UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | |||||||||
| FORM | 10-K | ||||||||
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT | ||||||||
| OF 1934 for the fiscal year ended | December 31, | 2021 | |||||||
| OR | |||||||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT | ||||||||
| OF 1934 for the transition period from | _________ to ___________ | ||||||||
Commission File Number | Registrant; State of Incorporation; Address and Telephone Number | IRS Employer Identification No. | |||||||||
| 1-11459 | PPL Corporation | ||||||||||
(Exact name of Registrant as specified in its charter) | |||||||||||
Pennsylvania | |||||||||||
Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-2758192 | ||||||||||
| 1-905 | |||||||||||
PPL Electric Utilities Corporation | |||||||||||
(Exact name of Registrant as specified in its charter) | |||||||||||
Pennsylvania | |||||||||||
Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-0959590 | ||||||||||
| 1-2893 | |||||||||||
Louisville Gas and | |||||||||||
| Electric Company (Exact name of Registrant as specified in its charter) | |||||||||||
Kentucky | |||||||||||
220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 61-0264150 | ||||||||||
| 1-3464 | |||||||||||
Kentucky Utilities Company | |||||||||||
(Exact name of Registrant as specified in its charter) | |||||||||||
Kentucky and Virginia | |||||||||||
One Quality Street Lexington, KY 40507-1462 (502) 627-2000 | |||||||||||
| 61-0247570 | |||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s): | Name of each exchange on which registered | ||||||
| Common Stock of PPL Corporation | PPL | New York Stock Exchange | ||||||
| Junior Subordinated Notes of PPL Capital Funding, Inc. | ||||||||
| 2007 Series A due 2067 | PPL/67 | New York Stock Exchange | ||||||
Securities registered pursuant to Section 12(g) of the Act:
| Common Stock of PPL Electric Utilities Corporation | ||
Indicate by check mark if the registrants are a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
| PPL Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | No | |||||||||||||||
| Louisville Gas and Electric Company | Yes | ☐ | No | ☒ | |||||||||||||
| Kentucky Utilities Company | Yes | ☐ | No | ☒ | |||||||||||||
Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
| PPL Corporation | Yes | ☐ | No | ☒ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | ☐ | No | ☒ | |||||||||||||
| Louisville Gas and Electric Company | Yes | ☐ | No | ☒ | |||||||||||||
| Kentucky Utilities Company | Yes | ☐ | No | ☒ | |||||||||||||
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
| PPL Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| Louisville Gas and Electric Company | Yes | ☒ | No | ☐ | |||||||||||||
| Kentucky Utilities Company | Yes | ☒ | No | ☐ | |||||||||||||
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files).
| PPL Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | ☒ | No | ☐ | |||||||||||||
| Louisville Gas and Electric Company | Yes | ☒ | No | ☐ | |||||||||||||
| Kentucky Utilities Company | Yes | ☒ | No | ☐ | |||||||||||||
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies or emerging growth companies. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | |||||||||||||
| PPL Corporation | ☒ | ☐ | ☐ | ☐ | ☐ | ||||||||||||
| PPL Electric Utilities Corporation | ☐ | ☐ | ☒ | ☐ | ☐ | ||||||||||||
| Louisville Gas and Electric Company | ☐ | ☐ | ☒ | ☐ | ☐ | ||||||||||||
| Kentucky Utilities Company | ☐ | ☐ | ☒ | ☐ | ☐ | ||||||||||||
If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
| PPL Corporation | ☐ | ||||||||||||||||
| PPL Electric Utilities Corporation | ☐ | ||||||||||||||||
| Louisville Gas and Electric Company | ☐ | ||||||||||||||||
| Kentucky Utilities Company | ☐ | ||||||||||||||||
Indicate by check mark whether each registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
| PPL Corporation | ☒ | ||||||||||||||||
| PPL Electric Utilities Corporation | ☐ | ||||||||||||||||
| Louisville Gas and Electric Company | ☐ | ||||||||||||||||
| Kentucky Utilities Company | ☐ | ||||||||||||||||
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
| PPL Corporation | Yes | ☐ | No | ☒ | |||||||||||||
| PPL Electric Utilities Corporation | Yes | ☐ | No | ☒ | |||||||||||||
| Louisville Gas and Electric Company | Yes | ☐ | No | ☒ | |||||||||||||
| Kentucky Utilities Company | Yes | ☐ | No | ☒ | |||||||||||||
As of June 28, 2019,30, 2021, PPL Corporation had 721,840,206769,564,404 shares of its $0.01 par value Common Stock outstanding. The aggregate market value of these common shares (based upon the closing price of these shares on the New York Stock Exchange on that date) held by non-affiliates was $22,384,264,788.$21,524,716,380. As of January 31, 2020,2022, PPL Corporation had 767,813,625735,361,885 shares of its $0.01 par value Common Stock outstanding.
As of January 31, 2020,2022, PPL Corporation held all 66,368,056 outstanding common shares, no par value, of PPL Electric Utilities Corporation.
As of January 31, 2020,2022, LG&E and KU Energy LLC held all 21,294,223 outstanding common shares, no par value, of Louisville Gas and Electric Company.
As of January 31, 2020,2022, LG&E and KU Energy LLC held all 37,817,878 outstanding common shares, no par value, of Kentucky Utilities Company.
PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company meet the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and are therefore filing this form with the reduced disclosure format.
Documents incorporated by reference:
PPL Corporation has incorporated herein by reference certain sections of PPL Corporation's 20202022 Notice of Annual Meeting and Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2019. Such Statements2021 and which will provide the information required by Part III of this Report.
PPL CORPORATION
PPL ELECTRIC UTILITIES CORPORATION
LOUISVILLE GAS AND ELECTRIC COMPANY
KENTUCKY UTILITIES COMPANY
FORM 10-K ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 20192021
TABLE OF CONTENTS
This combined Form 10-K is separately filed by the following Registrants in their individual capacity: PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf and no Registrant makes any representation as to information relating to any other Registrant, except that information under "Forward-Looking Information" relating to subsidiaries of PPL Corporation is also attributed to PPL Corporation and information relating to the subsidiaries of LG&E and KU Energy LLC is also attributed to LG&E and KU Energy LLC.Corporation.
Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company are references to such entities directly or to one or more of their subsidiaries, as the case may be, the financial results of which subsidiaries are consolidated into such Registrants' financial statements in accordance with GAAP. This presentation has been applied where identification of particular subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.
| Item | Page | ||||||||||
| PART I | |||||||||||
| 1. | |||||||||||
| 1A. | |||||||||||
| 1B. | |||||||||||
| 2. | |||||||||||
| 3. | |||||||||||
| 4. | |||||||||||
| PART II | |||||||||||
| 5. | |||||||||||
| 6. | |||||||||||
| 7. | |||||||||||
| Item | Page | ||
| PART I | |||
| 1. | |||
| 1A. | |||
| 1B. | |||
| 2. | |||
| 3. | |||
| 4. | |||
| PART II | |||
| 5. | |||
| 6. | |||
| 7. | |||
| Item | Page | ||||||||||
| 7A. | |||||||||||
| 8. | Financial Statements and Supplementary Data | ||||||||||
| FINANCIAL STATEMENTS | |||||||||||
| PPL Corporation and Subsidiaries | |||||||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||||
| Item | Page | ||||||||||
| COMBINED NOTES TO FINANCIAL STATEMENTS | |||||||||||
| 9. | |||||||||||
| 9A. | |||||||||||
| 9B. | |||||||||||
| 9C. | |||||||||||
| PART III | |||||||||||
| 10. | |||||||||||
| 11. | |||||||||||
| 12. | |||||||||||
| 13. | |||||||||||
| 14. | |||||||||||
| PART IV | |||||||||||
| 15. | |||||||||||
| Item | Page | ||
| COMBINED NOTES TO FINANCIAL STATEMENTS | |||
| SUPPLEMENTARY DATA | |||
| Schedule I - Condensed Unconsolidated Financial Statements | |||
| 9. | |||
| 9A. | |||
| 9B. | |||
| PART III | |||
| 10. | |||
| 11. | |||
| 12. | |||
| 13. | |||
| 14. | |||
| PART IV | |||
| 15. | |||
GLOSSARY OF TERMS AND ABBREVIATIONS
PPL Corporation and its subsidiaries
KU - Kentucky Utilities Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky.
LG&E - Louisville Gas and Electric Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas in Kentucky.
LKE - LG&E and KU Energy LLC, a subsidiary of PPL and the parent of LG&E, KU and other subsidiaries.
LKS - LG&E and KU Services Company, a subsidiary of LKE that provides administrative, management and support services primarily to LG&E and KU, as well as to LKE and its other subsidiaries.
PPL - PPL Corporation, the ultimate parent holding company of PPL Electric, PPL Energy Funding, PPL Capital Funding, LKE and other subsidiaries.
PPL Capital Funding - PPL Capital Funding, Inc., a financing subsidiary of PPL that provides financing for the operations of PPL and certain subsidiaries. Debt issued by PPL Capital Funding is fully and unconditionally guaranteed as to payment by PPL.
PPL Electric - PPL Electric Utilities Corporation, a public utility subsidiary of PPL engaged in the regulated transmission and distribution of electricity in its Pennsylvania service area and that provides electricity supply to its retail customers in this area as a PLR.
PPL Energy Funding - PPL Energy Funding Corporation, a subsidiary of PPL and the parent holding company of PPL Global and other subsidiaries.
PPL Energy Holdings- PPL Energy Holdings, LLC, a subsidiary of PPL and the parent holding company of PPL Energy Funding, LKE and other subsidiaries. As of January 1, 2022, PPL Energy Holdings became the parent holding company of PPL Electric and PPL Services.
PPL EU Services - PPL EU Services Corporation, a subsidiary of PPL that providesprovided administrative, management and support services primarily to PPL Electric. On December 31, 2021, PPL EU Services merged into PPL Services.
PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Funding that, prior to the sale of the U.K. utility business on June 14, 2021, primarily through its subsidiaries, ownsowned and operatesoperated WPD, PPL's regulated electricity distribution businesses in the U.K. PPL Global was not included in the sale of the U.K. utility business on June 14, 2021.
PPL Rhode Island Holdings - PPL Rhode Island Holdings, LLC, a subsidiary of PPL Energy Holdings formed for the purpose of acquiring Narragansett Electric to which certain interests of PPL Energy Holdings in the Narragansett SPA were assigned.
PPL Services - PPL Services Corporation, a subsidiary of PPL that provides administrative, management and support services to PPL and its subsidiaries.
PPL WPD Limited - an indirectPPL WPD Limited, a U.K. subsidiary of PPL Global andGlobal. Prior to the sale of the U.K. utility business on June 14, 2021, PPL WPD Limited was an indirect parent to WPD. PPL WPD plc.Limited was not included in the sale of the U.K. utility business on June 14, 2021.
Safari Energy - Safari Energy, LLC, an indirecta subsidiary of PPL acquired in June 2018, that provides solar energy solutions for commercial customers in the U.S.
i
Other terms and abbreviations
£ - British pound sterling.
401(h) account(s) - a sub-account established within a qualified pension trust to provide for the payment of retiree medical costs.
Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation authorized the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, a DSIC.
Act 129 - Act 129 of 2008 that became effective in October 2008. The law amended the Pennsylvania Public Utility Code and created an energy efficiency and conservation program and smart metering technology requirements, adopted new PLR electricity supply procurement rules, provided remedies for market misconduct and changed the Alternative Energy Portfolio Standard (AEPS).
Act 129 Smart Meter program - PPL Electric's system-wide meter replacement program that installs wireless digital meters that provide secure communication between PPL Electric and the meter as well as all related infrastructure.
Adjusted Gross Margins - a non-GAAP financial measure of performance used in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).
Advanced Metering Infrastructure - meters and meter reading infrastructure that provide two-way communication capabilities, which communicate usage and other relevant data to LG&E and KU at regular intervals, and are also able to receive information from LG&E and KU, such as software upgrades and requests to provide meter readings in real time.
AFUDC - allowance for funds used during construction. The cost of equity and debt funds used to finance construction projects of regulated businesses, which is capitalized as part of construction costs.
AOCI - accumulated other comprehensive income or loss.
ARO - asset retirement obligation.
ATM Program - at-the-market stock offering program.
Cane Run Unit 7 - a natural gas combined-cycle generating unit in Kentucky, jointly owned by LG&E and KU.
CCR(s) - coal combustion residual(s). CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.
CDP - a not-for-profit organization based in the United Kingdom formerly known as the Carbon Disclosure Project; that runs the global disclosure system that enables investors, companies, cities, states and regions to measure and manage their environmental impacts.
Clean Air Act - federal legislation enacted to address certain environmental issues related to air emissions, including acid rain, ozone and toxic air emissions.
Clean Water Act - federal legislation enacted to address certain environmental issues relating to water quality including effluent discharges, cooling water intake, and dredge and fill activities.
COVID-19 - the disease caused by the novel coronavirus identified in 2019 that has caused a global pandemic.
CPCN - Certificate of Public Convenience and Necessity. Authority granted by the KPSC pursuant to Kentucky Revised Statute 278.020 to provide utility service to or for the public or the construction of certain plant, equipment, property or facility for furnishing of utility service to the public. A CPCN is required for any capital addition, subject to KPSC jurisdiction, in excess of $100 million.
Customer Choice Act - the Pennsylvania Electricity Generation Customer Choice and Competition Act, legislation enacted to restructure the state's electric utility industry to create retail access to a competitive market for generation of electricity.
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DDCP - Directors Deferred Compensation Plan.
DNO - Distribution Network Operator in the U.K.
DRIP - PPL Amended and Restated Dividend Reinvestment and Direct Stock Purchase and Dividend Reinvestment Plan.
DSIC - Distribution System Improvement Charge. Authorized under Act 11, which is an alternative ratemaking mechanism providing more-timely cost recovery of qualifying distribution system capital expenditures.
DSM - Demand Side Management. Pursuant to Kentucky Revised Statute 278.285, the KPSC may determine the reasonableness of DSM programs proposed by any utility under its jurisdiction. DSM programs consist of energy efficiency programs intended to reduce peak demand and delay the investment in additional power plant construction, provide customers with tools and information regarding their energy usage and support energy efficiency.
Earnings from Ongoing Operations - a non-GAAP financial measure of earnings adjusted for the impact of special items and used in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).
EBPB - Employee Benefit Plan Board. The administrator of PPL's U.S. qualified retirement plans, which is charged with the fiduciary responsibility to oversee and manage those plans and the investments associated with those plans.
ECR - Environmental Cost Recovery. Pursuant to Kentucky Revised Statute 278.183, Kentucky electric utilities are entitled to the current recovery of costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements that apply to coal combustion wastes and by-productsbyproducts from the production of energy from coal.
ELG(s) - Effluent Limitation Guidelines, regulations promulgated by the EPA.
EPA - Environmental Protection Agency, a U.S. government agency.
EPS - earnings per share.
FERC - Federal Energy Regulatory Commission, the U.S. federal agency that regulates, among other things, interstate transmission and wholesale sales of electricity, hydroelectric power projects and related matters.
GAAP - Generally Accepted Accounting Principles in the U.S.
GBP - British pound sterling.
GHG(s) - greenhouse gas(es).
GLT - gas line tracker. The KPSC approved mechanism for LG&E's recovery of costs associated with gas transmission lines, gas service lines gas risers,and leak mitigation,mitigation.
Green Tariff - a KPSC approved rate schedule, permitting customers to contract with LG&E or KU for the purchase of renewable energy certificates, construction of solar generation and gas main replacements.use of the energy produced, or the purchase of energy from a renewable energy generator.
GWh - gigawatt-hour, one million kilowatt hours.
ICP - The PPL Incentive Compensation Plan. This plan provides for incentive compensation to PPL's executive officers and certain other senior executives. New awards under the ICP were suspended in 2012 upon adoption of PPL's 2012 Stock Incentive Plan.
ICPKE - The PPL Incentive Compensation Plan for Key Employees. The ICPKE provides for incentive compensation to certain employees below the level of senior executive.
IRS - Internal Revenue Service, a U.S. government agency.
iii
KPSC - Kentucky Public Service Commission, the state agency that has jurisdiction over the regulation of rates and service of utilities in Kentucky.
KU 2010 Mortgage Indenture - KU's Indenture, dated as of October 1, 2010, to The Bank of New York Mellon, as supplemented.
kVA - kilovolt ampere.
kWh - kilowatt hour, basic unit of electrical energy.
LCIDA - Lehigh County Industrial Development Authority.
LG&E 2010 Mortgage Indenture - LG&E's Indenture, dated as of October 1, 2010, to The Bank of New York Mellon, as supplemented.
LIBOR - London Interbank Offered Rate.
Mcf - one thousand cubic feet, a unit of measure for natural gas.
MMBtu - one million British Thermal Units.
Moody's - Moody's Investors Service, Inc., a credit rating agency.
MW - megawatt, one thousand kilowatts.
NAAQS - National Ambient Air Quality Standards periodically adopted pursuant to the Clean Air Act.
Narragansett Electric - The Narragansett Electric Company, an entity that serves electric and natural gas customers in Rhode Island. In March 2021, PPL and its subsidiary, PPL Energy Holdings announced a pending acquisition of Narragansett Electric.
NERC - North American Electric Reliability Corporation.
NPNS - the normal purchases and normal sales exception as permitted by derivative accounting rules. Derivatives that qualify for this exception may receive accrual accounting treatment.
OCI - other comprehensive income or loss.
OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LKE indirectlyLG&E owns an 8.13%a 5.63% interest (consists of LG&E's 5.63% and KU'sKU owns a 2.50% interests),interest, which isare recorded at cost. OVEC owns and operates two coal-fired power plants, the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, with combined capacities of 2,120 MW.
PEDFA - Pennsylvania Economic Development Financing Authority.
Performance unit - stock-based compensation award that represents a variable number of shares of PPL common stock that a recipient may receive based on PPL's attainment of (i) relative total shareowner return (TSR) over a three-year performance period as compared to companies in the Philadelphia Stock ExchangePHLX Utility Sector Index; or (ii) corporate return on equity (ROE) based on the average of the annual ROE for each year of the three-year performance period. In light of the transformational nature of the potential sale of the U.K. utility business in 2021, PPL's ROE-based performance units issued for 2021 were based on a one-year performance period from January 1, 2021 to December 31, 2021; however, these units retained the three year vesting schedule and other characteristics.
PJM - PJM Interconnection, L.L.C., operator of the electricity transmission network and electricity energy market in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
PLR - Provider of Last Resort, the role of PPL Electric in providing default electricity supply within its delivery area to retail customers who have not chosen to select an alternative electricity supplier under the Customer Choice Act.
iv
PP&E - property, plant and equipment.
PPL EnergyPlus - prior to the June 1, 2015 spinoff of PPL Energy Supply, LLC, PPL EnergyPlus, LLC, a subsidiary of PPL Energy Supply that marketed and traded wholesale and retail electricity and gas, and supplied energy and energy services in competitive markets.
PPL Energy Supply - prior to the June 1, 2015 spinoff, PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the indirect parent company of PPL EnergyPlus and other subsidiaries.Montana, LLC.
PPL Montana - Priorprior to the June 1, 2015 spinoff of PPL Energy Supply, PPL Montana, LLC, an indirect subsidiary of PPL Energy Supply that generated electricity for wholesale sales in Montana and the Pacific Northwest.
PPL WPD Investments Limited - PPL WPD Investments Limited, which was, prior to the sale of the U.K. utility business on June 14, 2021, a subsidiary of PPL WPD Limited and parent to WPD plc. PPL WPD Investments Limited was included in the sale of the U.K. utility business on June 14, 2021.
PUC - Pennsylvania Public Utility Commission, the state agency that regulates certain ratemaking, services, accounting and operations of Pennsylvania utilities.
RCRA - Resource Conservation and Recovery Act of 1976.
Registrant(s) - refers to the Registrants named on the cover of this Report (each a "Registrant" and collectively, the "Registrants").
Riverstone - Riverstone Holdings LLC, a Delaware limited liability company and, as of December 6, 2016, ultimate parent company of the entities that own the competitive power generation business contributed to Talen Energy.
RTO - Regional Transmission Operator, an electric power transmission system operator that coordinates, controls and monitors a multi-state electric grid.
Sarbanes-Oxley - Sarbanes-Oxley Act of 2002, which sets requirements for management's assessment of internal controls for financial reporting. It also requires an independent auditor to make its own assessment.
Scrubber - an air pollution control device that can remove particulates and/or gases (primarily sulfur dioxide) from exhaust gases.
SEC - the U.S. Securities and Exchange Commission, a U.S. government agency primarily responsible to protect investors and maintain the integrity of the securities markets.
SIP - PPL Corporation's Amended and Restated 2012 Stock Incentive Plan.
Smart metering technology - technology that can measure, among other things, time of electricity consumption to permit offering rate incentives for usage during lower cost or demand intervals. The use of this technology also has the potential to strengthen network reliability.
S&P - S&P Global Ratings, a credit rating agency.
Superfund - federal environmental statute that addresses remediation of contaminated sites; states also have similar statutes.
Talen Energy - Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone, which as of December 6, 2016, became wholly owned by Riverstone.
Talen Energy Marketing - Talen Energy Marketing, LLC, the newsuccessor name of PPL EnergyPlus, subsequent toafter the spinoff of PPL Energy Supply that marketed and traded wholesale and retail electricity and gas, and supplied energy and energy services in competitive markets, after the June 1, 2015 spinoff of PPL Energy Supply.
v
TCJA - Tax Cuts and Jobs Act. Comprehensive U.S. federal tax legislation enacted on December 22, 2017.
Total shareowner return - the change in market value of a share of the company's common stock plus the value of all dividends paid on a share of the common stock during the applicable performance period, divided by the price of the common stock as of the beginning of the performance period. The price used for purposes of this calculation is the average share price for the 20 trading days at the beginning and end of the applicable period.
Treasury Stock Method - a method applied to calculate diluted EPS that assumes any proceeds that could be obtained upon exercise of options and warrants (and their equivalents) would be used to purchase common stock at the average market price during the relevant period.
VEBA - Voluntary Employee Beneficiary Association. A tax-exempt trust under the Internal Revenue Code Section 501 (c)(9) used by employeesemployers to fund and pay eligible medical, life and similar benefits.
