | 52 |
| | 5 |
| | 5 |
|
| Total operating expenses | 2,232 |
| | 2,323 |
| | 2,439 |
| | (91 | ) | | (116 | ) |
| Other Income (Expense) - net | (9 | ) | | (13 | ) | | (9 | ) | | 4 |
| | (4 | ) |
| Interest Expense | 260 |
| | 232 |
| | 219 |
| | 28 |
| | 13 |
|
| Income Taxes | 242 |
| | 221 |
| | 189 |
| | 21 |
| | 32 |
|
| Net Income | 398 |
| | 326 |
| | 312 |
| | 72 |
| | 14 |
|
| Less: Special Items | — |
| | (17 | ) | | — |
| | 17 |
| | (17 | ) |
| Earnings from Ongoing Operations | $ | 398 |
| | $ | 343 |
| | $ | 312 |
| | $ | 55 |
| | $ | 31 |
|
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.
Net Income Attributable to PPL Shareowners includes the following results:Table of Contents
| | | | | | | | | | | | | | $ Change |
| | | | 2014 | | 2013 | | 2012 | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | | | | | | | | | |
| Utility revenues | | $ | 3,168 | | $ | 2,976 | | $ | 2,759 | | $ | 192 | | $ | 217 |
| Fuel | | | 965 | | | 896 | | | 872 | | | 69 | | | 24 |
| Energy purchases | | | 253 | | | 217 | | | 195 | | | 36 | | | 22 |
| Other operation and maintenance | | | 815 | | | 778 | | | 778 | | | 37 | | | |
| Depreciation | | | 354 | | | 334 | | | 346 | | | 20 | | | (12) |
| Taxes, other than income | | | 52 | | | 48 | | | 46 | | | 4 | | | 2 |
| | Total operating expenses | | | 2,439 | | | 2,273 | | | 2,237 | | | 166 | | | 36 |
| Other Income (Expense) - net | | | (9) | | | (7) | | | (15) | | | (2) | | | 8 |
| Other-Than-Temporary Impairments | | | | | | | | | 25 | | | | | | (25) |
| Interest Expense | | | 219 | | | 212 | | | 219 | | | 7 | | | (7) |
| Income Taxes | | | 189 | | | 179 | | | 80 | | | 10 | | | 99 |
| Income (Loss) from Discontinued Operations (net of income taxes) | | | | | | 2 | | | (6) | | | (2) | | | 8 |
| Net Income Attributable to PPL Shareowners | | $ | 312 | | $ | 307 | | $ | 177 | | $ | 5 | | $ | 130 |
|
| | | | | | | | | | | | | |
| | Income Statement Line Item | | 2016 | | 2015 | | 2014 |
| Certain income tax valuation allowances (a) | Income Taxes | | $ | — |
| | $ | (12 | ) | | $ | — |
|
| LKE acquisition-related adjustment, net of tax of $0, $0, $0 (b) | Other Income (Expense) - net | | — |
| | (5 | ) | | — |
|
| Total | | | $ | — |
| | $ | (17 | ) | | $ | — |
|
| |
| (a) | Recorded at LKE and represents a valuation allowance against tax credits expiring through 2020 that are more likely than not to expire before being utilized. |
| |
| (b) | Recorded at PPL and allocated to the Kentucky Regulated segment. The amount represents a settlement between E.ON AG (a German corporation and the indirect parent of E.ON US Investments Corp., the former parent of LKE) and PPL for a tax matter. |
The changes in the resultscomponents of the Kentucky Regulated segmentsegment's results between these periods were due to the factors set forth below, which reflect amounts classified as Kentucky Gross Margins and certainthe items that management considers special on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of the special items.
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Kentucky Gross Margins | | $ | 78 | | $ | 220 |
| Other operation and maintenance | | | (35) | | | (5) |
| Depreciation | | | (14) | | | (34) |
| Taxes, other than income | | | (3) | | | (1) |
| Other Income (Expense) -net | | | (1) | | | 7 |
| Interest Expense | | | (7) | | | 7 |
| Income Taxes | | | (10) | | | (83) |
| Special items, after-tax | | | (3) | | | 19 |
| Total | | $ | 5 | | $ | 130 |
· | See "Margins - Changes in Non-GAAP Financial Measures" | | | | | | | | | | | 2016 vs. 2015 | | 2015 vs. 2014 | | Kentucky Gross Margins | $ | 83 |
| | $ | 88 |
| | Other operation and maintenance | 42 |
| | (21 | ) | | Depreciation | (4 | ) | | (1 | ) | | Taxes, other than income | (4 | ) | | (3 | ) | | Other Income (Expense) - net | (1 | ) | | 1 |
| | Interest Expense | (28 | ) | | (13 | ) | | Income Taxes | (33 | ) | | (20 | ) | | Earnings from Ongoing Operations | 55 |
| | 31 |
| | Special Items, after-tax | 17 |
| | (17 | ) | | Net Income | $ | 72 |
| | $ | 14 |
|
See "Margins - Changes in Margins" for an explanation of Kentucky Gross Margins. |
· | Higher other operation and maintenance in 2014 compared with 2013 primarily due to $14 million of higher expenses due to the timing and scope of scheduled generation maintenance outages, $9 million of higher bad debt expense and higher storm expenses of $8 million.
|
· | Higher depreciation in 2014 compared with 2013 due to additions to PP&E, net. |
Lower other operation and maintenance expense in 2016 compared with 2015 primarily due to a $29 million reduction of costs as a result of coal units retired in 2015 at the Cane Run and Green River plants, partially offset by $5 million of additional costs for Cane Run Unit 7 plant operations and $12 million of lower pension expense mainly due to higher discount rates and deferred amortization of actuarial losses.
· | Higher depreciation in 2013 compared with 2012 primarily due to environmental costs related to the 2005 and 2006 ECR plans now being included in base rates. As a result, $51 million of depreciation associated with those environmental projects is shown as depreciation in 2013. Depreciation for these ECR plans was included in Kentucky Gross Margins in 2012 and 2011. This increase was partially offset by lower depreciation due to revised rates that were effective January 1, 2013. Both events are the result of the 2012 rate case proceedings. |
Higher other operation and maintenance expense in 2015 compared with 2014 primarily due to $14 million of higher pension expense and $11 million of higher costs related to the Cane Run units' retirements consisting of an inventory write-down and separation benefits, partially offset by $7 million of lower storm costs and lower bad debt expense of $6 million.
· | Higher interest expense in 2014 compared with 2013 primarily due to $22 million of higher expense resulting from the issuance of $500 million of First Mortgage Bonds in November 2013 and higher short-term debt balances partially offset by a $10 million loss on extinguishment of debt in 2013 related to the remarketing of the PPL Capital Funding Junior Subordinated Notes component of the 2010 Equity Units and simultaneous exchange into Senior Notes in the second quarter of 2013, and a $5 million decrease due to lower rates on the related Senior Notes as compared with the Junior Subordinated Notes. |
Higher interest expense for both periods primarily due to the September 2015 issuance of $550 million of incremental First Mortgage Bonds by LG&E and KU, higher interest rates on the September 2015 issuance of $500 million of First Mortgage Bonds by LG&E and KU used to retire the same amount of First Mortgage Bonds in November 2015 and $400 million of notes refinanced by LKE with an affiliate in November 2015.
· | Higher income taxes in 2013 compared with 2012Higher income taxes for both periods primarily due to higher pre-tax income. |
The following after-tax gains (losses), which management considers special items, also impacted the Kentucky Regulated segment's results.
| | | | Income Statement | | | | | | | | | |
| | | | Line Item | | 2014 | | 2013 | | 2012 |
| Impairments: | | | | | | | | | | |
| | | Other asset impairments, net of tax of $0, $0, $10 (a) | Other-Than-Temporary-Impairments | | | | | | | | $ | (15) |
| LKE acquisition-related adjustments: | | | | | | | | | | |
| | | | Income Taxes and Other operation | | | | | | | | | |
| | | Net operating loss carryforward and other tax-related adjustments | and maintenance | | | | | | | | | 4 |
| Other: | | | | | | | | | | |
| | | LKE discontinued operations (b) | Discontinued Operations | | | | | $ | 2 | | | (5) |
| | | EEI adjustments, net of tax of $0, $0, $0 (c) | Other Income (Expense) - net | | | | | | 1 | | | |
| Total | | | | | | $ | 3 | | $ | (16) |
(a) | KU recorded an impairment of its equity method investment in EEI. See Note 16 to the Financial Statements for additional information. |
(b) | 2012 includes an adjustment recorded by LKE to an indemnification liability. |
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 15%18% of PPL's Net Income Attributable to PPL Shareowners for 20142016 and 16%25% of PPL's assets at December 31, 2014.2016.
Net Income Attributable to PPL Shareowners includesand Earnings from Ongoing Operations include the following results:results.
| | | | | | | | | | | | | $ Change |
| | | | 2014 | | 2013 | | 2012 | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | | | | | | | | | | |
| Utility revenues | | $ | 2,044 | | $ | 1,870 | | $ | 1,763 | | $ | 174 | | $ | 107 |
| Energy purchases | | | | | | | | | | | | | | | |
| | External | | | 587 | | | 588 | | | 550 | | | (1) | | | 38 |
| | Intersegment | | | 84 | | | 51 | | | 78 | | | 33 | | | (27) |
| Other operation and maintenance | | | 543 | | | 531 | | | 576 | | | 12 | | | (45) |
| Depreciation | | | 185 | | | 178 | | | 160 | | | 7 | | | 18 |
| Taxes, other than income | | | 107 | | | 103 | | | 105 | | | 4 | | | (2) |
| | Total operating expenses | | | 1,506 | | | 1,451 | | | 1,469 | | | 55 | | | (18) |
| Other Income (Expense) - net | | | 7 | | | 6 | | | 9 | | | 1 | | | (3) |
| Interest Expense | | | 122 | | | 108 | | | 99 | | | 14 | | | 9 |
| Income Taxes | | | 160 | | | 108 | | | 68 | | | 52 | | | 40 |
| Net Income | | | 263 | | | 209 | | | 136 | | | 54 | | | 73 |
| Net Income Attributable to Noncontrolling Interests | | | | | | | | | 4 | | | | | | (4) |
| Net Income Attributable to PPL Shareowners | | $ | 263 | | $ | 209 | | $ | 132 | | $ | 54 | | $ | 77 |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Operating revenues | $ | 2,156 |
| | $ | 2,124 |
| | $ | 2,044 |
| | $ | 32 |
| | $ | 80 |
|
| Energy purchases | |
| | |
| | |
| | |
| | |
|
| External | 535 |
| | 657 |
| | 587 |
| | (122 | ) | | 70 |
|
| Intersegment | — |
| | 14 |
| | 84 |
| | (14 | ) | | (70 | ) |
| Other operation and maintenance | 601 |
| | 607 |
| | 543 |
| | (6 | ) | | 64 |
|
| Depreciation | 253 |
| | 214 |
| | 185 |
| | 39 |
| | 29 |
|
| Taxes, other than income | 105 |
| | 94 |
| | 107 |
| | 11 |
| | (13 | ) |
| Total operating expenses | 1,494 |
| | 1,586 |
| | 1,506 |
| | (92 | ) | | 80 |
|
| Other Income (Expense) - net | 17 |
| | 8 |
| | 7 |
| | 9 |
| | 1 |
|
| Interest Expense | 129 |
| | 130 |
| | 122 |
| | (1 | ) | | 8 |
|
| Income Taxes | 212 |
| | 164 |
| | 160 |
| | 48 |
| | 4 |
|
| Net Income | 338 |
| | 252 |
| | 263 |
| | 86 |
| | (11 | ) |
| Less: Special Items | — |
| | — |
| | (2 | ) | | — |
| | 2 |
|
| Earnings from Ongoing Operations | $ | 338 |
| | $ | 252 |
| | $ | 265 |
| | $ | 86 |
| | $ | (13 | ) |
The following after-tax loss, which management considers a special item, impacted the Pennsylvania Regulated segment's results and is excluded from Earnings from Ongoing Operations.
|
| | | | | | | | | | | | | |
| | Income Statement Line Item | | 2016 | | 2015 | | 2014 |
| Separation benefits, net of tax of $0, $0, $1 (a) | Other operation and maintenance | | $ | — |
| | $ | — |
| | $ | (2 | ) |
| |
| (a) | In June 2014, PPL Electric's largest IBEW local ratified a new three-year labor agreement. In connection with the new agreement, bargaining unit one-time voluntary retirement benefits were recorded. |
The changes in the components of the Pennsylvania Regulated segment's results between these periods were due to the factors set forth below, which reflect amounts classified as Pennsylvania Gross Delivery Margins and a certainthe item that management considers special on separate lines and not on their respective Statement of Income line items. See below for additional detail of the special item.
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Pennsylvania Gross Delivery Margins | | $ | 118 | | $ | 114 |
| Other operation and maintenance | | | 13 | | | 23 |
| Depreciation | | | (7) | | | (18) |
| Taxes, other than income | | | | | | 5 |
| Other Income (Expense) - net | | | 1 | | | (3) |
| Interest Expense | | | (14) | | | (9) |
| Income Taxes | | | (55) | | | (39) |
| Noncontrolling Interests | | | | | | 4 |
| Special Item, after tax | | | (2) | | | |
| Total | | $ | 54 | | $ | 77 |
· | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Pennsylvania Gross Delivery Margins. |
· | Lower other operation and maintenance for 2014 compared with 2013, primarily due to $16 million of lower payroll related expenses due to lower headcount, less maintenance projects and more focus on capital work in 2014. |
| Lower other operation and maintenance for 2013 compared with 2012, primarily due to lower storm costs of $25 million and lower support group costs of $10 million, partially offset by $12 million increased vegetation management costs. |
· | Higher depreciation for both periods primarily due to transmission PP&E additions as well as additions related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure. |
· | Higher interest expense for both periods primarily due to the issuance of first mortgage bonds in July 2013 and June 2014. |
· | Higher income taxes in 2014 compared with 2013, primarily due to higher pre-tax income which increased income taxes by $46 million and tax benefits related to federal and state income tax reserves of $8 million in 2013. |
| Higher income taxes in 2013 compared with 2012, primarily due to higher pre-tax income which increased income taxes by $47 million, partially offset by $8 million of income tax return adjustments primarily recorded in 2012, largely related to changes in flow-through regulated tax depreciation. |
The following after-tax loss, which management considers a special item, also impacted the Pennsylvania Regulated segment's results.
| | Income Statement | | | | | | | | | |
| | Line Item | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| | Other Operation | | | | | | | | | |
| Separation benefits - bargaining unit voluntary program, net of tax of $1, $0, $0 (a) | and Maintenance | | $ | (2) | | $ | | | $ | |
(a) | In June 2014, PPL Electric's largest IBEW local ratified a new three-year labor agreement. In connection with the new agreement, bargaining unit one-time voluntary retirement benefits were recorded. See Note 13 to the Financial Statements for additional information. |
Supply Segment
The Supply segment primarily consists of PPL Energy Supply's wholesale, retail, marketing and trading activities, as well as its competitive generation operations. In addition, certain financing and other costs are allocated to the Supply segment. The Supply segment represents 17% of Net Income Attributable to PPL Shareowners for 2014 and 23% of PPL's assets at December 31, 2014.
In June 2014, PPL and PPL Energy Supply, which primarily represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 to the Financial Statements for additional information.
Net Income Attributable to PPL Shareowners includes the following results.
| | | | | | | | | | | | | $ Change |
| | | | 2014 | | 2013 | | 2012 | | 2014 vs. 2013 | | 2013 vs. 2012 |
| Energy revenues | | | | | | | | | | | | | | | |
| | External (a) | | $ | 3,051 | | $ | 3,936 | | $ | 4,816 | | $ | (885) | | $ | (880) |
| | Intersegment | | | 84 | | | 51 | | | 79 | | | 33 | | | (28) |
| Energy-related businesses | | | 601 | | | 527 | | | 461 | | | 74 | | | 66 |
| | Total operating revenues | | | 3,736 | | | 4,514 | | | 5,356 | | | (778) | | | (842) |
| | | | | | | | | | | | | $ Change |
| | | | 2014 | | 2013 | | 2012 | | 2014 vs. 2013 | | 2013 vs. 2012 |
| Fuel (a) | | | 1,196 | | | 1,049 | | | 965 | | | 147 | | | 84 |
| Energy Purchases (a) | | | 209 | | | 1,171 | | | 1,812 | | | (962) | | | (641) |
| Other operation and maintenance (b) | | | 1,007 | | | 1,026 | | | 1,014 | | | (19) | | | 12 |
| Loss on lease termination (c) | | | | | | 697 | | | | | | (697) | | | 697 |
| Depreciation | | | 297 | | | 299 | | | 276 | | | (2) | | | 23 |
| Taxes, other than income | | | 57 | | | 53 | | | 54 | | | 4 | | | (1) |
| Energy-related businesses | | | 573 | | | 512 | | | 450 | | | 61 | | | 62 |
| | Total operating expenses | | | 3,339 | | | 4,807 | | | 4,571 | | | (1,468) | | | 236 |
| Other Income (Expense) - net | | | 30 | | | 32 | | | 16 | | | (2) | | | 16 |
| Interest Expense | | | 181 | | | 216 | | | 212 | | | (35) | | | 4 |
| Income Taxes | | | 93 | | | (174) | | | 220 | | | 267 | | | (394) |
| Income (Loss) from Discontinued Operations (c) | | | 154 | | | 32 | | | 46 | | | 122 | | | (14) |
| Net Income | | | 307 | | | (271) | | | 415 | | | 578 | | | (686) |
| Net Income Attributable to Noncontrolling Interests | | | | | | 1 | | | 1 | | | (1) | | | |
| Net Income Attributable to PPL Shareowners | | $ | 307 | | $ | (272) | | $ | 414 | | $ | 579 | | $ | (686) |
(a) | Includes the impact from energy-related economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 17 to the Financial Statements for additional information. |
(b) | 2013 includes an impairment charge of $65 million ($39 million after-tax) for the Corette coal-fired plant and related emission allowances. See Note 16 to the Financial Statements for additional information. |
(c) | See Note 8 to the Financial Statements for additional information. |
The changes in the results of the Supply segment between these periods were due to the factors set forth below, which reflect amounts classified as Unregulated Gross Energy Margins and certain items that management considers special on separate lines within the table and not in their respective Statement of Income line items. item.
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Pennsylvania Gross Margins | $ | 177 |
| | $ | 65 |
|
| Other operation and maintenance | — |
| | (58 | ) |
| Depreciation | (39 | ) | | (29 | ) |
| Taxes, other than income | (14 | ) | | 18 |
|
| Other Income (Expense) - net | 9 |
| | 1 |
|
| Interest Expense | 1 |
| | (8 | ) |
| Income Taxes | (48 | ) | | (2 | ) |
| Earnings from Ongoing Operations | 86 |
| | (13 | ) |
| Special Item, after-tax | — |
| | 2 |
|
| Net Income | $ | 86 |
| | $ | (11 | ) |
See below"Margins - Changes in Margins" for an explanation of Pennsylvania Gross Margins.
Other operation and maintenance expense for 2016 was comparable with 2015 primarily due to $26 million of lower payroll related expenses, partially offset by $8 million of higher corporate service costs allocated to PPL Electric, $8 million of higher costs for additional detailwork done by outside vendors and other costs, which were not individually significant in comparison to the prior year.
Higher other operation and maintenance expense for 2015 compared with 2014 primarily due to $30 million of higher corporate service costs allocated to PPL Electric, $11 million of higher vegetation management expenses and related costs for additional work done by outside vendors and $5 million of higher bad debt expenses.
Higher depreciation expense for both periods primarily due to transmission and distribution additions placed into service related to the special items.ongoing efforts to improve reliability and replace aging infrastructure, net of retirements.
Higher taxes, other than income for 2016 compared with 2015 and lower taxes, other than income for 2015 compared with 2014 primarily due to the settlement of a 2011 gross receipts tax audit resulting in the reversal of $17 million of previously recognized reserves in 2015.
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Unregulated Gross Energy Margins | | $ | (188) | | $ | (194) |
| Other operation and maintenance | | | (7) | | | 42 |
| Depreciation | | | 2 | | | (23) |
| Taxes, other than income | | | 2 | | | 4 |
| Other Income (Expense) - net | | | (2) | | | 19 |
| Interest Expense | | | 35 | | | (4) |
| Other | | | (3) | | | (5) |
| Income Taxes | | | 82 | | | 23 |
| Discontinued operations, after tax | | | 17 | | | 1 |
| Special items, after tax | | | 641 | | | (549) |
| Total | | $ | 579 | | $ | (686) |
Higher income taxes in 2016 compared with 2015 primarily due to higher pre-tax income.
· | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Unregulated Gross Energy Margins. |
· | Higher other operation and maintenance in 2014 compared with 2013 primarily due to higher project expenses, including refueling outage expenses, at PPL Susquehanna of $28 million, partially offset by the elimination of rent expense of $20 million associated with the Colstrip lease which was terminated in December 2013. |
Reconciliation of Earnings from Ongoing Operations
| Lower other operation and maintenance in 2013 compared with 2012 primarily due to lower fossil and hydroelectric expenses of $27 million, largely driven by lower outage expenses in 2013 and lower pension expense of $11 million. |
· | Higher depreciation in 2013 compared with 2012 primarily due to PP&E additions. |
· | Higher other income (expense) - net in 2013 compared with 2012, however no individual item was significant in comparison to the prior year. |
· | Lower interest expense in 2014 compared with 2013 primarily due to the repayment of debt in July and December 2013. |
· | Lower income taxes in 2014 compared with 2013 due to lower pre-tax income, which reduced income taxes by $54 million, $16 million of lower taxes due to state tax rate changes and $12 million related to lower adjustments to valuation allowances on Pennsylvania net operating losses. |
| Lower income taxes in 2013 compared with 2012 due to lower pre-tax income, which reduced income taxes by $52 million, and $10 million related to the impact of prior period tax return adjustments, partially offset by $38 million of higher taxes due to state tax rate changes. |
also impactedthat are excluded from Earnings from Ongoing Operations and a reconciliation to PPL's "Net Income" for the Supply segment's results.
| | | | Income Statement | | | | | | | | | |
| | | | Line Item | | 2014 | | 2013 | | 2012 |
| Adjusted energy-related economic activity - net, net of tax of $4, $54, ($26) | (a) | | $ | (6) | | $ | (77) | | $ | 38 |
| Impairments: | | | | | | | | | | |
| | | | Discontinued | | | | | | | | | |
| | Kerr Dam Project impairment, net of tax of $8, $0, $0 (b) | Operations | | | (10) | | | | | | |
| | | | Other Income | | | | | | | | | |
| | Adjustments - nuclear decommissioning trust investments, net of tax of $0, $0, $(2) | (Expense) - net | | | | | | | | | 2 |
| | | | Other operation and | | | | | | | | | |
| | Other asset impairments, net of tax of $0, $0, $0 | maintenance | | | | | | | | | (1) |
| | | | Other operation and | | | | | | | | | |
| | Corette asset impairment, net of tax of $0, $26, $0 (c) | maintenance | | | | | | (39) | | | |
| Spinoff of PPL Energy Supply: | | | | | | | | | | |
| | | | Other operation and | | | | | | | | | |
| | Separation benefits, net of tax of $6, $0, $0 (d) | maintenance | | | (10) | | | | | | |
| | | | Other operation and | | | | | | | | | |
| | Transition costs, net of tax of $0, $0, $0 | maintenance | | | (1) | | | | | | |
| Other: | | | | | | | | | | |
| | Change in tax accounting method related to repairs | Income Taxes | | | | | | (3) | | | |
| | | | Other operation and | | | | | | | | | |
| | Counterparty bankruptcy, net of tax of $0, $(1), $5 (e) | maintenance | | | | | | 1 | | | (6) |
| | | | Unregulated wholesale | | | | | | | | | |
| | Wholesale supply cost reimbursement, net of tax of $0, $0, $0 | energy | | | | | | | | | 1 |
| | | | Other operation and | | | | | | | | | |
| | Ash basin leak remediation adjustment, net of tax of $0, $0, $(1) | maintenance | | | | | | | | | 1 |
| | Coal contract modification payments, net of tax of $0, $0, $12 (f) | Fuel | | | | | | | | | (17) |
| | | | Other operation and | | | | | | | | | |
| | Separation benefits - bargaining unit voluntary program, net of tax of $7, $0, $0 (g) | maintenance | | | (10) | | | | | | |
| | Loss on Colstrip operating lease termination, net of tax of $0, $284, $0 (h) | Loss on lease termination | | | | | | (413) | | | |
| | Mechanical contracting and engineering revenue adjustment, net of tax of ($7), $0, $0 (i) | Energy-related businesses | | | 10 | | | | | | |
| | | | Discontinued | | | | | | | | | |
| | Sale of Montana hydroelectric generating facilities, net of tax of ($100), $0, $0 (j) | Operations | | | 137 | | | | | | |
| Total (k) | | | $ | 110 | | $ | (531) | | $ | 18 |
(a) | Represents unrealized gains (losses), after-tax, on economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 17 to the Financial Statements for additional information. Amounts have been adjusted for insignificant amounts for option premiums. |
(b) | In 2014, an arbitration panel issued its final decision holding that the conveyance price payable to PPL Montana was $18 million. As a result, PPL Energy Supply determined the Kerr Dam Project was impaired and recorded a pre-tax charge of $18 million. See Note 16 to the Financial Statements for additional information. |
(c) | In 2013, PPL Energy Supply determined its Corette plant was impaired and recorded a pre-tax charge of $65 million for the plant and related emission allowances. See Note 16 to the Financial Statements for additional information. |
(d) | PPL Energy Supply recorded separation benefits related to the anticipated spinoff transaction. See Note 8 to the Financial Statements for additional information. |
(e) | In October 2011, a wholesale customer, SMGT, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy code. In 2012, PPL EnergyPlus recorded an additional allowance for unpaid amounts under the long-term power contract. In March 2012, the U.S. Bankruptcy Court for the District of Montana approved the request to terminate the contract, effective April 1, 2012. In June 2013, PPL EnergyPlus received an approval for an administrative claim in the amount of $2 million. |
|
| | | | | | | | | | | | | | | | | | | |
| | 2016 |
| | U.K.
Regulated | | KY
Regulated | | PA
Regulated | | Corporate
and Other | | Total |
| Net Income | $ | 1,246 |
| | $ | 398 |
| | $ | 338 |
| | $ | (80 | ) | | $ | 1,902 |
|
| Less: Special Items (expense) benefit: | | | | | | | | | |
| Foreign currency-related economic hedges, net of tax of $4 | (8 | ) | | — |
| | — |
| | — |
| | (8 | ) |
| Spinoff of the Supply segment, net of tax of $2 | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) |
| Other: | | | | | | | | | |
| Settlement of foreign currency contracts, net of tax of ($108) | 202 |
| | — |
| | — |
| | — |
| | 202 |
|
| Change in U.K. tax rate | 37 |
| | — |
| | — |
| | — |
| | 37 |
|
| Total Special Items | 231 |
| | — |
| | — |
| | (3 | ) | | 228 |
|
| Earnings from Ongoing Operations | $ | 1,015 |
| | $ | 398 |
| | $ | 338 |
| | $ | (77 | ) | | $ | 1,674 |
|
(f) | As a result of lower electricity and natural gas prices, coal-fired generation output decreased during 2012. Contract modification payments were incurred to reduce 2012 and 2013 coal deliveries. |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 |
| | U.K. Regulated | | KY Regulated | | PA Regulated | | Corporate and Other | | Discontinued Operations | | Total |
| Net Income | $ | 1,121 |
| | $ | 326 |
| | $ | 252 |
| | $ | (96 | ) | | $ | (921 | ) | | $ | 682 |
|
| Less: Special Items (expense) benefit: | | | | | | | | | | | |
| Foreign currency-related economic hedges, net of tax of ($30) | 55 |
| | — |
| | — |
| | — |
| | — |
| | 55 |
|
| Spinoff of the Supply segment: | | | | | | | | | | | |
| Discontinued operations, net of tax of $30 | — |
| | — |
| | — |
| | — |
| | (921 | ) | | (921 | ) |
| Transition and transaction costs, net of tax of $6 | — |
| | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
| Employee transitional services, net of tax of $2 | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) |
| Separation benefits, net of tax of $3 | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) |
| Other: | | | | | | | | | | | |
| Change in U.K. tax rate | 78 |
| | — |
| | — |
| | — |
| | — |
| | 78 |
|
| Settlement of certain income tax positions | 18 |
| | — |
| | — |
| | — |
| | — |
| | 18 |
|
| WPD Midlands acquisition-related adjustment, net of tax of ($1) | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
|
| Certain income tax valuation allowances | — |
| | (12 | ) | | — |
| | — |
| | — |
| | (12 | ) |
| LKE acquisition-related adjustment, net of tax of $0 | — |
| | (5 | ) | | — |
| | — |
| | — |
| | (5 | ) |
| Total Special Items | 153 |
| | (17 | ) | | — |
| | (22 | ) | | (921 | ) | | (807 | ) |
| Earnings from Ongoing Operations | $ | 968 |
| | $ | 343 |
| | $ | 252 |
| | $ | (74 | ) | | $ | — |
| | $ | 1,489 |
|
(g) | In 2014, PPL Energy Supply's largest IBEW local ratified a new three-year labor agreement. In connection with the new agreement, bargaining unit one-time voluntary retirement benefits were recorded. See Note 13 to the Financial Statements for additional information. |
(h) | In September 2013, PPL Montana executed a definitive agreement to sell to NorthWestern certain hydroelectric generating facilities located in Montana. To facilitate the sale, PPL Montana terminated its operating lease arrangement related to partial interests in Units 1, 2 and 3 of the Colstrip coal-fired electric generating facility in December 2013 and acquired those interests, collectively, for $271 million. At lease termination, the existing lease-related assets on the balance sheet were written off and the acquired Colstrip assets were recorded at fair value as of the acquisition date. PPL and PPL Energy Supply recorded a pre-tax charge of $697 million for the termination of the lease. See Note 8 to the Financial Statements for additional information. |
(i) | In 2014, PPL and PPL Energy Supply recorded $17 million to "Energy-related businesses" revenues on the 2014 Statement of Income related to prior periods and the timing of revenue recognition for a mechanical contracting and engineering subsidiary. See Note 1 to the Financial Statements for additional information. |
(j) | In November 2014, PPL Montana completed the sale of 633 MW of hydroelectric generating facilities to NorthWestern. PPL Energy Supply recognized a pre-tax gain of $306 million ($206 million after-tax) as a result of the transaction. PPL recognized a pre-tax gain of $237 million ($137 million after-tax) as a result of the transaction, which reflects the allocation of $69 million of additional goodwill. See Note 8 to the Financial Statements for additional information. |
(k) | PPL Energy Supply's 2014 special items were $179 million and reflect the $206 million after-tax gain from the sale of the hydroelectric generating facilities discussed in footnote (j). |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 |
| | U.K. Regulated | | KY Regulated | | PA Regulated | | Corporate and Other | | Discontinued Operations | | Total |
| Net Income | $ | 982 |
| | $ | 312 |
| | $ | 263 |
| | $ | (120 | ) | | $ | 300 |
| | $ | 1,737 |
|
| Less: Special Items (expense) benefit: | | | | | | | | | | | |
| Foreign currency-related economic hedges, net of tax of ($68) | 127 |
| | — |
| | — |
| | — |
| | — |
| | 127 |
|
| Spinoff of the Supply segment: | | | | | | | | | | | |
| Supply segment earnings, net of tax of ($93) | — |
| | — |
| | — |
| | — |
| | 307 |
| | 307 |
|
| Discontinued operations adjustments, net of tax of $3, ($3) | — |
| | — |
| | — |
| | (5 | ) | | 5 |
| | — |
|
| Change in tax valuation allowances | — |
| | — |
| | — |
| | (46 | ) | | — |
| | (46 | ) |
| Transition and transaction costs, net of tax of $3, $7 | — |
| | — |
| | — |
| | (5 | ) | | (12 | ) | | (17 | ) |
| Separation benefits, net of tax of $6 | — |
| | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
The following table reconciles unrealized pre-tax gains (losses) from the table within "Commodity Price Risk (Non-trading) - Economic Activity" in Note 17 to the Financial Statements to the special item identified as "Adjusted energy-related economic activity, net."Contents
| | | | | 2014 | | 2013 | | 2012 |
| Operating Revenues | | | | | | | | | |
| | | Unregulated wholesale energy | | $ | 325 | | $ | (721) | | $ | (311) |
| | | Unregulated retail energy | | | 29 | | | 12 | | | (17) |
| Operating Expenses | | | | | | | | | |
| | | Fuel | | | (27) | | | (4) | | | (14) |
| | | Energy Purchases | | | (327) | | | 586 | | | 442 |
| Energy-related economic activity (a) | | | | | | (127) | | | 100 |
| Option premiums (b) | | | (10) | | | (4) | | | (1) |
| Adjusted energy-related economic activity | | | (10) | | | (131) | | | 99 |
| Less: Economic activity realized, associated with the monetization of certain | | | | | | | | | |
| | full-requirement sales contracts in 2010 | | | | | | | | | 35 |
| Adjusted energy-related economic activity, net, pre-tax | | $ | (10) | | $ | (131) | | $ | 64 |
| | | | | | | | | | | | |
| Adjusted energy-related economic activity, net, after-tax | | $ | (6) | | $ | (77) | | $ | 38 |
(a) | See Note 17 to the Financial Statements for additional information. |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 |
| | U.K. Regulated | | KY Regulated | | PA Regulated | | Corporate and Other | | Discontinued Operations | | Total |
| Other: | | | | | | | | | | | |
| Change in WPD line loss accrual, net of tax of $13 | (52 | ) | | — |
| | — |
| | — |
| | — |
| | (52 | ) |
| Separation benefits, net of tax of $1 | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) |
| Total Special Items | 75 |
| | — |
| | (2 | ) | | (68 | ) | | 300 |
| | 305 |
|
| Dissynergies-spinoff of Supply segment expense (benefit): | | | | | | | | | | | |
| Indirect operation and maintenance, net of tax of ($33) | — |
| | — |
| | — |
| | 47 |
| | — |
| | 47 |
|
| Interest expense, net of tax of ($20) | — |
| | — |
| | — |
| | 29 |
| | — |
| | 29 |
|
| Depreciation, net of tax of ($5) | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Total dissynergies-spinoff of Supply segment | — |
| | — |
| | — |
| | 83 |
| | — |
| | 83 |
|
| Earnings from Ongoing Operations | $ | 907 |
| | $ | 312 |
| | $ | 265 |
| | $ | (135 | ) | | $ | — |
| | $ | 1,349 |
|
(b) | Adjustment for the net deferral and amortization of option premiums over the delivery period of the item that was hedged or upon realization. Option premiums are recorded in "Unregulated wholesale energy" and "Energy purchases" on the Statements of Income. |
Non-GAAP Financial Measures
Management also utilizes the following non-GAAP financial measures as indicators of performance for its businesses.
"U.K. 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 Gross Margins" is a single financial performance measure of the electricity generation, transmission and distribution operations of the Kentucky Regulated segment, LKE, LG&E and KU, as well as Kentucky Regulated segment's, LKE's and LG&E's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded as "Other operation and maintenance" on the Statements of Income) are deducted from revenues. In addition, certain other expenses, recorded as "Other operation and maintenance", "Depreciation" and "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. |
"Kentucky Gross Margins" is a single financial performance measure of the electricity generation, transmission and distribution operations of the Kentucky Regulated segment, LKE, LG&E and KU, as well as the Kentucky Regulated segment's, LKE's and LG&E's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded 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 operating 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 Gross Delivery Margins" is a single financial performance measure of the electricity delivery operations of the Pennsylvania Regulated segment and PPL Electric, which includes transmission and distribution activities. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance," which is primarily Act 129 costs, and "Taxes, other than income," which is primarily gross receipts tax. This performance measure includes PLR energy purchases by PPL Electric from PPL EnergyPlus, which are reflected in "PLR intersegment utility revenue (expense)" in the reconciliation table below (in "Energy purchases from affiliate" in PPL Electric's reconciliation table). As a result, this measure represents the net revenues from the Pennsylvania Regulated segment's and PPL Electric's electricity delivery operations. |
· | "Unregulated Gross Energy Margins" is a single financial performance measure of the competitive energy activities of the Supply segment and PPL Energy Supply, which are managed on a geographic basis. In calculating this measure, energy revenues, including operating revenues associated with certain businesses classified as discontinued operations, are offset by the cost of fuel, energy purchases, certain other operation and maintenance expenses, primarily ancillary charges, gross receipts tax, recorded in "Taxes, other than income," and operating expenses associated with certain businesses classified as discontinued operations. This performance measure is relevant due to the volatility in the individual revenue and expense lines on the Statements of Income that comprise "Unregulated Gross Energy Margins." This volatility stems from a number of factors, including the required netting of certain transactions with ISOs and significant fluctuations in unrealized gains and losses. Such factors could result in gains or losses being recorded in either "Unregulated wholesale energy," "Unregulated retail energy" or "Energy purchases" on the Statements of Income. This performance measure includes PLR revenues from energy sales to PPL Electric by PPL EnergyPlus, which are reflected in "PLR intersegment utility revenue (expense)" in the reconciliation table below (in "Unregulated wholesale energy to affiliate" in PPL Energy Supply's reconciliation table). "Unregulated Gross Energy Margins" excludes adjusted energy-related economic activity, which includes the changes in fair value of positions used to economically hedge a portion of the economic value of the competitive generation assets, full-requirement sales contracts and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. Adjusted energy-related economic activity includes the ineffective portion of qualifying cash flow hedges and premium amortization associated with options. Unrealized gains and losses related to this activity are deferred and included in "Unregulated Gross Energy Margins" over the delivery period of the item that was hedged or upon realization. |
"Pennsylvania Gross Margins" is a single financial performance measure of the electricity transmission and distribution operations of the Pennsylvania Regulated segment and PPL Electric. 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 and Universal Service program costs), and "Taxes, other than income," (which is primarily gross receipts tax) on the Statements of Income. This performance measure includes PLR energy purchases by PPL Electric from PPL EnergyPlus, which are reflected in "Energy purchases from affiliate" in the reconciliation tables. As a result of the June 2015 spinoff of PPL Energy Supply and the formation of Talen Energy, PPL EnergyPlus (renamed Talen Energy Marketing) is no longer an affiliate of PPL Electric. PPL Electric's purchases from Talen Energy Marketing subsequent to May 31, 2015 are reflected in "Energy Purchases" in the reconciliation tables. This measure represents the net revenues from the Pennsylvania Regulated segment's and PPL Electric's electricity delivery operations.
These measures are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to analyze and report their results of operations. Management believes these measures provide additional useful criteria to make investment decisions. These performance measures are used, in conjunction with other information, by senior management and PPL's Board of Directors to manage the operations and analyze actual results compared with budget and, in certain cases, to measure certain corporate financial goals used to determine variable compensation.budget.
Changes in Margins
The following table shows Margins by PPL's reportable segments and by component, as applicable, for the year ended December 31 as well as the changes between periods. The factors that gave rise to the changes are described following the table.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| U.K. Regulated | | | | | | | | | |
| U.K. Gross Margins | $ | 2,067 |
| | $ | 2,243 |
| | $ | 2,527 |
| | $ | (176 | ) | | $ | (284 | ) |
| Impact of changes in foreign currency exchange rates | | | | | | | (238 | ) | | (174 | ) |
| U.K. Gross Margins excluding impact of foreign currency exchange rates | | | | | | | $ | 62 |
| | $ | (110 | ) |
| | | | | | | | | | |
| Kentucky Regulated | | | | | | | | | |
| Kentucky Gross Margins | | | | | | | | | |
| LG&E | $ | 887 |
| | $ | 867 |
| | $ | 833 |
| | $ | 20 |
| | $ | 34 |
|
| KU | 1,122 |
| | 1,059 |
| | 1,005 |
| | 63 |
| | 54 |
|
| Total Kentucky Gross Margins | $ | 2,009 |
| | $ | 1,926 |
| | $ | 1,838 |
| | $ | 83 |
| | $ | 88 |
|
| | | | | | | | | | |
| Pennsylvania Regulated | | | | | | | | | |
| Pennsylvania Gross Margins | | | | | | | | | |
| Distribution | $ | 960 |
| | $ | 842 |
| | $ | 837 |
| | $ | 118 |
| | $ | 5 |
|
| Transmission | 454 |
| | 395 |
| | 335 |
| | 59 |
| | 60 |
|
| Total Pennsylvania Gross Margins | $ | 1,414 |
| | $ | 1,237 |
| | $ | 1,172 |
| | $ | 177 |
| | $ | 65 |
|
U.K. Gross Margins
U.K. Gross Margins, excluding the impact of changes in foreign currency exchange rates, increased in 2016 compared with 2015 primarily due to $166 million from the April 1, 2016 price increase, which includes $39 million of the recovery of prior customer rebates, and $21 million of other revenue adjustments in the first quarter of 2016, partially offset by $89 million from the April 1, 2015 price decrease resulting from the commencement of RIIO-ED1 and $36 million from lower volumes.
U.K. Gross Margins, excluding the impact of changes in foreign currency exchange rates, decreased in 2015 compared with 2014 primarily due to $171 million from the April 1, 2015 price decrease resulting from the commencement of RIIO-ED1, partially offset by $46 million from the April 1, 2014 price increase.
Kentucky Gross Margins
Kentucky Gross Margins increased in 2016 compared with 2015 primarily due to higher base rates of $68 million ($4 million at LG&E and $64 million at KU) and returns on additional environmental capital investments of $13 million at LG&E. The increases in base rates were the result of new rates approved by the KPSC effective July 1, 2015.
Kentucky Gross Margins increased in 2015 compared with 2014 primarily due to higher base rates of $64 million ($3 million at LG&E and $61 million at KU) and returns on additional environmental capital investments of $53 million ($36 million at LG&E and $17 million at KU). The increases in base rates were the result of new rates approved by the KPSC effective July 1, 2015. These increases were partially offset by lower sales volumes of $28 million ($5 million at LG&E and $23 million at KU) driven by milder weather during the fourth quarter of 2015.
Pennsylvania Gross Margins
Distribution
Distribution margins increased in 2016 compared with 2015 primarily due to $121 million of higher base rates, effective January 1, 2016 as a result of the 2015 rate case.
Distribution margins increased in 2015 compared with 2014 primarily due to returns on additional distribution improvement capital investments of $17 million partially offset by a $12 million benefit recorded in the first quarter of 2014 as a result of a change in estimate of a regulatory liability.
Transmission
Transmission margins increased for both periods primarily due to returns on additional capital investments focused on replacing the aging infrastructure and improving reliability.
Reconciliation of Non-GAAP Financial MeasuresMargins
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 years ended December 31.
|
| | | | | | | | | | | | | | | | | | | |
| | 2016 |
| | U.K. Gross Margins | | Kentucky Gross Margins | | PA Gross Margins | | Other (a) | | Operating Income (b) |
| Operating Revenues | $ | 2,165 |
| (c) | $ | 3,141 |
| | $ | 2,156 |
| | $ | 55 |
| | $ | 7,517 |
|
| Operating Expenses | | | | | | | | | |
| Fuel | — |
| | 791 |
| | — |
| | — |
| | 791 |
|
| Energy purchases | — |
| | 171 |
| | 535 |
| | — |
| | 706 |
|
| Other operation and maintenance | 98 |
| | 109 |
| | 108 |
| | 1,430 |
| | 1,745 |
|
| Depreciation | — |
| | 56 |
| | — |
| | 870 |
| | 926 |
|
| Taxes, other than income | — |
| | 5 |
| | 99 |
| | 197 |
| | 301 |
|
| Total Operating Expenses | 98 |
| | 1,132 |
| | 742 |
| | 2,497 |
| | 4,469 |
|
| Total | $ | 2,067 |
| | $ | 2,009 |
| | $ | 1,414 |
| | $ | (2,442 | ) | | $ | 3,048 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 2015 |
| | U.K. Gross Margins | | Kentucky Gross Margins | | PA
Gross
Margins | | Other (a) | | Operating Income (b) |
| Operating Revenues | $ | 2,364 |
| (c) | $ | 3,115 |
| | $ | 2,124 |
| | $ | 66 |
| | $ | 7,669 |
|
| Operating Expenses | | | | | | | | | |
| Fuel | — |
| | 863 |
| | — |
| | — |
| | 863 |
|
| Energy purchases | — |
| | 184 |
| | 657 |
| | 14 |
| | 855 |
|
| Energy purchases from affiliate | — |
| | — |
| | 14 |
| | (14 | ) | | — |
|
| Other operation and maintenance | 121 |
| | 100 |
| | 114 |
| | 1,603 |
| | 1,938 |
|
| Depreciation | — |
| | 38 |
| | — |
| | 845 |
| | 883 |
|
| Taxes, other than income | — |
| | 4 |
| | 102 |
| | 193 |
| | 299 |
|
| Total Operating Expenses | 121 |
| | 1,189 |
| | 887 |
| | 2,641 |
| | 4,838 |
|
| Total | $ | 2,243 |
| | $ | 1,926 |
| | $ | 1,237 |
| | $ | (2,575 | ) | | $ | 2,831 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 2014 |
| | U.K. Gross Margins | | Kentucky Gross Margins | | PA
Gross
Margins | | Other (a) | | Operating Income (b) |
| Operating Revenues | $ | 2,638 |
| (c) | $ | 3,168 |
| | $ | 2,044 |
| | $ | 2 |
| | $ | 7,852 |
|
| Operating Expenses | | | | | | | | | |
| Fuel | — |
| | 965 |
| | — |
| | — |
| | 965 |
|
| Energy purchases | — |
| | 253 |
| | 587 |
| | 84 |
| | 924 |
|
| Energy purchases from affiliate | — |
| | — |
| | 84 |
| | (84 | ) | | — |
|
| Other operation and maintenance | 111 |
| | 99 |
| | 103 |
| | 1,543 |
| | 1,856 |
|
| Depreciation | — |
| | 11 |
| | — |
| | 912 |
| | 923 |
|
| Taxes, other than income | — |
| | 2 |
| | 98 |
| | 217 |
| | 317 |
|
| Total Operating Expenses | 111 |
| | 1,330 |
| | 872 |
| | 2,672 |
| | 4,985 |
|
| Total | $ | 2,527 |
| | $ | 1,838 |
| | $ | 1,172 |
| | $ | (2,670 | ) | | $ | 2,867 |
|
| | | | | | 2014 | | 2013 |
| | | | | | | | | | | Unregulated | | | | | | | | | | | | | Unregulated | | | | | | | |
| | | | | | Kentucky | | PA Gross | | Gross | | | | | | | | Kentucky | | PA Gross | | Gross | | | | | | |
| | | | | | Gross | | Delivery | | Energy | | | | | Operating | | Gross | | Delivery | | Energy | | | | | | Operating |
| | | | | | Margins | | Margins | | Margins | | Other (a) | | Income (b) | | Margins | | Margins | | Margins | | Other (a) | | Income (b) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Utility | $ | 3,168 | | $ | 2,044 | | | | | $ | 2,570 | (c) | | $ | 7,782 | | $ | 2,976 | | $ | 1,870 | | | | | $ | 2,355 | (c) | | $ | 7,201 |
| | PLR intersegment utility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | revenue (expense) (d) | | | | | (84) | | $ | 84 | | | | | | | | | | | | | (51) | | $ | 51 | | | | | | | |
| | Unregulated wholesale energy | | | | | | | | 1,490 | | | 318 | (e) | | | 1,808 | | | | | | | | | 3,623 | | | (714) | (e) | | | 2,909 |
| | Unregulated retail energy (f) | | | | | | | | 1,216 | | | 23 | (e) | | | 1,239 | | | | | | | | | 1,015 | | | 8 | (e) | | | 1,023 |
| | Energy-related businesses | | | | | | | | | | | 670 | | | | 670 | | | | | | | | | | | | 588 | | | | 588 |
| | | | Total Operating Revenues | | 3,168 | | | 1,960 | | | 2,790 | | | 3,581 | | | | 11,499 | | | 2,976 | | | 1,819 | | | 4,689 | | | 2,237 | | | | 11,721 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fuel | | 965 | | | | | | 1,169 | | | 27 | (g) | | | 2,161 | | | 896 | | | | | | 1,045 | | | 3 | (g) | | | 1,944 |
| | Energy purchases | | 253 | | | 587 | | | (121) | | | 322 | (e) | | | 1,041 | | | 217 | | | 588 | | | 1,745 | | | (583) | (e) | | | 1,967 |
| | Other operation and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | maintenance | | 99 | | | 103 | | | 22 | | | 2,579 | | | | 2,803 | | | 97 | | | 82 | | | 20 | | | 2,580 | | | | 2,779 |
| | Loss on lease termination (Note 8) | | | | | | | | | | | | | | | | | | | | | | | | | | | 697 | | | | 697 |
| | Depreciation | | 11 | | | | | | | | | 1,209 | | | | 1,220 | | | 5 | | | | | | | | | 1,137 | | | | 1,142 |
| | Taxes, other than income | | 2 | | | 98 | | | 43 | | | 231 | | | | 374 | | | 1 | | | 95 | | | 37 | | | 218 | | | | 351 |
| | Energy-related businesses | | | | | | | | 8 | | | 620 | | | | 628 | | | | | | | | | 7 | | | 556 | | | | 563 |
| | | | Total Operating Expenses | | 1,330 | | | 788 | | | 1,121 | | | 4,988 | | | | 8,227 | | | 1,216 | | | 765 | | | 2,854 | | | 4,608 | | | | 9,443 |
| | Income (Loss) from | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Discontinued Operations | | | | | | | | 117 | | | (117) | (h) | | | | | | | | | | | | 139 | | | (139) | (h) | | | |
| Total | $ | 1,838 | | $ | 1,172 | | $ | 1,786 | | $ | (1,524) | | | $ | 3,272 | | $ | 1,760 | | $ | 1,054 | | $ | 1,974 | | $ | (2,510) | | | $ | 2,278 |
| | | | | | 2012 | | |
| | | | | | | | | | | Unregulated | | | | | | | | | | | | | | | | | | | | |
| | | | | | Kentucky | | PA Gross | | Gross | | | | | | | | | | | | | | | | | | |
| | | | | | Gross | | Delivery | | Energy | | | | | Operating | | | | | | | | | | | | |
| | | | | | Margins | | Margins | | Margins | | Other (a) | | Income (b) | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Utility | $ | 2,759 | | $ | 1,763 | | | | | $ | 2,286 | (c) | | $ | 6,808 | | | | | | | | | | | | | | | | |
| | PLR intersegment utility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | revenue (expense) (d) | | | | | (78) | | $ | 78 | | | | | | | | | | | | | | | | | | | | | | | |
| | Unregulated wholesale energy | | | | | | | | 4,266 | | | (290) | (e) | | | 3,976 | | | | | | | | | | | | | | | | |
| | Unregulated retail energy (f) | | | | | | | | 861 | | | (21) | (e) | | | 840 | | | | | | | | | | | | | | | | |
| | Energy-related businesses | | | | | | | | | | | 508 | | | | 508 | | | | | | | | | | | | | | | | |
| | | | Total Operating Revenues | | 2,759 | | | 1,685 | | | 5,205 | | | 2,483 | | | | 12,132 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fuel | | 872 | | | | | | 931 | | | 34 | (g) | | | 1,837 | | | | | | | | | | | | | | | | |
| | Energy purchases | | 195 | | | 550 | | | 2,207 | | | (397) | (e) | | | 2,555 | | | | | | | | | | | | | | | | |
| | Other operation and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | maintenance | | 101 | | | 104 | | | 19 | | | 2,567 | | | | 2,791 | | | | | | | | | | | | | | | | |
| | Depreciation | | 51 | | | | | | | | | 1,036 | | | | 1,087 | | | | | | | | | | | | | | | | |
| | Taxes, other than income | | | | | 91 | | | 34 | | | 227 | | | | 352 | | | | | | | | | | | | | | | | |
| | Energy-related businesses | | | | | | | | | | | 484 | | | | 484 | | | | | | | | | | | | | | | | |
| | | | Total Operating Expenses | | 1,219 | | | 745 | | | 3,191 | | | 3,951 | | | | 9,106 | | | | | | | | | | | | | | | | |
| | Income (Loss) from | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discontinued Operations | | | | | | | | 154 | | | (154) | (h) | | | | | | | | | | | | | | | | | | | |
| Total | $ | 1,540 | | $ | 940 | | $ | 2,168 | | $ | (1,622) | | | $ | 3,026 | | | | | | | | | | | | | | | | |
| |
| (a) | Represents amounts excluded from Margins. |
| |
| (b) | As reported on the Statements of Income. |
| |
| (c) | Primarily represents WPD's utility revenue. |
(d) | Primarily2016, 2015 and 2014 exclude $42 million, $46 million and $48 million of ancillary activity revenues. 2014 also excludes $65 million of revenue reductions related to PLR supply sold by PPL EnergyPlusadjustments to PPL Electric. |
(e) | Includes energy-related economic activity,WPD's line loss accrual related to DPCR4, which is subject to fluctuations in value due to market price volatility. See "Commodity Price Risk (Non-trading) - Economic Activity" within Note 17 to the Financial Statements. For 2012, "Unregulated wholesale energy" and "Energy purchases" includeconsidered a net pre-tax loss of $35 million related to the monetization of certain full-requirement sales contracts.special item. |
(f) | Although retail energy revenues continue to grow, the net margins related to these activities are not currently a significant component of Unregulated Gross Energy Margins. |
2017 Outlook(g) | Includes economic activity related to fuel as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 17 to the Financial Statements. 2012 includes a net pre-tax loss of $29 million related to coal contract modification payments. |
(h) | Represents the revenues associated with the hydroelectric generating facilities located in Montana that are classified as discontinued operations. These revenues are not reflected in "Operating Income" on the Statements of Income. |
(PPL)Lower net income is projected in 2017 compared with 2016 primarily from a lower assumed GBP exchange rate in 2017 and 2016 tax benefits that are not expected to repeat in 2017. The following projections and factors underlying these projections (on an after-tax basis) are provided for PPL's segments and the Corporate and Other category and the related Registrants.
(PPL's U.K. Regulated Segment)
Lower net income is projected in 2017 compared with 2016 due to a lower assumed GBP exchange rate in 2017, lower incentive revenues, higher interest expense, higher depreciation expense and higher income taxes, partially offset by lower operation and maintenance expense, including pension expense.
(PPL's Kentucky Regulated Segment and LKE, LG&E and KU)
Slightly higher net income is projected in 2017 compared with 2016 primarily driven by electricity and gas base rate increases, partially offset by higher operation and maintenance expense and higher depreciation expense.
(PPL's Pennsylvania Regulated Segment and PPL Electric)
Relatively flat net income is projected in 2017 compared with 2016 primarily driven by higher transmission earnings and lower operation and maintenance expense, offset by higher depreciation expense, higher interest expense and higher income taxes.
(PPL's Corporate and Other Category)
Relatively flat costs are projected in 2017 compared with 2016.
(All Registrants)
Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," "Item 1. Business," "Item 1A. Risk Factors," the rest of this Item 7, and Notes 1, 6 and 13 to the Financial Statements (as applicable) for a discussion of the risks, uncertainties and factors that may impact future earnings.
The following table shows the non-GAAP financial measures by PPL's reportable segmentPPL Electric: Statement of Income Analysis, Earnings and by component, as applicable,Margins
Statement of Income Analysis
Net income for the yearyears ended December 31 as well asincludes the change between periods. The factors that gave rise to the changes are described following the table.results.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Operating Revenues | $ | 2,156 |
| | $ | 2,124 |
| | $ | 2,044 |
| | $ | 32 |
| | $ | 80 |
|
| Operating Expenses | | | | | | | | | |
| Operation | | | | | | | | | |
| Energy purchases | 535 |
| | 657 |
| | 587 |
| | (122 | ) | | 70 |
|
| Energy purchases from affiliate | — |
| | 14 |
| | 84 |
| | (14 | ) | | (70 | ) |
| Other operation and maintenance | 599 |
| | 607 |
| | 543 |
| | (8 | ) | | 64 |
|
| Depreciation | 253 |
| | 214 |
| | 185 |
| | 39 |
| | 29 |
|
| Taxes, other than income | 105 |
| | 94 |
| | 107 |
| | 11 |
| | (13 | ) |
| Total Operating Expenses | 1,492 |
| | 1,586 |
| | 1,506 |
| | (94 | ) | | 80 |
|
| Other Income (Expense) - net | 17 |
| | 8 |
| | 7 |
| | 9 |
| | 1 |
|
| Interest Expense | 129 |
| | 130 |
| | 122 |
| | (1 | ) | | 8 |
|
| Income Taxes | 212 |
| | 164 |
| | 160 |
| | 48 |
| | 4 |
|
| Net Income | $ | 340 |
| | $ | 252 |
| | $ | 263 |
| | $ | 88 |
| | $ | (11 | ) |
| | | | | | | | | | | | | | $ Change |
| | | | | 2014 | | 2013 | | 2012 | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | | | | | | | | | | | |
| Kentucky Regulated | | | | | | | | | | | | | | | |
| Kentucky Gross Margins | | | | | | | | | | | | | | | |
| | LG&E | | $ | 833 | | $ | 791 | | $ | 727 | | $ | 42 | | $ | 64 |
| | KU | | | 1,005 | | | 969 | | | 813 | | | 36 | | | 156 |
| LKE | | $ | 1,838 | | $ | 1,760 | | $ | 1,540 | | $ | 78 | | $ | 220 |
The increase (decrease) in operating revenues was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Distribution Price (a) | $ | 126 |
| | $ | 22 |
|
| Distribution volume | (9 | ) | | (4 | ) |
| PLR (b) | (135 | ) | | 15 |
|
| Transmission Formula Rate | 59 |
| | 60 |
|
| Other | (9 | ) | | (13 | ) |
| Total | $ | 32 |
| | $ | 80 |
|
| |
| (a) | Distribution rate case effective January 1, 2016, resulted in increases of $160 million for the year ended December 31, 2016. |
| |
| (b) | In 2016 compared with 2015 the decrease was primarily due to lower energy purchase prices as described below. |
Energy Purchases
| Pennsylvania Regulated | | | | | | | | | | | | | | | |
| Pennsylvania Gross Delivery Margins | | | | | | | | | | | | | | | |
| | Distribution | | $ | 837 | | $ | 803 | | $ | 730 | | $ | 34 | | $ | 73 |
| | Transmission | | | 335 | | | 251 | | | 210 | | | 84 | | | 41 |
| Total | | $ | 1,172 | | $ | 1,054 | | $ | 940 | | $ | 118 | | $ | 114 |
| Supply | | | | | | | | | | | | | | | |
| Unregulated Gross Energy Margins | | | | | | | | | | | | | | | |
| | Eastern U.S. | | $ | 1,591 | | $ | 1,756 | | $ | 1,867 | | $ | (165) | | $ | (111) |
| | Western U.S. | | | 195 | | | 218 | | | 301 | | | (23) | | | (83) |
| Total | | $ | 1,786 | | $ | 1,974 | | $ | 2,168 | | $ | (188) | | $ | (194) |
Kentucky Gross Margins
Kentucky Gross Margins increasedEnergy purchases decreased $122 million in 20142016 compared with 2013,2015 primarily due to returns on additional environmental capital investmentslower PLR prices of $55$124 million. Energy purchases increased $70 million ($27 million at LG&E and $28 million at KU) and higher volumes of $13 million ($5 million at LG&E and $8 million at KU). The change in volumes was driven by unusually cold weather in the first quarter of 2014.
Kentucky Gross Margins increased in 20132015 compared with 2012,2014 primarily due to higher base rates of $102 million ($44 million at LG&E and $58 million at KU), environmental cost recoveries added to base rates of $53 million ($3 million at LG&E and $50 million at KU), returns from additional environmental capital investments of $34 million ($16 million at LG&E and $18 million at KU), higher fuel recoveries of $18 million ($7 million at LG&E and $11 million at KU) and higherPLR volumes of $6 million ($9 million higher at KU, partially offset by $3 million lower at LG&E).$73 million.
Energy Purchases from Affiliate
The increaseEnergy purchases from affiliate decreased by $14 million in base rates was the result of new KPSC rates effective January 1, 2013 at LG&E2016 compared with 2015 and KU. The environmental cost recoveries added to base rates were due to the transfer of the 2005 and 2006 ECR plans into base ratesdecreased $70 million in 2015 compared with 2014 as a result of the 2012 Kentucky rate cases for LG&E and KU. This transfer results in depreciation and other operation and maintenance expenses associated with the 2005 and 2006 ECR plans being excluded from Kentucky Gross Margins in 2013, although the recovery of such costs remain in Kentucky Gross Margins through base rates.
Pennsylvania Gross Delivery Margins
Distribution
Distribution margins increased in 2014 compared with 2013, primarily due to an $18 million favorable effect of distribution improvement capital investments and a $12 million benefit from a change in estimate of a regulatory liability.”
Distribution margins increased in 2013 compared with 2012, primarily due to a $53 million favorable effect of price, largely comprised of higher base rates, effective JanuaryJune 1, 2013, a $15 million impact of weather, primarily due to the adverse effect of mild weather in 2012 and higher volumes of $5 million.
Transmission
Transmission margins increased for both periods, primarily due to increased capital investments.
Unregulated Gross Energy Margins
Eastern U.S.
Eastern margins decreased in 2014 compared with 2013, primarily due to lower baseload energy prices of $354 million and lower capacity prices of $34 million, partially offset by net gains on commodity positions of $75 million, favorable asset performance of $70 million, $38 million related to weather as discussed below and gas optimization of $26 million.
During the first quarter of 2014, the PJM region experienced unusually cold weather conditions, higher demand and congestion patterns causing rising natural gas and electricity prices in spot and near-term forward markets. Due to these market dynamics,2015 PPL Energy Supply captured opportunities on unhedged generation, which were primarily offset by under hedged full-requirement sales contractsspinoff.
Other Operation and retail electric.Maintenance
Eastern margins decreased in 2013 compared with 2012, primarily due to $435 million of lower baseload energy prices, partially offset by $198 million of higher capacity prices and $100 million of increased nuclear generation volume.
Western U.S.
Western margins decreased in 2014 compared with 2013, primarily due to lower wholesale energy prices.
Western margins decreased in 2013 compared with 2012, primarily due to $69 million of lower wholesale energy prices and $15 million of lower net economic availability of coal and hydroelectric units.
Statement of Income Analysis --
| Utility Revenues | | | | | | |
| | | | | | | | | | |
| The increase (decrease) in utility revenues was due to: |
| | | | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| Domestic: | | | | | | |
| | PPL Electric (a) | | $ | 175 | | $ | 106 |
| | LKE (b) | | | 192 | | | 217 |
| | Total Domestic | | | 367 | | | 323 |
| | | | | | | | | | |
| U.K.: | | | | | | |
| | Price (c) | | | 194 | | | 221 |
| | Volume (d) | | | (88) | | | 5 |
| | Line loss accrual adjustments (e) | | | (20) | | | (142) |
| | Foreign currency exchange rates | | | 142 | | | (27) |
| | Third-party engineering revenue | | | (8) | | | 13 |
| | Other | | | (6) | | | |
| | Total U.K. | | | 214 | | | 70 |
| Total | | $ | 581 | | $ | 393 |
(a) | See "Pennsylvania Gross Delivery Margins" for further information. |
(b) | See "Kentucky Gross Margins" for further information. |
(c) | The increase in 2014 compared with 2013 was due to price increases effective April 1, 2014 and April 1, 2013. The increase in 2013 compared with 2012 was due to price increases effective April 1, 2013 and April 1, 2012. |
(d) | The decrease in 2014 compared with 2013 was primarily due to the adverse effect of weather. The increase in 2013 compared with 2012 was primarily due to the favorable effect of weather. |
(e) | The decrease in both periods was primarily due to unfavorable loss accrual adjustments in 2014 and 2013 based on Ofgem's consultation documents on the DPCR4 line loss incentives and penalties and Ofgem's final decision on this matter in March 2014. See Note 6 to the Financial Statements for additional information. |
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items are included above within "Margins" and are not discussed separately.
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Unregulated wholesale energy | | $ | (1,101) | | $ | (1,067) |
| Unregulated retail energy | | | 216 | | | 183 |
| Fuel | | | 217 | | | 107 |
| Energy purchases | | | (926) | | | (588) |
Energy-Related Businesses
Net contributions from energy-related businesses increased by $17 million in 2014 compared with 2013. During 2014, PPL and PPL Energy Supply recorded a $17 million increase to "Energy-related businesses" revenues on the Statement of Income related to prior periods and the timing of revenue recognition for a mechanical contracting and engineering subsidiary. See Note 1 to the Financial Statements for additional information.
| Other Operation and Maintenance |
| | | | | | | |
| The increase (decrease) in other operation and maintenance was due to: |
| | | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| Domestic: | | | | | | |
| | LKE timing and scope of scheduled generation maintenance outages | | $ | 14 | | $ | (21) |
| | PPL Electric Act 129 costs incurred (a) | | | 6 | | | (24) |
| | PPL Electric vegetation management (b) | | | (4) | | | 12 |
| | PPL Electric payroll-related costs (c) | | | (16) | | | 4 |
| | PPL Electric storm costs (d) | | | 18 | | | (26) |
| | PPL Susquehanna (e) | | | 28 | | | (3) |
| | PPL Energy Supply fossil and hydroelectric plants (f) | | | (78) | | | 41 |
| | Bargaining unit one-time voluntary retirement benefits (Note 13) | | | 20 | | | |
| | Separation benefits related to spinoff of PPL Energy Supply (Note 8) | | | 36 | | | |
| | Stock compensation expense | | | 13 | | | 2 |
| | Other | | | 6 | | | (15) |
| | | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| U.K.: | | | | | | |
| | Network maintenance (g) | | | 3 | | | 32 |
| | Third-party engineering | | | (9) | | | 12 |
| | Pension (h) | | | (38) | | | 8 |
| | Separation benefits | | | (4) | | | (11) |
| | Employee-related expenses | | | (3) | | | (7) |
| | Foreign currency exchange rates | | | 23 | | | (4) |
| | Acquisition-related adjustments | | | 12 | | | (8) |
| | Other | | | (3) | | | (4) |
| | | | $ | 24 | | $ | (12) |
(a) | Relates to expenses associated with PPL Electric's PUC-approved energy efficiency and conservation plan with programs starting in 2010. These expenses are recovered in customer rates. The decrease in 2013 compared with 2012 results from the number of programs and the timing of such programs. Phase 1 of Act 129 closed in May 2013. Phase 2 programs began in June 2013. |
(b) | The increase in 2013 compared with 2012 was due to increased activities related to maintaining and increasing system reliability for both the transmission and distribution systems. |
(c) | The decrease in 2014 compared with 2013 was due to lower headcount, less maintenance work and more focus on capital projects in 2014. |
(d) | The increase in 2014 compared with 2013 was due to more storm events. The 2012 expenses were unusually high due to Hurricane Sandy expenses. |
(e) | The increase in 2014 compared with 2013 was primarily due to project expenses, including refueling outage expenses. |
(f) | The decrease in 2014 compared with 2013 was primarily due to a $65 million impairment charge in 2013 related to the Corette plant and the elimination of $20 million of rent expense associated with the Colstrip lease which was terminated in December 2013. The increase in 2013 compared with 2012 was primarily due to the $65 million impairment charge in 2013 related to the Corette plant, partially offset by lower fossil and hydroelectric expenses of $24 million, largely driven by lower outage expenses in 2013. See Note 16 to the Financial Statements for additional information on the Corette plant impairment. |
(g) | The increase in 2013 compared with 2012 was primarily due to vegetation management. |
(h) | The decrease in 2014 compared with 2013 was primarily due to lower amortization of prior period losses and an increase in expected asset returns. |
Loss on Lease Termination
A $697 million charge was recorded in 2013 for the termination of the Colstrip operating lease to facilitate the sale of the Montana hydroelectric generating facilities. See Note 8 to the Financial Statements for additional information.
Depreciation
The increase (decrease) in depreciationother operation and maintenance was due to:
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Additions to PP&E, net | | $ | 75 | | $ | 80 |
| LKE lower depreciation rates effective January 1, 2013 (a) | | | | | | (22) |
| Adjustments to PPL Montana assets (b) | | | (15) | | | |
| Foreign currency exchange rates | | | 18 | | | (3) |
| Total | | $ | 78 | | $ | 55 |
(a) | A result of the 2012 rate case. |
(b) | Lower depreciation expense in 2014 due to the impairment recorded at PPL Montana for the Corette plant and the write-down of assets in conjunction with the termination of the operating lease at the Colstrip facility, both of which occurred in 2013. |
| | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | |
| State gross receipts tax (a) | | $ | 12 | | | |
| State capital stock tax | | | | | $ | (5) |
| Foreign currency exchange rates | | | 10 | | | |
| Other | | | 1 | | | 4 |
| Total | | $ | 23 | | $ | (1) |
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Act 129 | $ | (15 | ) | | $ | 9 |
|
| Universal service programs | 3 |
| | 6 |
|
| Contractor-related expenses | 7 |
| | 7 |
|
| Vegetation management | 4 |
| | 7 |
|
| Payroll-related costs | (26 | ) | | 2 |
|
| Corporate service costs (a) | 8 |
| | 30 |
|
| Storm costs | 9 |
| | (11 | ) |
| Bad debts | (4 | ) | | 6 |
|
| Environmental costs | (6 | ) | | 5 |
|
| Other | 12 |
| | 3 |
|
| Total | $ | (8 | ) | | $ | 64 |
|
| |
| (a) | The increase in 20142015 compared with 20132014 was primarily due to higher retail electric revenues. This tax is included in "Unregulated Grosscorporate support costs charged to Electric Utilities primarily as a result of the spinoff of PPL Energy Margins" and "Pennsylvania Gross Delivery Margins".Supply. |
Depreciation
| Other Income (Expense) - net | | | | | | |
| | | | | | | |
| The increase (decrease) in other income (expense) - net was due to: |
| | | | | | | |
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Economic foreign currency exchange contracts (Note 17) | | $ | 159 | | $ | 14 |
| Earnings on securities in NDT funds | | | 5 | | | 1 |
| Charitable contributions | | | (5) | | | (15) |
| Transaction costs related to spinoff of PPL Energy Supply (Note 8) | | | (19) | | | |
| Other | | | 1 | | | 16 |
| Total | | $ | 141 | | $ | 16 |
See Note 15 to the Financial Statements for additional information.
Other-Than-Temporary Impairments
Other-than-temporary impairments decreasedDepreciation increased by $26$39 million in 20132016 compared with 20122015, and by $29 million in 2015 compared with 2014 primarily due to a $25 million pre-tax impairmentadditional assets placed into service, related to the ongoing efforts to ensure the reliability of the EEI investmentdelivery system and the replacement of aging infrastructure, net of retirements.
Taxes, Other Than Income
Taxes, other than income increased by $11 million in 2012. See Notes 12016 compared with 2015 and 16decreased by $13 million in 2015 compared with 2014 primarily due to the Financial Statements for additional information.settlement, in 2015, of a 2011 gross receipts tax audit that resulted in the reversal of $17 million of previously recognized reserves.
Interest Expense
The increase (decrease) in interest expense was due to:
| | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | |
| Long-term debt interest expense (a) | | $ | 15 | | $ | 37 |
| Short-term debt interest expense | | | 6 | | | 3 |
| Hedging activities and ineffectiveness | | | (11) | | | 4 |
| Capitalized interest (b) | | | 12 | | | (2) |
| Net amortization of debt discounts, premiums and issuance costs | | | (8) | | | (4) |
| Loss on extinguishment of debt (c) | | | (1) | | | 10 |
| Foreign currency exchange rates | | | 19 | | | (4) |
| Other | | | (2) | | | (1) |
| Total | | $ | 30 | | $ | 43 |
(a) | The increase in 2014 compared with 2013 was primarily due to debt issuances at WPD (West Midlands) in October 2013, LG&E and KU in November 2013 and PPL Electric in June 2014 and July 2013. Partially offsetting the increase was repayment of debt at PPL Energy Supply in July and December 2013.
|
| The increase in 2013 compared with 2012 was primarily due to debt issuances at PPL Capital Funding in March 2013, June 2012 and October 2012, PPL Electric in July 2013 and August 2012, and WPD (East Midlands) in April 2012. Partially offsetting the increase was the repayment of PPL Energy Supply debt in July 2013.
|
(b) | Includes AFUDC. The increase in 2014 compared with 2013 was primarily due to the Holtwood hydroelectric expansion project placed in service in November 2013. |
(c) | In March 2014, a $9 million loss was recorded related to PPL Capital Funding's remarketing and debt exchange of the junior subordinated notes originally issued in April 2011 as a component of the 2011 Equity Units. In May 2013, a $10 million loss was recorded related to PPL Capital Funding's remarketing and exchange of the junior subordinate notes that were originally issued in June 2010 as a component of PPL's 2010 Equity Units. |
Income Taxes
The increase (decrease) in income taxes was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Change in pre-tax income | $ | 58 |
| | $ | 1 |
|
| Depreciation not normalized | (5 | ) | | 2 |
|
| Stock-based compensation (a) | (6 | ) | | — |
|
| Other | 1 |
| | 1 |
|
| Total | $ | 48 |
| | $ | 4 |
|
| | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | |
| Change in pre-tax income at current period tax rates | | $ | 420 | | $ | (310) |
| State valuation allowance adjustments (a) | | | 31 | | | 11 |
| State deferred tax rate change (b) | | | (16) | | | 34 |
| Federal and state tax reserve adjustments (c) | | | 42 | | | (42) |
| Federal and state tax return adjustments (d) | | | 7 | | | (21) |
| U.S. income tax on foreign earnings net of foreign tax credit (e) | | | 44 | | | (17) |
| U.K. Finance Act adjustments (f) | | | 96 | | | (22) |
| Impact of Lower U.K. income tax rates (f) | | | (17) | | | (16) |
| Other | | | 11 | | | 28 |
| Total | | $ | 618 | | $ | (355) |
| |
| (a) | The valuation allowancesDuring 2016, PPL Electric recorded on PPL's state deferred tax assets primarily relate to Pennsylvania net operating loss carryforwards. Pennsylvania requires that each corporation file a separate income tax return and has significant annual limitations on the deduction for net operating loss carryforwards. Currently, Pennsylvania allows an annual maximum deduction equal to the greater of $4 million or 25% of taxable income. Legislation enacted in 2013 increased the annual maximum deduction to the greater of $5 million or 30% of taxable income for tax years beginning in 2015. |
| As a result of the PPL Energy Supply spinoff announcement, PPL recorded $50 million of deferred income tax expense during 2014 to adjust the valuation allowance on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the earnings of PPL Energy Supply. |
| During 2013 and 2012, PPL recorded $24 million and $9 million of state deferredlower income tax expense related to a deferred tax valuation allowance primarily due to a decrease in projected future taxable income over the remaining carryforward periodapplication of Pennsylvania net operating losses. |
(b) | Changes in state apportionment resulted in reductions to the future estimated state tax rate at December 31, 2014 and 2012, and an increase to the future estimated state tax rate at December 31, 2013. PPL recorded an insignificant deferred tax benefit in 2014, a $15 million deferred tax expense in 2013 and a $19 million deferred tax benefit in 2012 related to its state deferred tax liabilities.
|
(c) | In May 2013, the U.S. Supreme Court reversed the December 2011 ruling, by the U.S. Court of Appeals for the Third Circuit, concerning the creditability of U.K. Windfall Profits Tax for U.S. federal income tax purposes. As a result of this decision, PPL recorded a tax benefit of $44 million during 2013.new stock-based compensation accounting guidance. See Note 51 to the Financial Statements for additional information. |
| PPL recorded a tax benefit of $7 million during 2013 and $6 million during 2012 to federal and state income tax reserves related to stranded cost securitization. The reserve balance at December 31, 2013 related to stranded costs securitization was zero. |
(d) | During 2012, PPL recorded $16 million in federal and state income tax expense related to the filing of the 2011 federal and state income tax returns. Of this amount, $5 million relates to the reversal of prior years' state income tax benefits related to regulated depreciation. PPL changed its method of accounting for repair expenditures for tax purposes effective for its 2008 tax year. |
(e) | During 2014, PPL recorded $47 million of income tax expense primarily attributable to taxable dividends. |
| During 2013, PPL recorded $28 million income tax expense resulting from increased taxable dividends offset by a $19 million income tax benefit associated with a ruling obtained from the IRS impacting the recalculation of 2010 U.K. earnings and profits that was reflected on an amended 2010 U.S. tax return. |
| During 2012, PPL recorded a $23 million adjustment to federal income tax expense related to the recalculation of 2010 U.K. earnings and profits. |
(f) | The U.K.'s Finance Act 2013, enacted in July 2013, reduced the U.K. statutory income tax rate from 23% to 21% effective April 1, 2014 and from 21% to 20% effective April 1, 2015. As a result, PPL reduced its net deferred tax liabilities and recognized a $97 million deferred tax benefit in 2013 related to both rate decreases. |
| The U.K.'s Finance Act 2012, enacted in July 2012, reduced the U.K. statutory income tax rate from 25% to 24% retroactive to April 1, 2012 and from 24% to 23% effective April 1, 2013. As a result, PPL reduced its net deferred tax liabilities and recognized a $75 million deferred tax benefit in 2012 related to both rate decreases. |
See Note 5 to the Financial Statements for additional information on income taxes.
Earnings
Income (Loss) from Discontinued Operations (net of income taxes)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Net Income | $ | 340 |
| | $ | 252 |
| | $ | 263 |
|
| Special item, gain (loss), after-tax | — |
| | — |
| | (2 | ) |
Income (Loss) from Discontinued Operations (net of income taxes) primarily includes the results of operations of the Montana hydroelectric generating facilities for all periods presented. See "Discontinued Operations - Montana Hydro Sale"
Earnings increased in Note 8 to the Financial Statements for additional information. Income (Loss) from Discontinued Operations (net of income taxes) increased by $120 million in 20142016 compared with 20132015 primarily due to the gain on the sale of the Montana hydroelectric generating facilities, and decreased by $6 million in 2013 compared with 2012 primarily due to lower energy margins due to lower energy prices.
PPL Energy Supply: Earnings, Margins and Statement of Income Analysis
| | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| Net Income (Loss) Attributable to PPL Energy Supply Member | | $ | 410 | | $ | (230) | | $ | 474 |
| Special items, gains (losses), after-tax | | | 179 | | | (531) | | | 18 |
Excluding special items, earnings in 2014 compared with 2013 decreased, primarily due to lower margins resulting from lower energy and capacity prices, partially offset by favorable baseload asset performance, gains on certain commodity positions, net benefits of unusually cold weather in the first quarter of 2014 and lower financing costs.
Excluding special items, earnings in 2013 compared with 2012 decreased, primarily due to lower baseload energy priceshigher base electricity rates for distribution effective January 1, 2016, and higher depreciation,transmission margins from additional capital investments, partially offset by higher capacity prices,depreciation expense and the release of a gross receipts tax reserve in 2015.
Earnings decreased in 2015 compared with 2014 primarily due to higher nuclear generation volume and lowerother operation and maintenance expense.expense and higher depreciation expense, partially offset by returns on additional transmission and distribution improvement capital investments and the release of a gross receipts tax reserve in 2015.
The table below quantifies the changes in the components of Net Income (Loss) Attributable to PPL Energy Supply Member between these periods, which reflect amounts classified as UnregulatedPennsylvania Gross Energy Margins and certain itemsan item that management considers special on separate lines within the table and not in their respective Statement of Income line items. See PPL's Results of Operations - Segment Earnings - Supply Segment for the details of special items.
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Pennsylvania Gross Margins | $ | 177 |
| | $ | 65 |
|
| Other operation and maintenance | 2 |
| | (58 | ) |
| Depreciation | (39 | ) | | (29 | ) |
| Taxes, other than income | (14 | ) | | 18 |
|
| Other Income (Expense) - net | 9 |
| | 1 |
|
| Interest Expense | 1 |
| | (8 | ) |
| Income Taxes | (48 | ) | | (2 | ) |
| Special Item, after-tax | — |
| | 2 |
|
| Net Income | $ | 88 |
| | $ | (11 | ) |
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Unregulated Gross Energy Margins | | $ | (188) | | $ | (194) |
| Other operation and maintenance | | | (7) | | | 25 |
| Depreciation | | | 2 | | | (27) |
| Taxes, other than income | | | 2 | | | 5 |
| Other Income (Expense) - net | | | (2) | | | 15 |
| Interest Expense | | | 35 | | | (1) |
| Other | | | (6) | | | (3) |
| Income Taxes | | | 77 | | | 24 |
| Discontinued Operations, after-tax | | | 17 | | | 1 |
| Special items, after-tax | | | 710 | | | (549) |
| Total | | $ | 640 | | $ | (704) |
"UnregulatedPennsylvania Gross Energy Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods.
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the years ended December 31.
| | | | | | | 2014 | | 2013 |
| | | | | | | Unregulated | | | | | | | | Unregulated | | | | | | |
| | | | | | | Gross Energy | | | | | Operating | | Gross Energy | | | | | | Operating |
| | | | | | | Margins | | Other (a) | | Income (b) | | Margins | | Other (a) | | Income (b) |
| Operating Revenues | | | | | | | | | | | | | | | | | | | | |
| | Unregulated wholesale energy | | $ | 1,490 | | $ | 318 | (c) | | $ | 1,808 | | $ | 3,623 | | $ | (714) | (c) | | $ | 2,909 |
| | Unregulated wholesale energy | | | | | | | | | | | | | | | | | | | | |
| | | to affiliate | | | 84 | | | | | | | 84 | | | 51 | | | | | | | 51 |
| | Unregulated retail energy (d) | | | 1,216 | | | 27 | (c) | | | 1,243 | | | 1,015 | | | 12 | (c) | | | 1,027 |
| | Energy-related businesses | | | | | | 601 | | | | 601 | | | | | | 527 | | | | 527 |
| | | | Total Operating Revenues | | | 2,790 | | | 946 | | | | 3,736 | | | 4,689 | | | (175) | | | | 4,514 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | |
| | Fuel | | | 1,169 | | | 27 | (e) | | | 1,196 | | | 1,045 | | | 4 | (e) | | | 1,049 |
| | Energy purchases | | | (121) | | | 330 | (c) | | | 209 | | | 1,745 | | | (574) | (c) | | | 1,171 |
| | Other operation and maintenance | 22 | | | 985 | | | | 1,007 | | | 20 | | | 1,006 | | | | 1,026 |
| | Loss on lease termination (Note 8) | | | | | | | | | | | | | | 697 | | | | 697 |
| | Depreciation | | | | | | 297 | | | | 297 | | | | | | 299 | | | | 299 |
| | Taxes, other than income | | | 43 | | | 14 | | | | 57 | | | 37 | | | 16 | | | | 53 |
| | Energy-related businesses | | | 8 | | | 565 | | | | 573 | | | 7 | | | 505 | | | | 512 |
| | | | Total Operating Expenses | | | 1,121 | | | 2,218 | | | | 3,339 | | | 2,854 | | | 1,953 | | | | 4,807 |
| | Discontinued Operations | | | 117 | | | (117) | (f) | | | | | | 139 | | | (139) | (f) | | | |
| Total | | $ | 1,786 | | $ | (1,389) | | | $ | 397 | | $ | 1,974 | | $ | (2,267) | | | $ | (293) |
| | | | | | | 2012 | | |
| | | | | | | Unregulated | | | | | | | | | | | | | | |
| | | | | | | Gross Energy | | | | | Operating | | | | | | | | |
| | | | | | | Margins | | Other (a) | | Income (b) | | | | | | |
| Operating Revenues | | | | | | | | | | | | | | | | | | | | |
| | Unregulated wholesale energy | | $ | 4,266 | | $ | (290) | (c) | | $ | 3,976 | | | | | | | | | | |
| | Unregulated wholesale energy | | | | | | | | | | | | | | | | | | | | |
| | | to affiliate | | | 78 | | | | | | | 78 | | | | | | | | | | |
| | Unregulated retail energy (d) | | | 861 | | | (17) | (c) | | �� | 844 | | | | | | | | | | |
| | Energy-related businesses | | | | | | 448 | | | | 448 | | | | | | | | | | |
| | | | Total Operating Revenues | | | 5,205 | | | 141 | | | | 5,346 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 2012 | | |
| | | | | | | Unregulated | | | | | | | | | | | | | | |
| | | | | | | Gross Energy | | | | | Operating | | | | | | | | |
| | | | | | | Margins | | Other (a) | | Income (b) | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | |
| | Fuel | | | 931 | | | 34 | (e) | | | 965 | | | | | | | | | | |
| | Energy purchases | | | 2,207 | | | (386) | (c) | | | 1,821 | | | | | | | | | | |
| | Other operation and maintenance | 19 | | | 978 | | | | 997 | | | | | | | | | | |
| | Depreciation | | | | | | 272 | | | | 272 | | | | | | | | | | |
| | Taxes, other than income | | | 34 | | | 21 | | | | 55 | | | | | | | | | | |
| | Energy-related businesses | | | | | | 432 | | | | 432 | | | | | | | | | | |
| | | | Total Operating Expenses | | | 3,191 | | | 1,351 | | | | 4,542 | | | | | | | | | | |
| | Discontinued Operations | | | 154 | | | (154) | (f) | | | | | | | | | | | | | |
| Total | | $ | 2,168 | | $ | (1,364) | | | $ | 804 | | | | | | | | | | |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
(c) | Includes energy-related economic activity, which is subject to fluctuations in value due to market price volatility. See "Commodity Price Risk (Non-trading) - Economic Activity" within Note 17 to the Financial Statements. For 2012, "Unregulated wholesale energy" and "Energy purchases" include a net pre-tax loss of $35 million related to the monetization of certain full-requirement sales contracts. |
(d) | Although retail energy revenues continue to grow, the net margins related to these activities are not currently a significant component of Unregulated Gross Energy Margins. |
(e) | Includes economic activity related to fuel as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 17 to the Financial Statements. 2012 includes a net pre-tax loss of $29 million related to coal contract modification payments. |
(f) | Represents the revenues associated with the hydroelectric generating facilities located in Montana that are classified as discontinued operations. These revenues are not reflected in "Operating Income" on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items are included above within "Margins" and are not discussed separately.
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Unregulated wholesale energy | | $ | (1,101) | | $ | (1,067) |
| Unregulated wholesale energy to affiliate | | | 33 | | | (27) |
| Unregulated retail energy | | | 216 | | | 183 |
| Fuel | | | 147 | | | 84 |
| Energy purchases | | | (962) | | | (650) |
Energy-Related Businesses
Net contributions from energy-related businesses increased by $13 million in 2014 compared with 2013. During 2014, PPL Energy Supply recorded a $17 million increase to "Energy-related businesses" revenues on the Statement of Income related to prior periods and the timing of revenue recognition for a mechanical contracting and engineering subsidiary. See Note 1 to the Financial Statements for additional information.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
| | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | |
| Fossil and hydroelectric plants (a) | | $ | (78) | | $ | 41 |
| PPL Susquehanna (b) | | | 28 | | | (3) |
| PPL EnergyPlus (c) | | | 1 | | | (18) |
| Bargaining unit one-time voluntary retirement benefits (Note 13) | | | 17 | | | |
| Separation benefits related to spinoff of PPL Energy Supply (Note 8) | | | 16 | | | |
| Other | | | (3) | | | 9 |
| Total | | $ | (19) | | $ | 29 |
(a) | The decrease in 2014 compared with 2013 was primarily due to a $65 million impairment charge in 2013 related to the Corette plant and the elimination of $20 million of rent expense associated with the Colstrip lease which was terminated in December 2013. The increase in 2013 compared with 2012 was primarily due to the $65 million impairment charge in 2013 related to the Corette plant, partially offset by lower fossil and hydroelectric expenses of $24 million, largely driven by lower outage expenses in 2013. See Note 16 to the Financial Statements for additional information on the Corette plant impairment. |
(b) | The increase in 2014 compared with 2013 was primarily due to project expenses, including refueling outage expenses. |
(c) | The decrease in 2013 compared with 2012 was primarily due to SMGT filing under Chapter 11 of the U.S. Bankruptcy Code. $11 million of receivables billed to SMGT were fully reserved in 2012. |
Loss on Lease Termination
A $697 million charge was recorded in 2013 for the termination of the Colstrip operating lease to facilitate the sale of the Montana hydroelectric generating facilities. See Note 8 to the Financial Statements for additional information.
Depreciation
Depreciation decreased by $2 million in 2014 compared with 2013, primarily due to decreases of $15 million from the impairment recorded at PPL Montana for the Corette plant and the write-down of assets in conjunction with the termination of the operating lease at the Colstrip facility, both of which occurred in 2013. These decreases were partially offset by increases of $13 million from PP&E additions in part due to the completed PPL Holtwood project in 2013. See Note 16 to the Financial Statements for additional information on the Corette impairment and Note 8 to the Financial Statements for information on the Colstrip operating lease termination.
Depreciation increased by $27 million in 2013 compared with 2012 primarily due to net PP&E additions.
Taxes, Other Than Income
Taxes, other than income increased by $4 million in 2014 compared with 2013 due to an $8 million increase in state gross receipts tax offset by a $4 million decrease in state capital stock tax.
Other Income (Expense) - net
Other income (expense) - net decreased by $2 million in 2014 compared with 2013 and increased by $13 million in 2013 compared with 2012. The decrease in 2014 compared with 2013 resulted from 2013 including a gain of $8 million related to adjustments to liabilities for a PPL Energy Supply former mining subsidiary partially offset by a $5 million increase in 2014 in net earnings on NDT funds. The increase in 2013 compared with 2012 primarily related to the former mining subsidiary's gains discussed above.
Interest Expense
The increase (decrease) in interest expense was due to:
| | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | |
| Long-term debt interest expense (a) | | $ | (50) | | $ | 1 |
| Short-term debt interest expense | | | 7 | | | (2) |
| Capitalized interest (b) | | | 14 | | | 2 |
| Net amortization of debt discounts, premiums and issuance costs | | | (4) | | | (1) |
| Other | | | (2) | | | 1 |
| Total | | $ | (35) | | $ | 1 |
(a) | The decrease in 2014 compared with 2013 was primarily due to the repayment of debt in July and December 2013. |
(b) | The increase in 2014 compared with 2013 was primarily due to the Holtwood hydroelectric expansion project placed in service in November 2013. |
Income Taxes
The increase (decrease) in income taxes was due to:
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Change in pre-tax income at current period tax rates | | $ | 298 | | $ | (439) |
| State deferred tax rate change (a) | | | (16) | | | 34 |
| Federal income tax credits (b) | | | 8 | | | 3 |
| Federal and state tax reserve adjustments (c) | | | (6) | | | 8 |
| Other | | | (9) | | | (1) |
| Total | | $ | 275 | | $ | (395) |
(a) | Changes in state apportionment resulted in reductions to the future estimated state tax rate at December 31, 2014 and 2012, and an increase to the future estimated state tax rate at December 2013. PPL Energy Supply recorded an insignificant deferred tax benefit in 2014, a $15 million deferred tax expense in 2013, and a $19 million deferred tax benefit in 2012 related to its state deferred tax liabilities. |
(b) | During 2013 and 2012, PPL Energy Supply recorded deferred tax benefits related to investment tax credits on progress expenditures for the Holtwood hydroelectric plant expansion. See Note 8 to the Financial Statements for additional information. |
(c) | During 2013, PPL Energy Supply reversed $3 million in tax benefits related to a 2008 change in method of accounting for certain expenditures for tax purposes and recorded $4 million in federal tax expense related to differences in over (under) payment interest rates applied to audit claims as a result of the U.S. Supreme Court decision related to Windfall Profits Tax. |
See Note 5 to the Financial Statements for additional information on income taxes. |
Income (Loss) from Discontinued Operations (net of income taxes)
Income (Loss) from Discontinued Operations (net of income taxes) primarily includes the results of operations of the Montana hydroelectric generating facilities for all periods presented. See "Discontinued Operations - Montana Hydro Sale" in Note 8 to the Financial Statements for additional information. Income (Loss) from Discontinued Operations (net of income taxes) increased by $191 million in 2014 compared with 2013 primarily due to the gain on the sale of the Montana hydroelectric generating facilities, and decreased by $14 million in 2013 compared with 2012 primarily due to lower energy margins due to lower energy prices.
PPL Electric: Earnings, Margins and Statement of Income Analysis
| | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| Net Income Available to PPL | | $ | 263 | | $ | 209 | | $ | 132 |
| Special item, gain (loss), after-tax | | | (2) | | | | | | |
Excluding a special item, pre-tax earnings in 2014 compared with 2013 increased, primarily due to returns on additional transmission and distribution improvement capital investments, lower other operation and maintenance expense and a benefit from a change in estimate of a regulatory liability, partially offset by higher interest expense and depreciation.
Pre-tax earnings in 2013 compared with 2012 increased, primarily due to higher distribution base rates that became effective January 1, 2013, returns on additional transmission capital investments, and lower operation and maintenance expense due to lower storm costs, partially offset by higher depreciation.
The table below quantifies the changes in the components of Net Income Available to PPL between these periods, which reflect amounts classified as Pennsylvania Gross Delivery Margins and a certain item that management considers special on separate lines within the table and not in their respective Statement of Income line items. See PPL's Results of Operations - Segment Earnings - Pennsylvania Regulated Segment for details of the special item.
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Pennsylvania Gross Delivery Margins | | $ | 118 | | $ | 114 |
| Other operation and maintenance | | | 13 | | | 23 |
| Depreciation | | | (7) | | | (18) |
| Taxes, other than income | | | | | | 5 |
| Other Income (Expense) - net | | | 1 | | | (3) |
| Interest Expense | | | (14) | | | (9) |
| Income Taxes | | | (55) | | | (39) |
| Distributions on Preference Stock | | | | | | 4 |
| Special item, after tax | | | (2) | | | |
| Total | | $ | 54 | | $ | 77 |
"Pennsylvania Gross Delivery Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods.
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income."
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| | PA Gross Margins | | Other (a) | | Operating Income (b) | | PA
Gross
Margins | | Other (a) | | Operating Income (b) |
| Operating Revenues | $ | 2,156 |
| | $ | — |
| | $ | 2,156 |
| | $ | 2,124 |
| | $ | — |
| | $ | 2,124 |
|
| Operating Expenses | | | | | | | | | | | |
| Energy purchases | 535 |
| | — |
| | 535 |
| | 657 |
| | — |
| | 657 |
|
| Energy purchases from affiliate | — |
| | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
| Other operation and maintenance | 108 |
| | 491 |
| | 599 |
| | 114 |
| | 493 |
| | 607 |
|
| Depreciation | — |
| | 253 |
| | 253 |
| | — |
| | 214 |
| | 214 |
|
| Taxes, other than income | 99 |
| | 6 |
| | 105 |
| | 102 |
| | (8 | ) | | 94 |
|
| Total Operating Expenses | 742 |
| | 750 |
| | 1,492 |
| | 887 |
| | 699 |
| | 1,586 |
|
| Total | $ | 1,414 |
| | $ | (750 | ) | | $ | 664 |
| | $ | 1,237 |
| | $ | (699 | ) | | $ | 538 |
|
|
| | | | | | | | | | | |
| | 2014 |
| | PA
Gross
Margins | | Other (a) | | Operating Income (b) |
| Operating Revenues | $ | 2,044 |
| | $ | — |
| | $ | 2,044 |
|
| Operating Expenses | | | | | |
| Energy purchases | 587 |
| | — |
| | 587 |
|
| Energy purchases from affiliate | 84 |
| | — |
| | 84 |
|
| Other operation and maintenance | 103 |
| | 440 |
| | 543 |
|
| Depreciation | — |
| | 185 |
| | 185 |
|
| Taxes, other than income | 98 |
| | 9 |
| | 107 |
|
| Total Operating Expenses | 872 |
| | 634 |
| | 1,506 |
|
| Total | $ | 1,172 |
| | $ | (634 | ) | | $ | 538 |
|
| | | | | | | 2014 | | 2013 |
| | | | | | | PA Gross | | | | | | | | PA Gross | | | | | | |
| | | | | | | Delivery | | | | | Operating | | Delivery | | | | | | Operating |
| | | | | | | Margins | | Other (a) | | Income (b) | | Margins | | Other (a) | | Income (b) |
| | | | | | | | | | | | | | | | | | | |
| Operating Revenues | | $ | 2,044 | | | | | | $ | 2,044 | | $ | 1,870 | | | | | | $ | 1,870 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | |
| | Energy purchases | | | 587 | | | | | | | 587 | | | 588 | | | | | | | 588 |
| | Energy purchases from affiliate | | | 84 | | | | | | | 84 | | | 51 | | | | | | | 51 |
| | Other operation and | | | | | | | | | | | | | | | | | | | | |
| | | maintenance | | | 103 | | $ | 440 | | | | 543 | | | 82 | | $ | 449 | | | | 531 |
| | Depreciation | | | | | | 185 | | | | 185 | | | | | | 178 | | | | 178 |
| | Taxes, other than income | | | 98 | | | 9 | | | | 107 | | | 95 | | | 8 | | | | 103 |
| | | | Total Operating Expenses | | | 872 | | | 634 | | | | 1,506 | | | 816 | | | 635 | | | | 1,451 |
| Total | | $ | 1,172 | | $ | (634) | | | $ | 538 | | $ | 1,054 | | $ | (635) | | | $ | 419 |
| | | | | | | 2012 | | |
| | | | | | | PA Gross | | | | | | | | | | | | | | |
| | | | | | | Delivery | | | | | Operating | | | | | | | | |
| | | | | | | Margins | | Other (a) | | Income (b) | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Operating Revenues | | $ | 1,763 | | | | | | $ | 1,763 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | |
| | Energy purchases | | | 550 | | | | | | | 550 | | | | | | | | | | |
| | Energy purchases from affiliate | | | 78 | | | | | | | 78 | | | | | | | | | | |
| | Other operation and | | | | | | | | | | | | | | | | | | | | |
| | | maintenance | | | 104 | | $ | 472 | | | | 576 | | | | | | | | | | |
| | Depreciation | | | | | | 160 | | | | 160 | | | | | | | | | | |
| | Taxes, other than income | | | 91 | | | 14 | | | | 105 | | | | | | | | | | |
| | | | Total Operating Expenses | | | 823 | | | 646 | | | | 1,469 | | | | | | | | | | |
| Total | | $ | 940 | | $ | (646) | | | $ | 294 | | | | | | | | | | |
| |
| (a) | Represents amounts excluded from Margins. |
| |
| (b) | As reported on the Statements of Income. |
LKE: Statement of Income Analysis, Earnings and Margins
Statement of Income Analysis --
Net income for the years ended December 31 includes the following results.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Operating Revenues | $ | 3,141 |
| | $ | 3,115 |
| | $ | 3,168 |
| | $ | 26 |
| | $ | (53 | ) |
| Operating Expenses | | | | | | | | | |
| Operation | | | | | | | | | |
| Fuel | 791 |
| | 863 |
| | 965 |
| | (72 | ) | | (102 | ) |
| Energy purchases | 171 |
| | 184 |
| | 253 |
| | (13 | ) | | (69 | ) |
| Other operation and maintenance | 804 |
| | 837 |
| | 815 |
| | (33 | ) | | 22 |
|
| Depreciation | 404 |
| | 382 |
| | 354 |
| | 22 |
| | 28 |
|
| Taxes, other than income | 62 |
| | 57 |
| | 52 |
| | 5 |
| | 5 |
|
| Total Operating Expenses | 2,232 |
| | 2,323 |
| | 2,439 |
| | (91 | ) | | (116 | ) |
| Other Income (Expense) - net | (9 | ) | | (8 | ) | | (9 | ) | | (1 | ) | | 1 |
|
| Interest Expense | 197 |
| | 178 |
| | 167 |
| | 19 |
| | 11 |
|
| Interest Expense with Affiliate | 17 |
| | 3 |
| | — |
| | 14 |
| | 3 |
|
| Income Taxes | 257 |
| | 239 |
| | 209 |
| | 18 |
| | 30 |
|
| Net Income | $ | 429 |
| | $ | 364 |
| | $ | 344 |
| | $ | 65 |
| | $ | 20 |
|
Operating Revenues
The increase (decrease) in operating revenues was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Base rates | $ | 68 |
| | $ | 64 |
|
| Volumes | 1 |
| | (85 | ) |
| Fuel and other energy prices (a) | (81 | ) | | (113 | ) |
| ECR | 39 |
| | 86 |
|
| Other | (1 | ) | | (5 | ) |
| Total | $ | 26 |
| | $ | (53 | ) |
| |
| (a) | Decreases due to lower recoveries of fuel and energy purchases due to lower commodity costs as described below. |
Fuel
Fuel decreased $72 million in 2016 compared with 2015 primarily due to a decrease in market prices for coal and natural gas.
Fuel decreased $102 million in 2015 compared with 2014 due to a $57 million decrease in volumes, driven by milder weather during the fourth quarter of 2015, and a $45 million decrease in commodity costs as a result of a decrease in market prices for coal and natural gas.
Energy Purchases
Energy purchases decreased $13 million in 2016 compared with 2015 primarily due to a $9 million decrease in the market price of natural gas and a $5 million decrease in natural gas volumes driven by milder weather during the first quarter of 2016.
Energy purchases decreased $69 million in 2015 compared with 2014 primarily due to a $38 million decrease in the market price for natural gas and a $30 million decrease in natural gas volumes driven by milder weather during the fourth quarter of 2015.
Certain Operating Revenues and Expenses Included in "Pennsylvania Gross Delivery Margins"
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Operating revenues | | $ | 174 | | $ | 107 |
| Energy purchases | | | (1) | | | 38 |
| Energy purchases from affiliate | | | 33 | | | (27) |
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Act 129 costs incurred (a) | | $ | 6 | | $ | (24) |
| Vegetation management (b) | | | (4) | | | 12 |
| Payroll-related costs (c) | | | (16) | | | 4 |
| Allocation of certain corporate support group costs | | | 7 | | | (10) |
| Storm costs (d) | | | 18 | | | (26) |
| Bargaining unit one-time voluntary retirement benefits (Note 13) | | | 3 | | | |
| Other | | | (2) | | | (1) |
| Total | | $ | 12 | | $ | (45) |
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Plant operations and maintenance (a) | $ | (19 | ) | | $ | 9 |
|
| Pension expense | (12 | ) | | 14 |
|
| Timing and scope of scheduled generation maintenance outages | (5 | ) | | (1 | ) |
| Storm costs | (3 | ) | | (7 | ) |
| Bad debts | (1 | ) | | (6 | ) |
| Energy efficiency programs | 5 |
| | (1 | ) |
| Other | 2 |
| | 14 |
|
| Total | $ | (33 | ) | | $ | 22 |
|
| |
| (a) | Relates to expenses associated with PPL Electric's PUC-approved energy efficiency and conservation plan with programs startingIncludes a $29 million reduction of costs in 2010. These expenses are recovered in customer rates. The decrease in 2013 compared with 2012 results from the number of programs and the timing of such programs. Phase 1 of Act 129 closed in May 2013. Phase 2 programs began in June 2013. |
(b) | The increase in 2013 compared with 2012 was due to increased activities related to maintaining and increasing system reliability for both the transmission and distribution systems. |
(c) | The decrease in 2014 compared with 2013 was due to lower headcount, less maintenance work and more focus on capital projects in 2014. |
(d) | The increase in 2014 compared with 2013 was due to more storm events. The 2012 expenses were unusually high due to Hurricane Sandy expenses. |
Depreciation
Depreciation increased by $7 million in 2014 compared with 2013, and by $18 million in 2013 compared with 2012, primarily due to transmission PP&E additions as well as additions related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure.
Financing Costs
The increase (decrease) in financing costs was due to:
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Long-term debt interest expense (a) | | $ | 15 | | $ | 12 |
| Distributions on Preference Stock (b) | | | | | | (4) |
| Other | | | (1) | | | (3) |
| Total | | $ | 14 | | $ | 5 |
(a) | The increase in 2014 compared with 2013 was due to debt issuances in June 2014 and July 2013. The increase in 2013 compared with 2012 was due to debt issuances in July 2013 and August 2012. |
(b) | The decrease in 2013 compared with 2012 was2016 due to the June 2012 redemptionretirement of all 2.5Cane Run and Green River coal units partially offset by $5 million shares of preference stock.additional costs for Cane Run Unit 7 plant operations. |
Interest Expense
Interest expense increased $33 million in 2016 compared with 2015 and increased $14 million in 2015 compared with 2014 primarily due the September 2015 issuance of $550 million of incremental First Mortgage Bonds by LG&E and KU, higher interest rates on the September 2015 issuance of $500 million of First Mortgage Bonds by LG&E and KU used to retire the same amount of First Mortgage Bonds in November 2015 and $400 million of notes refinanced with an affiliate in November 2015.
Income Taxes
The increase (decrease) in income taxes was due to:
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Change in pre-tax income at current period tax rates | | $ | 44 | | $ | 47 |
| Federal and state tax reserve adjustments (a) | | | 8 | | | (1) |
| Federal and state tax return adjustments | | | 2 | | | (8) |
| Other | | | (2) | | | 2 |
| Total | | $ | 52 | | $ | 40 |
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Higher pre-tax book income | $ | 32 |
| | $ | 19 |
|
| Certain income tax valuation allowances (a) | (12 | ) | | 12 |
|
| Other | (2 | ) | | (1 | ) |
| Total | $ | 18 |
| | $ | 30 |
|
| |
| (a) | PPL Electric recordedManagement considers this a tax benefitspecial item. See PPL's "Results of $7 million during 2013 and $6 million during 2012 to federal and state income tax reserves related to stranded costs securitization. The reserve balance at December 31, 2013 related to stranded costs securitization was zero.Operations - Segment Earnings - Kentucky Regulated Segment" for details of this item. |
See Note 5 to the Financial Statements for additional information on income taxes.
Earnings
LKE: Earnings, Margins and Statement of Income Analysis |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Net Income | $ | 429 |
| | $ | 364 |
| | $ | 344 |
|
| Special items, gains (losses), after-tax | — |
| | (12 | ) | | — |
|
Earnings
| | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| | Net Income | | $ | 344 | | $ | 347 | | $ | 219 |
| | Special items, gains (losses), after-tax | | | | | | 3 | | | (16) |
EarningsExcluding special items, earnings increased in 20142016 compared with 2013 decreased2015 primarily due to higher operation and maintenance expense driven by the timing and scope of scheduled generation maintenance outages, higher bad debt expense, storm-related expenses, higher financing costs and higher depreciation expense partially offset bybase electricity rates effective July 1, 2015, returns on additional environmental capital investments and lower other operation and maintenance expense partially offset by higher sales volumes. The changes in sales volumes were driven by unusually cold weather in the first quarter of 2014.interest expense.
Excluding special items, earnings increased in 20132015 compared with 2012 increased2014 primarily due to higher electricity and gas base rates that went into effect January 1, 2013 and returns on additional environmental capital investments.
investments partially offset by higher other operation and maintenance expense, income taxes, financing costs and lower sales volume. The increases in base rates were the result of new rates approved by the KPSC effective July 1, 2015. The change in sales volume was due to milder weather during the fourth quarter of 2015.
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins and certain itemsan item that management considers special on separate lines within the table and not in their respective Statement of Income line items. See PPL's "Results
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | |
| Margins | | $ | 78 | | $ | 220 |
| Other operation and maintenance | | | (35) | | | (5) |
| Depreciation | | | (14) | | | (34) |
| Taxes, other than income | | | (3) | | | (1) |
| Other Income (Expense)-net | | | (1) | | | 7 |
| Interest Expense | | | (22) | | | 6 |
| Income Taxes | | | (3) | | | (84) |
| Special items, after-tax | | | (3) | | | 19 |
| Total | | $ | (3) | | $ | 128 |
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Margins | $ | 83 |
| | $ | 88 |
|
| Other operation and maintenance | 42 |
| | (21 | ) |
| Depreciation | (4 | ) | | (1 | ) |
| Taxes, other than income | (4 | ) | | (3 | ) |
| Other Income (Expense)-net | (1 | ) | | 1 |
|
| Interest Expense | (33 | ) | | (14 | ) |
| Income Taxes | (30 | ) | | (18 | ) |
| Special items, after-tax (a) | 12 |
| | (12 | ) |
| Total | $ | 65 |
| | $ | 20 |
|
| |
| (a) | See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated Segment" for details of the special item. |
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the factors underlying drivers of the changes between periods. Within PPL's discussion, LKE's Margins are referred to as "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income."Income" for the periods ended December 31.
| | | | | | | 2014 | | | | 2013 |
| | | | | | | | | | | | Operating | | | | | | | | | Operating |
| | | | | | | Margins | | Other (a) | | Income (b) | | | | Margins | | Other (a) | | Income (b) |
| | | | | | | | | | | | | | | | | | | |
| Operating Revenues | | $ | 3,168 | | | | | $ | 3,168 | | | | $ | 2,976 | | | | | $ | 2,976 |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | |
| | Fuel | | | 965 | | | | | | 965 | | | | | 896 | | | | | | 896 |
| | Energy purchases | | | 253 | | | | | | 253 | | | | | 217 | | | | | | 217 |
| | Other operation and maintenance | | | 99 | | $ | 716 | | | 815 | | | | | 97 | | $ | 681 | | | 778 |
| | Depreciation | | | 11 | | | 343 | | | 354 | | | | | 5 | | | 329 | | | 334 |
| | Taxes, other than income | | | 2 | | | 50 | | | 52 | | | | | 1 | | | 47 | | | 48 |
| | | | Total Operating Expenses | | | 1,330 | | | 1,109 | | �� | 2,439 | | | | | 1,216 | | | 1,057 | | | 2,273 |
| Total | | $ | 1,838 | | $ | (1,109) | | $ | 729 | | | | $ | 1,760 | | $ | (1,057) | | $ | 703 |
| | | | | 2012 | | |
| | | | | | | | | Operating | | | | | | | | | | | | | | |
| | | | | Margins | | Other (a) | | Income (b) | | 2016 | | 2015 |
| | | | | | | | | | | Margins | | Other (a) | | Operating Income (b) | | Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | Operating Revenues | | $ | 2,759 | | | | $ | 2,759 | | $ | 3,141 |
| | $ | — |
| | $ | 3,141 |
| | $ | 3,115 |
| | $ | — |
| | $ | 3,115 |
|
| Operating Expenses | Operating Expenses | | | | | | | |
| |
| |
| |
| |
| |
|
| | Fuel | | 872 | | | | 872 | | |
| | Energy purchases | | 195 | | | | 195 | | |
| | Other operation and maintenance | | 101 | | $ | 677 | | 778 | | |
| | Depreciation | | 51 | | 295 | | 346 | | |
| | Taxes, other than income | | | | | | 46 | | | 46 | | |
| | | Total Operating Expenses | | | 1,219 | | | 1,018 | | | 2,237 | | |
| Fuel | | 791 |
| | — |
| | 791 |
| | 863 |
| | — |
| | 863 |
|
| Energy purchases | | 171 |
| | — |
| | 171 |
| | 184 |
| | — |
| | 184 |
|
| Other operation and maintenance | | 109 |
| | 695 |
| | 804 |
| | 100 |
| | 737 |
| | 837 |
|
| Depreciation | | 56 |
| | 348 |
| | 404 |
| | 38 |
| | 344 |
| | 382 |
|
| Taxes, other than income | | 5 |
| | 57 |
| | 62 |
| | 4 |
| | 53 |
| | 57 |
|
| Total Operating Expenses | | 1,132 |
| | 1,100 |
| | 2,232 |
| | 1,189 |
| | 1,134 |
| | 2,323 |
|
| Total | Total | | $ | 1,540 | | $ | (1,018) | | $ | 522 | | $ | 2,009 |
| | $ | (1,100 | ) | | $ | 909 |
| | $ | 1,926 |
| | $ | (1,134 | ) | | $ | 792 |
|
|
| | | | | | | | | | | |
| | 2014 |
| | Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | $ | 3,168 |
| | $ | — |
| | $ | 3,168 |
|
| Operating Expenses |
| |
| |
|
| Fuel | 965 |
| | — |
| | 965 |
|
| Energy purchases | 253 |
| | — |
| | 253 |
|
| Other operation and maintenance | 99 |
| | 716 |
| | 815 |
|
| Depreciation | 11 |
| | 343 |
| | 354 |
|
| Taxes, other than income | 2 |
| | 50 |
| | 52 |
|
| Total Operating Expenses | 1,330 |
| | 1,109 |
| | 2,439 |
|
| Total | $ | 1,838 |
| | $ | (1,109 | ) | | $ | 729 |
|
| |
| (a) | Represents amounts excluded from Margins. |
| |
| (b) | As reported on the Statements of Income. |
LG&E: Statement of Income Analysis, Earnings and Margins
Statement of Income Analysis --
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items and their related increase (decrease) are included above within "Margins" and are not discussed separately.
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Operating Revenues | | $ | 192 | | $ | 217 |
| Fuel | | | 69 | | | 24 |
| Energy purchases | | | 36 | | | 22 |
| Other Operation and Maintenance | | | | | |
| | | | | | | |
| The increase (decrease) in other operation and maintenance was due to: |
| | | |
| | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Timing and scope of scheduled generation maintenance outages | $ | 14 | | $ | (21) |
| Bad debt expense | | 9 | | | (5) |
| Storm expenses | | 8 | | | 3 |
| Gas maintenance | | 3 | | | |
| Other (a) | | 3 | | | 23 |
| Total | $ | 37 | | $ | |
Net income for the years ended December 31 includes the following results. |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Operating Revenues | | | | | | | | | |
| Retail and wholesale | $ | 1,406 |
| | $ | 1,407 |
| | $ | 1,445 |
| | $ | (1 | ) | | $ | (38 | ) |
| Electric revenue from affiliate | 24 |
| | 37 |
| | 88 |
| | (13 | ) | | (51 | ) |
| Total Operating Revenues | 1,430 |
| | 1,444 |
| | 1,533 |
| | (14 | ) | | (89 | ) |
| Operating Expenses | | | | | | | | | |
| Operation | | | | | | | | | |
| Fuel | 301 |
| | 329 |
| | 404 |
| | (28 | ) | | (75 | ) |
| Energy purchases | 153 |
| | 166 |
| | 230 |
| | (13 | ) | | (64 | ) |
| Energy purchases from affiliates | 14 |
| | 20 |
| | 14 |
| | (6 | ) | | 6 |
|
| Other operation and maintenance | 355 |
| | 377 |
| | 379 |
| | (22 | ) | | (2 | ) |
| Depreciation | 170 |
| | 162 |
| | 157 |
| | 8 |
| | 5 |
|
| Taxes, other than income | 32 |
| | 28 |
| | 25 |
| | 4 |
| | 3 |
|
| Total Operating Expenses | 1,025 |
| | 1,082 |
| | 1,209 |
| | (57 | ) | | (127 | ) |
| Other Income (Expense) - net | (5 | ) | | (6 | ) | | (3 | ) | | 1 |
| | (3 | ) |
| Interest Expense | 71 |
| | 57 |
| | 49 |
| | 14 |
| | 8 |
|
| Income Taxes | 126 |
| | 114 |
| | 103 |
| | 12 |
| | 11 |
|
| Net Income | $ | 203 |
| | $ | 185 |
| | $ | 169 |
| | $ | 18 |
| | $ | 16 |
|
Operating Revenues
The increase (decrease) in operating revenues was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Base rates | $ | 4 |
| | $ | 3 |
|
| Volumes | (8 | ) | | (81 | ) |
| Fuel and other energy prices (a) | (36 | ) | | (51 | ) |
| ECR | 26 |
| | 51 |
|
| Other | — |
| | (11 | ) |
| Total | $ | (14 | ) | | $ | (89 | ) |
| |
| (a) | The increase in 2013 compared with 2012 was primarilyDecreases due to $9 millionlower recoveries of higher expenses relatedfuel and energy purchases due to software maintenance and property and liability insurance expenses, $6 million of increased generation expenses and $4 million of adjustments to regulatory assets and liabilities.lower commodity costs as described below. |
Fuel
| Depreciation |
| | | | | | | |
| The increase (decrease) in depreciation was due to: |
| | | | | | | |
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Additions to PP&E, net | $ | 20 | | $ | 10 |
| Lower depreciation rates effective January 1, 2013 (a) | | | | | (22) |
| Total | $ | 20 | | $ | (12) |
(a) A result of the 2012 rate case.
Other Income (Expense) - net
Other income (expense) - net increased by $8Fuel decreased $28 million in 20132016 compared with 20122015 primarily due to losses from the EEI investment recordeda $24 million decrease in 2012. The EEI investment was fully impairedcommodity costs as a result of a decrease in market prices for coal and natural gas.
Fuel decreased $75 million in 2015 compared with 2014 due to a $65 million decrease in volumes, driven by milder weather during the fourth quarter of 2012.2015, and a $10 million decrease in commodity costs as a result of a decrease in market prices for coal and natural gas.
Other-Than-Temporary ImpairmentsEnergy Purchases
Other-than-temporary impairmentsEnergy purchases decreased by $25$13 million in 20132016 compared with 20122015 primarily due to a $25$9 million pre-tax impairmentdecrease in the market price of natural gas and a $5 million decrease in natural gas volumes driven by milder weather during the EEI investmentfirst quarter of 2016.
Energy purchases decreased $64 million in 2012. See Notes 12015 compared with 2014 primarily due to a $38 million decrease in the market price for natural gas and 16 toa $30 million decrease in natural gas volumes driven by milder weather during the Financial Statements for additional information.fourth quarter of 2015.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Plant operations and maintenance (a) | $ | (21 | ) | | $ | (1 | ) |
| Pension expense | (6 | ) | | 6 |
|
| Timing and scope of scheduled generation maintenance outages | 3 |
| | (3 | ) |
| Storm costs | (2 | ) | | (4 | ) |
| Bad debts | — |
| | (3 | ) |
| Energy efficiency programs | 2 |
| | (1 | ) |
| Other | 2 |
| | 4 |
|
| Total | $ | (22 | ) | | $ | (2 | ) |
| |
| (a) | Includes a $23 million reduction of costs in 2016 due to the retirement of Cane Run coal units. |
Interest Expense
Interest expense increased by $22$14 million in 20142016 compared with 20132015 and increased $8 million in 2015 compared with 2014 primarily due to the issuance of $500$300 million of incremental First Mortgage Bonds in September 2015 and higher interest rates on $250 million of First Mortgage Bonds in November 2013 and higher short-term debt balances in 2014.refinanced by LG&E.
Interest expense decreased by $6 million in 2013 compared with 2012 primarily due to amortization of a fair market value adjustment of $7 million in 2013.
| Income Taxes | | |
| | | | | | | | |
| The increase (decrease) in income taxes was due to: |
| | | | |
| | | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | | |
| Change in pre-tax income | | $ | 1 | | $ | 86 |
| Net operating loss carryforward adjustments (a) | | | | | | 9 |
| Other | | | 2 | | | 5 |
| Total | | $ | 3 | | $ | 100 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Net Income | $ | 203 |
| | $ | 185 |
| | $ | 169 |
|
| Special items, gains (losses), after-tax (a) | — |
| | — |
| | — |
|
| |
| (a) | Adjustments recorded in 2012 to deferred taxes related to net operating loss carryforwards based on income tax return adjustments.There are no items management considers special for the periods presented. |
Income (Loss) from Discontinued Operations (net of income taxes)
Income (loss) from discontinued operations (net of income taxes) increased by $8 million in 2013 compared with 2012 primarily due to an adjustment in 2012 to the estimated liability for indemnifications related to the termination of the WKE lease.
LG&E: Earnings, Margins and Statement of Income Analysis
| | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| | Net Income | | $ | 169 | | $ | 163 | | $ | 123 |
Earnings in 20142016 compared with 20132015 increased primarily due to returns on additional environmental capital investments and higher sales volumelower other operation and maintenance expense, partially offset by higher operation and maintenance driven by storm-related expenses, financing costs, depreciation and income taxinterest expense. The changes in sales volume were driven by unusually cold weather in the first quarter of 2014.
Earnings in 20132015 compared with 20122014 increased primarily due to higher electricity and gas base rates that went into effect January 1, 2013 and returns on additional environmental capital investments.investments partially offset by higher income taxes, financing costs and lower sales volume. The change in sales volume was due to milder weather during the fourth quarter of 2015.
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins within the tableon a separate line and not in their respective Statement of Income line items.
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Margins | $ | 20 |
| | $ | 34 |
|
| Other operation and maintenance | 23 |
| | (3 | ) |
| Depreciation | 3 |
| | 9 |
|
| Taxes, other than income | (3 | ) | | (2 | ) |
| Other Income (Expense) - net | 1 |
| | (3 | ) |
| Interest Expense | (14 | ) | | (8 | ) |
| Income Taxes | (12 | ) | | (11 | ) |
| Net Income | $ | 18 |
| | $ | 16 |
|
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | |
| Margins | | $ | 42 | | $ | 64 |
| Other operation and maintenance | | | (4) | | | (10) |
| Depreciation | | | (7) | | | 3 |
| Taxes, other than income | | | | | | (1) |
| Other Income (Expense) - net | | | (1) | | | 1 |
| Interest Expense | | | (15) | | | 8 |
| Income Taxes | | | (9) | | | (25) |
| Total | | $ | 6 | | $ | 40 |
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, LG&E's Margins are included in "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income."Income" for the periods ended December 31.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| | Margins | | Other (a) | | Operating
Income (b) | | Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | $ | 1,430 |
| | $ | — |
| | $ | 1,430 |
| | $ | 1,444 |
| | $ | — |
| | $ | 1,444 |
|
| Operating Expenses | | | | | | | | | | | |
| Fuel | 301 |
| | — |
| | 301 |
| | 329 |
| | — |
| | 329 |
|
| Energy purchases | 167 |
| | — |
| | 167 |
| | 186 |
| | — |
| | 186 |
|
| Other operation and maintenance | 43 |
| | 312 |
| | 355 |
| | 42 |
| | 335 |
| | 377 |
|
| Depreciation | 29 |
| | 141 |
| | 170 |
| | 18 |
| | 144 |
| | 162 |
|
| Taxes, other than income | 3 |
| | 29 |
| | 32 |
| | 2 |
| | 26 |
| | 28 |
|
| Total Operating Expenses | 543 |
| | 482 |
| | 1,025 |
| | 577 |
| | 505 |
| | 1,082 |
|
| Total | $ | 887 |
| | $ | (482 | ) | | $ | 405 |
| | $ | 867 |
| | $ | (505 | ) | | $ | 362 |
|
|
| | | | | | | | | | | |
| | 2014 |
| | Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | $ | 1,533 |
| | $ | — |
| | $ | 1,533 |
|
| Operating Expenses | | | | | |
| Fuel | 404 |
| | — |
| | 404 |
|
| Energy purchases | 244 |
| | — |
| | 244 |
|
| Other operation and maintenance | 47 |
| | 332 |
| | 379 |
|
| Depreciation | 4 |
| | 153 |
| | 157 |
|
| Taxes, other than income | 1 |
| | 24 |
| | 25 |
|
| Total Operating Expenses | 700 |
| | 509 |
| | 1,209 |
|
| Total | $ | 833 |
| | $ | (509 | ) | | $ | 324 |
|
| | | | | | | 2014 | | | | 2013 |
| | | | | | | | | | | | Operating | | | | | | | | | Operating |
| | | | | | | Margins | | Other (a) | | Income (b) | | | | Margins | | Other (a) | | Income (b) |
| | | | | | | | | | | | | | | | | | | |
| Operating Revenues | | $ | 1,533 | | | | | $ | 1,533 | | | | $ | 1,410 | | | | | $ | 1,410 |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | |
| | Fuel | | | 404 | | | | | | 404 | | | | | 367 | | | | | | 367 |
| | Energy purchases | | | 244 | | | | | | 244 | | | | | 205 | | | | | | 205 |
| | Other operation and maintenance | | | 47 | | $ | 332 | | | 379 | | | | | 45 | | $ | 328 | | | 373 |
| | Depreciation | | | 4 | | | 153 | | | 157 | | | | | 2 | | | 146 | | | 148 |
| | Taxes, other than income | | | 1 | | | 24 | | | 25 | | | | | | | | 24 | | | 24 |
| | | | Total Operating Expenses | | | 700 | | | 509 | | | 1,209 | | | | | 619 | | | 498 | | | 1,117 |
| Total | | $ | 833 | | $ | (509) | | $ | 324 | | | | $ | 791 | | $ | (498) | | $ | 293 |
| | | | | | | 2012 | | | |
| | | | | | | | | | | | Operating | | | | | | | | | |
| | | | | | | Margins | | Other (a) | | Income (b) | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Operating Revenues | | $ | 1,324 | | | | | $ | 1,324 | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | |
| | Fuel | | | 374 | | | | | | 374 | | | | | | | | | | |
| | Energy purchases | | | 175 | | | | | | 175 | | | | | | | | | | |
| | Other operation and maintenance | | | 45 | | $ | 318 | | | 363 | | | | | | | | | | |
| | Depreciation | | | 3 | | | 149 | | | 152 | | | | | | | | | | |
| | Taxes, other than income | | | | | | 23 | | | 23 | | | | | | | | | | |
| | | | Total Operating Expenses | | | 597 | | | 490 | | | 1,087 | | | | | | | | | | |
| Total | | $ | 727 | | $ | (490) | | $ | 237 | | | | | | | | | | |
| |
| (a) | Represents amounts excluded from Margins. |
| |
| (b) | As reported on the Statements of Income. |
KU: Statement of Income Analysis, --Earnings and Margins
Statement of Income Analysis
Net income for the years ended December 31 includes the following results.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change |
| | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Operating Revenues | | | | | | | | | |
| Retail and wholesale | $ | 1,735 |
| | $ | 1,708 |
| | $ | 1,723 |
| | $ | 27 |
| | $ | (15 | ) |
| Electric revenue from affiliate | 14 |
| | 20 |
| | 14 |
| | (6 | ) | | 6 |
|
| Total Operating Revenues | 1,749 |
| | 1,728 |
| | 1,737 |
| | 21 |
| | (9 | ) |
| Operating Expenses | | | | | | | | | |
| Operation | | | | | | | | | |
| Fuel | 490 |
| | 534 |
| | 561 |
| | (44 | ) | | (27 | ) |
| Energy purchases | 18 |
| | 18 |
| | 23 |
| | — |
| | (5 | ) |
| Energy purchases from affiliates | 24 |
| | 37 |
| | 88 |
| | (13 | ) | | (51 | ) |
| Other operation and maintenance | 424 |
| | 435 |
| | 408 |
| | (11 | ) | | 27 |
|
| Depreciation | 234 |
| | 220 |
| | 197 |
| | 14 |
| | 23 |
|
| Taxes, other than income | 30 |
| | 29 |
| | 27 |
| | 1 |
| | 2 |
|
| Total Operating Expenses | 1,220 |
| | 1,273 |
| | 1,304 |
| | (53 | ) | | (31 | ) |
| Other Income (Expense) - net | (5 | ) | | 1 |
| | (1 | ) | | (6 | ) | | 2 |
|
| Interest Expense | 96 |
| | 82 |
| | 77 |
| | 14 |
| | 5 |
|
| Income Taxes | 163 |
| | 140 |
| | 135 |
| | 23 |
| | 5 |
|
| Net Income | $ | 265 |
| | $ | 234 |
| | $ | 220 |
| | $ | 31 |
| | $ | 14 |
|
Operating Revenues and Expenses Included in "Margins"Revenue
The following Statement of Income line items and their related increase (decrease) are included above within "Margins" and are not discussed separately.
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Retail and wholesale | | $ | 94 | | $ | 104 |
| Electric revenue from affiliate | | | 29 | | | (18) |
| Fuel | | | 37 | | | (7) |
| Energy purchases | | | 35 | | | 32 |
| Energy purchases from affiliate | | | 4 | | | (2) |
| Other Operation and Maintenance | | | | | |
| | | | | | | |
| The increase (decrease) in other operation and maintenance was due to: |
| | | |
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Storm expenses | $ | 4 | | $ | 3 |
| Bad debt expense | | 3 | | | |
| Gas maintenance | | 3 | | | |
| Other (a) | | (4) | | | 7 |
| Total | $ | 6 | | $ | 10 |
in operating revenue was due to: |
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Base rates | $ | 64 |
| | $ | 61 |
|
| Volumes | (8 | ) | | (28 | ) |
| Fuel and other energy prices (a) | (47 | ) | | (68 | ) |
| ECR | 13 |
| | 35 |
|
| Other | (1 | ) | | (9 | ) |
| Total | $ | 21 |
| | $ | (9 | ) |
| |
| (a) | The increase in 2013 compared with 2012 was primarilyDecreases due to $6 millionlower recoveries of higher expenses relatedfuel and energy purchases due to software maintenance and property and liability insurance expenses.lower commodity costs as described below. |
Fuel
| Depreciation |
| | | | | | | |
| The increase (decrease) in depreciation was due to: |
| | | | | | | |
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Additions to PP&E, net | $ | 9 | | $ | 4 |
| Lower depreciation rates effective January 1, 2013 (a) | | | | | (8) |
| Total | $ | 9 | | $ | (4) |
(a) A result of the 2012 rate case.
Interest Expense
Interest expense increased by $15Fuel decreased $44 million in 20142016 compared with 20132015 primarily due to the issuance of $250a $46 million of First Mortgage Bondsdecrease in November 2013 and amortizationcommodity costs as a result of a fairdecrease in market value adjustment of $7prices for coal and natural gas.
Fuel decreased $27 million in 2013.2015 compared with 2014 due to a $35 million decrease in commodity costs, as a result of a decrease in market prices for coal, partially offset by an $8 million increase in natural gas volumes driven by Cane Run Unit 7 being placed in-service in June 2015.
Interest expenseEnergy Purchases from Affiliate
Energy purchases from affiliate decreased by $8$13 million in 20132016 compared with 20122015 primarily due to amortizationdecreased volumes driven by milder weather in the first quarter of a fair market value adjustment of $72016.
Energy purchases from affiliate decreased $51 million in 2013.2015 compared with 2014 primarily due to decreased volumes driven by Cane Run Unit 7 being placed in-service in June 2015.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Timing and scope of scheduled generation maintenance outages | $ | (8 | ) | | $ | 2 |
|
| Pension expense | (8 | ) | | 10 |
|
| Plant operations and maintenance | 2 |
| | 10 |
|
| Bad debts | (1 | ) | | (3 | ) |
| Storm costs | (1 | ) | | (3 | ) |
| Energy efficiency programs | 3 |
| | — |
|
| Other | 2 |
| | 11 |
|
| Total | $ | (11 | ) | | $ | 27 |
|
Depreciation
Depreciation increased $14 million in 2016 compared with 2015 and increased $23 million in 2015 compared with 2014 primarily due to additional assets placed into service, net of retirements.
Income Taxes
Income taxes increased by $9$23 million in 20142016 compared with 20132015 and increased by $25$5 million in 20132015 compared with 20122014 primarily due to the change inhigher pre-tax income.
See Note 5 to the Financial Statements for additional information on income taxes.
KU: Earnings, Margins and Statement of Income Analysis
| | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| | Net Income | | $ | 220 | | $ | 228 | | $ | 137 |
| | Special items, gains (losses), after tax | | | | | | 1 | | | (15) |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Net Income | $ | 265 |
| | $ | 234 |
| | $ | 220 |
|
| Special items, gains (losses), after tax (a) | — |
| | — |
| | — |
|
| |
| (a) | There are no items management considers special for the periods presented. |
Excluding special items, earningsEarnings in 20142016 compared with 2013 decreased2015 increased primarily due to higher base electricity rates effective July 1, 2015 and lower other operation and maintenance expense partially offset by higher interest expense.
Earnings in 2015 compared with 2014 increased primarily due to higher base rates and returns on additional environmental capital investments partially offset by higher other operation and maintenance expense, drivendepreciation expense and lower sales volume. The increases in base rates were the result of new rates approved by the timing and scope of scheduled generation maintenance outages, higher financing costs and higher depreciation expense partially offset by returns on additional environmental capital investments and higher sales volumes.KPSC effective July 1, 2015. The changeschange in sales volumes were driven by unusually coldvolume was due to milder weather induring the firstfourth quarter of 2014.2015.
Excluding special items, earnings in 2013 compared with 2012 increased primarily due to higher electricity base rates that went into effect January 1, 2013 and returns on additional environmental capital investments.
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins and certain items that management considers special on separate lines within the tableline and not in their respective Statement of Income line items. See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated segment" for details of these special items.
|
| | | | | | | |
| | 2016 vs. 2015 | | 2015 vs. 2014 |
| Margins | $ | 63 |
| | $ | 54 |
|
| Other operation and maintenance | 19 |
| | (21 | ) |
| Depreciation | (7 | ) | | (10 | ) |
| Taxes, Other than income | (1 | ) | | (1 | ) |
| Other Income (Expense) - net | (6 | ) | | 2 |
|
| Interest Expense | (14 | ) | | (5 | ) |
| Income Taxes | (23 | ) | | (5 | ) |
| Net Income | $ | 31 |
| | $ | 14 |
|
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | |
| Margins | | $ | 36 | | $ | 156 |
| Other operation and maintenance | | | (26) | | | (1) |
| Depreciation | | | (7) | | | (39) |
| Taxes, other than income | | | (3) | | | |
| Other Income (Expense) - net | | | 3 | | | 4 |
| Interest Expense | | | (7) | | | (1) |
| Income Taxes | | | (3) | | | (44) |
| Special items, after-tax | | | (1) | | | 16 |
| Total | | $ | (8) | | $ | 91 |
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the factors underlying drivers of the changes between periods. Within PPL's discussion, KU's Margins are included in "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income."
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| | Margins | | Other (a) | | Operating
Income (b) | | Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | $ | 1,749 |
| | $ | — |
| | $ | 1,749 |
| | $ | 1,728 |
| | $ | — |
| | $ | 1,728 |
|
| Operating Expenses | | | | | | | | | | | |
| Fuel | 490 |
| | — |
| | 490 |
| | 534 |
| | — |
| | 534 |
|
| Energy purchases | 42 |
| | — |
| | 42 |
| | 55 |
| | — |
| | 55 |
|
| Other operation and maintenance | 66 |
| | 358 |
| | 424 |
| | 58 |
| | 377 |
| | 435 |
|
| Depreciation | 27 |
| | 207 |
| | 234 |
| | 20 |
| | 200 |
| | 220 |
|
| Taxes, other than income | 2 |
| | 28 |
| | 30 |
| | 2 |
| | 27 |
| | 29 |
|
| Total Operating Expenses | 627 |
| | 593 |
| | 1,220 |
| | 669 |
| | 604 |
| | 1,273 |
|
| Total | $ | 1,122 |
| | $ | (593 | ) | | $ | 529 |
| | $ | 1,059 |
| | $ | (604 | ) | | $ | 455 |
|
| | | | | | | 2014 | | | | 2013 |
| | | | | | | | | | | | Operating | | | | | | | | | Operating |
| | | | | | | Margins | | Other (a) | | Income (b) | | | | Margins | | Other (a) | | Income (b) |
| | | | | | | | | | | | | | | | | | | |
| Operating Revenues | | $ | 1,737 | | | | | $ | 1,737 | | | | $ | 1,635 | | | | | $ | 1,635 |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | |
| | Fuel | | | 561 | | | | | | 561 | | | | | 529 | | | | | | 529 |
| | Energy purchases | | | 111 | | | | | | 111 | | | | | 81 | | | | | | 81 |
| | Other operation and maintenance | | | 52 | | $ | 356 | | | 408 | | | | | 52 | | $ | 330 | | | 382 |
| | Depreciation | | | 7 | | | 190 | | | 197 | | | | | 3 | | | 183 | | | 186 |
| | Taxes, other than income | | | 1 | | | 26 | | | 27 | | | | | 1 | | | 23 | | | 24 |
| | | | Total Operating Expenses | | | 732 | | | 572 | | | 1,304 | | | | | 666 | | | 536 | | | 1,202 |
| Total | | $ | 1,005 | | $ | (572) | | $ | 433 | | | | $ | 969 | | $ | (536) | | $ | 433 |
| | | | | | | 2012 | |
| | | | | | | | | | | | Operating | |
| | | | | | | Margins | | Other (a) | | Income (b) | |
| | | | | | | | | | | | |
| Operating Revenues | | $ | 1,524 | | | | | $ | 1,524 | |
| Operating Expenses | | | | | | | | | | |
| | Fuel | | | 498 | | | | | | 498 | |
| | Energy purchases | | | 109 | | | | | | 109 | |
| | Other operation and maintenance | | | 55 | | $ | 329 | | | 384 | |
| | Depreciation | | | 49 | | | 144 | | | 193 | |
| | Taxes, other than income | | | | | | 23 | | | 23 | |
| | | | Total Operating Expenses | | | 711 | | | 496 | | | 1,207 | |
| Total | | $ | 813 | | $ | (496) | | $ | 317 | |
|
| | | | | | | | | | | |
| | 2014 |
| | Margins | | Other (a) | | Operating
Income (b) |
| Operating Revenues | $ | 1,737 |
| | $ | — |
| | $ | 1,737 |
|
| Operating Expenses | | | | | |
| Fuel | 561 |
| | — |
| | 561 |
|
| Energy purchases | 111 |
| | — |
| | 111 |
|
| Other operation and maintenance | 52 |
| | 356 |
| | 408 |
|
| Depreciation | 7 |
| | 190 |
| | 197 |
|
| Taxes, other than income | 1 |
| | 26 |
| | 27 |
|
| Total Operating Expenses | 732 |
| | 572 |
| | 1,304 |
|
| Total | $ | 1,005 |
| | $ | (572 | ) | | $ | 433 |
|
| |
| (a) | Represents amounts excluded from Margins. |
| |
| (b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items and their related increase (decrease) are included above within "Margins" and are not discussed separately.
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Retail and wholesale | | $ | 98 | | $ | 113 |
| Electric revenue from affiliate | | | 4 | | | (2) |
| Fuel | | | 32 | | | 31 |
| Energy purchases | | | 1 | | | (10) |
| Energy purchases from affiliate | | | 29 | | | (18) |
| Other Operation and Maintenance | | | | | |
| | | | | | | |
| The increase (decrease) in other operation and maintenance was due to: |
| | | |
| | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Timing and scope of scheduled generation maintenance outages | $ | 14 | | $ | (21) |
| Bad debt expense | | 5 | | | (2) |
| Storm expenses | | 4 | | | |
| Other (a) | | 3 | | | 21 |
| Total | $ | 26 | | $ | (2) |
(a) | The increase in 2013 compared with 2012 was primarily due to $7 million of higher expenses related to software maintenance and property and liability insurance expenses, $7 million of increased generation expenses and $4 million of adjustments to regulatory assets and liabilities. |
The increase (decrease) in depreciation was due to:
| | | 2014 vs. 2013 | | 2013 vs. 2012 |
| | | | | | | |
| Additions to PP&E, net | $ | 11 | | $ | 6 |
| Lower depreciation rates effective January 1, 2013 (a) | | | | | (13) |
| Total | $ | 11 | | $ | (7) |
(a) | A result of the 2012 rate case. |
Other Income (Expense) - net
Other income (expense) - net increased by $5 million in 2013 compared with 2012 primarily due to losses from the EEI investment recorded in 2012. The EEI investment was fully impaired in the fourth quarter of 2012.
Other-Than-Temporary Impairments
Other-than-temporary impairments decreased by $25 million in 2013 compared with 2012 due to a $25 million pre-tax impairment of the EEI investment in 2012. See Notes 1 and 16 to the Financial Statements for additional information.
Interest Expense
Interest expense increased by $7 million in 2014 compared with 2013 primarily due to the issuance of $250 million of First Mortgage Bonds in November 2013.
Income taxes increased by $54 million in 2013 compared with 2012 primarily due to the change in pre-tax income.
See Note 5 to the Financial Statements for additional information on income taxes.
The remainder of this Item 7 in this Form 10-K is presented on a combined basis, providing information, as applicable, for all Registrants.
Liquidity and Capital Resources
(All Registrants)
The Registrants' cash flows from operations and access to cost effective bank and capital markets are subject to risks and uncertainties. See "Item 1A. Risk Factors" for a discussion of risks and uncertainties that could affect the Registrants' cash flows.
The Registrants had the following at:
| | | | | PPL | | | | | | | | |
| | | | | Energy | | PPL | | | | | | |
| | | PPL (a) | | Supply | | Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2014 | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1,751 | | $ | 352 | | $ | 214 | | $ | 21 | | $ | 10 | | $ | 11 |
| Short-term investments | | | 120 | | | | | | | | | | | | | | | |
| Short-term debt | | | 1,466 | | | 630 | | | | | | 575 | | | 264 | | | 236 |
| Notes payable with affiliates | | | | | | | | | | | | 41 | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 1,102 | | | 239 | | | 25 | | | 35 | | | 8 | | | 21 |
| Notes receivable from affiliates | | | | | | | | | 150 | | | 70 | | | | | | |
| Short-term debt | | | 701 | | | | | | 20 | | | 245 | | | 20 | | | 150 |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 901 | | | 413 | | | 140 | | | 43 | | | 22 | | | 21 |
| Short-term debt | | | 652 | | | 356 | | | | | | 125 | | | 55 | | | 70 |
| Notes payable with affiliates | | | | | | | | | | | | 25 | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | PPL (a) | | PPL Electric | | LKE | | LG&E | | KU |
| December 31, 2016 | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 341 |
| | $ | 13 |
| | $ | 13 |
| | $ | 5 |
| | $ | 7 |
|
| Short-term debt | 923 |
| | 295 |
| | 185 |
| | 169 |
| | 16 |
|
| Notes payable with affiliates | | | — |
| | 163 |
| | — |
| | — |
|
| | | | | | | | | | |
| December 31, 2015 | |
| | | | |
| | |
| | |
|
| Cash and cash equivalents | $ | 836 |
| | $ | 47 |
| | $ | 30 |
| | $ | 19 |
| | $ | 11 |
|
| Short-term debt | 916 |
| | — |
| | 265 |
| | 142 |
| | 48 |
|
| Notes payable with affiliates | | | — |
| | 54 |
| | — |
| | — |
|
| | | | | | | | | | |
| December 31, 2014 | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 1,399 |
| | $ | 214 |
| | $ | 21 |
| | $ | 10 |
| | $ | 11 |
|
| Short-term investments | 120 |
| | — |
| | — |
| | — |
| | — |
|
| Short-term debt | 836 |
| | — |
| | 575 |
| | 264 |
| | 236 |
|
| Notes payables with affiliates | | | — |
| | 41 |
| | — |
| | — |
|
| |
| (a) | At December 31, 2014, $2852016, $5 million of cash and cash equivalents were denominated in GBP. If these amounts would be remitted as dividends, PPL would not anticipate a material incremental U.S. tax cost. Historically, dividends paid by foreign subsidiaries have been limited to distributions of the current year's earnings. See Note 5 to the Financial Statements for additional information on undistributed earnings of WPD. |
(PPL)
The Statements of Cash Flows separately report the cash flows of the discontinued operations. The "Operating Activities", "Investing Activities" and "Financing Activities" sections below include only the cash flows of continuing operations.
(All Registrants)
Net cash provided by (used in) operating, investing and financing activities for the years ended December 31 and the changes between periods were as follows.
77 |
| | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| 2016 | | | | | | | | | |
| Operating activities | $ | 2,890 |
| | $ | 872 |
| | $ | 1,027 |
| | $ | 482 |
| | $ | 606 |
|
| Investing activities | (2,918 | ) | | (1,130 | ) | | (790 | ) | | (439 | ) | | (349 | ) |
| Financing activities | (439 | ) | | 224 |
| | (254 | ) | | (57 | ) | | (261 | ) |
| | | | | | | | | | |
| 2015 | | | | | | | | | |
| Operating activities | $ | 2,272 |
| | $ | 602 |
| | $ | 1,063 |
| | $ | 554 |
| | $ | 608 |
|
| Investing activities | (3,439 | ) | | (1,108 | ) | | (1,203 | ) | | (689 | ) | | (512 | ) |
| Financing activities | 482 |
| | 339 |
| | 149 |
| | 144 |
| | (96 | ) |
| | | | | | | | | | |
| 2014 | | | | | | | | | |
| Operating activities | $ | 2,941 |
| | $ | 613 |
| | $ | 999 |
| | $ | 371 |
| | $ | 566 |
|
| Investing activities | (3,826 | ) | | (791 | ) | | (1,191 | ) | | (656 | ) | | (603 | ) |
| Financing activities | 262 |
| | 367 |
| | 178 |
| | 287 |
| | 27 |
|
| | | | | | | | | | |
| 2016 vs. 2015 Change | | | | | | | | | |
| Operating activities | $ | 618 |
| | $ | 270 |
| | $ | (36 | ) | | $ | (72 | ) | | $ | (2 | ) |
| Investing activities | 521 |
| | (22 | ) | | 413 |
| | 250 |
| | 163 |
|
| Financing activities | (921 | ) | | (115 | ) | | (403 | ) | | (201 | ) | | (165 | ) |
| | | | | | | | | | |
| 2015 vs. 2014 Change | | | | | | | | | |
| Operating activities | $ | (669 | ) | | $ | (11 | ) | | $ | 64 |
| | $ | 183 |
| | $ | 42 |
|
| Investing activities | 387 |
| | (317 | ) | | (12 | ) | | (33 | ) | | 91 |
|
| Financing activities | 220 |
| | (28 | ) | | (29 | ) | | (143 | ) | | (123 | ) |
| | | | | PPL | | | | | | | | | |
| | | | | Energy | | PPL | | | | | | |
| | | PPL | | Supply | | Electric | | LKE | | LG&E | | KU |
| 2014 | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 3,403 | | $ | 462 | | $ | 613 | | $ | 999 | | $ | 371 | | $ | 566 |
| Investing activities | | | (3,329) | | | 497 | | | (791) | | | (1,191) | | | (656) | | | (603) |
| Financing activities | | | 583 | | | (846) | | | 367 | | | 178 | | | 287 | | | 27 |
| | | | | | | | | | | | | | | | | | | |
| 2013 | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 2,857 | | $ | 410 | | $ | 523 | | $ | 920 | | $ | 366 | | $ | 495 |
| Investing activities | | | (4,295) | | | (631) | | | (1,080) | | | (1,502) | | | (577) | | | (853) |
| Financing activities | | | 1,631 | | | 47 | | | 442 | | | 574 | | | 197 | | | 358 |
| | | | | | | | | | | | | | | | | | | |
| 2012 | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 2,764 | | $ | 784 | | $ | 389 | | $ | 744 | | $ | 305 | | $ | 500 |
| Investing activities | | | (3,123) | | | (469) | | | (613) | | | (753) | | | (286) | | | (480) |
| Financing activities | | | 48 | | | (281) | | | 44 | | | (7) | | | (22) | | | (30) |
| | | | | | | | | | | | | | | | | | | |
| 2014 vs. 2013 Change | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 546 | | $ | 52 | | $ | 90 | | $ | 79 | | $ | 5 | | $ | 71 |
| Investing activities | | | 966 | | | 1,128 | | | 289 | | | 311 | | | (79) | | | 250 |
| Financing activities | | | (1,048) | | | (893) | | | (75) | | | (396) | | | 90 | | | (331) |
| | | | | | | | | | | | | | | | | | | |
| 2013 vs. 2012 Change | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 93 | | $ | (374) | | $ | 134 | | $ | 176 | | $ | 61 | | $ | (5) |
| Investing activities | | | (1,172) | | | (162) | | | (467) | | | (749) | | | (291) | | | (373) |
| Financing activities | | | 1,583 | | | 328 | | | 398 | | | 581 | | | 219 | | | 388 |
Operating Activities
The components of the change in cash provided by (used in) operating activities were as follows.
|
| | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| 2016 vs. 2015 | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | |
| Net income | $ | 299 |
| | $ | 88 |
| | $ | 65 |
| | $ | 18 |
| | $ | 31 |
|
| Non-cash components | 195 |
| | 40 |
| | 66 |
| | 20 |
| | (20 | ) |
| Working capital | 47 |
| | 101 |
| | (206 | ) | | (100 | ) | | (51 | ) |
| Defined benefit plan funding | 72 |
| | 33 |
| | (15 | ) | | (20 | ) | | 1 |
|
| Other operating activities | 5 |
| | 8 |
| | 54 |
| | 10 |
| | 37 |
|
| Total | $ | 618 |
| | $ | 270 |
| | $ | (36 | ) | | $ | (72 | ) | | $ | (2 | ) |
| | | | | | | | | | |
| 2015 vs. 2014 | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | |
| Net income | $ | 166 |
| | $ | (11 | ) | | $ | 20 |
| | $ | 16 |
| | $ | 14 |
|
| Non-cash components | (280 | ) | | 181 |
| | (184 | ) | | 21 |
| | (52 | ) |
| Working capital | (341 | ) | | (148 | ) | | 335 |
| | 190 |
| | 152 |
|
| Defined benefit plan funding | (115 | ) | | (10 | ) | | (25 | ) | | (13 | ) | | (16 | ) |
| Other operating activities | (99 | ) | | (23 | ) | | (82 | ) | | (31 | ) | | (56 | ) |
| Total | $ | (669 | ) | | $ | (11 | ) | | $ | 64 |
| | $ | 183 |
| | $ | 42 |
|
| | | | | | | PPL | | | | | | | | | | | | |
| | | | | | | Energy | | PPL | | | | | | | | | |
| | | | PPL | | Supply | | Electric | | LKE | | LG&E | | KU |
| 2014 vs. 2013 | | | | | | | | | | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | | | | | | | | | | |
| | Net income | | $ | 606 | | $ | 639 | | $ | 54 | | $ | (3) | | $ | 6 | | $ | (8) |
| | Non-cash components | | | (478) | | | (656) | | | (53) | | | 206 | | | 91 | | | 166 |
| | Working capital | | | 440 | | | (46) | | | 7 | | | (129) | | | (65) | | | (96) |
| | Defined benefit plan funding | | | 144 | | | 78 | | | 70 | | | 123 | | | 35 | | | 60 |
| | Other operating activities | | | (166) | | | 37 | | | 12 | | | (118) | | | (62) | | | (51) |
| Total | | $ | 546 | | $ | 52 | | $ | 90 | | $ | 79 | | $ | 5 | | $ | 71 |
| | | | | | | | | | | | | | | | | | | | |
| 2013 vs. 2012 | | | | | | | | | | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | | | | | | | | | | |
| | Net income | | $ | (400) | | $ | (704) | | $ | 73 | | $ | 128 | | $ | 40 | | $ | 91 |
| | Non-cash components | | | 545 | | | 313 | | | 31 | | | 90 | | | (30) | | | (68) |
| | Working capital | | | (332) | | | 65 | | | 12 | | | (31) | | | 12 | | | (15) |
| | Defined benefit plan funding | | | 44 | | | (38) | | | (34) | | | (98) | | | (21) | | | (44) |
| | Other operating activities | | | 236 | | | (10) | | | 52 | | | 87 | | | 60 | | | 31 |
| Total | | $ | 93 | | $ | (374) | | $ | 134 | | $ | 176 | | $ | 61 | | $ | (5) |
(PPL and PPL Energy Supply)
A significant portion of PPL's Supply segment and PPL Energy Supply's operating cash flows is derived from its competitive baseload generation activities. See Note 8 to the Financial Statements for information on the anticipated spinoff of PPL Energy Supply, expected to occur during the second quarter of 2015. PPL Energy Supply employs a formal hedging program for its baseload generation fleet, the objective of which is to provide a reasonable level of near-term cash flow and earnings certainty while preserving upside potential over the medium term to benefit from power price increases. See Note 17 to the Financial Statements for further discussion. Despite PPL Energy Supply's hedging practices, future cash flows from operating activities are influenced by energy and capacity prices and, therefore, will fluctuate from period to period.
PPL's and PPL Energy Supply's contracts for the sale and purchase of electricity and fuel often require cash collateral or cash equivalents (e.g. letters of credit), or reductions or terminations of a portion of the entire contract through cash settlement, in the event of a downgrade of PPL's or its subsidiaries' or PPL Energy Supply's or its subsidiaries' credit ratings or adverse changes in market prices. For example, in addition to limiting its trading ability, if PPL's or its subsidiaries' ratings were lowered to below "investment grade" or a further downgrade of PPL Energy Supply's or its subsidiaries' credit ratings and there was a 10% adverse movement in energy prices, PPL and PPL Energy Supply estimate that, based on their December 31, 2014 positions, they would have been required to post additional collateral of approximately $427 million for PPL and approximately $321 million for PPL Energy Supply with respect to electricity and fuel contracts. PPL and PPL Energy Supply had adequate liquidity sources at December 31, 2014 if they would have been required to post this additional collateral. PPL and PPL Energy Supply have in place risk management programs that are designed to monitor and manage exposure to volatility of cash flows related to changes in energy and fuel prices, interest rates, foreign currency exchange rates, counterparty credit quality and the operating performance of generating units.
(PPL)
PPL had a $546$618 million increase in cash provided by operating activities from continuing operations in 20142016 compared with 2013.2015.
| · | Net income improved by $606 million between the periods. However, this included an additional $478 million of net non-cash benefits, including a $426 million charge in 2013 to terminate the operating lease arrangement for interests in the Colstrip facility in Montana and acquire the previously leased interests, a $411 million decrease in unrealized losses on hedging activities, and a $246 million pre-tax gain in 2014 on the sale of the Montana hydroelectric generation facilities. These non-cash benefits were partially offset by a $568 million increase in deferred income tax expense. The net $128 million increase from net income and non-cash adjustments in 2014 compared with 2013 reflects the $271 million payment in December 2013, to terminate the operating lease arrangement for interests in the Colstrip facility in Montana and acquire the previously leased interests, partially offset by a decline in unregulated gross energy margins in 2014. |
Net income improved by $299 million between the periods. This included an additional $195 million of net non-cash charges, including a $132 million increase in deferred income taxes and $96 million of lower unrealized gains on hedging activity (primarily due to the settlement of hedges in the third quarter of 2016) partially offset by a $96 million increase in defined benefit plan income (primarily due to an increase in estimated returns on higher asset balances and lower interest costs due to a change in the discount rate for the U.K. pension plans).
| · | The $440 million increase in cash from changes in working capital was partially due to an increase in taxes payable (primarily due to increased taxable income in 2014), a change in uncertain tax positions between the periods, lower returns of counterparty collateral and changes in accounts receivable and unbilled revenue. |
The $47 million increase in cash from changes in working capital was primarily due to an increase in taxes payable (due to timing of payments) and an increase in accounts payable (primarily due to timing of payments) partially offset by an increase in unbilled revenues (primarily due to favorable weather compared to December 2015), an increase in net regulatory assets/liabilities (due to timing of rate recovery mechanisms) and an increase in accounts receivable (primarily due to increased volumes and favorable weather in 2016).
| · | The $166 million decrease in cash from other operating activities was partially due to net proceeds of $104 million for settlement in 2013 of forward starting interest rate swaps. |
Defined benefit plan funding was $72 million lower in 2016.
PPL had a $93 million increase in cash from operating activities in 2013 compared with 2012.
| · | Net income declined by $400 million between the periods, but included net non-cash charges of $545 million. These net non-cash charges included a charge of $426 million in 2013 to terminate the operating lease arrangement for interests in the Colstrip facility in Montana and acquire the previously leased interests, $209 million of higher unrealized losses on hedging activities and $135 million of changes to the WPD line loss accrual. These non-cash charges were partially offset by a $352 million decrease in deferred income taxes. The net $145 million increase from net income and non-cash adjustments between the periods was primarily due to higher revenues and margins from regulated utility operations, partially offset by the $271 million payment in December 2013 to terminate the operating lease arrangement for interests in the Colstrip facility and acquire the previously leased interests and lower unregulated gross energy margins. |
| · | The $332 million decrease in cash from changes in working capital was primarily due to increases in accounts receivable (primarily due to extended payment terms at LG&E and KU, higher rates and colder weather in 2013 at LG&E, KU and PPL Electric and increases at PPL Energy Supply's mechanical contracting business) and changes to certain tax-related accounts. |
| · | The $236 million increase in cash provided by other operating activities was partially due to net proceeds of $104 million for settlement in 2013 of forward starting interest rate swaps. |
(PPL Energy Supply)
PPL Energy Supply had a $52 million increase in cash provided by operating activities in 2014 compared with 2013.
· | Net income improved by $639 million between the periods, however, this included an additional $656 million of net non-cash benefits, including a $315 million pre-tax gain in 2014 on the sale of the Montana hydroelectric generation facilities, a $426 million charge in 2013 to terminate the operating lease arrangement for interests in the Montana Colstrip facility and acquire the previously leased interests, and $167 million of lower unrealized losses on hedging activities. These non-cash benefits were partially offset by a $270 million decrease in deferred income tax benefits. The net $17 million decline from net income and non-cash adjustments in 2014 compared with 2013 reflects lower unregulated gross energy margins, higher operation and maintenance expenses and other factors. Cash provided by operating activities in 2014 included a $176 million payment to PPL in November 2014 to satisfy the tax liability related to the gain on the sale of the PPL Montana hydroelectric facilities. Cash provided by operating activities in 2013 included a $271 million payment in December in connection with terminating the operating lease arrangement for interests in the Montana Colstrip facility and acquiring the previously leased interests. |
· | Pension funding was $78 million lower in 2014. |
PPL Energy Supply had a $374$669 million decrease in cash from operating activities from continuing operations in 20132015 compared with 2012. 2014.
Net income declinedimproved by $704$166 million between the periods, but included a decrease in net non-cash charges of $313$280 million. These net non-cash charges included a charge of $426$238 million decrease in 2013 to terminate the operating lease arrangement for interests in the Montana Colstrip facilitydeferred income taxes and acquire the previously leased interests associated with the lease termination, $212$65 million of higher unrealized losses on hedging activities, and a $65 million chargechanges to the WPD line loss accrual. These decreases in 2013 for the impairment of the Corette facility. These non-cash charges were partially offset by a $448$110 million decline in deferred income taxes.of lower unrealized gains on hedging activities. The net $391$114 million declinedecrease from net income and non-cash adjustments between the periods was primarily due to lower margins from the U.K. Regulated segment, partially offset by higher margins from the Kentucky and Pennsylvania Regulated segments.
The $341 million decrease in 2013 compared with 2012cash from changes in working capital was primarily due to a $271decrease in taxes payable (primarily due to a decrease in current income tax expense in 2015) and a decrease in accounts payable (primarily due to timing of fuel purchases and payments and unfavorable weather in 2015) partially offset by a decrease in accounts receivable (primarily due to unfavorable weather in 2015).
The $99 million payment in December 2013, also in connection with terminating the operating lease arrangement for interests in the Montana Colstrip facility and acquiring the previously leased interests. The decrease in cash betweenprovided by other operating activities was primarily due to payments of $101 million for the periods also reflects lower unregulated gross energy marginssettlement in 2013 compared with 2012.2015 of forward starting interest rate swaps.
(PPL Electric)
PPL Electric had a $90$270 million increase in cash provided by operating activities in 20142016 compared with 2013.2015.
| · | Net income improved by $54 million between the periods. However, this included an additional $53 million of net non-cash benefits, primarily due to a decrease in deferred income tax expense. |
Net income improved by $88 million between the periods. This included an additional $40 million of net non-cash benefits primarily due to a $39 million increase in depreciation expense (primarily due to the replacement of aging infrastructure and to ensure system reliability).
| · | Pension funding was $70 million lower in 2014. |
The $101 million increase in cash from changes in working capital was primarily due to an increase in accounts payable (primarily due to timing of payments), an increase in taxes payable (primarily due to timing of payments) and a decrease in prepayments (primarily due to higher tax payments in 2015) partially offset by an increase in net regulatory assets and liabilities (due to timing of rate recovery mechanisms), an increase in unbilled revenues (primarily due to higher volumes and favorable weather compared to December 2015) and an increase in accounts receivable.
Pension funding was $33 million lower in 2016.
PPL Electric had an $11 million decrease in cash provided by operating activities in 2015 compared with 2014.
Net income decreased by $11 million between the periods and included an additional $181 million of net non-cash charges primarily due to increases in deferred tax expense and depreciation.
The $148 million decrease in cash from changes in working capital was partially due to a $134decrease in taxes payable (primarily due an increase in current income tax benefits in 2015) and a decrease in accounts payable (primarily due to milder weather and lower energy prices in December 2015), partially offset by a decrease in accounts receivable (primarily due to improved collection performance).
Pension funding was $10 million higher in 2015.
(LKE)
LKE had a $36 million decrease in cash provided by operating activities in 2016 compared with 2015.
Net income improved by $65 million and included an increase of $66 million of net non-cash charges primarily due to a $55 million increase in deferred income taxes and a $22 million increase in depreciation expense.
The decrease in cash from changes in working capital was driven primarily by lower tax payments received from PPL for the use of prior year excess tax depreciation deductions. Other decreases in cash were related to accounts receivable and unbilled revenues due to more favorable weather in December 2016 compared to December 2015, and a decrease in taxes payable due to the timing of payments, partially offset by an increase in accounts payable due to the timing of fuel purchases and payments.
Defined benefit plan funding was $15 million higher in 2016.
The increase in cash from LKE's other operating activities was driven primarily by lower payments for the settlement of interest rate swaps, partially offset by an increase in 2013 compared with 2012.
| · | Net income improved by $73 million between the periods and included net non-cash charges of $31 million. The $104 million increase in cash in 2013 versus 2012 was primarily due to higher distribution base rates that became effective January 1, 2013 and higher transmission margins from additional capital investments. |
| · | The $52 million increase in cash from other operating activities was partially due to changes in certain tax-related accounts. |
(LKE)ARO expenditures.
LKE had a $79$64 million increase in cash provided by operating activities in 20142015 compared with 2013.2014.
| · | LKE's non-cash components of net income included a $195 million increase in deferred income taxes primarily due to an increase in accelerated tax depreciation over book depreciation as a result of additional assets in service in 2014. |
| · | The decrease in cash from working capital was driven primarily by an increase in income tax receivable and a decrease of income tax payable from PPL as a result of the use of excess tax depreciation deductions, and an increase in inventory due to increased coal purchases in anticipation of a cold December similar to that of 2013, partially offset by decreases in accounts receivable and unbilled revenues due to extended payment terms, higher rates and colder December weather in 2013. |
| · | The decrease in cash from LKE's other operating activities was driven primarily by $86 million in proceeds from the settlement of interest rate swaps received in 2013. |
LKE's non-cash components of net income included a $213 million decrease in deferred income taxes, partially offset by a $28 million increase in depreciation due to additional assets in service in 2015. Deferred income taxes were lower in 2015 as a large portion of the effect of accelerated tax depreciation did not result in cash as a result of the Federal net operating losses.
LKEThe increase in cash from changes in working capital was driven primarily by a decrease in income tax receivable as a result of receiving payment from PPL in 2015 for the use of excess tax depreciation deductions in 2014, decreases in accounts receivable and unbilled revenues due to milder weather in December 2015, a decrease in coal inventory as a result of plant retirements, and a decrease in natural gas stored underground due to lower gas prices in 2015, partially offset by a decrease in accounts payable due to the timing of fuel purchases and payments.
The decrease in cash from LKE's other operating activities was driven primarily by $88 million in payments for the settlement of interest rate swaps.
(LG&E)
LG&E had a $176$72 million decrease in cash provided by operating activities in 2016 compared with 2015.
Net income improved by $18 million and included an increase of $20 million of net non-cash charges primarily due to a $21 million increase in deferred income taxes.
The decrease in cash from changes in working capital was driven primarily by lower tax payments received from LKE for the use of prior year excess tax depreciation deductions. Other decreases in cash were related to accounts receivable and unbilled revenues due to more favorable weather in December 2016 compared to December 2015, and an increase in accounts receivable from affiliates due to higher intercompany settlements associated with energy sales and inventory, partially offset by an increase in accounts payable due to the timing of fuel purchases and payments.
Defined benefit plan funding was $20 million higher in 2016.
The increase in cash from LG&E's other operating activities was driven primarily by lower payments for the settlement of interest rate swaps, partially offset by an increase in ARO expenditures.
LG&E had a $183 million increase in cash provided by operating activities in 20132015 compared with 2012.2014.
| · | LKE's non-cash components of net income included a $121 million increase in deferred income taxes primarily due to utilization of net operating losses. |
| · | The decrease in cash from working capital was driven primarily by increases in accounts receivable and unbilled revenues due to extended payment terms, higher rates and colder December weather in 2013, offset by an increase in accounts payable due to timing of fuel purchase commitments and payments. |
| · | The increase in cash from LKE's other operating activities was driven primarily by $86 million in proceeds from the settlement of interest rate swaps. |
LG&E's non-cash components of net income included an $8 million increase in deferred income taxes and a $5 million increase in depreciation due to additional assets in service in 2015.
(LG&E)The increase in cash from changes in working capital was driven primarily by a decrease in income tax receivable as a result of receiving payment from LKE in 2015 for the use of excess tax depreciation deductions in 2014, a decrease in accounts receivable from affiliates due to lower fuel costs for jointly owned units compared to an increase in the prior
year, a decrease in accounts receivable due to milder weather in December 2015 compared to an increase in the prior year, a decrease in coal inventory as a result of the retirement of Cane Run coal units, and a decrease in natural gas stored underground due to lower gas prices in 2015, partially offset by a decrease in accounts payable due to the timing of fuel purchases and payments compared to an increase in the prior year.
The decrease in cash from LG&E&E's other operating activities was driven primarily by $44 million in payments for the settlement of interest rate swaps.
(KU)
KU had a $5$2 million decrease in cash provided by operating activities in 2016 compared with 2015.
Net income improved by $31 million and included a decrease of $20 million of net non-cash charges primarily due to a $34 million decrease in deferred income taxes, partially offset by a $14 million increase in depreciation expense.
The decrease in cash from changes in working capital was driven primarily by lower tax payments received from LKE for the use of prior year excess tax depreciation deductions. Other decreases in cash were related to accounts receivable and unbilled revenues due to more favorable weather in December 2016 compared to December 2015, partially offset by an increase in accounts payable to affiliates due to higher intercompany settlements associated with energy purchases and inventory, and an increase in taxes payable due to the timing of payments.
The increase in cash from KU's other operating activities was driven primarily by lower payments for the settlement of interest rate swaps, partially offset by an increase in ARO expenditures.
KU had a $42 million increase in cash provided by operating activities in 20142015 compared with 2013.2014.
| · | LG&E'sKU's non-cash components of net income included a $92 million increase in deferred income taxes primarily due to an increase in accelerated tax depreciation over book depreciation as a result of additional assets in service in 2014. |
| · | The decrease in cash from working capital was driven primarily by an increase in income tax receivable from LKE as a result of the use of excess tax depreciation deductions, and an increase in accounts receivable from affiliates, partially offset by decreases in accounts receivable and unbilled revenues due to extended payment terms, higher rates and colder December weather in 2013. |
| · | The decrease in cash from LG&E's other operating activities was driven primarily by $43 million in proceeds from the settlement of interest rate swaps received in 2013. |
LG&E had a $61$64 million decrease in deferred income taxes, partially offset by a $23 million increase in depreciation due to additional assets in service in 2015. Deferred income taxes were lower in 2015 as a large portion of the effect of accelerated tax depreciation did not result in cash provided byas a result of the Federal net operating activities in 2013 compared with 2012.
| · | The increase in cash from working capital was driven primarily by an increase in accounts payable due to timing of fuel purchase commitments and payments and an increase in accrued taxes due to decreased payments for property taxes in 2013, partially offset by increases in accounts receivable and unbilled revenues due to extended payment terms, higher rates and colder December weather in 2013, and higher fuel and underground gas storage inventory in 2013 attributable to an increase in fuel and natural gas prices. |
| · | The increase in cash from LG&E's other operating activities was driven primarily by $43 million in proceeds from the settlement of interest rate swaps received in 2013. |
losses.
(KU)
KU had a $71 millionThe increase in cash providedfrom changes in working capital was driven primarily by operating activitiesa decrease in income tax receivable as a result of receiving payment from LKE in 2015 for the use of excess tax depreciation deductions in 2014, a decrease in coal inventory as a result of the retirement of Green River coal units, and decreases in accounts receivable and unbilled revenues due to milder weather in December 2015, partially offset by a decrease in accounts payable to affiliates compared with 2013.
| · | KU's non-cash components of net income included a $155 million increase in deferred income taxes primarily due to the utilization of net operating losses and an increase in accelerated tax depreciation over book depreciation as a result of additional assets in service in 2014. |
| · | The decrease in cash from working capital was driven primarily by an increase in income tax receivable and a decrease of income tax payable from LKE as a result of the use of excess tax depreciation deductions, and an increase in inventory due to increased coal purchases in anticipation of a cold December similar to that of 2013, partially offset by decreases in accounts receivable and unbilled revenues due to extended payment terms, higher rates and colder December weather in 2013 and an increase in accounts payable to affiliates. |
| · | The decrease in cash from KU's other operating activities was driven primarily by $43 million in proceeds from the settlement of interest rate swaps received in 2013. |
to an increase in the prior year due to lower fuel costs for jointly owned units and a decrease in accounts payable due to the timing of fuel purchases and payments.
KU had a $5 millionThe decrease in cash provided byfrom KU's other operating activities was driven primarily by $44 million in 2013 compared with 2012.payments for the settlement of interest rate swaps.
| · | The decrease in cash from working capital was driven primarily by increases in accounts receivable and unbilled revenues due to extended payment terms, higher rates and colder December weather in 2013, offset by an increase in accounts payable due to timing of fuel purchase commitments and payments. |
| · | The increase in cash from KU's other operating activities was driven primarily by $43 million in proceeds from the settlement of interest rate swaps. |
Investing Activities
(All Registrants)
The components of the change in cash provided by (used in) investing activities were as follows.
81
|
| | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| 2016 vs. 2015 | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | |
| Expenditures for PP&E | $ | 613 |
| | $ | (28 | ) | | $ | 419 |
| | $ | 250 |
| | $ | 169 |
|
| Investment activity, net | (134 | ) | | — |
| | — |
| | — |
| | — |
|
| Other investing activities | 42 |
| | 6 |
| | (6 | ) | | — |
| | (6 | ) |
| Total | $ | 521 |
| | $ | (22 | ) | | $ | 413 |
| | $ | 250 |
| | $ | 163 |
|
| | | | | | | | | | |
| | | | | | | | PPL | | | | | | | | | | | | |
| | | | | | | | Energy | | PPL | | | | | | | | | |
| | | | | PPL | | Supply | | Electric | | LKE | | LG&E | | KU |
| 2014 vs. 2013 | | | | | | | | | | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | | | | | | | | | | |
| | Expenditures for PP&E | | $ | 122 | | $ | 167 | | $ | (28) | | $ | 172 | | $ | (79) | | $ | 251 |
| | Acquisitions & divestitures, net | | | 900 | | | 900 | | | | | | | | | | | | |
| | Notes receivable with affiliates | | | | | | | | | | | | | | | | | | |
| | | activity, net | | | | | | | | | 300 | | | 140 | | | | | | |
| | Restricted cash and cash | | | | | | | | | | | | | | | | | | |
| | | equivalent activity | | | (69) | | | (86) | | | | | | | | | | | | |
| | Purchase and sale of | | | | | | | | | | | | | | | | | | |
| | | investments, net | | | (121) | | | (1) | | | | | | | | | | | | |
| | Other investing activities | | | 134 | | | 148 | | | 17 | | | (1) | | | | | | (1) |
| Total | | $ | 966 | | $ | 1,128 | | $ | 289 | | $ | 311 | | $ | (79) | | $ | 250 |
| | | | | | | | | | | | | | | | | | | | | |
| 2013 vs. 2012 | | | | | | | | | | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | | | | | | | | | | |
| | Expenditures for PP&E | | $ | (1,107) | | $ | 65 | | $ | (279) | | $ | (666) | | $ | (291) | | $ | (375) |
| | Acquisitions & divestitures, net | | | 84 | | | 84 | | | | | | | | | | | | |
| | Notes receivable with affiliates | | | | | | | | | | | | | | | | | | |
| | | activity, net | | | | | | (198) | | | (150) | | | (85) | | | | | | |
| | Restricted cash and cash | | | | | | | | | | | | | | | | | | |
| | | equivalent activity | | | (116) | | | (126) | | | | | | | | | | | | |
| | Other investing activities | | | (33) | | | 13 | | | (38) | | | 2 | | | | | | 2 |
| Total | | $ | (1,172) | | $ | (162) | | $ | (467) | | $ | (749) | | $ | (291) | | $ | (373) |
|
| | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| 2015 vs. 2014 | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | |
| Expenditures for PP&E | $ | 141 |
| | $ | (166 | ) | | $ | 52 |
| | $ | (33 | ) | | $ | 85 |
|
| Notes receivable with affiliates activity, net | — |
| | (150 | ) | | (70 | ) | | — |
| | — |
|
| Restricted cash and cash equivalent activity | (11 | ) | | — |
| | — |
| | — |
| | — |
|
| Investment activity, net | 256 |
| | — |
| | — |
| | — |
| | — |
|
| Other investing activities | 1 |
| | (1 | ) | | 6 |
| | — |
| | 6 |
|
| Total | $ | 387 |
| | $ | (317 | ) | | $ | (12 | ) | | $ | (33 | ) | | $ | 91 |
|
(PPL)
For PPL, in 20142016 compared with 2013, the decrease in "Expenditures for PP&E" was partially due to2015, lower project expenditures made in 2013 for the Holtwood hydroelectric expansion project at PPL Energy Supply and construction of Cane Run Unit 7 for bothWPD, LG&E and KU were partially offset by higher project expenditures madeat PPL Electric. The decrease in 2014 atexpenditures for WPD (primarilywas primarily due to projectsa decrease in expenditures to enhance system reliability and the effect ofa decrease in foreign currency exchange rates). "Acquisitions & divestitures, net" reflectsrates. The decrease in expenditures for LG&E was primarily driven by the 2014 salecompletion of PPL Montana's hydroelectric generation facilities. See Note 8 to the Financial Statements for additional information. The change in "Other investing activities" was the result of investing inflow of $164 million, in 2014, from U.S. Department of Treasury grants for the Rainbow and Holtwood hydroelectric expansion projects.
For PPL, in 2013 compared with 2012, the change in "Expenditures for PP&E" was due to increased spending on projects to enhance system reliability at WPD and PPL Electric, the Susquehanna-Roseland transmission project at PPL Electric, environmental air projects at LG&E's Mill Creek andPlant. The decrease in expenditures for KU was primarily driven by the completion of the environmental air projects at KU's Ghent plants,plant and the CCR project at KU's E.W. Brown plant. The increase in expenditures for PPL Electric was primarily due to the Northern Lehigh and Greater Scranton transmission reliability projects and other various transmission and distribution projects, partially offset by the completion of the Northeast Pocono reliability project and Susquehanna-Roseland transmission project.
The change in "Investment activity, net" for 2016 compared with 2015 resulted from PPL receiving $136 million during 2015 for the sale of short-term investments.
For PPL, in 2015 compared with 2014, lower project expenditures at WPD and KU were partially offset by higher project expenditures at PPL Electric and LG&E. The decrease in expenditures for WPD was primarily due to a decrease in expenditures to enhance system reliability associated with the end of the DPCR5 price control period and changes in foreign currency exchange rates. The decrease in expenditures for KU was related to lower expenditures for the construction of Cane Run Unit 7 which was put into commercial operation in June 2015, and lower expenditures for both LG&Eenvironmental air projects and KU and coal combustion residualsCCR projects at KU's Ghent and E.W. Brown plants. The changeincrease in "Restricted cash and cash equivalent activity"expenditures for PPL Electric was primarily relateddue to margin deposit returnsthe Northeast Pocono reliability project, smart grid projects and other various projects, partially offset by the completion of the Susquehanna-Roseland transmission project. The increase in 2012expenditures for LG&E was primarily due to environmental air projects at PPL Energy Supply.LG&E's Mill Creek plant, partially offset by lower expenditures for the construction of Cane Run Unit 7.
(PPL Energy Supply)
For PPL Energy Supply, in 2014 compared with 2013, the decrease in "Expenditures for PP&E" was partially due to expenditures made in 2013 for the Holtwood hydroelectric expansion project. "Acquisitions & divestitures, net" reflects the 2014 sale of PPL Montana's hydroelectric generation facilities. See Note 8 to the Financial Statements for additional information. The change in "Other investing activities" was the result of investing inflow of $164"Investment activity, net" for 2015 compared with 2014 resulted from PPL receiving $136 million in 2014, from U.S. Department of Treasury grantsduring 2015 for the Rainbowsale of short-term investments and Holtwood hydroelectric expansion projects.
For PPL Energy Supply, in 2013 compared with 2012, the change in "Acquisitions & divestitures, net" related to the disbursement in 2012paying $120 million during 2014 for the Ironwood Acquisition. The change in "Notes receivable with affiliates, net" resulted from repayments received in 2012. The change in "Restricted cash and cash equivalent activity" was primarily related to margin deposit returns in 2012.purchase of short-term investments.
(PPL Electric)
For PPL Electric, in 20142016 compared with 2013,2015, the changeincrease in "Notes receivable with affiliates, net" resulted from proceeds received in 2014 from repayments.
For PPL Electric, in 2013 compared with 2012, the change in "Expenditures for PP&E"expenditures was primarily due to increases forthe Northern Lehigh and Greater Scranton transmission reliability projects to enhance systemand other various transmission and distribution projects, which was partially offset by the completion of the Northeast Pocono reliability project and the Susquehanna-Roseland transmission project.
(LKE)For PPL Electric, in 2015 compared with 2014, the increase in expenditures was primarily due to the Northeast Pocono reliability project, smart grid projects and other various projects, partially offset by the completion of the Susquehanna-Roseland transmission project.
In comparingThe changes in "Notes receivable with affiliates activity, net" resulted from proceeds of $150 million received in 2014 from repayments on a note extended in 2013.
(LKE)
For LKE, in 2016 compared with 2013,2015, cash used byin investing activities decreased as a resultprimarily due to lower PP&E expenditures. The decrease in expenditures for LG&E was primarily driven by completion of the environmental air projects at LG&E's Mill Creek plant. The decrease in expenditures for KU was primarily driven by completion of the environmental air projects at KU's Ghent plant and the CCR project at KU's E.W. Brown plant.
For LKE, in 2015 compared with 2014, cash used in investing activities increased as a result of receiving payment from PPL in 2014 for the notes receivable issued in 2013, partially offset by thelower PP&E expenditures. An increase in expenditures for LG&E. The&E was primarily due to higher expenditures for environmental air projects at the Mill Creek plant, partially offset by lower expenditures for the construction of Cane Run Unit 7. A decrease in expenditures for KU was primarily due to lower expenditures for the construction of Cane Run Unit 7 which was put into commercial operation in June 2015, and coal combustion residualslower expenditures for environmental air projects and CCR projects at the Ghent and the E.W. Brown plants, partially offsetplants.
(LG&E)
For LG&E, in 2016 compared with 2015, cash used in investing activities decreased due to lower PP&E expenditures driven by completion of the environmental air projects at the Mill Creek plant.
For LG&E, in 2015 compared with 2014, cash used in investing activities increased primarily due to higher expenditures for environmental air projects at the Ghent and the E.W. Brown plants. The increase in expenditures for LG&E was primarily due to environmental air projects at the Mill Creek plant, and the gas service riser program, partially offset by lower expenditures for the construction of Cane Run Unit 7.7 which was put into commercial operation in June 2015.
In comparing 2013(KU)
For KU, in 2016 compared with 2012,2015, cash used byin investing activities increased as a result of the increase in expendituresdecreased primarily due to environmental air projects at LG&E's Mill Creek and KU's Ghent plants, constructionlower PP&E expenditures driven by completion of Cane Run Unit 7 for both LG&E and KU and coal combustion residuals projects at KU's Ghent and E.W. Brown plants.
(LG&E)
In comparing 2014 with 2013, cash used by investing activities increased as a result of the increase in expenditures primarily due to environmental air projects at the Mill CreekGhent plant and the gas service riser program, partially offset by lower expenditures forCCR project at the construction of Cane Run Unit 7.E.W. Brown plant.
In comparing 2013For KU, in 2015 compared with 2012,2014, cash used byin investing activities increased as a result of the increase in expenditures primarily due to environmental air projects at the Mill Creek plant and the construction of Cane Run Unit 7.
(KU)
In comparing 2014 with 2013, cash used by investing activities decreased as a result of the decrease in expenditures primarily due to lower expenditures for the construction of Cane Run Unit 7 which was put into commercial operation in June 2015, and coal combustion residuals projects at the Ghent and the E.W. Brown plants, partially offset by higherlower expenditures for environmental air projects and CCR projects at the Ghent and the E.W. Brown plants.
In comparing 2013 with 2012, cash used by investing activities increased as a result of the increase in expenditures primarily due to environmental air projects at the Ghent plant, construction of Cane Run Unit 7 and coal combustion residuals projects at the Ghent and E.W. Brown plants.
(All Registrants)
See "Forecasted Uses of Cash" for detail regarding projected capital expenditures for the years 20152016 through 2019.2020.
Financing Activities
(All Registrants)
The components of the change in cash provided by (used in) financing activities were as follows.
|
| | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| 2016 vs. 2015 | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | |
| Debt issuance/retirement, net | $ | (824 | ) | | $ | (248 | ) | | $ | (175 | ) | | $ | (325 | ) | | $ | (250 | ) |
| Debt issuance/retirement, affiliate | | | — |
| | (400 | ) | | — |
| | — |
|
| Stock issuances/redemptions, net | (59 | ) | | — |
| | — |
| | — |
| | — |
|
| Dividends | (26 | ) | | (107 | ) | | — |
| | (9 | ) | | (95 | ) |
| Capital contributions/distributions, net | | | (55 | ) | | (161 | ) | | (19 | ) | | 20 |
|
| Changes in net short-term debt (a) | (65 | ) | | 295 |
| | 326 |
| | 149 |
| | 156 |
|
| Other financing activities | 53 |
| | — |
| | 7 |
| | 3 |
| | 4 |
|
| Total | $ | (921 | ) | | $ | (115 | ) | | $ | (403 | ) | | $ | (201 | ) | | $ | (165 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| 2015 vs. 2014 | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | |
| Debt issuance/retirement, net | $ | 1,177 |
| | $ | (38 | ) | | $ | 150 |
| | $ | 300 |
| | $ | 250 |
|
| Debt issuance/retirement, affiliate | | | — |
| | 400 |
| | — |
| | — |
|
| Stock issuances/redemptions, net | (871 | ) | | — |
| | — |
| | — |
| | — |
|
| Dividends | (37 | ) | | (23 | ) | | — |
| | (7 | ) | | (5 | ) |
| Capital contributions/distributions, net | | | 12 |
| | 94 |
| | (67 | ) | | (91 | ) |
| Changes in net short-term debt (a) | (53 | ) | | 20 |
| | (668 | ) | | (366 | ) | | (274 | ) |
| Other financing activities | 4 |
| | 1 |
| | (5 | ) | | (3 | ) | | (3 | ) |
| Total | $ | 220 |
| | $ | (28 | ) | | $ | (29 | ) | | $ | (143 | ) | | $ | (123 | ) |
| | | | | | | | PPL | | | | | | | | | | | | |
| | | | | | | | Energy | | PPL | | | | | | | | | |
| | | | | PPL | | Supply | | Electric | | LKE | | LG&E | | KU |
| 2014 vs. 2013 | | | | | | | | | | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | | | | | | | | | | |
| | Debt issuance/retirement, net | | $ | (1,541) | | $ | 438 | | $ | (62) | | $ | (496) | | $ | (248) | | $ | (248) |
| | Stock issuances/redemptions, net | | | (263) | | | | | | | | | | | | | | | |
| | Dividends | | | (89) | | | | | | (31) | | | | | | (13) | | | (24) |
| | Capital contributions/distributions, | | | | | | | | | | | | | | | | | | |
| | | net | | | | | | (2,336) | | | 58 | | | (177) | | | 71 | | | (66) |
| | Changes in net short-term debt (a) | | | 728 | | | 986 | | | (40) | | | 276 | | | 279 | | | 6 |
| | Other financing activities | | | 117 | | | 19 | | | | | | 1 | | | 1 | | | 1 |
| Total | | $ | (1,048) | | $ | (893) | | $ | (75) | | $ | (396) | | $ | 90 | | $ | (331) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | PPL | | | | | | | | | | | | |
| | | | | | | | Energy | | PPL | | | | | | | | | |
| | | | | PPL | | Supply | | Electric | | LKE | | LG&E | | KU |
| 2013 vs. 2012 | | | | | | | | | | | | | | | | | | |
| Change - Cash Provided (Used): | | | | | | | | | | | | | | | | | | |
| | Debt issuance/retirement, net | | $ | 176 | | $ | (738) | | $ | 99 | | $ | 496 | | $ | 248 | | $ | 248 |
| | Stock issuances/redemptions, net | | | 1,515 | | | | | | 250 | | | | | | | | | |
| | Dividends | | | (45) | | | | | | (32) | | | | | | (24) | | | (24) |
| | Capital contributions/distributions, | | | | | | | | | | | | | | | | | | |
| | | net | | | | | | 1,393 | | | 55 | | | 144 | | | 86 | | | 157 |
| | Changes in net short-term debt (a) | | | (25) | | | (312) | | | 20 | | | (55) | | | (90) | | | 10 |
| | Other financing activities | | | (38) | | | (15) | | | 6 | | | (4) | | | (1) | | | (3) |
| Total | | $ | 1,583 | | $ | 328 | | $ | 398 | | $ | 581 | | $ | 219 | | $ | 388 |
| |
| (a) | Includes net increase (decrease) in notes payable with affiliates. |
(PPL)
In 2014,For PPL, required $1.05 billionin 2016 compared with 2015, $921 million less cash from financing activities was required primarily due to improvements in cash from operations of $546$618 million.
For PPL, in 2015 compared with 2014, $220 million additional cash from financing activities was required including the WPD, LG&E and the proceedsKU long-term debt issuances in 2015, partially offset by lower common stock issuances in 2015.
(PPL Electric)
For PPL Electric, in 2016 compared with 2015, $115 million less cash from financing activities was required to support its significant capital expenditure program primarily due to improvements in cash from operations of $164$270 million.
For PPL Electric, in 2015 compared with 2014, $28 million less cash from the U.S. Department of Treasury grants (as described in "Investing Activities" above) andfinancing activities was required primarily due to the use of cash on hand which helped support the significant capital expenditure programs of its subsidiaries.program.
In 2013, PPL required $1.6 billion additional cash from financing activities primarily to support the significant capital expenditure programs of its subsidiaries. Financing needs were partially mitigated by $93 million of additional(LKE)
For LKE, in 2016 compared with 2015, cash provided by operating activities.
(PPL Energy Supply)
In 2014, financing activities included distributions of $836 million to PPL of the proceeds from the PPL Montana hydroelectric generation facilities sale, netdecreased primarily as a result of a tax liability payment discusseddecrease in "Operating Activities" above, and proceeds from the U.S. Department of Treasury PPL Holtwood tax grant (See Note 8 to the Financial Statements for information on these transactions. Both receipts are included within "Investing Activities" above.).
In 2013, financing activities included net capital contributions of $1.1 billion from PPL to PPL Energy Supplycash required to fund the debt maturities discussed below, to repay short-term debtcapital and to terminate the operating lease arrangement for interestsgeneral corporate expenditures.
For LKE, in the Montana Colstrip facility and acquire the previously leased interests. Debt repayments included the $300 million debt maturity and the $437 million repayment of outstanding debt related to the acquisition of the previously leased Lower Mt. Bethel facility.
(PPL Electric)
In2015 compared with 2014, PPL Electric required $75 million less cash from financing activities to support its significant capital expenditure program, primarily due to the receipt of $150 million on notes receivable from affiliates (as described in "Investing Activities" above) and improvements in cash from operations of $90 million.
In 2013, PPL Electric required $398 million additional cash from financing activities to support its significant capital expenditure program. Financing needs were partially mitigated by $134 million of additional cash provided by operating activities.
(LKE)
In comparing 2014 with 2013, cash provided by financing activities decreased as a result of the $500repayment of short-term debt, partially offset by the $550 million of additional long-term debt issued by LG&E and KU in November 20132015 and higherlower distributions to PPL, partially offset by an increasePPL.
(LG&E)
For LG&E, in short-term debt and an increase in notes payable2016 compared with affiliates to fund capital expenditures.
In comparing 2013 with 2012,2015, cash provided by financing activities increaseddecreased primarily as a result of the long-term debt issuance at LG&E and KU and higher capital contributions from PPL. The proceeds from the issuance of long-term debt were mainly used for capital expenditures related to environmental air projects and the construction of Cane Run Unit 7.
(LG&E)
In comparing 2014 with 2013,a decrease in cash provided by financing activities increased due to an increase in short-term debtrequired to fund capital expenditures and an increasegeneral corporate expenditures.
For LG&E, in contributions from LKE, offset by the $250 million of long-term debt issued in November 2013.
In comparing 20132015 compared with 2012, cash provided by financing activities increased as a result of the $250 million long-term debt issuance. The proceeds from the issuance of long-term debt were mainly used for capital expenditures related to environmental air projects and the construction of Cane Run Unit 7.
(KU)
In comparing 2014, with 2013, cash provided by financing activities decreased as a result of the $250repayment of short-term debt and lower capital contributions from LKE, partially offset by the $300 million of additional long-term debt issued in November 2013, a decrease of contributions from LKE and higher dividends to LKE.2015.
In comparing 2013(KU)
For KU, in 2016 compared with 2012,2015, cash provided by financing activities increaseddecreased primarily as a result of a decrease in cash required to fund capital and general corporate expenditures.
For KU, in 2015 compared with 2014, cash provided by financing activities decreased as a result of the $250 million long-termrepayment of short-term debt issuance and higherlower capital contributions from LKE. The proceeds fromLKE, partially offset by the issuance$250 million of additional long-term debt were mainly used for capital expenditures related to environmental air projects and the construction of Cane Run Unit 7.issued in 2015.
(All Registrants)
See "Long-term Debt and Equity Securities" below for additional information on current year activity. See "Forecasted Sources of Cash" for a discussion of the Registrants' plans to issue debt and equity securities, as well as a discussion of credit facility capacity available to the Registrants. Also see "Forecasted Uses of Cash" for a discussion of PPL's plans to pay dividends on common securities in the future, as well as the Registrants' maturities of long-term debt.
Long-term Debt and Equity Securities (PPL, PPL Energy Supply and PPL Electric)
Long-term debt and equity securities activity for 20142016 included:
| | | | | Debt | | Net Stock |
| | | | | Issuances (a) | | Retirements | | Issuances |
| | | | | | | | | | | | |
| PPL | | $ | 296 | | $ | 546 | | $ | 1,074 |
| PPL Energy Supply | | | | | | 309 | | | |
| PPL Electric | | | 296 | | | 10 | | | |
| Non-cash Transactions: | | | | | | | | | |
| PPL (b) | | $ | 750 | | $ | 750 | | | |
|
| | | | | | | | | | | |
| | Debt | | Net Stock |
| | Issuances (a) | | Retirements | | Issuances |
| Cash Flow Impact: | | | | | |
|
| PPL | $ | 1,342 |
| | $ | 930 |
| | $ | 144 |
|
| PPL Electric | 224 |
| | 224 |
| | |
| LKE | 221 |
| | 246 |
| | |
| LG&E | 125 |
| | 150 |
| | |
| KU | 96 |
| | 96 |
| | |
| |
| (a) | Issuances are net of pricing discounts, where applicable, and exclude the impact of debt issuance costs. |
(b) | Represents the remarketing of Junior Subordinated Notes that were issued as a component of PPL's 2011 Equity Units and simultaneously exchanged for Senior Notes. |
See Note 7 to the Financial Statements for additional information about long-term debt and equity securities.debt.
Auction Rate SecuritiesATM Program (LKE, LG&E and KU)(PPL)
During 2016, PPL issued 710 thousand shares of common stock under the program at an average price of $35.23 per share, receiving net proceeds of $25 million. See Note 7 to the Financial Statements for additional information about the ATM Program.
At December 31, 2014, LG&E's and KU's tax-exempt revenue bonds in the form of auction rate securities total $231 million ($135 million at LG&E and $96 million at KU). These bonds continue to experience failed auctions and the interest rate continues to be set by a formula pursuant to the relevant indentures. For the period ended December 31, 2014, the weighted-average rate on LG&E's and KU's auction rate bonds in total was 0.15% (0.14% at LG&E and 0.16% at KU).
Forecasted Sources of Cash
(All Registrants)
The Registrants expect to continue to have adequate liquidity available from operating cash flows, cash and cash equivalents, credit facilities and commercial paper issuances. Additionally, subject to market conditions, the Registrants and their subsidiaries may access the capital markets, and PPL Electric, LKE, LG&E and KU anticipate receiving equity contributions from their parent or member in 2015. As a result of the proposed spinoff of PPL Energy Supply to form Talen Energy, PPL Energy Supply does not expect to receive cash equity contributions from its member in 2015. Additionally, under the terms2017.
of the spinoff agreements with affiliates of Riverstone, PPL Energy Supply is generally prohibited from making distributions or other payments to PPL or any PPL affiliate that is not a subsidiary of PPL Energy Supply, with the exception of specific distributions and other payments set forth in the spinoff agreements. These exceptions are generally limited to a planned distribution from PPL Energy Supply to PPL during the first quarter of 2015 in an amount not to exceed $191 million.
Credit Facilities
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. Amounts borrowed under these credit facilities are reflected in "Short-term debt" on the Balance Sheets. At December 31, 2014,2016, the total committed borrowing capacity under credit facilities and the use of this borrowing capacity were:
External
| | | | | | | | | | Letters of | | | |
| | | | | | | | | | Credit | | | |
| | | | | | | | | | and | | | |
| | | | | | | | Commercial | | |
| | | | Committed | | | | Paper | | Unused |
| | | | Capacity | | Borrowed | | Issued | | Capacity |
| | | | | | | | | | |
| PPL Capital Funding Credit Facilities | | $ | 750 | | | | | $ | 21 | | $ | 729 |
| PPL Energy Supply Credit Facilities | | | 3,150 | | $ | 630 | | | 259 | | | 2,261 |
| PPL Electric Credit Facility | | | 300 | | | | | | 1 | | | 299 |
| | | | | | | | | | | | | | |
| LKE Credit Facility | | | 75 | | | 75 | | | | | | |
| LG&E Credit Facility | | | 500 | | | | | | 264 | | | 236 |
| KU Credit Facilities | | | 598 | | | | | | 434 | | | 164 |
| Total LKE Consolidated | | | 1,173 | | | 75 | | | 698 | | | 400 |
| | Total U.S. Credit Facilities (a) (b) (c) | | $ | 5,373 | | $ | 705 | | $ | 979 | | $ | 3,689 |
| | | | | | | | | | | | | | |
| Total U.K. Credit Facilities (c) (d) (e) | | £ | 1,055 | | £ | 167 | | | | | £ | 888 |
|
| | | | | | | | | | | | | | | |
| | Committed Capacity | | Borrowed | | Letters of Credit and Commercial Paper Issued | | Unused Capacity |
| PPL Capital Funding Credit Facilities | $ | 1,400 |
| | $ | — |
| | $ | 37 |
| | $ | 1,363 |
|
| PPL Electric Credit Facility | 650 |
| | — |
| | 296 |
| | 354 |
|
| | | | | | | | |
| LKE Credit Facility | 75 |
| | — |
| | — |
| | 75 |
|
| LG&E Credit Facility | 500 |
| | — |
| | 169 |
| | 331 |
|
| KU Credit Facilities | 598 |
| | — |
| | 214 |
| | 384 |
|
| Total LKE Consolidated | 1,173 |
| | — |
| | 383 |
| | 790 |
|
| Total U.S. Credit Facilities (a) (b) (c) | $ | 3,223 |
| | $ | — |
| | $ | 716 |
| | $ | 2,507 |
|
| | | | | | | | |
| Total U.K. Credit Facilities (c) (d) (e) | £ | 1,055 |
| | £ | 279 |
| | £ | — |
| | £ | 775 |
|
| |
| (a) | The syndicated credit facilities, as well as KU's letter of credit facility, each contain a financial covenant requiring debt to total capitalization not to exceed 65% for PPL Energy Supply and 70% for PPL Capital Funding, PPL Electric, LKE, LG&E and KU, as calculated in accordance with the facility, and other customary covenants. See Note 7 to the Financial Statements for additional information regarding these credit facilities. |
| |
| (b) | The commitments under the domestic credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than the following percentages of the total committed capacity: PPL - 10%, PPL Energy Supply - 9%, PPL Electric - 6%7%, LKE - 21%, LG&E - 7% and KU - 37%. |
| |
| (c) | Each company pays customary fees under its respective syndicated credit facility, as does KU under its letter of credit facility, and borrowings generally bear interest at LIBOR-based rates plus an applicable margin. |
| |
| (d) | The facilities contain financial covenants to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization and total net debt not in excess of 85% of its RAV, calculated in accordance with the credit facility. |
| |
| (e) | The amounts borrowed at December 31, 2016, include a USD-denominated borrowing of $200 million and GBP-denominated borrowings of £119 million, which equated to $148 million. The unused capacity reflects the USD-denominated amount borrowed in GBP of £161 million as of the date borrowed. At December 31, 2014,2016, the USD equivalent of unused capacity under the U.K. committed credit facilities was approximately $1.4 billion. $969 million. |
The commitments under the U.K.'s credit facilities are provided by a diverse bank group with no one bank providing more than 13% of the total committed capacity.
In addition to the financial covenants noted in the table above, the credit agreements governing the above credit facilities contain various other covenants. Failure to comply with the covenants after applicable grace periods could result in acceleration of repayment of borrowings and/or termination of the agreements. The Registrants monitor compliance with the covenants on a regular basis. At December 31, 2014,2016, the Registrants were in compliance with these covenants. At this time, the Registrants believe that these covenants and other borrowing conditions will not limit access to these funding sources.
As a result of the proposed spinoff transaction, PPL Energy Supply has syndicated a $1.85 billion credit facility which is currently fully committed. This syndicated credit facility will replace the existing $3 billion PPL Energy Supply syndicated credit facility and will be effective upon closing of the spinoff transaction. See "Item 1. Business" and "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" above for additional information.
During the second quarter of 2014, PPL Energy Supply's corporate credit rating was lowered to below investment grade. At December 31, 2014, the additional collateral posted as a result of the downgrade was $190 million. PPL Energy Supply primarily issued letters of credit under its credit facilities noted above to post the required collateral. PPL Energy Supply continues to have adequate access to the capital markets and adequate capacity under its credit facilities and does not expect a material change in its financing costs as a result of the downgrade.
See Note 7 to the Financial Statements for further discussion of the Registrants' credit facilities.
Intercompany (LKE, LG&E and KU)
|
| | | | | | | | | | | | | | | |
| | Committed Capacity | | Borrowed | | Other Used Capacity | | Unused Capacity |
| LKE Credit Facility | $ | 225 |
| | $ | 163 |
| | $ | — |
| | $ | 62 |
|
| LG&E Money Pool (a) | 500 |
| | — |
| | 169 |
| | 331 |
|
| KU Money Pool (a) | 500 |
| | — |
| | 16 |
| | 484 |
|
| | | Committed | | | | Other Used | | Unused |
| | | Capacity | | Borrowed | | Capacity | | Capacity |
| LKE Credit Facility | | $ | 225 | | $ | 41 | | | | | $ | 184 |
| LG&E Money Pool (a) | | | 500 | | | | | $ | 264 | | | 236 |
| KU Money Pool (a) | | | 500 | | | | | | 236 | | | 264 |
| |
| (a) | LG&E and KU participate in an intercompany agreement whereby LKE, LG&E and/or KU make available funds up to $500 million at an interest rate based on a market index of commercial paper issues. However, the FERC has issuedauthorized a maximum aggregate short-term debt limit for each utility at $500 million from any source.all covered sources. |
Commercial Paper (All Registrants)
Commercial Paper (All Registrants)
PPL, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility. The following commercial paper programs were in place at:
| | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | Commercial | | | | Commercial |
| | | | | | | Paper | | Unused | | Paper |
| | | | Capacity | | Issuances | | Capacity | | Issuances |
| | | | | | | | | | | | | | |
| PPL Electric | | $ | 300 | | | | | $ | 300 | | $ | 20 |
| | | | | | | | | | | | | | |
| LG&E | | | 350 | | $ | 264 | | | 86 | | | 20 |
| KU | | | 350 | | | 236 | | | 114 | | | 150 |
| Total LKE | | | 700 | | | 500 | | | 200 | | | 170 |
| | Total PPL | | $ | 1,000 | | $ | 500 | | $ | 500 | | $ | 190 |
|
| | | | | | | | | | | |
| | December 31, 2016 |
| | Capacity | | Commercial Paper Issuances | | Unused Capacity |
| PPL Capital Funding | $ | 1,000 |
| | $ | 20 |
| | $ | 980 |
|
| PPL Electric | 400 |
| | 295 |
| | 105 |
|
| | | | | | |
| LG&E | 350 |
| | 169 |
| | 181 |
|
| KU | 350 |
| | 16 |
| | 334 |
|
| Total LKE | 700 |
| | 185 |
| | 515 |
|
| Total PPL | $ | 2,100 |
| | $ | 500 |
| | $ | 1,600 |
|
In August 2014,January 2017, PPL Energy Supply terminated itsElectric's commercial paper program.program capacity was increased to $650 million.
See Note 7 to the Financial Statements for further discussion of the Registrants' commercial paper programs.
Long-term Debt and Equity Securities
(PPL)
PPL and its subsidiaries are currently planauthorized to incur, subject to market conditions, up to approximately $2.2$3.4 billion of long-term indebtedness in 2015,2017, the proceeds of which $600 million is to refinance existing long-term debt.
PPL also plans to issue approximately $200 million of common stock in 2015.
The remaining proceeds willwould be used to fund capital expenditures and for general corporate purposes.
(PPL Energy Supply)
Subject to market conditions, PPL Energy Supply may issue long-term debt securities in 2015 to fund its current debt maturity obligations or for general corporate purposes, if necessary.
(PPL Electric)
PPL Electric currently plans to issue, subject to market conditions, up to $350 million of common stock in 2017.
(PPL Electric)
PPL Electric is currently authorized to incur, subject to market conditions, up to approximately $450$500 million of long-term indebtedness in 2015,2017, the proceeds of which willwould be used to fund capital expenditures and for general corporate purposes. PPL Electric currently plans to remarket, subject to market conditions, $224 million of its bonds with put dates in 2017.
(LKE, LG&E and KU)
LG&E and KUis currently planauthorized to issue,incur, subject to market conditions and regulatory approvals, up to approximately $550$400 million for LG&E and $500 million for KU, of first mortgage bondlong-term indebtedness in 2015,2017, the proceeds of which willwould be used to refinance $500 million of maturing first mortgage bonds for LG&E and KU ($250 million each), to fund capital expenditures and for general corporate purposes. LKELG&E currently plans to refinanceremarket, subject to market conditions, $194 million of its $400 million bond maturingbonds with put dates in 2015 with proceeds from an intercompany loan from a PPL affiliate.2017.
KU is currently authorized to incur, subject to market conditions and regulatory approvals, up to approximately $100 million of long-term indebtedness in 2017, the proceeds of which would be used to fund capital expenditures.
Contributions from Parent/Member (All Registrants except PPL)(PPL Electric, LKE, LG&E and KU)
From time to time, PPL Energy Supply's and LKE's membersmember or the parents of PPL Electric, LG&E and KU make capital contributions to subsidiaries. The proceeds from these contributions are used to fund capital expenditures and for other general corporate purposes and, in the case of LKE, to make contributions to its subsidiaries. PPL Energy Supply does not expect to receive cash equity contributions from its member in 2015.
Forecasted Uses of Cash
(All Registrants)
In addition to expenditures required for normal operating activities, such as purchased power, payroll, fuel and taxes, the Registrants currently expect to incur future cash outflows for capital expenditures, various contractual obligations, payment of dividends on its common stock, distributions by PPL Energy Supply and LKE to their members,its member, and possibly the purchase or redemption of a portion of debt securities.
Capital Expenditures
The table below shows the Registrants' current capital expenditure projections for the years 20152017 through 2019.2021. Expenditures for the domestic regulated utilities are expected to be recovered through rates, pending regulatory approval.
| | | | | | Projected |
| | | Total | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
| PPL | | | | | | | | | | | | | | | | | | |
| Construction expenditures (a) (b) | | | | | | | | | | | | | | | | | | |
| | Generating facilities | | $ | 2,751 | | $ | 523 | | $ | 457 | | $ | 392 | | $ | 546 | | $ | 833 |
| | Distribution facilities | | | 9,969 | | | 2,035 | | | 1,975 | | | 1,980 | | | 1,973 | | | 2,006 |
| | Transmission facilities | | | 3,685 | | | 746 | | | 748 | | | 775 | | | 731 | | | 685 |
| | Environmental | | | 2,317 | | | 609 | | | 407 | | | 398 | | | 521 | | | 382 |
| | Other | | | 380 | | | 73 | | | 91 | | | 78 | | | 68 | | | 70 |
| | | Total Construction Expenditures | | | 19,102 | | | 3,986 | | | 3,678 | | | 3,623 | | | 3,839 | | | 3,976 |
| Nuclear fuel | | | 566 | | | 106 | | | 85 | | | 120 | | | 126 | | | 129 |
| | | Total Capital Expenditures | | $ | 19,668 | | $ | 4,092 | | $ | 3,763 | | $ | 3,743 | | $ | 3,965 | | $ | 4,105 |
| PPL Energy Supply | | | | | | | | | | | | | | | | | | |
| Construction expenditures (a) (b) | | | | | | | | | | | | | | | | | | |
| | Generating facilities | | $ | 1,317 | | $ | 325 | | $ | 301 | | $ | 241 | | $ | 281 | | $ | 169 |
| | Environmental | | | 122 | | | 41 | | | 22 | | | 34 | | | 13 | | | 12 |
| | Other | | | 42 | | | 9 | | | 8 | | | 9 | | | 8 | | | 8 |
| | | Total Construction Expenditures | | | 1,481 | | | 375 | | | 331 | | | 284 | | | 302 | | | 189 |
| Nuclear fuel | | | 566 | | | 106 | | | 85 | | | 120 | | | 126 | | | 129 |
| | | Total Capital Expenditures | | $ | 2,047 | | $ | 481 | | $ | 416 | | $ | 404 | | $ | 428 | | $ | 318 |
PPL Electric (a) (b) | | | | | | | | | | | | | | | | | | |
| | Distribution facilities | | $ | 2,383 | | $ | 440 | | $ | 462 | | $ | 500 | | $ | 500 | | $ | 481 |
| | Transmission facilities | | | 3,328 | | | 687 | | | 694 | | | 692 | | | 658 | | | 597 |
| | | Total Capital Expenditures | | $ | 5,711 | | $ | 1,127 | | $ | 1,156 | | $ | 1,192 | | $ | 1,158 | | $ | 1,078 |
LKE (b) | | | | | | | | | | | | | | | | | | |
| | Generating facilities | | $ | 1,433 | | $ | 197 | | $ | 156 | | $ | 151 | | $ | 265 | | $ | 664 |
| | Distribution facilities | | | 1,209 | | | 245 | | | 252 | | | 248 | | | 223 | | | 241 |
| | Transmission facilities | | | 357 | | | 59 | | | 53 | | | 84 | | | 73 | | | 88 |
| | Environmental | | | 2,196 | | | 569 | | | 386 | | | 364 | | | 508 | | | 369 |
| | Other | | | 294 | | | 55 | | | 73 | | | 62 | | | 51 | | | 53 |
| | | Total Capital Expenditures | | $ | 5,489 | | $ | 1,125 | | $ | 920 | | $ | 909 | | $ | 1,120 | | $ | 1,415 |
LG&E (b) | | | | | | | | | | | | | | | | | | |
| | Generating facilities | | $ | 595 | | $ | 92 | | $ | 85 | | $ | 69 | | $ | 92 | | $ | 257 |
| | Distribution facilities | | | 742 | | | 158 | | | 162 | | | 154 | | | 129 | | | 139 |
| | Transmission facilities | | | 90 | | | 16 | | | 12 | | | 25 | | | 17 | | | 20 |
| | Environmental | | | 1,126 | | | 341 | | | 199 | | | 177 | | | 261 | | | 148 |
| | Other | | | 134 | | | 25 | | | 34 | | | 28 | | | 22 | | | 25 |
| | | Total Capital Expenditures | | $ | 2,687 | | $ | 632 | | $ | 492 | | $ | 453 | | $ | 521 | | $ | 589 |
| | | | | Projected |
| | | Total | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
KU (b) | | | | | | | | | | | | | | | | | | |
| | Generating facilities | | $ | 838 | | $ | 105 | | $ | 71 | | $ | 82 | | $ | 173 | | $ | 407 |
| | Distribution facilities | | | 467 | | | 87 | | | 90 | | | 94 | | | 94 | | | 102 |
| | Transmission facilities | | | 267 | | | 43 | | | 41 | | | 59 | | | 56 | | | 68 |
| | Environmental | | | 1,070 | | | 228 | | | 187 | | | 187 | | | 247 | | | 221 |
| | Other | | | 157 | | | 29 | | | 38 | | | 34 | | | 29 | | | 27 |
| | | Total Capital Expenditures | | $ | 2,799 | | $ | 492 | | $ | 427 | | $ | 456 | | $ | 599 | | $ | 825 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Projected |
| | Total | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| PPL | | | | | | | | | | | |
| Construction expenditures (a) (b) | |
| | |
| | | | |
| | | | |
| Generating facilities | $ | 862 |
| | $ | 220 |
| | $ | 212 |
| | $ | 195 |
| | $ | 97 |
| | $ | 138 |
|
| Distribution facilities | 8,849 |
| | 1,855 |
| | 1,743 |
| | 1,761 |
| | 1,732 |
| | 1,758 |
|
| Transmission facilities | 4,077 |
| | 900 |
| | 881 |
| | 875 |
| | 859 |
| | 562 |
|
| Environmental | 1,435 |
| | 329 |
| | 438 |
| | 210 |
| | 220 |
| | 238 |
|
| Other | 664 |
| | 137 |
| | 215 |
| | 189 |
| | 66 |
| | 57 |
|
| Total Capital Expenditures | $ | 15,887 |
|
| $ | 3,441 |
| | $ | 3,489 |
| | $ | 3,230 |
| | $ | 2,974 |
| | $ | 2,753 |
|
| | | | | | | | | | | | |
PPL Electric (a) (b) | | | | | | | | | | | |
| Distribution facilities | $ | 1,908 |
| | $ | 434 |
| | $ | 389 |
| | $ | 390 |
| | $ | 348 |
| | $ | 347 |
|
| Transmission facilities | 3,283 |
| | 768 |
| | 737 |
| | 675 |
| | 704 |
| | 399 |
|
| Total Capital Expenditures | $ | 5,191 |
|
| $ | 1,202 |
| | $ | 1,126 |
| | $ | 1,065 |
| | $ | 1,052 |
| | $ | 746 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Projected |
| | Total | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| | | | | | | | | | | | |
LKE (b) | | | | | | | | | | | |
| Generating facilities | $ | 862 |
| | $ | 220 |
| | $ | 212 |
| | $ | 195 |
| | $ | 97 |
| | $ | 138 |
|
| Distribution facilities | 1,652 |
| | 297 |
| | 339 |
| | 348 |
| | 325 |
| | 343 |
|
| Transmission facilities | 795 |
| | 132 |
| | 144 |
| | 200 |
| | 156 |
| | 163 |
|
| Environmental | 1,435 |
| | 329 |
| | 438 |
| | 210 |
| | 220 |
| | 238 |
|
| Other | 636 |
| | 129 |
| | 209 |
| | 184 |
| | 61 |
| | 53 |
|
| Total Capital Expenditures | $ | 5,380 |
|
| $ | 1,107 |
| | $ | 1,342 |
| | $ | 1,137 |
| | $ | 859 |
| | $ | 935 |
|
| | | | | | | | | | | | |
LG&E (b) | |
| | |
| | |
| | |
| | |
| | |
|
| Generating facilities | $ | 422 |
| | $ | 138 |
| | $ | 104 |
| | $ | 81 |
| | $ | 36 |
| | $ | 63 |
|
| Distribution facilities | 1,090 |
| | 188 |
| | 223 |
| | 228 |
| | 216 |
| | 235 |
|
| Transmission facilities | 222 |
| | 24 |
| | 32 |
| | 74 |
| | 43 |
| | 49 |
|
| Environmental | 645 |
| | 150 |
| | 201 |
| | 78 |
| | 95 |
| | 121 |
|
| Other | 310 |
| | 60 |
| | 102 |
| | 92 |
| | 28 |
| | 28 |
|
| Total Capital Expenditures | $ | 2,689 |
|
| $ | 560 |
| | $ | 662 |
| | $ | 553 |
| | $ | 418 |
| | $ | 496 |
|
| | | | | | | | | | | | |
KU (b) | |
| | |
| | |
| | |
| | |
| | |
|
| Generating facilities | $ | 440 |
| | $ | 82 |
| | $ | 108 |
| | $ | 114 |
| | $ | 61 |
| | $ | 75 |
|
| Distribution facilities | 562 |
| | 109 |
| | 116 |
| | 120 |
| | 109 |
| | 108 |
|
| Transmission facilities | 573 |
| | 109 |
| | 112 |
| | 126 |
| | 113 |
| | 113 |
|
| Environmental | 789 |
| | 178 |
| | 237 |
| | 131 |
| | 126 |
| | 117 |
|
| Other | 328 |
| | 69 |
| | 106 |
| | 94 |
| | 32 |
| | 27 |
|
| Total Capital Expenditures | $ | 2,692 |
|
| $ | 547 |
| | $ | 679 |
| | $ | 585 |
| | $ | 441 |
| | $ | 440 |
|
| |
| (a) | Construction expenditures include capitalized interest and AFUDC, which are expected to total approximately $171$86 million for PPL; $64 million for PPL Energy Supply and $67 million for PPL Electric. |
| |
| (b) | The 20152017 total excludes amounts included in accounts payable as of December 31, 2014.2016. |
Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions. For the years presented, this table includes estimated costs to meet a projected capacity need at LKE in 2021 and PPL Electric's asset optimization program to replace aging transmission and distribution assets as well as the Susquehanna-Roseland and Northeast/Pocono projects.assets. This table also includes LKE's environmental projects related to existing and proposed EPA compliance standards excluding the Clean Power Plan (actual costs may be significantly lower or higher depending on the final requirements and market conditions; most environmental compliance costs incurred by LG&E and KU in serving KPSC jurisdictional customers are generally eligible for recovery through the ECR mechanism). See Note 6 to the Financial Statements for information on LG&E's and KU's ECR mechanism and CPCN filing, and Note 8 to the Financial Statements for information on significant development plans. See "Item 2. Properties" for information on planned projects to expand capacity.filing.
In addition to cash on hand and cash from operations, the Registrants plan to fund capital expenditures in 20152017 with proceeds from the sources noted below.
|
| | | | | PPL Energy | | | | | | | | | | | | |
| Source | | PPL | | Supply | | PPL Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | |
| Issuance of common stock | | | X | | | | | | | | | | | | | | | |
| Issuance of long-term debt securities | | | X | | | | | | X | | | X | | | X | | | X |
| Equity contributions from parent/member | | | | | | | X | | X | | | X | | | X | | | X |
| Short-term debt | | | X | | | | | | X | | | X | | | X | | | X |
| | | | | | | | | | | | | | | | | | |
X = Expected funding source. | | | | | | | | | | | | | | | | | | |
X = Expected funding source.
Contractual Obligations
The Registrants have assumed various financial obligations and commitments in the ordinary course of conducting business. At December 31, 2014,2016, estimated contractual cash obligations were as follows.
| | | | Total | | 2015 | | 2016 - 2017 | | 2018 - 2019 | | After 2019 |
| | | | | | | | | | | | | | | | | |
| PPL | | | | | | | | | | | | | | | |
| Long-term Debt (a) | | $ | 20,426 | | $ | 1,535 | | $ | 1,137 | | $ | 794 | | $ | 16,960 |
| Interest on Long-term Debt (b) | | | 16,521 | | | 942 | | | 1,747 | | | 1,655 | | | 12,177 |
| Operating Leases (c) | | | 135 | | | 36 | | | 45 | | | 20 | | | 34 |
| Purchase Obligations (d) | | | 6,359 | | | 2,543 | | | 1,800 | | | 788 | | | 1,228 |
| Other Long-term Liabilities | | | | | | | | | | | | | | | |
| | Reflected on the Balance | | | | | | | | | | | | | | | |
| | Sheet under GAAP (e) (f) | | | 889 | | | 481 | | | 408 | | | | | | |
| Total Contractual Cash Obligations | | $ | 44,330 | | $ | 5,537 | | $ | 5,137 | | $ | 3,257 | | $ | 30,399 |
| PPL Energy Supply | | | | | | | | | | | | | | | |
| Long-term Debt (a) | | $ | 2,238 | | $ | 535 | | $ | 358 | | $ | 407 | | $ | 938 |
| Interest on Long-term Debt (b) | | | 799 | | | 120 | | | 164 | | | 117 | | | 398 |
| Operating Leases (c) | | | 39 | | | 11 | | | 21 | | | 5 | | | 2 |
| Purchase Obligations (d) | | | 2,400 | | | 790 | | | 813 | | | 419 | | | 378 |
| Other Long-term Liabilities | | | | | | | | | | | | | | | |
| | Reflected on the Balance | | | | | | | | | | | | | | | |
| | Sheet under GAAP (e) (f) | | | 73 | | | 73 | | | | | | | | | |
| Total Contractual Cash Obligations | | $ | 5,549 | | $ | 1,529 | | $ | 1,356 | | $ | 948 | | $ | 1,716 |
follows:
| | | Total | | 2015 | | 2016 - 2017 | | 2018 - 2019 | | After 2019 |
| | | | | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | | | | | | | |
| Long-term Debt (a) | | $ | 2,614 | | $ | 100 | | | | | | | | $ | 2,514 |
| Interest on Long-term Debt (b) | | | 2,376 | | | 119 | | $ | 229 | | $ | 229 | | | 1,799 |
| Purchase Obligations (d) | | | 189 | | | 68 | | | 45 | | | 45 | | | 31 |
| Other Long-term Liabilities | | | | | | | | | | | | | | | |
| | Reflected on the Balance | | | | | | | | | | | | | | | |
| | Sheet under GAAP (e) (f) | | | 32 | | | 32 | | | | | | | | | |
| Total Contractual Cash Obligations | | $ | 5,211 | | $ | 319 | | $ | 274 | | $ | 274 | | $ | 4,344 |
| | | | | Total | | 2017 | | 2018 - 2019 | | 2020 - 2021 | | After 2021 |
| PPL | | | | | | | | | | |
| Long-term Debt (a) | | $ | 18,399 |
| | $ | 518 |
| | $ | 484 |
| | $ | 2,412 |
| | $ | 14,985 |
|
| Interest on Long-term Debt (b) | | 14,556 |
| | 808 |
| | 1,577 |
| | 1,502 |
| | 10,669 |
|
| Operating Leases (c) | | 118 |
| | 31 |
| | 42 |
| | 19 |
| | 26 |
|
| Purchase Obligations (d) | | 3,596 |
| | 1,050 |
| | 1,179 |
| | 579 |
| | 788 |
|
| Other Long-term Liabilities Reflected on the Balance Sheet (e) | | 878 |
| | 377 |
| | 428 |
| | 73 |
| | — |
|
| Total Contractual Cash Obligations | | $ | 37,547 |
|
| $ | 2,784 |
|
| $ | 3,710 |
|
| $ | 4,585 |
|
| $ | 26,468 |
|
| | | | | | | | | | | |
| PPL Electric | | | | | | | | | | |
| Long-term Debt (a) | | $ | 2,864 |
| | $ | 224 |
| | $ | — |
| | $ | 500 |
| | $ | 2,140 |
|
| Interest on Long-term Debt (b) | | 2,441 |
| | 120 |
| | 237 |
| | 232 |
| | 1,852 |
|
| Unconditional Power Purchase Obligations | | 106 |
| | 24 |
| | 48 |
| | 34 |
| | — |
|
| Total Contractual Cash Obligations | | $ | 5,411 |
|
| $ | 368 |
|
| $ | 285 |
|
| $ | 766 |
|
| $ | 3,992 |
|
| | | | | | | | | | | |
| LKE | LKE | | | | | | | | | | | | | | | | | | | |
| Long-term Debt (a) | Long-term Debt (a) | | $ | 4,585 | | $ | 900 | | $ | 219 | | $ | 138 | | $ | 3,328 | $ | 5,110 |
| | $ | 194 |
| | $ | 234 |
| | $ | 1,225 |
| | $ | 3,457 |
|
| Interest on Long-term Debt (b) | Interest on Long-term Debt (b) | | 2,767 | | 159 | | 293 | | 293 | | 2,022 | 3,336 |
| | 196 |
| | 389 |
| | 350 |
| | 2,401 |
|
| Operating Leases (c) | Operating Leases (c) | | 73 | | 16 | | 19 | | 12 | | 26 | 93 |
| | 24 |
| | 35 |
| | 15 |
| | 19 |
|
| Coal and Natural Gas Purchase | | | | | | | | | | | |
| | | Obligations (g) | | 1,871 | | 732 | | 800 | | 256 | | 83 | |
| Unconditional Power Purchase | | | | | | | | | | | |
| | | Obligations (h) | | 876 | | 26 | | 53 | | 61 | | 736 | |
| Construction Obligations (i) | | 875 | | 801 | | 74 | | | | | |
| Coal and Natural Gas Purchase Obligations (f) | | 2,165 |
| | 575 |
| | 955 |
| | 409 |
| | 226 |
|
| Unconditional Power Purchase Obligations (g) | | 705 |
| | 29 |
| | 57 |
| | 58 |
| | 561 |
|
| Construction Obligations (h) | | 270 |
| | 258 |
| | 9 |
| | 2 |
| | 1 |
|
| Pension Benefit Plan Obligations (e) | Pension Benefit Plan Obligations (e) | 52 | | 52 | | | | | | | 18 |
| | 18 |
| | — |
| | — |
| | — |
|
| Other Obligations | Other Obligations | | | 96 | | | 74 | | | 15 | | | 7 | | | | 297 |
| | 111 |
| | 110 |
| | 76 |
| | — |
|
| Total Contractual Cash Obligations | Total Contractual Cash Obligations | | $ | 11,195 | | $ | 2,760 | | $ | 1,473 | | $ | 767 | | $ | 6,195 | $ | 11,994 |
| | $ | 1,405 |
| | $ | 1,789 |
| | $ | 2,135 |
| | $ | 6,665 |
|
| | | | | | | | | | | |
| LG&E | LG&E | | | | | | | | | | | | | | | | | | | |
| Long-term Debt (a) | Long-term Debt (a) | | $ | 1,359 | | $ | 250 | | $ | 219 | | $ | 138 | | $ | 752 | $ | 1,634 |
| | $ | 194 |
| | $ | 138 |
| | $ | — |
| | $ | 1,302 |
|
| Interest on Long-term Debt (b) | Interest on Long-term Debt (b) | | 927 | | 47 | | 87 | | 81 | | 712 | 1,257 |
| | 61 |
| | 118 |
| | 112 |
| | 966 |
|
| Operating Leases (c) | Operating Leases (c) | | 28 | | 6 | | 7 | | 4 | | 11 | 50 |
| | 15 |
| | 21 |
| | 6 |
| | 8 |
|
| Coal and Natural Gas Purchase | | | | | | | | | | | |
| | Obligations (g) | | 972 | | 340 | | 437 | | 112 | | 83 | |
| Unconditional Power Purchase | | | | | | | | | | | |
| | Obligations (h) | | 607 | | 18 | | 37 | | 42 | | 510 | |
| Construction Obligations (i) | | 542 | | 472 | | 70 | | | | | |
| Pension Benefit Plan Obligations (e) | 21 | | 21 | | | | | | | |
| Coal and Natural Gas Purchase Obligations (f) | | 912 |
| | 248 |
| | 416 |
| | 163 |
| | 85 |
|
| Unconditional Power Purchase Obligations (g) | | 488 |
| | 20 |
| | 39 |
| | 40 |
| | 389 |
|
| Construction Obligations (h) | | 147 |
| | 143 |
| | 3 |
| | 1 |
| | — |
|
| Other Obligations | Other Obligations | | | 31 | | | 25 | | | 4 | | | 2 | | | | 138 |
| | 45 |
| | 53 |
| | 40 |
| | — |
|
| Total Contractual Cash Obligations | Total Contractual Cash Obligations | | $ | 4,487 | | $ | 1,179 | | $ | 861 | | $ | 379 | | $ | 2,068 | $ | 4,626 |
| | $ | 726 |
| | $ | 788 |
| | $ | 362 |
| | $ | 2,750 |
|
| | | | | | | | | | | |
| KU | KU | | | | | | | | | | | | | | | | | | | |
| Long-term Debt (a) | Long-term Debt (a) | | $ | 2,101 | | $ | 250 | | | | | | $ | 1,851 | $ | 2,351 |
| | $ | — |
| | $ | 96 |
| | $ | 500 |
| | $ | 1,755 |
|
| Interest on Long-term Debt (b) | Interest on Long-term Debt (b) | | 1,648 | | 75 | | $ | 149 | | $ | 155 | | 1,269 | 1,820 |
| | 92 |
| | 186 |
| | 170 |
| | 1,372 |
|
| Operating Leases (c) | Operating Leases (c) | | 41 | | 9 | | 12 | | 7 | | 13 | 42 |
| | 9 |
| | 14 |
| | 9 |
| | 10 |
|
| Coal and Natural Gas Purchase | | | | | | | | | | | |
| | Obligations (g) | | 899 | | 392 | | 363 | | 144 | | | |
| Unconditional Power Purchase | | | | | | | | | | | |
| | Obligations (h) | | 269 | | 8 | | 16 | | 19 | | 226 | |
| Construction Obligations (i) | | 317 | | 313 | | 4 | | | | | |
| Coal and Natural Gas Purchase Obligations (f) | | 1,252 |
| | 327 |
| | 538 |
| | 246 |
| | 141 |
|
| Unconditional Power Purchase Obligations (g) | | 217 |
| | 9 |
| | 18 |
| | 18 |
| | 172 |
|
| Construction Obligations (h) | | 105 |
| | 102 |
| | 2 |
| | 1 |
| | — |
|
| Pension Benefit Plan Obligations (e) | Pension Benefit Plan Obligations (e) | 15 | | 15 | | | | | | | 18 |
| | 18 |
| | — |
| | — |
| | — |
|
| Other Obligations | Other Obligations | | | 50 | | | 34 | | | 11 | | | 5 | | | | 117 |
| | 40 |
| | 45 |
| | 32 |
| | — |
|
| Total Contractual Cash Obligations | Total Contractual Cash Obligations | | $ | 5,340 | | $ | 1,096 | | $ | 555 | | $ | 330 | | $ | 3,359 | $ | 5,922 |
| | $ | 597 |
| | $ | 899 |
| | $ | 976 |
| | $ | 3,450 |
|
| |
| (a) | Reflects principal maturities based on stated maturity or earlier put dates. See Note 7 to the Financial Statements for a discussion of the remarketing feature related to the REPS, as well as discussion of variable-rate remarketable bonds issued on behalf of PPL Energy Supply, LG&E and KU. The Registrants do not have any significant capital lease obligations. |
| |
| (b) | Assumes interest payments through stated maturity or earlier put dates. For PPL, PPL Energy Supply, LKE, LG&E and KU the payments herein are subject to change, as payments for debt that is or becomes variable-rate debt have been estimated and for PPL, payments denominated in British pounds sterling have been translated to U.S. dollars at a current foreign currency exchange rate. |
| |
| (c) | See Note 9 to the Financial Statements for additional information. |
| |
| (d) | The amounts include agreements to purchase goods or services that are enforceable and legally binding and specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Primarily includes as applicable, the purchase obligations of electricity, coal, nuclear fuel and limestone as well as certain construction expenditures, which are also included in the Capital Expenditures table presented above. Financial swaps (for PPL and PPL Energy Supply) and open purchase orders that are provided on demand with no firm commitment are excluded from the amounts presented. |
applicable, the purchase obligations of electricity, coal, natural gas and limestone, as well as certain construction expenditures, which are also included in the Capital Expenditures table presented above.
| |
| (e) | The amounts for PPL include WPD's contractual deficit pension funding requirements arising from actuarial valuations performed in March 2013.2013 and March 2016. The U.K. electricity regulator currently allows a recovery of a substantial portion of the contributions relating to the plan deficit. The amounts also include contributions made or committed to be made in 20152017 for PPL's and LKE's U.S. pension plans (for PPL Energy Supply, PPL Electric, LG&E and KU includes their share of these amounts). Based on the current funded status of these plans, except for WPD's plans, no cash contributions are required. See Note 11 to the Financial Statements for a discussion of expected contributions. |
(f) | At December 31, 2014, total unrecognized tax benefits of $20 million for PPL and $15 million for PPL Energy Supply were excluded from this table as management cannot reasonably estimate the amount and period of future payments. See Note 5 to the Financial Statements for additional information. |
(g)(f) | Represents contracts to purchase coal, natural gas and natural gas transportation. See Note 13 to the Financial Statements for additional information. |
(h) | |
| (g) | Represents future minimum payments under OVEC power purchase agreements through June 2040. See Note 13 to the Financial Statements for additional information. |
(i) | |
| (h) | Represents construction commitments, including commitments for the LG&E's Mill Creek and KU's Ghent and E.W. Brown environmental air projects, LG&E's and KU's CaneTrimble County landfill construction, LG&E's Paddy's Run Unit 7, KU's E.W. Brown landfill and LG&E'splant demolition, Ohio Falls refurbishment and completion of the Mill Creek environmental air project, which are also reflected in the Capital Expenditures table presented above. |
Dividends/Distributions
(PPL)
PPL views dividends as an integral component of shareowner return and expects to continue to pay dividends in amounts that are within the context of maintaining a capitalization structure that supports investment grade credit ratings. In November 2016, PPL declared its quarterly common stock dividend, payable January 3, 2017, at 38 cents per share (equivalent to $1.52 per annum). On February 1, 2017, PPL announced that the company is increasing its common stock dividend to 39.5 cents per share on a quarterly basis (equivalent to $1.58 per annum). Future dividends will be declared at the discretion of the Board of Directors and will depend upon future earnings, cash flows, financial and legal requirements and other relevant factorsfactors.
See Note 8 to the Financial Statements for information regarding the June 1, 2015 distribution to PPL's shareowners of a newly formed entity, Holdco, which at closing owned all of the time. membership interests of PPL Energy Supply and all of the common stock of Talen Energy.
Subject to certain exceptions, PPL may not declare or pay any cash dividend or distribution on its capital stock during any period in which PPL Capital Funding defers interest payments on its 2007 Series A Junior Subordinated Notes due 2067 or 2013 Series B Junior Subordinated Notes due 2073. At December 31, 2014,2016, no interest payments were deferred.
(All Registrants except PPL)PPL Electric, LKE, LG&E and KU)
From time to time, as determined by their respective Board of Directors, or Board of Managers, the Registrants pay dividends or distributions, as applicable, to their respective shareholders or members. PPL Energy Supply expects to distribute to its member an amount not to exceed $191 million in the first quarter of 2015. Certain of the credit facilities of PPL Energy Supply, PPL Electric, LKE, LG&E and KU include minimum debt covenant ratios that could effectively restrict the payment of dividends or distributions. See "Forecasted Sources of Cash" above for information on additional restrictions on PPL Energy Supply's ability to make distributions to its member, PPL.
(All Registrants)
See Note 7 to the Financial Statements for these and other restrictions related to distributions on capital interests for the Registrants and their subsidiaries.
Purchase or Redemption of Debt Securities
The Registrants will continue to evaluate outstanding debt securities and may decide to purchase or redeem these securities in open market or privately negotiated transactions, in exchange transactions or otherwise, depending upon prevailing market conditions, available cash and available cash.other factors, and may be commenced or suspended at any time. The amounts involved may be material.
Rating Agency Actions
Moody's and S&P and Fitch have periodically reviewed 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. In January 2015, Fitch withdrew its ratings for PPL, PPL Capital Funding, PPL Energy Supply, PPL Electric, LKE, LG&E, and KU.
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 and Fitch are not a recommendation to buy, sell or hold any securities of the Registrants or their subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities.
The credit ratings of the Registrants and their subsidiaries affect their liquidity, access to capital markets and cost of borrowing under their credit facilities.
The following table sets forth the Registrants' and their subsidiaries' credit ratings for outstanding debt securities or commercial paper programs as of December 31, 2014.
| | Senior Unsecured | | Senior Secured | | Commercial Paper |
| | | | | | | | | | | | | | | | | | |
Issuer | | Moody's | | S&P | | Fitch | | Moody's | | S&P | | Fitch | | Moody's | | S&P | | Fitch |
| | | | | | | | | | | | | | | | | | |
PPL | | | | | | | | | | | | | | | | | | |
WPD Ltd. | | Baa3 | | BBB- | | | | | | | | | | | | | | |
WPD (East Midlands) | | Baa1 | | BBB | | | | | | | | | | | | | | |
WPD (West Midlands) | | Baa1 | | BBB | | | | | | | | | | | | | | |
WPD (South Wales) | | Baa1 | | BBB | | A- | | | | | | | | | | | | |
WPD (South West) | | Baa1 | | BBB | | A- | | | | | | | | P-2 | | | | |
PPL Capital Funding | | Baa3 | | BBB- | | BBB | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
PPL and PPL Energy Supply | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | | Ba1 | | BB | | BB | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
PPL and PPL Electric | | | | | | | | | | | | | | | | | | |
PPL Electric | | | | | | | | A2 | | A- | | A- | | P-2 | | A-2 | | F2 |
| | | | | | | | | | | | | | | | | | |
PPL and LKE | | | | | | | | | | | | | | | | | | |
LKE | | Baa2 | | BBB- | | BBB+ | | | | | | | | | | | | |
LG&E | | | | | | | | A1 | | A- | | A+ | | P-2 | | A-2 | | F2 |
KU | | | | | | | | A1 | | A- | | A+ | | P-2 | | A-2 | | F2 |
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.
In addition toThe following table sets forth the Registrants' and their subsidiaries' credit ratings noted above, thefor outstanding debt securities or commercial paper programs as of December 31, 2016.
|
| | | | | | | | | | | | |
| | Senior Unsecured | | Senior Secured | | Commercial Paper |
| | | | | | | | | | | | |
| Issuer | | Moody's | | S&P | | Moody's | | S&P | | Moody's | | S&P |
| PPL | | | | | | | | | | | | |
| PPL Capital Funding | | Baa2 | | BBB+ | | | | | | P-2 | | A-2 |
| WPD plc | | Baa3 | | BBB+ | | | | | | | | |
| WPD (East Midlands) | | Baa1 | | A- | | | | | | | | |
| WPD (West Midlands) | | Baa1 | | A- | | | | | | | | |
| WPD (South Wales) | | Baa1 | | A- | | | | | | | | |
| WPD (South West) | | Baa1 | | A- | | | | | | | | |
| | | | | | | | | | | | |
| PPL and PPL Electric | | | | | | | | | | | | |
| PPL Electric | | | | | | A1 | | A | | P-2 | | A-2 |
| | | | | | | | | | | | |
| PPL and LKE | | | | | | | | | | | | |
| LKE | | Baa1 | | BBB+ | | | | | | | | |
| LG&E | | | | | | A1 | | A | | P-2 | | A-2 |
| KU | | | | | | A1 | | A | | P-2 | | A-2 |
The rating agencies have taken the following actions related to the Registrants and their subsidiaries.
(PPL)
In January 2014,February 2016, Moody's and S&P affirmed itstheir commercial paper ratings and revised its outlook to stable for PPL.PPL Capital Funding's $1.0 billion commercial paper program.
In March 2014,May 2016, Moody's and S&P and Fitch assigned ratings of Baa3, BBB-Baa2 and BBB, respectively,BBB+ to PPL Capital Funding's $350$650 million 3.95%3.10% Senior Notes due 2024 and $400 million 5.00% Senior Notes due 2044. Fitch also assigned a stable outlook to these notes.2026.
In April 2014, Moody's affirmed its ratings withJune 2016, S&P assigned a stable outlook for PPL WEM, WPD (East Midlands), WPD (West Midlands), PPL WW, WPD (South Wales)long-term issuer rating of A- and WPD (South West).
In April 2014, Fitch affirmed its ratings with a stable outlook for PPL andshort-term issuer rating of A-2 to PPL Capital Funding.
In June 2014, Moody's affirmed its ratings and revised its outlook to positive for (PPL and PPL Capital Funding.Electric)
In June 2014, S&P affirmed its ratings for PPL, PPL Capital Funding, PPL WEM, WPD (East Midlands), WPD (West Midlands), PPL WW, WPD (South Wales) and WPD (South West) and placed the issuers on CreditWatch with positive implications.
In June 2014, Fitch affirmed its ratings with a stable outlook for PPL and PPL Capital Funding.
In August 2014, Fitch affirmed its ratings and revised its outlook to negative for WPD (South Wales). Fitch also affirmed its ratings with a stable outlook for PPL WW and WPD (South West).
In October 2014, Fitch affirmed and withdrew its long-term and short-term issuer default ratings for PPL Capital Funding.
In October 2014,February 2016, Moody's and S&P affirmed their commercial paper ratings and outlooks for WPD (East Midlands), WPD (West Midlands), WPD (South Wales) and WPD (South West). PPL Electric's $400 million commercial paper program.
In addition,February 2016, Moody's and S&P have assigned Baa3, P-3, Stable and BBB, A-2, CreditWatch Positive long and short-term issuer ratings to Western Power Distribution Ltd, the new holding company for the four DNOs, following a legal entity restructuring implemented in October 2014. The issuer ratings of PPL WWA1 and PPL WEM have also been withdrawn.
(PPLA to LCIDA's $116 million 0.90% Pollution Control Revenue Refunding Bonds due 2029 and PPL Energy Supply)
In April 2014, Fitch affirmed its ratings with a negative outlook for PPL Energy Supply.
In May 2014, S&P lowered its long-term issuer rating and senior unsecured rating from BBB to BB+ and its commercial paper rating and short-term issuer rating from A-2 to A-3 with a stable outlook for PPL Energy Supply.
In June 2014, Moody's lowered its senior unsecured rating from Baa2 to Ba1 and its commercial paper rating and short-term issuer rating from P-2 to Not Prime with a negative outlook for PPL Energy Supply. Moody's also assigned a Corporate Family Rating$108 million 0.90% Pollution Control Revenue Refunding Bonds due 2027, issued on behalf of Ba1, a Probability of Default Rating of Ba1-PD and a Speculative Grade Liquidity rating of SGL-1 to PPL Energy Supply.
In June 2014, S&P lowered its long-term issuer rating and senior unsecured rating from BB+ to BB and its commercial paper rating and short-term issuer rating from A-3 to B for PPL Energy Supply and placed the issuer on CreditWatch with negative implications.
In June 2014, Fitch lowered its long-term issuer default rating and senior unsecured debt rating from BBB- to BB and its commercial paper rating and short-term issuer default rating from F3 to B for PPL Energy Supply and placed the issuer on Rating Watch Negative.
(PPL and PPL Electric)
In January 2014, Moody's upgraded its long-term issuer rating and senior unsecured rating from Baa2 to Baa1 and senior secured rating from A3 to A2, affirmed its commercial paper rating and revised its outlook to stable for PPL Electric.
In April 2014, Fitch affirmed its ratings with a stable outlook for PPL Electric.
In June 2014,January 2017, Moody's and S&P affirmed itstheir commercial paper ratings for PPL Electric and placed the issuer on CreditWatch with positive implications.Electric's $650 million commercial paper program.
In June 2014, Moody's, S&P and Fitch assigned ratings of A2, A- and A-, respectively, to PPL Electric's $300 million 4.125% First Mortgage Bonds due 2044. Fitch also assigned a stable outlook to these notes.
In December 2014, Fitch upgraded its long-term issuer ratings from BBB to BBB+ for PPL Electric.
(PPL, LKE, LG&E and KU)
In January 2014, Moody's affirmed its ratings and revised its outlook to stable for LKE.
In January 2014, Moody's upgraded its long-term issuer ratings and senior unsecured ratings from Baa1 to A3 and senior secured ratings from A2 to A1, affirmed its commercial paper ratings and revised its outlook to stable for LG&E and KU.
In February 2014, Moody's affirmed its ratings for KU's 2000 Series A Solid Waste Disposal Facility Revenue Bonds, KU's 2004 Series A and 2008 Series A Environmental Facilities Revenue Bonds and KU's 2006 Series B Environmental Facilities Revenue Refunding Bonds.
In April 2014, Fitch affirmed its ratings with a stable outlook for LKE, LG&E and KU.
In June 2014, S&P affirmed its ratings for LKE, LG&E and KU and placed the issuers on CreditWatch with positive implications.
In June 2014, Moody's affirmed its ratings and revised its outlook to positive for LKE.
In June 2014, S&P affirmed its ratings for KU's 2000 Series A Solid Waste Disposal Facility Revenue Bonds, KU's 2004 Series A and 2008 Series A Environmental Facilities Revenue Bonds and KU's 2006 Series B Environmental Facilities Revenue Refunding Bonds and placed them on CreditWatch with positive implications.(LG&E)
In September 2014,2016, Moody's affirmed itsand S&P assigned ratings for KU's 2000 Seriesof A1 and A Solid Waste Disposal Facility Revenue Bonds, KU's 2004 Series A and 2008 Series A Environmental Facilities Revenue Bonds and KU's 2006 Series B Environmental Facilitiesto the $125 million County of Trimble, Kentucky Pollution Control Revenue Refunding Bonds.Bonds, Series 2016 A (Louisville Gas and Electric Company Project) due 2044, issued on behalf of LG&E.
(KU)
In October 2014,August 2016, Moody's and S&P affirmed itsassigned ratings for KU's 2000 Seriesof A1 and A Solid Waste Disposal Facility Revenue Bonds, KU's 2004 Series A and 2008 Series A Environmental Facilities Revenue Bonds and KU's 2006 Series B Environmental Facilities Revenue Refunding Bonds.
In December 2014, S&P confirmed its ratings for LG&E's 2001 Series Ato the $96 million County of Carroll, Kentucky Pollution Control Revenue Refunding Bonds, LG&E's 2001 Series B (Louisville/Jefferson County Metro Government, Kentucky) Pollution Control Revenue Bonds and LG&E's 2001 Series B (County2016 A (Kentucky Utilities Company Project) due 2042, issued on behalf of Trimble, Kentucky) Pollution Control Revenue Bonds.KU.
In December 2014, Moody's assigned an A1 rating for LG&E's 2001 Series A Pollution Control Revenue Bonds, LG&E's 2001 Series B (Louisville/Jefferson County Metro Government, Kentucky) Pollution Control Revenue Bonds and LG&E's 2001 Series B (County of Trimble, Kentucky) Pollution Control Revenue Bonds.
In December 2014, Moody's downgraded its long-term ratings from Aa1 to Aa2 for KU's 2000 Series A Solid Waste Disposal Facility Revenue Bonds, KU's 2004 Series A and 2008 Series A Environmental Facilities Revenue Bonds and KU's 2006 Series B Environmental Facilities Revenue Refunding Bonds.
Ratings Triggers
(PPL)
As discussed in Note 7 to the Financial Statements, certain of WPD's senior unsecured notes may be put by the holders to the issuer for redemption if the long-term credit ratings assigned to the notes are withdrawn by any of the rating agencies (Moody's S&P, or Fitch)S&P) or reduced to a non-investment grade rating of Ba1 or BB+ or lower in connection with a restructuring event. A restructuring event includes the loss of, or a material adverse change to, the distribution licenses under which WPD (East Midlands), WPD (South West), WPD (South Wales) and WPD (West Midlands) operate and would be a trigger event for each company. These notes totaled £3.8£4.4 billion (approximately $5.9$5.5 billion) nominal value at December 31, 2014.2016.
(All Registrants except PPL, Electric)LKE, LG&E and KU)
Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, interest rate and foreign currency instruments (for PPL), contain provisions that require the posting of additional collateral, or permit the counterparty to terminate the contract, if PPL's, PPL Energy Supply's, LKE's, LG&E's or KU's or their subsidiaries' credit rating, as applicable, were to fall below investment grade. See Note 17 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral requirements for PPL, PPL Energy Supply, LKE and LG&E for derivative contracts in a net liability position at December 31, 2014.2016.
Guarantees for Subsidiaries (PPL and PPL Energy Supply)(PPL)
PPL and PPL Energy Supply guaranteeguarantees certain consolidated affiliate financing arrangements. Some of the guarantees contain financial and other covenants that, if not met, would limit or restrict the consolidated affiliates' access to funds under these financing arrangements, accelerate maturity of such arrangements or limit the consolidated affiliates' ability to enter into certain transactions. At this time, PPL and PPL Energy Supply believebelieves that these covenants will not limit access to relevant funding sources. See Note 13 to the Financial Statements for additional information about guarantees.
Off-Balance Sheet Arrangements(All Registrants)
The Registrants have entered into certain agreements that may contingently require payment to a guaranteed or indemnified party. See Note 13 to the Financial Statements for a discussion of these agreements.
Risk Management
Market Risk
(All Registrants)
See Notes 1, 16, and 17 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.
The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of possible losses under normal market conditions at a given confidence level.
Commodity Price Risk (Non-trading)
(PPL, LKE, LG&E, and KU)
LG&E's and KU's retail electric and natural gas rates and municipal wholesale electric rates are set by regulatory commissions and the fuel costs incurred are directly recoverable from customers. As a result, LG&E and KU are subject to commodity price risk for only a small portion of on-going business operations. LG&E and KU sell excess economic generation to maximize the value of the physical assets at times when the assets are not required to serve LG&E's or KU's customers. See Note 17 to the Financial Statements for additional information.
(PPL and PPL Electric)
PPL Electric is exposed to market price and volumetric risks from its obligation as PLR. The PUC has approved a cost recovery mechanism that allows PPL Electric to pass through to customers the cost associated with fulfilling its PLR obligation. This cost recovery mechanism substantially eliminates PPL Electric's exposure to market price risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement energy supply contracts for the majority of its PLR obligations. These supply contracts transfer the volumetric risk associated with the PLR obligation to the energy suppliers.
(PPL and PPL Energy Supply)
PPL Energy Supply segregates its non-trading activities into two categories: hedge activity and economic activity. Transactions that are accounted for as hedge activity qualify for hedge accounting treatment. The economic activity category includes transactions that address a specific risk, but were not eligible for hedge accounting or for which hedge accounting was not elected. This activity includes the changes in fair value of positions used to hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and full-requirement sales and retail contracts. This economic activity is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power). Although they do not receive hedge accounting treatment, these transactions are considered non-trading activity. See Note 17 to the Financial Statements for additional information.
To hedge the impact of market price volatility on PPL Energy Supply's energy-related assets, liabilities and other contractual arrangements, PPL Energy Supply both sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts. PPL Energy Supply's non-trading commodity derivative contracts range in maturity through 2019.
The following tables sets forth the changes in the net fair value of non-trading commodity derivative contracts at December 31. See Notes 16 and 17 to the Financial Statements for additional information.
| | | | Gains (Losses) |
| | | | 2014 | | 2013 |
| | | | | | | | |
| Fair value of contracts outstanding at the beginning of the period | | $ | 107 | | $ | 473 |
| Contracts realized or otherwise settled during the period | | | 328 | | | (452) |
| Fair value of new contracts entered into during the period (a) | | | (12) | | | 58 |
| Other changes in fair value | | | (370) | | | 28 |
| Fair value of contracts outstanding at the end of the period | | $ | 53 | | $ | 107 |
(a) | Represents the fair value of contracts at the end of the quarter of their inception. |
The following table segregates the net fair value of non-trading commodity derivative contracts at December 31, 2014 based on the observability of the information used to determine the fair value.
| | | | Net Asset (Liability) |
| | | | Maturity | | | | | | | | Maturity | | | |
| | | | Less Than | | Maturity | | Maturity | | in Excess | | Total Fair |
| | | | 1 Year | | 1-3 Years | | 4-5 Years | | of 5 Years | | Value |
| Source of Fair Value | | | | | | | | | | | | | | | |
| Prices based on significant observable inputs (Level 2) | | $ | 12 | | $ | (32) | | $ | 10 | | | | | $ | (10) |
| Prices based on significant unobservable inputs (Level 3) | | | 46 | | | 16 | | | 1 | | | | | | 63 |
| Fair value of contracts outstanding at the end of the period | | $ | 58 | | $ | (16) | | $ | 11 | | | | | $ | 53 |
PPL Energy Supply sells electricity, capacity and related services and buys fuel on a forward basis to hedge the value of energy from its generation assets. If PPL Energy Supply were unable to deliver firm capacity and energy or to accept the delivery of fuel under its agreements, under certain circumstances it could be required to pay liquidating damages. These damages would be based on the difference between the market price and the contract price of the commodity. Depending on price changes in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, nonperformance by counterparties (or their counterparties) with which it has energy contracts and other factors could affect PPL Energy Supply's ability to meet its obligations, or cause significant increases in the market price of replacement energy. Although PPL Energy Supply attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty nonperformance in the future.
Commodity Price Risk (Trading)
PPL Energy Supply's trading commodity derivative contracts range in maturity through 2020. The following table sets forth changes in the net fair value of trading commodity derivative contracts at December 31. See Notes 16 and 17 to the Financial Statements for additional information.
| | | Gains (Losses) |
| | | 2014 | | 2013 |
| | | | | | | |
| Fair value of contracts outstanding at the beginning of the period | | $ | 11 | | $ | 29 |
| Contracts realized or otherwise settled during the period | | | (60) | | | (13) |
| Fair value of new contracts entered into during the period (a) | | | 5 | | | 3 |
| Other changes in fair value | | | 92 | | | (8) |
| Fair value of contracts outstanding at the end of the period | | $ | 48 | | $ | 11 |
(a) | Represents the fair value of contracts at the end of the quarter of their inception. |
The following table segregates the net fair value of trading commodity derivative contracts at December 31, 2014 based on the observability of the information used to determine the fair value.
| | | | Net Asset (Liability) |
| | | | Maturity | | | | | | | | Maturity | | | |
| | | | Less Than | | Maturity | | Maturity | | in Excess | | Total Fair |
| | | | 1 Year | | 1-3 Years | | 4-5 Years | | of 5 Years | | Value |
| Source of Fair Value | | | | | | | | | | | | | | | |
| Prices quoted in active markets for identical instruments (Level 1) | | $ | 1 | | | | | | | | | | | $ | 1 |
| Prices based on significant observable inputs (Level 2) | | | (10) | | $ | 11 | | $ | (2) | | | | | | (1) |
| Prices based on significant unobservable inputs (Level 3) | | | 6 | | | 14 | | | 17 | | $ | 11 | | | 48 |
| Fair value of contracts outstanding at the end of the period | | $ | (3) | | $ | 25 | | $ | 15 | | $ | 11 | | $ | 48 |
A VaR model is utilized to measure commodity price risk in unregulated gross energy margins for the non-trading and trading portfolios. VaR is a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level. VaR is calculated using a Monte Carlo simulation technique based on a five-day holding period at a 95% confidence level. Given the company's disciplined hedging program, the non-trading VaR exposure is expected to be limited in the short-term. The VaR for portfolios using end-of-month results for 2014 was as follows.
| | | | Trading | | Non-Trading |
| 95% Confidence Level, Five-Day Holding Period | | | | | | |
| | Period End | | $ | 4 | | $ | 7 |
| | Average for the Period | | | 7 | | | 10 |
| | High | | | 10 | | | 15 |
| | Low | | | 4 | | | 5 |
The trading portfolio includes all proprietary trading positions, regardless of the delivery period. All positions not considered proprietary trading are considered non-trading. The non-trading portfolio includes the entire portfolio, including generation, with delivery periods through the next 12 months. Both the trading and non-trading VaR computations exclude FTRs due to the absence of reliable spot and forward markets. The fair value of the non-trading and trading FTR positions was insignificant at December 31, 2014.
Interest Rate Risk (All Registrants)
The Registrants and their subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. The Registrants and their subsidiaries utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of their debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to
volatility in interest expense and changes in the fair value of the debt portfolios due to changes in the absolute level of interest rates.
The following interest rate hedges were outstanding at December 31.
| | | | 2014 | | 2013 |
| | | | | | | | | | Effect of a | | | | | | | | | | Effect of a |
| | | | | | Fair Value, | | 10% Adverse | | Maturities | | | | Fair Value, | | 10% Adverse |
| | | | Exposure | | Net - Asset | | Movement | | Ranging | | Exposure | | Net - Asset | | Movement |
| | | | Hedged | | (Liability) (a) | | in Rates (b) | | Through | | Hedged | | (Liability) (a) | | in Rates (b) |
| PPL | | | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | | | | | | |
| | Interest rate swaps (c) | | $ | 1,600 | | $ | (108) | | $ | (59) | | 2045 | | $ | 1,325 | | $ | 91 | | $ | (44) |
| | Cross-currency swaps (d) | 1,262 | | | 27 | | | (165) | | 2028 | | | 1,262 | | | (31) | | | (177) |
| Economic hedges | | | | | | | | | | | | | | | | | | | | |
| | Interest rate swaps (e) | | | 179 | | | (49) | | | (3) | | 2033 | | | 179 | | | (37) | | | (4) |
| | | | | 2016 | | 2015 |
| | | 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) |
| PPL | | | | | | | | | | | | | | |
| Cash flow hedges | | |
| | |
| | |
| | | | |
| | |
| | |
|
| Interest rate swaps (c) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 300 |
| | $ | (24 | ) | | $ | (7 | ) |
| Cross-currency swaps (d) | | 802 |
| | 191 |
| | (90 | ) | | 2028 | | 1,262 |
| | 87 |
| | (152 | ) |
| Economic hedges | | | | | | | | | | | | | | |
| Interest rate swaps (e) | | 147 |
| | (32 | ) | | (2 | ) | | 2033 | | 179 |
| | (48 | ) | | (2 | ) |
| LKE | LKE | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | |
| | Interest rate swaps (c) | | 1,000 | | (66) | | (44) | | 2045 | | | | | | | |
| Economic hedges | Economic hedges | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest rate swaps (e) | | 179 | | (49) | | (3) | | 2033 | | 179 | | (37) | | (4) | |
| Interest rate swaps (e) | | 147 |
| | (32 | ) | | (2 | ) | | 2033 | | 179 |
| | (48 | ) | | (2 | ) |
| LG&E | LG&E | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | |
| | Interest rate swaps (c) | | 500 | | (33) | | (22) | | 2045 | | | | | | | |
| Economic hedges | Economic hedges | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest rate swaps (e) | | 179 | | (49) | | (3) | | 2033 | | 179 | | (37) | | (4) | |
| KU | | | | | | | | | | | | | | | |
| Cash flow hedges | | | | | | | | | | | | | | | |
| | Interest rate swaps (c) | | 500 | | (33) | | (22) | | 2045 | | | | | | | |
| Interest rate swaps (e) | | 147 |
| | (32 | ) | | (2 | ) | | 2033 | | 179 |
| | (48 | ) | | (2 | ) |
| |
| (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 such cash flow hedges are recorded in equity or as regulatory assets or regulatory liabilities, if recoverablerecovered through regulated rates, and reclassified into earnings in the same period during which the item being hedged affects earnings. |
| |
| (d) | Cross-currency swaps are utilized to hedge the principal and interest payments of WPD's U.S. dollar-denominated senior notes. Changes in the fair value of these instruments are recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings. |
| |
| (e) | Realized changes in the fair value of such economic hedges are recoverable through regulated rates and any subsequent changes in the fair value of these derivatives are included in regulatory assets or regulatory liabilities. |
The Registrants are exposed to a potential increase in interest expense and to changes in the fair value of their debt portfolios. The estimated impact of a 10% adverse movement in interest rates on interest expense at December 31, 2016 and 2015 was insignificant for PPL, PPL Electric, LKE, LG&E and KU. The estimated impact of a 10% adverse movement in interest rates on the fair value of debt at December 31 is shown below.
|
| | | | | | | |
| | 10% Adverse Movement in Rates |
| | 2016 | | 2015 |
| PPL | $ | 590 |
| | $ | 710 |
|
| PPL Electric | 138 |
| | 152 |
|
| LKE | 182 |
| | 192 |
|
| LG&E | 66 |
| | 69 |
|
| KU | 100 |
| | 104 |
|
| | | | | | | PPL Energy | | | PPL | | | | | | | | | |
| | | | PPL | | Supply | | | Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | | | |
| 2014 | | | | | | | | | | | | | | | | |
| Increase in interest | | Not | | Not | | | Not | | | Not | | | Not | | | Not |
| | expense | | Significant | | Significant | | | Significant | | Significant | | Significant | | | Significant |
| Increase in fair value | | | | | | | | | | | | | | | | | | |
| | of debt | | $ | 707 | | $ | 46 | | $ | 132 | | $ | 138 | | $ | 44 | | $ | 82 |
| | | | | | | | | | | | | | | | | | | | |
| 2013 | | | | | | | | | | | | | | | | |
| Increase in interest | | Not | | Not | | | Not | | | Not | | | Not | | | Not |
| | expense | | Significant | | Significant | | | Significant | | Significant | | Significant | | | Significant |
| Increase in fair value | | | | | | | | | | | | | | | | | | |
| | of debt | | $ | 732 | | $ | 48 | | $ | 120 | | $ | 146 | | $ | 45 | | $ | 85 |
Foreign Currency Risk (PPL)
PPL is exposed to foreign currency risk primarily through investments in U.K. affiliates. In addition, PPL's domestic operations may make purchases of equipment in currencies other than U.S. dollars. See Note 1 to the Financial Statements for additional information regarding foreign currency translation.
PPL has adopted a foreign currencyUnder its risk management program, designedPPL may enter into financial instruments to hedge certain foreign currency exposures, including translation risk of expected earnings, firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk
The following foreign currency hedges were outstanding at December 31.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| | Exposure Hedged | | Fair Value, Net - Asset (Liability) | | Effect of a 10% Adverse Movement in Foreign Currency Exchange Rates (a) | | Maturities Ranging Through | | Exposure
Hedged | | Fair Value, Net - Asset (Liability) | | Effect of a 10% Adverse Movement in Foreign Currency Exchange Rates (a) |
| Net investment hedges (b) | £ | — |
| | $ | — |
| | $ | — |
| | | | £ | 50 |
| | $ | 10 |
| | $ | (7 | ) |
| Economic hedges (c) | 1,909 |
| | 184 |
| | (215 | ) | | 2018 | | 1,831 |
| | 198 |
| | (246 | ) |
| | | | 2014 | | 2013 |
| | | | | | | | | | Effect of a 10% | | | | | | | | | | Effect of a 10% |
| | | | | | | Fair Value, | | Adverse Movement | | Maturities | | | | | Fair Value, | | Adverse Movement |
| | | | Exposure | | Net - Asset | | in Foreign Currency | | Ranging | | Exposure | | Net - Asset | | in Foreign Currency |
| | | | Hedged | | (Liability) | | Exchange Rates (a) | | Through | | Hedged | | (Liability) | | Exchange Rates (a) |
| | | | | | | | | | | | | | | | | | | | | | |
| Net investment | | | | | | | | | | | | | | | | | | | | |
| | hedges (b) | | £ | 217 | | $ | 17 | | $ | (34) | | 2016 | | £ | 301 | | $ | (20) | | $ | (49) |
| Economic | | | | | | | | | | | | | | | | | | | | |
| | hedges (c) | | | 1,368 | | | 111 | | | (193) | | 2016 | | | 1,425 | | | (86) | | | (222) |
| |
| (a) | Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. |
| |
| (b) | To protect the value of a portion of its net investment in WPD, PPL executes forward contracts to sell GBP. The positions outstanding exclude the amount of intercompany loans classified as net investment hedges. See Note 17 to the Financial Statements for additional information. |
| |
| (c) | To economically hedge the translation of expected earnings denominated in GBP to U.S. dollars.GBP. |
NDT Funds - Securities Price Risk (PPL and PPL Energy Supply)
In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the PPL Susquehanna nuclear plant (Susquehanna). At December 31, 2014, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on the Balance Sheets. The mix of securities is designed to provide returns sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are primarily exposed to changes in interest rates. PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At December 31, 2014, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $73 million reduction in the fair value of the trust assets, compared with $66 million at December 31, 2013. See Notes 16 and 20 to the Financial Statements for additional information regarding the NDT funds.
(All Registrants)
Commodity Price Risk
PPL is exposed to commodity price risk through its domestic subsidiaries as described below.
PPL Electric is exposed to commodity price risk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to commodity price risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the commodity price risk associated with the PLR obligation to the energy suppliers.
LG&E's and KU's rates include certain mechanisms for fuel and fuel-related expenses. 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
PPL is exposed to volumetric risk through its subsidiaries as described below.
WPD is exposed to volumetric risk which, is significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control period, recovery of such exposure occurs on a two year lag. See Note 1 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.
Defined Benefit Plans - Securities Price Risk
See "Application of Critical Accounting Policies - Defined Benefits" for additional information regarding the effect of securities price risk on plan assets.
Credit Risk
(All Registrants)
Credit risk is the risk that the Registrants would incur a loss as a result of nonperformance by counterparties of their contractual obligations. The Registrants maintain credit policies and procedures with respect to counterparty credit (including requirements that counterparties maintain specified credit ratings) and require other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, the Registrants, as applicable, have concentrations of suppliers and customers among electric utilities, financial institutions and other energy marketing and trading companies. These concentrations may impact the Registrants' overall exposure to credit risk, positively or negatively, as counterparties may be similarly affected by changes in economic, regulatory or other conditions.
(PPL and PPL Energy Supply)
(PPL and PPL Electric)
In 2013, the PUC approved PPL Electric's PLR procurement plan for the period of June 2013 through May 2015. To date, PPL Electric has conducted all of its planned competitive solicitations. In 2014, PPL Electric filed a request with the PUC for approval of PPL Electric's PLR procurement plan for the period of June 2015 through May 2017, which was approved in January 2015. To date, PPL Electric has conducted all of its planned competitive solicitations. In February 2016, PPL Electric filed a request with the PUC for approval of PPL Electric's PLR procurement plan for the period June 2017 through May 2021, which includes a total of eight solicitations for electricity supply held semiannually in April and October. In October 2016, the PUC approved PPL Electric's plan with the exception of one item. On January 26, 2017, the PUC issued a Final Order approving its original position and concluded proceedings on the plan.
Under the standard Supply Master Agreement (the Agreement) for the competitive solicitation process, PPL Electric requires all suppliers to post collateral if their credit exposure exceeds an established credit limit. In the event a supplier defaults on its obligation, PPL Electric would be required to seek replacement power in the market. All incremental costs incurred by PPL Electric would be recoverable from customers in future rates. At December 31, 2014,2016, most of the successful bidders under all of the solicitations had an investment grade credit rating from S&P, and were not required to post collateral under the Agreement. A small portion of bidders were required to post an insignificant amount of collateral under the Agreement. There is no instance under the Agreement in which PPL Electric is required to post collateral to its suppliers.
See Notes 13, 14, 16 andNote 17 to the Financial Statements for additional information on the competitive solicitation process, the Agreement, credit concentration and credit risk.
Foreign Currency Translation(PPL)
The value of the British pound sterling fluctuates in relation to the U.S. dollar. In 2016, changes in this exchange rate resulted in a foreign currency translation loss of $1.1 billion, which primarily reflected a $2.1 billion decrease to PP&E and $490 million decrease to goodwill partially offset by a $1.3 billion decrease to long-term debt and a decrease of $208 million to other net liabilities. In 2015, changes in this exchange rate resulted in a foreign currency translation loss of $240 million, which primarily reflected a $472 million decrease to PP&E and $117 million decrease to goodwill partially offset by a $285 million decrease to long-term debt and a decrease of $64 million to other net liabilities. In 2014, changes in this exchange rate resulted in a foreign currency translation loss of $290 million, which primarily reflected a $680$542 million decrease to PP&E and $138 million decrease to goodwill partially offset by a $337 million decrease to long-term debt and a decrease of $390$53 million to net liabilities. In 2013, changes in this exchange rate resulted in a foreign currency translation gain of $150 million, which primarily reflected a $330 million increase to PP&E and goodwill offset by an increase of $180 million to net liabilities. In 2012, changes in this exchange rate resulted in a foreign currency translation gain of $99 million, which primarily reflected a $181 million increase to PP&E offset by an increase of $82 million toother net liabilities. The impact of foreign currency translation is recorded in AOCI.
(All Registrants)
Related Party Transactions
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 14 to the Financial Statements for additional information on related party transactions for PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
Acquisitions, Development and Divestitures
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, sell, cancel or expand them, execute tolling agreements or pursue other options.projects. Any resulting transactions may impact future financial results. See Note 8 to the Financial Statements for information on the more significant activities.
(PPL and PPL Energy Supply)
See Note 8 to the Financial Statements for information on the anticipated spinoff of PPL Energy Supply and the completed Montana hydro sale.Supply.
(All Registrants)
(All Registrants except PPL Electric)
Extensive federal, state and local environmental laws and regulations are applicable to PPL's, PPL Energy Supply's,Electric's, LKE's, LG&E's and KU's air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of the Registrants' businesses. The cost of compliance or alleged non-compliance cannot be predicted with certainty but could be material.
significant. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. Many of these environmental law considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the cost for their products or their demand for the Registrants' services. Increased capital and operating costs are subject to rate recovery. PPL, PPL Electric, LKE, LG&E and KU can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.
The following isSee Note 13 to the Financial Statements for a discussion of the more significant environmental matters. See Note 13 to the Financial Statementsmatters including:
Legal Matters,
Climate Change,
Coal Combustion Residuals,
Effluent Limitations Guidelines, and
National Ambient Air Quality Standards.
Additionally, see "Item 1. Business - Environmental Matters" for additionalfurther information on environmental matters.
Climate Change
Physical effects associated with climate change could include the impact of changes in weather patterns, such as storm frequency and intensity, and the resultant potential damage, as applicable, See Note 19 to the Registrants' generation assets, electricity transmission and delivery systems, as well as impacts on the Registrants' customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where PPL, PPL Energy Supply, LKE, LG&E and KU have hydroelectric generating facilities or where river water is usedFinancial Statements for information related to cool their fossil and nuclear (as applicable) powered generators. The Registrants cannot currently predict whether their businesses will experience these potential risks or estimate the cost of their related consequences.
In June 2013, President Obama released his Climate Action Plan which reiterates the goal of reducing GHG emissions in the U.S. through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing more restrictive energy efficiency standards. Additionally, the Climate Action Plan calls for the U.S. to prepare for the impacts of climate change. Requirements related to this could affectCCRs on AROs.
Sustainability
Increasing attention has been focused on a broad range of corporate activities under the Registrants and othersheading of “sustainability”, which has resulted in a significant increase in the industry as modifications may be needednumber of requests from interested parties for information on sustainability topics. These parties range from investor groups focused on environmental, social, governance and other matters to electricity delivery systems to improvenon-investors concerned with a variety of public policy matters. Often the ability to withstand major storms in order to meet those requirements. As further described below, the EPA has proposed rules pursuant to this directive, which it expects to finalize in the second or third quarter of 2015. The EPA has also announced that it will be developing a federal implementation plan which would apply to any states that fail to submit an acceptable state implementation plan. The Administration's increase in its estimatescope of the "social costinformation sought is very broad and not necessarily relevant to an issuer’s business or industry. As a result, a number of carbon" (which is usedprivate groups have proposed to calculate benefits associated withstandardize the subject matter constituting sustainability, either generally or by industry. Those efforts remain ongoing. In addition, certain of these private groups have advocated that the SEC promulgate regulations requiring specific sustainability reporting under the Securities Exchange Act of 1934, as amended (the “’34 Act”), or that issuers voluntarily include certain sustainability disclosure in their ’34 Act reports. To date, no new reporting requirements have been adopted or proposed regulations) from $23.80 to $38 per metric ton for 2015 may also lead to more costly regulatory requirements.by the SEC.
In January 2014, the EPA issued a revised proposal to regulate carbon dioxide emissions from new power plants. The proposed limits for coal-fired plants can only be achieved through carbon capture and sequestration, a technology that is not presently commercially viable and, therefore, effectively preclude the construction of new coal-fired plants. The proposed standards for new gas-fired plants may also not be continuously achievable. The preclusion of new coal-fired plants and the compliance difficulties posed for new gas-fired plants could have a significant industry-wide impact.
The EPAAs has also issued a proposed regulation addressing carbon dioxide emissions from existing power plants. The existing plant proposal contains stringent, state-specific rate-based reduction goals to be achieved in two phases (2020-2029 and 2030 and beyond). The regulation of carbon dioxide emissions from existing plants could have a significant industry-wide impact depending on the structure and stringency of the final rule and state implementation plans.
Waters of the United States
On April 21, 2014, the EPA and the U.S. Army Corps of Engineers published a proposed rule that could greatly expand the Clean Water Act definition of Waters of the United States. If the definition is expanded as proposed, permits and other regulatory requirements may be imposed for many matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. The EPA plans to make certain changesbeen PPL’s practice, to the proposed regulation based on comments received. The U.S. House and Senate are considering legislation to block this regulation. Until a final rule is issued, the Registrants cannot predict the outcome of the pending rulemaking.
Coal Combustion Residuals (CCRs)
In June 2010, the EPA proposed two approaches to regulating the disposal and management of CCRs (as either hazardousextent sustainability issues have or non-hazardous) under the RCRA. On December 19, 2014, the EPA issued its pre-publication version of the rule regulating coal combustion residuals (CCRs), imposing extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants and are not closed. Under the rule, the EPA will regulate CCRs as non-hazardous under Subtitle D of RCRA and allow beneficial use of CCRs with some restrictions. The CCR rule will become effective six months after publication in the Federal Register with publication expected in early 2015. PPL expects that its plants using surface impoundments for management and disposal of CCRs or the past management of CCRs and continued use to manage waste waters will be most impacted by this rule. The rule's specific closure requirements for CCR impoundments and landfills may require increases to AROs for these facilities at the Registrants' coal-fired plants.
PPL, PPL Energy Supply, LKE, LG&E and KU cannot predict how this rule will impact their facilities, but the financial and operational impact could be significant.
Effluent Limitation Guidelines (ELGs)
In June 2013, the EPA published proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash transport water and metal cleaning waste waters, as well as new limits for scrubber wastewater and landfill leachate. The EPA's proposed ELG regulations also contain some requirements that would affect the inspection and operation of CCR facilities, if finalized as proposed. The proposal contains several alternative approaches, some of which could significantly impact PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's coal-fired plants. The final regulation is expected to be issued by the third or fourth quarter of 2015. At the present time, PPL, PPL Energy Supply, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant. Pending finalization of the ELGs, certain states (including Pennsylvania and Kentucky) and environmental groups are proposing more stringent technology-based limits in permit renewals. Depending on the final limits imposed, the costs of compliance could vary significantly from the current capital expenditures projections as discussed in "Capital Expenditures" above and costs could be imposed ahead of federal timelines.
Clean Water Act 316(b)
The EPA's final 316(b) rule for existing facilities became effective on October 14, 2014, and regulates cooling water intake structures and their impact on aquatic organisms. States are allowed considerable authority to interpret the rule. The rule requires existing facilities to choose between several options to reduce the impact to aquatic organisms that become trapped against water intake screens (impingement) and to determine the intake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). Plants already equipped with closed-cycle cooling, an acceptable option, would likely not incur substantial costs. Once-through systems would likely require additional technology to comply with the rule. Mill Creek Unit 1 and Brunner Island (all units) are the only units expected to be impacted. PPL, PPL Energy Supply, LKE, LG&E and KU are evaluating compliance strategies but do not presently expect the compliance costs to be material.
MATS
In February 2012, the EPA finalized the MATS rule requiring fossil-fuel fired plants to reduce emissions of mercury and other hazardous air pollutants by April 16, 2015. The rule was challenged by industry groups and states, and was upheld by the D.C. Circuit Court in April 2014. On November 25, 2014, the U.S. Supreme Court granted a petition for review of the rule. The rule provides for a three-year compliance deadline with the potential for a one-year extension as provided under the statute. LG&E, KU and PPL Energy Supply have received compliance extensions for certain plants. PPL, PPL Energy Supply, LKE, LG&E and KU are generally well-positioned to comply with MATS, primarily due to recent investments in environmental controls at PPL Energy Supply and approved ECR plans to install additional controls at some of LG&E's and KU's Kentucky plants.
With respect to PPL Energy Supply's Pennsylvania plants, PPL Energy Supply believes that installation of chemical additive systems and other controls may be necessary at certain coal-fired plants, the capital cost of which is not expected to be significant. PPL Energy Supply continues to analyze the potential impact of MATS on operating costs. PPL Energy Supply is retrofitting the scrubbers at its Colstrip, Montana plant, the cost of which is not expected to be significant. PPL Energy Supply will suspend operations at the Corette plant by April 2015 and the plant is expected to be retired in August 2015 due to expected market conditions and costs to comply with the MATS requirements. The Corette plant asset group was determined to be impaired in December 2013. See "Application of Critical Accounting Policies - Asset Impairment (Excluding Investments)" for additional information.
LG&E's and KU's anticipated retirements of generating units at the Cane Run and Green River plants in 2015 and 2016 are in response to MATS and other environmental regulations. The retirement of these units is not expected to have a material impact on the Registrants’ financial condition or results of operationsoperation, PPL discloses such matters in accordance with applicable securities law and SEC regulations. With respect to other sustainability topics that PPL deems relevant to investors but that are not required to be reported under applicable securities law and SEC regulation, PPL will continue each spring to publish its annual sustainability report and post that report on its corporate website at www.pplweb.com and on www.pplsustainability.com. Neither the information in such annual sustainability report nor the information at such websites is incorporated in this Form 10-K by reference, and it should not be considered a part of this Form 10-K. In preparing its sustainability report, PPL LKE, LG&E or KU.is guided by the framework established by the Global Reporting Initiative, which identifies environmental, social, governance and other subject matter categories, together with recent efforts by the Edison Electric Institute to provide guidance as to the appropriate subset of sustainability information that can be applied consistently across the electric utility industry.
The EPA's CSAPR addresses the interstate transport of fine particulates and ozone. In accordance with an October 2014 U.S. Court of Appeals decision, CSAPR establishes interstate allowance trading programs for sulfur dioxide and nitrogen oxide emissions from fossil-fueled plants in two phases: Phase 1 in 2015 and Phase 2 in 2017. Sulfur dioxide emissions are subject to an annual trading program and nitrogen oxide emissions are subject to annual and ozone season programs. Oral arguments pertaining to outstanding challenges to the EPA's CSAPR will be heard before the D.C. Circuit Court on February 25, 2015.Competition
Although PPL, PPL Energy Supply, LKE, LG&E and KU do not anticipate incurring significant costs to comply with these programs, changes in market or operating conditions could result in impacts that are higher than anticipated.
Regional Haze
Under the EPA's regional haze programs (developed to eliminate man-made visibility degradation by 2064), states are required to make reasonable progress every decade through the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977. To date, the focus of regional haze regulation has been on the western U.S. As for the eastern U.S., the EPA determined that region-wide reductions under the CSAPR trading program could, in most instances, be utilized under state programs to satisfy BART requirements for sulfur dioxide and nitrogen oxides. However, the EPA's determination is being challenged by environmental groups and others.
LG&E's Mill Creek Units 3 and 4 are required to reduce sulfuric acid mist emissions because they were determined to have a regional haze impact. These reductions are required in the regional haze state implementation plan that the Kentucky Division for Air Quality submitted to the EPA. LG&E is currently installing sorbent injection technology to comply with these reductions, the costs of which are not expected to be significant.
In Montana, the EPA finalized a Federal Implementation Plan (FIP) of the Regional Haze Rules in September 2012, with stricter emissions limits for PPL Energy Supply's Colstrip Units 1 & 2 based on the installation of new controls (no limits or additional controls were specified for Colstrip Units 3 & 4), and stricter emission limits for the Corette plant (which are not based on additional controls). The cost of the additional controls for Colstrip Units 1 & 2 could be significant. PPL Energy Supply is meeting the stricter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations at Corette beginning in April 2015 (see "MATS" discussion above). Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit and litigation is ongoing.
National Ambient Air Quality Standards
In 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, states in the ozone transport region (OTR), including Pennsylvania, are required by the Clean Air Act to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies. The PADEP is finalizing a rule requiring nitrogen oxide reductions for fossil-fueled plants. The PADEP is expected to finalize this rule in early 2015. The EPA proposed to further strengthen the ozone standard in November 2014, which could lead to further nitrogen oxide reductions, particularly for PPL, PPL Energy Supply, LKE, LG&E, and KU fossil-fueled plants within the OTR. The EPA is under court order to finalize the standard by October 1, 2015. States are also obligated to address interstate transport issues associated with new ozone standards through the establishment of "good neighbor" state implementation plans for those states that are found to contribute significantly to another states' non-attainment. The EPA recently sent a policy memo to state agencies to facilitate the development of these plans, including modeling data showing which states are contributing. The implementation of such plans could have an impact on the structure and stringency of CSAPR Phase 2 reductions (discussed above).
In 2010, the EPA finalized a new, more stringent ambient air standard for sulfur dioxide and required states to identify areas that meet the standard and areas that are in "non-attainment". In July 2013, the EPA finalized non-attainment designations for parts of the country, including part of Jefferson County in Kentucky and part of Yellowstone County in Montana. Attainment is due for both areas by 2018. States are working to finalize designations for other areas and in April 2014, the EPA proposed timeframes for completing these designations. PPL, PPL Energy Supply, LKE, LG&E and KU anticipate that some of the measures required for compliance with the CSAPR, the MATS, or the Regional Haze Rules (as discussed above), such as upgraded or new sulfur dioxide scrubbers at certain plants and, in the case of LG&E and KU, the previously announced retirement of coal-fired generating units at the Cane Run, Green River and Tyrone plants, will help to achieve compliance with the new sulfur dioxide standard. If additional reductions were to be required, the financial impact could be significant. The short-term impact on the Corette plant from the EPA's final designation of part of Yellowstone County in Montana as non-attainment is not expected to be significant, as the plant's operations will be suspended by April 2015 and the plant is expected to be retired in August 2015. In addition, MDEQ recently submitted a request to the EPA for a determination that this area is in attainment. If the EPA agrees with this request, then the deadlines associated with non-attainment would be suspended.
In December 2012, the EPA finalized a new, more stringent, annual National Ambient Air Quality Standard for fine particulates. The rules were challenged by the D.C. Circuit Court and upheld in May 2014. Final designations for the 2012 particulate standard were published in January 2015 identifying non-attainment areas in Pennsylvania and Kentucky. PPL Energy Supply plants in Pennsylvania are not expected to be required to make further reductions towards achieving attainment. In Kentucky, mitigation in Jefferson County is expected to be supported by projects already underway at Cane Run and Mill Creek and in Northern Kentucky by projects at Ghent and Trimble County. States have until 2021 to achieve attainment in non-attainment areas.
(All Registrants)
See "Competition" under each of PPL's reportable segments in "Item 1. Business - General - Segment Information" and "Item 1A. Risk Factors" for a discussion of competitive factors affecting the Registrants.
See Notes 1 and 2221 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.
Application of Critical Accounting Policies
Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies 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. Changes in the estimates or other judgments included within these accounting policies could result in a significant change to the information presented in the Financial Statements (these accounting policies are also discussed in
Note 1 to the Financial Statements). Senior management has reviewed with PPL's Audit Committee these critical accounting policies, the following disclosures regarding their application and the estimates and assumptions regarding them.
Price Risk Management(All Registrants except PPL Electric)(PPL)
See "Financial Condition - Risk Management" above, as well as "Price Risk Management" in Note 1 to the Financial Statements, as well as "Risk Management" above.Statements.
(All Registrants)
Certain of the Registrants' subsidiaries sponsor or participate in, as applicable, various qualified funded and non-qualified unfunded defined benefit pension plans and both funded and unfunded other postretirement benefit plans. These plans are applicable to the majority of the Registrants' employees (based on eligibility for their applicable plans). The Registrants and certain of their subsidiaries record an asset or liability to recognize the funded status of all defined benefit plans with an offsetting entry to AOCI or in the case of PPL Electric, LG&E and KU, regulatory assets and liabilities for amounts that are expected to be recovered through regulated customer rates. Consequently, the funded status of all defined benefit plans is fully recognized on the Balance Sheets. See NoteNotes 6 and 11 to the Financial Statements for additional information about the plans and the accounting for defined benefits.
A summary of plan sponsors by Registrant and whether a Registrant or its subsidiaries sponsor (S) or participate in and receives allocations (P) from those plans is shown in the table below.
|
| | | | | | PPL Energy | | | | | | | | | | | | |
| Plan Sponsor | | PPL | | Supply | | PPL Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | |
| PPL Services | | | S | | | P | | | P | | | | | | | | | |
| WPD (a) | | | S | | | | | | | | | | | | | | | |
PPL Montana | | | | | | S | | | | | | | | | | | | |
| LKE | | | | | | | | | | | | S | | | P | | | P |
| LG&E | | | | | | | | | | | | | | | S | | | |
| |
| (a) | Does not sponsor or participate in other postretirement benefits plans. |
Management makes certain assumptions regarding the valuation of benefit obligations and the performance of plan assets. When accounting for defined benefits, delayed recognition in earnings of differences between actual results and expected or estimated results is a guiding principle. AnnualAs such, annual net periodic defined benefit costs are recorded in current earnings or regulatory assets based on estimated results. Any differences between actual and estimated results are recorded in AOCI, or in the case of PPL Electric, LG&E and KU, regulatory assets and liabilities, for amounts that are expected to be recovered through regulated customer rates. These amounts in AOCI or regulatory assets and liabilities are amortized to income over future periods. The delayed recognition allows for a smoothed recognition of costs over the working lives of the employees who benefit under the plans. The primary assumptions are:
· | Discount Rate - The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future. The objective in selecting the discount rate is to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments, would provide the necessary future cash flows to pay the accumulated benefits when due. |
· | Expected Return on Plan Assets - Management projects the long-term rates of return on plan assets that will be earned over the life of the plan. These projected returns reduce the net benefit costs the Registrants record currently. |
· | Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement. |
· | Health Care Cost Trend Rate - Management projects the expected increases in the cost of health care. |
In addition to the economic assumptions above that are evaluated annually, Management must also make assumptions regarding the life expectancy of employees covered under their defined benefit pension and other postretirement benefit plans. At
U.S. - at December 31, 2014, the plan sponsors adopted the new mortality tables issued by the Society of Actuaries in October 2014 (RP-2014 base tables) for all U.S. defined benefit pension and other postretirement benefit plans. In
addition, plan sponsors updated the basis for estimating projected mortality improvements and selected the IRS BB-2D two-dimensional improvement scale on a generational basis for all U.S. defined benefit pension and other postretirement benefit plans. These new mortality assumptions reflect the recognition of both improved life expectancies and the expectation of continuing improvements in life expectancies.
U.K. - at March 31 2016, the UK plan sponsors adopted the new mortality assumptions based on the “SAPS S2 All” tables issued by the Self-Administered Pensions Schemes’ (SAPS) study for all U.K. defined benefit pension plans. In addition, the UK plan sponsors updated the basis for estimating projected mortality improvements and selected the CMI 2015 Core Projections model published by the Continuous Mortality Investigation study with a long-term future improvement rate of 1% for all U.K. defined benefit pension plans. These new mortality assumptions reflect the impact of the most recently available actual scheme mortality data (which has been higher than previously expected) on both current life expectancies and the expectation of continuing improvements in life expectancies. The use of the new base tables and improvement scale resulted in an increase
a decrease to U.S.U.K. defined benefit pension and other postretirement benefit obligations, an increasea decrease to future expense and a decreasean increase to funded status.
For the year ended December 31, 2014, PPL's U.S. defined benefit pension and other postretirement benefit plans incurred actuarial losses of $621 million primarily due to the decrease in discount rates and updated mortality assumptions partially offset by asset gains in excess of assumed rates of return.
(PPL)
In selecting the discount rate for its U.K. pension plans, WPD starts with a cash flow analysis of the expected benefit payment stream for its plans. These plan-specific cash flows are matched against a spot-rate yield curve to determine the assumed discount rate, whichrate. The spot-rate yield curve uses an iBoxx British pounds sterling denominated corporate bond index as its base. From this base, those bonds with the lowest and highest yields are eliminated to develop an appropriate subset of bonds. Historically, WPD used the single weighted-average discount rate derived from the spot rates used to discount the benefit obligation. Concurrent with the annual remeasurement of plan assets and obligations at December 31, 2015, WPD began using individual spot rates to measure service cost and interest cost beginning with the calculation of 2016 net periodic defined benefit cost.
An individual bond matching approach, which is used for the U.S. pension plans as discussed below, is not used for the U.K. pension plans because the universe of bonds in the U.K. is not deep enough to adequately support such an approach.
(All Registrants)
In selecting the discount rates for U.S. defined benefit plans, the plan sponsors start with a cash flow analysis of the expected benefit payment stream for their plans. The plan-specific cash flows are matched against the coupons and expected maturity values of individually selected bonds. This bond matching process begins with the full universe of Aa-rated non-callable (or callable with make-whole provisions) bonds, serving as the base from which those with the lowest and highest yields are eliminated to develop an appropriate subset of bonds. Individual bonds are then selected based on the timing of each plan's cash flows and parameters are established as to the percentage of each individual bond issue that could be hypothetically purchased and the surplus reinvestment rates to be assumed.
To determine the expected return on plan assets, plan sponsors project the long-term rates of return on plan assets using a best-estimate of expected returns, volatilities and correlations for each asset class. Each plan's specific current and expected asset allocations are also considered in developing a reasonable return assumption.
In selecting a rate of compensation increase, plan sponsors consider past experience in light of movements in inflation rates.
The following table provides the weighted-average assumptions usedselected for discount rate, expected return on plan assets and rate of compensation increase at December 31.31 used to measure current year obligations and subsequent year net periodic defined benefit costs under GAAP, as applicable.
| Assumption / Registrant | | | 2014 | | | 2013 |
| Discount rate | | | | | | |
| | Pension - PPL (U.S.) | | | 4.25% | | | 5.12% |
| | Pension - PPL (U.K.) | | | 3.85% | | | 4.41% |
| | Pension - PPL Energy Supply | | | 4.28% | | | 5.18% |
| | Pension - LKE | | | 4.25% | | | 5.18% |
| | Pension - LG&E | | | 4.20% | | | 5.13% |
| | Other Postretirement - PPL | | | 4.08% | | | 4.91% |
| | Other Postretirement - PPL Energy Supply | | | 3.81% | | | 4.51% |
| | Other Postretirement - LKE | | | 4.06% | | | 4.91% |
| | | | | | | | |
| Expected return on plan assets | | | | | | |
| | Pension - PPL (U.S.) | | | 7.00% | | | 7.00% |
| | Pension - PPL (U.K.) | | | 7.19% | | | 7.19% |
| | Pension - PPL Energy Supply | | | 7.00% | | | 7.00% |
| | Pension - LKE | | | 7.00% | | | 7.00% |
| | Pension - LG&E | | | 7.00% | | | 7.00% |
| | Other Postretirement - PPL | | | 6.06% | | | 5.96% |
| | Other Postretirement - LKE | | | 6.85% | | | 6.75% |
| | | | | | | |
| Rate of compensation increase | | | | | | |
| | Pension - PPL (U.S.) | | | 3.92% | | | 3.97% |
| | Pension - PPL (U.K.) | | | 4.00% | | | 4.00% |
| | Pension - PPL Energy Supply | | | 4.03% | | | 3.94% |
| | Pension - LKE | | | 3.50% | | | 4.00% |
| | Other Postretirement - PPL | | | 3.86% | | | 3.96% |
| | Other Postretirement - PPL Energy Supply | | | 4.03% | | | 3.94% |
| | Other Postretirement - LKE | | | 3.50% | | | 4.00% |
|
| | | | | | |
| Assumption / Registrant | | 2016 | | 2015 |
| Discount rate | | | | |
| Pension - PPL (U.S.) | | 4.21 | % | | 4.59 | % |
| Pension - PPL (U.K.) Obligations | | 2.87 | % | | 3.68 | % |
| Pension - PPL (U.K.) Service Cost (a) | | 2.99 | % | | 3.90 | % |
| Pension - PPL (U.K.) Interest Cost (a) | | 2.41 | % | | 3.14 | % |
| Pension - LKE | | 4.19 | % | | 4.56 | % |
| Pension - LG&E | | 4.13 | % | | 4.49 | % |
| Other Postretirement - PPL | | 4.11 | % | | 4.48 | % |
| Other Postretirement - LKE | | 4.12 | % | | 4.49 | % |
| | | | | |
| Expected return on plan assets | | | | |
| Pension - PPL (U.S.) | | 7.00 | % | | 7.00 | % |
| Pension - PPL (U.K.) | | 7.22 | % | | 7.20 | % |
| Pension - LKE | | 7.00 | % | | 7.00 | % |
| Pension - LG&E | | 7.00 | % | | 7.00 | % |
| Other Postretirement - PPL | | 6.21 | % | | 6.11 | % |
| Other Postretirement - LKE | | 6.82 | % | | 6.82 | % |
| | | | | |
| Rate of compensation increase | | | | |
| Pension - PPL (U.S.) | | 3.95 | % | | 3.93 | % |
| Pension - PPL (U.K.) | | 3.50 | % | | 4.00 | % |
| Pension - LKE | | 3.50 | % | | 3.50 | % |
| Other Postretirement - PPL | | 3.92 | % | | 3.91 | % |
| Other Postretirement - LKE | | 3.50 | % | | 3.50 | % |
| |
| (a) | WPD began using individual spot rates from the yield curve used to discount the benefit obligation to measure service cost and interest cost for the calculation of net periodic defined benefit cost in 2016. PPL's U.S. plans use a single discount rate derived from an individual bond matching model to measure the benefit obligation, service cost and interest cost. See Note 1 to the Financial Statements for additional details. |
In selecting health care cost trend rates, plan sponsors consider past performance and forecasts of health care costs. At December 31, 2014,2016, the health care cost trend ratesrate for all plans were 7.2%was 7.0% for 2015,2017, gradually declining to an ultimate trend rate of 5.0% in 2020.2022.
A variance in the assumptions listed above could have a significant impact on accrued defined benefit liabilities or assets, reported annual net periodic defined benefit costs and AOCI or regulatory assets and liabilities. At December 31, 2014,2016, the defined benefit plans were recorded in the Registrants' financial statements as follows.
|
| | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| Balance Sheet: | | | | | | | | | |
| Regulatory assets (a) | $ | 947 |
| | $ | 549 |
| | $ | 398 |
| | $ | 246 |
| | $ | 152 |
|
| Regulatory liabilities | 23 |
| | |
| | 23 |
| | |
| | 23 |
|
| Pension liabilities | 1,008 |
| | 281 |
| | 354 |
| | 53 |
| | 62 |
|
Other postretirement and postemployment benefit liabilities | 213 |
| | 72 |
| | 122 |
| | 76 |
| | 40 |
|
| AOCI (pre-tax) | 2,930 |
| | |
| | 119 |
| | |
| | |
|
| | | | | | | | | | |
| Statement of Income: | |
| | |
| | |
| | |
| | |
|
| Defined benefits expense | $ | (35 | ) | | $ | 11 |
| | $ | 30 |
| | $ | 11 |
| | $ | 7 |
|
| Increase (decrease) from prior year | (93 | ) | | (4 | ) | | (8 | ) | | (1 | ) | | (3 | ) |
| | | | | | | | | | PPL Energy | | | | | | | | | | | | | | | |
| | | PPL | | | Supply | | PPL Electric | | LKE | | | LG&E | | | KU | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet: | | | | | | | | | | | | | | | | | | | | | | |
| | Regulatory assets/liabilities | | $ | 704 | | | | | | $ | 372 | | $ | 332 | | | $ | 215 | | | $ | 117 | |
| | Pension liabilities | | | 1,766 | | | $ | 299 | | | 212 | | | 307 | | | | 57 | | | | 59 | |
| | Other postretirement | | | | | | | | | | | | | | | | | | | | | | |
| | | | benefit liabilities | | | 242 | | | | 44 | | | 40 | | | 152 | | | | 85 | | | | 52 | |
| | AOCI (pre-tax) | | | (3,133) | | | | (496) | | | | | | 73 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Statement of Income: | | | | | | | | | | | | | | | | | | | | | | |
| | Defined benefits costs | | $ | 88 | | | $ | 42 | | $ | 14 | | $ | 24 | | | $ | 9 | | | $ | 5 | |
| | Increase (decrease) from | | | | | | | | | | | | | | | | | | | | | | |
| | | | prior year | | | (81) | | | | (9) | | | (7) | | | (16) | | | | (9) | | | | (6) | |
| |
| (a) | As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between pension cost calculated in accordance with LG&E's and KU's pension accounting policy and pension cost calculated using a 15 year amortization period for actuarial gains and losses is recorded as a regulatory asset. As of December 31, 2016, the balances were $20 million for PPL and LKE, $11 million for LG&E and $9 million for KU. See Note 6 to the Financial Statements for additional information. |
The following tables reflect changes in certain assumptions based on the Registrants' primary defined benefit plans. The tables reflect either an increase or decrease in each assumption. The inverse of this change would impact the accrued defined benefit liabilities or assets, reported annual net periodic defined benefit costs and AOCI or regulatory assets and liabilities by a similar
amount in the opposite direction. The sensitivities below reflect an evaluation of the change based solely on a change in that assumption.
Actuarial assumption | | | |
| | |
| Actuarial assumption | |
| Discount Rate | (0.25 | | (0.25%%) |
| Expected Return on Plan Assets | (0.25 | | (0.25%%) |
| Rate of Compensation Increase | 0.25 | | 0.25%% |
| Health Care Cost Trend Rate (a) | 1 | | 1%% |
| |
| (a) | Only impacts other postretirement benefits. |
| | | | Increase (Decrease) |
| | | | Defined Benefit | | | | Regulatory | | Defined Benefit |
| Actuarial assumption | | Liabilities | | AOCI (pre-tax) | | Assets/Liabilities | | Costs |
| PPL | | | | | | | | | | | | |
| | Discount rate | | $ | 548 | | $ | (459) | | $ | 89 | | $ | 36 |
| | Expected return on plan assets | | | n/a | | | n/a | | | n/a | | | 29 |
| | Rate of compensation increase | | | 76 | | | (64) | | | 12 | | | 13 |
| | Health care cost trend rate (a) | | | 5 | | | (1) | | | 4 | | | 1 |
| | | | | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | | | | |
| | Discount rate | | | 64 | | | (64) | | | | | | 4 |
| | Expected return on plan assets | | | n/a | | | n/a | | | n/a | | | 4 |
| | Rate of compensation increase | | | 9 | | | (9) | | | | | | 2 |
| | | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | | | | |
| | Discount rate | | | 50 | | | | | | 50 | | | 3 |
| | Expected return on plan assets | | | n/a | | | | | | n/a | | | 3 |
| | Rate of compensation increase | | | 7 | | | | | | 7 | | | 1 |
| | | | | | | | | | | | | |
| LKE | | | | | | | | | | | | |
| | Discount rates | | | 63 | | | (24) | | | 39 | | | 3 |
| | Expected return on plan assets | | | n/a | | | n/a | | | n/a | | | 3 |
| | Rate of compensation increase | | | 11 | | | (6) | | | 5 | | | 1 |
| | Health care cost trend rate (a) | | | 4 | | | (1) | | | 4 | | | |
| | | | | | | | | | | | | | |
| | | | Increase (Decrease) | |
| | | | Defined Benefit | | | | Regulatory | | Defined Benefit | | | | | | | | | |
| | | | Liabilities | | AOCI (pre-tax) | | Assets/Liabilities | | Costs | Increase (Decrease) | | (Increase) Decrease | | Increase (Decrease) | | Increase (Decrease) |
| Actuarial assumption | | Defined Benefit Liabilities | | AOCI (pre-tax) | | Net Regulatory Assets | | Defined Benefit Costs |
| PPL | | |
| | |
| | |
| | |
|
| Discount rate | | $ | 460 |
| | $ | 361 |
| | $ | 99 |
| | $ | 33 |
|
| Expected return on plan assets | | n/a |
| | n/a |
| | n/a |
| | 26 |
|
| Rate of compensation increase | | 63 |
| | 52 |
| | 11 |
| | 9 |
|
| Health care cost trend rate (a) | | 5 |
| | 1 |
| | 4 |
| | — |
|
| | | | | | | | | |
| PPL Electric | | |
| | |
| | |
| | |
| Discount rate | | 60 |
| | — |
| | 60 |
| | 4 |
|
| Expected return on plan assets | | n/a |
| | — |
| | n/a |
| | 4 |
|
| Rate of compensation increase | | 7 |
| | — |
| | 7 |
| | 1 |
|
| Health care cost trend rate (a) | | 1 |
| | — |
| | 1 |
| | — |
|
| | | |
| | |
| | |
| | |
| LKE | | |
| | |
| | |
| | |
| Discount rates | | 64 |
| | 25 |
| | 39 |
| | 5 |
|
| Expected return on plan assets | | n/a |
| | n/a |
| | n/a |
| | 3 |
|
| Rate of compensation increase | | 8 |
| | 4 |
| | 4 |
| | 1 |
|
| Health care cost trend rate (a) | | 4 |
| | 1 |
| | 3 |
| | — |
|
| | | | | | | | | |
| LG&E | LG&E | | | | | | | | | |
| | |
| | |
| | |
| | Discount rates | | 21 | | n/a | | 21 | | 2 | |
| | Expected return on plan assets | | n/a | | n/a | | n/a | | 1 | |
| | Rate of compensation increase | | 2 | | n/a | | 2 | | | |
| | Health care cost trend rate (a) | | 1 | | n/a | | 1 | | | |
| Discount rates | | 21 |
| | n/a |
| | 21 |
| | 2 |
|
| Expected return on plan assets | | n/a |
| | n/a |
| | n/a |
| | 1 |
|
| Rate of compensation increase | | 2 |
| | n/a |
| | 2 |
| | — |
|
| Health care cost trend rate (a) | | 1 |
| | n/a |
| | 1 |
| | — |
|
| | | | | | | | | | | | | | | | | |
| KU | KU | | | | | | | | | |
| | |
| | |
| | |
| | Discount rates | | 18 | | n/a | | 18 | | 1 | |
| | Expected return on plan assets | | n/a | | n/a | | n/a | | 1 | |
| | Rate of compensation increase | | 3 | | n/a | | 3 | | | |
| | Health care cost trend rate (a) | | 3 | | n/a | | 3 | | | |
| Discount rates | | 18 |
| | n/a |
| | 18 |
| | 2 |
|
| Expected return on plan assets | | n/a |
| | n/a |
| | n/a |
| | 1 |
|
| Rate of compensation increase | | 2 |
| | n/a |
| | 2 |
| | — |
|
| Health care cost trend rate (a) | | 2 |
| | n/a |
| | 2 |
| | — |
|
| |
| (a) | Only impacts other postretirement benefits. |
Asset Impairment (Excluding Investments)
(All Registrants except PPL Electric)
Impairment analyses are performed for long-lived assets that are subject to depreciation or amortization whenever events or changes in circumstances indicate that a long-lived asset's carrying amount may not be recoverable. For these long-lived assets classified as held and used, such events or changes in circumstances are:
· | a significant decrease in the market price of an asset; |
· | a significant adverse change in the extent or manner in which an asset is being used or in its physical condition; |
· | a significant adverse change in legal factors or in the business climate; |
· | an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of an asset; |
· | a current period operating or cash flow loss combined with a history of losses or a forecast that demonstrates continuing losses; or |
· | a current expectation that, more likely than not, an asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. |
For a long-lived asset classified as held and used, an impairment is recognized when the carrying amount of the asset is not recoverable and exceeds its fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the asset is impaired, an impairment loss is recorded to adjust the asset's carrying amount to its estimated fair value. Management must make significant judgments to estimate future cash flows, including the useful lives of the assets, the forward prices for revenue and fuel components in the markets where the assets are utilized, the amount of capital and operations and maintenance spending and management's intended use of the assets. Alternate courses of action are considered to recover the carrying amount of a long-lived asset, and estimated cash flows from the "most likely" alternative are used to assess impairment whenever one alternative is clearly the most likely outcome. If no alternative is clearly the most likely, then a probability-weighted approach is used taking into consideration estimated cash flows from the alternatives. For assets tested for impairment as of the balance sheet date, the estimates of future cash flows used in that test consider the likelihood of possible outcomes that existed at the balance sheet date, including an assessment of the likelihood of a future sale of the assets. That assessment is not revised based on events that occur after the balance sheet date. Changes in assumptions and estimates could result in materially different results than those identified and recorded in the financial statements.
(PPL and PPL Energy Supply)
In September 2012, PPL Energy Supply announced its intention, beginning in April 2015, to place the Corette coal-fired plant in Montana in long-term reserve status, suspending the plant's operation, due to expected market conditions and the costs to comply with MATS requirements. PPL Energy Supply had been monitoring the plant for potential impairment since this announcement and until the fourth quarter of 2013, no impairment was indicated as various price scenarios allowed for recovery of the asset. During the fourth quarter of 2013, in connection with the completion of its annual business planning process, management updated its fundamental view for long-term power and gas prices. Based upon this fundamental view, management altered its expectations regarding the probability that the Corette plant would operate subsequent to its initially being placed in long-term reserve status. As a result, based on an undiscounted cash flow analysis, the carrying amount for Corette was determined to no longer be recoverable. PPL Energy Supply performed an internal analysis using an income approach based on discounted cash flows to assess the fair value of the Corette asset group. Assumptions used in the fair
value assessment were forward energy prices, expectations for demand for energy in Corette's market and expected operation and maintenance and capital expenditures that were consistent with assumptions used in the business planning process. Through this analysis, PPL Energy Supply determined the fair value of the asset group to be negligible. This resulted in PPL and PPL Energy Supply recording an impairment charge of $65 million, or $39 million after-tax for the Corette plant and related excess emission allowances. PPL Energy Supply now expects to retire the Corette plant in August 2015.
Goodwill Impairment(PPL, Montana held a joint operating license issued for the Kerr Dam Project. The license extends until 2035 and, between 2015 and 2025, the Confederated Salish and Kootenai Tribes of the Flathead Nation (the Tribes) have the option to purchase, hold and operate the Kerr Dam Project. The parties submitted the issue of the appropriate amount of the conveyance price to arbitration in February 2013. In March 2014, the arbitration panel issued its final decision holding that the conveyance price payable by the Tribes to PPL Montana was $18 million. As a result of the decision, PPL Energy Supply performed a recoverability test on the Kerr Dam Project. PPL Energy Supply performed an internal analysis using an income approach based on discounted cash flows (a PPL proprietary model) to assess the fair value of the Kerr Dam Project. Assumptions used in the PPL proprietary model were the conveyance price, forward energy price curves, forecasted generation, and forecasted operation and maintenance expenditures that were consistent with assumptions used in the business planning process and a market participant discount rate. Through this analysis, PPL Energy Supply determined the fair value of the Kerr Dam Project to be $29 million at March 31, 2014, resulting in PPL and PPL Energy Supply recording an impairment charge of $18 million, or $10 million after-tax. The Kerr Dam Project was included in the sale of the Montana Hydroelectric facilities and the assets were removed from the Balance Sheet.
The depressed levels of energy and capacity prices in PJM, as well as management's forward view of these prices using its fundamental pricing models, has put pressure on the recoverability assessment of PPL Energy Supply's investment in its Pennsylvania coal-fired generation assets. In the fourth quarter of 2013, after updating its fundamental pricing models in conjunction with the annual business planning process, management tested the Brunner Island and Montour plants for impairment and concluded neither plant was impaired as of December 31, 2013. The recoverability assessment is very sensitive to forward energy and capacity price assumptions, as well as forecasted operation and maintenance and capital spending. Therefore, a further decline in forecasted long-term energy or capacity prices or changes in environmental laws requiring additional capital or operation and maintenance expenditures, could negatively impact PPL Energy Supply's operations of these facilities and potentially result in future impairment charges for some or all of the carrying value of these plants. There were no events or changes in circumstances that indicated a recoverability assessment was required to be performed in 2014. The carrying value of the Pennsylvania coal-fired generation assets tested was $2.6 billion as of December 31, 2014 ($1.4 billion for Brunner Island and $1.2 billion for Montour).
See Note 13 to the Financial Statements for additional information on MATS and other environmental requirements for coal-fired generation plants.
(All Registrants, except PPL Electric)
For a long-lived asset classified as held for sale, an impairment exists when the carrying amount of the asset (disposal group) exceeds its fair value less cost to sell. If the asset (disposal group) is impaired, an impairment loss is recorded to adjust the carrying amount to its fair value less cost to sell. A gain is recognized in future periods for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative impairment previously recognized.
For determining fair value, quoted market prices in active markets are the best evidence. However, when market prices are unavailable, PPL, PPL Energy Supply, LKE, LG&E and KU consider all valuation techniques appropriate under the circumstances and for which market participant inputs can be obtained. Generally discounted cash flows are used to estimate fair value, which incorporates market participant inputs when available. Discounted cash flows are calculated by estimating future cash flow streams and determining the present value of the cash flow streams using risk adjusted discount rates.KU)
Goodwill is tested for impairment at the reporting unit level. PPL has determined its reporting units to be at the same level as its reportable segments. PPL Energy Supply, LKE, LG&E and KU each operate within aare individually single operating and reportable segment and single reporting unit.segments. A goodwill impairment test is performed annually or more frequently if events or changes in circumstances indicate that the carrying amount of the reporting unit may be greater than the reporting unit's fair value. Additionally, goodwill is tested for impairment after a portion of goodwill has been allocated to a business to be disposed of.
PPL, PPL Energy Supply, LKE, LG&E and KU may elect either to initially make a qualitative evaluation about the likelihood of an impairment of goodwill or to bypass the qualitative evaluation and test goodwill for impairment using a two-step quantitative test. If the qualitative evaluation (referred to as "step zero") is elected and the assessment results in a determination that it is not more likely than not that the fair value of a reporting unit is less than the carrying amount, the two-step quantitative impairment test is not necessary.
When the two-step quantitative impairment test is elected or required as a result of the step zero assessment, in step one, PPL, PPL Energy Supply, LKE, LG&E and KU determine whether a potential impairment exists by comparing the estimated fair value of a reporting unit with its carrying amount, including goodwill, on the measurement date. If the estimated fair value exceeds its carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the estimated fair value, the second step is performed to measure the amount of impairment loss, if any.
The second step of the quantitative test requires a calculation of the implied fair value of goodwill, which is determined in the same manner as the amount of goodwill in a business combination. That is, the estimated fair value of a reporting unit is allocated to all of the assets and liabilities of that reporting unit as if the reporting unit had been acquired in a business combination and the estimated fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the estimated fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. The implied fair value of the reporting unit's goodwill is then compared with the carrying amount of that goodwill. If the carrying amount exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of the reporting unit's goodwill.
PPL's goodwill was $3.1 billion at December 31, 2016, which consists of $2.4 billion related to the acquisition of WPD and $662 million related to the acquisition of LKE. PPL (for its U.K. Regulated and Kentucky Regulated segments), and individually, LKE, LG&E and KU elected to perform the qualitative step zero evaluation of goodwill in the fourth quarter of 2014.2016. These evaluations considered the excess of fair value over the carrying value of each reporting unit that was calculated during step one of the quantitative impairment tests performed in the fourth quarter of 2012,2015, and the relevant events and circumstances that occurred since those tests were performed including:
current year financial performance versus the prior year,
· | current year financial performance versus the prior year, |
changes in planned capital expenditures,· | changes in planned capital expenditures, |
the consistency of forecasted free cash flows,· | the consistency of forecasted free cash flows, |
earnings quality and sustainability,· | earnings quality and sustainability, |
changes in market participant discount rates,· | changes in market participant discountchanges in long-term growth rates, |
· | changes in long-term growth rates, |
changes in PPL's market capitalization, and· | changes in PPL's market capitalization, and |
the overall economic and regulatory environments in which these regulated entities operate.· | the overall economic and regulatory environments in which these regulated entities operate. |
Based on the overall favorable results of these evaluations, management did not concludeconcluded it was not more likely than not that the fair value of these reporting units werewas less than their carrying values. As such, the two-step quantitative impairment test was not performed.
PPL (for its Supply segment) and PPL Energy Supply elected to bypass step zero. Therefore, the goodwill for these reporting units was tested for impairment using the quantitative test in the fourth quarter of 2014, and no impairment was recognized. Management used both discounted cash flows and market multiples, which required significant assumptions, to estimate the fair value of the reporting units. A decrease in the forecasted cash flows of 10%, an increase in the discount rate by 0.25%, or a 10% decrease in the market multiples would not have resulted in an impairment of goodwill for these reporting units.
Loss Accruals (All Registrants)
Losses are accrued for the estimated impacts of various conditions, situations or circumstances involving uncertain or contingent future outcomes. For loss contingencies, the loss must be accrued if (1) information is available that indicates it is probable that a loss has been incurred, given the likelihood of the uncertain future events, and (2) the amount of the loss can be reasonably estimated. Accounting guidance defines "probable" as cases in which "the future event or events are likely to occur." The accrual of contingencies that might result in gains is not recorded unless recovery is assured. Potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events are continuously assessed.
The accounting aspects of estimated loss accruals include (1) the initial identification and recording of the loss, (2) the determination of triggering events for reducing a recorded loss accrual, and (3) the ongoing assessment as to whether a recorded loss accrual is sufficient. All three of these aspects require significant judgment by management. Internal expertise and outside experts (such as lawyers and engineers) are consulted, as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss.
For PPL, see Note 6 to the Financial Statements for a discussion of the Ofgem Review of Line Loss Calculation, including the $65 million increase to this liability recorded in 2014.
Certain other events have been identified that could give rise to a loss, but that do not meet the conditions for accrual. Such events are disclosed, but not recorded, when it is "reasonably possible" that a loss has been incurred. Accounting guidance defines "reasonably possible" as cases in which "the future event or events occurring is more than remote, but less than likely to occur."
When an estimated loss is accrued, the triggering events for subsequently adjusting the loss accrual are identified, where applicable. The triggering events generally occur when new information becomes known, the contingency has been resolved and the actual loss is settled or written off, or when the risk of loss has diminished or been eliminated. The following are some of the triggering events that provide for the adjustment of certain recorded loss accruals:
· | Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted, a better estimate of the allowance is determined or underlying amounts are ultimately collected. |
· | Environmental and other litigation contingencies are reduced when the contingency is resolved and actual payments are made, a better estimate of the loss is determined or the loss is no longer considered probable. |
· | Actions or decisions by certain regulators could result in a better estimate of a previously recorded loss accrual. |
Loss accruals are reviewed on a regular basis to assure that the recorded potential loss exposures are appropriate. This involves ongoing communication and analyses with internal and external legal counsel, engineers, business unit management and other parties.
See Notes 6 and 13 to the Financial Statements for disclosure of loss contingencies accrued and other potential loss contingencies that have not met the criteria for accrual.
Asset Retirement Obligations(PPL, LKE, LG&E and KU)
(All Registrants except PPL Electric)
ARO liabilities are required to be recognized for legal obligations associated with the retirement of long-lived assets. The initial obligation is measured at its estimated fair value. An ARO must be recognized when incurred if the fair value of the ARO can be reasonably estimated. An equivalent amount is recorded as an increase in the value of the capitalized asset and amortized to expense over the useful life of the asset. Until the obligation is settled, the liability is increased, through the recognition of accretion expense in the statement of income, for changes in the obligation due to the passage of time.
(PPL,For LKE, LG&E and KU)
In the case of LG&EKU, all ARO accretion and KU, because costs of removaldepreciation expenses are collected in rates, the depreciation and accretion expenses related to an ARO are recordedreclassified as a regulatory asset. ARO regulatory assets associated with approved ECR projects for CCRs are amortized to expense over a period of 10 to 25 years based on retirement expenditures made related to the obligation. For other AROs, at the time of retirement, the related ARO regulatory asset such that there is no earnings impact.offset against the associated cost of removal regulatory liability, PP&E and ARO liability.
(All Registrants except PPL Electric)
See Note 19 to the Financial Statements for additional information on AROs.
In determining AROs, management must make significant judgments and estimates to calculate fair value. Fair value is developed using an expected present value technique based on assumptions of market participants that considersconsider estimated retirement costs in current period dollars that are inflated to the anticipated retirement date and then discounted back to the date the ARO was incurred. Changes in assumptions and estimates included within the calculations of the fair value of AROs could result in significantly different results than those identified and recorded in the financial statements. Estimated ARO costs and settlement dates, which affect the carrying value of the ARO and the related capitalized asset, are reviewed
periodically to ensure that any material changes are incorporated into the latest estimate of the ARO. Any change to the capitalized asset, positive or negative, is generally amortized over the remaining life of the associated long-lived asset.
At December 31, 2014,2016, the total recorded balances and information on the most significant recorded AROs were as follows.
| | | | | Most Significant AROs | |
| | | | Total | | | | | | | |
| | | | ARO | | Amount | | | | | |
| | | | Recorded | | Recorded | | % of Total | | Description | | | | | | | | |
| | | | | | | | | | | | | Most Significant AROs |
| | | | | | | | | | Nuclear decommissioning, ash ponds, | Total ARO Recorded | | Amount Recorded | | % of Total | | Description |
| PPL | PPL | | $ | 761 | | $ | 587 | | 77 | | landfills and natural gas mains | $ | 488 |
| | $ | 337 |
| | 69 |
| | Ash ponds, landfills and natural gas mains |
| PPL Energy Supply | | 425 | | 369 | | 87 | | Nuclear decommissioning | |
| LKE | | 433 |
| | 337 |
| | 78 |
| | Ash ponds, landfills and natural gas mains |
| LG&E | | 145 |
| | 84 |
| | 58 |
| | Ash ponds, landfills and natural gas mains |
| KU | | 288 |
| | 253 |
| | 88 |
| | Ash ponds and landfills |
| LKE | | | 285 | | | 218 | | | 76 | | Ash ponds, landfills and natural gas mains |
| LG&E | | | 74 | | | 46 | | | 62 | | Ash ponds, landfills and natural gas mains |
| KU | | | 211 | | | 172 | | | 82 | | Ash ponds and landfills |
The most significant assumptions surrounding AROs are the forecasted retirement costs (including the settlement dates and the timing of cash flows), the discount rates and the inflation rates. At December 31, 2014,2016, a 10% changeincrease to retirement cost awould increase the ARO liabilities by $36 million. A 0.25% decrease in the discount rate orwould increase the ARO liabilities by $5 million and a 0.25% increase in the inflation rate would not have a significant impact onincrease the ARO liabilities of the Registrants. For PPL and PPL Energy Supply, thereby $5 million. There would be no significant change to the annual depreciation expense of the ARO asset or the annual accretion expense of the ARO liability as a result of these changes in assumptions. As noted above, these factors do not impact the Statements of Income of LKE, LG&E and KU.
Income Taxes(All Registrants)
Significant management judgment is required in developing the provision for income taxes, primarily due to the uncertainty related to tax positions taken or expected to be taken in tax returns, valuation allowances on deferred tax assets and whether the undistributed earnings of WPD are considered indefinitely reinvested.
Significant management judgment is required to determine the amount of benefit recognized related to an uncertain tax position. Tax positions are evaluated following a two-step process. The first step requires an entity to determine whether, based on the technical merits supporting a particular tax position, it is more likely than not (greater than a 50% chance) that the tax position will be sustained. This determination assumes that the relevant taxing authority will examine the tax position and is aware of all the relevant facts surrounding the tax position. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The benefit recognized is measured at the largest amount of benefit that has a likelihood of realization, upon settlement, that exceeds 50%. Management considers a number of factors in assessing the benefit to be recognized, including negotiation of a settlement.
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.
At December 31, 2014, it was reasonably possible that during the next 12 months the total amount of unrecognized tax benefits could increase or decrease by as much as the following.
| | | Increase | | Decrease |
| | | | | | | |
| PPL | | | | | $ | 20 |
| PPL Energy Supply | | | | | | 15 |
These potential changes could result from subsequent recognition, derecognition and/or changes in the measurement of uncertain tax positions related to the timing and utilization of tax credits and the related impact on alternative minimum tax and other credits, the timing and/or valuation of certain deductions, intercompany transactions and unitary filing groups. The events that could cause these changes are direct settlements with taxing authorities, litigation, legal or administrative guidance by relevant taxing authorities and the lapse of an applicable statute of limitation. In addition, for PPL, this change could also relate to the creditability of foreign taxes and the timing and utilization of foreign tax credits. For PPL Electric, LKE, LG&E and KU, no significant changes in unrecognized tax benefits are projected over the next 12 months.
The balance sheet classification of unrecognized tax benefits and the need for valuation allowances to reduce deferred tax assets also require significant management judgment. Unrecognized tax benefits are classified as current to the extent management expects to settle an uncertain tax position by payment or receipt of cash within one year of the reporting date.
At December 31, 2016, no significant changes in unrecognized tax benefits are projected over the next 12 months.
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 a number of factors in assessing the 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. Management also considers the uncertainty posed by political risk and the effect of this uncertainty on the various factors that management takes into account in evaluating the need for valuation allowances. 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.
See Note 5 to the Financial Statements for income tax disclosures, including management's conclusion that the undistributed earnings of WPD are considered indefinitely reinvested. Based on this conclusion, PPL Global does not record U.S. income taxes on WPD's undistributed earnings.
Regulatory Assets and Liabilities
WPD operates in an incentive-based regulatory structure under distribution licenses granted by Ofgem. WPD's electricity distribution revenues are set every five years (changing to every eight years beginning on April 1, 2015) through price controls that are not directly based onAs the regulatory model is incentive-based rather than a cost recovery. Therefore,recovery model, WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP for entities subject to cost-based rate regulation. Therefore, the accounting treatment of adjustments to base demand revenue and/or allowed revenue is evaluated based on revenue recognition and does not record regulatory assets and liabilities.
contingency guidance. See Note 1 to the Financial Statements for additional information.
(All Registrants except PPL Energy Supply)Registrants)
PPL Electric, LG&E and KU, are subject to cost-based rate regulation. As a result, the effects of regulatory actions are required to be reflected in the financial statements. Assets and liabilities are recorded that result from the regulated ratemaking process that may not be recorded under GAAP for non-regulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in regulated customer rates. Regulatory liabilities are recognized for amounts expected to be returned through future regulated customer rates. In certain cases, regulatory liabilities are recorded based on an understanding or agreement with the regulator that rates have been set to recover costs that are expected to be incurred in the future, and the regulated entity is accountable for any amounts charged pursuant to such rates and not yet expended for the intended purpose.
Management continually assesses whether the regulatory assets are probable of future recovery by considering factors such as changes in the applicable regulatory and political environments, the ability to recover costs through regulated rates, recent rate orders to other regulated entities, and the status of any pending or potential deregulation legislation. Based on this continual assessment, management believes the existing regulatory assets are probable of recovery. This assessment reflects the current political and regulatory climate at the state and federal levels, and is subject to change in the future. If future recovery of costs ceases to be probable, the regulatory asset would be written-off. Additionally, the regulatory agencies can provide flexibility in the manner and timing of recovery of regulatory assets.
At December 31, 2014,2016, regulatory assets and regulatory liabilities were recorded as reflected in the table below. All regulatory assets are either currently being recovered under specific rate orders, represent amounts that are expected to be recovered in future rates or benefit future periods based upon established regulatory practices.
|
| | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| Regulatory assets | $ | 1,957 |
| | $ | 1,113 |
| | $ | 844 |
| | $ | 459 |
| | $ | 385 |
|
| Regulatory liabilities | 1,000 |
| | 83 |
| | 917 |
| | 424 |
| | 493 |
|
| | | | | | PPL | | | | | | | | | |
| | | PPL | | Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | |
| Regulatory assets | | $ | 1,599 | | $ | 909 | | $ | 690 | | $ | 418 | | $ | 272 |
| Regulatory liabilities | | | 1,083 | | | 94 | | | 989 | | | 468 | | | 521 |
See Note 6 to the Financial Statements for additional information on regulatory assets and liabilities.
Revenue Recognition - Unbilled Revenue(PPL Electric, LKE, LG&E and KU)
Revenues related to the sale of energy are recorded when service is rendered or when energy is delivered to customers. Because customers are billed on cycles which vary based on the timing of the actual meter reads taken throughout the month, estimates are recorded for unbilled revenues at the end of each reporting period. SuchFor LG&E and KU, such unbilled revenue amounts reflect estimates of the deliveries to customers since the date of the last reading of their meters. The unbilled revenue estimates reflect consideration of factors including daily load models, estimated usage for each customer class, the effect of current and different rate schedules, the meter read schedule, the billing schedule, actual weather data and where applicable, the impact of weather normalization or other regulatory provisions of rate structures. At December 31, unbilled revenues recorded on the Balance Sheets were as follows.
|
| | | | | | | |
| | 2016 | | 2015 |
| LKE | $ | 170 |
| | $ | 147 |
|
| LG&E | 75 |
| | 67 |
|
| KU | 95 |
| | 80 |
|
| | | 2014 | | 2013 |
| | | | | | | |
| PPL Electric | | $ | 113 | | $ | 116 |
| LKE | | | 167 | | | 180 |
| LG&E | | | 76 | | | 85 |
| KU | | | 91 | | | 95 |
Other Information (All Registrants) PPL's Audit Committee has approved the independent auditor to provide audit and audit-related services, tax services and other services permitted by Sarbanes-Oxley and SEC rules. The audit and audit-related services include services in connection with statutory and regulatory filings, reviews of offering documents and registration statements, and internal control reviews.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Reference is made to "Risk Management" for the Registrants in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations."
Report of Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Board of Directors and Shareowners of PPL Corporation
We have audited the accompanying consolidated balance sheetssheet of PPL Corporation and subsidiaries (the "Company") as of December 31, 2014 and 2013,2016, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2014.year then ended. Our auditsaudit also included the financial statement schedule as of and for the year ended December 31, 2016 as listed in the Index at Item 15(a)(2).15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe financial statements and financial statement schedule based on our audits.audit.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, thesuch consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PPL Corporation and subsidiaries atas of December 31, 20142016, and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the periodyear then ended, December 31, 2014, in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America. Also, in our opinion, the related financial statement schedule as of and for the year ended December 31, 2016, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), PPL Corporation and subsidiaries'the Company's internal control over financial reporting as of December 31, 2014,2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2015,17, 2017 expressed an unqualified opinion thereon.on the Company's internal control over financial reporting.