VSCC - Virginia State Corporation Commission, the state agency that has jurisdiction over the regulation of Virginia corporations, including utilities.
WPD - Prior to the sale of the U.K. utility business on June 14, 2021, refers to PPL WPD Limited and its subsidiaries. WPD was included in the sale of the U.K. utility business on June 14, 2021.
WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company. WPD (East Midlands) was included in the sale of the U.K. utility business on June 14, 2021.
WPD plc - Western Power Distribution plc, a U.K. indirect subsidiary of PPL WPD Limited. Its principal indirectly owned subsidiaries are WPD (East Midlands), WPD (South Wales), WPD (South West) and WPD (West Midlands). WPD plc was included in the sale of the U.K. utility business on June 14, 2021.
WPD Midlands- refers to WPD (East Midlands) and WPD (West Midlands), collectively. WPD Midlands was included in the sale of the U.K. utility business on June 14, 2021.
WPD (South Wales) - Western Power Distribution (South Wales) plc, a British regional electricity distribution utility company. WPD (South Wales) was included in the sale of the U.K. utility business on June 14, 2021.
WPD (South West) - Western Power Distribution (South West) plc, a British regional electricity distribution utility company. WPD (South West) was included in the sale of the U.K. utility business on June 14, 2021.
WPD (West Midlands)- Western Power Distribution (West Midlands) plc, a British regional electricity distribution utility company. WPD (West) Midlands) was included in the sale of the U.K. utility business on June 14, 2021.
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Forward-looking Information
Statements contained in this Annual Report concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although the Registrants believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in "Item 1A. Risk Factors" and in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report, the following are among the important factors that could cause actual results to differ materially and adversely from the forward-looking statements:
•strategic acquisitions, dispositions, or similar transactions, including the pending acquisition of Narragansett Electric, and our ability to consummate these business transactions or realize expected benefits from them;
•the COVID-19 pandemic and its continuing impact on economic conditions, financial markets and supply chains;
•other pandemic health events or other catastrophic events such as fires, earthquakes, explosions, floods, droughts, tornadoes, hurricanes and other extreme weather-related events (including events potentially caused or exacerbated by climate change);
•the outcome of rate cases or other cost recovery or revenue proceedings;
•the direct or indirect effects on PPL or its subsidiaries or business systems of cyber-based intrusion or the threat of cyber attacks;cyberattacks;
•significant decreases in demand for electricity in the U.S.;electricity;
•expansion of alternative and distributed sources of electricity generation and storage;
•the effectiveness of our risk management programs, including foreign currency and interest rate hedging;
•defaults by counterparties or suppliers for energy, capacity, coal, natural gas or key commodities, goods or services;
•capital market conditions, including the availability of capital, credit or credit,insurance, changes in interest rates and certain economic indices, and decisions regarding capital structure;
•a material decline in the market value of PPL's equity;
•significant decreases in the fair value of debt and equity securities and itstheir impact on the value of assets in defined benefit plans, and therelated potential cash funding requirements if the fair value declines;of those assets decline;
•interest rates and their effect on pension and retiree medical liabilities, ARO liabilities and interest payable on certain debt securities;
•volatility in or the impact of other changes in financial markets and economic conditions;conditions, including inflation;
•the potential impact of any unrecorded commitments and liabilities of the Registrants and their subsidiaries;
•new accounting requirements or new interpretations or applications of existing requirements;
•changes in the corporate credit ratings or securities analyst rankings of the Registrants and their securities;
•any requirement to record impairment charges pursuant to GAAP with respect to any of our significant investments;
•laws or regulations to reduce emissions of GHGs or the physical effects of climate change;
•continuing ability to access fuel supply for LG&E and KU, as well as the ability to recover fuel costs and environmental expenditures in a timely manner at LG&E and KU and natural gas supply costs at LG&E;
•weather and other conditions affecting generation, transmission and distribution operations, operating costs and customer energy use;
•war, armed conflicts, terrorist attacks, or similar disruptive events;
•changes in political, regulatory or economic conditions in states, regions or countries where the Registrants or their subsidiaries conduct business;
•receipt of necessary governmental permits and approvals;
•changes in state, federal or foreign legislation or regulatory developments;
•the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry;
•our ability to attract and retain qualified employees;
•the effect of any business or industry restructuring;
•development of new projects, markets and technologies;
•performance of new ventures;
•collective labor bargaining negotiations; and
the outcome of litigation againstinvolving the Registrants and their subsidiaries.
Any forward-looking statements should be considered in light of these important factors and in conjunction with other documents of the Registrants on file with the SEC.
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New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for the Registrants to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and the Registrants undertake no obligation to update the information contained in the statement to reflect subsequent developments or information.
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PART I
ITEM 1. BUSINESS
General
(All Registrants)
PPL Corporation, headquartered in Allentown, Pennsylvania, is a utility holding company, incorporated in 1994, in connection with the deregulation of electricity generation in Pennsylvania, to serve as the parent company to the regulated utility, PPL Electric, and to generation and other unregulated business activities. PPL, Electric was founded in 1920 as Pennsylvania Power & Light Company. PPL, through its regulated utility subsidiaries, delivers electricity to customers in the U.K., Pennsylvania, Kentucky and Virginia; delivers natural gas to customers in Kentucky; and generates electricity from power plants in Kentucky.
PPL's principal subsidiaries at December 31, 20192021 are shown below (* denotes a Registrant).
| PPL Corporation* | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
PPL Electric* Engages in the regulated transmission and distribution of electricity in Pennsylvania | LKE A holding company that owns regulated utility operations through its subsidiaries, LG&E and KU | PPL Capital Funding Provides financing for the operations of PPL and certain subsidiaries | ||||||||||||||||||||||||||||||||||||||||||||||||||||
LG&E* Engages in the regulated generation, transmission, distribution and sale of electricity and | KU* Engages in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pennsylvania Regulated Segment | Kentucky Regulated Segment | |||||||||||||||||||||||||||||||||||||||||||||||||||||
In addition to PPL, the other Registrants included in this filing are as follows.
PPL Electric Utilities Corporation, headquartered in Allentown, Pennsylvania, is a wholly owned subsidiary of PPL organized in Pennsylvania in 1920 and a regulated public utility that is an electricity transmission and distribution service provider in eastern and central Pennsylvania. PPL Electric is subject to regulation as a public utility by the PUC, and certain of its transmission activities are subject to the jurisdiction of the FERC under the Federal Power Act. PPL Electric delivers electricity in its Pennsylvania service area and provides electricity supply to retail customers in that area as a PLR under the Customer Choice Act. PPL Electric was organized in 1920 as Pennsylvania Power & Light Company.
LG&E, and KU Energy LLC, acquired in 2010 and headquartered in Louisville, Kentucky, is a wholly owned subsidiary of PPL and a holding company that owns regulated utility operations through its subsidiaries, LG&E and KU, which constitute substantially all of LKE's assets. LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain separate corporate identities and serve customers in Kentucky under their respective names. KU also serves customers in Virginia under the Old Dominion Power name. LKE, formed in 2003, is the successor to a Kentucky entity incorporated in 1989.
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Segment Information
(PPL)
PPL is organized into threetwo reportable segments as depicted in the chart above: U.K. Regulated, Kentucky Regulated, and Pennsylvania Regulated. The U.K. Regulated segment has no related subsidiary Registrants. PPL's other reportable segments' resultswhich primarily representrepresents the results of its related subsidiary Registrants, except that the reportable segments are also allocated certain corporate level financing costs that are not included inLG&E and KU, and Pennsylvania Regulated, which primarily represents the results of the applicable subsidiary Registrants. PPL also has corporateElectric. "Corporate and other costs,Other" primarily includingincludes financing costs incurred at the corporate level that have not been allocated or assigned to the segments, as well as certain other unallocated costs. The financial results of Safari Energy are also reported within Corporate and Other.segments.
A comparison of PPL's three regulatedRegulated segments is shown below.
| Kentucky | Pennsylvania | ||||||||||
| Regulated | Regulated | ||||||||||
| For the year ended December 31, 2021: | |||||||||||
| Operating Revenues (in billions) | $ | 3.3 | $ | 2.4 | |||||||
| Net Income (in millions) | $ | 468 | $ | 445 | |||||||
| Electricity delivered (GWh) | 30,317 | 37,005 | |||||||||
| At December 31, 2021: | |||||||||||
| Regulatory Asset Base (in billions) (a) | $ | 11.3 | $ | 8.9 | |||||||
| Service area (in square miles) | 9,400 | 10,000 | |||||||||
| End-users (in millions) | 1.3 | 1.4 | |||||||||
| Kentucky | Pennsylvania | ||||||||||
| U.K. Regulated | Regulated | Regulated | |||||||||
| For the year ended December 31, 2019: | |||||||||||
| Operating Revenues (in billions) | $ | 2.2 | $ | 3.2 | $ | 2.4 | |||||
| Net Income (in millions) | $ | 977 | $ | 436 | $ | 458 | |||||
| Electricity delivered (GWh) | 72,061 | 31,368 | 37,024 | ||||||||
| At December 31, 2019: | |||||||||||
| Regulatory Asset Base (in billions) (a) | $ | 10.3 | $ | 10.4 | $ | 7.6 | |||||
| Service area (in square miles) | 21,600 | 9,400 | 10,000 | ||||||||
| End-users (in millions) | 7.9 | 1.3 | 1.4 | ||||||||
See Note 2 to the Financial Statements for additional financial information by segment. The sale of the U.K. utility business, which substantially represented PPL’s U.K. Regulated segment as reported in prior years, was completed on June 14, 2021,pursuant to a share purchase agreement entered into on March 17, 2021. As a result, PPL determined segment information for the U.K. Regulated segment would no longer be provided beginning with the Form 10-Q for the quarter ended March 31, 2021. See Note 9 to the Financial Statements for additional information.
(PPL Electric, LKE, LG&E and KU)
PPL Electric has two operating segments, thatdistribution and transmission, which are aggregated into a single reportable segment. LKE, LG&E and KU are individually single operating and reportable segments.
| 2019 | 2018 | 2017 | ||||||||||
| Taxes collected in revenues | £ | 56 | £ | 58 | £ | 57 | ||||||
| Taxes recorded under GAAP | 167 | 156 | 139 | |||||||||
| Incentive Received | Calendar Year Ended Incentive | |||||
| Calendar Year Ended Incentive Earned | (in millions) | Included in Revenue | ||||
| 2015 | £ | 79 | 2017 | |||
| 2016 | 76 | 2018 | ||||
| 2017 | 72 | 2019 | ||||
| 2018 | 78 | 2020 | ||||
| 2019 (a) | 75-85 | 2021 | ||||
| 2020 (a) | 75-85 | 2022 | ||||
Kentucky Regulated Segment (PPL)
The Kentucky Regulated segment consists primarily of the operations of LKE, which owns and operates regulated public utilities engaged in theelectricity generation, transmission and distribution operations conducted by LG&E and sale of electricity andKU, as well as LG&E's regulated distribution and sale of natural gas, representing primarily the activities of LG&E and KU.gas. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment. segment includes certain financing and other costs at LKE.
(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, also Virginia. LG&E also engages in the distribution and sale of natural gas in Kentucky. LG&E provides electricity service to approximately 418,000429,000 customers in Louisville and adjacent areas in Kentucky,
covering approximately 700 square miles in nine counties and provides natural gas service to approximately 329,000333,000 customers in its electricity service area and eight additional counties in Kentucky. KU provides electric service to approximately 530,000538,000 customers in 77 counties in central, southeastern and western Kentucky and approximately 28,000 customers in five counties in southwestern Virginia, covering approximately 4,800 non-contiguous square miles. KU also sells wholesale electricity to two municipalities in Kentucky under load following contracts. See Note 3 to the Financial Statements for revenue information.
Franchises and Licenses
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.
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Competition
There are currently no other electric public utilities operating within the electricity service areas of LKE.LG&E and KU. 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,LG&E and KU, 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 indirectly impact LG&E's natural gas 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. Some 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.
Power Supply
At December 31, 2019, LKE2021, LG&E owned generating capacity of 7,5612,760 MW and KU owned generating capacity of which 2,786 MW related to LG&E and 4,775 MW related to KU.MW. See "Item 2. Properties - Kentucky Regulated Segment" for a complete list of LKE's generating facilities.
The system capacity of LKE'sLG&E's and KU's owned or controlled generation is based upon a number ofseveral factors, including the operating experience and physical condition of the units, and may be revised periodically to reflect changes in circumstances.
During 2019, LKE's2021, LG&E's and KU's power plants generated the following amounts of electricity:
| GWh | |||||||||||
| Fuel Source | LG&E | KU | |||||||||
| Coal | 10,297 | 14,718 | |||||||||
| Gas | 1,395 | 4,382 | |||||||||
| Hydro | 263 | 89 | |||||||||
| Solar | 7 | 12 | |||||||||
| Total (a) | 11,962 | 19,201 | |||||||||
| GWh | ||||||||
| Fuel Source | LKE | LG&E | KU | |||||
| Coal | 25,348 | 11,336 | 14,012 | |||||
| Gas | 6,558 | 1,608 | 4,950 | |||||
| Hydro | 357 | 251 | 106 | |||||
| Solar | 18 | 7 | 11 | |||||
| Total (a) | 32,281 | 13,202 | 19,079 | |||||
The majority of LG&E's and KU's generated electricity was used to supply their retail customer bases.
LG&E and KU jointly dispatch their generation units with the lowest cost generation used to serve their customers. When LG&E has excess generation capacity after serving its own customers and its generation cost is lower than that of KU, KU purchases electricity from LG&E and vice versa.
LG&E and KU received approval from the KPSC to develop a 4 MW Solar Share facility to service a Solar Share program. The Solar Share program is a voluntary program that allows customers to subscribe capacity in the Solar Share facility. Construction commences, in 500-kilowatt phases, when subscription is complete. The firstConstruction of four 500-kilowatt phasephases was constructed in 2019.completed as of December 31, 2021. The subscription for the secondfifth 500-kilowatt phase was completed in 2019, with construction expected construction to be completed in 2020.2022. LG&E and KU continue to market the program and have started receiving subscriptions for the thirdsixth 500-kilowatt phase.
On January 23, 2020, LG&E and KU applied to the KPSC for approval of arrangements relating to the purchase of 100 MW of solar power in connection with the Green Tariff option established in the most recent2018 Kentucky base rate cases. Pursuant to the agreements, LG&E and KU would purchase the initial 20 years of output of a proposed third-party solar generation facility and resell the bulk of the power as renewable energy to two large industrial customers and use the remaining power for other customers. The transactions are subjectgeneration facility is currently expected to be operational in the second quarter of 2023. On May 8, 2020, the KPSC approvalissued an order approving LG&E’s and other standard conditions. KU’s applications with certain modifications. LG&E and KU requested reconsideration of limited portions of the KPSC's Order and on December 16, 2020, the KPSC amended their original order.
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PPL, LKE, LG&E and KU do not anticipate that these arrangements will have a significant impact on their results of operations or financial condition.
On October 6, 2021, LG&E and KU entered into an agreement to purchase the initial 20 years of output of a proposed 125 MW third-party solar generation facility in connection with the Green Tariff option established in the 2018 Kentucky base rate cases. Pursuant to the agreements, LG&E and KU would purchase output of the facility and resell power as renewable energy to certain large customers. The generation facility is currently expected to be operational in the fourth quarter of 2024. PPL, LG&E and KU do not anticipate that this agreement will have a significant impact on their results of operations or financial condition.
Fuel Supply
Coal and natural gas will continueare expected to be the predominant fuels used by LG&E and KU for generation for the foreseeable future. Natural gas used for generation is primarily purchased using contractual arrangements separate from LG&E's natural gas distribution operations. Natural gas and oil are also 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 ofseveral factors including fluctuations in demand, coal mine production issues, high or low river level events, lock outages and other supplier or transporter operating or financial difficulties.
LG&E and KU have entered into coal supply agreements with various suppliers for coal deliveries through 20242026 and 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, southern Illinois, northern West Virginia and southern Illinois.western Pennsylvania. LG&E and KU continue to purchase certain quantities of ultra-low sulfur content coal from Wyoming for blending at Trimble County Unit 2. Coal is delivered to the generating plants primarily by barge and rail.
To enhance the reliability of natural gas supply, LG&E and KU have secured firm long-term pipeline transport capacity services with contracts of various durations from 2020 tothrough 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 threetwo other simple cycle units at the Paddy's Run site. 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 interconnectedfacility's connection to two interstate 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 through February 2022.October 2024. 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 billion cubic feet (Bcf), are used to provide natural gas service to LG&E's firm sales customers. Natural gas is stored during the summer season for withdrawal during the following winter heating season. Without this storage capacity, LG&E would need 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 expected to be higher. At December 31, 2019,2021, LG&E had 12 Bcf of natural gas stored underground with a carrying value of $35$54 million.
LG&E has a portfolio of supply arrangements of varying durations and terms that 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 20212023 and 2025.2026. Total winter season capacity under these contracts is 184,900 MMBtu/day and summer season capacity is 60,000 MMBtu/day. With this same pipeline, LG&E also has another contract for
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pipeline capacity through 2026 for 60,000 MMBtu/day during both the winter and summer seasons. LG&E has a single contract with a second pipeline with a total capacity of 20,000 MMBtu/day during both the winter and summer seasons that expires in 2023.
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 Marcellus and Utica production areas.
(PPL, LKE, LG&E and KU)
Transmission
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 organization.
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 and the VSCC. LG&E and KU operate under a FERC-approved open access transmission 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 in Kentucky.
KU's Virginia base rates are calculated based on a return on rate base (net utility plant plus working capital less accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities, except for regulatory assets and liabilities related to the levelized fuel factor, and regulatory assets or liabilities recorded foraccumulated deferred income taxes, pension and postretirement benefits, and AROs related to certain CCR impoundments, are excluded from the return on rate base utilized in the calculation of Virginia base rates, no return is earned on the related assets.
KU's rates to 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 accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities, except accumulated deferred income taxes, are excluded from the return on rate base utilized in the development of municipal rates, no return is earned on the related assets. In April 2014, certain municipalities submitted notices of termination to cease taking power under the wholesale requirements contracts. KU's service to eight municipalities terminated effective April 30, 2019. KU continues to provide service to two municipalities.
See "Financial and Operational Developments" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 7 to the Financial Statements for additional information on current rate proceedings and rate mechanisms.
Pennsylvania Regulated Segment (PPL)
The Pennsylvania Regulated segment 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 within eastern and central Pennsylvania. PPL Electric also provides electricity to retail customers in this territory as a PLR under the Customer Choice Act. See Note 3 to the Financial Statements for revenue information.
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.
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Competition
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 Regional 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 investments 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 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, 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. Any change in the prior year PPL zonal peak load billing factor applied on January 1 of each year will result in an increase or decrease in revenue until the next annual rate update is effective on June 1 of that same year.
As a PLR, PPL Electric also purchases transmission services from PJM. See "PLR" below.
See "Financial and Operational Developments" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 7 to the Financial Statements for additional information on rate mechanisms.mechanisms and regulatory matters.
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, except accumulated deferred income taxes, 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 riders 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 Alternative 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. 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. PPL Electric utilized the fully projected future test year mechanism in its 2015 base rate proceeding. PPL has had the ability to utilize the DSIC recovery mechanism since July 2013.
See "Financial and Operational Developments" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 7 to the Financial Statements for additional information on rate mechanisms and legislative and regulatory matters.
PLR
The Customer Choice Act requires electric distribution companies, 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 PUC regulations. In 2019,2021, the following average percentages of PPL Electric's customer load were provided by competitive suppliers: 43%39% of residential, 82%79% of small commercial and industrial and 96%98% of large commercial and industrial customers. The PUC continues to favor expanding the competitive market for electricity.
PPL Electric's cost ofElectric’s electricity generation iscosts are established based onupon the results of a competitive solicitation process. TheOn December 17, 2020, the PUC approved PPL Electric'sElectric’s default service plan for the period June 20151, 2021 through May 2017, which included four solicitations for electricity supply held semiannually in April and October. The PUC approved PPL Electric's default service plan for the period June 2017 through May 2021,31, 2025, which includes a total of eight solicitations for electricity supply held semiannually in April and October. The first two auctions of the plan were completed in 2021. This plan also includes eight solicitations for alternative energy credits held semiannually in January and July. Through January 2022, two alternative energy credit solicitations have been completed. All contracts from previous default service plans concluded on or before November 30, 2021.
Pursuant to the plans, PPL Electric contracts for all of the electricity supply for residential, customers and commercial and industrial customers who elect to take thatdefault service from PPL Electric. These solicitations includecontain a mix of products including 5-year block energy contracts for residential customers, 6- and 12-month fixed-price load-following contracts for residential and small commercial and industrial customers, and 12-month real-time pricing contracts for large commercial and industrial customers, toand alternative energy credit contracts for residential, commercial and industrial customers. These contracts fulfill PPL Electric's obligation to provide customer electricity supply as a PLR.
Numerous alternative suppliers have offered to provide generation supply in PPL Electric's service area. As 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.
Corporate and Other (PPL)
PPL Services provides PPL subsidiaries with administrative, management and support services. The costs of these services are charged directly to the respective recipients for the services provided or indirectly charged to applicable recipients based on an average of the recipients' relative invested capital, operation and maintenance expenses and number of employees or a ratio of overall direct and indirect costs.
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 enables PPL to cost effectively support targeted credit profiles across all of PPL's rated companies. As a result, PPL plans to utilizeutilizes PPL Capital Funding as a source of capital in future financings, in addition to continued direct financing by thecertain operating companies.subsidiaries.
Unlike PPL 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 acquisitionsacquisition of LKE and WPD Midlands and certain associated financing costs were allocated to the Kentucky Regulated and U.K. Regulated segments. TheSegment. Prior to 2021, the associated financing costs, as well as the financing costs associated with prior issuances of certain other PPL Capital Funding securities, have beenwere assigned to the appropriate segments for purposes of PPL management's assessment of segment performance. In 2021, corporate level financing costs are no longer allocated to the reportable segments. The financing costs associated primarily with PPL Capital Funding's securities issuances, beginning in 2013, with certain exceptions, have not been directly assigned or allocated to any segment.