/s/ ErnstDeloitte & YoungTouche LLP
Parsippany, NJ
February 17, 2017
Philadelphia, Pennsylvania
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
TheTo the Board of Directors and Shareowners of PPL Corporation
We have audited PPL Corporation and subsidiaries'the internal control over financial reporting of PPL Corporation and subsidiaries (the "Company") as of December 31, 2014,2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). PPL Corporation and subsidiaries'Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’s Report on Internal Control over Financial Reporting at Item 9A. Our responsibility is to express an opinion on the company'sCompany's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of itsthe inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not preventbe prevented or detect misstatements.detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, PPL Corporation and subsidiariesthe Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2016, based on the COSO criteria.criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2016 of the Company, and our report dated February 17, 2017, expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Parsippany, NJ
February 17, 2017
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareowners of PPL Corporation
We have audited the accompanying consolidated balance sheetssheet of PPL Corporation and subsidiaries as of December 31, 2014 and 2013,2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the threetwo years in the period ended December 31, 2014, and our report dated February 23, 2015, expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania
February 23, 2015
Report of Independent Registered Public Accounting Firm
The Board of Managers and Sole Member of PPL Energy Supply, LLC
We have audited2015. Our audits also included the accompanying consolidated balance sheets of PPL Energy Supply, LLC and subsidiariesfinancial statement schedule listed in the Index at Item 15(a)(2) as of December 31, 20142015 and 2013, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the threetwo years in the period ended December 31, 2014.2015. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of PPL Corporation and subsidiaries at December 31, 2015, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule as of December 31, 2015 and for each of the two years in the period ended December 31, 2015, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), PPL Corporation and subsidiaries' internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 19, 2016, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 19, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareowner of PPL Electric Utilities Corporation
We have audited the accompanying consolidated balance sheet of PPL Electric Utilities Corporation and subsidiaries (the "Company") as of December 31, 2016, and the related consolidated statements of income, equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were notwe engaged to perform, an audit of the Company'sits internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, andas well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, thesuch consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PPL Energy Supply, LLC and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
February 23, 2015
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholder of PPL Electric Utilities Corporation
We have audited the accompanying consolidated balance sheets of PPL Electric Utilities Corporation and subsidiaries as of December 31, 20142016, and 2013,the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Parsippany, NJ
February 17, 2017
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareowner of PPL Electric Utilities Corporation
We have audited the accompanying consolidated balance sheet of PPL Electric Utilities Corporation and subsidiaries as of December 31, 2015, and the related consolidated statements of income, shareowners' equity, and cash flows for each of the threetwo years in the period ended December 31, 2014.2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of PPL Electric Utilities Corporation and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
February 23, 2015
Report of Independent Registered Public Accounting Firm
The Board of Directors and Sole Member of LG&E and KU Energy LLC
We have audited the accompanying consolidated balance sheets of LG&E and KU Energy LLC and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of LG&E and KU Energy LLCPPL Electric Utilities Corporation and subsidiaries at December 31, 2014 and 2013,2015, and the consolidated results of their operations and their cash flows for each of the threetwo years in the period ended December 31, 2014,2015, in conformity with U.S. generally accepted accounting principlesprinciples.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 19, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Sole Member of LG&E and KU Energy LLC
We have audited the accompanying consolidated balance sheet of LG&E and KU Energy LLC and subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended. Our audit also included the financial statement schedule as of and for the year ended December 31, 2016 as listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of LG&E and KU Energy LLC and subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule as of and for the year ended December 31, 2016, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ErnstDeloitte & YoungTouche LLP
Louisville, Kentucky
February 23, 2015
Report of Independent Registered Public Accounting Firm
The Board of Directors and StockholderSole Member of Louisville GasLG&E and Electric Company
KU Energy LLCWe have audited the accompanying consolidated balance sheetssheet of Louisville GasLG&E and Electric CompanyKU Energy LLC and subsidiaries as of December 31, 2014 and 2013,2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the threetwo years in the period ended December 31, 2014.2015. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2) as of December 31, 2015 and for each of the two years in the period ended December 31, 2015. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of LG&E and KU Energy LLC and subsidiaries at December 31, 2015, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule as of December 31, 2015 and for each of the two years ended December 31, 2015, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Louisville, Kentucky
February 19, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of Louisville Gas and Electric Company at
We have audited the accompanying balance sheet of Louisville Gas and Electric Company (the “Company”) as of December 31, 20142016, and 2013,the related statements of income, equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2016, and the results of its operations and its cash flows for each of the three years in the periodyear then ended, December 31, 2014, in conformity with U.S.accounting principles generally accepted accounting principles.
in the United States of America.
/s/ ErnstDeloitte & YoungTouche LLP
Louisville, Kentucky
February 23, 2015
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholder of Kentucky UtilitiesLouisville Gas and Electric Company
We have audited the accompanying balance sheetssheet of Kentucky UtilitiesLouisville Gas and Electric Company as of December 31, 2014 and 2013,2015, and the related statements of income, equity and cash flows for each of the threetwo years in the period ended December 31, 2014.2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Louisville Gas and Electric Company at December 31, 2015, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
February 19, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of Kentucky Utilities Company
We have audited the accompanying balance sheet of Kentucky Utilities Company (the “Company”) as of December 31, 2016, and the related statements of income, equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2016, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Louisville, Kentucky
February 17, 2017
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholder of Kentucky Utilities Company
We have audited the accompanying balance sheet of Kentucky Utilities Company as of December 31, 2015, and the related statements of income, equity and cash flows for each of the two years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kentucky Utilities Company at December 31, 2014 and 2013,2015, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2014,2015, in conformity with U.S. generally accepted accounting principles.
Louisville, Kentucky
February 23, 2015
(THIS PAGE LEFT BLANK INTENTIONALLY.)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, except share data)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | |
| | | |
| CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, | |
| PPL Corporation and Subsidiaries | |
| (Millions of Dollars, except share data) | |
| | | | | | | | | | | | | | | | |
| | | | | 2014 | | 2013 | | 2012 | 2016 | | 2015 | | 2014 |
| Operating Revenues | Operating Revenues | | | | | | | $ | 7,517 |
| | $ | 7,669 |
| | $ | 7,852 |
|
| | Utility | | $ | 7,782 | | $ | 7,201 | | $ | 6,808 | | | | | |
| | Unregulated wholesale energy | | 1,808 | | 2,909 | | 3,976 | |
| | Unregulated retail energy | | 1,239 | | 1,023 | | 840 | |
| | Energy-related businesses | | | 670 | | | 588 | | | 508 | |
| | Total Operating Revenues | | | 11,499 | | | 11,721 | | | 12,132 | |
| | | | | | | | |
| Operating Expenses | Operating Expenses | | | | | | | |
| | |
| | |
|
| | Operation | | | | | | | |
| | | Fuel | | 2,161 | | 1,944 | | 1,837 | |
| | | Energy purchases | | 1,041 | | 1,967 | | 2,555 | |
| | | Other operation and maintenance | | 2,803 | | 2,779 | | 2,791 | |
| | | Loss on lease termination (Note 8) | | | | 697 | | | |
| | Depreciation | | 1,220 | | 1,142 | | 1,087 | |
| | Taxes, other than income | | 374 | | 351 | | 352 | |
| | Energy-related businesses | | | 628 | | | 563 | | | 484 | |
| | Total Operating Expenses | | | 8,227 | | | 9,443 | | | 9,106 | |
| Operation | | |
| | | | |
|
| Fuel | | 791 |
| | 863 |
| | 965 |
|
| Energy purchases | | 706 |
| | 855 |
| | 924 |
|
| Other operation and maintenance | | 1,745 |
| | 1,938 |
| | 1,856 |
|
| Depreciation | | 926 |
| | 883 |
| | 923 |
|
| Taxes, other than income | | 301 |
| | 299 |
| | 317 |
|
| Total Operating Expenses | | 4,469 |
| | 4,838 |
| | 4,985 |
|
| | | | | | | | | | | | | | |
Operating Income | Operating Income | | 3,272 | | 2,278 | | 3,026 | 3,048 |
| | 2,831 |
| | 2,867 |
|
| | | | | | | | | | | | | | |
Other Income (Expense) - net | Other Income (Expense) - net | | 118 | | (23) | | (39) | 390 |
| | 108 |
| | 105 |
|
| | | | | | | | |
Other-Than-Temporary Impairments | | 2 | | 1 | | 27 | |
| | | | | | | | | | | | | | |
Interest Expense | Interest Expense | | | 1,024 | | | 994 | | | 951 | 888 |
| | 871 |
| | 843 |
|
| | | | | | | | | | | | | | |
Income from Continuing Operations Before Income Taxes | Income from Continuing Operations Before Income Taxes | | 2,364 | | 1,260 | | 2,009 | 2,550 |
| | 2,068 |
| | 2,129 |
|
| | | | | | | | | | | | | | |
Income Taxes | Income Taxes | | | 781 | | | 163 | | | 518 | 648 |
| | 465 |
| | 692 |
|
| | | | | | | | | | | | | | |
Income from Continuing Operations After Income Taxes | Income from Continuing Operations After Income Taxes | | 1,583 | | 1,097 | | 1,491 | 1,902 |
| | 1,603 |
| | 1,437 |
|
| | | | | | | | | | | | | | |
Income (Loss) from Discontinued Operations (net of income taxes) | | | 154 | | | 34 | | | 40 | |
| Income (Loss) from Discontinued Operations (net of income taxes) (Note 8) | | — |
| | (921 | ) | | 300 |
|
| | | | | | | | | | | | | | |
Net Income | Net Income | | 1,737 | | 1,131 | | 1,531 | $ | 1,902 |
| | $ | 682 |
| | $ | 1,737 |
|
| | | | | | | | | | | | | | |
Net Income Attributable to Noncontrolling Interests | | | | | | 1 | | | 5 | |
| | | | | | | | | | |
Net Income Attributable to PPL Shareowners | | $ | 1,737 | | $ | 1,130 | | $ | 1,526 | |
| | | | | | | | | | |
| Amounts Attributable to PPL Shareowners: | | | | | | | |
| | Income from Continuing Operations After Income Taxes | | $ | 1,583 | | $ | 1,096 | | $ | 1,486 | |
| | Income (Loss) from Discontinued Operations (net of income taxes) | | | 154 | | | 34 | | | 40 | |
| | Net Income | | $ | 1,737 | | $ | 1,130 | | $ | 1,526 | |
| | | | | | | | | | |
| Earnings Per Share of Common Stock: | Earnings Per Share of Common Stock: | | | |
| | Income from Continuing Operations After Income Taxes Available to PPL | | | |
| | Common Shareowners: | | | | | | | |
| | | Basic | | $ | 2.41 | | $ | 1.79 | | $ | 2.55 | |
| | | Diluted | | $ | 2.38 | | $ | 1.71 | | $ | 2.54 | |
| | Net Income Available to PPL Common Shareowners: | | | | | | | |
| | | Basic | | $ | 2.64 | | $ | 1.85 | | $ | 2.61 | |
| | | Diluted | | $ | 2.61 | | $ | 1.76 | | $ | 2.60 | |
| Income from Continuing Operations After Income Taxes Available to PPL Common Shareowners: | | |
| Basic | | $ | 2.80 |
| | $ | 2.38 |
| | $ | 2.19 |
|
| Diluted | | $ | 2.79 |
| | $ | 2.37 |
| | $ | 2.16 |
|
| Net Income Available to PPL Common Shareowners: | | |
| | |
| | |
|
| Basic | | $ | 2.80 |
| | $ | 1.01 |
| | $ | 2.64 |
|
| Diluted | | $ | 2.79 |
| | $ | 1.01 |
| | $ | 2.61 |
|
| | | | | | | | | | | | | | |
Dividends Declared Per Share of Common Stock | Dividends Declared Per Share of Common Stock | | $ | 1.49 | | $ | 1.47 | | $ | 1.44 | $ | 1.52 |
| | $ | 1.50 |
| | $ | 1.49 |
|
| | | | | | | | | | | | | | |
Weighted-Average Shares of Common Stock Outstanding (in thousands) | Weighted-Average Shares of Common Stock Outstanding (in thousands) | | | | | | | | | |
| | |
|
| | | Basic | | 653,504 | | 608,983 | | 580,276 | |
| | | Diluted | | 665,973 | | 663,073 | | 581,626 | |
| Basic | | 677,592 |
| | 669,814 |
| | 653,504 |
|
| Diluted | | 680,446 |
| | 672,586 |
| | 665,973 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| FOR THE YEARS ENDED DECEMBER 31, |
| PPL Corporation and Subsidiaries |
| (Millions of Dollars) |
| | | | | | | | | | | | |
| | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
Net income | | $ | 1,737 | | $ | 1,131 | | $ | 1,531 |
| | | | | | | | | | | | |
| Other comprehensive income (loss): | | | | | | | | | |
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | | | | | | | | | |
| | Foreign currency translation adjustments, net of tax of ($8), $4, $2 | | | (275) | | | 138 | | | 94 |
| | Available-for-sale securities, net of tax of ($39), ($72), ($31) | | | 35 | | | 67 | | | 29 |
| | Qualifying derivatives, net of tax of $23, ($41), ($32) | | | (10) | | | 45 | | | 39 |
| | Equity investees' other comprehensive income (loss), net of tax of $0, $0, ($1) | | | | | | | | | 2 |
| | Defined benefit plans: | | | | | | | | | |
| | | Prior service costs, net of tax of ($4), ($1), $0 | | | 5 | | | 2 | | | 1 |
| | | Net actuarial gain (loss), net of tax of $225, ($73), $343 | | | (509) | | | 71 | | | (965) |
| Reclassifications to net income - (gains) losses, net of tax expense (benefit): | | | | | | | | | |
| | Available-for-sale securities, net of tax of $7, $4, $1 | | | (6) | | | (6) | | | (7) |
| | Qualifying derivatives, net of tax of $23, $80, $278 | | | (64) | | | (83) | | | (434) |
| | Defined benefit plans: | | | | | | | | | |
| | | Prior service costs, net of tax of ($3), ($4), ($5) | | | 4 | | | 6 | | | 10 |
| | | Net actuarial loss, net of tax of ($34), ($49), ($29) | | | 111 | | | 135 | | | 79 |
Total other comprehensive income (loss) attributable to PPL Shareowners | | | (709) | | | 375 | | | (1,152) |
| | | | | | | | | | | | |
Comprehensive income (loss) | | | 1,028 | | | 1,506 | | | 379 |
| | Comprehensive income attributable to noncontrolling interests | | | | | | 1 | | | 5 |
| | | | | | | | | | | | |
Comprehensive income (loss) attributable to PPL Shareowners | | $ | 1,028 | | $ | 1,505 | | $ | 374 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Net income | $ | 1,902 |
| | $ | 682 |
| | $ | 1,737 |
|
| | | | | | |
| Other comprehensive income (loss): | |
| | |
| | |
|
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |
| | |
| | |
|
| Foreign currency translation adjustments, net of tax of ($4), $1, ($8) | (1,107 | ) | | (234 | ) | | (275 | ) |
| Available-for-sale securities, net of tax of $0, ($9), ($39) | — |
| | 8 |
| | 35 |
|
| Qualifying derivatives, net of tax of ($18), $0, $23 | 91 |
| | 26 |
| | (10 | ) |
| Defined benefit plans: | |
| | |
| | |
|
| Prior service costs, net of tax of $2, $6, ($4) | (3 | ) | | (9 | ) | | 5 |
|
| Net actuarial gain (loss), net of tax of $40, $67, $225 | (61 | ) | | (366 | ) | | (509 | ) |
| Reclassifications to net income - (gains) losses, net of tax expense (benefit): | |
| | |
| | |
|
| Available-for-sale securities, net of tax of $0, $2, $7 | — |
| | (2 | ) | | (6 | ) |
| Qualifying derivatives, net of tax of $21, ($15), $23 | (91 | ) | | 2 |
| | (64 | ) |
| Equity investees' other comprehensive (income) loss, net of tax of $0, $0, $0 | (1 | ) | | (1 | ) | | — |
|
| Defined benefit plans: | |
| | |
| | |
|
| Prior service costs, net of tax of ($1), $0, ($3) | 1 |
| | — |
| | 4 |
|
| Net actuarial (gain) loss, net of tax of ($35), ($46), ($34) | 121 |
| | 146 |
| | 111 |
|
| Total other comprehensive income (loss) | (1,050 | ) | | (430 | ) | | (709 | ) |
| | | | | | |
| Comprehensive income | $ | 852 |
| | $ | 252 |
| | $ | 1,028 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, |
| PPL Corporation and Subsidiaries |
| (Millions of Dollars) |
| | | | | | 2014 | | 2013 | | 2012 |
| Cash Flows from Operating Activities | | | | | | | | | |
| | Net income | | $ | 1,737 | | $ | 1,131 | | $ | 1,531 |
| | Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | | | | | | | |
| | | Depreciation | | | 1,237 | | | 1,161 | | | 1,100 |
| | | Amortization | | | 228 | | | 222 | | | 186 |
| | | Defined benefit plans - expense | | | 90 | | | 176 | | | 166 |
| | | Deferred income taxes and investment tax credits | | | 640 | | | 72 | | | 424 |
| | | Unrealized (gains) losses on derivatives, and other hedging activities | | | (175) | | | 236 | | | 27 |
| | | Pre-tax gain from the sale of the Montana hydroelectric generation business (Note 8) | | | (246) | | | | | | |
| | | Loss on lease termination (Note 8) | | | | | | 426 | | | |
| | | Adjustment to WPD line loss accrual | | | 65 | | | 45 | | | (90) |
| | | Stock compensation expense | | | 64 | | | 51 | | | 49 |
| | | Other | | | 57 | | | 49 | | | 31 |
| | Change in current assets and current liabilities | | | | | | | | | |
| | | Accounts receivable | | | (83) | | | (165) | | | 7 |
| | | Accounts payable | | | (4) | | | 25 | | | (29) |
| | | Unbilled revenues | | | 90 | | | 27 | | | (19) |
| | | Fuel, materials and supplies | | | (134) | | | (27) | | | (18) |
| | | Counterparty collateral | | | (17) | | | (81) | | | (34) |
| | | Taxes payable | | | 158 | | | 20 | | | 24 |
| | | Uncertain tax positions | | | | | | (114) | | | (4) |
| | | Other | | | 80 | | | (35) | | | 55 |
| | Other operating activities | | | | | | | | | |
| | | Defined benefit plans - funding | | | (419) | | | (563) | | | (607) |
| | | Other assets | | | 12 | | | 7 | | | (33) |
| | | Other liabilities | | | 23 | | | 194 | | | (2) |
| | | | Net cash provided by (used in) operating activities | | | 3,403 | | | 2,857 | | | 2,764 |
| Cash Flows from Investing Activities | | | | | | | | | |
| | Expenditures for property, plant and equipment | | | (4,090) | | | (4,212) | | | (3,105) |
| | Expenditures for intangible assets | | | (95) | | | (95) | | | (71) |
| | Proceeds from the sale of Montana hydroelectric generation business (Note 8) | | | 900 | | | | | | |
| | Ironwood Acquisition, net of cash acquired | | | | | | | | | (84) |
| | Purchases of nuclear plant decommissioning trust investments | | | (170) | | | (159) | | | (154) |
| | Proceeds from the sale of nuclear plant decommissioning trust investments | | | 154 | | | 144 | | | 139 |
| | Proceeds from the receipt of grants | | | 164 | | | 4 | | | 4 |
| | Purchases of other investments | | | (120) | | | | | | |
| | Net (increase) decrease in restricted cash and cash equivalents | | | (89) | | | (20) | | | 96 |
| | Other investing activities | | | 17 | | | 43 | | | 52 |
| | | | Net cash provided by (used in) investing activities | | | (3,329) | | | (4,295) | | | (3,123) |
| Cash Flows from Financing Activities | | | | | | | | | |
| | Issuance of long-term debt | | | 296 | | | 2,038 | | | 1,223 |
| | Retirement of long-term debt | | | (546) | | | (747) | | | (108) |
| | Repurchase of common stock | | | | | | (74) | | | |
| | Issuance of common stock | | | 1,074 | | | 1,411 | | | 72 |
| | Payment of common stock dividends | | | (967) | | | (878) | | | (833) |
| | Redemption of preference stock of a subsidiary | | | | | | | | | (250) |
| | Debt issuance and credit facility costs | | | (22) | | | (49) | | | (17) |
| | Contract adjustment payments on Equity Units | | | (22) | | | (82) | | | (94) |
| | Net increase (decrease) in short-term debt | | | 777 | | | 49 | | | 74 |
| | Other financing activities | | | (7) | | | (37) | | | (19) |
| | | | Net cash provided by (used in) financing activities | | | 583 | | | 1,631 | | | 48 |
Effect of Exchange Rates on Cash and Cash Equivalents | | | (8) | | | 8 | | | 10 |
Net Increase (Decrease) in Cash and Cash Equivalents | | | 649 | | | 201 | | | (301) |
Cash and Cash Equivalents at Beginning of Period | | | 1,102 | | | 901 | | | 1,202 |
Cash and Cash Equivalents at End of Period | | $ | 1,751 | | $ | 1,102 | | $ | 901 |
| | | | | | | | | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | | | | | |
| | Cash paid (received) during the period for: | | | | | | | | | |
| | | Interest - net of amount capitalized | | $ | 959 | | $ | 916 | | $ | 847 |
| | | Income taxes - net | | $ | 190 | | $ | 128 | | $ | 73 |
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cash Flows from Operating Activities | |
| | |
| | |
|
| Net income | $ | 1,902 |
| | $ | 682 |
| | $ | 1,737 |
|
| Loss (income) from discontinued operations (net of income taxes) | — |
| | 921 |
| | (300 | ) |
| Income from continuing operations (net of income taxes) | 1,902 |
| | 1,603 |
| | 1,437 |
|
| Adjustments to reconcile Income from continuing operations (net of taxes) to net cash provided by (used in) operating activities- continuing operations | |
| | |
| | |
|
| Depreciation | 926 |
| | 883 |
| | 923 |
|
| Amortization | 80 |
| | 59 |
| | 65 |
|
| Defined benefit plans - expense (income) | (40 | ) | | 56 |
| | 48 |
|
| Deferred income taxes and investment tax credits | 560 |
| | 428 |
| | 666 |
|
| Unrealized (gains) losses on derivatives, and other hedging activities | 19 |
| | (77 | ) | | (187 | ) |
| Adjustment to WPD line loss accrual | — |
| | — |
| | 65 |
|
| Other | 16 |
| | 17 |
| | 66 |
|
| Change in current assets and current liabilities | |
| | |
| | |
|
| Accounts receivable | (15 | ) | | 47 |
| | (123 | ) |
| Accounts payable | 57 |
| | (116 | ) | | 40 |
|
| Unbilled revenues | (63 | ) | | 54 |
| | 22 |
|
| Prepayments | (4 | ) | | (23 | ) | | 87 |
|
| Taxes payable | 31 |
| | (175 | ) | | 161 |
|
| Regulatory assets and liabilities, net | (59 | ) | | 42 |
| | (7 | ) |
| Other | (31 | ) | | 40 |
| | 30 |
|
| Other operating activities | |
| | |
| | |
|
| Defined benefit plans - funding | (427 | ) | | (499 | ) | | (384 | ) |
| Settlement of interest rate swaps | (9 | ) | | (101 | ) | | — |
|
| Other assets | 42 |
| | (19 | ) | | 9 |
|
| Other liabilities | (95 | ) | | 53 |
| | 23 |
|
| Net cash provided by (used in) operating activities - continuing operations | 2,890 |
| | 2,272 |
| | 2,941 |
|
| Net cash provided by (used in) operating activities - discontinued operations | — |
| | 343 |
| | 462 |
|
| Net cash provided by (used in) operating activities | 2,890 |
| | 2,615 |
| | 3,403 |
|
| Cash Flows from Investing Activities | |
| | |
| | |
|
| Expenditures for property, plant and equipment | (2,920 | ) | | (3,533 | ) | | (3,674 | ) |
| Expenditures for intangible assets | (37 | ) | | (37 | ) | | (49 | ) |
| Purchases of other investments | — |
| | — |
| | (120 | ) |
| Proceeds from the sale of other investments | 2 |
| | 136 |
| | — |
|
| Net decrease in restricted cash and cash equivalents | 8 |
| | 8 |
| | 19 |
|
| Other investing activities | 29 |
| | (13 | ) | | (2 | ) |
| Net cash provided by (used in) investing activities - continuing operations | (2,918 | ) | | (3,439 | ) | | (3,826 | ) |
| Net cash provided by (used in) investing activities - discontinued operations | — |
| | (149 | ) | | 497 |
|
| Net cash provided by (used in) investing activities | (2,918 | ) | | (3,588 | ) | | (3,329 | ) |
| Cash Flows from Financing Activities | |
| | |
| | |
|
| Issuance of long-term debt | 1,342 |
| | 2,236 |
| | 296 |
|
| Retirement of long-term debt | (930 | ) | | (1,000 | ) | | (237 | ) |
| Settlement of cross currency swaps | 46 |
| | — |
| | — |
|
| Issuance of common stock | 144 |
| | 203 |
| | 1,074 |
|
| Payment of common stock dividends | (1,030 | ) | | (1,004 | ) | | (967 | ) |
| Net increase in short-term debt | 29 |
| | 94 |
| | 147 |
|
| Other financing activities | (40 | ) | | (47 | ) | | (51 | ) |
| Net cash provided by (used in) financing activities - continuing operations | (439 | ) | | 482 |
| | 262 |
|
| Net cash provided by (used in) financing activities - discontinued operations | — |
| | (546 | ) | | (846 | ) |
| Net cash distributions to parent from discontinued operations | — |
| | 132 |
| | 1,167 |
|
| Net cash provided by (used in) financing activities | (439 | ) | | 68 |
| | 583 |
|
| Effect of Exchange Rates on Cash and Cash Equivalents | (28 | ) | | (10 | ) | | (8 | ) |
| Net (Increase) Decrease in Cash and Cash Equivalents included in Discontinued Operations | — |
| | 352 |
| | (113 | ) |
| Net Increase (Decrease) in Cash and Cash Equivalents | (495 | ) | | (563 | ) | | 536 |
|
| Cash and Cash Equivalents at Beginning of Period | 836 |
| | 1,399 |
| | 863 |
|
| Cash and Cash Equivalents at End of Period | $ | 341 |
| | $ | 836 |
| | $ | 1,399 |
|
| | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Interest - net of amount capitalized | $ | 854 |
| | $ | 822 |
| | $ | 959 |
|
| Income taxes - net | $ | 70 |
| | $ | 179 |
| | $ | 190 |
|
| Significant non-cash transactions: | | | | | |
| Accrued expenditures for property, plant and equipment at December 31, | $ | 281 |
| | $ | 310 |
| | $ | 458 |
|
| Accrued expenditures for intangible assets at December 31, | $ | 117 |
| | $ | 55 |
| | $ | 19 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, shares in thousands)
|
| | | | | | | |
| | 2016 | | 2015 |
| Assets | |
| | |
|
| Current Assets | |
| | |
|
| Cash and cash equivalents | $ | 341 |
| | $ | 836 |
|
| Accounts receivable (less reserve: 2016, $54; 2015, $41) | |
| | |
|
| Customer | 666 |
| | 673 |
|
| Other | 46 |
| | 59 |
|
| Unbilled revenues | 480 |
| | 453 |
|
| Fuel, materials and supplies | 356 |
| | 357 |
|
| Prepayments | 63 |
| | 66 |
|
| Price risk management assets | 63 |
| | 139 |
|
| Other current assets | 52 |
| | 63 |
|
| Total Current Assets | 2,067 |
| | 2,646 |
|
| | | | |
| Property, Plant and Equipment | |
| | |
|
| Regulated utility plant | 34,674 |
| | 34,399 |
|
| Less: accumulated depreciation - regulated utility plant | 6,013 |
| | 5,683 |
|
| Regulated utility plant, net | 28,661 |
| | 28,716 |
|
| Non-regulated property, plant and equipment | 413 |
| | 516 |
|
| Less: accumulated depreciation - non-regulated property, plant and equipment | 134 |
| | 165 |
|
| Non-regulated property, plant and equipment, net | 279 |
| | 351 |
|
| Construction work in progress | 1,134 |
| | 1,315 |
|
| Property, Plant and Equipment, net | 30,074 |
| | 30,382 |
|
| | | | |
| Other Noncurrent Assets | |
| | |
|
| Regulatory assets | 1,918 |
| | 1,733 |
|
| Goodwill | 3,060 |
| | 3,550 |
|
| Other intangibles | 700 |
| | 679 |
|
| Price risk management assets | 336 |
| | 156 |
|
| Other noncurrent assets | 160 |
| | 155 |
|
| Total Other Noncurrent Assets | 6,174 |
| | 6,273 |
|
| | | | |
| Total Assets | $ | 38,315 |
| | $ | 39,301 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| PPL Corporation and Subsidiaries |
| (Millions of Dollars, shares in thousands) |
| | | | | | 2014 | | 2013 |
| Assets | | | | | | |
| | | | | | | | | | |
| Current Assets | | | | | | |
| | Cash and cash equivalents | | $ | 1,751 | | $ | 1,102 |
| | Short-term investments | | | 120 | | | |
| | Restricted cash and cash equivalents | | | 180 | | | 83 |
| | Accounts receivable (less reserve: 2014, $46; 2013, $64) | | | | | | |
| | | Customer | | | 923 | | | 923 |
| | | Other | | | 171 | | | 97 |
| | Unbilled revenues | | | 735 | | | 835 |
| | Fuel, materials and supplies | | | 836 | | | 702 |
| | Prepayments | | | 87 | | | 153 |
| | Deferred income taxes | | | 129 | | | 246 |
| | Price risk management assets | | | 1,158 | | | 942 |
| | Regulatory assets | | | 37 | | | 33 |
| | Other current assets | | | 32 | | | 37 |
| | Total Current Assets | | | 6,159 | | | 5,153 |
| | | | | | | | | | |
| Investments | | | | | | |
| | Nuclear plant decommissioning trust funds | | | 950 | | | 864 |
| | Other investments | | | 35 | | | 43 |
| | Total Investments | | | 985 | | | 907 |
| | | | | | | | | | |
| Property, Plant and Equipment | | | | | | |
| | Regulated utility plant | | | 30,568 | | | 27,755 |
| | Less: accumulated depreciation - regulated utility plant | | | 5,361 | | | 4,873 |
| | | Regulated utility plant, net | | | 25,207 | | | 22,882 |
| | Non-regulated property, plant and equipment | | | | | | |
| | | Generation | | | 11,310 | | | 11,881 |
| | | Nuclear fuel | | | 624 | | | 591 |
| | | Other | | | 885 | | | 834 |
| | Less: accumulated depreciation - non-regulated property, plant and equipment | | | 6,404 | | | 6,172 |
| | | Non-regulated property, plant and equipment, net | | | 6,415 | | | 7,134 |
| | Construction work in progress | | | 2,975 | | | 3,071 |
| | Property, Plant and Equipment, net | | | 34,597 | | | 33,087 |
| | | | | | | | | | |
| Other Noncurrent Assets | | | | | | |
| | Regulatory assets | | | 1,562 | | | 1,246 |
| | Goodwill | | | 4,005 | | | 4,225 |
| | Other intangibles | | | 925 | | | 947 |
| | Price risk management assets | | | 319 | | | 337 |
| | Other noncurrent assets | | | 312 | | | 357 |
| | Total Other Noncurrent Assets | | | 7,123 | | | 7,112 |
| | | | | | | |
Total Assets | | $ | 48,864 | | $ | 46,259 |
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, shares in thousands)
|
| | | | | | | |
| | 2016 | | 2015 |
| Liabilities and Equity | |
| | |
|
| Current Liabilities | |
| | |
|
| Short-term debt | $ | 923 |
| | $ | 916 |
|
| Long-term debt due within one year | 518 |
| | 485 |
|
| Accounts payable | 820 |
| | 812 |
|
| Taxes | 101 |
| | 85 |
|
| Interest | 270 |
| | 303 |
|
| Dividends | 259 |
| | 255 |
|
| Customer deposits | 276 |
| | 326 |
|
| Regulatory liabilities | 101 |
| | 145 |
|
| Other current liabilities | 569 |
| | 549 |
|
| Total Current Liabilities | 3,837 |
| | 3,876 |
|
| | | | |
| Long-term Debt | 17,808 |
| | 18,563 |
|
| | | | |
| Deferred Credits and Other Noncurrent Liabilities | |
| | |
|
| Deferred income taxes | 3,889 |
| | 3,440 |
|
| Investment tax credits | 132 |
| | 128 |
|
| Accrued pension obligations | 1,001 |
| | 1,405 |
|
| Asset retirement obligations | 428 |
| | 536 |
|
| Regulatory liabilities | 899 |
| | 945 |
|
| Other deferred credits and noncurrent liabilities | 422 |
| | 489 |
|
| Total Deferred Credits and Other Noncurrent Liabilities | 6,771 |
| | 6,943 |
|
| | | | |
| Commitments and Contingent Liabilities (Notes 5, 6 and 13) |
|
| |
|
|
| | | | |
| Equity | |
| | |
|
| Common stock - $0.01 par value (a) | 7 |
| | 7 |
|
| Additional paid-in capital | 9,841 |
| | 9,687 |
|
| Earnings reinvested | 3,829 |
| | 2,953 |
|
| Accumulated other comprehensive loss | (3,778 | ) | | (2,728 | ) |
| Total Equity | 9,899 |
| | 9,919 |
|
| | | | |
| Total Liabilities and Equity | $ | 38,315 |
| | $ | 39,301 |
|
| |
| (a) | 1,560,000 shares authorized; 679,731 shares issued and outstanding at December 31, 2016; 780,000 shares authorized; 673,857 shares issued and outstanding at December 31, 2015. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
| CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| PPL Corporation and Subsidiaries |
| (Millions of Dollars, shares in thousands) |
| | | | | | 2014 | | 2013 |
| Liabilities and Equity | | | | | | |
| | | | | | | | | | |
| Current Liabilities | | | | | | |
| | Short-term debt | | $ | 1,466 | | $ | 701 |
| | Long-term debt due within one year | | | 1,535 | | | 315 |
| | Accounts payable | | | 1,356 | | | 1,308 |
| | Taxes | | | 230 | | | 114 |
| | Interest | | | 314 | | | 325 |
| | Dividends | | | 249 | | | 232 |
| | Price risk management liabilities | | | 1,126 | | | 829 |
| | Regulatory liabilities | | | 91 | | | 90 |
| | Other current liabilities | | | 1,076 | | | 998 |
| | Total Current Liabilities | | | 7,443 | | | 4,912 |
| | | | | | | | | | |
Long-term Debt | | | 18,856 | | | 20,592 |
| | | | | | | | | | |
| Deferred Credits and Other Noncurrent Liabilities | | | | | | |
| | Deferred income taxes | | | 4,450 | | | 3,928 |
| | Investment tax credits | | | 159 | | | 342 |
| | Price risk management liabilities | | | 252 | | | 415 |
| | Accrued pension obligations | | | 1,756 | | | 1,286 |
| | Asset retirement obligations | | | 739 | | | 687 |
| | Regulatory liabilities | | | 992 | | | 1,048 |
| | Other deferred credits and noncurrent liabilities | | | 589 | | | 583 |
| | Total Deferred Credits and Other Noncurrent Liabilities | | | 8,937 | | | 8,289 |
| | | | | | | | | | |
| Commitments and Contingent Liabilities (Notes 5, 6 and 13) | | | | | | |
| | | | | | | | | | |
| Equity | | | | | | |
| | Common stock - $0.01 par value (a) | | | 7 | | | 6 |
| | Additional paid-in capital | | | 9,433 | | | 8,316 |
| | Earnings reinvested | | | 6,462 | | | 5,709 |
| | Accumulated other comprehensive loss | | | (2,274) | | | (1,565) |
| | Total Equity | | | 13,628 | | | 12,466 |
| | | | | | | | | | |
Total Liabilities and Equity | | $ | 48,864 | | $ | 46,259 |
CONSOLIDATED STATEMENTS OF EQUITY
PPL Corporation and Subsidiaries
(Millions of Dollars)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | PPL Shareowners | | |
| | Common stock shares outstanding (a) | | Common stock | | Additional paid-in capital | | Earnings reinvested | | Accumulated other comprehensive loss | | Total |
| December 31, 2013 | 630,321 |
| | $ | 6 |
| | $ | 8,316 |
| | $ | 5,709 |
| | $ | (1,565 | ) | | $ | 12,466 |
|
| Common stock issued | 35,528 |
| | 1 |
| | 1,089 |
| | |
| | |
| | 1,090 |
|
| Stock-based compensation | |
| | |
| | 28 |
| | |
| | |
| | 28 |
|
| Net income | |
| | |
| | |
| | 1,737 |
| | | | 1,737 |
|
| Dividends and dividend equivalents | |
| | |
| | |
| | (984 | ) | | | | (984 | ) |
| Other comprehensive income (loss) | |
| | |
| | |
| | |
| | (709 | ) | | (709 | ) |
| December 31, 2014 | 665,849 |
| | $ | 7 |
| | $ | 9,433 |
| | $ | 6,462 |
| | $ | (2,274 | ) | | $ | 13,628 |
|
| | | | | | | | | | | | |
| Common stock issued | 8,008 |
| |
|
| | 249 |
| | |
| | |
| | 249 |
|
| Stock-based compensation | |
| | |
| | 5 |
| | |
| | |
| | 5 |
|
| Net income | |
| | |
| | |
| | 682 |
| | |
| | 682 |
|
| Dividends and dividend equivalents | |
| | |
| | |
| | (1,010 | ) | | |
| | (1,010 | ) |
| Distribution of PPL Energy Supply (Note 8) | |
| | |
| | |
| | (3,181 | ) | | (24 | ) | | (3,205 | ) |
| Other comprehensive income (loss) | |
| | |
| | |
| | |
| | (430 | ) | | (430 | ) |
| December 31, 2015 | 673,857 |
| | $ | 7 |
| | $ | 9,687 |
| | $ | 2,953 |
| | $ | (2,728 | ) | | $ | 9,919 |
|
| | | | | | | | | | | | |
| Common stock issued | 5,874 |
| | |
| | 185 |
| | |
| | |
| | 185 |
|
| Stock-based compensation | |
| | |
| | (31 | ) | | |
| | |
| | (31 | ) |
| Net income | |
| | |
| | |
| | 1,902 |
| | |
| | 1,902 |
|
| Dividends and dividend equivalents | |
| | |
| | |
| | (1,033 | ) | | |
| | (1,033 | ) |
| Other comprehensive income (loss) | |
| | |
| | |
| | |
| | (1,050 | ) | | (1,050 | ) |
| Adoption of stock-based compensation guidance cumulative effect adjustment (Note 1) | |
| | |
| | |
| | 7 |
| | | | 7 |
|
| December 31, 2016 | 679,731 |
| | $ | 7 |
| | $ | 9,841 |
| | $ | 3,829 |
| | $ | (3,778 | ) | | $ | 9,899 |
|
(a) | 780,000 shares authorized; 665,849 and 630,321 shares issued and outstanding at December 31, 2014 and 2013. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF EQUITY |
| PPL Corporation and Subsidiaries |
| (Millions of Dollars) |
| |
| | | | | PPL Shareowners | | | | | | |
| | | | | Common | | | | | | | | | | | | | | | | | | |
| | | | | stock | | | | | | | | | | | | Accumulated | | | | | | |
| | | | | shares | | | | | | Additional | | | | | | other | | | Non- | | | |
| | | | | outstanding | | | Common | | | paid-in | | | Earnings | | | comprehensive | | | controlling | | | |
| | | | | (a) | | | stock | | | capital | | | reinvested | | | loss | | | interests | | | Total |
| | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2011 | | 578,405 | | $ | 6 | | $ | 6,813 | | $ | 4,797 | | $ | (788) | | $ | 268 | | $ | 11,096 |
Common stock issued | | 3,543 | | | | | | 99 | | | | | | | | | | | | 99 |
Common stock repurchased | | (4) | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | | | | | | | 18 | | | | | | | | | | | | 18 |
Net income | | | | | | | | | | | 1,526 | | | | | | 5 | | | 1,531 |
| Dividends, dividend equivalents, | | | | | | | | | | | | | | | | | | | | |
| | redemptions and distributions | | | | | | | | 6 | | | (845) | | | | | | (255) | | | (1,094) |
| Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| | income (loss) | | | | | | | | | | | | | | (1,152) | | | | | | (1,152) |
December 31, 2012 | | 581,944 | | $ | 6 | | $ | 6,936 | | $ | 5,478 | | $ | (1,940) | | $ | 18 | | $ | 10,498 |
| | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued | | 50,807 | | | | | $ | 1,437 | | | | | | | | | | | $ | 1,437 |
Common stock repurchased | | (2,430) | | | | | | (74) | | | | | | | | | | | | (74) |
| Cash settlement of equity forward | | | | | | | | | | | | | | | | | | | | |
| | agreements | | | | | | | | (13) | | | | | | | | | | | | (13) |
Stock-based compensation | | | | | | | | 30 | | | | | | | | | | | | 30 |
Net income | | | | | | | | | | $ | 1,130 | | | | | $ | 1 | | | 1,131 |
| Dividends, dividend equivalents, | | | | | | | | | | | | | | | | | | | | |
| | redemptions and distributions | | | | | | | | | | | (899) | | | | | | (19) | | | (918) |
| Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| | income (loss) | | | | | | | | | | | | | $ | 375 | | | | | | 375 |
December 31, 2013 | | 630,321 | | $ | 6 | | $ | 8,316 | | $ | 5,709 | | $ | (1,565) | | $ | | | $ | 12,466 |
| | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued | | 35,528 | | $ | 1 | | $ | 1,089 | | | | | | | | | | | $ | 1,090 |
Stock-based compensation | | | | | | | | 28 | | | | | | | | | | | | 28 |
Net income | | | | | | | | | | $ | 1,737 | | | | | | | | | 1,737 |
| Dividends, dividend equivalents, | | | | | | | | | | | | | | | | | | | | |
| | redemptions and distributions | | | | | | | | | | | (984) | | | | | | | | | (984) |
| Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| | income (loss) | | | | | | | | | | | | | $ | (709) | | | | | | (709) |
December 31, 2014 | | 665,849 | | $ | 7 | | $ | 9,433 | | $ | 6,462 | | $ | (2,274) | | | | | $ | 13,628 |
| (a) | Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting. |
| The accompanying Notes to Financial Statements are an integral part of the financial statements. |
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, |
| PPL Energy Supply, LLC and Subsidiaries |
| (Millions of Dollars) |
| | | | | | | | | | | | | |
| | | | | | 2014 | | 2013 | | 2012 |
| Operating Revenues | | | | | | | | | |
| | Unregulated wholesale energy | | $ | 1,808 | | $ | 2,909 | | $ | 3,976 |
| | Unregulated wholesale energy to affiliate | | | 84 | | | 51 | | | 78 |
| | Unregulated retail energy | | | 1,243 | | | 1,027 | | | 844 |
| | Energy-related businesses | | | 601 | | | 527 | | | 448 |
| | Total Operating Revenues | | | 3,736 | | | 4,514 | | | 5,346 |
| | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | |
| | Operation | | | | | | | | | |
| | | Fuel | | | 1,196 | | | 1,049 | | | 965 |
| | | Energy purchases | | | 209 | | | 1,171 | | | 1,821 |
| | | Other operation and maintenance | | | 1,007 | | | 1,026 | | | 997 |
| | | Loss on lease termination (Note 8) | | | | | | 697 | | | |
| | Depreciation | | | 297 | | | 299 | | | 272 |
| | Taxes, other than income | | | 57 | | | 53 | | | 55 |
| | Energy-related businesses | | | 573 | | | 512 | | | 432 |
| | Total Operating Expenses | | | 3,339 | | | 4,807 | | | 4,542 |
| | | | | | | | | | | | | |
Operating Income (Loss) | | | 397 | | | (293) | | | 804 |
| | | | | | | | | | | | | |
Other Income (Expense) - net | | | 30 | | | 32 | | | 19 |
| | | | | | | | | | | | | |
Interest Expense | | | 124 | | | 159 | | | 158 |
| | | | | | | | | | | | | |
Income (Loss) from Continuing Operations Before Income Taxes | | | 303 | | | (420) | | | 665 |
| | | | | | | | | | | | | |
Income Taxes | | | 116 | | | (159) | | | 236 |
| | | | | | | | | | | | | |
Income (Loss) from Continuing Operations After Income Taxes | | | 187 | | | (261) | | | 429 |
| | | | | | | | | | | | | |
Income (Loss) from Discontinued Operations (net of income taxes) | | | 223 | | | 32 | | | 46 |
| | | | | | | | | | | | | |
Net Income (Loss) | | | 410 | | | (229) | | | 475 |
| | | | | | | | | | | | | |
Net Income (Loss) Attributable to Noncontrolling Interests | | | | | | 1 | | | 1 |
| | | | | | | | | | | | | |
Net Income (Loss) Attributable to PPL Energy Supply Member | | $ | 410 | | $ | (230) | | $ | 474 |
| | | | | | | | | | | | | |
| Amounts Attributable to PPL Energy Supply Member: | | | | | | | | | |
| | Income (Loss) from Continuing Operations After Income Taxes | | $ | 187 | | $ | (262) | | $ | 428 |
| | Income (Loss) from Discontinued Operations (net of income taxes) | | | 223 | | | 32 | | | 46 |
| | Net Income (Loss) | | $ | 410 | | $ | (230) | | $ | 474 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| FOR THE YEARS ENDED DECEMBER 31, |
| PPL Energy Supply, LLC and Subsidiaries |
| (Millions of Dollars) |
| | | | | | | | | | | |
| | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
Net income (loss) | | $ | 410 | | $ | (229) | | $ | 475 |
| | | | | | | | | | | | |
| Other comprehensive income (loss): | | | | | | | | | |
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | | | | | | | | | |
| | Available-for-sale securities, net of tax of ($40), ($72), ($31) | | | 35 | | | 67 | | | 29 |
| | Qualifying derivatives, net of tax of $0, $0, ($46) | | | | | | | | | 68 |
| | Defined benefit plans: | | | | | | | | | |
| | | Prior service costs, net of tax of ($6), ($1), $0 | | | 8 | | | 2 | | | 1 |
| | | Net actuarial gain (loss), net of tax of $83, ($49), $56 | | | (120) | | | 71 | | | (82) |
| Reclassifications to net income - (gains) losses, net of tax expense (benefit): | | | | | | | | | |
| | Available-for-sale securities, net of tax of $7, $4, $1 | | | (6) | | | (6) | | | (7) |
| | Qualifying derivatives, net of tax of $17, $84, $291 | | | (25) | | | (123) | | | (463) |
| | Defined benefit plans: | | | | | | | | | |
| | | Prior service costs, net of tax of ($1), ($3), ($2) | | | 3 | | | 4 | | | 5 |
| | | Net actuarial loss, net of tax of ($4), ($10), ($2) | | | 5 | | | 14 | | | 10 |
| Total other comprehensive income (loss) attributable to | | | | | | | | | |
| | PPL Energy Supply Member | | | (100) | | | 29 | | | (439) |
| | | | | | | | | | | | |
Comprehensive income (loss) | | | 310 | | | (200) | | | 36 |
| | Comprehensive income attributable to noncontrolling interests | | | | | | 1 | | | 1 |
| | | | | | | | | | | | |
Comprehensive income (loss) attributable to PPL Energy Supply Member | | $ | 310 | | $ | (201) | | $ | 35 |
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, |
| PPL Energy Supply, LLC and Subsidiaries | | | |
| (Millions of Dollars) | | | |
| | | | | | 2014 | | 2013 | | 2012 |
| Cash Flows from Operating Activities | | | | | | | | | |
| | Net income (loss) | | $ | 410 | | $ | (229) | | $ | 475 |
| | Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | | | | | | | |
| | | Depreciation | | | 313 | | | 318 | | | 285 |
| | | Amortization | | | 163 | | | 156 | | | 119 |
| | | Defined benefit plans - expense | | | 42 | | | 51 | | | 43 |
| | | Deferred income taxes and investment tax credits | | | (26) | | | (296) | | | 152 |
| | | Impairment of assets | | | 20 | | | 65 | | | 3 |
| | | Unrealized (gains) losses on derivatives, and other hedging activities | | | 4 | | | 171 | | | (41) |
| | | Pre-tax gain from the sale of the Montana hydroelectric generation business (Note 8) | | | (315) | | | | | | |
| | | Loss on lease termination (Note 8) | | | | | | 426 | | | |
| | | Other | | | 36 | | | 2 | | | 19 |
| | Change in current assets and current liabilities | | | | | | | | | |
| | | Accounts receivable | | | 17 | | | 23 | | | (54) |
| | | Accounts payable | | | 2 | | | (56) | | | (22) |
| | | Unbilled revenues | | | 68 | | | 83 | | | 33 |
| | | Fuel, materials and supplies | | | (97) | | | (31) | | | (29) |
| | | Prepayments | | | (53) | | | (5) | | | (1) |
| | | Counterparty collateral | | | (17) | | | (81) | | | (34) |
| | | Price risk management assets and liabilities | | | (30) | | | 7 | | | (21) |
| | | Taxes payable | | | (3) | | | (31) | | | (27) |
| | | Other | | | (40) | | | (16) | | | (17) |
| | Other operating activities | | | | | | | | | |
| | | Defined benefit plans - funding | | | (35) | | | (113) | | | (75) |
| | | Other assets | | | 3 | | | (4) | | | (41) |
| | | Other liabilities | | | | | | (30) | | | 17 |
| | | | Net cash provided by (used in) operating activities | | | 462 | | | 410 | | | 784 |
| Cash Flows from Investing Activities | | | | | | | | | |
| | Expenditures for property, plant and equipment | | | (416) | | | (583) | | | (648) |
| | Proceeds from the sale of the Montana hydroelectric generation business (Note 8) | | | 900 | | | | | | |
| | Ironwood Acquisition, net of cash acquired | | | | | | | | | (84) |
| | Expenditures for intangible assets | | | (46) | | | (42) | | | (45) |
| | Purchases of nuclear plant decommissioning trust investments | | | (170) | | | (159) | | | (154) |
| | Proceeds from the sale of nuclear plant decommissioning trust investments | | | 154 | | | 144 | | | 139 |
| | Proceeds from the receipt of grants | | | 164 | | | 3 | | | |
| | Net (increase) decrease in notes receivable from affiliates | | | | | | | | | 198 |
| | Net (increase) decrease in restricted cash and cash equivalents | | | (108) | | | (22) | | | 104 |
| | Other investing activities | | | 19 | | | 28 | | | 21 |
| | | | Net cash provided by (used in) investing activities | | | 497 | | | (631) | | | (469) |
| Cash Flows from Financing Activities | | | | | | | | | |
| | Retirement of long-term debt | | | (309) | | | (747) | | | (9) |
| | Contributions from member | | | 739 | | | 1,577 | | | 563 |
| | Distributions to member | | | (1,906) | | | (408) | | | (787) |
| | Net increase (decrease) in short-term debt | | | 630 | | | (356) | | | (44) |
| | Other financing activities | | | | | | (19) | | | (4) |
| | | | Net cash provided by (used in) financing activities | | | (846) | | | 47 | | | (281) |
Net Increase (Decrease) in Cash and Cash Equivalents | | | 113 | | | (174) | | | 34 |
| | Cash and Cash Equivalents at Beginning of Period | | | 239 | | | 413 | | | 379 |
| | Cash and Cash Equivalents at End of Period | | $ | 352 | | $ | 239 | | $ | 413 |
| | | | | | | | | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | | | | | |
| | Cash paid (received) during the period for: | | | | | | | | | |
| | | | Interest - net of amount capitalized | | $ | 122 | | $ | 157 | | $ | 150 |
| | | | Income taxes - net | | $ | 310 | | $ | 189 | | $ | 128 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| PPL Energy Supply, LLC and Subsidiaries |
| (Millions of Dollars) |
| | | | | | 2014 | | 2013 |
| Assets | | | | | | |
| | | | | | | | | | |
| Current Assets | | | | | | |
| | Cash and cash equivalents | | $ | 352 | | $ | 239 |
| | Restricted cash and cash equivalents | | | 176 | | | 68 |
| | Accounts receivable (less reserve: 2014, $2; 2013, $21) | | | | | | |
| | | Customer | | | 186 | | | 233 |
| | | Other | | | 103 | | | 97 |
| | Accounts receivable from affiliates | | | 36 | | | 45 |
| | Unbilled revenues | | | 218 | | | 286 |
| | Fuel, materials and supplies | | | 455 | | | 358 |
| | Prepayments | | | 70 | | | 20 |
| | Price risk management assets | | | 1,079 | | | 860 |
| | Other current assets | | | 26 | | | 27 |
| | Total Current Assets | | | 2,701 | | | 2,233 |
| | | | | | | | |
| Investments | | | | | | |
| | Nuclear plant decommissioning trust funds | | | 950 | | | 864 |
| | Other investments | | | 30 | | | 37 |
| | Total Investments | | | 980 | | | 901 |
| | | | | | | | |
| Property, Plant and Equipment | | | | | | |
| | Non-regulated property, plant and equipment | | | | | | |
| | | Generation | | | 11,318 | | | 11,891 |
| | | Nuclear fuel | | | 624 | | | 591 |
| | | Other | | | 293 | | | 288 |
| | Less: accumulated depreciation - non-regulated property, plant and equipment | | | 6,242 | | | 6,046 |
| | | Non-regulated property, plant and equipment, net | | | 5,993 | | | 6,724 |
| | Construction work in progress | | | 443 | | | 450 |
| | Property, Plant and Equipment, net | | | 6,436 | | | 7,174 |
| | | | | | | | |
| Other Noncurrent Assets | | | | | | |
| | Goodwill | | | 72 | | | 86 |
| | Other intangibles | | | 257 | | | 266 |
| | Price risk management assets | | | 239 | | | 328 |
| | Other noncurrent assets | | | 75 | | | 86 |
| | Total Other Noncurrent Assets | | | 643 | | | 766 |
| | | | | | | | |
Total Assets | | $ | 10,760 | | $ | 11,074 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
| CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| PPL Energy Supply, LLC and Subsidiaries |
| (Millions of Dollars) |
| | | | | | | 2014 | | | 2013 |
| Liabilities and Equity | | | | | | |
| | | | | | | | | | |
| Current Liabilities | | | | | | |
| | Short-term debt | | $ | 630 | | | |
| | Long-term debt due within one year | | | 535 | | $ | 304 |
| | Accounts payable | | | 361 | | | 393 |
| | Accounts payable to affiliates | | | 50 | | | 4 |
| | Taxes | | | 28 | | | 31 |
| | Interest | | | 16 | | | 22 |
| | Price risk management liabilities | | | 1,024 | | | 750 |
| | Other current liabilities | | | 246 | | | 278 |
| | Total Current Liabilities | | | 2,890 | | | 1,782 |
| | | | | | | | | | |
Long-term Debt | | | 1,683 | | | 2,221 |
| | | | | | | |
| Deferred Credits and Other Noncurrent Liabilities | | | | | | |
| | Deferred income taxes | | | 1,223 | | | 1,114 |
| | Investment tax credits | | | 27 | | | 205 |
| | Price risk management liabilities | | | 193 | | | 320 |
| | Accrued pension obligations | | | 299 | | | 111 |
| | Asset retirement obligations | | | 415 | | | 393 |
| | Other deferred credits and noncurrent liabilities | | | 123 | | | 130 |
| | Total Deferred Credits and Other Noncurrent Liabilities | | | 2,280 | | | 2,273 |
| | | | | | | | | | |
| Commitments and Contingent Liabilities (Note 15) | | | | | | |
| | | | | | | |
Member's equity | | | 3,907 | | | 4,798 |
| | | | | | | | | | |
Total Liabilities and Equity | | $ | 10,760 | | $ | 11,074 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
|
| PPL Energy Supply, LLC and Subsidiaries |
| (Millions of Dollars) |
| | | | | | | | | | |
| | | | | | Non- | | | |
| | | Member's | | controlling | | | |
| | | equity | | interests | | Total |
December 31, 2011 | | $ | 4,019 | | $ | 18 | | $ | 4,037 |
Net income (loss) | | | 474 | | | 1 | | | 475 |
Other comprehensive income (loss) | | | (439) | | | | | | (439) |
Contributions from member | | | 563 | | | | | | 563 |
Distributions | | | (787) | | | (1) | | | (788) |
December 31, 2012 | | $ | 3,830 | | $ | 18 | | $ | 3,848 |
| | | | | | | | | | |
Net income (loss) | | $ | (230) | | $ | 1 | | $ | (229) |
Other comprehensive income (loss) | | | 29 | | | | | | 29 |
Contributions from member | | | 1,577 | | | | | | 1,577 |
Distributions | | | (408) | | | (19) | | | (427) |
December 31, 2013 | | $ | 4,798 | | $ | | | $ | 4,798 |
| | | | | | | | | | |
Net income (loss) | | $ | 410 | | | | | $ | 410 |
Other comprehensive income (loss) | | | (100) | | | | | | (100) |
Contributions from member | | | 739 | | | | | | 739 |
Distributions | | | (1,940) | | | | | | (1,940) |
December 31, 2014 | | $ | 3,907 | | �� | | | $ | 3,907 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
(THIS PAGE LEFT BLANK INTENTIONALLY.)
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, |
| PPL Electric Utilities Corporation and Subsidiaries |
| (Millions of Dollars) |
| | | | | | | | | | | | |
| | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | |
Operating Revenues | | $ | 2,044 | | $ | 1,870 | | $ | 1,763 |
| | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | |
| | Operation | | | | | | | | | |
| | | Energy purchases | | | 587 | | | 588 | | | 550 |
| | | Energy purchases from affiliate | | | 84 | | | 51 | | | 78 |
| | | Other operation and maintenance | | | 543 | | | 531 | | | 576 |
| | Depreciation | | | 185 | | | 178 | | | 160 |
| | Taxes, other than income | | | 107 | | | 103 | | | 105 |
| | Total Operating Expenses | | | 1,506 | | | 1,451 | | | 1,469 |
| | | | | | | | | | | | |
Operating Income | | | 538 | | | 419 | | | 294 |
| | | | | | | | | | | | |
Other Income (Expense) - net | | | 7 | | | 6 | | | 9 |
| | | | | | | | | | | | |
Interest Expense | | | 122 | | | 108 | | | 99 |
| | | | | | | | | | | | |
Income Before Income Taxes | | | 423 | | | 317 | | | 204 |
| | | | | | | | | | | | |
Income Taxes | | | 160 | | | 108 | | | 68 |
| | | | | | | | | | | | |
Net Income (a) | | | 263 | | | 209 | | | 136 |
| | | | | | | | | | | | |
Distributions on Preference Stock | | | | | | | | | 4 |
| | | | | | | | | | | | |
Net Income Available to PPL | | $ | 263 | | $ | 209 | | $ | 132 |
(a) | Net income approximates comprehensive income. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, |
| PPL Electric Utilities Corporation and Subsidiaries |
| (Millions of Dollars) |
| | | | | | 2014 | | 2013 | | 2012 |
| Cash Flows from Operating Activities | | | | | | | | | |
| | Net income | | $ | 263 | | $ | 209 | | $ | 136 |
| | Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | | | | | | | |
| | | Depreciation | | | 185 | | | 178 | | | 160 |
| | | Amortization | | | 19 | | | 19 | | | 18 |
| | | Defined benefit plans - expense | | | 15 | | | 21 | | | 22 |
| | | Deferred income taxes and investment tax credits | | | 87 | | | 127 | | | 114 |
| | | Other | | | (23) | | | (9) | | | (9) |
| | Change in current assets and current liabilities | | | | | | | | | |
| | | Accounts receivable | | | (64) | | | (29) | | | 3 |
| | | Accounts payable | | | 30 | | | 12 | | | 38 |
| | | Prepayments | | | 1 | | | 36 | | | 2 |
| | | Taxes payable | | | 75 | | | 49 | | | 12 |
| | | Other | | | 18 | | | (15) | | | (14) |
| | Other operating activities | | | | | | | | | |
| | | Defined benefit plans - funding | | | (23) | | | (93) | | | (59) |
| | | Other assets | | | 19 | | | 8 | | | (3) |
| | | Other liabilities | | | 11 | | | 10 | | | (31) |
| | | | Net cash provided by (used in) operating activities | | | 613 | | | 523 | | | 389 |
| |
| Cash Flows from Investing Activities | | | | | | | | | |
| | Expenditures for property, plant and equipment | | | (931) | | | (903) | | | (624) |
| | Expenditures for intangible assets | | | (26) | | | (39) | | | (9) |
| | Net (increase) decrease in notes receivable from affiliate | | | 150 | | | (150) | | | |
| | Other investing activities | | | 16 | | | 12 | | | 20 |
| | | | Net cash provided by (used in) investing activities | | | (791) | | | (1,080) | | | (613) |
| |
| Cash Flows from Financing Activities | | | | | | | | | |
| | Issuance of long-term debt | | | 296 | | | 348 | | | 249 |
| | Retirement of long-term debt | | | (10) | | | | | | |
| | Contributions from PPL | | | 263 | | | 205 | | | 150 |
| | Redemption of preference stock | | | | | | | | | (250) |
| | Payment of common stock dividends to parent | | | (158) | | | (127) | | | (95) |
| | Net increase (decrease) in short-term debt | | | (20) | | | 20 | | | |
| | Other financing activities | | | (4) | | | (4) | | | (10) |
| | | | Net cash provided by (used in) financing activities | | | 367 | | | 442 | | | 44 |
| |
Net Increase (Decrease) in Cash and Cash Equivalents | | | 189 | | | (115) | | | (180) |
Cash and Cash Equivalents at Beginning of Period | | | 25 | | | 140 | | | 320 |
Cash and Cash Equivalents at End of Period | | $ | 214 | | $ | 25 | | $ | 140 |
| |
| Supplemental Disclosures of Cash Flow Information | | | | | | | | | |
| | Cash paid (received) during the period for: | | | | | | | | | |
| | | | Interest - net of amount capitalized | | $ | 110 | | $ | 87 | | $ | 81 |
| | | | Income taxes - net | | $ | 40 | | $ | (45) | | $ | (42) |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| PPL Electric Utilities Corporation and Subsidiaries |
| (Millions of Dollars, shares in thousands) |
| | | | | | 2014 | | 2013 |
| Assets | | | | | | |
| | | | | | | | | | |
| Current Assets | | | | | | |
| | Cash and cash equivalents | | $ | 214 | | $ | 25 |
| | Accounts receivable (less reserve: 2014, $17; 2013, $18) | | | | | | |
| | | Customer | | | 312 | | | 284 |
| | | Other | | | 44 | | | 5 |
| | Accounts receivable from affiliates | | | 1 | | | 4 |
| | Notes receivable from affiliate | | | | | | 150 |
| | Unbilled revenues | | | 113 | | | 116 |
| | Materials and supplies | | | 43 | | | 35 |
| | Prepayments | | | 10 | | | 40 |
| | Deferred income taxes | | | 58 | | | 85 |
| | Regulatory assets | | | 12 | | | 6 |
| | Other current assets | | | 12 | | | 16 |
| | Total Current Assets | | | 819 | | | 766 |
| | | | | | | | | | |
| Property, Plant and Equipment | | | | | | |
| | Regulated utility plant | | | 7,589 | | | 6,888 |
| | Less: accumulated depreciation - regulated utility plant | | | 2,517 | | | 2,417 |
| | | Regulated utility plant, net | | | 5,072 | | | 4,471 |
| | Construction work in progress | | | 738 | | | 591 |
| | Property, Plant and Equipment, net | | | 5,810 | | | 5,062 |
| | | | | | | | | | |
| Other Noncurrent Assets | | | | | | |
| | Regulatory assets | | | 897 | | | 772 |
| | Intangibles | | | 235 | | | 211 |
| | Other noncurrent assets | | | 24 | | | 35 |
| | Total Other Noncurrent Assets | | | 1,156 | | | 1,018 |
| | | | | | | | | | |
Total Assets | | $ | 7,785 | | $ | 6,846 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
| CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| PPL Electric Utilities Corporation and Subsidiaries |
| (Millions of Dollars, shares in thousands) |
| | | | | | 2014 | | 2013 |
| Liabilities and Equity | | | | | | |
| | | | | | | | | | |
| Current Liabilities | | | | | | |
| | Short-term debt | | | | | $ | 20 |
| | Long-term debt due within one year | | $ | 100 | | | 10 |
| | Accounts payable | | | 325 | | | 295 |
| | Accounts payable to affiliates | | | 70 | | | 57 |
| | Taxes | | | 85 | | | 51 |
| | Interest | | | 34 | | | 34 |
| | Regulatory liabilities | | | 76 | | | 76 |
| | Other current liabilities | | | 103 | | | 82 |
| | Total Current Liabilities | | | 793 | | | 625 |
| | | | | | | | | | |
Long-term Debt | | | 2,502 | | | 2,305 |
| | | | | | | | | | |
| Deferred Credits and Other Noncurrent Liabilities | | | | | | |
| | Deferred income taxes | | | 1,483 | | | 1,399 |
| | Accrued pension obligations | | | 212 | | | 96 |
| | Regulatory liabilities | | | 18 | | | 15 |
| | Other deferred credits and noncurrent liabilities | | | 60 | | | 57 |
| | Total Deferred Credits and Other Noncurrent Liabilities | | | 1,773 | | | 1,567 |
| | | | | | | | | | |
| Commitments and Contingent Liabilities (Notes 6 and 13) | | | | | | |
| | | | | | | | | | |
| Stockholder's Equity | | | | | | |
| | Common stock - no par value (a) | | | 364 | | | 364 |
| | Additional paid-in capital | | | 1,603 | | | 1,340 |
| | Earnings reinvested | | | 750 | | | 645 |
| | Total Equity | | | 2,717 | | | 2,349 |
| | | | | | | | | | |
Total Liabilities and Equity | | $ | 7,785 | | $ | 6,846 |
(a) | 170,000 shares authorized; 66,368 shares issued and outstanding at December 31, 2014 and 2013. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY |
| PPL Electric Utilities Corporation and Subsidiaries |
| (Millions of Dollars) |
| | | | | | | | | | | | | | | |
| | | | | Common | | | | | | | | | | |
| | | | | stock | | | | | | | | | | |
| | | | | shares | | | | | | Additional | | | | |
| | | | | outstanding | | Preferred | | Common | | paid-in | | Earnings | | |
| | | | | (a) | | securities | | stock | | capital | | reinvested | | Total |
| | | | | | | | | | | | | | | | | | | | |
December 31, 2011 | | 66,368 | | $ | 250 | | $ | 364 | | $ | 979 | | $ | 532 | | $ | 2,125 |
Net income | | | | | | | | | | | | | | 136 | | | 136 |
Redemption of preference stock | | | | | (250) | | | | | | 6 | | | (6) | | | (250) |
Capital contributions from PPL | | | | | | | | | | | 150 | | | | | | 150 |
Cash dividends declared on preference stock | | | | | | | | | | | | | | (4) | | | (4) |
Cash dividends declared on common stock | | | | | | | | | | | | | | (95) | | | (95) |
December 31, 2012 | | 66,368 | | $ | | | $ | 364 | | $ | 1,135 | | $ | 563 | | $ | 2,062 |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | $ | 209 | | $ | 209 |
Capital contributions from PPL | | | | | | | | | | $ | 205 | | | | | | 205 |
Cash dividends declared on common stock | | | | | | | | | | | | | | (127) | | | (127) |
December 31, 2013 | | 66,368 | | | | | $ | 364 | | $ | 1,340 | | $ | 645 | | $ | 2,349 |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | | | �� | | | | | | | | $ | 263 | | $ | 263 |
Capital contributions from PPL | | | | | | | | | | $ | 263 | | | | | | 263 |
Cash dividends declared on common stock | | | | | | | | | | | | | | (158) | | | (158) |
December 31, 2014 | | 66,368 | | | | | $ | 364 | | $ | 1,603 | | $ | 750 | | $ | 2,717 |
(a) | Shares in thousands. All common shares of PPL Electric stock are owned by PPL. |
| The accompanying Notes to Financial Statements are an integral part of the financial statements. |
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, |
| LG&E and KU Energy LLC and Subsidiaries |
| (Millions of Dollars) | | | |
| | | | | | | | | | | | | | |
| | | | | | 2014 | | | 2013 | | 2012 |
| | | | | | | | | | | |
Operating Revenues | | $ | 3,168 | | | $ | 2,976 | | $ | 2,759 |
| | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | |
| | Operation | | | | | | | | | | |
| | | Fuel | | | 965 | | | | 896 | | | 872 |
| | | Energy purchases | | | 253 | | | | 217 | | | 195 |
| | | Other operation and maintenance | | | 815 | | | | 778 | | | 778 |
| | Depreciation | | | 354 | | | | 334 | | | 346 |
| | Taxes, other than income | | | 52 | | | | 48 | | | 46 |
| | Total Operating Expenses | | | 2,439 | | | | 2,273 | | | 2,237 |
| | | | | | | | | | | | | | |
Operating Income | | | 729 | | | | 703 | | | 522 |
| | | | | | | | | | | | | | |
Other Income (Expense) - net | | | (9) | | | | (7) | | | (15) |
| | | | | | | | | | | |
Other-Than-Temporary Impairments | | | | | | | | | | 25 |
| | | | | | | | | | | |
Interest Expense | | | 167 | | | | 144 | | | 150 |
| | | | | | | | | | | |
Interest Expense with Affiliate | | | | | | | 1 | | | 1 |
| | | | | | | | | | | |
Income from Continuing Operations Before Income Taxes | | | 553 | | | | 551 | | | 331 |
| | | | | | | | | | | |
Income Taxes | | | 209 | | | | 206 | | | 106 |
| | | | | | | | | | | |
Income from Continuing Operations After Income Taxes | | | 344 | | | | 345 | | | 225 |
| | | | | | | | | | | |
Income (Loss) from Discontinued Operations (net of income taxes) | | | | | | | 2 | | | (6) |
| | | | | | | | | | | |
Net Income | | $ | 344 | | | $ | 347 | | $ | 219 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| FOR THE YEARS ENDED DECEMBER 31, |
| LG&E and KU Energy LLC and Subsidiaries |
| (Millions of Dollars) |
| | | | | | | | | | | | | | |
| | | | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | | | |
Net income | | $ | 344 | | $ | 347 | | $ | 219 |
| | | | | | | | | | | | | | |
| Other comprehensive income (loss): | | | | | | | | | |
| | Amounts arising during the period - gains (losses), net of tax | | | | | | | | | |
| | | (expense) benefit: | | | | | | | | | |
| | | | Equity investee's other comprehensive income (loss), net | | | | | | | | | |
| | | | | of tax of $0, $0, ($1) | | | | | | | | | 1 |
| | | | Defined benefit plans: | | | | | | | | | |
| | | | | Prior service costs, net of tax of $4, $0, $0 | | | (7) | | | | | | |
| | | | | Net actuarial gain (loss), net of tax of $32, ($18), $13 | | | (50) | | | 28 | | | (21) |
| | Reclassification to net income - (gains) losses, net of tax | | | | | | | | | |
| | | expense (benefit): | | | | | | | | | |
| | | | Equity investees' other comprehensive (income) loss, net of | | | | | | | | | |
| | | | | tax of $0, $0, $0 | | | (1) | | | | | | |
| | | | Defined benefit plans: | | | | | | | | | |
| | | | | Prior service costs, net of tax of $0, $0, $0 | | | 1 | | | | | | |
| | | | | Net actuarial loss, net of tax of $0, $0, $0 | | | (1) | | | | | | 1 |
Total other comprehensive income (loss) | | | (58) | | | 28 | | | (19) |
| | | | | | | | | | | | | | |
Comprehensive income (loss) attributable to member | | $ | 286 | | $ | 375 | | $ | 200 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, |
| LG&E and KU Energy LLC and Subsidiaries |
| (Millions of Dollars) |
| | | 2014 | | 2013 | | 2012 |
| Cash Flows from Operating Activities | | | | | | | | | |
| | Net income | | $ | 344 | | $ | 347 | | $ | 219 |
| | Adjustments to reconcile net income to net cash | | | | | | | | | |
| | | provided by (used in) operating activities | | | | | | | | | |
| | | | Depreciation | | | 354 | | | 334 | | | 346 |
| | | | Amortization | | | 25 | | | 22 | | | 27 |
| | | | Defined benefit plans - expense | | | 25 | | | 48 | | | 40 |
| | | | Deferred income taxes and investment tax credits | | | 449 | | | 254 | | | 133 |
| | | | Impairment of assets | | | | | | | | | 25 |
| | | | Other | | | 16 | | | 5 | | | 2 |
| | Change in current assets and current liabilities | | | | | | | | | |
| | | Accounts receivable | | | (20) | | | (91) | | | (9) |
| | | Accounts payable | | | 12 | | | 40 | | | 1 |
| | | Accounts payable to affiliates | | | (1) | | | 1 | | | (1) |
| | | Unbilled revenues | | | 13 | | | (24) | | | (10) |
| | | Fuel, materials and supplies | | | (32) | | | (1) | | | 8 |
| | | Income tax receivable | | | (136) | | | 1 | | | 2 |
| | | Taxes payable | | | (3) | | | 13 | | | 1 |
| | | Other | | | (1) | | | 22 | | | |
| | Other operating activities | | | | | | | | | |
| | | Defined benefit plans - funding | | | (45) | | | (168) | | | (70) |
| | | Settlement of interest rate swaps | | | | | | 86 | | | |
| | | Other assets | | | (7) | | | 9 | | | (8) |
| | | Other liabilities | | | 6 | | | 22 | | | 38 |
| | | | Net cash provided by (used in) operating activities | | | 999 | | | 920 | | | 744 |
| Cash Flows from Investing Activities | | | | | | | | | |
| | Expenditures for property, plant and equipment | | | (1,262) | | | (1,434) | | | (768) |
| | Net (increase) decrease in notes receivable from affiliates | | | 70 | | | (70) | | | 15 |
| | Other investing activities | | | 1 | | | 2 | | | |
| | | | Net cash provided by (used in) investing activities | | | (1,191) | | | (1,502) | | | (753) |
| Cash Flows from Financing Activities | | | | | | | | | |
| | Net increase (decrease) in notes payable with affiliates | | | 41 | | | (25) | | | 25 |
| | Issuance of long-term debt | | | | | | 496 | | | |
| | Net increase (decrease) in short-term debt | | | 330 | | | 120 | | | 125 |
| | Debt issuance and credit facility costs | | | (5) | | | (6) | | | (2) |
| | Distributions to member | | | (436) | | | (254) | | | (155) |
| | Contributions from member | | | 248 | | | 243 | | | |
| | | | Net cash provided by (used in) financing activities | | | 178 | | | 574 | | | (7) |
Net Increase (Decrease) in Cash and Cash Equivalents | | | (14) | | | (8) | | | (16) |
Cash and Cash Equivalents at Beginning of Period | | | 35 | | | 43 | | | 59 |
Cash and Cash Equivalents at End of Period | | $ | 21 | | $ | 35 | | $ | 43 |
| | | | | | | | | | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | | | | | |
| | Cash paid (received) during the period for: | | | | | | | | | |
| | | Interest - net of amount capitalized | | $ | 157 | | $ | 137 | | $ | 139 |
| | | Income taxes - net | | $ | (75) | | $ | (67) | | $ | (45) |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| LG&E and KU Energy LLC and Subsidiaries |
| (Millions of Dollars) |
| | | | | | | | | | |
| | | | | | 2014 | | 2013 |
| Assets | | | | | | |
| | | | | | | | | | |
| Current Assets | | | | | | |
| | Cash and cash equivalents | | $ | 21 | | $ | 35 |
| | Accounts receivable (less reserve: 2014, $25; 2013, $22) | | | | | | |
| | | Customer | | | 231 | | | 224 |
| | | Other | | | 18 | | | 20 |
| | Unbilled revenues | | | 167 | | | 180 |
| | Notes receivable from affiliates | | | | | | 70 |
| | Fuel, materials and supplies | | | 311 | | | 278 |
| | Prepayments | | | 28 | | | 21 |
| | Income taxes receivable | | | 136 | | | |
| | Deferred income taxes | | | 16 | | | 159 |
| | Regulatory assets | | | 25 | | | 27 |
| | Other current assets | | | 3 | | | 3 |
| | Total Current Assets | | | 956 | | | 1,017 |
| | | | | | | | | | |
| Property, Plant and Equipment | | | | | | |
| | Regulated utility plant | | | 10,007 | | | 8,526 |
| | Less: accumulated depreciation - regulated utility plant | | | 1,067 | | | 778 |
| | | Regulated utility plant, net | | | 8,940 | | | 7,748 |
| | Other, net | | | 5 | | | 3 |
| | Construction work in progress | | | 1,559 | | | 1,793 |
| | Property, Plant and Equipment, net | | | 10,504 | | | 9,544 |
| | | | | | | | | | |
| Other Noncurrent Assets | | | | | | |
| | Regulatory assets | | | 665 | | | 474 |
| | Goodwill | | | 996 | | | 996 |
| | Other intangibles | | | 174 | | | 221 |
| | Other noncurrent assets | | | 101 | | | 98 |
| | Total Other Noncurrent Assets | | | 1,936 | | | 1,789 |
| | | | | | | | | | |
Total Assets | | $ | 13,396 | | $ | 12,350 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
| CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| LG&E and KU Energy LLC and Subsidiaries |
| (Millions of Dollars) |
| | | | | | 2014 | | 2013 |
| Liabilities and Equity | | | | | | |
| | | | | | | | | | |
| Current Liabilities | | | | | | |
| | Short-term debt | | $ | 575 | | $ | 245 |
| | Long-term debt due within one year | | | 900 | | | |
| | Notes payable with affiliates | | | 41 | | | |
| | Accounts payable | | | 399 | | | 346 |
| | Accounts payable to affiliates | | | 2 | | | 3 |
| | Customer deposits | | | 52 | | | 50 |
| | Taxes | | | 36 | | | 39 |
| | Price risk management liabilities | | | 5 | | | 4 |
| | Price risk management liabilities to affiliates | | | 66 | | | |
| | Regulatory liabilities | | | 15 | | | 14 |
| | Interest | | | 23 | | | 23 |
| | Other current liabilities | | | 131 | | | 111 |
| | Total Current Liabilities | | | 2,245 | | | 835 |
| | | | | | | | | | |
Long-term Debt | | | 3,667 | | | 4,565 |
| | | | | | | |
| Deferred Credits and Other Noncurrent Liabilities | | | | | | |
| | Deferred income taxes | | | 1,241 | | | 965 |
| | Investment tax credits | | | 131 | | | 135 |
| | Price risk management liabilities | | | 43 | | | 32 |
| | Accrued pension obligations | | | 305 | | | 152 |
| | Asset retirement obligations | | | 274 | | | 245 |
| | Regulatory liabilities | | | 974 | | | 1,033 |
| | Other deferred credits and noncurrent liabilities | | | 268 | | | 238 |
| | Total Deferred Credits and Other Noncurrent Liabilities | | | 3,236 | | | 2,800 |
| | | | | | | | | | |
| Commitments and Contingent Liabilities (Notes 6 and 15) | | | | | | |
| | | | | | | | | | |
Member's equity | | | 4,248 | | | 4,150 |
| | | | | | | | | | |
Total Liabilities and Equity | | $ | 13,396 | | $ | 12,350 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF EQUITY |
LG&E and KU Energy LLC and Subsidiaries |
(Millions of Dollars) |
| | | |
| | | |
| | | Member's |
| | | Equity |
| | | |
December 31, 2011
| | $ | 3,741 |
Net income
| | | 219 |
Distributions to member
| | | (155) |
Other comprehensive income (loss)
| | | (19) |
December 31, 2012
| | $ | 3,786 |
| | | |
| | | |
Net income
| | $ | 347 |
Contributions from member
| | | 243 |
Distributions to member
| | | (254) |
Other comprehensive income (loss)
| | | 28 |
December 31, 2013
| | $ | 4,150 |
| | | |
| | | |
Net income
| | $ | 344 |
Contributions from member
| | | 248 |
Distributions to member
| | | (436) |
Other comprehensive income (loss)
| | | (58) |
December 31, 2014
| | $ | 4,248 |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
(THIS PAGE LEFT BLANK INTENTIONALLY.)
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, |
| Louisville Gas and Electric Company |
| (Millions of Dollars) | | | |
| | | | | | | | | | | | | |
| | | | | | 2014 | | 2013 | | 2012 |
| Operating Revenues | | | | | | | | | |
| | Retail and wholesale | | $ | 1,445 | | $ | 1,351 | | $ | 1,247 |
| | Electric revenue from affiliate | | | 88 | | | 59 | | | 77 |
| | Total Operating Revenues | | | 1,533 | | | 1,410 | | | 1,324 |
| | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | |
| | Operation | | | | | | | | | |
| | | Fuel | | | 404 | | | 367 | | | 374 |
| | | Energy purchases | | | 230 | | | 195 | | | 163 |
| | | Energy purchases from affiliate | | | 14 | | | 10 | | | 12 |
| | | Other operation and maintenance | | | 379 | | | 373 | | | 363 |
| | Depreciation | | | 157 | | | 148 | | | 152 |
| | Taxes, other than income | | | 25 | | | 24 | | | 23 |
| | Total Operating Expenses | | | 1,209 | | | 1,117 | | | 1,087 |
| | | | | | | | | | | | | |
Operating Income | | | 324 | | | 293 | | | 237 |
| | | | | | | | | | | | | |
Other Income (Expense) - net | | | (3) | | | (2) | | | (3) |
| | | | | | | | | | | | | |
Interest Expense | | | 49 | | | 34 | | | 42 |
| | | | | | | | | | | | | |
Income Before Income Taxes | | | 272 | | | 257 | | | 192 |
| | | | | | | | | | | | | |
Income Taxes | | | 103 | | | 94 | | | 69 |
| | | | | | | | | | | | | |
Net Income (a) | | $ | 169 | | $ | 163 | | $ | 123 |
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Operating Revenues | $ | 2,156 |
| | $ | 2,124 |
| | $ | 2,044 |
|
| | | | | | |
| Operating Expenses | |
| | |
| | |
|
| Operation | |
| | |
| | |
|
| Energy purchases | 535 |
| | 657 |
| | 587 |
|
| Energy purchases from affiliate | — |
| | 14 |
| | 84 |
|
| Other operation and maintenance | 599 |
| | 607 |
| | 543 |
|
| Depreciation | 253 |
| | 214 |
| | 185 |
|
| Taxes, other than income | 105 |
| | 94 |
| | 107 |
|
| Total Operating Expenses | 1,492 |
| | 1,586 |
| | 1,506 |
|
| | | | | | |
| Operating Income | 664 |
| | 538 |
| | 538 |
|
| | | | | | |
| Other Income (Expense) - net | 17 |
| | 8 |
| | 7 |
|
| | | | | | |
| Interest Expense | 129 |
| | 130 |
| | 122 |
|
| | | | | | |
| Income Before Income Taxes | 552 |
| | 416 |
| | 423 |
|
| | | | | | |
| Income Taxes | 212 |
| | 164 |
| | 160 |
|
| | | | | | |
| Net Income (a) | $ | 340 |
| | $ | 252 |
| | $ | 263 |
|
| |
| (a) | Net income equals comprehensive income. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, |
| Louisville Gas and Electric Company |
| (Millions of Dollars) |
| | | 2014 | | 2013 | | 2012 |
| Cash Flows from Operating Activities | | | | | | | | | |
| | Net income | | $ | 169 | | $ | 163 | | $ | 123 |
| | Adjustments to reconcile net income to net cash provided | | | | | | | | | |
| | | by (used in) operating activities | | | | | | | | | |
| | | | Depreciation | | | 157 | | | 148 | | | 152 |
| | | | Amortization | | | 12 | | | 6 | | | 11 |
| | | | Defined benefit plans - expense | | | 9 | | | 18 | | | 18 |
| | | | Deferred income taxes and investment tax credits | | | 118 | | | 26 | | | 69 |
| | | | Other | | | 2 | | | 9 | | | (13) |
| | Change in current assets and current liabilities | | | | | | | | | |
| | | Accounts receivable | | | (35) | | | (23) | | | (2) |
| | | Accounts payable | | | 25 | | | 16 | | | |
| | | Accounts payable to affiliates | | | (4) | | | 1 | | | (3) |
| | | Unbilled revenues | | | 9 | | | (13) | | | (7) |
| | | Fuel, materials and supplies | | | (8) | | | (12) | | | |
| | | Income tax receivable | | | (74) | | | | | | |
| | | Taxes payable | | | 8 | | | 9 | | | (7) |
| | | Other | | | | | | 8 | | | (7) |
| | Other operating activities | | | | | | | | | |
| | | Defined benefit plans - funding | | | (13) | | | (48) | | | (27) |
| | | Settlement of interest rate swaps | | | | | | 43 | | | |
| | | Other assets | | | (2) | | | 9 | | | (24) |
| | | Other liabilities | | | (2) | | | 6 | | | 22 |
| | | | Net cash provided by (used in) operating activities | | | 371 | | | 366 | | | 305 |
| Cash Flows from Investing Activities | | | | | | | | | |
| | Expenditures for property, plant and equipment | | | (656) | | | (577) | | | (286) |
| | | | Net cash provided by (used in) investing activities | | | (656) | | | (577) | | | (286) |
| Cash Flows from Financing Activities | | | | | | | | | |
| | Issuance of long-term debt | | | | | | 248 | | | |
| | Net increase (decrease) in short-term debt | | | 244 | | | (35) | | | 55 |
| | Debt issuance and credit facility costs | | | (2) | | | (3) | | | (2) |
| | Payment of common stock dividends to parent | | | (112) | | | (99) | | | (75) |
| | Contributions from parent | | | 157 | | | 86 | | | |
| | | | Net cash provided by (used in) financing activities | | | 287 | | | 197 | | | (22) |
Net Increase (Decrease) in Cash and Cash Equivalents | | | 2 | | | (14) | | | (3) |
Cash and Cash Equivalents at Beginning of Period | | | 8 | | | 22 | | | 25 |
Cash and Cash Equivalents at End of Period | | $ | 10 | | $ | 8 | | $ | 22 |
| | | | | | | | | | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | | | | | |
| | Cash paid (received) during the period for: | | | | | | | | | |
| | | Interest - net of amount capitalized | | $ | 46 | | $ | 36 | | $ | 39 |
| | | Income taxes - net | | $ | 65 | | $ | 51 | | $ | 5 |
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cash Flows from Operating Activities | |
| | |
| | |
|
| Net income | $ | 340 |
| | $ | 252 |
| | $ | 263 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |
| | |
| | |
|
| Depreciation | 253 |
| | 214 |
| | 185 |
|
| Amortization | 32 |
| | 26 |
| | 19 |
|
| Defined benefit plans - expense | 11 |
| | 16 |
| | 15 |
|
| Deferred income taxes and investment tax credits | 221 |
| | 220 |
| | 87 |
|
| Other | (13 | ) | | (12 | ) | | (23 | ) |
| Change in current assets and current liabilities | |
| | |
| | |
|
| Accounts receivable | 16 |
| | 50 |
| | (64 | ) |
| Accounts payable | 58 |
| | (107 | ) | | 30 |
|
| Unbilled revenues | (23 | ) | | 22 |
| | 3 |
|
| Prepayments | 43 |
| | (1 | ) | | 1 |
|
| Regulatory assets and liabilities | (62 | ) | | 35 |
| | 5 |
|
| Taxes payable | (12 | ) | | (108 | ) | | 75 |
|
| Other | (7 | ) | | 21 |
| | 10 |
|
| Other operating activities | |
| | |
| | |
|
| Defined benefit plans - funding | — |
| | (33 | ) | | (23 | ) |
| Other assets | 19 |
| | (10 | ) | | 19 |
|
| Other liabilities | (4 | ) | | 17 |
| | 11 |
|
| Net cash provided by (used in) operating activities | 872 |
| | 602 |
| | 613 |
|
| | | | | | |
| Cash Flows from Investing Activities | |
| | |
| | |
|
| Expenditures for property, plant and equipment | (1,125 | ) | | (1,097 | ) | | (931 | ) |
| Expenditures for intangible assets | (9 | ) | | (10 | ) | | (26 | ) |
| Net decrease in notes receivable from affiliate | — |
| | — |
| | 150 |
|
| Other investing activities | 4 |
| | (1 | ) | | 16 |
|
| Net cash provided by (used in) investing activities | (1,130 | ) | | (1,108 | ) | | (791 | ) |
| | | | | | |
| Cash Flows from Financing Activities | |
| | |
| | |
|
| Issuance of long-term debt | 224 |
| | 348 |
| | 296 |
|
| Retirement of long-term debt | (224 | ) | | (100 | ) | | (10 | ) |
| Contributions from PPL | 220 |
| | 275 |
| | 263 |
|
| Payment of common stock dividends to parent | (288 | ) | | (181 | ) | | (158 | ) |
| Net increase (decrease) in short-term debt | 295 |
| | — |
| | (20 | ) |
| Other financing activities | (3 | ) | | (3 | ) | | (4 | ) |
| Net cash provided by (used in) financing activities | 224 |
| | 339 |
| | 367 |
|
| | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | (34 | ) | | (167 | ) | | 189 |
|
| Cash and Cash Equivalents at Beginning of Period | 47 |
| | 214 |
| | 25 |
|
| Cash and Cash Equivalents at End of Period | $ | 13 |
| | $ | 47 |
| | $ | 214 |
|
| | | | | | |
| Supplemental Disclosures of Cash Flow Information | |
| | |
| | |
|
| Cash paid (received) during the period for: | |
| | |
| | |
|
| Interest - net of amount capitalized | $ | 115 |
| | $ | 117 |
| | $ | 110 |
|
| Income taxes - net | $ | (48 | ) | | $ | 38 |
| | $ | 40 |
|
| Significant non-cash transactions: | | | | | |
| Accrued expenditures for property, plant and equipment at December 31, | $ | 126 |
| | $ | 98 |
| | $ | 95 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
BALANCE SHEETS AT DECEMBER 31, |
| Louisville Gas and Electric Company |
| (Millions of Dollars, shares in thousands) |
| | | | | | | | | | |
| | | | | | 2014 | | 2013 |
| Assets | | | | | | |
| | | | | | | | | | |
| Current Assets | | | | | | |
| | Cash and cash equivalents | | $ | 10 | | $ | 8 |
| | Accounts receivable (less reserve: 2014, $2; 2013, $2) | | | | | | |
| | | Customer | | | 107 | | | 102 |
| | | Other | | | 11 | | | 9 |
| | Unbilled revenues | | | 76 | | | 85 |
| | Accounts receivable from affiliates | | | 23 | | | |
| | Fuel, materials and supplies | | | 162 | | | 154 |
| | Prepayments | | | 8 | | | 7 |
| | Income taxes receivable | | | 74 | | | |
| | Regulatory assets | | | 21 | | | 17 |
| | Other current assets | | | 1 | | | 3 |
| | Total Current Assets | | | 493 | | | 385 |
| | | | | | | | | | |
| Property, Plant and Equipment | | | | | | |
| | Regulated utility plant | | | 4,031 | | | 3,383 |
| | Less: accumulated depreciation - regulated utility plant | | | 456 | | | 332 |
| | | Regulated utility plant, net | | | 3,575 | | | 3,051 |
| | Construction work in progress | | | 676 | | | 651 |
| | Property, Plant and Equipment, net | | | 4,251 | | | 3,702 |
| | | | | | | | | | |
| Other Noncurrent Assets | | | | | | |
| | Regulatory assets | | | 397 | | | 303 |
| | Goodwill | | | 389 | | | 389 |
| | Other intangibles | | | 97 | | | 120 |
| �� | Other noncurrent assets | | | 35 | | | 35 |
| | Total Other Noncurrent Assets | | | 918 | | | 847 |
| | | | | | | | | | |
Total Assets | | $ | 5,662 | | $ | 4,934 |
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars, shares in thousands)
|
| | | | | | | |
| | 2016 | | 2015 |
| Assets | |
| | |
|
| Current Assets | |
| | |
|
| Cash and cash equivalents | $ | 13 |
| | $ | 47 |
|
| Accounts receivable (less reserve: 2016, $28; 2015, $16) | |
| | |
|
| Customer | 272 |
| | 286 |
|
| Other | 21 |
| | 10 |
|
| Unbilled revenues | 114 |
| | 91 |
|
| Materials and supplies | 32 |
| | 34 |
|
| Prepayments | 9 |
| | 66 |
|
| Regulatory assets | 19 |
|
| 13 |
|
| Other current assets | 8 |
| | 8 |
|
| Total Current Assets | 488 |
| | 555 |
|
| | | | |
| Property, Plant and Equipment | |
| | |
|
| Regulated utility plant | 9,654 |
| | 8,734 |
|
| Less: accumulated depreciation - regulated utility plant | 2,714 |
| | 2,573 |
|
| Regulated utility plant, net | 6,940 |
| | 6,161 |
|
| Construction work in progress | 641 |
| | 530 |
|
| Property, Plant and Equipment, net | 7,581 |
| | 6,691 |
|
| | | | |
| Other Noncurrent Assets | |
| | |
|
| Regulatory assets | 1,094 |
| | 1,006 |
|
| Intangibles | 251 |
| | 244 |
|
| Other noncurrent assets | 12 |
| | 15 |
|
| Total Other Noncurrent Assets | 1,357 |
| | 1,265 |
|
| | | | |
| Total Assets | $ | 9,426 |
| | $ | 8,511 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
| BALANCE SHEETS AT DECEMBER 31, |
| Louisville Gas and Electric Company |
| (Millions of Dollars, shares in thousands) |
| | | | | | 2014 | | 2013 |
| Liabilities and Equity | | | | | | |
| | | | | | | | | | |
| Current Liabilities | | | | | | |
| | Short-term debt | | $ | 264 | | $ | 20 |
| | Long-term debt due within one year | | | 250 | | | |
| | Accounts payable | | | 240 | | | 166 |
| | Accounts payable to affiliates | | | 20 | | | 24 |
| | Customer deposits | | | 25 | | | 24 |
| | Taxes | | | 19 | | | 11 |
| | Price risk management liabilities | | | 5 | | | 4 |
| | Price risk management liabilities to affiliates | | | 33 | | | |
| | Regulatory liabilities | | | 10 | | | 9 |
| | Interest | | | 6 | | | 6 |
| | Other current liabilities | | | 42 | | | 32 |
| | Total Current Liabilities | | | 914 | | | 296 |
| | | | | | | | | | |
Long-term Debt | | | 1,103 | | | 1,353 |
| | | | | | | |
| Deferred Credits and Other Noncurrent Liabilities | | | | | | |
| | Deferred income taxes | | | 700 | | | 582 |
| | Investment tax credits | | | 36 | | | 38 |
| | Price risk management liabilities | | | 43 | | | 32 |
| | Accrued pension obligations | | | 57 | | | 19 |
| | Asset retirement obligations | | | 66 | | | 68 |
| | Regulatory liabilities | | | 458 | | | 482 |
| | Other deferred credits and noncurrent liabilities | | | 111 | | | 104 |
| | Total Deferred Credits and Other Noncurrent Liabilities | | | 1,471 | | | 1,325 |
| | | | | | | | | | |
| Commitments and Contingent Liabilities (Notes 6 and 15) | | | | | | |
| | | | | | | | | | |
| Stockholder's Equity | | | | | | |
| | Common stock - no par value (a) | | | 424 | | | 424 |
| | Additional paid-in capital | | | 1,521 | | | 1,364 |
| | Earnings reinvested | | | 229 | | | 172 |
Total Equity | | | 2,174 | | | 1,960 |
| | | | | | | | | | |
Total Liabilities and Equity | | $ | 5,662 | | $ | 4,934 |
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars, shares in thousands)
|
| | | | | | | |
| | 2016 | | 2015 |
| Liabilities and Equity | |
| | |
|
| Current Liabilities | |
| | |
|
| Short-term debt | $ | 295 |
| | $ | — |
|
| Long-term debt due within one year | 224 |
| | — |
|
| Accounts payable | 367 |
| | 288 |
|
| Accounts payable to affiliates | 42 |
| | 35 |
|
| Taxes | 12 |
| | 24 |
|
| Interest | 34 |
| | 37 |
|
| Customer deposits | 23 |
| | 31 |
|
| Regulatory liabilities | 83 |
| | 113 |
|
| Other current liabilities | 78 |
| | 77 |
|
| Total Current Liabilities | 1,158 |
| | 605 |
|
| | | | |
| Long-term Debt | 2,607 |
| | 2,828 |
|
| | | | |
| Deferred Credits and Other Noncurrent Liabilities | |
| | |
|
| Deferred income taxes | 1,899 |
| | 1,663 |
|
| Accrued pension obligations | 281 |
| | 183 |
|
| Regulatory liabilities | — |
| | 22 |
|
| Other deferred credits and noncurrent liabilities | 90 |
| | 91 |
|
| Total Deferred Credits and Other Noncurrent Liabilities | 2,270 |
| | 1,959 |
|
| | | | |
| Commitments and Contingent Liabilities (Notes 6 and 13) |
|
| |
|
|
| | | | |
| Equity | |
| | |
|
| Common stock - no par value (a) | 364 |
| | 364 |
|
| Additional paid-in capital | 2,154 |
| | 1,934 |
|
| Earnings reinvested | 873 |
| | 821 |
|
| Total Equity | 3,391 |
| | 3,119 |
|
| | | | |
| Total Liabilities and Equity | $ | 9,426 |
| | $ | 8,511 |
|
| |
| (a) | 75,000170,000 shares authorized; 21,29466,368 shares issued and outstanding at December 31, 20142016 and December 31, 2013. 2015. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
|
| Louisville Gas and Electric Company | | | | | | | | | | | | |
| (Millions of Dollars) | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | Common | | | | | | | | | | | | |
| | | | stock | | | | | | | | | | | | |
| | | | shares | | | | | | Additional | | | | | | |
| | | | outstanding | | | Common | | | paid-in | | | Earnings | | | |
| | | | (a) | | | stock | | | capital | | | reinvested | | | Total |
| | | | | | | | | | | | | | | | |
December 31, 2011 | | 21,294 | | $ | 424 | | $ | 1,278 | | $ | 60 | | $ | 1,762 |
Net income | | | | | | | | | | | 123 | | | 123 |
Cash dividends declared on common stock | | | | | | | | | | | (75) | | | (75) |
December 31, 2012 | | 21,294 | | $ | 424 | | $ | 1,278 | | $ | 108 | | $ | 1,810 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | $ | 163 | | $ | 163 |
Capital contributions from LKE | | | | | | | $ | 86 | | | | | | 86 |
Cash dividends declared on common stock | | | | | | | | | | | (99) | | | (99) |
December 31, 2013 | | 21,294 | | $ | 424 | | $ | 1,364 | | $ | 172 | | $ | 1,960 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | $ | 169 | | $ | 169 |
Capital contributions from LKE | | | | | | | $ | 157 | | | | | | 157 |
Cash dividends declared on common stock | | | | | | | | | | | (112) | | | (112) |
December 31, 2014 | | 21,294 | | $ | 424 | | $ | 1,521 | | $ | 229 | | $ | 2,174 |
CONSOLIDATED STATEMENTS OF EQUITY
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
(a) Shares in thousands. All common shares of LG&E stock are owned by LKE. |
| | | | | | | | | | | | | | | | | | |
| | Common stock shares outstanding (a) | | Common stock | | Additional paid-in capital | | Earnings reinvested | | Total |
| December 31, 2013 | 66,368 |
| | $ | 364 |
| | $ | 1,340 |
| | $ | 645 |
| | $ | 2,349 |
|
| Net income | |
| | |
| | |
| | 263 |
| | 263 |
|
| Capital contributions from PPL | |
| | |
| | 263 |
| | |
| | 263 |
|
| Dividends declared on common stock | |
| | |
| | |
| | (158 | ) | | (158 | ) |
| December 31, 2014 | 66,368 |
| | $ | 364 |
| | $ | 1,603 |
| | $ | 750 |
| | $ | 2,717 |
|
| | | | | | | | | | |
| Net income | |
| | |
| | |
| | 252 |
| | 252 |
|
| Capital contributions from PPL (b) | |
| | |
| | 331 |
| | |
| | 331 |
|
| Dividends declared on common stock | |
| | |
| | |
| | (181 | ) | | (181 | ) |
| December 31, 2015 | 66,368 |
| | $ | 364 |
| | $ | 1,934 |
| | $ | 821 |
| | $ | 3,119 |
|
| | | | | | | | | | |
| Net income | |
| | |
| | |
| | 340 |
| | 340 |
|
| Capital contributions from PPL | |
| | |
| | 220 |
| | |
| | 220 |
|
| Dividends declared on common stock | |
| | |
| | |
| | (288 | ) | | (288 | ) |
| December 31, 2016 | 66,368 |
| | $ | 364 |
| | $ | 2,154 |
| | $ | 873 |
| | $ | 3,391 |
|
| |
| (a) | Shares in thousands. All common shares of PPL Electric stock are owned by PPL. |
| |
| (b) | Includes non-cash contributions of $56 million. See Note 11 for additional information. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
LG&E and KU Energy LLC and Subsidiaries
(Millions of Dollars)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Operating Revenues | $ | 3,141 |
| | $ | 3,115 |
| | $ | 3,168 |
|
| | | | | | |
| Operating Expenses | |
| | |
| | |
| Operation | |
| | |
| | |
| Fuel | 791 |
| | 863 |
| | 965 |
|
| Energy purchases | 171 |
| | 184 |
| | 253 |
|
| Other operation and maintenance | 804 |
| | 837 |
| | 815 |
|
| Depreciation | 404 |
| | 382 |
| | 354 |
|
| Taxes, other than income | 62 |
| | 57 |
| | 52 |
|
| Total Operating Expenses | 2,232 |
| | 2,323 |
| | 2,439 |
|
| | | | | | |
| Operating Income | 909 |
| | 792 |
| | 729 |
|
| | | | | | |
| Other Income (Expense) - net | (9 | ) | | (8 | ) | | (9 | ) |
| | | | | | |
| Interest Expense | 197 |
| | 178 |
| | 167 |
|
| | | | | | |
| Interest Expense with Affiliate | 17 |
| | 3 |
| | — |
|
| | | | | | |
| Income Before Income Taxes | 686 |
| | 603 |
| | 553 |
|
| | | | | | |
| Income Taxes | 257 |
| | 239 |
| | 209 |
|
| | | | | | |
| Net Income | $ | 429 |
| | $ | 364 |
| | $ | 344 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
LG&E and KU Energy LLC and Subsidiaries
(Millions of Dollars)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Net income | $ | 429 |
| | $ | 364 |
| | $ | 344 |
|
| | | | | | |
| Other comprehensive income (loss): | |
| | |
| | |
|
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |
| | |
| | |
|
| Defined benefit plans: | |
| | |
| | |
|
| Prior service costs, net of tax of $0, $2, $4 | — |
| | (3 | ) | | (7 | ) |
| Net actuarial gain (loss), net of tax of $18, $2, $32 | (27 | ) | | (4 | ) | | (50 | ) |
| Reclassification from AOCI - (gains) losses, net of tax expense (benefit): | |
| | |
| | |
|
| Equity investees' other comprehensive (income) loss, net of tax of $0, $0, $0 | (1 | ) | | — |
| | (1 | ) |
| Defined benefit plans: | |
| | |
| | |
|
| Prior service costs, net of tax of ($1), ($1), $0 | 2 |
| | 1 |
| | 1 |
|
| Net actuarial (gain) loss, net of tax of ($1), ($3), $0 | 2 |
| | 5 |
| | (1 | ) |
| Total other comprehensive income (loss) | (24 | ) | | (1 | ) | | (58 | ) |
| | | | | | |
| Comprehensive income | $ | 405 |
| | $ | 363 |
| | $ | 286 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
LG&E and KU Energy LLC and Subsidiaries
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cash Flows from Operating Activities | |
| | |
| | |
|
| Net income | $ | 429 |
| | $ | 364 |
| | $ | 344 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |
| | |
| | |
|
| Depreciation | 404 |
| | 382 |
| | 354 |
|
| Amortization | 29 |
| | 27 |
| | 25 |
|
| Defined benefit plans - expense | 27 |
| | 38 |
| | 25 |
|
| Deferred income taxes and investment tax credits | 291 |
| | 236 |
| | 449 |
|
| Other | — |
| | 2 |
| | 16 |
|
| Change in current assets and current liabilities | |
| | |
| | |
|
| Accounts receivable | (31 | ) | | 24 |
| | (20 | ) |
| Accounts payable | 24 |
| | (58 | ) | | 12 |
|
| Accounts payable to affiliates | 1 |
| | (2 | ) | | (1 | ) |
| Unbilled revenues | (23 | ) | | 20 |
| | 13 |
|
| Fuel, materials and supplies | 2 |
| | 6 |
| | (32 | ) |
| Income tax receivable | 1 |
| | 135 |
| | (136 | ) |
| Taxes payable | (7 | ) | | 10 |
| | (3 | ) |
| Accrued interest | — |
| | 9 |
| | — |
|
| Other | (6 | ) | | 23 |
| | (1 | ) |
| Other operating activities | |
| | |
| | |
|
| Defined benefit plans - funding | (85 | ) | | (70 | ) | | (45 | ) |
| Settlement of interest rate swaps | (9 | ) | | (88 | ) | | — |
|
| Expenditures for asset retirement obligations | (26 | ) | | (7 | ) | | (5 | ) |
| Other assets | 2 |
| | (7 | ) | | (7 | ) |
| Other liabilities | 4 |
| | 19 |
| | 11 |
|
| Net cash provided by (used in) operating activities | 1,027 |
| | 1,063 |
| | 999 |
|
| Cash Flows from Investing Activities | |
| | |
| | |
|
| Expenditures for property, plant and equipment | (791 | ) | | (1,210 | ) | | (1,262 | ) |
| Net decrease in notes receivable from affiliates | — |
| | — |
| | 70 |
|
| Other investing activities | 1 |
| | 7 |
| | 1 |
|
| Net cash provided by (used in) investing activities | (790 | ) | | (1,203 | ) | | (1,191 | ) |
| Cash Flows from Financing Activities | |
| | |
| | |
|
| Net increase in notes payable with affiliates | 109 |
| | 13 |
| | 41 |
|
| Issuance of long-term note with affiliate | — |
| | 400 |
| | — |
|
| Issuance of long-term debt | 221 |
| | 1,050 |
| | — |
|
| Retirement of long-term debt | (246 | ) | | (900 | ) | | — |
|
| Net increase (decrease) in short-term debt | (80 | ) | | (310 | ) | | 330 |
|
| Debt issuance and credit facility costs | (3 | ) | | (10 | ) | | (5 | ) |
| Distributions to member | (316 | ) | | (219 | ) | | (436 | ) |
| Contributions from member | 61 |
| | 125 |
| | 248 |
|
| Net cash provided by (used in) financing activities | (254 | ) | | 149 |
| | 178 |
|
| Net Increase (Decrease) in Cash and Cash Equivalents | (17 | ) | | 9 |
| | (14 | ) |
| Cash and Cash Equivalents at Beginning of Period | 30 |
| | 21 |
| | 35 |
|
| Cash and Cash Equivalents at End of Period | $ | 13 |
| | $ | 30 |
| | $ | 21 |
|
| | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Interest - net of amount capitalized | $ | 198 |
| | $ | 163 |
| | $ | 157 |
|
| Income taxes - net | $ | (24 | ) | | $ | (139 | ) | | $ | (75 | ) |
| Significant non-cash transactions: | | | | | |
| Accrued expenditures for property, plant and equipment at December 31, | $ | 104 |
| | $ | 150 |
| | $ | 286 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
LG&E and KU Energy LLC and Subsidiaries
(Millions of Dollars)
|
| | | | | | | |
| | 2016 | | 2015 |
| Assets | |
| | |
|
| Current Assets | |
| | |
|
| Cash and cash equivalents | $ | 13 |
| | $ | 30 |
|
| Accounts receivable (less reserve: 2016, $24; 2015, $23) | |
| | |
|
| Customer | 235 |
| | 209 |
|
| Other | 17 |
| | 17 |
|
| Unbilled revenues | 170 |
| | 147 |
|
| Fuel, materials and supplies | 297 |
| | 298 |
|
| Prepayments | 24 |
| | 23 |
|
| Regulatory assets | 20 |
| | 35 |
|
| Other current assets | 4 |
| | 6 |
|
| Total Current Assets | 780 |
| | 765 |
|
| | | | |
| Property, Plant and Equipment | |
| | |
|
| Regulated utility plant | 12,746 |
| | 11,906 |
|
| Less: accumulated depreciation - regulated utility plant | 1,465 |
| | 1,163 |
|
| Regulated utility plant, net | 11,281 |
| | 10,743 |
|
| Construction work in progress | 317 |
| | 660 |
|
| Property, Plant and Equipment, net | 11,598 |
| | 11,403 |
|
| | | | |
| Other Noncurrent Assets | |
| | |
|
| Regulatory assets | 824 |
| | 727 |
|
| Goodwill | 996 |
| | 996 |
|
| Other intangibles | 95 |
| | 123 |
|
| Other noncurrent assets | 78 |
| | 76 |
|
| Total Other Noncurrent Assets | 1,993 |
| | 1,922 |
|
| | | | |
| Total Assets | $ | 14,371 |
| | $ | 14,090 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
LG&E and KU Energy LLC and Subsidiaries
(Millions of Dollars)
|
| | | | | | | |
| | 2016 | | 2015 |
| Liabilities and Equity | |
| | |
|
| Current Liabilities | |
| | |
|
| Short-term debt | $ | 185 |
| | $ | 265 |
|
| Long-term debt due within one year | 194 |
| | 25 |
|
| Notes payable with affiliates | 163 |
| | 54 |
|
| Accounts payable | 251 |
| | 266 |
|
| Accounts payable to affiliates | 6 |
| | 5 |
|
| Customer deposits | 56 |
| | 52 |
|
| Taxes | 39 |
| | 46 |
|
| Price risk management liabilities | 4 |
|
| 5 |
|
| Regulatory liabilities | 18 |
| | 32 |
|
| Interest | 32 |
| | 32 |
|
| Asset retirement obligations | 60 |
| | 50 |
|
| Other current liabilities | 119 |
| | 135 |
|
| Total Current Liabilities | 1,127 |
| | 967 |
|
| | | | |
| Long-term Debt | |
| | |
|
| Long-term debt | 4,471 |
| | 4,663 |
|
| Long-term debt to affiliate | 400 |
| | 400 |
|
| Total Long-term Debt | 4,871 |
| | 5,063 |
|
| | | | |
| Deferred Credits and Other Noncurrent Liabilities | |
| | |
|
| Deferred income taxes | 1,735 |
| | 1,463 |
|
| Investment tax credits | 132 |
| | 128 |
|
| Price risk management liabilities | 27 |
|
| 42 |
|
| Accrued pension obligations | 350 |
| | 296 |
|
| Asset retirement obligations | 373 |
| | 485 |
|
| Regulatory liabilities | 899 |
| | 923 |
|
| Other deferred credits and noncurrent liabilities | 190 |
| | 206 |
|
| Total Deferred Credits and Other Noncurrent Liabilities | 3,706 |
| | 3,543 |
|
| | | | |
| Commitments and Contingent Liabilities (Notes 6 and 15) |
|
| |
|
|
| | | | |
| Member's equity | 4,667 |
| | 4,517 |
|
| | | | |
| Total Liabilities and Equity | $ | 14,371 |
| | $ | 14,090 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF EQUITY
LG&E and KU Energy LLC and Subsidiaries
(Millions of Dollars)
|
| | | |
| | Member's Equity |
| December 31, 2013 | $ | 4,150 |
|
| Net income | 344 |
|
| Contributions from member | 248 |
|
| Distributions to member | (436 | ) |
| Other comprehensive income (loss) | (58 | ) |
| December 31, 2014 | $ | 4,248 |
|
| | |
| Net income | $ | 364 |
|
| Contributions from member | 125 |
|
| Distributions to member | (219 | ) |
| Other comprehensive income (loss) | (1 | ) |
| December 31, 2015 | $ | 4,517 |
|
| | |
|
| Net income | $ | 429 |
|
| Contributions from member | 61 |
|
| Distributions to member | (316 | ) |
| Other comprehensive income (loss) | (24 | ) |
| December 31, 2016 | $ | 4,667 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
(THIS PAGE LEFT BLANK INTENTIONALLY.)
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, |
| Kentucky Utilities Company |
| (Millions of Dollars) | | | |
| | | | | | | | | | | | | |
| | | | | | 2014 | | 2013 | | 2012 |
| Operating Revenues | | | | | | | | | |
| | Retail and wholesale | | $ | 1,723 | | $ | 1,625 | | $ | 1,512 |
| | Electric revenue from affiliate | | | 14 | | | 10 | | | 12 |
| | Total Operating Revenues | | | 1,737 | | | 1,635 | | | 1,524 |
| | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | |
| | Operation | | | | | | | | | |
| | | Fuel | | | 561 | | | 529 | | | 498 |
| | | Energy purchases | | | 23 | | | 22 | | | 32 |
| | | Energy purchases from affiliate | | | 88 | | | 59 | | | 77 |
| | | Other operation and maintenance | | | 408 | | | 382 | | | 384 |
| | Depreciation | | | 197 | | | 186 | | | 193 |
| | Taxes, other than income | | | 27 | | | 24 | | | 23 |
| | Total Operating Expenses | | | 1,304 | | | 1,202 | | | 1,207 |
| | | | | | | | | | | | | |
Operating Income | | | 433 | | | 433 | | | 317 |
| | | | | | | | | | | | | |
Other Income (Expense) - net | | | (1) | | | (3) | | | (8) |
| | | | | | | | | | | | | |
Other-Than-Temporary Impairments | | | | | | | | | 25 |
| | | | | | | | | | | | | |
Interest Expense | | | 77 | | | 70 | | | 69 |
| | | | | | | | | | | | | |
Income Before Income Taxes | | | 355 | | | 360 | | | 215 |
| | | | | | | | | | | | | |
Income Taxes | | | 135 | | | 132 | | | 78 |
| | | | | | | | | | | | | |
Net Income (a) | | $ | 220 | | $ | 228 | | $ | 137 |
| | | | | | | | | | | | | |
Louisville Gas and Electric Company
(Millions of Dollars)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Operating Revenues | |
| | |
| | |
| Retail and wholesale | $ | 1,406 |
| | $ | 1,407 |
| | $ | 1,445 |
|
| Electric revenue from affiliate | 24 |
| | 37 |
| | 88 |
|
| Total Operating Revenues | 1,430 |
| | 1,444 |
| | 1,533 |
|
| | | | | | |
| Operating Expenses | |
| | |
| | |
| Operation | |
| | |
| | |
| Fuel | 301 |
| | 329 |
| | 404 |
|
| Energy purchases | 153 |
| | 166 |
| | 230 |
|
| Energy purchases from affiliate | 14 |
| | 20 |
| | 14 |
|
| Other operation and maintenance | 355 |
| | 377 |
| | 379 |
|
| Depreciation | 170 |
| | 162 |
| | 157 |
|
| Taxes, other than income | 32 |
| | 28 |
| | 25 |
|
| Total Operating Expenses | 1,025 |
| | 1,082 |
| | 1,209 |
|
| | | | | | |
| Operating Income | 405 |
| | 362 |
| | 324 |
|
| | | | | | |
| Other Income (Expense) - net | (5 | ) | | (6 | ) | | (3 | ) |
| | | | | | |
| Interest Expense | 71 |
| | 57 |
| | 49 |
|
| | | | | | |
| Income Before Income Taxes | 329 |
| | 299 |
| | 272 |
|
| | | | | | |
| Income Taxes | 126 |
| | 114 |
| | 103 |
|
| | | | | | |
| Net Income (a) | $ | 203 |
| | $ | 185 |
| | $ | 169 |
|
| |
| (a) | Net income approximatesequals comprehensive income. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, |
| Kentucky Utilities Company |
| (Millions of Dollars) |
| | | 2014 | | 2013 | | 2012 |
| Cash Flows from Operating Activities | | | | | | | | | |
| | Net income | | $ | 220 | | $ | 228 | | $ | 137 |
| | Adjustments to reconcile net income to net cash provided | | | | | | | | | |
| | | by (used in) operating activities | | | | | | | | | |
| | | | Depreciation | | | 197 | | | 186 | | | 193 |
| | | | Amortization | | | 11 | | | 14 | | | 14 |
| | | | Defined benefit plans - expense | | | 5 | | | 18 | | | 11 |
| | | | Deferred income taxes and investment tax credits | | | 224 | | | 69 | | | 99 |
| | | | Impairment of assets | | | | | | | | | 25 |
| | | | Other | | | 13 | | | (3) | | | 10 |
| | Change in current assets and current liabilities | | | | | | | | | |
| | | Accounts receivable | | | (9) | | | (37) | | | (17) |
| | | Accounts payable | | | (10) | | | 23 | | | 1 |
| | | Accounts payable to affiliates | | | 22 | | | (8) | | | |
| | | Unbilled revenues | | | 4 | | | (11) | | | (3) |
| | | Fuel, materials and supplies | | | (25) | | | 10 | | | 7 |
| | | Income tax receivable | | | (60) | | | | | | |
| | | Taxes payable | | | (19) | | | 7 | | | 15 |
| | | Other | | | (5) | | | 10 | | | 6 |
| | Other operating activities | | | | | | | | | |
| | | Defined benefit plans - funding | | | (5) | | | (65) | | | (21) |
| | | Settlement of interest rate swaps | | | | | | 43 | | | |
| | | Other assets | | | (4) | | | 1 | | | (3) |
| | | Other liabilities | | | 7 | | | 10 | | | 26 |
| | | | Net cash provided by (used in) operating activities | | | 566 | | | 495 | | | 500 |
| Cash Flows from Investing Activities | | | | | | | | | |
| | Expenditures for property, plant and equipment | | | (604) | | | (855) | | | (480) |
| | Other investing activities | | | 1 | | | 2 | | | |
| | | | Net cash provided by (used in) investing activities | | | (603) | | | (853) | | | (480) |
| Cash Flows from Financing Activities | | | | | | | | | |
| | Issuance of long-term debt | | | | | | 248 | | | |
| | Net increase (decrease) in short-term debt | | | 86 | | | 80 | | | 70 |
| | Debt issuance and credit facility costs | | | (2) | | | (3) | | | |
| | Payment of common stock dividends to parent | | | (148) | | | (124) | | | (100) |
| | Contributions from parent | | | 91 | | | 157 | | | |
| | | | Net cash provided by (used in) financing activities | | | 27 | | | 358 | | | (30) |
Net Increase (Decrease) in Cash and Cash Equivalents | | | (10) | | | | | | (10) |
Cash and Cash Equivalents at Beginning of Period | | | 21 | | | 21 | | | 31 |
Cash and Cash Equivalents at End of Period | | $ | 11 | | $ | 21 | | $ | 21 |
| | | | | | | | | | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | | | | | |
| | Cash paid (received) during the period for: | | | | | | | | | |
| | | Interest - net of amount capitalized | | $ | 73 | | $ | 61 | | $ | 62 |
| | | Income taxes - net | | $ | | | $ | 47 | | $ | (39) |
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
Louisville Gas and Electric Company
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cash Flows from Operating Activities | |
| | | | |
| Net income | $ | 203 |
| | $ | 185 |
| | $ | 169 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | | | |
| Depreciation | 170 |
| | 162 |
| | 157 |
|
| Amortization | 14 |
| | 11 |
| | 12 |
|
| Defined benefit plans - expense | 8 |
| | 12 |
| | 9 |
|
| Deferred income taxes and investment tax credits | 147 |
| | 126 |
| | 118 |
|
| Other | — |
| | 8 |
| | 2 |
|
| Change in current assets and current liabilities | | | | | |
| Accounts receivable | (22 | ) | | 19 |
| | (12 | ) |
| Accounts receivable from affiliates | (16 | ) | | 11 |
| | (23 | ) |
| Accounts payable | 31 |
| | (29 | ) | | 25 |
|
| Accounts payable to affiliates | 1 |
| | 5 |
| | (4 | ) |
| Unbilled revenues | (8 | ) | | 9 |
| | 9 |
|
| Fuel, materials and supplies | 8 |
| | 3 |
| | (8 | ) |
| Income tax receivable | 4 |
| | 70 |
| | (74 | ) |
| Taxes payable | 20 |
| | 1 |
| | 8 |
|
| Accrued interest | — |
| | 5 |
| | — |
|
| Other | (7 | ) | | 17 |
| | — |
|
| Other operating activities | | | | | |
| Defined benefit plans - funding | (46 | ) | | (26 | ) | | (13 | ) |
| Settlement of interest rate swaps | (9 | ) | | (44 | ) | | — |
|
| Expenditures for asset retirement obligations | (18 | ) | | (6 | ) | | (4 | ) |
| Other assets | — |
| | 11 |
| | (2 | ) |
| Other liabilities | 2 |
| | 4 |
| | 2 |
|
| Net cash provided by (used in) operating activities | 482 |
| | 554 |
| | 371 |
|
| Cash Flows from Investing Activities | | | | | |
| Expenditures for property, plant and equipment | (439 | ) | | (689 | ) | | (656 | ) |
| Net cash provided by (used in) investing activities | (439 | ) | | (689 | ) | | (656 | ) |
| Cash Flows from Financing Activities | | | | | |
| Issuance of long-term debt | 125 |
| | 550 |
| | — |
|
| Retirement of long-term debt | (150 | ) | | (250 | ) | | — |
|
| Net increase (decrease) in short-term debt | 27 |
| | (122 | ) | | 244 |
|
| Debt issuance and credit facility costs | (2 | ) | | (5 | ) | | (2 | ) |
| Payment of common stock dividends to parent | (128 | ) | | (119 | ) | | (112 | ) |
| Contributions from parent | 71 |
| | 90 |
| | 157 |
|
| Net cash provided by (used in) financing activities | (57 | ) | | 144 |
| | 287 |
|
| Net Increase (Decrease) in Cash and Cash Equivalents | (14 | ) | | 9 |
| | 2 |
|
| Cash and Cash Equivalents at Beginning of Period | 19 |
| | 10 |
| | 8 |
|
| Cash and Cash Equivalents at End of Period | $ | 5 |
| | $ | 19 |
| | $ | 10 |
|
| | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Interest - net of amount capitalized | $ | 65 |
| | $ | 48 |
| | $ | 46 |
|
| Income taxes - net | $ | (43 | ) | | $ | (81 | ) | | $ | 65 |
|
| Significant non-cash transactions: | | | | | |
| Accrued expenditures for property, plant and equipment at December 31, | $ | 56 |
| | $ | 97 |
| | $ | 162 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
BALANCE SHEETS AT DECEMBER 31, |
| Kentucky Utilities Company |
| (Millions of Dollars, shares in thousands) |
| | | | | | | | | | |
| | | | | | 2014 | | 2013 |
| Assets | | | | | | |
| | | | | | | | | | |
| Current Assets | | | | | | |
| | Cash and cash equivalents | | $ | 11 | | $ | 21 |
| | Accounts receivable (less reserve: 2014, $2; 2013, $4) | | | | | | |
| | | Customer | | | 124 | | | 122 |
| | | Other | | | 6 | | | 9 |
| | Unbilled revenues | | | 91 | | | 95 |
| | Fuel, materials and supplies | | | 149 | | | 124 |
| | Prepayments | | | 10 | | | 4 |
| | Income taxes receivable | | | 60 | | | |
| | Regulatory assets | | | 4 | | | 10 |
| | Other current assets | | | 4 | | | 6 |
| | Total Current Assets | | | 459 | | | 391 |
| | | | | | | | | | |
| Property, Plant and Equipment | | | | | | |
| | Regulated utility plant | | | 5,976 | | | 5,143 |
| | Less: accumulated depreciation - regulated utility plant | | | 611 | | | 446 |
| | | Regulated utility plant, net | | | 5,365 | | | 4,697 |
| | Other, net | | | 1 | | | 1 |
| | Construction work in progress | | | 880 | | | 1,139 |
| | Property, Plant and Equipment, net | | | 6,246 | | | 5,837 |
| | | | | | | | | | |
| Other Noncurrent Assets | | | | | | |
| | Regulatory assets | | | 268 | | | 171 |
| | Goodwill | | | 607 | | | 607 |
| | Other intangibles | | | 77 | | | 101 |
| | Other noncurrent assets | | | 58 | | | 56 |
| | Total Other Noncurrent Assets | | | 1,010 | | | 935 |
| | | | | | | | | | |
Total Assets | | $ | 7,715 | | $ | 7,163 |
BALANCE SHEETS AT DECEMBER 31,
Louisville Gas and Electric Company
(Millions of Dollars, shares in thousands)
|
| | | | | | | |
| | 2016 | | 2015 |
| Assets | |
| | |
|
| Current Assets | |
| | |
|
| Cash and cash equivalents | $ | 5 |
| | $ | 19 |
|
| Accounts receivable (less reserve: 2016, $2; 2015, $1) | |
| | |
|
| Customer | 109 |
| | 92 |
|
| Other | 11 |
| | 11 |
|
| Unbilled revenues | 75 |
| | 67 |
|
| Accounts receivable from affiliates | 28 |
| | 12 |
|
| Fuel, materials and supplies | 143 |
| | 151 |
|
| Prepayments | 12 |
| | 5 |
|
| Regulatory assets | 9 |
| | 16 |
|
| Other current assets | 1 |
| | 2 |
|
| Total Current Assets | 393 |
| | 375 |
|
| | | | |
| Property, Plant and Equipment | |
| | |
|
| Regulated utility plant | 5,357 |
| | 4,804 |
|
| Less: accumulated depreciation - regulated utility plant | 498 |
| | 404 |
|
| Regulated utility plant, net | 4,859 |
| | 4,400 |
|
| Construction work in progress | 133 |
| | 390 |
|
| Property, Plant and Equipment, net | 4,992 |
| | 4,790 |
|
| | | | |
| Other Noncurrent Assets | |
| | |
|
| Regulatory assets | 450 |
| | 424 |
|
| Goodwill | 389 |
| | 389 |
|
| Other intangibles | 59 |
| | 73 |
|
| Other noncurrent assets | 17 |
| | 17 |
|
| Total Other Noncurrent Assets | 915 |
| | 903 |
|
| | | | |
| Total Assets | $ | 6,300 |
| | $ | 6,068 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
| BALANCE SHEETS AT DECEMBER 31, |
| Kentucky Utilities Company |
| (Millions of Dollars, shares in thousands) |
| | | | | | 2014 | | 2013 |
| Liabilities and Equity | | | | | | |
| | | | | | | | | | |
| Current Liabilities | | | | | | |
| | Short-term debt | | $ | 236 | | $ | 150 |
| | Long-term debt due within one year | | | 250 | | | |
| | Accounts payable | | | 141 | | | 159 |
| | Accounts payable to affiliates | | | 47 | | | 25 |
| | Customer deposits | | | 27 | | | 26 |
| | Taxes | | | 14 | | | 33 |
| | Price risk management liabilities to affiliates | | | 33 | | | |
| | Regulatory liabilities | | | 5 | | | 5 |
| | Interest | | | 11 | | | 11 |
| | Other current liabilities | | | 41 | | | 36 |
| | Total Current Liabilities | | | 805 | | | 445 |
| | | | | | | | | | |
Long-term Debt | | | 1,841 | | | 2,091 |
| | | | | | | |
| Deferred Credits and Other Noncurrent Liabilities | | | | | | |
| | Deferred income taxes | | | 884 | | | 658 |
| | Investment tax credits | | | 95 | | | 97 |
| | Accrued pension obligations | | | 59 | | | 11 |
| | Asset retirement obligations | | | 208 | | | 177 |
| | Regulatory liabilities | | | 516 | | | 551 |
| | Other deferred credits and noncurrent liabilities | | | 101 | | | 89 |
| | Total Deferred Credits and Other Noncurrent Liabilities | | | 1,863 | | | 1,583 |
| | | | | | | | | | |
| Commitments and Contingent Liabilities (Notes 6 and 15) | | | | | | |
| | | | | | | | | | |
| Stockholder's Equity | | | | | | |
| | Common stock - no par value (a) | | | 308 | | | 308 |
| | Additional paid-in capital | | | 2,596 | | | 2,505 |
| | Accumulated other comprehensive income (loss) | | | | | | 1 |
| | Earnings reinvested | | | 302 | | | 230 |
| | Total Equity | | | 3,206 | | | 3,044 |
| | | | | | | | | | |
Total Liabilities and Equity | | $ | 7,715 | | $ | 7,163 |
BALANCE SHEETS AT DECEMBER 31,
Louisville Gas and Electric Company
(Millions of Dollars, shares in thousands)
(a) 80,000 shares authorized; 37,818 shares issued and outstanding at December 31, 2014 and December 31, 2013. |
| | | | | | | |
| | 2016 | | 2015 |
| Liabilities and Equity | |
| | |
|
| Current Liabilities | |
| | |
|
| Short-term debt | $ | 169 |
| | $ | 142 |
|
| Long-term debt due within one year | 194 |
| | 25 |
|
| Accounts payable | 148 |
| | 157 |
|
| Accounts payable to affiliates | 26 |
| | 25 |
|
| Customer deposits | 27 |
| | 26 |
|
| Taxes | 40 |
| | 20 |
|
| Price risk management liabilities | 4 |
| | 5 |
|
| Regulatory liabilities | 5 |
| | 13 |
|
| Interest | 11 |
| | 11 |
|
| Asset retirement obligations | 41 |
| | 25 |
|
| Other current liabilities | 36 |
| | 39 |
|
| Total Current Liabilities | 701 |
| | 488 |
|
| | | | |
| Long-term Debt | 1,423 |
| | 1,617 |
|
| | | | |
| Deferred Credits and Other Noncurrent Liabilities | |
| | |
|
| Deferred income taxes | 974 |
| | 829 |
|
| Investment tax credits | 36 |
| | 35 |
|
| Price risk management liabilities | 27 |
| | 42 |
|
| Accrued pension obligations | 53 |
| | 56 |
|
| Asset retirement obligations | 104 |
| | 149 |
|
| Regulatory liabilities | 419 |
| | 431 |
|
| Other deferred credits and noncurrent liabilities | 87 |
| | 91 |
|
| Total Deferred Credits and Other Noncurrent Liabilities | 1,700 |
| | 1,633 |
|
| | | | |
| Commitments and Contingent Liabilities (Notes 6 and 15) |
|
| |
|
|
| | | | |
| Stockholder's Equity | |
| | |
|
| Common stock - no par value (a) | 424 |
| | 424 |
|
| Additional paid-in capital | 1,682 |
| | 1,611 |
|
| Earnings reinvested | 370 |
| | 295 |
|
| Total Equity | 2,476 |
| | 2,330 |
|
| | | | |
| Total Liabilities and Equity | $ | 6,300 |
| | $ | 6,068 |
|
| |
| (a) | 75,000 shares authorized; 21,294 shares issued and outstanding at December 31, 2016 and December 31, 2015. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
|
| Kentucky Utilities Company | | | | | | | | | | | | |
| (Millions of Dollars) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Common | | | | | | | | | | | | Accumulated | | | |
| | | stock | | | | | | | | | | | | other | | | |
| | | shares | | | | | | Additional | | | | | | comprehensive | | | |
| | | outstanding | | | Common | | | paid-in | | | Earnings | | | income | | | |
| | | (a) | | | stock | | | capital | | | reinvested | | | (loss) | | | Total |
| | | | | | | | | | | | | | | | | | |
December 31, 2011 | | 37,818 | | $ | 308 | | $ | 2,348 | | $ | 89 | | | | | $ | 2,745 |
Net income | | | | | | | | | | | 137 | | | | | | 137 |
Cash dividends declared on common stock | | | | | | | | | | | (100) | | | | | | (100) |
Other comprehensive income (loss) | | | | | | | | | | | | | $ | 1 | | | 1 |
December 31, 2012 | | 37,818 | | $ | 308 | | $ | 2,348 | | $ | 126 | | $ | 1 | | $ | 2,783 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | $ | 228 | | | | | $ | 228 |
Capital contributions from LKE | | | | | | | $ | 157 | | | | | | | | | 157 |
Cash dividends declared on common stock | | | | | | | | | | | (124) | | | | | | (124) |
December 31, 2013 | | 37,818 | | $ | 308 | | $ | 2,505 | | $ | 230 | | $ | 1 | | $ | 3,044 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | $ | 220 | | | | | $ | 220 |
Capital contributions from LKE | | | | | | | $ | 91 | | | | | | | | | 91 |
Cash dividends declared on common stock | | | | | | | | | | | (148) | | | | | | (148) |
Other comprehensive income (loss) | | | | | | | | | | | | | $ | (1) | | | (1) |
December 31, 2014 | | 37,818 | | $ | 308 | | $ | 2,596 | | $ | 302 | | $ | | | $ | 3,206 |
STATEMENTS OF EQUITY
Louisville Gas and Electric Company
(Millions of Dollars)
|
| | | | | | | | | | | | | | | | | | |
| | Common stock shares outstanding (a) | | Common stock | | Additional paid-in capital | | Earnings reinvested | | Total |
| December 31, 2013 | 21,294 |
| | $ | 424 |
| | $ | 1,364 |
| | $ | 172 |
| | $ | 1,960 |
|
| Net income | |
| | |
| | |
| | 169 |
| | 169 |
|
| Capital contributions from LKE | |
| | |
| | 157 |
| | |
| | 157 |
|
| Cash dividends declared on common stock | |
| | |
| | |
| | (112 | ) | | (112 | ) |
| December 31, 2014 | 21,294 |
| | $ | 424 |
| | $ | 1,521 |
| | $ | 229 |
| | $ | 2,174 |
|
| | | | | | | | | | |
| Net income | | | | | | | 185 |
| | 185 |
|
| Capital contributions from LKE | |
| | |
| | 90 |
| | | | 90 |
|
| Cash dividends declared on common stock | |
| | |
| | |
| | (119 | ) | | (119 | ) |
| December 31, 2015 | 21,294 |
| | $ | 424 |
| | $ | 1,611 |
| | $ | 295 |
| | $ | 2,330 |
|
| | | | | | | | | | |
| Net income | | | | | | | 203 |
| | 203 |
|
| Capital contributions from LKE | |
| | |
| | 71 |
| | | | 71 |
|
| Cash dividends declared on common stock | |
| | |
| | |
| | (128 | ) | | (128 | ) |
| December 31, 2016 | 21,294 |
| | $ | 424 |
| | $ | 1,682 |
| | $ | 370 |
| | $ | 2,476 |
|
(a) Shares in thousands. All common shares of KULG&E stock are owned by LKE.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
(THIS PAGE LEFT BLANK INTENTIONALLY.)
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
Kentucky Utilities Company
(Millions of Dollars)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Operating Revenues | |
| | | | |
| Retail and wholesale | $ | 1,735 |
| | $ | 1,708 |
| | $ | 1,723 |
|
| Electric revenue from affiliate | 14 |
| | 20 |
| | 14 |
|
| Total Operating Revenues | 1,749 |
| | 1,728 |
| | 1,737 |
|
| | | | | | |
| Operating Expenses | |
| | |
| | |
| Operation | |
| | |
| | |
| Fuel | 490 |
| | 534 |
| | 561 |
|
| Energy purchases | 18 |
| | 18 |
| | 23 |
|
| Energy purchases from affiliate | 24 |
| | 37 |
| | 88 |
|
| Other operation and maintenance | 424 |
| | 435 |
| | 408 |
|
| Depreciation | 234 |
| | 220 |
| | 197 |
|
| Taxes, other than income | 30 |
| | 29 |
| | 27 |
|
| Total Operating Expenses | 1,220 |
| | 1,273 |
| | 1,304 |
|
| | | | | | |
| Operating Income | 529 |
| | 455 |
| | 433 |
|
| | | | | | |
| Other Income (Expense) - net | (5 | ) | | 1 |
| | (1 | ) |
| | | | | | |
| Interest Expense | 96 |
| | 82 |
| | 77 |
|
| | | | | | |
| Income Before Income Taxes | 428 |
| | 374 |
| | 355 |
|
| | | | | | |
| Income Taxes | 163 |
| | 140 |
| | 135 |
|
| | | | | | |
| Net Income (a) | $ | 265 |
| | $ | 234 |
| | $ | 220 |
|
| |
| (a) | Net income approximates comprehensive income. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
Kentucky Utilities Company
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cash Flows from Operating Activities | |
| | | | |
| Net income | $ | 265 |
| | $ | 234 |
| | $ | 220 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |
| | |
| | |
|
| Depreciation | 234 |
| | 220 |
| | 197 |
|
| Amortization | 14 |
| | 13 |
| | 11 |
|
| Defined benefit plans - expense | 5 |
| | 10 |
| | 5 |
|
| Deferred income taxes and investment tax credits | 126 |
| | 160 |
| | 224 |
|
| Other | (1 | ) | | (5 | ) | | 13 |
|
| Change in current assets and current liabilities | |
| | |
| | |
|
| Accounts receivable | (8 | ) | | 5 |
| | (9 | ) |
| Accounts receivable from affiliates | 1 |
| | (1 | ) | | — |
|
| Accounts payable | (10 | ) | | (32 | ) | | (10 | ) |
| Accounts payable to affiliates | 15 |
| | (10 | ) | | 22 |
|
| Unbilled revenues | (15 | ) | | 11 |
| | 4 |
|
| Fuel, materials and supplies | (6 | ) | | 3 |
| | (25 | ) |
| Income tax receivable | — |
| | 59 |
| | (60 | ) |
| Taxes payable | 25 |
| | 6 |
| | (19 | ) |
| Accrued interest | — |
| | 5 |
| | — |
|
| Other | (3 | ) | | 4 |
| | (5 | ) |
| Other operating activities | |
| | |
| | |
|
| Defined benefit plans - funding | (20 | ) | | (21 | ) | | (5 | ) |
| Settlement of interest rate swaps | — |
| | (44 | ) | | — |
|
| Expenditures for asset retirement obligations | (8 | ) | | (1 | ) | | (1 | ) |
| Other assets | (6 | ) | | (11 | ) | | (4 | ) |
| Other liabilities | (2 | ) | | 3 |
| | 8 |
|
| Net cash provided by (used in) operating activities | 606 |
| | 608 |
| | 566 |
|
| Cash Flows from Investing Activities | |
| | |
| | |
|
| Expenditures for property, plant and equipment | (350 | ) | | (519 | ) | | (604 | ) |
| Other investing activities | 1 |
| | 7 |
| | 1 |
|
| Net cash provided by (used in) investing activities | (349 | ) | | (512 | ) | | (603 | ) |
| Cash Flows from Financing Activities | |
| | |
| | |
|
| Issuance of long-term debt | 96 |
| | 500 |
| | — |
|
| Retirement of long-term debt | (96 | ) | | (250 | ) | | — |
|
| Net increase (decrease) in short-term debt | (32 | ) | | (188 | ) | | 86 |
|
| Debt issuance and credit facility costs | (1 | ) | | (5 | ) | | (2 | ) |
| Payment of common stock dividends to parent | (248 | ) | | (153 | ) | | (148 | ) |
| Contributions from parent | 20 |
| | — |
| | 91 |
|
| Net cash provided by (used in) financing activities | (261 | ) | | (96 | ) | | 27 |
|
| Net Increase (Decrease) in Cash and Cash Equivalents | (4 | ) | | — |
| | (10 | ) |
| Cash and Cash Equivalents at Beginning of Period | 11 |
| | 11 |
| | 21 |
|
| Cash and Cash Equivalents at End of Period | $ | 7 |
| | $ | 11 |
| | $ | 11 |
|
| | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | |
| Cash paid (received) during the period for: | | | | | |
| Interest - net of amount capitalized | $ | 89 |
| | $ | 75 |
| | $ | 73 |
|
| Income taxes - net | $ | 13 |
| | $ | (84 | ) | | $ | — |
|
| Significant non-cash transactions: | | | | | |
| Accrued expenditures for property, plant and equipment at December 31, | $ | 47 |
| | $ | 53 |
| | $ | 124 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
BALANCE SHEETS AT DECEMBER 31,
Kentucky Utilities Company
(Millions of Dollars, shares in thousands)
|
| | | | | | | |
| | 2016 | | 2015 |
| Assets | |
| | |
|
| Current Assets | |
| | |
|
| Cash and cash equivalents | $ | 7 |
| | $ | 11 |
|
| Accounts receivable (less reserve: 2016, $2; 2015, $2) | |
| | |
|
| Customer | 126 |
| | 117 |
|
| Other | 5 |
| | 9 |
|
| Unbilled revenues | 95 |
| | 80 |
|
| Accounts receivable from affiliates | — |
| | 1 |
|
| Fuel, materials and supplies | 154 |
| | 147 |
|
| Prepayments | 12 |
| | 8 |
|
| Regulatory assets | 11 |
| | 19 |
|
| Other current assets | 3 |
| | 4 |
|
| Total Current Assets | 413 |
| | 396 |
|
| | | | |
| Property, Plant and Equipment | |
| | |
|
| Regulated utility plant | 7,382 |
| | 7,099 |
|
| Less: accumulated depreciation - regulated utility plant | 965 |
| | 759 |
|
| Regulated utility plant, net | 6,417 |
| | 6,340 |
|
| Construction work in progress | 181 |
| | 267 |
|
| Property, Plant and Equipment, net | 6,598 |
| | 6,607 |
|
| | | | |
| Other Noncurrent Assets | |
| | |
|
| Regulatory assets | 374 |
| | 303 |
|
| Goodwill | 607 |
| | 607 |
|
| Other intangibles | 36 |
| | 50 |
|
| Other noncurrent assets | 57 |
| | 48 |
|
| Total Other Noncurrent Assets | 1,074 |
| | 1,008 |
|
| | | | |
| Total Assets | $ | 8,085 |
| | $ | 8,011 |
|
The accompanying Notes to Financial Statements are an integral part of the financial statements.
BALANCE SHEETS AT DECEMBER 31,
Kentucky Utilities Company
(Millions of Dollars, shares in thousands)
|
| | | | | | | |
| | 2016 | | 2015 |
| Liabilities and Equity | |
| | |
|
| Current Liabilities | |
| | |
|
| Short-term debt | $ | 16 |
| | $ | 48 |
|
| Accounts payable | 78 |
| | 88 |
|
| Accounts payable to affiliates | 56 |
| | 39 |
|
| Customer deposits | 29 |
| | 26 |
|
| Taxes | 45 |
| | 20 |
|
| Regulatory liabilities | 13 |
| | 19 |
|
| Interest | 16 |
| | 16 |
|
| Asset retirement obligations | 19 |
| | 25 |
|
| Other current liabilities | 36 |
| | 44 |
|
| Total Current Liabilities | 308 |
| | 325 |
|
| | | | |
| Long-term Debt | 2,327 |
| | 2,326 |
|
| | | | |
| Deferred Credits and Other Noncurrent Liabilities | |
| | |
|
| Deferred income taxes | 1,170 |
| | 1,046 |
|
| Investment tax credits | 96 |
| | 93 |
|
| Accrued pension obligations | 62 |
| | 46 |
|
| Asset retirement obligations | 269 |
| | 336 |
|
| Regulatory liabilities | 480 |
| | 492 |
|
| Other deferred credits and noncurrent liabilities | 50 |
| | 60 |
|
| Total Deferred Credits and Other Noncurrent Liabilities | 2,127 |
| | 2,073 |
|
| | | | |
| Commitments and Contingent Liabilities (Notes 6 and 15) |
|
| |
|
|
| | | | |
| Stockholder's Equity | |
| | |
|
| Common stock - no par value (a) | 308 |
| | 308 |
|
| Additional paid-in capital | 2,616 |
| | 2,596 |
|
| Accumulated other comprehensive loss | (1 | ) | | — |
|
| Earnings reinvested | 400 |
| | 383 |
|
| Total Equity | 3,323 |
| | 3,287 |
|
| | | | |
| Total Liabilities and Equity | $ | 8,085 |
| | $ | 8,011 |
|
| |
| (a) | 80,000 shares authorized; 37,818 shares issued and outstanding at December 31, 2016 and December 31, 2015. |
The accompanying Notes to Financial Statements are an integral part of the financial statements.
STATEMENTS OF EQUITY
Kentucky Utilities Company
(Millions of Dollars)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Common stock shares outstanding (a) | | Common stock | | Additional paid-in capital | | Earnings reinvested | | Accumulated other comprehensive income (loss) | | Total |
| December 31, 2013 | 37,818 |
| | $ | 308 |
| | $ | 2,505 |
| | $ | 230 |
| | $ | 1 |
| | $ | 3,044 |
|
| Net income | |
| | |
| | |
| | 220 |
| | |
| | 220 |
|
| Capital contributions from LKE | |
| | |
| | 91 |
| | |
| | |
| | 91 |
|
| Cash dividends declared on common stock | |
| | |
| | |
| | (148 | ) | | |
| | (148 | ) |
| Other comprehensive income (loss) | | | | | | | | | (1 | ) | | (1 | ) |
| December 31, 2014 | 37,818 |
| | $ | 308 |
| | $ | 2,596 |
| | $ | 302 |
| | $ | — |
| | $ | 3,206 |
|
| | | | | | | | | | | | |
| Net income | | | | | | | 234 |
| | | | 234 |
|
| Cash dividends declared on common stock | |
| | |
| | |
| | (153 | ) | | |
| | (153 | ) |
| December 31, 2015 | 37,818 |
| | $ | 308 |
| | $ | 2,596 |
| | $ | 383 |
| | $ | — |
| | $ | 3,287 |
|
| | | | | | | | | | | | |
| Net income | | | | | | | 265 |
| | | | 265 |
|
| Capital contributions from LKE | | | | | 20 |
| | | | | | 20 |
|
| Cash dividends declared on common stock | |
| | |
| | |
| | (248 | ) | | |
| | (248 | ) |
| Other comprehensive income (loss) | | | | | | | | | (1 | ) | | (1 | ) |
| December 31, 2016 | 37,818 |
| | $ | 308 |
| | $ | 2,616 |
| | $ | 400 |
| | $ | (1 | ) | | $ | 3,323 |
|
(a) Shares in thousands. All common shares of KU stock are owned by LKE.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
COMBINED NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
General
Capitalized terms and abbreviations appearing in the combined notes to 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 itseach Registrants' related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.
Business and Consolidation
(PPL)
PPL is an energy anda utility holding company that, through its regulated subsidiaries, is primarily engaged in: 1) the regulated distribution of electricity in the U.K.; 2) the regulated generation, transmission, distribution and sale of electricity and the regulated distribution and sale of natural gas, primarily in Kentucky; and 3) the regulated transmission, distribution and sale of electricity in Pennsylvania; and 4) the competitive generation and marketing of electricity in portions of the northeastern and northwestern U.S.Pennsylvania. Headquartered in Allentown, PA, PPL's principal subsidiaries are PPL Global, LKE (including its principal subsidiaries, LG&E and KU), PPL Electric and PPL Energy Supply (including its principal subsidiaries, PPL EnergyPlus and PPL Generation).Electric. PPL's corporate level financing subsidiary is PPL Capital Funding.
WPD, a subsidiary of PPL Global, through indirect, wholly owned subsidiaries, operates regulated distribution networks providing electricity service in the U.K. WPD serves end-users in South Wales and southwest and central England. Its principal subsidiaries are WPD (South Wales), WPD (South West), WPD (East Midlands) and WPD (West Midlands).
PPL consolidates WPD on a one-month lag. Material intervening events, such as debt issuances that occur in the lag period, are recognized in the current period financial statements. Events that are significant but not material are disclosed.
(PPL and PPL Energy Supply)
PPL Energy Supply is an energy company conducting business primarily through its principal subsidiaries PPL Generation and PPL EnergyPlus. PPL Generation owns and operates a portfolio of competitive domestic power generating assets. These power plants are located in Pennsylvania and Montana and use well-diversified fuel sources including coal, uranium, natural gas, oil and water. PPL EnergyPlus sells electricity produced by PPL Generation subsidiaries, participates in wholesale market load-following auctions, and markets various energy products and commodities such as: capacity, transmission, FTRs, coal, natural gas, oil, uranium, emission allowances, RECs and other commodities in competitive wholesale and competitive retail markets, primarily in the northeastern and northwestern U.S.
In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. See Note 8 for additional information.
In November 2014, PPL Montana completed the sale of its hydroelectric generating facilities. See Note 8 for additional information.
(PPL and PPL Electric)
PPL Electric is a cost-based rate-regulated utility subsidiary of PPL. PPL Electric's principal business is the regulated transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania and the regulated supply of electricity to retail customers in that territory as a PLR.
(PPL, LKE, LG&E and KU)
LKE is a utility holding company with cost-based rate-regulated utility operations through its subsidiaries, LG&E and KU. LG&E and KU are engaged in the regulated generation, transmission, distribution and sale of electricity. LG&E also engages in the regulated distribution and sale of natural gas. LG&E and KU maintain their separate identities and serve customers in Kentucky under their respective names. KU also serves customers in Virginia (under the Old Dominion Power name) and in Tennessee under the KU name.
(PPL and PPL Energy Supply)
(PPL)
"Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income for the years 2015 and 2014 includes the activities of PPL Montana's hydroelectric generating facilitiesEnergy Supply, substantially representing PPL's former Supply segment, which was spun off and the gaindistributed to PPL shareowners on June 1, 2015. In addition, the sale of these facilities to NorthWestern in November 2014. The related assets and liabilities have not been reclassified to assets/liabilities of discontinued operations on the balance sheet at December 31, 2013. The Statements of Cash Flows do notfor the same periods separately report the cash flows of the Discontinued Operations.discontinued operations. See Note 8 for additional information.
(All Registrants)
The financial statements of the Registrants include each company's own accounts as well as the accounts of all entities in which the company has a controlling financial interest. Entities for which a controlling financial interest is not demonstrated through voting interests are evaluated based on accounting guidance for VIEs.Variable Interest Entities (VIEs). The Registrants consolidate a VIE when they are determined to have a controlling interest in the VIE, and thus are the primary beneficiary of the entity. The Registrants are not the primary beneficiary in any material VIEs. Investments in entities in which a company has the ability to exercise
significant influence but does not have a controlling financial interest are accounted for under the equity method. All other investments are carried at cost or fair value. All significant intercompany transactions have been eliminated. Any noncontrolling interests are reflected in the financial statements.
The financial statements of PPL, PPL Energy Supply, LKE, LG&E and KU include their share of any undivided interests in jointly owned facilities, as well as their share of the related operating costs of those facilities. See Note 12 for additional information.
(PPL)
WPD operates in an incentive-based regulatory structure under distribution licenses granted by Ofgem. Electricity distribution revenues are set by Ofgem for a given time period through price control reviews that are not directly based on cost recovery. The price control formula that governs WPD's allowed revenue is designed to provide economic incentives to minimize operating, capital and financing costs. As a result, WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP and does not record regulatory assets and liabilities.
(All Registrants except PPL Energy Supply)Registrants)
PPL Electric, LG&E and KU are cost-based rate-regulated utilities for which rates are set by regulators to enable PPL Electric, LG&E and KU to recover the costs of providing electric or gas service, as applicable, and to provide a reasonable return to shareholders. RatesBase rates are generally established based on a historical or future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by GAAP and reflect the effects of regulatory actions. Regulatory assets are recognized for the effect of transactions or events where future recovery of underlying costs is probable in regulated customer rates. The effect of such accounting is to defer certain or qualifying costs that would otherwise currently be charged to expense. Regulatory liabilities are recognized for amounts expected to be returned through future regulated customer rates. In certain cases, regulatory liabilities are recorded based on an understanding or agreement with the regulator that rates have been set to recover costs that are expected to be incurred in the future, and the regulated entity is accountable for any amounts charged pursuant to such rates and not yet expended for the intended purpose. The accounting for regulatory assets and regulatory liabilities is based on specific ratemaking decisions or precedent for each transaction or event as prescribed by the FERC or the applicable state regulatory commissions. See Note 6 for additional details regarding regulatory matters. (All Registrants)
Accounting Records(All Registrants except PPL Energy Supply)
The system of accounts for domestic regulated entities is maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the applicable state regulatory commissions.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Potential losses are accrued when (1) information is available that indicates it is "probable" that a loss has been incurred, given the likelihood of the uncertain future events and (2) the amount of the loss can be reasonably estimated. Accounting guidance defines "probable" as cases in which "the future event or events are likely to occur." The Registrants continuously assess potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events. Loss accruals for environmental remediation are discounted when appropriate.
The accrual of contingencies that might result in gains is not recorded, unless realization is assured.
Changes in Classification
The classification of certain amounts in the 20132015 and 20122014 financial statements have been changed to conform to the current presentation. The changes in classificationThese reclassifications did not affect the Registrants' net income or equity.
Earnings Per Share(PPL)
EPS is computed using the two-class method, which is an earnings allocation method for computing EPS that treats a participating security as having rights to earnings that would otherwise have been available to common shareowners. Share-based payment awards that provide recipients a non-forfeitable right to dividends or dividend equivalents are considered participating securities.
(All Registrants)
Energy and energy-related contracts are used to hedge the variability of expected cash flows associated with the generating units and marketing activities, as well as for trading purposes at PPL Energy Supply. Interest rate contracts are used to hedge exposuresexposure to changeschange in the fair value of debt instruments and to hedge exposures to variability in expected cash flows associated with existing floating-rate debt instruments or forecasted fixed-rate issuances of debt. Foreign currency exchange contracts are used to hedge foreign currency exposures, primarily associated with PPL's investments in U.K. subsidiaries. Similar derivatives may receive different accounting treatment, depending on management's intended use and documentation.
Certain energy and energy-related contracts meet the definition of a derivative, while others domay not meet the definition of a derivative because they lack a notional amount or a net settlement provision. In cases where there is no net settlement provision, markets are periodically assessed to determine whether market mechanisms have evolved that would facilitate net settlement. Certain derivative energy contracts have beenmay be excluded from the requirements of derivative accounting treatment because NPNS has been elected. These contracts are accounted for using accrual accounting. All other contractsContracts that have been classified as derivative contracts are reflected on the balance sheets at fair value. These contracts are recorded as "Price risk management assets" and "Price risk management liabilities" on the Balance Sheets. The portion of derivative positions that deliver within a year are included in "Current Assets" and "Current Liabilities," while the portion of derivative positions that deliver beyond a year are recorded in "Other Noncurrent Assets" and "Deferred Credits and Other Noncurrent Liabilities." PPL considers intra-month transactions to be spot activity, which is not accounted for as a derivative.
Energy and energy-related contracts are assigned a strategy and accounting classification. Processes exist that allow for subsequent review and validation of the contract information. See Note 17 for moreadditional information. The accounting department provides the traders and the risk management department with guidelines on appropriate accounting classifications for various contract types and strategies. Some examples of these guidelines include, but are not limited to:
· | Physical coal, limestone, lime, uranium, electric transmission, gas transportation, gas storage and renewable energy credit contracts not traded on an exchange are not derivatives due to the lack of net settlement provisions. |
· | Only contracts where physical delivery is deemed probable throughout the entire term of the contract can qualify for NPNS. |
· | Physical transactions that permit cash settlement and financial transactions do not qualify for NPNS because physical delivery cannot be asserted; however, these transactions can receive cash flow hedge treatment if they effectively hedge the volatility in the future cash flows for energy-related commodities. |
· | Certain purchased option contracts or net purchased option collars may receive cash flow hedge treatment. |
· | Derivative transactions that do not qualify for NPNS or cash flow hedge treatment, or for which NPNS or cash flow hedge treatment is not elected, are recorded at fair value through earnings. |
A similar process is also followed by the treasury department as it relates to interest rate and foreign currency derivatives. Examples of accounting guidelines provided to the treasury department staff include, but are not limited to:
· | Transactions to lock in an interest rate prior to a debt issuance can be designated as cash flow hedges, to the extent the forecasted debt issuances remain probable of occurring. |
· | Cross-currency transactions to hedge interest and principal repayments can be designated as cash flow hedges. |
· | Transactions entered into to hedge fluctuations in the fair value of existing debt can be designated as fair value hedges. |
· | Transactions entered into to hedge the value of a net investment of foreign operations can be designated as net investment hedges. |
· | Derivative transactions that do not qualify for cash flow or net investment hedge treatment are marked to fair value through earnings. These transactions generally include foreign currency swaps and options to hedge GBP earnings translation risk associated with PPL's U.K. subsidiaries that report their financial statements in GBP. As such, these transactions reduce earnings volatility due solely to changes in foreign currency exchange rates. |
· | Derivative transactions may be marked to fair value through regulatory assets/liabilities at PPL Electric, LG&E and KU if approved by the appropriate regulatory body. These transactions generally include the effect of interest rate swaps that are included in customer rates. |
Cash inflows and outflows related to derivative instruments are included as a component of operating, investing or financing activities on the Statements of Cash Flows, depending on the classification of the hedged items.
PPL and its subsidiaries have elected not to offset net derivative positions against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.
PPL Energy Supply reflects its net realized(PPL)
Processes exist that allow for subsequent review and unrealized gainsvalidation of the contract information as it relates to interest rate and losses associated with all derivatives that are held for trading purposes in "Unregulated wholesale energy" on the Statements of Income.
foreign currency derivatives. See Notes 16 andNote 17 for additional informationinformation. The accounting department provides the treasury department with guidelines on derivatives.appropriate accounting classifications for various contract types and strategies. Examples of accounting guidelines provided to the treasury department staff include, but are not limited to:
Transactions to lock in an interest rate prior to a debt issuance can be designated as cash flow hedges, to the extent the forecasted debt issuances remain probable of occurring.
Cross-currency transactions to hedge interest and principal repayments can be designated as cash flow hedges.
Transactions entered into to hedge fluctuations in the fair value of existing debt can be designated as fair value hedges.
Transactions entered into to hedge the value of a net investment of foreign operations can be designated as net investment hedges.
Derivative transactions that do not qualify for cash flow or net investment hedge treatment are marked to fair value through earnings. These transactions generally include foreign currency forwards and options to hedge GBP earnings translation risk associated with PPL's U.K. subsidiaries that report their financial statements in GBP. As such, these transactions reduce earnings volatility due solely to changes in foreign currency exchange rates.
Derivative transactions may be marked to fair value through regulatory assets/liabilities at PPL Electric, LG&E and KU if approved by the appropriate regulatory body. These transactions generally include the effect of interest rate swaps that are included in customer rates.
(PPL and PPL Electric)
To meet its obligation as a PLR to its customers, PPL Electric has entered into certain contracts that meet the definition of a derivative. However, NPNS has been elected for these contracts.
See Notes 16 and 17 for additional information. information on derivatives.
Revenue
(PPL)
Utility Revenue(PPL)Operating Revenues
For the years ended December 31, the Statements of Income "Utility""Operating Revenues" line item contains rate-regulated revenue from the following:
| | | | | 2014 | | | 2013 | | | 2012 |
| Domestic electric and gas revenue (a) | | $ | 5,209 | | $ | 4,842 | | $ | 4,519 |
| U.K. electric revenue (b) | | | 2,573 | | | 2,359 | | | 2,289 |
| | Total | | $ | 7,782 | | $ | 7,201 | | $ | 6,808 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Domestic electric and gas revenues (a) | $ | 5,297 |
| | $ | 5,239 |
| | $ | 5,209 |
|
| U.K. operating revenues (b) | 2,207 |
| | 2,410 |
| | 2,621 |
|
| Domestic - other | 13 |
| | 20 |
| | 22 |
|
| Total | $ | 7,517 |
| | $ | 7,669 |
| | $ | 7,852 |
|
| |
| (a) | Represents revenuerevenues from cost-based rate-regulated generation, transmission and/or distribution in Pennsylvania, Kentucky, Virginia and Tennessee, including regulated wholesale revenue. |
| |
| (b) | RepresentsPrimarily represents regulated electricity distribution revenuerevenues from the operation of WPD's distribution networks. |
(All Registrants)
Operating revenues except for certain energy and energy-related contracts that meet the definition of derivative instruments and "Energy-related businesses," are primarily recorded based on energy deliveries through the end of the calendar month. Unbilled retail revenues result because customers' meters are read and bills are rendered throughout the month, rather than allbills being readrendered at the end of the month. UnbilledFor LKE, LG&E and KU, unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh by the estimated average cents per kWh. Unbilled wholesale energy revenues are recorded at month-end to reflect estimated amounts until actual dollars and MWhs are confirmed and invoiced. Any difference between estimated and actual revenues is adjusted the following month. For PPL Electric, unbilled revenues for a month are calculated by multiplying the actual unbilled kWh by an average rate per customer class.
(PPL)
WPD is currently operating under the eight-year price control period of RIIO-ED1, which commenced on April 1, 2015. Ofgem has adopted a price control mechanism that establishes the amount of base demand revenue WPD can earn, subject to certain true-ups, and provides for an increase or reduction in revenues based on incentives or penalties for performance relative to pre-established targets. WPD's allowed revenue primarily includes base demand revenue (adjusted for inflation using RPI), performance incentive revenues/penalties, adjustments for over or under-recovery from prior periods and adjustments related to the DPCR4 line loss close out.
As the regulatory model is incentive based rather than a cost recovery model, WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP. Therefore, the accounting treatment of adjustments to base demand revenue and/or allowed revenue is evaluated based on revenue recognition and contingency accounting guidance.
Unlike prior price control reviews, base demand revenue under RIIO-ED1 will be adjusted during the price control period. The most significant of those adjustments are:
Inflation True-Up - The base demand revenue for the RIIO-ED1 period was set in 2012/13 prices. Therefore an inflation factor as determined by forecasted RPI, provided by HM Treasury, is applied to base demand revenue.
Forecasted RPI is trued up to actuals and affects future base demand revenue two regulatory years later. This revenue change is called the "TRU" adjustment.
Annual Iteration Process - The RIIO-ED1 price control period also includes an Annual Iteration Process (AIP). This will allow future base demand revenues agreed with the regulator as part of the price control review to be updated during the price control period for financial adjustments including tax, pensions and cost of debt, legacy price control adjustments from preceding price control periods and adjustments relating to actual and allowed total expenditure together with the Totex Incentive Mechanism (TIM). Under the TIM, WPD's DNOs are able to retain 70% of any amounts not spent against the RIIO-ED1 plan and bear 70% of any over-spends. The AIP calculates an incremental change to base demand revenue, known as the "MOD" adjustment.
As both MOD and TRU are changes to future base demand revenues as determined by Ofgem, under applicable GAAP, these adjustments are recognized as a component of revenues in future years in which service is provided and revenues are collected or returned to customers.
In addition to base demand revenue, certain other items are added or subtracted to arrive at allowed revenue. The most significant of these are:
Incentives - Ofgem has established incentives to provide opportunities for DNO's to enhance overall returns by improving network efficiency, reliability and customer service. Based on applicable GAAP, incentive revenues are not recorded as assets and are included in revenues when they are billed to customers.
DPCR4 Line Loss Adjustment - For regulatory years 2015/16 through 2018/19 allowed revenue will also be reduced to reflect Ofgem's final decision on the DPCR4 line loss incentives and penalties mechanism. WPD has a liability recorded related to this future revenue reduction and, therefore, this will not impact future earnings. See Note 6 for additional information.
WPD's revenue is primarily from charges to suppliers to use its distribution system to deliver electricity to the end-user.Correction Factor - During the price control period, WPD's revenue is decoupled from volume.WPD sets its tariffs to recover allowed revenue. However, in any fiscal period, WPD's revenue could be negatively affected if its tariffs and the volume delivered do not fully recover the revenue allowed revenue for a particular period. Conversely, WPD could also over-recover revenue. Over and under-recoveries are subtracted from or added or subtracted to the base demandallowed revenue in future years. years, known as the "Correction Factor" or "K-factor." Over and under-recovered amounts arising for the periods beginning with the 2014/15 regulatory year and refunded/recovered under RIIO-ED1 will be refunded/recovered on a two year lag (previously one year). Therefore the 2014/15 over/under-recovery adjustment will occur in the 2016/17 regulatory year.
Under applicable GAAP, WPD does not record a receivable for under-recoveries, but does record a liability for over-recoveries. K-factor is measured as of the end of the regulatory year, March 31. While WPD estimates over-recoveries and records a liability when it is not subject to accounting forprobable that there will be an over-recovered position at the effectsend of certain typesthe regulatory-year, weather-related volume changes and other factors such as sales mix can affect the over or under-recovery between the end of regulation as prescribed by GAAPPPL's calendar year and does not recordthe end of the regulatory assets and liabilities.year.
(PPL and PPL Energy Supply)
PPL Energy Supply records non-derivative energy marketing activity in the period when the energy is delivered. Generally, sales contracts held for non-trading purposes are reported gross on the Statements of Income within "Unregulated wholesale energy" and "Unregulated retail energy." However, non-trading physical sales and purchases of electricity at major market delivery points (which is any delivery point with liquid pricing available, such as the pricing hub for PJM West), are netted and reported in the Statements of Income within "Unregulated wholesale energy" or "Energy purchases," depending on the net hourly position. Certain energy and energy-related contracts that meet the definition of derivative instruments are recorded at fair value with subsequent changes in fair value recognized as revenue or expense (see Note 17), unless hedge accounting is applied or NPNS is elected. If derivatives meet cash flow hedging criteria, changes in fair value are recorded in
AOCI. The unrealized and realized results of derivative and non-derivative contracts that are designated as proprietary trading activities are reported net on the Statements of Income within "Unregulated wholesale energy."
"Energy-related businesses" revenue primarily includes revenue from PPL Energy Supply's mechanical contracting and engineering subsidiaries. These subsidiaries record revenue from construction contracts on the percentage-of-completion method of accounting, measured by the actual cost incurred to date as a percentage of the estimated total cost for each contract. Accordingly, costs and estimated earnings in excess of billings on uncompleted contracts are recorded within "Unbilled revenues" on the Balance Sheets, and billings in excess of costs and estimated earnings on uncompleted contracts are recorded within "Other current liabilities" on the Balance Sheets. The amount of costs and estimated earnings in excess of billings was $20 million and $14 million at December 31, 2014 and 2013, and the amount of billings in excess of costs and estimated earnings was $41 million and $75 million at December 31, 2014 and 2013.
During 2014, PPL and PPL Energy Supply recorded a $17 million increase to "Energy-related businesses" revenues and "Income from Continuing Operations before Income Taxes" on the 2014 Statement of Income related to prior periods and the timing of revenue recognition for a mechanical contracting and engineering subsidiary. The $10 million after-tax impact of correcting this error increased "Income from Continuing Operations after Income Taxes" and "Net Income" on the 2014 Statement of Income. The impact of the error is not material to the previously-issued financial statements or to the full year results for 2014.
(All Registrants)
Accounts receivable are reported on the Balance Sheets at the gross outstanding amount adjusted for an allowance for doubtful accounts. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition.
(PPL PPL Energy Supply and PPL Electric)
In accordance with a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers (including PPL EnergyPlus) at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. The purchased accountsAccounts receivable that are acquired are initially recorded at fair value using a market approach based on the purchase price paiddate of acquisition. During 2016, 2015 and are classified as Level 2 in the fair value hierarchy. During 2014, 2013 and 2012, PPL Electric purchased $1.4 billion, $1.3 billion and $1.1 billion $985 million and $848 million of accounts receivable from unaffiliated third parties. During 2014, 20132015 and 2012,2014, PPL Electric purchased $336 million, $294$146 million and $313$336 million of accounts receivable from PPL EnergyPlus. PPL Electric's purchases from PPL EnergyPlus for 2015 include purchases through May 31, 2015, which is the period during which PPL Electric and PPL EnergyPlus were affiliated entities. As a result of the June 1, 2015 spinoff of PPL Energy Supply and creation of Talen Energy, PPL EnergyPlus (renamed Talen Energy Marketing) is no longer an affiliate of PPL Electric. PPL Electric's purchases from Talen Energy Marketing subsequent to May 31, 2015 are included as purchases from unaffiliated third parties.
Allowance for Doubtful Accounts
(All Registrants)
Accounts 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, counterparty creditworthiness and economic conditions.receivable. Specific events, such as bankruptcies, are also considered.considered when applicable. Adjustments to the allowance for doubtful accounts are made when necessary based on the results of analysis, the aging of receivables and historical and industry trends.
Accounts receivable are written off in the period in which the receivable is deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when it is known they will be received.
The changes in the allowance for doubtful accounts were: |
| | | | | | | | | | | | | | | | | | | |
| | | | Additions | | | | |
| | Balance at Beginning of Period | | Charged to Income | | Charged to Other Accounts | | Deductions (a) | | Balance at End of Period |
| PPL | | | | | | | | | |
| 2016 | $ | 41 |
| | $ | 44 |
| | $ | — |
| | $ | 31 |
| | $ | 54 |
|
| 2015 | 44 |
| | 49 |
| | (2 | ) | | 50 |
| | 41 |
|
| 2014 | 43 |
| | 49 |
| | — |
| | 48 |
| | 44 |
|
| | | | | | | | | | |
| PPL Electric | | | | | | | | | |
| 2016 | $ | 16 |
| | $ | 35 |
| | $ | — |
| | $ | 23 |
| | $ | 28 |
|
| 2015 | 17 |
| | 39 |
| | — |
| | 40 |
| | 16 |
|
| 2014 | 18 |
| | 34 |
| | — |
| | 35 |
| | 17 |
|
| | | | | | | | | | |
| LKE | | | | | | | | | |
| 2016 | $ | 23 |
| | $ | 8 |
| | $ | — |
| | $ | 7 |
| | $ | 24 |
|
| 2015 | 25 |
| | 9 |
| | (2 | ) | | 9 |
| | 23 |
|
| 2014 | 22 |
| | 14 |
| | — |
| | 11 |
| | 25 |
|
| | | | | | | | | | |
| LG&E | | | | | | | | | |
| 2016 | $ | 1 |
| | $ | 2 |
| | $ | 1 |
| | $ | 2 |
| | $ | 2 |
|
| 2015 | 2 |
| | 2 |
| | — |
| | 3 |
| | 1 |
|
| 2014 | 2 |
| | 5 |
| | (1 | ) | | 4 |
| | 2 |
|
| | | | | | | | | | |
| KU | | | | | | | | | |
| 2016 | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 4 |
| | $ | 2 |
|
| 2015 | 2 |
| | 5 |
| | — |
| | 5 |
| | 2 |
|
| 2014 | 4 |
| | 8 |
| | (3 | ) | | 7 |
| | 2 |
|
| | | | | | | Additions | | | | | | | | | |
| | | Balance at | | | | Charged to | | | | | | Balance at |
| | | Beginning of Period | | Charged to Income | | Other Accounts | | Deductions (a) | | End of Period |
| PPL | | | | | | | | | | | | | | | | | | | | |
| 2014 | | $ | 64 | | | $ | 49 | | | | | | | $ | 67 | | | $ | 46 | |
| 2013 | | | 64 | | | | 39 | | | $ | 4 | (c) | | | 43 | | | | 64 | |
| 2012 | | | 54 | | | | 55 | (b) | | | | | | | 45 | | | | 64 | |
| | | | | | | | | | | | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | | | | | | | | | | | | |
| 2014 | | $ | 21 | | | | | | | | | | | $ | 19 | (b) | | $ | 2 | |
| 2013 | | | 23 | | | $ | 1 | | | | | | | | 3 | | | | 21 | |
| 2012 | | | 15 | | | | 12 | (b) | | | | | | | 4 | | | | 23 | |
| | | | | | | Additions | | | | | | | | | |
| | | Balance at | | | | Charged to | | | | | | Balance at |
| | | Beginning of Period | | Charged to Income | | Other Accounts | | Deductions (a) | | End of Period |
| PPL Electric | | | | | | | | | | | | | | | | | | | | |
| 2014 | | $ | 18 | | | $ | 34 | | | | | | | $ | 35 | | | $ | 17 | |
| 2013 | | | 18 | | | | 32 | | | | | | | | 32 | | | | 18 | |
| 2012 | | | 17 | | | | 32 | | | | | | | | 31 | | | | 18 | |
| | | | | | | | | | | | | | | | | | | | | |
| LKE | | | | | | | | | | | | | | | | | | |
| 2014 | | $ | 22 | | | $ | 14 | | | | | | | $ | 11 | | | $ | 25 | |
| 2013 | | | 19 | | | | 4 | | | $ | 4 | (c) | | | 5 | | | | 22 | |
| 2012 | | | 17 | | | | 9 | | | | | | | | 7 | | | | 19 | |
| | | | | | | | | | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | | | | | | | | |
| 2014 | | $ | 2 | | | $ | 5 | | | $ | (1) | (c) | | $ | 4 | | | $ | 2 | |
| 2013 | | | 1 | | | | 2 | | | | 1 | (c) | | | 2 | | | | 2 | |
| 2012 | | | 2 | | | | 2 | | | | | | | | 3 | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | | | | | | | | |
| 2014 | | $ | 4 | | | $ | 8 | | | $ | (3) | (c) | | $ | 7 | | | $ | 2 | |
| 2013 | | | 2 | | | | 3 | | | | 3 | (c) | | | 4 | | | | 4 | |
| 2012 | | | 2 | | | | 4 | | | | | | | | 4 | | | | 2 | |
| |
| (a) | Primarily related to uncollectible accounts written off. |
(b) | In 2011, a wholesale customer, SMGT, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy code. In 2012, PPL EnergyPlus recorded an additional allowance for unpaid amounts under the long-term power contract and the U.S. Bankruptcy Court for the District of Montana approved a request to terminate the contract. In 2014, PPL EnergyPlus received an insignificant amount of cash, settling the outstanding administrative claim and therefore, the related reserve balance was offset against the accounts receivable balance. |
(c) | Primarily related to capital projects, thus the provision was recorded as an adjustment to construction work in progress. |
Cash Equivalents(All Registrants)
Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.
Restricted Cash and Cash Equivalents(PPL, PPL Energy Supply and PPL Electric)
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 and cash equivalents. The change in restricted cash and cash equivalents is reported as an investing activity on the Statements of Cash Flows. On the Balance Sheets, the current portion of restricted cash and cash equivalents is shown as "Restricted cash and cash equivalents" for PPL and PPL Energy Supply and included in "Other current assets" for PPL Electric,assets," while the noncurrent portion is included in "Other noncurrent assets" for all three Registrants. assets."
At December 31, the balances of restricted cash and cash equivalents included the following.
| | | | | PPL | | PPL Energy Supply | | PPL Electric |
| | | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | |
| Margin deposits posted to | | | | | | | | | | | | | | | | | | |
| | counterparties | | $ | 175 | | $ | 67 | | $ | 175 | | $ | 67 | | | | | | |
| Low carbon network fund (a) | | | 19 | | | 27 | | | | | | | | | | | | |
| Funds deposited with a trustee | | | | | | 12 | | | | | | | | | | | $ | 12 |
| Ironwood debt service reserves | | | 17 | | | 17 | | | 17 | | | 17 | | | | | | |
| Other | | | 13 | | | 11 | | | 1 | | | 1 | | $ | 3 | | | |
| | | | | $ | 224 | | $ | 134 | | $ | 193 | | $ | 85 | | $ | 3 | | $ | 12 |
|
| | | | | | | | | | | | | | | |
| | PPL | | PPL Electric |
| | 2016 | | 2015 | | 2016 | | 2015 |
| Low carbon network fund (a) | $ | 17 |
| | $ | 22 |
| | $ | — |
| | $ | — |
|
| Other | 9 |
| | 11 |
| | 2 |
| | 2 |
|
| Total | $ | 26 |
| | $ | 33 |
| | $ | 2 |
| | $ | 2 |
|
| |
| (a) | Funds received by WPD, which are to be spent on approved initiatives to support a low carbon environment. |
Fair Value Measurements(All Registrants)
The Registrants value certain financial and nonfinancial assets and liabilities at fair value. Generally, the most significant fair value measurements relate to price risk management assets and liabilities, investments in securities including investments in the NDT funds and defined benefit plans, and cash and cash equivalents. PPL and its subsidiaries use, as appropriate, 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) to measure the fair value of an asset or liability.
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 Registrants classify fair value measurements within one of three levels in the fair value hierarchy. The level assigned to a fair value measurement is based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:
· | Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
· | Level 2 - inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for substantially the full term of the asset or liability. |
· | Level 3- unobservable inputs that management believes are predicated on the assumptions market participants would use to measure the asset or liability at fair value. |
Assessing the significance of a particular input requires judgment that considers factors specific to the asset or liability. As such, the Registrants' assessment of the significance of a particular input may affect how the assets and liabilities are classified within the fair value hierarchy.
(All Registrants)
Generally, the original maturity date of an investment and management's intent and ability to sell an investment prior to its original maturity determine the classification of investments as either short-term or long-term. Investments that would otherwise be classified as short-term, but are restricted as to withdrawal or use for other than current operations or are clearly designated for expenditure in the acquisition or construction of noncurrent assets or for the liquidation of long-term debts, are classified as long-term.
Short-term Investments
Short-term investments generally include certain deposits as well as securities that are considered highly liquid or provide for periodic reset of interest rates. Investments with original maturities greater than three months and less than a year, as well as investments with original maturities of greater than a year that management has the ability and intent to sell within a year, are included in "Short-term investments" ("Other"Other current assets" if not material) on the Balance Sheets.
Investments in Debt and Equity Securities
Investments in debt securities are classified as held-to-maturity and measured at amortized cost when there is an intent and ability to hold the securities to maturity. Debt and equity securities held principally to capitalize on fluctuations in their value with the intention of selling them in the near-term are classified as trading. All other investments in debt and equity securities are classified as available-for-sale. Both trading and available-for-sale securities are carried at fair value. The specific identification method is used to calculate realized gains and losses on debt and equity securities. Any unrealized gains and losses on trading securities are included in earnings.
The criteria for determining whether a decline in fair value of a debt security is other than temporary and whether the other-than-temporary impairment is recognized in earnings or reported in OCI require that when a debt security is in an unrealized loss position and:
· | there is an intent or a requirement to sell the security before recovery, the other-than-temporary impairment is recognized currently in earnings; or |
· | there is no intent or requirement to sell the security before recovery, the portion of the other-than-temporary impairment that is considered a credit loss, if any, is recognized currently in earnings and the remainder of the other-than-temporary impairment is reported in OCI, net of tax. |
Unrealized gains and losses on available-for-sale equity securities are reported, net of tax, in OCI. When an equity security's decline in fair value below cost is determined to be an other-than-temporary impairment, the unrealized loss is recognized currently in earnings. See Notes 16 and 20 for additional information on investments in debt and equity securities.
Equity Method Investment(PPL, LKE and KU)
Investments in entities over which PPL, LKE and KU have the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting and are reported in "Other Investments" on PPL's Balance Sheet and in "Other noncurrent assets" on LKE's and KU's Balance Sheets. In accordance with the accounting guidance for equity method investments, the recoverability of the investment is periodically assessed. If an identified event or change in circumstances requires an impairment evaluation, the fair value of the investment is assessed. The difference between the carrying amount of the investment and its estimated fair value is recognized as an impairment loss when the loss in value is deemed other-than-temporary and such loss is included in "Other-Than-Temporary Impairments" on the Statements of Income.
KU owns 20% of the common stock of EEI, which is accounted for as an equity method investment. During 2012, KU recorded losses of $8 million from its share of EEI's operating results. In December 2012, KU concluded that an other-than-temporary decline in the value of its investment in EEI had occurred. KU recorded an impairment charge of $25 million ($15 million, after-tax) which reduced the investment balance to zero, the estimated fair value at December 31, 2014, 2013 and 2012. See Note 16 for additional information.
Cost Method Investment(LKE, LG&E and KU)
Cost Method Investment
LG&E and KU each have an investment in OVEC, which is accounted for using the cost method. The investment is recorded in "Other noncurrent assets" on the PPL, LKE, LG&E and KU Balance Sheets and in "Other investments" on the PPL Balance Sheets. LG&E and KU and ten other electric utilities are equity owners of OVEC. OVEC's power is currently supplied to LG&E and KU and 11 other companies affiliated with the various owners. LG&E and KU own 5.63% and 2.5% of OVEC's common stock. Pursuant to a power purchase agreement, LG&E and KU are contractually entitled to their ownership percentage of OVEC's output, which is approximately 120 MW for LG&E and approximately 53 MW for KU.
LG&E's and KU's combined investment in OVEC is not significant. The direct exposure to loss as a result of LG&E's and KU's involvement with OVEC is generally limited to the value of their investments; however, LG&E and KU are conditionally responsible for a pro-rata share of certain OVEC obligations.obligations, pursuant to their power purchase contract with OVEC. As part of PPL's acquisition of LKE, the value of the power purchase contract was recorded as an intangible asset with an offsetting regulatory liability, both of which are being amortized using the units-of-production method until March 2026, the expiration date of the agreement.2026. See Notes 6, 13 and 18 for additional discussion onof the power purchase agreement.
Long-Lived and Intangible Assets
Property, Plant and Equipment
(All Registrants)
PP&E is recorded at original cost, unless impaired. PP&E acquired in business combinations is recorded at fair value at the time of acquisition, which establishes its original cost.acquisition. If impaired, the asset is written down to fair value at that time, which becomes the new cost basis of the asset. Original cost for constructed assets includes material, labor, contractor costs, certain overheads and financing costs, where applicable. The cost of repairs and minor replacements are charged to expense as incurred. The Registrants record costs associated with planned major maintenance projects in the period in which the costs are incurred. No costs associated with planned major maintenance projects are accrued to PP&E in advance of the period in which the work is performed. LG&E and KU accrue costs of removal net of estimated salvage value through depreciation, which is included in the calculation of customer rates over the assets' depreciable lives in accordance with regulatory practices. Cost of removal amounts accrued through depreciation rates are accumulated as a regulatory liability until the removal costs are incurred. For LKE, LG&E and KU, all ARO depreciation expenses are reclassified to a regulatory asset. See "Asset Retirement Obligations" below and Note 6 for additional information. PPL Electric records net costcosts of removal when incurred as a regulatory asset. The regulatory asset is subsequently amortized through depreciation over a five-year period, which is recoverable in customer rates in accordance with regulatory practices.
(All Registrants except PPL Energy Supply)
AFUDC is capitalized at PPL Electric as part of the construction costs for cost-based rate-regulated projects for which a return on such costs is recovered after the project is placed in service. The debt component of AFUDC is credited to "Interest Expense" and the equity component is credited to "Other Income (Expense) - net" on the Statements of Income. LG&E and KU generally do not record AFUDC, except for certain instances in KU's FERC approved rates charged to its municipal customers, as a return is provided on construction work in progress.
((PPL)
PPL and PPL Energy Supply)
Nuclear fuel-related costs, including fuel, conversion, enrichment, fabrication and assemblies, are capitalized as PP&E. Such costs are amortized as the fuel is spent using the units-of-production method and included in "Fuel" on the Statements of Income.
PPL and PPL Energy Supply capitalizecapitalizes interest costs as part of construction costs. Capitalized interest, excludingincluding the debt component of AFUDC for PPL, was as follows. follows:
| | | | | | PPL |
| | | PPL | | Energy Supply |
| | | | | | | |
| 2014 | | $ | 34 | | $ | 23 |
| 2013 | | | 46 | | | 37 |
| 2012 | | | 53 | | | 47 |
(All Registrants)
Depreciation is recorded over the estimated useful lives of property using various methods including the straight-line, composite and group methods. When a component of PP&E that was depreciated under the composite or group method is retired, the original cost is charged to accumulated depreciation. When all or a significant portion of an operating unit that
was depreciated under the composite or group method is retired or sold, the property and the related accumulated depreciation account is reduced and any gain or loss is included in income, unless otherwise required by regulators.
Following are the weighted-average annual rates of depreciation, atfor regulated utility plant, for the years ended December 31. 31: |
| | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL | 2.73 | % | | 2.57 | % | | 2.92 | % |
| PPL Electric | 2.63 | % | | 2.46 | % | | 2.46 | % |
| LKE | 3.69 | % | | 3.69 | % | | 3.80 | % |
| LG&E | 3.58 | % | | 3.65 | % | | 4.05 | % |
| KU | 3.77 | % | | 3.71 | % | | 3.63 | % |
| | | 2014 |
| | | | | | PPL | | | | | | | | | | | | |
| | | | | | Energy | | PPL | | | | | | | | |
| | | PPL | | Supply | | Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | | | |
| Regulated utility plant | | | 2.92 | | | | | | 2.46 | | | | 3.80 | | | 4.05 | | | 3.63 |
| Non-regulated PP&E - Generation | | | 3.28 | | | 3.28 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2013 |
| | | | | | PPL | | | | | | | | | | | | |
| | | | | | Energy | | PPL | | | | | | | | |
| | | PPL | | Supply | | Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | | | |
| Regulated utility plant | | | 2.94 | | | | | | 2.61 | | | | 4.07 | | | 4.52 | | | 3.77 |
| Non-regulated PP&E - Generation | | | 3.10 | | | 3.10 | | | | | | | | | | | | | |
(PPL)
The KPSC approved new lower depreciation rates for LG&E and KU as part of the rate-case settlement agreement reached in November 2012. Effective January 1, 2013,2015, after completing a review of the new ratesuseful lives of its distribution network assets, WPD extended the weighted average useful lives of these assets to 69 years from 55 years for GAAP reporting of depreciation expense. For 2015, this change in useful lives resulted in annual reductions inlower depreciation expense compared with 2014 of approximately $22$84 million ($866 million for LG&E and $14 million for KU)after-tax or $0.10 per share).
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net assets acquired in a business combination.
Other acquired intangible assets are initially measured based on their fair value. Intangibles that have finite useful lives are amortized over their useful lives based upon the pattern in which the economic benefits of the intangible assets are consumed or otherwise used. Costs incurred to obtain an initial license and renew or extend terms of licenses are capitalized as intangible assets.
When determining the useful life of an intangible asset, including intangible assets that are renewed or extended, PPL and its subsidiaries consider the expected use of the asset; the expected useful life of other assets to which the useful life of the intangible asset may relate; legal, regulatory, or contractual provisions that may limit the useful life; the company's historical experience as evidence of its ability to support renewal or extension; the effects of obsolescence, demand, competition, and other economic factors; and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.
PPL and PPL Energy Supply account for RECs as intangible assets. PPL and PPL Energy Supply buy and/or sell RECs and also create RECs through owned renewable energy generation facilities. In any period, PPL and PPL Energy Supply can be a net purchaser or seller of RECs depending on their contractual obligations to purchase or deliver RECs and the production of RECs from their renewable energy generation facilities. The carrying value of RECs created from their renewable energy generation facilities is initially recorded at zero value and purchased RECs are initially recorded based on their purchase price. When RECs are consumed to satisfy an obligation to deliver RECs to meet a state's Renewable Portfolio Standard Obligation or when RECs are sold to third parties, they are removed from the Balance Sheet at their weighted-average carrying value. Since the economic benefits of RECs are not diminished until they are consumed, RECs are not amortized; rather, they are expensed when consumed or a gain or loss is recognized when sold. Such expense is included in "Energy purchases" on the Statements of Income. Gains and losses on the sale of RECs are included in "Other operation and maintenance" on the Statements of Income.
PPL, PPL Energy Supply, LKE, LG&E and KU account for emission allowances as intangible assets. PPL, PPL Energy Supply, LKE, LG&E and KU are allocated emission allowances by states based on their generation facilities' historical emissions experience, and have purchased emission allowances generally when it is expected that additional allowances will be needed. The carrying value of allocated emission allowances is initially recorded at zero value and purchased allowances are initially recorded based on their purchase price. When consumed or sold, emission allowances are removed from the Balance Sheet at their weighted-average carrying value. Since the economic benefits of emission allowances are not diminished until they are consumed, emission allowances are not amortized; rather, they are expensed when consumed or a gain or loss is recognized when sold. Such expense is included in "Fuel" on the Statements of Income. Gains and losses on the sale of emission allowances are included in "Other operation and maintenance" on the Statements of Income.
Asset Impairment (Excluding Investments)
The Registrants review long-lived assets that are subject to depreciation or amortization, including finite-lived intangibles, for impairment when events or circumstances indicate carrying amounts may not be recoverable.
A long-lived asset classified as held and used is impaired when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If impaired, the asset's carrying value is written down to its fair value. See Note 16 for a discussion of asset impairments, including the Corette coal-fired plant and the Kerr Dam Project, both in Montana.
A long-lived asset classified as held for sale is impaired when the carrying amount of the asset (disposal group) exceeds its fair value less cost to sell. If impaired, the asset's (disposal group's) carrying value is written down to its fair value less cost to sell.
The depressed level of energy and capacity prices in PJM, as well as management's forward view of these prices using its fundamental pricing models, has put pressure on the recoverability assessment of PPL Energy Supply's investment in its Pennsylvania coal-fired generation assets. In the fourth quarter of 2013, after updating its fundamental pricing models in conjunction with the annual business planning process, management tested the Brunner Island and Montour plants for impairment and concluded neither plant was impaired as of December 31, 2013. The recoverability assessment is very sensitive to forward energy and capacity price assumptions as well as forecasted operation and maintenance and capital spending. Therefore, a further decline in forecasted long-term energy or capacity prices or changes in environmental laws requiring additional capital or operations and maintenance expenditures, could negatively impact PPL Energy Supply's operations of these facilities and potentially result in future impairment charges for some or all of the carrying value of these plants. There were no events or changes in circumstances that indicated a recoverability assessment was required to be
PPL, PPL Energy Supply, 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. Additionally, goodwill must be tested for impairment in circumstances when a portion of goodwill has been allocated to a business to be disposed. PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's reporting units are at the operating segment level.
PPL, PPL Energy Supply, LKE, LG&E and KU may elect either to initially make a qualitative evaluation about the likelihood of an impairment of goodwill or to bypass the qualitative evaluation and test goodwill for impairment using a two-step quantitative test. If the qualitative evaluation (referred to as "step zero") is elected and the assessment results in a determination that it is not more likely than not that the fair value of a reporting unit is less than the carrying amount, the two-step quantitative impairment test is not necessary. However, the quantitative impairment test is required if management concludes it is more likely than not that the fair value of a reporting unit is less than the carrying amount based on the step zero assessment.
If the carrying amount of the reporting unit, including goodwill, exceeds its fair value, the implied fair value of goodwill must be calculated in the same manner as goodwill in a business combination. The fair value of a reporting unit is allocated to all assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the implied fair value of goodwill is less than the carrying amount, goodwill is written down to its implied fair value.
PPL (for its U.K. Regulated and Kentucky Regulated segments), and individually, LKE, LG&E and KU elected to perform the qualitative step zero evaluation of goodwill in the fourth quarter of 20142016. These evaluations considered the excess of fair value over the carrying value of each reporting unit that was calculated during step one of the quantitative impairment tests performed in the fourth quarter of 2015, and determinedthe relevant events and circumstances that occurred since those tests were performed including:
current year financial performance versus the prior year,
changes in planned capital expenditures,
the consistency of forecasted free cash flows,
earnings quality and sustainability,
changes in market participant discount rates,
changes in long-term growth rates,
changes in PPL's market capitalization, and
the overall economic and regulatory environments in which these regulated entities operate.
Based on these evaluations, management concluded it was not more likely than not that the fair valuesvalue of theirthese reporting units werewas less than their carrying values.
PPL, for its Supply segment, and PPL Energy Supply elected to bypass step zero and quantitatively testedvalue. As such, the goodwill of these reporting units fortwo-step quantitative impairment in the fourth quarter of 2014test was not performed and no impairment was recognized.
(PPL, LKE, LG&E and KU)
Asset Retirement Obligations
PPL and its subsidiaries record liabilities to reflect various legal obligations associated with the retirement of long-lived assets. Initially, this obligation is measured at fair value and offset with an increase in the value of the capitalized asset, which is depreciated over the asset's useful life. Until the obligation is settled, the liability is increased through the recognition of accretion expense classified within "Other operation and maintenance" on the Statements of Incometo reflect changes in the obligation due to the passage of time. TheFor LKE, LG&E and KU, all ARO accretion and depreciation expenses recorded by LG&E and KU are recordedreclassified as a regulatory asset. ARO regulatory assets associated with approved ECR projects for CCRs are amortized to expense over a period of 10 to 25 years based on retirement expenditures made related to the obligations. For other AROs, at the time of retirement, the related ARO regulatory asset such that there is no earnings impact.offset against the associated cost of removal regulatory liability, PP&E and ARO liability.
Estimated ARO costs and settlement dates, which affect the carrying value of the ARO and the related capitalized asset, are reviewed periodically to ensure that any material changes are incorporated into the latest estimate of the ARO. Any change to the capitalized asset, positive or negative, is generally amortized over the remaining life of the associated long-lived asset. See Note 19 for additional information on AROs.
Compensation and Benefits
Defined Benefits (All Registrants)
Certain PPL subsidiaries sponsor various defined benefit pension and other postretirement plans. An asset or liability is recorded to recognize the funded status of all defined benefit plans with an offsetting entry to AOCI or, for LG&E, KU and PPL Electric, to regulatory assets or liabilities. Consequently, the funded status of all defined benefit plans is fully recognized on the Balance Sheets.
The expected return on plan assets is determined based on a market-related value of plan assets, which is calculated by rolling forward the prior year market-related value with contributions, disbursements and long-term expected return on investments. One-fifth of the difference between the actual value and the expected value is added (or subtracted if negative) to the expected value to determine the new market-related value.
PPL uses an accelerated amortization method for the recognition of gains and losses for its defined benefit pension plans. Under the accelerated method, actuarial gains and losses in excess of 30% of the plan's projected benefit obligation are amortized on a straight-line basis over one-half of the expected average remaining service of active plan participants. Actuarial gains and losses in excess of 10% of the greater of the plan's projected benefit obligation or the market-related value of plan assets and less than 30% of the plan's projected benefit obligation are amortized on a straight-line basis over the expected average remaining service period of active plan participants.
See Note 6 for a discussion of the regulatory treatment of defined benefit costs and Note 11 for a discussion of defined benefits.
Discount Rate Change for U.K. Pension Plans(PPL) In selecting the discount rate for its U.K. pension plans, WPD historically used a single weighted-average discount rate in the calculation of net periodic defined benefit cost. WPD began using individual spot rates to measure service cost and interest cost for the calculation of net periodic defined benefit cost in 2016. In 2016, this change in discount rate resulted in lower net periodic defined benefit costs recognized on PPL's Statement of Income of $43 million ($34 million after-tax or $0.05 per share).
See Note 11 for additional information.
Stock-Based Compensation(PPL, PPL Electric and LKE)
(All Registrants except LG&E and KU)
PPL has several stock-based compensation plans for purposes of granting stock options, restricted stock, restricted stock units and performance units to certain employees as well as stock units and restricted stock units to directors. PPL grants most stock-based awards in the first quarter of each year. PPL and its subsidiaries recognize compensation expense for stock-based awards based on the fair value method. Stock options that vest in installmentsForfeitures of awards are valued as a single award. PPL grants stock options with an exercise price that is not less than the fair value of PPL's common stock on the date of grant.recognized when they occur. See Note 10 for a discussion of stock-based compensation. All awards are recorded as equity or a liability on the Balance Sheets. Stock-based compensation is primarily included in "Other operation and maintenance" on the Statements of Income. Stock-based compensation expense for PPL Energy Supply, PPL Electric and LKE includes an allocation of PPL Services' expense.
Income Taxes
(All Registrants)
PPL and its domestic subsidiaries file a consolidated U.S. federal income tax return.
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 in tax returns, valuation allowances on deferred tax assets and whether the undistributed earnings of WPD are considered indefinitely reinvested.
Significant management judgment is also required to determine the amount of benefit to be recognized in relation to an uncertain tax position. The Registrants use a two-step process to evaluate tax positions. The first step requires an entity to determine whether, based on the technical merits supporting a particular tax position, it is more likely than not (greater than a 50% chance) that the tax position will be sustained. This determination assumes that the relevant taxing authority will examine
the tax position and is aware of all the relevant facts surrounding the tax position. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The benefit recognized is measured at the largest amount of benefit that has a likelihood of realization, upon settlement, that exceeds 50%. 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 of the Registrants in future periods.
Deferred income taxes reflect the net future tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes, as well as the tax effects of net operating losses and tax credit carryforwards.
The Registrants record valuation allowances to reduce deferred tax assets to the amounts that are more likely than not to be realized. The Registrants consider the reversal of temporary differences, future taxable income and ongoing prudent and feasible tax planning strategies in initially recording and subsequently reevaluating the need for valuation allowances. If the Registrants determine that they are able to realize deferred tax assets in the future in excess of recorded net deferred tax assets, adjustments to the valuation allowances increase income by reducing tax expense in the period that such determination is made. Likewise, if the Registrants determine that they are not able to realize all or part of net deferred tax assets in the future, adjustments to the valuation allowances would decrease income by increasing tax expense in the period that such determination is made.
The Registrants defer investment tax credits when the credits are utilized and amortize the deferred amounts over the average lives of the related assets.
The Registrants recognize interest and penalties in "Income Taxes" on their Statements of Income.
The Registrants record the receipt of grants related to assets as a reduction to the book basis of the property and the related deferred income taxes as an immediate reduction to income tax expense.
See Note 5 for additional discussion regarding income taxes including management's conclusion that the undistributed earnings of WPD are considered indefinitely reinvested. Based on this conclusion, PPL Global does not record U.S. taxes on WPD's undistributed earnings.
(All Registrants except PPL Energy Supply)
The provision for PPL's, PPL PPL Electric, LKE,Electric's, LKE's, LG&E&E's and KU's deferred income taxes for regulated assets is based upon the ratemaking principles reflected in rates established by the regulators. The difference in the provision for deferred income taxes for regulated assets and the amount that otherwise would be recorded under GAAP is deferred and included on the Balance Sheet in noncurrent "Regulatory assets" or "Regulatory liabilities."
(All Registrants except PPL)
PPL Electric, LKE, LG&E and KU)
The income tax provision for PPL Energy Supply, PPL Electric, LKE, LG&E and KU is calculated in accordance with an intercompany tax sharing agreement, which provides that taxable income be calculated as if PPL Energy Supply, PPL Electric, LKE, LG&E, KU and any domestic subsidiaries each filed a separate return. Tax benefits are not shared between companies. The entity that generates a tax benefit is the entity that is entitled to the tax benefit. The effect of PPL filing a consolidated tax return is taken into account in the settlement of current taxes and the recognition of deferred taxes.
At December 31, the following intercompany tax receivables (payables) were recorded. recorded:
|
| | | | | | | |
| | 2016 | | 2015 |
| PPL Electric | $ | 13 |
| | $ | 56 |
|
| LKE | 1 |
| | (10 | ) |
| LG&E | (18 | ) | | 4 |
|
| KU | (29 | ) | | (5 | ) |
| | | 2014 | | 2013 |
| | | | | | | |
| PPL Energy Supply | | $ | 105 | | $ | 44 |
| PPL Electric | | | (25) | | | (19) |
| LKE | | | 136 | | | (28) |
| LG&E | | | 74 | | | (8) |
| KU | | | 60 | | | (27) |
Taxes, Other Than Income (All Registrants)
The Registrants present sales taxes in "Other current liabilities" and PPL presents value-added taxes in "Taxes" on the Balance Sheets. These taxes are not reflected on the Statements of Income. See Note 5 for details on taxes included in "Taxes, other than income" on the Statements of Income.
LeasesOther
(All Registrants)
The Registrants evaluate whether arrangements entered into contain leases for accounting purposes. See Note 9 for a discussion of arrangements under which PPL Energy Supply, LG&E and KU are lessees for accounting purposes. additional information.
Fuel, Materials and Supplies
(All Registrants)
Fuel, natural gas stored underground and materials and supplies are valued at the lower of cost or market using the average cost method. Fuel costs for electric generation are charged to expense as used. For LG&E, natural gas supply costs are charged to expense as delivered to the distribution system. See Note 6 for further discussion of the fuel adjustment clause and gas supply clause.
(All Registrants except PPL, Electric)LKE, LG&E and KU)
"Fuel, materials and supplies" on the Balance Sheets consisted of the following at December 31.
| | | | | | PPL | | PPL Energy Supply | | LKE | | LG&E | | KU |
| | | | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fuel | | $ | 408 | | $ | 305 | | $ | 243 | | $ | 163 | | $ | 166 | | $ | 141 | | $ | 66 | | $ | 64 | | $ | 100 | | $ | 77 |
| Natural gas stored underground (a) | | | 62 | | | 49 | | | 7 | | | 2 | | | 54 | | | 48 | | | 54 | | | 48 | | | | | | |
| Materials and supplies | | | 366 | | | 348 | | | 205 | | | 193 | | | 91 | | | 89 | | | 42 | | | 42 | | | 49 | | | 47 |
| | | Total | | $ | 836 | | $ | 702 | | $ | 455 | | $ | 358 | | $ | 311 | | $ | 278 | | $ | 162 | | $ | 154 | | $ | 149 | | $ | 124 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | PPL | | LKE | | LG&E | | KU |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Fuel | $ | 158 |
| | $ | 168 |
| | $ | 158 |
| | $ | 168 |
| | $ | 60 |
| | $ | 71 |
| | $ | 98 |
| | $ | 97 |
|
| Natural gas stored underground (a) | 42 |
| | 42 |
| | 42 |
| | 42 |
| | 42 |
| | 42 |
| | — |
| | — |
|
| Materials and supplies | 156 |
| | 147 |
| | 97 |
| | 88 |
| | 41 |
| | 38 |
| | 56 |
| | 50 |
|
| Total | $ | 356 |
| | $ | 357 |
| | $ | 297 |
| | $ | 298 |
| | $ | 143 |
| | $ | 151 |
| | $ | 154 |
| | $ | 147 |
|
| The majority of LKE's and LG&E's natural |
| (a) | Natural gas stored underground is primarily held to serve retail customers. |
Guarantees (All Registrants)
Generally, the initial measurement of a guarantee liability is the fair value of the guarantee at its inception. However, there are certain guarantees excluded from the scope of accounting guidance and other guarantees that are not subject to the initial recognition and measurement provisions of accounting guidance that only require disclosure. See Note 13 for further discussion of recorded and unrecorded guarantees.
Treasury Stock (PPL and PPL Electric) PPL and PPL Electric restore all shares of common stock acquired to authorized but unissued shares of common stock upon acquisition.
Foreign Currency Translation and Transactions (PPL)
WPD's functional currency is the GBP, which is the local currency in the U.K. As such, assets and liabilities are translated to U.S. dollars at the exchange rates on the date of consolidation and related revenues and expenses are generally translated at average exchange rates prevailing during the period included in PPL's results of operations. Adjustments resulting from foreign currency translation are recorded in AOCI.
Gains or losses relating to foreign currency transactions are recognized in "Other Income (Expense) - net" on the Statements of Income. See Note 15 for additional information.
New Accounting Guidance Adopted (All Registrants)
Accounting for Obligations Resulting from Joint and Several Liability ArrangementsStock-Based Compensation
Effective January 1, 2014,2016, the Registrants retrospectively adopted accounting guidance to simplify the accounting for the recognition, measurementshare-based payment transactions. The guidance requires excess tax benefits and disclosure of certain obligations resulting from joint and several liability arrangements when the amount of the obligation is fixed at the reporting date. If the obligation is determinedtax deficiencies to be recorded as income tax benefit or expense on the statement of income, eliminates the requirement that excess tax benefits be realized before companies can recognize them and changes the threshold for statutory income tax withholding requirements to qualify for equity classification to the
maximum statutory tax rates in the scope of this guidance, it will be measured as the sum of the amount the reporting entity agreed to pay on the basis of its arrangements among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors.applicable jurisdictions. This guidance also requires additional disclosures for these obligations.
changes the classification of excess tax benefits to an operating activity and employee taxes paid when shares are withheld to satisfy the employer's statutory income tax withholding obligation to a financing activity on the statement of cash flows and allows entities to make a policy election to either estimate forfeitures or recognize them when they occur. The adoption of this guidance did not have a significanthad the following impacts:
Using the required prospective method of transition, for the year ended December 31, 2016, PPL recorded tax benefits of $10 million ($0.01 per share), and PPL Electric recorded tax benefits of $6 million, related to excess tax benefits for awards that were exercised and vested. These amounts were recorded to "Income Taxes" on the Statements of Income and "Deferred income taxes" on the Balance Sheets. The impact on the Registrants.LKE was not significant.
Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
Effective January 1, 2014, PPL prospectively adopted accounting guidance that requires a cumulative translation adjustment to be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. For the step acquisition of previously held equity method investments that are foreign entities, this guidance clarifies that the amount of accumulated other comprehensive income that is reclassified and included in the calculation of a gain or loss shall include any foreign currency translation adjustment related to that previously held investment.
The initial adoption of this guidance did not have a significant impact on PPL; however, the impact in future periods could be material.
Presentation of Unrecognized Tax Benefits When Net Operating Loss Carryforwards, Similar Tax Losses, or Tax Credit Carryforwards Exist
Effective January 1, 2014, the Registrants prospectively adopted accounting guidance that requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intendelected to use the deferredprospective method of transition for classifying excess tax asset for such purpose,benefits as an Operating activity on the unrecognized tax benefit should be presentedStatement of Cash Flows. The amounts classified as Financing activities in the financial statementsprior periods were not significant.
Upon adoption, using the required modified retrospective method of transition, PPL recorded a cumulative effect adjustment of $7 million to increase "Earnings reinvested" and decrease "Deferred income taxes" on the Balance Sheet related to prior period unrecognized excess tax benefits.
PPL has historically presented employee taxes paid for net settled awards as a liability and should not be combined with deferred tax assets.Financing activity on the Statement of Cash Flows. Therefore, there is no transition impact for this requirement.
The adoptionPPL has elected to recognize forfeitures when they occur. Due to past experience of insignificant forfeitures, there is no transition impact of this guidance did not have a significant impact on the Registrants. policy election.
2. Segment and Related Information
(PPL)
PPL is organized into fourthree segments: U.K. Regulated, Kentucky Regulated and Pennsylvania Regulated and Supply.Regulated. PPL's segments are split between its regulated and competitive businesses with its regulated businesses further segmented by geographic location.
The U.K. Regulated segment consists of PPL Global, which primarily includes WPD's regulated electricity distribution operations, the results of hedging the translation of WPD's earnings from British pound sterlingGBP into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs, and allocatedcertain acquisition-related financing costs.
The Kentucky Regulated segment consists primarily of LKE's regulated electricity generation, transmission and distribution operations of LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment.segment.
The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric.
The Supply segment consists primarily of PPL Energy Supply's wholesale, retail, marketing and trading activities, as well as its competitive generation operations. In addition, certain financing and other costs are allocated to the Supply segment.Pennsylvania Regulated segment.
In June 2014, PPL and PPL Energy Supply, which primarily represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. The transaction is expected to close in the second quarter of 2015. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 for additional information.
"Corporate and Other" primarily includes financing costs incurred at the corporate level that have not been allocated or assigned to the segments, as well as certain other unallocated costs, which is presented to reconcile segment information to PPL's consolidated results.
On June 1, 2015, PPL completed the spinoff of PPL Energy Supply, which substantially represented PPL's Supply segment. As a result of this transaction, PPL no longer has a Supply segment. See Note 8 for additional information.
Financial data for the segments are: for the years ended December 31 are as follows: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Income Statement Data | | | | | |
| Operating Revenues from external customers (a) | | | | | |
| U.K. Regulated | $ | 2,207 |
| | $ | 2,410 |
| | $ | 2,621 |
|
| Kentucky Regulated | 3,141 |
| | 3,115 |
| | 3,168 |
|
| Pennsylvania Regulated | 2,156 |
| | 2,124 |
| | 2,044 |
|
| Corporate and Other | 13 |
| | 20 |
| | 19 |
|
| Total | $ | 7,517 |
| | $ | 7,669 |
| | $ | 7,852 |
|
| Income Statement Data | | 2014 | | 2013 | | 2012 |
| Revenues from external customers by product | | | | | | | | | |
| | | U.K. Regulated | | | | | | | | | |
| | | | Utility service (a) | | $ | 2,573 | | $ | 2,359 | | $ | 2,289 |
| | | | Energy-related businesses | | | 48 | | | 44 | | | 47 |
| | | | | Total | | | 2,621 | | | 2,403 | | | 2,336 |
| | | Kentucky Regulated | | | | | | | | | |
| | | | Utility service (a) | | | 3,168 | | | 2,976 | | | 2,759 |
174
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | | | | | |
| Depreciation | |
| | | | |
|
| U.K. Regulated | $ | 233 |
| | $ | 242 |
| | $ | 337 |
|
| Kentucky Regulated | 404 |
| | 382 |
| | 354 |
|
| Pennsylvania Regulated | 253 |
| | 214 |
| | 185 |
|
| Corporate and Other | 36 |
| | 45 |
| | 47 |
|
| Total | $ | 926 |
| | $ | 883 |
| | $ | 923 |
|
| | | | | | |
| Amortization (b) | |
| | |
| | |
|
| U.K. Regulated | $ | 16 |
| | $ | 6 |
| | $ | 17 |
|
| Kentucky Regulated | 29 |
| | 27 |
| | 25 |
|
| Pennsylvania Regulated | 32 |
| | 26 |
| | 19 |
|
| Corporate and Other | 3 |
| | — |
| | 4 |
|
| Total | $ | 80 |
| | $ | 59 |
| | $ | 65 |
|
| | | | | | |
| Unrealized (gains) losses on derivatives and other hedging activities (c) | | | | | |
|
| U.K. Regulated | $ | 13 |
| | $ | (88 | ) | | $ | (199 | ) |
| Kentucky Regulated | 6 |
| | 11 |
| | 12 |
|
| Total | $ | 19 |
| | $ | (77 | ) | | $ | (187 | ) |
| | | | | | |
| Interest Expense | |
| | |
| | |
|
| U.K. Regulated | $ | 402 |
| | $ | 417 |
| | $ | 461 |
|
| Kentucky Regulated | 260 |
| | 232 |
| | 219 |
|
| Pennsylvania Regulated | 129 |
| | 130 |
| | 122 |
|
| Corporate and Other | 97 |
| | 92 |
| | 41 |
|
| Total | $ | 888 |
| | $ | 871 |
| | $ | 843 |
|
| | | | | | |
| Income from Continuing Operations Before Income Taxes | |
| | |
| | |
|
| U.K. Regulated | $ | 1,479 |
| | $ | 1,249 |
| | $ | 1,311 |
|
| Kentucky Regulated | 640 |
| | 547 |
| | 501 |
|
| Pennsylvania Regulated | 550 |
| | 416 |
| | 423 |
|
| Corporate and Other (d) | (119 | ) | | (144 | ) | | (106 | ) |
| Total | $ | 2,550 |
| | $ | 2,068 |
| | $ | 2,129 |
|
| | | | | | |
| Income Taxes (e) | |
| | |
| | |
|
| U.K. Regulated | $ | 233 |
| | $ | 128 |
| | $ | 329 |
|
| Kentucky Regulated | 242 |
| | 221 |
| | 189 |
|
| Pennsylvania Regulated | 212 |
| | 164 |
| | 160 |
|
| Corporate and Other (d) | (39 | ) | | (48 | ) | | 14 |
|
| Total | $ | 648 |
| | $ | 465 |
| | $ | 692 |
|
| | | | | | |
| Deferred income taxes and investment tax credits (f) | |
| | |
| | |
|
| U.K. Regulated | $ | 31 |
| | $ | 45 |
| | $ | 94 |
|
| Kentucky Regulated | 291 |
| | 236 |
| | 449 |
|
| Pennsylvania Regulated | 221 |
| | 220 |
| | 87 |
|
| Corporate and Other (d) | 17 |
| | (73 | ) | | 36 |
|
| Total | $ | 560 |
| | $ | 428 |
| | $ | 666 |
|
| | | | | | |
| Net Income | |
| | |
| | |
|
| U.K. Regulated | $ | 1,246 |
| | $ | 1,121 |
| | $ | 982 |
|
| Kentucky Regulated | 398 |
| | 326 |
| | 312 |
|
| Pennsylvania Regulated | 338 |
| | 252 |
| | 263 |
|
| Corporate and Other (d) | (80 | ) | | (96 | ) | | (120 | ) |
| Discontinued Operations (g) | — |
| | (921 | ) | | 300 |
|
| Total | $ | 1,902 |
| | $ | 682 |
| | $ | 1,737 |
|
| | | 2014 | | 2013 | | 2012 |
| | | Pennsylvania Regulated | | | | | | | | | |
| | | | Utility service (a) | | | 2,044 | | | 1,866 | | | 1,760 |
| | | Supply | | | | | | | | | |
| | | | Energy (b) | | | 3,051 | | | 3,936 | | | 4,816 |
| | | | Energy-related businesses | | | 601 | | | 527 | | | 461 |
| | | | | Total | | | 3,652 | | | 4,463 | | | 5,277 |
| | | Corporate and Other | | | 14 | | | 13 | | | |
| Total | | | 11,499 | | | 11,721 | | | 12,132 |
| | | | | | | | | | | | | | |
| Intersegment electric revenues | | | | | | | | | |
| | | Supply (c) | | | 84 | | | 51 | | | 79 |
| | | | | | | | | | | | | | |
| Depreciation | | | | | | | | | |
| | | U.K. Regulated | | | 337 | | | 300 | | | 279 |
| | | Kentucky Regulated | | | 354 | | | 334 | | | 346 |
| | | Pennsylvania Regulated | | | 185 | | | 178 | | | 160 |
| | | Supply | | | 297 | | | 299 | | | 276 |
| | | Corporate and Other | | | 47 | | | 31 | | | 26 |
| Total | | | 1,220 | | | 1,142 | | | 1,087 |
| | | | | | | | | | | | | | |
| Amortization (d) | | | | | | | | | |
| | | U.K. Regulated | | | 17 | | | 19 | | | 15 |
| | | Kentucky Regulated | | | 25 | | | 22 | | | 27 |
| | | Pennsylvania Regulated | | | 19 | | | 19 | | | 18 |
| | | Supply | | | 163 | | | 156 | | | 126 |
| | | Corporate and Other | | | 4 | | | 6 | | | |
| Total | | | 228 | | | 222 | | | 186 |
| | | | | | | | | | | | | | |
| Unrealized (gains) losses on derivatives and other hedging activities (b) | | | | | | | | | |
| | | U.K. Regulated | | | (199) | | | 44 | | | 52 |
| | | Kentucky Regulated | | | 12 | | | 12 | | | 11 |
| | | Supply | | | 12 | | | 180 | | | (36) |
| Total | | | (175) | | | 236 | | | 27 |
| | | | | | | | | | | | | | |
| Interest Expense | | | | | | | | | |
| | | U.K. Regulated | | | 461 | | | 425 | | | 421 |
| | | Kentucky Regulated | | | 219 | | | 212 | | | 219 |
| | | Pennsylvania Regulated | | | 122 | | | 108 | | | 99 |
| | | Supply | | | 181 | | | 216 | | | 212 |
| | | Corporate and Other | | | 41 | | | 33 | | | |
| Total | | | 1,024 | | | 994 | | | 951 |
| | | | | | | | | | | | | | |
| Income from Continuing Operations Before Income Taxes | | | | | | | | | |
| | | U.K. Regulated | | | 1,311 | | | 993 | | | 953 |
| | | Kentucky Regulated | | | 501 | | | 484 | | | 263 |
| | | Pennsylvania Regulated | | | 423 | | | 317 | | | 204 |
| | | Supply (b) (e) | | | 246 | | | (477) | | | 589 |
| | | Corporate and Other (f) | | | (117) | | | (57) | | | |
| Total | | | 2,364 | | | 1,260 | | | 2,009 |
| | | | | | | | | | | | | | |
| Income Taxes (g) | | | | | | | | | |
| | | U.K. Regulated | | | 329 | | | 71 | | | 150 |
| | | Kentucky Regulated | | | 189 | | | 179 | | | 80 |
| | | Pennsylvania Regulated | | | 160 | | | 108 | | | 68 |
| | | Supply | | | 93 | | | (174) | | | 220 |
| | | Corporate and Other (f) | | | 10 | | | (21) | | | |
| Total | | | 781 | | | 163 | | | 518 |
| | | | | | | | | | | | | | |
| Deferred income taxes and investment tax credits (h) | | | | | | | | | |
| | | U.K. Regulated | | | 94 | | | (45) | | | 26 |
| | | Kentucky Regulated | | | 449 | | | 254 | | | 136 |
| | | Pennsylvania Regulated | | | 87 | | | 127 | | | 114 |
| | | Supply | | | (110) | | | (291) | | | 141 |
| | | Corporate and Other (f) | | | 36 | | | 32 | | | |
| Total | | | 556 | | | 77 | | | 417 |
175 |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cash Flow Data | | | | | |
| Expenditures for long-lived assets | |
| | |
| | |
|
| U.K. Regulated | $ | 1,031 |
| | $ | 1,242 |
| | $ | 1,438 |
|
| Kentucky Regulated | 791 |
| | 1,210 |
| | 1,262 |
|
| Pennsylvania Regulated | 1,134 |
| | 1,107 |
| | 957 |
|
| Corporate and Other | 1 |
| | 11 |
| | 66 |
|
| Total | $ | 2,957 |
| | $ | 3,570 |
| | $ | 3,723 |
|
|
| | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
| Balance Sheet Data | |
| | |
|
| Total Assets | |
| | |
|
| U.K. Regulated (h) | $ | 14,537 |
| | $ | 16,669 |
|
| Kentucky Regulated | 14,037 |
| | 13,756 |
|
| Pennsylvania Regulated | 9,426 |
| | 8,511 |
|
| Corporate and Other (i) | 315 |
| | 365 |
|
| Total | $ | 38,315 |
| | $ | 39,301 |
|
| | | 2014 | | 2013 | | 2012 |
| Net Income Attributable to PPL Shareowners | | | | | | | | | |
| | | U.K. Regulated | | | 982 | | | 922 | | | 803 |
| | | Kentucky Regulated | | | 312 | | | 307 | | | 177 |
| | | Pennsylvania Regulated | | | 263 | | | 209 | | | 132 |
| | | Supply (b) (e) (i) | | | 307 | | | (272) | | | 414 |
| | | Corporate and Other (f) | | | (127) | | | (36) | | | |
| | Total | | $ | 1,737 | | $ | 1,130 | | $ | 1,526 |
| | | | | | | | | | | | | | |
| Cash Flow Data | | | 2014 | | | 2013 | | | 2012 |
| Expenditures for long-lived assets | | | | | | | | | |
| | | U.K. Regulated | | $ | 1,438 | | $ | 1,280 | | $ | 1,016 |
| | | Kentucky Regulated | | | 1,262 | | | 1,434 | | | 768 |
| | | Pennsylvania Regulated | | | 957 | | | 942 | | | 633 |
| | | Supply | | | 431 | | | 568 | | | 736 |
| | | Corporate and Other | | | 66 | | | 59 | | | |
| Total | | $ | 4,154 | | $ | 4,283 | | $ | 3,153 |
| | | | As of December 31, |
| | | | 2014 | | 2013 |
| Balance Sheet Data | | | | | | |
| Total Assets | | | | | | |
| | U.K. Regulated | | $ | 16,005 | | $ | 15,895 |
| | Kentucky Regulated | | | 13,062 | | | 12,016 |
| | Pennsylvania Regulated | | | 7,785 | | | 6,846 |
| | Supply | | | 11,025 | | | 11,408 |
| | Corporate and Other (j) | | | 987 | | | 94 |
| Total | | $ | 48,864 | | $ | 46,259 |
| | | 2014 | | 2013 | | 2012 |
| Geographic Data | | | | | | | | | |
| Revenues from external customers | | | | | | | | | |
| | | U.K. | | $ | 2,621 | | $ | 2,403 | | $ | 2,336 |
| | | U.S. | | | 8,878 | | | 9,318 | | | 9,796 |
| Total | | $ | 11,499 | | $ | 11,721 | | $ | 12,132 |
| | | | As of December 31, |
| | | | 2014 | | 2013 |
| Long-Lived Assets | | | | | | |
| | U.K. | | $ | 11,942 | | $ | 11,384 |
| | U.S. | | | 23,572 | | | 22,638 |
| Total | | $ | 35,514 | | $ | 34,022 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Geographic Data | |
| | |
| | |
|
| Revenues from external customers | |
| | |
| | |
|
| U.K. | $ | 2,207 |
| | $ | 2,410 |
| | $ | 2,621 |
|
| U.S. | 5,310 |
| | 5,259 |
| | 5,231 |
|
| Total | $ | 7,517 |
| | $ | 7,669 |
| | $ | 7,852 |
|
|
| | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
| Long-Lived Assets | |
| | |
|
| U.K. (h) | $ | 11,177 |
| | $ | 12,487 |
|
| U.S. | 19,595 |
| | 18,569 |
|
| Total | $ | 30,772 |
| | $ | 31,056 |
|
| |
| (a) | See Note 1 for additional information on Utility Revenue. Operating Revenues. |
| |
| (b) | Represents non-cash expense items that include amortization of regulatory assets, debt discounts and premiums, debt issuance costs, emission allowances and RECs. |
| |
| (c) | Includes unrealized gains and losses from economic activity. See Note 17 for additional information. |
(c) | See "PLR Contracts/Purchase of Accounts Receivable" in Note 14 for a discussion of the basis of accounting between reportable segments. |
| (d) | Represents non-cash expense items that2015 and 2014 include amortization of nuclear fuel, regulatory assets, debt discounts and premiums, debt issuance costs, emission allowances and RECs. |
(e) | 2013 includes a charge of $697 million ($413 million after tax) for the termination of the lease of the Colstrip coal-fired electric generating facility. See Note 8 for additional information. |
(f) | 2014 includes most of thecertain costs related to the anticipated spinoff of PPL Energy Supply, including deferred income tax expense, transaction and transition costs and separation benefits for PPL Services employees. See Note 8 for additional information. |
(g) | |
| (e) | Represents both current and deferred income taxes, including investment tax credits. |
(h) | |
| (f) | Represents a non-cash expense item that is also included in "Income Taxes." |
(i) | |
| (g) | 2015 includes an $879 million loss on the spinoff of PPL Energy Supply and five months of Supply segment earnings. 2014 includes a gain of $237 million ($137 million after tax)after-tax) on the sale of the Montana hydroelectric generating facilities. See Note 8 for additional information.information on these transactions. |
(j) | |
| (h) | Includes $10.8 billion and $12.2 billion of net PP&E as of December 31, 2016 and December 31, 2015. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP. |
| |
| (i) | Primarily consists of unallocated items, including cash, PP&E and the elimination of inter-segment transactions. Increase in 2014 was primarily due to increased cash on hand. |
(All Registrants except PPL)
PPL Energy Supply, PPL Electric, LKE, LG&E and KU each operate withinKU)
PPL Electric has two operating segments that are aggregated into a single reportable segment.
LKE, LG&E and KU are individually single operating and reportable segments.3. Preferred Securities
(PPL)
In June 2012, PPL Electric redeemed all $250 million of its preference stock at par value, without premium.
PPL is authorized to issue up to 10 million shares of preferred stock. No PPL preferred stock was issued or outstanding in 2014, 20132016, 2015 or 2012.2014.
(PPL Electric)
PPL Electric is authorized to issue up to 20,629,936 shares of preferred stock. No PPL Electric preferred stock was issued or outstanding in 2014, 20132016, 2015 or 2012. Prior to October 31, 2013, PPL Electric was authorized to issue up to 10 million shares of preference stock. In June 2012, PPL Electric redeemed, at par, all 2.5 million shares of its outstanding 6.25% Series Preference Stock (Preference Shares), par value of $100 per share.
(LG&E)
LG&E is authorized to issue up to 1,720,000 shares of preferred stock at a $25 par value and 6,750,000 shares of preferred stock without par value. LG&E had no preferred stock issued or outstanding in 2014, 20132016, 2015 or 2012.
2014.KU is authorized to issue up to 5,300,000 shares of preferred stock and 2,000,000 shares of preference stock without par value. KU had no preferred or preference stock issued or outstanding in 2014, 20132016, 2015 or 2012.
2014.(PPL)
Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock Method or If-Converted Method, as applicable. Incremental non-participating securities that have a dilutive impact are detailed in the table below.
Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended December 31, used in the EPS calculation are: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Income (Numerator) | |
| | |
| | |
|
| Income from continuing operations after income taxes | $ | 1,902 |
| | $ | 1,603 |
| | $ | 1,437 |
|
| Less amounts allocated to participating securities | 6 |
| | 6 |
| | 7 |
|
Income from continuing operations after income taxes available to PPL common shareowners - Basic | 1,896 |
| | 1,597 |
| | 1,430 |
|
| Plus interest charges (net of tax) related to Equity Units (a) | — |
| | — |
| | 9 |
|
Income from continuing operations after income taxes available to PPL common shareowners - Diluted | $ | 1,896 |
| | $ | 1,597 |
| | $ | 1,439 |
|
| | | | | | |
Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic and Diluted | $ | — |
| | $ | (921 | ) | | $ | 300 |
|
| | | | | | |
| Net income | $ | 1,902 |
| | $ | 682 |
| | $ | 1,737 |
|
| Less amounts allocated to participating securities | 6 |
| | 2 |
| | 9 |
|
| Net income available to PPL common shareowners - Basic | 1,896 |
| | 680 |
| | 1,728 |
|
| Plus interest charges (net of tax) related to Equity Units (a) | — |
| | — |
| | 9 |
|
| Net income available to PPL common shareowners - Diluted | $ | 1,896 |
| | $ | 680 |
| | $ | 1,737 |
|
| | | | | | |
| Shares of Common Stock (Denominator) | |
| | |
| | |
|
| Weighted-average shares - Basic EPS | 677,592 |
| | 669,814 |
| | 653,504 |
|
| Add incremental non-participating securities: | |
| | |
| | |
|
| Share-based payment awards (b) | 2,854 |
| | 2,772 |
| | 1,910 |
|
| Equity Units (a) | — |
| | — |
| | 10,559 |
|
| Weighted-average shares - Diluted EPS | 680,446 |
| | 672,586 |
| | 665,973 |
|
| | | | | | 2014 | | 2013 | | 2012 |
| Income (Numerator) | | | | | | | | | |
| Income from continuing operations after income taxes attributable to PPL shareowners | | $ | 1,583 | | $ | 1,096 | | $ | 1,486 |
| Less amounts allocated to participating securities | | | 8 | | | 6 | | | 8 |
| Less issuance costs on subsidiary's preferred securities redeemed | | | | | | | | | 6 |
| Income from continuing operations after income taxes available to PPL common | | | | | | | | | |
| | shareowners - Basic | | | 1,575 | | | 1,090 | | | 1,472 |
| Plus interest charges (net of tax) related to Equity Units (a) | | | 9 | | | 44 | | | |
| Income from continuing operations after income taxes available to PPL common | | | | | | | | | |
| | shareowners - Diluted | | $ | 1,584 | | $ | 1,134 | | $ | 1,472 |
| | | | | | | | | | | | | |
| Income (loss) from discontinued operations (net of income taxes) available to PPL | | | | | | | | | |
| | common shareowners - Basic and Diluted | | $ | 154 | | $ | 34 | | $ | 40 |
| | | | | | | | | | | | | |
| Net income attributable to PPL shareowners | | $ | 1,737 | | $ | 1,130 | | $ | 1,526 |
| Less amounts allocated to participating securities | | | 9 | | | 6 | | | 8 |
| Less issuance costs on subsidiary's preferred securities redeemed | | | | | | | | | 6 |
| Net income available to PPL common shareowners - Basic | | | 1,728 | | | 1,124 | | | 1,512 |
| Plus interest charges (net of tax) related to Equity Units | | | 9 | | | 44 | | | |
| Net income available to PPL common shareowners - Diluted | | $ | 1,737 | | $ | 1,168 | | $ | 1,512 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Shares of Common Stock (Denominator) | | | | | | | | | |
| Weighted-average shares - Basic EPS | | | 653,504 | | | 608,983 | | | 580,276 |
| Add incremental non-participating securities: | | | | | | | | | |
| | | Share-based payment awards (b) | | | 1,910 | | | 1,062 | | | 563 |
| | | Equity Units (a) | | | 10,559 | | | 52,568 | | | |
| | | Forward sale agreements and purchase contracts (b) | | | | | | 460 | | | 787 |
| Weighted-average shares - Diluted EPS | | | 665,973 | | | 663,073 | | | 581,626 |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | | | | | |
| Basic EPS | |
| | |
| | |
|
| Available to PPL common shareowners: | |
| | |
| | |
|
| Income from continuing operations after income taxes | $ | 2.80 |
| | $ | 2.38 |
| | $ | 2.19 |
|
| Income (loss) from discontinued operations (net of income taxes) | — |
| | (1.37 | ) | | 0.45 |
|
| Net Income | $ | 2.80 |
| | $ | 1.01 |
| | $ | 2.64 |
|
| | | | | | |
| Diluted EPS | |
| | |
| | |
|
| Available to PPL common shareowners: | |
| | |
| | |
|
| Income from continuing operations after income taxes | $ | 2.79 |
| | $ | 2.37 |
| | $ | 2.16 |
|
| Income (loss) from discontinued operations (net of income taxes) | — |
| | (1.36 | ) | | 0.45 |
|
| Net Income | $ | 2.79 |
| | $ | 1.01 |
| | $ | 2.61 |
|
| | | | | | 2014 | | 2013 | | 2012 |
| Basic EPS | | | | | | | | | |
| Available to PPL common shareowners: | | | | | | | | | |
| | | Income from continuing operations after income taxes | | $ | 2.41 | | $ | 1.79 | | $ | 2.55 |
| | | Income (loss) from discontinued operations (net of income taxes) | | | 0.23 | | | 0.06 | | | 0.06 |
| | | Net Income | | $ | 2.64 | | $ | 1.85 | | $ | 2.61 |
| | | | | | | | | | | | | |
| Diluted EPS | | | | | | | | | |
| Available to PPL common shareowners: | | | | | | | | | |
| | | Income from continuing operations after income taxes | | $ | 2.38 | | $ | 1.71 | | $ | 2.54 |
| | | Income (loss) from discontinued operations (net of income taxes) | | | 0.23 | | | 0.05 | | | 0.06 |
| | | Net Income | | $ | 2.61 | | $ | 1.76 | | $ | 2.60 |
| |
| (a) | In 2014, and 2013, the If-Converted Method was applied to the Equity Units prior to settlement. See Note 7 for additional information on the Equity Units, including the issuance of PPL common stock to settle the Purchase contracts. |
| |
| (b) | The Treasury Stock Method was applied to non-participating share-based payment awards, forward sale agreements and the 2010 Purchase Contracts for 2012. awards. |
For the year ended December 31, PPL issued common stock related to stock-based compensation plans and DRIP as follows (in thousands): |
| | 2014 |
| | | | 2016 |
| Stock-based compensation plans (a) | 3,224 | | 2,985
|
| DRIP | 1,562 | | 868
|
| |
| (a) | Includes stock options exercised, vesting of performance units, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors. |
See Note 7 for additional information on common stock issued under ATM Program.
For the years ended December 31, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive. antidilutive: |
| | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Stock options | 696 |
| | 1,087 |
| | 1,816 |
|
| Performance units | 176 |
| | 36 |
| | 5 |
|
| Restricted stock units | — |
| | — |
| | 31 |
|
| | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | |
| Stock options | | | 1,816 | | | 4,446 | | | 5,293 |
| Performance units | | | 5 | | | 55 | | | 58 |
| Restricted stock units | | | 31 | | | 29 | | | |
5. Income and Other Taxes
(PPL)
"Income from Continuing Operations Before Income Taxes" included the following. following: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Domestic income | $ | 1,463 |
| | $ | 968 |
| | $ | 922 |
|
| Foreign income | 1,087 |
| | 1,100 |
| | 1,207 |
|
| Total | $ | 2,550 |
| | $ | 2,068 |
| | $ | 2,129 |
|
| | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| Domestic income | | $ | 1,157 | | $ | 201 | | $ | 1,000 |
| Foreign income | | | 1,207 | | | 1,059 | | | 1,009 |
| | Total | | $ | 2,364 | | $ | 1,260 | | $ | 2,009 |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes and the tax effects of net operating loss and tax credit carryforwards. The provision for PPL's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles of the applicable jurisdiction. See Notes 1 and 6 for additional information.
Net deferred tax assets have been recognized based on management's estimates of future taxable income for the U.S. and certain foreign jurisdictions in which PPL's operations have historically been profitable.the U.K.
Significant components of PPL's deferred income tax assets and liabilities were as follows:
| | | | | 2014 | | 2013 |
| Deferred Tax Assets | | | | | | |
| | Deferred investment tax credits (a) | | $ | 63 | | $ | 137 |
| | Regulatory obligations | | | 131 | | | 144 |
| | Accrued pension costs | | | 298 | | | 140 |
| | Federal loss carryforwards | | | 151 | | | 331 |
| | State loss carryforwards | | | 304 | | | 304 |
| | Federal and state tax credit carryforwards (a) | | | 209 | | | 332 |
| | Foreign capital loss carryforwards | | | 446 | | | 467 |
| | Foreign loss carryforwards | | | 6 | | | 6 |
| | Foreign - pensions | | | 182 | | | 202 |
| | Foreign - regulatory obligations | | | 23 | | | 26 |
| | Foreign - other | | | 11 | | | 12 |
| | Contributions in aid of construction | | | 138 | | | 137 |
| | Domestic - other | | | 273 | | | 211 |
| | Unrealized losses on qualifying derivatives | | | 46 | | | |
| | Valuation allowances | | | (700) | | | (663) |
| | | Total deferred tax assets | | | 1,581 | | | 1,786 |
| | | | | | | | | |
| Deferred Tax Liabilities | | | | | | |
| | Domestic plant - net (a) | | | 4,453 | | | 4,073 |
| | Taxes recoverable through future rates | | | 156 | | | 151 |
| | Unrealized gain on qualifying derivatives | | | 28 | | | 37 |
| | Other regulatory assets | | | 322 | | | 244 |
| | Reacquired debt costs | | | 31 | | | 34 |
| | Foreign plant - net | | | 854 | | | 859 |
| | Domestic - other | | | 58 | | | 78 |
| | | Total deferred tax liabilities | | | 5,902 | | | 5,476 |
| Net deferred tax liability | | $ | 4,321 | | $ | 3,690 |
|
| | | | | | | |
| | 2016 | | 2015 |
| Deferred Tax Assets | | | |
| Deferred investment tax credits | $ | 51 |
| | $ | 50 |
|
| Regulatory liabilities | 94 |
| | 123 |
|
| Accrued pension costs | 250 |
| | 217 |
|
| Federal loss carryforwards | 565 |
| | 587 |
|
| State loss carryforwards | 326 |
| | 319 |
|
| Federal and state tax credit carryforwards | 256 |
| | 201 |
|
| Foreign capital loss carryforwards | 302 |
| | 387 |
|
| Foreign loss carryforwards | 3 |
| | 4 |
|
| Foreign - pensions | 41 |
| | 171 |
|
| Foreign - regulatory obligations | 6 |
| | 12 |
|
| Foreign - other | 5 |
| | 8 |
|
| Contributions in aid of construction | 141 |
| | 139 |
|
| Domestic - other | 188 |
| | 209 |
|
| Unrealized losses on qualifying derivatives | 20 |
| | 15 |
|
| Valuation allowances (a) | (593 | ) | | (662 | ) |
| Total deferred tax assets | 1,655 |
| | 1,780 |
|
| | | | |
| Deferred Tax Liabilities | | | |
| Domestic plant - net | 4,325 |
| | 3,875 |
|
| Taxes recoverable through future rates | 170 |
| | 162 |
|
| Regulatory assets | 343 |
| | 332 |
|
| Reacquired debt costs | 25 |
| | 28 |
|
| Foreign plant - net | 640 |
| | 777 |
|
| Domestic - other | 14 |
| | 24 |
|
| Total deferred tax liabilities | 5,517 |
| | 5,198 |
|
| Net deferred tax liability | $ | 3,862 |
| | $ | 3,418 |
|
| During 2014, |
| (a) | Includes $77 million of deferred tax assets related to state loss carryforwards and related valuation allowances previously reflected on the PPL accepted U.S. government grants for hydroelectric plant expansions resulting in reductions of investmentEnergy Supply Segment. The deferred tax credits previously claimedassets and reductions inrelated valuation allowance remained with PPL after the carrying value of the related plants. See Note 8 for additional information.spinoff. |
State deferred taxes are determined on a by entity, by jurisdiction basis. As a result, $27 million and $22 million of net deferred tax assets are shown as "Other noncurrent assets" on the Balance Sheets for 2016 and 2015.
At December 31, 2016, PPL had the following loss and tax credit carryforwards.carryforwards, related deferred tax assets and valuation allowances recorded against the deferred tax assets.
|
| | | | | | | | | | | | | |
| | Gross | | Deferred Tax Asset | | Valuation Allowance | | Expiration |
| Loss carryforwards | | | | | | | |
| Federal net operating losses | $ | 1,583 |
| | $ | 554 |
| | $ | — |
| | 2029-2035 |
| Federal charitable contributions | 28 |
| | 11 |
| | — |
| | 2020-2021 |
| State net operating losses | 5,387 |
| | 325 |
| | (269 | ) | | 2017-2036 |
| State charitable contributions | 12 |
| | 1 |
| | — |
| | 2017-2021 |
| Foreign net operating losses | 17 |
| | 3 |
| | (3 | ) | | Indefinite |
| Foreign capital losses | 1,783 |
| | 302 |
| | (302 | ) | | Indefinite |
| | | | 2014 | | | Expiration |
| | | | | | | |
| Loss carryforwards | | | | | | |
| | Federal net operating losses (a) | | $ | 432 | | | 2031-2032 |
| | State net operating losses (a) (b) | | | 5,059 | | | 2017-2034 |
| | State contributions | | | 33 | | | 2015-2018 |
| | Foreign net operating losses (c) | | | 29 | | | Indefinite |
| | Foreign capital losses (d) | | | 2,231 | | | Indefinite |
| | | | | | | | |
| Credit carryforwards | | | | | | |
| | Federal investment tax credit | | | 125 | | | 2025-2028 |
| | Federal alternative minimum tax credit | | | 44 | | | Indefinite |
| | Federal - other | | | 34 | | | 2016-2034 |
| | State - other | | | 8 | | | 2022 |
|
| | | | | | | | | |
| Credit carryforwards | | | | | | | |
| Federal investment tax credit | | | 133 |
| | — |
| | 2025-2036 |
| Federal alternative minimum tax credit | | | 30 |
| | — |
| | Indefinite |
| Federal foreign tax credits | | | 62 |
| | (3 | ) | | 2024-2025 |
| Federal - other | | | 30 |
| | (11 | ) | | 2017-2036 |
| State - other | | | 1 |
| | — |
| | Indefinite |
State capital loss and foreign tax credit carryforwards were insignificant at December 31, 2014. |
(a) | Includes an insignificant amount of federal and state net operating loss carryforwards from excess tax deductions related to stock compensation for which a tax benefit will be recorded in Equity when realized. |
(b) | A valuation allowance of $238 million has been recorded against the deferred tax assets for these losses. |
(c) | A valuation allowance of $6 million has been recorded against the deferred tax assets for these losses. |
(d) | A valuation allowance of $446 million has been recorded against the deferred tax assets for these losses. |
Valuation allowances have been established for the amount that, more likely than not, will not be realized. The changes in deferred tax valuation allowances were as follows:
| | | | | | Additions | | | | | | | |
| | | Balance at | | | | | Charged to | | | | | | Balance |
| | | Beginning | | Charged | | Other | | | | | at End |
| | | of Period | | to Income | | Accounts | | Deductions | | of Period |
| | | | | | | | | | | | | | | | | | |
| 2014 | | $ | 663 | | $ | 57 | | $ | 6 | | | $ | 26 | | | $ | 700 |
| 2013 | | | 706 | | | 29 | | | | | | | 72 | (a) | | | 663 |
| 2012 | | | 724 | | | 18 | | | 10 | | | | 46 | (a) | | | 706 |
|
| | | | | | | | | | | | | | | | | | | |
| | | | Additions | | | | |
| | Balance at Beginning of Period | | Charged to Income | | Charged to Other Accounts | | Deductions | | Balance at End of Period |
| 2016 | $ | 662 |
| | $ | 17 |
| | $ | 2 |
|
| $ | 88 |
| (a) | $ | 593 |
|
| 2015 | 622 |
| | 24 |
| | 77 |
| (b) | 61 |
| (a) | 662 |
|
| 2014 | 585 |
| | 57 |
| | 6 |
| | 26 |
| | 622 |
|
| |
| (a) | The reductions of the U.K. statutory income tax raterates in 20132016 and 20122015 resulted in $67$19 million and $46$44 million in reductions in the deferred tax assets and the corresponding valuation allowances. See "Reconciliation of Income Tax Expense" below for more information on the impact of the U.K. Finance Acts 20132016 and 2012. 2015. In addition, the deferred tax assets and corresponding valuation allowances were reduced in 2016 by approximately $65 million due to the effect of foreign currency exchange rates. |
| |
| (b) | Valuation allowance related to the deferred tax assets previously reflected on the PPL Energy Supply Segment. The deferred tax assets and related valuation allowance remained with PPL after the spinoff. |
PPL Global does not pay or record U.S. income taxes on the undistributed earnings of WPD with the exception of certain financing entities, as management has determined that the earnings are indefinitely reinvested. Historically, dividends paid by WPD have beenreinvested for accounting purposes. Current year distributions from WPD to the U.S. are sourced from a portion of current year's earnings.earnings of the WPD group. WPD's long-term working capital forecasts and capital expenditure projections for the foreseeable future require reinvestment of WPD's undistributed earnings, and WPD would have to issue debt or access credit facilities to fund any distributions in excess of current earnings. Additionally, U.S. long-term working capital forecasts and capital expenditure projections for the foreseeable future do not require or contemplate annual distributions from WPD in excess of some portion ofWPD's future WPDannual earnings. The cumulative undistributed earnings are included in "Earnings Reinvested"reinvested" on the Balance Sheets. The amounts considered indefinitely reinvested at December 31, 20142016 and 20132015 were $3.7$5.5 billion and $2.9 billion, respectively. If the WPD undistributed earnings were remitted as dividends, PPL Global could be subject to additional U.S. taxes, net of allowable foreign tax credits.$4.6 billion. It is not practicable to estimate the amount of additional taxes that could be payable on these foreign earnings in the event of repatriation to the U.S.
Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income from Continuing Operations Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:
| | | | | | 2014 | | 2013 | | 2012 |
| Income Tax Expense (Benefit) | | | | | | | | | |
| | Current - Federal | | $ | 43 | | $ | (91) | | $ | (15) |
| | Current - State | | | 30 | | | (4) | | | (5) |
| | Current - Foreign | | | 152 | | | 181 | | | 121 |
| | | | Total Current Expense | | | 225 | | | 86 | | | 101 |
| | Deferred - Federal | | | 345 | | | 75 | | | 547 |
| | Deferred - State | | | 136 | | | 45 | | | 100 |
| | Deferred - Foreign | | | 96 | | | (53) | | | 35 |
| | | | Total Deferred Expense, excluding operating loss carryforwards | | | 577 | | | 67 | | | 682 |
| | | | | | | | | | | | | |
| | Investment tax credit, net - Federal | | | (7) | | | (8) | | | (10) |
| | Tax expense (benefit) of operating loss carryforwards | | | | | | | | | |
| | | Deferred - Federal (a) | | | 8 | | | 36 | | | (195) |
| | | Deferred - State | | | (22) | | | (18) | | | (60) |
| | | | Total Tax Expense (Benefit) of Operating Loss Carryforwards | | | (14) | | | 18 | | | (255) |
| | Total income taxes from continuing operations | | $ | 781 | | $ | 163 | | $ | 518 |
| | | | | | | | | | | | | |
| | Total income tax expense - Federal | | $ | 389 | | $ | 12 | | $ | 327 |
| | Total income tax expense - State | | 144 | | | 23 | | | 35 |
| | Total income tax expense - Foreign | | | 248 | | | 128 | | | 156 |
| | | | Total income taxes from continuing operations | | $ | 781 | | $ | 163 | | $ | 518 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Income Tax Expense (Benefit) | | | | | |
| Current - Federal | $ | (14 | ) | | $ | (26 | ) | | $ | 18 |
|
| Current - State | 21 |
| | 25 |
| | 26 |
|
| Current - Foreign | 80 |
| | 89 |
| | 152 |
|
| Total Current Expense | 87 |
| | 88 |
| | 196 |
|
| Deferred - Federal | 385 |
| | 699 |
| | 299 |
|
| Deferred - State | 89 |
| | 68 |
| | 120 |
|
| Deferred - Foreign | 86 |
| | 41 |
| | 96 |
|
| Total Deferred Expense, excluding operating loss carryforwards | 560 |
| | 808 |
| | 515 |
|
| | | | | | |
| Amortization of investment tax credit | (3 | ) | | (4 | ) | | (5 | ) |
| Tax expense (benefit) of operating loss carryforwards | | | | | |
| Deferred - Federal (a) | 25 |
| | (396 | ) | | 8 |
|
| Deferred - State | (21 | ) | | (31 | ) | | (22 | ) |
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | 4 |
| | (427 | ) | | (14 | ) |
| Total income taxes from continuing operations | $ | 648 |
| | $ | 465 |
| | $ | 692 |
|
| | | | | | |
| Total income tax expense - Federal | $ | 393 |
| | $ | 273 |
| | $ | 320 |
|
| Total income tax expense - State | 89 |
| | 62 |
| | 124 |
|
| Total income tax expense - Foreign | 166 |
| | 130 |
| | 248 |
|
| Total income taxes from continuing operations | $ | 648 |
| | $ | 465 |
| | $ | 692 |
|
| A 2012 |
| (a) | Increase in Federal income tax return adjustment was recorded in 2013loss carryforwards for 2015 primarily relates to the extension of bonus depreciation and the impact of bonus depreciation related to a reduction in the 2012 NOL recorded in the filed return. The reduction was primarily dueprovision to PPL's decision, at the time of filing, to utilize regular modified accelerated cost recovery system (MACRS) depreciation rates for certain non-regulated assets otherwise eligible for bonus tax depreciation. return adjustments. |
In the table above, the following income tax expense (benefits) are excluded from income taxes from continuing operations.
| | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| Discontinued operations | | $ | 109 | | $ | 18 | | $ | 23 |
| Stock-based compensation recorded to Additional Paid-in Capital | | | (4) | | | (2) | | | (1) |
| Valuation allowance on state deferred taxes related to issuance costs of Purchase Contracts | | | | | | | | | |
| | recorded to Additional Paid-in Capital | | | | | | (2) | | | |
| Other comprehensive income | | | 190 | | | 159 | | | (526) |
| Valuation allowance on state deferred taxes recorded to other comprehensive income | | | | | | (7) | | | |
| | | Total | | $ | 295 | | $ | 166 | | $ | (504) |
| | | | | | 2014 | | 2013 | | 2012 |
| Reconciliation of Income Tax Expense | | | | | | | | | |
| | Federal income tax on Income from Continuing Operations Before Income Taxes at | | | | | | | | | |
| | | statutory tax rate - 35% | | $ | 827 | | $ | 441 | | $ | 703 |
| Increase (decrease) due to: | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 41 | | | (9) | | | 25 |
| | State valuation allowance adjustments (a) | | | 55 | | | 24 | | | 13 |
| | Impact of lower U.K. income tax rates (b) | | | (167) | | | (129) | | | (110) |
| | U.S. income tax on foreign earnings - net of foreign tax credit (c) | | | 53 | | | 9 | | | 26 |
| | Federal and state tax reserves adjustments (d) | | | (1) | | | (43) | | | (1) |
| | Federal and state income tax return adjustments (e) | | | 2 | | | (5) | | | 16 |
| | Impact of the U.K. Finance Acts on deferred tax balances (b) | | | (1) | | | (97) | | | (75) |
| | Federal income tax credits (f) | | | (1) | | | (9) | | | (11) |
| | Depreciation not normalized | | | (7) | | | (8) | | | (11) |
| | State deferred tax rate change (g) | | | (1) | | | 15 | | | (19) |
| | Intercompany interest on U.K. financing entities | | | (8) | | | (10) | | | (9) |
| | Other | | | (11) | | | (16) | | | (29) |
| | | | Total increase (decrease) | | | (46) | | | (278) | | | (185) |
| Total income taxes from continuing operations | | $ | 781 | | $ | 163 | | $ | 518 |
| Effective income tax rate | | | 33.0% | | | 12.9% | | | 25.8% |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Discontinued operations - PPL Energy Supply Segment | $ | — |
| | $ | (30 | ) | | $ | 198 |
|
| Stock-based compensation recorded to Additional Paid-in Capital | — |
| | — |
| | (4 | ) |
| Stock-based compensation recorded to Earnings Reinvested | (7 | ) | | — |
| | — |
|
| Other comprehensive income | (6 | ) | | (2 | ) | | (190 | ) |
| Valuation allowance on state deferred taxes recorded to other comprehensive income | 1 |
| | (4 | ) | | — |
|
| Total | $ | (12 | ) | | $ | (36 | ) | | $ | 4 |
|
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Reconciliation of Income Tax Expense | |
| | |
| | |
|
| Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 35% | $ | 893 |
| | $ | 724 |
| | $ | 745 |
|
| Increase (decrease) due to: | |
| | |
| | |
|
| State income taxes, net of federal income tax benefit | 46 |
| | 31 |
| | 28 |
|
| Valuation allowance adjustments (a) | 16 |
| | 24 |
| | 55 |
|
| Impact of lower U.K. income tax rates (b) | (177 | ) | | (176 | ) | | (180 | ) |
| U.S. income tax on foreign earnings - net of foreign tax credit (c) | (42 | ) | | 8 |
| | 63 |
|
| Federal and state tax reserves adjustments (d) | — |
| | (22 | ) | | (1 | ) |
| Impact of the U.K. Finance Acts on deferred tax balances (b) | (49 | ) | | (91 | ) | | (1 | ) |
| Depreciation not normalized | (10 | ) | | (5 | ) | | (7 | ) |
| Interest benefit on U.K. financing entities | (17 | ) | | (20 | ) | | (5 | ) |
| Stock-based compensation (e) | (10 | ) | | — |
| | — |
|
| Other | (2 | ) | | (8 | ) | | (5 | ) |
| Total increase (decrease) | (245 | ) | | (259 | ) | | (53 | ) |
| Total income taxes from continuing operations | $ | 648 |
| | $ | 465 |
| | $ | 692 |
|
| Effective income tax rate | 25.4 | % | | 22.5 | % | | 32.5 | % |
| As a result of the PPL Energy Supply spinoff announcement, |
| (a) | During 2016, PPL recorded $50 million deferred income tax expense during 2014for valuation allowances primarily related to adjust the valuation allowance on deferred tax assets primarily for stateincreased Pennsylvania net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply. See Note 8 for additional information on the anticipated spinoff.expected to be unutilized. |
During 2015, PPL recorded $24 million of deferred income tax expense related to deferred tax valuation allowances. PPL recorded state deferred income tax expense of $12 million primarily related to increased Pennsylvania net operating loss carryforwards expected to be unutilized and $12 million of federal deferred income tax expense primarily related to federal tax credit carryforwards that are expected to expire as a result of lower future taxable earnings due to the extension of bonus depreciation.
As a result of the PPL Energy Supply spinoff announcement, PPL recorded $50 million of deferred income tax expense during 2014, to adjust the valuation allowance on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply. See Note 8 for additional information on the spinoff.
| During 2013, PPL recorded $23 million of state deferred income tax expense related to a deferred tax valuation allowance primarily due to a decrease in projected future taxable income at PPL Energy Supply over the remaining carryforward period of Pennsylvania net operating losses.
|
| (b) | The U.K. Finance Act 2013,2016, enacted in July 2013, reducedSeptember 2016, reduces the U.K. statutory income tax rate from 23% to 21% effective April 1, 2014 and2020 from 21%18% to 20% effective April 1, 2015.17%. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit during 2013 related to both rate decreases.2016. |
The U.K. Finance Act 2015, enacted in November 2015, reduced the U.K. statutory income tax rate from 20% to 19% effective April 1, 2017 and from 19% to 18% effective April 1, 2020. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit during 2015, related to both rate decreases.
| The U.K. Finance Act 2012, enacted in July 2012, reduced the U.K. statutory income tax rate from 25% to 24% retroactive to April 1, 2012 and from 24% to 23% effective April 1, 2013. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit during 2012 related to both rate decreases. |
| (c) | During 2014,2016, PPL recorded $47 million oflower income tax expensetaxes primarily attributable to taxable dividends.foreign tax credit carryforwards, arising from a decision to amend prior year tax returns to claim foreign tax credits rather than deduct foreign taxes. This decision was prompted by changes to the Company's most recent business plan. |
During 2015, PPL recorded lower income taxes primarily attributable to a decrease in taxable dividends.
During 2014, PPL recorded $47 million of income tax expense primarily attributable to taxable dividends.
| |
| (d) | During 2013, PPL recorded $28 million of income tax expense resulting from increased taxable dividends offset by a $19 million income tax benefit associated with a ruling obtained from the IRS impacting the recalculation of 2010 U.K. earnings and profits that was reflected on an amended 2010 U.S. tax return. |
| During 2012,2015, PPL recorded a $23$12 million adjustmenttax benefit related to federalthe settlement of the IRS audit for the tax years 1998-2011.
|
| |
| (e) | During 2016, PPL recorded lower income tax expense related to the recalculationapplication of 2010 U.K. earnings and profits. |
(d) | In 1997, the U.K. imposed a Windfall Profits Tax (WPT) on privatized utilities, including WPD. PPL filed its federal income tax returns for years subsequent to its 1997 and 1998 claims for refund on the basis that the U.K. WPT was creditable. In September 2010, the U.S. Tax Court (Tax Court) ruled in PPL's favor in a dispute with the IRS, concluding that the U.K. WPT is a creditable tax for U.S. tax purposes. As a result, and with the finalization of other issues, PPL recorded a $42 million tax benefit in 2010. In January 2011, the IRS appealed the Tax Court's decision to the U.S. Court of Appeals for the Third Circuit (Third Circuit). In December 2011, the Third Circuit issued its opinion reversing the Tax Court's decision, holding that the U.K. WPT is not a creditable tax. As a result of the Third Circuit's adverse determination, PPL recorded a $39 million expense in 2011. In June 2012, the U.S. Court of Appeals for the Fifth Circuit issued a contrary opinion in an identical case involving another company. In July 2012, PPL filed a petition for a writ of certiorari seeking U.S. Supreme Court review of the Third Circuit's opinion. The Supreme Court granted PPL's petition and oral argument was held in February 2013. On May 20, 2013, the Supreme Court reversed the Third Circuit's opinion and ruled that the WPT is a creditable tax. As a result of the Supreme Court ruling, PPL recorded a tax benefit of $44 million during 2013, of which $19 million relates to interest. |
| PPL recorded a tax benefit of $7 million during 2013 and $6 million during 2012 federal and state income tax reserves related to stranded cost securitization. The reserve balance at December 31, 2013 related to stranded costs securitization was zero. |
(e) | During 2012, PPL recorded $16 million in federal and state income tax expense related to the filing of the 2011 federal and state income tax returns. Of this amount, $5 million relates to the reversal of prior years' state income tax benefits related to regulated depreciation. PPL changed its method ofnew stock-based compensation accounting for repair expenditures for tax purposes effective for its 2008 tax year. In August 2011, the IRS issued guidance regarding the use and evaluation of statistical samples and sampling estimates for network assets. The IRS guidance provided a safe harbor method of determining whether the repair expenditures for electric transmission and distribution property can be currently deducted for tax purposes. PPL adopted the safe harbor method with the filing of its 2011 federal income tax return. |
(f) | During 2013 and 2012, PPL recorded deferred tax benefits related to investment tax credits on progress expenditures for the Holtwood hydroelectric plant expansion.guidance. See Note 81 for additional information. |
(g) | During 2014, 2013 and 2012, PPL recorded adjustments related to its December 31 state deferred tax liabilities as a result of annual changes in state apportionment and the impact on the future estimated state income tax rate. |
| | | | | 2014 | | 2013 | | 2012 |
| Taxes, other than income | | | | | | | | | |
| | State gross receipts | | $ | 147 | | $ | 135 | | $ | 135 |
| | Foreign property | | | 157 | | | 147 | | | 147 |
| | Domestic Other | | | 70 | | | 69 | | | 70 |
| | Total | | $ | 374 | | $ | 351 | | $ | 352 |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes and the tax effects of net operating loss and tax credit carryforwards.
Net deferred tax assets have been recognized based on management's estimates of future taxable income for the U.S. jurisdictions in which PPL Energy Supply's operations have historically been profitable.
Significant components of PPL Energy Supply's deferred income tax assets and liabilities were as follows:
| | | | | 2014 | | 2013 |
| Deferred Tax Assets | | | | | | |
| | Deferred investment tax credits (a) | | $ | 11 | | $ | 84 |
| | Accrued pension costs | | | 98 | | | 39 |
| | Federal loss carryforwards | | | 22 | | | 28 |
| | Federal tax credit carryforwards (a) | | | 13 | | | 131 |
| | State loss carryforwards | | | 79 | | | 80 |
| | Other | | | 79 | | | 69 |
| | Valuation allowances | | | (78) | | | (78) |
| | | Total deferred tax assets | | | 224 | | | 353 |
| | | | | | | | | |
| Deferred Tax Liabilities | | | | | | |
| | Plant - net (a) | | | 1,374 | | | 1,392 |
| | Unrealized gain on qualifying derivatives | | | 28 | | | 38 |
| | Other | | | 42 | | | 46 |
| | | Total deferred tax liabilities | | | 1,444 | | | 1,476 |
| Net deferred tax liability | | $ | 1,220 | | $ | 1,123 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Taxes, other than income | | | | | |
| State gross receipts (a) | $ | 100 |
| | $ | 89 |
| | $ | 102 |
|
| Foreign property | 135 |
| | 148 |
| | 157 |
|
| Domestic Other | 66 |
| | 62 |
| | 58 |
|
| Total | $ | 301 |
| | $ | 299 |
| | $ | 317 |
|
| During 2014, PPL accepted U.S. government grants for hydroelectric plant expansions resulting in reductions of investment tax credits previously claimed and reductions in the carrying value of the related plants. See Note 8 for additional information. |
At December 31, PPL Energy Supply had the following loss and tax credit carryforwards. | | | |
| | | | | | | |
| | 2014 | | | Expiration |
Loss carryforwards | | | | | | |
| Federal net operating losses | | $ | 63 | | | 2031-2032 |
| State net operating losses (a) | | | 1,228 | | | 2018-2034 |
| | | | | | | |
Credit carryforwards | | | | | | |
| Federal AMT credit | | | 6 | | | Indefinite |
| Federal - other | | | 7 | | | 2031-2034 |
| (a) A valuation allowance of $78 million has been recorded against the deferred tax assets for these losses. |
| Valuation allowances have been established for the amount that, more likely than not, will not be realized. The changesdecrease in deferred tax valuation allowances were: |
| | | | | | Additions | | | | | | | |
| | | Balance at | | | | | Charged to | | | | | | Balance |
| | | Beginning | | Charged | | Other | | | | | | at End |
| | | of Period | | to Income | | Accounts | | Deductions | | of Period |
| | | | | | | | | | | | | | | | | | |
| 2014 | | $ | 78 | | | | | | | | | | | | | $ | 78 |
| 2013 | | | 74 | | $ | 4 | | | | | | | | | | | 78 |
| 2012 | | | 72 | | | 2 | | | | | | | | | | | 74 |
Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income (Loss) from Continuing Operations Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:
| | | | | | 2014 | | 2013 | | 2012 |
| Income Tax Expense (Benefit) | | | | | | | | | |
| | Current - Federal | | $ | 28 | | $ | 118 | | $ | 74 |
| | Current - State | | | 13 | | | 16 | | | 19 |
| | | | Total Current Expense | | | 41 | | | 134 | | | 93 |
| | Deferred - Federal | | | 66 | | | (285) | | | 187 |
| | Deferred - State | | | 11 | | | (27) | | | 7 |
| | | | Total Deferred Expense (Benefit), excluding operating loss carryforwards | | | 77 | | | (312) | | | 194 |
| | | | | | | | | | | | | |
| | Investment tax credit, net - federal | | | (2) | | | (3) | | | (2) |
| | Tax expense (benefit) of operating loss carryforwards | | | | | | | | | |
| | | Deferred - Federal (a) | | | | | | 22 | | | (48) |
| | | Deferred - State | | | | | | | | | (1) |
| | | | Total Tax Expense (Benefit) of Operating Loss Carryforwards | | | | | | 22 | | | (49) |
| | Total income taxes (benefits) from continuing operations (b) | | $ | 116 | | $ | (159) | | $ | 236 |
| | | | | | | | | | | | | |
| | Total income tax expense (benefit) - Federal | | $ | 92 | | $ | (148) | | $ | 211 |
| | Total income tax expense (benefit) - State | | | 24 | | | (11) | | | 25 |
| | | | Total income taxes (benefits) from continuing operations (b) | | $ | 116 | | $ | (159) | | $ | 236 |
| A 2012 federal income tax return adjustment was recorded in 2013 related to a reduction in the 2012 NOL recorded in the filed return. The reduction2015 was primarily due to PPL's decision, at the timesettlement of filing, to utilize regular MACRS depreciation rates for certain non-regulated assets otherwise eligible for bonusa 2011 gross receipts tax depreciation. |
(b) | Excludes current and deferred federal and state tax expense recorded to Discontinued Operationsaudit resulting in the reversal of $109 million, $17 million and $27 million in 2014, 2013 and 2012. Also excludes federal and state tax expense (benefit) recorded to OCI of $(56) million, $47 million and $(267) million in 2014, 2013 and 2012.previously recognized reserves. |
| | | | | | 2014 | | 2013 | | 2012 |
| Reconciliation of Income Tax Expense | | | | | | | | | |
| | Federal income tax on Income (Loss) from Continuing Operations Before Income Taxes at | | | | | | | | | |
| | | statutory tax rate - 35% | | $ | 106 | | $ | (147) | | $ | 233 |
| Increase (decrease) due to: | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 17 | | | (24) | | | 30 |
| | State deferred tax rate change (a) | | | (1) | | | 15 | | | (19) |
| | Federal income tax credits (b) | | | | | | (8) | | | (11) |
| | Other | | | (6) | | | 5 | | | 3 |
| | | | Total increase (decrease) | | | 10 | | | (12) | | | 3 |
| Total income taxes from continuing operations | | $ | 116 | | $ | (159) | | $ | 236 |
| Effective income tax rate | | | 38.3% | | | 37.9% | | | 35.5% |
(a) | During 2014, 2013 and 2012, PPL Energy Supply recorded adjustments related to its December 31 state deferred tax liabilities as a result of annual changes in state apportionment and the impact on the future estimated state income tax rate. |
(b) | During 2013 and 2012, PPL Energy Supply recorded deferred tax benefits related to investment tax credits on progress expenditures for the Holtwood hydroelectric plant expansion. See Note 8 for additional information. |
| | | | | 2014 | | 2013 | | 2012 |
| Taxes, other than income | | | | | | | | | |
| | State gross receipts | | $ | 45 | | $ | 37 | | $ | 35 |
| | State capital stock | | | 1 | | | 1 | | | 5 |
| | Property and other | | | 11 | | | 15 | | | 15 |
| | | Total | | $ | 57 | | $ | 53 | | $ | 55 |
(PPL Electric)
The provision for PPL Electric's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the PUC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulated liabilities" on the Balance Sheets.
Significant components of PPL Electric's deferred income tax assets and liabilities were as follows. follows: |
| | | | | | | |
| | 2016 | | 2015 |
| Deferred Tax Assets | | | |
| Accrued pension costs | $ | 107 |
| | $ | 92 |
|
| Contributions in aid of construction | 112 |
| | 111 |
|
| Regulatory liabilities | 34 |
| | 56 |
|
| State loss carryforwards | 22 |
| | 27 |
|
| Federal loss carryforwards | 147 |
| | 146 |
|
| Other | 81 |
| | 87 |
|
| Total deferred tax assets | 503 |
| | 519 |
|
| | | | |
| Deferred Tax Liabilities | | | |
| Electric utility plant - net | 2,001 |
| | 1,803 |
|
| Taxes recoverable through future rates | 141 |
| | 135 |
|
| Reacquired debt costs | 15 |
| | 18 |
|
| Regulatory assets | 240 |
| | 213 |
|
| Other | 5 |
| | 13 |
|
| Total deferred tax liabilities | 2,402 |
| | 2,182 |
|
| Net deferred tax liability | $ | 1,899 |
| | $ | 1,663 |
|
At December 31, 2016, PPL Electric had the following loss carryforwards and related deferred tax assets:
|
| | | | | | | | | |
| | Gross | | Deferred Tax Asset | | Expiration |
| Loss carryforwards | | | | | |
| Federal net operating losses | $ | 411 |
| | $ | 144 |
| | 2031-2035 |
| Federal charitable contributions | 5 |
| | 2 |
| | 2020-2021 |
| State net operating losses (a) | 327 |
| | 21 |
| | 2030-2032 |
| State charitable contributions | 11 |
| | 1 |
| | 2017-2021 |
| |
| (a) | An immaterial amount of valuation allowances has been recorded against the deferred tax asset for state contributions. |
| | | | | 2014 | | 2013 |
| Deferred Tax Assets | | | | | | |
| | Accrued pension costs | | $ | 85 | | $ | 42 |
| | Contributions in aid of construction | | | 110 | | | 109 |
| | Regulatory obligations | | | 39 | | | 38 |
| | State loss carryforwards | | | 30 | | | 35 |
| | Federal loss carryforwards | | | 51 | | | 72 |
| | Other | | | 54 | | | 45 |
| | | Total deferred tax assets | | | 369 | | | 341 |
| | | | | | | | | |
| Deferred Tax Liabilities | | | | | | |
| | Electric utility plant - net | | | 1,453 | | | 1,366 |
| | Taxes recoverable through future rates | | | 132 | | | 129 |
| | Reacquired debt costs | | | 20 | | | 23 |
| | Other regulatory assets | | | 173 | | | 129 |
| | Other | | | 16 | | | 8 |
| | | Total deferred tax liabilities | | | 1,794 | | | 1,655 |
| Net deferred tax liability | | $ | 1,425 | | $ | 1,314 |
At December 31, PPL Electric had the following loss carryforwards. | | | |
| | | | | | | |
| | | 2014 | | | Expiration |
| | | | | | | |
Loss carryforwards | | | | | | |
| Federal net operating losses | | $ | 146 | | | 2031-2032 |
| State net operating losses | | | 467 | | | 2030-2032 |
Credit and state contribution carryforwards were insignificant at December 31, 2014.2016.
Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows: follows. |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Income Tax Expense (Benefit) | | | | | |
| Current - Federal | $ | (29 | ) | | $ | (80 | ) | | $ | 60 |
|
| Current - State | 19 |
| | 23 |
| | 15 |
|
| Total Current Expense (Benefit) | (10 | ) | | (57 | ) | | 75 |
|
| Deferred - Federal | 193 |
| | 287 |
| | 70 |
|
| Deferred - State | 29 |
| | 12 |
| | 16 |
|
| Total Deferred Expense, excluding operating loss carryforwards | 222 |
| | 299 |
| | 86 |
|
| | | | | | |
| | | | | | 2014 | | 2013 | | 2012 |
| Income Tax Expense (Benefit) | | | | | | | | | |
| | Current - Federal | | $ | 60 | | $ | (15) | | $ | (28) |
| | Current - State | | | 15 | | | (4) | | | (18) |
| | | | Total Current Expense (Benefit) | | | 75 | | | (19) | | | (46) |
| | Deferred - Federal | | | 70 | | | 109 | | | 162 |
| | Deferred - State | | | 16 | | | 16 | | | 42 |
| | | | Total Deferred Expense, excluding operating loss carryforwards | | | 86 | | | 125 | | | 204 |
| | | | | | | | | | | | | |
| | Investment tax credit, net - Federal | | | (1) | | | (1) | | | (1) |
| | Tax expense (benefit) of operating loss carryforwards | | | | | | | | | |
| | | Deferred - Federal | | | | | | 4 | | | (72) |
| | | Deferred - State | | | | | | (1) | | | (17) |
| | | | Total Tax Expense (Benefit) of Operating Loss Carryforwards | | | | | | 3 | | | (89) |
| | Total income tax expense | | $ | 160 | | $ | 108 | | $ | 68 |
| | | | | | | | | | | | | |
| | Total income tax expense - Federal | | $ | 129 | | $ | 97 | | $ | 61 |
| | Total income tax expense - State | | | 31 | | | 11 | | | 7 |
| | | | Total income tax expense | | $ | 160 | | $ | 108 | | $ | 68 |
| | | | | | 2014 | | 2013 | | 2012 |
| Reconciliation of Income Taxes | | | | | �� | | | | |
| | Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | | $ | 148 | | $ | 111 | | $ | 71 |
| Increase (decrease) due to: | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 22 | | | 16 | | | 9 |
| | Federal and state tax reserves adjustments (a) | | | (1) | | | (9) | | | (8) |
| | Federal and state income tax return adjustments (b) | | | 1 | | | (1) | | | 7 |
| | Depreciation not normalized | | | (6) | | | (6) | | | (8) |
| | Other | | | (4) | | | (3) | | | (3) |
| | | | Total increase (decrease) | | | 12 | | | (3) | | | (3) |
| Total income tax expense | | $ | 160 | | $ | 108 | | $ | 68 |
| Effective income tax rate | | | 37.8% | | | 34.1% | | | 33.3% |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Amortization of investment tax credit | — |
| | — |
| | (1 | ) |
| Tax expense (benefit) of operating loss carryforwards | | | | | |
| Deferred - Federal | — |
| | (75 | ) | | — |
|
| Deferred - State | — |
| | (3 | ) | | — |
|
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | — |
| | (78 | ) | | — |
|
| Total income tax expense | $ | 212 |
| | $ | 164 |
| | $ | 160 |
|
| | | | | | |
| Total income tax expense - Federal | $ | 164 |
| | $ | 132 |
| | $ | 129 |
|
| Total income tax expense - State | 48 |
| | 32 |
| | 31 |
|
| Total income tax expense | $ | 212 |
| | $ | 164 |
| | $ | 160 |
|
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Reconciliation of Income Taxes | |
| | |
| | |
|
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 193 |
| | $ | 146 |
| | $ | 148 |
|
| Increase (decrease) due to: | |
| | |
| | |
|
| State income taxes, net of federal income tax benefit | 36 |
| | 25 |
| | 22 |
|
| Depreciation not normalized | (8 | ) | | (4 | ) | | (6 | ) |
| Stock-based compensation (a) | (6 | ) | | — |
| | — |
|
| Other | (3 | ) | | (3 | ) | | (4 | ) |
| Total increase (decrease) | 19 |
| | 18 |
| | 12 |
|
| Total income tax expense | $ | 212 |
| | $ | 164 |
| | $ | 160 |
|
| Effective income tax rate | 38.4 | % | | 39.4 | % | | 37.8 | % |
| |
| (a) | During 2016, PPL Electric recorded a tax benefit of $7 million during 2013 and $6 million during 2012 to federal and state income tax reserves related to stranded cost securitization. The reserve balance at December 31, 2013 related to stranded costs securitization was zero. |
(b) | PPL Electric changed its method of accounting for repair expenditures for tax purposes effective for its 2008 tax year. In August 2011, the IRS issued guidance regarding the use and evaluation of statistical samples and sampling estimates for network assets. The IRS guidance provided a safe harbor method of determining whether the repair expenditures for electric transmission and distribution property can be currently deducted for tax purposes. PPL Electric adopted the safe harbor method with the filing of its 2011 federal income tax return and recorded a $5 million adjustment to federal and statelower income tax expense related to the application of new stock-based compensation accounting guidance. See Note 1 for additional information. |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Taxes, other than income | |
| | |
| | |
|
| State gross receipts (a) | $ | 100 |
| | $ | 89 |
| | $ | 102 |
|
| Property and other | 5 |
| | 5 |
| | 5 |
|
| Total | $ | 105 |
| | $ | 94 |
| | $ | 107 |
|
| |
| (a) | The decrease in 20122015 was primarily due to the settlement of a 2011 gross receipts tax audit resulting fromin the reversal of prior years' state income tax benefits related to regulated depreciation.$17 million of previously recognized reserves. |
| | | | | 2014 | | 2013 | | 2012 |
| Taxes, other than income | | | | | | | | | |
| | State gross receipts | | $ | 102 | | $ | 98 | | $ | 101 |
| | Other | | | 5 | | | 5 | | | 4 |
| | | Total | | $ | 107 | | $ | 103 | | $ | 105 |
The provision for LKE's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC, VSCC TRA and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.
Significant components of LKE's deferred income tax assets and liabilities were as follows:
|
| | | | | | | |
| | 2016 | | 2015 |
| Deferred Tax Assets | | | |
| Federal loss carryforwards | $ | 248 |
| | $ | 280 |
|
| State loss carryforwards | 35 |
| | 35 |
|
| Tax credit carryforwards | 186 |
| | 181 |
|
| Contributions in aid of construction | 29 |
| | 29 |
|
| Regulatory liabilities | 60 |
| | 66 |
|
| Accrued pension costs | 58 |
| | 53 |
|
| Income taxes due to customers | 15 |
| | 17 |
|
| Deferred investment tax credits | 51 |
| | 50 |
|
| Derivative liability | 12 |
| | 18 |
|
| Other | 49 |
| | 55 |
|
| Valuation allowances | (11 | ) | | (12 | ) |
| Total deferred tax assets | 732 |
| | 772 |
|
| | | | |
| Deferred Tax Liabilities | | | |
| Plant - net | 2,352 |
| | 2,105 |
|
| Regulatory assets | 102 |
| | 119 |
|
| Other | 13 |
| | 11 |
|
| Total deferred tax liabilities | 2,467 |
| | 2,235 |
|
| Net deferred tax liability | $ | 1,735 |
| | $ | 1,463 |
|
| | | | | 2014 | | 2013 |
| Deferred Tax Assets | | | | | | |
| | Net operating loss carryforward | | $ | 82 | | $ | 222 |
| | Tax credit carryforwards | | | 182 | | | 179 |
| | Regulatory liabilities | | | 92 | | | 107 |
| | Accrued pension costs | | | 53 | | | 26 |
| | Capital loss carryforward | | | | | | 4 |
| | Income taxes due to customers | | | 20 | | | 23 |
| | Deferred investment tax credits | | | 51 | | | 52 |
| | Derivative liability | | | 45 | | | 14 |
| | Other | | | 44 | | | 43 |
| | Valuation allowances | | | | | | (4) |
| | | Total deferred tax assets | | | 569 | | | 666 |
| | | | | | | | | |
| Deferred Tax Liabilities | | | | | | |
| | Plant - net | | | 1,639 | | | 1,327 |
| | Regulatory assets | | | 143 | | | 133 |
| | Other | | | 12 | | | 12 |
| | | Total deferred tax liabilities | | | 1,794 | | | 1,472 |
| Net deferred tax liability | | $ | 1,225 | | $ | 806 |
LKE expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.
At December 31, 2016, LKE had the following loss and tax credit carryforwards. carryforwards, related deferred tax assets, and valuation allowances recorded against the deferred tax assets. 185 |
| | | | | | | | | | | | | |
| | Gross | | Deferred Tax Asset | | Valuation Allowance | | Expiration |
| Loss carryforwards | | | | | | | |
| Federal net operating losses | $ | 709 |
| | $ | 248 |
| | $ | — |
| | 2029-2035 |
| Federal contribution carryforwards | 11 |
| | 4 |
| | — |
| | 2020-2021 |
| State net operating losses | 907 |
| | 35 |
| | — |
| | 2028-2036 |
|
| | | | | | | | | |
| Credit carryforwards | | | | | | | |
| Federal investment tax credit | | | 133 |
| | — |
| | 2025-2036 |
| Federal alternative minimum tax credit | | | 27 |
| | — |
| | Indefinite |
| Federal - other | | | 26 |
| | (11 | ) | | 2017-2036 |
| State - other | | | 1 |
| | — |
| | Indefinite |
| | | | 2014 | | Expiration |
| | | | | | | |
| Loss carryforwards | | | | | |
| | Federal net operating losses | | $ | 132 | | 2031-2032 |
| | State net operating losses | | | 927 | | 2028-2032 |
| | State capital losses | | | 1 | | 2016 |
| | | | | | | |
| Credit carryforwards | | | | | |
| | Federal investment tax credit | | | 125 | | 2025-2028 |
| | Federal alternative minimum tax credit | | | 30 | | Indefinite |
| | Federal - other | | | 27 | | 2016-2034 |
| | State - other | | | 8 | | 2022 |
Changes in deferred tax valuation allowances were: |
| | | | | | | | | | | | | | | |
| | Balance at Beginning of Period | | Additions | | Deductions | | Balance at End of Period |
| 2016 | $ | 12 |
| | $ | — |
| | $ | 1 |
| (a) | $ | 11 |
|
| 2015 | — |
| | 12 |
| (b) | — |
| | 12 |
|
| 2014 | 4 |
| | — |
| | 4 |
| (c) | — |
|
| | | Balance at | | | | | | | | | Balance |
| | | Beginning | | | | | | | at End |
| | | of Period | | Additions | | Deductions | | of Period |
| | | | | | | | | | | | | | |
| 2014 | | $ | 4 | | | | | $ | 4 | (a) | | | |
| 2013 | | | 5 | | | | | | 1 | (a) | | $ | 4 |
| 2012 | | | 5 | | | | | | | | | | 5 |
| |
| (a) | Federal tax credit expiring in 2016. |
| |
| (b) | Federal tax credits expiring in 2016 through 2020 that are more likely than not to expire before being utilized. |
| |
| (c) | Primarily related to the expiration of state capital loss carryforwards. |
Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income (Loss) from Continuing Operations Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes,
"Taxes, other than income" were:
| | | | | 2014 | | 2013 | | 2012 |
| Income Tax Expense (Benefit) | | | | | | | | |
| | Current - Federal | $ | (247) | | $ | (59) | | $ | (32) |
| | Current - State | | 8 | | | 10 | | | 2 |
| | | | Total Current Expense (Benefit) | | (239) | | | (49) | | | (30) |
| | Deferred - Federal | | 437 | | | 244 | | | 185 |
| | Deferred - State | | 23 | | | 20 | | | 15 |
| | | | Total Deferred Expense, excluding benefits of operating loss carryforwards | | 460 | | | 264 | | | 200 |
| | Investment tax credit, net - Federal | | (4) | | | (4) | | | (6) |
| | Tax benefit of operating loss carryforwards | | | | | | | | |
| | | Deferred - Federal | | (8) | | | (4) | | | (46) |
| | | Deferred - State | | | | | (1) | | | (12) |
| | | | Total Tax Benefit of Operating Loss Carryforwards | | (8) | | | (5) | | | (58) |
| | Total income tax expense from continuing operations (a) | $ | 209 | | $ | 206 | | $ | 106 |
| | | | | | | | | | | | |
| | Total income tax expense - Federal | $ | 178 | | $ | 177 | | $ | 101 |
| | Total income tax expense - State | | 31 | | | 29 | | | 5 |
| | | | Total income tax expense from continuing operations (a) | $ | 209 | | $ | 206 | | $ | 106 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Income Tax Expense (Benefit) | |
| | |
| | |
|
| Current - Federal | $ | (36 | ) | | $ | 2 |
| | $ | (247 | ) |
| Current - State | 1 |
| | 1 |
| | 8 |
|
| Total Current Expense (Benefit) | (35 | ) | | 3 |
| | (239 | ) |
| Deferred - Federal | 248 |
| | 405 |
| | 437 |
|
| Deferred - State | 38 |
| | 32 |
| | 23 |
|
| Total Deferred Expense, excluding benefits of operating loss carryforwards | 286 |
| | 437 |
| | 460 |
|
| Amortization of investment tax credit - Federal | (3 | ) | | (3 | ) | | (4 | ) |
| Tax benefit of operating loss carryforwards | |
| | |
| | |
|
| Deferred - Federal | 10 |
| | (198 | ) | | (8 | ) |
| Deferred - State | (1 | ) | | — |
| | — |
|
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | 9 |
| | (198 | ) | | (8 | ) |
| Total income tax expense from continuing operations (a) | $ | 257 |
| | $ | 239 |
| | $ | 209 |
|
| | | | | | |
| Total income tax expense - Federal | $ | 219 |
| | $ | 206 |
| | $ | 178 |
|
| Total income tax expense - State | 38 |
| | 33 |
| | 31 |
|
| Total income tax expense from continuing operations (a) | $ | 257 |
| | $ | 239 |
| | $ | 209 |
|
| |
| (a) | Excludes current and deferred federal and state tax expense (benefit) recorded to Discontinued Operations of less than $1 million in 2014, $1 million in 2013,2016, 2015 and $(4) million in 2012.2014. Also, excludes deferred federal and state tax expense (benefit) recorded to OCI of $(16) million in 2016, less than $(1) million in 2015 and $(36) million in 2014, $18 million in 2013 and $(12) million in 2012. 2014. |
| | | | | | 2014 | | 2013 | | 2012 |
| Reconciliation of Income Taxes | | | | | | | | | |
| | Federal income tax on Income Before Income Taxes at | | | | | | | | | |
| | | statutory tax rate - 35% | | $ | 194 | | $ | 193 | | $ | 116 |
| Increase (decrease) due to: | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 20 | | | 20 | | | 6 |
| | Amortization of investment tax credit | | | (4) | | | (4) | | | (6) |
| | Net operating loss carryforward (a) | | | | | | | | | (9) |
| | Other | | | (1) | | | (3) | | | (1) |
| | | | Total increase (decrease) | | | 15 | | | 13 | | | (10) |
| Total income tax expense from continuing operations | | $ | 209 | | $ | 206 | | $ | 106 |
| Effective income tax rate | | | 37.8% | | | 37.4% | | | 32.0% |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Reconciliation of Income Taxes | |
| | |
| | |
|
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 240 |
| | $ | 211 |
| | $ | 194 |
|
| Increase (decrease) due to: | |
| | |
| | |
|
| State income taxes, net of federal income tax benefit | 25 |
| | 22 |
| | 20 |
|
| Amortization of investment tax credit | (3 | ) | | (3 | ) | | (4 | ) |
| Valuation allowance adjustment (a) | — |
| | 12 |
| | — |
|
| Stock-based compensation (b) | (3 | ) | | — |
| | — |
|
| Other | (2 | ) | | (3 | ) | | (1 | ) |
| Total increase | 17 |
| | 28 |
| | 15 |
|
| Total income tax expense | $ | 257 |
| | $ | 239 |
| | $ | 209 |
|
| Effective income tax rate | 37.5 | % | | 39.6 | % | | 37.8 | % |
| |
| (a) | Represents a valuation allowance against tax credits expiring through 2020 that are more likely than not to expire before being utilized. |
| |
| (b) | During 2012,2016, LKE recorded adjustments to deferred taxeslower income tax expense related to net operating loss carryforwards based on income tax return adjustments. the application of new stock-based compensation accounting guidance. See Note 1 for additional information. |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Taxes, other than income | |
| | |
| | |
|
| Property and other | $ | 62 |
| | $ | 57 |
| | $ | 52 |
|
| Total | $ | 62 |
| | $ | 57 |
| | $ | 52 |
|
(LG&E)
| | | | | | 2014 | | 2013 | | 2012 |
| Taxes, other than income | | | | | | | | | |
| | Property and other | | $ | 52 | | $ | 48 | | $ | 46 |
| | | | Total | | $ | 52 | | $ | 48 | | $ | 46 |
The provision for LG&E's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.
Significant components of LG&E's deferred income tax assets and liabilities were as follows: |
| | | | | | | |
| | 2016 | | 2015 |
| Deferred Tax Assets | | | |
| Federal loss carryforwards | $ | 80 |
| | $ | 76 |
|
| Contributions in aid of constructions | 18 |
| | 18 |
|
| Regulatory liabilities | 34 |
| | 38 |
|
| Deferred investment tax credits | 14 |
| | 13 |
|
| Income taxes due to customers | 17 |
| | 17 |
|
| Derivative liability | 12 |
| | 18 |
|
| Other | 17 |
| | 15 |
|
| Total deferred tax assets | 192 |
| | 195 |
|
| | | | |
| Deferred Tax Liabilities | | | |
| Plant - net | 1,058 |
| | 914 |
|
| Regulatory assets | 65 |
| | 75 |
|
| Accrued pension costs | 35 |
| | 28 |
|
| Other | 8 |
| | 7 |
|
| Total deferred tax liabilities | 1,166 |
| | 1,024 |
|
| Net deferred tax liability | $ | 974 |
| | $ | 829 |
|
| | | | | 2014 | | 2013 |
| Deferred Tax Assets | | | | | | |
| | Regulatory liabilities | | $ | 51 | | $ | 59 |
| | Deferred investment tax credits | | | 14 | | | 15 |
| | Income taxes due to customers | | | 18 | | | 19 |
| | Derivative liability | | | 32 | | | 14 |
| | Other | | | 9 | | | 14 |
| | | Total deferred tax assets | | | 124 | | | 121 |
| | | | | | | | | |
| Deferred Tax Liabilities | | | | | | |
| | Plant - net | | | 698 | | | 585 |
| | Regulatory assets | | | 90 | | | 83 |
| | Accrued pension costs | | | 28 | | | 24 |
| | Other | | | 8 | | | 8 |
| | | Total deferred tax liabilities | | | 824 | | | 700 |
| Net deferred tax liability | | $ | 700 | | $ | 579 |
LG&E expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.
At December 31, 2014,2016, LG&E had $4$229 million of statefederal net operating loss carryforwards that expire in 2035, $7 million of federal contribution carryforwards that expire from 2020 to 2021 and $5 million of federal credit carryforwards that expire in 2022.from 2034 to 2036.
Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Income Tax Expense (Benefit) | |
| | |
| | |
|
| Current - Federal | $ | (22 | ) | | $ | (15 | ) | | $ | (25 | ) |
| Current - State | 1 |
| | 3 |
| | 10 |
|
| Total Current Benefit | (21 | ) | | (12 | ) | | (15 | ) |
| Deferred - Federal | 134 |
| | 190 |
| | 114 |
|
| Deferred - State | 18 |
| | 13 |
| | 6 |
|
| Total Deferred Expense, excluding benefits of operating loss carryforwards | 152 |
| | 203 |
| | 120 |
|
| Amortization of investment tax credit - Federal | (1 | ) | | (1 | ) | | (2 | ) |
| Tax benefit of operating loss carryforwards | | | |
| | |
|
| Deferred - Federal | (4 | ) | | (76 | ) | | — |
|
| Total Tax Benefit of Operating Loss Carryforwards | (4 | ) | | (76 | ) | | — |
|
| Total income tax expense | $ | 126 |
| | $ | 114 |
| | $ | 103 |
|
| | | | | | |
| Total income tax expense - Federal | $ | 107 |
| | $ | 98 |
| | $ | 87 |
|
| Total income tax expense - State | 19 |
| | 16 |
| | 16 |
|
| Total income tax expense | $ | 126 |
| | $ | 114 |
| | $ | 103 |
|
| | | | | | 2014 | | 2013 | | 2012 |
| Income Tax Expense (Benefit) | | | | | | | | | |
| | Current - Federal | | $ | (25) | | $ | 52 | | $ | (2) |
| | Current - State | | | 10 | | | 16 | | | 3 |
| | | | Total Current Expense (Benefit) | | | (15) | | | 68 | | | 1 |
| | Deferred - Federal | | | 114 | | | 33 | | | 65 |
| | Deferred - State | | | 6 | | | (2) | | | 6 |
| | | | Total Deferred Expense, excluding benefits of operating loss carryforwards | | | 120 | | | 31 | | | 71 |
| | Investment tax credit, net - Federal | | | (2) | | | (2) | | | (3) |
| | Tax benefit of operating loss carryforwards | | | | | | | | | |
| | | Deferred - Federal | | | | | (3) | | | |
| | | | Total Tax Benefit of Operating Loss Carryforwards | | | | | | (3) | | | |
| | Total income tax expense | | $ | 103 | | $ | 94 | | $ | 69 |
| | | | | | | | | | | | | |
| | Total income tax expense - Federal | | $ | 87 | | $ | 80 | | $ | 60 |
| | Total income tax expense - State | | | 16 | | | 14 | | | 9 |
| | | | Total income tax expense | | $ | 103 | | $ | 94 | | $ | 69 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Reconciliation of Income Taxes | |
| | |
| | |
|
| Federal income tax on Income Before Income Taxes at | | | | | |
| statutory tax rate - 35% | $ | 115 |
| | $ | 105 |
| | $ | 95 |
|
| Increase (decrease) due to: | |
| | |
| | |
|
| State income taxes, net of federal income tax benefit | 12 |
| | 11 |
| | 10 |
|
| Amortization of investment tax credit | (1 | ) | | (1 | ) | | (2 | ) |
| Other | — |
| | (1 | ) | | — |
|
| Total increase | 11 |
| | 9 |
| | 8 |
|
| Total income tax expense | $ | 126 |
| | $ | 114 |
| | $ | 103 |
|
| Effective income tax rate | 38.3 | % | | 38.1 | % | | 37.9 | % |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Taxes, other than income | |
| | |
| | |
|
| Property and other | $ | 32 |
| | $ | 28 |
| | $ | 25 |
|
| Total | $ | 32 |
| | $ | 28 |
| | $ | 25 |
|
(KU)
| | | | | | 2014 | | 2013 | | 2012 |
| Reconciliation of Income Taxes | | | | | | | | | |
| | Federal income tax on Income Before Income Taxes at | | | | | | | | | |
| | | statutory tax rate - 35% | | $ | 95 | | $ | 90 | | $ | 67 |
| Increase (decrease) due to: | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 10 | | | 10 | | | 5 |
| | Amortization of investment tax credit | | | (2) | | | (2) | | | (3) |
| | Other | | | | | | (4) | | | |
| | | | Total increase (decrease) | | | 8 | | | 4 | | | 2 |
| Total income tax expense | | $ | 103 | | $ | 94 | | $ | 69 |
| Effective income tax rate | | | 37.9% | | | 36.6% | | | 35.9% |
| | | | | | 2014 | | 2013 | | 2012 |
| Taxes, other than income | | | | | | | | | |
| | Property and other | | $ | 25 | | $ | 24 | | $ | 23 |
| | | | Total | | $ | 25 | | $ | 24 | | $ | 23 |
The provision for KU's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC, VSCC TRA and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.
Significant components of KU's deferred income tax assets and liabilities were as follows: |
| | | | | | | |
| | 2016 | | 2015 |
| Deferred Tax Assets | | | |
| Federal loss carryforwards | $ | 79 |
| | $ | 97 |
|
| Contributions in aid of construction | 11 |
| | 11 |
|
| Regulatory liabilities | 26 |
| | 28 |
|
| Deferred investment tax credits | 37 |
| | 36 |
|
| Other | 11 |
| | 7 |
|
| Total deferred tax assets | 164 |
| | 179 |
|
| | | | |
| Deferred Tax Liabilities | | | |
| Plant - net | 1,280 |
| | 1,175 |
|
| Regulatory assets | 37 |
| | 44 |
|
| Accrued pension costs | 12 |
| | 4 |
|
| Other | 5 |
| | 2 |
|
| Total deferred tax liabilities | 1,334 |
| | 1,225 |
|
| Net deferred tax liability | $ | 1,170 |
| | $ | 1,046 |
|
| | | | | 2014 | | 2013 |
| Deferred Tax Assets | | | | | | |
| | Regulatory liabilities | | $ | 41 | | $ | 47 |
| | Deferred investment tax credits | | | 37 | | | 38 |
| | Net operating loss carryforward | | | | | | 23 |
| | Income taxes due to customers | | | 2 | | | 4 |
| | Derivative liability | | | 13 | | | |
| | Other | | | 7 | | | 8 |
| | | Total deferred tax assets | | | 100 | | | 120 |
| | | | | | | | | |
| Deferred Tax Liabilities | | | | | | |
| | Plant - net | | | 922 | | | 721 |
| | Regulatory assets | | | 53 | | | 50 |
| | Other | | | 7 | | | 4 |
| | | Total deferred tax liabilities | | | 982 | | | 775 |
| Net deferred tax liability | | $ | 882 | | $ | 655 |
KU expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.
At December 31, 2014,2016, KU had $4$227 million of statefederal net operating loss carryforwards that expire in 2035 and $5 million of federal credit carryforwards that expire in 2022.from 2034 to 2036.
Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were:
| | | | | | 2014 | | 2013 | | 2012 |
| Income Tax Expense (Benefit) | | | | | | | | | |
| | Current - Federal | | $ | (95) | | $ | 51 | | $ | (20) |
| | Current - State | | | 6 | | | 12 | | | (1) |
| | | | Total Current Expense (Benefit) | | | (89) | | | 63 | | | (21) |
| | Deferred - Federal | | | 212 | | | 66 | | | 111 |
| | Deferred - State | | | 14 | | | 8 | | | 11 |
| | | | Total Deferred Expense, excluding benefits of operating loss carryforwards | | | 226 | | | 74 | | | 122 |
| | | | | | 2014 | | 2013 | | 2012 |
| | Investment tax credit, net - Federal | | | (2) | | | (2) | | | (3) |
| | Tax benefit of operating loss carryforwards | | | | | | | | | |
| | | Deferred - Federal | | | | | | (3) | | | (20) |
| | | | Total Tax Benefit of Operating Loss Carryforwards | | | | | | (3) | | | (20) |
| | Total income tax expense (a) | | $ | 135 | | $ | 132 | | $ | 78 |
| | | | | | | | | | | | | |
| | Total income tax expense - Federal | | $ | 115 | | $ | 112 | | $ | 68 |
| | Total income tax expense - State | | | 20 | | | 20 | | | 10 |
| | | | Total income tax expense (a) | | $ | 135 | | $ | 132 | | $ | 78 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Income Tax Expense (Benefit) | |
| | |
| | |
|
| Current - Federal | $ | 31 |
| | $ | (21 | ) | | $ | (95 | ) |
| Current - State | 5 |
| | 1 |
| | 6 |
|
| Total Current Expense (Benefit) | 36 |
| | (20 | ) | | (89 | ) |
| Deferred - Federal | 131 |
| | 240 |
| | 212 |
|
| Deferred - State | 19 |
| | 19 |
| | 14 |
|
| Total Deferred Expense, excluding benefits of operating loss carryforwards | 150 |
| | 259 |
| | 226 |
|
| Amortization of investment tax credit - Federal | (2 | ) | | (2 | ) | | (2 | ) |
| Tax benefit of operating loss carryforwards | |
| | |
| | |
|
| Deferred - Federal | (21 | ) | | (97 | ) | | — |
|
| Total Tax Benefit of Operating Loss Carryforwards | (21 | ) | | (97 | ) | | — |
|
| Total income tax expense (a) | $ | 163 |
| | $ | 140 |
| | $ | 135 |
|
| | | | | | |
| Total income tax expense - Federal | $ | 139 |
| | $ | 120 |
| | $ | 115 |
|
| Total income tax expense - State | 24 |
| | 20 |
| | 20 |
|
| Total income tax expense (a) | $ | 163 |
| | $ | 140 |
| | $ | 135 |
|
| |
| (a) | Excludes deferred federal and state tax expense (benefit) recorded to OCI of less than $(1) million in both 20142016, 2015 and in 2013 and $1 million in 2012. 2014. |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Reconciliation of Income Taxes | |
| | |
| | |
|
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 150 |
| | $ | 131 |
| | $ | 124 |
|
| Increase (decrease) due to: | |
| | |
| | |
|
| State income taxes, net of federal income tax benefit | 16 |
| | 13 |
| | 13 |
|
| Amortization of investment tax credit | (2 | ) | | (2 | ) | | (2 | ) |
| Other | (1 | ) | | (2 | ) | | — |
|
| Total increase | 13 |
| | 9 |
| | 11 |
|
| Total income tax expense | $ | 163 |
| | $ | 140 |
| | $ | 135 |
|
| Effective income tax rate | 38.1 | % | | 37.4 | % | | 38.0 | % |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Taxes, other than income | |
| | |
| | |
|
| Property and other | $ | 30 |
| | $ | 29 |
| | $ | 27 |
|
| Total | $ | 30 |
| | $ | 29 |
| | $ | 27 |
|
| | | | | | 2014 | | 2013 | | 2012 |
| Reconciliation of Income Taxes | | | | | | | | | |
| | Federal income tax on Income Before Income Taxes at | | | | | | | | | |
| | | statutory tax rate - 35% | | $ | 124 | | $ | 126 | | $ | 75 |
| Increase (decrease) due to: | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 13 | | | 14 | | | 6 |
| | Amortization of investment tax credit | | | (2) | | | (2) | | | (3) |
| | Other | | | | | | (6) | | | |
| | | | Total increase (decrease) | | | 11 | | | 6 | | | 3 |
| Total income tax expense | | $ | 135 | | $ | 132 | | $ | 78 |
| Effective income tax rate | | | 38.0% | | | 36.7% | | | 36.3% |
| | | | | | 2014 | | 2013 | | 2012 |
| Taxes, other than income | | | | | | | | | |
| | Property and other | | $ | 27 | | $ | 24 | | $ | 23 |
| | | | Total | | $ | 27 | | $ | 24 | | $ | 23 |
Unrecognized Tax Benefits(All Registrants)
Changes to unrecognized tax benefits were as follows:
| | | | 2014 | | 2013 |
| PPL | | | | | | |
| | Beginning of period | | $ | 22 | | $ | 92 |
| | Additions based on tax positions of prior years | | | 1 | | | 3 |
| | Reductions based on tax positions of prior years | | | (2) | | | (32) |
| | Settlements | | | (1) | | | (30) |
| | Lapse of applicable statute of limitation | | | | | | (11) |
| | End of period | | $ | 20 | | $ | 22 |
| | | | | | | | |
| PPL Energy Supply | | | | | | |
| | Beginning of period | | $ | 15 | | $ | 30 |
| | Reductions based on tax positions of prior years | | | | | | (15) |
| | End of period | | $ | 15 | | $ | 15 |
| | | | | | | | |
| PPL Electric | | | | | | |
| | Beginning of period | | | | | $ | 26 |
| | Reductions based on tax positions of prior years | | | | | | (17) |
| | Lapse of applicable statute of limitation | | | | | | (9) |
| | End of period | | | | | $ | |
LKE's, LG&E's and KU's unrecognized tax benefits and changes in those unrecognized tax benefits are insignificant at December 31, 2014 and December 31, 2013.
At December 31, 2014, it was reasonably possible that during the next 12 months the total amount of unrecognized tax benefits could increase or decrease by the following amounts. For PPL Electric, LKE, LG&E and KU, no significant changes in unrecognized tax benefits are projected over the next 12 months.
| | Increase | | Decrease |
| | | | | | |
PPL | | $ | | | $ | 20 |
PPL Energy Supply | | | | | | 15 |
These potential changes could result from subsequent recognition, derecognition and/or changes in the measurement of uncertain tax positions related to the creditability of foreign taxes, the timing and utilization of foreign tax credits and the related impact on alternative minimum tax and other credits, the timing and/or valuation of certain deductions, intercompany transactions and unitary filing groups. The events that could cause these changes are direct settlements with taxing authorities, litigation, legal or administrative guidance by relevant taxing authorities and the lapse of an applicable statute of limitation.
At December 31, the total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective tax rate were as follows. The amounts for PPL Electric, LKE, LG&E and KU were insignificant.
| | | 2014 | | 2013 |
| | | | | | | |
| PPL | | $ | 19 | | $ | 21 |
| PPL Energy Supply | | | 14 | | | 14 |
At December 31, the following receivable (payable) balances were recorded for interest related to tax positions. The amounts for PPL Electric, LKE, LG&E and KU were insignificant.
| | | 2014 | | 2013 |
| | | | | | | |
| PPL | | $ | 14 | | $ | 15 |
| PPL Energy Supply | | | 16 | | | 15 |
The following interest expense (benefit) was recognized in income taxes. The amounts for LKE, LG&E and KU were insignificant.
| | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | |
| PPL | | $ | 1 | | $ | (30) | | $ | (4) |
| PPL Energy Supply | | | (1) | | | 5 | | | (4) |
| PPL Electric | | | | | | (7) | | | (4) |
PPL or its subsidiaries file tax returns in fivefour major tax jurisdictions. The income tax provisions for PPL Energy Supply, PPL Electric, LKE, LG&E and KU are calculated in accordance with an intercompany tax sharing agreement, which provides that taxable income be calculated as if each domestic subsidiary filed a separate consolidated return. Based on this tax sharing agreement, PPL Energy Supply or its subsidiaries indirectly or directly file tax returns in three major tax jurisdictions, PPL Electric or its subsidiaries indirectly or directly file tax returns in two major tax jurisdictions, and LKE, LG&E and KU or their subsidiaries indirectly or directly file tax returns in two major tax jurisdictions. With few exceptions, at December 31, 2014,2016, these jurisdictions, as well as the tax years that are no longer subject to examination, were as follows: follows. |
| | | | PPL | | | | | | | | |
| | | PPL | | Energy Supply | | PPL Electric | | LKE | | LG&E | | KU |
| U.S. (federal) | | 19972012 and prior | | 19972012 and prior | | 19972012 and prior | | 10/31/20102012 and prior | | 10/31/2010 and prior | | 10/31/20102012 and prior |
| Pennsylvania (state) | | 20102011 and prior | | 2010 and prior | | 20082011 and prior | | | | | | |
| Kentucky (state) | | 20092011 and prior | | | | | | 20102011 and prior | | 20102011 and prior | | 20102011 and prior |
Montana (state)U.K. (foreign) | | 2010 and prior | | 20102013 and prior | | | | | | | | |
U.K. (foreign) | | 2011 and prior | | | | | | | | | | |
Other(PPL)
In 2015, PPL recorded a tax benefit of $24 million, related to the settlement of the IRS audit for tax years 1998-2011. Of this amount, $12 million is reflected in continuing operations. PPL finalized the settlement of interest in 2016 and recorded an additional $3 million tax benefit.
6. Utility Rate Regulation
Regulatory Assets and Liabilities
(All Registrants except PPL Energy Supply)Registrants)
As discussed in Note 1 and summarized below, PPL, PPL Electric, LKE, LG&E and KU reflect the effects of regulatory actions in the financial statements for their cost-based rate-regulated utility operations. Regulatory assets and liabilities are classified as current if, upon initial recognition, the entire amount related to that item will be recovered or refunded within a year of the balance sheet date.
WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP and does not record regulatory assets and liabilities. See Note 1 for additional information.
LG&E is subject to the jurisdiction of the KPSC and FERC, and KU is subject to the jurisdiction of the KPSC, FERC VSCC and TRA.VSCC.
LG&E's and KU's Kentucky base rates are calculated based on a return on capitalization (common equity, long-term debt and short-term debt) including adjustments for certain net investments and costs recovered separately through other means. As such, LG&E and KU generally earn a return on regulatory assets.
As a result of purchase accounting requirements, certain fair value amounts related to contracts that had favorable or unfavorable terms relative to market were recorded on the Balance Sheets with an offsetting regulatory asset or liability. LG&E and KU recover in customer rates the cost of coal contracts, power purchases and emission allowances. As a result, management believes the regulatory assets and liabilities created to offset the fair value amounts at LKE's acquisition date meet the recognition criteria established by existing accounting guidance and eliminate any rate-making impact of the fair value adjustments. LG&E's and KU's customer rates will continue to reflect the original contracted prices for theseremaining contracts.
(PPL, LKE and KU)
KU's Virginia base rates are calculated based on a return on rate base (net utility plant plus working capital less deferred taxes and miscellaneous deductions). All regulatory assets and liabilities, except the levelized fuel factor, are excluded from the return on rate base utilized in the calculation of Virginia base rates. Therefore, no return is earned on the related assets.
KU's rates to municipal customers for wholesale requirements are calculated based on annual updates to a rate formula that utilizes a return on rate base (net utility plant plus working capital less deferred taxes and miscellaneous deductions). All regulatory assets and liabilities are excluded from the return on rate base utilized in the development of municipal rates. Therefore, no return is earned on the related assets.
PPL Electric's distribution base rates are calculated based on recovery of costs as well as a return on distribution rate base (net utility plant plus a cash working capital allowance less plant-related deferred taxes and other miscellaneous additions and deductions). PPL Electric's transmission revenues are billed in accordance with a FERC tariff that allows for recovery of transmission costs incurred, a return on transmission-related rate base (net utility plant plus a working capital allowance less plant-related deferred taxes and other miscellaneous additions and deductions) and an automatic annual update. See "Transmission Formula Rate" below for additional information on this tariff. All regulatory assets and liabilities are excluded from distribution and transmission return on investment calculations; therefore, generally no return is earned on PPL Electric's regulatory assets.
(All Registrants except PPL Energy Supply)Registrants)
The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations at December 31. 31,: |
| | | | | | | | | | | | | | | |
| | PPL | | PPL Electric |
| | 2016 | | 2015 | | 2016 | | 2015 |
| Current Regulatory Assets: | | | | | | | |
| Environmental cost recovery | $ | 6 |
| | $ | 24 |
| | $ | — |
| | $ | — |
|
| Generation formula rate | 11 |
| | 7 |
| | — |
| | — |
|
| Transmission service charge | 7 |
| | 10 |
| | 7 |
| | 10 |
|
| Smart meter rider | 6 |
| | 2 |
| | 6 |
| | 2 |
|
| Storm costs | 5 |
| | — |
| | 5 |
| | — |
|
| Other | 4 |
| | 5 |
| | 1 |
| | 1 |
|
| Total current regulatory assets (a) | $ | 39 |
| | $ | 48 |
| | $ | 19 |
| | $ | 13 |
|
| | | | | | | | |
| Noncurrent Regulatory Assets: | | | | | | | |
| Defined benefit plans | $ | 947 |
| | $ | 809 |
| | $ | 549 |
| | $ | 469 |
|
| Taxes recoverable through future rates | 340 |
| | 326 |
| | 340 |
| | 326 |
|
| Storm costs | 57 |
| | 93 |
| | 9 |
| | 30 |
|
| Unamortized loss on debt | 61 |
| | 68 |
| | 36 |
| | 42 |
|
| Interest rate swaps | 129 |
| | 141 |
| | — |
| | — |
|
| Accumulated cost of removal of utility plant | 159 |
| | 137 |
| | 159 |
| | 137 |
|
| AROs | 211 |
| | 143 |
| | — |
| | — |
|
| Other | 14 |
| | 16 |
| | 1 |
| | 2 |
|
| Total noncurrent regulatory assets | $ | 1,918 |
| | $ | 1,733 |
| | $ | 1,094 |
| | $ | 1,006 |
|
|
| | | | | | | | | | | | | | | |
| Current Regulatory Liabilities: | | | | | | | |
| Generation supply charge | $ | 23 |
| | $ | 41 |
| | $ | 23 |
| | $ | 41 |
|
| Demand side management | 3 |
| | 8 |
| | — |
| | — |
|
| Gas supply clause | — |
| | 6 |
| | — |
| | — |
|
| Universal service rider | 14 |
| | 5 |
| | 14 |
| | 5 |
|
| Transmission formula rate | 15 |
| | 48 |
| | 15 |
| | 48 |
|
| Fuel adjustment clause | 11 |
| | 14 |
| | — |
| | — |
|
| Act 129 compliance rider | 17 |
| | — |
| | 17 |
| | — |
|
| Storm damage expense | 13 |
| | 16 |
| | 13 |
| | 16 |
|
| Other | 5 |
| | 7 |
| | 1 |
| | 3 |
|
| Total current regulatory liabilities | $ | 101 |
| | $ | 145 |
| | $ | 83 |
| | $ | 113 |
|
| | | | | | | | |
| Noncurrent Regulatory Liabilities: | | | | | | | |
| Accumulated cost of removal of utility plant | $ | 700 |
| | $ | 691 |
| | $ | — |
| | $ | — |
|
| Coal contracts (b) | — |
| | 17 |
| | — |
| | — |
|
| Power purchase agreement - OVEC (b) | 75 |
| | 83 |
| | — |
| | — |
|
| Net deferred tax assets | 23 |
| | 23 |
| | — |
| | — |
|
| Act 129 compliance rider | — |
| | 22 |
| | — |
| | 22 |
|
| Defined benefit plans | 23 |
| | 24 |
| | — |
| | — |
|
| Interest rate swaps | 78 |
| | 82 |
| | — |
| | — |
|
| Other | — |
| | 3 |
| | — |
| | — |
|
| Total noncurrent regulatory liabilities | $ | 899 |
| | $ | 945 |
| | $ | — |
| | $ | 22 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | LKE | | LG&E | | KU |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Current Regulatory Assets: | | | | | | | | | | | |
| Environmental cost recovery | $ | 6 |
| | $ | 24 |
| | $ | 6 |
| | $ | 13 |
| | $ | — |
| | $ | 11 |
|
| Generation formula rate | 11 |
| | 7 |
| | — |
| | — |
| | 11 |
| | 7 |
|
| Other | 3 |
| | 4 |
| | 3 |
| | 3 |
| | — |
| | 1 |
|
| Total current regulatory assets | $ | 20 |
| | $ | 35 |
| | $ | 9 |
| | $ | 16 |
| | $ | 11 |
| | $ | 19 |
|
| | | | PPL | | PPL Electric |
| | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | |
| Current Regulatory Assets: | | | | | | | | | | | | |
| | Environmental cost recovery | | $ | 5 | | $ | 7 | | | | | | |
| | Gas supply clause | | | 15 | | | 10 | | | | | | |
| | Fuel adjustment clause | | | 4 | | | 2 | | | | | | |
| | Demand side management | | | | | | 8 | | | | | | |
| | Transmission service charge | | | 6 | | | | | $ | 6 | | | |
| | Other | | | 7 | | | 6 | | | 6 | | $ | 6 |
| Total current regulatory assets | | $ | 37 | | $ | 33 | | $ | 12 | | $ | 6 |
| | | | | | | | | | | | | | |
| | | | PPL | | PPL Electric |
| | | | 2014 | | 2013 | | 2014 | | 2013 |
| Noncurrent Regulatory Assets: | | | | | | | | | | | | |
| | Defined benefit plans | | $ | 720 | | $ | 509 | | $ | 372 | | $ | 257 |
| | Taxes recoverable through future rates | | | 316 | | | 306 | | | 316 | | | 306 |
| | Storm costs | | | 124 | | | 147 | | | 46 | | | 53 |
| | Unamortized loss on debt | | | 77 | | | 85 | | | 49 | | | 57 |
| | Interest rate swaps | | | 122 | | | 44 | | | | | | |
| | Accumulated cost of removal of utility plant | | | 114 | | | 98 | | | 114 | | | 98 |
| | AROs | | | 79 | | | 44 | | | | | | |
| | Other | | | 10 | | | 13 | | | | | | 1 |
| Total noncurrent regulatory assets | | $ | 1,562 | | $ | 1,246 | | $ | 897 | | $ | 772 |
| Current Regulatory Liabilities: | | | | | | | | | | | | |
| | Generation supply charge | | $ | 28 | | $ | 23 | | $ | 28 | | $ | 23 |
| | Gas supply clause | | | 6 | | | 3 | | | | | | |
| | Transmission service charge | | | | | | 8 | | | | | | 8 |
| | Transmission formula rate | | | 42 | | | 20 | | | 42 | | | 20 |
| | Fuel adjustment clause | | | | | | 4 | | | | | | |
| | Universal service rider | | | | | | 10 | | | | | | 10 |
| | Storm damage expense | | | 3 | | | 14 | | | 3 | | | 14 |
| | Gas line tracker | | | 3 | | | 6 | | | | | | |
| | Other | | | 9 | | | 2 | | | 3 | | | 1 |
| Total current regulatory liabilities | | $ | 91 | | $ | 90 | | $ | 76 | | $ | 76 |
| | | | | | | | | | | | | | |
| Noncurrent Regulatory Liabilities: | | | | | | | | | | | | |
| | Accumulated cost of removal of utility plant | | $ | 693 | | $ | 688 | | | | | | |
| | Coal contracts (a) | | | 59 | | | 98 | | | | | | |
| | Power purchase agreement - OVEC (a) | | | 92 | | | 100 | | | | | | |
| | Net deferred tax assets | | | 26 | | | 30 | | | | | | |
| | Act 129 compliance rider | | | 18 | | | 15 | | $ | 18 | | $ | 15 |
| | Defined benefit plans | | | 16 | | | 26 | | | | | | |
| | Interest rate swaps | | | 84 | | | 86 | | | | | | |
| | Other | | | 4 | | | 5 | | | | | | |
| Total noncurrent regulatory liabilities | | $ | 992 | | $ | 1,048 | | $ | 18 | | $ | 15 |
| | | | LKE | | LG&E | | KU |
| | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | |
| Current Regulatory Assets: | | | | | | | | | | | | | | | | | | |
| | Environmental cost recovery | | $ | 5 | | $ | 7 | | $ | 4 | | $ | 2 | | $ | 1 | | $ | 5 |
| | Gas supply clause | | | 15 | | | 10 | | | 15 | | | 10 | | | | | | |
| | Fuel adjustment clause | | | 4 | | | 2 | | | 2 | | | 2 | | | 2 | | | |
| | Demand side management | | | | | | 8 | | | | | | 3 | | | | | | 5 |
| | Other | | | 1 | | | | | | | | | | | | 1 | | | |
| Total current regulatory assets | | $ | 25 | | $ | 27 | | $ | 21 | | $ | 17 | | $ | 4 | | $ | 10 |
| | | | | | | | | | | | | | | | | | | | |
| Noncurrent Regulatory Assets: | | | | | | | | | | | | | | | | | | |
| | Defined benefit plans | | $ | 348 | | $ | 252 | | $ | 215 | | $ | 164 | | $ | 133 | | $ | 88 |
| | Storm costs | | | 78 | | | 94 | | | 43 | | | 51 | | | 35 | | | 43 |
| | Unamortized loss on debt | | | 28 | | | 28 | | | 18 | | | 18 | | | 10 | | | 10 |
| | Interest rate swaps | | | 122 | | | 44 | | | 89 | | | 44 | | | 33 | | | |
| | AROs | | | 79 | | | 44 | | | 28 | | | 21 | | | 51 | | | 23 |
| | Other | | | 10 | | | 12 | | | 4 | | | 5 | | | 6 | | | 7 |
| Total noncurrent regulatory assets | | $ | 665 | | $ | 474 | | $ | 397 | | $ | 303 | | $ | 268 | | $ | 171 |
| Current Regulatory Liabilities: | | | | | | | | | | | | | | | | | | |
| | | Demand side management | | $ | 2 | | | | | $ | 1 | | | | | $ | 1 | | | |
| | | Gas supply clause | | | 6 | | $ | 3 | | | 6 | | $ | 3 | | | | | | |
| | | Fuel adjustment clause | | | | | | 4 | | | | | | | | | | | $ | 4 |
| | | Gas line tracker | | | 3 | | | 6 | | | 3 | | | 6 | | | | | | |
| | | Other | | | 4 | | | 1 | | | | | | | | | 4 | | | 1 |
| Total current regulatory liabilities | | $ | 15 | | $ | 14 | | $ | 10 | | $ | 9 | | $ | 5 | | $ | 5 |
| | | | | | | | | | | | | | | | | | | | | |
| | | LKE | | LG&E | | KU |
| | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| Noncurrent Regulatory Liabilities: | | | | | | | | | | | | | | | | | | |
| | Accumulated cost of removal | | | | | | | | | | | | | | | | | | |
| | | of utility plant | | $ | 693 | | $ | 688 | | $ | 302 | | $ | 299 | | $ | 391 | | $ | 389 |
| | Coal contracts (a) | | | 59 | | | 98 | | | 25 | | | 43 | | | 34 | | | 55 |
| | Power purchase agreement - OVEC (a) | | | 92 | | | 100 | | | 63 | | | 69 | | | 29 | | | 31 |
| | Net deferred tax assets | | | 26 | | | 30 | | | 24 | | | 26 | | | 2 | | | 4 |
| | Defined benefit plans | | | 16 | | | 26 | | | | | | | | | 16 | | | 26 |
| | Interest rate swaps | | | 84 | | | 86 | | | 42 | | | 43 | | | 42 | | | 43 |
| | Other | | | 4 | | | 5 | | | 2 | | | 2 | | | 2 | | | 3 |
| Total noncurrent regulatory liabilities | | $ | 974 | | $ | 1,033 | | $ | 458 | | $ | 482 | | $ | 516 | | $ | 551 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | LKE | | LG&E | | KU |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | | | | | |
| Noncurrent Regulatory Assets: | | | | | | | | | | | |
| Defined benefit plans | $ | 398 |
| | $ | 340 |
| | $ | 246 |
| | $ | 215 |
| | $ | 152 |
| | $ | 125 |
|
| Storm costs | 48 |
| | 63 |
| | 26 |
| | 35 |
| | 22 |
| | 28 |
|
| Unamortized loss on debt | 25 |
| | 26 |
| | 16 |
| | 17 |
| | 9 |
| | 9 |
|
| Interest rate swaps | 129 |
| | 141 |
| | 88 |
| | 98 |
| | 41 |
| | 43 |
|
| AROs | 211 |
| | 143 |
| | 70 |
| | 57 |
| | 141 |
| | 86 |
|
| Plant retirement costs | 4 |
| | 6 |
| | — |
| | — |
| | 4 |
| | 6 |
|
| Other | 9 |
| | 8 |
| | 4 |
| | 2 |
| | 5 |
| | 6 |
|
| Total noncurrent regulatory assets | $ | 824 |
| | $ | 727 |
| | $ | 450 |
| | $ | 424 |
| | $ | 374 |
| | $ | 303 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Current Regulatory Liabilities: | | | | | | | | | | | |
| Demand side management | $ | 3 |
| | $ | 8 |
| | $ | 2 |
| | $ | 4 |
| | $ | 1 |
| | $ | 4 |
|
| Gas supply clause | — |
| | 6 |
| | — |
| | 6 |
| | — |
| | — |
|
| Fuel adjustment clause | 11 |
| | 14 |
| | 2 |
| | 2 |
| | 9 |
| | 12 |
|
| Other | 4 |
| | 4 |
| | 1 |
| | 1 |
| | 3 |
| | 3 |
|
| Total current regulatory liabilities | $ | 18 |
| | $ | 32 |
| | $ | 5 |
| | $ | 13 |
| | $ | 13 |
| | $ | 19 |
|
| | | | | | | | | | | | |
| Noncurrent Regulatory Liabilities: | | | | | | | | | | | |
| Accumulated cost of removal | | | | | | | | | | | |
| of utility plant | $ | 700 |
| | $ | 691 |
| | $ | 305 |
| | $ | 301 |
| | $ | 395 |
| | $ | 390 |
|
| Coal contracts (b) | — |
| | 17 |
| | — |
| | 7 |
| | — |
| | 10 |
|
| Power purchase agreement - OVEC (b) | 75 |
| | 83 |
| | 52 |
| | 57 |
| | 23 |
| | 26 |
|
| Net deferred tax assets | 23 |
| | 23 |
| | 23 |
| | 23 |
| | — |
| | — |
|
| Defined benefit plans | 23 |
| | 24 |
| | — |
| | — |
| | 23 |
| | 24 |
|
| Interest rate swaps | 78 |
| | 82 |
| | 39 |
| | 41 |
| | 39 |
| | 41 |
|
| Other | — |
| | 3 |
| | — |
| | 2 |
| | — |
| | 1 |
|
| Total noncurrent regulatory liabilities | $ | 899 |
| | $ | 923 |
| | $ | 419 |
| | $ | 431 |
| | $ | 480 |
| | $ | 492 |
|
| |
| (a) | For PPL, these amounts are included in "Other current assets" on the Balance Sheets. |
| |
| (b) | These liabilities were recorded as offsets to certain intangible assets that were recorded at fair value upon the acquisition of LKE by PPL. |
Following is an overview of selected regulatory assets and liabilities detailed in the preceding tables. Specific developments with respect to certain of these regulatory assets and liabilities are discussed in "Regulatory Matters."
(All Registrants except PPL Energy Supply)
Defined Benefit Plans
(All Registrants)
Defined benefit plan regulatory assets and liabilities represent the portion of unrecognized transition obligation, prior service cost and net actuarial gains and losses that will be recovered in defined benefit plans expense through future base rates based upon established regulatory practices and, generally, are amortized over the average remaining service lives of plan participants. These regulatory assets and liabilities are adjusted at least annually or whenever the funded status of defined benefit plans is re-measured. Of the regulatory asset and liability balances recorded, costs of $58 million for PPL, $18$25 million for PPL Electric, $40$33 million for LKE, $25$22 million for LG&E and $15$11 million for KU, are expected to be amortized into net periodic defined benefit costs in 2015.2017 in accordance with PPL's, PPL Electric's, LKE's, LG&E's and KU's pension accounting policy.
(PPL, LKE, LG&E and KU)
As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between pension cost calculated in accordance with LG&E's and KU's pension accounting policy and pension cost calculated using a 15-year amortization period for actuarial gains and losses is recorded as a regulatory asset. As of December 31, 2016, the balances were $20 million for PPL and LKE, $11 million for LG&E and $9 million for KU. Of the costs expected to be amortized into net periodic defined benefit costs in 2017, $14 million for PPL and LKE, $8 million for LG&E and $6 million for KU, are expected to be recorded as a regulatory asset in 2017.
(All Registrants)
Storm Costs
PPL Electric, LG&E and KU have the ability to request from the PUC, KPSC and VSCC, as applicable, the authority to treat expenses related to specific extraordinary storms as a regulatory asset and defer such costs for regulatory accounting and reporting purposes. Once such authority is granted, LG&E and KU can request recovery of those expenses in a base rate case and begin amortizing the costs when recovery starts. PPL Electric can recover qualifying expenses caused by major storm events, as defined in its retail tariff, over three years through the Storm Damage Expense Rider commencing in the application year after the storm occurred. PPL Electric's, LG&E's and KU's regulatory assets for storm costs are being amortized through various dates ending in 2020.
Unamortized Loss on Debt
Unamortized loss on reacquired debt represents losses on long-term debt reacquired or redeemed that have been deferred and will be amortized and recovered over either the original life of the extinguished debt or the life of the replacement debt (in the case of refinancing). Such costs are being amortized through 2029 for PPL Electric, 2035through 2042 for LG&EKU, and through 20402044 for PPL, LKE and KU.LG&E.
Accumulated Cost of Removal of Utility Plant
LG&E and KU accrue forcharge costs of removal through depreciation expense with an offsetting credit to a regulatory liability. The regulatory liability is relieved as costs are incurred. See Note 1 for additional information.
PPL Electric does not accrue for costs of removal. When costs of removal are incurred, PPL Electric records the deferral of costs as a regulatory asset. Such deferral is included in rates and amortized over the subsequent five-year period.