ENVIRONMENTAL MATTERS
(All Registrants)
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.matters, and may be subject to different and more stringent such laws and regulations enacted in the future. The EPA hasand other federal agencies with jurisdiction over environmental matters have issued numerous environmental regulations relating to air, water and waste that directly affect the electric power industry. Due to these environmental issues, it may be necessary for the Registrants to modify or cease certain operations or operation of certain facilities to comply with statutes, regulations and other requirements of regulatory bodies or courts. In addition, legal challenges to new environmental permits or rules add uncertainty to estimating future costs of complying with such permits and rules. The Biden administration is currently undertaking changes in a wide range of environmental programs.
See “Legal Matters” in Note 1314 to the Financial Statements for a discussion of environmental commitments and contingencies. 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 20202022 through 2024.
LG&E and KU are entitled to recover, through the ECR mechanism, certain costs of complying with the Clean Air Act, as amended, and other federal, state and local environmental requirements applicable to coal combustion wastes and by-products from coal-fired generating facilities upon KPSC review. Costs not covered by the ECR mechanism for LG&E and KU and all such costs for PPL Electric are subject to rate recovery at the discretion of the companies' respective state regulatory authorities, or the FERC, if applicable. WPD's distribution businesses are subject to certain statutory and regulatory environmental requirements. It may be necessary for WPD to incur significant compliance costs, which may be recoverable through rates subject to Ofgem approval. Because neither WPD nor PPL Electric does not own any generating plants, theirit has less exposure to related environmental compliance costs is reduced. PPL, PPL Electric, LKE, LG&E and KUcosts. The Registrants can provide no assurances as to the ultimate outcome of future proceedings before regulatory authorities.
Air
NAAQS (PPL, LKE, LG&E and KU)
The Clean Air Act has a significant impact on the operation of fossil fuel generation plants. The Clean Air Act requires the EPA periodically to establish and review National Ambient Air Quality Standards, known as NAAQS, for six pollutants: carbon monoxide, lead, nitrogen dioxide, ozone (contributed to by nitrogen oxide emissions), particulate matter and sulfur dioxide. TheIn December 2020, the EPA is scheduled to evaluatereleased final actions keeping the currentexisting NAAQS standard for particulate matter in 2020.and ozone without change, but the EPA is currently reconsidering those decisions. PPL, LKE, LG&E, and KU are unable to predict the outcome of future evaluations by the EPA and the states with respect to the NAAQS for particulate matter.standards.
Applicable regulations require each state to identify areas within its boundaries that fail to meet the NAAQS, (known as nonattainment areas), and develop a state implementation plan to achieve and maintain compliance. States that are found to contribute significantly to another state's nonattainment with ozone standards are required to establish "good neighbor" state implementation plans. In addition, for attainment of ozone and fine particulates standards, certain states, including Kentucky, are subject to a regional EPA program known as the Cross-State Air Pollution Rule (CSAPR).
In January 2018, the EPA designated Jefferson County, Kentucky (Louisville) as being in nonattainment with the existing 2015 ozone standard. In December 2018,2020 and 2021, LG&E entered into agreements with the Louisville Metro Air Pollution Control District for temporary nitrogen oxide emission limits at LG&E's Mill Creek Station during those years to facilitate compliance with the ozone standard. If Jefferson County is unable to demonstrate attainment within the specified timeframes, it may be “bumped up” to the moderate nonattainment classification and thus subject to additional requirements including requirements for installation of reasonably available control technology on coal-fired generating units.Compliance with such requirements may require installation of additional pollution controls or other compliance actions. LG&E is unable to determine the impact on operations until certain compliance determinations are made by the EPA finalizedand Kentucky.
In April 2021, the EPA published final revisions to the CSAPR "Close-Out Rule," determining thatproviding for reductions in ozone season nitrogen oxide emissions for 2021 and subsequent years from sources in 12 states, including Kentucky. Additionally, the existingEPA reversed its previous approval of the Kentucky State Implementation Plan with respect to these requirements. The CSAPR "Update Rule" forrevisions are aimed at ensuring compliance with the 2008 ozone NAAQS, fully addresses applicable states' interstate pollution transport obligations. Various statesso additional nitrogen oxide emission reductions could potentially be required for compliance with the revised 2015 ozone NAAQS. PPL, LG&E and others challengedKU do not currently expect the rule in the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit). In September 2019, the D.C. Circuit granted these petitions and remanded a portionimpact of the CSAPR Update Rulerevisions on operations to be material. Pursuant to the EPA.President’s executive order, the EPA is currently reconsidering its previous determinations made in December 2020 to retain the existing NAAQS for ozone and particulate matter without change, with final determinations by the EPA expected in 2022 for particulate matter and 2023 for ozone.
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PPL, LG&E, and KU are unable to predict future emission reductions that may be required by future federal rules or state implementation actions. Compliance with the NAAQS, CSAPR and related requirements may require installation of additional pollution controls or other compliance actions, inclusive of retirements, the costs of which PPL, LKE, LG&E and KU believe arewould be subject to rate recovery.
Climate Change(All Registrants)
There is continuing world-wide attention focused on issues related to climate change. In 2015, 195 nations, including the U.S., signed the Paris Agreement on Climate, establishing non-binding targets to reduce GHG emissions from both developed and developing nations. In 2017, the President Trump announced a U.S. withdrawal from the Paris Agreement, which withdrawal would not be complete untileffective November 2020. In January 2021, the Biden presidential administration initiated the process to rejoin the Paris Agreement, which was completed in February 2021. The PresidentBiden administration also issued an Executive Orderexecutive orders directing rescissionagencies to conduct a general review of regulations and executive actions relating to the environment and reestablished a framework for considering the social cost of carbon as part of certain guidance, directives, and prior Presidential actions regardingagency cost-benefit analyses for new regulations. The Biden administration is exploring wide-ranging efforts to address climate change. At present,Recent government actions and policy developments, including the President’s announced goal of a carbon free electricity sector by 2035, and targeting net-zero emissions for the federal government by 2050, could have significant impacts on PPL’s business operations, products, and services. Certain of the efforts announced by the Biden administration are preliminary or ongoing in nature. Additionally, there are ongoing efforts by various U.S. federal, state and local governments to assess potential changes to legislation, rules, policies, directives, and other requirements applicable to greenhouse gas emissions. PPL, LKE, LG&E and KU cannot predict the outcome of such assessments.ongoing developments.
PPL has adopted a goal of net-zero carbon emissions by 2050, which includes continuing to retire coal-fired generation and investing in research and innovation that will help to achieve this goal, while maintaining reliable and affordable energy in our service territories. The U.K.net-zero goal relates to direct and indirect carbon emissions consistent with Greenhouse Gas Protocol guidance and referenced by the EPA Center for Corporate Climate Leadership. Through 2020, PPL has enacted bindingreduced carbon emissions nearly 60% from 2010 levels and is targeting a 70% reduction requirements that are applicable to WPD. Underfrom 2010 levels by 2035 and an 80% reduction by 2040.
PPL is also aware of the U.K. law, WPD must purchase carbon allowances to offset emissionsvarious risks associated with WPD's operations. The costclimate change, including increased frequency and severity of severe weather. To address these allowances is not significantrisks, PPL continues to work to advance the grid and is included in WPD's current operating expenses.improve the Company's equipment to help mitigate the impacts of extreme weather events and improve reliability.
The EPA's Affordable Clean Energy Rule (PPL, LG&E and KU)
In July 2019, the EPA repealed the Clean Power Plan and finalized the Affordable Clean Energy (ACE) Rule which gives states broad latitude to establish emission guidelines providing for plant-specific efficiency upgrades or "heat-rate improvements" to reduce GHG emissions per unit of electricity generated. States are generally allowed three years to submit plans establishing standards of performance, while the EPA anticipates that most facilities will be required to demonstrate compliance within two years of plan approval. The EPA intends to take additional action to finalize new criteria for determining whether efficiency projects will trigger New Source Review and thus be subject to more stringent emission controls. Various entities have filed petitions for review and petitions for reconsideration. On January 19, 2021, the D.C. Circuit Court issued an opinion finding that the EPA had erroneously repealed the Clean Power Plan. The D.C Circuit Court's opinion also vacated and remanded the ACE Rule to the EPA. On October 29, 2021, the U.S. Supreme Court granted review of the D.C. Circuit Court’s ruling.PPL, LKE, LG&E, and KU cannot predict the outcome of the pending litigation and regulatory proceedings or changes that may be pursued by the Biden administration, but believe that the costs would be subject to rate recovery.
Water/Waste
(PPL, LKE, LG&E and KU)
Clean Water Act
Regulations under the federal Clean Water Act dictate permitting and mitigation requirements for facilities and construction projects that impact "Waters of the United States." Many other requirements relate to power plant operations, including 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, and standards intended to protect aquatic organisms that become trapped at or pulled through cooling water intake structures at generating facilities. These requirements could impose significant costs for LG&E and KU, which are expected to be subject to rate recovery.
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Clean Water Act Jurisdiction
Environmental groups and others have claimed that discharges to groundwater from leaking CCR impoundments at power plants are subject to Clean Water Act permitting. A citizen suit raising such claims has been filed against KU with respect to the E.W. Brown plant, as discussed under “Legal Matters” - “E.W. Brown Environmental Claims” in Note 13 to the Financial Statements. On April 12, 2019, the EPA released regulatory clarification finding that Clean Water Act jurisdiction does not cover such discharges to groundwater. On January 23, 2020, the EPA announced a final rule modifying the jurisdictional scope of the Clean Water Act. The announced rule revises the definition of the "Waters of the United States," including a revision to exclude groundwater from the definition. Additionally, a ruling fromIn April 2020, the U.S. Supreme Court inissued a pending case, likely in the first half of 2020, is expected to provide additional clarification on the scope of Clean Water Act jurisdiction. Extendingruling that Clean Water Act jurisdiction may apply to certain discharges to groundwater that result in the functional equivalent of a direct discharge to navigable waters. PPL, LG&E, and KU are unaware of any unpermitted releases from their facilities that are subject to Clean Water Act jurisdiction, but future regulatory developments and judicial rulings could potentially subject certain releases from CCR impoundments and landfills to additional permitting and remediation requirements, which could impose substantial costs. Any associated costs are expected to be subject to rate recovery. PPL, LKE, LG&E and KU are unable to predict the outcome or financial impact of currentfuture regulatory proceedings and litigation.
Superfund and Other Remediation
(All Registrants)
From time to time, PPL's subsidiaries in the United States undertake testing, monitoring or remedial action in response to spills or other releases at various on-site and off-site locations, negotiate with the EPA and state and local agencies regarding actions necessary to comply 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 the operations of PPL Electric, LG&E and KU.
Future cleanup or remediation work at sites not yet identified may result in significant additional costs for PPL, PPL Electric, LKE, LG&E and KU.the Registrants. Insurance policies maintained by LKE, LG&E and KU may be available to cover certain of the costs or other obligations related to these matters, but the amount of insurance coverage or reimbursement cannot be estimated or assured.
See “Legal Matters” in Note 1314 to the Financial Statements for additional information.
(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 unpredictable weather conditions make such fluctuations more pronounced. The pattern of this fluctuation may change depending on the type and location of the facilities owned. See "Item 1. Business - Environmental Matters - Air"Air - Climate Change" for additional information regarding climate change.information.
FINANCIAL CONDITION
See "Financial Condition" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for this information.
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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 20202022 through 2024. See "Item 1. Business - Environmental Matters" for additional information concerning the potential impact on capital expenditures from environmental matters.
PPL, together with its subsidiaries, is committed to fostering an exceptional workplace for employees. PPL pledges to enable the success of its current and future workforce by cultivating a diverse, equitable and inclusive culture, fostering professional development, encouraging employee engagement, and ensuring a safe and healthy work environment. Matters related to these priorities and corporate culture are overseen by PPL's senior management, which provides updates to the PPL Board of Directors (the Board). Pursuant to its charter, the Compensation Committee of the Board of Directors also periodically reviews and assesses the Company’s strategy for human capital management. PPL's investment in the success of our workforce is embodied in the following areas with dedicated leadership and Board oversight:
•Diversity, equity and inclusion (DEI) – Foster an inclusive, respectful and diverse workplace through a comprehensive DEI strategy and commitments. Senior management reviews demographic metrics, DEI objectives and associated programs semi-annually. The Board also receives periodic updates from senior management on PPL's DEI strategy and initiatives.
•Employee engagement – Create a workplace that fosters an engaged, high-quality workforce. PPL's operating companies regularly conduct assessments related to employee engagement, safety and culture. Senior management reviews corporate culture with the Board annually.
•Professional development –Invest in our current and future workforce through training and development, succession planning and creation of a pipeline for internal advancement. Senior management reviews succession planning with the Compensation Committee of the Board on an annual basis.
•Comprehensive benefits - In addition to challenging careers and competitive salaries, PPL offers competitive benefits programs to attract and retain talent and support employees' well-being. PPL offers competitive vacation time, expanded leave for new parents, retirement programs, and internal and external development opportunities, including tuition reimbursement offerings for undergraduate and certain graduate degrees. Senior management conduct annual benchmarking of employee compensation and benefits.
•Safety and Compliance - PPL is also committed to maintaining an ethical and safe workplace culture. Additional steps to ensure Board oversight in these areas include:
•Safety – PPL carries out programs focused on health and safety, including emergency preparedness, vehicle safety and accident prevention. Employees receive safety training and are encouraged to share, implement, and follow best practices. Senior management receives monthly safety data updates to determine whether additional safety measures should be implemented. The Board annually reviews the company's safety programs and results. The Board is also immediately engaged in the event of a fatality.
•Compliance – The Corporate Compliance Committee, including senior executives, meets quarterly to discuss metrics and other matters related to the compliance and ethics culture. Among the items discussed are statistics regarding Ethics Helpline reports and employee concerns. This information is also reviewed with the Audit Committee of the Board quarterly.
PPL will continue to engage with employees and to assess these priorities as we work to best position individuals and the company for future success. PPL had a turnover rate of 10.6% for the year ended December 31, 2021. Looking forward, we will maintain our strong focus on workforce planning to address future talent needs.
At December 31, 2019,2021, PPL and its subsidiaries had the following full-time employees and employees represented by labor unions:
| Total Full-Time Employees | Number of Union Employees | Percentage of Total Workforce | |||||||||||||||
| PPL | 5,607 | 1,744 | 31 | % | |||||||||||||
| PPL Electric | 1,596 | 932 | 58 | % | |||||||||||||
| LG&E | 1,001 | 627 | 63 | % | |||||||||||||
| KU | 873 | 115 | 13 | % | |||||||||||||
Total Full-Time Employees | Number of Union Employees | Percentage of Total Workforce | ||||||
| PPL | 12,280 | 5,787 | 47 | % | ||||
| PPL Electric | 1,562 | 918 | 59 | % | ||||
| LKE | 3,480 | 786 | 23 | % | ||||
| LG&E | 1,039 | 668 | 64 | % | ||||
| KU | 890 | 118 | 13 | % | ||||
(PPL and PPL Electric)
For PPL and PPL Electric, labor agreement negotiations with the IBEW commenced in February 2022. The current five-year agreement expires in May 2022.
CYBERSECURITY MANAGEMENT
The Registrants and their subsidiaries are subject to risks from cyber-attacks that have the potential to cause significant interruptions to the operation of their businesses. The frequency of these attempted intrusions has increased in recent years and the sources, motivations and techniques of attack continue to evolve and change rapidly. PPL has adopted a variety of measures to monitor and address cyber-related risks.risks and continues to implement and explore additional cybersecurity measures. Cybersecurity and the effectiveness of PPL’sPPL's cybersecurity strategy are regular topics of discussion at Board of Directors meetings. PPL's strategy for managing cyber-related risks is risk-based and, where appropriate, integrated within PPL's enterprise risk management processes. PPL’sPPL's Chief Information Security Officer (CISO), who reports directly to the Chief ExecutiveOperating Officer, leads a dedicated cybersecurity team and is responsible for the design, implementation, and execution of cyber-risk management strategy. AmongIn addition, among other things, the CISO and the cybersecurity team actively monitor the Registrants' systems, regularly review policies, compliance, regulations and best practices, perform penetration testing, leadconduct incident response exercises and internal ethical phishing campaigns, and provide training and communication across the organization to strengthen secure behavior.behavior and foster a culture of security. The cybersecurity team also routinely participates in industry-wide programs to further information sharing, intelligence gathering, and unity of effort in responding to potential or actual attacks. In addition, in 2018, PPL revised and formalized itshas a formal internal policy and procedures for communicating cybersecurity incidents on an enterprise-wide basis.
In addition to these enterprise-wide initiatives, PPL’sPPL's Kentucky and Pennsylvania operations are subject to extensive and rigorous mandatory cybersecurity requirements that are developed and enforced by NERC and approved by the FERC to protect grid security and reliability. LG&E is also subject to certain security directives related to cybersecurity issued by the Department of Homeland Security’s Transportation Security Administration in 2021. See Note 14 to the Financial Statements for additional information on these directives. Finally, PPL purchases insurance to protect against a wide range of costs that could be incurred in connection with cyber-related incidents. There can be no assurance, however, that these efforts will be effective to prevent interruption of services or other damage to the Registrants' businesses or operations or that PPL's insurance coverage will cover all costs incurred in connection with any cyber-related incident.
AVAILABLE INFORMATION
PPL's Internet website is www.pplweb.com. Under the Investors heading of that website, PPL provides access to 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. The information contained on, or available through, PPL's Internet website is not, and shall not be deemed to be, incorporated by reference into this report. Additionally, the Registrants' filings are available at the SEC's website (www.sec.gov).
ITEM 1A. RISK FACTORS
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 1314 to the Financial Statements for moreadditional 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 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.
Order of Subsection Presentation
A.Risks Related to Our U.K.Registrant Holding Company
B.Risks Related to Regulated SegmentUtility Operations
E.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 adversely impact the results of operations of 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.All Segments
PPL is a holding company and LKE are holding companies and theirits cash flows and ability to meet theirits obligations with respect to indebtedness and under guarantees, and PPL'sits ability to pay dividends, largely depends on the financial performance of theirits respective subsidiaries and, as a result, is effectively subordinated to all existing and future liabilities of those subsidiaries.
PPL is a holding company and LKE are holding companies and conduct theirconducts its operations primarily through subsidiaries. Substantially all of the consolidated assets of these RegistrantsPPL are held by theirits subsidiaries. Accordingly, these Registrants'PPL's 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 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'PPL's 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 and LKE areis a holding companies, theircompany, its debt and guaranty obligations are effectively subordinated to all existing and future liabilities of theirits subsidiaries. Although certain agreements to which certain subsidiaries are parties limit their ability to incur additional indebtedness, PPL and LKE and theirits subsidiaries retain the ability to incur substantial additional indebtedness and other liabilities. Therefore, PPL's and LKE's rights and the rights of theirits creditors, including rights of debt holders, to participate in the assets of any of theirits subsidiaries, in the event that such a subsidiary is liquidated or reorganized, will be subject to the prior claims of such subsidiary's creditors.
(PPL Electric, LG&E and KU)All Registrants)
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 and Pennsylvania Regulated segments. 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.
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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 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, intervenors and other permitted parties may challenge our current or future rate requests, structures or mechanisms, and ultimately reduce, alter or limit the rates we receive. Although our rates are generally regulated based on an analysis of our costs incurred in a base year or 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 likelymay require rate increase requests to the regulators.regulators in the future. 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 governmental regulation.
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;
•tax matters;
•affiliate transactions;
•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.
Our domestic regulated businesses undertake significant capital projects and these activities are subject to unforeseen costs, delays or failures, as well as risk of inadequate recovery of resulting 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;
•potential supply chain disruptions or delays; and
•contractor performance.
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 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
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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.
(PPL, LKE, LG&E and KU)
We are subject to financial, operational, regulatory and other risks related to requirements, developments and uncertainties in environmental regulation, including those affecting coal-fired generation facilities.
Extensive federal, state and local environmental laws and regulations are applicable to LG&E's and KU's generation supply, including its air emissions, water discharges (ELGs) and the management of hazardous and solid wastes (CCRs), among other business-related activities, and the costs of compliance or alleged non-compliance cannot be predicted butand 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 as 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 rulemaking and other regulatory developments, legislative activities and litigation, administrative orand permit challenges. The Biden administration is considering a wide range of potential policies, executive orders, rules, legislation and other initiatives in connection with climate change that may affect these costs. Depending on the extent, frequency and timing of such changes, 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. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or forfeitures, operational 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, power producers and industrial power users, and may impact the costs of their products and demand for our services.
(PPL LKE and LG&E)
We are subject to operational, regulatory and other risks regarding natural gas supply infrastructure.
A natural gas pipeline explosion or associated incident could have a significant impact on LG&E’s natural gas operations or result in significant damages and penalties that could have an adverse impact on LG&E’s financial position and results of operations. The Pipeline and Hazardous Materials Safety Administration enforces regulations that govern the design, construction, operation and maintenance of pipeline facilities. Failure to comply with these regulations could result in the assessment of fines or penalties against LG&E. These regulations require, among other things, that pipeline operators engage in atake certain measures with respect to pipeline integrity program.integrity. Depending on the results of these integrity tests and other integrity program activities, we could incur significant and unexpected costs to perform remedial activities on our natural gas infrastructure to ensure our continued safe and reliable operation. Recent pipeline incidents in the U.S. have also led to the introduction of proposed rules and possible federal legislative actions which could impose restrictions on LG&E’s operations or require more stringent testing to
ensure pipeline integrity. Implementation of these regulations could increase our costs to comply with pipeline integrity and safety regulations.
(PPL and PPL Electric)
We face competition for transmission projects, which could adversely affect our rate base growth.
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 electricity transmission planning activities. The PPL Electric transmission business, operating under a FERC-approved PJM Open Access Transmission Tariff, is subject to
17
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 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.
(All Registrants)
The operationCOVID-19 pandemic and resultant impact on business and economic conditions could negatively affect our business.
The COVID-19 pandemic has disrupted the U.S. and global economies and continues to present challenges to businesses, communities, workforces, markets and increasingly to supply chains. In the U.S. and throughout the world, governmental authorities have taken actions to contain the spread of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures have included quarantines, stay-at-home orders, travel restrictions, reduced operations orclosures of businesses, schools and governmental agencies, and executive, legislative or regulatory actions to address health or other pandemic-related concerns. The Delta and Omicron variants of the virus have extended and exacerbated the risks arising from the pandemic and have led to the extension of many of these remediation strategies. The responses to these variants may continue to affect risks and related remediation efforts going forward, perhaps substantially, and future variants may have similar effects.