(PPL and PPL Electric)
Generation Supply Charge (GSC)
The generation supply chargeGSC is a cost recovery mechanism that permits PPL Electric to recover costs incurred to provide generation supply to PLR customers who receive basic generation supply service. The recovery includes charges for generation supply (energy and capacity and ancillary services), as well as administration of the acquisition process. In addition, the generation supply chargeGSC contains a reconciliation mechanism whereby any over- or under-recovery from prior quarters is refunded to, or recovered from, customers through the adjustment factor determined for the subsequent quarter.rate filing period.
Transmission Service Charge (TSC)
PPL Electric is charged by PJM for transmission service-related costs applicable to its PLR customers. PPL Electric passes these costs on to customers, who receive basic generation supply service through the PUC-approved TSC cost recovery mechanism. The TSC contains a reconciliation mechanism whereby any over- or under-recovery from customers is either refunded to, or recovered from, customers through the adjustment factor determined for the subsequent year.
Transmission Formula Rate
PPL Electric's transmission revenues are billed in accordance with a FERC-approved open access transmission tariffOpen Access Transmission Tariff that utilizes a formula-based rate recovery mechanism. TheUnder this formula, rate isrates are put into effect in June of each year based onupon prior year actual expenditures and current year forecasted current calendarcapital additions. Rates are then adjusted the following year transmission plant additions. An adjustment to reflect actual annual expenses and capital additions, as reported in PPL Electric's annual FERC Form 1, filed under the FERC's Uniform System of Accounts. Any difference between the revenue requirement in effect for the prior year and actual expenditures incurred for that year is recorded as a regulatory asset or regulatory liability.
Universal Service Rider (USR)
PPL Electric's distribution rates permit recovery of applicable costs associated with the universal service programs provided to PPL Electric's residential customers. Universal service programs include low-income programs, such as OnTrack and Winter Relief Assistance Program (WRAP). OnTrack is a special payment program for low-income households within the federal poverty level that have difficulty paying their electric bills. This program is funded by residential customers and administered by community-based organizations. Customers who participate in OnTrack receive assistance in the form of reduced payment arrangements, protection against termination of electric service and referrals to other community programs and services. The WRAP program reduces electric bills and improves living comfort for low-income customers by providing services such as weatherization measures and energy education services. The USR is applied to distribution charges for each customer who receives distribution service under PPL Electric's residential service rate schedules. The USR contains a reconciliation mechanism whereby any over- or under-recovery from the current year is refunded to or recovered from residential customers through the adjustment factor determined for the subsequent year.
Storm Damage Expense
In accordance with the PUC's December 2012 final rate case order, PPL Electric proposed the establishment of a Storm Damage Expense Rider (SDER) with
The SDER is a reconcilable automatic adjustment clause under which PPL Electric annually will compare actual storm costs to storm costs allowed in base rates and refund or recover any differences from customers. In the PUC. In April 2014,2015 rate case settlement approved by the PUC issued a final order approving thein November 2015, it was determined that reportable storm damage expenses to be recovered annually
through base rates will be set at $15 million. The SDER with awill recover from or refund to customers, as appropriate, only applicable expenses from reportable storms that are greater than or less than $15 million recovered annually through base rates. Beginning January 1, 2015 effective date. On June 20, 2014,2018, the Officeamortized 2011 storm expense of Consumer Advocate (OCA) filed a petition requesting$5 million will be included in the Commonwealth Courtbase rate component of Pennsylvania to reverse and remand the April 2014 order, which petition remains outstanding. On January 15, 2015, the PUC issued an order modifying the effective date of the SDER to February 1, 2015. See below under "Regulatory Matters - Pennsylvania Activities" for additional information on the SDER.
Taxes Recoverable through Future Rates
Taxes recoverable through future rates represent the portion of future income taxes that will be recovered through future rates based upon established regulatory practices. Accordingly, this regulatory asset is recognized when the offsetting deferred tax liability is recognized. For general-purpose financial reporting, this regulatory asset and the deferred tax liability are not offset; rather, each is displayed separately. This regulatory asset is expected to be recovered over the period that the underlying book-tax timing differences reverse and the actual cash taxes are incurred.
Act 129 Compliance Rider
In compliance with Pennsylvania's Act 129 of 2008 and implementing regulations, Phase I of PPL Electric's energy efficiency and conservation plan was approved by a PUC order in October 2009. The order allowsallowed PPL Electric to recover the maximum $250 million cost of the program ratably over the life of the plan, from January 1, 2010 through May 31, 2013. Phase II of PPL's energy efficiency and conservation plan allowsallowed PPL Electric to recover the maximum $185 million cost of the program over the three year period June 1, 2013 through May 31, 2016. Phase III of PPL's energy efficiency and conservation plan allows PPL Electric to recover the maximum $313 million over the next five year period, June 1, 2016 through May 31, 2021. The plan includes programs intended to reduce electricity consumption. The recoverable costs include direct and indirect charges, including design and development costs, general and administrative costs and applicable state evaluator costs. The rates are applied to customers who receive distribution service through the Act 129 Compliance Rider. The Phase II program costs were reconciled at the end of the program and any remaining over- or under-recovery was rolled into Phase III. The actual Phase III program costs are reconcilable after each 12 month period, and any over- or under-recovery from customers will be refunded or recovered over the next rate filing period. See below under "Regulatory Matters - Pennsylvania Activities" for additional information on Act 129.
Smart Meter Rider (SMR)
Act 129 also requires installation of smart meters for new construction, upon the request of consumers and at their cost, or on a depreciation schedule not exceeding 15 years. Under Act 129, EDCs are able to recover the costs of providing smart metering technology. All of PPL Electric's metered customers currently have advanced meters installed at their service locations capable of many of the functions required under Act 129. PPL Electric conducted pilot projects and technical evaluations of its current advanced metering technology and concluded that the current technology does not meet all of the requirements of Act 129. In June 2014, PPL Electric filed a plan with the PUC to replace its current meters with new meters that meet the Act 129 requirements by the end of 2019. The SMR contains a reconciliation mechanism whereby any over- or under-recovery from prior years is refunded to, or recovered from, customers through the adjustment factor determined for the subsequent quarters.
Universal Service Rider (USR)
The USR provides for recovery of costs associated with universal service programs, OnTrack and Winter Relief Assistance Program (WRAP), provided by PPL Electric to residential customers. OnTrack is a special payment program for low-income households and WRAP provides low-income customers a means to reduce electric bills through energy saving methods. The USR rate is applied to residential customers who receive distribution service. The actual program costs are reconcilable, and any over- or under-recovery from customers will be refunded or recovered atannually in the end of the program. See below under "Regulatory Matters - Pennsylvania Activities" for additional information on Act 129.subsequent year.
Environmental Cost Recovery
Kentucky law permits LG&E and KU to recover the costs, including a return of operating expenses and a return of and on capital invested, of complying with the Clean Air Act and those federal, state or local environmental requirements, which apply to coal combustion wastes and by-products from coal-fired electricelectricity generating facilities. The KPSC requires reviews of the past operations of the environmental surcharge for six-month and two-year billing periods to evaluate the related charges, credits and rates of return, as well as to provide for the roll-in of ECR amounts to base rates each two-year period. As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, LG&E and KU were authorized to earn a 10% return on equity for all existing ECR plans. On August 8, 2016, the KPSC issued an order establishing a 9.8% authorized return
on equity for the 2016 plan projects that pertain to the handling of coal combustion byproducts and MATS. The ECR regulatory asset or liability represents the amount that has been under- or over-recovered due to timing or adjustments to the mechanism and is typically recovered within 12 months. As a result of the settlement agreement in the 2012 rate case, beginning in 2013, LG&E and KU began receiving a 10.25% return on equity for all ECR projects included in the 2009 and 2011 compliance plans. In 2012 and 2011, LG&E and KU were authorized to receive a 10.63% return on equity for projects associated with the 2009 compliance plan and a 10.10% return on equity for projects associated with the 2011 compliance plan.
Gas Supply Clause
LG&E's natural gas rates contain a gas supply clause, whereby the expected cost of natural gas supply and variances between actual and expected costs from prior periods are adjusted quarterly in LG&E's rates, subject to approval by the KPSC. The gas supply clause includes a separate natural gas procurement incentive mechanism, which allows LG&E's rates to be adjusted annually to share variances between actual costs and market indices between the shareholders and the customers during each performance-based rate year (12 months ending October 31). The regulatory assets or liabilities represent the total amounts that have been under- or over-recovered due to timing or adjustments to the mechanisms and are typically recovered within 18 months.
Fuel Adjustment Clauses
LG&E's and KU's retail electric rates contain a fuel adjustment clause, whereby variances in the cost of fuel to generate electricity, including transportation costs, from the costs embedded in base rates are adjusted in LG&E's and KU's rates. The KPSC requires public hearings at six-month intervals to examine past fuel adjustments and at two-year intervals to review past operations of the fuel adjustment clause and, to the extent appropriate, reestablish the fuel charge included in base rates. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered within 12 months.
KU also employs a levelized fuel factor mechanism for Virginia customers using an average fuel cost factor based primarily on projected fuel costs. The Virginia levelized fuel factor allows fuel recovery based on projected fuel costs for the coming year plus an adjustment for any under- or over-recovery of fuel expenses from the prior year. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered within 12 months.
Demand Side Management
LG&E's and KU's DSM programs consist of energy efficiency programs, which are intended to reduce peak demand and delay the investment in additional power plant construction, provide customers with tools and information to become better managers of their energy usage and prepare for potential future legislation governing energy efficiency. LG&E's and KU's rates contain a DSM provision, which includes a rate recovery mechanism that provides for concurrent recovery of DSM costs and incentives, and allows for the recovery of DSM revenues from lost sales associated with the DSM programs. Additionally, LG&E and KU earn an approved return on equity for capital expenditures associated with the residential and commercial load management/management and demand conservation programs. The cost of DSM programs is assigned only to the class or classes of customers that benefit from the programs.
Interest Rate SwapsAROs
(PPL,As discussed in Note 1, for LKE, LG&E and KU)KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with approved ECR projects for CCRs are amortized to expense over a period of 10 to 25 years based on retirement expenditures made related to the obligation. 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.
Coal Contracts
As a result of purchase accounting associated with PPL's acquisition of LKE, LG&E's and KU's coal contracts were recorded at fair value on the Balance Sheets with offsets to regulatory assets for those contracts with unfavorable terms relative to current market prices and offsets to regulatory liabilities for those contracts with favorable terms relative to current market prices. These regulatory assets and liabilities were amortized over the same terms as the related contracts, which expired at various times through 2016.
Power Purchase Agreement - OVEC
As a result of purchase accounting associated with PPL's acquisition of LKE, the fair values of the OVEC power purchase agreement were recorded on the balance sheets of LKE, LG&E and KU with offsets to regulatory liabilities. The regulatory liabilities are being amortized using the units-of-production method until March 2026, the expiration date of the agreement at the date of the acquisition. See Notes 1, 13 and 18 for additional discussion of the power purchase agreement.
Regulatory Liability Associated with Net Deferred Tax Assets
LG&E's and KU's regulatory liabilities associated with net deferred tax assets represent the future revenue impact from the reversal of deferred income taxes required primarily for unamortized investment tax credits. These regulatory liabilities are recognized when the offsetting deferred tax assets are recognized.
Interest Rate Swaps
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL that have terms identical to forward-starting swaps entered into by PPL with third parties. Net realized gains and losses on all of these swaps are probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest expense is recorded. At December 31, 2014, the total notional amount of forward startingIn September 2015, first mortgage bonds totaling $1.05 billion were issued (LG&E issued $550 million and KU issued $500 million) and all outstanding forward-starting interest rate swaps outstanding was $1 billionwere terminated. Net cash settlements of $88 million were paid on the swaps that were terminated (LG&E and KU each held contractspaid $44 million). Net realized losses on these terminated swaps will be recovered through regulated rates. As such, the net settlements were recorded in regulatory assets and are being recognized in "Interest Expense" on the Statements of $500 million). The swaps rangeIncome over the life of the new debt that matures in maturity through2025 and 2045. There were no forward starting interest rate swaps outstanding at December 31, 2013. 2016. See Note 17 for additional information related to the forward-starting interest rate swaps.
Net cash settlements of $86 million were received on forward starting interest rate swaps that were terminated in 2013 (LG&E and KU each received $43 million). Net realized gains on these terminated swaps will be returned through regulated rates. As such, the net settlements were recorded inas regulatory liabilities and are being recognized in "Interest Expense" on the Statements of Income over the life of the newassociated debt whichthat matures in 2043. See Note 17 for additional information related to the forward-starting interest rate swaps.
(PPL, LKE and LG&E)
A net cash settlement of $9 million paid on a swap that was terminated by LG&E in December 2016 is included in “Cash Flows from Operating Activities” on the Statements of Cash Flows. The KPSC authorized the recording of a regulatory asset and the recovery of such costs is being sought in the current rate case filed in November 2016.
In addition to the hedges terminated as a result of the debt issuance,interest rate swaps, realized amounts associated with LG&E's other interest rate swaps, including a terminated swap contract fromterminated in 2008, are recoverable through rates based on an order from the KPSC,KPSC. LG&E's unrealized losses and gains are recorded as a regulatory asset or liability until they are realized as interest expense. Interest expense from existing swaps is realized and recovered over the terms of the associated debt, which matures through 2033. Amortization of the gain or loss related to the 2008 terminated swap contract, which is expensed to "Other operation and maintenance", is to be recovered through 2035.
AROs
As discussed in Note 1, the accretion and depreciation expenses related to LG&E's and KU's AROs are recorded as a regulatory asset, such that there is no earnings impact. When an asset with an ARO is retired, the related ARO regulatory asset is offset against the associated cost of removal regulatory liability, PP&E and ARO liability.
Gas Line Tracker
In the 2012 rate case order, the KPSC approved the GLT rate recovery mechanism. The GLT authorizes LG&E to recover its incremental operating expenses, depreciation, and property taxes and to earncost of capital, including a 10.25% return on equity, for capital associated with the five year gas service riser, leak mitigation and customer service line ownership programs. As a result of the 2014 Kentucky rate case settlement, effective July 1, 2015, LG&E is authorized to earn a 10% return on equity for the GLT mechanism. As part of this program, LG&E makes necessary repairs to the gas distribution system and assumes ownership of naturalservice lines when replaced. In the 2016 rate case, LG&E has requested additional projects for recovery through the GLT mechanism related to further gas lines.line replacements and transmission pipeline modernizations. LG&E annually files revised rates based on projected costs in October to becomewith rates effective on the first billing cycle in January. After the completion of a plan year, LG&E submits a balancing adjustment filing to the KPSC to amend rates charged for the differences between the actual costs and actual GLT charges for the preceding year. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to these timingcost differences.
196
LG&E's natural gas rates contain a gas supply clause, whereby the expected cost of natural gas supply and variances between actual and expected costs from prior periods are adjusted quarterly in LG&E's rates, subject to approval by the KPSC. The gas supply clause also includes a separate natural gas procurement incentive mechanism, which allows LG&E's rates to be adjusted annually to share savings between the actual cost of gas purchases and market indices with the shareholders and the customers during each performance-based rate year (12 months ending October 31). The regulatory assets or liabilities represent the total amounts that have been under- or over-recovered due to timing or adjustments to the mechanisms and are typically recovered within 18 months.
(PPL, LKE and KU)
As a resultPlant Retirement Costs
The 2014 Kentucky rate case settlement that became effective July 1, 2015, provided for deferred recovery of purchase accountingcosts associated with PPL's acquisition of LKE, LG&E'sGreen River's remaining coal-fired generating units through their retirement date, which occurred in September 2015. These costs include inventory write-downs and KU's coal contracts were recorded at fair value on the Balance Sheets with offsets to regulatory assets for those contracts with unfavorable terms relative to current market pricesseparation benefits and offsets to regulatory liabilities for those contracts with favorable terms relative to current market prices. These regulatory assets and liabilities are being amortized over the same terms as the related contracts, which expire at various times through 2016.three years.
Power Purchase Agreement - OVECRegulatory Matters
As a result of purchase accounting associated with PPL's acquisition of LKE, the fair values of the OVEC power purchase agreement were recorded on the balance sheets of LKE, LG&E and KU with offsets to regulatory liabilities. The regulatory liabilities are being amortized using the units-of-production method until March 2026, the expiration date of the agreement at the date of the acquisition.
Regulatory Liability Associated with Net Deferred Tax Assets(PPL)
LG&E's and KU's regulatory liabilities associated with net deferred tax assets represent the future revenue impact from the reversal of deferred income taxes required primarily for unamortized investment tax credits. These regulatory liabilities are recognized when the offsetting deferred tax assets are recognized. For general-purpose financial reporting, these regulatory liabilities and the deferred tax assets are not offset; rather, each is displayed separately.U.K. Activities
Regulatory MattersRIIO-ED1
U.K. Activities(PPL)On April 1, 2015, the RIIO-ED1 eight-year price control period commenced for WPD's four DNOs.
Ofgem Review of Line Loss Calculation
In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, during the first quarter of 2014 WPD increased its existing liability by $65 million for over-recovery of line losses with a reduction to "Utility" revenues"Operating Revenues" on the Statement of Income. Previously, WPD recorded an increase of $45 million to the liability with a reduction to "Utility" revenue on the Statement of Income in 2013, compared to a $79 million reduction of the liability with a credit to "Utility" revenue on the Statement of Income in 2012. In June 2014, WPD applied for judicial review of certain of Ofgem's decisions related to closing out the DPCR4 line loss mechanism. The court held a hearing on November 20, 2014, however, WPD was denied permission to apply for judicial review and WPD considers the matter now closed. Other activity impacting the liability included reductions in the liability that havehas been included in tariffs and foreign exchange movements. WPD began refunding the liability to customers on April 1, 2015 and will continue through March 31, 2019. The recorded liability at December 31, 20142016 and 20132015 was $99$26 million and $74$61 million. The total recorded liability will be refunded to customers from April 1, 2015 through March 31, 2019.
(PPL, LKE, LG&E and KU)
Kentucky Activities
Rate Case ProceedingsStorm Costs
On November 26, 2014,PPL Electric, LG&E and KU filed requests withhave the ability to request from the PUC, KPSC and VSCC, as applicable, the authority to treat expenses related to specific extraordinary storms as a regulatory asset and defer such costs for increases in annual base electricity rates of approximately $30 million atregulatory accounting and reporting purposes. Once such authority is granted, LG&E and approximately $153 million at KU and an increasecan request recovery of those expenses in annual base gas rates of approximately $14 million at LG&E. The proposeda base rate increases would resultcase and begin amortizing the costs when recovery starts. PPL Electric can recover qualifying expenses caused by major storm events, as defined in electricity rate increases of 2.7% at LG&E and 9.6% at KU and a gas rate increase of 4.2% at LG&E and would become effectiveits retail tariff, over three years through the Storm Damage Expense Rider commencing in July 2015.the application year after the storm occurred. PPL Electric's, LG&E's and KU's applications each include a requestregulatory assets for authorized returns-on-equity of 10.5%. The applicationsstorm costs are basedbeing amortized through various dates ending in 2020.
Unamortized Loss on a forecasted test year of July 1, 2015 through June 30, 2016. A number of partiesDebt
Unamortized loss on reacquired debt represents losses on long-term debt reacquired or redeemed that have been granted intervention requests indeferred and will be amortized and recovered over either the proceedings. A hearing onoriginal life of the applications is scheduled to commence on April 21, 2015. extinguished debt or the life of the replacement debt (in the case of refinancing). Such costs are being amortized through 2029 for PPL Electric, through 2042 for KU, and through 2044 for PPL, LKE and LG&E.
Accumulated Cost of Removal of Utility Plant
LG&E and KU cannot predict the outcomecharge costs of these proceedings.
(PPL, LKE and LG&E)removal through depreciation expense with an offsetting credit to a regulatory liability. The regulatory liability is relieved as costs are incurred.
CPCN FilingsPPL Electric does not accrue for costs of removal. When costs of removal are incurred, PPL Electric records the costs as a regulatory asset. Such deferral is included in rates and amortized over the subsequent five-year period.
In January 2014, LG&E and KU filed an application for a CPCN with the KPSC requesting approval to build a solar generating facility at the E.W. Brown generating site. LG&E and KU entered into a stipulation in this proceeding agreeing to certain matters with some interveners and a hearing was held in November 2014. In December 2014, a final order was issued approving the request to construct the solar generating facility at E.W. Brown along with the acceptance of the provisions in the stipulation agreement.
Pennsylvania Activities(PPL and PPL Electric)
Rate Case ProceedingGeneration Supply Charge (GSC)
In December 2012, the PUC approvedThe GSC is a total distribution revenue increase of about $71 million forcost recovery mechanism that permits PPL Electric includingto recover costs incurred to provide generation supply to PLR customers who receive basic generation supply service. The recovery includes charges for generation supply (energy and capacity and ancillary services), as well as administration of the acquisition process. In addition, the GSC contains a 10.40% allowed returnreconciliation mechanism whereby any over- or under-recovery from prior quarters is refunded to, or recovered from, customers through the adjustment factor determined for the subsequent rate filing period.
Transmission Service Charge (TSC)
PPL Electric is charged by PJM for transmission service-related costs applicable to its PLR customers. PPL Electric passes these costs on equity.to customers, who receive basic generation supply service through the PUC-approved TSC cost recovery mechanism. The approvedTSC contains a reconciliation mechanism whereby any over- or under-recovery from customers is either refunded to, or recovered from, customers through the adjustment factor determined for the subsequent year.
Transmission Formula Rate
PPL Electric's transmission revenues are billed in accordance with a FERC-approved Open Access Transmission Tariff that utilizes a formula-based rate recovery mechanism. Under this formula, rates became effective Januaryare put into effect in June of each year based upon prior year actual expenditures and current year forecasted capital additions. Rates are then adjusted the following year to reflect actual annual expenses and capital additions, as reported in PPL Electric's annual FERC Form 1, 2013.filed under the FERC's Uniform System of Accounts. Any difference between the revenue requirement in effect for the prior year and actual expenditures incurred for that year is recorded as a regulatory asset or regulatory liability.
Storm Damage Expense Rider (SDER)
In its December 28, 2012 final rate case order, the PUC directed PPL Electric to file a proposed SDER. The SDER is a reconcilable automatic adjustment clause under which PPL Electric annually will compare actual storm costs to storm costs allowed in base rates and refund or recouprecover any differences from customers. In March 2013, PPL Electric filed its proposed SDER withthe 2015 rate case settlement approved by the PUC and,in November 2015, it was determined that reportable storm damage expenses to be recovered annually
through base rates will be set at $15 million. The SDER will recover from or refund to customers, as partappropriate, only applicable expenses from reportable storms that are greater than or less than $15 million recovered annually through base rates. Beginning January 1, 2018, the amortized 2011 storm expense of that filing, requested recovery$5 million will be included in the base rate component of the 2012 qualifying storm costs related to Hurricane Sandy. PPL Electric proposedSDER.
Taxes Recoverable through Future Rates
Taxes recoverable through future rates represent the portion of future income taxes that will be recovered through future rates based upon established regulatory practices. Accordingly, this regulatory asset is recognized when the SDER become effective January 1, 2013 at a zero rate with qualifying storm costs incurred in 2013offsetting deferred tax liability is recognized. For general-purpose financial reporting, this regulatory asset and the 2012 Hurricane Sandy costs included in rates effective January 1, 2014. As of December 31, 2013, PPL Electric had a $14 milliondeferred tax liability are not offset; rather, each is displayed separately. This regulatory liability balance for amountsasset is expected to be refunded to customers for revenues collected to cover storm costs in excess of actual storm costs incurred during 2013. In April 2014,recovered over the PUC issued a final order approving the SDER with a January 1, 2015 effective date and initially including actual storm costs compared to collections for December 2013 through November 2014. As a result, PPL Electric reduced its 2013 regulatory liability by $12 million. Also, as part of the April 2014 order, PPL Electric was authorized to recover Hurricane Sandy storm damage costs through the SDER over a three-year period beginning January 1, 2015.
On June 20, 2014, the OCA filed a petition with the Commonwealth Court of Pennsylvania requesting that the Courtunderlying book-tax timing differences reverse and remand the April 2014 order permitting PPL Electric to establish the SDER. This matter remains pending before the Commonwealth Court. On October 31, 2014, PPL Electric filed with the PUC a preliminary calculation of the SDER for the period January 1, 2015 through December 31, 2015 and a tariff supplement pursuant to the April Order. On December 3, 2014, the OCA filed a formal complaint and public statement with the PUC challenging PPL Electric's October 31 filings. In response to the OCA's formal complaint, the PUC suspended the effective date of the SDER until April 20, 2015 and opened an investigation. On January 12, 2015, the OCA filed a petition to withdraw its complaint against PPL Electric's October 31 filings. On January 13, 2015, the Administrative Law Judge issued an initial decision granting the OCA's petition to withdraw. On January 15, 2015, the PUC issued a final order closing the investigation and modifying the effective date of the SDER to February 1, 2015.
Act 129actual cash taxes are incurred.
Act 129 requires Pennsylvania Electric Distribution Companies (EDCs) to meet specified goals for reduction in customer electricity usage and peak demand by specified dates. EDCs not meeting the requirements ofCompliance Rider
In compliance with Pennsylvania's Act 129 are subject to significant penalties.
Act 129 also requires Default Service Providers (DSP) to provide electricity generation supply service to customers pursuant to a PUC-approved default service procurementof 2008 and implementing regulations, Phase I of PPL Electric's energy efficiency and conservation plan through auctions, requests for proposal and bilateral contracts at the sole discretion of the DSP. Act 129 requires a mix of spot market purchases, short-term contracts and long-term contracts (4 to 20 years), with long-term contracts limited to 25% of load unless otherwisewas approved by the PUC. A DSP is ablea PUC order in October 2009. The order allowed PPL Electric to recover the costs associated with its default service procurement plan.
Inmaximum $250 million cost of the program ratably over the life of the plan, from January 2013,1, 2010 through May 31, 2013. Phase II of PPL's energy efficiency and conservation plan allowed PPL Electric to recover the PUC approved PPL Electric's DSP procurement plan formaximum $185 million cost of the program over the three year period June 1, 2013 through May 31, 2015.2016. Phase III of PPL's energy efficiency and conservation plan allows PPL Electric filed a new DSP procurement plan withto recover the PUC formaximum $313 million over the next five year period, June 1, 20152016 through May 31, 2017. In September 2014,2021. The plan includes programs intended to reduce electricity consumption. The recoverable costs include direct and indirect charges, including design and development costs, general and administrative costs and applicable state evaluator costs. The rates are applied to customers who receive distribution service through the parties filed withAct 129 Compliance Rider. The Phase II program costs were reconciled at the presiding Administrative Law Judge a partial settlement resolving all but two issues in the proceeding related to the structureend of the DSP, without direct financial impact of PPL Electric.program and any remaining over- or under-recovery was rolled into Phase III. The parties filed
actual Phase III program costs are reconcilable after each 12 month period, and any over- or under-recovery from customers will be refunded or recovered over the next rate filing period. See below under "Regulatory Matters - Pennsylvania Activities" for additional information on Act 129.
briefs on those two issues. In October 2014, a recommended decision was issued approving the partial settlement. Exceptions and reply exceptions were filed by the parties. On January 15, 2015, an Opinion and Order was issued approving the partial settlement and granting PPL Electric's Petition with slight modifications and closing the investigation.
Smart Meter Rider (SMR)
Act 129 also requires installation of smart meters for new construction, upon the request of consumers and at their cost, or on a depreciation schedule not exceeding 15 years. Under Act 129, EDCs are able to recover the costs of providing smart metering technology. All of PPL Electric's metered customers currently have advanced meters installed at their service locations capable of many of the functions required under Act 129. PPL Electric conducted pilot projects and technical evaluations of its current advanced metering technology and concluded that the current technology does not meet all of the requirements of Act 129. PPL Electric recovered the cost of its evaluations through a cost recovery mechanism, the Smart Meter Rider (SMR). In August 2013, PPL Electric filed with the PUC an annual report describing the actions it was taking under its Smart Meter Plan during 2013 and its planned actions for 2014. PPL Electric also submitted revised SMR charges that became effective January 1, 2014. On June 30, 2014, PPL Electric filed its final Smart Meter Plana plan with the PUC. In that plan, PPL Electric proposesPUC to replace all of its current meters with advancednew meters that meet the Act 129 requirements. Full deployment of the new meters is expected to be completerequirements by the end of 2019. The total cost of the projectSMR contains a reconciliation mechanism whereby any over- or under-recovery from prior years is estimatedrefunded to, be approximately $450 million. PPL Electric proposes to recover these costsor recovered from, customers through the SMR whichadjustment factor determined for the PUC previously has approvedsubsequent quarters.
Universal Service Rider (USR)
The USR provides for recovery of suchcosts associated with universal service programs, OnTrack and Winter Relief Assistance Program (WRAP), provided by PPL Electric to residential customers. OnTrack is a special payment program for low-income households and WRAP provides low-income customers a means to reduce electric bills through energy saving methods. The USR rate is applied to residential customers who receive distribution service. The actual program costs are reconcilable, and any over- or under-recovery from customers will be refunded or recovered annually in the subsequent year.
(PPL, LKE, LG&E and KU)
Environmental Cost Recovery
Kentucky law permits LG&E and KU to recover the costs, including a return of operating expenses and a return of and on capital invested, of complying with the Clean Air Act and those federal, state or local environmental requirements, which apply to coal combustion wastes and by-products from coal-fired electricity generating facilities. The KPSC requires reviews of the past operations of the environmental surcharge for six-month and two-year billing periods to evaluate the related charges, credits and rates of return, as well as to provide for the roll-in of ECR amounts to base rates each two-year period. As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, LG&E and KU were authorized to earn a 10% return on equity for all existing ECR plans. On August 8, 2016, the KPSC issued an order establishing a 9.8% authorized return
on equity for the 2016 plan projects that pertain to the handling of coal combustion byproducts and MATS. The ECR regulatory asset or liability represents the amount that has been under- or over-recovered due to timing or adjustments to the mechanism and is typically recovered within 12 months.
Fuel Adjustment Clauses
LG&E's and KU's retail electric rates contain a fuel adjustment clause, whereby variances in the cost of fuel to generate electricity, including transportation costs, from the costs embedded in base rates are adjusted in LG&E's and KU's rates. The KPSC requires public hearings at six-month intervals to examine past fuel adjustments and at two-year intervals to review past operations of the fuel adjustment clause and, to the extent appropriate, reestablish the fuel charge included in base rates. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered within 12 months.
KU also employs a levelized fuel factor mechanism for Virginia customers using an average fuel cost factor based primarily on projected fuel costs. The PUCVirginia levelized fuel factor allows fuel recovery based on projected fuel costs for the coming year plus an adjustment for any under- or over-recovery of fuel expenses from the prior year. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered within 12 months.
Demand Side Management
LG&E's and KU's DSM programs consist of energy efficiency programs, intended to reduce peak demand and delay investment in additional power plant construction, provide customers with tools and information to become better managers of their energy usage and prepare for potential future legislation governing energy efficiency. LG&E's and KU's rates contain a DSM provision, which includes a rate recovery mechanism that provides for concurrent recovery of DSM costs and incentives, and allows for the recovery of DSM revenues from lost sales associated with the DSM programs. Additionally, LG&E and KU earn an approved return on equity for capital expenditures associated with the residential and commercial load management and demand conservation programs. The cost of DSM programs is assigned only to the class or classes of customers that benefit from the programs.
AROs
As discussed in Note 1, for LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with approved ECR projects for CCRs are amortized to expense over a period of 10 to 25 years based on retirement expenditures made related to the obligation. 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.
Coal Contracts
As a result of purchase accounting associated with PPL's acquisition of LKE, LG&E's and KU's coal contracts were recorded at fair value on the Balance Sheets with offsets to regulatory assets for those contracts with unfavorable terms relative to current market prices and offsets to regulatory liabilities for those contracts with favorable terms relative to current market prices. These regulatory assets and liabilities were amortized over the same terms as the related contracts, which expired at various times through 2016.
Power Purchase Agreement - OVEC
As a result of purchase accounting associated with PPL's acquisition of LKE, the fair values of the OVEC power purchase agreement were recorded on the balance sheets of LKE, LG&E and KU with offsets to regulatory liabilities. The regulatory liabilities are being amortized using the units-of-production method until March 2026, the expiration date of the agreement at the date of the acquisition. See Notes 1, 13 and 18 for additional discussion of the power purchase agreement.
Regulatory Liability Associated with Net Deferred Tax Assets
LG&E's and KU's regulatory liabilities associated with net deferred tax assets represent the future revenue impact from the reversal of deferred income taxes required primarily for unamortized investment tax credits. These regulatory liabilities are recognized when the offsetting deferred tax assets are recognized.
Interest Rate Swaps
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL Electric's planthat have terms identical to an Administrative Law Judgeforward-starting swaps entered into by PPL with third parties. Net realized gains and losses on all of these swaps are probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest expense is recorded. In September 2015, first mortgage bonds totaling $1.05 billion were issued (LG&E issued $550 million and KU issued $500 million) and all outstanding forward-starting interest rate swaps were terminated. Net cash settlements of $88 million were paid on the swaps that were terminated (LG&E and KU each paid $44 million). Net realized losses on these terminated swaps will be recovered through regulated rates. As such, the net settlements were recorded in regulatory assets and are being recognized in "Interest Expense" on the Statements of Income over the life of the new debt that matures in 2025 and 2045. There were no forward starting interest rate swaps outstanding at December 31, 2016. See Note 17 for hearingsadditional information related to the forward-starting interest rate swaps.
Net cash settlements of $86 million were received on forward starting interest rate swaps that were terminated in 2013 (LG&E and preparationKU each received $43 million). Net realized gains on these terminated swaps will be returned through regulated rates. As such, the net settlements were recorded as regulatory liabilities and are being recognized in "Interest Expense" on the Statements of Income over the life of the associated debt that matures in 2043.
(PPL, LKE and LG&E)
A net cash settlement of $9 million paid on a swap that was terminated by LG&E in December 2016 is included in “Cash Flows from Operating Activities” on the Statements of Cash Flows. The KPSC authorized the recording of a recommended decision. This matter remains pending beforeregulatory asset and the PUC. PPL Electric cannot predictrecovery of such costs is being sought in the outcome of this proceeding.
PUC Investigation of Retail Electricity Marketcurrent rate case filed in November 2016.
In April 2011,addition to the PUC openedterminated interest rate swaps, realized amounts associated with LG&E's other interest rate swaps, including a swap contract terminated in 2008, are recoverable through rates based on an investigation of Pennsylvania's retail electricity market to be conducted in two phases. Phase one addressedorder from the statusKPSC. LG&E's unrealized losses and gains are recorded as a regulatory asset or liability until they are realized as interest expense. Interest expense from existing swaps is realized and recovered over the terms of the existing retail market and explored potential changes. Questions issued by the PUC for phase oneassociated debt, which matures through 2033. Amortization of the investigation focused primarily on default service issues. Phase two was initiated in July 2011 to develop specific proposals for changes to the retail market and default service model. From December 2011 through the end of 2012, the PUC issued several orders and other pronouncementsloss related to the investigation. A final implementation order was issued in February 2013,2008 terminated swap contract, which is expensed to "Other operation and the PUC created several working groupsmaintenance", is to address continuing competitive issues. Although the final implementation order contains provisions that will require numerous modifications to PPL Electric's current default service model for retail customers, those modifications are not expected to have a material adverse effect on PPL Electric's results of operations.be recovered through 2035.
Distribution System Improvement ChargeGas Line Tracker
Act 11The GLT authorizes LG&E to recover its incremental operating expenses, depreciation, property taxes and cost of capital, including a return on equity, for capital associated with the PUCfive year gas service riser, leak mitigation and customer service line ownership programs. As a result of the 2014 Kentucky rate case settlement, effective July 1, 2015, LG&E is authorized to approve two specific ratemaking mechanisms: the use ofearn a fully projected future test year in base rate proceedings and, subject to certain conditions, the use of a DSIC. Such alternative ratemaking procedures and mechanisms provide opportunity for accelerated cost-recovery and, therefore, are important to PPL Electric as it begins a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging distribution assets. In August 2012, the PUC issued a Final Implementation Order adopting procedures, guidelines and a model tariff10% return on equity for the implementationGLT mechanism. As part of Act 11. Act 11 requires utilitiesthis program, LG&E makes necessary repairs to file an LTIIP as a prerequisite to filingthe gas distribution system and assumes ownership of service lines when replaced. In the 2016 rate case, LG&E has requested additional projects for recovery through the DSIC.GLT mechanism related to further gas line replacements and transmission pipeline modernizations. LG&E annually files revised rates based on projected costs in October with rates effective on the first billing cycle in January. After the completion of a plan year, LG&E submits a balancing adjustment filing to the KPSC to amend rates charged for the differences between the actual costs and actual GLT charges for the preceding year. The LTIIP is mandatedregulatory assets or liabilities represent the amounts that have been under- or over-recovered due to these cost differences.
Gas Supply Clause
LG&E's natural gas rates contain a gas supply clause, whereby the expected cost of natural gas supply and variances between actual and expected costs from prior periods are adjusted quarterly in LG&E's rates, subject to approval by the KPSC. The gas supply clause also includes a separate natural gas procurement incentive mechanism, which allows LG&E's rates to be a five-adjusted annually to ten-year plan describing projects eligibleshare savings between the actual cost of gas purchases and market indices with the shareholders and the customers during each performance-based rate year (12 months ending October 31). The regulatory assets or liabilities represent the total amounts that have been under- or over-recovered due to timing or adjustments to the mechanisms and are typically recovered within 18 months.
(PPL, LKE and KU)
Plant Retirement Costs
The 2014 Kentucky rate case settlement that became effective July 1, 2015, provided for inclusiondeferred recovery of costs associated with Green River's remaining coal-fired generating units through their retirement date, which occurred in September 2015. These costs include inventory write-downs and separation benefits and are being amortized over three years.
Regulatory Matters
(PPL)
U.K. Activities
RIIO-ED1
On April 1, 2015, the DSIC.RIIO-ED1 eight-year price control period commenced for WPD's four DNOs.
Ofgem Review of Line Loss Calculation
In September 2012, PPL Electric filed2014, Ofgem issued its LTIIP describing projects eligiblefinal decision on the DPCR4 line loss incentives and penalties mechanism. As a result, during 2014 WPD increased its liability by $65 million for inclusionover-recovery of line losses with a reduction to "Operating Revenues" on the Statement of Income. Other activity impacting the liability included reductions in the DSICliability that has been included in tariffs and in an order enteredforeign exchange movements. WPD began refunding the liability to customers on May 23, 2013, the PUC approved PPL Electric's proposed DSIC with an initial rate effective JulyApril 1, 2013, subject to refund after hearings.2015 and will continue through March 31, 2019. The PUC also assigned four technical recovery calculation issues to the Office of Administrative Law Judge for hearingliability at December 31, 2016 and preparation of a recommended decision. In August 2014, the presiding Administrative Law Judge issued a recommended decision which would not have a significant impact on PPL Electric. Exceptions2015 was $26 million and reply exceptions have been filed by the parties. This matter remains pending before the PUC. PPL Electric cannot predict the outcome of this proceeding.$61 million.
(PPL, LKE, LG&E and KU)
Kentucky Activities
Storm Costs
During 2012, PPL Electric, experienced several PUC-reportableLG&E and KU have the ability to request from the PUC, KPSC and VSCC, as applicable, the authority to treat expenses related to specific extraordinary storms including Hurricane Sandy, resultingas a regulatory asset and defer such costs for regulatory accounting and reporting purposes. Once such authority is granted, LG&E and KU can request recovery of those expenses in total restorationa base rate case and begin amortizing the costs when recovery starts. PPL Electric can recover qualifying expenses caused by major storm events, as defined in its retail tariff, over three years through the Storm Damage Expense Rider commencing in the application year after the storm occurred. PPL Electric's, LG&E's and KU's regulatory assets for storm costs are being amortized through various dates ending in 2020.
Unamortized Loss on Debt
Unamortized loss on reacquired debt represents losses on long-term debt reacquired or redeemed that have been deferred and will be amortized and recovered over either the original life of the extinguished debt or the life of the replacement debt (in the case of refinancing). Such costs are being amortized through 2029 for PPL Electric, through 2042 for KU, and through 2044 for PPL, LKE and LG&E.
Accumulated Cost of Removal of Utility Plant
LG&E and KU charge costs of $81 million, of which $61 million were initially recorded in "Other operation and maintenance" on the Statement of Income. In particular, in late October 2012, removal through depreciation expense with an offsetting credit to a regulatory liability. The regulatory liability is relieved as costs are incurred.
PPL Electric experienced widespread significant damage to its distribution network from Hurricane Sandy resulting in total restorationdoes not accrue for costs of $66 million,removal. When costs of which $50 million were
initially recorded in "Other operation and maintenance" on the Statement of Income. Althoughremoval are incurred, PPL Electric had storm insurance coverage,records the costs incurred from Hurricane Sandy exceeded the policy limits. Probable insurance recoveries recorded during 2012 were $18.25 million, of which $14 million were included in "Other operation and maintenance" on the Statement of Income. At December 31, 2014 and 2013, $29 million was included on the Balance Sheets as a regulatory asset. In February 2013,Such deferral is included in rates and amortized over the subsequent five-year period.
(PPL and PPL Electric)
Generation Supply Charge (GSC)
The GSC is a cost recovery mechanism that permits PPL Electric received an orderto recover costs incurred to provide generation supply to PLR customers who receive basic generation supply service. The recovery includes charges for generation supply (energy and capacity and ancillary services), as well as administration of the acquisition process. In addition, the GSC contains a reconciliation mechanism whereby any over- or under-recovery from prior quarters is refunded to, or recovered from, customers through the PUC granting permission to defer qualifying storm costs in excess of insurance recoveries associated with Hurricane Sandy. See "Storm Damage Expense Rider" aboveadjustment factor determined for information regarding PPL Electric'sthe subsequent rate filing of a proposed Storm Damage Expense Rider with the PUC.
Federal Matters
FERC Formula Rates (PPL and PPL Electric)period.
Transmission rates are regulatedService Charge (TSC)
PPL Electric is charged by PJM for transmission service-related costs applicable to its PLR customers. PPL Electric passes these costs on to customers, who receive basic generation supply service through the FERC. PUC-approved TSC cost recovery mechanism. The TSC contains a reconciliation mechanism whereby any over- or under-recovery from customers is either refunded to, or recovered from, customers through the adjustment factor determined for the subsequent year.
Transmission Formula Rate
PPL Electric's transmission revenues are billed in accordance with a FERC-approved PJM open access transmission tariff (OATT)Open Access Transmission Tariff that utilizes a formula-based rate recovery mechanism. TheUnder this formula, rate is calculated,rates are put into effect in part,June of each year based on financial resultsupon prior year actual expenditures and current year forecasted capital additions. Rates are then adjusted the following year to reflect actual annual expenses and capital additions, as reported in PPL Electric's annual FERC Form 1, filed under the FERC's Uniform System of Accounts. Any difference between the revenue requirement in effect for the prior year and actual expenditures incurred for that year is recorded as a regulatory asset or regulatory liability.
Storm Damage Expense Rider (SDER)
The SDER is a reconcilable automatic adjustment clause under which PPL Electric annually will compare actual storm costs to storm costs allowed in base rates and refund or recover any differences from customers. In the 2015 rate case settlement approved by the PUC in November 2015, it was determined that reportable storm damage expenses to be recovered annually
through base rates will be set at $15 million. The SDER will recover from or refund to customers, as appropriate, only applicable expenses from reportable storms that are greater than or less than $15 million recovered annually through base rates. Beginning January 1, 2018, the amortized 2011 storm expense of $5 million will be included in the base rate component of the SDER.
Taxes Recoverable through Future Rates
Taxes recoverable through future rates represent the portion of future income taxes that will be recovered through future rates based upon established regulatory practices. Accordingly, this regulatory asset is recognized when the offsetting deferred tax liability is recognized. For general-purpose financial reporting, this regulatory asset and the deferred tax liability are not offset; rather, each is displayed separately. This regulatory asset is expected to be recovered over the period that the underlying book-tax timing differences reverse and the actual cash taxes are incurred.
Act 129 Compliance Rider
In compliance with Pennsylvania's Act 129 of 2008 and implementing regulations, Phase I of PPL Electric's energy efficiency and conservation plan was approved by a PUC order in October 2009. The order allowed PPL Electric to recover the maximum $250 million cost of the program ratably over the life of the plan, from January 1, 2010 through May 31, 2013. Phase II of PPL's energy efficiency and conservation plan allowed PPL Electric to recover the maximum $185 million cost of the program over the three year period June 1, 2013 through May 31, 2016. Phase III of PPL's energy efficiency and conservation plan allows PPL Electric to recover the maximum $313 million over the next five year period, June 1, 2016 through May 31, 2021. The plan includes programs intended to reduce electricity consumption. The recoverable costs include direct and indirect charges, including design and development costs, general and administrative costs and applicable state evaluator costs. The rates are applied to customers who receive distribution service through the Act 129 Compliance Rider. The Phase II program costs were reconciled at the end of the program and any remaining over- or under-recovery was rolled into Phase III. The actual Phase III program costs are reconcilable after each 12 month period, and any over- or under-recovery from customers will be refunded or recovered over the next rate filing period. See below under "Regulatory Matters - Pennsylvania Activities" for additional information on Act 129.
Smart Meter Rider (SMR)
Act 129 also requires installation of smart meters for new construction, upon the request of consumers and at their cost, or on a depreciation schedule not exceeding 15 years. Under Act 129, EDCs are able to recover the costs of providing smart metering technology. All of PPL Electric's metered customers currently have advanced meters installed at their service locations capable of many of the functions required under Act 129. PPL Electric conducted pilot projects and technical evaluations of its current advanced metering technology and concluded that the current technology does not meet all of the requirements of Act 129. In June 2014, PPL Electric filed a plan with the PUC to replace its current meters with new meters that meet the Act 129 requirements by the end of 2019. The SMR contains a reconciliation mechanism whereby any over- or under-recovery from prior years is refunded to, or recovered from, customers through the adjustment factor determined for the subsequent quarters.
Universal Service Rider (USR)
The USR provides for recovery of costs associated with universal service programs, OnTrack and Winter Relief Assistance Program (WRAP), provided by PPL Electric to residential customers. OnTrack is a special payment program for low-income households and WRAP provides low-income customers a means to reduce electric bills through energy saving methods. The USR rate is applied to residential customers who receive distribution service. The actual program costs are reconcilable, and any over- or under-recovery from customers will be refunded or recovered annually in the subsequent year.
(PPL, LKE, LG&E and KU)
Environmental Cost Recovery
Kentucky law permits LG&E and KU to recover the costs, including a return of operating expenses and a return of and on capital invested, of complying with the Clean Air Act and those federal, state or local environmental requirements, which apply to coal combustion wastes and by-products from coal-fired electricity generating facilities. The KPSC requires reviews of the past operations of the environmental surcharge for six-month and two-year billing periods to evaluate the related charges, credits and rates of return, as well as to provide for the roll-in of ECR amounts to base rates each two-year period. As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, LG&E and KU were authorized to earn a 10% return on equity for all existing ECR plans. On August 8, 2016, the KPSC issued an order establishing a 9.8% authorized return
on equity for the 2016 plan projects that pertain to the handling of coal combustion byproducts and MATS. The ECR regulatory asset or liability represents the amount that has been under- or over-recovered due to timing or adjustments to the mechanism and is typically recovered within 12 months.
Fuel Adjustment Clauses
LG&E's and KU's retail electric rates contain a fuel adjustment clause, whereby variances in the cost of fuel to generate electricity, including transportation costs, from the costs embedded in base rates are adjusted in LG&E's and KU's rates. The KPSC requires public hearings at six-month intervals to examine past fuel adjustments and at two-year intervals to review past operations of the fuel adjustment clause and, to the extent appropriate, reestablish the fuel charge included in base rates. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered within 12 months.
KU also employs a levelized fuel factor mechanism for Virginia customers using an average fuel cost factor based primarily on projected fuel costs. The Virginia levelized fuel factor allows fuel recovery based on projected fuel costs for the coming year plus an adjustment for any under- or over-recovery of fuel expenses from the prior year. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered within 12 months.
Demand Side Management
LG&E's and KU's DSM programs consist of energy efficiency programs, intended to reduce peak demand and delay investment in additional power plant construction, provide customers with tools and information to become better managers of their energy usage and prepare for potential future legislation governing energy efficiency. LG&E's and KU's rates contain a DSM provision, which includes a rate recovery mechanism that provides for concurrent recovery of DSM costs and incentives, and allows for the recovery of DSM revenues from lost sales associated with the DSM programs. Additionally, LG&E and KU earn an approved return on equity for capital expenditures associated with the residential and commercial load management and demand conservation programs. The cost of DSM programs is assigned only to the class or classes of customers that benefit from the programs.
AROs
As discussed in Note 1, for LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with approved ECR projects for CCRs are amortized to expense over a period of 10 to 25 years based on retirement expenditures made related to the obligation. 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.
Coal Contracts
As a result of purchase accounting associated with PPL's acquisition of LKE, LG&E's and KU's coal contracts were recorded at fair value on the Balance Sheets with offsets to regulatory assets for those contracts with unfavorable terms relative to current market prices and offsets to regulatory liabilities for those contracts with favorable terms relative to current market prices. These regulatory assets and liabilities were amortized over the same terms as the related contracts, which expired at various times through 2016.
Power Purchase Agreement - OVEC
As a result of purchase accounting associated with PPL's acquisition of LKE, the fair values of the OVEC power purchase agreement were recorded on the balance sheets of LKE, LG&E and KU with offsets to regulatory liabilities. The regulatory liabilities are being amortized using the units-of-production method until March 2026, the expiration date of the agreement at the date of the acquisition. See Notes 1, 13 and 18 for additional discussion of the power purchase agreement.
Regulatory Liability Associated with Net Deferred Tax Assets
LG&E's and KU's regulatory liabilities associated with net deferred tax assets represent the future revenue impact from the reversal of deferred income taxes required primarily for unamortized investment tax credits. These regulatory liabilities are recognized when the offsetting deferred tax assets are recognized.
Interest Rate Swaps
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL that have terms identical to forward-starting swaps entered into by PPL with third parties. Net realized gains and losses on all of these swaps are probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest expense is recorded. In September 2015, first mortgage bonds totaling $1.05 billion were issued (LG&E issued $550 million and KU issued $500 million) and all outstanding forward-starting interest rate swaps were terminated. Net cash settlements of $88 million were paid on the swaps that were terminated (LG&E and KU each paid $44 million). Net realized losses on these terminated swaps will be recovered through regulated rates. As such, the net settlements were recorded in regulatory assets and are being recognized in "Interest Expense" on the Statements of Income over the life of the new debt that matures in 2025 and 2045. There were no forward starting interest rate swaps outstanding at December 31, 2016. See Note 17 for additional information related to the forward-starting interest rate swaps.
Net cash settlements of $86 million were received on forward starting interest rate swaps that were terminated in 2013 (LG&E and KU each received $43 million). Net realized gains on these terminated swaps will be returned through regulated rates. As such, the net settlements were recorded as regulatory liabilities and are being recognized in "Interest Expense" on the Statements of Income over the life of the associated debt that matures in 2043.
(PPL, LKE and LG&E)
A net cash settlement of $9 million paid on a swap that was terminated by LG&E in December 2016 is included in “Cash Flows from Operating Activities” on the Statements of Cash Flows. The KPSC authorized the recording of a regulatory asset and the recovery of such costs is being sought in the current rate case filed in November 2016.
In addition to the terminated interest rate swaps, realized amounts associated with LG&E's other interest rate swaps, including a swap contract terminated in 2008, are recoverable through rates based on an order from the KPSC. LG&E's unrealized losses and gains are recorded as a regulatory asset or liability until they are realized as interest expense. Interest expense from existing swaps is realized and recovered over the terms of the associated debt, which matures through 2033. Amortization of the loss related to the 2008 terminated swap contract, which is expensed to "Other operation and maintenance", is to be recovered through 2035.
Gas Line Tracker
The GLT authorizes LG&E to recover its incremental operating expenses, depreciation, property taxes and cost of capital, including a return on equity, for capital associated with the five year gas service riser, leak mitigation and customer service line ownership programs. As a result of the 2014 Kentucky rate case settlement, effective July 1, 2015, LG&E is authorized to earn a 10% return on equity for the GLT mechanism. As part of this program, LG&E makes necessary repairs to the gas distribution system and assumes ownership of service lines when replaced. In the 2016 rate case, LG&E has requested additional projects for recovery through the GLT mechanism related to further gas line replacements and transmission pipeline modernizations. LG&E annually files revised rates based on projected costs in October with rates effective on the first billing cycle in January. After the completion of a plan year, LG&E submits a balancing adjustment filing to the KPSC to amend rates charged for the differences between the actual costs and actual GLT charges for the preceding year. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to these cost differences.
Gas Supply Clause
LG&E's natural gas rates contain a gas supply clause, whereby the expected cost of natural gas supply and variances between actual and expected costs from prior periods are adjusted quarterly in LG&E's rates, subject to approval by the KPSC. The gas supply clause also includes a separate natural gas procurement incentive mechanism, which allows LG&E's rates to be adjusted annually to share savings between the actual cost of gas purchases and market indices with the shareholders and the customers during each performance-based rate year (12 months ending October 31). The regulatory assets or liabilities represent the total amounts that have been under- or over-recovered due to timing or adjustments to the mechanisms and are typically recovered within 18 months.
(PPL, LKE and KU)
Plant Retirement Costs
The 2014 Kentucky rate case settlement that became effective July 1, 2015, provided for deferred recovery of costs associated with Green River's remaining coal-fired generating units through their retirement date, which occurred in September 2015. These costs include inventory write-downs and separation benefits and are being amortized over three years.
Regulatory Matters
(PPL)
U.K. Activities
RIIO-ED1
On April 1, 2015, the RIIO-ED1 eight-year price control period commenced for WPD's four DNOs.
Ofgem Review of Line Loss Calculation
In 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, during 2014 WPD increased its liability by $65 million for over-recovery of line losses with a reduction to "Operating Revenues" on the Statement of Income. Other activity impacting the liability included reductions in the liability that has been included in tariffs and foreign exchange movements. WPD began refunding the liability to customers on April 1, 2015 and will continue through March 31, 2019. The liability at December 31, 2016 and 2015 was $26 million and $61 million.
(PPL, LKE, LG&E and KU)
Kentucky Activities
Rate Case Proceedings
On November 23, 2016, LG&E and KU filed requests with the KPSC for increases in annual base electricity rates of approximately $103 million at KU and an increase in annual base electricity and gas rates of approximately $94 million and $14 million at LG&E. The proposed base rate increases would result in an electricity rate increase of 6.4% at KU and electricity and gas rate increases of 8.5% and 4.2% at LG&E. New rates are expected to become effective on July 1, 2017. LG&E's and KU's applications include requests for CPCNs for implementing an Advanced Metering System and a Distribution Automation program. The applications are based on a forecasted test year of July 1, 2017 through June 30, 2018 and a requested return on equity of 10.23%. A number of parties have been granted intervention requests in the proceedings. Data discovery and the filing of written testimony will continue through April 2017. A public hearing on the applications is scheduled to commence on May 2, 2017. LG&E and KU cannot predict the outcome of these proceedings.
CPCN and ECR Filings
On August 8, 2016, the KPSC issued an order approving CPCNs and ECR rate treatment regarding environmental construction projects relating to the EPA's regulations addressing the handling of coal combustion by-products and MATS. The construction projects began in 2016 and are expected to continue through 2023. The KPSC order established a 9.8% authorized return on equity for these projects. Recovery of costs commenced with bills rendered on and after August 31, 2016.
(LKE and LG&E)
Gas Franchise
LG&E’s gas franchise agreement for the Louisville/Jefferson County service area expired in March 2016. In August 2016, LG&E and Louisville/Jefferson County entered into a revised franchise agreement with a 5-year term (with renewal options). The franchise fee may be modified at Louisville/Jefferson County's election upon 60 days' notice. However, any franchise fee is capped at 3% of gross receipts for natural gas service within the franchise area. The agreement further provides that if the KPSC determines that the franchise fee should be recovered from LG&E's customers, the franchise fee shall revert to zero. In August 2016, LG&E filed an application in a KPSC proceeding to review and rule upon the recoverability of the franchise fee.
In August 2016, Louisville/Jefferson County submitted a motion to dismiss the proceeding filed by LG&E, and, in November 2016, filed an amended complaint against LG&E relating to these issues. LG&E submitted KPSC filings to respond to, request dismissal of and consolidate certain claims or aspects of the proceedings. In January 2017, the KPSC issued an order denying Louisville/Jefferson County's motion to dismiss, consolidating the matter with LG&E's filed application and establishing a procedural schedule for the case. Until the KPSC issues a final order in this proceeding, LG&E cannot predict the ultimate outcome of this matter but does not anticipate that it will have a material effect on its financial condition or results of operation. LG&E continues to provide gas service to customers in this franchise area at existing rates, but without collecting or remitting a franchise fee.
(PPL and PPL Electric)
Pennsylvania Activities
Rate Case Proceeding
On March 31, 2015, PPL Electric filed a request with the PUC for an increase in its annual distribution revenue requirement of approximately $168 million. The application was based on a fully projected future test year of January 1, 2016 through December 31, 2016. On September 3, 2015, PPL Electric filed with the PUC Administrative Law Judge a petition for approval of a settlement agreement under which PPL Electric would be permitted to increase its annual distribution rates by $124 million, effective January 1, 2016. On November 19, 2015, the PUC entered a final order adopting the Administrative Law Judge's recommended decision. The new rates became effective January 1, 2016.
Act 129
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. In November 2015, PPL Electric filed with the PUC its Act 129 Phase III Energy Efficiency and Conservation Plan for the period June 1, 2016 through May 31, 2021. In June 2016, the PUC approved PPL Electric's Phase III Plan, allowing PPL Electric to implement its energy efficiency and demand response programs and recover, through the Act 129 compliance rider, the $313 million cost of the programs over the five-year period June 1, 2016 through May 31, 2021.
Act 129 also requires Default Service Providers (DSP) to provide electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan through auctions, requests for proposal and bilateral contracts at the sole discretion of the DSP. Act 129 requires a mix of spot market purchases, short-term contracts and long-term contracts (4 to 20 years), with long-term contracts limited to 25% of load unless otherwise approved by the PUC. A DSP is able to recover the costs associated with its default service procurement plan.
PPL Electric initiatedhas received PUC approval of its biannual DSP procurement plans for all prior periods required under Act 129. In January 2016, PPL Electric filed a Petition for Approval of a new DSP procurement plan with the PUC for the period June 1, 2017 through May 31, 2021. The parties to the proceeding reached a settlement on all but one issue, and a partial settlement agreement and briefs on the open issue were submitted to the Administrative Law Judge (ALJ) in July 2016. In August 2016, the ALJ issued an initial decision, and certain parties filed exceptions and reply exceptions. In October 2016, the PUC issued an order approving the partial settlement agreement and adopting the initial decision with minor modifications. In November 2016, Retail Electric Supply Association (RESA) filed a Petition for Reconsideration of the portion of the October 2016 order that approved the Customer Assistance Program Standard Offer Referral Program. In January 2017, the PUC issued an order denying RESA's Petition for Reconsideration and closing the record.
Federal Matters
(PPL and PPL Electric)
FERC Formula Rate
In May 2016, PPL Electric filed its annual transmission formula rate 2012, 2011 and 2010 Annual Updates. Each update was subsequently challenged by a group of municipal customers, whose challenges were opposed by PPL Electric. Between 2011 and 2013, numerous hearings before the FERC and settlement conferences were convened in an attempt to resolve these matters. Beginning in the second half of 2013, PPL Electric and the group of municipal customers exchanged confidential settlement proposals. In September 2014, the parties filed a Joint Offer of Settlement with the FERC, resolving all issuesreflecting a revised revenue requirement. The filing establishes the revenue requirement used to set rates that took effect in the pendingJune 2016. The time period for any challenges and including refundsto PPL Electric’s annual update expired in October 2016. No challenges were submitted.
FERC Wholesale Formula Rates (LKE and KU)
In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts. Such terminations are to be effective in 2019, except in the case of one municipality with a 2017 effective date. In addition, a tenth municipality has a previously settled termination date of 2016. In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. In August 2014, the FERC issued an order on the interim settlement agreement allowing the proposed rates to become effective pending a final order. If approved, the settlement agreement will resolve the rate case with respect to these two municipalities, including an authorized return on equity of 10.0% or the return on equity awarded to other parties in this case, whichever is lower. Also in July 2014, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of their contracts. KU and the terminating municipalities continue settlement discussions in this proceeding. KU cannot currently predict the outcome of its FERC applications regarding its wholesale power agreements with the municipalities.
Credit Arrangements and Short-term Debt
(All Registrants)
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of PPL Energy Supply, PPL Electric, LKE, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE. The amounts borrowed below are recorded as "Short-term debt" on the Balance Sheets. The following credit facilities were in place at: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | 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) (c) | Jan. 2021 | | £ | 210 |
| | £ | 160 |
| | £ | — |
| | £ | 49 |
| | £ | 133 |
| | £ | — |
|
| WPD (South West) | | | |
| | |
| | |
| | |
| | |
| | |
|
| Syndicated Credit Facility (a) (c) | July 2021 | | 245 |
| | 110 |
| | — |
| | 135 |
| | — |
| | — |
|
| WPD (East Midlands) | | | |
| | |
| | |
| | |
| | |
| | |
|
| Syndicated Credit Facility (a) (c) | July 2021 | | 300 |
| | 9 |
| | — |
| | 291 |
| | — |
| | — |
|
| WPD (West Midlands) | | | |
| | |
| | |
| | |
| | |
| | |
|
| Syndicated Credit Facility (a) (c) | July 2021 | | 300 |
| | — |
| | — |
| | 300 |
| | — |
| | — |
|
| Uncommitted Credit Facilities | | | 90 |
| | 60 |
| | 4 |
| | 26 |
| | — |
| | 4 |
|
| Total U.K. Credit Facilities (b) | | | £ | 1,145 |
| | £ | 339 |
| | £ | 4 |
| | £ | 801 |
| | £ | 133 |
| | £ | 4 |
|
| U.S. | | | |
| | |
| | |
| | |
| | |
| | |
|
| PPL Capital Funding | | | |
| | |
| | |
| | |
| | |
| | |
|
| Syndicated Credit Facility (c) (d) | Jan. 2021 | | $ | 950 |
| | $ | — |
| | $ | 20 |
| | $ | 930 |
| | $ | — |
| | $ | 151 |
|
| Syndicated Credit Facility (c) (d) | Nov. 2018 | | 300 |
| | — |
| | — |
| | 300 |
| | — |
| | 300 |
|
| Bilateral Credit Facility (c) (d) | Mar. 2017 | | 150 |
| | — |
| | 17 |
| | 133 |
| | — |
| | 20 |
|
| Total PPL Capital Funding Credit Facilities | | | $ | 1,400 |
| | $ | — |
| | $ | 37 |
| | $ | 1,363 |
| | $ | — |
| | $ | 471 |
|
| PPL Electric | | | |
| | |
| | |
| | |
| | |
| | |
|
| Syndicated Credit Facility (c) (d) | Jan. 2021 | | $ | 650 |
| | $ | — |
| | $ | 296 |
| | $ | 354 |
| | $ | — |
| | $ | 1 |
|
| LKE | | | |
| | |
| | |
| | |
| | |
| | |
|
| Syndicated Credit Facility (c) (d) (f) | Oct. 2018 | | $ | 75 |
| | $ | — |
| | $ | — |
| | $ | 75 |
| | $ | 75 |
| | $ | — |
|
| LG&E | | | |
| | |
| | |
| | |
| | |
| | |
|
| Syndicated Credit Facility (c) (d) | Dec. 2020 | | $ | 500 |
| | $ | — |
| | $ | 169 |
| | $ | 331 |
| | $ | — |
| | $ | 142 |
|
| KU | | | |
| | |
| | |
| | |
| | |
| | |
|
| Syndicated Credit Facility (c) (d) | Dec. 2020 | | $ | 400 |
| | $ | — |
| | $ | 16 |
| | $ | 384 |
| | $ | — |
| | $ | 48 |
|
| Letter of Credit Facility (c) (d) (e) | Oct. 2017 | | 198 |
| | — |
| | 198 |
| | — |
| | — |
| | 198 |
|
| Total KU Credit Facilities | | | $ | 598 |
| | $ | — |
| | $ | 214 |
| | $ | 384 |
| | $ | — |
| | $ | 246 |
|
| | | | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | | | | | | | | | | | Letters of | | | | | | | Letters of |
| | | | | | | | | | | | | | | | | Credit | | | | | | | | Credit |
| | | | | | | | | | | | | | | | | and | | | | | | | | and |
| | | | | | | | | | | | | | | | | Commercial | | | | | | | | Commercial |
| | | | | | | | Expiration | | | | | | | Paper | | Unused | | | | Paper |
| | | | | | | | Date | | Capacity | | Borrowed | | Issued | | Capacity | | Borrowed | | Issued |
| PPL | | | | | | | | | | | | | | | | | | | | |
| U.K. | | | | | | | | | | | | | | | | | | | | |
| | WPD Ltd. | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (a) (c) | | Dec. 2016 | | £ | 210 | | £ | 103 | | | | | £ | 107 | | £ | 103 | | | |
| | WPD (South West) | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (a) (c) | | July 2019 | | | 245 | | | | | | | | | 245 | | | | | | |
| | WPD (East Midlands) | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (a) (c) | | July 2019 | | | 300 | | | 64 | | | | | | 236 | | | | | | |
| | WPD (West Midlands) | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (a) (c) | | July 2019 | | | 300 | | | | | | | | | 300 | | | | | | |
| | Uncommitted Credit Facilities | | | | | 105 | | | | | £ | 5 | | | 100 | | | | | £ | 5 |
| | | | Total U.K. Credit Facilities (b) | | | | £ | 1,160 | | £ | 167 | | £ | 5 | | £ | 988 | | £ | 103 | | £ | 5 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | | | | | | | | | | | | | | | | | | | | |
| | PPL Capital Funding | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (c) (d) (f) | | Nov. 2018 | | $ | 300 | | | | | | | | $ | 300 | | $ | 270 | | | |
| | | Syndicated Credit Facility (c) (d) | | July 2019 | | | 300 | | | | | | | | | 300 | | | | | | |
| | | Bilateral Credit Facility (c) (d) | | Mar. 2015 | | | 150 | | | | | $ | 21 | | | 129 | | | | | | |
| | | Uncommitted Credit Facility | | | | | 65 | | | | | | 1 | | | 64 | | | | | | |
| | | | Total PPL Capital Funding Credit Facilities | | $ | 815 | | | | | $ | 22 | | $ | 793 | | $ | 270 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | | | | | | | | | | | | |
| | Syndicated Credit Facility (c) (d) (f) | | Nov. 2017 | | $ | 3,000 | | $ | 630 | | $ | 121 | | $ | 2,249 | | | | | $ | 29 |
| | Letter of Credit Facility (d) | | Mar. 2015 | | | 150 | | | | | | 138 | | | 12 | | | | | | 138 |
| | Uncommitted Credit Facilities (d) | | | | | 100 | | | | | | 22 | | | 78 | | | | | | 77 |
| | | | Total PPL Energy Supply Credit Facilities | | $ | 3,250 | | $ | 630 | | $ | 281 | | $ | 2,339 | | | | | $ | 244 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | | | | | | | | | | | | |
| | Syndicated Credit Facility (c) (d) | | July 2019 | | $ | 300 | | | | | $ | 1 | | $ | 299 | | | | | $ | 21 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LKE | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Syndicated Credit Facility (c) (d) (f) | | Oct. 2018 | | $ | 75 | | $ | 75 | | | | | | | | $ | 75 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | | | | | | | | |
| | Syndicated Credit Facility (c) (d) | | July 2019 | | $ | 500 | | | | | $ | 264 | | $ | 236 | | | | | $ | 20 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | | | | | | | | |
| | Syndicated Credit Facility (c) (d) | | July 2019 | | $ | 400 | | | | | $ | 236 | | $ | 164 | | | | | $ | 150 |
| | Letter of Credit Facility (c) (d) (e) | | Oct. 2017 | | | 198 | | | | | | 198 | | | | | | | | | 198 |
| | | | Total KU Credit Facilities | | | | $ | 598 | | | | | $ | 434 | | $ | 164 | | | | | $ | 348 |
| |
| (a) | The facilities contain financial covenants to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization and total net debt not in excess of 85% of its RAV, calculated in accordance with the credit facility. |
| |
| (b) | The WPD Ltd.'splc amounts borrowed at December 31, 20142016 and 2013 were2015 included USD-denominated borrowings of $161$200 million and $166 million,for both periods, which bore interest at 1.86%1.43% and 1.87%1.83%. The unused capacity reflects the amount borrowed in GBP of £161 million as of the date borrowed. The WPD (South West) amount borrowed at December 31, 2016 was a GBP-denominated borrowing, which equated to $137 million and bore interest at 0.66%. The WPD (East Midlands) amount borrowed at December 31, 20142016 was a GBP-denominated borrowing, which equated to $100$11 million and bore interest at 1.00%0.66%. The WPD Uncommitted Credit Facilities amounts borrowed at December 31, 2016 were GBP-denominated borrowings which equated to $75 million and bore interest at 1.26%. At December 31, 2014,2016, the unused capacity under the U.K. credit facilities was approximately $1.5$1 billion. |
| |
| (c) | Each company pays customary fees under its respective facility and borrowings generally bear interest at LIBOR-based rates plus an applicable margin. |
| |
| (d) | The facilities contain a financial covenant requiring debt to total capitalization not to exceed 65% for PPL Energy Supply and 70% for PPL Capital Funding, PPL Electric, LKE, LG&E and KU, as calculated in accordance with the facilities and other customary covenants. Additionally, as it relates to the syndicated and bilateral credit facilities and subject to certain conditions, PPL Capital Funding may request that the capacity of its facility expiring in July 2019 be increased by up to $100 million and the facilities expiring in November 2018 and March 2015 may be increased by up to $30 million, PPL Energy Supply may request that its facility's capacity be increased by up to $500 million, PPL Electric and KU each may request up to a $100 million increase in its facility's capacity and LKE may request up to a $25 million increase in its facility's capacity. 2017 |
be increased by up to $30 million, LG&E and KU each may request up to a $100 million increase in its facility's capacity and LKE may request up to a $25 million increase in its facility's capacity.
| |
| (e) | KU's letter of credit facility agreement allows for certain payments under the letter of credit facility to be converted to loans rather than requiring immediate payment. |
| |
| (f) | At December 31, 2014, PPL Energy Supply's and2015, LKE's interest ratesrate on outstanding borrowings were 2.05% and 1.67%, respectively. At December 31, 2013, PPL Capital Funding's and LKE's interest rates on outstanding borrowings were 1.79% and 1.67%, respectively. was 1.68%. |
In January 2017, the expiration dates for PPL Capital Funding and PPL Electric syndicated credit facilities expiring in January 2021, and the LG&E and KU syndicated credit facilities expiring in December 2020, were extended to January 2022.
PPL, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility.
The following commercial paper programs were in place at:
| | | | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | | Weighted - | | | | | Commercial | | | | Weighted - | | Commercial |
| | | | | | | | Average | | | | | Paper | | Unused | | Average | | Paper |
| | | | | | | | Interest Rate | | Capacity | | Issuances | | Capacity | | Interest Rate | | Issuances |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | PPL Electric | | | | $ | 300 | | | | | $ | 300 | | | 0.23% | | $ | 20 |
| | LG&E | | 0.42% | | | 350 | | $ | 264 | | | 86 | | | 0.29% | | | 20 |
| | KU | | 0.49% | | | 350 | | | 236 | | | 114 | | | 0.32% | | | 150 |
| | | | Total | | | | $ | 1,000 | | $ | 500 | | $ | 500 | | | | | $ | 190 |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Weighted -
Average
Interest Rate | | Capacity | | Commercial
Paper
Issuances | | Unused
Capacity | | Weighted -
Average
Interest Rate | | Commercial
Paper
Issuances |
| PPL Capital Funding | 1.10% | | $ | 1,000 |
| | $ | 20 |
| | $ | 980 |
| | 0.78% | | $ | 451 |
|
| PPL Electric | 1.05% | | 400 |
| | 295 |
| | 105 |
| | | | — |
|
| LG&E | 0.94% | | 350 |
| | 169 |
| | 181 |
| | 0.71% | | 142 |
|
| KU | 0.87% | | 350 |
| | 16 |
| | 334 |
| | 0.72% | | 48 |
|
| Total | | | $ | 2,100 |
| | $ | 500 |
| | $ | 1,600 |
| |
| | $ | 641 |
|
In August 2014,January 2017, PPL Energy Supply terminated itsElectric's commercial paper program.program capacity was increased to $650 million.
(PPL and PPL Energy Supply)LKE)
PPL Energy Supply maintains a $500 million Facility Agreement expiring June 2017, which provides PPL Energy Supply the ability to request up to $500 million of committed letter of credit capacity at fees to be agreed upon at the time of each request, based on certain market conditions. At December 31, 2014, PPL Energy Supply had not requested any capacity for the issuance of letters of credit under this arrangement.
PPL Energy Supply, PPL EnergyPlus, PPL Montour and PPL Brunner Island maintain an $800 million secured energy marketing and trading facility, whereby PPL EnergyPlus will receive credit to be applied to satisfy collateral posting obligations related to its energy marketing and trading activities with counterparties participating in the facility. The credit amount is guaranteed by PPL Energy Supply, PPL Montour and PPL Brunner Island. PPL Montour and PPL Brunner Island have granted liens on their respective generating facilities to secure any amount they may owe under their guarantees, which had an aggregate carrying value of $2.6 billion at December 31, 2014. The facility expires in November 2019, but is subject to automatic one-year renewals under certain conditions. There were $64 million of secured obligations outstanding under this facility at December 31, 2014.
(All Registrants except PPL)
See Note 14 for discussion of intercompany borrowings.
Long-term Debt(All Registrants) |
| | | | | | | | | | | | |
| | | | | | December 31, |
| | Weighted-Average
Rate (g) | | Maturities (g) | | 2016 | | 2015 |
| PPL | | | | | | | |
| U.S. | | | | | | | |
| Senior Unsecured Notes | 3.75 | % | | 2018 - 2044 | | $ | 4,075 |
| | $ | 3,425 |
|
| Senior Secured Notes/First Mortgage Bonds (a) (b) (c) | 3.88 | % | | 2017 - 2045 | | 6,849 |
| | 6,874 |
|
| Junior Subordinated Notes | 6.31 | % | | 2067 - 2073 | | 930 |
| | 930 |
|
| Total U.S. Long-term Debt | | | | | 11,854 |
| | 11,229 |
|
| | | | | | | | |
| U.K. | | | | | | | |
| Senior Unsecured Notes (d) | 5.44 | % | | 2017 - 2040 | | 5,707 |
| | 7,170 |
|
| Index-linked Senior Unsecured Notes (e) | 1.67 | % | | 2026 - 2056 | | 838 |
| | 772 |
|
| Total U.K. Long-term Debt (f) | | | | | 6,545 |
| | 7,942 |
|
| Total Long-term Debt Before Adjustments | | | | | 18,399 |
| | 19,171 |
|
| | | | | | | | |
| Fair market value adjustments | | | | | 22 |
| | 30 |
|
| Unamortized premium and (discount), net (e) | | | | | 20 |
| | (28 | ) |
| Unamortized debt issuance costs | | | | | (115 | ) | | (125 | ) |
| Total Long-term Debt | | | | | 18,326 |
| | 19,048 |
|
| Less current portion of Long-term Debt | | | | | 518 |
| | 485 |
|
| Total Long-term Debt, noncurrent | | | | | $ | 17,808 |
| | $ | 18,563 |
|
| | | | | Weighted-Average | | | | December 31, |
| | | | | Rate | | Maturities | | 2014 | | 2013 |
| PPL | | | | | | | | | |
| U.S. | | | | | | | | | |
| | Senior Unsecured Notes (a) | 4.28% | | 2015 - 2044 | | $ | 6,018 | | $ | 5,568 |
| | Senior Secured Notes/First Mortgage Bonds (b) (c) (d) | 3.83% | | 2015 - 2044 | | | 6,119 | | | 5,823 |
| | Junior Subordinated Notes | 6.31% | | 2067 - 2073 | | | 930 | | | 1,908 |
| | Other | | | | | | | | | 15 |
| | | | Total U.S. Long-term Debt | | | | | | 13,067 | | | 13,314 |
| | | | | | | | | | | | | |
| U.K. | | | | | | | | | |
| | Senior Unsecured Notes (e) | 5.53% | | 2016 - 2040 | | | 6,627 | | | 6,872 |
| | Index-linked Senior Unsecured Notes (f) | 1.83% | | 2043 - 2056 | | | 732 | | | 749 |
| | | | Total U.K. Long-term Debt (g) | | | | | | 7,359 | | | 7,621 |
| | | | Total Long-term Debt Before Adjustments | | | | | | 20,426 | | | 20,935 |
| | | | | | | | | | | | | |
| | Fair market value adjustments | | | | | | 18 | | | 23 |
| | Unamortized premium and (discount), net | | | | | | (53) | | | (51) |
| | | | Total Long-term Debt | | | | | | 20,391 | | | 20,907 |
| | Less current portion of Long-term Debt (a) | | | | | | 1,535 | | | 315 |
| | | | Total Long-term Debt, noncurrent | | | | | $ | 18,856 | | $ | 20,592 |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | | | | December 31, |
| | Weighted-Average
Rate (g) | | Maturities (g) | | 2016 | | 2015 |
| | | | | | | | |
| PPL Electric | | | | | | | |
| Senior Secured Notes/First Mortgage Bonds (a) (b) | 4.20 | % | | 2017 - 2045 | | $ | 2,864 |
| | $ | 2,864 |
|
| Total Long-term Debt Before Adjustments | | | | | 2,864 |
| | 2,864 |
|
| | | | | | | | |
| Unamortized discount | | | | | (12 | ) | | (13 | ) |
| Unamortized debt issuance costs | | | | | (21 | ) | | (23 | ) |
| Total Long-term Debt | | | | | 2,831 |
| | 2,828 |
|
| Less current portion of Long-term Debt | | | | | 224 |
| | — |
|
| Total Long-term Debt, noncurrent | | | | | $ | 2,607 |
| | $ | 2,828 |
|
| | | | | | | | |
| LKE | | | | | | | |
| Senior Unsecured Notes | 3.97 | % | | 2020 - 2021 | | $ | 725 |
| | $ | 725 |
|
| First Mortgage Bonds (a) (c) | 3.67 | % | | 2017 - 2045 | | 3,985 |
| | 4,010 |
|
| Long-term debt to affiliate | 3.50 | % | | 2025 | | 400 |
| | 400 |
|
| Total Long-term Debt Before Adjustments | | | | | 5,110 |
| | 5,135 |
|
| | | | | | | | |
| Fair market value adjustments | | | | | (1 | ) | | (1 | ) |
| Unamortized discount | | | | | (15 | ) | | (16 | ) |
| Unamortized debt issuance costs | | | | | (29 | ) | | (30 | ) |
| Total Long-term Debt | | | | | 5,065 |
| | 5,088 |
|
| Less current portion of Long-term Debt | | | | | 194 |
| | 25 |
|
| Total Long-term Debt, noncurrent | | | | | $ | 4,871 |
| | $ | 5,063 |
|
| | | | | | | | |
| LG&E | | | | | | | |
| First Mortgage Bonds (a) (c) | 3.45 | % | | 2017 - 2045 | | $ | 1,634 |
| | $ | 1,659 |
|
| Total Long-term Debt Before Adjustments | | | | | 1,634 |
| | 1,659 |
|
| | | | | | | | |
| Fair market value adjustments | | | | | (1 | ) | | (1 | ) |
| Unamortized discount | | | | | (4 | ) | | (4 | ) |
| Unamortized debt issuance costs | | | | | (12 | ) | | (12 | ) |
| Total Long-term Debt | | | | | 1,617 |
| | 1,642 |
|
| Less current portion of Long-term Debt | | | | | 194 |
| | 25 |
|
| Total Long-term Debt, noncurrent | | | | | $ | 1,423 |
| | $ | 1,617 |
|
| | | | | | | | |
| KU | | | | | | | |
| First Mortgage Bonds (a) (c) | 3.82 | % | | 2019 - 2045 | | $ | 2,351 |
| | $ | 2,351 |
|
| Total Long-term Debt Before Adjustments | | | | | 2,351 |
| | 2,351 |
|
| | | | | | | | |
| Unamortized discount | | | | | (9 | ) | | (10 | ) |
| Unamortized debt issuance costs | | | | | (15 | ) | | (15 | ) |
| Total Long-term Debt | | | | | 2,327 |
| | 2,326 |
|
| Less current portion of Long-term Debt | | | | | — |
| | — |
|
| Total Long-term Debt, noncurrent | | | | | $ | 2,327 |
| | $ | 2,326 |
|
| | | | | Weighted-Average | | | | December 31, |
| | | | | Rate | | Maturities | | 2014 | | 2013 |
| PPL Energy Supply | | | | | | | | | |
| | Senior Unsecured Notes (a) | 5.31% | | 2015 - 2036 | | $ | 2,193 | | $ | 2,493 |
| | Senior Secured Notes | 8.86% | | 2025 | | | 45 | | | 49 |
| | Other | | | | | | | | | 5 |
| | | | Total Long-term Debt Before Adjustments | | | | | | 2,238 | | | 2,547 |
| | | | | | | | | | | | | |
| | Fair market value adjustments | | | | | | (19) | | | (22) |
| | Unamortized premium and (discount), net | | | | | | (1) | | | |
| | | | Total Long-term Debt | | | | | | 2,218 | | | 2,525 |
| | Less current portion of Long-term Debt (a) | | | | | | 535 | | | 304 |
| | | | Total Long-term Debt, noncurrent | | | | | $ | 1,683 | | $ | 2,221 |
| | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | |
| | Senior Secured Notes/First Mortgage Bonds (b) (c) | 4.57% | | 2015 - 2044 | | $ | 2,614 | | $ | 2,314 |
| | Other | | | | | | | | | 10 |
| | | | Total Long-term Debt Before Adjustments | | | | | | 2,614 | | | 2,324 |
| | | | | | | | | | | | | |
| | Unamortized discount | | | | | | (12) | | | (9) |
| | | | Total Long-term Debt | | | | | | 2,602 | | | 2,315 |
| | Less current portion of Long-term Debt | | | | | | 100 | | | 10 |
| | | | Total Long-term Debt, noncurrent | | | | | $ | 2,502 | | $ | 2,305 |
| | | | | | | | | | | | | |
| LKE | | | | | | | | | |
| | Senior Unsecured Notes | 3.31% | | 2015 - 2021 | | $ | 1,125 | | $ | 1,125 |
| | First Mortgage Bonds (b) (d) | 3.21% | | 2015 - 2043 | | | 3,460 | | | 3,460 |
| | | | Total Long-term Debt Before Adjustments | | | | | | 4,585 | | | 4,585 |
| | | | | | | | | | | | | |
| | Fair market value adjustments | | | | | | (1) | | | (1) |
| | Unamortized discount | | | | | | (17) | | | (19) |
| | | | Total Long-term Debt | | | | | | 4,567 | | | 4,565 |
| | Less current portion of Long-term Debt | | | | | | 900 | | | |
| | | | Total Long-term Debt, noncurrent | | | | | $ | 3,667 | | $ | 4,565 |
| | | | | | | | | | | | | |
| LG&E | | | | | | | | | |
| | First Mortgage Bonds (b) (d) | 2.85% | | 2015 - 2043 | | $ | 1,359 | | $ | 1,359 |
| | | | Total Long-term Debt Before Adjustments | | | | | | 1,359 | | | 1,359 |
| | | | | | | | | | | | | |
| | Fair market value adjustments | | | | | | (1) | | | (1) |
| | Unamortized discount | | | | | | (5) | | | (5) |
| | | | Total Long-term Debt | | | | | | 1,353 | | | 1,353 |
| | Less current portion of Long-term Debt | | | | | | 250 | | | |
| | | | Total Long-term Debt, noncurrent | | | | | $ | 1,103 | | $ | 1,353 |
| | | | | | | | | | | | | |
| KU | | | | | | | | | |
| | First Mortgage Bonds (b) (d) | 3.44% | | 2015 - 2043 | | $ | 2,101 | | $ | 2,101 |
| | | | Total Long-term Debt Before Adjustments | | | | | | 2,101 | | | 2,101 |
| | | | | | | | | | | | | |
| | Fair market value adjustments | | | | | | | | | 1 |
| | Unamortized discount | | | | | | (10) | | | (11) |
| | | | Total Long-term Debt | | | | | | 2,091 | | | 2,091 |
| | Less current portion of Long-term Debt | | | | | | 250 | | | |
| | | | Total Long-term Debt, noncurrent | | | | | $ | 1,841 | | $ | 2,091 |
| Includes $300 million of 5.70% REset Put Securities due 2035 (REPS). The REPS bear interest at a rate of 5.70% per annum to, but excluding, October 15, 2015 (Remarketing Date). The REPS are required to be put by existing holders on the Remarketing Date either for (a) purchase and remarketing by a designated remarketing dealer or (b) repurchase by PPL Energy Supply. If the remarketing dealer elects to purchase the REPS for remarketing, it will purchase the REPS at 100% of the principal amount, and the REPS will bear interest on and after the Remarketing Date at a new fixed rate per annum determined in the remarketing. PPL Energy Supply has the right to terminate the remarketing process. If the remarketing is terminated at the option of PPL Energy Supply or under certain other circumstances, including the occurrence of an event of default by PPL Energy Supply under the related indenture or a failed remarketing for certain specified reasons, PPL Energy Supply will be required to pay the remarketing dealer a settlement amount as calculated in accordance with the related remarketing agreement. |
(b)(a) | Includes PPL Electric's senior secured and first mortgage bonds that are secured by the lien of PPL Electric's 2001 Mortgage Indenture, which covers substantially all electric distribution plant and certain transmission plant owned by PPL Electric. The carrying value of PPL Electric's property, plant and equipment was approximately $5.8$7.6 billion and $5.1$6.7 billion at December 31, 20142016 and 2013.2015. |
Includes LG&E's first mortgage bonds that are secured by the lien of the LG&E 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of LG&E's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity and the storage and distribution of natural gas. The aggregate carrying value of the property subject to the lien was $4.4 billion and $4.2 billion at December 31, 2016 and 2015.
Includes KU's first mortgage bonds that are secured by the lien of the KU 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of KU's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity. The aggregate carrying value of the property subject to the lien was $5.8 billion and $5.7 billion at December 31, 2016 and 2015.
| Includes LG&E's first mortgage bonds that are secured by the lien of the LG&E 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of LG&E's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity and the storage and distribution of natural gas. The aggregate carrying value of the property subject to the lien was $3.7 billion and $3.2 billion at December 31, 2014 and 2013. |
| Includes KU's first mortgage bonds that are secured by the lien of the KU 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of KU's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity. The aggregate carrying value of the property subject to the lien was $5.5 billion and $5.1 billion at December 31, 2014 and 2013. |
(c)(b) | Includes PPL Electric's series of senior secured bonds that secure its obligations to make payments with respect to each series of Pollution Control Bonds that were issued by the LCIDA and the PEDFA on behalf of PPL Electric. These senior secured bonds were issued in the same principal amount, contain payment and redemption provisions that correspond to and bear the same interest rate as such Pollution Control Bonds. These senior secured bonds were issued under PPL Electric's 2001 Mortgage Indenture and are secured as noted in (b)(a) above. This amount includes $224 million that may be redeemedof which PPL Electric is allowed to convert the interest rate mode on the bonds from time to time to a commercial paper rate, daily rate, weekly rate, or term rate of at par beginning in 2015least one year and $90 million that may be redeemed, in whole or in part, at par beginning in October 2020, and are subject to mandatory redemption upon determination that the interest rate on the bonds would be included in the holders' gross income for federal tax purposes. |
(d) | |
| (c) | Includes LG&E's and KU's series of first mortgage bonds that were issued to the respective trustees of tax-exempt revenue bonds to secure its respective obligations to make payments with respect to each series of bonds. The first mortgage bonds were issued in the same principal amounts, contain payment and redemption provisions that correspond to and bear the same interest rate as such tax-exempt revenue bonds. These first mortgage bonds were issued under the LG&E 2010 Mortgage Indenture and the KU 2010 Mortgage Indenture and are secured as noted in (b)(a) above. The related tax-exempt revenue bonds were issued by various governmental entities, principally counties in Kentucky, on behalf of LG&E and KU. The related revenue bond documents allow LG&E and KU to convert the interest rate mode on the bonds from time to time to a commercial paper rate, daily rate, weekly rate, term rate of at least one year or, in some cases, an auction rate or a LIBOR index rate. |
At December 31, 2016, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a term rate mode totaled $514 million for LKE, comprised of $391 million and $123 million for LG&E and KU, respectively. At December 31, 2016, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a variable rate mode totaled $386 million for LKE, comprised of $158 million and $228 million for LG&E and KU, respectively.
Certain of the variable rate tax-exempt revenue bonds totaling $375 million at December 31, 2016 ($147 million for LG&E and $228 million for KU), are subject to tender for purchase by LG&E and KU at the option of the holder and to mandatory tender for purchase by LG&E and KU upon the occurrence of certain events.
| At December 31, 2014, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a term rate mode totaled $418 |
| (d) | Includes £225 million for LKE, comprised of $391 million and $27 million for LG&E and KU, respectively. At December 31, 2014, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a variable rate mode totaled $507 million for LKE, comprised of $183 million and $324 million for LG&E and KU, respectively. |
| Several series of the tax-exempt revenue bonds are insured by monoline bond insurers whose ratings were reduced due to exposures relating to insurance of sub-prime mortgages. Of the bonds outstanding, $231 million are in the form of insured auction rate securities ($135 million for LG&E and $96 million for KU), wherein interest rates are reset either weekly or every 35 days via an auction process. Beginning in late 2007, the interest rates on these insured bonds began to increase due to investor concerns about the creditworthiness of the bond insurers. During 2008, interest rates increased, and LG&E and KU experienced failed auctions when there were insufficient bids for the bonds. When a failed auction occurs, the interest rate is set pursuant to a formula stipulated in the indenture. As noted above, the instruments governing these auction rate bonds permit LG&E and KU to convert the bonds to other interest rate modes. |
| Certain variable rate tax-exempt revenue bonds totaling $251281 million at December 31, 2014 ($23 million for LG&E and $228 million for KU), are subject to tender for purchase by LG&E and KU at the option of the holder and to mandatory tender for purchase by LG&E and KU upon the occurrence of certain events. |
(e) | Includes £225 million ($352 million at December 31, 2014)2016) of notes that may be redeemed, in total but not in part, on December 21, 2026, at the greater of the principal value or a value determined by reference to the gross redemption yield on a nominated U.K. Government bond. |
(f) | |
| (e) | The principal amount of the notes issued by WPD (South West) and WPD (East Midlands) is adjusted based on changes in a specified index, as detailed in the terms of the related indentures. The adjustment to the principal amounts from 20132015 to 20142016 was an increase of approximately £10 million ($1613 million) resulting from inflation. In addition, this amount includes £225 million ($352281 million at December 31, 2014)2016) of notes issued by WPD (South West) that may be redeemed, in total by series, on December 1, 2026, at the greater of the adjusted principal value and a make-whole value determined by reference to the gross real yield on a nominated U.K. government bond. |
(g) | |
| (f) | Includes £3.8£4.4 billion ($5.95.5 billion at December 31, 2014)2016) of notes that may be put by the holders to the issuer for redemption if the long-term credit ratings assigned to the notes are withdrawn by any of the rating agencies (Moody's S&P or Fitch)S&P) or reduced to a non-investment grade rating of Ba1 or BB+ or lower in connection with a restructuring event, which includes the loss of, or a material adverse change to, the distribution licenses under which the issuer operates. |
| |
| (g) | The table reflects principal maturities only, based on stated maturities or earlier put dates, and the weighted-average rates as of December 31, 2016. |
None of the outstanding debt securities noted above have sinking fund requirements. The aggregate maturities of long-term debt, based on stated maturities or earlier put dates, for the periods 20152017 through 20192021 and thereafter are as follows: |
| | | | | | | | | | | | | | | | | | | |
| | PPL | | PPL Electric | | LKE | | LG&E | | KU |
| 2017 | $ | 518 |
| | $ | 224 |
| | $ | 194 |
| | $ | 194 |
| | $ | — |
|
| 2018 | 348 |
| | — |
| | 98 |
| | 98 |
| | — |
|
| 2019 | 136 |
| | — |
| | 136 |
| | 40 |
| | 96 |
|
| 2020 | 1,262 |
| | 100 |
| | 975 |
| | — |
| | 500 |
|
| 2021 | 1,150 |
| | 400 |
| | 250 |
| | — |
| | — |
|
| Thereafter | 14,985 |
| | 2,140 |
| | 3,457 |
| | 1,302 |
| | 1,755 |
|
| Total | $ | 18,399 |
| | $ | 2,864 |
| | $ | 5,110 |
| | $ | 1,634 |
| | $ | 2,351 |
|
| | | | | | PPL | | | | | | | | | | | | |
| | | | | | Energy | | PPL | | | | | | | | | |
| | | PPL | | Supply | | Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | | |
| 2015 | | $ | 1,535 | | $ | 535 | | $ | 100 | | $ | 900 | | $ | 250 | | $ | 250 |
| 2016 | | | 839 | | | 354 | | | | | | 25 | | | 25 | | | |
| 2017 | | | 298 | | | 4 | | | | | | 194 | | | 194 | | | |
| 2018 | | | 750 | | | 403 | | | | | | 98 | | | 98 | | | |
| 2019 | | | 44 | | | 4 | | | | | | 40 | | | 40 | | | |
| Thereafter | | | 16,960 | | | 938 | | | 2,514 | | | 3,328 | | | 752 | | | 1,851 |
| Total | | $ | 20,426 | | $ | 2,238 | | $ | 2,614 | | $ | 4,585 | | $ | 1,359 | | $ | 2,101 |
Long-term Debt and Equity Securities Activities
(PPL)
2010 Equity Units
In May 2013, PPL Capital Funding remarketed $1.150 billion of 4.625% Junior Subordinated Notes due 2018 that were originally issued in June 2010 as a component of PPL's 2010 Equity Units. In connection with the remarketing, PPL Capital
Funding issued $300 million of 2.04% Junior Subordinated Notes due 2016 and $850 million of 2.77% Junior Subordinated Notes due 2018, which were simultaneously exchanged for three tranches of Senior Notes: $250 million of 1.90% Senior Notes due 2018, $600 million of 3.40% Senior Notes due 2023 and $300 million of 4.70% Senior Notes due 2043. The transaction was accounted for as a debt extinguishment, resulting in a $10 million loss on extinguishment of the Junior Subordinated Notes, recorded to "Interest Expense" on the Statement of Income. The transaction was considered non-cash activity that was excluded from the Statement of Cash Flows for the year ended December 31, 2013. Additionally, in July 2013, PPL issued 40 million shares of common stock at $28.73 per share to settle the 2010 Purchase Contracts. PPL received net cash proceeds of $1.150 billion, which were used to repay short-term and long-term debt and for general corporate purposes.
2011 Equity Units
In March 2014, PPL Capital Funding remarketed $978 million of 4.32% Junior Subordinated Notes due 2019 that were originally issued in April 2011 as a component of PPL's 2011 Equity Units. In connection with the remarketing, PPL Capital Funding retired $228 million of the 4.32% Junior Subordinated Notes due 2019 and issued $350 million of 2.189% Junior Subordinated Notes due 2017 and $400 million of 3.184% Junior Subordinated Notes due 2019. Simultaneously, the newly issued Junior Subordinated Notes were exchanged for $350 million of 3.95% Senior Notes due 2024 and $400 million of 5.00% Senior Notes due 2044. The transaction was accounted for as a debt extinguishment, resulting in a $9 million loss on extinguishment of the Junior Subordinated Notes, recorded to "Interest Expense" on the Statement of Income. Except for the $228 million retirement of the 4.32% Junior Subordinated Notes and fees related to the transactions, the activity was non-cash and excluded from the Statement of Cash Flows for the year ended December 31, 2014. Additionally, in May 2014, PPL issued 31.7 million shares of common stock at $30.86 per share to settle the 2011 Purchase Contracts. PPL received net cash proceeds of $978 million, which were used to repay short-term debt and for general corporate purposes.
In August 2014,May 2016, PPL Energy Supply repaid the entire $300Capital Funding issued $650 million principal amount of its 5.40%3.10% Senior Notes upon maturity.
(due 2026. PPL and PPL Electric)
In June 2014, PPL Electric issued $300 million of 4.125% First Mortgage Bonds due 2044. PPL ElectricCapital Funding received proceeds of $294$645 million, net of a discount and underwriting fees, which werewill be used for capital expenditures,to invest in or make loans to subsidiaries of PPL, to repay short-term debt and for general corporate purposes.
In May 2016, WPD (East Midlands) borrowed £100 million at 0.4975% under a new 10-year index linked term loan agreement, which will be used for general corporate purposes.
In May 2016, WPD plc repaid the entire $460 million principal amount of its 3.90% Senior Notes upon maturity.
In October 2016, WPD (East Midlands) issued an additional £40 million of its 2.671% Index-linked Senior Notes due 2043. WPD (East Midlands) received proceeds of £83 million, which equated to $101 million at the time of issuance, net of fees and including a premium. The principal amount of the notes is adjusted based on changes in a specified index, as detailed in the terms of the related indentures. The proceeds will be used for general corporate purposes.
(PPL and PPL Electric)
In March 2016, the LCIDA issued $116 million of Pollution Control Revenue Refunding Bonds, Series 2016A due 2029 and $108 million of Pollution Control Revenue Refunding Bonds, Series 2016B due 2027 on behalf of PPL Electric. The bonds were issued bearing interest at an initial term rate of 0.90% through their mandatory purchase dates of September 1, 2017 and August 15, 2017. Thereafter, the method of determining the interest rate on the bonds may be converted from time to time at PPL Electric's option. The proceeds of the bonds were used to redeem $116 million of 4.70% Pollution Control Revenue Refunding Bonds, 2005 Series A due 2029 and $108 million of 4.75%% Pollution Control Revenue Refunding Bonds, 2005 Series B due 2027 previously issued by the LCIDA on behalf of PPL Electric.
In connection with the issuance of each of these new series of LCIDA bonds, PPL Electric entered into a loan agreement with the LCIDA pursuant to which the LCIDA has loaned to PPL Electric the proceeds of the LCIDA bonds on payment terms that correspond to the LCIDA bonds. In order to secure its obligations under the loan agreement, PPL Electric issued $224 million of First Mortgage Bonds under its 2001 Mortgage Indenture, which also have payment terms that correspond to the LCIDA bonds.
(PPL, LKE and LG&E)
In September 2016, the County of Trimble, Kentucky issued $125 million of Pollution Control Revenue Refunding Bonds, 2016 Series A (Louisville Gas and Electric Company Project) due 2044 on behalf of LG&E. The bonds were issued with a floating interest rate that initially will reset weekly. The method of determining the interest rate on the bonds may be converted from time to time at LG&E’s option. The proceeds of the bonds were used to redeem $83 million of Pollution Control Revenue Refunding Bonds, 2000 Series A (Louisville Gas and Electric Company Project) due 2030 and $42 million of Pollution Control Revenue Refunding Bonds, 2002 Series A (Louisville Gas and Electric Company Project) due 2032 previously issued by the County of Trimble, Kentucky on behalf of LG&E.
In December 2016, LG&E redeemed, at par, its $25 million Jefferson County Pollution Control Revenue Refunding Bonds, 2000 Series A (Louisville Gas and Electric Company Project) due 2027.
(PPL, LKE and KU)
In August 2016, the County of Carroll, Kentucky issued $96 million of Pollution Control Revenue Refunding Bonds, 2016 Series A (Kentucky Utilities Company Project) due 2042 on behalf of KU. The bonds were issued bearing interest at an initial term rate of 1.05% through their mandatory purchase date of September 1, 2019. Thereafter, the method of determining the interest rate on the bonds may be converted from time to time at KU’s option. The proceeds of the bonds were used to redeem $96 million of Pollution Control Revenue Refunding Bonds, 2002 Series C (Kentucky Utilities Company Project) due 2032 previously issued by the County of Carroll, Kentucky on behalf of KU.
Legal Separateness(All Registrants)
The subsidiaries of PPL are separate legal entities. PPL's subsidiaries are not liable for the debts of PPL. Accordingly, creditors of PPL may not satisfy their debts from the assets of PPL's subsidiaries absent a specific contractual undertaking by a subsidiary to pay PPL's creditors or as required by applicable law or regulation. Similarly, PPL is not liable for the debts of its subsidiaries, nor are its subsidiaries liable for the debts of one another. Accordingly, creditors of PPL's subsidiaries may not
satisfy their debts from the assets of PPL or its other subsidiaries absent a specific contractual undertaking by PPL or its other subsidiaries to pay the creditors or as required by applicable law or regulation.
Similarly, the subsidiaries of PPL Energy Supply, PPL Electric and LKE are each separate legal entities. These subsidiaries are not liable for the debts of PPL Energy Supply, PPL Electric and LKE. Accordingly, creditors of PPL Energy Supply, PPL Electric and LKE may not satisfy their debts from the assets of their subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation. Similarly, PPL Energy Supply, PPL Electric and LKE are not liable for the debts of their subsidiaries, nor are their subsidiaries liable for the debts of one another. Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of PPL Energy Supply, PPL Electric and LKE (or their other subsidiaries) absent a specific contractual undertaking by that parent or other subsidiary to pay such creditors or as required by applicable law or regulation.
(PPL)
ATM Program
In February 2015, PPL entered into two separate equity distribution agreements, pursuant to which PPL may sell, from time to time, up to an aggregate of $500 million of its common stock. PPL issued the following for the years ended December 31:
|
| | | | | | | |
| | 2016 | | 2015 |
| Number of shares (in thousands) | 710 |
| | 1,477 |
|
| Average share price | $ | 35.23 |
| | $ | 33.41 |
|
| Net Proceeds | $ | 25 |
| | $ | 49 |
|
Distributions and Related Restrictions
(PPL)
In November 2014,2016, PPL declared its quarterly common stock dividend, payable January 2, 2015,3, 2017, at 37.2538 cents per share (equivalent to $1.49$1.52 per annum). On February 1, 2017, PPL announced that the company is increasing its common stock dividend to 39.5 cents per share on a quarterly basis (equivalent to $1.58 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.
See Note 8 for information regarding the June 1, 2015 distribution to PPL's shareowners of a newly formed entity, Holdco, which at closing owned all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy.
Neither PPL Capital Funding nor PPL may declare or pay any cash dividend or distribution on its capital stock during any period in which PPL Capital Funding defers interest payments on its 2007 Series A Junior Subordinated Notes due 2067 or 2013 Series B Junior Subordinated Notes due 2073. At December 31, 2014,2016, no interest payments were deferred.
WPD subsidiaries have financing arrangements that limit their ability to pay dividends. However, PPL does not, at this time, expect that any of such limitations would significantly impact PPL's ability to meet its cash obligations.
(PPL and PPL Energy Supply)
Under the terms of the spinoff agreements with affiliates of Riverstone to create Talen Energy, PPL Energy Supply is generally prohibited from making distributions or other payments to PPL or any PPL affiliate that is not a subsidiary of PPL Energy Supply, with the exception of specific distributions and other payments set forth in the agreements. These exceptions are generally limited to a planned distribution from PPL Energy Supply to PPL during the first quarter of 2015 in an amount not to exceed $191 million. At December 31, 2014, PPL Energy Supply's net assets of $3.7 billion were restricted for the purposes of transferring funds to PPL in the form of distributions, loans or advances.
(All Registrants except PPL Energy Supply)
Registrants)
PPL relies on dividends or loans from its subsidiaries to fund PPL's dividends to its common shareholders. The net assets of certain PPL subsidiaries are subject to legal restrictions. LKE primarily relies on dividends from its subsidiaries to fund its dividendsdistributions to PPL. LG&E, KU and PPL Electric are subject to Section 305(a) of the Federal Power Act, which makes it unlawful for a public utility to make or pay a dividend from any funds "properly included in capital account." The meaning of this limitation has never been clarified under the Federal Power Act. LG&E, KU and PPL Electric believe, however, that this statutory restriction, as applied to their circumstances, would not be construed or applied by the FERC to prohibit the payment from retained earnings of dividends that are not excessive and are for lawful and legitimate business purposes. In February 2012, LG&E and KU petitioned the FERC requesting authorization to pay dividends in the future based on retained earnings balances calculated without giving effect to the impact of purchase accounting adjustments for the acquisition of LKE by PPL. In May 2012, the FERC approved the petitions with the further condition that each utility may not pay dividends if such payment would cause its adjusted equity ratio to fall below 30% of total capitalization. Accordingly, at December 31, 2014,2016, net assets of $2.4$2.7 billion ($0.91.1 billion for LG&E and $1.5$1.6 billion for KU) were restricted for purposes of paying dividends to LKE, and net assets of $2.9$3.1 billion ($1.21.4 billion for LG&E and $1.7 billion for KU) were available for payment of dividends to LKE. LG&E and KU believe they will not be required to change their current dividend practices as a result of the foregoing requirement. In addition, under Virginia law, KU is prohibited from making loans to affiliates without the prior approval of the
VSCC. There are no comparable statutes under Kentucky law applicable to LG&E and KU, or under Pennsylvania law applicable to PPL Electric. However, orders from the KPSC require LG&E and KU to obtain prior consent or approval before lending amounts to PPL.
8. Acquisitions, Development and Divestitures
(All Registrants)
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with, modify or terminate the projects, sell, cancel or expand them, execute tolling agreements or pursue other options.projects. Any resulting transactions may impact future financial results.
Discontinued Operations
Anticipated Spinoff of PPL Energy Supply
(PPL and PPL Energy Supply)
In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to spin off PPL Energy Supply and immediately combine theirit with Riverstone's competitive power generation businesses intoto form a new, stand-alone, publicly traded company named Talen Energy. UnderThe transaction was subject to customary closing conditions, including receipt of regulatory approvals from the termsNRC, FERC, DOJ and PUC, all of which were received by mid-April 2015. On April 29, 2015, PPL's Board of Directors declared the agreements, at closing, PPL will spin offJune 1, 2015 distribution to PPLPPL's shareowners of record on May 20, 2015 of a newly formed entity, Talen Energy Holdings, Inc. (Holdco),Holdco, which at such time will ownclosing owned all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy. Immediately following the spinoff on June 1, 2015, Holdco will mergemerged with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power will bewas contributed by its owners to become a subsidiary of Talen Energy. PPL shareowners received approximately 0.1249 shares of Talen Energy common stock for each share of PPL common stock they owned on May 20, 2015. Following completion of these transactions, PPL shareowners will ownowned 65% of Talen Energy and affiliates of Riverstone will ownowned 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy and PPL's shareowners will receive a number of Talen Energy shares at closing based on the number of PPL shares owned as of the spinoff record date. The spinoff will havehad no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding. The transaction is intended to be tax-free to PPL and its shareowners for U.S. federal income tax purposes and is subject to customary closing conditions, including receiptpurposes.
PPL has no continuing ownership interest in or control of certain regulatory approvals by the NRC, FERC, DOJ and PUC. In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn credit capacity under a Talen Energy (orand Talen Energy Supply (formerly PPL Energy Supply).
Loss on Spinoff
In June 2015, in conjunction with the accounting for the spinoff, PPL evaluated whether the fair value of the Supply segment's net assets was less than the carrying value as of the June 1, 2015 spinoff date.
PPL considered several valuation methodologies to derive a fair value estimate of its subsidiaries) revolving credit or similar facility. Any letters of credit or other credit support measures posted in connection with energy marketing and trading transactionsSupply segment at the timespinoff date. These methodologies included considering the closing "when-issued" Talen Energy market value on June 1, 2015 (the spinoff date), adjusted for the proportional share of the equity value attributable to the Supply segment, as well as, the valuation methods consistently used in PPL's quantitative goodwill impairment assessments - an income approach using a discounted cash flow analysis of the Supply segment and an alternative market approach considering market multiples of comparable companies.
Although the Talen Energy market value approach utilized the most observable inputs of the three approaches, PPL considered certain limitations of the "when-issued" trading market for the spinoff are excluded fromtransaction including the short trading duration, lack of liquidity in the market and anticipated initial Talen Energy stock ownership base selling pressure, among other factors, and concluded that these factors limited this calculation.input being solely determinative of the fair value of the Supply segment. As such, PPL also considered the other valuation approaches in estimating the overall fair value, but ultimately assigned the highest weighting to the Talen Energy market value approach.
The following table summarizes PPL's fair value analysis:
|
| | | | | | |
| Approach | | Weighting | | Weighted Fair Value (in billions) |
| Talen Energy Market Value | | 50% | | $ | 1.4 |
|
| Income/Discounted Cash Flow | | 30% | | 1.1 |
|
| Alternative Market (Comparable Company) | | 20% | | 0.7 |
|
| Estimated Fair Value | | | | $ | 3.2 |
|
A key assumption included in the FERC issuedfair value estimate is the application of a final order approving, subjectcontrol premium of 25% in the two market approaches. PPL concluded it was appropriate to certain market power mitigation requirements,apply a control premium in these approaches as the combinationgoodwill impairment testing guidance was followed in determining the estimated fair value of the competitive generation assets to form Talen Energy. On January 27, 2015, PPL andSupply segment, which had historically been a reporting unit for PPL. This guidance provides that the market price of an affiliateindividual security (and thus the market capitalization of RJS Power filed a joint responsereporting unit with the FERC accepting additional market power mitigation measures required for the FERC's approval. PPL and RJS Power originally proposed divesting either of two groups of assets each having approximately 1,300 MW of generating capacity. PPL and RJS Power have agreed that within 12 months after closingpublicly traded equity securities) may not be representative of the transaction,fair value of the reporting unit. This guidance also indicates that substantial value may arise to a controlling shareholder from the ability to take advantage of synergies and other benefits that arise from control over another entity, and that the market price of a company's individual share of stock does not reflect this additional value to a controlling shareholder. Therefore, the quoted market price need not be the sole measurement basis for determining the fair value, and including a control premium is appropriate in measuring the fair value of a reporting unit.
In determining the control premium, PPL reviewed premiums received during the prior five years in market sales transactions obtained from observable independent power producer and hybrid utility transactions greater than $1 billion. Premiums for these transactions ranged from 5% to 42% with a median of approximately 25%. Given these metrics, PPL concluded a control premium of 25% to be reasonable for both of the market valuation approaches used.
Assumptions used in the discounted cash flow analysis included forward energy prices, forecasted generation, and forecasted operation and maintenance expenditures that were consistent with assumptions used in the Energy Supply portion of the Talen Energy will divest generating assets in onebusiness planning process at that time and a market participant discount rate.
Using these methodologies and weightings, PPL determined the estimated fair value of the groups (from PPL Energy Supply's existing portfolio, this includes eitherSupply segment (classified as Level 3) was below its carrying value of $4.1 billion and recorded a loss on the Holtwood and Wallenpaupack hydroelectric facilities or the Ironwood facility), and limit PJM energy market offers from assets it would retain in the other group to cost-based offers.
The transaction is expected to closespinoff of $879 million in the second quarter of 2015.2015, which is reflected in discontinued operations and is nondeductible for tax purposes. This amount served to reduce the basis of the net assets accounted for as a dividend at the June 1, 2015 spinoff date.
(PPL, PPL Energy Supply and PPL Electric)Costs of Spinoff
Following the announcement of the transaction to form Talen Energy, efforts were initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans and staffing selections were substantially completed in 2014.
The new organizational plans identifyidentified the need to resize and restructure the organizations. Asorganizations and as a result, duringin 2014, estimated charges of $36 million for employee separation benefits were recorded related to 306 positions. Of this amount, $16 million related to 112 Energy Supply positions and is reflected in discontinued operations. The remaining $20 million is primarily reflected in "Other operation and maintenance" on the StatementPPL Consolidated Statements of IncomeIncome.
In 2015, the organizational structures were finalized for both PPL and Talen Energy, which resulted in an additional charge of $10 million for employee separation benefits. Of this amount, $2 million related to Energy Supply positions and is reflected in discontinued operations. The remaining $8 million is reflected in "Other current liabilities"operation and maintenance" on the Balance Sheet as follows.
| | | | | | PPL Energy | | PPL |
| | | PPL | | Supply | | Electric |
| | | | | | | | | | |
| Separation benefits | | $ | 36 | | $ | 16 | | $ | 1 |
| Number of positions | | | 306 | | | 112 | | | 14 |
PPL Consolidated Statements of Income. The separation benefits incurred include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. Most separations and payment ofAt December 31, 2015, the recorded liability related to the separation benefits are expected to occurwas $13 million, which is included in 2015."Other current liabilities" on the Balance Sheet.
Additional employee-related costs to be incurred primarily includeincluded accelerated stock-based compensation and pro-ratedprorated performance-based cash incentive and stock-based compensation awards, primarily for PPL Energy Supply employees and for PPL Services employees who will becomebecame PPL Energy Supply employees in connection with the transaction. ThesePPL Energy Supply recognized $24 million of these costs will be
recognized at the spinoff closing date. date in 2015, which are reflected in discontinued operations.
PPL recorded $45 million and $27 million of third-party costs related to this transaction in 2015 and 2014. Of these costs, $32 million and $19 million were primarily for bank advisory, legal and accounting fees to facilitate the transaction, and are reflected in discontinued operations. An additional $13 million and $8 million of consulting and other costs were incurred in 2015 and 2014, related to the formation of the Talen Energy organization and to reconfigure the remaining PPL service functions. These costs are recorded primarily in "Other operation and maintenance" on the Statements of Income.
At the close of the transaction in 2015, $72 million ($42 million after-tax) of cash flow hedges, primarily unamortized losses on PPL interest rate swaps recorded in AOCI and designated as cash flow hedges of PPL Energy Supply estimate these additional costs will beSupply's future interest payments, were reclassified into earnings and reflected in the range of $30 million to $40 million.discontinued operations.
(PPL)
As a result of the June 2014 spinoff announcement, PPL recorded $50 million of deferred income tax expense in 2014, to adjust valuation allowances on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply.
In addition, PPL recorded $27 million of third-party costs in 2014 related to this transaction. Of these costs, $19 million were primarily for investment bank advisory, legal and accounting fees to facilitate the transaction, and are recorded in "Other Income (Expense) - net" on the Statement of Income. An additional $8 million of consulting and other costs were incurred to ready the new Talen Energy organization and reconfigure the remaining PPL service functions. These costs are recorded in "Other operation and maintenance" on the Statement of Income. PPL currently estimates a range of total third-party costs that will ultimately be incurred of between $60 million and $70 million.
The assets and liabilities of PPL Energy Supply will continue to be classified as "held and used" on PPL's Balance Sheet until the closing of the transaction. In conducting its annual goodwill impairment assessment in the fourth quarter of 2014 for its Supply segment reporting unit, PPL determined that the estimated fair value of PPL Energy Supply exceeded its carrying value and no impairment was recognized. However, an impairment loss could be recognized by PPL at the spinoff date if the aggregate carrying amount of PPL Energy Supply's assets and liabilities exceeds its aggregate fair value at that date. PPL cannot predict whether an impairment loss will be recorded at the spinoff date.
(PPL Energy Supply)
In accordance with business combination accounting guidance, PPL Energy Supply will treat the combination with RJS Power as an acquisition and PPL Energy Supply will be considered the acquirer of RJS Power.
Montana Hydro SaleContinuing Involvement (PPL and PPL Energy Supply)Electric)
As a result of the spinoff, PPL and PPL Energy Supply entered into a Transition Services Agreement (TSA) that terminates no later than two years from the spinoff date. The TSA sets forth the terms and conditions for PPL and Talen Energy to provide certain transition services to one another. PPL is providing Talen Energy certain information technology, financial and accounting, human resource and other specified services. PPL billed Talen Energy $35 million and $25 million for these services in 2016 and 2015. In general, the fees for the transition services allow the provider to recover its cost of the services, including overheads, but without margin or profit.
Additionally, prior to the spinoff, through the annual competitive solicitation process, PPL EnergyPlus was awarded supply contracts for a portion of the PLR generation supply for PPL Electric, which were retained by Talen Energy Marketing as part of the spinoff transaction. PPL Electric's supply contracts with Talen Energy Marketing extended through November 2016. Energy purchases from PPL EnergyPlus were previously included in PPL Electric's Statements of Income as "Energy purchases from affiliate" but were eliminated in PPL's Consolidated Statements of Income.
Subsequent to the spinoff, PPL Electric's energy purchases from Talen Energy Marketing were $106 million and $27 million for 2016 and 2015. These energy purchases are no longer considered affiliate transactions.
(PPL)
Summarized Results of Discontinued Operations
The operations of the Supply segment are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income. Following are the components of Discontinued Operations in the Statements of Income for the periods ended December 31:
|
| | | | | | | |
| | 2015 | | 2014 |
| Operating revenues | $ | 1,427 |
| | $ | 3,848 |
|
| Operating expenses | 1,328 |
| | 3,410 |
|
| Other Income (Expense) - net | (21 | ) | | 13 |
|
| Interest expense (a) | 150 |
| | 190 |
|
| Gain on sale of Montana Hydro Sale | — |
| | 237 |
|
| Income tax expense (benefit) | (30 | ) | | 198 |
|
| Loss on spinoff | (879 | ) | | — |
|
| Income (Loss) from Discontinued Operations (net of income taxes) | $ | (921 | ) | | $ | 300 |
|
| |
| (a) | Includes interest associated with the Supply segment with no additional allocation as the Supply segment was sufficiently capitalized. |
Net assets, after recognition of the loss on the spinoff, of $3.2 billion were distributed to PPL shareowners in the June 1, 2015, spinoff of PPL Energy Supply.
Montana Hydro Sale
In November 2014, PPL Montana completed the sale to NorthWestern Corporation of 633 MW of hydroelectric generating facilities located in Montana for approximately $900 million in cash. The proceeds from the sale remained with PPL and did not transfer to Talen Energy as a result of the spinoff of PPL Energy Supply. The sale included 11 hydroelectric power facilities and related assets, included in the Supply segment. A gain of $237 million ($137 million after-tax) was recorded on the sale of the hydroelectric power facilities.
Following areAs the Montana hydroelectric power facilities were previously reported as a component of PPL Energy Supply and the Supply segment, the components of Discontinued Operationsdiscontinued operations for these facilities contained in the Statements of Income for the years ended December 31.
| | | 2014 | | 2013 | | 2012 |
| PPL | | | | | | | | | |
| Operating revenues | | $ | 117 | | $ | 139 | | $ | 154 |
| Gain on the sale (pre-tax) | | | 237 | | | | | | |
| Interest expense (a) | | | 9 | | | 12 | | | 10 |
| Income (loss) before income taxes | | | 263 | | | 49 | | | 73 |
| Income (Loss) from Discontinued Operations | | | 154 | | | 32 | | | 46 |
| | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | |
| Operating revenues | | $ | 117 | | $ | 139 | | $ | 154 |
| Gain on the sale (pre-tax) | | | 306 | | | | | | |
| Interest expense (a) | | | 9 | | | 12 | | | 10 |
| Income (loss) before income taxes | | | 332 | | | 49 | | | 73 |
| Income (Loss) from Discontinued Operations | | | 223 | | | 32 | | | 46 |
| Represents allocated interest expense based upon the discontinued operations share of the net assets of PPL Energy Supply. |
Upon completion of the sale, assets primarily consisting of $544 million of PP&E, net, and $82 million of Goodwill for PPL ($14 million for PPL Energy Supply) were removed from the Balance Sheet.
Other (PPL and PPL Energy Supply)
To facilitate the sale of the Montana hydroelectric generating facilities discussed above, PPL Montana terminated, in December 2013, its operating lease arrangement related to partial interests in Units 1, 2 and 3 of the Colstrip coal-fired
electric generating facility and acquired those interests, collectively, for $271 million. At lease termination, the existing lease-related assets on the balance sheet consisting primarily of prepaid rent and leasehold improvements were written off and the acquired Colstrip assets were recorded at fair value as of the acquisition date. PPL and PPL Energy Supply recorded a charge of $697 million ($413 million after-tax) for the termination of the leaseare included in "Loss on lease termination" on the 2013 Statements of Income. The $271 million payment is reflected in "Cash Flows from Operating Activities" on the 2013 Statements of Cash Flow.disclosure above.
Development
(PPL and PPL Energy Supply)
Hydroelectric Expansion Projects
In 2009, in light of the availability of tax incentives and potential federal loan guarantees for renewable projects contained in the American Recovery and Reinvestment Act of 2009, PPL Energy Supply received FERC approval to expand capacity at its Holtwood and Rainbow hydroelectric facilities. In 2013, the Rainbow hydroelectric redevelopment project in Great Falls, Montana, which increased total capacity to 63 MW, was placed in service. Also in 2013, the 125 MW Holtwood project was placed in service.
In 2014, the U.S. Department of Treasury awarded $56 million for the Rainbow hydroelectric redevelopment project and $108 million for the Holtwood hydroelectric project for Specified Energy Property in Lieu of Tax Credits. As a result of the receipt of the grants, PPL Energy Supply was required to recapture investment tax credits previously recorded of $60 million related to the Rainbow project and $117 million related to the Holtwood project. The impact on the financial statements for the receipt of the grants and recapture of investment tax credits was not significant for 2014, and will not be significant in future periods.
Bell Bend COLA
In 2008, a PPL Energy Supply subsidiary, PPL Bell Bend, LLC (PPL Bell Bend) submitted a COLA to the NRC for the proposed Bell Bend nuclear generating unit (Bell Bend) to be built adjacent to the Susquehanna plant.
Also in 2008, PPL Bell Bend submitted Parts I and II of an application for a federal loan guarantee for Bell Bend to the DOE. In February 2014, the DOE announced the first loan guarantee for a nuclear project in Georgia. Although eight of the ten applicants that submitted Part II applications remain active in the DOE program, the DOE has stated that the $18.5 billion currently appropriated to support new nuclear projects would not likely be enough for more than three projects. PPL Bell Bend submits quarterly application updates for Bell Bend to the DOE to remain active in the loan guarantee application process.
The NRC continues to review the COLA. PPL Bell Bend does not expect to complete the COLA review process with the NRC prior to 2018. PPL Bell Bend has made no decision to proceed with construction and expects that such decision will not be made for several years given the anticipated lengthy NRC license approval process. Additionally, PPL Bell Bend does not expect to proceed with construction absent favorable economics, a joint arrangement with other interested parties and a federal loan guarantee or other acceptable financing. PPL Bell Bend is currently authorized by PPL's Board of Directors to spend up to $224 million on the COLA and other permitting costs necessary for construction. At December 31, 2014 and 2013, $188 million and $173 million of costs, which includes capitalized interest, associated with the licensing application were capitalized and are included on the Balance Sheets in noncurrent "Other intangibles." PPL Energy Supply continues to support the Bell Bend licensing project with a near term focus on obtaining the final environmental impact statement. PPL Energy Supply placed the NRC safety review (which supports issuance of their final safety evaluation report, the other key element of the COLA) on hold in 2014, due to a lack of progress by the reactor vendor with respect to its NRC design certification process, which is a prerequisite to the COLA. PPL Bell Bend believes that the estimated fair value of the COLA currently exceeds the costs expected to be capitalized associated with the licensing application.
Regional Transmission Line Expansion Plan (PPL(PPL and PPL Electric)
Susquehanna-Roseland
In 2007, PJM directed the construction of a new 150-mile, 500-kV transmission line between the Susquehanna substation in Pennsylvania and the Roseland substation in New Jersey that it identified as essential to long-term reliability of the Mid-Atlantic electricity grid. PJM determined that the line was needed to prevent potential overloads that could occur on several existing transmission lines in the interconnected PJM system. PJM directed PPL Electric to construct the Pennsylvania portion of the Susquehanna-Roseland line and Public Service Electric & Gas Company to construct the New Jersey portion of the line.
Construction activities have been underway on the 101-mile route in Pennsylvania since 2012. The line is expectedwas energized in May 2015, completing the approximately $648 million project. Costs related to be completed before the peak summer demand period of 2015. At December 31, 2014, PPL Electric's estimated share of the project cost was $630 million. At December 31, 2014 and 2013, $597 million and $377 million of costs were capitalized and are included on the Balance SheetSheets, primarily in "Construction work in progress."Regulated utility plant."
Northeast/Pocono
In October 2012, the FERC issued an order in response to PPL Electric's December 2011 request for ratemaking incentives for the Northeast/Pocono Reliability project (a new 58-mile, 230 kV transmission line that includes three new substations and upgrades to adjacent facilities). The FERC granted the incentive for inclusion in rate base of all prudently incurred construction work in progress (CWIP) costs but denied the requested incentive for a 100 basis point adder to the return on equity.
In December 2012, PPL Electric submitted an application to the PUC requesting permission to site and construct the project. In January 2014, the PUC issued a Final Orderfinal order approving the application. PPL Electric expectsThe line was energized in April 2016, completing the approximately $350 million project, which includes additional substation security enhancements. Costs related to the project to be completedare included on the Balance Sheets, primarily in 2016. At December 31, 2014, PPL Electric's estimated cost of the project was $335 million, most of which qualifies for the CWIP incentive treatment. "Regulated utility plant."
Future Capacity Needs (PPL, LKE, LG&E and KU)
ToThe Cane Run Unit 7 NGCC was put into commercial operation in June 2015. As a result and to meet new, more stringent EPA regulations, LG&E and KU anticipate retiring five olderretired one coal-fired electric generating unitsunit at the Cane Run plant in March 2015 and retired the remaining two coal-fired generating units at the plant in June 2015. KU retired the two remaining coal-fired generating units at the Green River plant in 2016, which have a combined summer capacity ratingSeptember 2015. LG&E and KU incurred costs of 724 MW. In addition, KU retired the remaining 71 MW coal-fired unit at the Tyrone plant in February 2013$11 million and retired a 12 MW gas-fired unit at the Haefling plant in December 2013.$6 million directly related to these retirements including inventory write-downs and separation benefits. There were no significant gains or losses on the retirement of these units. See Note 6 for more information related to the 2013 retirements.regulatory recovery of the costs associated with the retirement of the Green River units.
Construction activity continues on the previously announced NGCC unit, Cane Run Unit 7, scheduled to be operational in May 2015. In October 2013, LG&E and KU announced plans for a 10 MW solar generation facility to be operational in 2016 at a cost of approximately $36 million. In December 2014, a final order was issued by the KPSC approving the request to construct thea solar generatinggeneration facility at the E.W. Brown. Brown facility. LG&E and KU completed construction activities and placed a 10 MW facility into commercial operation in June 2016 at a cost of $25 million.
9. Leases
(All Registrants except PPL, Electric)LKE, LG&E and KU)
PPL and its subsidiaries have entered into various agreements for the lease of office space, vehicles, land, gas storage and other equipment.
Rent - Operating Leases
Rent expense for the years ended December 31 for operating leases was as follows: | | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | |
| PPL | | $ | 80 | | $ | 111 | | $ | 116 |
| PPL Energy Supply | | | 29 | | | 55 | | | 62 |
| LKE | | | 18 | | | 18 | | | 18 |
| LG&E | | | 7 | | | 7 | | | 7 |
| KU | | | 10 | | | 10 | | | 10 |
| Total future minimum rental payments for all operating leases are estimated to be: |
| | | | | | | | | | | | | | | | |
| | | | | PPL | | | | | | |
| | | PPL | | Energy Supply | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | |
| 2015 | | $ | 36 | | $ | 11 | | $ | 16 | | $ | 6 | | $ | 9 |
| 2016 | | | 25 | | | 11 | | | 11 | | | 4 | | | 7 |
| 2017 | | | 20 | | | 10 | | | 8 | | | 3 | | | 5 |
| 2018 | | | 12 | | | 4 | | | 7 | | | 2 | | | 4 |
| 2019 | | | 8 | | | 1 | | | 5 | | | 2 | | | 3 |
| Thereafter | | | 34 | | | 2 | | | 26 | | | 11 | | | 13 |
| Total | | $ | 135 | | $ | 39 | | $ | 73 | | $ | 28 | | $ | 41 |
(All Registrants except LG&E and KU)
In 2012, shareowners approved the PPL SIP. This new equity plan replaces the PPL ICP and incorporates the following changes:
· | Eliminates the potential to pay dividend equivalents on stock options. |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL | $ | 50 |
| | $ | 49 |
| | $ | 51 |
|
| LKE | 26 |
| | 24 |
| | 18 |
|
| LG&E | 15 |
| | 12 |
| | 7 |
|
| KU | 11 |
| | 11 |
| | 10 |
|
Total future minimum rental payments for all operating leases are estimated to be:
· | Eliminates the automatic lapse of restrictions on all equity awards in the event of a "potential" change in control and requires that a termination of employment occur in the event of a change in control before restrictions lapse. |
|
| | | | | | | | | | | | | | | |
| | PPL | | LKE | | LG&E | | KU |
| 2017 | $ | 31 |
| | $ | 24 |
| | $ | 15 |
| | $ | 9 |
|
| 2018 | 26 |
| | 22 |
| | 14 |
| | 8 |
|
| 2019 | 16 |
| | 13 |
| | 7 |
| | 6 |
|
| 2020 | 11 |
| | 9 |
| | 4 |
| | 5 |
|
| 2021 | 8 |
| | 6 |
| | 2 |
| | 4 |
|
| Thereafter | 26 |
| | 19 |
| | 8 |
| | 10 |
|
| Total | $ | 118 |
| | $ | 93 |
| | $ | 50 |
| | $ | 42 |
|
· | Changes the treatment of outstanding stock options upon retirement to limit the exercise period to the earlier of the end of the term (ten years from grant) or five years after retirement. |
10. Stock-Based Compensation
To further align the executives' interests with those of (PPL, shareowners, this plan provides that each restricted stock unit entitles the executive to accrue additional restricted stock units equal to the amount of quarterly dividends paid on PPL stock. These additional restricted stock units would be deferredElectric and payable in shares of PPL common stock at the end of the restriction period. Dividend equivalents on restricted stock unit awards granted under the ICP and ICPKE are currently paid in cash when dividends are declared by PPL.LKE)
Under the ICP, SIP and the ICPKE (together, the Plans), restricted shares of PPL common stock, restricted stock units, performance units and stock options may be granted to officers and other key employees of PPL, PPL Energy Supply, PPL Electric, LKE and other affiliated companies. Awards under the Plans are made by the Compensation, Governance and Nominating Committee (CGNC) of the PPL Board of Directors, in the case of the ICP and SIP, and by the PPL Corporate Leadership Council (CLC), in the case of the ICPKE.
The following table details the award limits under each of the plans.
| | | | | Annual Grant Limit | | | | Annual Grant Limit |
| | | | | Total As % of | | | | For Individual Participants - |
| | | Total Plan | | Outstanding | | Annual Grant | | Performance Based Awards |
| | | Award | | PPL Common Stock | | Limit | | For awards | | For awards |
| | | Limit | | On First Day of | | Options | | denominated in | | denominated in |
| Plan | | (Shares) | | Each Calendar Year | | (Shares) | | shares (Shares) | | cash (in dollars) |
| | | | | | | | | | | | |
| ICP (a) | | 15,769,431 | | 2% | | 3,000,000 | | | | | |
| SIP | | 10,000,000 | | | | 2,000,000 | | 750,000 | | $ | 15,000,000 |
| ICPKE | | 14,199,796 | | 2% | | 3,000,000 | | | | | |
(a) | | | | | | | | | | | | | | | | | | | | | Total Plan | | Annual Grant Limit Total As % of Outstanding | | Annual Grant | | Annual Grant Limit For Individual Participants - Performance Based Awards | | | | Award Limit | | PPL Common Stock On First Day of | | Limit Options | | For awards denominated in | | For awards denominated in | | Plan | | (Shares) | | Each Calendar Year | | (Shares) | | shares (Shares) | | cash (in dollars) | | SIP | | 10,000,000 |
| | | | 2,000,000 |
| | 750,000 |
| | $ | 15,000,000 |
| | ICPKE | | 14,199,796 |
| | 2 | % | | 3,000,000 |
| | |
| | |
|
| Applicable to outstanding awards granted from January 27, 2006 to January 26, 2012. During 2012, the total plan award limit was reached and the ICP was replaced by the SIP. |
Any portion of these awards that has not been granted may be carried over and used in any subsequent year. If any award lapses, is forfeited or the rights of the participant terminate, the shares of PPL common stock underlying such an award are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued PPL common stock, common stock held in treasury by PPL or PPL common stock purchased on the open market (including private purchases) in accordance with applicable securities laws.
Restricted Stock and Restricted Stock Units
Restricted shares of PPL common stock are outstanding shares with full voting and dividend rights. Restricted stock awards are granted as a retention award for select key executives and vest when the recipient reaches a certain age or meets service or other criteria set forth in the executive's restricted stock award agreement. The shares are subject to forfeiture or accelerated payout under plan provisions for termination, retirement, disability and death of employees. Restricted shares vest fully, in certain situations, as defined by each of the Plans.
The Plans allow for the grant of restricted stock units. Restricted stock units are awards based on the fair value of PPL common stock on the date of grant. Actual PPL common shares will be issued upon completion of a vestingrestriction period, generally three years.
Under the SIP, each restricted stock unit entitles the executive to accrue additional restricted stock units equal to the amount of quarterly dividends paid on PPL stock. These additional restricted stock units are deferred and payable in shares of PPL common stock at the end of the restriction period. Dividend equivalents on restricted stock unit awards granted under the ICP and the ICPKE are currently paid in cash when dividends are declared by PPL.
The fair value of restricted stock and restricted stock units granted is recognized on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of restricted stock and restricted stock units granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. Recipients of restricted stock units granted under the ICPKE may also be granted the right to receive dividend equivalents through the end of the restriction period or until the award is forfeited. Restricted stock and restricted stock units are subject to forfeiture or accelerated payout under the plan provisions for termination, retirement, disability and death of employees. RestrictedRestrictions lapse on restricted stock and restricted stock units vest fully, in certain situations, as defined by each of the Plans.
The weighted-average grant date fair value of restricted stock and restricted stock units granted was: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL | $ | 33.84 |
| | $ | 34.50 |
| | $ | 31.50 |
|
| PPL Electric | 34.32 |
| | 34.41 |
| | 31.81 |
|
| LKE | 33.73 |
| | 34.89 |
| | 30.98 |
|
| | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| PPL | | $ | 31.50 | | $ | 30.30 | | $ | 28.35 |
| PPL Energy Supply | | | 31.70 | | | 30.42 | | | 28.29 |
| PPL Electric | | | 31.81 | | | 30.55 | | | 28.51 |
| LKE | | | 30.98 | | | 30.00 | | | 28.34 |
Restricted stock and restricted stock unit activity for 20142016 was: |
| | | | | | |
| | Restricted Shares/Units | | Weighted- Average Grant Date Fair Value Per Share |
| PPL | | | |
| Nonvested, beginning of period | 1,679,475 |
| | $ | 29.65 |
|
| Granted | 536,208 |
| | 33.84 |
|
| Vested | (869,932 | ) | | 29.30 |
|
| Forfeited | (8,726 | ) | | 32.59 |
|
| Nonvested, end of period (a) | 1,337,025 |
| | 31.57 |
|
| | | | |
| PPL Electric | | | |
| Nonvested, beginning of period | 221,085 |
| | $ | 29.48 |
|
| Transfer between registrants | (10,405 | ) | | 30.98 |
|
| Granted | 70,486 |
| | 34.32 |
|
| Vested | (73,488 | ) | | 28.91 |
|
| Forfeited | (3,108 | ) | | 32.81 |
|
| Nonvested, end of period | 204,570 |
| | 31.27 |
|
| | | | |
| LKE | | | |
| Nonvested, beginning of period | 318,963 |
| | $ | 29.65 |
|
| Transfer between registrants | (24,993 | ) | | 30.52 |
|
| Granted | 86,987 |
| | 33.73 |
|
| Vested | (137,676 | ) | | 28.76 |
|
| Nonvested, end of period | 243,281 |
| | 31.53 |
|
| |
| (a) | Excludes 862,337 restricted stock units for which restrictions lapsed for former PPL Energy Supply employees as a result of the spinoff, but for which distribution will not occur until the end of the original restriction period of the awards. |
| | | | | | | Weighted- |
| | | | | | | Average |
| | | | | Restricted | | Grant Date Fair |
| | | | | Shares/Units | | Value Per Share |
| PPL | | | | | | |
| Nonvested, beginning of period | | | 3,140,600 | | $ | 28.50 |
| | Granted | | | 1,197,947 | | | 31.50 |
| | Vested | | | (804,582) | | | 26.01 |
| | Forfeited | | | (48,445) | | | 30.48 |
| Nonvested, end of period | | | 3,485,520 | | | 30.07 |
| | | | | | | | |
| PPL Energy Supply | | | | | | |
| Nonvested, beginning of period | | | 1,343,404 | | $ | 28.71 |
| | Transferred | | | 70,298 | | | 27.43 |
| | Granted | | | 465,238 | | | 31.70 |
| | Vested | | | (395,740) | | | 26.19 |
| | Forfeited | | | (25,300) | | | 30.54 |
| Nonvested, end of period | | | 1,457,900 | | | 30.13 |
| | | | | | | | |
| PPL Electric | | | | | | |
| Nonvested, beginning of period | | | 265,550 | | $ | 28.22 |
| | Transferred | | | 2,270 | | | 29.03 |
| | Granted | | | 103,511 | | | 31.81 |
| | Vested | | | (78,370) | | | 26.04 |
| | Forfeited | | | (6,150) | | | 30.65 |
| Nonvested, end of period | | | 286,811 | | | 30.04 |
| | | | | | | | |
| | | | | | | Weighted- |
| | | | | | | Average |
| | | | | Restricted | | Grant Date Fair |
| | | | | Shares/Units | | Value Per Share |
| LKE | | | | | | |
| Nonvested, beginning of period | | | 231,553 | | $ | 29.17 |
| | Granted | | | 112,625 | | | 30.98 |
| | Vested | | | (2,710) | | | 29.97 |
| Nonvested, end of period | | | 341,468 | | | 29.76 |
Substantially all restricted stock and restricted stock unit awards are expected to vest.
The total fair value of restricted stock and restricted stock units vesting for the years ended December 31 was: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL | $ | 30 |
| | $ | 28 |
| | $ | 11 |
|
| PPL Electric | 3 |
| | 4 |
| | 2 |
|
| LKE | 5 |
| | 4 |
| | — |
|
| | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| PPL | | $ | 21 | | $ | 19 | | $ | 27 |
| PPL Energy Supply | | | 10 | | | 7 | | | 6 |
| PPL Electric | | | 2 | | | 3 | | | 2 |
| LKE | | | | | | 1 | | | 4 |
Performance units are intended to encourage and reward future corporate performance. Performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable performance goal. Performance is determined based on total shareowner return during a three-year performance period. At the end of the period, payout is determined by comparing PPL's performance to the total shareowner return of the companies included in the Philadelphia Stock Exchange Utility Index. Awards are payable on a graduated basis based on thresholds that measure PPL's performance relative to peers that comprise the applicable index on which each years' awards are measured. Awards can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the determination of the CGNC of whether the performance goals have been achieved. Under the plan provisions, performance units are subject to forfeiture upon termination of employment except for retirement, disability or death of an employee, in which case the totalemployee. For performance units remain outstanding andgranted prior to 2014, the performance units are eligible for pro-rata vesting throughat the conclusionend of the performance period.period for retirement, disability or death of an employee.
Beginning in 2014, the fair value of performance units granted to retirement-eligible employees is recognized as compensation expense on a straight-line basis over a one-year period, the minimum vesting period required for an employee to be entitled to payout of the awards.awards with no proration. For employees who are not retirement-eligible, compensation expense is recognized over the shorter of the three-year performance period or the period until the employee is retirement-eligible, with a minimum vesting and recognition period of one-year. If an employee retires before the one-year vesting period, the performance units are forfeited. The fair value of performance units granted in 2013 and 2012 isprior years was recognized as compensation expense on a straight-line basis over the three-year performance period. Performance units vest on a pro rata basis, in certain situations, as defined by each of the Plans.
The fair value of each performance unit granted was estimated using a Monte Carlo pricing model that considers stock beta, a risk-free interest rate, expected stock volatility and expected life. The stock beta was calculated comparing the risk of the individual securities to the average risk of the companies in the index group. The risk-free interest rate reflects the yield on a U.S. Treasury bond commensurate with the expected life of the performance unit. Volatility over the expected term of the performance unit is calculated using daily stock price observations for PPL and all companies in the index group and is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL and the companies in the index group. PPL uses a mix of historic and implied volatility to value awards.
The weighted-average assumptions used in the model were: |
| | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Expected stock volatility | 19.60 | % | | 15.90 | % | | 15.80 | % |
| Expected life | 3 years |
| | 3 years |
| | 3 years |
|
| | | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | |
| Risk-free interest rate | | | 0.75% | | | 0.36% | | | 0.30% |
| Expected stock volatility | | | 15.80% | | | 15.50% | | | 19.30% |
| Expected life | | | 3 years | | | 3 years | | | 3 years |
The weighted-average grant date fair value of performance units granted was: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL | $ | 35.74 |
| | $ | 36.76 |
| | $ | 34.55 |
|
| PPL Electric | 35.68 |
| | 37.93 |
| | 34.43 |
|
| LKE | 35.28 |
| | 37.10 |
| | 34.12 |
|
| | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| PPL | | $ | 34.55 | | $ | 34.15 | | $ | 31.41 |
| PPL Energy Supply | | | 34.35 | | | 34.29 | | | 31.40 |
| PPL Electric | | | 34.43 | | | 33.97 | | | 31.37 |
| LKE | | | 34.12 | | | 33.84 | | | 31.30 |
Performance unit activity for 20142016 was: |
| | | | | | |
| | Performance Units | | Weighted- Average Grant Date Fair Value Per Share |
| PPL | | | |
| Nonvested, beginning of period | 993,540 |
| | $ | 33.09 |
|
| Granted | 471,401 |
| | 35.74 |
|
| Vested | (375,668 | ) | | 31.96 |
|
| Forfeited | (18,737 | ) | | 33.22 |
|
| Nonvested, end of period (a) | 1,070,536 |
| | 34.65 |
|
| | | | | | | Weighted- |
| | | | | | | Average Grant |
| | | | Performance | | Date Fair Value |
| | | | Units | | Per Share |
| PPL | | | | | | |
| Nonvested, beginning of period | | | 793,199 | | $ | 32.19 |
| | Granted | | | 555,553 | | | 34.55 |
| | Vested | | | (177,036) | | | 29.11 |
| Nonvested, end of period | | | 1,171,716 | | | 33.77 |
| | | | | | | | |
| PPL Energy Supply | | | | | | |
| Nonvested, beginning of period | | | 170,609 | | $ | 32.22 |
| | Transferred | | | 27,656 | | | 32.12 |
| | Granted | | | 138,601 | | | 34.35 |
| | Vested | | | (45,374) | | | 29.11 |
| Nonvested, end of period | | | 291,492 | | | 33.71 |
| | | | | | | | |
| PPL Electric | | | | | | |
| Nonvested, beginning of period | | | 38,210 | | $ | 32.22 |
| | Granted | | | 29,701 | | | 34.43 |
| | Vested | | | (8,296) | | | 28.99 |
| Nonvested, end of period | | | 59,615 | | | 33.77 |
| | | | | | | | |
| LKE | | | | | | |
| Nonvested, beginning of period | | | 129,630 | | $ | 31.88 |
| | Granted | | | 75,174 | | | 34.12 |
| | Vested | | | (30,858) | | | 29.20 |
| Nonvested, end of period | | | 173,946 | | | 33.32 |
|
| | | | | | |
| | Performance Units | | Weighted- Average Grant Date Fair Value Per Share |
| | | | |
| PPL Electric | | | |
| Nonvested, beginning of period | 67,671 |
| | $ | 33.05 |
|
| Granted | 35,694 |
| | 35.68 |
|
| Vested | (23,880 | ) | | 31.89 |
|
| Forfeited | (2,759 | ) | | 31.74 |
|
| Nonvested, end of period | 76,726 |
| | 34.68 |
|
| | | | |
| LKE | | | |
| Nonvested, beginning of period | 193,164 |
| | $ | 32.96 |
|
| Transfer between registrants | (4,432 | ) | | 35.07 |
|
| Granted | 84,298 |
| | 35.28 |
|
| Vested | (70,048 | ) | | 31.74 |
|
| Forfeited | (11,381 | ) | | 33.61 |
|
| Nonvested, end of period | 191,601 |
| | 34.34 |
|
| |
| (a) | Excludes 230,196 performance units for which the service vesting requirement was waived for former PPL Energy Supply employees as a result of the spinoff, but for which the ultimate number of shares to be distributed will depend on the actual attainment of the performance goals at the end of the specified performance periods. |
The total fair value of performance units vesting for the year ended December 31, 2016, 2015 and 2014 was $12 million, $6 million and $5 million for PPL and insignificant for PPL Energy Supply, PPL Electric and LKE.
Stock Options
PPL's CGNC eliminated the use of stock options and changed its long-term incentive mix to 60% performance units and 40% performance-contingent restricted stock units, resulting in 100% performance-based long-term incentive mix for equity awards granted beginning in January 2014.
Under the Plans, stock options had been granted with an option exercise price per share not less than the fair value of PPL's common stock on the date of grant. Options outstanding at December 31, 2014, become exercisable in equal installments over a three-year service period beginning one year after the date of grant, assuming the individual is still employed by PPL or a subsidiary. The CGNC and CLC have discretion to accelerate the exercisability of the options, except that the exercisability of an option issued under the ICP may not be accelerated unless the individual remains employed by PPL or a subsidiary for one year from the date of grant.2016, are fully vested. All options expire no later than ten years from the grant date. The options become exercisable immediately in certain situations, as defined by each of the Plans. The fair value of options granted is recognized as compensation expense on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of options granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant.
The fair value of each option granted is estimated using a Black-Scholes option-pricing model. PPL uses a risk-free interest rate, expected option life, expected volatility and dividend yield to value its stock options. The risk-free interest rate reflects the yield for a U.S. Treasury Strip available on the date of grant with constant rate maturity approximating the option's expected life. Expected life is calculated based on historical exercise behavior. Volatility over the expected term of the options is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to
recur that had impacted PPL's volatility in those prior periods. Management's expectations for future volatility, considering potential changes to PPL's business model and other economic conditions, are also reviewed in addition to the historical data to determine the final volatility assumption. PPL uses a mix of historic and implied volatility to value awards. The dividend yield is based on several factors, including PPL's most recent dividend payment, as of the grant date and the forecasted stock price. The assumptions used in the model were:
| | | 2013 | | 2012 |
| | | | | | | |
| Risk-free interest rate | | 1.15% | | | 1.13% |
| Expected option life | | 6.48 years | | | 6.17 years |
| Expected stock volatility | | 18.50% | | | 20.60% |
| Dividend yield | | 5.00% | | | 5.00% |
The weighted-average grant date fair value of options granted was:
| | | 2013 | | 2012 |
| | | | | | | |
| PPL | $ | 2.18 | | $ | 2.48 |
| PPL Energy Supply | | 2.19 | | | 2.51 |
| PPL Electric | | 2.19 | | | 2.50 |
| LKE | | 2.18 | | | 2.51 |
Stock option activity for 20142016 was: |
| | | | | | | | | | | | |
| | Number of Options | | Weighted Average Exercise Price Per Share | | Weighted- Average Remaining Contractual Term (years) | | Aggregate Total Intrinsic Value |
| PPL | | | | | | | |
| Outstanding at beginning of period | 6,385,149 |
| | $ | 28.54 |
| | | | |
| Exercised | (1,903,989 | ) | | 27.51 |
| | | | |
| Outstanding and exercisable at end of period | 4,481,160 |
| | 28.98 |
| | 4.4 | | $ | 29 |
|
| | | | | | | | |
| PPL Electric | | | | | | | |
| Outstanding at beginning of period | 313,433 |
| | $ | 27.79 |
| | | | |
| Exercised | (72,494 | ) | | 28.84 |
| | | | |
| Outstanding and exercisable at end of period | 240,939 |
| | 27.48 |
| | 4.5 | | $ | 2 |
|
| | | | | | | | |
| LKE | | | | | | | |
| Outstanding at beginning of period | 425,656 |
| | $ | 26.08 |
| | | | |
| Exercised | (363,760 | ) | | 26.12 |
| | | | |
| Outstanding and exercisable at end of period | 61,896 |
| | 25.81 |
| | 5.5 | | $ | 1 |
|
| | | | | | | | Weighted- | | |
| | | | | | | Weighted | | Average | | | |
| | | | | | Average | | Remaining | | Aggregate |
| | | | Number | | Exercise | | Contractual | | Total Intrinsic |
| | | | of Options | | Price Per Share | | Term (years) | | Value |
| PPL | | | | | | | | | | | | |
| Outstanding at beginning of period | | | 11,381,482 | | $ | 30.45 | | | | | | |
| | Exercised | | | (2,338,520) | | | 28.58 | | | | | | |
| Outstanding at end of period | | | 9,042,962 | | | 30.93 | | | 5.9 | | $ | 56 |
| Options exercisable at end of period | | | 6,432,806 | | | 31.60 | | | 5.2 | | | 38 |
| | | | | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | | | | |
| Outstanding at beginning of period | | | 2,845,336 | | $ | 30.47 | | | | | | |
| | Transferred | | | 458,800 | | | 30.47 | | | | | | |
| | Exercised | | | (559,120) | | | 28.79 | | | | | | |
| Outstanding at end of period | | | 2,745,016 | | | 30.84 | | | 5.6 | | $ | 17 |
| Options exercisable at end of period | | | 2,166,150 | | | 31.24 | | | 5.0 | | | 13 |
| | | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | | | | |
| Outstanding at beginning of period | | | 532,200 | | $ | 30.04 | | | | | | |
| | Exercised | | | (24,280) | | | 30.12 | | | | | | |
| Outstanding at end of period | | | 507,920 | | | 30.04 | | | 6.3 | | $ | 3 |
| Options exercisable at end of period | | | 386,413 | | | 30.27 | | | 5.8 | | | 3 |
| | | | | | | | | | | | | | |
| LKE | | | | | | | | | | | | |
| Outstanding at beginning of period | | | 997,156 | | $ | 28.35 | | | | | | |
| | Exercised | | | (373,839) | | | 27.87 | | | | | | |
| Outstanding at end of period | | | 623,317 | | | 28.64 | | | 7.5 | | $ | 5 |
| Options exercisable at end of period | | | 215,106 | | | 27.58 | | | 6.9 | | | 2 |
Substantially all stock option awards are expected to vest.
For 2016, 2015 and 2014, PPL received $52 million, $97 million and $67 million in cash from stock options exercised in 2014.exercised. The related income tax benefits realized were not significant.
The total intrinsic value of stock options exercised for 2016, 2015 and 2014 was $13were $18 million, 2013 was $6$21 million and was not significant for 2012.$13 million.
Compensation expense for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards, which for PPL Energy Supply, PPL Electric and LKE includes an allocation of PPL Services' expense, was: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL | $ | 27 |
| | $ | 33 |
| | $ | 30 |
|
| PPL Electric | 16 |
| | 14 |
| | 12 |
|
| LKE | 7 |
| | 8 |
| | 8 |
|
| | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| PPL | | $ | 63 | | $ | 52 | | $ | 49 |
| PPL Energy Supply | | | 33 | | | 27 | | | 23 |
| PPL Electric | | | 12 | | | 10 | | | 11 |
| LKE | | | 8 | | | 8 | | | 8 |
See Note 8 for details of the costs recognized in discontinued operations related to the accelerated vesting of awards for former PPL Energy Supply employees.
The income tax benefit related to above compensation expense was as follows:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL | $ | 12 |
| | $ | 14 |
| | $ | 12 |
|
| PPL Electric | 7 |
| | 6 |
| | 5 |
|
| LKE | 3 |
| | 3 |
| | 3 |
|
| | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| PPL | | $ | 26 | | $ | 22 | | $ | 20 |
| PPL Energy Supply | | | 14 | | | 11 | | | 10 |
| PPL Electric | | | 5 | | | 4 | | | 4 |
| LKE | | | 3 | | | 3 | | | 4 |
The income tax benefit PPL realized from stock-based awards vested or exercised for 2014 was $4 million and was not significant for 2013 and 2012.
At December 31, 2014,2016, unrecognized compensation expense related to nonvested restricted stock, restricted stock units, and performance units and stock option awards was: |
| | | | | |
| | Unrecognized Compensation Expense | | Weighted- Average Period for Recognition |
| PPL | $ | 8 |
| | 1.8 |
| PPL Electric | 1 |
| | 1.8 |
| LKE | 1 |
| | 1.6 |
| | | | | | |
| | | | | Weighted- |
| | | Unrecognized | | Average |
| | | Compensation | | Period for |
| | | Expense | | Recognition |
| | | | | | | |
PPL | | $ | 27 | | | 1.7 years |
PPL Energy Supply | | | 13 | | | 1.8 years |
PPL Electric | | | 3 | | | 1.8 years |
LKE | | | 2 | | | 1.3 years |
11. Retirement and Postemployment Benefits
Defined Benefits
The majority of PPL's subsidiaries domestic employees are eligible for pension benefits under non-contributory defined benefit pension plans with benefits based on length of service and final average pay, as defined by the plans. Effective January 1, 2012, PPL's primary defined benefit pension plan was closed to all newly hired salaried employees. Effective July 1, 2014, PPL's primary defined benefit pension plan was closed to all newly hired bargaining unit employees. Newly hired employees are eligible to participate in the PPL Retirement Savings Plan, a 401(k) savings plan with enhanced employer contributions.
The majority of PPL Montana employees are eligible for pension benefits under a cash balance pension plan. Effective January 1, 2012, that plan was closed to all newly hired salaried employees. Effective September 1, 2014, that plan was closed to all newly hired bargaining unit employees. Newly hired employees are eligible to participate in the PPL Retirement Savings Plan.
The defined benefit pension plans of LKE and its subsidiaries were closed to new salaried and bargaining unit employees hired after December 31, 2005. Employees hired after December 31, 2005 receive additional company contributions above the standard matching contributions to their savings plans.
Employees of certain of PPL Energy Supply's mechanical contracting companies are eligible for benefits under multiemployer plans sponsored by various unions.
Effective April 1, 2010, the principal defined benefit pension plan applicable to WPD (South West) and WPD (South Wales) was closed to most new employees, except for those meeting specific grandfathered participation rights. WPD Midlands' defined benefit plan had been closed to new members, except for those meeting specific grandfathered participation rights, prior to acquisition. New employees not eligible to participate in the plans are offered benefits under a defined contribution plan.
PPL and certain of its subsidiaries also provide supplemental retirement benefits to executives and other key management employees through unfunded nonqualified retirement plans.
The majority of employees of PPL's domestic subsidiaries are eligible for certain health care and life insurance benefits upon retirement through contributory plans. Effective January 1, 2014, the PPL Postretirement Medical Plan was closed to all newly hired salaried employees. Effective July 1, 2014, the PPL Postretirement Medical Plan was closed to all newly hired bargaining unit employees. Postretirement health benefits may be paid from 401(h) accounts established as part of the PPL Retirement Plan and the LG&E and KU Retirement Plan within the PPL Services Corporation Master Trust, funded VEBA trusts and company funds. Postretirement benefits under the PPL Montana Retiree Health Plan are paid from company assets. WPD does not sponsor any postretirement benefit plans other than pensions.