Until the COVID-19 virus is contained, it poses significant risks to the health and welfare of the Registrants’ customers, employees, contractors and suppliers, and to the conduct of their business. Mandates to stay at home, shelter in place, or quarantine and resulting lock-down or closures of non-essential businesses could reduce demand for electricity and gas, and continue to cause shifts in demand between residential, commercial and industrial customers that could negatively impact the Registrants’ financial condition. Customers experiencing financial strain from unemployment, furloughs, or reduced work hours may not be able to pay their bills on a timely basis, which could negatively impact our businessesliquidity. New or changing legislation or regulatory orders may unfavorably impact the Registrants or the utility industry generally.
The COVID-19 pandemic is also subjecting the Registrants to growing shortages that are creating risks of potential equipment and fuel supply chain disruptions. If issues in the supply chains continue, Registrants may be forced to rely on a larger pool of suppliers, which could pose operational risks. Such suppliers may fail to follow established health, safety and other regulatory standards. Additionally, suppliers may need to engage subcontractors that have not been previously vetted, which could result in contractual and regulatory risks. This could also create an inability to effectively monitor a supplier’s work or the need to depend on limited contractors, resulting in higher costs and potential financial and reputational risks.
All of these factors have the potential to materially and adversely affect the Registrants’ business and operations, especially if they remain in effect for a prolonged period of time. At this time, the Registrants’ cannot predict the extent to which these or other pandemic-related factors may affect their business, earnings or other financial results, as it depends on the duration and scope of the outbreak, the measures undertaken in response and other future developments, all of which are highly uncertain and continue to evolve in response to additional variants. In addition to the factors discussed above, investors should be aware that other COVID-19-related risks may emerge in the future and may prove to be significant, including potentially the cost of ongoing remediation efforts, such as testing, and the potential for increased effects on global markets and supply chains. Investors should carefully consider the discussion of COVID-19 related items presented in this Annual Report on Form 10-K, especially to the extent that the COVID-19 pandemic may exacerbate or increase those risks.
Our business operations are continually subject to cyber-based security and data integrity risks.risks from vulnerabilities related to our IT systems, operational technology infrastructure and supply chain relationships.
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 systems, including gas distribution systems, as well as our generation plants, are all reliant on cyber-based technologies and, therefore, subject to the risk that these systems could be the target of disruptive
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actions by terrorists, nation state actors or criminals or otherwise be compromised by unintentional events. Attacks may come through ransomware, software updates or patches, use of opensource software, firmware that hackers can manipulate to include malicious codes for exploitation at a later date, orthe compromising of hardware by bad actors, creating serious risks to our security, the security of our customers' information, and potentially to our ability to provide power. 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. Threats to our systems and operations continue to emerge as new ways to compromise components of our systems or networks are developed. Additionally, cybersecurity risks also threaten our supply chains, including aspects that are not under our control, such as the incorporation of opensource software in systems or software that we use, that despite our efforts do not meet our current security standards.
In addition, under the Energy Policy Act of 2005, users, owners and operators of the bulk power transmission system, including PPL Electric, LG&E and KU, are subject to mandatory reliability standards promulgated by NERC and enforced by the FERC. As an operator of natural gas distribution systems, LG&E is also subject to mandatory reliability standards of the U.S. Department of Transportation.Transportation and is also subject to certain security directives related to cybersecurity issued by the Department of Homeland Security (DHS) Transportation Security Administration (TSA) in 2021. Failure to comply with these standards could result in the imposition of fines or civil penalties, and potential exposure to third party claims for alleged violations of the standards.
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 and cash flows. We are required to make judgments in order to estimate our obligations to taxing authorities. These tax obligations include income, property, gross receipts, franchise, sales and use, employment-related and other taxes. We also estimate our ability to utilize deferred tax assets and tax credits. Dependent upon the revenue needs of the jurisdictions in which our businesses operate, various tax and fee increases may be proposed or considered. We cannot predict changes in tax law or regulation or the effect of any such changes on our businesses. Any such changes could increase tax expense and could have a significant negative impact on our results of operations and cash flows. We have completed or made reasonable estimates of theThe effects of the TCJA have been reflected in our December 31, 2018 financial statements, and we continue to evaluate the application of the law in calculating income tax expense.
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 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.
Our businesses are capital-intensive and, 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 result, 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. In addition, certain sources of debt and equity capital have expressed reservations about investing in companies that rely on fossil fuels. If sources of our capital are reduced, capital costs could increase materially.
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.
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Our operating revenues could fluctuate on a seasonal basis, especially as a result of extreme weather conditions.conditions, including conditions caused or exacerbated by climate change.
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 diverge adversely from seasonal norms. The effects of climate change may accelerate or magnify fluctuations in our operating results.
Operating expenses could be affected by weather conditions, including storms, as well as by significant man-made or accidental disturbances, including terrorism or natural disasters.
Weather and 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 potential effects 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 to prepare for or respond 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. The Registrants' responses to such climate-related risks include compliance with evolving governmental policy and developing and implementing strategies designed to meet net zero carbon emissions goals, which may affect our financial condition, results of operations or cash flows.
We cannot predict the outcome of legal proceedings or investigations related to our businesses in which we are periodically involved. An unfavorable outcome or determination in any of these matters 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 periodically are subject to state and federal investigations arising out of our business operations, the most significant of which are summarized in Item 1. Business and "Regulatory
Matters" in Note 7 to the Financial Statements and in "Legal Matters" and "Regulatory Issues" in Note 1314 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. 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.
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We may incur liabilities in connection with discontinued operations.divestitures.
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 1314 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 insurance coverage for certain of these risks, we do not carry insurance for all of these risks and no assurance can be given that such insurance coverage will be sufficient to compensate us in the event losses occur.
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 governmental agencies. The process of obtaining and renewing necessary permits can be lengthy and complex and sometimes result in the establishment of permit conditions that make the project or activity for which a permit was sought unprofitable or otherwise unattractive. In addition, such permits or approvals may be subject to denial, revocation or modification under 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 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.markets. In addition, unrest in the Middle East 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 additionalincreased capability following a terrorist incident.
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We are subject to counterparty performance, credit or other risk in the 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 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 services and collect 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, political pressures and new or more stringent environmental regulation, including regulation of combustion byproducts and water inputs or discharges.
We are subject to the risk that our workforce and its knowledge base may become depleted in coming years.
We are experiencing an increase inexperience 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, with appropriate skills and experience, due to an increase in competition for such workers.experience.
ITEM 1B. UNRESOLVED STAFF COMMENTS
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
None.
ITEM 2. PROPERTIES
Kentucky Regulated Segment (PPL, LKE, LG&E and KU)
LG&E's and KU's properties consist primarily of regulated generation facilities, electricity 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 electricity generating capacity at December 31, 20192021 was:
| LKE | LG&E | KU | 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 | Primary Fuel/Plant | Total MW Capacity Summer | % Ownership or Other Interest | Ownership or Other Interest in MW | % Ownership or Other Interest | Ownership or Other Interest in MW | ||||||||||||||||||||||||||||||||
| Coal | Coal | |||||||||||||||||||||||||||||||||||||||||||
| Ghent - Units 1- 4 | 1,919 | 1,919 | 100.00 | 1,919 | Ghent - Units 1- 4 | 1,919 | 100.00 | 1,919 | ||||||||||||||||||||||||||||||||||||
| Mill Creek - Units 1- 4 | 1,465 | 1,465 | 100.00 | 1,465 | Mill Creek - Units 1- 4 | 1,465 | 100.00 | 1,465 | ||||||||||||||||||||||||||||||||||||
| E.W. Brown - Unit 3 | 412 | 412 | 100.00 | 412 | E.W. Brown - Unit 3 | 412 | 100.00 | 412 | ||||||||||||||||||||||||||||||||||||
| Trimble County - Unit 1 (a) | 493 | 370 | 75.00 | 370 | Trimble County - Unit 1 (a) | 493 | 75.00 | 370 | ||||||||||||||||||||||||||||||||||||
| Trimble County - Unit 2 (a) | 732 | 549 | 14.25 | 104 | 60.75 | 445 | Trimble County - Unit 2 (a) | 732 | 14.25 | 104 | 60.75 | 445 | ||||||||||||||||||||||||||||||||
| 5,021 | 4,715 | 1,939 | 2,776 | |||||||||||||||||||||||||||||||||||||||||
| 5,021 | 1,939 | 2,776 | ||||||||||||||||||||||||||||||||||||||||||
| Natural Gas/Oil | Natural Gas/Oil | |||||||||||||||||||||||||||||||||||||||||||
| E.W. Brown Unit 5 (b) | 130 | 130 | 53.00 | 69 | 47.00 | 61 | E.W. Brown Unit 5 (b) | 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 6 - 7 | 292 | 38.00 | 111 | 62.00 | 181 | ||||||||||||||||||||||||||||||||
| E.W. Brown Units 8 - 11 (b) | 484 | 484 | 100.00 | 484 | E.W. Brown Units 8 - 11 (b) | 484 | 100.00 | 484 | ||||||||||||||||||||||||||||||||||||
| Trimble County Units 5 - 6 | 318 | 318 | 29.00 | 92 | 71.00 | 226 | Trimble County Units 5 - 6 | 318 | 29.00 | 92 | 71.00 | 226 | ||||||||||||||||||||||||||||||||
| Trimble County Units 7 - 10 | 636 | 636 | 37.00 | 235 | 63.00 | 401 | Trimble County Units 7 - 10 | 636 | 37.00 | 235 | 63.00 | 401 | ||||||||||||||||||||||||||||||||
| Paddy's Run Units 11 - 12 | 35 | 35 | 100.00 | 35 | ||||||||||||||||||||||||||||||||||||||||
| Paddy's Run Unit 12 | Paddy's Run Unit 12 | 23 | 100.00 | 23 | ||||||||||||||||||||||||||||||||||||||||
| Paddy's Run Unit 13 | 147 | 147 | 53.00 | 78 | 47.00 | 69 | Paddy's Run Unit 13 | 147 | 53.00 | 78 | 47.00 | 69 | ||||||||||||||||||||||||||||||||
| Haefling - Units 1 - 2 | 24 | 24 | 100.00 | 24 | Haefling - Units 1 - 2 | 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 7 | 662 | 22.00 | 146 | 78.00 | 516 | ||||||||||||||||||||||||||||||||
| 2,742 | 2,742 | 780 | 1,962 | 2,716 | 754 | 1,962 | ||||||||||||||||||||||||||||||||||||||
| Hydro | Hydro | |||||||||||||||||||||||||||||||||||||||||||
| Ohio Falls - Units 1-8 | 64 | 64 | 100.00 | 64 | Ohio Falls - Units 1-8 | 64 | 100.00 | 64 | ||||||||||||||||||||||||||||||||||||
| Dix Dam - Units 1-3 | 32 | 32 | 100.00 | 32 | Dix Dam - Units 1-3 | 32 | 100.00 | 32 | ||||||||||||||||||||||||||||||||||||
| 96 | 96 | 64 | 32 | 96 | 64 | 32 | ||||||||||||||||||||||||||||||||||||||
| Solar | Solar | |||||||||||||||||||||||||||||||||||||||||||
| E.W. Brown Solar (c) | 8 | 8 | 39.00 | 3 | 61.00 | 5 | E.W. Brown Solar (c) | 8 | 39.00 | 3 | 61.00 | 5 | ||||||||||||||||||||||||||||||||
| Total | 7,867 | 7,561 | 2,786 | 4,775 | Total | 7,841 | 2,760 | 4,775 | ||||||||||||||||||||||||||||||||||||
(b)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 12 MW of capacity for LG&E and an additional 86 MW of capacity for KU.
(c)This unit is a 10 MW facility and achieves such production. The 8 MW solar facility summer capacity rating is reflective of an average expected output across the peak hours during the summer period based on average weather conditions at the 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, 2019,2021, LG&E's and KU's electricity transmission system included, in the aggregate, 45 substations (31 of which are shared with theand distribution system) with a total capacity of 8 million kVAsystems and 669 pole miles of lines. LG&E's distribution system included 96 substations (31 of which are shared with the transmission system) with a total capacity of 5
LG&E's natural gas transmission system includes 4,384 milesand distribution systems were:
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| LG&E | KU | |||||||||||||||||||||||||
| Distribution | Transmission | Distribution | Transmission | |||||||||||||||||||||||
| Electricity System | ||||||||||||||||||||||||||
| Substations (a) | 96 | 77 | 460 | 211 | ||||||||||||||||||||||
| Capacity (in millions of kVA) | 5 | 8 | 8 | 15 | ||||||||||||||||||||||
| Overhead lines (circuit miles) | 3,883 | 669 | 14,046 | 4,056 | ||||||||||||||||||||||
| Underground lines (circuit miles) | 2,753 | — | 2,699 | — | ||||||||||||||||||||||
| Natural Gas System | ||||||||||||||||||||||||||
| Distribution mains (miles) | 4,418 | — | — | — | ||||||||||||||||||||||
| Transmission pipeline (miles) | — | 233 | — | — | ||||||||||||||||||||||
| Transmission storage lines (miles) | — | 118 | — | — | ||||||||||||||||||||||
| Combustion turbine lines (miles) | — | 19 | — | 12 | ||||||||||||||||||||||
| Storage fields | — | 5 | — | — | ||||||||||||||||||||||
| Storage field capacity (Bcf) | — | 15 | — | — | ||||||||||||||||||||||
(a)191 substations (61 at LG&E and 130 at KU) are shared between the distribution mains and 371 miles of gas transmission mains, consisting of 234 miles of gas transmission pipeline, 117 miles of gas transmission storage lines, 20 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.systems.
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 8 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. See Item 1. Business for a discussion related to LG&E's and KU's Solar Share program.
Pennsylvania Regulated Segment (PPL and PPL Electric)
For a description of PPL Electric's service area, see "Item 1. Business - General - Segment Information - Pennsylvania Regulated Segment." PPL Electric has electric transmission and distribution lines in public streets and highways pursuant to franchises and rights-of-way secured from property owners. At December 31, 2019,2021, PPL Electric's transmission system includes 51 substations with a total capacity of 31 million kVA and 5,4395,400 circuit miles in service. PPL Electric's distribution system includes 353352 substations with a total capacity of 14 million kVA, 36,38536,488 circuit miles of overhead lines and 8,5178,714 underground circuit 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 8 to the Financial Statements for additional information.
ITEM 3. LEGAL PROCEEDINGS
See Notes 6, 7, 9 and 1314 to the Financial Statements for information regarding legal, tax and regulatory matters and proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
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 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 31, 2020,2022 there were 51,70248,597 common stock shareowners of record.
| Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (a) | |||||||||||||||||||
| October 1 to October 31, 2021 | 8,257,699 | $ | 28.60 | 8,257,699 | $ | 2,450,000,033 | |||||||||||||||||
| November 1 to November 30, 2021 | 11,453,324 | 28.65 | 11,453,324 | 2,121,807,982 | |||||||||||||||||||
| December 1 to December 31, 2021 | 4,309,556 | 28.76 | 4,309,556 | 1,997,876,503 | |||||||||||||||||||
| Total | 24,020,579 | $ | 28.65 | 24,020,579 | $ | 1,997,876,503 | |||||||||||||||||
(a)PPL Corporation's Board of 2019.Directors approved a share repurchase plan in August 2021. See "Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial and Operational Developments - Share Repurchases" for additional information.
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 $486$334 million in 20192021 and $390$400 million in 2018.2020.
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 $182$192 million in 20192021 and $156$161 million in 2018.2020.
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 $229$250 million in 20192021 and $246$200 million in 2018.2020.
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
| PPL Corporation (a) (b) | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
Income Items (in millions) | ||||||||||||||||||||
| Operating revenues | $ | 7,769 | $ | 7,785 | $ | 7,447 | $ | 7,517 | $ | 7,669 | ||||||||||
| Operating income (c) | 2,840 | 2,852 | 2,901 | 2,936 | 2,802 | |||||||||||||||
| Income from continuing operations after income taxes attributable to PPL shareowners | 1,746 | 1,827 | 1,128 | 1,902 | 1,603 | |||||||||||||||
Loss from discontinued operations (net of income taxes) (f) | — | — | — | — | (921 | ) | ||||||||||||||
| Net income attributable to PPL shareowners (f) | 1,746 | 1,827 | 1,128 | 1,902 | 682 | |||||||||||||||
Balance Sheet Items (in millions) | ||||||||||||||||||||
| Total assets (d) | 45,680 | 43,396 | 41,479 | 38,315 | 39,301 | |||||||||||||||
| Short-term debt (d) | 1,151 | 1,430 | 1,080 | 923 | 916 | |||||||||||||||
| Long-term debt (d) | 21,893 | 20,599 | 20,195 | 18,326 | 19,048 | |||||||||||||||
| Common equity (d) | 12,991 | 11,657 | 10,761 | 9,899 | 9,919 | |||||||||||||||
| Total capitalization (d) | 36,035 | 33,686 | 32,036 | 29,148 | 29,883 | |||||||||||||||
| Financial Ratios | ||||||||||||||||||||
| Return on common equity - % (d)(f) | 14.3 | 16.1 | 10.9 | 19.2 | 5.8 | |||||||||||||||
| Common Stock Data | ||||||||||||||||||||
| Number of shares outstanding - Basic (in thousands) | ||||||||||||||||||||
| Year-end | 767,233 | 720,323 | 693,398 | 679,731 | 673,857 | |||||||||||||||
| Weighted-average | 728,512 | 704,439 | 685,240 | 677,592 | 669,814 | |||||||||||||||
Income from continuing operations after income taxes available to PPL common shareowners - Basic EPS | $ | 2.39 | $ | 2.59 | $ | 1.64 | $ | 2.80 | $ | 2.38 | ||||||||||
Income from continuing operations after income taxes available to PPL common shareowners - Diluted EPS | $ | 2.37 | $ | 2.58 | $ | 1.64 | $ | 2.79 | $ | 2.37 | ||||||||||
| Net income available to PPL common shareowners - Basic EPS | $ | 2.39 | $ | 2.59 | $ | 1.64 | $ | 2.80 | $ | 1.01 | ||||||||||
| Net income available to PPL common shareowners - Diluted EPS | $ | 2.37 | $ | 2.58 | $ | 1.64 | $ | 2.79 | $ | 1.01 | ||||||||||
| Dividends declared per share of common stock | $ | 1.65 | $ | 1.64 | $ | 1.58 | $ | 1.52 | $ | 1.50 | ||||||||||
| Book value per share (d) | $ | 16.93 | $ | 16.18 | $ | 15.52 | $ | 14.56 | $ | 14.72 | ||||||||||
| Market price per share | $ | 35.88 | $ | 28.33 | $ | 30.95 | $ | 34.05 | $ | 34.13 | ||||||||||
| Dividend payout ratio - % (e)(f) | 70 | 64 | 96 | 55 | 149 | |||||||||||||||
| Dividend yield - % (g) | 4.6 | 5.8 | 5.1 | 4.5 | 4.4 | |||||||||||||||
| Price earnings ratio (e)(f)(g) | 15.1 | 11.0 | 18.9 | 12.2 | 33.8 | |||||||||||||||
| Sales Data - GWh | ||||||||||||||||||||
| Domestic - Electric energy supplied - wholesale | 1,154 | 2,461 | 2,084 | 2,177 | 2,241 | |||||||||||||||
| Domestic - Electric energy delivered - retail | 67,238 | 68,686 | 65,751 | 67,474 | 67,798 | |||||||||||||||
| U.K. - Electric energy delivered | 72,061 | 74,181 | 74,317 | 74,728 | 75,907 | |||||||||||||||
PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
(All Registrants)
This "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" is separately filed by PPL, PPL Electric, LKE, LG&E and KU. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for individual Registrants when significant.
The following should be read in conjunction with the Registrants' Consolidated 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.
•"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 20192021 with 2018.2020. For PPL, "Results of Operations" also includes "Segment Earnings" and "Adjusted Gross Margins"Margins," which provide a detailed analysis of earnings by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Adjusted Gross Margins" and provide explanations of the non-GAAP financial measures and a reconciliation of the non-GAAP financial measures to the most comparable GAAP measure. The "2020 Outlook" discussion identifies key factors expected to impact 2020 earnings.
•"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.
For comparison of the Registrants’ results of operations and cash flows for the years ended December 31, 20182020 to December 31, 2017,2019, refer to “Item 7. Combined Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 20182020 Form 10-K, filed with the SEC on February 14, 2019.18, 2021.
Overview
For a description of the Registrants and their businesses, see "Item 1. Business."
Business Strategy
(All Registrants)
PPL operates seventhree fully regulated high-performing utilities. These utilities are located in the U.K., Pennsylvania and Kentucky, constructive regulatory jurisdictions with distinct regulatory structures and customer classes. PPL believes this business portfolio positions the company well for continued success and provides earnings and dividend growth potential.
PPL's strategy, and that ofwhich is supported by the other Registrants, is to deliver best-in-sectorachieve industry-leading performance in safety, reliability,
customer satisfaction and operational performance, invest inefficiency; to advance a sustainableclean energy future,transition while maintaining affordability and
reliability; to maintain a strong financial foundation and engagecreate long-term value for our shareowners; to foster a diverse and develop its people. PPL's business plan is designed
exceptional workplace; and to achieve growth by providing efficient, reliable and safe operations andbuild strong customer service, maintaining constructive regulatory relationships and achieving timely recovery of costs. These businesses are expected to achieve strong, long-termcommunities in areas that we serve.