(PPL)
The following table provides the components of net periodic defined benefit costs for PPL's domestic (U.S.) and WPD's (U.K.) pension and other postretirement benefit plans for the years ended December 31. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | | | | |
| | U.S. | | U.K. | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| Net periodic defined benefit costs (credits): | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Service cost | $ | 66 |
| | $ | 96 |
| | $ | 97 |
| | $ | 69 |
| | $ | 79 |
| | $ | 71 |
| | $ | 7 |
| | $ | 11 |
| | $ | 12 |
|
| Interest cost | 174 |
| | 194 |
| | 224 |
| | 235 |
| | 314 |
| | 354 |
| | 26 |
| | 26 |
| | 31 |
|
| Expected return on plan assets | (228 | ) | | (258 | ) | | (287 | ) | | (504 | ) | | (523 | ) | | (521 | ) | | (22 | ) | | (26 | ) | | (26 | ) |
| Amortization of: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Prior service cost (credit) | 8 |
| | 7 |
| | 20 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
| Actuarial (gain) loss | 50 |
| | 84 |
| | 28 |
| | 138 |
| | 158 |
| | 132 |
| | 1 |
| | — |
| | 1 |
|
Net periodic defined benefit costs (credits) prior to settlements and termination benefits | 70 |
| | 123 |
| | 82 |
| | (62 | ) | | 28 |
| | 36 |
| | 12 |
| | 12 |
| | 18 |
|
| Settlements | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Termination benefits | — |
| | — |
| | 13 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net periodic defined benefit costs (credits) | $ | 73 |
| | $ | 123 |
| | $ | 95 |
| | $ | (62 | ) | | $ | 28 |
| | $ | 36 |
| | $ | 12 |
| | $ | 12 |
| | $ | 18 |
|
| | | | | | | | | | | | | | | | | | |
| Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross: | | | | | | | | | | | | | | | | | |
| Divestiture (a) | $ | — |
| | $ | (353 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (6 | ) | | $ | — |
|
| Settlement | (3 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net (gain) loss | 253 |
| | 63 |
| | 574 |
| | 7 |
| | 508 |
| | 354 |
| | 9 |
| | (9 | ) | | 22 |
|
Prior service cost (credit) | 15 |
| | 18 |
| | (8 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | 7 |
|
| Amortization of: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Prior service (cost) credit | (8 | ) | | (7 | ) | | (20 | ) | | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | — |
|
| Actuarial gain (loss) | (50 | ) | | (85 | ) | | (28 | ) | | (138 | ) | | (158 | ) | | (132 | ) | | (1 | ) | | — |
| | (1 | ) |
Total recognized in OCI and regulatory assets/liabilities (b) | 207 |
| | (364 | ) | | 518 |
| | (131 | ) | | 350 |
| | 222 |
| | 7 |
| | (16 | ) | | 28 |
|
| | | | | | | | | | | | | | | | | | |
Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities (b) | $ | 280 |
| | $ | (241 | ) | | $ | 613 |
| | $ | (193 | ) | | $ | 378 |
| | $ | 258 |
| | $ | 19 |
| | $ | (4 | ) | | $ | 46 |
|
| | | | | Pension Benefits | | | | | | | | | |
| | | | | U.S. | | U.K. | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 |
| Net periodic defined benefit costs | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (credits): | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service cost | | $ | 102 | | $ | 126 | | $ | 103 | | $ | 71 | | $ | 69 | | $ | 54 | | $ | 12 | | $ | 14 | | $ | 12 |
| Interest cost | | | 233 | | | 213 | | | 220 | | | 354 | | | 320 | | | 340 | | | 32 | | | 29 | | | 31 |
| Expected return on plan assets | | | (298) | | | (293) | | | (259) | | | (521) | | | (465) | | | (458) | | | (26) | | | (25) | | | (23) |
| Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Transition (asset) obligation | | | | | | | | | | | | | | | | | | | | | | | | | | | 2 |
| | | Prior service cost (credit) | | | 20 | | | 22 | | | 24 | | | | | | 1 | | | 4 | | | | | | | | | 1 |
| | | Actuarial (gain) loss | | | 30 | | | 80 | | | 42 | | | 132 | | | 150 | | | 79 | | | 1 | | | 6 | | | 4 |
| Net periodic defined benefit costs | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (credits) prior to settlement charges, | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | curtailment charges (credits) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | and termination benefits | | | 87 | | | 148 | | | 130 | | | 36 | | | 75 | | | 19 | | | 19 | | | 24 | | | 27 |
| Settlement charges | | | | | | | | | 11 | | | | | �� | | | | | | | | | | | | | |
| Curtailment charges (credits) | | | | | | | | | | | | | | | | | | | | | (1) | | | | | | |
| Termination benefits (a) | | | 13 | | | | | | | | | | | | 3 | | | 2 | | | | | | | | | |
| Net periodic defined benefit costs | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (credits) | | $ | 100 | | $ | 148 | | $ | 141 | | $ | 36 | | $ | 78 | | $ | 21 | | $ | 18 | | $ | 24 | | $ | 27 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Changes in Plan Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | and Benefit Obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Recognized in OCI and | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Regulatory Assets/Liabilities - | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Curtailments | | | | | | | | | | | | | | | | | | | | $ | 1 | | | | | | |
| Settlements | | | | | | | | $ | (11) | | | | | | | | | | | | | | | | | | |
| Net (gain) loss | | $ | 600 | | $ | (319) | | | 372 | | $ | 354 | | $ | 76 | | $ | 1,073 | | | 21 | | $ | (68) | | $ | 13 |
| Prior service cost | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (credit) | | | (8) | | | | | | | | | | | | | | | | | | 7 | | | (3) | | | (1) |
| Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Transition asset (obligation) | | | | | | | | | | | | | | | | | | | | | | | | | | | (2) |
| | | Prior service (cost) credit | | | (20) | | | (22) | | | (24) | | | | | | (1) | | | (4) | | | | | | | | | (1) |
| | | Actuarial gain (loss) | | | (30) | | | (80) | | | (42) | | | (132) | | | (150) | | | (79) | | | (1) | | | (6) | | | (4) |
| Total recognized in OCI and | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | regulatory assets/liabilities (b) | | | 542 | | | (421) | | | 295 | | | 222 | | | (75) | | | 990 | | | 28 | | | (77) | | | 5 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total recognized in net periodic | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | defined benefit costs, OCI and | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | regulatory assets/liabilities (b) | | $ | 642 | | $ | (273) | | $ | 436 | | $ | 258 | | $ | 3 | | $ | 1,011 | | $ | 46 | | $ | (53) | | $ | 32 |
| |
| (a) | As a result of the spinoff of PPL Energy Supply, amounts in AOCI were allocated to certain former active and inactive employees of PPL Energy Supply and included in the distribution. See Note 138 for details of a one-time voluntary retirement window offered to certain bargaining unit employees in 2014. 2013 and 2012 amounts are related to the WPD Midlands separations in the U.K. additional details. |
| |
| (b) | WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP. As a result, WPD does not record regulatory assets/liabilities. |
For PPL's U.S. pension benefits and for other postretirement benefits, the amounts recognized in OCI and regulatory assets/liabilities for the years ended December 31 were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Pension Benefits | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| OCI | $ | 236 |
| | $ | (269 | ) | | $ | 319 |
| | $ | 7 |
| | $ | 12 |
| | $ | 7 |
|
| Regulatory assets/liabilities | (29 | ) | | (95 | ) | | 199 |
| | — |
| | (28 | ) | | 21 |
|
Total recognized in OCI and regulatory assets/liabilities | $ | 207 |
| | $ | (364 | ) | | $ | 518 |
| | $ | 7 |
| | $ | (16 | ) | | $ | 28 |
|
| | | | U.S. Pension Benefits | | | Other Postretirement Benefits |
| | | | | 2014 | | | 2013 | | | 2012 | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | | | | | | | | | |
| OCI | | $ | 343 | | $ | (228) | | $ | 181 | | $ | 7 | | $ | (41) | | $ | 12 |
| Regulatory assets/liabilities | | | 199 | | | (193) | | | 114 | | | 21 | | | (36) | | | (7) |
| Total recognized in OCI and | | | | | | | | | | | | | | | | | | |
| | regulatory assets/liabilities | | $ | 542 | | $ | (421) | | $ | 295 | | $ | 28 | | $ | (77) | | $ | 5 |
The estimated amounts to be amortized from AOCI and regulatory assets/liabilities into net periodic defined benefit costs in 20152017 are as follows: |
| | | | | | | |
| | Pension Benefits |
| | U.S. | | U.K. |
| Prior service cost (credit) | $ | 9 |
| | $ | — |
|
| Actuarial (gain) loss | 67 |
| | 141 |
|
| Total | $ | 76 |
| | $ | 141 |
|
| | | | |
| Amortization from Balance Sheet: | |
| | |
| AOCI | $ | 18 |
| | $ | 141 |
|
| Regulatory assets/liabilities | 58 |
| | — |
|
| Total | $ | 76 |
| | $ | 141 |
|
| | | | | | | |
| | | Pension Benefits |
| | | U.S. | | U.K. |
| | | | | | | |
| Prior service cost (credit) | | $ | 7 | | | |
| Actuarial (gain) loss | | | 100 | | $ | 162 |
| Total | | $ | 107 | | $ | 162 |
| | | | | | | |
| Amortization from Balance Sheet: | | | | | | |
| AOCI | | $ | 49 | | $ | 162 |
| Regulatory assets/liabilities | | | 58 | | | |
| Total | | $ | 107 | | $ | 162 |
The following table provides the components of net periodic defined benefit costs for PPL Energy Supply's pension and other postretirement benefit plans for the years ended December 31.
| | | | | Pension Benefits | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 |
| Net periodic defined benefit costs | | | | | | | | | | | | | | | | | | |
| (credits): | | | | | | | | | | | | | | | | | | |
| Service cost | | $ | 5 | | $ | 7 | | $ | 6 | | | | | $ | 1 | | $ | 1 |
| Interest cost | | | 9 | | | 8 | | | 7 | | $ | 1 | | | | | | 1 |
| Expected return on plan assets | | | (11) | | | (10) | | | (9) | | | | | | | | | |
| Amortization of: | | | | | | | | | | | | | | | | | | |
| | | Actuarial (gain) loss | | | 2 | | | 3 | | | 2 | | | | | | | | | |
| Curtailment charges (credits) | | | | | | | | | | | | (1) | | | | | | |
| Net periodic defined benefit costs | | | | | | | | | | | | | | | | | | |
| | (credits) | | $ | 5 | | $ | 8 | | $ | 6 | | $ | | | $ | 1 | | $ | 2 |
| | | | | | | | | | | | | | | | | | | | | |
| Other Changes in Plan Assets | | | | | | | | | | | | | | | | | | |
| | and Benefit Obligations | | | | | | | | | | | | | | | | | | |
| | Recognized in OCI: | | | | | | | | | | | | | | | | | | |
| Curtailments | | | | | | | | | | | $ | 1 | | | | | | |
| Net (gain) loss | | $ | 26 | | $ | (15) | | $ | 16 | | | (1) | | $ | (1) | | | |
| Prior service cost (credit) | | | | | | | | | | | | | | | (3) | | $ | (1) |
| Amortization of: | | | | | | | | | | | | | | | | | | |
| | | Actuarial gain (loss) | | | (2) | | | (3) | | | (2) | | | | | | | | | |
| Total recognized in OCI | | | 24 | | | (18) | | | 14 | | | | | | (4) | | | (1) |
| | | | | | | | | | | | | | | | | | | | | |
| Total recognized in net periodic | | | | | | | | | | | | | | | | | | |
| | defined benefit costs and OCI | | $ | 29 | | $ | (10) | | $ | 20 | | $ | | | $ | (3) | | $ | 1 |
Actuarial loss of $4 million related to PPL Energy Supply's pension plan is expected to be amortized from AOCI into net periodic defined benefit costs in 2015.
(LKE)
The following table provides the components of net periodic defined benefit costs for LKE's pension and other postretirement benefit plans for the years ended December 31. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| Net periodic defined benefit costs (credits): | |
| | |
| | |
| | |
| | |
| | |
|
| Service cost | $ | 23 |
| | $ | 26 |
| | $ | 21 |
| | $ | 5 |
| | $ | 5 |
| | $ | 4 |
|
| Interest cost | 71 |
| | 68 |
| | 66 |
| | 9 |
| | 9 |
| | 9 |
|
| Expected return on plan assets | (91 | ) | | (88 | ) | | (82 | ) | | (6 | ) | | (6 | ) | | (4 | ) |
| Amortization of: | |
| | |
| | |
| | |
| | |
| | |
|
| Prior service cost | 8 |
| | 7 |
| | 5 |
| | 3 |
| | 3 |
| | 2 |
|
| Actuarial (gain) loss (a) | 21 |
| | 37 |
| | 12 |
| | (1 | ) | | — |
| | (1 | ) |
| Net periodic defined benefit costs | $ | 32 |
| | $ | 50 |
| | $ | 22 |
| | $ | 10 |
| | $ | 11 |
| | $ | 10 |
|
| | | | | | | | | | | | |
Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross: | |
| | |
| | |
| | |
| | |
| | |
|
| Net (gain) loss | $ | 119 |
| | $ | 20 |
| | $ | 162 |
| | $ | 6 |
| | $ | (15 | ) | | $ | 26 |
|
| Prior service cost | — |
| | 19 |
| | 23 |
| | — |
| | — |
| | 6 |
|
| Amortization of: | |
| | |
| | |
| | |
| | |
| | |
|
| Prior service credit | (8 | ) | | (7 | ) | | (5 | ) | | (3 | ) | | (3 | ) | | (2 | ) |
| Actuarial gain (loss) | (21 | ) | | (37 | ) | | (12 | ) | | 1 |
| | — |
| | 1 |
|
Total recognized in OCI and regulatory assets/liabilities | 90 |
| | (5 | ) | | 168 |
| | 4 |
| | (18 | ) | | 31 |
|
| | | | | | | | | | | | |
Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities | $ | 122 |
| | $ | 45 |
| | $ | 190 |
| | $ | 14 |
| | $ | (7 | ) | | $ | 41 |
|
| |
| (a) | As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between actuarial (gain)/loss calculated in accordance with LKE's pension accounting policy and actuarial (gain)/loss calculated using a 15 year amortization period was $6 million in 2016 and $9 million in 2015. |
| | | | | Pension Benefits | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 |
| Net periodic defined benefit costs | | | | | | | | | | | | | | | | | | |
| | (credits): | | | | | | | | | | | | | | | | | | |
| Service cost | | $ | 21 | | $ | 26 | | $ | 22 | | $ | 4 | | $ | 5 | | $ | 4 |
| Interest cost | | | 66 | | | 62 | | | 64 | | | 9 | | | 8 | | | 9 |
| Expected return on plan assets | | | (82) | | | (82) | | | (70) | | | (4) | | | (5) | | | (4) |
| Amortization of: | | | | | | | | | | | | | | | | | | |
| | | Transition (asset) obligation | | | | | | | | | | | | | | | | | | 2 |
| | | Prior service cost (credit) | | | 5 | | | 5 | | | 5 | | | 2 | | | 3 | | | 3 |
| | | Actuarial (gain) loss | | | 12 | | | 33 | | | 22 | | | (1) | | | | | | (1) |
| Net periodic defined benefit costs | | | | | | | | | | | | | | | | | | |
| | (credit) | | $ | 22 | | $ | 44 | | $ | 43 | | $ | 10 | | $ | 11 | | $ | 13 |
| | | | | | | | | | | | | | | | | | | | | |
| Other Changes in Plan Assets | | | | | | | | | | | | | | | | | | |
| | and Benefit Obligations | | | | | | | | | | | | | | | | | | |
| | Recognized in OCI and | | | | | | | | | | | | | | | | | | |
| | Regulatory Assets/Liabilities - | | | | | | | | | | | | | | | | | | |
| | Gross: | | | | | | | | | | | | | | | | | | |
| Net (gain) loss | | $ | 162 | | $ | (116) | | $ | 96 | | $ | 26 | | $ | (14) | | $ | (11) |
| Prior service cost (credit) | | | 23 | | | | | | | | | 6 | | | | | | |
| Amortization of: | | | | | | | | | | | | | | | | | | |
| | | Transition asset (obligation) | | | | | | | | | | | | | | | | | | (2) |
| | | Prior service (cost) credit | | | (5) | | | (5) | | | (5) | | | (2) | | | (3) | | | (3) |
| | | Actuarial gain (loss) | | | (12) | | | (33) | | | (22) | | | 1 | | | | | | 1 |
| Total recognized in OCI and | | | | | | | | | | | | | | | | | | |
| | regulatory assets/liabilities | | | 168 | | | (154) | | | 69 | | | 31 | | | (17) | | | (15) |
| | | | | | | | | | | | | | | | | | | | | |
| Total recognized in net periodic | | | | | | | | | | | | | | | | | | |
| | defined benefit costs, OCI and | | | | | | | | | | | | | | | | | | |
| | regulatory assets/liabilities | | $ | 190 | | $ | (110) | | $ | 112 | | $ | 41 | | $ | (6) | | $ | (2) |
For LKE's pension and other postretirement benefits, the amounts recognized in OCI and regulatory assets/liabilities for the years ended December 31 were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| OCI | $ | 42 |
| | $ | 4 |
| | $ | 84 |
| | $ | 2 |
| | $ | (2 | ) | | $ | 9 |
|
| Regulatory assets/liabilities | 48 |
| | (9 | ) | | 84 |
| | 2 |
| | (16 | ) | | 22 |
|
Total recognized in OCI and regulatory assets/liabilities | $ | 90 |
| | $ | (5 | ) | | $ | 168 |
| | $ | 4 |
| | $ | (18 | ) | | $ | 31 |
|
| | | | | Pension Benefits | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| OCI | | $ | 84 | | $ | (46) | | $ | 34 | | $ | 9 | | $ | (1) | | $ | (1) |
| Regulatory assets/liabilities | | | 84 | | | (108) | | | 35 | | | 22 | | | (16) | | | (14) |
| Total recognized in OCI and | | | | | | | | | | | | | | | | | | |
| | regulatory assets/liabilities | | $ | 168 | | $ | (154) | | $ | 69 | | $ | 31 | | $ | (17) | | $ | (15) |
The estimated amounts to be amortized from AOCI and regulatory assets/liabilities into net periodic defined benefit costs for LKE in 20152017 are as follows.
|
| | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| Prior service cost | $ | 8 |
| | $ | 1 |
|
| Actuarial Loss | 30 |
| | — |
|
| Total | $ | 38 |
| | $ | 1 |
|
| | | | |
| Amortization from Balance Sheet: | |
| | |
| AOCI | $ | 5 |
| | $ | — |
|
| Regulatory assets/liabilities | 33 |
| | 1 |
|
| Total | $ | 38 |
| | $ | 1 |
|
| | | | | | Other |
| | | Pension | | Postretirement |
| | | Benefits | | Benefits |
| | | | | | | |
| Prior service cost (credit) | | $ | 7 | | $ | 3 |
| Actuarial (gain) loss | | | 34 | | | |
| Total | | $ | 41 | | $ | 3 |
| | | | | | | |
| Amortization from Balance Sheet: | | | | | | |
| AOCI | | $ | 3 | | $ | 1 |
| Regulatory assets/liabilities | | | 38 | | | 2 |
| Total | | $ | 41 | | $ | 3 |
(LG&E)
The following table provides the components of net periodic defined benefit costs for LG&E's pension benefit plan for the years ended December 31. |
| | | | | | | | | | | |
| | Pension Benefits |
| | 2016 | | 2015 | | 2014 |
| Net periodic defined benefit costs (credits): | |
| | |
| | |
|
| Service cost | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
| Interest cost | 15 |
| | 14 |
| | 15 |
|
| Expected return on plan assets | (21 | ) | | (20 | ) | | (19 | ) |
| Amortization of: | |
| | |
| | |
|
| Prior service cost | 4 |
| | 3 |
| | 2 |
|
| Actuarial loss (a) | 7 |
| | 11 |
| | 6 |
|
| Net periodic defined benefit costs | $ | 6 |
| | $ | 9 |
| | $ | 5 |
|
| | | | | | |
Other Changes in Plan Assets and Benefit Obligations Recognized in Regulatory Assets - Gross: | |
| | |
| | |
|
| Net loss | $ | 22 |
| | $ | 8 |
| | $ | 14 |
|
| Prior service cost | — |
| | 10 |
| | 9 |
|
| Amortization of: | |
| | |
| | |
|
| Prior service credit | (4 | ) | | (3 | ) | | (2 | ) |
| Actuarial gain | (7 | ) | | (11 | ) | | (6 | ) |
| Total recognized in regulatory assets/liabilities | 11 |
| | 4 |
| | 15 |
|
| | | | | | |
| Total recognized in net periodic defined benefit costs and regulatory assets | $ | 17 |
| | $ | 13 |
| | $ | 20 |
|
| |
| (a) | As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between actuarial (gain)/loss calculated in accordance with LG&E's pension accounting policy and actuarial (gain)/loss calculated using a 15 year amortization period was $5 million in 2016 and $3 million in 2015. |
| | | | | Pension Benefits |
| | | | | 2014 | | 2013 | | 2012 |
| Net periodic defined benefit costs (credits): | | | | | | | | | |
| Service cost | | $ | 1 | | $ | 2 | | $ | 2 |
| Interest cost | | | 15 | | | 14 | | | 14 |
| Expected return on plan assets | | | (19) | | | (20) | | | (19) |
| Amortization of: | | | | | | | | | |
| | | Prior service cost (credit) | | | 2 | | | 2 | | | 3 |
| | | Actuarial (gain) loss | | | 6 | | | 14 | | | 11 |
| Net periodic defined benefit costs (credits) | | $ | 5 | | $ | 12 | | $ | 11 |
| | | | | | | | | | | | |
| Other Changes in Plan Assets and Benefit Obligations | | | | | | | | | |
| | Recognized in Regulatory Assets - Gross: | | | | | | | | | |
| Net (gain) loss | | $ | 14 | | $ | (20) | | $ | 18 |
| Prior service cost (credit) | | | 9 | | | | | | |
| Amortization of: | | | | | | | | | |
| | | Prior service (cost) credit | | | (2) | | | (2) | | | (2) |
| | | Actuarial gain (loss) | | | (6) | | | (14) | | | (11) |
| Total recognized in regulatory assets/liabilities | | | 15 | | | (36) | | | 5 |
| | | | | | | | | | | | |
| Total recognized in net periodic defined benefit costs and regulatory assets | | $ | 20 | | $ | (24) | | $ | 16 |
The estimated amounts to be amortized from regulatory assets into net periodic defined benefit costs for LG&E in 20152017 are as follows.
|
| | | |
| | Pension Benefits |
| Prior service cost | $ | 4 |
|
| Actuarial loss | 9 |
|
| Total | $ | 13 |
|
| | Pension |
| | Benefits |
| | | |
Prior service cost (credit) | | $ | 3 |
Actuarial (gain) loss | | | 11 |
Total | | $ | 14 |
The following net periodic defined benefit costs (credits) were charged to operating expense or regulatory assets, excluding amounts charged to construction and other non-expense accounts. The U.K. pension benefits apply to PPL only. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | | | | |
| | U.S. | | U.K. | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| PPL | $ | 53 |
| | $ | 71 |
| | $ | 45 |
| | $ | (95 | ) | | $ | (21 | ) | | $ | (9 | ) | | $ | 7 |
| | $ | 8 |
| | $ | 10 |
|
| PPL Electric (a) | 10 |
| | 15 |
| | 12 |
| | |
| | |
| | |
| | 1 |
| | — |
| | 2 |
|
| LKE (b) | 24 |
| | 37 |
| | 17 |
| | |
| | |
| | |
| | 6 |
| | 8 |
| | 7 |
|
| LG&E (b) | 8 |
| | 12 |
| | 5 |
| | |
| | |
| | |
| | 3 |
| | 4 |
| | 4 |
|
| KU (a) (b) | 5 |
| | 9 |
| | 3 |
| | |
| | |
| | |
| | 2 |
| | 2 |
| | 2 |
|
| | | Pension Benefits | | | | | | | | | |
| | | U.S. | | U.K. | | Other Postretirement Benefits |
| | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | $ | 84 | | $ | 117 | | $ | 119 | | $ | (9) | | $ | 33 | | $ | 25 | | $ | 13 | | $ | 19 | | $ | 22 |
| PPL Energy Supply | | | 39 | | | 45 | | | 37 | | | | | | | | | | | | 3 | | | 6 | | | 6 |
| PPL Electric (a) | | | 12 | | | 18 | | | 19 | | | | | | | | | | | | 2 | | | 3 | | | 3 |
| LKE | | | 17 | | | 32 | | | 31 | | | | | | | | | | | | 7 | | | 8 | | | 9 |
| LG&E | | | 5 | | | 14 | | | 13 | | | | | | | | | | | | 4 | | | 4 | | | 5 |
| KU (a) | | | 3 | | | 9 | | | 8 | | | | | | | | | | | | 2 | | | 2 | | | 3 |
| |
| (a) | PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric and KU were allocated these costs of defined benefit plans sponsored by PPL Services (for PPL Electric) and by LKE (for KU), based on their participation in those plans, which management believes are reasonable. |
| |
| (b) | As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between net periodic defined benefit costs calculated in accordance with LKE's, LG&E's and KU's pension accounting policy and the net periodic defined benefit costs calculated using a 15 year amortization period for gains and losses is recorded as a regulatory asset. Of the costs charged to operating expense or regulatory assets, excluding amounts charged to construction and other non-expense accounts, $3 million for LG&E and $2 million for KU were recorded as regulatory assets in 2016 and $4 million for LG&E and $1 million for KU were recorded as regulatory assets in 2015. |
In the table above, for PPL Energy Supply and LG&E amounts include costs for the specific plans eachit sponsors and the following allocated costs of defined benefit plans sponsored by PPL Services (for PPL Energy Supply) and by LKE, (for LG&E), based on theirits participation in those plans, which management believes are reasonable: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| LG&E Non-Union Only | $ | 4 |
| | $ | 5 |
| | $ | 2 |
| | $ | 3 |
| | $ | 4 |
| | $ | 4 |
|
| | | | | Pension Benefits | | | Other Postretirement Benefits |
| | | | | | 2014 | | | 2013 | | | 2012 | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | | | | | | | | | | |
| PPL Energy Supply | | $ | 34 | | $ | 38 | | $ | 31 | | $ | 3 | | $ | 5 | | $ | 5 |
(All Registrants except PPL Electric and KU)
PPL, PPL Energy Supply, LKE and LG&E adopted the new mortality tables issued by the Society of Actuaries in October 2014 (RP-2014 base tables) for all U.S. defined benefit pension and other postretirement benefit plans at December 31, 2014.plans. In addition, PPL, PPL Energy Supply, LKE and LG&E updated the basis for estimating projected mortality improvements and selected the IRS BB-2D two-dimensional improvement scale on a generational basis for all U.S. defined benefit pension and other postretirement benefit plans. These new mortality assumptions reflect the recognition of both improved life expectancies and the expectation of continuing improvements in life expectancies. The use
The following weighted-average assumptions were used in the valuation of the benefit obligations at December 31. The U.K. pension benefits apply to PPL only. |
| | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | | |
| | U.S. | | U.K. | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| PPL | |
| | |
| | |
| | |
| | |
| | |
|
| Discount rate | 4.21 | % | | 4.59 | % | | 2.87 | % | | 3.68 | % | | 4.11 | % | | 4.48 | % |
| Rate of compensation increase | 3.95 | % | | 3.93 | % | | 3.50 | % | | 4.00 | % | | 3.92 | % | | 3.91 | % |
| | | | | | | | | | | | |
| LKE | |
| | |
| | |
| | |
| | |
| | |
|
| Discount rate | 4.19 | % | | 4.56 | % | | |
| | |
| | 4.12 | % | | 4.49 | % |
| Rate of compensation increase | 3.50 | % | | 3.50 | % | | |
| | |
| | 3.50 | % | | 3.50 | % |
| | | | | | | | | | | | |
| LG&E | |
| | |
| | |
| | |
| | |
| | |
|
| Discount rate | 4.13 | % | | 4.49 | % | | |
| | |
| | |
| | |
|
| | | | Pension Benefits | | | | | | |
| | | | U.S. | | U.K. | | Other Postretirement Benefits |
| | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| PPL | | | | | | | | | | | | | | | | | | |
| | Discount rate | | | 4.25% | | | 5.12% | | | 3.85% | | | 4.41% | | | 4.08% | | | 4.91% |
| | Rate of compensation increase | | | 3.92% | | | 3.97% | | | 4.00% | | | 4.00% | | | 3.86% | | | 3.96% |
| | | | | | | | | | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | | | | | | | | | | |
| | Discount rate | | | 4.28% | | | 5.18% | | | | | | | | | 3.81% | | | 4.51% |
| | Rate of compensation increase | | | 4.03% | | | 3.94% | | | | | | | | | 4.03% | | | 3.94% |
| | | | | | | | | | | | | | | | | | | | |
| LKE | | | | | | | | | | | | | | | | | | |
| | Discount rate | | | 4.25% | | | 5.18% | | | | | | | | | 4.06% | | | 4.91% |
| | Rate of compensation increase | | | 3.50% | | | 4.00% | | | | | | | | | 3.50% | | | 4.00% |
| | | | | | | | | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | | | | | | |
| | Discount rate | | | 4.20% | | | 5.13% | | | | | | | | | | | | |
The following weighted-average assumptions were used to determine the net periodic defined benefit costs for the years ended December 31. The U.K. pension benefits apply to PPL only. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | | | | |
| | U.S. | | U.K. | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| PPL | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Discount rate service cost (b) | 4.59 | % | | 4.25 | % | | 5.12 | % | | 3.90 | % | | 3.85 | % | | 4.41 | % | | 4.48 | % | | 4.09 | % | | 4.91 | % |
| Discount rate interest cost (b) | 4.59 | % | | 4.25 | % | | 5.12 | % | | 3.14 | % | | 3.85 | % | | 4.41 | % | | 4.48 | % | | 4.09 | % | | 4.91 | % |
| Rate of compensation increase | 3.93 | % | | 3.91 | % | | 3.97 | % | | 4.00 | % | | 4.00 | % | | 4.00 | % | | 3.91 | % | | 3.86 | % | | 3.96 | % |
| Expected return on plan assets (a) | 7.00 | % | | 7.00 | % | | 7.00 | % | | 7.20 | % | | 7.19 | % | | 7.19 | % | | 6.11 | % | | 6.06 | % | | 5.96 | % |
| | | | | | | | | | | | | | | | | | |
| LKE | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Discount rate | 4.56 | % | | 4.25 | % | | 5.18 | % | | |
| | |
| | |
| | 4.49 | % | | 4.06 | % | | 4.91 | % |
| Rate of compensation increase | 3.50 | % | | 3.50 | % | | 4.00 | % | | |
| | |
| | |
| | 3.50 | % | | 3.50 | % | | 4.00 | % |
| Expected return on plan assets (a) | 7.00 | % | | 7.00 | % | | 7.00 | % | | |
| | |
| | |
| | 6.82 | % | | 6.82 | % | | 6.75 | % |
| | | | | | | | | | | | | | | | | | |
| LG&E | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Discount rate | 4.49 | % | | 4.20 | % | | 5.13 | % | | |
| | |
| | |
| | |
| | |
| | |
|
| Expected return on plan assets (a) | 7.00 | % | | 7.00 | % | | 7.00 | % | | |
| | |
| | |
| | |
| | |
| | |
|
| | | | Pension Benefits | | | | | | | | | |
| | | | U.S. | | U.K. | | Other Postretirement Benefits |
| | | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 |
| PPL | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discount rate | | | 5.12% | | | 4.22% | | | 5.06% | | | 4.41% | | | 4.27% | | | 5.24% | | | 4.91% | | | 4.00% | | | 4.80% |
| | Rate of compensation increase | | | 3.97% | | | 3.98% | | | 4.02% | | | 4.00% | | | 4.00% | | | 4.00% | | | 3.96% | | | 3.97% | | | 4.00% |
| | Expected return on plan assets (a) | | | 7.00% | | | 7.03% | | | 7.07% | | | 7.19% | | | 7.16% | | | 7.17% | | | 5.96% | | | 5.94% | | | 5.99% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discount rate | | | 5.18% | | | 4.25% | | | 5.12% | | | | | | | | | | | | 4.51% | | | 3.77% | | | 4.60% |
| | Rate of compensation increase | | | 3.94% | | | 3.95% | | | 4.00% | | | | | | | | | | | | 3.94% | | | 3.95% | | | 4.00% |
| | Expected return on plan assets (a) | | | 7.00% | | | 7.00% | | | 7.00% | | | | | | | | | | | | N/A | | | N/A | | | N/A |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LKE | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discount rate | | | 5.18% | | | 4.24% | | | 5.09% | | | | | | | | | | | | 4.91% | | | 3.99% | | | 4.78% |
| | Rate of compensation increase | | | 4.00% | | | 4.00% | | | 4.00% | | | | | | | | | | | | 4.00% | | | 4.00% | | | 4.00% |
| | Expected return on plan assets (a) | | | 7.00% | | | 7.10% | | | 7.25% | | | | | | | | | | | | 6.75% | | | 6.76% | | | 7.02% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discount rate | | | 5.13% | | | 4.20% | | | 5.00% | | | | | | | | | | | | | | | | | | |
| | Expected return on plan assets (a) | | | 7.00% | | | 7.10% | | | 7.25% | | | | | | | | | | | | | | | | | | |
| |
| (a) | The expected long-term rates of return for pension and other postretirement benefits are based on management's projections using a best-estimate of expected returns, volatilities and correlations for each asset class. Each plan's specific current and expected asset allocations are also considered in developing a reasonable return assumption. |
| |
| (b) | As of January 1, 2016, WPD began using individual spot rates from the yield curve used to discount the benefit obligation to measure service cost and interest cost. PPL's U.S. plans use a single discount rate derived from an individual bond matching model to measure the benefit obligation, service cost and interest cost. See Note 1 for additional details. |
(PPL PPL Energy Supply and LKE)
The following table provides the assumed health care cost trend rates for the years ended December 31:
221
|
| | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL and LKE | | | | | |
| Health care cost trend rate assumed for next year | | | | | |
| – obligations | 7.0 | % | | 6.8 | % | | 7.2 | % |
| – cost | 6.8 | % | | 7.2 | % | | 7.6 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | | | | | |
| – obligations | 5.0 | % | | 5.0 | % | | 5.0 | % |
| – cost | 5.0 | % | | 5.0 | % | | 5.0 | % |
| Year that the rate reaches the ultimate trend rate | | | | | |
| – obligations | 2022 |
| | 2020 |
| | 2020 |
|
| – cost | 2020 |
| | 2020 |
| | 2020 |
|
| | | | | | 2014 | | 2013 | | 2012 |
| PPL, PPL Energy Supply and LKE | | | | | | | | | |
| | Health care cost trend rate assumed for next year | | | | | | | | | |
| | | | - obligations | | | 7.2% | | | 7.6% | | | 8.0% |
| | | | - cost | | | 7.6% | | | 8.0% | | | 8.5% |
| | Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | | | | | | | | | |
| | | | - obligations | | | 5.0% | | | 5.0% | | | 5.5% |
| | | | - cost | | | 5.0% | | | 5.5% | | | 5.5% |
| | Year that the rate reaches the ultimate trend rate | | | | | | | | | |
| | | | - obligations | | | 2020 | | | 2020 | | | 2019 |
| | | | - cost | | | 2020 | | | 2019 | | | 2019 |
A one percentage point change in the assumed health care costs trend rate assumption would have had the following effects on the other postretirement benefit plans in 2014: 2016: |
| | | | | | | |
| | One Percentage Point |
| | Increase | | Decrease |
| Effect on accumulated postretirement benefit obligation | | | |
| PPL | $ | 5 |
| | $ | (5 | ) |
| LKE | 4 |
| | (4 | ) |
| | | | One Percentage Point |
| | | | Increase | | Decrease |
| Effect on accumulated postretirement benefit obligation | | | | | | |
| | PPL | | $ | 5 | | $ | (5) |
| | LKE | | | 4 | | | (4) |
The effects on PPL Energy Supply's other postretirement benefit plan would not have been significant.
(PPL)
The funded status of PPL's plans at December 31 was as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | | | |
| | U.S. | | U.K. | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Change in Benefit Obligation | |
| | |
| | |
| | |
| | |
| | |
|
| Benefit Obligation, beginning of period | $ | 3,863 |
| | $ | 5,399 |
| | $ | 8,404 |
| | $ | 8,523 |
| | $ | 596 |
| | $ | 716 |
|
| Service cost | 66 |
| | 96 |
| | 69 |
| | 79 |
| | 7 |
| | 11 |
|
| Interest cost | 174 |
| | 194 |
| | 235 |
| | 314 |
| | 26 |
| | 26 |
|
| Participant contributions | — |
| | — |
| | 14 |
| | 15 |
| | 14 |
| | 13 |
|
| Plan amendments | 14 |
| | 19 |
| | — |
| | — |
| | — |
| | — |
|
| Actuarial (gain) loss | 214 |
| | (193 | ) | | 484 |
| | 200 |
| | 11 |
| | (37 | ) |
| Divestiture (a) | — |
| | (1,416 | ) | | — |
| | — |
| | — |
| | (76 | ) |
| Settlements | (9 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Gross benefits paid | (243 | ) | | (236 | ) | | (357 | ) | | (391 | ) | | (64 | ) | | (58 | ) |
| Federal subsidy | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
| Currency conversion | — |
| | — |
| | (1,466 | ) | | (336 | ) | | — |
| | — |
|
| Benefit Obligation, end of period | 4,079 |
| | 3,863 |
| | 7,383 |
| | 8,404 |
| | 591 |
| | 596 |
|
| | | | | | | | | | | | |
| Change in Plan Assets | |
| | |
| | |
| | |
| | |
| | |
|
| Plan assets at fair value, beginning of period | 3,227 |
| | 4,462 |
| | 7,625 |
| | 7,734 |
| | 379 |
| | 484 |
|
| Actual return on plan assets | 189 |
| | 2 |
| | 979 |
| | 205 |
| | 25 |
| | (2 | ) |
| Employer contributions | 79 |
| | 158 |
| | 330 |
| | 366 |
| | 19 |
| | 17 |
|
| Participant contributions | — |
| | — |
| | 14 |
| | 15 |
| | 14 |
| | 13 |
|
| Divestiture (a) | — |
| | (1,159 | ) | | — |
| | — |
| | — |
| | (80 | ) |
| Settlements | (9 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Gross benefits paid | (243 | ) | | (236 | ) | | (357 | ) | | (391 | ) | | (59 | ) | | (53 | ) |
| Currency conversion | — |
| | — |
| | (1,380 | ) | | (304 | ) | | — |
| | — |
|
| Plan assets at fair value, end of period | 3,243 |
| | 3,227 |
| | 7,211 |
| | 7,625 |
| | 378 |
| | 379 |
|
| | | | | | | | | | | | |
| Funded Status, end of period | $ | (836 | ) | | $ | (636 | ) | | $ | (172 | ) | | $ | (779 | ) | | $ | (213 | ) | | $ | (217 | ) |
| | | | | | | | | | | | |
| Amounts recognized in the Balance Sheets consist of: | |
| | |
| | |
| | |
| | |
| | |
|
| Noncurrent asset | $ | — |
| | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
|
| Current liability | (17 | ) | | (10 | ) | | — |
| | — |
| | (3 | ) | | (3 | ) |
| Noncurrent liability | (819 | ) | | (626 | ) | | (182 | ) | | (779 | ) | | (212 | ) | | (216 | ) |
| Net amount recognized, end of period | $ | (836 | ) | | $ | (636 | ) | | $ | (172 | ) | | $ | (779 | ) | | $ | (213 | ) | | $ | (217 | ) |
| | | | | | | | | | | | |
| Amounts recognized in AOCI and regulatory assets/liabilities (pre-tax) consist of: | |
| | |
| | |
| | |
| | |
| | |
|
| Prior service cost (credit) | $ | 59 |
| | $ | 53 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
| Net actuarial (gain) loss | 1,178 |
| | 977 |
| | 2,553 |
| | 2,684 |
| | 45 |
| | 37 |
|
| Total (b) | $ | 1,237 |
| | $ | 1,030 |
| | $ | 2,553 |
| | $ | 2,684 |
| | $ | 45 |
| | $ | 38 |
|
| | | | | | | | | | | | |
Total accumulated benefit obligation for defined benefit pension plans | $ | 3,807 |
| | $ | 3,590 |
| | $ | 6,780 |
| | $ | 7,747 |
| | |
| | |
|
| | | | | Pension Benefits | | | | | | |
| | | | | U.S. | | U.K. | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| Change in Benefit Obligation | | | | | | | | | | | | | | | | | | |
| Benefit Obligation, beginning of period | | $ | 4,591 | | $ | 5,046 | | $ | 8,143 | | $ | 7,888 | | $ | 662 | | $ | 722 |
| | | Service cost | | | 102 | | | 126 | | | 71 | | | 69 | | | 12 | | | 14 |
| | | Interest cost | | | 233 | | | 213 | | | 354 | | | 320 | | | 32 | | | 29 |
| | | Participant contributions | | | | | | | | | 16 | | | 15 | | | 12 | | | 12 |
| | | Plan amendments | | | (7) | | | | | | | | | | | | 6 | | | (4) |
| | | Actuarial (gain) loss | | | 925 | | | (540) | | | 747 | | | 46 | | | 58 | | | (54) |
| | | Curtailments | | | | | | | | | | | | | | | (1) | | | |
| | | Termination benefits | | | 13 | | | | | | | | | 3 | | | | | | |
| | | Gross benefits paid (a) | | | (248) | | | (254) | | | (411) | | | (375) | | | (56) | | | (57) |
| | | Federal subsidy | | | | | | | | | | | | | | | 1 | | | |
| | | Currency conversion | | | | | | | | | (397) | | | 177 | | | | | | |
| Benefit Obligation, end of period | | | 5,609 | | | 4,591 | | | 8,523 | | | 8,143 | | | 726 | | | 662 |
| | | | | | | | | | | | | | | | | | | | | |
| Change in Plan Assets | | | | | | | | | | | | | | | | | | |
| Plan assets at fair value, beginning of period | | | 4,156 | | | 3,939 | | | 7,284 | | | 6,911 | | | 446 | | | 421 |
| | | Actual return on plan assets | | | 622 | | | 72 | | | 895 | | | 438 | | | 62 | | | 37 |
| | | Employer contributions | | | 102 | | | 399 | | | 311 | | | 134 | | | 16 | | | 30 |
| | | Participant contributions | | | | | | | | | 16 | | | 15 | | | 12 | | | 12 |
| | | Gross benefits paid (a) | | | (248) | | | (254) | | | (411) | | | (375) | | | (52) | | | (54) |
| | | Currency conversion | | | | | | | | | (361) | | | 161 | | | | | | |
| Plan assets at fair value, end of period | | | 4,632 | | | 4,156 | | | 7,734 | | | 7,284 | | | 484 | | | 446 |
| | | | | | | | | | | | | | | | | | | | | |
| Funded Status, end of period | | $ | (977) | | $ | (435) | | $ | (789) | | $ | (859) | | $ | (242) | | $ | (216) |
| | | | | | | | | | | | | | | | | | | | | |
| Amounts recognized in the Balance | | | | | | | | | | | | | | | | | | |
| | Sheets consist of: | | | | | | | | | | | | | | | | | | |
| | | Noncurrent asset | | | | | | | | | | | | | | $ | 1 | | | |
| | | Current liability | | $ | (10) | | $ | (8) | | $ | (1) | | | | | | (4) | | $ | (1) |
| | | Noncurrent liability | | | (967) | | | (427) | | | (788) | | $ | (859) | | | (239) | | | (215) |
| Net amount recognized, end of period | | $ | (977) | | $ | (435) | | $ | (789) | | $ | (859) | | $ | (242) | | $ | (216) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | Pension Benefits | | | | | | |
| | | | | U.S. | | U.K. | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| Amounts recognized in AOCI and | | | | | | | | | | | | | | | | | | |
| | regulatory assets/liabilities (pre-tax) | | | | | | | | | | | | | | | | | | |
| | consist of: | | | | | | | | | | | | | | | | | | |
| Prior service cost (credit) | | $ | 41 | | $ | 69 | | | | | | | | $ | (4) | | $ | (11) |
| Net actuarial (gain) loss | | | 1,412 | | | 842 | | $ | 2,334 | | $ | 2,112 | | | 54 | | | 33 |
| Total (b) | | $ | 1,453 | | $ | 911 | | $ | 2,334 | | $ | 2,112 | | $ | 50 | | $ | 22 |
| | | | | | | | | | | | | | | | | | | | | |
| Total accumulated benefit obligation | | | | | | | | | | | | | | | | | | |
| | for defined benefit pension plans | | $ | 5,156 | | $ | 4,191 | | $ | 7,867 | | $ | 7,542 | | | | | | |
| Certain U.S. pension plans offered |
| (a) | As a limited-time program in 2014result of the spinoff of PPL Energy Supply, obligations and 2013 during which terminated vested participants could electassets attributable to receive their accrued pension benefit as a one-time lump sum payment. Gross benefits paid includes $33 millioncertain former active and $64 millioninactive employees of lump-sum cash payments madePPL Energy Supply were transferred to terminated vested participants in 2014 and 2013 in connection with these offerings. Talen Energy plans. |
| |
| (b) | WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP. AsGAAP and as a result, WPD does not record regulatory assets/liabilities. |
For PPL's U.S. pension and other postretirement benefit plans, the amounts recognized in AOCI and regulatory assets/liabilities at December 31 were as follows:
|
| | | | | | | | | | | | | | | |
| | U.S. Pension Benefits | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2016 | | 2015 |
| AOCI | $ | 357 |
| | $ | 275 |
| | $ | 20 |
| | $ | 18 |
|
| Regulatory assets/liabilities | 880 |
| | 755 |
| | 25 |
| | 20 |
|
| Total | $ | 1,237 |
| | $ | 1,030 |
| | $ | 45 |
| | $ | 38 |
|
| | | | U.S. Pension Benefits | | Other Postretirement Benefits |
| | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | |
| AOCI | | $ | 773 | | $ | 430 | | $ | 26 | | $ | 19 |
| Regulatory assets/liabilities | | | 680 | | | 481 | | | 24 | | | 3 |
| Total | | $ | 1,453 | | $ | 911 | | $ | 50 | | $ | 22 |
The following tables provide information on pension plans where the projected benefit obligation (PBO) or accumulated benefit obligation (ABO) exceed the fair value of plan assets: |
| | | | | | | | | | | | | | | |
| | U.S. | | U.K. |
| | PBO in excess of plan assets | | PBO in excess of plan assets |
| | 2016 | | 2015 | | 2016 | | 2015 |
| Projected benefit obligation | $ | 4,079 |
| | $ | 3,863 |
| | $ | 3,403 |
| | $ | 8,404 |
|
| Fair value of plan assets | 3,243 |
| | 3,227 |
| | 3,221 |
| | 7,625 |
|
| | | | | | | | |
| | U.S. | | U.K. |
| | ABO in excess of plan assets | | ABO in excess of plan assets |
| | 2016 | | 2015 | | 2016 | | 2015 |
| Accumulated benefit obligation | $ | 3,807 |
| | $ | 3,590 |
| | $ | 657 |
| | $ | 3,532 |
|
| Fair value of plan assets | 3,243 |
| | 3,227 |
| | 643 |
| | 3,287 |
|
| | | U.S. | | U.K. |
| | | PBO in excess of plan assets | | PBO in excess of plan assets |
| | | | 2014 | | | 2013 | | | 2014 | | | 2013 |
| | | | | | | | | | | | | |
| Projected benefit obligation | | $ | 5,609 | | $ | 4,591 | | $ | 8,523 | | $ | 8,143 |
| Fair value of plan assets | | | 4,632 | | | 4,156 | | | 7,734 | | | 7,284 |
| | | | | | | | | | | | | |
| | | U.S. | | U.K. |
| | | ABO in excess of plan assets | | ABO in excess of plan assets |
| | | | 2014 | | | 2013 | | | 2014 | | | 2013 |
| | | | | | | | | | | | | |
| Accumulated benefit obligation | | $ | 5,156 | | $ | 572 | | $ | 3,592 | | $ | 3,441 |
| Fair value of plan assets | | | 4,632 | | | 431 | | | 3,321 | | | 3,131 |
| (PPL Energy Supply) | | | | | | | | | |
| | | | | | | | | | | | | | | |
| The funded status of PPL Energy Supply's plans at December 31 was as follows: |
| | | | | | | | | | | | | | | |
| | | | | Pension Benefits | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2014 | | 2013 |
| Change in Benefit Obligation | | | | | | | | | | | | |
| Benefit Obligation, beginning of period | | $ | 163 | | $ | 176 | | $ | 12 | | $ | 17 |
| | | Service cost | | | 5 | | | 7 | | | | | | 1 |
| | | Interest cost | | | 9 | | | 8 | | | 1 | | | |
| | | Plan amendments | | | | | | | | | | | | (4) |
| | | Actuarial (gain) loss | | | 38 | | | (23) | | | (1) | | | (1) |
| | | Curtailments | | | | | | | | | (1) | | | |
| | | Gross benefits paid | | | (5) | | | (5) | | | (1) | | | (1) |
| Benefit Obligation, end of period | | | 210 | | | 163 | | | 10 | | | 12 |
| | | | | | | | | | | | | | | |
| | | | | Pension Benefits | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2014 | | 2013 |
| Change in Plan Assets | | | | | | | | | | | | |
| Plan assets at fair value, beginning of | | | | | | | | | | | | |
| | period | | | 147 | | | 149 | | | | | | |
| | | Actual return on plan assets | | | 22 | | | 3 | | | | | | |
| | | Employer contributions | | | 6 | | | | | | 1 | | | 1 |
| | | Gross benefits paid | | | (5) | | | (5) | | | (1) | | | (1) |
| Plan assets at fair value, end of period | | | 170 | | | 147 | | | | | | |
| | | | | | | | | | | | | | | |
| Funded Status, end of period | | $ | (40) | | $ | (16) | | $ | (10) | | $ | (12) |
| | | | | | | | | | | | | | | |
| Amounts recognized in the Balance | | | | | | | | | | | | |
| | Sheets consist of: | | | | | | | | | | | | |
| | | Current liability | | | | | | | | $ | (1) | | $ | (1) |
| | | Noncurrent liability | | $ | (40) | | $ | (16) | | | (9) | | | (11) |
| Net amount recognized, end of period | | $ | (40) | | $ | (16) | | $ | (10) | | $ | (12) |
| | | | | | | | | | | | | | | |
| Amounts recognized in AOCI | | | | | | | | | | | | |
| | (pre-tax) consist of: | | | | | | | | | | | | |
| Prior service cost (credit) | | | | | | | | $ | (4) | | $ | (5) |
| Net actuarial (gain) loss | | $ | 59 | | $ | 34 | | | | | | 1 |
| Total | | $ | 59 | | $ | 34 | | $ | (4) | | $ | (4) |
| | | | | | | | | | | | | | | |
| Total accumulated benefit obligation | | | | | | | | | | | | |
| | for defined benefit pension plans | | $ | 210 | | $ | 163 | | | | | | |
PPL Energy Supply's pension plan had projected and accumulated benefit obligations in excess of the fair value of plan assets at December 31, 2014 and 2013.
In addition to the plans it sponsors, PPL Energy Supply and its subsidiaries are allocated a portion of the funded status and costs of the defined benefit plans sponsored by PPL Services based on their participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to PPL Energy Supply resulted in liabilities at December 31 as follows:
| | | 2014 | | 2013 |
| | | | | | | |
| Pension | | $ | 259 | | $ | 96 |
| Other postretirement benefits | | | 34 | | | 35 |
The funded status of LKE's plans at December 31 was as follows: |
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2016 | | 2015 |
| Change in Benefit Obligation | |
| | |
| | |
| | |
|
| Benefit Obligation, beginning of period | $ | 1,588 |
| | $ | 1,608 |
| | $ | 216 |
| | $ | 234 |
|
| Service cost | 23 |
| | 26 |
| | 5 |
| | 5 |
|
| Interest cost | 71 |
| | 68 |
| | 9 |
| | 9 |
|
| Participant contributions | — |
| | — |
| | 7 |
| | 7 |
|
| Plan amendments (a) | — |
| | 19 |
| | — |
| | — |
|
| Actuarial (gain) loss | 96 |
| | (74 | ) | | 4 |
| | (22 | ) |
| Gross benefits paid (a) | (109 | ) | | (59 | ) | | (21 | ) | | (18 | ) |
| Federal subsidy | — |
| | — |
| | — |
| | 1 |
|
| Benefit Obligation, end of period | 1,669 |
| | 1,588 |
| | 220 |
| | 216 |
|
| | | | | | | | |
| Change in Plan Assets | |
| | |
| | |
| | |
|
| Plan assets at fair value, beginning of period | 1,289 |
| | 1,301 |
| | 88 |
| | 82 |
|
| Actual return on plan assets | 69 |
| | (7 | ) | | 4 |
| | — |
|
| Employer contributions | 66 |
| | 54 |
| | 20 |
| | 17 |
|
| Participant contributions | — |
| | — |
| | 7 |
| | 7 |
|
| Gross benefits paid | (109 | ) | | (59 | ) | | (21 | ) | | (18 | ) |
| Plan assets at fair value, end of period | 1,315 |
| | 1,289 |
| | 98 |
| | 88 |
|
| | | | | | | | |
| Funded Status, end of period | $ | (354 | ) | | $ | (299 | ) | | $ | (122 | ) | | $ | (128 | ) |
| | | | | Pension Benefits | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2014 | | 2013 |
| Change in Benefit Obligation | | | | | | | | | | | | |
| Benefit Obligation, beginning of period | | $ | 1,328 | | $ | 1,487 | | $ | 193 | | $ | 209 |
| | | Service cost | | | 21 | | | 26 | | | 4 | | | 5 |
| | | Interest cost | | | 66 | | | 62 | | | 9 | | | 8 |
| | | Participant contributions | | | | | | | | | 7 | | | 7 |
| | | Plan amendments (a) | | | 23 | | | | | | 6 | | | |
| | | Actuarial (gain) loss | | | 253 | | | (177) | | | 32 | | | (18) |
| | | Gross benefits paid (b) | | | (83) | | | (70) | | | (17) | | | (18) |
| Benefit Obligation, end of period | | | 1,608 | | | 1,328 | | | 234 | | | 193 |
| | | | | | | | | | | | | | | |
| Change in Plan Assets | | | | | | | | | | | | |
| Plan assets at fair value, beginning of period | | | 1,173 | | | 1,070 | | | 74 | | | 68 |
| | | Actual return on plan assets | | | 173 | | | 21 | | | 10 | | | 1 |
| | | Employer contributions | | | 38 | | | 152 | | | 8 | | | 16 |
| | | Participant contributions | | | | | | | | | 7 | | | 7 |
| | | Gross benefits paid (b) | | | (83) | | | (70) | | | (17) | | | (18) |
| Plan assets at fair value, end of period | | | 1,301 | | | 1,173 | | | 82 | | | 74 |
| | | | | | | | | | | | | | | |
| Funded Status, end of period | | $ | (307) | | $ | (155) | | $ | (152) | | $ | (119) |
| | | | | | | | | | | | | | | |
| | | | | Pension Benefits | | Other Postretirement Benefits |
| | | | | 2014 | | 2013 | | 2014 | | 2013 |
| Amounts recognized in the Balance | | | | | | | | | | | | |
| | Sheets consist of: | | | | | | | | | | | | |
| | | Noncurrent asset | | | | | | | | $ | 2 | | | |
| | | Current liability | | $ | (3) | | $ | (3) | | | (3) | | | |
| | | Noncurrent liability | | | (304) | | | (152) | | | (151) | | $ | (119) |
| Net amount recognized, end of period | | $ | (307) | | $ | (155) | | $ | (152) | | $ | (119) |
| | | | | | | | | | | | | | | |
| Amounts recognized in AOCI and | | | | | | | | | | | | |
| | regulatory assets/liabilities (pre-tax) | | | | | | | | | | | | |
| | consist of: | | | | | | | | | | | | |
| Prior service cost (credit) | | $ | 43 | | $ | 24 | | $ | 12 | | $ | 8 |
| Net actuarial (gain) loss | | | 354 | | | 205 | | | (4) | | | (30) |
| Total | | $ | 397 | | $ | 229 | | $ | 8 | | $ | (22) |
| | | | | | | | | | | | | | | |
| Total accumulated benefit obligation | | | | | | | | | | | | |
| | for defined benefit pension plans | | $ | 1,461 | | $ | 1,176 | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | |
| Amounts recognized in the Balance Sheets consist of: | |
| | |
| | |
| | |
|
| Noncurrent asset | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
|
| Current liability | (4 | ) | | (3 | ) | | (3 | ) | | (3 | ) |
| Noncurrent liability | (350 | ) | | (296 | ) | | (121 | ) | | (127 | ) |
| Net amount recognized, end of period | $ | (354 | ) | | $ | (299 | ) | | $ | (122 | ) | | $ | (128 | ) |
| | | | | | | | |
| Amounts recognized in AOCI and regulatory assets/liabilities (pre-tax) consist of: | |
| | |
| | |
| | |
|
| Prior service cost | $ | 45 |
| | $ | 54 |
| | $ | 6 |
| | $ | 9 |
|
| Net actuarial (gain) loss | 436 |
| | 338 |
| | (13 | ) | | (19 | ) |
| Total | $ | 481 |
| | $ | 392 |
| | $ | (7 | ) | | $ | (10 | ) |
| | | | | | | | |
Total accumulated benefit obligation for defined benefit pension plans | $ | 1,531 |
| | $ | 1,452 |
| | |
| | |
|
| |
| (a) | The pension plans were amended in December 20142015 to enhance the early retirement factors for all planallow active participants retiring on or after January 1, 2015. These modifications resulted in an increase of $23 million in the plans' projected benefit obligations as of December 31, 2014. |
(b) | Certain LKE pension plans offered a limited-time program in 2014 and 2013 during which terminated vested participants couldwho had not previously elected a form of payment of their benefit to elect to receive their accrued pension benefit as a one-time lump-sum payment.payment effective January 1, 2016. The grossprojected benefit obligation at December 31, 2015 increased by $19 million as a result of the amendment. Gross benefits paid includes $33 million and $21by the plans include $53 million of lump-sum cash payments made to terminated vested participants in 2014 and 2013during 2016 in connection with these offerings. |
The amounts recognized in AOCI and regulatory assets/liabilities at December 31 were as follows: |
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2016 | | 2015 | | 2016 | | 2015 |
| AOCI | $ | 111 |
| | $ | 70 |
| | $ | 8 |
| | $ | 7 |
|
| Regulatory assets/liabilities | 370 |
| | 322 |
| | (15 | ) | | (17 | ) |
| Total | $ | 481 |
| | $ | 392 |
| | $ | (7 | ) | | $ | (10 | ) |
| | | | Pension Benefits | | Other Postretirement Benefits |
| | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | |
| | AOCI | | $ | 65 | | $ | (19) | | $ | 8 | | | |
| | Regulatory assets/liabilities | | | 332 | | | 248 | | | | | $ | (22) |
| | Total | | $ | 397 | | $ | 229 | | $ | 8 | | $ | (22) |
The following tables provide information on pension plans where the projected benefit obligation (PBO) or accumulated benefit obligations (ABO) exceed the fair value of plan assets: |
| | | | | | | |
| | PBO in excess of plan assets |
| | 2016 | | 2015 |
| Projected benefit obligation | $ | 1,669 |
| | $ | 1,588 |
|
| Fair value of plan assets | 1,315 |
| | 1,289 |
|
| | | | |
| | ABO in excess of plan assets |
| | 2016 | | 2015 |
| Accumulated benefit obligation | $ | 1,531 |
| | $ | 1,452 |
|
| Fair value of plan assets | 1,315 |
| | 1,289 |
|
| | | PBO in excess of plan assets |
| | | | 2014 | | | 2013 |
| | | | | | | |
| Projected benefit obligation | | $ | 1,608 | | $ | 1,328 |
| Fair value of plan assets | | | 1,301 | | | 1,173 |
| | | | | | | |
| | | ABO in excess of plan assets |
| | | | 2014 | | | 2013 |
| | | | | | | |
| Accumulated benefit obligation | | $ | 1,461 | | $ | 350 |
| Fair value of plan assets | | | 1,301 | | | 284 |
The funded status of LG&E's plan at December 31, was as follows:
|
| | | | | | | |
| | Pension Benefits |
| | 2016 | | 2015 |
| Change in Benefit Obligation | |
| | |
|
| Benefit Obligation, beginning of period | $ | 326 |
| | $ | 331 |
|
| Service cost | 1 |
| | 1 |
|
| Interest cost | 15 |
| | 14 |
|
| Plan amendments (a) | — |
| | 10 |
|
| Actuarial (gain) loss | 15 |
| | (15 | ) |
| Gross benefits paid (a) | (28 | ) | | (15 | ) |
| Benefit Obligation, end of period | 329 |
| | 326 |
|
| | | | | | | | | Pension Benefits |
| | | | | | | | | 2014 | | 2013 |
| Change in Benefit Obligation | | | | | | | | | | |
| Benefit Obligation, beginning of period | | | | | | $ | 291 | | $ | 331 |
| | | Service cost | | | | | | | 1 | | | 2 |
| | | Interest cost | | | | | | | 15 | | | 14 |
| | | Plan amendments (a) | | | | | | | 9 | | | |
| | | Actuarial (gain) loss | | | | | | | 36 | | | (35) |
| | | Gross benefits paid (b) | | | | | | | (21) | | | (21) |
| Benefit Obligation, end of period | | | | | | | 331 | | | 291 |
| | | | | | | | | | | | | |
| | | | | | | | | Pension Benefits |
| | | | | | | | | 2014 | | 2013 |
| Change in Plan Assets | | | | | | | | | | |
| Plan assets at fair value, beginning of period | | | | | | | 281 | | | 287 |
| | | Actual return on plan assets | | | | | | | 41 | | | 4 |
| | | Employer contributions | | | | | | | | | | 11 |
| | | Gross benefits paid (b) | | | | | | | (21) | | | (21) |
| Plan assets at fair value, end of period | | | | | | | 301 | | | 281 |
| | | | | | | | | | | | | |
| Funded Status, end of period | | | | | | $ | (30) | | $ | (10) |
| | | | | | | | | | | | | |
| Amounts recognized in the Balance Sheets consist of: | | | | | | | | | | |
| | | Noncurrent liability | | | | | | $ | (30) | | $ | (10) |
| Net amount recognized, end of period | | | | | | $ | (30) | | $ | (10) |
| | | | | | | | | | | | | |
| Amounts recognized in regulatory assets (pre-tax) | | | | | | | | | | |
| | consist of: | | | | | | | | | | |
| Prior service cost (credit) | | | | | | $ | 22 | | $ | 15 |
| Net actuarial (gain) loss | | | | | | | 98 | | | 90 |
| Total | | | | | | $ | 120 | | $ | 105 |
| | | | | | | | | | | | | |
| Total accumulated benefit obligation for defined benefit pension plan | | | | | | $ | 330 | | $ | 288 |
|
| | | | | | | |
| | Pension Benefits |
| | 2016 | | 2015 |
| | | | |
| Change in Plan Assets | |
| | |
|
| Plan assets at fair value, beginning of period | 297 |
| | 301 |
|
| Actual return on plan assets | 14 |
| | (2 | ) |
| Employer contributions | 35 |
| | 13 |
|
| Gross benefits paid | (28 | ) | | (15 | ) |
| Plan assets at fair value, end of period | 318 |
| | 297 |
|
| | | | |
| Funded Status, end of period | $ | (11 | ) | | $ | (29 | ) |
| | | | |
| Amounts recognized in the Balance Sheets consist of: | |
| | |
|
| Noncurrent liability | $ | (11 | ) | | $ | (29 | ) |
| Net amount recognized, end of period | $ | (11 | ) | | $ | (29 | ) |
| | | | |
| Amounts recognized in regulatory assets (pre-tax) consist of: | |
| | |
|
| Prior service cost | $ | 25 |
| | $ | 29 |
|
| Net actuarial loss | 110 |
| | 95 |
|
| Total | $ | 135 |
| | $ | 124 |
|
| | | | |
| Total accumulated benefit obligation for defined benefit pension plan | $ | 329 |
| | $ | 326 |
|
| |
| (a) | The pension plan was amended in December 20142015 to enhance the early retirement factors for all planallow active participants retiring on or after January 1, 2015. This modification resulted in an increase of $9 million in the plan's projected benefit obligation as of December 31, 2014. |
(b) | LG&E's pension plan offered a limited-time program in 2014 and 2013 during which terminated vested participants couldwho had not previously elected a form of payment of their benefit to elect to receive their accrued pension benefit as a one-time lump-sum payment.payment effective January 1, 2016. The grossprojected benefit obligation at December 31, 2015 increased by $10 million as a result of the amendment. Gross benefits paid includes $8 million and $7by the plan include $14 million of lump-sum cash payments made to terminated vestedthe participants in 2014 and 2013during 2016 in connection with these offerings. this offering. |
LG&E's pension plan had projected and accumulated benefit obligations in excess of plan assets at December 31, 20142016 and 2013. 2015.
In addition to the plan it sponsors, LG&E is allocated a portion of the funded status and costs of certain defined benefit plans sponsored by LKE based on its participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees and retired employees are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to LG&E resulted in liabilities at December 31 as follows: |
| | | | | | | |
| | 2016 | | 2015 |
| Pension | $ | 42 |
| | $ | 26 |
|
| Other postretirement benefits | 76 |
| | 77 |
|
| | | 2014 | | 2013 |
| | | | | | | |
| Pension | | $ | 27 | | $ | 9 |
| Other postretirement benefits | | | 85 | | | 73 |
(PPL and PPL Energy Supply)
PPL Energy Supply's mechanical contracting subsidiaries make contributions to over 70 multiemployer pension plans, based on the bargaining units from which labor is procured. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
| · | Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
|
| · | If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. |
| · | If PPL Energy Supply's mechanical contracting subsidiaries choose to stop participating in some of their multiemployer plans, they may be required to pay those plans an amount based on the unfunded status of the plan, referred to as a withdrawal liability. |
PPL Energy Supply identified the Steamfitters Local Union No. 420 Pension Plan, EIN/Plan Number 23-2004424/001 as the only significant plan to which contributions are made. Contributions to this plan by PPL Energy Supply's mechanical contracting companies were $5 million for 2014, 2013 and 2012. At the date the financial statements were issued, the Form 5500 was not available for the plan year ending in 2014. Therefore, the following disclosures specific to this plan are being made based on the Form 5500s filed for the plan years ended December 31, 2013 and 2012. PPL Energy Supply's mechanical contracting subsidiaries were not identified individually as greater than 5% contributors on the Form 5500s. However, the combined contributions of the four subsidiaries contributing to the plan had exceeded 5%. The plan had a
Pension Protection Act zone status of red, without utilizing an extended amortization period, as of December 31, 2013 and 2012. In addition, the plan is subject to a rehabilitation plan and surcharges have been applied to participating employer contributions. The expiration date of the collective-bargaining agreement related to those employees participating in this plan is September 18, 2016. There were no other plans deemed individually significant based on a multifaceted assessment of each plan. This assessment included review of the funded/zone status of each plan and PPL Energy Supply's potential obligations under the plan and the number of participating employers contributing to the plan.
PPL Energy Supply's mechanical contracting subsidiaries also participate in multiemployer other postretirement plans that provide for retiree life insurance and health benefits.
The table below details total contributions to all multiemployer pension and other postretirement plans, including the plan identified as significant above. The contribution amounts fluctuate each year based on the volume of work and type of projects undertaken from year to year.
| | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | |
| Pension Plans | | $ | 40 | | $ | 36 | | $ | 31 |
| Other Postretirement Benefit Plans | | | 33 | | | 32 | | | 28 |
| Total Contributions | | $ | 73 | | $ | 68 | | $ | 59 |
Although PPL Electric does not directly sponsor any defined benefit plans, it is allocated a portion of the funded status and costs of plans sponsored by PPL Services based on its participation in those plans, which management believes are reasonable. As a result of the spinoff of PPL Energy Supply in 2015, pension and other postretirement plans were remeasured resulting in adjustments to PPL Electric's allocated balances of $56 million, reflected as a non-cash contribution on the Statement of Equity. The actuarially determined obligations of current active employees and retirees are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to PPL Electric resulted in liabilities at December 31 as follows. follows: |
| | | | | | | |
| | 2016 | | 2015 |
| Pension | $ | 281 |
| | $ | 183 |
|
| Other postretirement benefits | 72 |
| | 67 |
|
| | | 2014 | | 2013 |
| | | | | | | |
| Pension | | $ | 212 | | $ | 96 |
| Other postretirement benefits | | | 40 | | | 41 |
(KU)
Although KU does not directly sponsor any defined benefit plans, it is allocated a portion of the funded status and costs of plans sponsored by LKE based on its participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees and retired employees of KU are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to KU resulted in liabilities at December 31 as follows.
| | | 2014 | | 2013 |
| | | | | | | |
| Pension | | $ | 59 | | $ | 11 |
| Other postretirement benefits | | | 52 | | | 42 |
|
| | | | | | | |
| | 2016 | | 2015 |
| Pension | $ | 62 |
| | $ | 46 |
|
| Other postretirement benefits | 40 |
| | 42 |
|
Plan Assets - U.S. Pension Plans
(All Registrants except PPL, ElectricLKE and KU)LG&E)
PPL's primary legacy pension plan and the pension plans sponsored by LKE and the pension plan in which employees of PPL Montana participate are invested in the PPL Services Corporation Master Trust (the Master Trust) that also includes 401(h) accounts that are restricted for certain other postretirement benefit obligations of PPL and LKE. The investment strategy for the Master Trust is to achieve a risk-adjusted return on a mix of assets that, in combination with PPL's funding policy, will ensure that sufficient assets are available to provide long-term growth and liquidity for benefit payments, while also managing the duration of the assets to complement the duration of the liabilities. The Master Trust benefits from a wide diversification of asset types, investment fund strategies and external investment fund managers, and therefore has no significant concentration of risk.
The investment policy of the Master Trust outlines investment objectives and defines the responsibilities of the EBPB, external investment managers, investment advisor and trustee and custodian. The investment policy is reviewed annually by PPL's Board of Directors.
The EBPB created a risk management framework around the trust assets and pension liabilities. This framework considers the trust assets as being composed of three sub-portfolios: growth, immunizing and liquidity portfolios. The growth portfolio is comprised of investments that generate a return at a reasonable risk, including equity securities, certain debt securities and alternative investments. The immunizing portfolio consists of debt securities, generally with long durations, and derivative positions. The immunizing portfolio is designed to offset a portion of the change in the pension liabilities due to changes in interest rates. The liquidity portfolio consists primarily of cash and cash equivalents.
Target allocation ranges have been developed for each portfolio on a plan basis based on input from external consultants with a goal of limiting funded status volatility. The EBPB monitors the investments in each portfolio on a plan basis, and seeks to obtain a target portfolio that emphasizes reduction of risk of loss from market volatility. In pursuing that goal, the EBPB establishes revised guidelines from time to time. EBPB investment guidelines on a plan basis, as well as the weighted average of such guidelines, as of the end of 20142016 are presented below.
The asset allocation for the trust and the target allocation by portfolio at December 31 are as follows: |
| | | | | | | | |
| | Percentage of trust assets | | 2016 |
| | 2016 (a) | | 2015 | | Target Asset Allocation (a) |
| Growth Portfolio | 52 | % | | 51 | % | | 50 | % |
| Equity securities | 30 | % | | 25 | % | | |
| Debt securities (b) | 12 | % | | 13 | % | | |
| Alternative investments | 10 | % | | 13 | % | | |
| Immunizing Portfolio | 46 | % | | 47 | % | | 48 | % |
| Debt securities (b) | 43 | % | | 42 | % | | |
| Derivatives | 3 | % | | 5 | % | | |
| Liquidity Portfolio | 2 | % | | 2 | % | | 2 | % |
| Total | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | 2014 Target Asset Allocation (a) |
| | | | Percentage of trust assets | | | Weighted | | | | | | |
| | | | 2014 (a) | | | 2013 | | | Average | | | PPL Plans | | | LKE Plans |
| | | | | | | | | | | | | | | | |
| Growth Portfolio | | | 51% | | | 59% | | | 52% | | | 52% | | | 52% |
| | Equity securities | | | 26% | | | 30% | | | | | | | | | |
| | Debt securities (b) | | | 13% | | | 17% | | | | | | | | | |
| | Alternative investments | | | 12% | | | 12% | | | | | | | | | |
| Immunizing Portfolio | | | 47% | | | 39% | | | 46% | | | 46% | | | 46% |
| | Debt securities (b) | | | 44% | | | 40% | | | | | | | | | |
| | Derivatives | | | 3% | | | (1%) | | | | | | | | | |
| Liquidity Portfolio | | | 2% | | | 2% | | | 2% | | | 2% | | | 2% |
| Total | | | 100% | | | 100% | | | 100% | | | 100% | | | 100% |
| |
| (a) | Allocations exclude consideration of cash for the WKE Bargaining Employees' Retirement Plan and a group annuity contract held by the LG&E and KU Retirement Plan. |
| |
| (b) | Includes commingled debt funds, which PPL treats as debt securities for asset allocation purposes. |
PPL Montana, a subsidiary of PPL Energy Supply, has a pension plan whose assets are invested solely in the Master Trust, which is fully disclosed below. The fair value of this plan's assets of $170 million and $147 million at December 31, 2014 and 2013 represents an interest of approximately 4% and 3% in the Master Trust.
(LKE)
LKE has pension plans, including LG&E's plan, whose assets are invested solely in the Master Trust, which is fully disclosed below. The fair value of these plans' assets of $1.3 billion and $1.2 billion at December 31, 20142016 and 20132015 represents an interest of approximately 28%41% and 29%40% in the Master Trust.
(LG&E)
LG&E has a pension plan whose assets are invested solely in the Master Trust, which is fully disclosed below. The fair value of this plan's assets of $301$318 million and $281$297 million at December 31, 20142016 and 20132015 represents an interest of approximately 6%10% and 7%9% in the Master Trust.
(All Registrants except PPL, ElectricLKE and KU)LG&E)
The fair value of net assets in the Master Trust by asset class and level within the fair value hierarchy was:
| | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | | | Fair Value Measurements Using | | | | | Fair Value Measurements Using |
| | | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| PPL Services Corporation Master Trust | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 246 | | $ | 246 | | | | | | | | $ | 120 | | $ | 120 | | | | | | |
| Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S.: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Large-cap | | | 432 | | | 114 | | $ | 318 | | | | | | 480 | | | 134 | | $ | 346 | | | |
| | | | Small-cap | | | 145 | | | 145 | | | | | | | | | 137 | | | 137 | | | | | | |
| | | International | | | 615 | | | | | | 615 | | | | | | 630 | | | 163 | | | 467 | | | |
| | | Commingled debt | | | 818 | | | | | | 818 | | | | | | 749 | | | 13 | | | 736 | | | |
| Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Treasury and U.S. government sponsored | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | agency | | | 723 | | | 706 | | | 17 | | | | | | 617 | | | 563 | | | 54 | | | |
| | | Residential/commercial backed securities | | | 2 | | | | | | 2 | | | | | | 12 | | | | | | 11 | | $ | 1 |
| | | Corporate | | | 1,109 | | | | | | 1,088 | | $ | 21 | | | 963 | | | | | | 940 | | | 23 |
| | | International government | | | 8 | | | | | | 8 | | | | | | 7 | | | | | | 7 | | | |
| | | Other | | | 9 | | | | | | 9 | | | | | | 24 | | | | | | 24 | | | |
| Alternative investments: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Commodities | | | 90 | | | | | | 90 | | | | | | 108 | | | | | | 108 | | | |
| | | Real estate | | | 148 | | | | | | 148 | | | | | | 134 | | | | | | 134 | | | |
| | | Private equity | | | 104 | | | | | | | | | 104 | | | 80 | | | | | | | | | 80 |
| | | Hedge funds | | | 223 | | | | | | 223 | | | | | | 210 | | | | | | 210 | | | |
| Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate swaps and swaptions | | | 92 | | | | | | 92 | | | | | | (49) | | | | | | (49) | | | |
| | | Other | | | 12 | | | | | | 12 | | | | | | 12 | | | | | | 12 | | | |
| Insurance contracts | | | 33 | | | | | | | | | 33 | | | 37 | | | | | | | | | 37 |
| PPL Services Corporation Master Trust assets, at | | | | | | | | | | | | | | | | | | | | | | | | |
| | fair value | | | 4,809 | | $ | 1,211 | | $ | 3,440 | | $ | 158 | | | 4,271 | | $ | 1,130 | | $ | 3,000 | | $ | 141 |
| Receivables and payables, net (a) | | | (41) | | | | | | | | | | | | | | | | | | | | | |
| 401(h) accounts restricted for other | | | | | | | | | | | | | | | | | | | | | | | | |
| | postretirement benefit obligations | | | (136) | | | | | | | | | | | | (115) | | | | | | | | | |
| Total PPL Services Corporation Master Trust | | | | | | | | | | | | | | | | | | | | | | | | |
| | pension assets | | $ | 4,632 | | | | | | | | | | | $ | 4,156 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | | | Fair Value Measurements Using | | | | Fair Value Measurements Using |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| PPL Services Corporation Master Trust | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 181 |
| | $ | 181 |
| | $ | — |
| | $ | — |
| | $ | 225 |
| | $ | 225 |
| | $ | — |
| | $ | — |
|
| Equity securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| U.S. Equity | 152 |
| | 152 |
| | — |
| | — |
| | 172 |
| | 172 |
| | — |
| | — |
|
| U.S. Equity fund measured at NAV (a) | 272 |
| | — |
| | — |
| | — |
| | 197 |
| | — |
| | — |
| | — |
|
| International equity fund at NAV (a) | 551 |
| | — |
| | — |
| | — |
| | 454 |
| | — |
| | — |
| | — |
|
| Commingled debt measured at NAV (a) | 546 |
| | — |
| | — |
| | — |
| | 514 |
| | — |
| | — |
| | — |
|
| Debt securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
U.S. Treasury and U.S. government sponsored agency | 381 |
| | 381 |
| | — |
| | — |
| | 501 |
| | 492 |
| | 9 |
| | — |
|
| Corporate | 850 |
| | — |
| | 837 |
| | 13 |
| | 747 |
| | — |
| | 737 |
| | 10 |
|
| Other | 8 |
| | — |
| | 8 |
| | — |
| | 14 |
| | — |
| | 14 |
| | — |
|
| Alternative investments: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Commodities measured at NAV (a) | — |
| | — |
| | — |
| | — |
| | 70 |
| | — |
| | — |
| | — |
|
| Real estate measured at NAV (a) | 102 |
| | — |
| | — |
| | — |
| | 118 |
| | — |
| | — |
| | — |
|
| Private equity measured at NAV (a) | 80 |
| | — |
| | — |
| | — |
| | 81 |
| | — |
| | — |
| | — |
|
| Hedge funds measured at NAV (a) | 167 |
| | — |
| | |
| | |
| | 171 |
| | — |
| | — |
| | — |
|
| Derivatives: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Interest rate swaps and swaptions | 61 |
| | — |
| | 61 |
| | — |
| | 80 |
| | — |
| | 80 |
| | — |
|
| Other | 3 |
| | — |
| | 3 |
| | — |
| | 11 |
| | — |
| | 11 |
| | — |
|
| Insurance contracts | 27 |
| | — |
| | — |
| | 27 |
| | 32 |
| | — |
| | — |
| | 32 |
|
PPL Services Corporation Master Trust assets, at fair value | 3,381 |
| | $ | 714 |
| | $ | 909 |
| | $ | 40 |
| | 3,387 |
| | $ | 889 |
| | $ | 851 |
| | $ | 42 |
|
| Receivables and payables, net (b) | (15 | ) | |
|
| | |
| | |
| | (49 | ) | | |
| | |
| | |
|
401(h) accounts restricted for other postretirement benefit obligations | (123 | ) | | |
| | |
| | |
| | (111 | ) | | |
| | |
| | |
|
Total PPL Services Corporation Master Trust pension assets | $ | 3,243 |
| | |
| | |
| | |
| | $ | 3,227 |
| | |
| | |
| | |
|
| |
| (a) | In accordance with accounting guidance certain investments that are measured at fair value using the net asset value per share (NAV), or its equivalent, practical expedient 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 statement of financial position. |
| |
| (b) | Receivables and payables represent amounts for investments sold/purchased but not yet settled along with interest and dividends earned but not yet received. |
A reconciliation of the Master Trust assets classified as Level 3 at December 31, 20142016 is as follows: |
| | | | | | | | | | | |
| | Corporate debt | | Insurance contracts | | Total |
| Balance at beginning of period | $ | 10 |
| | $ | 32 |
| | $ | 42 |
|
| Actual return on plan assets | | | | | |
| Relating to assets still held at the reporting date | — |
| | 1 |
| | 1 |
|
| Purchases, sales and settlements | 3 |
| | (6 | ) | | (3 | ) |
| Balance at end of period | $ | 13 |
| | $ | 27 |
| | $ | 40 |
|
| | | | | | | Residential/ | | | | | | | | | | | | |
| | | | | | | commercial | | | | | | | | | | | |
| | | | | | | backed | | Corporate | | Private | | Insurance | | | |
| | | | | | | securities | | debt | | equity | | contracts | | Total |
| | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 1 | | $ | 23 | | $ | 80 | | $ | 37 | | $ | 141 |
| | Actual return on plan assets | | | | | | | | | | | | | | | |
| | | | Relating to assets still held | | | | | | | | | | | | | | | |
| | | | | at the reporting date | | | (1) | | | (1) | | | 19 | | | 1 | | | 18 |
| | | | Relating to assets sold during the period | | | | | | (1) | | | | | | | | | (1) |
| | Purchases, sales and settlements | | | | | | | | | 5 | | | (5) | | | |
| Balance at end of period | | $ | | | $ | 21 | | $ | 104 | | $ | 33 | | $ | 158 |
A reconciliation of the Master Trust assets classified as Level 3 at December 31, 20132015 is as follows: |
| | | | | | | | | | | |
| | Corporate debt | | Insurance contracts | | Total |
| Balance at beginning of period | $ | 21 |
| | $ | 33 |
| | $ | 54 |
|
| Actual return on plan assets | | | | | |
| Relating to assets still held at the reporting date | — |
| | 2 |
| | 2 |
|
| Relating to assets sold during the period | (1 | ) | | — |
| | (1 | ) |
| Purchases, sales and settlements | (10 | ) | | (3 | ) | | (13 | ) |
| Balance at end of period | $ | 10 |
| | $ | 32 |
| | $ | 42 |
|
| | | | | | | Residential/ | | | | | | | | | | | | | | | |
| | | | | | | commercial | | | | | | | | | | | | | | |
| | | | | | | backed | | Corporate | | Private | | Insurance | | Other | | | |
| | | | | | | securities | | debt | | equity | | contracts | | debt | | Total |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 1 | | $ | 27 | | $ | 75 | | $ | 42 | | $ | 1 | | $ | 146 |
| | Actual return on plan assets | | | | | | | | | | | | | | | | | | |
| | | | Relating to assets still held | | | | | | | | | | | | | | | | | | |
| | | | | at the reporting date | | | | | | | | | 3 | | | 2 | | | | | | 5 |
| | | | Relating to assets sold during the period | | | | | | 5 | | | | | | | | | | | | 5 |
| | Purchases, sales and settlements | | | | | | (9) | | | 2 | | | (7) | | | | | | (14) |
| | Transfers from level 3 to level 2 | | | | | | | | | | | | | | | (1) | | | (1) |
| Balance at end of period | | $ | 1 | | $ | 23 | | $ | 80 | | $ | 37 | | $ | | | $ | 141 |
The fair value measurements of cash and cash equivalents are based on the amounts on deposit.
The market approach is used to measure fair value of equity securities. The fair value measurements of equity securities (excluding commingled funds), which are generally classified as Level 1, are based on quoted prices in active markets. These securities represent actively and passively managed investments that are managed against various equity indices.indices and exchange traded funds (ETFs).
Investments in commingled equity and debt funds are categorized as equity securities. These investments are classified as Level 2, except for exchange-traded funds, which are classified as Level 1 based on quoted prices in active markets. The fair value measurements for Level 2 investments are based on firm quotes of net asset values per share, which are not considered obtained from a quoted price in an active market. Investments in commingled equity funds include funds that invest in U.S. and international equity securities. Investments in commingled debt funds include funds that invest in a diversified portfolio of emerging market debt obligations, as well as funds that invest in investment grade long-duration fixed-income securities.
The fair value measurements of debt securities are generally based on evaluations that reflect observable market information, such as actual trade information for identical securities or for similar securities, adjusted for observable differences. The fair value of debt securities is generally measured using a market approach, including the use of pricing models, which incorporate observable inputs. Common inputs include benchmark yields, relevant trade data, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments. When necessary, the fair value of debt securities is measured using the income approach, which incorporates similar observable inputs as well as payment data, future predicted cash flows, collateral performance and new issue data. For the Master Trust, these securities represent investments in securities issued by U.S. Treasury and U.S. government sponsored agencies; investments securitized by residential mortgages, auto loans, credit cards and other pooled loans; investments in investment grade and non-investment grade bonds issued by U.S. companies across several industries; investments in debt securities issued by foreign governments and corporations and exchange traded funds. corporations.
Investments in commodities represent ownership of unitsinterest of a commingled fund that is invested asin a long-only, unleveraged portfolio of exchange-traded futures and forward contracts in tangible commodities to obtain broad exposure to all principal groups in the global commodity markets, including energies, agriculture and metals (both precious and industrial) using proprietary commodity trading strategies. The fund has daily liquidityRedemptions can be made the 15th calendar day and the last calendar day of the month with a specified notification period. The fund's fair value is based upon a unit value as calculated by the fund's trustee.administrator.
Investments in real estate represent an investment in a partnership whose purpose is to manage investments in core U.S. real estate properties diversified geographically and across major property types (e.g., office, industrial, retail, etc.). The manager is focused on properties with high occupancy rates with quality tenants. This results in a focus on high income and stable cash flows with appreciation being a secondary factor. Core real estate generally has a lower degree of leverage when compared with more speculative real estate investing strategies. The partnership has limitations on the amounts that may be redeemed based on available cash to fund redemptions. Additionally, the general partner may decline to accept redemptions when necessary to avoid adverse consequences for the partnership, including legal and tax implications, among others. The fair value of the investment is based upon a partnership unit value.
Investments in private equity represent interests in partnerships in multiple early-stage venture capital funds and private equity fund of funds that use a number of diverse investment strategies. Four of the partnerships have limited lives of ten10 years, while the fifth has a life of 15 years, after which liquidating distributions will be received. Prior to the end of each partnership's life, the investment cannot be redeemed with the partnership; however, the interest may be sold to other parties, subject to the general partner's approval. The Master Trust has unfunded commitments of $55$22 million that may be required during the lives of the partnerships. Fair value is based on an ownership interest in partners' capital to which a proportionate share of net assets is attributed.
Investments in hedge funds represent investments in three hedgea fund of hedge funds. Hedge funds seek a return utilizing a number of diverse investment strategies. The strategies, when combined aim to reduce volatility and risk while attempting to deliver
positive returns under most market conditions. Major investment strategies for the hedge fund of hedge funds include long/short equity, market neutral, distressed debt,tactical trading, event driven, and relative value. Generally, sharesShares may be redeemed within 65 to 9545 days with prior written notice. The funds arefund is subject to short term lockups and have limitations on the amount that may be withdrawn based on a percentage of the total net asset value of the fund, among other restrictions. All withdrawals are subject to the general partner's approval. The fair value for two of the fundsfund has been estimated using the net asset value per share and the third fund's fair value is based on an ownership interest in partners' capital to which a proportionate share of net assets is attributed.share.
The fair value measurements of derivative instruments utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs. In certain instances, these instruments may be valued using models, including standard option valuation models and standard industry models. These securities primarily represent investments in interest rate swaps and swaptions (the option to enter into an interest rate swap), which are valued based on the swap details, such as swap curves, notional amount, index and term of index, reset frequency, volatility and payer/receiver credit ratings.
Insurance contracts, classified as Level 3, represent an investment in an immediate participation guaranteed group annuity contract. The fair value is based on contract value, which represents cost plus interest income less distributions for benefit payments and administrative expenses.
Plan Assets - U.S. Other Postretirement Benefit Plans
The investment strategy with respect to other postretirement benefit obligations is to fund VEBA trusts and/or 401(h) accounts with voluntary contributions and to invest in a tax efficient manner. Excluding the 401(h) accounts included in the Master Trust, other postretirement benefit plans are invested in a mix of assets for long-term growth with an objective of earning returns that provide liquidity as required for benefit payments. These plans benefit from diversification of asset types, investment fund strategies and investment fund managers, and therefore, have no significant concentration of risk. Equity securities include investments in domestic large-cap commingled funds. Ownership interests in commingled funds that invest entirely in debt securities are classified as equity securities, but treated as debt securities for asset allocation and target allocation purposes. Ownership interests in money market funds are treated as cash and cash equivalents for asset allocation and target allocation purposes. The asset allocation for the PPL VEBA trusts, excluding LKE, and the target allocation, by asset class, at December 31 are detailed below. |
| | | | | | | | |
| | Percentage of plan assets | | Target Asset Allocation |
| | 2016 | | 2015 | | 2016 |
| Asset Class | | | | | |
| U.S. Equity securities | 48 | % | | 48 | % | | 45 | % |
| Debt securities (a) | 50 | % | | 50 | % | | 50 | % |
| Cash and cash equivalents (b) | 2 | % | | 2 | % | | 5 | % |
| Total | 100 | % | | 100 | % | | 100 | % |
| | | | | | Target Asset |
| | | | Percentage of plan assets | | Allocation |
| | | 2014 | | 2013 | | 2014 |
| Asset Class | | | | | | | | | |
| U.S. Equity securities | | | 49% | | | 55% | | | 45% |
| Debt securities (a) | | | 49% | | | 41% | | | 50% |
| Cash and cash equivalents (b) | | | 2% | | | 4% | | | 5% |
| | Total | | | 100% | | | 100% | | | 100% |
| |
| (a) | Includes commingled debt funds and debt securities. |
| |
| (b) | Includes money market funds. |
LKE's other postretirement benefit plan is invested primarily in a 401(h) account, as disclosed in the PPL Services Corporation Master Trust, with insignificant amounts invested in money market funds within VEBA trusts for liquidity.
The fair value of assets in the U.S. other postretirement benefit plans by asset class and level within the fair value hierarchy was:
| | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | | | Fair Value Measurement Using | | | | | Fair Value Measurement Using |
| | | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Money market funds | | $ | 9 | | $ | 9 | | | | | | | | $ | 12 | | $ | 12 | | | | | | |
| U.S. Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Large-cap | | | 169 | | | | | $ | 169 | | | | | | 182 | | | | | $ | 182 | | | |
| | | Commingled debt | | | 136 | | | | | | 136 | | | | | | 100 | | | | | | 100 | | | |
| Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Municipalities | | | 33 | | | | | | 33 | | | | | | 36 | | | | | | 36 | | | |
| Total VEBA trust assets, at fair value | | | 347 | | $ | 9 | | $ | 338 | | | | | | 330 | | $ | 12 | | $ | 318 | | | |
| Receivables and payables, net (a) | | | 1 | | | | | | | | | | | | 1 | | | | | | | | | |
| 401(h) account assets | | | 136 | | | | | | | | | | | | 115 | | | | | | | | | |
| Total other postretirement benefit plan | | | | | | | | | | | | | | | | | | | | | | | | |
| | assets | | $ | 484 | | | | | | | | | | | $ | 446 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | | | Fair Value Measurement Using | | | | Fair Value Measurement Using |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Money market funds | $ | 5 |
| | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | 6 |
| | $ | 6 |
| | $ | — |
| | $ | — |
|
| U.S. Equity securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Large-cap equity fund measure at NAV (a) | 123 |
| | — |
| | — |
| | — |
| | 129 |
| | — |
| | — |
| | — |
|
| Commingled debt fund measured at NAV (a) | 114 |
| | — |
| | — |
| | — |
| | 109 |
| | — |
| | — |
| | — |
|
| Debt securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Municipalities | 12 |
| | — |
| | 12 |
| | — |
| | 23 |
| | — |
| | 23 |
| | — |
|
| Total VEBA trust assets, at fair value | 254 |
| | $ | 5 |
| | $ | 12 |
| | $ | — |
| | 267 |
| | $ | 6 |
| | $ | 23 |
| | $ | — |
|
| Receivables and payables, net (b) | 1 |
| | |
| | |
| | |
| | 1 |
| | |
| | |
| | |
| 401(h) account assets | 123 |
| | |
| | |
| | |
| | 111 |
| | |
| | |
| | |
| Total other postretirement benefit plan assets | $ | 378 |
| | |
| | |
| | |
| | $ | 379 |
| | |
| | |
| | |
| |
| (a) | In accordance with accounting guidance certain investments that are measured at fair value using the net asset value per share (NAV), or its equivalent, practical expedient 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 statement of financial position. |
| |
| (b) | Receivables and payables represent amounts for investments sold/purchased but not yet settled along with interest and dividends earned but not yet received. |
Investments in money market funds represent investments in funds that invest primarily in a diversified portfolio of investment grade money market instruments, including, but not limited to, commercial paper, notes, repurchase agreements and other evidences of indebtedness with a maturity not exceeding 13 months from the date of purchase. The primary
objective of the fund is a high level of current income consistent with stability of principal and liquidity. Redemptions can be made daily on this fund.
Investments in large-cap equity securities represent investments in a passively managed equity index fund that invests in securities and a combination of other collective funds. Fair value measurements are not obtained from a quoted price in an active market but are based on firm quotes of net asset values per share as provided by the trustee of the fund. Redemptions can be made daily on this fund.
Investments in commingled debt securities represent investments in a fund that invests in a diversified portfolio of investment grade long-duration fixed income securities. Redemptions can be made weeklydaily on these funds.
Investments in municipalities represent investments in a diverse mix of tax-exempt municipal securities. The fair value measurements for these securities are based on recently executed transactions for identical securities or for similar securities.
Plan Assets - U.K. Pension Plans (PPL)
The overall investment strategy of WPD's pension plans is developed by each plan's independent trustees in its Statement of Investment Principles in compliance with the U.K. Pensions Act of 1995 and other U.K. legislation. The trustees' primary focus is to ensure that assets are sufficient to meet members' benefits as they fall due with a longer term objective to reduce investment risk. The investment strategy is intended to maximize investment returns while not incurring excessive volatility in the funding position. WPD's plans are invested in a wide diversification of asset types, fund strategies and fund managers; and therefore, have no significant concentration of risk. Commingled funds that consist entirely of debt securities are traded as equity units, but treated by WPD as debt securities for asset allocation and target allocation purposes. These include investments in U.K. corporate bonds and U.K. gilts.
The asset allocation and target allocation at December 31 of WPD's pension plans are detailed below. |
| | | | | | | | |
| | | | | | Target Asset |
| | Percentage of plan assets | | Allocation |
| | 2016 | | 2015 | | 2016 |
| Asset Class | | | | | |
| Cash and cash equivalents | 1 | % | | 1 | % | | 1 | % |
| Equity securities | | | | | |
| U.K. | 3 | % | | 3 | % | | 3 | % |
| European (excluding the U.K.) | 2 | % | | 2 | % | | 2 | % |
| Asian-Pacific | 2 | % | | 2 | % | | 2 | % |
| North American | 3 | % | | 3 | % | | 3 | % |
| Emerging markets | 3 | % | | 4 | % | | 1 | % |
| Global equities | 6 | % | | 6 | % | | 3 | % |
| Currency | — | % | | 1 | % | | — | % |
| Global Tactical Asset Allocation | 33 | % | | 31 | % | | 40 | % |
| Debt securities (a) | 41 | % | | 40 | % | | 39 | % |
| Alternative investments | 6 | % | | 7 | % | | 6 | % |
| Total | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | Target Asset |
| | | | Percentage of plan assets | | Allocation |
| | | 2014 | | 2013 | | 2014 |
| Asset Class | | | | | | | | | |
| Cash and cash equivalents | | | 1% | | | | | | |
| Equity securities | | | | | | | | | |
| | U.K. | | | 3% | | | 7% | | | 3% |
| | European (excluding the U.K.) | | | 3% | | | 5% | | | 3% |
| | Asian-Pacific | | | 2% | | | 3% | | | 2% |
| | North American | | | 3% | | | 5% | | | 3% |
| | Emerging markets | | | 9% | | | 8% | | | 9% |
| | Currency | | | 2% | | | 7% | | | 3% |
| | Global Tactical Asset Allocation | | | 29% | | | 19% | | | 30% |
| Debt securities (a) | | | 42% | | | 40% | | | 41% |
| Alternative investments | | | 6% | | | 6% | | | 6% |
| | Total | | | 100% | | | 100% | | | 100% |
| |
| (a) | Includes commingled debt funds. |
The fair value of assets in the U.K. pension plans by asset class and level within the fair value hierarchy was: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | | | Fair Value Measurement Using | | | | Fair Value Measurement Using |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Cash and cash equivalents | $ | 42 |
| | $ | 42 |
| | $ | — |
| | $ | — |
| | $ | 55 |
| | $ | 55 |
| | $ | — |
| | $ | — |
|
| Equity securities measured at NAV (a) : | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| U.K. companies | 210 |
| | — |
| | — |
| | — |
| | 274 |
| | — |
| | — |
| | — |
|
| European companies (excluding the U.K.) | 177 |
| | — |
| | — |
| | — |
| | 190 |
| | — |
| | — |
| | — |
|
| Asian-Pacific companies | 140 |
| | — |
| | — |
| | — |
| | 132 |
| | — |
| | — |
| | — |
|
| North American companies | 227 |
| | — |
| | — |
| | — |
| | 220 |
| | — |
| | — |
| | — |
|
| Emerging markets companies | 209 |
| | — |
| | — |
| | — |
| | 284 |
| | — |
| | — |
| | — |
|
| Global Equities | 466 |
| | — |
| | — |
| | — |
| | 500 |
| | — |
| | — |
| | — |
|
| Currency | — |
| | — |
| | — |
| | — |
| | 39 |
| | — |
| | — |
| | — |
|
| Other | 2,363 |
| | — |
| | — |
| | — |
| | 2,384 |
| | — |
| | — |
| | |
| Commingled debt: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| U.K. corporate bonds | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
|
| U.K. gilts | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | — |
|
| Debt Securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| U.K. corporate bonds | 2 |
| | — |
| | 2 |
| | — |
| | 364 |
| | — |
| | 364 |
| | — |
|
| U.K. gilts | 2,940 |
| | — |
| | 2,940 |
| | — |
| | 2,645 |
| | — |
| | 2,645 |
| | — |
|
| Alternative investments: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Real estate measured at NAV (a) | 435 |
| | — |
| | — |
| | — |
| | 533 |
| | — |
| | — |
| | — |
|
| Fair value - U.K. pension plans | $ | 7,211 |
| | $ | 42 |
| | $ | 2,942 |
| | $ | — |
| | $ | 7,625 |
| | $ | 55 |
| | $ | 3,009 |
| | $ | — |
|
| |
| (a) | In accordance with accounting guidance certain investments that are measured at fair value using the net asset value per share (NAV), or its equivalent, practical expedient 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 statement of financial position. |
| | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | | | Fair Value Measurement Using | | | | | Fair Value Measurement Using |
| | | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 57 | | $ | 57 | | | | | | | | $ | 10 | | $ | 10 | | | | | | |
| Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.K. companies | | | 239 | | | | | $ | 239 | | | | | | 523 | | | 267 | | $ | 256 | | | |
| | | European companies (excluding the U.K.) | | | 198 | | | | | | 198 | | | | | | 355 | | | 275 | | | 80 | | | |
| | | Asian-Pacific companies | | | 142 | | | | | | 142 | | | | | | 226 | | | 180 | | | 46 | | | |
| | | North American companies | | | 227 | | | | | | 227 | | | | | | 352 | | | 254 | | | 98 | | | |
| | | Emerging markets companies | | | 309 | | | | | | 309 | | | | | | 411 | | | 126 | | | 285 | | | |
| | | Global Equities | | | 397 | | | | | | 397 | | | | | | 161 | | | | | | 161 | | | |
| | | Currency | | | 190 | | | | | | 190 | | | | | | 485 | | | | | | 485 | | | |
| | | Global Tactical Asset Allocation | | | 2,263 | | | | | | 2,263 | | | | | | 1,384 | | | | | | 1,384 | | | |
| | | Commingled debt: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.K. corporate bonds | | | 436 | | | | | | 436 | | | | | | 504 | | | | | | 504 | | | |
| | | | U.K. gilts | | | 2,840 | | | | | | 2,840 | | | | | | 2,426 | | | | | | 2,426 | | | |
| | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | | | Fair Value Measurement Using | | | | | Fair Value Measurement Using |
| | | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Alternative investments: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Real estate | | | 436 | | | | | | 436 | | | | | | 447 | | | | | | 447 | | | |
| Fair value - U.K. pension plans | | $ | 7,734 | | $ | 57 | | $ | 7,677 | | | | | $ | 7,284 | | $ | 1,112 | | $ | 6,172 | | | |
Except for investments in real estate, the fair value measurements of WPD's pension plan assets are based on the same inputs and measurement techniques used to measure the U.S. pension plan assets described above.
Investments in equity securities represent actively and passively managed funds that are measured against various equity indices. The
Other comprises a range of investment strategies, which invest in a variety of assets including equities, bonds, currencies, real estate and forestry held in unitized funds, which are considered in the Global Tactical Asset Allocation strategy attempts to benefit from short-term market inefficiencies by taking positions in worldwide markets with the objective to profit from relative movements across those markets.target.
U.K. corporate bonds include investment grade corporate bonds of companies from diversified U.K. industries.
U.K. gilts include gilts, index-linked gilts and swaps intended to track a portion of the plans' liabilities.
Investments in real estate represent holdings in a U.K. unitized fund that owns and manages U.K. industrial and commercial real estate with a strategy of earning current rental income and achieving capital growth. The fair value measurement of the fund is based upon a net asset value per share, which is based on the value of underlying properties that are independently appraised in accordance with Royal Institution of Chartered Surveyors valuation standards at least annually with quarterly valuation updates based on recent sales of similar properties, leasing levels, property operations and/or market conditions. The fund may be subject to redemption restrictions in the unlikely event of a large forced sale in order to ensure other unit holders are not disadvantaged.
Expected Cash Flows - U.S. Defined Benefit Plans(PPL)
While PPL's U.S. defined benefit pension plans have the option to utilize available prior year credit balances to meet current and future contribution requirements. However,requirements, PPL contributed $175$53 million to its U.S. pension plans in January 2015.2017. No additional contributions are expected in 2017.
PPL sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. PPL expects to make approximately $10$17 million of benefit payments under these plans in 2015.2017.
PPL is not required to make contributions to its other postretirement benefit plans but has historically funded these plans in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would cause PPL to contribute $17$14 million to its other postretirement benefit plans in 2015.2017.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans and the following federal subsidy payments are expected to be received by PPL. |
| | | | | | | | | | | |
| | | | Other Postretirement |
| | Pension | | Benefit Payment | | Expected Federal Subsidy |
| 2017 | $ | 251 |
| | $ | 52 |
| | $ | 1 |
|
| 2018 | 252 |
| | 51 |
| | 1 |
|
| 2019 | 261 |
| | 51 |
| | 1 |
|
| 2020 | 263 |
| | 50 |
| | — |
|
| 2021 | 267 |
| | 49 |
| | — |
|
| 2022-2026 | 1,344 |
| | 228 |
| | 2 |
|
| | | | | | Other Postretirement |
| | | | | | | | | Expected |
| | | | | | Benefit | | Federal |
| | | | Pension | | Payment | | Subsidy |
| | | | | | | | | | |
| 2015 | | $ | 268 | | $ | 54 | | $ | 1 |
| 2016 | | | 279 | | | 56 | | | 1 |
| 2017 | | | 294 | | | 58 | | | 1 |
| 2018 | | | 308 | | | 60 | | | 1 |
| 2019 | | | 323 | | | 62 | | | 1 |
| 2020-2024 | | | 1,749 | | | 326 | | | 3 |
The PPL Montana pension plan has the option to utilize available prior year credit balances to meet current and future contribution requirements. However, PPL Montana contributed $32 million to its pension plan in January 2015.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans.
| | | | | | Other |
| | | Pension | | Postretirement |
| | | | | | | |
| 2015 | | $ | 5 | | $ | 1 |
| 2016 | | | 7 | | | 1 |
| 2017 | | | 7 | | | 1 |
| 2018 | | | 8 | | | 2 |
| 2019 | | | 9 | | | 2 |
| 2020-2024 | | | 58 | | | 9 |
While LKE's defined benefit pension plans have the option to utilize available prior year credit balances to meet current and future contribution requirements. However,requirements, LKE contributed $49$18 million to its pension plans in January 2015.2017. No additional contributions are expected in 2017.
LKE sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. LKE expects to make $3$4 million of benefit payments under these plans in 2015.2017.
LKE is not required to make contributions to its other postretirement benefit plan but has historically funded this plan in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would cause LKE to contribute $13a projected $14 million to its other postretirement benefit plan in 2015.2017.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans and the following federal subsidy payments are expected to be received by LKE. |
| | | | | | | | | | | |
| | | | Other Postretirement |
| | Pension | | Benefit Payment | | Expected Federal Subsidy |
| 2017 | $ | 105 |
| | $ | 14 |
| | $ | — |
|
| 2018 | 108 |
| | 14 |
| | — |
|
| 2019 | 110 |
| | 15 |
| | 1 |
|
| 2020 | 111 |
| | 16 |
| | — |
|
| 2021 | 113 |
| | 16 |
| | — |
|
| 2022-2026 | 569 |
| | 82 |
| | 2 |
|
| | | | | | Other Postretirement |
| | | | | | | | | Expected |
| | | | | | Benefit | | Federal |
| | | | Pension | | Payment | | Subsidy |
| | | | | | | | | | |
| 2015 | | $ | 60 | | $ | 14 | | | |
| 2016 | | | 62 | | | 14 | | | |
| 2017 | | | 67 | | | 15 | | $ | 1 |
| 2018 | | | 72 | | | 16 | | | |
| 2019 | | | 77 | | | 17 | | | |
| 2020-2024 | | | 456 | | | 88 | | | 2 |
(LG&E)
LG&E's defined benefit pension plan has the option to utilize available prior year credit balances to meet current and future contribution requirements. However, LG&E contributed $13 millionThere are no contributions expected to its pension planbe made in January 2015.2017.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plan. |
| | | |
| | Pension |
| 2017 | $ | 25 |
|
| 2018 | 25 |
|
| 2019 | 25 |
|
| 2020 | 25 |
|
| 2021 | 24 |
|
| 2022-2026 | 110 |
|
| | | | Pension |
| | | | |
| 2015 | | $ | 15 |
| 2016 | | | 16 |
| 2017 | | | 17 |
| 2018 | | | 18 |
| 2019 | | | 19 |
| 2020-2024 | | | 105 |
Expected Cash Flows - U.K. Pension Plans (PPL)
The pension plans of WPD are subject to formal actuarial valuations every three years, which are used to determine funding requirements. Contribution requirements for periods after April 1, 2014 were evaluated in accordance with the valuations performed as of March 31, 2013.2013 and March 31, 2016. WPD expects to make contributions of approximately $377$389 million in 2015.2017, including $98 million WPD contributed to its U.K. pension plans in January 2017. WPD is currently permitted to recover in ratescurrent revenues approximately 64%78% of theirits pension funding requirements for theirits primary pension plans, increasing to approximately 80% in 2019.plans.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans. |
| | | |
| | Pension |
| 2017 | $ | 314 |
|
| 2018 | 317 |
|
| 2019 | 322 |
|
| 2020 | 326 |
|
| 2021 | 329 |
|
| 2022-2026 | 1,693 |
|
| | | Pension |
| | | | |
| 2015 | | $ | 386 |
| 2016 | | | 391 |
| 2017 | | | 395 |
| 2018 | | | 403 |
| 2019 | | | 409 |
| 2020-2024 | | | 2,118 |
Savings Plans (All Registrants)
Substantially all employees of PPL's domestic subsidiaries are eligible to participate in deferred savings plans (401(k)s). Employer contributions to the plans were: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL | $ | 35 |
| | $ | 34 |
| | $ | 33 |
|
| PPL Electric | 6 |
| | 6 |
| | 6 |
|
| LKE | 17 |
| | 16 |
| | 15 |
|
| LG&E | 5 |
| | 5 |
| | 5 |
|
| KU | 4 |
| | 4 |
| | 4 |
|
| | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | |
| PPL | | $ | 47 | | $ | 41 | | $ | 36 |
| PPL Energy Supply | | | 14 | | | 12 | | | 12 |
| PPL Electric | | | 6 | | | 6 | | | 5 |
| LKE | | | 15 | | | 13 | | | 12 |
| LG&E | | | 5 | | | 7 | | | 6 |
| KU | | | 4 | | | 6 | | | 6 |
Employee Stock Ownership Plan
PPL sponsors a non-leveraged ESOP in which domestic employees, excluding those of PPL Montana, LKE and the mechanical contractors, are enrolled on the first day of the month following eligible employee status. Dividends paid on ESOP shares are treated as ordinary dividends by PPL. Under existing income tax laws, PPL is permitted to deduct the amount of those dividends for income tax purposes and to contribute the resulting tax savings (dividend-based contribution) to the ESOP.
The dividend-based contribution, which is discretionary, is used to buy shares of PPL's common stock and is expressly conditioned upon the deductibility of the contribution for federal income tax purposes. Contributions to the ESOP are allocated to eligible participants' accounts as of the end of each year, based 75% on shares held in existing participants' accounts and 25% on the eligible participants' compensation.
For 2014 and 2013, PPL did not record compensation expense related to the ESOP as no contribution was made. Compensation expense for ESOP contributions was $8 million in 2012. This amount was offset by the dividend-based contribution tax savings and had no impact on PPL's earnings.
PPL shares within the ESOP at December 31, 2014 were 7,053,754, or 1% of total common shares outstanding, and are included in all EPS calculations.
Separation Benefits
Certain PPL subsidiaries provide separation benefits to eligible employees. These benefits may be provided in the case of separations due to performance issues, loss of job relatedjob-related qualifications or organizational changes. Until December 1, 2012, certain employees separated were eligible for cash severance payments, outplacement services, accelerated stock award vesting, continuation of group health and welfare coverage, and enhanced pension and postretirement medical benefits. As of December 1, 2012, separation benefits for certain employees were changed to eliminate accelerated stock award vesting and enhanced pension and postretirement medical benefits. Also, the continuation of group health and welfare coverage was replaced with a single sum payment approximating the dollar amount of premium payments that would be incurred for continuation of group health and welfare coverage. Separation benefits are recorded when such amounts are probable and estimable.
See Note 8 for a discussion of separation benefits recognized in 2015 and 2014 related to the anticipated spinoff of PPL Energy Supply and Note 13 for a discussion of separation benefits related to the one-time voluntary retirement window offered to certain bargaining unit employees as part of the new three-year labor agreement with IBEW local 1600.Supply. Separation benefits were not significant in 2013 and 2012. 2016.
12. Jointly Owned Facilities
(All Registrants except PPL, Electric)
LKE, LG&E and KU)At December 31, 20142016 and 2013,2015, the Balance Sheets reflect the owned interests in the facilities listed below. |
| | | | | | | | | | | | | | | |
| | | Ownership Interest | | Electric Plant | | Accumulated Depreciation | | Construction Work in Progress |
| PPL and LKE | | | | | | | |
| | December 31, 2016 | | | | | | | |
| | Generating Plants | | | | | | | |
| | Trimble County Unit 1 | 75.00 | % | | $ | 407 |
| | $ | 55 |
| | $ | 1 |
|
| | Trimble County Unit 2 | 75.00 | % | | 1,026 |
| | 161 |
| | 83 |
|
| | | | | | | | | |
| | December 31, 2015 | |
| | |
| | |
| | |
|
| | Generating Plants | |
| | |
| | |
| | |
|
| | Trimble County Unit 1 | 75.00 | % | | $ | 399 |
| | $ | 44 |
| | $ | 6 |
|
| | Trimble County Unit 2 | 75.00 | % | | 1,013 |
| | 141 |
| | 27 |
|
| | | | | | | | | |
| LG&E | | | | | | | |
| | December 31, 2016 | | | | | | | |
| | Generating Plants | | | | | | | |
| | E.W. Brown Units 6-7 | 38.00 | % | | $ | 40 |
| | $ | 15 |
| | $ | — |
|
| | Paddy's Run Unit 13 & E.W. Brown Unit 5 | 53.00 | % | | 55 |
| | 12 |
| | 1 |
|
| | Trimble County Unit 1 | 75.00 | % | | 407 |
| | 55 |
| | 1 |
|
| | Trimble County Unit 2 | 14.25 | % | | 214 |
| | 32 |
| | 43 |
|
| | Trimble County Units 5-6 | 29.00 | % | | 30 |
| | 8 |
| | 1 |
|
| | Trimble County Units 7-10 | 37.00 | % | | 71 |
| | 17 |
| | 1 |
|
| | Cane Run Unit 7 | 22.00 | % | | 114 |
| | 5 |
| | 2 |
|
| | E.W. Brown Solar Unit | 39.00 | % | | 10 |
| | — |
| | — |
|
| | | | | | | | | |
| | December 31, 2015 | |
| | |
| | |
| | |
|
| | Generating Plants | |
| | |
| | |
| | |
|
| | E.W. Brown Units 6-7 | 38.00 | % | | $ | 40 |
| | $ | 12 |
| | $ | — |
|
| | Paddy's Run Unit 13 & E.W. Brown Unit 5 | 53.00 | % | | 47 |
| | 10 |
| | 1 |
|
| | Trimble County Unit 1 | 75.00 | % | | 399 |
| | 44 |
| | 6 |
|
| | Trimble County Unit 2 | 14.25 | % | | 210 |
| | 28 |
| | 12 |
|
| | Trimble County Units 5-6 | 29.00 | % | | 29 |
| | 6 |
| | — |
|
| | Trimble County Units 7-10 | 37.00 | % | | 71 |
| | 14 |
| | — |
|
| | Cane Run Unit 7 | 22.00 | % | | 115 |
| | 1 |
| | 1 |
|
| | E.W. Brown Solar Unit | 39.00 | % | | — |
| | — |
| | 4 |
|
| | | | | | | | | | | | | | | | | Construction |
| | | | | | Ownership | | | | | Other | | Accumulated | | Work |
| | | | | | Interest | | Electric Plant | | Property | | Depreciation | | in Progress |
| PPL | | | | | | | | | | | | | | | |
| | December 31, 2014 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | Susquehanna | | | 90.00% | | $ | 4,746 | | | | | $ | 3,591 | | $ | 117 |
| | | Conemaugh | | | 16.25% | | | 330 | | | | | | 141 | | | 2 |
| | | Keystone | | | 12.34% | | | 213 | | | | | | 102 | | | 2 |
| | | Trimble County Units 1 & 2 | | | 75.00% | | | 1,311 | | | | | | 173 | | | 91 |
| | Merrill Creek Reservoir | | | 8.37% | | | | | $ | 22 | | | 15 | | | |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2013 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | Susquehanna | | | 90.00% | | $ | 4,686 | | | | | $ | 3,545 | | $ | 76 |
| | | Conemaugh | | | 16.25% | | | 247 | | | | | | 131 | | | 63 |
| | | Keystone | | | 12.34% | | | 207 | | | | | | 91 | | | 2 |
| | | Trimble County Units 1 & 2 | | | 75.00% | | | 1,288 | | | | | | 144 | | | 54 |
| | Merrill Creek Reservoir | | | 8.37% | | | | | $ | 22 | | | 16 | | | |
| PPL Energy Supply | | | | | | | | | | | | | | | |
| | December 31, 2014 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | Susquehanna | | | 90.00% | | $ | 4,746 | | | | | $ | 3,591 | | $ | 117 |
| | | Conemaugh | | | 16.25% | | | 330 | | | | | | 141 | | | 2 |
| | | Keystone | | | 12.34% | | | 213 | | | | | | 102 | | | 2 |
| | Merrill Creek Reservoir | | | 8.37% | | | | | $ | 22 | | | 15 | | | |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2013 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | Susquehanna | | | 90.00% | | $ | 4,686 | | | | | $ | 3,545 | | $ | 76 |
| | | Conemaugh | | | 16.25% | | | 247 | | | | | | 131 | | | 63 |
| | | Keystone | | | 12.34% | | | 207 | | | | | | 91 | | | 2 |
| | Merrill Creek Reservoir | | | 8.37% | | | | | $ | 22 | | | 16 | | | |
| LKE | | | | | | | | | | | | | | | | |
| | December 31, 2014 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | Trimble County Unit 1 | | | 75.00% | | $ | 309 | | | | | $ | 51 | | $ | 59 |
| | | Trimble County Unit 2 | | | 75.00% | | | 1,002 | | | | | | 122 | | | 32 |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2013 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | Trimble County Unit 1 | | | 75.00% | | $ | 308 | | | | | $ | 42 | | $ | 18 |
| | | Trimble County Unit 2 | | | 75.00% | | | 980 | | | | | | 102 | | | 36 |
| | | | | | | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | | | |
| | December 31, 2014 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | E.W. Brown Units 6-7 | | | 38.00% | | $ | 40 | | | | | $ | 10 | | | |
| | | Paddy's Run Unit 13 & E.W. Brown Unit 5 | | | 53.00% | | | 47 | | | | | | 7 | | | |
| | | Trimble County Unit 1 | | | 75.00% | | | 309 | | | | | | 51 | | $ | 59 |
| | | Trimble County Unit 2 | | | 14.25% | | | 205 | | | | | | 23 | | | 15 |
| | | Trimble County Units 5-6 | | | 29.00% | | | 29 | | | | | | 5 | | | |
| | | Trimble County Units 7-10 | | | 37.00% | | | 70 | | | | | | 11 | | | |
| | | Cane Run Unit 7 | | | 22.00% | | | | | | | | | | | | 113 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Construction |
| | | | Ownership | | | | Other | | Accumulated | | Work |
| | | | Interest | | Electric Plant | | Property | | Depreciation | | in Progress |
| | December 31, 2013 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | E.W. Brown Units 6-7 | | | 38.00% | | $ | 40 | | | | | $ | 7 | | $ | 1 |
| | | Paddy's Run Unit 13 & E.W. Brown Unit 5 | | | 53.00% | | | 46 | | | | | | 5 | | | 1 |
| | | Trimble County Unit 1 | | | 75.00% | | | 308 | | | | | | 42 | | | 18 |
| | | Trimble County Unit 2 | | | 14.25% | | | 200 | | | | | | 19 | | | 14 |
| | | Trimble County Units 5-6 | | | 29.00% | | | 29 | | | | | | 3 | | | |
| | | Trimble County Units 7-10 | | | 37.00% | | | 69 | | | | | | 7 | | | 1 |
| | | Cane Run Unit 7 | | | 22.00% | | | | | | | | | | | | 91 |
| | | | | | | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | | | | |
| | December 31, 2014 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | E.W. Brown Units 6-7 | | | 62.00% | | $ | 65 | | | | | $ | 15 | | $ | 1 |
| | | Paddy's Run Unit 13 & E.W. Brown Unit 5 | | | 47.00% | | | 42 | | | | | | 6 | | | |
| | | Trimble County Unit 2 | | | 60.75% | | | 797 | | | | | | 98 | | | 17 |
| | | Trimble County Units 5-6 | | | 71.00% | | | 70 | | | | | | 11 | | | |
| | | Trimble County Units 7-10 | | | 63.00% | | | 120 | | | | | | 18 | | | 1 |
| | | Cane Run Unit 7 | | | 78.00% | | | | | | | | | | | | 403 |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2013 | | | | | | | | | | | | | | | |
| | Generating Plants | | | | | | | | | | | | | | | |
| | | E.W. Brown Units 6-7 | | | 62.00% | | $ | 64 | | | | | $ | 11 | | $ | 2 |
| | | Paddy's Run Unit 13 & E.W. Brown Unit 5 | | | 47.00% | | | 42 | | | | | | 4 | | | 1 |
| | | Trimble County Unit 2 | | | 60.75% | | | 780 | | | | | | 83 | | | 22 |
| | | Trimble County Units 5-6 | | | 71.00% | | | 70 | | | | | | 8 | | | |
| | | Trimble County Units 7-10 | | | 63.00% | | | 118 | | | | | | 12 | | | 2 |
| | | Cane Run Unit 7 | | | 78.00% | | | | | | | | | | | | 317 |
|
| | | | | | | | | | | | | | | |
| | | Ownership Interest | | Electric Plant | | Accumulated Depreciation | | Construction Work in Progress |
| | | | | | | | | |
| KU | | | | | | | |
| | December 31, 2016 | | | | | | | |
| | Generating Plants | | | | | | | |
| | E.W. Brown Units 6-7 | 62.00 | % | | $ | 65 |
| | $ | 23 |
| | $ | — |
|
| | Paddy's Run Unit 13 & E.W. Brown Unit 5 | 47.00 | % | | 50 |
| | 11 |
| | 1 |
|
| | Trimble County Unit 2 | 60.75 | % | | 812 |
| | 129 |
| | 40 |
|
| | Trimble County Units 5-6 | 71.00 | % | | 74 |
| | 19 |
| | — |
|
| | Trimble County Units 7-10 | 63.00 | % | | 121 |
| | 29 |
| | 1 |
|
| | Cane Run Unit 7 | 78.00 | % | | 412 |
| | 18 |
| | 4 |
|
| | E.W. Brown Solar Unit | 61.00 | % | | 15 |
| | — |
| | — |
|
| | | | | | | | | |
| | December 31, 2015 | |
| | |
| | |
| | |
|
| | Generating Plants | |
| | |
| | |
| | |
|
| | E.W. Brown Units 6-7 | 62.00 | % | | $ | 65 |
| | $ | 19 |
| | $ | — |
|
| | Paddy's Run Unit 13 & E.W. Brown Unit 5 | 47.00 | % | | 43 |
| | 9 |
| | 1 |
|
| | Trimble County Unit 2 | 60.75 | % | | 803 |
| | 113 |
| | 15 |
|
| | Trimble County Units 5-6 | 71.00 | % | | 70 |
| | 15 |
| | — |
|
| | Trimble County Units 7-10 | 63.00 | % | | 121 |
| | 23 |
| | — |
|
| | Cane Run Unit 7 | 78.00 | % | | 411 |
| | 6 |
| | 5 |
|
| | E.W. Brown Solar Unit | 61.00 | % | | — |
| | — |
| | 6 |
|
Each subsidiary owning these interests provides its own funding for its share of the facility. Each receives a portion of the total output of the generating plants equal to its percentage ownership. The share of fuel and other operating costs associated with the plants is included in the corresponding operating expenses on the Statements of Income.
In addition to the interests mentioned above, at December 31, 2014 and 2013, PPL Montana had a 50% ownership interest in Colstrip Units 1 and 2 and a 30% ownership interest in Colstrip Unit 3. The book value of these assets was not significant. At December 31, 2014 and 2013, NorthWestern owned a 30% interest in Colstrip Unit 4. PPL Montana and NorthWestern have a sharing agreement that governs each party's responsibilities and rights relating to the operation of Colstrip Units 3 and 4. Under the terms of that agreement, each party is responsible for 15% of the total non-coal operating and construction costs of Colstrip Units 3 and 4, regardless of whether a particular cost is specific to Colstrip Unit 3 or 4, and is entitled to take up to the same percentage of the available generation from Units 3 and 4.
13. Commitments and Contingencies
Energy Purchases, Energy Sales(PPL)
All commitments, contingencies and Other Commitments
Energy Purchase Commitments
(PPL and PPL Energy Supply)
guarantees associated with PPL Energy Supply enters into long-term energy and energy related contracts which include commitmentsits subsidiaries were retained by Talen Energy and its subsidiaries at the spinoff date without recourse to purchase:PPL.
| | Maximum |
| | Maturity |
Contract Type | | Date |
| | |
Fuels (a) | | 2023 |
Limestone | | 2030 |
Natural Gas Storage | | 2026 |
Natural Gas Transportation | | 2032 |
Power, excluding wind | | 2021 |
RECs | | 2021 |
Wind Power | | 2027 |
| PPL Energy Supply incurred pre-tax charges of $29 million during 2012 to reduce its 2012 and 2013 contracted coal deliveries. These charges were recorded to "Fuel" on the Statement of Income. |
Energy Purchase Commitments(PPL, LKE, LG&E and KU)
LG&E and KU enter into purchase contracts to supply the coal and natural gas requirements for generation facilities and LG&E's retail natural gas supply operations. These contracts include the following commitments:
| | Maximum |
| | Maturity |
| Contract Type | | Maximum Maturity Date |
| Natural Gas Fuel | | 2017 |
| Coal | | 20192022 |
| Coal Transportation and Fleeting Services | | 2024 |
| Natural Gas Storage | | 2024 |
| Natural Gas Transportation | | 20242026 |
LG&E and KU have a power purchase agreement with OVEC expiring in June 2040. See footnote
(h)(f) to the table in "Guarantees and Other Assurances" below for information on the OVEC power purchase
contract. contract, including recent developments in credit or debt conditions relating to OVEC. Future obligations for power purchases from OVEC are unconditional demand payments, comprised of
annual minimum debt service payments, as well as contractually required reimbursement of plant operating, maintenance and other expenses
are projected as follows:
|
| | | | | | | | | | | |
| | LG&E | | KU | | Total |
| 2017 | $ | 20 |
| | $ | 9 |
| | $ | 29 |
|
| 2018 | 20 |
| | 9 |
| | 29 |
|
| 2019 | 19 |
| | 9 |
| | 28 |
|
| 2020 | 20 |
| | 9 |
| | 29 |
|
| 2021 | 20 |
| | 9 |
| | 29 |
|
| Thereafter | 389 |
| | 172 |
| | 561 |
|
| Total | $ | 488 |
| | $ | 217 |
| | $ | 705 |
|
| | | LG&E | | KU | | Total |
| | | | | | | | | | |
| 2015 | | $ | 18 | | $ | 8 | | $ | 26 |
| 2016 | | | 18 | | | 8 | | | 26 |
| 2017 | | | 19 | | | 8 | | | 27 |
| 2018 | | | 20 | | | 9 | | | 29 |
| 2019 | | | 22 | | | 10 | | | 32 |
| Thereafter | | | 510 | | | 226 | | | 736 |
| | | $ | 607 | | $ | 269 | | $ | 876 |
| | | | | | | | | | |
In addition, LG&E and KU had total energy purchases under the OVEC power purchase agreement for the years ended December 31 as follows:
| | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | |
| LG&E | | $ | 17 | | $ | 18 | | $ | 20 |
| KU | | | 8 | | | 8 | | | 9 |
| Total | | $ | 25 | | $ | 26 | | $ | 29 |
In January 2013, the PUC approved PPL Electric's procurement plan for the period June 2013 through May 2015. To date, PPL Electric has conducted all of its planned competitive solicitations. The solicitations include layered short-term full requirement products ranging from three months to 12 months for residential and small commercial and industrial PLR customers as well as a recurring 12 month spot market product for large commercial and industrial PLR customers. In April 2014, PPL Electric filed a new DSP with the PUC for the period June 1, 2015 through May 2017. The PUC subsequently approved the plan on January 15, 2015. The approved plan proposes that PPL Electric procure this energy through competitive solicitations conducted twice each plan year beginning in April 2015.
See Note 14 for information on the power supply agreements between PPL EnergyPlus and PPL Electric.
(PPL and PPL Energy Supply)
In connection with its marketing activities or hedging strategy for its power plants, PPL Energy Supply has entered into long-term power sales contracts that extend into 2020, excluding long-term renewable energy agreements that extend into 2038.
(PPL Energy Supply)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| LG&E | $ | 16 |
| | $ | 15 |
| | $ | 17 |
|
| KU | 7 |
| | 7 |
| | 8 |
|
| Total | $ | 23 |
| | $ | 22 |
| | $ | 25 |
|
See Note 14 for information on the power supply agreements between PPL EnergyPlus and PPL Electric.
(All Registrants)
PPL and its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities, unless otherwise noted.
WKE Indemnification(PPL and LKE)
WKE Indemnification
See footnote (g)(e) to the table in "Guarantees and Other Assurances" below for information on an LKE indemnity relating to its former WKE lease, including related legal proceedings.
(PPL and PPL Energy Supply)
Sierra Club Litigation
In July 2012, PPL Montana received a Notice of Intent to Sue (Notice) for violations of the Clean Air Act at Colstrip Steam Electric Station (Colstrip) from counsel on behalf of the Sierra Club and the Montana Environmental Information Center (MEIC). An Amended Notice was received on September 4, 2012, and a Second Amended Notice was received in October 2012. A Supplemental Notice was received in December 2012. The Notice, Amended Notice, Second Amended Notice and Supplemental Notice (the Notices) were all addressed to the Owner or Managing Agent of Colstrip, and to the other Colstrip co-owners: Avista Corporation, Puget Sound Energy, Portland General Electric Company, Northwestern Energy and PacificCorp. The Notices allege certain violations of the Clean Air Act, including New Source Review, Title V and opacity requirements.
On March 6, 2013, the Sierra Club and MEIC filed a complaint against PPL Montana and the other Colstrip co-owners in the U.S. District Court, District of Montana, Billings Division. PPL Montana operates Colstrip on behalf of the co-owners. The complaint is generally consistent with the prior Notices and lists 39 separate claims for relief. All but three of the claims allege Prevention of Significant Deterioration (PSD)-related violations under the federal Clean Air Act for various plant maintenance projects completed since 1992. For each such project or set of projects, there are separate claims for failure to obtain a PSD permit, for failure to obtain a Montana Air Quality Permit to operate after the project(s) were completed and for operating after completion of such project(s) without "Best Available Control Technology". The remaining three claims relate to the alleged failure to update the Title V operating permit for Colstrip to reflect the alleged major modifications described in the other claims, allege that the previous Title V compliance certifications were incomplete because they did not address the major plant modifications, and that numerous opacity violations have occurred at the plant since 2007. The complaint requests injunctive relief and civil penalties on average of $36,000 per day per violation, including a request that the owners remediate environmental damage and that $100,000 of the civil penalties be used for beneficial mitigation projects.
In July 2013, the Sierra Club and MEIC filed an additional Notice, identifying additional plant projects that are alleged not to be in compliance with the Clean Air Act and, in September 2013, filed an amended complaint. The amended complaint dropped all claims regarding pre-2001 plant projects, as well as the plaintiffs' Title V and opacity claims. It did, however, add claims with respect to a number of post-2000 plant projects, which effectively increased the number of projects subject to the litigation by about 40. PPL Montana and the other Colstrip owners filed a motion to dismiss the amended complaint in October 2013. In May 2014, the court dismissed the plaintiffs' independent Best Available Control Technology claims and their Prevention of Significant Deterioration (PSD) claims for three projects, but denied the owners' motion to dismiss the plaintiffs' other PSD claims on statute of limitation grounds. On August 27, 2014, the Sierra Club and MEIC filed a second amended complaint. This complaint includes the same causes of action articulated in the first amended complaint, but alleges those claims in regard to only eight projects at the plant between 2001 and 2013. On September 26, 2014, the Colstrip owners filed an answer to the second amended complaint. Discovery is ongoing. In January 2015, trial as to liability in this matter was rescheduled to November 16, 2015. A trial date with respect to remedies, if there is a finding of liability, has not been scheduled. PPL Montana believes it and the other co-owners have numerous defenses to the allegations set forth in this complaint and will vigorously assert the same. PPL Montana cannot predict the ultimate outcome of this matter at this time.
Notice of Intent to File Suit
On October 20, 2014, PPL Energy Supply received a notice letter from the Chesapeake Bay Foundation (CBF) alleging violations of the Clean Water Act and Pennsylvania Clean Streams Law at the Brunner Island generation plant. The letter
was sent to PPL Brunner Island and the PADEP and is intended to provide notice of the alleged violations and CBF's intent to file suit in Federal court after expiration of the 60 day statutory notice period. Among other things, the letter alleges that PPL Brunner Island failed to comply with the terms of its National Pollutant Discharge Elimination System permit and associated regulations related to the application of nutrient credits to the facility's discharges of nitrogen into the Susquehanna River. The letter also alleges that PADEP has failed to ensure that credits generated from nonpoint source pollution reduction activities that PPL Brunner Island applies to its discharges meet the eligibility and certification requirements under PADEP's nutrient trading program regulations. If a court-approved settlement cannot be reached, CBF plans to seek injunctive relief, monetary penalties, fees and costs of litigation. PPL and PPL Energy Supply cannot predict the outcome of this matter.
Proposed Legislation - Pacific Northwest
In the first quarter of 2015, legislation was proposed in the State of Oregon to eliminate, over time, the sale of electricity in Oregon from coal-fired generating facilities, and in the State of Washington to provide a means of cost recovery to utility owners of coal-fired generating facilities who commit to retire such facilities. Both proposals are in their earliest stages of consideration and PPL and PPL Energy Supply cannot predict whether any legislation seeking to achieve the objectives of the Oregon or Washington legislation will be enacted. Were such legislation to be enacted as proposed, such laws, either individually or collectively, would not be expected to have a material adverse effect on PPL's or PPL Energy Supply's financial condition or results of operation.
(PPL, LKE and LG&E)
Cane Run Environmental Claims
OnIn December 16, 2013, six residents, on behalf of themselves and others similarly situated, filed a class action complaint against LG&E and PPL in the U.S. District Court for the Western District of Kentucky alleging violations of the Clean Air Act and RCRA. In addition, these plaintiffs assert common law claims of nuisance, trespass and negligence. These plaintiffs seek injunctive relief and civil penalties, plus costs and attorney fees, for the alleged statutory violations. Under the common law claims, these plaintiffs seek monetary compensation and punitive damages for property damage and diminished property values for a class consisting of residents within four miles of the Cane Run plant. In their individual capacities, these plaintiffs seeksought compensation for alleged adverse health effects. In response to a motion to dismiss filed by PPL and LG&E, onin July 17, 2014, the court dismissed the plaintiffs' RCRA claims and all but one of its Clean Air Act claims,claim, but declined to dismiss their common law tort claims. Upon motion of LG&EIn November 2016, plaintiffs filed an amended complaint removing the personal injury claims and PPL,removing certain previously named plaintiffs. In February 2017, the district court certified for appellate review the issue of whether the state common law claims are preempted by federal statute. In December 2014, the U.S.District Court of Appeals for the Sixth Circuit issued an order granting appellate reviewdismissing PPL as a defendant and dismissing the final federal claim against LG&E, under the Clean Air Act, and directed the parties to submit briefs regarding issueswhether the court should continue to be presented by both parties.exercise supplemental jurisdiction regarding the remaining state law-only claims. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on operations ofmatter. LG&E retired one coal-fired unit at the Cane Run plant. LG&E has previously announced that it anticipates retiringplant in March 2015 and the remaining two coal-fired units at Cane Run before the endplant in June 2015.
Mill Creek Environmental Claims
In May 2014, the Sierra Club filed a citizen suit against LG&E in the U.S. District Court for the Western District of Kentucky for alleged violations of the Clean Water Act. The Sierra Club allegesalleged that various discharges at the Mill Creek plant constituteconstituted violations of the plant's water discharge permit. The Sierra Club seekssought civil penalties, injunctive relief, plus costs and attorney's fees. The parties reached a proposed settlement in the matter in September 2016. LG&E has agreed to limited alterations to outfall facilities and discharge practices and to fund $1 million in environmental enhancement projects focused on tree planting and water quality in Kentucky. The settlement includes no finding or agreement of any violation of law by LG&E and does not involve fines or civil penalties. In December 2016, the court approved the proposed settlement which resolves the pending litigation.
(PPL, LKE and LG&EKU)
E.W. Brown Environmental Claims
In October 2015, KU received a notice of intent from Earthjustice and the Sierra Club informing certain federal and state agencies of the Sierra Club's intent to file a citizen suit, following expiration of the mandatory 60-day notification period, for alleged violations of the Clean Water Act. The claimants allege discharges at the E.W. Brown plant in violation of applicable rules and the plant's water discharge permit. The claimants assert that, unless the alleged discharges are promptly brought into compliance, it intends to seek civil penalties, injunctive relief and attorney's fees. In November 2015, the claimants submitted an amended notice of intent to add the Kentucky Waterways Alliance as a claimant. On October 26, 2016, the claimants submitted an additional notice of intent alleging management of waste in a manner that may present an imminent and substantial endangerment under the RCRA. PPL, LKE and KU cannot predict the outcome of this matter or the potential impact on the operations of the Mill CreekE. W. Brown plant, but believe the plant isincluding increased capital or operating in compliance with the permits.
Regulatory Issuescosts, if any.
(All Registrants except PPL, Energy Supply)LKE, LG&E and KU)
Trimble County Unit 2 Air Permit
The Sierra Club and other environmental groups petitioned the Kentucky Environmental and Public Protection Cabinet to overturn the air permit issued for the Trimble County Unit 2 baseload coal-fired generating unit, but the agency upheld the permit in an order issued in September 2007. In response to subsequent petitions by environmental groups, the EPA ordered certain non-material changes to the permit, which in January 2010, were incorporated into a final revised permit issued by the Kentucky Division for Air Quality. In March 2010, the environmental groups petitioned the EPA to object to the revised state permit. Until the EPA issues a final ruling on the pending petition and all available appeals are exhausted, PPL, LKE, LG&E and KU cannot predict the outcome of this matter or the potential impact on the operations of the Trimble County plant, including increased capital or operating costs, if any.
Trimble County Water Discharge Permit
In May 2010, the Kentucky Waterways Alliance and other environmental groups filed a petition with the Kentucky Energy and Environment Cabinet (KEEC) challenging the Kentucky Pollutant Discharge Elimination System permit issued in April 2010, which covers water discharges from the Trimble County plant. In November 2010, the KEEC issued a final order upholding the permit, which was subsequently appealed by the environmental groups. In September 2013, the Franklin Circuit Court reversed the KEEC order upholding the permit and remanded the permit to the agency for further proceedings. LG&E and the KEEC appealed the order to the Kentucky Court of Appeals. In July 2015, the Court of Appeals upheld the lower court ruling. LG&E and the KEEC moved for discretionary review by the Kentucky Supreme Court. In February 2016, the Kentucky Supreme Court issued an order granting discretionary review and oral arguments were held in September 2016. PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or the potential impact on the operations of the Trimble County plant, including increased capital or operating costs, if any.
(All Registrants)
Regulatory Issues
See Note 6 for information on regulatory matters related to utility rate regulation.
Potential Impact of Financial Reform Legislation(All Registrants)
The Dodd-Frank Act amended the Commodity Exchange Act (CEA) to include provisions that impose regulatory reporting requirements for most over-the-counter derivative transactions, and in the future will require many such transactions to be executed through an exchange and to be centrally-cleared. The Dodd-Frank Act amendments to the CEA also provide that the U.S. Commodity Futures Trading Commission (CFTC) may impose collateral (margin) requirements for over-the-counter derivative transactions that are not cleared, as well as establish speculative position limits for nonfinancial commodity
The Registrants are not required to register as either "swap dealers" or "major swap participants" under the new regulatory regime. Consequently, the Registrants are not subject to the extensive regulatory requirements applicable to such registered entities, including Business Conduct Standards and other complex requirements under CFTC regulations. Nonetheless, the Dodd-Frank Act and implementing regulations have imposed on the Registrants additional and costly compliance, recordkeeping, reporting and documentation requirements.
In the future, the Registrants may be required to post additional collateral (margin) for over-the-counter derivatives transactions that are not cleared. In addition, the Registrants could face significantly higher operating costs if they or their counterparties are subject to certain regulations implementing the Dodd-Frank Act which are expected to be finalized during 2015. On January 12, 2015, President Obama signed into law a broad legislative exemption from the margin requirements for non-cleared swaps to which a commercial end-user is a counterparty. While the specifics of this new legislative exemption must be reconciled with proposed but not yet finalized margin regulations, the Registrants do not anticipate being subject to direct regulatory margin requirements associated with their non-cleared swap transactions. Instead, the Registrants' swap counterparties likely will continue to require posting of collateral and other forms of credit support (subject to unsecured thresholds and industry-standard documentation) for certain of the Registrants' non-cleared swap activities.
Additionally, the regulatory burdens and costs that the Dodd-Frank Act regulations impose on market participants could limit the Registrants' non-cleared swap transactions, or could cause decreased liquidity in the over-the-counter swap markets, as the CFTC's speculative position limits rules for nonfinancial commodity derivatives are finalized and implemented, and as financial institutions and other market participants discontinue proprietary trading operations or dealing activity in certain swaps markets. Such increased costs and decreased liquidity could make it more difficult for the Registrants to successfully and cost-efficiently meet commercial risk hedging targets. The Registrants will continue to evaluate the Dodd-Frank Act provisions of the CEA, and implementing regulations, but could incur significant costs related to ongoing compliance with the law and regulations.
(PPL, PPL Energy Supply and PPL Electric)
New Jersey Capacity Legislation
In January 2011, New Jersey enacted a law that intervenes in the wholesale capacity market exclusively regulated by the FERC (the Act). To create incentives for the development of new, in-state electricity generation facilities, the Act implemented a long-term capacity agreement pilot program (LCAPP). The Act requires New Jersey utilities to pay a guaranteed fixed price for wholesale capacity, imposed by the New Jersey Board of Public Utilities (BPU), to certain new generators participating in PJM, with the ultimate costs of that guarantee to be borne by New Jersey ratepayers. PPL believes the intent and effect of the LCAPP is to encourage the construction of new generation in New Jersey even when, under the FERC-approved PJM economic model, such new generation would not be economic. The Act could depress capacity prices in PJM in the short term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM. In February 2011, the PJM Power Providers Group (P3), an organization in which PPL is a member, filed a complaint before the FERC seeking changes in PJM's capacity market rules designed to ensure that subsidized generation, such as the generation that may result from the implementation of the LCAPP, will not be able to set capacity prices artificially low as a result of their exercise of buyer market power. In April 2011, the FERC issued an order granting in part and denying in part P3's complaint and ordering changes in PJM's capacity rules consistent with a significant portion of P3's requested changes. Several parties filed appeals of the FERC's order. In February 2014, the U.S. Court of Appeals for the Third Circuit upheld FERC's order, and the decision has become final.
In February 2011, PPL and several other generating companies and utilities filed a complaint in U.S. District Court in New Jersey challenging the Act on the grounds that it violates well-established principles under the Supremacy and Commerce clauses of the U.S. Constitution and requesting declaratory and injunctive relief barring implementation of the Act by the BPU Commissioners. In October 2013, the U.S. District Court in New Jersey issued a decision finding the Act unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce. The decision was appealed to the U.S. Court of Appeals for the Third Circuit (Third Circuit) by CPV Power Development, Inc., Hess Newark, LLC and the State of New Jersey (the Appellants). In September 2014, the Third Circuit affirmed the District Court's decision. In December 2014, the Appellants filed a petition for certiorari before the U.S. Supreme Court.
Maryland Capacity Order
In April 2012, the Maryland Public Service Commission (MD PSC) ordered three electric utilities in Maryland to enter into long-term contracts to support the construction of new electricity generating facilities in Maryland, specifically a 661 MW natural gas-fired combined-cycle generating facility to be owned by CPV Maryland, LLC. PPL believes the intent and effect of the action by the MD PSC is to encourage the construction of new generation in Maryland even when, under the FERC-approved PJM economic model, such new generation would not be economic. The MD PSC action could depress capacity prices in PJM in the short term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.
In April 2012, PPL and several other generating companies filed a complaint in U.S. District Court (District Court) in Maryland challenging the MD PSC order on the grounds that it violates well-established principles under the Supremacy and Commerce clauses of the U.S. Constitution and requested declaratory and injunctive relief barring implementation of the order by the MD PSC Commissioners. In September 2013, the District Court issued a decision finding the MD PSC order unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce. The decision was appealed to the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) by CPV Power Development, Inc. and the State of Maryland (the Appellants). In June 2014, the Fourth Circuit affirmed the District Court's opinion and subsequently denied the Appellants' motion for rehearing. In December 2014, the Appellants filed a petition for certiorari before the U.S. Supreme Court.
Pacific Northwest Markets(PPL and PPL Energy Supply)
Through its subsidiaries, PPL Energy Supply made spot market bilateral sales of power in the Pacific Northwest during the period from December 2000 through June 2001. Several parties subsequently claimed refunds at FERC as a result of these sales. In June 2003, the FERC terminated proceedings to consider whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. In August 2007, the U.S. Court of Appeals for the Ninth Circuit reversed the FERC's decision and ordered the FERC to consider additional evidence. In October 2011, FERC initiated proceedings to consider additional evidence. In July 2012, PPL Montana and the City of Tacoma, one of the two parties claiming refunds at FERC, reached a settlement whereby PPL Montana paid $75 thousand to resolve the City of Tacoma's $23 million claim. The settlement does not resolve the remaining claim outstanding at December 31, 2014 by the City of Seattle for approximately $50 million. Hearings before a FERC Administrative Law Judge (ALJ) regarding the City of Seattle's refund claims were completed in October 2013 and briefing was completed in January 2014. In March 2014, the ALJ issued an initial decision denying the City of Seattle's complaint against PPL Montana. The initial decision is pending review by the FERC.
Although PPL and its subsidiaries believe they have not engaged in any improper trading or marketing practices affecting the Pacific Northwest markets, PPL and PPL Energy Supply cannot predict the outcome of the above-described proceedings or whether any subsidiaries will be the subject of any additional governmental investigations or named in other lawsuits or refund proceedings. Consequently, PPL and PPL Energy Supply cannot estimate a range of reasonably possible losses, if any, related to this matter.
(All Registrants)
FERC Market-Based Rate Authority
In 1998, the FERC authorized LG&E, KU and PPL EnergyPlus to make wholesale sales of electricity and related products at market-based rates. In those orders, the FERC directed LG&E, KU and PPL EnergyPlus, respectively, to file an updated market analysis within three years after the order, and every three years thereafter. Since then, periodic market-based rate filings with the FERC have been made by LG&E, KU, PPL EnergyPlus, PPL Electric, PPL Montana and most of PPL Generation's subsidiaries. In December 2013, PPL and these subsidiaries filed market-based rate updates for the Eastern and Western regions. In June 2014, the FERC accepted PPL's and its subsidiaries' updated market power analysis finding that they qualify for continued market-based rate authority in the Western region. In November 2014, the FERC accepted PPL's and its subsidiaries' updated market power analysis finding that they qualify for continued market-based rate authority in the Eastern region.
Electricity - Reliability Standards
The NERC is responsible for establishing and enforcing mandatory reliability standards (Reliability Standards) regarding the bulk power system.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 power electricityelectric system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties of up to $1 million per day, per violation, for certain violations.
LG&E, KU, and PPL Electric and certain subsidiaries of PPL Energy Supply monitor their compliance with the Reliability Standards and continue to self-report or self-log potential violations of certain 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 (including RFC or SERC) determination concerning the resolution of violations of the Reliability Standards remains subject to the approval of the NERC and the FERC.
In the course of implementing their programs to ensure compliance with the Reliability Standards by those PPL affiliates subject to the standards, certain other instances of potential non-compliance may be identified from time to time. The Registrants cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.
In October 2012, the FERC initiated its consideration of proposed changes to Reliability Standards to address the impacts of geomagnetic disturbances on the reliable operation of the bulk-power system, which might, among other things, lead to a requirement to install equipment that blocks geomagnetically induced currents on implicated transformers. On May 16, 2013, FERC issued Order No. 779, requiring NERC to submit two types of Reliability Standards for FERC's approval. The first type would require certain owners and operators of the nation's electricity infrastructure, such as the Registrants, to develop and implement operational procedures to mitigate the effects of geomagnetic disturbances on the bulk-power system. This NERC proposed standard was filed by NERC with FERC for approval in January 2014, and was approved on June 19, 2014. The second type is to require owners and operators of the bulk-power system to assess certain geomagnetic disturbance events and develop and implement plans to protect the bulk-power system from those events. This proposal was filed by NERC with FERC for approval by January 22, 2015 and is pending consideration by FERC. The Registrants may be required to make significant expenditures in new equipment or modifications to their facilities to comply with the new requirements. The Registrants are unable to predict the amount of any expenditures that may be required as a result of the adoption of any Reliability Standards for geomagnetic disturbances.
Environmental Matters - Domestic
Due to the environmental issues discussed below or other environmental matters, it may be necessary for the Registrants to modify, curtail, replace or cease operation of certain facilities or performance of certain operations to comply with statutes, regulations and other requirements of regulatory bodies or courts. In addition, legal challenges to new environmental permits or rules add to the uncertainty of estimating the future cost of these permits and rules.
WPD's distribution businesses are subject to certain statutory and regulatory environmental requirements. In connection with the matters discussed below, it may be necessary for WPD to incur significant compliance costs, which costs may be recoverable through rates subject to the approval of Ofgem. PPL believes that WPD has taken and continues to take measures to comply with all applicable environmental laws and regulations.
LG&E and KU are entitled to recover, through the ECR mechanism, certain costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements applicable to coal combustion wastes and by-products from facilities that generate electricity from coal in accordance with approved compliance plans. Costs not covered by the ECR mechanism for LG&E and KU and all such costs for PPL Electric are subject to rate recovery before the companies' respective state regulatory authorities, or the FERC, if applicable. Because neither WPD nor PPL Electric does not ownowns any generating plants, itstheir exposure to related environmental compliance costs is reduced. As PPL Energy Supply is not a rate-regulated entity, it cannot seek to recover environmental compliance costs through the mechanism of rate recovery. PPL, PPL Electric, LKE, LG&E and KU can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.
(All Registrants except PPL Electric)
Air
CSAPR(PPL, LKE, LG&E and KU)
The EPA's CSAPR addressesClean Air Act, which regulates air pollutants from mobile and stationary sources in the interstate transportUnited States, has a significant impact on the operation of fossil fuel plants. The Clean Air Act requires the EPA periodically to review and establish concentration levels in the ambient air for six criteria pollutants to protect public health and welfare. These concentration levels are known as NAAQS. The six criteria pollutants are carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter and sulfur dioxide.
Federal environmental regulations of these criteria pollutants require states to adopt implementation plans, known as state implementation plans, for certain pollutants, which detail how the state will attain the standards that are mandated by the relevant law or regulation. Each state identifies the areas within its boundaries that meet the NAAQS (attainment areas) and those that do not (non-attainment areas), and must develop a state implementation plan both to bring non-attainment areas into compliance with the NAAQS and to maintain good air quality in attainment areas. In addition, for attainment of ozone and fine particulates and ozone. In accordance with an October 2014 U.S. Courtstandards, states in the eastern portion of Appeals decision, CSAPR establishes interstate allowance trading programs for sulfur dioxide and nitrogen oxide emissions from fossil-fueled plants in two phases: Phase 1 commenced in January 2015 and Phase 2 commences in 2017. Sulfur dioxide emissionsthe country, including Kentucky, are subject to an annual tradinga regional program developed by the EPA known as the Cross-State Air Pollution Rule. The NAAQS, future revisions to the NAAQS and nitrogen oxide emissionsstate
implementation plans, or future revisions to regional programs, may require installation of additional pollution controls, the costs of which PPL, LKE, LG&E and KU believe are subject to annual and ozone season programs. Oral arguments pertaining to outstanding challenges to the EPA's CSAPR will be heard before the D.C. Circuit Court on February 25, 2015.cost recovery.
Although PPL, PPL Energy Supply, LKE, LG&E and KU do not anticipate significant costs to comply with these programs, changes in market or operating conditions could result in impacts that are higherdifferent costs than anticipated.
National Ambient Air Quality Standards (NAAQS)
Under the Clean Air Act, the EPA is required to reassess the NAAQS for certain air pollutants on a five-year schedule. In 2008, the EPA revised the National Ambient Air Quality StandardNAAQS for ozone. As a result, states in the ozone transport region (OTR), including Pennsylvania, are required by the Clean Air Act to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies. The PADEP is expected to finalize a rule in early 2015 requiring nitrogen oxide reductions for fossil-fueled plants. The EPAand proposed to further strengthen the ozone standard in November 2014, which could lead to further nitrogen oxide reductions, particularly for PPL, PPL Energy Supply, LKE, LG&E, and KU fossil-fueled plants within the OTR.2014. The EPA is under court order to finalize thereleased a new ozone standard byon October 1, 2015. The states and the EPA will determine attainment with the new ozone standard through review of relevant ambient air monitoring data, with attainment or nonattainment designations scheduled no later than October 2017. States are also obligated to address interstate transport issues associated with new ozone standards through the establishment of "good neighbor" state implementation plans for those states that are found to contribute significantly to another states'state's non-attainment. The EPA recently sent a policy memoStates that are not in the ozone transport region, including Kentucky, worked together to state agenciesevaluate the need for further nitrogen oxide reductions from fossil-fueled plants with SCRs. Based on regulatory developments to facilitatedate, PPL, LKE, LG&E, and KU do not anticipate requirements for nitrogen oxide reductions beyond those currently required under the development of these plans, including modeling data showing which states are contributing. The implementation of such plans could have an impact on the structure and stringency of CSAPR Phase 2 reductions (discussed above).Cross State Air Pollution Rule.
In 2010, the EPA finalized a new National Ambient Air Quality Standardrevised NAAQS for sulfur dioxide and required states to identify areas that meet those standards and areas that are in "non-attainment". In July 2013, the EPA finalized non-attainment designations for parts of the country, including part of Yellowstone County in Montana (Billings area) and part of Jefferson County in Kentucky. Attainment must be achieved by 2018. States are working2018. Based on regulatory developments to finalize designations for other areas and in April 2014, the EPA proposed timeframes for completing these designations.date, PPL, PPL Energy Supply, LKE, LG&E and KU anticipateexpect that some of thecertain previously required compliance measures, required for compliance with the CSAPR (as discussed above), or the MATS, or the Regional Haze Rules (as discussed below), such as upgraded or new sulfur dioxide scrubbersScrubbers and additional sulfur dioxide limits at certain plants and in the case of LG&E and KU, the previously announced retirement of coal-fired generating units at theLG&E's Cane Run plant and KU's Green River and Tyrone plants, will helpplant, are sufficient to achieve compliance with the new sulfur dioxide standard. If additional reductions were to be required, the financial impact could be significant. The short-term impact on the Corette plant from the EPA's final designation of part of Yellowstone County in Montana as non-attainment (as noted above) is not expected to be significant, as the plant's operations will be suspended by April 2015 and the plant is expected to be retired in August 2015. In addition, MDEQ recently submitted a request to the EPA for a determination that this area is in attainment. If the EPA agrees with this request, then the deadlines associated with non-attainment would be suspended.
In December 2012, the EPA issued final rules that tighten the annual National Ambient Air Quality Standard for fine particulates. The rules were challenged by industry groups, and in May 2014 the D.C. Circuit Court upheld them. On January 15, 2015, the EPA published a final rule establishing area designations under the standard. Non-attainment areas in Pennsylvania and Kentucky were identified. PPL Energy Supply plants in Pennsylvania are not expected to be required to make further reductions towards achieving attainment. In Kentucky, mitigation in Jefferson County is expected to be supported by projects already underway at Cane Run and Mill Creek and in Northern Kentucky by projects at Ghent and Trimble County. States have until 2021 to achieve attainment in non-attainment areas.
Until final rules are promulgated, non-attainment designations are finalized and state compliance plans are developed, PPL, PPL Energy Supply, LKE, LG&E and KU cannot predict the ultimate outcome of the new National Ambient Air Quality standards for ozone sulfur dioxide and particulate matter.standards.
Mercury and Air Toxics Standards (MATS)
MATS
In February 2012, the EPA finalized the MATS rule requiring reductions of mercury and other hazardous air pollutants from fossil-fuel fired power plants, known as the MATS, with an effective date of April 16, 2012. In a subsequent judicial challenge, the U.S. Supreme Court (Supreme Court) held that the EPA failed to properly consider costs when deciding to regulate hazardous air emissions from power plants under MATS. The rule was challenged by industry groups and states and was upheld bySupreme Court remanded the matter to the D.C. Circuit Court which, in April 2014. On November 25, 2014,December 2015, remanded the U.S. Supreme Court grantedrule to the EPA without vacating it. The EPA has proposed a petition for reviewsupplemental finding regarding costs of the rule. The EPA's MATS rule provides for a three-year compliance deadline withremains in effect during the potential for a one-year extension as provided underpendency of the statute. ongoing proceedings.
LG&E and KU and PPL Energy Supply have received compliance extensions for certain plants.
At the timeinstalled significant controls in response to the MATS rule was proposed,and in conjunction with compliance with other environmental requirements, including fabric-filter baghouses, upgraded Scrubbers or chemical additive systems for which appropriate KPSC authorization and/or ECR treatment has been received. LG&E and KU filed requests withhave received KPSC approval for a compliance plan providing for installation of additional MATS-related controls; however, the KPSC for environmental cost recovery based on their expected need to install environmental controls including chemical additive and fabric-filter baghouses to remove air pollutants. Recovery of theestimated cost of certainthese controls was granted by the KPSC in December 2011. LG&E's and KU's anticipated retirement of certain coal-fired electricity generating units located at Cane Run and Green River is in response to MATS and other environmental regulations. The retirement of these units is not expected to have a material impact on the financial condition or results of operations of PPL, LKE, LG&E or KU.
With respect to PPL Energy Supply's Pennsylvania plants, PPL Energy Supply believes that installation of chemical additive systems and other controls may be necessary at certain coal-fired plants, the capital cost of which is not expected to be significant. PPL Energy Supply continues to analyze the potential impact of MATS on operating costs. With respect to PPL Energy Supply's Montana plants, modifications to the air pollution controls installed at Colstrip are required, the cost of which is not expected to be significant. Operations will be suspended at the Corette plant by April 2015 and the plant is expected to be retired in August 2015 due to expected market conditions and the costs to comply with the MATS requirements. The Corette plant asset group was determined to be impaired in December 2013.significant for either LG&E or KU. See Note 166 for additional information.
PPL Energy Supply, LG&E and KU are conducting in-depth reviews of the EPA's recent amendments to the final rule and certain proposed corrections, none of which are currently expected to be significant.
Regional Haze and Visibility
The EPA's regional haze programs were developed under the Clean Air Act to eliminate man-made visibility degradation by 2064. Under the programs, states are required to make reasonable progress every decade through the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977.
The primary power plant emissions affecting visibility are sulfur dioxide, nitrogen oxides and particulates. To date, the focus of regional haze regulation has been the western U.S. As for the eastern U.S., the EPA had determined that region-wide reductions under the CSAPR trading program could, in most instances, be utilized under state programs to satisfy BART requirements for sulfur dioxide and nitrogen oxides. However, the EPA's determination is being challenged by environmental groups and others.
LG&E's Mill Creek Units 3 and 4 are required to reduce sulfuric acid mist emissions because they were determined to have a significant regional haze impact. These reductions are required in the regional haze state implementation plan that the Kentucky Division for Air Quality submitted to the EPA. LG&E is currently installing sorbent injection technology to comply with these reductions, the costs of which are not expected to be significant.
In Montana, the EPA Region 8 developed the regional haze plan as the MDEQ declined to do so. The EPA finalized the Federal Implementation Plan (FIP) for Montana in September 2012. The final FIP assumed no additional controls for Corette or Colstrip Units 3 and 4, but proposed stricter limits for Corette and Colstrip Units 1 and 2. PPL Energy Supply is meeting these stricter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations at Corette by April 2015 (see "MATS" discussion above). Under the final FIP, Colstrip Units 1 and 2 may require additional controls, including the possible installation of an SNCR and other technology, to meet more stringent nitrogen oxides and sulfur dioxide limits. The cost of these potential additional controls, if required, could be significant. Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit, oral argument was heard in May 2014, and the parties are awaiting a decision.
New Source Review (NSR)
The EPA has continued its NSR enforcement efforts targeting coal-fired generating plants. The EPA has asserted that modification of these plants has increased their emissions and, consequently, that they are subject to stringent NSR requirements under the Clean Air Act. In April 2009, PPL received EPA information requests for its Montour and Brunner Island plants, but has received no further communications fromlitigation brought by the EPA, since providing its responses. In January 2009, PPL, PPL Energy Supply and other companies that own or operate the Keystone plant in Pennsylvania received a notice of violation from the EPA alleging that certain projects were undertaken without proper NSR compliance. The companies responded to the EPA and the matter remains open. In May and November 2012, PPL Montana received information requests from the EPA regarding projects undertaken during a Spring 2012 maintenance outage at Colstrip Unit 1. The EPA requests remain an open matter. In September 2012, PPL Montana received an information request from the MDEQ regarding Colstrip Unit 1 and other projects. MDEQ formally suspended this request on June 6, 2014 in consideration of pending litigation (see "Legal Matters - Sierra Club Litigation" above). PPL and PPL Energy Supply cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.
Statesstates and environmental groups also have commenced litigation alleging violations of the NSR regulations byagainst coal-fired generating plants acrossin past years continues to proceed through the nation. See "Legal Matters" above for information on a lawsuit filed by environmental groups in March 2013 against PPL Montana and other ownerscourts. Although none of Colstrip.
If PPL subsidiaries are found to have violated NSR regulations by significantly increasing pollutants through a major plant modification, PPL, PPL Energy Supply, LKE, LG&E and KU would, among other things, be required to meet stringent permit limits reflecting Best Available Control Technology (BACT) for pollutants meeting the National Ambient Air Quality Standards (NAAQS) in the area and reflecting Lowest Achievable Emission Rates for pollutants not meeting the NAAQS in the area. The costs to meet such limits, including installation of technology at certain units, could be material.
TC2 Air Permit (this litigation directly involves PPL, LKE, LG&E or KU, it can influence the permitting of large capital projects at LG&E's and KU)KU's power plants, the costs of which cannot presently be determined but could be significant.
The Sierra Club and other environmental groups petitioned the Kentucky Environmental and Public Protection Cabinet to overturn the air permit issued for the TC2 baseload coal-fired generating unit, but the agency upheld the permit in an order issued in September 2007. In response to subsequent petitions by environmental groups, the EPA ordered certain non-material changes to the permit which, in January 2010, were incorporated into a final revised permit issued by the Kentucky Division for Air Quality. In March 2010, the environmental groups petitioned the EPA to object to the revised state permit. Until the EPA issues a final ruling on the pending petition and all available appeals are exhausted, PPL, LKE, LG&E and KU cannot predict the outcome of this matter or the potential impact on plant operations, including increased capital costs, if any.
Climate Change
(All Registrants)There is continuing world-wide attention focused on issues related to climate change. In June 2016, the President announced that the United States, Canada and Mexico have established the North American Climate, Clean Energy, and Environment Partnership Plan, which specifies actions to promote clean energy, address climate change and protect the environment. The plan includes a goal to provide 50% of the energy used in North America from clean energy sources by 2025. The plan does not impose any nation-specific requirements.
AsIn December 2015, 195 nations, including the U.S., signed the Paris Agreement on Climate, which establishes a resultcomprehensive framework for the reduction of the April 2007 U.S. Supreme Court decision that the EPA has authority under the Clean Air Act to regulate carbon dioxidegreenhouse gas (GHG) emissions from new motor vehicles,both developed and developing nations. Although the
agreement does not establish binding reduction requirements, it requires each nation to prepare, communicate, and maintain GHG reduction commitments. Reductions can be achieved in April 2010a variety of ways, including energy conservation, power plant efficiency improvements, reduced utilization of coal-fired generation or replacing coal-fired generation with natural gas or renewable generation. Based on the EPA andEPA's Clean Power Plan described below, the U.S. Departmenthas committed to an initial reduction target of Transportation issued26% to 28% below 2005 levels by 2025. However, the new light-duty vehicleU.S. presidential administration has expressed an intention to review existing Climate Change commitments to determine if changes are warranted. PPL, LKE, LG&E, and KU cannot predict the outcome of such review or the impact, if any, on plant operations, rate treatment or future capital or operating needs.
The U.K. has enacted binding carbon reduction requirements that are applicable to WPD. Under the U.K. law, WPD must purchase carbon allowances to offset emissions standards that applied beginningassociated with 2012 model year vehicles.WPD's operations. The EPA also clarified that this standard, beginningcost of these allowances is included in 2011, authorized regulation of carbon dioxide emissions from stationary sources under the NSR and Title VWPD's current operating permit provisions of the Clean Air Act. expenses.
The EPA's rules were challenged in court and on June 23, 2014 the U.S. Supreme Court ruled that the EPA has the authority to regulate carbon dioxide emissionsRules under these provisionsSection 111 of the Clean Air Act but only for stationary sources that would otherwise have been subject to these provisions due to significant increases in emissions of other pollutants. As a result, any new sources or major modifications to an existing GHG source causing a net significant increase in carbon dioxide emissions must comply with BACT permit limits for carbon dioxide if it would otherwise be subject to BACT or lowest achievable emissions rate limits due to significant increases in other pollutants.
In June 2013, President Obama released his Climate Action Plan that reiterates the goal of reducing GHG emissions in the U.S. "in the range of" 17% below 2005 levels by 2020 through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing more restrictive energy efficiency standards. Additionally, the Climate Action Plan calls for the U.S. to prepare for the impacts of climate change. Requirements related to this could affect the Registrants and others in the industry as modifications may be needed to electricity delivery systems to improve the ability to withstand major storms in order to meet those requirements. As further described above,below, the EPA has proposedfinalized rules pursuant to this directive, which it expects to finalize in the second or third quarter of 2015.imposing GHG emission standards for both new and existing power plants. The EPA has also announced that it will be developingissued a proposed federal implementation plan whichthat would apply to any states that fail to submit an acceptable state implementation plan.plan under these rules. The Administration's increase in its estimateEPA's authority to promulgate these regulations under Section 111 of the "social costClean Air Act has been challenged in the D.C. Circuit Court by several states and industry groups. On February 9, 2016, the Supreme Court stayed the rule for existing plants (the Clean Power Plan) pending the D.C. Circuit Court's review and subsequent review by the Supreme Court if a writ of carbon" (whichcertiorari is filed and granted.
used to calculate benefits associated with proposed regulations) from $23.8 to $38 per metric tonThe EPA's rule for 2015 may also lead to more costly regulatory requirements.
In January 2014, the EPA issued a revised proposal to regulate carbon dioxide emissions from new power plants. The revised proposal calls forplants imposes separate emission standards for coal and natural gas units based on the application of different technologies. The coal standard is based on the application of partial carbon capture and sequestration technology, but because this technology is not presently commercially available,viable, the revised proposalrule effectively precludes the construction of new coal-fired plants. The standard for NGCC power plants is the same as the EPA proposed in 2012 and is not continuously achievable. The preclusion of new coal-fired plants and the compliance difficulties posed for new natural gas-fired plants could have a significant industry-wide impact.
The EPA has also issued proposed regulations addressing carbon dioxide emissions fromEPA's Clean Power Plan
The EPA's rule for existing power plants.plants, referred to as the Clean Power Plan, was published in the Federal Register in October 2015. The existing plant proposalClean Power Plan contains state-specific rate-based and mass-based reduction goals and guidelines for the development, submission and implementation of state implementation plans to achieve the state goals. State-specific goals were calculated from 2012 data by applying the EPA's broad interpretation and definition of the Best System of Emission ReductionBSER, resulting in the most stringent targets to be met in two phases (2020-20292030, with interim targets to be met beginning in 2022. The EPA believes it has offered some flexibility to the states as to how their compliance plans can be crafted, including the option to use a rate-based approach (limit emissions per megawatt hour) or a mass-based approach (limit total tons of emissions per year), and 2030the option to demonstrate compliance through emissions trading and beyond). The regulation of carbon dioxidemulti-state collaborations. Under the rate-based approach, Kentucky would need to make a 41% reduction from its 2012 emissions from existing power plants could haverate and under a mass-based approach it would need to make a 36% reduction. These reductions are significantly greater than initially proposed and present significant industry-wide impact depending onchallenges to the structurestate. If the Clean Power Plan is ultimately upheld and stringency ofKentucky fails to develop an approvable implementation plan by the final rule and state implementation plans.
In June 2014,applicable deadline, the EPA also proposed a regulation addressing carbon dioxide emissions from existing power plants that are modified or reconstructed. The Registrants, however, do not expect a significant impact from this rulemaking as there are no plans to modify or reconstruct their existing plants in a manner that would trigger the proposed requirements.
(PPL and PPL Energy Supply)
Based on the stringent GHG reduction requirements in the EPA's proposed rule for existing plants, and based on information gained from public input, the PADEP is no longer expecting to achieve all required GHG reductions by solely increasing efficiency at existing fossil-fuel plants and/or reducing their generation as set forth in the PADEP's April 10, 2014 white paper. On October 23, 2014, the Governor of Pennsylvania signed into law Act 175 of 2014, requiring the PADEP to obtain General Assembly approval of any state plan addressing GHG emissions under the EPA's GHG rules for existing plants. The law includes provisions to minimize the exposure tomay impose a federal implementation plan duethat could be more stringent than what the state plan might provide. Depending on the provisions of the Kentucky implementation plan, LG&E and KU may need to legislative delay.modify their current portfolio of generating assets during the next decade and/or participate in an allowance trading program.
The MDEQ,LG&E and KU are monitoring developments at the request ofstate and federal level. Various states, industry groups and individual companies including LKE have filed petitions for reconsideration with EPA and petitions for review with the Governor of Montana,D.C. Circuit Court challenging the Clean Power Plan. In February 2016, the U.S. Supreme Court stayed the rule pending the D.C. Circuit Court's review. A ruling from the D.C. Circuit Court is expected in 2017. The new U.S. presidential administration has issued a white paper outlining possibleexpressed an intention to review the Clean Power Plan and related regulatory scenariosdevelopments to implement the EPA's proposed GHG rule for existing plants, including a combination of increasing energy efficiency at coal-fired plants, adding more low-determine if changes are warranted. PPL, LKE, LG&E and zero-carbon generation, and carbon sequestration at Colstrip. The white paper was made public in September 2014 and the MDEQ has held public meetings to present the white paper and gather comments. Legislation is also being drafted which would require legislative approval of any related plan formulated by MDEQ. PPL and PPL Energy SupplyKU cannot predict the outcome of this legislation.
(the pending litigation, any changes in regulations, interpretations, or litigation positions that may be implemented by the new U.S. presidential administration or the potential impact, if any, on plant operations, or future capital or operating costs. PPL, LKE, LG&E and KU)KU believe that the costs, which could be significant, would be subject to cost recovery.
In April 2014, the Kentucky General Assembly passed legislation which limitslimiting the measures that the Kentucky Energy and Environment Cabinet may consider in setting performance standards to comply with the EPA's regulations governing GHG emissions from existing sources.sources, if enacted. The legislation provides that such state GHG performance standards shall be based on emission reductions, efficiency measures and other improvements available at each power plant, rather than renewable
energy, end-use energy efficiency, fuel switching and re-dispatch. These statutory restrictions may make it more difficult for Kentucky to achieve the GHG reduction levels whichthat the EPA has proposedestablished for Kentucky.Kentucky, if enacted.
Sulfuric Acid Mist Emissions(PPL, LKE and LG&E)
(All Registrants except PPL Electric)
A number of lawsuits have been filed asserting common law claims including nuisance, trespass and negligence against various companies with GHG emitting plants and, although the decided cases to date have not sustained claims brought on the basis of these theories of liability, the law remains unsettled on these claims. In September 2009, the U.S. Court of Appeals for the Second Circuit in the case of AEP v. Connecticut reversed a federal district court's decision and ruled that several states and public interest groups, as well as the City of New York, could sue five electric utility companies under federal common law for allegedly causing a public nuisance as a result of their emissions of GHGs. In June 2011,2016, the U.S. Supreme Court overturned the Second Circuit and held that such federal common law claims were displaced byEPA 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 regulatory actions ofcausing emissions exceeding applicable requirements or constituting a nuisance or endangerment. LG&E believes it has complied with applicable regulations during the EPA. In addition, in Comer v. Murphy Oil (Comer case),relevant time period. Discussion between the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit) declinedEPA and LG&E are ongoing. PPL, LKE and LG&E are unable to overturn a district court ruling that plaintiffs did not have standing to pursue state common law claims against companies that emit GHGs. The complaint in the Comer case named the previous indirect parent
of LKE as a defendant based upon emissions from the Kentucky plants. In January 2011, the U.S. Supreme Court denied a petition to reverse the Fifth Circuit's ruling. In May 2011, the plaintiffs in the Comer case filed a substantially similar complaint in federal district court in Mississippi against 87 companies, including KU and three other indirect subsidiaries of LKE, under a Mississippi statute that allows the re-filing of an action in certain circumstances. In March 2012, the Mississippi federal district court granted defendants' motions to dismiss the state common law claims. Plaintiffs appealed to the U.S. Court of Appeals for the Fifth Circuit, and in May 2013, the Fifth Circuit affirmed the district court's dismissal of the case. Additional litigation in federal and state courts over such issues is continuing. The Registrants cannot predict the outcome of these lawsuits or estimate a range of reasonably possible losses, if any.
In 2014 and 2013, PPL's power plants emitted approximately 62 million tons of carbon dioxide. The 2014 totals reflect 26 million tons from PPL Energy Supply's plants, and 18 million tons each from LG&E's and KU's generating fleets. All tons are U.S. short tons (2,000 pounds/ton).
Renewable Energy Legislation
(PPL, PPL Energy Supply and PPL Electric)
In Pennsylvania, a co-sponsorship memo is being circulated with the stated intent of introducing legislation increasing AEPS solar and Tier 1 targets. PPL, PPL Energy Supply and PPL Electric cannot predict the outcome of this legislative effort.matter or the potential impact on operations of the Mill Creek plant, including increased capital or operating costs, and potential civil penalties or remedial measures, if any.
Water/Waste
(PPL, LKE, LG&E and PPL Energy Supply)KU)
In New Jersey, a bill (S-1475) has been introduced to increase the current Renewable Portfolio Standard (RPS) to 30% from Class I sources by 2020. The chairman of the Senate Environmental Committee convened a workgroup to look at further changes to New Jersey's RPS law to enable New Jersey to meet emissions goals established in the state's Global Warming Response Act. A bill (S-2444) was subsequently introduced to mandate that 80% of New Jersey's electricity be generated from renewable resources by 2050. PPL and PPL Energy Supply cannot predict the outcome of this legislation.
(All Registrants)
The Registrants believe there are financial, regulatory and operational uncertainties related to the implementation of renewable energy mandates that will need to be resolved before the impact of such requirements on them can be estimated. Such uncertainties, among others, include the need to provide back-up supply to augment intermittent renewable generation, potential generation over-supply and downward pressure on energy prices that could result from such renewable generation and back-up, impacts to PJM's capacity market and the need for substantial changes to transmission and distribution systems to accommodate renewable energy sources. These uncertainties are not directly addressed by proposed legislation. PPL and PPL Energy Supply cannot predict the effect on their competitive plants' future competitive position, results of operation, cash flows and financial position of renewable energy mandates that may be adopted, although the costs to implement and comply with any such requirements could be significant.
Water/Waste
Coal Combustion Residuals (CCRs)(All Registrants except PPL Electric)
In June 2010,April 2015, the EPA proposed two approaches topublished its final rule regulating the disposal and management of CCRs (as either hazardous or non-hazardous) under the RCRA.CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. On December 19, 2014, the EPA issued its pre-publication version of theThe rule regulating coal combustion residuals (CCRs), imposingbecame effective in October 2015. It imposes extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements, and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants in the United States and are not closed. Under the rule, the EPA will regulate CCRs are regulated as non-hazardous under Subtitle D of RCRA and allow beneficial use of CCRs is allowed, with some restrictions. The rule's requirements for covered CCR Rule will become effective six months after publication in the Federal Register with publication expected in early 2015. This self-implementingimpoundments and landfills include implementation of groundwater monitoring and commencement or completion of closure activities generally between three and ten years from certain triggering events. The rule requires posting of compliance documentation on a publicallypublicly accessible websitewebsite. Industry groups, environmental groups, individual companies and is enforced through citizen suits. This new separate federalothers have filed legal challenges to the final rule, is expected to create conflicts withwhich are pending before the existing state rules, permits, and compliance orders from the individual states. PPL expects that its plants using surface impoundments for management and disposalD.C. Circuit Court of CCRs or the past management of CCRs and continued use to manage waste waters will be most impacted by this rule. The rule's specific closure requirements for CCR impoundments and landfills may require increases to AROs for these facilities at the Registrants' coal-fired plants.Appeals.
Recently enacted federal legislation has authorized the EPA to approve equally protective state programs that would operate in lieu of the CCR Rule. Kentucky has proposed a state rule aimed at reflecting the requirements of the federal rule.PPL, PPL Energy Supply, LKE, LG&E and KU cannot predict howhave received KPSC approval for a compliance plan providing for construction of additional landfill capacity at the E.W. Brown station, 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 federal CCR rule requirements, LG&E and KU also received KPSC approval for their plans to close impoundments at the retired Green River, Pineville and Tyrone plants to comply with applicable state law requirements. See Note 6 for additional information.
In connection with the final CCR rule, LG&E and KU recorded adjustments to existing AROs during 2015 and 2016. See Note 19 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.
Clean Water Act
Regulations under the federal Clean Water Act dictate permitting and mitigation requirements for facilities and construction projects in the United States. Many of those requirements relate to power plant operations, including requirements related to the treatment of pollutants in effluents prior to discharge, the temperature of effluent discharges and the location, design and construction of cooling water intake structures at generating facilities, standards intended to protect aquatic organisms that become trapped at or pulled through cooling water intake structures at generating facilities. The requirements could impose significant costs for LG&E and KU, which are subject to rate recovery.
Effluent Limitations Guidelines (ELGs)
In September 2015, the EPA released its final ELGs for wastewater discharge permits for new and existing steam electric generating facilities. The rule provides strict technology-based discharge limitations for control of pollutants in scrubber wastewater, fly ash and bottom ash transport water, mercury control wastewater, gasification wastewater and combustion
residual leachate. The new guidelines require deployment of additional control technologies providing physical, chemical and biological treatment of wastewaters. The guidelines also mandate operational changes including "no discharge" requirements for fly ash and bottom ash transport waters and mercury control wastewaters. The implementation date for individual generating stations will impact their facilities,be determined by the states on a case-by-case basis according to criteria provided by the EPA, but the financial and operational impact could be significant.
Trimble County Landfill (PPL, LKE, LG&E and KU)
In May 2011, LG&E submitted an application for a special waste landfill permit to handle CCRs generated at the Trimble County plant. After extensive reviewrequirements of the permit application in May 2013, the Kentucky Division of Waste Management denied the permit application on the grounds that the proposed facility would violate the Kentucky Cave Protection Act because it would eliminate an on-site karst feature considered torule must be a cave. After assessing additional options for managing coal combustion residuals, in January 2014, LG&E submittedfully implemented no later than 2023. Industry groups, environmental groups, individual companies and others have filed legal challenges to the Kentucky Division of Waste Management a landfill permit application for an alternate site adjacent to the plant. LG&E has also applied for other necessary regulatory approvals including a dredge and fill permit fromfinal rule, which have been consolidated before the U.S. Army CorpsCourt of Engineers, in which proceedingAppeals for the EPA has submitted certain comments or data requests to whichFifth Circuit. LG&E and KU are responding.developing compliance strategies and schedules. PPL, LKE, LG&E and KU are unable to determine the potential impact of this matter until all permits are issued and any resulting legal challenges are concluded.
Seepages and Groundwater Infiltration - Pennsylvania, Montana and Kentucky
(All Registrants except PPL Electric)
Seepagesfully estimate compliance costs or groundwater infiltration have been detected at active and retired wastewater basins and landfills at various PPL, PPL Energy Supply, LKE, LG&E and KU plants. PPL, PPL Energy Supply, LKE, LG&E and KU have completed or are completing assessments of seepages or groundwater infiltration at various facilities and have completed or are working with agencies to respond to notices of violations and implement assessment or abatement measures, where required or applicable. A range of reasonably possible losses cannot currently be estimated.
(PPL and PPL Energy Supply)
In August 2012, PPL Montana entered into an Administrative Order on Consent (AOC) with the MDEQ which establishes a comprehensive process to investigate and remediate groundwater seepage impacts related to the wastewater facilities at the Colstrip power plant. The AOC requires that within five years, PPL Montana provide financial assurance to the MDEQ for the costs associated with closure and future monitoring of the waste-water treatment facilities. PPL Montana cannot predicttiming at this time, if the actions required under the AOC will create the needalthough certain preliminary estimates are included in current capital forecasts for applicable periods. Costs to adjust the existing ARO relatedcomply with ELGs or other discharge limits, which are expected to these facilities.be significant, are subject to rate recovery.
In September 2012, Earthjustice filed an affidavit pursuant to Montana's Major Facility Siting Act (MFSA) that sought review of the AOC by Montana's Board of Environmental Review (BER) on behalf of the Sierra Club, the MEIC and the National Wildlife Federation. In September 2012, PPL Montana filed an election with the BER to have this proceeding conducted in Montana state district court as contemplated by the MFSA. In October 2012, Earthjustice filed a petition for review of the AOC in the Montana state district court in Rosebud County. This matter was stayed in December 2012. In April 2014, Earthjustice filed a motion for leave to amend the petition for review and to lift the stay which was granted by the court in May 2014. PPL Montana and the MDEQ responded to the amended petition and filed partial motions to dismiss in July 2014, which were both denied in October 2014. Discovery is ongoing, and a bench trial is set for April 2016.
(All Registrants except PPL Electric)
Clean Water Act Section 316(b)
The EPA's final 316(b) rule for existing facilities became effective onin October 14, 2014, and regulates cooling water intake structures and their impact on aquatic organisms. States are allowed considerable authority to make site-specific determinations under the rule. The rule requires existing facilities to choose betweenamong several options to reduce the impact toon aquatic organisms that become trapped against water intake screens (impingement) and to determine the intake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). Plants already equipped with closed-cycle cooling, an acceptable option, would likely notBased on studies conducted by LG&E and KU to date, all plants will incur substantialonly insignificant operational costs. Once-through systems would likely require additional technology to comply with the rule.In addition, LG&E's Mill Creek Unit 1 and Brunner Island (all units) are the only unitsis expected to be impacted.incur capital costs. PPL, PPL Energy Supply, LKE, LG&E and KU are evaluating compliance strategies but do not presently expect the compliance costs, which are subject to rate recovery, to be material.
Effluent Limitations Guidelines (ELGs) and Standardssignificant.
In June 2013, the EPA published proposed regulations to revise discharge limitations for steam electric generationSeepages and Groundwater Infiltration
Seepages or groundwater infiltration have been detected at active and retired wastewater permits. The proposed limitations are based on the EPA review of available treatment technologiesbasins and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash transport water and metal cleaning waste waters, as well as new limits for scrubber wastewater and landfill leachate. The EPA's proposed ELG regulations contain requirements that would affect the inspection and operation of CCR facilities if finalized as proposed. The EPA has indicated that it will coordinate these regulations with the regulation of CCRs discussed above. The proposal contains alternative approaches, some of which could significantly impact PPL's coal-firedlandfills at various LG&E or KU plants. The final regulation is expected to be issued by the third or fourth quarter of 2015. At the present time, PPL, PPL Energy Supply, LKE, LG&E and KU have completed, or are unablecompleting, assessments of seepages or groundwater infiltration at various facilities and have completed, or are working with agencies to predict the outcome of this matterimplement, further testing, monitoring or estimate aabatement measures, where applicable. A range of reasonablyreasonable possible costs, but the costs couldlosses cannot currently be significant. Pending finalization of the ELGs, certain states (including Pennsylvania and Kentucky) and environmental groups are proposing more stringent technology-based limits in permit renewals.estimated. Depending on the final limits imposed, thecircumstances in each case, certain costs, of compliancewhich may be subject to rate recovery, could be significant and costs could be imposed ahead of federal timelines.
significant.
(All Registrants)
Waters of the United States (WOTUS)
On April 21, 2014,The U.S. Court of Appeals for the EPA andSixth Circuit has issued a stay of the U.S. Army Corps of Engineers (Army Corps) published a proposedEPA's rule defining WOTUS that could greatly expand the federal government's interpretation of what constitutes WOTUS subject to regulation under the Clean Water Act. Ifon the definition of WOTUS pending the court's review of the rule. The effect of the stay is expanded as proposed bythat the EPA and the Army Corps, permits and other regulatory requirements may be imposed for many matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. The EPA plans to make certain changes to the proposed regulation based on comments received. The U.S. House and Senate are considering legislation to block this regulation. Until a finalWOTUS rule is issued, the Registrants cannot predict thenot in effect anywhere. The ultimate outcome of the pending rulemaking.court's review of the rule remains uncertain. Because of the strict permitting programs already in place in Kentucky and Pennsylvania, the Registrants do not expect the rule to have a significant impact on their operations.
Other Issues
The EPA is reassessing its polychlorinated biphenyls (PCB) regulations underOn June 22, 2016, the "Frank Lautenberg Chemical Safety Act" took effect as an amendment to the Toxic Substance Control Act which currently allow certain(TSCA). The Act made no changes to the pre-existing TSCA rules as it pertains to polychlorinated biphenyls (PCB). The EPA continues to reassess its PCB articles to remain in use. In Aprilregulations as part of the 2010 the EPA issued an Advanced Notice of Proposed Rulemaking (ANPRM). The EPA's ANPRM rulemaking is to occur in two phases. The first, scheduled for changesMarch 2017, relates to these regulations. Thisthe use of PCBs in small capacitors and fluorescent ballasts in schools and day care centers. The second, scheduled for October 2017, relates to the use of PCBs in electrical equipment and natural gas pipelines, as well as continued use of PCB-contaminated porous surfaces. Although the first rulemaking could leadwill not directly affect the Registrants' operations, it may indicate certain approaches or principles to occur in the later rulemaking which may affect Registrants' facilities in the United States, including phase-out of some or all equipment containing PCBs. Should such a phase-out of all or some PCB-containing equipment. The EPA is planningbe required, the costs, which are subject to propose the revised regulations in 2015. PCBs are found, in varying degrees, in all of the Registrants' operations. The Registrants cannot predict at this time the outcome of these proposed EPA regulations and what impact, if any, they would have on their facilities, but the costsrate recovery, could be significant.
(PPL and PPL Energy Supply)
A subsidiary of PPL Energy Supply has investigated alternatives to exclude fish from the discharge channel at its Brunner Island plant. In June 2012, a Consent Order and Agreement (COA) with the PADEP was signed, allowing the subsidiary to study a change in a cooling tower operational method that may keep fish from entering the channel. The COA required a retrofit of impingement control technology at the intakes to the cooling towers, at a cost that would have been significant. Based on the results of the first year of study, the PADEP has suggested closing the COA and writing a new COA to resolve the issue. PPL is in negotiations with the agency at this time. PPL and PPL Energy Supply cannot predict at this time the outcome of the proposed new COA and what impact, if any, it would have on their facilities, but the costs could be significant.
In May 2010, the Kentucky Waterways Alliance and other environmental groups filed a petition with the Kentucky Energy and Environment Cabinet challenging the Kentucky Pollutant Discharge Elimination System permit issued in April 2010, which covers water discharges from the Trimble County plant. In November 2010, the Cabinet issued a final order upholding the permit. In December 2010, the environmental groups appealed the order to the Trimble Circuit Court, but the case was subsequently transferred to the Franklin Circuit Court. In September 2013, the court reversed the Cabinet order upholding the permit and remanded the permit to the agency for further proceedings. In October 2013, LG&E filed a notice of appeal with the Kentucky Court of Appeals. PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible losses, if any.
Superfund and Other Remediation(All Registrants)
PPL Electric is potentially responsible for a share of the costs at several sites listed by the EPA under the federal Superfund program, including the Columbia Gas Plant site the Metal Bank site and the Ward TransformerBrodhead site. Clean-up actions have been or are being undertaken at all of these sites, the costs of which have not been, and are not expected to be, significant to PPL Electric. However, should the EPA require different or additional measures in the future, or should PPL Electric's share
PPL Electric, LG&E and KU are investigating, responding to agency inquiries, remediating, or have completed the remediation of, several sites that were not addressed under a regulatory program such as Superfund, but for which PPL Electric, LG&E and KU may be liable for remediation. These include a number of former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated or currently owned by predecessors or affiliates of PPL Electric, LG&E and KU. To date, the costs of these sites have not been significant.
There are additional sites, formerly owned or operated by PPL Electric, LG&E and KU predecessors or affiliates, for whichaffiliates. PPL Electric, LG&E and KU lack information on current site conditionsthe condition of such additional sites and are therefore unable to predict what, ifestimate any potential liability they may have.have or a range of reasonably possible losses, if any, related to these matters.
At December 31, 2016, PPL Electric had a recorded liability of $10 million representing its best estimate of the probable loss incurred to remediate the sites noted above. Depending on the outcome of investigations at sites where investigations have not begun or been completed, or developments at sites for which PPL Electric, LG&E and KU currently lack information theis incomplete, additional costs of remediation and other liabilities could be material. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of reasonably possible losses, if any, relatedincurred; however, such costs are not expected to these matters.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 of the EPA's evaluation, individual states may establish stricter standards for water quality and soil cleanup. This could require several PPL subsidiaries to take more extensive assessment and remedial actions at former coal gas manufacturing plants. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of reasonably possible losses, if any, related to these matters.
Under the Pennsylvania Clean Streams Law, subsidiaries of PPL Generation are obligated to remediate acid mine drainage at former mine sites and may be required to take additional steps to prevent potential acid mine drainage at previously capped refuse piles. One PPL Generation subsidiary was pumping mine water at two former mine sites and treating water at one of these sites. Another PPL Generation subsidiary has installed a passive wetlands treatment system at a third site. In December 2013, PPL Generation subsidiaries reached an agreement of sale for one of the two pumping mine sites and the passive wetlands treatment system at the third site. These sales were finalized in the fourth quarter of 2014 and responsibilities were transferred to the new owner. PPL Generation subsidiaries will no longer be responsible for operating and maintaining these two sites. At December 31, 2014, PPL Energy Supply had accrued a discounted liability of $19 million to cover the costs of pumping and treating groundwater at the remaining mine site for 50 years. PPL Energy Supply discounted this liability based on a risk-free rate of 8.41% at the time of the mine closure. Expected undiscounted payments are estimated to be insignificant for each of the years 2015 through 2019 and $93 million for work after 2019.
From time to time, PPL Energy Supply, PPL Electric, LG&E and KUPPL's subsidiaries in the United States undertake testing, monitoring or remedial action in response to notices of violations, spills or other releases at various on-site and off-site locations, negotiate with the EPA and state and local agencies regarding actions necessary for compliance with applicable requirements, negotiate with property owners and other third parties alleging impacts from PPL's operations and undertake similar actions necessary to resolve environmental matters that arise in the course of normal operations. Based on analyses to date, resolution of these environmental matters is not expected to have a significant adverse impact on these Registrants' operations.the operations of PPL Electric, LG&E and KU.
Future cleanup or remediation work at sites currently under review, or at sites not currentlyyet identified, may result in significant additional costs for PPL, PPL Electric, LKE, LG&E and KU. Insurance policies maintained by LKE, LG&E and KU may be applicable to certain of the Registrants. costs or other obligations related to these matters but the amount of insurance coverage or reimbursement cannot be estimated or assured.
Environmental Matters - WPD European Union Creosote Ban(PPL)
In 2011, the European Commission amended the European Union Biocides Directive to ban the use of creosote in contact with soil. Creosote is a wood preservative used to extend the life of wooden poles that support power lines. Although European Union member countries were required to pass implementing laws by 2012, the U.K. has not passed an implementing law and there are no legal penalties for failing to do so. The recent U.K. referendum in favor of the U.K.'s departure from the European Union further reduces the likelihood that the U.K. will implement the European Union directive. In the unlikely event that the U.K. were to ban the use of creosote, WPD's distribution businessescreosote-treated wood poles would need to be replaced with an acceptable alternative at the time of routine replacement. Although the aggregate cost to replace poles could be significant, it would be incurred as poles are replaced in the ordinary course and would be subject to environmental regulatory and statutory requirements. PPL believes thatrate recovery. WPD has taken and continues1.4 million wood poles in its system. There are currently no alternative wood preservatives available that are acceptable to take measures to comply with the applicable laws and governmental regulations for the protection of the environment.industry and/or regulators.
Other
Nuclear Insurance(PPL and PPL Energy Supply)
The Price-Anderson Act is a United States Federal law governing liability-related issues and ensures the availability of funds for public liability claims arising from an incident at any U.S.-licensed nuclear facility. It also seeks to limit the liability of nuclear reactor owners for such claims from any single incident. At December 31, 2014, the liability limit per incident is $13.6 billion for such claims which is funded by insurance coverage from American Nuclear Insurers and an industry assessment program.All Registrants)
Under the industry assessment program, in the event of a nuclear incident at any of the reactors covered by The Price-Anderson Act, as amended, PPL Susquehanna could be assessed up to $255 million per incident, payable at $38 million per year.
Additionally, PPL Susquehanna purchases property insurance programs from NEIL, an industry mutual insurance company of which PPL Susquehanna is a member. At December 31, 2014, facilities at the Susquehanna plant are insured against property damage losses up to $2.0 billion. PPL Susquehanna also purchases an insurance program that provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.
Under the NEIL property and replacement power insurance programs, PPL Susquehanna could be assessed retrospective premiums in the event of the insurers' adverse loss experience. This maximum assessment is $46 million.
(For PPL PPL Energy Supply and PPL Electric)
In May 2014, PPL's, PPL Energy Supply's and PPL Electric's bargaining agreement with its largest IBEW local expired. PPL, PPL Energy Supply and PPL Electric, finalized a newlabor agreement negotiations with the IBEW commenced in February 2017. The current three-year agreement expires in May 2017.
LG&E and KU have three-year labor agreements with the IBEW, which expire in November 2017 and August 2018. The KU IBEW agreement with IBEW local 1600includes a wage reopener in May 2014 and the2017. KU has 54 employees that are represented by a USWA labor union, under an agreement was ratifiedthat expires in early June 2014.August 2017.
At December 31, 2014,2016, the following total separation benefits were recorded.
expiring labor agreements covered the following.
| | | | | | | PPL Energy | | | PPL |
| | | | PPL | | | Supply | | | Electric |
| | | | | | | | | | |
| Pension Benefits | | $ | 13 | | $ | 11 | | $ | 2 |
| Severance Compensation | | | 7 | | | 6 | | | 1 |
| Total Separation Benefits | | $ | 20 | | $ | 17 | | $ | 3 |
| | | | | | | | | | |
| Number of Employees | | | 123 | | | 105 | | | 17 |
|
| | | | | | | |
| | | | Number of Union Employees | | Percentage of Total Workforce |
| PPL | | | 2,173 |
| | 17 | % |
| PPL Electric | | | 1,150 |
| | 63 | % |
| LKE | | | 819 |
| | 23 | % |
| LG&E | | | 696 |
| | 68 | % |
| KU | | | 123 |
| | 13 | % |
The separation benefits are included in "Other operation and maintenance" onRegistrants cannot predict the Statement of Income. The liability for pension benefits is included in "Accrued pension obligations" on the Balance Sheet at December 31, 2014. Alloutcome of the severance compensation was paid in 2014. The remaining terms of the newunion labor agreement are not expected to have a significant impact on the financial results of PPL, PPL Energy Supply or PPL Electric.negotiations.
Guarantees and Other Assurances
(All Registrants)
In the normal course of business, the Registrants enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies. These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.
(PPL)
PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding, a wholly owned finance subsidiary of PPL.Funding.
(All Registrants)
The table below details guarantees provided as of December 31, 2014.2016. "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", "Indemnifications for sales of assets" and "Indemnification of lease termination and other divestitures." The total recorded liability at December 31, 20142016 was $38$22 million for PPL $13 million for PPL Energy Supply and $19$17 million for LKE. The total recorded liability at December 31, 20132015 was $26$25 million for PPL and $19$18 million for LKE. For reporting purposes, on a consolidated basis, all guarantees of PPL Energy Supply (other than the letters of credit), PPL Electric, LKE, LG&E and KU also apply to PPL, and all guarantees of LG&E and KU also apply to LKE. |
| | | | | |
| | Exposure at
December 31, 2016 | | Expiration Date |
| PPL | | | |
| Indemnifications related to the WPD Midlands acquisition | |
| (a) | |
| WPD indemnifications for entities in liquidation and sales of assets | $ | 10 |
| (b) | 2019 |
| WPD guarantee of pension and other obligations of unconsolidated entities | 104 |
| (c) | |
| PPL Electric | | | |
| Guarantee of inventory value | 14 |
| (d) | 2018 |
| LKE | | | |
| Indemnification of lease termination and other divestitures | 301 |
| (e) | 2021 - 2023 |
| LG&E and KU | | | |
| LG&E and KU guarantee of shortfall related to OVEC | |
| (f) | |
| | | | Exposure at | | Expiration |
| | | | December 31, 2014 | | Date |
| PPL | | | | | | |
| Indemnifications related to the WPD Midlands acquisition | | | | (a) | | |
| WPD indemnifications for entities in liquidation and sales of assets | | $ | 12 | (b) | | 2018 |
| WPD guarantee of pension and other obligations of unconsolidated entities | | | 119 | (c) | | |
| | | | | | | | |
| PPL Energy Supply | | | | | | |
| Letters of credit issued on behalf of affiliates | | | 25 | (d) | | 2015 - 2016 |
| Indemnifications for sales of assets | | | 1,150 | (e) | | 2016 - 2025 |
| | | | | | | | |
| PPL Electric | | | | | | |
| Guarantee of inventory value | | | 34 | (f) | | 2017 |
| | | | | | | | |
| LKE | | | | | | |
| Indemnification of lease termination and other divestitures | | | 301 | (g) | | 2021 - 2023 |
| | | | | | | | |
| LG&E and KU | | | | | | |
| LG&E and KU guarantee of shortfall related to OVEC | | | | (h) | | |
| |
| (a) | | Indemnifications related to certain liabilities, including a specific unresolved tax issue and those relating to properties and assets owned by the seller that were transferred to WPD Midlands in connection with the acquisition. A cross indemnity has been received from the seller on the tax issue. The maximum exposure and expiration of these indemnifications cannot be estimated because the maximum potential liability is not capped and the expiration date is not specified in the transaction documents. |
| |
| (b) | Indemnification to the liquidators and certain others for existing liabilities or expenses or liabilities arising during the liquidation process. The indemnifications are limited to distributions made from the subsidiary to its parent either prior or subsequent to liquidation or are not explicitly stated in the agreements. The indemnifications generally expire two to seven years subsequent to the date of dissolution of the entities. The exposure noted only includes those cases where the agreements provide for specific limits. |
In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters or have agreed to continue their obligations
under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Additionally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.
| In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties. |
| (c) | Relates to certain obligations of discontinued or modified electric associations that were guaranteed at the time of privatization by the participating members. Costs are allocated to the members and can be reallocated if an existing member becomes insolvent. At December 31, 2014,2016, WPD has recorded an estimated discounted liability for which the expected payment/performance is probable. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements, and as a result, the exposure has been estimated. |
(d) | Standby letter of credit arrangements under PPL Energy Supply's credit facilities for the purposes of protecting various third parties against nonperformance by PPL. This is not a guarantee by PPL on a consolidated basis. |
(e) | Indemnifications are governed by the specific sales agreement and include breach of the representations, warranties and covenants, and liabilities for certain other matters. PPL Energy Supply's maximum exposure with respect to certain indemnifications and the expiration of the indemnifications cannot be estimated because the maximum potential liability is not capped by the transaction documents and the expiration date is based on the applicable statute of limitations. The exposure and expiration date noted is based on those cases in which the agreements provide for specific limits. The exposure at December 31, 2014 includes amounts related to the sale of the Montana Hydroelectric facilities. See Note 8 for additional information related to the sale. |
(f)(d) | A third party logistics firm provides inventory procurement and fulfillment services. The logistics firm has title to the inventory, however, upon termination of the contracts, PPL Electric has guaranteed to purchase any remaining inventory that has not been used or sold. |
(g) | |
| (e) | LKE provides certain indemnifications the most significant of which relate to the termination of the WKE lease in July 2009. These guarantees covercovering the due and punctual payment, performance and discharge by each party of its respective present and future obligations. The most comprehensive of these WKE-related guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under the WKEa 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a cumulative maximum exposure of $200 million. Certainmillion, exclusive of certain items such as government fines and penalties fall outsidethat may exceed the cumulative cap.maximum. Another WKE-related LKE guarantee covers other indemnifications related to the purchase price of excess power, has a term expiring in 2023, and a maximum exposure of $100 million. In May 2012, LKE's indemnitee received an unfavorable arbitration panel's decision interpreting this matter, which granted LKE's indemnitee certain rights of first refusal to purchase excess power at a market-based price rather than at an absolute fixed price.matter. In January 2013, LKE's indemnitee commenced a proceeding in the Kentucky Court of Appeals appealing a December 2012 order of the Henderson Circuit Court, confirming the arbitration award. In MayOctober 2014, the Court of Appeals issued an opinion affirming the lower court decision. LKE's indemnitee filed a Motionmotion for Discretionary Reviewdiscretionary review with the Kentucky Supreme Court on October 2, 2014.seeking to overturn the arbitration decision, and such motion was denied by the court in September 2015. In September 2015, the counterparty issued a demand letter to LKE's indemnitee. In February 2016, the counterparty filed a complaint in Henderson, Kentucky Circuit Court, seeking an award of damages in the matter. The proceeding is currently in the discovery phase. LKE does not believe appropriate contractual, legal or commercial grounds exist for the claim made. LKE believes its indemnification obligations in thisthe WKE matter remain subject to various uncertainties, including potential for additional legal challenges regarding the arbitration decisionand contractual developments, as well as future prices, availability and demand for the subject excess power. LKE continues to evaluate various legal and commercial options with respect to this indemnification matter. TheAlthough the parties have also conducted certain settlement discussions, the ultimate outcomes of the WKE termination-related indemnifications cannot be predicted at this time. In the second quarter of 2012, LKE adjusted its estimated liability for the WKE-related indemnifications by $9 million ($5 million after-tax), which is reflected in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statement of Income. The adjustment was recorded in the Kentucky Regulated segment for PPL. 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;maximum. LKE could be required to perform on these indemnifications in the event of covered losses or liabilities being claimed by an indemnified party. However, LKE is not aware of formal claims under such indemnities made by any party at this time. LKE cannot predict the ultimate outcomes of the various indemnification circumstances,scenarios, but does not currently expect such outcomes to result in significant losses above the amounts recorded. |
(h) | |
| (f) | Pursuant to the OVEC power purchase contract, LG&E and KU are obligated to pay for their share of OVEC's excess debt service, post-retirement and decommissioning costs, as well as any shortfall from amounts currently included within a demand charge designed and currently expected to cover these costs over the term of the contract. LKE's proportionate share of OVEC's outstanding debt was $125$123 million at December 31, 2014,2016, consisting of LG&E's share of $87$85 million and KU's share of $38 million. The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" above for additional information on the OVEC power purchase contract. In connection with recent credit market related developments at OVEC or certain of its sponsors, such parties, including LG&E and KU, are analyzing certain potential additional credit support actions to preserve OVEC's access to credit markets or mitigate risks or adverse impacts relating thereto, including increased interest costs and accelerated maturities of OVEC's existing short and long-term debt. The ultimate outcome of these matters, including any potential impact on LG&E's and KU's obligations relating to OVEC debt under the power purchase contract cannot be predicted. |
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.
14. Related Party Transactions
PLR Contracts/PurchasePurchases of Accounts Receivable(PPL Energy Supply and PPL Electric)
PPL Electric holds competitive solicitations for PLR generation supply. PPL EnergyPlus has beenwas awarded a portion of the PLR generation supply through these competitive solicitations. The sales and purchases betweenfrom PPL EnergyPlus and PPL Electric are included in thePPL Electric's Statements of Income as "Unregulated wholesale energy to affiliate" by PPL Energy Supply and as "Energy purchases from affiliate" by PPL Electric.
Underthrough May 31, 2015, the standard Default Service Supply Master Agreement for the solicitation process,period through which PPL Electric requires all suppliers to post collateral once credit exposures exceed defined credit limits.and PPL EnergyPlus is required to post collateral with PPL Electric when: (a) the market price of electricity to be delivered by PPL EnergyPlus exceeds the contract price for the forecasted quantity of electricity to be delivered and (b) this market price exposure exceeds a contractual credit limit. During the second quarter of 2014, PPL Energy Supply experienced a downgrade in its corporate credit ratings to below investment grade.were affiliated entities. As a result of the downgradeJune 1, 2015 spinoff of PPL Energy Supply as guarantor,and creation of Talen Energy, PPL EnergyPlus (renamed Talen Energy Marketing) is no longer has an established credit limit. At Decemberaffiliate of PPL Electric. PPL Electric's purchases from Talen Energy Marketing subsequent to May 31, 2014, PPL EnergyPlus was not required to post collateral. In no instance is PPL Electric required to post collateral to suppliers under these supply contracts.2015 are included as purchases from an unaffiliated third party.
PPL Electric's customers may choose an alternative supplier for their generation supply. See Note 1 for additional information regarding PPL Electric's purchases of accounts receivable from alternative suppliers, including Talen Energy Marketing. See Note 8 for additional information regarding the spinoff of PPL EnergyPlus.Energy Supply.
At December 31, 2014, PPL Energy Supply had a net credit exposure of $25 million from PPL Electric from its commitment as a PLR supplier and from the sale of its accounts receivable to PPL Electric.
Wholesale Sales and Purchases(LG&E and KU)
LG&E and KU jointly dispatch their generation units with the lowest cost generation used to serve their retail customers. When LG&E has excess generation capacity after serving its own retail customers and its generation cost is lower than that of KU, KU purchases electricity from LG&E. When KU has excess generation capacity after serving its own retail customers and its
generation cost is lower than that of LG&E, LG&E purchases electricity from KU. These transactions are reflected in the Statements of Income as "Electric revenue from affiliate" and "Energy purchases from affiliate" and are recorded at a price equal to the seller's fuel cost.cost plus any split savings. Savings realized from such intercompany transactions are shared equally between both companies. The volume of energy each company has to sell to the other is dependent on its retail customers' needs and its available generation.
Support Costs (All Registrants except PPL)PPL Electric, LKE, LG&E and KU)
Both PPL Services, PPL EU Services and LKS provide thetheir respective PPL, PPL Electric and LKE subsidiaries and each other with administrative, management and support services. Where applicable,For all service companies, the costs of these services are charged to the respective subsidiariesrecipients as direct support costs. General costs that cannot be directly attributed to a specific subsidiaryentity are allocated and charged to the respective subsidiariesrecipients as indirect support costs. PPL Services usesand PPL EU Services use a three-factor methodology that includes the subsidiaries'applicable recipients' invested capital, operation and maintenance expenses and number of employees to allocate indirect costs. LKS bases its indirect allocations on the subsidiaries' number of employees, total assets, revenues, number of customers and/or other statistical information.
PPL Services, PPL EU Services and LKS charged the following amounts for the years ended December 31, and believe these amounts are reasonable, including amounts applied to accounts that are further distributed between capital and expense. expense on the books of the recipients, based on methods that are believed to be reasonable. |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| PPL Electric from PPL Services | $ | 132 |
| | $ | 125 |
| | $ | 151 |
|
| LKE from PPL Services | 18 |
| | 16 |
| | 15 |
|
| PPL Electric from PPL EU Services | 69 |
| | 60 |
| | — |
|
| LG&E from LKS | 178 |
| | 155 |
| | 140 |
|
| KU from LKS | 194 |
| | 185 |
| | 165 |
|
| | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | |
| PPL Energy Supply from PPL Services | | $ | 218 | | $ | 218 | | $ | 212 |
| PPL Electric from PPL Services | | | 151 | | | 146 | | | 157 |
| LKE from PPL Services | | | 15 | | | 15 | | | 15 |
| LG&E from LKS | | | 203 | | | 216 | | | 186 |
| KU from LKS | | | 225 | | | 207 | | | 161 |
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 LKE and LG&E and KU are reimbursed through LKS.
As a result of the anticipated spinoff of PPL Energy Supply, a centralized services company has been formed, PPL EU Services. Beginning in 2015, it will provide the majority of corporate functions such as financial, supply chain, human resources and information technology services to PPL Electric. Most of PPL EU Services' costs will be charged directly to PPL Electric, with limited amounts charged back to PPL Services and its affiliates. PPL Services will continue to provide certain limited corporate functions.
Intercompany Borrowings
(PPL Electric)
A PPL Electric subsidiary periodically holds revolving demand notes from certain affiliates. No balance was outstanding at December 31, 2014. At December 31, 2013, $150 million was outstanding and was reflected in "Notes receivable from affiliate" on the Balance Sheet. The interest rates on borrowings are equal to one-month LIBOR plus a spread. The interest rate on the outstanding borrowing at December 31, 2013, was 1.92%. Interest earned on these revolving facilities was not significant for 2014, 2013 and 2012.
LKE maintains a $225 million revolving line of credit with a PPL Energy Funding subsidiary whereby LKE can borrow funds on a short-term basis at market-based rates. In October 2013, the revolving line of credit was reduced by $75 million and the limit as of December 31, 2013 was $225 million. The interest rates on borrowings are equal to one-month LIBOR plus a spread. At December 31, 2014, $412016 and 2015, $163 million wasand $54 million, respectively, were outstanding and was reflected in "Notes payable with affiliates" on the Balance Sheet. No balance was outstanding at December 31, 2013.Sheets. The interest rate on the outstanding borrowingborrowings at December 31, 20142016 and 2015 was 1.65%2.12% and 1.74%. Interest expense on the revolving line of credit was not significant for 2014, 20132016, 2015 or 2012.2014.
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. No balance was outstanding at December 31, 2014. At December 31, 2013, $70 million was outstanding2016 and was reflected in "Notes receivable from affiliates" on the Balance Sheet.2015. The interest rate on the
loan based on the PPL affiliate's credit rating is currently equal to one-month LIBOR plus a spread. The interest rate on the outstanding borrowing at December 31, 2013 was 2.17%. Interest income on this note was not significant for 2014, 20132016, 2015 or 2012.2014.
In November 2015, LKE entered into a $400 million ten-year-note with a PPL affiliate with an interest rate of 3.5%. The proceeds were used to repay the entire $400 million principal amount of its 2.125% Senior Unsecured Notes which matured in November 2015. At December 31, 2016 and 2015, the note was reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on this note was $14 million for 2016. Interest expense on this note was not significant for 2015. Intercompany Derivatives (LKE,(LKE, LG&E and KU)
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL. These hedging instruments have terms identical to forward-starting swaps entered into by PPL with third parties. See Note 17 for additional information on intercompany derivatives.
Other(All Registrants except PPL)PPL Electric, LKE, LG&E and KU)
See Note 1 for discussions regarding the intercompany tax sharing agreement (for PPL Energy Supply, PPL Electric, LKE, LG&E and KU) and intercompany allocations of stock-based compensation expense (for PPL Energy Supply, PPL Electric and LKE). For PPL Energy Supply, PPL Electric, LG&E and KU, see Note 11 for discussions regarding intercompany allocations associated with defined benefits.
15. Other Income (Expense) - net |
| | | | | | | | | | | | |
| (PPL) |
| | | | | | | | | | | | |
| The breakdown of "Other Income (Expense) - net" for the years ended December 31 was: |
| | | | | PPL |
| | | | | 2014 | | 2013 | | 2012 |
| Other Income | | | | | | | | | |
| | Earnings on securities in NDT funds | | $ | 28 | | $ | 23 | | $ | 22 |
| | Interest income | | | 5 | | | 3 | | | 5 |
| | AFUDC - equity component | | | 11 | | | 10 | | | 10 |
| | Miscellaneous | | | 12 | | | 18 | | | 5 |
| | Total Other Income | | | 56 | | | 54 | | | 42 |
| Other Expense | | | | | | | | | |
| | Economic foreign currency exchange contracts (Note 17) | | | (121) | | | 38 | | | 52 |
| | Charitable contributions | | | 30 | | | 25 | | | 10 |
| | Transaction costs related to spinoff of PPL Energy Supply (Note 8) | | | 19 | | | | | | |
| | Miscellaneous | | | 10 | | | 14 | | | 19 |
| | Total Other Expense | | | (62) | | | 77 | | | 81 |
| Other Income (Expense) - net | | $ | 118 | | $ | (23) | | $ | (39) |
"15. Other Income (Expense) - net" for 2014, 2013 and 2012 for PPL Energy Supply was primarily earnings on securities in NDT funds.net
(PPL Electric)(PPL)
"Other Income (Expense) - net" for 2014, 2013 and 2012 for PPL Electric was primarily the equity componentThe breakdown of AFUDC.
(LKE, LG&E and KU)
"Other Income (Expense) - net" for 2014 and 2013 for LKE, LG&E and KU was not significant. "Other Income (Expense) - net" for 2012 for LKE and KU was primarily losses from an equity method investment and for LG&E was not significant.the years ended December 31, was:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Other Income | |
| | |
| | |
|
| Economic foreign currency exchange contracts (Note 17) | $ | 384 |
| | $ | 122 |
| | $ | 121 |
|
| Interest income | 3 |
| | 4 |
| | 1 |
|
| AFUDC - equity component | 19 |
| | 14 |
| | 11 |
|
| Miscellaneous | 6 |
| | 6 |
| | 7 |
|
| Total Other Income | 412 |
| | 146 |
| | 140 |
|
| Other Expense | |
| | |
| | |
|
| Charitable contributions | 9 |
| | 21 |
| | 27 |
|
| Miscellaneous | 13 |
| | 17 |
| | 8 |
|
| Total Other Expense | 22 |
| | 38 |
| | 35 |
|
| Other Income (Expense) - net | $ | 390 |
| | $ | 108 |
| | $ | 105 |
|
16. Fair Value Measurements and Credit Concentration
(All Registrants)
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). A market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models), and/or a cost approach (generally, replacement cost) are used to measure the fair value of an asset or liability, as appropriate. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk. The fair value of a group of financial assets and liabilities is measured on a net basis. Transfers between levels are recognized at end-of-reporting-period values. During 20142016 and 2013,2015, there were no transfers between Level 1 and Level 2. See Note 1 for information on the levels in the fair value hierarchy.
Recurring Fair Value Measurements
The assets and liabilities measured at fair value were: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| PPL | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Assets | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 341 |
| | $ | 341 |
| | $ | — |
| | $ | — |
| | $ | 836 |
| | $ | 836 |
| | $ | — |
| | $ | — |
|
| Restricted cash and cash equivalents (a) | 26 |
| | 26 |
| | — |
| | — |
| | 33 |
| | 33 |
| | — |
| | — |
|
| Price risk management assets (b): | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Foreign currency contracts | 211 |
| | — |
| | 211 |
| | — |
| | 209 |
| | — |
| | 209 |
| | — |
|
| Cross-currency swaps | 188 |
| | — |
| | 188 |
| | — |
| | 86 |
| | — |
| | 86 |
| | — |
|
| Total price risk management assets | 399 |
| | — |
| | 399 |
| | — |
| | 295 |
| | — |
| | 295 |
| | — |
|
| Auction rate securities (c) | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
| Total assets | $ | 766 |
| | $ | 367 |
| | $ | 399 |
| | $ | — |
| | $ | 1,166 |
| | $ | 869 |
| | $ | 295 |
| | $ | 2 |
|
| | | | | | | | | | | | | | | | |
| | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| PPL | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | $ | 1,751 | | $ | 1,751 | | | | | | | | $ | 1,102 | | $ | 1,102 | | | | | | |
| | Short-term investments | | | 120 | | | 120 | | | | | | | | | | | | | | | | | | |
| | Restricted cash and cash equivalents (a) | | | 224 | | | 224 | | | | | | | | | 134 | | | 134 | | | | | | |
| | Price risk management assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Energy commodities | | | 1,318 | | | 6 | | $ | 1,171 | | $ | 141 | | | 1,188 | | | 3 | | $ | 1,123 | | $ | 62 |
| | | Interest rate swaps | | | | | | | | | | | | | | | 91 | | | | | | 91 | | | |
| | | Foreign currency contracts | | | 130 | | | | | | 130 | | | | | | | | | | | | | | | |
| | | Cross-currency swaps | | | 29 | | | | | | 28 | | | 1 | | | | | | | | | | | | |
| | Total price risk management assets | | | 1,477 | | | 6 | | | 1,329 | | | 142 | | | 1,279 | | | 3 | | | 1,214 | | | 62 |
| | NDT funds: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash and cash equivalents | | | 19 | | | 19 | | | | | | | | | 14 | | | 14 | | | | | | |
| | | Equity securities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.S. large-cap | | | 611 | | | 454 | | | 157 | | | | | | 547 | | | 409 | | | 138 | | | |
| | | | U.S. mid/small-cap | | | 89 | | | 37 | | | 52 | | | | | | 81 | | | 33 | | | 48 | | | |
| | | Debt securities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.S. Treasury | | | 99 | | | 99 | | | | | | | | | 95 | | | 95 | | | | | | |
| | | | U.S. government sponsored agency | | | 9 | | | | | | 9 | | | | | | 6 | | | | | | 6 | | | |
| | | | Municipality | | | 76 | | | | | | 76 | | | | | | 77 | | | | | | 77 | | | |
| | | | Investment-grade corporate | | | 42 | | | | | | 42 | | | | | | 38 | | | | | | 38 | | | |
| | | | Other | | | 3 | | | | | | 3 | | | | | | 5 | | | | | | 5 | | | |
| | | Receivables (payables), net | | | 2 | | | | | | 2 | | | | | | 1 | | | (1) | | | 2 | | | |
| | Total NDT funds | | | 950 | | | 609 | | | 341 | | | | | | 864 | | | 550 | | | 314 | | | |
| | Auction rate securities (b) | | | 10 | | | | | | | | | 10 | | | 19 | | | | | | | | | 19 |
| Total assets | | $ | 4,532 | | $ | 2,710 | | $ | 1,670 | | $ | 152 | | $ | 3,398 | | $ | 1,789 | | $ | 1,528 | | $ | 81 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| | Price risk management liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Energy commodities | | $ | 1,217 | | $ | 5 | | $ | 1,182 | | $ | 30 | | $ | 1,070 | | $ | 4 | | $ | 1,028 | | $ | 38 |
| | | Interest rate swaps | | | 156 | | | | | | 156 | | | | | | 36 | | | | | | 36 | | | |
| | | Foreign currency contracts | | | 2 | | | | | | 2 | | | | | | 106 | | | | | | 106 | | | |
| | | Cross-currency swaps | | | 3 | | | | | | 3 | | | | | | 32 | | | | | | 32 | | | |
| | Total price risk management liabilities | | $ | 1,378 | | $ | 5 | | $ | 1,343 | | $ | 30 | | $ | 1,244 | | $ | 4 | | $ | 1,202 | | $ | 38 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | $ | 352 | | $ | 352 | | | | | | | | $ | 239 | | $ | 239 | | | | | | |
| | Restricted cash and cash equivalents (a) | | | 193 | | | 193 | | | | | | | | | 85 | | | 85 | | | | | | |
| | Price risk management assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Energy commodities | | | 1,318 | | | 6 | | $ | 1,171 | | $ | 141 | | | 1,188 | | | 3 | | $ | 1,123 | | $ | 62 |
| | Total price risk management assets | | | 1,318 | | | 6 | | | 1,171 | | | 141 | | | 1,188 | | | 3 | | | 1,123 | | | 62 |
| | NDT funds: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash and cash equivalents | | | 19 | | | 19 | | | | | | | | | 14 | | | 14 | | | | | | |
| | | Equity securities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.S. large-cap | | | 611 | | | 454 | | | 157 | | | | | | 547 | | | 409 | | | 138 | | | |
| | | | U.S. mid/small-cap | | | 89 | | | 37 | | | 52 | | | | | | 81 | | | 33 | | | 48 | | | |
| | | Debt securities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.S. Treasury | | | 99 | | | 99 | | | | | | | | | 95 | | | 95 | | | | | | |
| | | | U.S. government sponsored agency | | | 9 | | | | | | 9 | | | | | | 6 | | | | | | 6 | | | |
| | | | Municipality | | | 76 | | | | | | 76 | | | | | | 77 | | | | | | 77 | | | |
| | | | Investment-grade corporate | | | 42 | | | | | | 42 | | | | | | 38 | | | | | | 38 | | | |
| | | | Other | | | 3 | | | | | | 3 | | | | | | 5 | | | | | | 5 | | | |
| | | Receivables (payables), net | | | 2 | | | | | | 2 | | | | | | 1 | | | (1) | | | 2 | | | |
| | Total NDT funds | | | 950 | | | 609 | | | 341 | | | | | | 864 | | | 550 | | | 314 | | | |
| | Auction rate securities (b) | | | 8 | | | | | | | | | 8 | | | 16 | | | | | | | | | 16 |
| Total assets | | $ | 2,821 | | $ | 1,160 | | $ | 1,512 | | $ | 149 | | $ | 2,392 | | $ | 877 | | $ | 1,437 | | $ | 78 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| | Price risk management liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Energy commodities | | $ | 1,217 | | $ | 5 | | $ | 1,182 | | $ | 30 | | $ | 1,070 | | $ | 4 | | $ | 1,028 | | $ | 38 |
| | Total price risk management liabilities | | $ | 1,217 | | $ | 5 | | $ | 1,182 | | $ | 30 | | $ | 1,070 | | $ | 4 | | $ | 1,028 | | $ | 38 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | $ | 214 | | $ | 214 | | | | | | | | $ | 25 | | $ | 25 | | | | | | |
| | Restricted cash and cash equivalents (c) | | | 3 | | | 3 | | | | | | | | | 12 | | | 12 | | | | | | |
| Total assets | | $ | 217 | | $ | 217 | | | | | | | | $ | 37 | | $ | 37 | | | | | | |
| LKE | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | $ | 21 | | $ | 21 | | | | | | | | $ | 35 | | $ | 35 | | | | | | |
| | Cash collateral posted to counterparties (d) | | | 21 | | | 21 | | | | | | | | | 22 | | | 22 | | | | | | |
| Total assets | | $ | 42 | | $ | 42 | | | | | | | | $ | 57 | | $ | 57 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| | Price risk management liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate swaps | | $ | 114 | | | | | $ | 114 | | | | | $ | 36 | | | | | $ | 36 | | | |
| | Total price risk management liabilities | | $ | 114 | | | | | $ | 114 | | | | | $ | 36 | | | | | $ | 36 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | $ | 10 | | $ | 10 | | | | | | | | $ | 8 | | $ | 8 | | | | | | |
| | Cash collateral posted to counterparties (d) | | | 21 | | | 21 | | | | | | | | | 22 | | | 22 | | | | | | |
| Total assets | | $ | 31 | | $ | 31 | | | | | | | | $ | 30 | | $ | 30 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| | Price risk management liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate swaps | | $ | 81 | | | | | $ | 81 | | | | | $ | 36 | | | | | $ | 36 | | | |
| | Total price risk management liabilities | | $ | 81 | | | | | $ | 81 | | | | | $ | 36 | | | | | $ | 36 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | $ | 11 | | $ | 11 | | | | | | | | $ | 21 | | $ | 21 | | | | | | |
| Total assets | | $ | 11 | | $ | 11 | | | | | | | | $ | 21 | | $ | 21 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| | Price risk management liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate swaps | | $ | 33 | | | | | $ | 33 | | | | | | | | | | | | | | | |
| | Total price risk management liabilities | | $ | 33 | | | | | $ | 33 | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Liabilities | |
| | | | |
| | |
| | | | |
| | |
| | |
|
| Price risk management liabilities (b): | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Interest rate swaps | $ | 31 |
| | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 71 |
| | $ | — |
| | $ | 71 |
| | $ | — |
|
| Foreign currency contracts | 27 |
| | — |
| | 27 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
|
| Total price risk management liabilities | $ | 58 |
| | $ | — |
| | $ | 58 |
| | $ | — |
| | $ | 72 |
| | $ | — |
| | $ | 72 |
| | $ | — |
|
| | | | | | | | | | | | | | | | |
| PPL Electric | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Assets | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Cash and cash equivalents | $ | 13 |
| | $ | 13 |
| | $ | — |
| | $ | — |
| | $ | 47 |
| | $ | 47 |
| | $ | — |
| | $ | — |
|
| Restricted cash and cash equivalents (a) | 2 |
| | 2 |
| | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | — |
|
| Total assets | $ | 15 |
| | $ | 15 |
| | $ | — |
| | $ | — |
| | $ | 49 |
| | $ | 49 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | |
| LKE | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Assets | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 13 |
| | $ | 13 |
| | $ | — |
| | $ | — |
| | $ | 30 |
| | $ | 30 |
| | $ | — |
| | $ | — |
|
| Cash collateral posted to counterparties (d) | 3 |
| | 3 |
| | — |
| | — |
| | 9 |
| | 9 |
| | — |
| | — |
|
| Total assets | $ | 16 |
| | $ | 16 |
| | $ | — |
| | $ | — |
| | $ | 39 |
| | $ | 39 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | |
| Liabilities | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Price risk management liabilities: | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Interest rate swaps | $ | 31 |
| | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 47 |
| | $ | — |
| | $ | 47 |
| | $ | — |
|
| Total price risk management liabilities | $ | 31 |
| | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 47 |
| | $ | — |
| | $ | 47 |
| | $ | — |
|
| | | | | | | | | | | | | | | | |
| LG&E | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Assets | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Cash and cash equivalents | $ | 5 |
| | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | 19 |
| | $ | 19 |
| | $ | — |
| | $ | — |
|
| Cash collateral posted to counterparties (d) | 3 |
| | 3 |
| | — |
| | — |
| | 9 |
| | 9 |
| | — |
| | — |
|
| Total assets | $ | 8 |
| | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | 28 |
| | $ | 28 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | |
| Liabilities | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Price risk management liabilities: | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Interest rate swaps | $ | 31 |
| | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 47 |
| | $ | — |
| | $ | 47 |
| | $ | — |
|
| Total price risk management liabilities | $ | 31 |
| | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 47 |
| | $ | — |
| | $ | 47 |
| | $ | — |
|
| | | | | | | | | | | | | | | | |
| KU | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Assets | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Cash and cash equivalents | $ | 7 |
| | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| | $ | 11 |
| | $ | — |
| | $ | — |
|
| Total assets | $ | 7 |
| | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| | $ | 11 |
| | $ | — |
| | $ | — |
|
| Current portion is included in "Restricted cash and cash equivalents" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
(b) | Included in "Other investments" on the Balance Sheets. |
(c)(a) | Current portion is included in "Other current assets" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
| |
| (b) | 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. |
| |
| (c) | Included in "Other current assets" on the Balance Sheets. |
| |
| (d) | Included in "Other noncurrent assets" on the Balance Sheets. Represents cash collateral posted to offset the exposure with counterparties related to certain interest rate swaps under master netting arrangements that are not offset. |
| A reconciliation of net assets and liabilities classified as Level 3 for the years ended December 31 is as follows: |
| | | | | | | | | | | | | | | | | |
| | | | | | | PPL |
| | | | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | | | | | Energy | | Auction | | Cross- | | | |
| | | | | | | Commodities, | | Rate | | Currency | | | |
| | | | | | | net | | Securities | | Swaps | | Total |
| 2014 | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 24 | | $ | 19 | | | | | $ | 43 |
| | | Total realized/unrealized gains (losses) | | | | | | | | | | | | |
| | | | | Included in earnings | | | (32) | | | | | | | | | (32) |
| | | | | Included in OCI (a) | | | | | | | | $ | (2) | | | (2) |
| | | Purchases | | | (6) | | | | | | | | | (6) |
| | | Sales | | | 67 | | | (9) | | | | | | 58 |
| | | Settlements | | | 50 | | | | | | | | | 50 |
| | | Transfers into Level 3 | | | 7 | | | | | | 1 | | | 8 |
| | | Transfers out of Level 3 | | | 1 | | | | | | 2 | | | 3 |
| Balance at end of period | | $ | 111 | | $ | 10 | | $ | 1 | | $ | 122 |
| | | | | | | | | | | | | | | | | |
| 2013 | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 22 | | $ | 16 | | $ | 1 | | $ | 39 |
| | | Total realized/unrealized gains (losses) | | | | | | | | | | | | |
| | | | | Included in earnings | | | (5) | | | | | | | | | (5) |
| | | | | Included in OCI (a) | | | | | | | | | 1 | | | 1 |
| | | Sales | | | (2) | | | | | | | | | (2) |
| | | Settlements | | | (3) | | | | | | | | | (3) |
| | | Transfers into Level 3 | | | 10 | | | 3 | | | 3 | | | 16 |
| | | Transfers out of Level 3 | | | 2 | | | | | | (5) | | | (3) |
| Balance at end of period | | $ | 24 | | $ | 19 | | $ | | | $ | 43 |
| "Energy Commodities, net" and "Cross-Currency Swaps" are included in "Qualifying derivatives" and "Auction Rate Securities" are included in "Available-for-sale securities" on the Statements of Comprehensive Income. |
| A reconciliation of net assets and liabilities classified as Level 3 for the years ended December 31 is as follows: |
| | | | | | | | | | | | | | |
| | | | | | | PPL Energy Supply |
| | | | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | | | | | Energy | | Auction | | | |
| | | | | | | Commodities, | | Rate | | | |
| | | | | | | net | | Securities | | Total |
| 2014 | | | | | | | | | |
| Balance at beginning of period | | $ | 24 | | $ | 16 | | $ | 40 |
| | | Total realized/unrealized gains (losses) | | | | | | | | | |
| | | | | Included in earnings | | | (32) | | | | | | (32) |
| | | | | Included in OCI (a) | | | | | | 1 | | | 1 |
| | | Purchases | | | (6) | | | | | | (6) |
| | | Sales | | | 67 | | | (9) | | | 58 |
| | | Settlements | | | 50 | | | | | | 50 |
| | | Transfers into Level 3 | | | 7 | | | | | | 7 |
| | | Transfers out of Level 3 | | | 1 | | | | | | 1 |
| Balance at end of period | | $ | 111 | | $ | 8 | | $ | 119 |
| | | | | | | | | | | | | | |
| 2013 | | | | | | | | | |
| Balance at beginning of period | | $ | 22 | | $ | 13 | | $ | 35 |
| | | Total realized/unrealized gains (losses) | | | | | | | | | |
| | | | | Included in earnings | | | (5) | | | | | | (5) |
| | | Sales | | | (2) | | | | | | (2) |
| | | Settlements | | | (3) | | | | | | (3) |
| | | Transfers into Level 3 | | | 10 | | | 3 | | | 13 |
| | | Transfers out of Level 3 | | | 2 | | | | | | 2 |
| Balance at end of period | | $ | 24 | | $ | 16 | | $ | 40 |
| "Energy Commodities, net" are included in "Qualifying derivatives" and "Auction Rate Securities" are included in "Available-for-sale securities" on the Statements of Comprehensive Income. |
The significant unobservable inputs used in and quantitative information about the fair value measurement of assets and liabilities classified as Level 3 are as follows:
| | December 31, 2014 |
| | | Fair Value, net | | | | Significant | | Range |
| | Asset | | Valuation | | Unobservable | | (Weighted |
| | (Liability) | | Technique | | Input(s) | | Average) (a) |
PPL | | | | | | | | | | | |
Energy commodities | | | | | | | |
| Natural gas contracts (b) | $ | 59 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 11% - 100% (52%) |
| Power sales contracts (c) | | (1) | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 9% - 100% (59%) |
| FTR purchase contracts (d) | | 3 | | Discounted cash flow | | Historical settled prices used to model forward prices | | 100% (100%) |
| Heat Rate Options (e) | | 50 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 23% - 51% (45%) |
| | | | | | | | | |
Auction rate securities (f) | | 10 | | Discounted cash flow | | Modeled from SIFMA Index | | 44% - 69% (63%) |
| | | | | | | | | |
Cross-currency swaps (g) | | 1 | | Discounted cash flow | | Credit valuation adjustment | | 15% (15%) |
| | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | |
Energy commodities | | | | | | | | | | | |
| Natural gas contracts (b) | $ | 59 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 11% - 100% (52%) |
| Power sales contracts (c) | | (1) | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 9% - 100% (59%) |
| FTR purchase contracts (d) | | 3 | | Discounted cash flow | | Historical settled prices used to model forward prices | | 100% (100%) |
| Heat Rate Options (e) | | 50 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 23% - 51% (45%) |
| | | | | | | | | |
Auction rate securities (f) | | 8 | | Discounted cash flow | | Modeled from SIFMA Index | | 51% - 69% (63%) |
| | December 31, 2013 |
| | Fair Value, net | | | | Significant | | Range |
| | Asset | | Valuation | | Unobservable | | (Weighted |
| | (Liability) | | Technique | | Input(s) | | Average) (a) |
PPL | | | | | | | | | | | |
Energy commodities | | | | | | | |
| Natural gas contracts (b) | $ | 36 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 10% - 100% (86%) |
| Power sales contracts (c) | | (12) | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 100% (100%) |
| | | | | | | | | |
Auction rate securities (f) | | 19 | | Discounted cash flow | | Modeled from SIFMA Index | | 10% - 80% (63%) |
| | | | | | | | | |
| | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | |
Energy commodities | | | | | | | | | | | |
| Natural gas contracts (b) | $ | 36 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 10% - 100% (86%) |
| Power sales contracts (c) | | (12) | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 100% (100%) |
| | | | | | | | | |
Auction rate securities (f) | | 16 | | Discounted cash flow | | Modeled from SIFMA Index | | 10% - 80% (63%) |
| For energy commodities and auction rate securities, the range and weighted average represent the percentage of fair value derived from the unobservable inputs. For cross-currency swaps, the range and weighted average represent the percentage change in fair value due to the unobservable inputs used in the model to calculate the credit valuation adjustment. |
(b) | As the forward price of natural gas increases/(decreases), the fair value of purchase contracts increases/(decreases). As the forward price of natural gas increases/(decreases), the fair value of sales contracts (decreases)/increases. |
(c) | As forward market prices increase/(decrease), the fair value of contracts (decreases)/increases. As volumetric assumptions for contracts in a gain position increase/(decrease), the fair value of contracts increases/(decreases). As volumetric assumptions for contracts in a loss position increase/(decrease), the fair value of the contracts (decreases)/increases. |
(d) | As the forward implied spread increases/(decreases), the fair value of the contracts increases/(decreases). |
(e) | The proprietary model used to calculate fair value incorporates market heat rates, correlations and volatilities. As the market implied heat rate increases/(decreases), the fair value of the contracts increases/(decreases). |
(f) | The model used to calculate fair value incorporates an assumption that the auctions will continue to fail. As the modeled forward rates of the SIFMA Index increase/(decrease), the fair value of the securities increases/(decreases). |
(g) | The credit valuation adjustment incorporates projected probabilities of default and estimated recovery rates. As the credit valuation adjustment increases/(decreases), the fair value of the swaps (decreases)/increases. |
Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the years ended December 31 were reported in the Statements of Income as follows:
| | | | | | | | | | | | |
| | | | | Energy Commodities, net | |
| | | | | | | | | | | | | | | | | | | |
| | | | | Unregulated | | Unregulated Retail | | | | | | | | Energy | |
| | | | | Wholesale Energy | | Energy | | | Fuel | | Purchases | |
| | | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | |
| PPL and PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total gains (losses) included in earnings | | | $ | (77) | | $ | (36) | | | $ | 23 | | $ | 25 | | | | | $ | 3 | | $ | 22 | | $ | 3 | |
| Change in unrealized gains (losses) relating to | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | positions still held at the reporting date | | | | 50 | | | (23) | | | | 37 | | | 24 | | | | | | | | | (4) | | | 1 | |
Price Risk Management Assets/Liabilities - Energy Commodities(PPL and PPL Energy Supply)
Energy commodity contracts are generally valued using the income approach, except for exchange-traded derivative contracts, which are valued using the market approach and are classified as Level 1. Level 2 contracts are valued using inputs which may include quotes obtained from an exchange (where there is insufficient market liquidity to warrant inclusion in Level 1), binding and non-binding broker quotes, prices posted by ISOs or published tariff rates. Furthermore, independent quotes are obtained from the market to validate the forward price curves. Energy commodity contracts include forwards, futures, swaps, options and structured transactions and may be offset with similar positions in exchange-traded markets. To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs. In certain instances, these contracts may be valued using models, including standard option valuation models and other standard industry models. When the lowest level inputs that are significant to the fair value measurement of a contract are observable, the contract is classified as Level 2.
When unobservable inputs are significant to the fair value measurement, a contract is classified as Level 3. Level 3 contracts are valued using PPL proprietary models which may include significant unobservable inputs such as delivery at a location where pricing is unobservable, delivery dates that are beyond the dates for which independent quotes are available, volumetric assumptions, implied volatilities, implied correlations, and market implied heat rates. Forward transactions, including forward transactions classified as Level 3, are analyzed by PPL's Risk Management department, which reports to the Chief Financial Officer (CFO). Accounting personnel, who also report to the CFO, interpret the analysis quarterly to appropriately classify the forward transactions in the fair value hierarchy. Valuation techniques are evaluated periodically. Additionally, Level 2 and Level 3 fair value measurements include adjustments for credit risk based on PPL's own creditworthiness (for net liabilities) and its counterparties' creditworthiness (for net assets). PPL's credit department assesses all reasonably available market information which is used by accounting personnel to calculate the credit valuation adjustment.
In certain instances, energy commodity contracts are transferred between Level 2 and Level 3. The primary reasons for the transfers during 2014 and 2013 were changes in the availability of market information and changes in the significance of the unobservable inputs utilized in the valuation of the contract. As the delivery period of a contract becomes closer, market information may become available. When this occurs, the model's unobservable inputs are replaced with observable market information.
Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps (PPL, LKE, LG&E and KU)
To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency exchange risk, PPL uses foreign currency contracts such as forwards, options, and cross-currency swaps that contain characteristics of both interest rate and foreign currency
contracts. An income approach is used to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., LIBOR and government security rates) and forward foreign currency exchange rates (e.g., GBP), as well as inputs that may not be observable, such as credit valuation adjustments. In certain cases, market information cannot practicably be obtained to value credit risk and therefore internal models are relied upon. These models use projected probabilities of
default and estimated recovery rates based on historical observances. When the credit valuation adjustment is significant to the overall valuation, the contracts are classified as Level 3. For PPL, the primary reason for the transfers between Level 2 and Level 3 during 2014 and 2013 was the change in the significance of the credit valuation adjustment. Cross-currency swaps are valued by PPL's Treasury department, which reports to the CFO. Accounting personnel, who also report to the CFO, interpret analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.
(PPL and PPL Energy Supply)
NDT Funds
The market approach is used to measure the fair value of equity securities held in the NDT funds.
· | The fair value measurements of equity securities classified as Level 1 are based on quoted prices in active markets. |
· | The fair value measurements of investments in commingled equity funds are classified as Level 2. These fair value measurements are based on firm quotes of net asset values per share, which are not obtained from a quoted price in an active market. |
The fair value of debt securities is generally measured using a market approach, including the use of pricing models, which incorporate observable inputs. Common inputs include benchmark yields, relevant trade data, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments. When necessary, the fair value of debt securities is measured using the income approach, which incorporates similar observable inputs as well as payment data, future predicted cash flows, collateral performance and new issue data.
Auction rate securities include Federal Family Education Loan Program guaranteed student loan revenue bonds, as well as various municipal bond issues. The probability of realizing losses on these securities is not significant.
The fair value of auction rate securities is estimated using an income approach that includes readily observable inputs, such as principal payments and discount curves for bonds with credit ratings and maturities similar to the securities, and unobservable inputs, such as future interest rates that are estimated based on the SIFMA Index, creditworthiness, and liquidity assumptions driven by the impact of auction failures. When the present value of future interest payments is significant to the overall valuation, the auction rate securities are classified as Level 3. The primary reason for the transfers during 2013 was the change in discount rates and SIFMA Index.
Auction rate securities are valued by PPL's Treasury department, which reports to the CFO. Accounting personnel, who also report to the CFO, interpret the analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.
Nonrecurring Fair Value Measurements (All Registrants except PPL Electric and LG&E)(PPL)
The following nonrecurring fair value measurements occurred duringSee Note 8 for information regarding the reporting periods, resulting in asset impairments.
| | | | | Carrying | | Level 3 | | | |
| | | | | Amount (a) | | Fair Value | | Loss (b) |
| PPL and PPL Energy Supply | | | | | | | | | |
| | Kerr Dam Project (c): | | | | | | | | | |
| | | March 31, 2014 | | $ | 47 | | $ | 29 | | $ | 18 |
| | Corette plant and emission allowances: | | | | | | | | | |
| | | December 31, 2013 | | | 65 | | | | | | 65 |
| PPL, LKE and KU | | | | | | | | | |
| | Equity investment in EEI: | | | | | | | | | |
| | | December 31, 2012 | | | 25 | | | | | | 25 |
| | | | | | | | | | | | |
| Represents carrying value before fair value measurement. |
(b) | The loss on the Kerr Dam Project was recorded in the Supply segment and included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statement of Income. The loss on the Corette plant and emission allowances was recorded in the Supply segment and included in "Other operation and maintenance" on the Statement of Income. The loss on the EEI investment was recorded in the Kentucky Regulated segment and included in "Other-Than-Temporary Impairments" on the Statement of Income. |
(c) | The Kerr Dam Project was included in the sale of the Montana Hydroelectric facilities and the assets were removed from the Balance Sheet. See Note 8 for additional information. |
| The significant unobservable inputs used in and the quantitative information about the nonrecurring fair value measurement of assets and liabilities classified as Level 3 are as follows: |
| | | | | | | | | | | | | |
| | | | |
| | | Fair Value, net | | | | Significant | | Range |
| | | | Asset | | Valuation | | Unobservable | | (Weighted |
| | | (Liability) | | Technique | | Input(s) | | Average) (a) |
| PPL and PPL Energy Supply | | | | | | | | | | | |
| Kerr Dam Project: | | | | | | | | | | | |
| | March 31, 2014 | $ | 29 | | Discounted cash flow | | Proprietary model used to calculate plant value | | 38% (38%) |
| Corette plant and emission allowances: | | | | | | | | | | | |
| | December 31, 2013 | | | | Discounted cash flow | | Long-term forward price curves and capital expenditure projections | | 100% (100%) |
| PPL, LKE and KU | | | | | | | | | | | |
| Equity investment in EEI: | | | | | | | | |
| | December 31, 2012 | | | | Discounted cash flow | | Long-term forward price curves and capital expenditure projections | | 100% (100%) |
| The range and weighted average represent the percentage of fair value derived from the unobservable inputs. |
(PPL and PPL Energy Supply)
Kerr Dam Project
PPL Montana previously held a joint operating license issued for the Kerr Dam Project. The license extends until 2035 and, between 2015 and 2025, the Confederated Salish and Kootenai Tribes of the Flathead Nation (the Tribes) have the option to purchase, hold and operate the Kerr Dam Project. The parties submitted the issue of the appropriate amount of the conveyance price to arbitration in February 2013. In March 2014, the arbitration panel issued its final decision holding that the conveyance price payable by the Tribes for the Kerr Dam Project is $18 million. As a result of the decision, PPL Energy Supply performed a recoverability test on the Kerr Dam Project and recorded an impairment charge. PPL Energy Supply performed an internal analysis using an income approach based on discounted cash flows (a PPL proprietary model) to assess theestimated fair value of the Kerr Dam Project. Assumptions used in the PPL proprietary model were the conveyance price, forward energy price curves, forecasted generation, and forecasted operation and maintenance expenditures that were consistent with assumptions used in the business planning process and a market participant discount rate. Through this analysis, PPL Energy Supply determined the fair valuesegment's net assets as of the Kerr Dam Project to be $29 million at March 31, 2014. The Kerr Dam Project was included in the sale of the Montana Hydroelectric facilities and the assets were removed from the Balance Sheet. See Note 8 for additional information.June 1, 2015 spinoff date.
The assets were valued by the PPL Energy Supply Financial Department, which reports to the President of PPL Energy Supply. Accounting personnel, who report to the CFO, interpreted the analysis to appropriately classify the assets in the fair value hierarchy.
Corette Plant and Emission Allowances
During the fourth quarter 2013, PPL Montana recorded an impairment loss on the Corette plant and related emission allowances. In connection with the completion of its 2013 annual business planning process that included revised long-term power and gas price assumptions and other factors, PPL Energy Supply altered its expectations regarding the probability that the Corette plant would operate subsequent to initially placing it in long-term reserve status and determined the carrying amount for Corette was no longer recoverable. As a result, PPL Energy Supply performed an internal analysis using an income approach based on discounted cash flows to assess the fair value of the Corette asset group. Assumptions used in the
fair value assessment were forward energy prices, expectations for demand for energy in Corette's market and expected operation and maintenance and capital expenditures that were consistent with assumptions used in the business planning process and a market participant discount rate. Through this analysis, PPL Energy Supply determined the fair value of the asset group to be negligible. PPL Energy Supply now expects to retire the Corette plant in August 2015.
The assets were valued by the PPL Energy Supply Financial Department, which reports to the President of PPL Energy Supply. Accounting personnel, who report to the CFO, interpreted the analysis to appropriately classify the assets in the fair value hierarchy.
Equity Investment in EEI (PPL, LKE and KU)
During the fourth quarter 2012, KU recorded an other-than-temporary decline in the value of its equity investment in EEI. KU performed an internal analysis using an income approach based on discounted cash flows to assess the current fair value of its investment based on several factors. KU considered the following factors: long-dated forward power and fuel price curves, the cost of compliance with environmental standards, and the majority owner and operator's announcement in the fourth quarter 2012 to exit from the merchant generation business. Assumptions used in the fair value assessment were forward energy price curves, expectations for capacity (demand) for energy in EEI's market, and expected capital expenditures used in the calculation that were comparable to assumptions used by KU for internal budgeting and forecasting purposes. Through this analysis, KU determined the fair value to be zero.
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. The fair values of these instruments were estimated using an income approach by discounting future cash flows at estimated current cost of funding rates, which incorporate the credit risk of the Registrants. These instruments areLong-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement. |
| | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Carrying
Amount | | Fair Value | | Carrying
Amount | | Fair Value |
| PPL | $ | 18,326 |
| | $ | 21,355 |
| | $ | 19,048 |
| | $ | 21,218 |
|
| PPL Electric | 2,831 |
| | 3,148 |
| | 2,828 |
| | 3,088 |
|
| LKE | 5,065 |
| | 5,439 |
| | 5,088 |
| | 5,384 |
|
| LG&E | 1,617 |
| | 1,710 |
| | 1,642 |
| | 1,704 |
|
| KU | 2,327 |
| | 2,514 |
| | 2,326 |
| | 2,467 |
|
| | | | December 31, 2014 | | December 31, 2013 |
| | | | Carrying | | | | | Carrying | | | |
| | | | Amount | | Fair Value | | Amount | | Fair Value |
| | | | | | | | | | | | | |
| PPL | | $ | 20,391 | | $ | 22,670 | | $ | 20,907 | | $ | 22,177 |
| PPL Energy Supply | | | 2,218 | | | 2,204 | | | 2,525 | | | 2,658 |
| PPL Electric | | | 2,602 | | | 2,990 | | | 2,315 | | | 2,483 |
| LKE | | | 4,567 | | | 4,946 | | | 4,565 | | | 4,672 |
| LG&E | | | 1,353 | | | 1,455 | | | 1,353 | | | 1,372 |
| KU | | | 2,091 | | | 2,313 | | | 2,091 | | | 2,155 |
The carrying valueamounts of other current financial instruments (except for long-term debt due within one year) approximate their fair values because of their short-term debt (including notes between affiliates), when outstanding, approximates fair value due to the variable interest rates associated with the short-term debt and is classified as Level 2. nature.
Credit Concentration Associated with Financial Instruments
(All Registrants)
Contracts are entered into with many entities for the purchase and sale of energy. When NPNS is elected, the fair value of these contracts is not reflected in the financial statements. However, the fair value of these contracts is considered when committing to new business from a credit perspective. See Note 17 for information on credit policies used to manage credit risk, including master netting arrangements and collateral requirements.
(PPL and PPL Energy Supply)
At December 31, 2014, PPL and PPL Energy Supply had credit exposure of $708 million from energy trading partners, excluding exposure from related parties (PPL Energy Supply only) and the effects of netting arrangements, reserves and collateral. As a result of netting arrangements, reserves and collateral, PPL and PPL Energy Supply's credit exposure was reduced to $374 million. The top ten counterparties including their affiliates accounted for $164 million, or 44%, of these exposures. Nine of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 95% of the top ten exposures. The remaining counterparty is rated below investment grade, but is current on its obligation. See Note 14 for information regarding PPL Energy Supply's related party credit exposure.
PPL Electric is exposed to credit risk under energy supply contracts (including its supply contracts with PPL EnergyPlus); however, its PUC-approved recovery mechanism is anticipated to substantially mitigate this exposure.
At December 31, 2014, LKE's, LG&E's and KU's credit exposure was not significant.
17. Derivative Instruments and Hedging Activities
Risk Management Objectives
(All Registrants)
PPL has a risk management policy approved by the Board of Directors to manage market risk associated with commodities, interest rates on debt issuances and foreign exchange (including price, liquidity and volumetric risk) and credit risk (including non-performance risk and payment default risk). The RMC,Risk Management Committee, comprised of senior management and chaired by the Chief Risk Officer,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, and market prices, verification of risk and transaction limits, VaRvalue-at-risk analyses portfolio stress tests, gross margin(VaR, a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at risk analyses, sensitivity analysesa given confidence level) and daily portfoliothe coordination and reporting including open positions, determinations of fair value and other risk management metrics.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, volumes of full-requirement sales contracts, basis exposure, interest rates and foreign currency exchange rates. Many of the contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.
The table belowfollowing summarizes the market risks that affect PPL and its Subsidiary Registrants. 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. PPL and WPD hold over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. LKE and LG&E utilize over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt. PPL, LKE, LG&E and
| | | | | | PPL | | PPL | | | | | | | | | |
| | | PPL | | Energy Supply | | Electric | | LKE | | LG&E | | KU |
Commodity price risk (including basis and | | | | | | | | | | | | | | | | | | |
| volumetric risk) | | X | | X | | M | | M | | M | | M |
Interest rate risk: | | | | | | | | | | | | | | | | | | |
| Debt issuances | | X | | X | | M | | M | | M | | M |
| Defined benefit plans | | X | | X | | M | | M | | M | | M |
| NDT securities | | X | | X | | | | | | | | |
Equity securities price risk: | | | | | | | | | | | | | | | | | | |
| Defined benefit plans | | X | | X | | M | | M | | M | | M |
| NDT securities | | X | | X | | | | | | | | |
| Future stock transactions | | X | | | | | | | | | | |
Foreign currency risk - WPD investment and | | | | | | | | | | | | |
| earnings | | X | | | | | | | | | | |
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 for certain plans at WPD due to the recovery mechanisms in place.
Foreign currency risk
| = PPL and PPL Energy Supply actively mitigate market risks through their risk management programs described above. |
M | = The regulatory environments for PPL's regulated entities, by definition, significantly mitigate market risk. |
PPL is exposed to foreign currency exchange risk primarily associated with its investments in and earnings of U.K. affiliates.
Commodity price risk
PPL is exposed to commodity price risk through its domestic subsidiaries as described below.
PPL Electric is exposed to commodity price risk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to commodity price risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the commodity price risk associated with the PLR obligation to the energy suppliers.
LG&E's and KU's rates include certain mechanisms for fuel and fuel-related expenses. 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.
· | PPL is exposed to commodity price risk through its domestic subsidiaries as described below. WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K. |
Volumetric risk
PPL is exposed to volumetric risk through its subsidiaries as described below.
WPD is exposed to volumetric risk which, is significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control period, recovery of such exposure occurs on a two year lag. See Note 1 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.
· | PPL Energy Supply is exposed to commodity price risk for energy and energy-related products associated with the sale of electricity from its generating assets and other electricity and gas marketing activities and the purchase of fuel and fuel-related commodities for generating assets, as well as for proprietary trading activities. |
· | PPL Electric is exposed to commodity price risk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the volumetric risk associated with the PLR obligation to the energy suppliers. |
· | LG&E's and KU's rates include certain mechanisms for fuel and environmental expenses. In addition, LG&E's rates include certain mechanisms for gas supply. These mechanisms generally provide for timely recovery of market price and volumetric fluctuations associated with these expenses. |
· | PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. WPD holds over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. LG&E utilizes over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt, and LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates, when appropriate, in connection with future debt issuances. |
· | PPL and its subsidiaries are exposed to interest rate risk associated with debt securities held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place. Additionally, PPL Energy Supply is exposed to interest rate risk associated with debt securities held by the NDT. |
Equity securities price risk
PPL and its subsidiaries are exposed to equity securities price risk associated with defined benefit plans. This risk is significantly mitigated at the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place.PPL is exposed to equity securities price risk from future stock sales and/or purchases.
· | PPL and its subsidiaries are exposed to equity securities price risk associated with defined benefit plans. This risk is significantly mitigated at the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place. Additionally, PPL and PPL Energy Supply are exposed to equity securities price risk in the NDT funds. |
· | PPL is exposed to equity securities price risk from future stock sales and/or purchases. |
· | PPL is exposed to foreign currency exchange risk primarily associated with its investments in and earnings of U.K. affiliates. |
Credit Risk
Credit risk is the potential loss that may be incurred due to a counterparty's non-performance.
PPL is exposed to credit risk from "in-the-money" interest rate and foreign currency derivatives with financial institutions, as well as additional credit risk through certain of its subsidiaries, as discussed below.
PPL Energy Supply is exposed to credit risk from "in-the-money" commodity derivatives with its energy trading partners, which include other energy companies, fuel suppliers, financial institutions, other wholesale customers and retail customers.
The majority of PPL and PPL Energy Supply's credit risk stems from commodity derivatives for multi-year contracts for energy sales and purchases. If PPL Energy Supply's counterparties fail to perform their obligations under such contracts and PPL Energy Supply could not replace the sales or purchases at the same or better prices as those under the defaulted contracts, PPL Energy Supply would incur financial losses. Those losses would be recognized immediately or through lower revenues or higher costs in future years, depending on the accounting treatment for the defaulted contracts. In the event a supplier of LKE (through its subsidiaries LG&E and KU) or PPL Electric defaults on its obligation, those entities would be required to seek replacement power or replacement fuel in the market. In general, subject to regulatory review or other processes, appropriate incremental costs incurred by these entities would be recoverable from customers through applicable rate mechanisms, thus mitigating the financial risk for these entities.
PPL and its subsidiaries have credit policies in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use of master netting agreements or provisions. These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements. PPL and its subsidiaries may request additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit. See Note 16 for credit concentration associated with energy trading partners.
Master Netting Arrangements
Net derivative positions on the balance sheets are not offset against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.
PPL's and PPL Energy Supply'shad a $19 million obligation to return counterparty cash collateral under master netting arrangements was $11 million and $9 million at December 31, 20142016 and 2013.no obligation to return cash collateral at December 31, 2015.
PPL Electric, LKE, LG&E and LG&EKU had no obligation to return cash collateral under master netting arrangements at December 31, 20142016 and 2013.2015.
PPL, LKE and LG&E had posted $3 million and $9 million of cash collateral under master netting arrangements of $21 million and $22 million at December 31, 20142016 and 2013.2015.
PPL Energy Supply, PPL Electric and KU did not post any cash collateral under master netting arrangements at December 31, 20142016 and 2013.2015.
See "Offsetting Derivative Investments"Instruments" below for a summary of derivative positions presented in the balance sheets where a right of setoff exists under these arrangements.
(PPL and PPL Energy Supply)
Commodity Price Risk (Non-trading)
Commodity price risk, including basis and volumetric risk, is among PPL's and PPL Energy Supply's most significant risks due to the level of investment that PPL and PPL Energy Supply maintain in their competitive generation assets, as well as the extent of their marketing activities. Several factors influence price levels and volatilities. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation/transmission availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations.
PPL Energy Supply maximizes the value of its unregulated wholesale and unregulated retail energy portfolios through the use of non-trading strategies that include sales of competitive baseload generation, optimization of competitive intermediate and peaking generation and marketing activities.
PPL Energy Supply has a formal hedging program to economically hedge the forecasted purchase and sale of electricity and related fuels for its competitive baseload generation fleet, which includes 6,644 MW (summer rating) of nuclear, coal and hydroelectric generating capacity. PPL Energy Supply attempts to optimize the overall value of its competitive intermediate and peaking fleet, which includes 3,252 MW (summer rating) of natural gas and oil-fired generation. PPL Energy Supply's marketing portfolio is comprised of full-requirement sales contracts and related supply contracts, retail natural gas and electricity sales contracts and other marketing activities. The strategies that PPL Energy Supply uses to hedge its full-requirement sales contracts include purchasing energy (at a liquid trading hub or directly at the load delivery zone), capacity and RECs in the market and/or supplying the energy, capacity and RECs from its generation assets.
PPL and PPL Energy Supply enter into financial and physical derivative contracts, including forwards, futures, swaps and options, to hedge the price risk associated with electricity, natural gas, oil and other commodities. Certain contracts are non-derivatives or NPNS is elected and therefore they are not reflected in the financial statements until delivery. PPL and PPL Energy Supply segregate their non-trading activities into two categories: cash flow hedges and economic activity as discussed below.
Cash Flow Hedges
Certain derivative contracts have qualified for hedge accounting so that the effective portion of a derivative's gain or loss is deferred in AOCI and reclassified into earnings when the forecasted transaction occurs. Certain cash flow hedge positions were dedesignated during 2013 and the unamortized portion remained in AOCI because the original forecasted transaction is still expected to occur. There were no active cash flow hedges at December 31, 2014 and 2013. At December 31, 2014, the accumulated net unrecognized after-tax gains (losses) that are expected to be reclassified into earnings during the next 12 months were $19 million for PPL and PPL Energy Supply. Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedge transaction is probable of not occurring. For 2014 and 2013, there were no reclassifications, while in 2012, such reclassifications were insignificant.
For 2014, 2013 and 2012, hedge ineffectiveness associated with energy derivatives was insignificant.
Economic Activity
Many derivative contracts economically hedge the commodity price risk associated with electricity, natural gas, oil and other commodities but do not receive hedge accounting treatment because they were not eligible for hedge accounting or because hedge accounting was not elected. These derivatives hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and unregulated full-requirement and retail contracts, which are subject to changes in fair value due to market price volatility and volume expectations. Additionally, economic activity also includes the ineffective portion of qualifying cash flow hedges (see "Cash Flow Hedges" above). The derivative contracts in this category that existed at December 31, 2014 range in maturity through 2019.
Examples of economic activity may include hedges on sales of baseload generation, certain purchase contracts used to supply full-requirement sales contracts, FTRs or basis swaps used to hedge basis risk associated with the sale of competitive generation or supplying full-requirement sales contracts, Spark Spread hedging contracts, retail electric and natural gas activities, and fuel oil swaps used to hedge price escalation clauses in coal transportation and other fuel-related contracts. PPL Energy Supply also uses options, which include the sale of call options and the purchase of put options tied to a particular generating unit. Since the physical generating capacity is owned, price exposure is generally capped at the price at which the generating unit would be dispatched and therefore does not expose PPL Energy Supply to uncovered market price risk.
The unrealized gains (losses) for economic activity for the years ended December 31 were as follows.
| | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | |
| Operating Revenues | | | | | | | | | |
| | Unregulated wholesale energy | | $ | 325 | | $ | (721) | | $ | (311) |
| | Unregulated retail energy | | | 29 | | | 12 | | | (17) |
| Operating Expenses | | | | | | | | | |
| | Fuel | | | (27) | | | (4) | | | (14) |
| | Energy purchases | | | (327) | | | 586 | | | 442 |
Commodity Price Risk (Trading)
PPL Energy Supply has a proprietary trading strategy which is utilized to take advantage of market opportunities primarily in its geographic footprint. As a result, PPL Energy Supply may at times create a net open position in its portfolio that could result in losses if prices do not move in the manner or direction anticipated. Net energy trading margins, which are included in "Unregulated wholesale energy" on the Statements of Income, were $75 million for 2014 and insignificant for 2013 and 2012.
At December 31, 2014, the net volumes of derivative (sales)/purchase contracts used in support of the various strategies discussed above were as follows.
| | | | | Volumes (a) |
| Commodity | | Unit of Measure | | 2015 | | 2016 | | 2017 | | Thereafter |
| | | | | | | | | | | |
| Power | | MWh | | (39,946,543) | | (4,999,532) | | 741,005 | | 3,426,579 |
| Capacity | | MW-Month | | (6,604) | | (249) | | 6 | | 3 |
| Gas | | MMBtu | | 136,349,655 | | 42,144,483 | | 5,804,511 | | 8,969,760 |
| FTRs | | MW-Month | | 2,803 | | | | | | |
| Oil | | Barrels | | 421,019 | | 374,334 | | 251,670 | | 60,000 |
| Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option. |
(PPL, LKE, LG&E and KU)All Registrants)
PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. Various financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt portfolio, adjust the duration of the debt portfolio and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under PPL's risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolio due to changes in benchmark interest rates. 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 held no such contracts at December 31, 2016.
For 2016, 2015 and 2014, PPL held an aggregate notional value inhedge ineffectiveness associated with interest rate swap contracts of $1.6 billion that range in maturity through 2045. The amount outstanding includes swaps entered into by PPL on behalf of LG&E and KU. Realized gains and losses on the LG&E and KU swaps are probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest expense is recorded.was insignificant.
At December 31, 2014,2016, PPL held an aggregate notional value in cross-currency interest rate swap contracts of $1.3 billion$802 million that range in maturity from 2017 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.
For 2014, 2013 In May 2016, $460 million of WPD's U.S. dollar-denominated senior notes were repaid upon maturity and 2012, hedge ineffectiveness associated with$460 million notional value of cross-currency interest rate derivatives was insignificant.swap contracts matured. PPL recorded a $46 million gain upon settlement of the cross-currency interest rate swap contracts, which largely offset a loss recorded on the revaluation of U.S. dollar-denominated senior notes.
Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time period and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedged transaction is not probable of not occurring. PPL had no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges in 2016 and an insignificant amount for 2014 and no such reclassifications in 2013 and 2012.2014.
As a result of the June 1, 2015 spinoff of PPL Energy Supply, all PPL cash flow hedges associated with PPL Energy Supply were ineffective and discontinued and therefore, reclassified into earnings during the second quarter of 2015 and reflected in discontinued operations for 2015. See Note 8 for additional information. PPL had no other cash flow hedges reclassified into earnings associated with discontinued cash flow hedges in 2015.
At December 31, 2014,2016, the accumulated net unrecognized after-tax gains (losses) on qualifying derivatives that are expected to be reclassified into earnings during the next 12 months were $(10)is $53 million. Amounts are reclassified as the hedged interest expense is recorded.
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL that have terms identical to forward-starting swaps entered into by PPL with third parties. Realized gains and losses on all of these swaps are probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest expense is recorded. At December 31, 2014, the total notional amount of forward starting interest rate swaps outstanding was $1 billion (LG&E and KU each held contracts of $500 million). The swaps range in maturity through 2045. There were no forward starting interest rate swaps outstanding at December 31, 2013. Net cash settlements of $86 million were received on swaps that were terminated in 2013 (LG&E and KU each received $43 million). The settlements are included in "Regulatory liabilities" (noncurrent) on the Balance Sheets and "Cash Flows from Operating Activities" on the Statement of Cash Flows.
Economic Activity (PPL, LKE and LG&E)
LG&E enters into interest rate swap contracts that economically hedge interest payments on variable rate debt. Because realized gains and losses from the swaps, including a terminated swap contract,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. In December 2016, a swap with a notional amount of $32 million was terminated. A cash settlement of $9 million was paid on the terminated swap. The settlement is included in noncurrent regulatory assets on the Balance Sheet and in "Cash Flows from Operating Activities" on the Statement of Cash Flows. At December 31, 2014,2016, LG&E held contracts with a notional amount of $179$147 million that range in maturity through 2033.
(PPL)
PPL is exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected GBP earnings.
Net Investment Hedges
PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. TheThere were no such contracts outstanding at December 31, 2014 had a notional amount of £217 million (approximately $355 million based on contracted rates). The settlement dates of these contracts range from May 2015 through June 2016.
Additionally, a PPL Global subsidiary that has a U.S. dollar functional currency entered into GBP intercompany loans payable with WPD subsidiaries that have GBP functional currency. The loans qualify as a net investment hedge for the PPL Global subsidiary. As such, the foreign currency gains and losses on the intercompany loans for the PPL Global subsidiary are recorded to the foreign currency translation adjustment component of OCI. For 2014 and 2013, PPL recognized insignificant amounts of net investment hedge gains (losses) on the intercompany loans in the foreign currency translation adjustment component of OCI. At December 31, 2014, there were no outstanding loan balances.
At December 31, 20142016 and 2013,2015, PPL had $14$21 million and an insignificant amount$19 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI.
Economic Activity
PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At December 31, 2014,2016, the total exposure hedged by PPL was approximately £1.4£1.9 billion (approximately $2.2$2.6 billion based on contracted rates). These contracts had termination dates ranging from January 20152017 through December 2016. 2018.
In the third quarter of 2016, PPL settled foreign currency hedges related to 2017 and 2018 anticipated earnings, resulting in receipt of $310 million of cash entered into new hedges at current market rates. The notional amount of the settled hedges was approximately £1.3 billion (approximately $2.0 billion based on contracted rates) with termination dates from January 2017 through November 2018. The settlement did not have a significant impact on net income as the hedge values were previously marked to fair value and recognized in "Other Income (Expense) - net" on the Statement of Income. Accounting and Reporting
(All Registrants)
All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected. NPNS contracts for PPL and PPL Energy Supply include certain full-requirement sales contracts, other physical purchase and sales contracts and certain retail energy and physical capacity contracts, and for PPL Electric include certain full-requirement purchase contracts and other physical purchase contracts. Changes in the fair value of derivatives not designated as NPNS are recognized currently in earnings unless specific hedge accounting criteria are met and designated as such, except for the changes in fair values of LG&E's and KU's interest rate swaps that are recognized as regulatory assets or regulatory liabilities. See Note 6 for amounts recorded in regulatory assets and regulatory liabilities at December 31, 20142016 and 2013. PPL and PPL Energy Supply have many physical and financial commodity purchases and sales contracts that economically hedge commodity price risk but do not receive hedge accounting treatment. As such, realized and unrealized gains (losses) on these contracts are recorded currently in earnings. Generally each contract is considered a unit of account and PPL and PPL Energy Supply present gains (losses) on physical and financial commodity sales contracts in "Unregulated wholesale energy" or "Unregulated retail energy" and (gains) losses on physical and financial commodity purchase contracts in "Fuel" or "Energy purchases" on the Statements of Income. Certain of the economic hedging strategies employed by PPL Energy2015.
Supply utilize a combination of financial purchases and sales contracts which are similarly reported gross as an expense and revenue, respectively, on the Statements of Income. PPL Energy Supply records realized hourly net sales or purchases of physical power with PJM in its Statements of Income as "Unregulated wholesale energy" if in a net sales position and "Energy purchases" if in a net purchase position.
See Note 1 for additional information on accounting policies related to derivative instruments.
The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | 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) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | 5 |
|
| Cross-currency swaps (b) | 32 |
| | — |
| | — |
| | — |
| | 35 |
| | — |
| | — |
| | — |
|
| Foreign currency contracts | — |
| | — |
| | 31 |
| | 21 |
| | 10 |
| | — |
| | 94 |
| | 1 |
|
| Total current | 32 |
| | — |
| | 31 |
| | 25 |
| | 45 |
| | 24 |
| | 94 |
| | 6 |
|
| Noncurrent: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Price Risk Management | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Assets/Liabilities (a): | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Interest rate swaps (b) | — |
| | — |
| | — |
| | 27 |
| | — |
| | — |
| | — |
| | 42 |
|
| Cross-currency swaps (b) | 156 |
| | — |
| | — |
| | — |
| | 51 |
| | — |
| | — |
| | — |
|
| Foreign currency contracts | — |
| | — |
| | 180 |
| | 6 |
| | — |
| | — |
| | 105 |
| | — |
|
| Total noncurrent | 156 |
| | — |
| | 180 |
| | 33 |
| | 51 |
| | — |
| | 105 |
| | 42 |
|
| Total derivatives | $ | 188 |
| | $ | — |
| | $ | 211 |
| | $ | 58 |
| | $ | 96 |
| | $ | 24 |
| | $ | 199 |
| | $ | 48 |
|
| | | | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | | Derivatives designated as | | Derivatives not designated | | Derivatives designated as | | Derivatives not designated |
| | | | | | | | hedging instruments | | as hedging instruments | | hedging instruments | | as hedging instruments |
| | | | | | | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities |
| Current: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Price Risk Management | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Assets/Liabilities (a): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Interest rate swaps (b) | | | | | $ | 94 | | | | | $ | 5 | | $ | 82 | | | | | | | | $ | 4 |
| | | | Cross-currency swaps (b) | | | | | | 3 | | | | | | | | | | | $ | 4 | | | | | | |
| | | | Foreign currency | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | contracts | | $ | 12 | | | | | $ | 67 | | | | | | | | | 16 | | | | | | 55 |
| | | | Commodity contracts | | | | | | | | | 1,079 | | | 1,024 | | | | | | | | $ | 860 | | | 750 |
| | | | | | Total current | | | 12 | | | 97 | | | 1,146 | | | 1,029 | | | 82 | | | 20 | | | 860 | | | 809 |
| Noncurrent: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Price Risk Management | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Assets/Liabilities (a): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Interest rate swaps (b) | | | | | | 14 | | | | | | 43 | | | 9 | | | | | | | | | 32 |
| | | | Cross-currency swaps (b) | | | 29 | | | | | | | | | | | | | | | 28 | | | | | | |
| | | | Foreign currency | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | contracts | | | 5 | | | | | | 46 | | | 2 | | | | | | 4 | | | | | | 31 |
| | | | Commodity contracts | | | | | | | | | 239 | | | 193 | | | | | | | | | 328 | | | 320 |
| | | | | | Total noncurrent | | | 34 | | | 14 | | | 285 | | | 238 | | | 9 | | | 32 | | | 328 | | | 383 |
| Total derivatives | | $ | 46 | | $ | 111 | | $ | 1,431 | | $ | 1,267 | | $ | 91 | | $ | 52 | | $ | 1,188 | | $ | 1,192 |
| Represents the location |
| (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. |
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities. |
| | | | | | | | | | | | | | |
Derivative Relationships | | Derivative Gain (Loss) Recognized in OCI (Effective Portion) | | Location of Gain (Loss) Recognized in Income on Derivative | | Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| 2016 | | | | | | | | |
| Cash Flow Hedges: | | | | | | | | |
| Interest rate swaps | | $ | (21 | ) | | Interest Expense | | $ | (7 | ) | | $ | — |
|
| Cross-currency swaps | | 130 |
| | Other Income (Expense) - net | | 116 |
| | — |
|
| | | |
| | Interest Expense | | 3 |
| | — |
|
| Total | | $ | 109 |
| | | | $ | 112 |
| | $ | — |
|
| Net Investment Hedges: | | |
| | | | | | |
| Foreign currency contracts | | $ | 2 |
| | | | | | |
| | | | | | | | | |
| 2015 | | | | | | | | |
| Cash Flow Hedges: | | | | | | | | |
| Interest rate swaps | | $ | (34 | ) | | Interest Expense | | $ | (11 | ) | | $ | — |
|
| | | | | Discontinued operations | | — |
| | (77 | ) |
| Cross-currency swaps | | 60 |
| | Other Income (Expense) - net | | 49 |
| | — |
|
| | | | | Interest Expense | | 2 |
| | — |
|
| Commodity contracts | | | | Discontinued operations | | 13 |
| | 7 |
|
| Total | | $ | 26 |
| | | | $ | 53 |
| | $ | (70 | ) |
| Net Investment Hedges: | | |
| | | | | | |
| Foreign currency contracts | | $ | 9 |
| | | | | | |
| Derivatives in | | Hedged Items in | | Location of Gain | | | | | | |
| Fair Value Hedging | | Fair Value Hedging | | (Loss) Recognized | | Gain (Loss) Recognized | | Gain (Loss) Recognized |
| Relationships | | Relationships | | in Income | | in Income on Derivative | | in Income on Related Item |
| | | | | | | | | | | |
2012 | | | | | | | | | | |
| Interest rate swaps | | Fixed rate debt | | Interest Expense | | | | | $ | 3 |
| | | | | | | | | | | | | | Gain (Loss) Recognized |
| | | | | | | | | | | | | | in Income on Derivative |
| | | | | | Derivative Gain | | Location of Gain (Loss) | | Gain (Loss) Reclassified | | (Ineffective Portion and |
| | | | Derivative | | (Loss) Recognized in | | Recognized in Income | | from AOCI into Income | | Amount Excluded from |
| | | | Relationships | | OCI (Effective Portion) | | on Derivative | | (Effective Portion) | | Effectiveness Testing) |
| 2014 | | | | | | | | | | | |
| | Cash Flow Hedges: | | | | | | | | | | | |
| | | Interest rate swaps | | $ | (91) | | Interest Expense | | $ | (18) | | $ | 2 |
| | | Cross-currency swaps | | | 58 | | Other Income (Expense) - net | | | 57 | | | |
| | | | | | | | | Interest Expense | | | 4 | | | |
| | | Commodity contracts | | | | | Unregulated wholesale energy | | | 1 | | | |
| | | | | | | | | Energy purchases | | | 31 | | | |
| | | | | | | | | Depreciation | | | 2 | | | |
| | | | | | | | | Discontinued operations | | | 8 | | | |
| | Total | | $ | (33) | | | | $ | 85 | | $ | 2 |
| | Net Investment Hedges: | | | | | | | | | | | |
| | | Foreign currency contracts | | $ | 23 | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Gain (Loss) Recognized |
| | | | | | | | | | | | | | in Income on Derivative |
| | | | | | Derivative Gain | | Location of Gain (Loss) | | Gain (Loss) Reclassified | | (Ineffective Portion and |
| | | | Derivative | | (Loss) Recognized in | | Recognized in Income | | from AOCI into Income | | Amount Excluded from |
| | | | Relationships | | OCI (Effective Portion) | | on Derivative | | (Effective Portion) | | Effectiveness Testing) |
| 2013 | | | | | | | | | | | |
| | Cash Flow Hedges: | | | | | | | | | | | |
| | | Interest rate swaps | | $ | 127 | | Interest Expense | | $ | (20) | | | |
| | | Cross-currency swaps | | | (41) | | Other Income (Expense) - net | | | (28) | | | |
| | | | | | | | | Interest Expense | | | 1 | | | |
| | | Commodity contracts | | | | | Unregulated wholesale energy | | | 240 | | $ | 1 |
| | | | | | | | | Energy purchases | | | (58) | | | |
| | | | | | | | | Depreciation | | | 2 | | | |
| | | | | | | | | Other | | | 3 | | | |
| | | | | | | | | Discontinued operations | | | 23 | | | |
| | Total | | $ | 86 | | | | $ | 163 | | $ | 1 |
| | Net Investment Hedges: | | | | | | | | | | | |
| | | Foreign currency contracts | | $ | (14) | | | | | | | | |
| | | | | | | | | | | | | | | |
| 2012 | | | | | | | | | | | |
| | Cash Flow Hedges: | | | | | | | | | | | |
| | | Interest rate swaps | | $ | (28) | | Interest Expense | | $ | (18) | | | |
| | | | | | | | | Other Income (Expense) - net | | | 1 | | | |
| | | Cross-currency swaps | | | (15) | | Other Income (Expense) - net | | | (23) | | | |
| | | | | | | | | Interest Expense | | | (2) | | | |
| | | Commodity contracts | | | 114 | | Unregulated wholesale energy | | | 838 | | $ | (1) |
| | | | | | | | | Energy purchases | | | (136) | | | (2) |
| | | | | | | | | Depreciation | | | 2 | | | |
| | | | | | | | | Discontinued operations | | | 50 | | | |
| | Total | | $ | 71 | | | | $ | 712 | | $ | (3) |
| | Net Investment Hedges: | | | | | | | | | | | |
| | | Foreign currency contracts | | $ | (7) | | | | | | | | |
| Derivatives Not Designated as | | Location of Gain (Loss) Recognized in | | | | | | | | | |
| Hedging Instruments | | Income on Derivative | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | |
| Foreign currency contracts | | Other Income (Expense) - net | | $ | 121 | | $ | (38) | | $ | (52) |
| Interest rate swaps | | Interest Expense | | | (8) | | | (8) | | | (8) |
| Commodity contracts | | Unregulated wholesale energy | | | (1,353) | | | (99) | | | 1,182 |
| | | Unregulated retail energy | | | 30 | | | 25 | | | 30 |
| | | Fuel | | | (30) | | | 2 | | | |
| | | Energy purchases | | | 1,013 | | | 130 | | | (965) |
| | | Discontinued operations | | | 6 | | | 14 | | | 17 |
| | | Total | | $ | (221) | | $ | 26 | | $ | 204 |
| | | | | | | | | | | | |
| Derivatives Designated as | | Location of Gain (Loss) Recognized as | | | | | | | | | |
| Cash Flow Hedges | | Regulatory Liabilities/Assets | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | (66) | | | | | | |
| | | Regulatory liabilities - noncurrent | | | | | $ | 72 | | $ | 14 |
| | | | | | | | | | | | |
| Derivatives Not Designated as | | Location of Gain (Loss) Recognized as | | | | | | | | | |
| Hedging Instruments | | Regulatory Liabilities/Assets | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | (12) | | $ | 22 | | $ | 1 |
The following tables present the fair value and location of derivative instruments recorded on the Balance Sheets.
| | | | | | | | | | | | | | | | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | | | | | | | | | | Derivatives not designated | | Derivatives not designated |
| | | | | | | | | | | | | | | | as hedging instruments | | as hedging instruments |
| | | | | | | | | | | | | | | | | | Assets | | Liabilities | | Assets | | Liabilities |
| Current: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Price Risk Management | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Assets/Liabilities (a): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Commodity contracts | | | | | | | | | | | | | | $ | 1,079 | | $ | 1,024 | | $ | 860 | | $ | 750 |
| | | | | | Total current | | | | | | | | | | | | | | | 1,079 | | | 1,024 | | | 860 | | | 750 |
| Noncurrent: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Price Risk Management | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Assets/Liabilities (a): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Commodity contracts | | | | | | | | | | | | | | | 239 | | | 193 | | | 328 | | | 320 |
| | | | | | Total noncurrent | | | | | | | | | | | | | | | 239 | | | 193 | | | 328 | | | 320 |
| Total derivatives | | | | | | | | | | | | | | $ | 1,318 | | $ | 1,217 | | $ | 1,188 | | $ | 1,070 |
|
| | | | | | | | | | | | | | |
Derivative Relationships | | Derivative Gain (Loss) Recognized in OCI (Effective Portion) | | Location of Gain (Loss) Recognized in Income on Derivative | | Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| | | | | | | | | |
| 2014 | | | | | | | | |
| Cash Flow Hedges: | | | | | | | | |
| Interest rate swaps | | $ | (91 | ) | | Interest Expense | | $ | (18 | ) | | $ | 2 |
|
| Cross-currency swaps | | 58 |
| | Other Income (Expense) - net | | 57 |
| | — |
|
| | | | | Interest Expense | | 4 |
| | — |
|
| Commodity contracts | | | | Discontinued operations | | 42 |
| | — |
|
| Total | | $ | (33 | ) | | | | $ | 85 |
| | $ | 2 |
|
| Net Investment Hedges: | | |
| | | | | | |
| Foreign currency contracts | | $ | 23 |
| | | | | | |
| Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivative instruments recognized in income or OCI. |
| | | | | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Location of Gain (Loss) Recognized in Income on Derivative | | 2016 | | 2015 | | 2014 |
| Foreign currency contracts | | Other Income (Expense) - net | | $ | 384 |
| | $ | 122 |
| | $ | 121 |
|
| Interest rate swaps | | Interest Expense | | (7 | ) | | (8 | ) | | (8 | ) |
| | | Total | | $ | 377 |
| | $ | 114 |
| | $ | 113 |
|
| | | | | | | | | | | | | | Gain (Loss) Recognized |
| | | | | | | | | | | | | | in Income on Derivative |
| | | | | | Derivative Gain | | Location of Gain (Loss) | | Gain (Loss) Reclassified | | (Ineffective Portion and |
| | | | Derivative | | (Loss) Recognized in | | Recognized in Income | | from AOCI into Income | | Amount Excluded from |
| | | | Relationships | | OCI (Effective Portion) | | on Derivative | | (Effective Portion) | | Effectiveness Testing) |
| 2014 | | | | | | | | | | | |
| | Cash Flow Hedges: | | | | | | | | | | | |
| | | Commodity contracts | | | | | Unregulated wholesale energy | | $ | 1 | | | |
| | | | | | | | | Energy purchases | | | 31 | | | |
| | | | | | | | | Depreciation | | | 2 | | | |
| | | | | | | | | Discontinued operations | | | 8 | | | |
| | Total | | | | | | | $ | 42 | | | |
| | | | | | | | | | | | | | | |
| 2013 | | | | | | | | | | | |
| | Cash Flow Hedges: | | | | | | | | | | | |
| | | Commodity contracts | | | | | Unregulated wholesale energy | | $ | 240 | | $ | 1 |
| | | | | | | | | Energy purchases | | | (58) | | | |
| | | | | | | | | Depreciation | | | 2 | | | |
| | | | | | | | | Discontinued operations | | | 23 | | | |
| | Total | | | | | | | $ | 207 | | $ | 1 |
| | | | | | | | | | | | | | | |
| 2012 | | | | | | | | | | | |
| | Cash Flow Hedges: | | | | | | | | | | | |
| | | Commodity contracts | | $ | 114 | | Unregulated wholesale energy | | $ | 838 | | $ | (1) |
| | | | | | | | | Energy purchases | | | (136) | | | (2) |
| | | | | | | | | Depreciation | | | 2 | | | |
| | | | | | | | | Discontinued operations | | | 50 | | | |
| | Total | | $ | 114 | | | | $ | 754 | | $ | (3) |
| Derivatives Not Designated as | | Location of Gain (Loss) Recognized in | | | | | | | | | |
| Hedging Instruments | | Income on Derivative | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | |
| Commodity contracts | | Unregulated wholesale energy | | $ | (1,353) | | $ | (99) | | $ | 1,182 |
| | | Unregulated retail energy | | | 30 | | | 25 | | | 30 |
| | | Fuel | | | (30) | | | 2 | | | |
| | | Energy purchases | | | 1,013 | | | 130 | | | (965) |
| | | Discontinued operations | | | 6 | | | 14 | | | 17 |
| | | Total | | $ | (334) | | $ | 72 | | $ | 264 |
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| | | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | Assets | | Liabilities | | | Assets | | Liabilities | |
Current: | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | | | |
| | | Interest rate swaps | | | | | $ | 66 | | | | | | | | |
| Represents the location on the Balance Sheet. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets and liabilities. |
| | | | | | | | | | | | | | |
Derivatives Designated as Hedging Instruments | | Location of Gain (Loss) Recognized as Regulatory Liabilities/Assets | | 2016 | | 2015 | | 2014 |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | — |
| | $ | (22 | ) | | $ | (66 | ) |
| Derivative Instruments | | Location of Gain (Loss) | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | (66) | | | | | | |
| | | Regulatory liabilities - noncurrent | | | | | $ | 72 | | $ | 14 |
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| | | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | Assets | | Liabilities | | | Assets | | Liabilities | |
Current: | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | | | |
| | | Interest rate swaps | | | | | $ | 33 | | | | | | | | |
| Represents the location on the balance sheet. |
|
| | | | | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Location of Gain (Loss) Recognized as Regulatory Liabilities/Assets | | 2016 | | 2015 | | 2014 |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | 7 |
| | $ | 1 |
| | $ | (12 | ) |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets and liabilities.
| Derivative Instruments | | Location of Gain (Loss) | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| Interest rate swaps | | Regulatory asset - noncurrent | | $ | (33) | | | | | | |
| | | Regulatory liabilities - noncurrent | | | | | $ | 36 | | $ | 7 |
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| | | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | Assets | | Liabilities | | | Assets | | Liabilities | |
Current: | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | | | |
| | | Interest rate swaps | | | | | $ | 33 | | | | | | | | |
| Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assetsassets. All derivative instruments designated as cash flow hedges were terminated in 2015 and liabilities. there is no activity in the current period.
|
| | | | | | | | | | | | | | |
| Derivative Instruments | | Location of Gain (Loss) | | 2016 | | 2015 | | 2014 |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | — |
| | $ | (22 | ) | | $ | (66 | ) |
| Derivative Instruments | | Location of Gain (Loss) | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | (33) | | | | | | |
| | | Regulatory liabilities - noncurrent | | | | | $ | 36 | | $ | 7 |
(LG&E)
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets. All derivative instruments designated as cash flow hedges were terminated in 2015 and there is no activity in the current period.
|
| | | | | | | | | | | | | | |
| Derivative Instruments | | Location of Gain (Loss) | | 2016 | | 2015 | | 2014 |
| Interest rate swaps | | Regulatory asset - noncurrent | | $ | — |
| | $ | (11 | ) | | $ | (33 | ) |
(KU)
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets. All derivative instruments designated as cash flow hedges were terminated in 2015 and there is no activity in the current period.
|
| | | | | | | | | | | | | | |
| Derivative Instruments | | Location of Gain (Loss) | | 2016 | | 2015 | | 2014 |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | — |
| | $ | (11 | ) | | $ | (33 | ) |
(LKE and LG&E)
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
| | | | | | | | December 31, 2014 | | December 31, 2013 | |
| | | | | | | | Assets | | Liabilities | | | Assets | | Liabilities | |
| Current: | | | | | | | | | | | | | | |
| | Price Risk Management | | | | | | | | | | | | | | |
| | | Assets/Liabilities (a): | | | | | | | | | | | | | | |
| | | | Interest rate swaps | | | | | $ | 5 | | | | | | $ | 4 | |
| | | | | | Total current | | | | | | 5 | | | | | | | 4 | |
| Noncurrent: | | | | | | | | | | | | | | |
| | Price Risk Management | | | | | | | | | | | | | | |
| | | Assets/Liabilities (a): | | | | | | | | | | | | | | |
| | | | Interest rate swaps | | | | | | 43 | | | | | | | 32 | |
| | | | | | Total noncurrent | | | | | | 43 | | | | | | | 32 | |
| Total derivatives | | | | | $ | 48 | | | | | | $ | 36 | |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2016 | | December 31, 2015 |
| | | Assets | | Liabilities | | Assets | | Liabilities |
| Current: | | | | |
| | | | |
|
| Price Risk Management | | | | |
| | | | |
|
| Assets/Liabilities (a): | | | | |
| | | | |
|
| Interest rate swaps | | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 5 |
|
| Total current | | — |
| | 4 |
| | — |
| | 5 |
|
| Noncurrent: | | | | |
| | | | |
|
| Price Risk Management | | | | |
| | | | |
|
| Assets/Liabilities (a): | | | | |
| | | | |
|
| Interest rate swaps | | — |
| | 27 |
| | — |
| | 42 |
|
| Total noncurrent | | — |
| | 27 |
| | — |
| | 42 |
|
| Total derivatives | | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 47 |
|
| |
| (a) | Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets. |
| | | | | | | | | | | | | | |
| Derivative Instruments | | Location of Gain (Loss) | | 2016 | | 2015 | | 2014 |
| Interest rate swaps | | Interest Expense | | $ | (7 | ) | | $ | (8 | ) | | $ | (8 | ) |
|
| | | | | | | | | | | | | | |
| Derivative Instruments | | Location of Gain (Loss) | | 2016 | | 2015 | | 2014 |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | 7 |
| | $ | 1 |
| | $ | (12 | ) |
| Derivative Instruments | | Location of Gain (Loss) | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| Interest rate swaps | | Interest Expense | | $ | (8) | | $ | (8) | | $ | (8) |
| Derivative Instruments | | Location of Gain (Loss) | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| Interest rate swaps | | Regulatory assets - noncurrent | | $ | (12) | | $ | 22 | | $ | 1 |
(All Registrants except PPL Electric)
Offsetting Derivative Instruments
PPL, PPL Energy Supply, LKE, LG&E and KU or certain of their subsidiaries have master netting arrangements or similar agreements in place including derivative clearing agreements with futures commission merchants (FCMs) to permit the trading of cleared derivative products on one or more futures exchanges. The clearing arrangements permit an FCM to use and apply any property in its possession as a set off to pay amounts or discharge obligations owed by a customer upon default of the customer and typically do not place any restrictions on the FCM's use of collateral posted by the customer. PPL, PPL Energy Supply, LKE, LG&E and KU and their subsidiaries also enter into agreements pursuant to which they tradepurchase 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 setoffset off amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.
PPL, PPL Energy Supply, LKE, LG&E and KU have elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivatives agreements. The table below summarizes the derivative positions presented in the balance sheets where a right of setoff exists under these arrangements and related cash collateral received or pledged. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Assets | | Liabilities |
| | | | | Eligible for Offset | | | | | | Eligible for Offset | | |
| | | Gross | | Derivative Instruments | | Cash Collateral Received | | Net | | Gross | | Derivative Instruments | | Cash Collateral Pledged | | Net |
| December 31, 2016 | | | | | | | | | | | | | | | | |
| Treasury Derivatives | | | | | | | | | | | | | | | | |
| PPL | | $ | 399 |
| | $ | 27 |
| | 19 |
| | $ | 353 |
| | $ | 58 |
| | $ | 27 |
| | $ | 3 |
| | $ | 28 |
|
| LKE | | — |
| | — |
| | — |
| | — |
| | 31 |
| | — |
| | 3 |
| | 28 |
|
| LG&E | | — |
| | — |
| | — |
| | — |
| | 31 |
| | — |
| | 3 |
| | 28 |
|
| | | | | | Assets | | Liabilities |
| | | | | | | | | Eligible for Offset | | | | | | | | Eligible for Offset | | | |
| | | | | | | | | | | | Cash | | | | | | | | | | | Cash | | | |
| | | | | | | | | Derivative | | Collateral | | | | | | | | Derivative | | Collateral | | | |
| | | | | | Gross | | Instruments | | Received | | Net | | Gross | | Instruments | | Pledged | | Net |
| December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | | | | | | | | | | | | | | | | | | | | | | | |
| | Energy Commodities | | $ | 1,318 | | $ | 1,060 | | $ | 10 | | $ | 248 | | $ | 1,217 | | $ | 1,060 | | $ | 58 | | $ | 99 |
| | Treasury Derivatives | | | 159 | | | 65 | | | | | | 94 | | | 161 | | | 65 | | | 21 | | | 75 |
| Total | | $ | 1,477 | | $ | 1,125 | | $ | 10 | | $ | 342 | | $ | 1,378 | | $ | 1,125 | | $ | 79 | | $ | 174 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Assets | | Liabilities |
| | | | | Eligible for Offset | | | | | | Eligible for Offset | | |
| | | Gross | | Derivative Instruments | | Cash Collateral Received | | Net | | Gross | | Derivative Instruments | | Cash Collateral Pledged | | Net |
| December 31, 2015 | | |
| | |
| | | | |
| | |
| | |
| | |
| | |
|
| Treasury Derivatives | | | | | | |
| | | | | | | | | | |
| PPL | | $ | 295 |
| | $ | 25 |
| | $ | — |
| | $ | 270 |
| | $ | 72 |
| | $ | 25 |
| | $ | 9 |
| | $ | 38 |
|
| LKE | | — |
| | — |
| | — |
| | — |
| | 47 |
| | — |
| | 9 |
| | 38 |
|
| LG&E | | — |
| | — |
| | — |
| | — |
| | 47 |
| | — |
| | 9 |
| | 38 |
|
| | | | | | Assets | | Liabilities |
| | | | | | | | | Eligible for Offset | | | | | | | | Eligible for Offset | | | |
| | | | | | | | | | | | Cash | | | | | | | | | | | Cash | | | |
| | | | | | | | | Derivative | | Collateral | | | | | | | | Derivative | | Collateral | | | |
| | | | | | Gross | | Instruments | | Received | | Net | | Gross | | Instruments | | Pledged | | Net |
| PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
| | Energy Commodities | | $ | 1,318 | | $ | 1,060 | | $ | 10 | | $ | 248 | | $ | 1,217 | | $ | 1,060 | | $ | 58 | | $ | 99 |
| LKE | | | | | | | | | | | | | | | | | | | | | | | | |
| | Treasury Derivatives | | | | | | | | | | | | | | $ | 114 | | | | | $ | 20 | | $ | 94 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | | | | | | | | | | | | |
| | Treasury Derivatives | | | | | | | | | | | | | | $ | 81 | | | | | $ | 20 | | $ | 61 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | | | | | | | | | | | | |
| | Treasury Derivatives | | | | | | | | | | | | | | $ | 33 | | | | | | | | $ | 33 |
| December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | | | | | | | | | | | | | | | | | | | | | | | |
| | Energy Commodities | | $ | 1,188 | | $ | 912 | | $ | 7 | | $ | 269 | | $ | 1,070 | | $ | 912 | | $ | 1 | | $ | 157 |
| | Treasury Derivatives | | | 91 | | | 61 | | | | | | 30 | | | 174 | | | 61 | | | 23 | | | 90 |
| Total | | $ | 1,279 | | $ | 973 | | $ | 7 | | $ | 299 | | $ | 1,244 | | $ | 973 | | $ | 24 | | $ | 247 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
| | Energy Commodities | | $ | 1,188 | | $ | 912 | | $ | 7 | | $ | 269 | | $ | 1,070 | | $ | 912 | | $ | 1 | | $ | 157 |
| LKE | | | | | | | | | | | | | | | | | | | | | | | | |
| | Treasury Derivatives | | | | | | | | | | | | | | $ | 36 | | | | | $ | 20 | | $ | 16 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | | | | | | | | | | | | |
| | Treasury Derivatives | | | | | | | | | | | | | | $ | 36 | | | | | $ | 20 | | $ | 16 |
Credit Risk-Related Contingent Features
Certain derivative contracts contain credit risk-related contingent features, which when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, PPL Energy Supply, LKE, LG&E and KU or certain of their subsidiaries. Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade. Some of these features also would allow the counterparty to require additional collateral upon each downgrade in the credit rating at levels that remain above investment grade. In either case, if the applicable credit rating were to fall below investment grade, and assuming no assignment to an investment grade affiliate were allowed, most of these credit contingent features require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization on derivative instruments in net liability positions.
Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of PPL's, obligationLKE's, LG&E's and KU's obligations under the contract.contracts. A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity. This would typically involve negotiations among the parties. However, amounts disclosed below represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" features.
(All Registrants except PPL, ElectricLKE and KU)LG&E)
At December 31, 2014,2016, derivative contracts in a net liability position that contain credit risk-related contingent features, collateral posted on those positions and the related effect of a decrease in credit ratings below investment grade are summarized as follows: |
| | | | | | | | | | | | |
| | | PPL | | LKE | | LG&E |
| Aggregate fair value of derivative instruments in a net liability position with credit risk-related contingent features | | $ | 13 |
| | $ | 13 |
| | $ | 13 |
|
| Aggregate fair value of collateral posted on these derivative instruments | | 3 |
| | 3 |
| | 3 |
|
| Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a) | | 10 |
| | 10 |
| | 10 |
|
| | | | | | | | PPL | | | | | | |
| | | | | PPL | | Energy Supply | | LKE | | LG&E |
| | | | | | | | | | | | | | | |
| Aggregate fair value of derivative instruments in a net liability | | | | | | | | | | | | |
| | position with credit risk-related contingent features | | $ | 162 | | $ | 98 | | $ | 30 | | $ | 30 |
| Aggregate fair value of collateral posted on these derivative instruments | | | 127 | | | 106 | | | 21 | | | 21 |
| Aggregate fair value of additional collateral requirements in the event of | | | | | | | | | | | | |
| | a credit downgrade below investment grade (a) | | | 71 | (b) | 26 | (b) | 10 | | | 10 |
| |
| (a) | Includes the effect of net receivables and payables already recorded on the Balance Sheet. |
| (b) | During the second quarter of 2014, PPL Energy Supply experienced a downgrade in its corporate credit ratings to below investment grade. Amounts related to PPL Energy Supply represent net liability positions subject to further adequate assurance features. |
18. Goodwill and Other Intangible Assets
Goodwill
(PPL)
The changes in the carrying amount of goodwill by segment were:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | U.K. Regulated | | Kentucky Regulated | | Total |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Balance at beginning of period (a) | $ | 2,888 |
| | $ | 3,005 |
| | $ | 662 |
| | $ | 662 |
| | $ | 3,550 |
| | $ | 3,667 |
|
| Effect of foreign currency exchange rates | (490 | ) | | (117 | ) | | |
| | |
| | (490 | ) | | (117 | ) |
| Balance at end of period (a) | $ | 2,398 |
| | $ | 2,888 |
| | $ | 662 |
| | $ | 662 |
| | $ | 3,060 |
| | $ | 3,550 |
|
18. Goodwill and Other Intangible Assets |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (PPL) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The changes in the carrying amount of goodwill by segment were: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | U.K. Regulated | | Kentucky Regulated | | Supply | | Total |
| | | | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of period (a) | | $ | 3,143 | | $ | 3,076 | | $ | 662 | | $ | 662 | | $ | 420 | | $ | 420 | | $ | 4,225 | | $ | 4,158 |
| | Allocation to discontinued operations (b) | | | | | | | | | | | | | | | (82) | | | | | | (82) | | | |
| | Effect of foreign currency exchange rates | | | (138) | | | 67 | | | | | | | | | | | | | | | (138) | | | 67 |
| Balance at end of period (a) | | $ | 3,005 | | $ | 3,143 | | $ | 662 | | $ | 662 | | $ | 338 | | $ | 420 | | $ | 4,005 | | $ | 4,225 |
| |
| (a) | There were no accumulated impairment losses related to goodwill. |
(b) | Represents goodwill allocated to the Montana hydroelectric generating facilities that were sold in November 2014. See Note 8 for additional information. |
For PPL Energy Supply, the change in carrying amount of goodwill for the year ended December 31, 2014 was due to goodwill allocated to the Montana hydroelectric generating facilities which were sold in November 2014. See Note 8 for additional information.
| Other Intangible Assets |
| | | | | | | | | | | | | | | |
| (PPL) |
| | | | | | | | | | | | | | | |
| The gross carrying amount and the accumulated amortization of other intangible assets were: |
| | | | | | | | | | | | | | | |
| | | | | December 31, 2014 | | December 31, 2013 |
| | | | | Gross | | | | | Gross | | | |
| | | | | Carrying | | Accumulated | | Carrying | | Accumulated |
| | | | | Amount | | Amortization | | Amount | | Amortization |
| Subject to amortization: | | | | | | | | | | | | |
| | Contracts (a) | | $ | 408 | | $ | 250 | | $ | 408 | | $ | 202 |
| | Land and transmission rights | | | 359 | | | 121 | | | 331 | | | 117 |
| | Emission allowances/RECs (b) | | | 15 | | | | | | 16 | | | |
| | Licenses and other (c) | | | 280 | | | 25 | | | 305 | | | 45 |
| Total subject to amortization | | | 1,062 | | | 396 | | | 1,060 | | | 364 |
| | | | | | | | | | | | | | | |
| Not subject to amortization due to indefinite life: | | | | | | | | | | | | |
| | Land and transmission rights | | | 16 | | | | | | 16 | | | |
| | Easements | | | 250 | | | | | | 239 | | | |
| Total not subject to amortization due to indefinite life | | | 266 | | | | | | 255 | | | |
| Total | | $ | 1,328 | | $ | 396 | | $ | 1,315 | | $ | 364 |
The gross carrying amount and the accumulated amortization of other intangible assets were:
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Subject to amortization: | | | | | | | |
| Contracts (a) | $ | 405 |
| | $ | 325 |
| | $ | 407 |
| | $ | 300 |
|
| Land and transmission rights | 362 |
| | 115 |
| | 337 |
| | 111 |
|
| Emission allowances/RECs (b) | 2 |
| | — |
| | 5 |
| | — |
|
| Licenses and other | 6 |
| | 2 |
| | 10 |
| | 5 |
|
| Total subject to amortization | 775 |
| | 442 |
| | 759 |
| | 416 |
|
| | | | | | | | |
| Not subject to amortization due to indefinite life: | | | | | | | |
| Land and transmission rights | 19 |
| | — |
| | 33 |
| | — |
|
| Easements (c) | 348 |
| | — |
| | 303 |
| | — |
|
| Total not subject to amortization due to indefinite life | 367 |
| | — |
| | 336 |
| | — |
|
| Total | $ | 1,142 |
| | $ | 442 |
| | $ | 1,095 |
| | $ | 416 |
|
| |
| (a) | Gross carrying amount includes the fair value at the acquisition date of the OVEC power purchase contract and coal contracts with terms favorable to market recognized as a result of the 2010 acquisition of LKE by PPL. Offsetting regulatory liabilities were recorded related to these contracts, which are being amortized over the same period as the intangible assets, eliminating any income statement impact. This is referred to as "regulatory offset" in the tables below. See Note 6 for additional information. |
| |
| (b) | Emission allowances/RECs are expensed when consumed or sold; therefore, there is no accumulated amortization. |
| |
| (c) | "Other" includes costs for the development of licenses, the most significant of which is the COLA. Amortization of these costs begins when the related asset is placed in service. See Note 8 for additional information on the COLA. The increase during 2016 was primarily from increases at WPD. |
Current intangible assets are included in "Other current assets" and long-term intangible assets are included in "Other intangibles" on the Balance Sheets.
|
| | | | | | | | | | | |
| Amortization Expense was as follows: | | | | | |
| | 2016 | | 2015 | | 2014 |
| Intangible assets with no regulatory offset | $ | 6 |
| | $ | 6 |
| | $ | 6 |
|
| Intangible assets with regulatory offset | 24 |
| | 51 |
| | 47 |
|
| Total | $ | 30 |
| | $ | 57 |
| | $ | 53 |
|
Amortization expense for each of the next five years, ended December 31, excluding insignificant amounts for consumption of emission allowances/RECs, is estimated to be:
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| Intangible assets with no regulatory offset | $ | 6 |
| | $ | 6 |
| | $ | 6 |
| | $ | 6 |
| | $ | 6 |
|
| Intangible assets with regulatory offset | 9 |
| | 9 |
| | 9 |
| | 8 |
| | 8 |
|
| Total | $ | 15 |
| | $ | 15 |
| | $ | 15 |
| | $ | 14 |
| | $ | 14 |
|
| | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | |
| Intangible assets with no regulatory offset | | $ | 10 | | $ | 10 | | $ | 14 |
| Intangible assets with regulatory offset | | | 47 | | | 51 | | | 47 |
| Total | | $ | 57 | | $ | 61 | | $ | 61 |
| Amortization expense for each of the next five years, excluding insignificant amounts for consumption of emission allowances/RECs, is estimated to be: |
| | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 |
| | | | | | | | | | | | | | | | |
| Intangible assets with no regulatory offset | | $ | 8 | | $ | 8 | | $ | 8 | | $ | 8 | | $ | 8 |
| Intangible assets with regulatory offset | | | 50 | | | 26 | | | 9 | | | 9 | | | 9 |
| Total | | $ | 58 | | $ | 34 | | $ | 17 | | $ | 17 | | $ | 17 |
| (PPL Energy Supply) |
| | | | | | | | | | | | | | | |
| The gross carrying amount and the accumulated amortization of other intangible assets were: |
| | | | | | | | | | | | | | | |
| | | | | December 31, 2014 | | December 31, 2013 |
| | | | | Gross | | | | | Gross | | | |
| | | | | Carrying | | Accumulated | | Carrying | | Accumulated |
| | | | | Amount | | Amortization | | Amount | | Amortization |
| Subject to amortization: | | | | | | | | | | | | |
| | Land and transmission rights | | $ | 17 | | $ | 14 | | $ | 17 | | $ | 14 |
| | Emission allowances/RECs (a) | | | 10 | | | | | | 11 | | | |
| | Licenses and other (b) | | | 270 | | | 19 | | | 295 | | | 39 |
| Total subject to amortization | | $ | 297 | | $ | 33 | | $ | 323 | | $ | 53 |
| Emission allowances/RECs are expensed when consumed or sold; therefore, there is no accumulated amortization. |
(b) | "Other" includes costs for the development of licenses, the most significant of which is the COLA. Amortization of these costs begins when the related asset is placed in service. See Note 8 for additional information on the COLA. |
CurrentThe gross carrying amount and the accumulated amortization of other intangible assets are included in "Other current assets" and long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.were:
Amortization expense for the years ended December 31, excluding consumption of emission allowances/RECs of $24 million, $23 million and $12 million in 2014, 2013, and 2012 was as follows: |
| | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Subject to amortization: | | | | | | | |
| Land and transmission rights | $ | 341 |
| | $ | 112 |
| | $ | 316 |
| | $ | 108 |
|
| Licenses and other | 3 |
| | 1 |
| | 4 |
| | 1 |
|
| Total subject to amortization | 344 |
| | 113 |
| | 320 |
| | 109 |
|
| | | | | | | | |
| Not subject to amortization due to indefinite life: | | | | | | | |
| Land and transmission rights | 20 |
| | — |
| | 33 |
| | — |
|
| Total | $ | 364 |
| | $ | 113 |
| | $ | 353 |
| | $ | 109 |
|
| | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | |
| Amortization expense | | $ | 4 | | $ | 5 | | $ | 9 |
Amortization expense and consumption of emission allowances/RECs is expected to be insignificant in future years. |
| (PPL Electric) |
| | | | | | | | | | | | | | | |
| The gross carrying amount and the accumulated amortization of other intangible assets were: |
| | | | | | | | | | | | | | | |
| | | | | December 31, 2014 | | December 31, 2013 |
| | | | | Gross | | | | | Gross | | | |
| | | | | Carrying | | Accumulated | | Carrying | | Accumulated |
| | | | | Amount | | Amortization | | Amount | | Amortization |
| Subject to amortization: | | | | | | | | | | | | |
| | Land and transmission rights | | $ | 321 | | $ | 105 | | $ | 293 | | $ | 102 |
| | Licenses and other | | | 4 | | | 1 | | | 5 | | | 1 |
| Total subject to amortization | | | 325 | | | 106 | | | 298 | | | 103 |
| | | | | | | | | | | | | | | |
| | | | | December 31, 2014 | | December 31, 2013 |
| | | | | Gross | | | | | Gross | | | |
| | | | | Carrying | | Accumulated | | Carrying | | Accumulated |
| | | | | Amount | | Amortization | | Amount | | Amortization |
| Not subject to amortization due to indefinite life: | | | | | | | | | | | | |
| | Land and transmission rights | | | 16 | | | | | | 16 | | | |
| Total | | $ | 341 | | $ | 106 | | $ | 314 | | $ | 103 |
Intangible assets are shown as "Intangibles" on the Balance Sheets.
Amortization expense was insignificant in 2014, 20132016, 2015 and 20122014 and is expected to be insignificant in future years.
| (LKE) |
| | | | | | | | | | | | | | | |
| The gross carrying amount and the accumulated amortization of other intangible assets were: |
| | | | | | | | | | | | | | | |
| | | | | December 31, 2014 | | December 31, 2013 |
| | | | | Gross | | | | | Gross | | | |
| | | | | Carrying | | Accumulated | | Carrying | | Accumulated |
| | | | | Amount | | Amortization | | Amount | | Amortization |
| Subject to amortization: | | | | | | | | | | | | |
| | Coal contracts (a) | | $ | 269 | | $ | 210 | | $ | 269 | | $ | 171 |
| | Land and transmission rights | | | 21 | | | 2 | | | 20 | | | 2 |
| | Emission allowances (b) | | | 3 | | | | | | 4 | | | |
| | OVEC power purchase agreement (c) | | | 126 | | | 33 | | | 126 | | | 25 |
| Total subject to amortization | | $ | 419 | | $ | 245 | | $ | 419 | | $ | 198 |
The gross carrying amount and the accumulated amortization of other intangible assets were:
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Subject to amortization: | | | | | | | |
| Coal contracts (a) | $ | 269 |
| | $ | 269 |
| | $ | 269 |
| | $ | 252 |
|
| Land and transmission rights | 21 |
| | 3 |
| | 21 |
| | 2 |
|
| Emission allowances (b) | — |
| | — |
| | 3 |
| | — |
|
| OVEC power purchase agreement (c) | 126 |
| | 49 |
| | 126 |
| | 42 |
|
| Total subject to amortization | $ | 416 |
| | $ | 321 |
| | $ | 419 |
| | $ | 296 |
|
| |
| (a) | Gross carrying amount represents the fair value at the acquisition date of coal contracts with terms favorable to market recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to these contracts, which is beingwas amortized over the same period as the intangible assets, eliminating any income statement impact. See Note 6 for additional information. |
| |
| (b) | Emission allowances/RECsallowances are expensed when consumed or sold; therefore, there is no accumulated amortization. |
| |
| (c) | Gross carrying amount represents the fair value at the acquisition date of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to this contract, which is being amortized over the same period as the intangible asset, eliminating any income statement impact. See Note 6 for additional information. |
Current intangible assets are included in "Other current assets" on the Balance Sheets. Long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.
Amortization expense was as follows:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Intangible assets with no regulatory offset | $ | 1 |
| | $ | — |
| | $ | — |
|
| Intangible assets with regulatory offset | 24 |
| | 51 |
| | 47 |
|
| Total | $ | 25 |
| | $ | 51 |
| | $ | 47 |
|
Amortization expense for each of the next five years is estimated to be:
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| Intangible assets with regulatory offset | $ | 9 |
| | $ | 9 |
| | $ | 9 |
| | $ | 8 |
| | $ | 8 |
|
| Amortization expense was as follows: |
| | | | | | | | | | |
| | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | |
| Intangible assets with no regulatory offset | | | | | $ | 1 | | | |
| Intangible assets with regulatory offset | | $ | 47 | | | 51 | | $ | 47 |
| Total | | $ | 47 | | $ | 52 | | $ | 47 |
| Amortization expense for each of the next five years, excluding consumption of emission allowances, is estimated to be: |
| | | | | | | | | | | | | | | | |
| | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 |
| | | | | | | | | | | | | | | | |
| Intangible assets with regulatory offset | | $ | 50 | | $ | 26 | | $ | 9 | | $ | 9 | | $ | 9 |
| (LG&E) | |
| | | | | | | | | | | | |
| The gross carrying amount and the accumulated amortization of other intangible assets were: | |
| | | | | | | | | | | | |
| | | | | December 31, 2014 | | December 31, 2013 | |
| | | | | Gross | | | | Gross | | | | | | | | | | | |
| | | | | Carrying | | Accumulated | | Carrying | | Accumulated | December 31, 2016 | | December 31, 2015 |
| | | | | Amount | | Amortization | | Amount | | Amortization | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Subject to amortization: | Subject to amortization: | | | | | | | | | | | | | | | |
| | Coal contracts (a) | | $ | 124 | | $ | 98 | | $ | 124 | | $ | 81 | |
| | Land and transmission rights | | 7 | | 1 | | 7 | | 1 | |
| | Emission allowances (b) | | 1 | | | | 1 | | | |
| | OVEC power purchase agreement (c) | | | 87 | | | 23 | | | 87 | | | 17 | |
| Coal contracts (a) | | $ | 124 |
| | $ | 124 |
| | $ | 124 |
| | $ | 116 |
|
| Land and transmission rights | | 7 |
| | 1 |
| | 7 |
| | 1 |
|
| Emission allowances (b) | | — |
| | — |
| | 1 |
| | — |
|
| OVEC power purchase agreement (c) | | 87 |
| | 34 |
| | 87 |
| | 29 |
|
| Total subject to amortization | Total subject to amortization | | $ | 219 | | $ | 122 | | $ | 219 | | $ | 99 | $ | 218 |
| | $ | 159 |
| | $ | 219 |
| | $ | 146 |
|
| |
| (a) | Gross carrying amount represents the fair value at the acquisition date of coal contracts with terms favorable to market recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to these contracts, which is beingwas amortized over the same period as the intangible assets, eliminating any income statement impact. See Note 6 for additional information. |
| |
| (b) | Emission allowances/RECsallowances are expensed when consumed or sold; therefore, there is no accumulated amortization. |
| |
| (c) | Gross carrying amount represents the fair value at the acquisition date of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to this contract, which is being amortized over the same period as the intangible asset, eliminating any income statement impact. See Note 6 for additional information. |
Current intangible assets are included in "Other current assets" on the Balance Sheets. Long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.
| Amortization expense was as follows: |
| | | | | | | | | | |
| | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | |
| Intangible assets with regulatory offset | | $ | 23 | | $ | 23 | | $ | 23 |
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Intangible assets with regulatory offset | $ | 13 |
| | $ | 24 |
| | $ | 23 |
|
| Amortization expense for each of the next five years, excluding consumption of emission allowances, is estimated to be: |
| | | | | | | | | | | | | | | | |
| | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 |
| | | | | | | | | | | | | | | | |
| Intangible assets with regulatory offset | | $ | 24 | | $ | 13 | | $ | 6 | | $ | 6 | | $ | 6 |
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| Intangible assets with regulatory offset | $ | 6 |
| | $ | 6 |
| | $ | 6 |
| | $ | 6 |
| | $ | 6 |
|
| (KU) |
| | | | | | | | | | | | | | | |
| The gross carrying amount and the accumulated amortization of other intangible assets were: |
| | | | | | | | | | | | | | | |
| | | | | December 31, 2014 | | December 31, 2013 |
| | | | | Gross | | | | | Gross | | | |
| | | | | Carrying | | Accumulated | | Carrying | | Accumulated |
| | | | | Amount | | Amortization | | Amount | | Amortization |
| Subject to amortization: | | | | | | | | | | | | |
| | Coal contracts (a) | | $ | 145 | | $ | 112 | | $ | 145 | | $ | 90 |
| | Land and transmission rights | | | 14 | | | 1 | | | 13 | | | 1 |
| | Emission allowances (b) | | | 2 | | | | | | 3 | | | |
| | OVEC power purchase agreement (c) | | | 39 | | | 10 | | | 39 | | | 8 |
| Total subject to amortization | | $ | 200 | | $ | 123 | | $ | 200 | | $ | 99 |
The gross carrying amount and the accumulated amortization of other intangible assets were:
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Subject to amortization: | | | | | | | |
| Coal contracts (a) | $ | 145 |
| | $ | 145 |
| | $ | 145 |
| | $ | 136 |
|
| Land and transmission rights | 14 |
| | 2 |
| | 14 |
| | 1 |
|
| Emission allowances (b) | — |
| | — |
| | 2 |
| | — |
|
| OVEC power purchase agreement (c) | 39 |
| | 15 |
| | 39 |
| | 13 |
|
| Total subject to amortization | $ | 198 |
| | $ | 162 |
| | $ | 200 |
| | $ | 150 |
|
| |
| (a) | Gross carrying amount represents the fair value at the acquisition date of coal contracts with terms favorable to market recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to these contracts, which is beingwas amortized over the same period as the intangible assets, eliminating any income statement impact. See Note 6 for additional information. |
| |
| (b) | Emission allowances/RECsallowances are expensed when consumed or sold; therefore, there is no accumulated amortization. |
| |
| (c) | Gross carrying amount represents the fair value at the acquisition date of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to this contract, which is being amortized over the same period as the intangible asset, eliminating any income statement impact. See Note 6 for additional information. |
Current intangible assets are included in "Other current assets" on the Balance Sheets. Long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.
| Amortization expense was as follows: |
| | | | | | | | | | |
| | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | |
| Intangible assets with no regulatory offset | | | | | $ | 1 | | | |
| Intangible assets with regulatory offset | | $ | 24 | | | 28 | | $ | 24 |
| Total | | $ | 24 | | $ | 29 | | $ | 24 |
| Amortization expense for each of the next five years, excluding consumption of emission allowances, is estimated to be: | |
| | | | | | | | | | | | |
| | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | | | | | |
| | | | | | | | | | | | 2016 | | 2015 | | 2014 |
| Intangible assets with no regulatory offset | | $ | 1 |
| | $ | — |
| | $ | — |
|
| Intangible assets with regulatory offset | | $ | 26 | | $ | 13 | | $ | 3 | | $ | 3 | | $ | 3 | 11 |
| | 27 |
| | 24 |
|
| Total | | $ | 12 |
| | $ | 27 |
| | $ | 24 |
|
Amortization expense for each of the next five years is estimated to be:
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| Intangible assets with regulatory offset | $ | 3 |
| | $ | 3 |
| | $ | 3 |
| | $ | 2 |
| | $ | 2 |
|
19. Asset Retirement Obligations
(PPL)
WPD has recorded conditional AROs required by U.K. law related to treated wood poles, gas-filled switchgear and fluid-filled cables.
(PPL and PPL Energy Supply)
PPL Energy Supply has recorded AROs to reflect various legal obligations associated with the retirement of long-lived assets, the most significant of which relates to the decommissioning of the Susquehanna nuclear plant. Assets in the NDT funds are legally restricted for the purpose of settling this ARO. See Notes 16 and 20 for additional information on the nuclear decommissioning trust funds. Other AROs recorded relate to various environmental requirements for coal piles, ash basins and other waste basin retirements.
PPL Energy Supply has recorded several conditional AROs, the most significant of which is related to the removal and disposal of asbestos-containing material. In addition to the AROs that were recorded for asbestos-containing material, PPL Energy Supply identified other asbestos-related obligations, but was unable to reasonably estimate their fair values. PPL Energy Supply management was unable to reasonably estimate a settlement date or range of settlement dates for the remediation of all of the asbestos-containing material at certain of the generation plants. If economic events or other circumstances change that enable PPL Energy Supply to reasonably estimate the fair value of these retirement obligations, they will be recorded at that time.
PPL Energy Supply also identified legal retirement obligations associated with the retirement of a reservoir that could not be reasonably estimated due to an indeterminable settlement date.
(PPL and PPL Electric)
PPL Electric has identified legal retirement obligations for the retirement of certain transmission assets that could not be reasonably estimated due to indeterminable settlement dates. These assets are located on rights-of-way that allow the grantor to require PPL Electric to relocate or remove the assets. Since this option is at the discretion of the grantor of the right-of-way, PPL Electric is unable to determine when these events may occur.
(PPL, LKE, LG&E and KU)
LG&E's and KU's AROs are primarily related to the final retirement of assets associated with generating units. 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. As described in Notes 1 and 6, for LKE, LG&E's&E and KU'sKU, all ARO accretion and depreciation expenseexpenses are recordedreclassified as a regulatory asset, such that there is no earnings impact. In 2014, AROs were revalued primarily dueasset. ARO regulatory assets associated with approved ECR projects for CCRs are amortized to updates in the estimated cash flows for ash pondsexpense over a period of 10 to 25 years based on updatedretirement expenditures made related to the obligation. For other AROs, at the time of retirement, the related ARO regulatory asset is offset against the associated cost estimates. In 2013, AROs were revalued primarily due to updates in the estimated cash flows for ash pondsof removal regulatory liability, PP&E and CCR surface impoundments based on updated cost estimates.ARO liability.
(All Registrants except PPL Electric)
The changes in the carrying amounts of AROs were as follows. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | PPL | | LKE | | LG&E | | KU |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| ARO at beginning of period | $ | 586 |
| | $ | 336 |
| | $ | 535 |
| | $ | 285 |
| | $ | 175 |
| | $ | 74 |
| | $ | 360 |
| | $ | 211 |
|
| Accretion | 24 |
| | 19 |
| | 22 |
| | 18 |
| | 7 |
| | 5 |
| | 15 |
| | 13 |
|
| Obligations incurred | — |
| | 5 |
| | — |
| | 5 |
| | — |
| | 3 |
| | — |
| | 2 |
|
| Changes in estimated timing or cost | (84 | ) | | 235 |
| | (95 | ) | | 234 |
| | (19 | ) | | 98 |
| | (76 | ) | | 136 |
|
| Effect of foreign currency exchange rates | (9 | ) | | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Obligations settled | (29 | ) | | (7 | ) | | (29 | ) | | (7 | ) | | (18 | ) | | (5 | ) | | (11 | ) | | (2 | ) |
| ARO at end of period | $ | 488 |
| | $ | 586 |
| | $ | 433 |
| | $ | 535 |
| | $ | 145 |
| | $ | 175 |
| | $ | 288 |
| | $ | 360 |
|
LKE recorded decreases of $114 million ($90 million at KU and $24 million at LG&E) to the existing AROs during 2016 related to the closure of CCR impoundments. These revisions are the result of changes in closure plans related to expected costs and timing of closures. Further changes to AROs, capital plans or operating costs may be required as estimates of future cash flows are refined based on closure developments and regulatory or legal proceedings.
LKE recorded increases of $228 million ($139 million at KU and $89 million at LG&E) to the existing AROs during 2015 as a result of an engineering study that was performed, in connection with the final CCR rule, providing clarity on projected CCR closure costs and revisions in the timing and amounts of future expected cash flows. Further increases to AROs or changes to current capital plans or to operating costs may be required as estimates of future cash flows are refined based on closure developments, groundwater monitoring results and regulatory or legal proceedings.
| | | | | PPL | | PPL Energy Supply |
| | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | |
| ARO at beginning of period | | $ | 705 | | $ | 552 | | $ | 404 | | $ | 375 |
| | Accretion | | | 48 | | | 38 | | | 32 | | | 29 |
| | Obligations incurred | | | 14 | | | 6 | | | 13 | | | 6 |
| | Changes in estimated cash flow or settlement date | | | 9 | | | 123 | | | (16) | | | 1 |
| | Effect of foreign currency exchange rates | | | (2) | | | 1 | | | | | | |
| | Obligations settled | | | (13) | | | (15) | | | (8) | | | (7) |
| ARO at end of period | | $ | 761 | | $ | 705 | | $ | 425 | | $ | 404 |
| | | | | LKE | | LG&E | | KU |
| | | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | |
| ARO at beginning of period | | $ | 252 | | $ | 131 | | $ | 74 | | $ | 62 | | $ | 178 | | $ | 69 |
| | Accretion | | | 14 | | | 7 | | | 4 | | | 3 | | | 10 | | | 4 |
| | Obligations incurred | | | 1 | | | | | | | | | | | | 1 | | | |
| | Changes in estimated cash flow | | | | | | | | | | | | | | | | | | |
| | | or settlement date | | | 23 | | | 122 | | | 1 | | | 17 | | | 22 | | | 105 |
| | Obligations settled | | | (5) | | | (8) | | | (5) | | | (8) | | | | | | |
| ARO at end of period | | $ | 285 | | $ | 252 | | $ | 74 | | $ | 74 | | $ | 211 | | $ | 178 |
Substantially all of the ARO balances are classified as noncurrent at December 31, 2014 and 2013.
See Note 13 for information on CCRs regulation that could require the recording of additional AROs in 2015.
20. Available-for-Sale Securities
(PPLfinal CCR rule and PPL Energy Supply)
Securities held by the NDT funds and auction rate securities are classified as available-for-sale.
The following table shows the amortized cost, the gross unrealized gains and losses recorded in AOCI and the fair value of available-for-sale securities.
| | | | | | | | December 31, 2014 | | December 31, 2013 |
| | | | | | | | | | | Gross | | Gross | | | | | | | Gross | | Gross | | |
| | | | | | | | Amortized | | Unrealized | | Unrealized | | | | Amortized | | Unrealized | | Unrealized | | |
| | | | | | | | Cost | | Gains | | Losses | | Fair Value | | Cost | | Gains | | Losses | | Fair Value |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NDT funds: | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL and PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash and cash equivalents | | $ | 19 | | | | | | | | $ | 19 | | $ | 14 | | | | | | | | $ | 14 |
| | | Equity securities | | | 283 | | $ | 417 | | | | | | 700 | | | 265 | | $ | 363 | | | | | | 628 |
| | | Debt securities | | | 218 | | | 11 | | | | | | 229 | | | 217 | | | 7 | | $ | 3 | | | 221 |
| | | Receivables/payables, net | | | 2 | | | | | | | | | 2 | | | 1 | | | | | | | | | 1 |
| | | Total NDT funds | | $ | 522 | | $ | 428 | | | | | $ | 950 | | $ | 497 | | $ | 370 | | $ | 3 | | $ | 864 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Auction rate securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | PPL | | $ | 11 | | | | | $ | 1 | | $ | 10 | | $ | 20 | | | | | $ | 1 | | $ | 19 |
| | PPL Energy Supply | | | 8 | | | | | | | | | 8 | | | 17 | | | | | | 1 | | | 16 |
See Note 166 for detailsinformation on the securities held byrate recovery applications with the NDT funds.KPSC.
There were no securities with credit losses at December 31, 2014 and 2013.
The following table shows the scheduled maturity dates of debt securities held at December 31, 2014.
| | | | Maturity | | Maturity | | Maturity | | Maturity | | | |
| | | | Less Than | 1-5 | 6-10 | in Excess | | |
| | | | 1 Year | Years | Years | of 10 Years | Total |
| PPL | | | | | | | | | | | | | | | |
| Amortized cost | | $ | 10 | | $ | 87 | | $ | 64 | | $ | 68 | | $ | 229 |
| Fair value | | | 10 | | | 89 | | | 67 | | | 73 | | | 239 |
| | | | | | | | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | | | | | | | |
| Amortized cost | | $ | 10 | | $ | 87 | | $ | 64 | | $ | 65 | | $ | 226 |
| Fair value | | | 10 | | | 89 | | | 67 | | | 71 | | | 237 |
The following table shows proceeds from and realized gains and losses on sales of available-for-sale securities. |
| | | | | | | | | | |
| | | | 2014 | | 2013 | | 2012 |
| PPL | | | | | | | | | |
| Proceeds from sales of NDT securities (a) | | $ | 154 | | $ | 144 | | $ | 139 |
| Other proceeds from sales | | | 9 | | | | | | 5 |
| Gross realized gains (b) | | | 23 | | | 17 | | | 29 |
| Gross realized losses (b) | | | 10 | | | 7 | | | 21 |
| | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | |
| Proceeds from sales of NDT securities (a) | | $ | 154 | | $ | 144 | | $ | 139 |
| Other proceeds from sales | | | 9 | | | | | | 3 |
| Gross realized gains (b) | | | 23 | | | 17 | | | 29 |
| Gross realized losses (b) | | | 10 | | | 7 | | | 21 |
| These proceeds are used to pay income taxes and fees related to managing the trust. Remaining proceeds are reinvested in the trust. |
(b) | Excludes the impact of other-than-temporary impairment charges recognized on the Statements of Income. |
Amounts previously collected from PPL Electric's customers for decommissioning the Susquehanna nuclear plant, less applicable taxes, were deposited in external trust funds for investment and can only be used for future decommissioning costs. To the extent that the actual costs for decommissioning exceed the amounts in the nuclear decommissioning trust funds, PPL Susquehanna would be obligated to fund 90% of the shortfall.