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and other regulatory agency-approved recovery mechanisms designed to limit regulatory lag. In Kentucky, the KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, and gas supply clause) and recovery on construction work-in-progress that reduce regulatory lag and provide timely recovery of and return on, as appropriate, prudently incurred costs. In addition, the KPSC requires a utility to obtain a CPCN prior to constructing a facility, unless the construction is an ordinary extension of existing facilities in the usual course of business or does not involve sufficient capital expenditures to materially affect the utility's financial condition. Although such KPSC proceedings do not directly address cost recovery issues, the KPSC, in awarding a CPCN, concludes that the public convenience and necessity require the construction of the facility on the basis that the facility is the lowest reasonable cost alternative to address the need. In Pennsylvania, the FERC transmission formula rate, DSIC mechanism, Smart Meter Rider and other recovery mechanisms are in placeoperate to reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs.
company focused on building the utilities of the Registrants isfuture. These transactions are intended to maintain their investment gradestrengthen PPL’s credit ratingsmetrics,
enhance long-term earnings growth and adequate liquidity positions. In addition,predictability, and provide the Registrants havecompany with greater financial flexibility to invest in
sustainable energy solutions. See Note 9 to the Financial Statements, and operational risk management programs that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility, as applicable, related to changes in interest rates, foreign currency exchange rates and counterparty credit quality. To manage these risks, PPL generally uses contracts such as forwards, options and swaps. See "Financial Condition - Risk Management" below for further information.
Financial and Operational Developments
(PPL)
On June 14, 2021, the June 2016 referendum, on March 29, 2017,sale of the U.K. Government invoked Article 50 (Article 50) of the Lisbon Treaty, formally beginning the two-year period provided by Article 50 for the U.K. to negotiate an agreement specifying the
WPD Limited and National Grid U.K. each made customary representations and warranties in the WPD SPA. National Grid
U.K., at its expense, purchased warranty and indemnity insurance. WPD Limited agreed to indemnify National Grid U.K. for
certain tax related matters. See Note 11 to the Financial Statements for additional information. PPL has not had and will not
have any significant involvement with the U.K. utility business after completion of the sale.
Share Purchase Agreement to Acquire Narragansett Electric
On March 17, 2021, PPL and its subsidiary, PPL Energy Holdings, entered into a share purchase agreement (Narragansett SPA) with National Grid USA (National Grid U.S.), a subsidiary of National Grid plc, to acquire 100% of the outstanding shares of common stock of Narragansett Electric for approximately $3.8 billion in cash. On May 3, 2021, an Assignment and Assumption Agreement was entered into by PPL, PPL Energy Holdings, PPL Rhode Island Holdings and National Grid U.S. whereby certain interests of PPL Energy Holdings in the Narragansett SPA were assigned to and assumed by PPL Rhode Island Holdings. Pursuant to that Assignment and Assumption Agreement, PPL Rhode Island Holdings became the purchasing entity under the Narragansett SPA. The acquisition is expected to be funded with proceeds from the sale of the U.K. utility business. PPL has agreed to guarantee all obligations of PPL Energy Holdings and PPL Rhode Island Holdings under the Narragansett SPA and the related Assignment and Assumption Agreement.
The closing of the acquisition is subject to the receipt of certain U.S. regulatory approvals or waivers, and other customary conditions to closing. To date, several required regulatory approvals or waivers have been received, though the order granting the waiver by the Massachusetts Department of Public Utilities is subject to a pending appeal. See Note 9 to the Financial Statements for additional information regarding the current price controlstatus of this appeal. PPL anticipates receiving a final order from the Rhode Island Division of Public Utilities and K-factor adjustment. Carriers with respect to the acquisition by March 2022. The regulatory approvals remain subject to any applicable appeal periods. The consummation of the transaction is not subject to a financing condition.
See Note 9 to the Financial Statements for additional information on the Narragansett SPA.
27
Debt Redemption
PPL Capital Funding paid $3.883 billion to tender and/or redeem an aggregate total of $3.484 billion of outstanding debt during 2021, resulting in a loss on extinguishment of $395 million for the year ended December 31, 2021. See "Long Term Debt" in Note 8 to the Financial Statements for additional information.
Share Repurchases
PPL's Board of Directors authorized share repurchases of up to $3 billion of PPL common shares. During 2021, PPL repurchased 34.8 million shares at a cost of $1.0 billion. See "Equity Securities" in Note 8 to the Financial Statements for additional information.
LKE Debt Redemption
On July 1, 2021, LKE redeemed, at par, its $250 million 4.375% Senior Notes due 2021 and on July 9, 2021, LKE filed a Form 15 with the SEC to suspend its duty to file reports under sections 13 and 15(d) of the Securities Exchange Act of 1934. As a result, beginning with the June 30, 2021 Form 10-Q, LKE was no longer reported as a Registrant.
U.K. Corporation Tax Rate Change
In addition,2021, the U.K. Finance Act 2021 increased the U.K. corporation tax rate from 19% to 25%, effective April 1, 2023. The primary impact of the corporation tax rate increase was an increase in inflation would havedeferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a positive effect on revenues and RAV as annual inflation adjustments are applied to both revenues and RAV (and real returns are earned on inflated RAV). This impact, however, would be partially offset by higher operation and maintenance and interestcorresponding deferred tax expense on index-linked debt. With respect to access to financing, WPD has substantial borrowing capacity under existing credit facilities and expects to continue to have access to all major financial markets. With respect to access to and cost of equipment and other materials, WPD management continues to review U.K. government issued advice on preparations for Brexit and has taken actions to mitigate potential increasing costs and disruption to its critical sources$383 million, which was recognized in continuing operations in the second quarter of supply. Additionally, less than 1% of WPD's employees are non-U.K. EU nationals and no change in their domicile is expected.2021.
Regulatory Requirements
(All Registrants)
The Registrants cannot predict the impact that future regulatory requirements may have on their financial condition or results of operations.
The businesses of LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to CCRs, GHG, and ELGs. See "Item 1. Business" and Notes 7, 1314 and 1920 to the Financial Statements for a discussion of these significant environmental matters. These and other environmental requirements led PPL, LKE, LG&E and KU to retire approximately 1,0001,200 MW of coal-fired generating plants in Kentucky since 2015.2010. As part of the long-term generation planning process, LG&E and KU evaluate a range of factors including the impact of potential stricter environmental regulations, fuel price scenarios, the cost of replacement generation, continued operations and major maintenance costs and the risk of major equipment failures in determining when to retire generation assets. As a result of environmental requirements and aging infrastructure, LG&E anticipates retiring two older coal-fired units at the Mill Creek Plant and KU anticipates retiring one coal-fired unit at the E.W. Brown plant. Mill Creek Unit 1 has 300 MW of capacity and is expected to be retired in 2024. Mill Creek Unit 2 and E.W. Brown Unit 3 have capacities of 297 MW and 412 MW and are expected to be retired in 2028. LG&E and KU anticipate earning recovery of and return on any remaining net book value of these assets through the Retired Asset Recovery (RAR) rider. See Note 7 to the Financial Statements for additional information related to the RAR rider.
On May 21, 2020, PP&L Industrial Customer Alliance (PPLICA) filed a complaint with the FERC proposed revisionsalleging that PPL Electric's base return on equity (ROE) of 11.18% used to itsdetermine PPL Electric's formula transmission formula rate template pursuantwas unjust and unreasonable.
On August 20, 2021, PPL Electric entered into a settlement agreement (the Settlement) with PPLICA and all other parties, including intervenors, with respect to Section 205the complaint filed by PPLICA on May 21, 2020.
The key aspects of the Federal Power ActSettlement include:
•changes to PPL Electric’s base ROE:
◦beginning as of May 21, 2020 and Section 35.13continuing through May 31, 2022, the ROE shall be 9.90%;
◦beginning on June 1, 2022 and continuing through May 31, 2023, the ROE shall be 9.95%;
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◦beginning on June 1, 2023, the ROE shall be 10.00%, which shall continue in effect unless and until changed as permitted by the terms of the FERC Rules and Regulations. Specifically, PPL Electric proposed to modify its formula rate to permit the return or recovery of excess or deficient ADIT resulting from the TCJA and
•allows modification of the current rate year of June 1 2019, as well as the proposed adjustments to ADIT, effectiveMay 31 to a calendar year of January 1 2018.to December 31; and
•allows modification of the current formula rate based on a historic test year to a projected test year.
In February 2019,2021, PPL Electric recorded a revenue reduction of $78 million ($55 million after-tax), of which $73 million ($52 million after-tax) represents revenue subject to refund for the period May 21, 2020 through November 30, 2021. The reduction recorded includes $28 million ($20 million after-tax) related to the period from May 21, 2020 to December 31, 2020. The $73 million of revenue to be refunded will be returned to customers from January 1, 2022 through May 31, 2022 and is based on the difference between charges that were calculated using the ROE in connection witheffect at the requirements oftime and charges calculated using the TCJA and Kentucky HB 487, LG&E and KU filed a request withrevised ROE provided for the Settlement, plus interest at the FERC to amend their transmission formula rates resulting from the laws’ reductions to corporate income tax rates. interest rate.
The FERC approved this request effective June 1, 2019. LG&E and KU are currently reviewing the Final Rule and will submit a compliance filing addressing excess ADIT by June 1, 2020. LG&E and KU do not anticipateSettlement on November 5, 2021. Interim rates reflecting the impact of the TCJA and Kentucky HB 487 related to their FERC-jurisdictional rates to be significant.
FERC Transmission Rate Filing
(PPL, LKE, LG&E and KU)
In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application seekssought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky Municipalitiesmunicipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the on-goingongoing credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject towhich was subsequently filed, modified, and approved by the FERC reviewin 2020 and approval.2021. In July 2019,2020, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KUother parties filed requests for rehearing and clarification on the two September orders. These rehearing requests are currently pending before FERC. Additionally, certain petitions for review of FERC's orders have been filed by multiple parties, including LG&E and KU, atappeals with the D.C. Circuit Court of Appeals. Appeals regarding FERC's orders on the elimination of the mitigation and required transition mechanism. Oral arguments in the appellate proceeding occurred on February 14, 2022.LG&E and KU cannot predict the outcome of the respective appellate and FERC proceedings. LG&E and KU currently receive recovery of the waivers and credits provided through other rate mechanisms.mechanisms and such rate recovery would be anticipated to be adjusted consistent with potential changes or terminations of the waivers and credits, as such become effective.
Rate Case Proceedings
(PPL, and PPL Electric)
LG&E’s and KU’s applications also included a request for a CPCN to deploy Advanced Metering Infrastructure across LG&E’s and KU’s service territories in Kentucky.
The applications were based on a forecasted test year of July 1, 2021 through June 30, 2022 and requested an authorized return on equity of 10.0%.
On April 2019,19, 2021, LG&E and KU entered into an agreement with all intervening parties to the proceedings resolving all matters in their applications, with the explicit exception of LG&E's and KU's net metering proposals.
On June 30, 2021 and December 6, 2021, the KPSC issued orders eliminatingapproving the TCJA bill credit mechanismproposed agreement filed in April 2021, with certain modifications. The orders provided for increases in annual revenues of $207 million ($74 million and increasing annual$110 million in electricity revenues at LG&E and KU and $23 million in gas revenues at LG&E) based on an authorized return on equity of
29
9.425%. The orders grant an authorized 9.35% return on equity for the ECR and GLT mechanisms and do not modify the requested one-year billing credit. The orders approved the CPCN to deploy Advanced Metering Infrastructure and provide regulatory asset treatment for the remaining net book value of legacy meters upon full implementation of the Advanced Metering Infrastructure program. The orders also approved the establishment of a Retired Asset Recovery (RAR) rider to provide for recovery of and return on the remaining investment in certain electric generating units upon their retirement over a ten-year period following retirement. In respect of the RAR rider, LG&E and KU continue to use currently approved depreciation rates for Mill Creek Units 1 and 2 and Brown Unit 3. The orders also approved a four-year "stay out" commitment from LG&E and KU to refrain from effective base electricity and gas ratesrate increases before July 1, 2025, subject to certain exceptions. On September 24, 2021, the KPSC issued orders providing for anadjustments to previous net metering proposals. These adjustments did not impact the annual revenue increase of $187 million ($114 million at KU and $73 million at LG&E), based on a 9.725% return-on-equity. The new base rates and all elements of the orders became effective May 1, 2019. See Note 7 to the Financial Statements for additional information.
On August 31, 2021, KU filed a request with the VSCC for an annual increase in annual Virginia base electricity revenuesrates of approximately $13 million, representing$12 million. KU's request is based on an increase of 18.2%. In January 2020, KU reached a partial settlement agreement including an increase in annual Virginia base electricity revenues of $9 million effective May 1, 2020, representing an increase of 12.9%.authorized 10.4% return on equity. A hearing on the settlement of remaining issues was held in January 2020. A VSCC ruling in the proceedingmatter is expected in April 2020.
Results of Operations
(PPL)
The "Statement of Income Analysis" discussion below describes significant changes in principal line items on PPL's Statements of Income, comparing 20192021 with 2018.2020. The "Segment Earnings" and "Adjusted Gross Margins" discussions for PPL provide a review of results by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Adjusted Gross Margins," and provide explanations of the non-GAAP financial measures and a reconciliation of those measures to the most comparable GAAP measure. The "2020 Outlook" discussion identifies key factors expected to impact 2020 earnings.
(PPL Electric, LKE, LG&E and KU)
A "Statement of Income Analysis" is presented separately for PPL Electric, LKE, LG&E and KU. The "Statement of Income Analysis" discussion below describes significant changes in principal line items on the Statements of Income, comparing 20192021 with 2018.2020. The results of operations section for PPL Electric, LKE, LG&E and KU is presented in a reduced disclosure format in accordance with General Instructions (I)(2)(a) of Form 10-K.
30
PPL: Statement of Income Analysis, Segment Earnings and Adjusted Gross Margins
Statement of Income Analysis
Net income for the years ended December 31 includes the following results:
| Change | |||||||||||||||||
| 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||
| Operating Revenues | $ | 5,783 | $ | 5,474 | $ | 309 | |||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Fuel | 710 | 632 | 78 | ||||||||||||||
| Energy purchases | 752 | 634 | 118 | ||||||||||||||
| Other operation and maintenance | 1,608 | 1,420 | 188 | ||||||||||||||
| Depreciation | 1,082 | 1,022 | 60 | ||||||||||||||
| Taxes, other than income | 207 | 180 | 27 | ||||||||||||||
| Total Operating Expenses | 4,359 | 3,888 | 471 | ||||||||||||||
| Other Income (Expense) - net | 15 | 2 | 13 | ||||||||||||||
| Interest Expense | 918 | 634 | 284 | ||||||||||||||
| Income (Loss) from Continuing Operations Before Income Taxes | 521 | 954 | (433) | ||||||||||||||
| Income Taxes | 503 | 314 | 189 | ||||||||||||||
| Income (Loss) from Continuing Operations After Income Taxes | 18 | 640 | (622) | ||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | (1,498) | 829 | (2,327) | ||||||||||||||
| Net Income (Loss) | $ | (1,480) | $ | 1,469 | $ | (2,949) | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | $ | 7,769 | $ | 7,785 | $ | (16 | ) | ||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 709 | 799 | (90 | ) | |||||||
| Energy purchases | 723 | 745 | (22 | ) | |||||||
| Other operation and maintenance | 1,985 | 1,983 | 2 | ||||||||
| Depreciation | 1,199 | 1,094 | 105 | ||||||||
| Taxes, other than income | 313 | 312 | 1 | ||||||||
| Total Operating Expenses | 4,929 | 4,933 | (4 | ) | |||||||
| Other Income (Expense) - net | 309 | 396 | (87 | ) | |||||||
| Interest Expense | 994 | 963 | 31 | ||||||||
| Income Taxes | 409 | 458 | (49 | ) | |||||||
| Net Income | $ | 1,746 | $ | 1,827 | $ | (81 | ) | ||||
Operating Revenues
The increase (decrease) in operating revenues was due to:
| 2019 vs. 2018 | |||
| Domestic: | |||
| PPL Electric Distribution price (a) | $ | 42 | |
| PPL Electric Distribution volume | (8 | ) | |
| PPL Electric PLR | 8 | ||
| PPL Electric Transmission Formula Rate (b) | 51 | ||
| PPL Electric TCJA refund (c) | (12 | ) | |
| LKE Retail rates (d) | 123 | ||
| LKE ECR (e) | 60 | ||
| LKE Volumes (f) | (91 | ) | |
| LKE Municipal supply (g) | (56 | ) | |
| LKE Fuel and other energy prices (h) | (48 | ) | |
| Other | 16 | ||
| Total Domestic | 85 | ||
| U.K.: | |||
| Price | 83 | ||
| Volume | (64 | ) | |
| Foreign currency exchange rates | (116 | ) | |
| Other | (4 | ) | |
| Total U.K. | (101 | ) | |
| Total | $ | (16 | ) |
| 2021 vs. 2020 | |||||
| 19 | |||||
| PPL Electric PLR (a) | 83 | ||||
| PPL Electric transmission formula rate (b) | (35) | ||||
| LG&E fuel and other energy prices (c) | 53 | ||||
| LG&E volumes (d) | 25 | ||||
| LG&E retail rates (e) | 46 | ||||
| LG&E Economic relief billing credit, net of amortization of $9 | (12) | ||||
| KU fuel and other energy prices (c) | 43 | ||||
| KU volumes (d) | 27 | ||||
| KU retail rates (e) | 53 | ||||
| 309 | |
(a) The increase was primarily the result of higher energy prices and higher customer usage, partially offset by higher volumes of shopping customers. (b) The decrease was |
(c) The increases were primarily due to higher recoveries of fuel and energy purchases due to higher commodity costs.
(d) The increases were primarily due to favorable weather.
(e) The increases were due to new base rates approved by the KPSC effective July 1, 2021.
Fuel
Fuel increased $78 million decreasein 2021 compared with 2020, primarily due to a $59 million increase at KU due to a $39 million increase in commodity costs and a $33$19 million decreaseincrease in volumes driven by weather as well a $19 million increase at LG&E due to a $10 million increase in volumes driven by weather and a $20an $8 million decreaseincrease in volumes driven by the terminationcommodity costs.
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Energy Purchases
Energy purchases decreased $22increased $118 million in 20192021 compared with 2018,2020, primarily due to a $27$75 million decreaseincrease at LKE (primarilyPPL Electric due to higher PLR prices of $40 million and higher PLR volumes of $28 million, and a $42 million increase at LG&E primarily due to a $14$35 million decreaseincrease in commodity costs and a $7$6 million decreaseincrease in gas volumes driven by weather in 2019), partially offset by a $5 million increase at PPL Electric (primarily due to higher PLR volumes of $33 million, partially offset by lower PLR prices of $25 million).weather.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
| 2019 vs. 2018 | |||
| Domestic: | |||
| PPL Electric project cancellation costs | $ | (12 | ) |
| Stock compensation expense | 10 | ||
| Other operation and maintenance of Safari Energy (a) | 20 | ||
| Other | 14 | ||
| U.K.: | |||
| Foreign currency exchange rates | (23 | ) | |
| Third-party engineering | (4 | ) | |
| Other | (3 | ) | |
| Total | $ | 2 | |
| 2021 vs. 2020 | |||||
| PPL Electric storm costs | $ | 20 | |||
| PPL Electric inventory adjustments | 9 | ||||
| LG&E plant operations and maintenance | 10 | ||||
| KU plant outages | 8 | ||||
| KU plant operations and maintenance | 6 | ||||
| KU distribution operations and maintenance | 5 | ||||
| KU transmission operations and maintenance | 6 | ||||
| Solar panel impairment (Note 1) | 37 | ||||
| Charges related to the acquisition of Narragansett Electric | 26 | ||||
| Charges related to the sale of the U. K. utility business | 8 | ||||
| Stock compensation expense | 6 | ||||
| Payroll-related | 6 | ||||
| Other | 28 | ||||
| Total | $ | 188 | |||
Depreciation
The increase (decrease) in depreciation was due to:
| 2019 vs. 2018 | |||
| Additions to PP&E, net | $ | 66 | |
| Foreign currency exchange rates | (13 | ) | |
| Depreciation rates (a) | 52 | ||
| Total | $ | 105 | |
| 2021 vs. 2020 | |||||
| Additions to PP&E, net | $ | 36 | |||
| Depreciation rate change effective July 2021 | 11 | ||||
| Other | 1 | ||||
| Total | $ | 60 | |||
Taxes, Other Than Income
The increase (decrease) in taxes, other than income was due to:
| 2021 vs. 2020 | |||||
| State gross receipts tax (a) | $ | 13 | |||
| Domestic property tax expense | 10 | ||||
| Other | 4 | ||||
| Total | $ | 27 | |||
(a)The increase was primarily due to a favorable settlement of 2008 - 2010 gross receipts tax assessments in 2020.
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Other Income (Expense) - net
The increase (decrease) in other income (expense) - net was due to:
| 2021 vs. 2020 | |||||
| Defined benefit plans - non-service credits (Note 12) | $ | 23 | |||
| Charitable contributions | (11) | ||||
| Other | 1 | ||||
| Total | $ | 13 | |||
| 2019 vs. 2018 | |||
| Economic foreign currency exchange contracts (Note 17) | $ | (164 | ) |
| Defined benefit plans - non-service credits (Note 11) | 59 | ||
| Charitable contributions | 7 | ||
| Other | 11 | ||
| Total | $ | (87 | ) |
Interest Expense
The increase (decrease) in interest expense was due to:
| 2021 vs. 2020 | |||||
| Loss on extinguishment of debt (Note 8) | $ | 395 | |||
| Long-term debt interest | (93) | ||||
| Other | (18) | ||||
| Total | $ | 284 | |||
| 2019 vs. 2018 | |||
| Long-term debt interest | $ | 38 | |
| Short-term debt interest | 7 | ||
| Foreign currency exchange rates | (20 | ) | |
| Other | 6 | ||
| Total | $ | 31 | |
Income Taxes
The increase (decrease) in income taxes was due to:
| 2019 vs. 2018 | |||
| Change in pre-tax income | $ | (24 | ) |
| Deferred tax impact of Kentucky state tax reform (a) | (9 | ) | |
| Kentucky recycling credit, net of federal income tax expense (b) | (18 | ) | |
| Other | 2 | ||
| Total | $ | (49 | ) |
| 2021 vs. 2020 | |||||
| Change in pre-tax income | $ | (116) | |||
| Valuation allowance adjustments (a) | |||||
| Federal and state income tax | 6 | ||||
| Impact of the | 282 | ||||
| Amortization of excess deferred federal and state income taxes | (11) | ||||
| Other | 4 | ||||
| Total | $ | 189 | |||
(a)In 2021, PPL recorded a $31 million state deferred tax benefit on a net operating loss and an offsetting valuation allowance in connection with the loss on extinguishment associated with a tender offer to purchase and retire PPL Capital Funding's outstanding Senior Notes. See Note 8 for additional information on the tender offer.
(b)The U.K. corporation tax rate was scheduled to be reduced from 19% to 17%, effective April 1, 2020. In 2020, the U.K. Finance Act 2020 cancelled the tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19% for financial years 2020 and 2021. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million. In 2021, the U.K. Finance Act 2021 increased the U.K. corporation tax rate from 19% to 25%, effective April 1, 2023. The primary impact of the corporation tax rate increase was an increase in deferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a corresponding deferred tax expense of $383 million.
See Note 6 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) decreased $2,327 million in 2021 compared with 2020. The decrease was attributable primarily to the 2021 loss on sale of the U.K. utility business of $1,609 million and an increase in income tax expense of $571 million. See "Discontinued Operations" in Note 9 to the Financial Statements for summarized results of the operations of the U.K. utility business.
33
Segment Earnings
PPL's net incomeNet Income by reportable segments werewas as follows:
| Change | |||||||||||||||||
| 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||
| Kentucky Regulated | $ | 468 | $ | 418 | $ | 50 | |||||||||||
| Pennsylvania Regulated | 445 | 497 | (52) | ||||||||||||||
| Corporate and Other (a)(b) | (895) | (275) | (620) | ||||||||||||||
| Discontinued Operations (c) | (1,498) | 829 | (2,327) | ||||||||||||||
| Net Income | $ | (1,480) | $ | 1,469 | $ | (2,949) | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| U.K. Regulated | $ | 977 | $ | 1,114 | $ | (137 | ) | ||||
| Kentucky Regulated | 436 | 411 | 25 | ||||||||
| Pennsylvania Regulated | 458 | 431 | 27 | ||||||||
| Corporate and Other (a) | (125 | ) | (129 | ) | 4 | ||||||
| Net Income | $ | 1,746 | $ | 1,827 | $ | (81 | ) | ||||
(a)Primarily represents financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments, which are presented to reconcile segment information to PPL's consolidated results.
(b)The amount for 2020 has been adjusted for certain costs that were previously included in the U.K. Regulated segment.
(c)See Note 9 to the Financial Statements for additional information.
Earnings from Ongoing Operations
Management utilizes "Earnings from Ongoing Operations" as a non-GAAP financial measure that should not be considered as an alternative to net income, an indicator of operating performance determined in accordance with GAAP. PPL believes that Earnings from Ongoing Operations is useful and meaningful to investors because it provides management's view of PPL's earnings performance as another criterion in making investment decisions. In addition, PPL's management uses Earnings from Ongoing Operations in measuring achievement of certain corporate performance goals, including targets for certain executive incentive compensation. Other companies may use different measures to present financial performance.
Earnings from Ongoing Operations is adjusted for the impact of special items. Special items are presented in the financial tables on an after-tax basis with the related income taxes on special items separately disclosed. Income taxes on special items, when applicable, are calculated based on the statutory tax rate of the entity where the activity is recorded. Special items may include items such as:
• Gains and losses on sales of assets not in the ordinary course of business.
• Impairment charges.
• Significant workforce reduction and other restructuring effects.
• Acquisition and divestiture-related adjustments.
• Significant losses on early extinguishment of debt.
• Other charges or credits that are, in management's view, non-recurring or otherwise not reflective of the company's ongoing operations.
PPL's Earnings from Ongoing Operations by reportable segment were as follows:
| Change | |||||||||||||||||
| 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||
| Kentucky Regulated | $ | 465 | $ | 423 | $ | 42 | |||||||||||
| Pennsylvania Regulated | 465 | 498 | (33) | ||||||||||||||
| Corporate and Other (a) | (124) | (147) | 23 | ||||||||||||||
| Earnings from Ongoing Operations | $ | 806 | $ | 774 | $ | 32 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| U.K. Regulated | $ | 1,032 | $ | 968 | $ | 64 | |||||
| Kentucky Regulated | 436 | 418 | 18 | ||||||||
| Pennsylvania Regulated | 458 | 436 | 22 | ||||||||
| Corporate and Other | (120 | ) | (117 | ) | (3 | ) | |||||
| Earnings from Ongoing Operations | $ | 1,806 | $ | 1,705 | $ | 101 | |||||
(a)The amount for 2020 has been adjusted for certain costs that were previously included in the U.K. Regulated segment.
See "Reconciliation of Earnings from Ongoing Operations" below for a reconciliation of this non-GAAP financial measure to Net Income.
The U.K.Kentucky Regulated segment consists primarily of PPL Global, which primarily includes WPD'sLG&E's and KU's regulated electricity generation, transmission and distribution operations, the resultsas well as LG&E's regulated distribution and sale of hedging the translation of WPD's earnings from GBP into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs, and certain acquisition-related financing costs. The U.K. Regulated segment represents 56% of PPL's Net Income for 2019 and 39% of PPL's assets at December 31, 2019.natural gas.
Net Income and Earnings from Ongoing Operations include the following results:
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating revenues | $ | 2,167 | $ | 2,268 | $ | (101 | ) | ||||
| Other operation and maintenance | 510 | 538 | (28 | ) | |||||||
| Depreciation | 250 | 247 | 3 | ||||||||
| Taxes, other than income | 127 | 134 | (7 | ) | |||||||
| Total operating expenses | 887 | 919 | (32 | ) | |||||||
| Other Income (Expense) - net | 294 | 403 | (109 | ) | |||||||
| Interest Expense | 405 | 413 | (8 | ) | |||||||
| Income Taxes | 192 | 225 | (33 | ) | |||||||
| Net Income | 977 | 1,114 | (137 | ) | |||||||
| Less: Special Items | (55 | ) | 146 | (201 | ) | ||||||
| Earnings from Ongoing Operations | $ | 1,032 | $ | 968 | $ | 64 | |||||
| Income Statement Line Item | 2019 | 2018 | |||||||
| Foreign currency economic hedges, net of tax of $13, ($39) (a) | Other Income (Expense) - net | $ | (51 | ) | $ | 148 | |||
| Other, net of tax of $1, $0 (b) | Other operation and maintenance | (4 | ) | — | |||||
| U.S. tax reform (c) | Income Taxes | — | 3 | ||||||
| Death benefit, net of tax of $0, $1 (d) | Other operation and maintenance | — | (5 | ) | |||||
| Total | $ | (55 | ) | $ | 146 | ||||
| Change | |||||||||||||||||
| 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||
| Operating revenues | $ | 3,348 | $ | 3,106 | $ | 242 | |||||||||||
| Fuel | 710 | 632 | 78 | ||||||||||||||
| Energy purchases | 186 | 143 | 43 | ||||||||||||||
| Other operation and maintenance | 905 | 834 | 71 | ||||||||||||||
| Depreciation | 647 | 606 | 41 | ||||||||||||||
| Taxes, other than income | 87 | 77 | 10 | ||||||||||||||
| Total operating expenses | 2,535 | 2,292 | 243 | ||||||||||||||
| Other Income (Expense) - net | (2) | 2 | (4) | ||||||||||||||
| Interest Expense | 196 | 223 | (27) | ||||||||||||||
| Interest Expense with Affiliate (a) | 53 | 77 | (24) | ||||||||||||||
| Income Taxes | 94 | 98 | (4) | ||||||||||||||
| Net Income | 468 | 418 | 50 | ||||||||||||||
| Less: Special Items | 3 | (5) | 8 | ||||||||||||||
| Earnings from Ongoing Operations | $ | 465 | $ | 423 | $ | 42 | |||||||||||
| 2019 vs. 2018 | |||
| U.K. | |||
| U.K. Adjusted Gross Margins | $ | 16 | |
| Other operation and maintenance | 3 | ||
| Depreciation | (16 | ) | |
| Other Income (Expense) - net | 74 | ||
| Interest expense | (12 | ) | |
| Income taxes | (15 | ) | |
| U.S. | |||
| Income taxes | 6 | ||
| Other | (4 | ) | |
| Foreign currency exchange, after-tax | 12 | ||
| Earnings from Ongoing Operations | 64 | ||
| Special items, after-tax | (201 | ) | |
| Net Income | $ | (137 | ) |
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating revenues | $ | 3,206 | $ | 3,214 | $ | (8 | ) | ||||
| Fuel | 709 | 799 | (90 | ) | |||||||
| Energy purchases | 174 | 201 | (27 | ) | |||||||
| Other operation and maintenance | 861 | 848 | 13 | ||||||||
| Depreciation | 547 | 475 | 72 | ||||||||
| Taxes, other than income | 74 | 70 | 4 | ||||||||
| Total operating expenses | 2,365 | 2,393 | (28 | ) | |||||||
| Other Income (Expense) - net | (13 | ) | (16 | ) | 3 | ||||||
| Interest Expense | 298 | 274 | 24 | ||||||||
| Income Taxes | 94 | 120 | (26 | ) | |||||||
| Net Income | 436 | 411 | 25 | ||||||||
| Less: Special Items | — | (7 | ) | 7 | |||||||
| Earnings from Ongoing Operations | $ | 436 | $ | 418 | $ | 18 | |||||
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:
| Income Statement Line Item | 2021 | 2020 | |||||||||||||||
| Valuation allowance adjustment (a) | Income taxes | $ | 4 | $ | — | ||||||||||||
| Strategic corporate initiatives, net of tax of $0, $0 (b) | Other Income (Expense) | (1) | — | ||||||||||||||
| COVID-19 impact, net of tax of $0, $2 (c) | Other operation and maintenance | — | (5) | ||||||||||||||
| Total | $ | 3 | $ | (5) | |||||||||||||
| Income Statement Line Item | 2019 | 2018 | |||||||
| U.S. tax reform (a) | Income Taxes | $ | — | $ | 2 | ||||
| Kentucky state tax reform (b) | Income Taxes | — | (9 | ) | |||||
| Total | $ | — | $ | (7 | ) | ||||
The changes in the components of the Kentucky Regulated segment's results between these periods were due to the factors set forth below, which reflect amounts classified as Kentucky Adjusted Gross Margins and the items that management considers special on separate lines and not in their respective Statement of Income line item.
| 2021 vs. 2020 | |||||
| Kentucky Adjusted Gross Margins | $ | 174 | |||
| Other operation and maintenance | (81) | ||||
| Depreciation | (90) | ||||
| Taxes, other than income | (11) | ||||
| Other Income (Expense) - net | (3) | ||||
| Interest Expense | 27 | ||||
| Interest Expense with Affiliate | 24 | ||||
| Income Taxes | 2 | ||||
| Earnings from Ongoing Operations | 42 | ||||
| Special Items, after-tax | 8 | ||||
| Net Income | $ | 50 | |||
| 2019 vs. 2018 | |||
| Kentucky Adjusted Gross Margins | $ | 70 | |
| Other operation and maintenance | (19 | ) | |
| Depreciation | (26 | ) | |
| Taxes, other than income | (5 | ) | |
| Other Income (Expense) - net | 3 | ||
| Interest Expense | (24 | ) | |
| Income Taxes | 19 | ||
| Earnings from Ongoing Operations | 18 | ||
| Special Items, after-tax | 7 | ||
| Net Income | $ | 25 | |
•See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Kentucky Adjusted Gross Margins.
•Higher other operation and maintenance expense in 2021 compared to 2020, primarily due to a $24 million increase in administrative and general expenses, an $18 million increase in plant operations and maintenance, an $8 million increase in electric distribution operations and maintenance, a $7 million increase in plant outage expenses, a $6 million increase in electric transmission operations and maintenance, a $6 million increase due to certain ECR and GLT expenses transferred
35
to base rates as a result of the 2020 Kentucky rate case and various support costs and other items that were not individually significant.
•Higher depreciation expense in 20192021 compared with 2018to 2020, primarily due to a $15$60 million increase related to highercertain ECR and GLT depreciation expenses transferred to base rates effective May 1, 2019 and an $11as a result of the 2020 Kentucky rate case, a $21 million increase relateddue to additional assets placed into service, net of retirements.retirements and a $9 million increase due to higher depreciation rates, effective July 1, 2021.
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 26% of PPL's Net Income for 2019 and 26% of PPL's assets at December 31, 2019.
Net Income and Earnings from Ongoing Operations include the following results:
| Change | |||||||||||||||||
| 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||
| Operating revenues | $ | 2,402 | $ | 2,330 | $ | 72 | |||||||||||
| Energy purchases | 566 | 491 | 75 | ||||||||||||||
| Other operation and maintenance | 557 | 513 | 44 | ||||||||||||||
| Depreciation | 424 | 403 | 21 | ||||||||||||||
| Taxes, other than income | 120 | 107 | 13 | ||||||||||||||
| Total operating expenses | 1,667 | 1,514 | 153 | ||||||||||||||
| Other Income (Expense) - net | 26 | 20 | 6 | ||||||||||||||
| Interest Expense | 162 | 172 | (10) | ||||||||||||||
| Income Taxes | 154 | 167 | (13) | ||||||||||||||
| Net Income | 445 | 497 | (52) | ||||||||||||||
| Less: Special Items | (20) | (1) | (19) | ||||||||||||||
| Earnings from Ongoing Operations | $ | 465 | $ | 498 | $ | (33) | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating revenues | $ | 2,358 | $ | 2,277 | $ | 81 | |||||
| Energy purchases | 549 | 544 | 5 | ||||||||
| Other operation and maintenance | 566 | 578 | (12 | ) | |||||||
| Depreciation | 386 | 352 | 34 | ||||||||
| Taxes, other than income | 112 | 109 | 3 | ||||||||
| Total operating expenses | 1,613 | 1,583 | 30 | ||||||||
| Other Income (Expense) - net | 31 | 32 | (1 | ) | |||||||
| Interest Expense | 169 | 159 | 10 | ||||||||
| Income Taxes | 149 | 136 | 13 | ||||||||
| Net Income | 458 | 431 | 27 | ||||||||
| Less: Special Items | — | (5 | ) | 5 | |||||||
| Earnings from Ongoing Operations | $ | 458 | $ | 436 | $ | 22 | |||||
The following after-tax gains (losses), which management considers special items, impacted the Pennsylvania Regulated segment's results and are excluded from Earnings from Ongoing Operations:
| Income Statement Line Item | 2021 | 2020 | |||||||||||||||
| Transmission formula rate return on equity settlement, net of tax of $8, $0 (a) | Operating revenues | $ | (20) | $ | — | ||||||||||||
| COVID-19 impact, net of tax of $0, $0 (b) | Other operation and maintenance | — | (1) | ||||||||||||||
| Total | $ | (20) | $ | (1) | |||||||||||||
| Income Statement Line Item | 2019 | 2018 | |||||||
| IT transformation, net of tax of $0, $2 (a) | Other operation and maintenance | $ | — | $ | (5 | ) | |||
| Total | $ | — | $ | (5 | ) | ||||
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 Adjusted Gross Margins and the items that management considers special on separate lines and not in their respective Statement of Income line items.
36
| 2019 vs. 2018 | |||
| Pennsylvania Adjusted Gross Margins | $ | 54 | |
| Other operation and maintenance | 9 | ||
| Depreciation | (19 | ) | |
| Other Income (Expense) - net | (1 | ) | |
| Interest Expense | (10 | ) | |
| Income Taxes | (11 | ) | |
| Earnings from Ongoing Operations | 22 | ||
| Special Items, after-tax | 5 | ||
| Net Income | $ | 27 | |
| 2021 vs. 2020 | |||||
| Pennsylvania Adjusted Gross Margins | $ | — | |||
| Other operation and maintenance | (24) | ||||
| Depreciation | (22) | ||||
| Taxes, other than income | (8) | ||||
| Other Income (Expense) - net | 6 | ||||
| Interest Expense | 10 | ||||
| Income Taxes | 5 | ||||
| Earnings from Ongoing Operations | (33) | ||||
| Special Items, after-tax | (19) | ||||
| Net Income | $ | (52) | |||
•See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Pennsylvania Adjusted Gross Margins.
•Higher depreciationother operation and maintenance expense in 20192021 compared with 20182020 primarily due to additional assets placed into service, related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure, net of retirements.an increase in Corporate support costs.
Reconciliation of Earnings from Ongoing Operations
The following tables contain after-tax gains (losses), in total, which management considers special items, that are excluded from Earnings from Ongoing Operations, and a reconciliation to PPL's "Net Income" for the years ended December 31:
| 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| KY Regulated | PA Regulated | Corporate and Other | Discontinued Operations (a) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | $ | 468 | $ | 445 | $ | (895) | $ | (1,498) | $ | (1,480) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: Special Items (expense) benefit: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from Discontinued Operations (a) | — | — | — | (1,502) | (1,502) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Talen litigation costs, net of tax of $4 (b) | — | — | (16) | — | (16) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Strategic corporate initiatives, net of tax of $0, $0, $2 (c) | (1) | — | (8) | — | (9) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Valuation allowance adjustment (d) | 4 | — | (4) | 4 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transmission formula rate return on equity settlement, net of tax of $8 | — | (20) | — | — | (20) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition integration, net of tax of $6 (e) | — | — | (22) | — | (22) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.K. tax rate change (f) | — | — | (383) | — | (383) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Solar panel impairment, net of tax of $9 (g) | — | — | (26) | — | (26) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss on early extinguishment of debt, net of tax of $83 (h) | — | — | (312) | — | (312) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Special Items | 3 | (20) | (771) | (1,498) | (2,286) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings from Ongoing Operations | $ | 465 | $ | 465 | $ | (124) | $ | — | $ | 806 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.K. Regulated | KY Regulated | PA Regulated | Corporate and Other | Total | KY Regulated | PA Regulated | Corporate and Other (j) | Discontinued Operations (a) | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Net Income | $ | 977 | $ | 436 | $ | 458 | $ | (125 | ) | $ | 1,746 | Net Income | $ | 418 | $ | 497 | $ | (275) | 829 | $ | 1,469 | |||||||||||||||||||||||||||||||||
| Less: Special Items (expense) benefit: | Less: Special Items (expense) benefit: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency economic hedges, net of tax of $13 | (51 | ) | — | — | — | (51 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Talen litigation costs, net of tax of $1 (a) | — | — | — | (5 | ) | (5 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other, net of tax of $1 | (4 | ) | — | — | — | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from Discontinued Operations (a) | Income (loss) from Discontinued Operations (a) | — | — | — | 829 | 829 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Talen litigation costs, net of tax of $3 (b) | Talen litigation costs, net of tax of $3 (b) | — | — | (13) | — | (13) | ||||||||||||||||||||||||||||||||||||||||||||||||
| COVID-19 impact, net of tax of $2, $0, $0 | COVID-19 impact, net of tax of $2, $0, $0 | (5) | (1) | (1) | — | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||
| U.K. tax rate change (f) | U.K. tax rate change (f) | — | — | (102) | — | (102) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Strategic corporate initiatives, net of tax of $2 (c) | Strategic corporate initiatives, net of tax of $2 (c) | — | — | (6) | — | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Executive retirement benefits, net of tax of $2 (i) | Executive retirement benefits, net of tax of $2 (i) | — | — | (6) | — | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Special Items | (55 | ) | — | — | (5 | ) | (60 | ) | Total Special Items | (5) | (1) | (128) | 829 | 695 | ||||||||||||||||||||||||||||||||||||||||
| Earnings from Ongoing Operations | $ | 1,032 | $ | 436 | $ | 458 | $ | (120 | ) | $ | 1,806 | Earnings from Ongoing Operations | $ | 423 | $ | 498 | $ | (147) | $ | — | $ | 774 | ||||||||||||||||||||||||||||||||
(b)PPL incurred legal expenses related to litigation with its former affiliate, Talen Montana. See Note 14 to the Financial Statements for additional information.
(d)Adjustment of valuation allowances related to certain tax credits recorded in 2017 as a result of the TCJA.
| 2018 | |||||||||||||||||||
| U.K. Regulated | KY Regulated | PA Regulated | Corporate and Other | Total | |||||||||||||||
| Net Income | $ | 1,114 | $ | 411 | $ | 431 | $ | (129 | ) | $ | 1,827 | ||||||||
| Less: Special Items (expense) benefit: | |||||||||||||||||||
| Foreign currency economic hedges, net of tax of ($39) | 148 | — | — | — | 148 | ||||||||||||||
| U.S. tax reform (b) | 3 | 2 | — | (5 | ) | — | |||||||||||||
| Kentucky state tax reform | — | (9 | ) | — | — | (9 | ) | ||||||||||||
| IT transformation, net of tax of $2 | — | — | (5 | ) | — | (5 | ) | ||||||||||||
| Talen litigation costs, net of tax of $2 (a) | — | — | — | (7 | ) | (7 | ) | ||||||||||||
| Death benefit, net of tax of $1 | (5 | ) | — | — | — | (5 | ) | ||||||||||||
| Total Special Items | 146 | (7 | ) | (5 | ) | (12 | ) | 122 | |||||||||||
| Earnings from Ongoing Operations | $ | 968 | $ | 418 | $ | 436 | $ | (117 | ) | $ | 1,705 | ||||||||
(f)Impact of the U.K. Finance Acts on deferred tax balances. See Note 6 to the Financial Statements for additional information.
(g)See Note 1 to the Financial Statements for additional information.
(h)See Note 8 to the Financial Statements for additional information.
(i)Settlement charge from the remeasurement of the projected benefit obligation for the PPL Supplemental Executive Retirement Plan related to a lump-sum payment made to a former PPL executive.
(j)The amounts for 2020 have been adjusted for certain costs that were previously included in the U.K. Regulated segment.
Adjusted Gross Margins
Management also utilizes the following non-GAAP financial measures as indicators of performance for its businesses.
•"Kentucky Adjusted Gross Margins" is a single financial performance measure of the electricity generation, transmission and distribution operations of the Kentucky Regulated segment, as well as the Kentucky Regulated segment's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from operating revenues. In addition, certain other expenses, recorded in "Other operation and maintenance", "Depreciation" and "Taxes, other than income" on the Statements of Income, associated with approved cost recovery mechanisms are offset against the recovery of those expenses, which are included in revenues. These mechanisms allow for direct recovery of these expenses and, in some cases, returns on capital investments and performance incentives. As a result, this measure represents the net revenues from electricity and gas operations.