21.20. Accumulated Other Comprehensive Income (Loss)(PPL PPL Energy Supply and LKE)
The after-tax changes in AOCI by component for the years ended December 31 were as follows.
| | | | | Unrealized gains (losses) | | | | Defined benefit plans | | | | |
| | | Foreign | | | | | | | | | | | | | | | | | | |
| | | currency | | Available- | | | | | Equity | | Prior | | Actuarial | | Transition | | | | |
| | | translation | | for-sale | | Qualifying | | investees' | | service | | gain | | asset | | | | |
| | | adjustments | | securities | | derivatives | | AOCI | | costs | | (loss) | | (obligation) | | Total | |
| PPL | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2011 | $ | (243) | | $ | 90 | | $ | 527 | | $ | (1) | | $ | (25) | | $ | (1,137) | | $ | 1 | | $ | (788) | |
| OCI | | 94 | | | 22 | | | (395) | | | 2 | | | 11 | | | (886) | | | | | | (1,152) | |
| December 31, 2012 | $ | (149) | | $ | 112 | | $ | 132 | | $ | 1 | | $ | (14) | | $ | (2,023) | | $ | 1 | | $ | (1,940) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amounts arising during the year | | 138 | | | 67 | | | 45 | | | | | | 2 | | | 71 | | | | | | 323 | |
| Reclassifications from AOCI | | | | | (6) | | | (83) | | | | | | 6 | | | 135 | | | | | | 52 | |
| Net OCI during the year | | 138 | | | 61 | | | (38) | | | | | | 8 | | | 206 | | | | | | 375 | |
| December 31, 2013 | $ | (11) | | $ | 173 | | $ | 94 | | $ | 1 | | $ | (6) | | $ | (1,817) | | $ | 1 | | $ | (1,565) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amounts arising during the year | | (275) | | | 35 | | | (10) | | | | | | 5 | | | (509) | | | | | | (754) | |
| Reclassifications from AOCI | | | | | (6) | | | (64) | | | | | | 4 | | | 111 | | | | | | 45 | |
| Net OCI during the year | | (275) | | | 29 | | | (74) | | | | | | 9 | | | (398) | | | | | | (709) | |
| December 31, 2014 | $ | (286) | | $ | 202 | | $ | 20 | | $ | 1 | | $ | 3 | | $ | (2,215) | | $ | 1 | | $ | (2,274) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2011 | | | | $ | 90 | | $ | 606 | | | | | $ | (16) | | $ | (193) | | | | | $ | 487 | |
| OCI | | | | | 22 | | | (395) | | | | | | 6 | | | (72) | | | | | | (439) | |
| December 31, 2012 | | | | $ | 112 | | $ | 211 | | | | | $ | (10) | | $ | (265) | | | | | $ | 48 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amounts arising during the year | | | | | 67 | | | | | | | | | 2 | | | 71 | | | | | | 140 | |
| Reclassifications from AOCI | | | | | (6) | | | (123) | | | | | | 4 | | | 14 | | | | | | (111) | |
| Net OCI during the year | | | | | 61 | | | (123) | | | | | | 6 | | | 85 | | | | | | 29 | |
| December 31, 2013 | | | | $ | 173 | | $ | 88 | | | | | $ | (4) | | $ | (180) | | | | | $ | 77 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amounts arising during the year | | | | | 35 | | | | | | | | | 8 | | | (120) | | | | | | (77) | |
| Reclassifications from AOCI | | | | | (6) | | | (25) | | | | | | 3 | | | 5 | | | | | | (23) | |
| Net OCI during the year | | | | | 29 | | | (25) | | | | | | 11 | | | (115) | | | | | | (100) | |
| December 31, 2014 | | | | $ | 202 | | $ | 63 | | | | | $ | 7 | | $ | (295) | | | | | $ | (23) | |
| | | | | Unrealized gains (losses) | | | | Defined benefit plans | | | |
| | | Foreign | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | currency | | Available- | | | | Equity | | Prior | | Actuarial | | Transition | | | | | Unrealized gains (losses) | | | | Defined benefit plans | | |
| | | translation | | for-sale | | Qualifying | | investees' | | service | | gain | | asset | | | Foreign currency translation adjustments | | Available- for-sale securities | | Qualifying derivatives | | Equity investees' AOCI | | Prior service costs | | Actuarial gain (loss) | | Total |
| | adjustments | | securities | | derivatives | | AOCI | | costs | | (loss) | | (obligation) | | Total | |
| LKE | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2011 | | | | | | | | | | $ | (2) | | $ | 6 | | | | $ | 4 | |
| OCI | | | | | | | | | | $ | 1 | | | | | | (20) | | | | | | (19) | |
| December 31, 2012 | | | | | | | | | | $ | 1 | | $ | (2) | | $ | (14) | | | | | $ | (15) | |
| | | | | | | | | | | | | | | | | | | |
| PPL | | | | | | | | | | | | | | |
| December 31, 2013 | | $ | (11 | ) | | $ | 172 |
| | $ | 94 |
| | $ | 1 |
| | $ | (6 | ) | | $ | (1,815 | ) | | $ | (1,565 | ) |
| Amounts arising during the year | Amounts arising during the year | | | | | | | | | | | | 28 | | | | 28 | (275 | ) | | 35 |
| | (10 | ) | | — |
| | 5 |
| | (509 | ) | | (754 | ) |
| Reclassifications from AOCI | | — |
| | (6 | ) | | (64 | ) | | — |
| | 4 |
| | 111 |
| | 45 |
|
| Net OCI during the year | Net OCI during the year | | | | | | | | | | | | | | | | | 28 | | | | | | 28 | (275 | ) | | 29 |
| | (74 | ) | | — |
| | 9 |
| | (398 | ) | | (709 | ) |
| December 31, 2013 | | | | | | | | | | $ | 1 | | $ | (2) | | $ | 14 | | | | | $ | 13 | |
| December 31, 2014 | | $ | (286 | ) | | $ | 201 |
| | $ | 20 |
| | $ | 1 |
| | $ | 3 |
| | $ | (2,213 | ) | | $ | (2,274 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amounts arising during the year | Amounts arising during the year | | | | | | | | | | (7) | | (50) | | | | (57) | (234 | ) | | 8 |
| | 26 |
| | — |
| | (9 | ) | | (366 | ) | | (575 | ) |
| Reclassifications from AOCI | Reclassifications from AOCI | | | | | | | | | | | (1) | | | 1 | | | (1) | | | | | | (1) | — |
| | (2 | ) | | 2 |
| | (1 | ) | | — |
| | 146 |
| | 145 |
|
| Net OCI during the year | Net OCI during the year | | | | | | | | | | | (1) | | | (6) | | | (51) | | | | | | (58) | (234 | ) | | 6 |
| | 28 |
| | (1 | ) | | (9 | ) | | (220 | ) | | (430 | ) |
Distribution of PPL Energy
Supply (See Note 8) | | — |
| | (207 | ) | | (55 | ) | | $ | — |
| | — |
| | 238 |
| | (24 | ) |
| December 31, 2015 | | $ | (520 | ) | | $ | — |
| | $ | (7 | ) | | $ | — |
| | $ | (6 | ) | | $ | (2,195 | ) | | $ | (2,728 | ) |
| | | | | | | | | | | | | | | |
| Amounts arising during the year | | (1,107 | ) | | — |
| | 91 |
| | — |
| | (3 | ) | | (61 | ) | | (1,080 | ) |
| Reclassifications from AOCI | | — |
| | — |
| | (91 | ) | | (1 | ) | | 1 |
| | 121 |
| | 30 |
|
| Net OCI during the year | | (1,107 | ) | | — |
| | — |
| | (1 | ) | | (2 | ) | | 60 |
| | (1,050 | ) |
| December 31, 2016 | | $ | (1,627 | ) | | $ | — |
| | $ | (7 | ) | | $ | (1 | ) | | $ | (8 | ) | | $ | (2,135 | ) | | $ | (3,778 | ) |
| | | | | | | | | | | | | | | |
| LKE | | | | | | | | | | | | | | |
| December 31, 2013 | | |
| | |
| | |
| | $ | 1 |
| | $ | (2 | ) | | $ | 14 |
| | $ | 13 |
|
| Amounts arising during the year | | |
| | |
| | |
| | — |
| | (7 | ) | | (50 | ) | | (57 | ) |
| Reclassifications from AOCI | | | | | | | | (1 | ) | | 1 |
| | (1 | ) | | (1 | ) |
| Net OCI during the year | | |
| | |
| | |
| | (1 | ) | | (6 | ) | | (51 | ) | | (58 | ) |
| December 31, 2014 | December 31, 2014 | | | | | | | | | | $ | | | $ | (8) | | $ | (37) | | | | | $ | (45) | |
| | |
| | |
| | $ | — |
| | $ | (8 | ) | | $ | (37 | ) | | $ | (45 | ) |
| | | | | | | | | | | | | | | |
| Amounts arising during the year | | |
| | |
| | |
| | — |
| | (3 | ) | | (4 | ) | | (7 | ) |
| Reclassifications from AOCI | | |
| | |
| | |
| | — |
| | 1 |
| | 5 |
| | 6 |
|
| Net OCI during the year | | |
| | |
| | |
| | — |
| | (2 | ) | | 1 |
| | (1 | ) |
| December 31, 2015 | | |
| | |
| | |
| | $ | — |
| | $ | (10 | ) | | $ | (36 | ) | | $ | (46 | ) |
| | | | | | | | | | | | | | | |
| Amounts arising during the year | | | | |
| | |
| | — |
| | — |
| | (27 | ) | | (27 | ) |
| Reclassifications from AOCI | | |
| | |
| | |
| | (1 | ) | | 2 |
| | 2 |
| | 3 |
|
| Net OCI during the year | | |
| | |
| | |
| | (1 | ) | | 2 |
| | (25 | ) | | (24 | ) |
| December 31, 2016 | | |
| | |
| | |
| | $ | (1 | ) | | $ | (8 | ) | | $ | (61 | ) | | $ | (70 | ) |
The following table presents thePPL's gains (losses) and related income taxes for reclassifications from AOCI for the years ended December 31, 20142016 and 2013.2015. LKE amounts are insignificant for the years ended December 31, 2016 and 2015. The defined benefit plan components of AOCI are not reflected in their entirety in the statement of income; rather, they are included in the
computation of net periodic defined benefit costs (credits). and subject to capitalization. See Note 11 for additional information. |
| | | | | | | | | | |
| | | PPL | | |
| Details about AOCI | | 2016 | | 2015 | | Affected Line Item on the Statements of Income |
| Available-for-sale securities | | $ | — |
| | $ | 4 |
| | Other Income (Expense) - net |
| Total Pre-tax | | — |
| | 4 |
| | |
| Income Taxes | | — |
| | (2 | ) | | |
| Total After-tax | | — |
| | 2 |
| | |
| | | | | | | |
| Qualifying derivatives | | | | | | |
| Interest rate swaps | | (7 | ) | | (11 | ) | | Interest Expense |
| | | — |
| | (77 | ) | | Discontinued operations |
| Cross-currency swaps | | 116 |
| | 49 |
| | Other Income (Expense) - net |
| | | 3 |
| | 2 |
| | Interest Expense |
| Commodity contracts | | — |
| | 20 |
| | Discontinued operations |
| Total Pre-tax | | 112 |
| | (17 | ) | | |
| Income Taxes | | (21 | ) | | 15 |
| | |
| Total After-tax | | 91 |
| | (2 | ) | | |
| | | | | | | |
| Equity Investees' AOCI | | 1 |
| | 1 |
| | Other Income (Expense) - net |
| Total Pre-tax | | 1 |
| | 1 |
| | |
| Income Taxes | | — |
| | — |
| | |
| Total After-tax | | 1 |
| | 1 |
| | |
| | | | | | | |
| Defined benefit plans | | | | | | |
| Prior service costs | | (2 | ) | | — |
| | |
| Net actuarial loss | | (156 | ) | | (192 | ) | | |
| Total Pre-tax | | (158 | ) | | (192 | ) | | |
| Income Taxes | | 36 |
| | 46 |
| | |
| Total After-tax | | (122 | ) | | (146 | ) | | |
| Total reclassifications during the year | | $ | (30 | ) | | $ | (145 | ) | | |
| | | | PPL | | PPL Energy Supply | | Affected Line Item on the |
| Details about AOCI | | 2014 | | 2013 | | 2014 | | 2013 | | Statements of Income |
| | | | | | | | | | | | | | | |
| Available-for-sale securities | | $ | 13 | | $ | 10 | | $ | 13 | | $ | 10 | | Other Income (Expense) - net |
| Total Pre-tax | | | 13 | | | 10 | | | 13 | | | 10 | | |
| Income Taxes | | | (7) | | | (4) | | | (7) | | | (4) | | |
| Total After-tax | | | 6 | | | 6 | | | 6 | | | 6 | | |
| | | | | | | | | | | | | | | | |
| Qualifying derivatives | | | | | | | | | | | | | | |
| | Interest rate swaps | | | (16) | | | (20) | | | | | | | | Interest Expense |
| | Cross-currency swaps | | | 57 | | | (28) | | | | | | | | Other Income (Expense) - net |
| | | | | 4 | | | 1 | | | | | | | | Interest Expense |
| | Energy commodities | | | 1 | | | 240 | | | 1 | | | 240 | | Unregulated wholesale energy |
| | | | | 31 | | | (58) | | | 31 | | | (58) | | Energy purchases |
| | | | | 8 | | | 23 | | | 8 | | | 23 | | Discontinued operations |
| | | | | 2 | | | 5 | | | 2 | | | 2 | | Other |
| Total Pre-tax | | | 87 | | | 163 | | | 42 | | | 207 | | |
| Income Taxes | | | (23) | | | (80) | | | (17) | | | (84) | | |
| Total After-tax | | | 64 | | | 83 | | | 25 | | | 123 | | |
| | | | | | | | | | | | | | | | |
| Defined benefit plans | | | | | | | | | | | | | | |
| | Prior service costs | | | (7) | | | (10) | | | (4) | | | (7) | | |
| | Net actuarial loss | | | (145) | | | (184) | | | (9) | | | (24) | | |
| Total Pre-tax | | | (152) | | | (194) | | | (13) | | | (31) | | |
| Income Taxes | | | 37 | | | 53 | | | 5 | | | 13 | | |
| Total After-tax | | | (115) | | | (141) | | | (8) | | | (18) | | |
| | | | | | | | | | | | | | | | |
| Total reclassifications during the year | | $ | (45) | | $ | (52) | | $ | 23 | | $ | 111 | | |
22.21. New Accounting Guidance Pending Adoption
(All Registrants)
Reporting of Discontinued Operations
In April 2014, the Financial Accounting Standards Board (FASB) issued accounting guidance that changes the criteria for determining what should be classified as a discontinued operation and also changes the related presentation and disclosure requirements. A discontinued operation may include a component of an entity or a group of components of an entity, or a business activity.
A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results when any of the following occurs: (1) The components of an entity or group of components of an entity meets the criteria to be classified as held for sale, (2) The component of an entity or group of components of an entity is disposed of by sale, or (3) The component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).
For public business entities, this guidance should be applied prospectively to all disposals (or classifications as held for sale) of components of an entity that occur within the annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted.
The Registrants adopted this guidance effective January 1, 2015. The new guidance will impact the amounts presented as discontinued operations on the Statements of Income and will enhance the related disclosure requirements.
Accounting for Revenue from Contracts with Customers
In May 2014, the FASBFinancial Accounting Standards Board (FASB) issued accounting guidance that establishes a comprehensive new model for the recognition of revenue from contracts with customers. This model is based on the core principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
For public business entities, this guidance can be applied using either a full retrospective or modified retrospective transition method, beginning in annual reporting periods beginning after December 15, 20162017 and interim periods within those years. Early adoption is not permitted.Public business entities may early adopt this guidance in annual reporting periods beginning after December 15, 2016. The Registrants will adopt this guidance effective January 1, 2018.
The Registrants have performed an assessment of a significant portion of their revenue under this new guidance to determine its effect on their current revenue recognition policies, and at this time they do not believe it will have a material impact. However, the Registrants will continue to monitor the development of industry specific application guidance which could have an impact on their assessments. The Registrants will determine the transition method they will apply after the industry specific application guidance is final and the implications of using either the full retrospective or modified retrospective transition methods are known.
Accounting for Leases
In February 2016, the FASB issued accounting guidance for leases. This new guidance requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). For income statement purposes, the FASB retained a dual model for lessees, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines.
Lessor accounting under the new guidance is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Similar to current practice, lessors will classify leases as operating, direct financing, or sales-type.
The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented.
The Registrants are currently assessing the impact of adopting this guidance.
Accounting for Financial Instrument Credit Losses
In June 2016, the FASB issued accounting guidance 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 this 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 current GAAP.
For public business entities, this guidance will be applied using a modified retrospective approach and is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. All entities may early adopt this guidance beginning after December 15, 2018, including interim periods within those years.
The Registrants are currently assessing the impact of adopting this guidance and the period they will adopt it.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued 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 requires a calculation of the implied fair value of goodwill, which is determined in the same manner as the amount of goodwill in a business combination. Under this new guidance, an entity will now compare the estimated fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount the carrying amount exceeds the fair value of the reporting unit.
For public business entities, this guidance will be applied prospectively and is effective for annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019. All entities may early adopt this guidance for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
The Registrants are currently assessing the impact of adopting this guidance as well asand the transition methodperiod they will use.adopt it.
Reporting Uncertainties about an Entity's Ability to Continue as a Going Concern
In August 2014, the FASB issued accounting guidance which will require management to assess, for each interim and annual period, whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern. Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are issued.SCHEDULE I - PPL CORPORATION
CONDENSED UNCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, management is required to disclose information that enables usersFOR THE YEARS ENDED DECEMBER 31,
(Millions of the financial statements to understand the principal conditions or events that raised substantial doubt about the entity's ability to continue as a going concern and management's evaluation of the significance of those conditions or events. If substantial doubt about the entity's ability to continue as a going concern has been alleviated as a result of management's plan, the entity should disclose information that allows the users of the financial statements to understand those plans. If the substantial doubt about the entity's ability to continue as a going concern is not alleviated by management's plans, management's plans to mitigate the conditions or events that gave rise to the substantial doubt about the entity's ability to continue as a going concern should be disclosed, as well as a statement that there is substantial doubt the entity's ability to continue as a going concern within one year after the date the financial statements are issued.
For all entities, this guidance should be applied prospectively within the annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted.
The Registrants will adopt this guidance for the annual period ending December 31, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity
In November 2014, the FASB issued guidance that clarifies how current accounting guidance should be interpreted when evaluating the economic characteristics and risks of a host contract of a hybrid financial instrument issued in the form of a share. This guidance does not change the current criteria for determining whether separation of an embedded derivative
feature from a hybrid financial instrument is required. Entities are still required to evaluate whether the economic risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria.
An entity should consider the substantive terms and features of the entire hybrid financial instrument, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract to determine whether the host contract is more akin to a debt instrument or more akin to an equity instrument. An entity should assess the relative strength of the debt-like and equity-like terms and features when determining how to weight those terms and features.
For public business entities, this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and should be applied using a modified retrospective method for existing hybrid financial instruments issued in the form of aDollars, except share as of the beginning of the fiscal year the guidance is adopted. Early adoption is permitted. Retrospective application is permitted but not required.
The Registrants will adopt this guidance on January 1, 2016. The Registrants are currently assessing this guidance, which is not expected to have a significant impact on the Registrants.
Income Statement Presentation of Extraordinary and Unusual Items
In January 2015, the FASB issued accounting guidance that eliminates the concept of extraordinary items, which requires an entity to separately classify, present in the income statement and disclose material events and transactions that are both unusual and occur infrequently. The requirement to report material events or transactions that are unusual or infrequent as a separate component of income from continuing operations has been retained, as has the requirement to separately present the nature and financial effects of each event or transaction in the income statement as a separate component of continuing operations or disclose them within the notes to the financial statements. The scope of these requirements has been expanded to include items that are both unusual and occur infrequently.
For all entities, this guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted provided that an entity applies the guidance from the beginning of the fiscal year of adoption. The guidance may be applied either retrospectively or prospectively.
The Registrants will adopt this guidance on January 1, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
SCHEDULE I - PPL CORPORATION |
| CONDENSED UNCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| FOR THE YEARS ENDED DECEMBER 31, |
| (Millions of Dollars, except share data) |
| | | | | | | | | | | | |
| | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
Operating Revenues | | | | | | | | | |
| | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | |
Other operation and maintenance | | $ | 16 | | $ | 1 | | $ | 11 |
Total Operating Expenses | | | 16 | | | 1 | | | 11 |
| | | | | | | | | | | | |
Operating Loss | | | (16) | | | (1) | | | (11) |
| | | | | | | | | | | | |
| Other Income (Expense) - net | | | | | | | | | |
| | Equity in earnings of subsidiaries | | | 1,776 | | | 1,171 | | | 1,580 |
| | Other income (expense) | | | (18) | | | (13) | | | 1 |
| | | Total | | | 1,758 | | | 1,158 | | | 1,581 |
| | | | | | | | | | | | |
Interest Expense | | | 15 | | | 21 | | | 22 |
| | | | | | | | | | | | |
Interest Expense with Affiliates | | | 10 | | | 29 | | | 43 |
| | | | | | | | | | | | |
Income Before Income Taxes | | | 1,717 | | | 1,107 | | | 1,505 |
| | | | | | | | | | | | |
Income Taxes | | | (20) | | | (23) | | | (21) |
| | | | | | | | | | | | |
Net Income Attributable to PPL Shareowners | | $ | 1,737 | | $ | 1,130 | | $ | 1,526 |
| | | | | | | | | | | | |
Comprehensive Income (Loss) Attributable to PPL Shareowners | | $ | 1,028 | | $ | 1,505 | | $ | 374 |
| | | | | | | | | | | | |
| Earnings Per Share of Common Stock: | | | | | | | | | |
| | Net Income Available to PPL Common Shareowners: | | | | | | | | | |
| | | Basic | | $ | 2.64 | | $ | 1.85 | | $ | 2.61 |
| | | Diluted | | $ | 2.61 | | $ | 1.76 | | $ | 2.60 |
| | | | | | | | | | | | |
Weighted-Average Shares of Common Stock Outstanding (in thousands) | | | | | | | | | |
| | | Basic | | | 653,504 | | | 608,983 | | | 580,276 |
| | | Diluted | | | 665,973 | | | 663,073 | | | 581,626 |
| | | | | | | | | | | | |
| | | The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements. |
| SCHEDULE I - PPL CORPORATION |
| CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS |
| FOR THE YEARS ENDED DECEMBER 31, |
| (Millions of Dollars) | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | |
| Cash Flows from Operating Activities | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 1,633 | | $ | 968 | | $ | 937 |
| | | | | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | | |
| | Capital contributions to affiliated subsidiaries | | | (1,045) | | | (496) | | | (221) |
| | Return of capital from affiliated subsidiaries | | | 247 | | | 213 | | | |
Net cash provided by (used in) investing activities | | | (798) | | | (283) | | | (221) |
| | | | | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | | |
| | Issuance of equity, net of issuance costs | | | 1,074 | | | 1,411 | | | 72 |
| | Net increase (decrease) in short-term debt with affiliates | | | (913) | | | (1,057) | | | 149 |
| | Payment of common stock dividends | | | (967) | | | (878) | | | (833) |
| | Contract adjustment payments on Equity Units | | | (22) | | | (82) | | | (94) |
| | Repurchase of common stock | | | | | | (74) | | | |
| | Other | | | (7) | | | (5) | | | (10) |
Net cash provided by (used in) financing activities | | | (835) | | | (685) | | | (716) |
| | | | | | | | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | | | | | | | | |
Cash and Cash Equivalents at Beginning of Period | | | | | | | | | |
Cash and Cash Equivalents at End of Period | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Supplemental Disclosures of Cash Flow Information: | | | | | | | | | |
Cash Dividends Received from Affiliated Subsidiaries | | $ | 1,388 | | $ | 960 | | $ | 720 |
| | | | | | | | | | | | |
| The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements. |
| SCHEDULE I - PPL CORPORATION | | | | | | |
| CONDENSED UNCONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| (Millions of Dollars, shares in thousands) | | | | | | |
| | | | | | | | | |
| | | | | 2014 | | 2013 |
| Assets | | | | | | |
| | | | | | | | | |
| Current Assets | | | | | | |
| | Accounts Receivable | | | | | | |
| | | Other | | $ | 53 | | $ | 28 |
| | | Affiliates | | | 149 | | | 24 |
| | Prepayments | | | | | | 2 |
| | Deferred income taxes | | | 34 | | | |
| | Price risk management assets | | | 148 | | | 190 |
| | Total Current Assets | | | 384 | | | 244 |
| | | | | | | | | |
| Investments | | | | | | |
| | Affiliated companies at equity | | | 15,426 | | | 14,892 |
| | | | | | | | | |
Other Noncurrent Assets | | | 88 | | | 73 |
| | | | | | | | | |
Total Assets | | $ | 15,898 | | $ | 15,209 |
| | | | | | | | | |
| | | | | | | |
| Liabilities and Equity | | | | | | |
| | | | | | | | | |
| Current Liabilities | | | | | | |
| | Short-term debt with affiliates | | $ | 170 | | $ | 1,083 |
| | Accounts payable with affiliates | | | 1,513 | | | 1,251 |
| | Dividends | | | 249 | | | 233 |
| | Price risk management liabilities | | | 227 | | | 75 |
| | Other current liabilities | | | 70 | | | 46 |
| | Total Current Liabilities | | | 2,229 | | | 2,688 |
| | | | | | | | | |
| | | | | | | | | |
Deferred Credits and Other Noncurrent Liabilities | | | 41 | | | 55 |
| | | | | | | | | |
| Equity | | | | | | |
| | Common stock - $0.01 par value (a) | | | 7 | | | 6 |
| | Additional paid-in capital | | | 9,433 | | | 8,316 |
| | Earnings reinvested | | | 6,462 | | | 5,709 |
| | Accumulated other comprehensive loss | | | (2,274) | | | (1,565) |
| | Total Equity | | | 13,628 | | | 12,466 |
| | | | | | | | | |
Total Liabilities and Equity | | $ | 15,898 | | $ | 15,209 |
(a) | | | | | | | | | | | | | | | 2016 | | 2015 | | 2014 | | Operating Revenues | $ | — |
| | $ | — |
| | $ | — |
| | | | | | | | | Operating Expenses | | | | | | | Other operation and maintenance | 2 |
| | 9 |
| | 16 |
| | Total Operating Expenses | 2 |
| | 9 |
| | 16 |
| | | | | | | | | Operating Loss | (2 | ) | | (9 | ) | | (16 | ) | | | | | | | | | Other Income (Expense) - net | | | | | | | Equity in earnings of subsidiaries | 1,915 |
| | 711 |
| | 1,776 |
| | Other income (expense) | (1 | ) | | (15 | ) | | (18 | ) | | Total | 1,914 |
| | 696 |
| | 1,758 |
| | | | | | | | | Interest Expense | 8 |
| | 9 |
| | 15 |
| | | | | | | | | Interest Expense with Affiliates | 10 |
| | 10 |
| | 10 |
| | | | | | | | | Income Before Income Taxes | 1,894 |
| | 668 |
| | 1,717 |
| | | | | | | | | Income Taxes | (8 | ) | | (14 | ) | | (20 | ) | | | | | | | | | Net Income | $ | 1,902 |
| | $ | 682 |
| | $ | 1,737 |
| | | | | | | | | Comprehensive Income Attributable to PPL Shareowners | $ | 852 |
| | $ | 252 |
| | $ | 1,028 |
| | | | | | | | | Earnings Per Share of Common Stock: | | | | | | | Net Income Available to PPL Common Shareowners: | | | | | | | Basic | $ | 2.80 |
| | $ | 1.01 |
| | $ | 2.64 |
| | Diluted | $ | 2.79 |
| | $ | 1.01 |
| | $ | 2.61 |
| | Weighted-Average Shares of Common Stock Outstanding (in thousands) | | | | | | | Basic | 677,592 |
| | 669,814 |
| | 653,504 |
| | Diluted | 680,446 |
| | 672,586 |
| | 665,973 |
|
| 780,000 shares authorized; 665,849 and 630,321 shares issued and outstanding at December 31, 2014 and 2013. |
The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.
SCHEDULE I - PPL CORPORATION CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(Millions of Dollars)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cash Flows from Operating Activities | | | | | |
| Net cash provided by (used in) operating activities | $ | 1,563 |
| | $ | 993 |
| | $ | 1,633 |
|
| | | | | | |
| Cash Flows from Investing Activities | | | | | |
| Capital contributions to affiliated subsidiaries | (308 | ) | | (491 | ) | | (1,045 | ) |
| Return of capital from affiliated subsidiaries | — |
| | 112 |
| | 247 |
|
| Net cash provided by (used in) investing activities | (308 | ) | | (379 | ) | | (798 | ) |
| | | | | | |
| Cash Flows from Financing Activities | | | | | |
| Issuance of equity, net of issuance costs | 144 |
| | 203 |
| | 1,074 |
|
| Net increase (decrease) in short-term debt with affiliates | (341 | ) | | 215 |
| | (913 | ) |
| Payment of common stock dividends | (1,030 | ) | | (1,004 | ) | | (967 | ) |
| Contract adjustment payments on Equity Units | — |
| | — |
| | (22 | ) |
| Other | (24 | ) | | (28 | ) | | (7 | ) |
| Net cash provided by (used in) financing activities | (1,251 | ) | | (614 | ) | | (835 | ) |
| | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | |
| | |
| | |
|
| Cash and Cash Equivalents at Beginning of Period | — |
| | — |
| | — |
|
| Cash and Cash Equivalents at End of Period | $ | 4 |
| | $ | — |
| | $ | — |
|
| | | | | | |
| Supplemental Disclosures of Cash Flow Information: | | | | | |
| Cash Dividends Received from Subsidiaries | $ | 1,510 |
| | $ | 1,198 |
| | $ | 1,388 |
|
The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.
SCHEDULE I - PPL CORPORATION
CONDENSED UNCONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
(Millions of Dollars, shares in thousands)
|
| | | | | | | |
| | 2016 | | 2015 |
| Assets | | | |
| | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 4 |
| | $ | — |
|
| Accounts Receivable | | | |
| Other | 7 |
| | 10 |
|
| Affiliates | 10 |
| | 20 |
|
| Price risk management assets | 63 |
| | 139 |
|
| Total Current Assets | 84 |
| | 169 |
|
| | | | |
| Investments | | | |
| Affiliated companies at equity | 10,160 |
| | 10,479 |
|
| | | | |
| Other Noncurrent Assets | | | |
| Deferred income taxes | 70 |
| | 100 |
|
| Price risk management assets | 284 |
| | 133 |
|
| Other noncurrent assets | 1 |
| | 1 |
|
| Total Other Noncurrent Assets | 355 |
| | 234 |
|
| | | | |
| Total Assets | $ | 10,599 |
| | $ | 10,882 |
|
| | | | |
| | | | |
| Liabilities and Equity | | | |
| | | | |
| Current Liabilities | | | |
| Short-term debt with affiliates | $ | 44 |
| | $ | 385 |
|
| Accounts payable with affiliates | 30 |
| | 16 |
|
| Dividends | 259 |
| | 255 |
|
| Price risk management liabilities | 237 |
| | 268 |
|
| Other current liabilities | 20 |
| | — |
|
| Total Current Liabilities | 590 |
| | 924 |
|
| | | | |
| Deferred Credits and Other Noncurrent Liabilities | 110 |
| | 39 |
|
| | | | |
| Equity | | | |
| Common stock - $0.01 par value (a) | 7 |
| | 7 |
|
| Additional paid-in capital | 9,841 |
| | 9,687 |
|
| Earnings reinvested | 3,829 |
| | 2,953 |
|
| Accumulated other comprehensive loss | (3,778 | ) | | (2,728 | ) |
| Total Equity | 9,899 |
| | 9,919 |
|
| | | | |
| Total Liabilities and Equity | $ | 10,599 |
| | $ | 10,882 |
|
| |
| (a) | 1,560,000 shares authorized; 679,731 shares issued and outstanding at December 31, 2016; 780,000 shares authorized; 673,857 shares issued and outstanding at December 31, 2015. |
The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.
SCHEDULE I - PPL CORPORATION
NOTES TO CONDENSED UNCONSOLIDATED FINANCIAL STATEMENTS
1. | 1. Basis of Presentation |
PPL Corporation is a holding company and conducts substantially all of its business operations through its subsidiaries. Substantially all of its consolidated assets are held by such subsidiaries. Accordingly,PPL Corporation uses the equity method to account for its investments in entities in which it has a controlling financial interest. PPL Corporation's cash flow and its ability to meet its obligations are largely dependent upon the earnings of these subsidiaries and the distribution or other payment of such earnings to it in the form of dividends, loans or advances or repayment of loans and advances from it. These condensed financial statements and related footnotes have been prepared in accordance with Reg. §210.12-04 of Regulation S-X. These statements should be read in conjunction with the consolidated financial statements and notes thereto of PPL Corporation.
PPL Corporation indirectly or directly owns all of the ownership interests of its significant subsidiaries. PPL Corporation relies on dividends or loans from its subsidiaries to fund PPL Corporation's dividends to its common shareholdersshareowners and to meet its other cash requirements. See Note 7 to PPL Corporation's consolidated financial statements for discussions related to restricted net assets of its subsidiaries for the purposes of transferring funds to PPL in the form of distributions, loans or advances.
Balance Sheet Classification of Deferred Taxes
Effective October 1, 2015, PPL Corporation retrospectively adopted accounting guidance to simplify the presentation of deferred taxes which requires that deferred tax assets and deferred tax liabilities be classified as noncurrent on the balance sheet.
The adoption of this guidance required PPL Corporation to reclassify deferred tax assets and deferred tax liabilities from current to noncurrent on the balance sheet, and did not have a significant impact.
2. Commitments and Contingencies
2. | Commitments and Contingencies |
See Note 13 to PPL Corporation's consolidated financial statements for commitments and contingencies of its subsidiaries.
Guarantees and Other Assurances
PPL Corporation's subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts that may become due under PPL Corporation's guarantees or other assurances or to make any funds available for such payment.
PPL Corporation fully and unconditionally guarantees the payment of principal, premium and interest on all of the debt securities of PPL Capital Funding. The estimated maximum potential amount of future payments that could be required under the guarantees at December 31, 20142016 was $8.1$8.6 billion. These guarantees will expire in 2073. The probability of expected payment under these guarantees is remote.
|
| CONDENSED UNCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| FOR THE YEARS ENDED DECEMBER 31, |
| (Millions of Dollars) | | | |
| | | | | | | | | | | | | |
| | | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | |
| Operating Expenses | | | | | | | | | |
| | Other operation and maintenance | | | | | | | | $ | 3 |
| | Total Operating Expenses | | | | | | | | | 3 |
| | | | | | | | | | | | | |
Operating Income (Loss) | | | | | | | | | (3) |
| | | | | | | | | | | | | |
Equity in Earnings of Subsidiaries | | $ | 368 | | $ | 376 | | | 234 |
| | | | | | | | | | |
Interest Income with Affiliate | | | 5 | | | 5 | | | 10 |
| | | | | | | | | | | | | |
Interest Expense | | | 41 | | | 39 | | | 39 |
| | | | | | | | | | | | | |
Interest Expense with Affiliate | | | 3 | | | 3 | | | 2 |
| | | | | | | | | | | | | |
Income (Loss) Before Income Taxes | | | 329 | | | 339 | | | 200 |
| | | | | | | | | | | | | |
Income Tax Expense (Benefit) | | | (15) | | | (8) | | | (19) |
| | | | | | | | | | | | | |
Net Income (Loss) Attributable to Member | | $ | 344 | | $ | 347 | | $ | 219 |
| | | | | | | | | | | | | |
Comprehensive Income (Loss) Attributable to Member | | $ | 286 | | $ | 375 | | $ | 200 |
| | | | |
| The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements. |
| SCHEDULE I - LG&E and KU Energy LLC |
| CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS |
| FOR THE YEARS ENDED DECEMBER 31, |
| (Millions of Dollars) | | | |
| | | | | | | | | | | | | |
| | | | | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | |
| Cash Flows from Operating Activities | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | (183) | | $ | 136 | | $ | 364 |
| | | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | | |
| | | Capital contributions to affiliated subsidiaries | | | (248) | | | (243) | | | |
| | | Net decrease (increase) in notes receivable from affiliates | | | 555 | | | (122) | | | (15) |
Net cash provided by (used in) investing activities | | | 307 | | | (365) | | | (15) |
| | | | | | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | | |
| | | Net increase (decrease) in notes payable with affiliates | | | 58 | | | 171 | | | (196) |
| | | Net increase (decrease) in short-term debt | | | | | | 75 | | | |
| | | Contribution from member | | | 248 | | | 243 | | | |
| | | Distribution to member | | | (436) | | | (254) | | | (155) |
Net cash provided by (used in) financing activities | | | (130) | | | 235 | | | (351) |
| | | | | | | | | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | | (6) | | | 6 | | | (2) |
Cash and Cash Equivalents at Beginning of Period | | | 6 | | | | | | 2 |
Cash and Cash Equivalents at End of Period | | $ | | | $ | 6 | | $ | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Supplemental disclosures of cash flow information: | | | | | | | | | |
Cash Dividends Received from Affiliated Subsidiaries | | $ | 260 | | $ | 223 | | $ | 175 |
| | | | | | | | | | | | | |
| The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements. |
CONDENSED UNCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
(Millions of Dollars)
292 |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Other Income (Expense) - net | | | | | |
| Equity in Earnings of Subsidiaries | $ | 452 |
| | $ | 390 |
| | $ | 368 |
|
| Interest Income with Affiliate | 9 |
| | 4 |
| | 5 |
|
| Total | 461 |
| | 394 |
| | 373 |
|
| | | | | | |
| Interest Expense | 29 |
| | 39 |
| | 41 |
|
| | | | | | |
| Interest Expense with Affiliate | 18 |
| | 5 |
| | 3 |
|
| | | | | | |
| Income Before Income Taxes | 414 |
| | 350 |
| | 329 |
|
| | | | | | |
| Income Tax Expense (Benefit) | (15 | ) | | (14 | ) | | (15 | ) |
| | | | | | |
| Net Income Attributable to Member | $ | 429 |
| | $ | 364 |
| | $ | 344 |
|
| | | | | | |
| Comprehensive Income Attributable to Member | $ | 405 |
| | $ | 363 |
| | $ | 286 |
|
| SCHEDULE I - LG&E and KU Energy LLC |
| CONDENSED UNCONSOLIDATED BALANCE SHEETS AT DECEMBER 31, |
| (Millions of Dollars) |
| | | | | | | | | | |
| | | | | | 2014 | | 2013 |
| Assets | | | | | | |
| | | | | | | | | | |
| Current Assets | | | | | | |
| | Cash and cash equivalents | | | | | $ | 6 |
| | Accounts receivable | | $ | 8 | | | 2 |
| | Accounts receivable from affiliates | | | | | | 11 |
| | Notes receivable from affiliates | | | 1,127 | | | 1,682 |
| | Deferred income taxes | | | 2 | | | 10 |
| | Total Current Assets | | | 1,137 | | | 1,711 |
| | | | | | | | | | |
| Investments | | | | | | |
| | Affiliated companies at equity | | | 4,818 | | | 4,519 |
| | | | | | | | | | |
| Other Noncurrent Assets | | | | | | |
| | Deferred income taxes | | | 203 | | | 170 |
| | Other noncurrent assets | | | 5 | | | 6 |
| | Total Other Noncurrent Assets | | | 208 | | | 176 |
| | | | | | | | | | |
Total Assets | | $ | 6,163 | | $ | 6,406 |
| | | | | | | | | | |
| Liabilities and Equity | | | | | | |
| | | | | | | | | | |
| Current Liabilities | | | | | | |
| | Short-term debt | | $ | 75 | | $ | 75 |
| | Notes payable to affiliates | | | 58 | | | |
| | Long-term debt due within one year | | | 400 | | | |
| | Accounts payable to affiliates | | | 451 | | | 843 |
| | Taxes | | | 2 | | | 12 |
| | Other current liabilities | | | 8 | | | 6 |
| | Total Current Liabilities | | | 994 | | | 936 |
| | | | | | | | | | |
| Long-term Debt | | | | | | |
| | Long-term debt | | | 722 | | | 1,121 |
| | Notes payable to affiliates | | | 196 | | | 196 |
| | Total Long-term Debt | | | 918 | | | 1,317 |
| | | | | | | |
Deferred Credits and Other Noncurrent Liabilities | | | 3 | | | 3 |
Equity | | | 4,248 | | | 4,150 |
| | | | | | | | | | |
Total Liabilities and Equity | | $ | 6,163 | | $ | 6,406 |
| | | | | | | | | | |
| The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements. |
293
SCHEDULE I - LG&E and KU Energy LLCCONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(Millions of Dollars)
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Cash Flows from Operating Activities | | | | | |
| Net cash provided by (used in) operating activities | $ | 285 |
| | $ | 246 |
| | $ | (183 | ) |
| | | | | | |
| Cash Flows from Investing Activities | |
| | |
| | |
|
| Capital contributions to affiliated subsidiaries | (91 | ) | | (140 | ) | | (248 | ) |
| Net decrease (increase) in notes receivable from affiliates | 47 |
| | 73 |
| | 555 |
|
| Net cash provided by (used in) investing activities | (44 | ) | | (67 | ) | | 307 |
|
| | | | | | |
| Cash Flows from Financing Activities | |
| | |
| | |
|
| Net increase (decrease) in notes payable with affiliates | 90 |
| | 315 |
| | 58 |
|
| Net increase (decrease) in short-term debt | (75 | ) | | — |
| | — |
|
| Retirement of long-term debt | — |
| | (400 | ) | | — |
|
| Contribution from member | 61 |
| | 125 |
| | 248 |
|
| Distribution to member | (316 | ) | | (219 | ) | | (436 | ) |
| Net cash provided by (used in) financing activities | (240 | ) | | (179 | ) | | (130 | ) |
| | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | 1 |
| | — |
| | (6 | ) |
| Cash and Cash Equivalents at Beginning of Period | — |
| | — |
| | 6 |
|
| Cash and Cash Equivalents at End of Period | $ | 1 |
| | $ | — |
| | $ | — |
|
| | | | | | |
| Supplemental disclosures of cash flow information: | |
| | |
| | |
|
| Cash Dividends Received from Subsidiaries | $ | 376 |
| | $ | 272 |
| | $ | 260 |
|
The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.
SCHEDULE I - LG&E and KU Energy LLC
CONDENSED UNCONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
(Millions of Dollars)
|
| | | | | | | |
| | 2016 | | 2015 |
| Assets | |
| | |
|
| Current Assets | |
| | |
|
| Cash and cash equivalents | $ | 1 |
| | $ | — |
|
| Accounts receivable | — |
| | 1 |
|
| Accounts receivable from affiliates | 23 |
| | 3 |
|
| Income taxes receivable | 31 |
| | — |
|
| Notes receivable from affiliates | 1,007 |
| | 1,054 |
|
| Total Current Assets | 1,062 |
| | 1,058 |
|
| | | | |
| Investments | |
| | |
|
| Affiliated companies at equity | 5,219 |
| | 5,076 |
|
| | | | |
| Other Noncurrent Assets | |
| | |
|
| Deferred income taxes | 227 |
| | 228 |
|
| | | | |
| Total Assets | $ | 6,508 |
| | $ | 6,362 |
|
| | | | |
| Liabilities and Equity | |
| | |
|
| | | | |
| Current Liabilities | |
| | |
|
| Short-term debt | $ | — |
| | $ | 75 |
|
| Notes payable to affiliates | 179 |
| | 69 |
|
| Accounts payable to affiliates | 450 |
| | 469 |
|
| Taxes | — |
| | 3 |
|
| Other current liabilities | 6 |
| | 5 |
|
| Total Current Liabilities | 635 |
| | 621 |
|
| | | | |
| Long-term Debt | |
| | |
|
| Long-term debt | 721 |
| | 720 |
|
| Notes payable to affiliates | 480 |
| | 500 |
|
| Total Long-term Debt | 1,201 |
| | 1,220 |
|
| | | | |
| Deferred Credits and Other Noncurrent Liabilities | 5 |
| | 4 |
|
| | | | |
| Equity | 4,667 |
| | 4,517 |
|
| | | | |
| Total Liabilities and Equity | $ | 6,508 |
| | $ | 6,362 |
|
The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.
Schedule I - LG&E and KU Energy LLC
Notes to Condensed Unconsolidated Financial Statements
1. | 1. Basis of Presentation |
LG&E and KU Energy LLC (LKE) is a holding company and conducts substantially all of its business operations through its subsidiaries. Substantially all of its consolidated assets are held by such subsidiaries. Accordingly,LKE uses the equity method to account for its investments in entities in which it has a controlling financial interest. LKE's cash flow and its ability to meet its obligations are largely dependent upon the earnings of these subsidiaries and the distribution or other payment of such earnings to it in the form of dividends or repayment of loans and advances from the subsidiaries. These condensed financial statements and related footnotes have been prepared in accordance with Reg. §210.12-04 of Regulation S-X. These statements should be read in conjunction with the consolidated financial statements and notes thereto of LKE.
LKE indirectly or directly owns all of the ownership interests of its significant subsidiaries. LKE relies primarily on dividends from its subsidiaries to fund LKE's dividendsdistributions to its member and to meet its other cash requirements. See Note 7 to LKE's consolidated financial statements for discussions related to restricted net assets of its subsidiaries for the purposes of transferring funds to LKE in the form of distributions, loans or advances.
2. Commitments and Contingencies
2. | Commitments and Contingencies |
See Note 13 to LKE's consolidated financial statements for commitments and contingencies of its subsidiaries.
Guarantees
LKE provides certain indemnifications the most significant of which relate to the termination of the WKE lease in July 2009. These guarantees covercovering the due and punctual payment, performance and discharge by each party of its respective present and future obligations. The most comprehensive of these WKE-related guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under the WKEa 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a cumulative maximum exposure of $200 million. Certainmillion, exclusive of certain items such as government fines and penalties fall outsidethat may exceed the cumulative cap.maximum. Another WKE-related LKE guarantee covers other indemnifications related to the purchase price of excess power, has a term expiring in 2023, and a maximum exposure of $100 million. In May 2012, LKE's indemnitee received an unfavorable arbitration panel's decision interpreting this matter, which granted LKE's indemnitee certain rights of first refusal to purchase excess power at a market-based price rather than at an absolute fixed price.matter. In January 2013, LKE's indemnitee commenced a proceeding in the Kentucky Court of Appeals appealing a December 2012 order of the Henderson Circuit Court, confirming the arbitration award. In MayOctober 2014, the Court of Appeals issued an opinion affirming the lower court decision. LKE's indemnitee filed a Motionmotion for Discretionary Reviewdiscretionary review with the Kentucky Supreme Court on October 2, 2014.seeking to overturn the arbitration decision, and such motion was denied by the court in September 2015. In September 2015, the counterparty issued a demand letter to LKE's indemnitee. In February 2016, the counterparty filed a complaint in Henderson, Kentucky Circuit Court, seeking an award of damages in the matter. The proceeding is currently in the discovery phase. LKE does not believe appropriate contractual, legal or commercial grounds exist for the claim made. LKE believes its indemnification obligations in thisthe WKE matter remain subject to various uncertainties, including potential for additional legal challenges regarding the arbitration decisionand contractual developments, as well as future prices, availability and demand for the subject excess power. LKE continues to evaluate various legal and commercial options with respect to this indemnification matter. TheAlthough the parties have also conducted certain settlement discussions, the ultimate outcomes of the WKE termination-related indemnifications cannot be predicted at this time. In the second quarter of 2012, LKE adjusted its estimated liability for the WKE-related indemnifications by $9 million ($5 million after-tax), which is reflected in "Equity in Earnings of Subsidiaries" on the Statement of Income.
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;maximum. LKE could be required to perform on these indemnifications in the event of covered losses or liabilities being claimed by an indemnified party. However, LKE is not aware of formal claims under such indemnities made by any party at this time. LKE cannot predict the ultimate outcomes of the various indemnification circumstances,scenarios, but does not currently expect such outcomes to result in significant losses above the amounts recorded.
3. Long-Term Debt
See Note 7 to LKE's consolidated financial statements for the terms of LKE's outstanding senior unsecured notes outstanding. Of the total outstanding, $400$475 million matures in 20152020 and $722$250 million matures after 2019.in 2021. These maturities are based on stated maturities.
Also see Note 7 to LKE's consolidated financial statements for the terms of LKE's $400 million note payable to PPL. This note matures in 2025. LKE's $80 million note payable to LG&E and KU Services Company bears a variable interest rate, which resets each quarter based on LIBOR. The rate at December 31, 2016 was 1.381%. This note matures in 2019. QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited) |
| PPL Corporation and Subsidiaries |
| (Millions of Dollars, except per share data) |
| | | | | For the Quarters Ended (a) |
| | | | | March 31 | | June 30 | | Sept. 30 | | Dec. 31 |
| 2014 | | | | | | | | | | | | |
Operating revenues as previously reported | | $ | 1,223 | | $ | 2,874 | | | | | | |
| | | Reclassification of discontinued operations (f) | | | (29) | | | (41) | | | | | | |
| | | Operating revenues | | | 1,194 | | | 2,833 | | $ | 3,449 | | $ | 4,023 |
Operating income as previously reported | | | 715 | | | 718 | | | | | | |
| | | Reclassification of discontinued operations (f) | | | 8 | | | (21) | | | | | | |
| | | Operating income | | | 723 | | | 697 | | | 869 | | | 983 |
| Income from continuing operations after income taxes | | | | | | | | | | | | |
| | as previously reported | | | 316 | | | 229 | | | | | | |
| | | Reclassification of discontinued operations (f) | | | 8 | | | (11) | | | | | | |
| | | Income from continuing operations after income taxes | | | 324 | | | 218 | | | 490 | | | 551 |
Income from discontinued operations as previously reported | | | | | | | | | | | | |
| | | Reclassification of discontinued operations (f) | | | (8) | | | 11 | | | | | | |
| | | Income (loss) from discontinued operations (g) | | | (8) | | | 11 | | | 7 | | | 144 |
Net income (g) | | | 316 | | | 229 | | | 497 | | | 695 |
Net income attributable to PPL | | | 316 | | | 229 | | | 497 | | | 695 |
| Income from continuing operations after income taxes available to | | | | | | | | | | | | |
| | PPL common shareowners: (b) | | | | | | | | | | | | |
| | | Basic EPS | | | 0.51 | | | 0.33 | | | 0.73 | | | 0.82 |
| | | Diluted EPS | | | 0.50 | | | 0.32 | | | 0.73 | | | 0.82 |
| Net income available to PPL common shareowners: (b) | | | | | | | | | | | | |
| | | Basic EPS | | | 0.50 | | | 0.35 | | | 0.74 | | | 1.04 |
| | | Diluted EPS | | | 0.49 | | | 0.34 | | | 0.74 | | | 1.04 |
Dividends declared per share of common stock (c) | | | 0.3725 | | | 0.3725 | | | 0.3725 | | | 0.3725 |
| Price per common share: | | | | | | | | | | | | |
| | | High | | $ | 33.24 | | $ | 35.56 | | $ | 35.52 | | $ | 38.14 |
| | | Low | | | 29.40 | | | 32.32 | | | 31.79 | | | 32.09 |
| | | | | | | | | | | | | | | |
| 2013 | | | | | | | | | | | | |
Operating revenues as previously reported | | $ | 2,457 | | $ | 3,450 | | $ | 3,105 | | $ | 2,848 |
| | | Reclassification of discontinued operations (f) | | | (32) | | | (47) | | | (31) | | | (29) |
| | | Operating revenues | | | 2,425 | | | 3,403 | | | 3,074 | | | 2,819 |
Operating income as previously reported | | | 693 | | | 758 | | | 857 | | | 31 |
| | | Reclassification of discontinued operations (f) | | | (14) | | | (26) | | | (11) | | | (10) |
| | | Operating income (e) | | | 679 | | | 732 | | | 846 | | | 21 |
| Income (loss) from continuing operations after income taxes | | | | | | | | | | | | |
| | as previously reported | | | 413 | | | 404 | | | 410 | | | (98) |
| | | Reclassification of discontinued operations (f) | | | (8) | | | (14) | | | (6) | | | (4) |
| | | Income (loss) from continuing operations after income taxes (e) | | | 405 | | | 390 | | | 404 | | | (102) |
Income from discontinued operations as previously reported | | | | | | 1 | | | 1 | | | |
| | | Reclassification of discontinued operations (f) | | | 8 | | | 14 | | | 6 | | | 4 |
| | | Income (loss) from discontinued operations | | | 8 | | | 15 | | | 7 | | | 4 |
Net income (loss) (e) | | | 413 | | | 405 | | | 411 | | | (98) |
Net income (loss) attributable to PPL (e) | | | 413 | | | 405 | | | 410 | | | (98) |
| Income (loss) from continuing operations after income taxes available to | | | | | | | | | | | | |
| | PPL common shareowners: (b) (e) | | | | | | | | | | | | |
| | | Basic EPS | | | 0.69 | | | 0.66 | | | 0.64 | | | (0.16) |
| | | Diluted EPS (d) | | | 0.64 | | | 0.61 | | | 0.61 | | | (0.16) |
| Net income (loss) available to PPL common shareowners: (b) (e) | | | | | | | | | | | | |
| | | Basic EPS | | | 0.70 | | | 0.68 | | | 0.65 | | | (0.16) |
| | | Diluted EPS (d) | | | 0.65 | | | 0.63 | | | 0.62 | | | (0.16) |
Dividends declared per share of common stock (c) | | | 0.3675 | | | 0.3675 | | | 0.3675 | | | 0.3675 |
| Price per common share: | | | | | | | | | | | | |
| | | High | | $ | 31.35 | | $ | 33.55 | | $ | 32.09 | | $ | 31.79 |
| | | Low | | | 28.64 | | | 28.44 | | | 29.03 | | | 28.95 |
QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited)
PPL Corporation and Subsidiaries
(Millions of Dollars, except per share data)
|
| | | | | | | | | | | | | | | |
| | For the Quarters Ended (a) |
| | March 31 | | June 30 | | Sept. 30 | | Dec. 31 |
| 2016 | | | | | | | |
| Operating revenues | $ | 2,011 |
| | $ | 1,785 |
| | $ | 1,889 |
| | $ | 1,832 |
|
| Operating income | 823 |
| | 725 |
| | 786 |
| | 714 |
|
| Net income | 481 |
| | 483 |
| | 473 |
| | 465 |
|
| Net income available to PPL common shareowners: (c) | |
| | |
| | |
| | |
|
| Basic EPS | 0.71 |
| | 0.71 |
| | 0.70 |
| | 0.68 |
|
| Diluted EPS | 0.71 |
| | 0.71 |
| | 0.69 |
| | 0.68 |
|
| Dividends declared per share of common stock (d) | 0.38 |
| | 0.38 |
| | 0.38 |
| | 0.38 |
|
| Price per common share: | |
| | |
| | |
| | |
|
| High | $ | 38.07 |
| | $ | 39.68 |
| | $ | 37.71 |
| | $ | 34.74 |
|
| Low | 32.80 |
| | 36.27 |
| | 33.63 |
| | 32.19 |
|
| | | | | | | | |
| 2015 | | | | | | | |
| Operating revenues | $ | 2,230 |
| | $ | 1,781 |
| | $ | 1,878 |
| | $ | 1,780 |
|
| Operating income | 890 |
| | 638 |
| | 686 |
| | 617 |
|
| Income from continuing operations after income taxes | 552 |
| | 250 |
| | 396 |
| | 405 |
|
| Income (loss) from discontinued operations (net of income taxes) (d)(e) | 95 |
| | (1,007 | ) | | (3 | ) | | (6 | ) |
| Net income (b) | 647 |
| | (757 | ) | | 393 |
| | 399 |
|
| Income from continuing operations after income taxes available to | |
| | |
| | |
| | |
|
| PPL common shareowners: (c) | |
| | |
| | |
| | |
|
| Basic EPS | 0.83 |
| | 0.37 |
| | 0.59 |
| | 0.60 |
|
| Diluted EPS | 0.82 |
| | 0.37 |
| | 0.59 |
| | 0.60 |
|
| Net income (loss) available to PPL common shareowners: (c) | |
| | |
| | |
| | |
|
| Basic EPS | 0.97 |
| | (1.13 | ) | | 0.58 |
| | 0.59 |
|
| Diluted EPS | 0.96 |
| | (1.13 | ) | | 0.58 |
| | 0.59 |
|
| Dividends declared per share of common stock (d) | 0.3725 |
| | 0.3725 |
| | 0.3775 |
| | 0.3775 |
|
| Price per common share: | |
| | |
| | |
| | |
|
| High | $ | 36.38 |
| | $ | 34.85 |
| | $ | 33.58 |
| | $ | 34.75 |
|
| Low | 31.40 |
| | 29.45 |
| | 29.41 |
| | 32.60 |
|
| |
| (a) | Quarterly results can vary depending on, among other things, weather and the forward pricing of power.weather. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations. |
| |
| (b) | The second quarter of 2015 includes a loss of $879 million from the spinoff of PPL Energy Supply. See Note 8 to the Financial Statements for additional information. |
| |
| (c) | The sum of the quarterly amounts may not equal annual earnings per share due to changes in the number of common shares outstanding during the year or rounding. |
(c) | |
| (d) | PPL has paid quarterly cash dividends on its common stock in every year since 1946. Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors. |
(d) | As a result of a reported loss, diluted earnings per share for the three months ended December 31, 2013 exclude incremental shares as they were anti-dilutive. |
| (e) | Fourth quarter of 2013 includes a charge for the termination of the lease of the Colstrip coal-fired electric generating facility in Montana. See Note 8 to the Financial Statements for additional information. |
(f) | In the thirdsecond quarter of 2014,2015, PPL completed the hydroelectric generation facilitiesspinoff of PPL Montana met the criteria as held for sale.Energy Supply substantially representing PPL's Supply segment. Accordingly, the previously reported operating results for these facilitiesPPL's Supply segment have been reclassified as discontinued operations. See Note 8 to the Financial Statements for additional information. |
(g) | Fourth quarter of 2014 includes a gain of $137 million (after tax) from the sale of hydroelectric generating facilities of PPL Montana. See Note 8 to the Financial Statements for additional information. |
QUARTERLY FINANCIAL DATA (Unaudited) |
| PPL Electric Utilities Corporation and Subsidiaries |
| (Millions of Dollars) |
| | | For the Quarters Ended (a) |
| | | | March 31 | | | June 30 | | | Sept. 30 | | | Dec. 31 |
| 2014 | | | | | | | | | | | | |
Operating revenues | | $ | 592 | | $ | 449 | | $ | 477 | | $ | 526 |
Operating income | | | 165 | | | 111 | | | 124 | | | 138 |
Net income | | | 85 | | | 52 | | | 57 | | | 69 |
Net income available to PPL | | | 85 | | | 52 | | | 57 | | | 69 |
| | | | | | | | | | | | | |
| 2013 | | | | | | | | | | | | |
Operating revenues | | $ | 513 | | $ | 414 | | $ | 464 | | $ | 479 |
Operating income | | | 121 | | | 92 | | | 105 | | | 101 |
Net income | | | 64 | | | 45 | | | 51 | | | 49 |
Net income available to PPL | | | 64 | | | 45 | | | 51 | | | 49 |
QUARTERLY FINANCIAL DATA (Unaudited)
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
|
| | | | | | | | | | | | | | | |
| | For the Quarters Ended (a) |
| | March 31 | | June 30 | | Sept. 30 | | Dec. 31 |
| 2016 | | | | | | | |
| Operating revenues | $ | 585 |
| | $ | 495 |
| | $ | 539 |
| | $ | 537 |
|
| Operating income | 180 |
| | 154 |
| | 176 |
| | 154 |
|
| Net income | 94 |
| | 79 |
| | 90 |
| | 77 |
|
| | | | | | | | |
| 2015 | | | | | | | |
| Operating revenues | $ | 630 |
| | $ | 476 |
| | $ | 519 |
| | $ | 499 |
|
| Operating income | 175 |
| | 116 |
| | 121 |
| | 126 |
|
| Net income | 87 |
| | 49 |
| | 55 |
| | 61 |
|
| |
| (a) | PPL Electric's business is seasonal in nature, with peak sales periods generally occurring in the winter and summer months. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations. |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
None.
ITEM 9A. CONTROLS AND PROCEDURES
| |
| (a) | Evaluation of disclosure controls and procedures. |
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy Supply, LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
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 December 31, 2016, 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 annual report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive officers and principal financial officers, to allow for timely decisions regarding required disclosure.
| |
| (b) | Changes in internal control over financial reporting. |
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company, and Kentucky Utilities Company
The Registrants' principal executive officers and principal financial officers have concluded that there were no changes in the Registrants' internal control over financial reporting during the Registrants' fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrants' internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
PPL Corporation
PPL's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) or 15d-15(f). PPL's internal control over financial reporting is a process designed to provide reasonable assurance to PPL's management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control - Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in "Internal Control - Integrated Framework" (2013), our management concluded that our internal control over financial reporting was effective December 31, 2016. The effectiveness of our internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report contained on page 90.
PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Management of PPL's non-accelerated filer companies, PPL Electric, LKE, LG&E and KU, are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) or 15d-15(f). Each of the aforementioned companies' internal control over financial reporting is a process
designed to provide reasonable assurance to management and Board of Directors of these companies regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Under the supervision and with the participation of our management, including the principal executive officers and principal financial officers of the companies listed above, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control - Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in "Internal Control - Integrated Framework" (2013), management of these companies concluded that our internal control over financial reporting was effective as of December 31, 2016. This annual report does not include an attestation report of Deloitte & Touche LLP, the companies' independent registered public accounting firm regarding internal control over financial reporting for these non-accelerated filer companies. The effectiveness of internal control over financial reporting for the aforementioned companies was not subject to attestation by the companies' registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit these companies to provide only management's report in this annual report.
ITEM 9B. OTHER INFORMATION
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
None.
PART III
ITEM 9A. CONTROLS AND PROCEDURES |
|
(a) | | Evaluation of disclosure controls and procedures. |
| | |
PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company |
| | |
| | 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 December 31, 2014, 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 annual report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive officers and principal financial officers, to allow for timely decisions regarding required disclosure. |
| | |
(b) | | Changes in internal control over financial reporting. |
|
PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company, and Kentucky Utilities Company |
| | |
| | The Registrants' principal executive officers and principal financial officers have concluded that there were no changes in the Registrants' internal control over financial reporting during the Registrants' fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrants' internal control over financial reporting. |
| | |
Management's Report on Internal Control over Financial Reporting |
|
PPL Corporation |
| | |
| | PPL's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) or 15d-15(f). PPL's internal control over financial reporting is a process designed to provide reasonable assurance to PPL's management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control - Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in "Internal Control - Integrated Framework" (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2014. The effectiveness of our internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report contained on page 116.
|
| | |
PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company |
| | |
| | Management of PPL's non-accelerated filer companies, PPL Energy Supply, PPL Electric, LKE, LG&E and KU, are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) or 15d-15(f). Each of the aforementioned companies' internal control over financial reporting is a process designed to provide reasonable assurance to management and Board of Directors of these companies regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Under the supervision and with the participation of our management, including the principal executive officers and principal financial officers of the companies listed above, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control - Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in "Internal Control - Integrated Framework" (2013), management of these companies concluded that our internal control over financial reporting was effective as of December 31, 2014. This annual report does not include an attestation report of Ernst & Young LLP, the companies' independent registered public accounting firm regarding internal control over financial reporting for these non-accelerated filer companies. The effectiveness of internal control over financial reporting for the aforementioned companies was not subject to attestation by the companies' registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit these companies to provide only management's report in this annual report.
|
ITEM 9B. OTHER INFORMATION |
|
PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company |
|
None. |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Additional information for this item will be set forth in the sections entitled "Nominees for Directors," "Board Committees - Audit Committee"Board Committee Membership" and "Section 16(a) Beneficial Ownership Reporting Compliance" in PPL's 20152017 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2014,2016, and which information is incorporated herein by reference. There have been no changes to the procedures by which shareowners may recommend nominees to PPL's board of directors since the filing with the SEC of PPL's 20142016 Notice of Annual Meeting and Proxy Statement.
PPL has adopted a code of ethics entitled "Standards of Integrity" that applies to all directors, managers, trustees, officers (including the principal executive officers, principal financial officers and principal accounting officers (each, a "principal officer")), employees and agents of PPL and PPL's subsidiaries for which it has operating control (including PPL Energy Supply, PPL(PPL Electric, LKE, LG&E and KU). The "Standards of Integrity" are posted on PPL's Internet website: www.pplweb.com/Standards-of-Integrity. A description of any amendment to the "Standards of Integrity" (other than a technical, administrative or other non-substantive amendment) will be posted on PPL's Internet website within four business days following the date of the amendment. In addition, if a waiver constituting a material departure from a provision of the "Standards of Integrity" is granted to one of the principal officers, a description of the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver will be posted on PPL's Internet website within four business days following the date of the waiver.
PPL also has adopted its "Guidelines for Corporate Governance," which address, among other things, director qualification standards and director and board committee responsibilities. These guidelines, and the charters of each of the committees of PPL's board of directors, are posted on PPL's Internet website: www.pplweb.com/Guidelines and www.pplweb.com/board-committees.
PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Item 10 is omitted as PPL Energy Supply, PPL Electric, LKE, LG&E and KU meet the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.
EXECUTIVE OFFICERS OF THE REGISTRANTS
Officers of the Registrants are elected annually by their Boards of Directors (or Board of Managers for PPL Energy Supply) to serve at the pleasure of the respective Boards. There are no family relationships among any of the executive officers, nor is there any arrangement or understanding between any executive officer and any other person pursuant to which the officer was selected.
There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officer during the past five years.
Listed below are the executive officers at December 31, 2014.2016.
PPL Corporation
|
| | | | | | |
| Name | | Age | | Positions Held During the Past Five Years | | Dates |
| | | | | | |
| William H. Spence | | 5759 | | Chairman, President and Chief Executive Officer | | April 2012 - present |
| | | | | President and Chief Executive Officer | | November 2011 - March 2012 |
| | | | | President and Chief Operating Officer | | July 2011 - November 2011 |
| | | | Executive Vice President and Chief Operating Officer | | June 2006 - July 2011 |
| | | | | | |
Robert J. GreyJoanne H. Raphael | | 6457 | | ExecutiveSenior Vice President, General Counsel and Secretary | | November 2012June 2015 - present |
| | | | | Senior Vice President General Counsel and SecretaryChief External Affairs Officer-PPL Services | | March 1996October 2012 - NovemberMay 2015 |
| | | | Vice President-External Affairs-PPL Services | | July 2000 - September 2012 |
| | | | | | | |
| Vincent Sorgi | | 4345 | | Senior Vice President and Chief Financial Officer | | June 2014 - present |
| | | | | Vice President and Controller | | March 2010 - June 2014 |
| | | | | Controller-Supply Accounting | | June 2008 - March 2010 |
| | | | | | |
| Gregory N. Dudkin (a) | | 5759 | | President-PPL Electric | | March 2012 - present |
| | | | | Senior Vice President-Operations-PPL Electric | | June 2009 - March 2012 |
| | | | | Independent Consultant | | February 2009 - June 2009 |
| | | | | | |
Paul A. Farr (a) | | 47 | | President-PPL Energy Supply | | June 2014 - present |
| | | | Executive Vice President and Chief Financial Officer | | April 2007 - June 2014 |
| | | | | | |
Robert D. Gabbard, Jr. (a) | | 55 | | President-PPL EnergyPlus | | June 2008 - present |
| | | | | | |
| Victor A. Staffieri (a) (b) | | 5961 | | Chairman of the Board, Chief Executive Officer and President-LKE | | May 2001 - present |
| | | | | | | |
| Robert A. Symons (a) | | 6163 | | Chief Executive-WPD | | January 2000 - present |
| | | | | | | |
Mark F. WiltenJoseph P. Bergstein, Jr. | | 4746 | | Vice President,President-Investor Relations and Treasurer and Chief Risk Officer | | October 2014January 2016 - present |
| | | | | Vice President-FinancePresident-Investor Relations and TreasurerFinancial Planning-PPL Services | | June 2012February 2015 - October 2014December 2015 |
| | | | | Treasurer-Nissan North America and Nissan Motor Acceptance CorporationInvestor Relations Vice President-PPL Services | | August 2010April 2012 - May 2012February 2015 |
| | | | | Assistant Treasurer-Nissan Motor Acceptance CorporationInvestor Relations Director-PPL Services | | August 2008June 2010 - August 2010April 2012 |
| | | | | | | |
Stephen K. Breininger (b) | | 4143 | | Vice President and Controller | | January 2015 - present |
| | | | Controller | | June 2014 - presentJanuary 2015 |
| | | | | Assistant Controller-Business Lines | | March 2013 - June 2014 |
| | | | | Controller-Supply Accounting | | April 2010 - March 2013 |
| | | | Director-Supply Accounting & Reporting | | June 2008 - April 2010 |
(a) | |
| (a) | Designated an executive officer of PPL by virtue of their respective positions at a PPL subsidiary. |
| |
| (b) | | Mr. BreiningerEffective January 3, 2017, Paul W. Thompson was elected Vice President and ControllerChief Operating Officer of LKE and was deemed to be an Executive Officer of PPL Corporation effective January 23, 2015.as of that date. Mr. Staffieri's title changed on that date to Chairman of the Board and Chief Executive Officer of LKE. |
ITEM 11. EXECUTIVE COMPENSATION
Information for this item will be set forth in the sections entitled "Compensation of Directors," "The Board's Role in Risk Oversight," "Compensation Committee Interlocks and Insider Participation" and "Executive Compensation" in PPL's 20152017 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2014,2016, and which information is incorporated herein by reference.
PPL Energy Supply, LLC,
PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Item 11 is omitted as PPL Energy Supply, PPL Electric, LKE, LG&E and KU meet the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information for this item will be set forth in the section entitled "Stock Ownership" in PPL's 20152017 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2014,2016, and which information is incorporated herein by reference. In addition, provided below in tabular format is information as of December 31, 2014,2016, with respect to compensation plans (including individual compensation arrangements) under which equity securities of PPL are authorized for issuance.
| Equity Compensation Plan Information |
| | | | | | | |
| | Number of securities to be | | | Number of securities |
| | issued upon exercise of | Weighted-average exercise | remaining available for future |
| | outstanding options, warrants | price of outstanding options, | issuance under equity |
| | and rights (3) | warrants and rights (3) | compensation plans (4) |
| Equity compensation | | | | | | |
| plans approved by | 2,889,761 | - ICP | $32.48 | - ICP | 1,824,239 | - DDCP |
security holders (1) | 2,069,185 | - SIP | $29.26 | - SIP | 7,225,988 | - SIP |
| | 4,084,016 | - ICPKE | $30.68 | - ICPKE | 2,325,308 | - ICPKE |
| | 9,042,962 | - Total | $30.93 | - Combined | 11,375,535 | - Total |
| | | | | | | |
| Equity compensation | | | | | | |
| plans not approved by | | | | | | |
security holders (2) | | | | | | |
|
| | | | | | | | | | |
| | Number of securities to be issued upon exercise of outstanding options, warrants and rights (3) | Weighted-average exercise price of outstanding options, warrants and rights (3) | Number of securities remaining available for future issuance under equity compensation plans (4) |
| Equity compensation | | | | | |
| |
| plans approved by | 591,666 |
| – ICP | $ | 38.02 |
| – ICP | 1,769,939 |
| – DDCP |
security holders (1) | 1,368,385 |
| – SIP | $ | 26.22 |
| – SIP | 5,946,135 |
| – SIP |
| | 2,521,109 |
| – ICPKE | $ | 28.36 |
| – ICPKE | 1,531,659 |
| – ICPKE |
| | 4,481,160 |
| – Total | $ | 28.98 |
| – Combined | 9,247,733 |
| – Total |
| | | | | | | |
| Equity compensation | | | | | | |
| plans not approved by | | | | | | |
security holders (2) | | | | | | |
(1) | |
| (1) | Includes (a) the Amended and Restated Incentive Compensation Plan (ICP),ICP, under which stock options, restricted stock, restricted stock units, performance units, dividend equivalents and other stock-based awards were awarded to executive officers of PPL and no securitiesawards remain for issuance under this plan; (b) the Amended and Restated Incentive Compensation Plan for Key Employees (ICPKE),ICPKE, under which stock options, restricted stock, restricted stock units, performance units, dividend equivalents and other stock-based awards may be awarded to non-executive key employees of PPL and its subsidiaries; (c) the PPL 2012 SIP approved by shareowners in 2012 under which stock options, restricted stock, restricted stock units, performance units, dividend equivalents and other stock-based awards may be awarded to executive officers of PPL and its subsidiaries; and (d) the Directors Deferred Compensation Plan (DDCP),DDCP, under which stock units may be awarded to directors of PPL. See Note 10 to the Financial Statements for additional information. |
| | |
| (2) | | All of PPL's current compensation plans under which equity securities of PPL are authorized for issuance have been approved by PPL's shareowners. |
| | |
(3) | |
| (3) | Relates to common stock issuable upon the exercise of stock options awarded under the ICP, SIP and ICPKE as of December 31, 2014.2016. In addition, as of December 31, 2014,2016, the following other securities had been awarded and are outstanding under the ICP, SIP, ICPKE and DDCP: 30,40015,000 shares of restricted stock 198,450under the ICP; 644,169 restricted stock units and 162,115 performance units under the ICP; 40,000 shares of restricted stock, 528,328 restricted stock units and 446,500740,817 performance units under the SIP; 24,600 shares of restricted stock, 2,663,7421,540,193 restricted stock units and 563,101559,915 performance units under the ICPKE; and 569,407385,167 stock units under the DDCP. |
| | |
| (4) | | Based upon the following aggregate award limitations under the ICP, SIP, ICPKE and DDCP: (a) under the ICP, 15,769,431 awards (i.e., 5% of the total PPL common stock outstanding as of April 23, 1999) granted after April 23, 1999; (b) under the SIP, 10,000,000 awards; (c) under the ICPKE, 16,573,608 awards (i.e., 5% of the total PPL common stock outstanding as of January 1, 2003) granted after April 25, 2003, reduced by outstanding awards for which common stock was not yet issued as of such date of 2,373,812 resulting in a limit of 14,199,796; and (d) under the DDCP, the number of sharesstock units available for issuance was reduced to 2,000,000 sharesstock units in March 2012. In addition, each of the ICP and ICPKE includes an annual award limitation of 2% of total PPL common stock outstanding as of January 1 of each year. |
PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Item 12 is omitted as PPL Energy Supply, PPL Electric, LKE, LG&E and KU meet the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PPL Corporation
Information for this item will be set forth in the sections entitled "Transactions with Related Persons" and "Independence of Directors" in PPL's 20152017 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2014,2016, and is incorporated herein by reference.
PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Item 13 is omitted as PPL Energy Supply, PPL Electric, LKE, LG&E and KU meet the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information for this item will be set forth in the section entitled "Fees to Independent Auditor for 20142016 and 2013"2015" in PPL's 20152017 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2014,2016, and which information is incorporated herein by reference.
PPL Energy Supply, LLC
Electric Utilities Corporation
For the fiscal year ended 2016, Deloitte & Touche LLP (Deloitte) served as PPL Electric's independent auditor. For the fiscal year ended 2015, Ernst & Young LLP (EY) served as PPL Electric's independent auditor. The following table presents an allocation of fees billed, including expenses, by Ernst & Young LLP (EY)the independent auditor to PPL for the fiscal years ended December 31, 2014 and 2013, for professional services rendered for the audit of PPL Energy Supply's annual financial statements and for fees billed for other services rendered by EY.
| | | 2014 | | 2013 |
| | | (in thousands) |
| | | | | | | |
| Audit fees (a) | | $ | 1,483 | | $ | 1,612 |
| Audit-related fees | | | | | | 9 |
| Tax fees (b) | | | 49 | | | 70 |
(a) | Includes estimated fees for audit of annual financial statements and review of financial statements included in PPL Energy Supply's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC. |
(b) | Includes fees for tax advice for capital expenditures on certain hydro-electric plant upgrades and various state and local tax issues. |
PPL Electric, Utilities Corporation
The following table presents an allocation of fees billed, including expenses, by EY to PPL for the fiscal years ended December 31, 2014 and 2013, for professional services rendered for the audit of PPL Electric's annual financial statements and for fees billed for other services rendered by Deloitte and EY.
|
| | | | | | | |
| | 2016 | | 2015 |
| | (in thousands) |
| Audit fees (a) | $ | 1,104 |
| | $ | 1,185 |
|
| Audit-related fees (b) | — |
| | 11 |
|
| | | 2014 | | 2013 |
| | | (in thousands) |
| | | | | | | |
| Audit fees (a) | | $ | 954 | | $ | 953 |
| Audit-related fees | | | | | | 10 |
| Tax fees (b) | | | 18 | | | 72 |
| |
| (a) | Includes estimated fees for audit of annual financial statements and review of financial statements included in PPL Electric's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC. |
| |
| (b) | Includes fees for tax advice for various state and local tax issues.agreed upon procedures related to Annual EPA filings. |
LG&E and KU Energy LLC
For the fiscal year ended 2016, Deloitte served as LKE's independent auditor. For the fiscal year ended 2015, EY served as LKE's independent auditor. The following table presents an allocation of fees billed, including expenses, by EYthe independent auditor to LKE, for the fiscal years ended December 31, 2014 and 2013, for professional services rendered for the audits of LKE's annual financial statements and for fees billed for other services rendered by Deloitte and EY.
| | | 2014 | | 2013 |
| | | (in thousands) |
| | | | | | | |
| Audit fees (a) | | $ | 1,636 | | $ | 1,646 |
|
| | | | | | | |
| | 2016 | | 2015 |
| | (in thousands) |
| Audit fees (a) | $ | 1,767 |
| | $ | 1,758 |
|
| |
| (a) | Includes estimated fees for audit of annual financial statements and review of financial statements included in LKE's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC. |
Louisville Gas and Electric Company
For the fiscal year ended 2016, Deloitte served as LG&E's independent auditor. For the fiscal year ended 2015, EY served as LG&E's independent auditor. The following table presents an allocation of fees billed, including expenses, by EYthe independent auditor to LG&E, for the fiscal years ended December 31, 2014 and 2013, for professional services rendered for the audits of LG&E's annual financial statements and for fees billed for other services rendered by Deloitte and EY.
| | | 2014 | | 2013 |
| | | (in thousands) |
| | | | | | | |
| Audit fees (a) | | $ | 699 | | $ | 691 |
|
| | | | | | | |
| | 2016 | | 2015 |
| | (in thousands) |
| Audit fees (a) | $ | 814 |
| | $ | 718 |
|
| |
| (a) | Includes estimated fees for audit of annual financial statements and review of financial statements included in LG&E's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC. |
Kentucky Utilities Company
For the fiscal year ended 2016, Deloitte served as KU's independent auditor. For the fiscal year ended 2015, EY served as KU's independent auditor. The following table presents an allocation of fees billed, including expenses, by EYthe independent auditor to KU, for the fiscal years ended December 31, 2014 and 2013, for professional services rendered for the audits of KU's annual financial statements and for fees billed for other services rendered by Deloitte and EY.
| | | 2014 | | 2013 |
| | | (in thousands) |
| | | | | | | |
| Audit fees (a) | | $ | 625 | | $ | 646 |
|
| | | | | | | | |
| | | 2016 | | 2015 |
| | | (in thousands) |
| Audit fees (a) | | $ | 936 |
| | $ | 717 |
|
| |
| (a) | Includes estimated fees for audit of annual financial statements and review of financial statements included in KU's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC. |
PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Approval of FeesFees. The Audit Committee of PPL has procedures for pre-approving audit and non-audit services to be provided by the independent auditor. These procedures are designed to ensure the continued independence of the independent auditor. More specifically, the use of the independent auditor to perform either audit or non-audit services is prohibited unless specifically approved in advance by the Audit Committee of PPL. As a result of this approval process, the Audit Committee of PPL has pre-approved specific categories of services and authorization levels. All services outside of the specified categories and all amounts exceeding the authorization levels are approved by the Chair of the Audit Committee of PPL, who serves as the Committee designee to review and approve audit and non-audit related services during the year. A listing of the approved audit and non-audit services is reviewed with the full Audit Committee of PPL no later than its next meeting.
The Audit Committee of PPL approved 100% of the 20142016 and 20132015 services provided by Deloitte and EY.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
(a) The following documents are filed as part of this report:
PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company | |
|
(a) The following documents are filed as part of this report: |
| |
| 1. | Financial Statements - Refer to the "Table of Contents" for an index of the financial statements included in this report. |
| | |
| 2. | Supplementary Data and Supplemental Financial Statement Schedule - included in response to Item 8. |
Schedule I - PPL Corporation Condensed Unconsolidated Financial Statements.
Schedule I - LG&E and KU Energy LLC Condensed Unconsolidated Financial Statements.
All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto.
| | |
| | Schedule I - PPL Corporation Condensed Unconsolidated Financial Statements. |
| | |
| | Schedule I - LG&E and KU Energy LLC Condensed Unconsolidated Financial Statements. |
| | |
| | All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto. |
| | |
| 3. | Exhibits |
| | |
| | See Exhibit Index immediately following the signature pages. |
See Exhibit Index immediately following the signature pages.
SHAREOWNER AND INVESTOR INFORMATION
Annual MeetingsMeeting: The 20152017 annual meeting of shareowners of PPL will be held on Wednesday, May 20, 2015,17, 2017, at The Kentucky Center for the PPL Center, 701 HamiltonPerforming Arts, Bomhard Theatre, 501 W. Main Street, Allentown, Pennsylvania, in Lehigh County.Louisville, Kentucky.
Proxy and Information Statement Material:A proxy statement and notice of PPL's annual meeting iswill be provided to all shareowners who are holders of record as of February 27, 2015.28, 2017. The latest proxy statement can be accessed at www.pplweb.com.www.pplweb.com/PPLCorpProxy.
PPL Annual Report:The report iswill be published in the beginning of April and will be provided to all shareowners who are holders of record as of February 27, 2015.28, 2017. The latest annual report can be accessed at www.pplweb.com.www.pplweb.com/PPLCorpProxy.
Dividends:Subject to the declaration of dividends on PPL common stock by the PPL Board of Directors or its Executive Committee, dividends are paid on the first business day of April, July, October and January. The 20152017 record dates for dividends are expected to be March 10, June 10,9, September 108 and December 10.8.
PPL's Website (www.pplweb.com): Shareowners can access PPL publications such as annual and quarterly reports to the Securities and Exchange Commission (SEC Forms 10-K and 10-Q), other PPL filings, corporate governance materials, news releases, stock quotes and historical performance. Visitors to our website can subscribe to receive automated email alerts for SEC filings, earnings releases, daily stock prices or other financial news.
Financial reports which are available at www.pplweb.com will be mailed without charge upon request by writing to:
PPL Treasury Dept.
Two North Ninth Street
Allentown, PA 18101
Via email: invserv@pplweb.com
or by calling:
Shareowner Services, toll-free at 1-800-345-3085; or
PPL Corporate Offices at 610-774-5151.
Online Account Access:Registered shareowners can activate their account for online access by visiting shareowneronline.com.
Dividend Reinvestment and Direct Stock Purchase Plan (Plan): PPL offers investors the opportunity to acquire shares of PPL common stock through its Plan. Through the Plan, participants are eligible to invest up to $25,000 per calendar month in PPL common stock. Shareowners may choose to have dividends on their PPL common stock fully or partially reinvested in PPL common stock or can receive full payment of cash dividends by check or electronic funds transfer. Participants in the Plan may choose to have their common stock certificates deposited into their Plan account.
Direct Registration System: PPL participates in the Direct Registration System (DRS). Shareowners may choose to have their common stock certificates converted to book entry form within the DRS by submitting their certificates to PPL's transfer agent.
New York Stock Exchange
PPL Corporation:
Common Stock (Code: PPL)
PPL Capital Funding, Inc.:
2007 Series A Junior Subordinated Notes due 2067 (Code: PPL/67)
2013 Series B Junior Subordinated Notes due 2073 (Code: PPX)
Fiscal Agents:
Transfer Agent and Registrar; Dividend Disbursing Agent; Plan Administrator
Wells Fargo Bank, N.A.
Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
Toll Free: 1-800-345-3085
Outside U.S.: 651-453-2129
Website: shareowneronline.com
Indenture Trustee
The Bank of New York Mellon
101 BarclayCorporate Trust Administration
500 Ross Street
New York, NY 10286
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PPL Corporation
(Registrant)
|
| | | | |
| By /s/ William H. Spence | | | | |
| William H. Spence - | | | | |
| Chairman, President and | | | | |
| Chief Executive Officer | | | | |
| | | | | |
| | | | | |
| Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. |
| | | | | |
| | | | | |
| | | | |
By /s//s/ William H. Spence | | | | |
| William H. Spence - | | | | |
| Chairman, President and | | | | |
| Chief Executive Officer | | | | |
| (Principal Executive Officer) | | | | |
| | | | | |
| | | | | |
By /s//s/ Vincent Sorgi | | | | |
| Vincent Sorgi - | | | | |
| Senior Vice President and | | | | |
| Chief Financial Officer | | | | |
| (Principal Financial Officer) | | | | |
| | | | | |
| | | | | |
By /s//s/ Stephen K. Breininger | | | | |
| Stephen K. Breininger - | | | | |
| Vice President and Controller | | | | |
| (Principal Accounting Officer) | | | | |
| | | | | |
| | | | | |
| Directors: | | | | |
| | | | | |
| Rodney C. Adkins | | Stuart Heydt | | |
Frederick M. Bernthal | | Venkata Rajamannar MadabhushiWilliam H. Spence | | |
| John W. Conway | | Craig A. Rogerson | | |
Philip G. Cox | | William H. SpenceNatica von Althann | | |
| Steven G. Elliott | | Natica von Althann | | |
Louise K. Goeser | | Keith H. Williamson | | |
Stuart E. GrahamVenkata Rajamannar Madabhushi | | Armando Zagalo de Lima | | |
| Craig A. Rogerson | | | | |
| | | | | |
By /s/ | | | | |
| | | | |
| /s/ William H. Spence | | | | |
| William H. Spence, Attorney-in-fact | | Date: February 23, 201517, 2017 | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PPL Energy Supply, LLC
(Registrant)
By /s/ Paul A. Farr | | | | |
Paul A. Farr - | | | | |
President | | | | |
| | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. |
| | | | |
| | | | |
| | | | |
By /s/ Paul A. Farr | | | | |
Paul A. Farr - | | | | |
President | | | | |
(Principal Executive Officer) | | | | |
| | | | |
By /s/ Vincent Sorgi | | | | |
Vincent Sorgi - | | | | |
Senior Vice President | | | | |
(Principal Financial Officer) | | | | |
| | | | |
By /s/ Stephen K. Breininger | | | | |
Stephen K. Breininger - | | | | |
Controller | | | | |
(Principal Accounting Officer) | | | | |
| | | | |
Managers: | | | | |
| | | | |
/s/ Paul A. Farr | | | | |
Paul A. Farr | | | | |
| | | | |
/s/ Robert J. Grey | | | | |
Robert J. Grey | | | | |
| | | | |
/s/ Vincent Sorgi | | | | |
Vincent Sorgi | | | | |
| | | | |
/s/ William H. Spence | | | | |
William H. Spence | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Date: February 23, 2015 | | | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PPL Electric Utilities Corporation
(Registrant)
|
| | | | |
| By /s/ Gregory N. Dudkin | | | | |
| Gregory N. Dudkin - | | | | |
| President | | | | |
| |
| Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. |
| | | | | |
| | | | | |
| | | | | |
By /s//s/ Gregory N. Dudkin | | | | |
| Gregory N. Dudkin - | | | | |
| President | | | | |
| (Principal Executive Officer) | | | | |
| | | | | |
By /s/ Dennis A. Urban, Jr./s/ Marlene C. Beers | | | | |
Dennis A. Urban, Jr.Marlene C. Beers - | | | | |
Controller (Principal Financial Officer and Principal Accounting Officer) | | | | |
| | | | | |
| | | | | |
| Directors: | | | | |
| | | | | |
| /s/ Gregory N. Dudkin | | /s/ Vincent Sorgi | | |
| Gregory N. Dudkin | | Vincent Sorgi | | |
| | | | | |
/s/ Robert J. GreyJoanne H. Raphael | | /s/ William H. Spence | | |
Robert J. GreyJoanne H. Raphael | | William H. Spence | | |
| | | | | |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Date: February 23, 201517, 2017 | | | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LG&E and KU Energy LLC
(Registrant)
|
| | | | |
| By /s/ Victor A. Staffieri | | | | |
| Victor A. Staffieri - | | | | |
Chairman of the Board and Chief Executive Officer and President | | | | |
| | | | |
| | | | |
| Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. |
| | | | |
| | | | |
| | | | |
| /s/ Victor A. Staffieri | | | | |
| Victor A. Staffieri - | | | | |
| Chairman of the Board and Chief Executive Officer | | | | |
| (Principal Executive Officer) | | | | |
| | | | |
| | | | |
| /s/ Kent W. Blake | | | | |
| Kent W. Blake - | | | | |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | | | | |
| | | | |
| | | | |
| | | | |
| Directors: | | | | |
| | | | |
| /s/ Kent W. Blake | | /s/ Victor A. Staffieri | | |
| Kent W. Blake | | Victor A. Staffieri | | |
/s/ Vincent Sorgi | | /s/ Paul W. Thompson | | |
| Vincent Sorgi | | Paul W. Thompson | | |
/s/ William H. Spence | | | | |
| William H. Spence | | | | |
| | | | |
| | | | |
| Date: February 17, 2017 | | | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Louisville Gas and Electric Company
(Registrant)
|
| | | | |
| By /s/ Victor A. Staffieri | | | | |
| Victor A. Staffieri - | | | | |
| Chairman of the Board and Chief Executive Officer | | | | |
| | | | | |
| | | | | |
| | | | | |
| Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. |
| | | | | |
| | | | | |
| | | | | |
| | | | |
| | | | |
By /s//s/ Victor A. Staffieri | | | | |
| Victor A. Staffieri - | | | | |
Chairman of the Board and Chief Executive Officer and President | | | | |
(Principal Executive Officer) | | | | |
| | | | | |
| | | | | |
By /s/ | | | | |
| /s/ Kent W. Blake | | | | |
| Kent W. Blake - | | | | |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | | | | |
| | | | | |
| | | | | |
| | | | | |
| Directors: | | | | |
| | | | | |
/s/ S. Bradford RivesKent W. Blake | | /s/ Victor A. Staffieri | | |
S. Bradford RivesKent W. Blake | | Victor A. Staffieri | | |
/s/ Vincent Sorgi | | /s/ Paul W. Thompson | | |
| Vincent Sorgi | | Paul W. Thompson | | |
| | | | |
| /s/ William H. Spence | | | | |
| William H. Spence | | | | |
| | | | | |
| | | | |
Date: February 23, 201517, 2017 | | | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Louisville Gas and ElectricKentucky Utilities Company
(Registrant)
|
| | | | |
| By /s/ Victor A. Staffieri | | | | |
| Victor A. Staffieri - | | | | |
Chairman of the Board and Chief Executive Officer and President | | | | |
| | | | | |
| | | | | |
| | | | | |
| Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. |
| | | | | |
| | | | | |
| | | | | |
| | | | |
| | | | |
By /s//s/ Victor A. Staffieri | | | | |
| Victor A. Staffieri - | | | | |
Chairman of the Board and Chief Executive Officer and President (Principal Executive Officer) | | | | |
| | | | | |
| | | | | |
| | | | | |
By /s//s/ Kent W. Blake | | | | |
| Kent W. Blake - | | | | |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | | | | |
| | | | | |
| | | | | |
| | | | | |
| Directors: | | | | |
| | | | | |
/s/ S. Bradford RivesKent W. Blake | | /s/ Victor A. Staffieri | | |
S. Bradford RivesKent W. Blake | | Victor A. Staffieri | | |
/s/ Vincent Sorgi | | /s/ Paul W. Thompson | | |
| Vincent Sorgi | | Paul W. Thompson | | |
| | | | |
| /s/ William H. Spence | | | | |
| William H. Spence | | | | |
| | | | | |
| | | | |
Date: February 23, 201517, 2017 | | | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Kentucky Utilities Company
(Registrant)
By /s/ Victor A. Staffieri | | | | |
Victor A. Staffieri - | | | | |
Chairman of the Board, Chief Executive Officer and President | | | | |
| | | | |
| | | | |
| | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
By /s/ Victor A. Staffieri | | | | |
Victor A. Staffieri - | | | | |
Chairman of the Board, Chief Executive Officer and President
(Principal Executive Officer)
| | | | |
| | | | |
| | | | |
| | | | |
By /s/ Kent W. Blake | | | | |
Kent W. Blake - | | | | |
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
| | | | |
| | | | |
| | | | |
| | | | |
Directors: | | | | |
| | | | |
/s/ S. Bradford Rives | | /s/ Victor A. Staffieri | | |
S. Bradford Rives | | Victor A. Staffieri | | |
/s/ Vincent Sorgi
| | /s/ Paul W. Thompson
| | |
Vincent Sorgi | | Paul W. Thompson | | |
/s/ William H. Spence
| | | | |
William H. Spence | | | | |
| | | | |
| | | | |
Date: February 23, 2015 | | | | |
EXHIBIT INDEX
The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits has heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
1(a) | - | Final Terms of WPD West Midlands £800,000,000 5.75 per cent Notes due 2032 (Exhibit 1.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 17, 2011) |
| | |
1(b) | - | Final Terms of WPD East Midlands £600,000,000 5.25 per cent Notes due 2023 (Exhibit 1.2 to PPL Corporation Form 8-K Report (File No. 1-11459 ) dated May 17, 2011) |
| | |
1(c) | - | Final Terms of WPD East Midlands £100,000,000 Index Linked Notes due 2043 (Exhibit 1.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated June 2, 2011) |
| | |
1(d) | - | Final Terms of WPD East Midlands £100,000,000 5.25% Notes due 2023 (Exhibit 1.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 19, 2012) |
| | |
1(e) | - | Final Terms of the WPD West Midlands £400 million 3.875% Senior Unsecured Notes due October 17, 2024 (Exhibit 1.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 18, 2013) |
| | |
1(f) | - | Final Terms of the WPD East Midlands £40 million 1.676% Notes due 2052 (Exhibit 1.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 18, 2013) |
| | |
1(g) | - | Final Terms of the WPD East Midlands £25 million 1.676% Notes due 2052 (Exhibit 1.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 18, 2013) |
| | |
1(h)1(a) | - | Securities Purchase and Registration Rights Agreement, dated March 5, 2014, among PPL Capital Funding, Inc., PPL Corporation, and the several purchasers named in Schedule B thereto (Exhibit 1.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated March 10, 2014) |
| | | |
2(a)1(b) | - | Purchase and SaleEquity Distribution Agreement, dated February 26, 2015, by and betweenamong PPL Montana, LLCCorporation and NorthWestern Corporation, dated as of September 26, 2013Merrill Lynch, Pierce, Fenner & Smith Incorporation (Exhibit 2.11.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013)February 26, 2015) |
| | | |
2(b)1(c) | - | Lease TerminationEquity Distribution Agreement, dated February 26, 2015, by and betweenamong PPL Montana,Corporation and Morgan Stanley & Co. LLC Montana OL3 LLC and Montana OP3 LLC, dated as of September 26, 2013 (Exhibit 2.21.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013)February 26, 2015) |
| | | |
2(c) | - | Lease Termination Agreement by and between PPL Montana, LLC, Montana OL4 LLC and Montana OP4 LLC, dated as of September 26, 2013 (Exhibit 2.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013) |
| | |
2(d) | - | Lease Termination Agreement by and between PPL Montana, LLC, Montana OL1 LLC and Montana OP1 LLC, dated as of September 26, 2013 (Exhibit 2.4 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013) |
| | |
2(e) | - | Lease Termination Agreement by and between PPL Montana, LLC, Montana OL1 LLC and Montana OP1 LLC, dated as of September 26, 2013 (Exhibit 2.5 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013) |
| | |
2(f)2(a) | - | Separation Agreement among PPL Corporation, Talen Energy Holdings, Inc., Talen Energy Corporation, PPL Energy Supply, LLC, Raven Power Holdings LLC, C/R Energy Jade, LLC and Sapphire Power Holdings LLC., dated as of June 9, 2014 (Exhibit 2.1 to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated June 12, 2014) |
| | | |
2(g)2(b) | - | Transaction Agreement among PPL Corporation, Talen Energy Holdings, Inc., Talen Energy Corporation, PPL Energy Supply, LLC, Talen Energy Merger Sub, Inc., C/R Energy Jade, LLC, Sapphire Power Holdings LLC. and Raven Power Holdings LLC, dated as of June 9, 2014 (Exhibit 2.2 to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated June 12, 2014) |
| | | |
| 3(a) | - | Amended and Restated Articles of Incorporation of PPL Corporation, effective as of May 15, 201325, 2016 (Exhibit 3(i) to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 20, 2013)26, 2016) |
| | | |
| 3(b) | - | Bylaws of PPL Corporation, effective as of December 18, 2015 (Exhibit 3(ii) to PPL Corporation Form 8-K Report (File No. 1-11459) dated December 21, 2015) |
| | |
| 3(c) | - | Amended and Restated Articles of Incorporation of PPL Electric Utilities Corporation, effective as of October 31, 2013 (Exhibit 3(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 2013) |
| | | |
3(c)-1 | - | Certificate of Formation of PPL Energy Supply, LLC, effective as of November 14, 2000 (Exhibit 3.1 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794)) |
| | |
3(c)-2 | - | Certificate of Amendment of PPL Energy Supply, LLC, effective as of November 12, 2002 (Exhibit 3(c)-2 to PPL Energy Supply, LLC Form 10-K Report (File No. 1-32944) for the year ended December 31, 2011) |
| | |
| 3(d) | - | Amended and Restated Bylaws of PPL Corporation, effective as of May 15, 2013 (Exhibit 3(ii) to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 20, 2013) |
| | |
3(e) | - | Amended and Restated Bylaws of PPL Electric Utilities Corporation, effective as of October 31, 201327, 2015 (Exhibit 3(b)3(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905)1-11459) for the quarter ended September 30, 2013)2015) |
| | | |
3(f) | - | Limited Liability Company Agreement of PPL Energy Supply, LLC, effective as of March 20, 2001 (Exhibit 3.2 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794)) |
| | |
3(g)3(e) | - | Articles of Organization of LG&E and KU Energy LLC, effective as of December 29, 2003 (Exhibit 3(a) to Registration Statement filed on Form S-4 (File No. 333-173665)) |
| | | |
3(h)3(f)-1 | - | Amended and Restated Operating Agreement of LG&E and KU Energy LLC, effective as of November 1, 2010 (Exhibit 3(b) to Registration Statement filed on Form S-4 (File No. 333-173665)) |
| | | |
3(h)3(f)-2 | - | Amendment to Amended and Restated Operating Agreement of LG&E and KU Energy LLC, effective as of November 25, 2013 (Exhibit 3(h)-2) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2013) |
| | | |
3(i)3(g)-1 | - | Amended and Restated Articles of Incorporation of Louisville Gas and Electric Company, effective as of November 6, 1996 (Exhibit 3(a) to Registration Statement filed on Form S-4 (File No. 333-173676)) |
| | | |
3(i)3(g)-2 | - | Articles of Amendment to Articles of Incorporation of Louisville Gas and Electric Company, effective as of April 6, 2004 (Exhibit 3(b) to Registration Statement filed on Form S-4 (File No. 333-173676)) |
|
| | |
| | | |
3(j)3(h) | - | Bylaws of Louisville Gas and Electric Company, effective as of December 16, 2003 (Exhibit 3(c) to Registration Statement filed on Form S-4 (File No. 333-173676)) |
| | | |
3(k)3(i)-1 | - | Amended and Restated Articles of Incorporation of Kentucky Utilities Company, effective as of December 14, 1993 (Exhibit 3(a) to Registration Statement filed on Form S-4 (File No. 333-173675)) |
| | | |
3(k)3(i)-2 | - | Articles of Amendment to Articles of Incorporation of Kentucky Utilities Company, effective as of April 8, 2004 (Exhibit 3(b) to Registration Statement filed on Form S-4 (File No. 333-173675)) |
| | | |
3(l)3(j) | - | Bylaws of Kentucky Utilities Company, effective as of December 16, 2003 (Exhibit 3(c) to Registration Statement filed on Form S-4 (File No. 333-173675)) |
| | | |
| - | Pollution Control Facilities Loan Agreement, dated as of May 1, 1973, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 5(z) to Registration Statement No. 2-60834) |
| | |
4(b)-1 | - | Amended and Restated Employee Stock Ownership Plan, dated January 12, 2007 (Exhibit 4(a) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2006)1, 2016 |
| | | |
4(b)-2 | - | Amendment No. 1 to said Employee Stock Ownership Plan, dated July 2, 2007 (Exhibit 4(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 2007) |
| | |
4(b)-3 | - | Amendment No. 2 to said Employee Stock Ownership Plan, dated December 13, 2007 (Exhibit 4(a)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2007) |
| | |
4(b)-4 | - | Amendment No. 3 to said Employee Stock Ownership Plan, dated August 19, 2009 (Exhibit 4(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 2009) |
| | |
4(b)-5 | - | Amendment No. 4 to said Employee Stock Ownership Plan, dated December 2, 2009 (Exhibit 4(a)-5 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2009) |
| | |
4(b)-6 | - | Amendment No. 5 to said Employee Stock Ownership Plan, dated November 17, 2010 (Exhibit 4(b)-6 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
4(b)-7 | - | Amendment No. 6 to said Employee Stock Ownership Plan, dated January 18, 2012 (Exhibit 4(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2012) |
| | |
4(b)-8 | - | Amendment No. 7 to said Employee Stock Ownership Plan, dated May 30, 2012 (Exhibit 4(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2012) |
| | |
4(b)-9 | - | Amendment No. 8 to said Employee Stock Ownership Plan, dated July 17, 2012 (Exhibit 4(b) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2012) |
| | |
4(b)-10 | - | Amendment No. 9 to said Employee Stock Ownership Plan, dated December 21, 2012 (Exhibit 4(b)-10 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2012) |
| | |
4(b)-11 | - | Amendment No. 10 to said Employee Stock Ownership Plan, dated September 16, 2013 (Exhibit 4(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 2013) |
| | |
4(c) | - | Trust Deed constituting £150 million 9 ¼9.25% percent Bonds due 2020, dated November 9, 1995, between South Wales Electric plc and Bankers Trustee Company Limited (Exhibit 4(k) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2004) |
| | | |
4(d)4(c)-1 | - | Indenture, dated as of November 1, 1997, among PPL Corporation, PPL Capital Funding, Inc. and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated November 12, 1997) |
| | | |
4(d)4(c)-2 | - | Supplemental Indenture No. 8, dated as of June 14, 2012, to said Indenture (Exhibit 4(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated June 14, 2012) |
| | | |
4(d)4(c)-3 | - | Supplemental Indenture No. 9, dated as of October 15, 2012, to said Indenture (Exhibit 4(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 15, 2012) |
| | | |
4(d)4(c)-4 | - | Supplemental Indenture No. 10, dated as of May 24, 2013, to said Indenture (Exhibit 4.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 24, 2013) |
| | | |
4(d)4(c)-5 | - | Supplemental Indenture No. 11, dated as of May 24, 2013, to said Indenture (Exhibit 4.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 24, 2013) |
| | | |
4(d)4(c)-6 | - | Supplemental Indenture No. 12, dated as of May 24, 2013, to said Indenture (Exhibit 4.4 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 24, 2013) |
| | | |
4(d)4(c)-7 | - | Supplemental Indenture No. 13, dated as of March 10, 2014, to said Indenture (Exhibit 4.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated March 10, 2014) |
| | | |
4(d)4(c)-8 | - | Supplemental Indenture No. 14, dated as of March 10, 2014, to said Indenture (Exhibit 4.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated March 10, 2014) |
| | | |
4(e)4(c)-9 | - | Supplemental Indenture No. 15, dated as of May 17, 2016, to said Indenture (Exhibit 4(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 17, 2016) |
| | |
| 4(d)-1 | - | Indenture, dated as of March 16, 2001, among WPD Holdings UK, Bankers Trust Company, as Trustee, Principal Paying Agent, and Transfer Agent and Deutsche Bank Luxembourg, S.A., as Paying and Transfer Agent (Exhibit 4(g) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2009) |
| | | |
4(e) |
| | |
| 4(d)-2 | - | First Supplemental Indenture constituting the creation of $200 million 6.75% Notes due 2004, $200 million 6.875% Notes due 2007, $225 million 6.50% Notes due 2008, $100 million 7.25% Notes due 2017 and $300 million 7.375% Notes due 2028, dated as of March 16, 2001, to said Indenture (Exhibit 4(n)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2004) |
| | | |
4(e)4(d)-3 | - | Second Supplemental Indenture, dated as of January 30, 2003, to said Indenture (Exhibit 4(n)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2004) |
| | | |
4(e)4(d)-4 | - | Third Supplemental Indenture, dated as of October 31, 2014, to said Indenture (Exhibit 4(b) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 2014) |
| | | |
4(f) | - | Fourth Supplemental Indenture, dated as of December 1, 2016 |
| | |
| 4(e)-1 | - | Indenture, dated as of August 1, 2001, by PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 21, 2001) |
| | | |
4(f)4(e)-2 | - | Supplemental Indenture No. 4, dated as of February 1, 2005, to said Indenture (Exhibit 4(g)-5 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2004) |
| | |
4(f)-3 | - | Supplemental Indenture No. 5, dated as of May 1, 2005, to said Indenture (Exhibit 4(b) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2005) |
| | |
4(f)-4 | - | Supplemental Indenture No. 6, dated as of December 1, 2005, to said Indenture (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated December 22, 2005) |
| | | |
4(f)-54(e)-3 | - | Supplemental Indenture No. 7, dated as of August 1, 2007, to said Indenture (Exhibit 4(b) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 14, 2007) |
| | | |
4(f)-64(e)-4 | - | Supplemental Indenture No. 9, dated as of October 1, 2008, to said Indenture (Exhibit 4(c) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated October 31, 2008) |
| | | |
4(f)-74(e)-5 | - | Supplemental Indenture No. 10, dated as of May 1, 2009, to said Indenture (Exhibit 4(b) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated May 22, 2009) |
| | | |
4(f)-84(e)-6 | - | Supplemental Indenture No. 11, dated as of July 1, 2011, to said Indenture (Exhibit 4.1 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated July 13, 2011) |
| | | |
4(f)-94(e)-7 | - | Supplemental Indenture No. 12, dated as of July 1, 2011, to said Indenture (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated July 18, 2011) |
| | | |
4(f)-104(e)-8 | - | Supplemental Indenture No. 13, dated as of August 1, 2011, to said Indenture (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 23, 2011) |
| | | |
4(f)-114(e)-9 | - | Supplemental Indenture No. 14, dated as of August 1, 2012, to said Indenture (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 24, 2012) |
| | | |
4(f)-124(e)-10 | - | Supplemental Indenture No. 15, dated as of July 1, 2013, to said Indenture (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated July 11, 2013) |
| | | |
4(f)-134(e)-11 | - | Supplemental Indenture No. 16, dated as of June 1, 2014, to said Indenture (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated June 5, 2014) |
| | | |
4(g)-14(e)-12 | - | Supplemental Indenture No. 17, dated as of October 1, 2001, by PPL Energy Supply, LLC and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee2015, to said Indenture (Exhibit 4.14(c) to PPL Energy Supply, LLCElectric Utilities Corporation Form S-4 (Registration Statement8-K Report (File No. 333-74794))1-905) dated October 1, 2015) |
| | | |
4(g)- 24(e)-13 | - | Supplemental Indenture No. 2,18, dated as of August 15, 2004, to said Indenture (Exhibit 4(h)-4 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004) |
| | |
4(g)-3 | - | Supplemental Indenture No. 3, dated as of October 15, 2005, to said Indenture (Exhibit 4(a) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated October 28, 2005) |
| | |
4(g)-4 | - | Form of Note for PPL Energy Supply, LLC's $300 million aggregate principal amount of 5.70% REset Put Securities due 2035 (REPSSM) (Exhibit 4(b) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated October 28, 2005)
|
| | |
4(g)-5 | - | Supplemental Indenture No. 4, dated as of MayMarch 1, 2006, to said Indenture (Exhibit 4(a) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended June 30, 2006) |
| | |
4(g)-6 | - | Supplemental Indenture No. 6, dated as of July 1, 2006,2016, to said Indenture (Exhibit 4(c) to PPL Energy Supply, LLCElectric Utilities Corporation Form 10-Q8-K Report (File No. 333-74794) for the quarter ended June 30, 2006)1-905) dated March 10, 2016) |
| | | |
4(g)-7 | - | Supplemental Indenture No. 7, dated as of December 1, 2006, to said Indenture (Exhibit 4(f)-10 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2006) |
| | |
4(g)-8 | - | Supplemental Indenture No. 8, dated as of December 1, 2007, to said Indenture (Exhibit 4(b) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated December 20, 2007) |
| | |
4(g)-9 | - | Supplemental Indenture No. 9, dated as of March 1, 2008, to said Indenture (Exhibit 4(b) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated March 14, 2008) |
| | |
4(g)-10 | - | Supplemental Indenture No. 10, dated as of July 1, 2008, to said Indenture (Exhibit 4(b) to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated July 21, 2008) |
| | |
4(g)-11 | - | Supplemental Indenture No. 11, dated as of December 1, 2011, to said Indenture (Exhibit 4(a) to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated December 16, 2011) |
| | |
4(g)-12 | - | Supplemental Indenture No. 12, dated as of February 12, 2013, to said Indenture (Exhibit 4.1 to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated February 13, 2013) |
| | |
4(h)4(f)-1 | - | Trust Deed constituting £200 million 5.875 percent Bonds due 2027, dated March 25, 2003, between Western Power Distribution (South West) plc and J.P. Morgan Corporate Trustee Services Limited (Exhibit 4(o)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2004) |
| | | |
4(h)4(f)-2 | - | Supplement, dated May 27, 2003, to said Trust Deed, constituting £50 million 5.875 percent Bonds due 2027 (Exhibit 4(o)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2004) |
| | | |
4(i)4(g)-1 | - | Pollution Control Facilities Loan Agreement, dated as of February 1, 2005, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 10(ff) to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2004) |
| | |
4(i)-2 | - | Pollution Control Facilities Loan Agreement, dated as of May 1, 2005, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 10(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2005) |
| | |
4(i)-3 | - | Pollution Control Facilities Loan Agreement, dated as of October 1, 2008, between Pennsylvania Economic Development Financing Authority and PPL Electric Utilities Corporation (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated October 31, 2008)
|
| | | |
4(j)4(g)-2 | - | Pollution Control Facilities Loan Agreement, dated as of March 1, 2016, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 10, 2016) |
| | |
| 4(g)-3 | - | Pollution Control Facilities Loan Agreement, dated as of March 1, 2016, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 4(b) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 10, 2016) |
| | |
| 4(h) | - | Trust Deed constituting £105 million 1.541 percent Index-Linked Notes due 2053, dated December 1, 2006, between Western Power Distribution (South West) plc and HSBC Trustee (CI) Limited (Exhibit 4(i) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2006) |
| | | |
4(k)4(i) | - | Trust Deed constituting £120 million 1.541 percent Index-Linked Notes due 2056, dated December 1, 2006, between Western Power Distribution (South West) plc and HSBC Trustee (CI) Limited (Exhibit 4(j) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2006) |
| | | |
4(l)4(j) | - | Trust Deed constituting £225 million 4.80436 percent Notes due 2037, dated December 21, 2006, between Western Power Distribution (South Wales) plc and HSBC Trustee (CI) Limited (Exhibit 4(k) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2006) |
| | | |
4(m)4(k)-1 | - | Subordinated Indenture, dated as of March 1, 2007, between PPL Capital Funding, Inc., PPL Corporation and The Bank of New York, as Trustee (Exhibit 4(a) to PPL Corporation Form 8-K Report (File No. 1-11459) dated March 20, 2007) |
| | | |
4(m)4(k)-2 | - | Supplemental Indenture No. 1, dated as of March 1, 2007, to said Subordinated Indenture (Exhibit 4(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated March 20, 2007) |
| | | |
4(m)4(k)-3 | - | Supplemental Indenture No. 2, dated as of June 28, 2010, to said Subordinated Indenture (Exhibit 4.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated June 30, 2010) |
| | |
4(m)-4 | - | Supplemental Indenture No. 3, dated as of April 15, 2011, to said Subordinated Indenture (Exhibit 4.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 19, 2011) |
| | |
4(m)-5 | - | Supplemental Indenture No. 4, dated as of March 15, 2013, to said Subordinated Indenture (Exhibit 4(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated March 15, 2013) |
| | | |
4(n)-1 | - | Series 2009A Exempt Facilities Loan Agreement, dated as of April 1, 2009, between PPL Energy Supply, LLC and Pennsylvania Economic Development Financing Authority (Exhibit 4(a) to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated April 9, 2009) |
| | |
4(n)-2 | - | Series 2009B Exempt Facilities Loan Agreement, dated as of April 1, 2009, between PPL Energy Supply, LLC and Pennsylvania Economic Development Financing Authority (Exhibit 4(b) to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated April 9, 2009) |
| | |
4(n)-3 | - | Series 2009C Exempt Facilities Loan Agreement, dated as of April 1, 2009, between PPL Energy Supply, LLC and Pennsylvania Economic Development Financing Authority (Exhibit 4(c) to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated April 9, 2009) |
| | |
4(o)4(l) | - | Trust Deed constituting £200 million 5.75 percent Notes due 2040, dated March 23, 2010, between Western Power Distribution (South Wales) plc and HSBC Corporate Trustee Company (UK) Limited (Exhibit 4(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2010) |
| | | |
4(p)4(m) | - | Trust Deed constituting £200 million 5.75 percent Notes due 2040, dated March 23, 2010, between Western Power Distribution (South West) plc and HSBC Corporate Trustee Company (UK) Limited (Exhibit 4(b) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2010) |
| | | |
4(q) |
| | |
| 4(n)-1 | - | Indenture, dated as of October 1, 2010, between Kentucky Utilities Company and The Bank of New York Mellon, as Trustee (Exhibit 4(q)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(q)4(n)-2 | - | Supplemental Indenture No. 1, dated as of October 15, 2010, to said Indenture (Exhibit 4(q)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(q)4(n)-3 | - | Supplemental Indenture No. 2, dated as of November 1, 2010, to said Indenture (Exhibit 4(q)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(q)4(n)-4 | - | Supplemental Indenture No. 3, dated as of November 1, 2013, to said Indenture (Exhibit 4(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated November 13, 2013) |
| | | |
4(r)4(n)-5 | - | Supplemental Indenture No. 4, dated as of September 1, 2015, to said Indenture (Exhibit 4(b) to Kentucky Utilities Company Form 8-K Report (File No. 1-3464) dated September 28, 2015) |
| | |
| 4(n)-6 | - | Supplemental Indenture No. 5, dated as of August 1, 2016, to said Indenture (Exhibit 4(b) to Kentucky Utilities Company Form 8-K Report (File No. 1-3464) dated August 26, 2016) |
| | |
| 4(o)-1 | - | Indenture, dated as of October 1, 2010, between Louisville Gas and Electric Company and The Bank of New York Mellon, as Trustee (Exhibit 4(r)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(r)4(o)-2 | - | Supplemental Indenture No. 1, dated as of October 15, 2010, to said Indenture (Exhibit 4(r)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(r)4(o)-3 | - | Supplemental Indenture No. 2, dated as of November 1, 2010, to said Indenture (Exhibit 4(r)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(r)4(o)-4 | - | Supplemental Indenture No. 3, dated as of November 1, 2013, to said Indenture (Exhibit 4(a) to PPL Corporation Form 8-K Report (File No. 1-11459) dated November 13, 2013) |
| | | |
4(s)4(o)-5 | - | Supplemental Indenture No. 4, dated as of September 1, 2015, to said Indenture (Exhibit 4(a) to Louisville Gas and Electric Company Form 8-K Report (File No. 1-2893) dated September 28, 2015) |
| | |
| 4(o)-6 | - | Supplemental Indenture No. 5, dated as of September 1, 2016, to said Indenture (Exhibit 4(b) to Louisville Gas and Electric Company Form 8-K (File No. 1-2893) dated September 15, 2016) |
| | |
| 4(p)-1 | - | Indenture, dated as of November 1, 2010, between LG&E and KU Energy LLC and The Bank of New York Mellon, as Trustee (Exhibit 4(s)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(s)4(p)-2 | - | Supplemental Indenture No. 1, dated as of November 1, 2010, to said Indenture (Exhibit 4(s)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(s)4(p)-3 | - | Supplemental Indenture No. 2, dated as of September 1, 2011, to said Indenture (Exhibit 4(a) to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 30, 2011) |
| | | |
4(t)4(q)-1 | - | 2002 Series A Carroll County Loan Agreement, dated February 1, 2002, by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(w)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(t) |
| | |
| 4(q)-2 | - | Amendment No. 1 dated as of September 1, 2010 to said Loan Agreement by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(w)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(u)4(r)-1 | - | 2002 Series B Carroll County Loan Agreement, dated February 1, 2002, by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(x)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(u)4(r)-2 | - | Amendment No. 1 dated as of September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(x)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(v)-1 | - | 2002 Series C Carroll County Loan Agreement, dated July 1, 2002, by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(y)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
4(v)-2 | - | Amendment No. 1 dated as of September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(y)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
4(w)4(s)-1 | - | 2004 Series A Carroll County Loan Agreement, dated October 1, 2004 and amended and restated as of September 1, 2008, by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(z)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(w)4(s)-2 | - | Amendment No. 1 dated as of September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(z)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(x)4(t)-1 | - | 2006 Series B Carroll County Loan Agreement, dated October 1, 2006 and amended and restated September 1, 2008, by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(aa)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(x)4(t)-2 | - | Amendment No. 1 dated as of September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(aa)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(y)4(u)-1 | - | 2007 Series A Carroll County Loan Agreement, dated March 1, 2007, by and between Kentucky Utilities Company and County of Carroll, Kentucky (Exhibit 4(bb)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(y)4(u)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(bb)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(z)4(v)-1 | - | 2008 Series A Carroll County Loan Agreement, dated August 1, 2008 by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(cc)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(z)4(v)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Carroll, Kentucky (Exhibit 4(cc)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(aa)4(w) | - | 2016 Series A Carroll County Loan Agreement dated as of August 1, 2016 between Kentucky Utilities Company and the County of Carroll, Kentucky (Exhibit 4(a) to Kentucky Utilities Company Form 8-K Report (File No. 1-3464) dated August 26, 2016) |
| | |
| 4(x)-1 | - | 2000 Series A Mercer County Loan Agreement, dated May 1, 2000 and amended and restated as of September 1, 2008, by and between Kentucky Utilities Company, and County of Mercer, Kentucky (Exhibit 4(dd)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(aa) |
| | |
| 4(x)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Mercer, Kentucky (Exhibit 4(dd)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(bb)4(y)-1 | - | 2002 Series A Mercer County Loan Agreement, dated February 1, 2002, by and between Kentucky Utilities Company, and County of Mercer, Kentucky (Exhibit 4(ee)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(bb)4(y)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Mercer, Kentucky (Exhibit 4(ee)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(cc)4(z)-1 | - | 2002 Series A Muhlenberg County Loan Agreement, dated February 1, 2002, by and between Kentucky Utilities Company, and County of Muhlenberg, Kentucky (Exhibit 4(ff)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(cc)4(z)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Muhlenberg, Kentucky (Exhibit 4(ff)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(dd)4(aa)-1 | - | 2007 Series A Trimble County Loan Agreement, dated March 1, 2007, by and between Kentucky Utilities Company, and County of Trimble, Kentucky (Exhibit 4(gg)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(dd)4(aa)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Kentucky Utilities Company, and County of Trimble, Kentucky (Exhibit 4(gg)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(ee)-1 | - | 2000 Series A Louisville/Jefferson County Metro Government Loan Agreement, dated May 1, 2000 and amended and restated as of September 1, 2008, by and between Louisville Gas and Electric Company, and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(hh)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
4(ee)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(hh)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
4(ee)-3 | - | Amendment No. 2 dated as of October 1, 2011, to said Loan Agreement by and between Louisville Gas and Electric Company, and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(ee)-3 to Louisville Gas and Electric Company Form 10-K Report (File No. 1-2893) for the year ended December 31, 2011) |
| | |
4(ff)4(bb)-1 | - | 2001 Series A Jefferson County Loan Agreement, dated July 1, 2001, by and between Louisville Gas and Electric Company, and Jefferson County, Kentucky (Exhibit 4(ii)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(ff)4(bb)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and Jefferson County, Kentucky (Exhibit 4(ii)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(gg)4(cc)-1 | - | 2001 Series A Jefferson County Loan Agreement, dated November 1, 2001, by and between Louisville Gas and Electric Company, and Jefferson County, Kentucky (Exhibit 4(jj)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(gg)4(cc)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and Jefferson County, Kentucky (Exhibit 4(jj)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(hh)4(dd)-1 | - | 2001 Series B Jefferson County Loan Agreement, dated November 1, 2001, by and between Louisville Gas and Electric Company, and Jefferson County, Kentucky (Exhibit 4(kk)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(hh)4(dd)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and Jefferson County, Kentucky (Exhibit 4(kk)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(ii)4(ee)-1 | - | 2003 Series A Louisville/Jefferson County Metro Government Loan Agreement, dated October 1, 2003, by and between Louisville Gas and Electric Company and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(ll)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
|
| | |
| | | |
4(ii)4(ee)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(ll)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(jj)4(ff)-1 | - | 2005 Series A Louisville/Jefferson County Metro Government Loan Agreement, dated February 1, 2005 and amended and restated as of September 1, 2008, by and between Louisville Gas and Electric Company, and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(mm)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(jj)4(ff)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(mm)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(kk)4(gg)-1 | - | 2007 Series A Louisville/Jefferson County Metro Government Loan Agreement, dated as of March 1, 2007 and amended and restated as of September 1, 2008, by and between Louisville Gas and Electric Company, and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(nn)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(kk)4(gg)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(nn)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(ll)4(hh) | - | 2007 Series B Louisville/Jefferson County Metro Government Amended and Restated Loan Agreement, dated November 1, 2010, by and between Louisville Gas and Electric Company and Louisville/Jefferson County Metro Government, Kentucky (Exhibit 4(oo) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(mm)-1 | - | 2000 Series A Trimble County Loan Agreement, dated August 1, 2000, by and between Louisville Gas and Electric Company, and County of Trimble, Kentucky (Exhibit 4(pp)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
4(mm)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and County of Trimble, Kentucky (Exhibit 4(pp)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
4(nn)4(ii)-1 | - | 2001 Series A Trimble County Loan Agreement, dated November 1, 2001, by and between Louisville Gas and Electric Company, and County of Trimble, Kentucky (Exhibit 4(qq)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(nn)4(ii)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and the County of Trimble, Kentucky (Exhibit 4(qq)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(oo)4(jj)-1 | - | 2001 Series B Trimble County Loan Agreement, dated November 1, 2001, by and between Louisville Gas and Electric Company, and County of Trimble, Kentucky (Exhibit 4(rr)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(oo)4(jj)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and County of Trimble, Kentucky (Exhibit 4(rr)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(pp)-1 | - | 2002 Series A Trimble County Loan Agreement, dated July 1, 2002, by and between Louisville Gas and Electric Company, and County of Trimble, Kentucky (Exhibit 4(ss)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
4(pp)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and County of Trimble, Kentucky (Exhibit 4(ss)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
4(qq)4(kk)-1 | - | 2007 Series A Trimble County Loan Agreement, dated March 1, 2007, by and between Louisville Gas and Electric Company, and County of Trimble, Kentucky (Exhibit 4(tt)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(qq)4(kk)-2 | - | Amendment No. 1 dated September 1, 2010, to said Loan Agreement by and between Louisville Gas and Electric Company, and County of Trimble, Kentucky (Exhibit 4(tt)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | | |
4(rr)4(ll) | - | 2016 Series A Trimble County Loan Agreement dated as of September 1, 2016 between Louisville Gas and Electric Company and the County of Trimble, Kentucky (Exhibit 4(a) to Louisville Gas and Electric Company Form 8-K (File No. 1-2893) dated September 15, 2016)201 |
|
| | |
| | |
| 4(mm) | - | Trust Deed, dated November 26, 2010, between Central Networks East plc and Central Networks West plc, the Issuers, and Deutsche Trustee Company Limited relating to Central Networks East plc and Central Network West plc £3 billion Euro Medium Term Note Programme (Exhibit 4(pp) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2015) |
| | |
| 4(nn)-1 | - | Indenture, dated April 21, 2011, between PPL WEM Holdings PLC, as Issuer, and The Bank of New York Mellon, as Trustee (Exhibit 10.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 21, 2011) |
| | | |
4(rr)4(nn)-2 | - | Supplemental Indenture No. 1, dated April 21, 2011, to said Indenture (Exhibit 10.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 21, 2011) |
| | | |
4(rr)4(nn)-3 | - | Second Supplemental Indenture, dated as of October 30, 2014, to said Indenture (Exhibit 4(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 2014) |
| | | |
4(ss)4(oo)-1 | - | Trust Deed, dated April 27, 2011, by and among Western Power Distribution (East Midlands) plc and Western Power Distribution (West Midlands) plc, as Issuers, and HSBC Corporate Trustee Company (UK) Limited as Note Trustee (Exhibit 4.1 to PPL Corporation Form 8-K Report (File No.1-11459) dated May 17, 2011) |
| | | |
4(ss)4(oo)-2 | - | Amended and Restated Trust Deed, dated September 10, 2013, by and among Western Power Distribution (East Midlands) plc, Western Power Distribution (West Midlands) plc, Western Power Distribution (South West) plc and Western Power Distribution (South Wales) plc as Issuers, and HSBC Corporate Trustee Company (UK) Limited as Note Trustee (Exhibit 4.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 18, 2013) |
| | | |
4(tt) | - | Agency Agreement, dated April 27, 2011,£3,000,000,000 Euro Medium Term Note Programme entered into 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, dated as Issuers,of September 9, 2016 |
| | |
| 4(pp) | - | Trust Deed constituting £500 million 3.625% Senior Unsecured Notes due 2023, dated November 6, 2015, by and among Western Power Distribution plc as Issuer, and HSBC Corporate Trustee Company (UK) Limited and HSBC Bank plcas Note Trustee (Exhibit 4.24.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 17, 2011)November 6, 2015) |
| | | |
| 10(a) | - | Generation Supply Agreement, dated as of June 20, 2001, between PPL Electric Utilities Corporation and PPL EnergyPlus, LLC (Exhibit 10.5 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794)) |
| | |
10(b)-1 | - | Master Power Purchase and Sale Agreement, dated as of October 15, 2001, between NorthWestern Energy Division (successor in interest to The Montana Power Company) and PPL Montana, LLC (Exhibit 10(g) to PPL Montana, LLC Form 10-K Report (File No. 333-50350) for the year ended December 31, 2001) |
| | |
10(b)-2 | - | Confirmation Letter, dated July 5, 2006, between PPL Montana, LLC and NorthWestern Corporation (PPL Corporation and PPL Energy Supply, LLC Form 8-K Reports (File Nos. 1-11459 and 333-74794) dated July 6, 2006) |
| | |
10(c) | - | Guaranty, dated as of December 21, 2001, from PPL Energy Supply, LLC in favor of LMB Funding, Limited Partnership (Exhibit 10(j) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2001) |
| | |
10(d)-1 | - | Agreement for Lease, dated as of December 21, 2001, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC (Exhibit 10(m) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2003) |
| | |
10(d)-2 | - | Amendment No. 1 to said Agreement for Lease, dated as of September 16, 2002, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC (Exhibit 10(m)-1 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2003) |
| | |
10(e)-1 | - | Lease Agreement, dated as of December 21, 2001, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC (Exhibit 10(n) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2003) |
| | |
10(e)-2 | - | Amendment No. 1 to said Lease Agreement, dated as of September 16, 2002, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC (Exhibit 10(n)-1 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2003) |
| | |
10(f) | - | Facility Lease Agreement (BA 1/2) between PPL Montana, LLC and Montana OL3, LLC (Exhibit 4.7a to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350)) |
| | |
10(g) | - | Facility Lease Agreement (BA 3) between PPL Montana, LLC and Montana OL4, LLC (Exhibit 4.8a to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350)) |
| | |
10(h) | - | Services Agreement, dated as of July 1, 2000, among PPL Corporation, PPL Energy Funding Corporation and its direct and indirect subsidiaries in various tiers, PPL Capital Funding, Inc., PPL Gas Utilities Corporation, PPL Services Corporation and CEP Commerce, LLC (Exhibit 10.20 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794)) |
| | |
10(i)-1 | - | Asset Purchase Agreement, dated as of June 1, 2004, by and between PPL Sundance Energy, LLC, as Seller, and Arizona Public Service Company, as Purchaser (Exhibit 10(a) to PPL Corporation and PPL Energy Supply, LLC Form 10-Q Reports (File Nos. 1-11459 and 333-74794) for the quarter ended June 30, 2004) |
| | |
10(i)-2 | - | Amendment No. 1, dated December 14, 2004, to said Asset Purchase Agreement (Exhibit 99.1 to PPL Corporation and PPL Energy Supply, LLC Form 8-K Reports (File Nos. 1-11459 and 333-74794) dated December 15, 2004) |
| | |
10(j)-1 | - | Receivables Sale Agreement, dated as of August 1, 2004, between PPL Electric Utilities Corporation, as Originator, and PPL Receivables Corporation, as Buyer (Exhibit 10(d) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2004) |
| | |
10(j)-2 | - | Amendment No. 1, dated as of August 5, 2008, to said Receivables Sale Agreement, between PPL Electric Utilities Corporation, as Originator, and PPL Receivables Corporation, as Buyer (Exhibit 10(b) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 6, 2008) |
| | |
10(j)-3 | - | Credit and Security Agreement, dated as of August 5, 2008, among PPL Receivables Corporation, PPL Electric Utilities Corporation, Victory Receivables Corporation, the Liquidity Banks from time to time party thereto and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (Exhibit 10(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 6, 2008) |
| | |
10(j)-4 | - | Amendment No. 1, dated as of July 28, 2009, to said Credit and Security Agreement (Exhibit 10(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 2009) |
| | |
10(j)-5 | - | Amendment No. 2, dated as of July 27, 2010, to said Credit and Security Agreement (Exhibit 10(g) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2010) |
| | |
10(j)-6 | - | Amendment No. 3, dated as of December 23, 2010, to said Credit and Security Agreement (Exhibit 10(j)-6 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
10(j)-7 | - | Amendment No. 4, dated as of March 31, 2011, to said Credit and Security Agreement (Exhibit 10(c) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2011) |
| | |
10(j)-8 | - | Amendment No. 5, dated as of July 26, 2011, to said Credit and Security Agreement (Exhibit 10(c) to PPL Corporation Form 10-Q/A Report (File No. 1-11459) for the quarter ended June 30, 2011) |
| | |
10(j)-9 | - | Amendment No. 6, dated as of July 24, 2012, to said Credit and Security Agreement (Exhibit 10(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 2012) |
| | |
10(j)-10 | - | Amendment No. 7, dated as of September 24, 2012, to said Credit and Security Agreement (Exhibit 10(b) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 2012) |
| | |
10(k)-1 | - | Reimbursement Agreement, dated as of March 31, 2005, among PPL Energy Supply, LLC, The Bank of Nova Scotia, as Issuer and Administrative Agent, and the Lenders party thereto from time to time (Exhibit 10(a) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended March 31, 2005) |
| | |
10(k)-2 | - | First Amendment, dated as of June 16, 2005, to said Reimbursement Agreement (Exhibit 10(b) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended June 30, 2005) |
| | |
10(k)-3 | - | Second Amendment, dated as of September 1, 2005, to said Reimbursement Agreement (Exhibit 10(a) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended September 30, 2005) |
| | |
10(k)-4 | - | Third Amendment, dated as of March 30, 2006, to said Reimbursement Agreement (Exhibit 10(a) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated April 5, 2006) |
| | |
10(k)-5 | - | Fourth Amendment, dated as of April 12, 2006, to said Reimbursement Agreement (Exhibit 10(b) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended September 30, 2006) |
| | |
10(k)-6 | - | Fifth Amendment, dated as of November 1, 2006, to said Reimbursement Agreement (Exhibit 10(q)-6 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2006) |
| | |
10(k)-7 | - | Sixth Amendment, dated as of March 29, 2007, to said Reimbursement Agreement (Exhibit 10(q)-7 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2007) |
| | |
10(k)-8 | - | Seventh Amendment, dated as of March 1, 2008, to said Reimbursement Agreement (Exhibit 10(a) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended March 31, 2008) |
| | |
10(k)-9 | - | Eighth Amendment, dated as of March 30, 2009, to said Reimbursement Agreement (Exhibit 10(a) to PPL Energy Supply, LLC Form 10-Q Report (File No. 1-32944) for the quarter ended March 31, 2009) |
| | |
10(k)-10 | - | Ninth Amendment, dated as of March 31, 2010, to said Reimbursement Agreement (Exhibit 99.1 to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated April 6, 2010) |
| | |
10(k)-11 | - | Tenth Amendment, dated as of February 22, 2012, to said Reimbursement Agreement (Exhibit 10(k)-11 to PPL Energy Supply, LLC Form 10-K Report (File No. 1-32944) for the year ended December 31, 2011) |
| | |
10(k)-12 | - | Eleventh Amendment, dated as of February 28, 2013, to said Reimbursement Agreement (Exhibit 10(k)-12 to PPL Energy Supply, LLC Form 10-K Report (File No. 1-32944) for the year ended December 31, 2012) |
| | |
10(k)-13 | - | Twelfth Amendment, dated as of March 19, 2014, to said Reimbursement Agreement (Exhibit 10.2 to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated April 1, 2014) |
| | |
10(l) | - | Purchase and Sale Agreement, dated as of April 28, 2010, by and between E.ON US Investments Corp., PPL Corporation and E.ON AG (Exhibit No. 99.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 30, 2010) |
| | |
10(m) | - | $50075 million Facility Agreement, dated as of May 14, 2010, among PPL Energy Supply, LLC, as Borrower, and Morgan Stanley Bank, as Issuer (Exhibit 10(b) to PPL Energy Supply, LLC Form 10-Q Report (File No. 1-32944) for the quarter ended June 30, 2010) |
| | |
10(n) | - | Purchase and Sale Agreement, dated as of September 9, 2010, by and between PPL Holtwood, LLC and LSP Safe Harbor Holdings, LLC (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 13, 2010) |
| | |
10(o) | - | Purchase and Sale Agreement, dated as of September 9, 2010, by and between PPL Generation, LLC and Harbor Gen Holdings, LLC (Exhibit 10.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 13, 2010) |
| | |
10(p) | - | Open-End Mortgage, Security Agreement and Fixture Filing from PPL Montour, LLC to Wilmington Trust FSB, as Collateral Agent, dated as of October 26, 2010 (Exhibit 10(w) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
10(q) | - | Open-End Mortgage, Security Agreement and Fixture Filing from PPL Brunner Island, LLC to Wilmington Trust FSB, as Collateral Agent, dated as of October 26, 2010 (Exhibit 10(x) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
10(r) | - | Guaranty of PPL Montour, LLC and PPL Brunner Island, LLC, dated as of November 3, 2010, in favor of Wilmington Trust FSB, as Collateral Agent, for itself as Beneficiary and for the Secured Counterparties described therein (Exhibit 10(y) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
10(s)-1 | - | Confirmation of Forward Sale Transaction, dated April 9, 2012, between PPL Corporation and Morgan Stanley & Co. LLC (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 13, 2012)
|
| | |
10(s)-2 | - | Confirmation of Forward Sale Transaction, dated April 20, 2012, between PPL Corporation and Morgan Stanley & Co. LLC (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 26, 2012) |
| | |
10(t)-1 | - | Confirmation of Forward Sale Transaction, dated April 9, 2012, between PPL Corporation and Merrill Lynch International (Exhibit 10.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 13, 2012) |
| | |
10(t)-2 | - | Confirmation of Forward Sale Transaction, dated April 20, 2012, between PPL Corporation and Merrill Lynch International (Exhibit 10.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 26, 2012) |
| | |
10(u) | - | Commitment Increase Agreement, dated as of April 20, 2012, entered into by and among PPL Electric Utilities Corporation, the Lenders who are increasing their Commitments, the JLA Issuing Banks, who are consenting to the increase in Fronting Sublimit, and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender (Exhibit 10(f) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2012) |
| | |
10(v)-1 | - | Uncommitted Line of Credit Letter Agreement, dated as of July 1, 2012, between PPL Energy Supply, LLC, the Borrower, and Banco Bilbao Vizcaya Argentaria, S.A., the Bank (Exhibit 10(b) to PPL Energy Supply, LLC Form 10-Q Report (File No. 1-32944) for the quarter ended June 30, 2012) |
| | |
10(v)-2 | - | Reimbursement Agreement, dated as of July 1, 2012, between PPL Energy Supply, LLC and Banco Bilbao Vizcaya Argentaria, S.A. (Exhibit 10(c) to PPL Energy Supply, LLC Form 10-Q Report (File No. 1-32944) for the quarter ended June 30, 2012) |
| | |
10(v)-3 | - | First Amendment, dated as of August 30, 2013, to said Uncommitted Line of Credit Letter Agreement (Exhibit 10(z)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2013) |
| | |
10(w)-1 | - | Letter of Credit Issuance and Reimbursement Agreement, dated as of July 27, 2012, between PPL Energy Supply, LLC and Canadian Imperial Bank of Commerce, New York Agency (Exhibit 10(e) to PPL Energy Supply, LLC Form 10-Q Report (File No. 1-32944) for the quarter ended June 30, 2012) |
| | |
10(w)-2 | - | Amended and Restated Letter of Credit Issuance and Reimbursement Agreement, dated as of August 30, 2013, between PPL Energy Supply, LLC and Canadian Imperial Bank of Commerce, New York Agency (Exhibit 10(aa)-2 to PPL Energy Supply, LLC Form 10-K Report (File No. 1-32944) for the year ended December 31, 2013) |
| | |
10(w)-3 | - | First Amendment, dated as of July 22, 2014, to said Amended and Restated Letter of Credit Issuance and Reimbursement Agreement, between PPL Energy Supply, LLC and Canadian Imperial Bank of Commerce, New York Agency (Exhibit 10(c) to PPL Energy Supply, LLC Form 10-Q Report (File No. 1-32944) for the quarter ended June 30, 2014) |
| | |
10(x) | - | $3,000,000,000 Amended and Restated Revolving Credit Agreement, dated as of November 6, 2012, among PPL Energy Supply, LLC, the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender (Exhibit 10(cc) to PPL Energy Supply, LLC Form 10-K Report (File No. 1-32944) for the year ended December 31, 2012) |
| | |
10(y)-1 | - | £210,000,000 Multicurrency Revolving Facility Agreement, dated December 21, 2012, among PPL WW Holdings Ltd., as the Company, Lloyds TSB Bank plc and Mizuho Corporate Bank, Ltd., as Joint Coordinators and Bookrunners, Barclays Bank PLC, Commonwealth Bank of Australia, HSBC Bank plc, Lloyds TSB Bank plc, Mizuho Corporate Bank, Ltd., The Bank of Tokyo-Mitsubishi UFJ, Ltd. and The Royal Bank of Scotland plc, as Mandated Lead Arrangers and Mizuho Corporate Bank, Ltd., as Facility Agent (Exhibit 10(ff) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2012) |
| | |
10(y)-2 | - | Transfer Deed, dated as of October 31, 2014, between PPL WW Holdings Limited, Western Power Distribution Limited and Mizuho Bank, Ltd., as Facility Agent (Exhibit 4(c) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 2014) |
| | |
10(z) | - | Amended and Restated Collateral Agency Agreement, dated as of February 12, 2013, among PPL Ironwood, LLC, The Bank of New York Mellon, as Trustee, The Bank of New York Mellon, as Collateral Agent and The Bank of New York Mellon, as Depositary Bank (Exhibit 10(gg) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2013) |
| | |
10(aa) | - | Third Supplemental Indenture, dated as of February 12, 2013, to Trust Indenture dated as of June 1, 1999, among PPL Ironwood, LLC, The Bank of New York Mellon, as Trustee and The Bank of New York Mellon, as Depositary Bank (Exhibit 10(hh) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2013) |
| | |
10(bb) | - | $75,000,000 Revolving Credit Agreement, dated as of October 30, 2013, among LG&E and KU Energy LLC, the Lenders from time to time party thereto, and PNC Bank, National Association, as the Administrative Agent and the Issuing Lender, PNC Capital Markets LLC, as Sole Lead Arranger and Sole Bookrunner, Fifth Third Bank, as Syndication Agent, and Central Bank & Trust Company, as Documentation Agent (Exhibit 10(ii) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2013) |
| | | |
10(cc)10(b) | - | $150,000,000300 million Revolving Credit Agreement, dated as of November 12, 2013, among PPL Capital Funding, Inc., as borrower, PPL Corporation, as Guarantor, the Lenders party thereof and PNC Bank National Association, as Administrative Agent, and Manufactures and Traders Trust as Syndication Agent (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated November 13, 2013) |
| | |
| 10(c)-1 | - | $150 million Revolving Credit Agreement, dated as of March 26, 2014, among PPL Capital Funding, Inc., as Borrower, PPL Corporation, as Guarantor and The Bank of Nova Scotia, as Administrative Agent, Issuing Lender and Lender (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 1, 2014) |
| | | |
10(dd)10(c)-2 | - | First Amendment to said Revolving Credit Agreement, dated as of March 17, 2015 (Exhibit 10(c)-2 to PPL Corporation Form 10-K Report (File No. 1-1459) for the year ended December 31, 2015) |
| | |
|
| | |
| 10(c)-3 | - | Second Amendment to said Revolving Credit Agreement, dated as of March 17, 2016 (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-1459) for the quarter ended June 30, 2016) |
| | |
| 10(d) | - | Employee Matters Agreement, among PPL Corporation, Talen Energy Corporation, C/R Energy Jade, LLC, Sapphire Power Holdings LLC. and Raven Power Holdings LLC, dated as of June 9, 2014 (Exhibit 10.1 to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated June 12, 2014) |
| | | |
10(ee)10(e)-1 | - | $300,000,000300 million Amended and Restated Revolving Credit Agreement, dated as of July 28, 2014, among PPL Electric Utilities Corporation, as the Borrower, the Lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender (Exhibit 10(e) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2014) |
| | | |
10(ee)10(e)-2 | - | Notice of Automatic Extension, dated as of September 29, 2014, to said Amended and Restated Credit Agreement (Exhibit 10(b) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 2014) |
| | | |
10(ff)10(e)-3 | - | Amendment No. 1 to said Credit Agreement, dated as of January 29, 2016 (Exhibit 10.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 3, 2016) |
| | |
| - | Commitment Extension and Increase Agreement and Amendment No. 2 to said Credit Agreement, dated as of December 1, 2016 |
| | |
| 10(f)-1 | - | $300,000,000300 million Revolving Credit Agreement, dated as of July 28, 2014, among PPL Capital Funding, Inc., as the Borrower, PPL Corporation, as the Guarantor, the Lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender (Exhibit 10(d) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2014) |
| | | |
10(gg)10(f)-2 | - | Amendment No. 1 to said Credit Agreement, dated as of January 29, 2016 (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 3, 2016) |
| | |
| - | Commitment Extension and Increase Agreement and Amendment No. 2 to said Credit Agreement, dated as of December 1, 2016 |
| | |
| 10(g)-1 | - | $400,000,000400 million Amended and Restated Revolving Credit Agreement, dated as of July 28, 2014, among Kentucky Utilities Company, as the Borrower, the Lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender (Exhibit 10(f) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2014) |
| | | |
10(hh)10(g)-2 | - | Amendment No. 1 to said Credit Agreement, dated as of January 29, 2016 (Exhibit 10.4 to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 3, 2016) |
| | |
| - | Commitment Extension Agreement and Amendment No. 2 to said Credit Agreement, dated as of January 4, 2017 |
| | |
| 10(h)-1 | - | $500,000,000500 million Amended and Restated Revolving Credit Agreement, dated as of July 28, 2014, among Louisville Gas and Electric Company, as the Borrower, the Lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender (Exhibit 10(g) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2014) |
| | | |
10(ii)10(h)-2 | - | Amendment No. 1 to said Credit Agreement, dated as of January 29, 2016 (Exhibit 10.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 3, 2016) |
| | |
|
| | |
| - | Commitment Extension Agreement and Amendment No. 2 to said Credit Agreement, dated as of January 4, 2017 |
| | |
| 10(i) | - | Amendment and Restatement Agreement, dated July 29, 2014, between Western Power Distribution (South West) plc and the banks party thereto, as Bookrunners and Mandated Lead Arrangers, HSBC Bank plc and Mizuho Bank, Ltd., as Joint Coordinators, and Mizuho Bank, Ltd., as Facility Agent, relating to the £245,000,000£245 million Multicurrency Revolving Credit Facility Agreement originally dated January 12, 2012 (Exhibit 10(h) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2014) |
| | | |
10(jj)10(j) | - | Amendment and Restatement Agreement, dated July 29, 2014, between Western Power Distribution (East Midlands) plc and the banks party thereto, as Bookrunners and Mandated Lead Arrangers, HSBC Bank plc and Mizuho Bank Ltd., as Joint Coordinators, and Bank of America Merrill Lynch International Limited, as Facility Agent, relating to the £300,000,000£300 million Multicurrency Revolving Credit Facility Agreement originally dated April 4, 2011(Exhibit 10(i) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2014) |
10(kk) | | |
| 10(k) | - | Amendment and Restatement Agreement, dated July 29, 2014, between Western Power Distribution (West Midlands) plc and the banks party thereto, as Bookrunners and Mandated Lead Arrangers, HSBC Bank plc and Mizuho Bank Ltd., as Joint Coordinators, and Bank of America Merrill Lynch International Limited, as Facility Agent, relating to the £300,000,000£300 million Multicurrency Revolving Credit Facility Agreement originally dated April 4, 2011(Exhibit 10(j) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2014) |
| | | |
10(ll) | - | $65,000,000 Revolving Credit Agreement, dated as of August 20, 2014, among PPL Capital Funding, Inc., as the Borrower, PPL Corporation, as the Guarantor, the Lenders from time to time party thereto and Canadian Imperial Bank of Commerce, New York Branch, as Administrative Agent and Issuing Lender (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 2014)
|
| | |
10(mm)10(l) | - | $198,309,583.05 Letter of Credit Agreement dated as of October 1, 2014 among Kentucky Utilities Company, as the Borrower, the Lenders from time to time party hereto and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Administrative Agent (Exhibit 10.1 to Kentucky Utilities Company Form 8-K Report (File No. 1-3464) dated October 2, 2014) |
| | | |
| 10(m) | - | £210 million Multicurrency Revolving Credit Facility Agreement, dated January 13 2016, among Western Power Distribution plc and HSBC Bank PLC and Mizuho Bank, Ltd. as Joint Coordinators and Bookrunners, Mizuho Bank, Ltd. as Facility Agent and the other banks party thereto as Mandated Lead Arrangers (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated January 19, 2016) |
| | |
| 10(n) | - | £100,000,000 Term Loan Agreement, dated May 24, 2016, between Western Power Distribution (East Midlands) plc and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 26, 2016) |
| | |
| 10(o) | - | £50,000,000 Facility Letter entered into between Western Power Distribution (South West) plc and Svenska Handelsbanken AB dated as of October 11, 2016 (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-1459) for the quarter ended September 30, 2016) |
| | |
[_]10(nn)10(p)-1 | - | Amended and Restated Directors Deferred Compensation Plan, dated June 12, 2000 (Exhibit 10(h) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2000) |
| | | |
[_]10(nn)10(p)-2 | - | Amendment No. 1 to said Directors Deferred Compensation Plan, dated December 18, 2002 (Exhibit 10(m)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2002) |
| | | |
[_]10(nn)10(p)-3 | - | Amendment No. 2 to said Directors Deferred Compensation Plan, dated December 4, 2003 (Exhibit 10(q)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2003) |
| | | |
[_]10(nn)10(p)-4 | - | Amendment No. 3 to said Directors Deferred Compensation Plan, dated as of January 1, 2005 (Exhibit 10(cc)-4 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2005) |
| | | |
|
| | |
[_]10(nn)10(p)-5 | - | Amendment No. 4 to said Directors Deferred Compensation Plan, dated as of May 1, 2008 (Exhibit 10(x)-5 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2008) |
| | | |
[_]10(nn)10(p)-6 | - | Amendment No. 5 to said Directors Deferred Compensation Plan, dated May 28, 2010 (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2010) |
| | | |
[_]10(oo)10(p)-7 | - | Amendment No. 6 to said Directors Deferred Compensation Plan, dated as of April 15, 2015 (Exhibit 10(b) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2015) |
| | |
| [_]10(q)-1 | - | PPL Corporation Directors Deferred Compensation Plan Trust Agreement, dated as of April 1, 2001, between PPL Corporation and Wachovia Bank, N.A. (as successor to First Union National Bank), as Trustee (Exhibit 10(hh)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2012) |
| | | |
[_]10(oo)10(q)-2 | - | PPL Officers Deferred Compensation Plan, PPL Supplemental Executive Retirement Plan and PPL Supplemental Compensation Pension Plan Trust Agreement, dated as of April 1, 2001, between PPL Corporation and Wachovia Bank, N.A. (as successor to First Union National Bank), as Trustee (Exhibit 10(hh)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2012) |
| | | |
[_]10(oo)10(q)-3 | - | PPL Revocable Employee Nonqualified Plans Trust Agreement, dated as of March 20, 2007, between PPL Corporation and Wachovia Bank, N.A., as Trustee (Exhibit 10(c) to PPL Corporation Form 10-Q Report (File No. 1-1149) for the quarter ended March 31, 2007) |
| | | |
[_]10(oo)10(q)-4 | - | PPL Employee Change in Control Agreements Trust Agreement, dated as of March 20, 2007, between PPL Corporation and Wachovia Bank, N.A., as Trustee (Exhibit 10(d) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2007) |
| | | |
[_]10(oo)10(q)-5 | - | PPL Revocable Director Nonqualified Plans Trust Agreement, dated as of March 20, 2007, between PPL Corporation and Wachovia Bank, N.A., as Trustee (Exhibit 10(e) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2007) |
| | | |
[_]10(pp)10(r)-1 | - | Amended and Restated Officers Deferred Compensation Plan, dated December 8, 2003 (Exhibit 10(r) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2003) |
| | | |
[_]10(pp)10(r)-2 | - | Amendment No. 1 to said Officers Deferred Compensation Plan, dated as of January 1, 2005 (Exhibit 10(ee)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2005) |
| | | |
[_]10(pp)10(r)-3 | - | Amendment No. 2 to said Officers Deferred Compensation Plan, dated as of January 22, 2007 (Exhibit 10(bb)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2006) |
| | | |
[_]10(pp)10(r)-4 | - | Amendment No. 3 to said Officers Deferred Compensation Plan, dated as of June 1, 2008 (Exhibit 10(z)-4 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2008) |
| | | |
[_]10(pp)10(r)-5 | - | Amendment No. 4 to said Officers Deferred Compensation Plan, dated as of February 15, 2012 (Exhibit 10(ff)-5 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2011) |
| | | |
[_]10(pp)10(r)-6 | - | Amendment No. 5 to said Executive Deferred Compensation Plan, dated as of May 8, 2014 (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2014) |
| | | |
[_]10(qq)10(r)-7 | - | Amendment No. 6 to said Executive Deferred Compensation Plan, dated as of December 16, 2015 (Exhibit [_]10(q)-7 to PPL Corporation Form 10-K Report (File No. 1-1459) for the year ended December 31, 2015) |
|
| | |
| | |
| [_]10(s)-1 | - | Amended and Restated Supplemental Executive Retirement Plan, dated December 8, 2003 (Exhibit 10(s) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2003) |
| | | |
[_]10(qq)10(s)-2 | - | Amendment No. 1 to said Supplemental Executive Retirement Plan, dated December 16, 2004 (Exhibit 99.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated December 17, 2004) |
| | | |
[_]10(qq)10(s)-3 | - | Amendment No. 2 to said Supplemental Executive Retirement Plan, dated as of January 1, 2005 (Exhibit 10(ff)-3 to PPL Corporation Form 10-K Report (File 1-11459) for the year ended December 31, 2005) |
| | | |
[_]10(qq)10(s)-4 | - | Amendment No. 3 to said Supplemental Executive Retirement Plan, dated as of January 22, 2007 (Exhibit 10(cc)-4 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2006) |
| | | |
[_]10(qq)10(s)-5 | - | Amendment No. 4 to said Supplemental Executive Retirement Plan, dated as of December 9, 2008 (Exhibit 10(aa)-5 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2008) |
| | | |
[_]10(qq)10(s)-6 | - | Amendment No. 5 to said Supplemental Executive Retirement Plan, dated as of February 15, 2012 (Exhibit 10(gg)-6 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2011) |
| | | |
[_]10(rr)10(t)-1 | - | Amended and Restated Incentive Compensation Plan, effective January 1, 2003 (Exhibit 10(p) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2002) |
| | | |
[_]10(rr)10(t)-2 | - | Amendment No. 1 to said Incentive Compensation Plan, dated as of January 1, 2005 (Exhibit 10(gg)-2 to PPL Corporation Form 10-K Report (File 1-11459) for the year ended December 31, 2005) |
| | | |
[_]10(rr)10(t)-3 | - | Amendment No. 2 to said Incentive Compensation Plan, dated as of January 26, 2007 (Exhibit 10(dd)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2006) |
| | | |
[_]10(rr)10(t)-4 | - | Amendment No. 3 to said Incentive Compensation Plan, dated as of March 21, 2007 (Exhibit 10(f) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2007) |
| | | |
[_]10(rr)10(t)-5 | - | Amendment No. 4 to said Incentive Compensation Plan, effective December 1, 2007 (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 2008) |
| | | |
[_]10(rr)10(t)-6 | - | Amendment No. 5 to said Incentive Compensation Plan, dated as of December 16, 2008 (Exhibit 10(bb)-6 to PPL Corporation Form 10-K Report (File 1-11459) for the year ended December 31, 2008) |
| | | |
[_]10(rr)10(t)-7 | - | Form of Stock Option Agreement for stock option awards under the Incentive Compensation Plan (Exhibit 10(a) to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 1, 2006) |
| | | |
[_]10(rr)10(t)-8 | - | Form of Restricted Stock Unit Agreement for restricted stock unit awards under the Incentive Compensation Plan (Exhibit 10(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 1, 2006) |
| | | |
[_]10(rr)10(t)-9 | - | Form of Performance Unit Agreement for performance unit awards under the Incentive Compensation Plan (Exhibit 10(ss) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2007) |
| | | |
[_]10(ss)10(u)-1 | - | Amended and Restated Incentive Compensation Plan for Key Employees, effective January 1, 2003 (Schedule B to Proxy Statement of PPL Corporation, dated March 17, 2003) |
|
| | |
| | | |
[_]10(ss)10(u)-2 | - | Amendment No. 1 to said Incentive Compensation Plan for Key Employees, dated as of January 1, 2005 (Exhibit (hh)-1 to PPL Corporation Form 10-K Report (File 1-11459) for the year ended December 31, 2005) |
| | | |
[_]10(ss)10(u)-3 | - | Amendment No. 2 to said Incentive Compensation Plan for Key Employees, dated as of January 26, 2007 (Exhibit 10(ee)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2006) |
| | | |
[_]10(ss)10(u)-4 | - | Amendment No. 3 to said Incentive Compensation Plan for Key Employees, dated as of March 21, 2007 (Exhibit 10(q) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2007) |
| | | |
[_]10(ss)10(u)-5 | - | Amendment No. 4 to said Incentive Compensation Plan for Key Employees, dated as of December 15, 2008 (Exhibit 10(cc)-5 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2008) |
| | | |
[_]10(ss)10(u)-6 | - | Amendment No. 5 to said Incentive Compensation Plan for Key Employees, dated as of March 24, 2011 (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2011) |
| | | |
[_]10(tt)10(v) | - | Short-term Incentive Plan (Schedule A(Annex B to Proxy Statement of PPL Corporation, dated April 6, 2011)12, 2016) |
| | | |
[_]10(uu)10(w) | - | Employment letter, dated May 31, 2006, between PPL Services Corporation and William H. Spence (Exhibit 10(pp) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2006) |
| | | |
[_]10(vv)10(x) | - | Form of Retention Agreement entered into between PPL Corporation and Messrs. DeCampli,Gregory N. Dudkin Farr and Gabbard (Exhibit 10(h) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2007) |
| | | |
[_]10(ww)10(y)-1 | - | Form of Severance Agreement entered into between PPL Corporation and the Named Executive OfficersWilliam H. Spence (Exhibit 10(i) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2007) |
| | | |
[_]10(ww)10(y)-2 | - | Amendment to said Severance Agreement (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2009) |
| | | |
[_]10(xx) | - | Amended and Restated Employment and Severance Agreement, dated as of October 29, 2010, between E.ON U.S. LLC and Victor A. Staffieri (Exhibit 10(ss) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2010) |
| | |
[_]10(yy)-110(z) | - | Form of Change in Control Severance Protection Agreement as adopted March 5, 2012entered into between PPL Corporation and Gregory N. Dudkin, Joanne H. Raphael, Vincent Sorgi and Victor A. Staffieri (Exhibit 10(b) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2012) |
| | | |
[_]10(yy)-2 | - | Form of Change in Control Severance Protection Agreement entered into between PPL Corporation and Messrs. Dudkin and Staffieri (Exhibit 10(c) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2012) |
| | |
[_]10(zz)10(aa)-1 | - | PPL Corporation 2012 Stock Incentive Plan (Annex A to Proxy Statement of PPL Corporation, dated April 3, 2012) |
| | | |
[_]10(zz)10(aa)-2 | - | Form of Performance Unit Agreement for performance unit awards under the Stock Incentive Plan (Exhibit 10(tt)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2012) |
| | | |
[_]10(zz)10(aa)-3 | - | Form of Performance Contingent Restricted Stock Unit Agreement for restricted stock unit awards under the Stock Incentive Plan (Exhibit 10(tt)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2012) |
| | | |
[_]10(zz)10(aa)-4 | - | Form of Nonqualified Stock Option Agreement for stock option awards under the Stock Incentive Plan (Exhibit 10(tt)-4 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2012) |
|
| | |
| | | |
[_]10(aaa)10(bb) | - | PPL Corporation Executive Severance Plan, effective as of July 26, 2012 (Exhibit 10(d) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2012) |
| | | |
| 10(cc) | - | Form of Western Power Distribution Phantom Stock Option Award Agreement for stock option awards under the Western Power Distribution Long-Term Incentive Plan (Exhibit [_]10(bbb)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2014) |
| | |
[_]10(bbb)-210(dd) | - | Phantom Stock Option AwardService Agreement (including Change in Control Agreement as Exhibit A), dated February 12, 2012,March 16, 2015, between Western Power Distribution (South West) plc and Robert A. Symons (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2015) |
| | |
| [_]10(ee) | - | Form of Retention Agreement, dated May 6, 2015, among PPL Corporation, PPL Services Corporation and Robert J. Grey (Exhibit 99.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 7, 2015) |
| | |
| [_]10(ff) | - | Form of Grant Letter dated May 29, 2015 (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated June 1, 2015) |
| | | |
| - | Phantom Stock Option Award Agreement, dated February 15, 2013, between Western Power Distribution and Robert A. Symons |
| | |
| - | PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends |
| | | |
| - | PPL Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges |
| | |
| - | PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends |
| | | |
| - | LG&E and KU Energy LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges |
| | | |
| - | Louisville Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges |
| | | |
| - | Kentucky Utilities Company Computation of Ratio of Earnings to Fixed Charges |
| | | |
| - | Subsidiaries of PPL Corporation |
| | | |
| - | Consent of Deloitte & Touche LLP - PPL Corporation |
| | |
| - | Consent of Deloitte & Touche LLP - PPL Electric Utilities Corporation
|
| | |
| - | Consent of Deloitte & Touche LLP - LG&E and KU Energy LLC
|
| | |
| - | Consent of Deloitte & Touche LLP - Louisville Gas and Electric Company
|
| | |
| - | Consent of Deloitte & Touche LLP - Kentucky Utilities Company |
| | |
|
| | |
| - | Consent of Ernst & Young LLP - PPL Corporation |
| | | |
| - | Consent of Ernst & Young LLP - PPL Energy Supply, LLC |
| | |
| - | Consent of Ernst & Young LLP - PPL Electric Utilities Corporation
|
| | | |
| - | Consent of Ernst & Young LLP - LG&E and KU Energy LLC
|
| | | |
| - | Consent of Ernst & Young LLP - Louisville Gas and Electric Company
|
| | | |
| - | Consent of Ernst & Young LLP - Kentucky Utilities Company |
| | | |
| - | Power of Attorney |
| | | |
| - | Certificate of PPL's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of PPL's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of PPL Energy Supply's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
| - | Certificate of PPL Energy Supply's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
| - | Certificate of PPL Electric's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of PPL Electric's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of LKE's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of LKE's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of LG&E's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of LG&E's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of KU's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of KU's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of PPL's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
| - | Certificate of PPL Energy Supply'sPPL's principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of PPL Electric's principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| - | Certificate of LKE's principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of LG&E's principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | Certificate of KU's principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | |
| - | PPL Corporation and Subsidiaries Long-term Debt Schedule |
| | | |
| 101.INS | - | XBRL Instance Document for PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company |
| | | |
| 101.SCH | - | XBRL Taxonomy Extension Schema for PPL Corporation, PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company |
| | | |
| 101.CAL | - | XBRL Taxonomy Extension Calculation Linkbase for PPL Corporation, PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company |
| | | |
| 101.DEF | - | XBRL Taxonomy Extension Definition Linkbase for PPL Corporation, PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company |
| | | |
| 101.LAB | - | XBRL Taxonomy Extension Label Linkbase for PPL Corporation, PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company |
| | | |
| 101.PRE | - | XBRL Taxonomy Extension Presentation Linkbase for PPL Corporation, PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company |
336