•"Pennsylvania Adjusted Gross Margins" is a single financial performance measure of the electricity transmission and distribution operations of the Pennsylvania Regulated segment. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance," (which are primarily Act 129, Storm Damage and Universal Service program costs), "Depreciation" (which is primarily related to the Act 129 Smart Meter program) and "Taxes, other than income," (which is primarily gross receipts tax) on the Statements of Income. This measure represents the net revenues from the Pennsylvania Regulated segment's electricity delivery operations.
These measures are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to analyze and report their results of operations. Management believes these measures provide additional useful criteria to make investment decisions. These performance measures are used, in conjunction with other information, by senior management and PPL's Board of Directors to manage operations and analyze actual results compared with budget.
Changes in Adjusted Gross Margins
The following table shows Adjusted Gross Margins by PPL's reportable segmentssegment 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:table.
| Change | |||||||||||||||||
| 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||
| Kentucky Regulated | |||||||||||||||||
| Kentucky Adjusted Gross Margins | $ | 2,255 | $ | 2,081 | $ | 174 | |||||||||||
| Pennsylvania Regulated | |||||||||||||||||
| Pennsylvania Adjusted Gross Margins | |||||||||||||||||
| Distribution | $ | 915 | $ | 907 | $ | 8 | |||||||||||
| Transmission | 674 | 682 | (8) | ||||||||||||||
| Total Pennsylvania Adjusted Gross Margins | $ | 1,589 | $ | 1,589 | $ | — | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| U.K. Regulated | |||||||||||
| U.K. Adjusted Gross Margins | $ | 1,998 | $ | 2,089 | $ | (91 | ) | ||||
| Impact of changes in foreign currency exchange rates | (107 | ) | |||||||||
| U.K. Adjusted Gross Margins excluding impact of foreign currency exchange rates | $ | 16 | |||||||||
| Kentucky Regulated | |||||||||||
| Kentucky Adjusted Gross Margins | $ | 2,111 | $ | 2,041 | $ | 70 | |||||
| Pennsylvania Regulated | |||||||||||
| Pennsylvania Adjusted Gross Margins | |||||||||||
| Distribution | $ | 927 | $ | 924 | $ | 3 | |||||
| Transmission | 600 | 549 | 51 | ||||||||
| Total Pennsylvania Adjusted Gross Margins | $ | 1,527 | $ | 1,473 | $ | 54 | |||||
38
Kentucky Adjusted Gross Margins
Kentucky Adjusted Gross Margins increased in 20192021 compared with 20182020, primarily due to higher retailbase rates approved by the KPSC of $123$99 million, inclusiveenvironmental and gas cost recoveries added to base rates of the termination of the TCJA bill credit mechanism, and higher returns on additional environmental capital investments of $21 million. These increases were partially offset by $37$66 million, $15 million of decreasedhigher sales volumes primarily due to weather, and a $32$9 million decreaseof higher commercial and industrial demand primarily due to the terminationimpacts of eight supply contractsCOVID-19 in 2020, partially offset by $17 million of lower adjusted gross margins as a result of the economic relief billing credit, net of amortization.
The increase in base rates was the result of new rates approved by the KPSC effective July 1, 2021. The environmental and gas cost recoveries added to base rates were the result of the transfer of certain ECR and GLT expenses into base rates as a result of the 2020 Kentucky rate case. This transfer results in depreciation and other operation and maintenance expenses associated with the ECR and GLT programs being excluded from margins in the second half of 2021, while the recovery of such costs remain in Kentucky municipalities on April 30, 2019.Gross Margins through base rates.
Pennsylvania Adjusted Gross Margins
Distribution
Distribution Adjusted Gross Margins increased in 20192021 compared with 2018 primarily due to2020. Higher sales volumes of $13 million were partially offset by $8 million of lower returns on additional distribution system improvement capital investments of $10 million and returns on additional Smart Meter capital investments of $5 million, partially offset by a $12 million net of gross receipts tax impact of the estimated income tax savings owed to customers as a result of the impact of the U.S. federal corporate income tax rate reduction from 35% to 21% as enacted by the TCJA.investments.
Transmission
Transmission Adjusted Gross Margins increaseddecreased in 20192021 compared with 20182020, primarily due to an increasea $28 million decrease as a result of $77a lower PPL zonal peak load billing factor and a $50 million fromdecrease due to a reduction in the transmission formula rate return on equity. Partially offsetting these unfavorable items was $48 million of returns on additional transmission capital investments focused on replacing aging infrastructure and improving reliability partially offset by $27and $20 million fromreturn of related depreciation expense. See Note 7 to the impact ofFinancial Statements for additional information on the reduced U.S. federal corporate income taxes as a result of the TCJA in the first five months of 2019.transmission formula rate return on equity reduction.
Reconciliation of Adjusted Gross Margins
The following tables contain the components from the Statement of Income that are included in the non-GAAP financial measures and a reconciliation to PPL's "Operating Income" for the years ended December 31:
| 2021 | |||||||||||||||||||||||||||||
| Kentucky Adjusted Gross Margins | Pennsylvania Adjusted Gross Margins | Other (a) | Operating Income (b) | ||||||||||||||||||||||||||
| Operating Revenues | $ | 3,348 | $ | 2,430 | $ | 5 | $ | 5,783 | |||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||
| Fuel | 710 | — | — | 710 | |||||||||||||||||||||||||
| Energy purchases | 186 | 566 | — | 752 | |||||||||||||||||||||||||
| Other operation and maintenance | 88 | 111 | 1,409 | 1,608 | |||||||||||||||||||||||||
| Depreciation | 105 | 52 | 925 | 1,082 | |||||||||||||||||||||||||
| Taxes, other than income | 4 | 112 | 91 | 207 | |||||||||||||||||||||||||
| Total Operating Expenses | 1,093 | 841 | 2,425 | 4,359 | |||||||||||||||||||||||||
| Total | $ | 2,255 | $ | 1,589 | $ | (2,420) | $ | 1,424 | |||||||||||||||||||||
| 2019 | |||||||||||||||||||
U.K. Adjusted Gross Margins | Kentucky Adjusted Gross Margins | Pennsylvania Adjusted Gross Margins | Other (a) | Operating Income (b) | |||||||||||||||
| Operating Revenues | $ | 2,129 | (c) | $ | 3,206 | $ | 2,358 | $ | 76 | $ | 7,769 | ||||||||
| Operating Expenses | |||||||||||||||||||
| Fuel | — | 709 | — | — | 709 | ||||||||||||||
| Energy purchases | — | 174 | 549 | — | 723 | ||||||||||||||
| Other operation and maintenance | 131 | 92 | 125 | 1,637 | 1,985 | ||||||||||||||
| Depreciation | — | 116 | 50 | 1,033 | 1,199 | ||||||||||||||
| Taxes, other than income | — | 4 | 107 | 202 | 313 | ||||||||||||||
| Total Operating Expenses | 131 | 1,095 | 831 | 2,872 | 4,929 | ||||||||||||||
| Total | $ | 1,998 | $ | 2,111 | $ | 1,527 | $ | (2,796 | ) | $ | 2,840 | ||||||||
| 2018 | |||||||||||||||||||
U.K. Adjusted Gross Margins | Kentucky Adjusted Gross Margins | Pennsylvania Adjusted Gross Margins | Other (a) | Operating Income (b) | |||||||||||||||
| Operating Revenues | $ | 2,230 | (c) | $ | 3,214 | $ | 2,277 | $ | 64 | $ | 7,785 | ||||||||
| Operating Expenses | |||||||||||||||||||
| Fuel | — | 799 | — | — | 799 | ||||||||||||||
| Energy purchases | — | 201 | 544 | — | 745 | ||||||||||||||
| Other operation and maintenance | 141 | 98 | 121 | 1,623 | 1,983 | ||||||||||||||
| Depreciation | — | 70 | 35 | 989 | 1,094 | ||||||||||||||
| Taxes, other than income | — | 5 | 104 | 203 | 312 | ||||||||||||||
| Total Operating Expenses | 141 | 1,173 | 804 | 2,815 | 4,933 | ||||||||||||||
| Total | $ | 2,089 | $ | 2,041 | $ | 1,473 | $ | (2,751 | ) | $ | 2,852 | ||||||||
| 2020 | |||||||||||||||||||||||||||||
| Kentucky Adjusted Gross Margins | Pennsylvania Adjusted Gross Margins | Other (a) | Operating Income (b) | ||||||||||||||||||||||||||
| Operating Revenues | $ | 3,106 | $ | 2,331 | $ | 37 | $ | 5,474 | |||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||
| Fuel | 632 | — | — | 632 | |||||||||||||||||||||||||
| Energy purchases | 143 | 491 | — | 634 | |||||||||||||||||||||||||
| Other operation and maintenance | 91 | 91 | 1,238 | 1,420 | |||||||||||||||||||||||||
| Depreciation | 154 | 53 | 815 | 1,022 | |||||||||||||||||||||||||
| Taxes, other than income | 5 | 107 | 68 | 180 | |||||||||||||||||||||||||
| Total Operating Expenses | 1,025 | 742 | 2,121 | 3,888 | |||||||||||||||||||||||||
| Total | $ | 2,081 | $ | 1,589 | $ | (2,084) | $ | 1,586 | |||||||||||||||||||||
PPL Electric: Statement of Income Analysis
Net income for the years ended December 31 includes the following results:
| Change | |||||||||||||||||
| 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||
| Operating Revenues | $ | 2,402 | $ | 2,331 | $ | 71 | |||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Energy purchases | 566 | 491 | 75 | ||||||||||||||
| Other operation and maintenance | 557 | 513 | 44 | ||||||||||||||
| Depreciation | 424 | 403 | 21 | ||||||||||||||
| Taxes, other than income | 120 | 107 | 13 | ||||||||||||||
| Total Operating Expenses | 1,667 | 1,514 | 153 | ||||||||||||||
| Other Income (Expense) - net | 21 | 18 | 3 | ||||||||||||||
| Interest Income from Affiliate | 5 | 2 | 3 | ||||||||||||||
| Interest Expense | 162 | 173 | (11) | ||||||||||||||
| Income Taxes | 154 | 167 | (13) | ||||||||||||||
| Net Income | $ | 445 | $ | 497 | $ | (52) | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | $ | 2,358 | $ | 2,277 | $ | 81 | |||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Energy purchases | 549 | 544 | 5 | ||||||||
| Other operation and maintenance | 566 | 578 | (12 | ) | |||||||
| Depreciation | 386 | 352 | 34 | ||||||||
| Taxes, other than income | 112 | 109 | 3 | ||||||||
| Total Operating Expenses | 1,613 | 1,583 | 30 | ||||||||
| Other Income (Expense) - net | 25 | 23 | 2 | ||||||||
| Interest Income from Affiliate | 6 | 8 | (2 | ) | |||||||
| Interest Expense | 170 | 159 | 11 | ||||||||
| Income Taxes | 149 | 136 | 13 | ||||||||
| Net Income | $ | 457 | $ | 430 | $ | 27 | |||||
Operating Revenues
The increase (decrease) in operating revenues was due to:
| 2019 vs. 2018 | |||
| Distribution Price (a) | $ | 42 | |
| Distribution volume | (8 | ) | |
| PLR | 8 | ||
| Transmission Formula Rate (b) | 51 | ||
| TCJA Refund (c) | (12 | ) | |
| Total | $ | 81 | |
| 2021 vs. 2020 | |||||
| Distribution price (a) | $ | 5 | |||
| Distribution volume | 19 | ||||
| PLR (b) | 83 | ||||
| Transmission Formula Rate (c) | (35) | ||||
| (1) | |||
| 71 | |
(a) Distribution price variance was primarily due to reconcilable cost recovery mechanisms approved by the PUC.
(b) The increase was primarily the result of higher energy prices and higher customer usage, partially offset by higher volumes of shopping customers.
(c) The decrease was primarily due to a reduction in the transmission formula rate return on equity and a lower PPL zonal peak load billing factor, partially offset by returns on additional transmission capital investments and return of related depreciation expense. See Note 7 to the Financial Statements for additional information on the transmission formula rate return on equity reduction.
Energy Purchases
Energy purchases increased $5$75 million in 20192021 compared with 2018.2020. This increase was primarily due to higher PLR prices of $40 million and higher PLR volumes of $33 million, partially offset by lower PLR prices of $25 million and lower transmission enhancement expenses of $3$28 million.
Other Operation and Maintenance
The increase (decrease) in other operation and maintenance was due to:
| 2019 vs. 2018 | |||
| Project cancellations | $ | (12 | ) |
| Storm costs | (4 | ) | |
| Bad debts | (3 | ) | |
| Contractor-related expenses | 3 | ||
| Vegetation management | 2 | ||
| Support costs | 1 | ||
| Other | 1 | ||
| Total | $ | (12 | ) |
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | $ | 3,206 | $ | 3,214 | $ | (8 | ) | ||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 709 | 799 | (90 | ) | |||||||
| Energy purchases | 174 | 201 | (27 | ) | |||||||
| Other operation and maintenance | 861 | 848 | 13 | ||||||||
| Depreciation | 547 | 475 | 72 | ||||||||
| Taxes, other than income | 74 | 70 | 4 | ||||||||
| Total Operating Expenses | 2,365 | 2,393 | (28 | ) | |||||||
| Other Income (Expense) - net | (13 | ) | (16 | ) | 3 | ||||||
| Interest Expense | 226 | 206 | 20 | ||||||||
| Interest Expense with Affiliate | 31 | 25 | 6 | ||||||||
| Income Taxes | 103 | 129 | (26 | ) | |||||||
| Net Income | $ | 468 | $ | 445 | $ | 23 | |||||
| 2019 vs. 2018 | |||
| Volumes (a) | $ | (91 | ) |
| Municipal supply (b) | (56 | ) | |
| Fuel and other energy prices (c) | (48 | ) | |
| Retail rates (d) | 123 | ||
| ECR (e) | 60 | ||
| Other | 4 | ||
| Total | $ | (8 | ) |
| 2021 vs. 2020 | |||||
| 20 | |||||
| Support costs | 20 | ||||
| Inventory adjustments | 9 | ||||
| (6) | ||||
| 2019 vs. 2018 | |||
| Kentucky recycling credit, net of federal income tax expense (a) | $ | (18 | ) |
| Kentucky state tax reform (b) | (9 | ) | |
| Other | 1 | ||
| Total | $ | (26 | ) |
| (10) | ||||
| (2) | |||||
| 44 | |||||
LG&E: Statement of Income Analysis
Net income for the years ended December 31 includes the following results:
| Change | |||||||||||||||||
| 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||
| Operating Revenues | |||||||||||||||||
| Retail and wholesale | $ | 1,545 | $ | 1,435 | $ | 110 | |||||||||||
| Electric revenue from affiliate | 24 | 21 | 3 | ||||||||||||||
| Total Operating Revenues | 1,569 | 1,456 | 113 | ||||||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Fuel | 265 | 246 | 19 | ||||||||||||||
| Energy purchases | 167 | 125 | 42 | ||||||||||||||
| Energy purchases from affiliates | 23 | 19 | 4 | ||||||||||||||
| Other operation and maintenance | 400 | 373 | 27 | ||||||||||||||
| Depreciation | 279 | 259 | 20 | ||||||||||||||
| Taxes, other than income | 46 | 40 | 6 | ||||||||||||||
| Total Operating Expenses | 1,180 | 1,062 | 118 | ||||||||||||||
| Other Income (Expense) - net | (5) | (1) | (4) | ||||||||||||||
| Interest Expense | 81 | 87 | (6) | ||||||||||||||
| Income Taxes | 54 | 62 | (8) | ||||||||||||||
| Net Income | $ | 249 | $ | 244 | $ | 5 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | |||||||||||
| Retail and wholesale | $ | 1,473 | $ | 1,467 | $ | 6 | |||||
| Electric revenue from affiliate | 27 | 29 | (2 | ) | |||||||
| Total Operating Revenues | 1,500 | 1,496 | 4 | ||||||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 289 | 308 | (19 | ) | |||||||
| Energy purchases | 154 | 183 | (29 | ) | |||||||
| Energy purchases from affiliates | 7 | 13 | (6 | ) | |||||||
| Other operation and maintenance | 387 | 376 | 11 | ||||||||
| Depreciation | 231 | 195 | 36 | ||||||||
| Taxes, other than income | 39 | 36 | 3 | ||||||||
| Total Operating Expenses | 1,107 | 1,111 | (4 | ) | |||||||
| Other Income (Expense) - net | (11 | ) | (12 | ) | 1 | ||||||
| Interest Expense | 87 | 76 | 11 | ||||||||
| Income Taxes | 63 | 64 | (1 | ) | |||||||
| Net Income | $ | 232 | $ | 233 | $ | (1 | ) | ||||
Operating Revenues
The increase (decrease) in operating revenues was due to:
| 2019 vs. 2018 | |||
| Retail rates (a) | $ | 46 | |
| ECR (b) | 26 | ||
| Volumes (c) | (53 | ) | |
| Fuel and other energy prices (d) | (20 | ) | |
| Other | 5 | ||
| Total | $ | 4 | |
| Fuel and other energy prices (a) | $ | 54 | |||
| Retail rates (b) | |||||
| 46 | ||||
| Volumes (c) | ||||
| 27 | |||||
| ECR | (6) | ||||
| Other | 4 | ||||
| Total | $ | 113 | |||
(a)The increases were primarily due to higher recoveries of fuel and energy purchases due to higher commodity costs.
41
(b)The increases were due to new base rates approved by the KPSC effective July 1, 2021.
(c)The increases were primarily due to favorable weather.
Fuel
Fuel decreasedincreased $19 million in 20192021 compared with 2018,2020, primarily due to a $10 million decreaseincrease in volumes driven by weather and an $8 million increase in commodity costs.
Energy Purchases
Energy purchases increased $42 million in 2021 compared with 2020, primarily due to a $35 million increase in commodity costs and a $10$6 million decreaseincrease in gas volumes driven by weather.
| 2021 vs. 2020 | ||||||||
| Plant operations and maintenance | $ | 10 | ||||||
| Administrative and general | 10 | |||||||
| Other | 7 | |||||||
| Total | $ | 27 | ||||||
Depreciation
Depreciation increased $20 million in 20192021 compared with 2018,2020, primarily due to a $14 million decrease in commodity costs and a $7 million decrease in gas volumes driven by weather in 2019.
KU: Statement of Income Analysis
Net income for the years ended December 31 includes the following results:
| Change | |||||||||||||||||
| 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||
| Operating Revenues | |||||||||||||||||
| Retail and wholesale | $ | 1,803 | $ | 1,671 | $ | 132 | |||||||||||
| Electric revenue from affiliate | 23 | 19 | 4 | ||||||||||||||
| Total Operating Revenues | 1,826 | 1,690 | 136 | ||||||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Fuel | 445 | 386 | 59 | ||||||||||||||
| Energy purchases | 19 | 18 | 1 | ||||||||||||||
| Energy purchases from affiliates | 24 | 21 | 3 | ||||||||||||||
| Other operation and maintenance | 463 | 429 | 34 | ||||||||||||||
| Depreciation | 366 | 346 | 20 | ||||||||||||||
| Taxes, other than income | 41 | 37 | 4 | ||||||||||||||
| Total Operating Expenses | 1,358 | 1,237 | 121 | ||||||||||||||
| Other Income (Expense) - net | 4 | 3 | 1 | ||||||||||||||
| Interest Expense | 109 | 113 | (4) | ||||||||||||||
| Income Taxes | 67 | 63 | 4 | ||||||||||||||
| Net Income | $ | 296 | $ | 280 | $ | 16 | |||||||||||
| Change | |||||||||||
| 2019 | 2018 | 2019 vs. 2018 | |||||||||
| Operating Revenues | |||||||||||
| Retail and wholesale | $ | 1,733 | $ | 1,747 | $ | (14 | ) | ||||
| Electric revenue from affiliate | 7 | 13 | (6 | ) | |||||||
| Total Operating Revenues | 1,740 | 1,760 | (20 | ) | |||||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 420 | 491 | (71 | ) | |||||||
| Energy purchases | 20 | 18 | 2 | ||||||||
| Energy purchases from affiliates | 27 | 29 | (2 | ) | |||||||
| Other operation and maintenance | 438 | 441 | (3 | ) | |||||||
| Depreciation | 315 | 279 | 36 | ||||||||
| Taxes, other than income | 35 | 34 | 1 | ||||||||
| Total Operating Expenses | 1,255 | 1,292 | (37 | ) | |||||||
| Other Income (Expense) - net | (4 | ) | (6 | ) | 2 | ||||||
| Interest Expense | 109 | 100 | 9 | ||||||||
| Income Taxes | 79 | 76 | 3 | ||||||||
| Net Income | $ | 293 | $ | 286 | $ | 7 | |||||
Operating Revenue
The increase (decrease) in operating revenue was due to:
42
| 2019 vs. 2018 | |||
| Municipal supply (a) | $ | (56 | ) |
| Volumes (b) | (43 | ) | |
| Fuel and other energy prices (c) | (30 | ) | |
| Retail rates (d) | 77 | ||
| ECR (e) | 34 | ||
| Other | (2 | ) | |
| Total | $ | (20 | ) |
| 2021 vs. 2020 | |||||
| Retail rates (a) | $ | 53 | |||
| Fuel and other energy prices (b) | 44 | ||||
| Volumes (c) | 29 | ||||
| 7 | ||||
| 3 | ||||
| (5) | ||||
| 5 | |||||
| 136 | |||||
(a)The increases were due to new base rates approved by the KPSC effective July 1, 2021.
(b)The increases were primarily due to higher recoveries of fuel and energy purchases due to higher commodity costs.
(c)The increases were primarily due to favorable weather.
Fuel
Fuel decreased $71increased $59 million in 20192021 compared with 2018,2020, primarily due to a $32$39 million decreaseincrease in commodity costs and a $23$19 million decreaseincrease in volumes driven by weatherweather.
Other Operation and a $20 million decreaseMaintenance
The increase in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.other operation and maintenance was due to:
| 2021 vs. 2020 | |||||
| Plant outages | $ | 8 | |||
| Plant operations and maintenance | 6 | ||||
| Transmission operations and maintenance | 6 | ||||
| Distribution operations and maintenance | 5 | ||||
| Bad debts | 4 | ||||
| Administrative and general | 2 | ||||
| Other | 3 | ||||
| Total | $ | 34 | |||
Depreciation
Depreciation increased $36$20 million in 20192021 compared with 2018,2020, primarily due to a $26 million increase related to higher depreciation rates effective May 1, 2019 and a $6$14 million increase related to additional assets placed into service, net of retirements.retirements and a $4 million increase related to higher depreciation rates effective July 1, 2021.
Financial Condition
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:
43
| PPL | PPL Electric | LG&E | KU | |||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | Cash and cash equivalents | $ | 3,571 | $ | 21 | $ | 9 | $ | 13 | |||||||||||||||||||||||||||||||||
| PPL (a) | PPL Electric | LKE | LG&E | KU | ||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||
| Short-term debt | Short-term debt | 69 | — | 69 | — | |||||||||||||||||||||||||||||||||||||
| Long-term debt due within one year | Long-term debt due within one year | 474 | 474 | — | — | |||||||||||||||||||||||||||||||||||||
| Notes payable with affiliates | Notes payable with affiliates | — | 324 | 294 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 815 | $ | 262 | $ | 27 | $ | 15 | $ | 12 | Cash and cash equivalents | $ | 442 | $ | 40 | $ | 7 | $ | 22 | |||||||||||||||||||||||
| Short-term debt | 1,151 | — | 388 | 238 | 150 | Short-term debt | 1,168 | — | 262 | 203 | ||||||||||||||||||||||||||||||||
| Long-term debt due within one year | 1,172 | — | 975 | — | 500 | Long-term debt due within one year | 1,074 | 400 | 292 | 132 | ||||||||||||||||||||||||||||||||
| Notes payable with affiliates | — | 150 | — | — | Notes payable with affiliates | — | — | — | ||||||||||||||||||||||||||||||||||
| December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 621 | $ | 267 | $ | 24 | $ | 10 | $ | 14 | ||||||||||||||||||||||||||||||||
| Short-term debt | 1,430 | — | 514 | 279 | 235 | |||||||||||||||||||||||||||||||||||||
| Long-term debt due within one year | 530 | — | 530 | 434 | 96 | |||||||||||||||||||||||||||||||||||||
| Notes payable with affiliates | — | 113 | — | — | ||||||||||||||||||||||||||||||||||||||
(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:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| 2021 | |||||||||||||||||||||||
| Operating activities | $ | 1,544 | $ | 969 | $ | 458 | $ | 608 | |||||||||||||||
| Investing activities | 8,564 | (1,400) | (466) | (556) | |||||||||||||||||||
| Financing activities | (7,344) | 412 | 10 | (61) | |||||||||||||||||||
| 2020 | |||||||||||||||||||||||
| Operating activities | $ | 1,872 | $ | 884 | $ | 483 | $ | 543 | |||||||||||||||
| Investing activities | (2,266) | (1,151) | (456) | (507) | |||||||||||||||||||
| Financing activities | 99 | 43 | (35) | (26) | |||||||||||||||||||
| 2021 vs. 2020 Change | |||||||||||||||||||||||
| Operating activities | $ | (328) | $ | 85 | $ | (25) | $ | 65 | |||||||||||||||
| Investing activities | 10,830 | (249) | (10) | (49) | |||||||||||||||||||
| Financing activities | (7,443) | 369 | 45 | (35) | |||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| 2019 | |||||||||||||||||||
| Operating activities | $ | 2,427 | $ | 913 | $ | 938 | $ | 492 | $ | 553 | |||||||||
| Investing activities | (3,080 | ) | (1,117 | ) | (1,094 | ) | (482 | ) | (610 | ) | |||||||||
| Financing activities | 836 | 199 | 159 | (5 | ) | 55 | |||||||||||||
| 2018 | |||||||||||||||||||
| Operating activities | $ | 2,821 | $ | 978 | $ | 915 | $ | 443 | $ | 581 | |||||||||
| Investing activities | (3,361 | ) | (1,193 | ) | (1,116 | ) | (554 | ) | (561 | ) | |||||||||
| Financing activities | 690 | 433 | 195 | 106 | (21 | ) | |||||||||||||
| 2019 vs. 2018 Change | |||||||||||||||||||
| Operating activities | $ | (394 | ) | $ | (65 | ) | $ | 23 | $ | 49 | $ | (28 | ) | ||||||
| Investing activities | 281 | 76 | 22 | 72 | (49 | ) | |||||||||||||
| Financing activities | 146 | (234 | ) | (36 | ) | (111 | ) | 76 | |||||||||||
Operating Activities
The components of the change in cash provided by (used in) operating activities were as follows:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| 2021 vs. 2020 | |||||||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||||||
| Net income | $ | (622) | $ | (52) | $ | 5 | $ | 16 | |||||||||||||||
| Non-cash components | 344 | (13) | 16 | — | |||||||||||||||||||
| Working capital | (93) | 160 | (28) | 20 | |||||||||||||||||||
| Defined benefit plan funding | 66 | — | 8 | 2 | |||||||||||||||||||
| Other operating activities | (23) | (10) | (26) | 27 | |||||||||||||||||||
| Total | $ | (328) | $ | 85 | $ | (25) | $ | 65 | |||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| 2019 vs. 2018 | |||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||
| Net income | $ | (81 | ) | $ | 27 | $ | 23 | $ | (1 | ) | $ | 7 | |||||||
| Non-cash components | 241 | (17 | ) | 64 | 33 | 34 | |||||||||||||
| Working capital | (451 | ) | (90 | ) | (181 | ) | (48 | ) | (126 | ) | |||||||||
| Defined benefit plan funding | 11 | 7 | 97 | 55 | 51 | ||||||||||||||
| Other operating activities | (114 | ) | 8 | 20 | 10 | 6 | |||||||||||||
| Total | $ | (394 | ) | $ | (65 | ) | $ | 23 | $ | 49 | $ | (28 | ) | ||||||
(PPL)
PPL cash provided by operating activities in 20192020 decreased $394$328 million compared with 2018.2019.
•Net income decreased $81$622 million between periods and included an increase in net non-cash charges of $241$344 million. The increase in net non-cash charges was primarily due to an increase in depreciation expense (primarily due to additional assets placed into service, related to the ongoing efforts to ensure reliabilityloss on extinguishment of the delivery systemdebt and the replacementimpairment of aging infrastructure, net of retirements and higher depreciation rates) and unrealized losses on hedging activitiessolar panels, partially offset by an increase in the U.K. net periodic defined benefit credits (primarily due to lower levels of unrecognized losses being amortized) and a decrease in deferred income taxes (primarily due to book versusand investment tax plant timing differences).credits.
44
•The $451$93 million decrease in cash from changes in working capital was primarily due to a decrease in accounts payable (primarily due to timing of payments), an increase in net regulatory assets and liabilities (primarily due to the impact of the TCJA and timing of recovery rate mechanisms), an increase in other current liabilities (primarily due to timing of payments and operating lease liability), an increase in unbilled revenue (primarily due to weather, higher retail rates effective May 1, 2019 and a change in pricing method in the model), an increase in fuel, materials and supplies (primarily due to inventory management) and an increase in other (primarily due to a decrease in taxes payable and a decrease in counter-party collateralother current assets and liabilities, partially offset by an increase in customer deposits)regulatory liabilities (primarily due to PPL Electric’s transmission formula rate return on equity reduction and the timing of rate recovery mechanisms).
•The $114$23 million decrease in cash provided by other operating activities was primarily due to the $65 million transfer of excess benefit funds,driven by a decrease in 2018,other non-current assets (primarily related to the favorable private letter ruling receiveda decrease in pension plan assets, partially offset by PPL from the IRS permittingan increase in non-current regulatory assets) and an increase in non-current liabilities (primarily related to an increase in ARO expenditures and accrued pension obligations, partially offset by a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new sub-account within the VEBA, to be used to pay for medical claims of active bargaining unit employees, decrease in non-current regulatory liabilities (due to timing of rate recovery mechanisms) and an increase in other assets (primarily due to settlement of interest rate swaps and purchase of solar panels)liabilities).
(PPL Electric)
PPL Electric's cash provided by operating activities in 2019 decreased $652021 increased $85 million compared with 2018.2020.
•Net income increased $27decreased $52 million between the periods and included a decrease in non-cash components of $17$13 million. The decrease in non-cash components was primarily due to a $35 million decrease in deferred income tax expense (due to book versus tax plant timing differences and Federal net operating losses, partially offset by a book to tax timing difference related to the TCJA regulatory liability) and a $15 million decrease in Otherother expenses (primarily due to an increase in AFUDC and a decrease in canceled projects), partially offset by a $34.
•The $160 million increase in depreciation expense (primarily due to additional assets placed into service, net of retirements, related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure as well as the roll-out of the Act 129 Smart Meter program).
•The $8$10 million increasedecrease in cash provided by other operating activities was driven primarily due to a decrease in non-current regulatory assets (due to timing of rate recovery mechanisms, amortization of storm costs incurred in the prior year and $22 million of storm costs incurred in 2018), partially offset by a decrease in non-current liabilities (primarily due to a $41 million TCJA liability in 2018).accrued pension obligations.
•Net income increased $23$5 million between the periods and included an increase in non-cash components of $64$16 million. The increase in non-cash components was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).
•Cash from changes in working capital decreased by $28 million. The decrease was primarily driven bydue to an increase in net regulatory assets and liabilities, net (primarily due to the impact of the TCJA and timing of rate recovery mechanisms), an increase in fuel, materials and supplies (primarily due to higher commodity costs), an increase in accounts receivable from affiliates (primarily due to timing of payments) and a decrease in other current liabilities (primarily due to timing of payments), partially offset by an increase in accounts payable (primarily due to timing of payments).
•The decrease in cash provided by other operating activities was driven primarily by a decrease in other liabilities (primarily related to noncurrent regulatory liabilities).
(KU)
KU's cash provided by operating activities in 2021 increased $65 million compared with 2020.
•Net income increased $16 million between the periods and included no change in non-cash components. Non-cash components were primarily driven by a decrease in deferred income tax expense (primarily due to book versus tax plant timing differences), offset by an increase in depreciation expense (primarily due to additional assets placed into service, net of retirements and higher depreciation rates effective July 1, 2021).
•Cash from changes in working capital increased $20 million. The increase was primarily due to an increase in accounts payable to affiliates (primarily due to timing of payments), a decrease in accounts receivable (primarily due to weather and the impacts of COVID-19) and a decrease in unbilled revenues (primarily due to weather), partially offset by a decrease in accounts payable (primarily due to timing of payments) and an increase, a decrease in unbilled revenuesother current liabilities (primarily due to weather)timing of payments) and decrease in taxes payable (primarily due to timing of payments).
•The increase in cash provided by other operating activities was driven primarily by a decrease in other assets (primarily due to non-current regulatory asset increases as a resultARO expenditures.
45
Investing Activities
(All Registrants)
The components of the change in cash provided by (used in) investing activities were as follows:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| 2021 vs. 2020 | |||||||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||||||
| Expenditures for PP&E | $ | 297 | $ | 247 | $ | (10) | $ | (50) | |||||||||||||||
| Proceeds from sale of discontinued operations, net of cash divested | 10,560 | — | — | — | |||||||||||||||||||
| Notes receivable from affiliate | (499) | — | — | ||||||||||||||||||||
| Other investing activities | (27) | 3 | — | 1 | |||||||||||||||||||
| Total | $ | 10,830 | $ | (249) | $ | (10) | $ | (49) | |||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| 2019 vs. 2018 | |||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||
| Expenditures for PP&E | $ | 155 | $ | 78 | $ | 23 | $ | 72 | $ | (48 | ) | ||||||||
| Purchase of investments | 10 | — | — | — | — | ||||||||||||||
| Proceeds from sale of investments | 63 | — | — | — | — | ||||||||||||||
| Other investing activities | 53 | (2 | ) | (1 | ) | — | (1 | ) | |||||||||||
| Total | $ | 281 | $ | 76 | $ | 22 | $ | 72 | $ | (49 | ) | ||||||||
For PPL, in 20192021 compared with 2018,2020, the decrease in expenditures was due to lower project expenditures at WPD,and PPL Electric LKE and LG&E,Safari Energy, partially offset by higher project expenditures at KU. The decreasean increase in expenditures at WPD was primarily due to a decrease in expenditures to enhance system reliabilityLG&E and a decrease in foreign currency exchange rates.KU. The decrease in expenditures for PPL Electric was primarily due to timing differences ona planned reduction in capital spending projects related to ongoing efforts to improve reliability and replace aging infrastructure. The decreaseincrease in expenditures at LKELG&E and KU was primarily due to decreased spending for environmental water projects at LG&E and KU's Trimble County plant, LG&E’s Mill Creek plant and KU's Ghent plant, partially offset byhigher spending on variousELG projects and other projects at KU that are not individually significant.
See "Forecasted Uses of Cash" for detail regarding projected capital expenditures for the years 20202022 through 2024.
For PPL Electric, the changes in "Notes receivable from affiliate" activity resulted from the funding of $499 million to an affiliate for general corporate purposes. See Note 15 to the Financial Statements for further discussion of intercompany borrowings.
Financing Activities
(All Registrants)
The components of the change in cash provided by (used in) financing activities were as follows:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| 2021 vs. 2020 | |||||||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||||||
| Long-term debt issuance/retirement, net | $ | (4,829) | $ | — | $ | — | $ | 2 | |||||||||||||||
| Long-term debt issuance/retirement, affiliate | — | — | — | ||||||||||||||||||||
| Proceeds from project financing | (154) | — | — | — | |||||||||||||||||||
| Stock issuances/redemptions, net | (25) | — | — | — | |||||||||||||||||||
| Dividends | (4) | 66 | (31) | (50) | |||||||||||||||||||
| Purchase of treasury stock | (1,003) | — | — | — | |||||||||||||||||||
| Capital contributions/distributions, net | — | 306 | (29) | (28) | |||||||||||||||||||
| Issuance of term loan | (300) | — | — | — | |||||||||||||||||||
| Issuance of commercial paper | (73) | — | (41) | (32) | |||||||||||||||||||
| Retirement of term loan | (300) | — | — | — | |||||||||||||||||||
| Retirement of commercial paper | (73) | — | (41) | (32) | |||||||||||||||||||
| Changes in net short-term debt | (683) | — | (135) | (192) | |||||||||||||||||||
| Note payable with affiliate | — | 324 | 294 | ||||||||||||||||||||
| Other financing activities | 1 | (3) | (2) | 3 | |||||||||||||||||||
| Total | $ | (7,443) | $ | 369 | $ | 45 | $ | (35) | |||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| 2019 vs. 2018 | |||||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||
| Debt issuance/retirement, net | $ | 383 | $ | (105 | ) | $ | 414 | $ | 99 | $ | 315 | ||||||||
| Debt issuance/retirement, affiliate | — | (250 | ) | — | — | ||||||||||||||
| Stock issuances/redemptions, net | 469 | — | — | — | — | ||||||||||||||
| Dividends | (59 | ) | (96 | ) | — | (26 | ) | 17 | |||||||||||
| Capital contributions/distributions, net | (29 | ) | 57 | (58 | ) | 23 | |||||||||||||
| Changes in net short-term debt | (641 | ) | — | (396 | ) | (121 | ) | (275 | ) | ||||||||||
| Note payable with affiliate | — | 149 | — | — | |||||||||||||||
| Other financing activities | (6 | ) | (4 | ) | (10 | ) | (5 | ) | (4 | ) | |||||||||
| Total | $ | 146 | $ | (234 | ) | $ | (36 | ) | $ | (111 | ) | $ | 76 | ||||||
(All Registrants)
See Note 8 to the Financial Statements in this Form 10-K for information on 2021 activity.
46
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
Long-term debt and equity securities activity for 20192021 included:
| Debt | Stock | ||||||||||||||||||||||
| Issuances (a) | Retirements | Issuances | Repurchases | ||||||||||||||||||||
| Cash Flow Impact: | |||||||||||||||||||||||
| PPL | $ | 650 | $ | 4,606 | $ | 9 | $ | 1,003 | |||||||||||||||
| PPL Electric | 650 | 400 | — | — | |||||||||||||||||||
| LG&E | — | — | — | — | |||||||||||||||||||
| KU | — | — | — | — | |||||||||||||||||||
| Debt | Net Stock | ||||||||||
| Issuances (a) | Retirements | Issuances | |||||||||
| Cash Flow Impact: | |||||||||||
| PPL | $ | 1,465 | $ | 300 | $ | 1,167 | |||||
| PPL Electric | 393 | 100 | |||||||||
| LKE | 705 | 200 | |||||||||
| LG&E | 399 | 200 | |||||||||
| KU | 306 | — | |||||||||
(a)Issuances are net of pricing discounts, where applicable, and exclude the impact of debt issuance costs. Includes debt issuances with affiliates.
See Note 8 to the Financial Statements for additional long-term debt information.
(PPL)
Equity Securities Activities
In May 2018, PPL completed a registered underwritten public offeringAugust 2021, PPL's Board of 55 million sharesDirectors authorized share repurchases of its common stock. In conjunction with that offering, the underwriters exercised an optionup to purchase 8.25 million additional shares$3 billion of PPL common stock solelyshares. The actual amount repurchased will depend on various factors, including PPL’s share price, market conditions, and the determination of other uses for the proceeds from the sale of the U.K. utility business, including for incremental capital expenditures. PPL may purchase shares on each trading day subject to cover over-allotments.market conditions and principles of best execution.
See Note 8 to the Financial Statements for additional information.
ATM Program
In February 2018, PPL entered into an equity distribution agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of $1.0 billion of its common stock through an at-the-market offering program, including a forward sales component. The compensation paid to the selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. There were no issuances under the ATM program for the twelve months ended December 31, 2019. PPL issued 42 million shares of common stock2021 and received proceeds of $119 million for the year ended December 31, 2018.2020. The ATM program expired in February 2021.
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.issuances to meet their requirements with respect to their contractual obligations and anticipated capital expenditures. Additionally, subject to market conditions, the Registrants and their
subsidiaries may access the capital markets, and PPL Electric, LG&E and KU anticipate receiving equity contributions from their parent or member in 2020.2022.
47
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, 2019,2021, the total committed borrowing capacity under credit facilities and the borrowings under these facilities were:
External
| Committed Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | Unused Capacity | ||||||||||||||||||||
| PPL Capital Funding Credit Facilities | $ | 1,300 | $ | — | $ | — | $ | 1,300 | |||||||||||||||
| PPL Electric Credit Facility | 650 | — | 1 | 649 | |||||||||||||||||||
| LG&E Credit Facilities | 500 | — | 69 | 431 | |||||||||||||||||||
| KU Credit Facilities | 400 | — | — | 400 | |||||||||||||||||||
| Total Credit Facilities (a) (b) | $ | 2,850 | $ | — | $ | 70 | $ | 2,780 | |||||||||||||||
| Committed Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | Unused Capacity | ||||||||||||
| PPL Capital Funding Credit Facilities | $ | 1,550 | $ | — | $ | 465 | $ | 1,085 | |||||||
| PPL Electric Credit Facility | 650 | — | 1 | 649 | |||||||||||
| LG&E Credit Facilities | 500 | — | 238 | 262 | |||||||||||
| KU Credit Facilities | 400 | — | 150 | 250 | |||||||||||
| Total LKE Consolidated | 900 | — | 388 | 512 | |||||||||||
| Total U.S. Credit Facilities (a) (b) | $ | 3,100 | $ | — | $ | 854 | $ | 2,246 | |||||||
| Total U.K. Credit Facilities (b) (c) | £ | 1,055 | £ | 243 | £ | — | £ | 812 | |||||||
(a)The syndicated credit facilities and PPL Capital Funding's bilateral facility, each contain a financial covenant requiring debt to total capitalization not to exceed 70% for PPL Capital Funding, PPL Electric, LG&E and KU, as calculated in accordance with the facility, and other customary covenants.
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 - 8%7%, PPL Electric - 6%, LKE - 6%7%, LG&E - 6%7% and KU - 6%7%.
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, 2019,2021, 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.
See Note 8 to the Financial Statements for further discussion of the Registrants' credit facilities.
Intercompany (LKE, LG(LG&E and KU)
| Committed Capacity | Borrowed | Commercial Paper Program Capacity | Unused Capacity | ||||||||||||||||||||
| LG&E Money Pool (a) | $ | 750 | $ | 324 | $ | 425 | $ | 1 | |||||||||||||||
| KU Money Pool (a) | 650 | 294 | 350 | 6 | |||||||||||||||||||
Committed Capacity | Borrowed | Non-affiliate Used Capacity | Unused Capacity | ||||||||||||
| LKE Credit Facility | $ | 375 | $ | 150 | $ | — | $ | 225 | |||||||
| LG&E Money Pool (a) | 500 | — | 238 | 262 | |||||||||||
| KU Money Pool (a) | 500 | — | 150 | 350 | |||||||||||
See Note 1415 to the Financial Statements for further discussion of intercompany credit facilities.
Commercial Paper (All Registrants)
48
| December 31, 2019 | December 31, 2021 | |||||||||||||||||||||||||||
| Capacity | Commercial Paper Issuances | Unused Capacity | Capacity | Commercial Paper Issuances | Unused Capacity | |||||||||||||||||||||||
| PPL Capital Funding | $ | 1,500 | $ | 450 | $ | 1,050 | PPL Capital Funding | $ | 1,500 | $ | — | $ | 1,500 | |||||||||||||||
| PPL Electric | 650 | — | 650 | PPL Electric | 650 | — | 650 | |||||||||||||||||||||
| LG&E (a) | LG&E (a) | 425 | 69 | 356 | ||||||||||||||||||||||||
| KU | KU | 350 | — | 350 | ||||||||||||||||||||||||
| LG&E | 350 | 238 | 112 | |||||||||||||||||||||||||
| KU | 350 | 150 | 200 | |||||||||||||||||||||||||
| Total LKE | 700 | 388 | 312 | |||||||||||||||||||||||||
| Total PPL | $ | 2,850 | $ | 838 | $ | 2,012 | Total PPL | $ | 2,925 | $ | 69 | $ | 2,856 | |||||||||||||||
(a)In March 2021, the capacity for the LG&E commercial paper program was increased from $350 million to $425 million.
Long-term Debt and Equity Securities
(PPL)
PPL and its subsidiaries are authorized to issue, at the discretion of management and subject to market conditions, up to $7$2.45 billion of long-term debt and equity securities, the proceeds of which would be used to fund capital expenditures and for general corporate purposes.
(PPL Electric)
PPL Electric is authorized to issue, at the discretion of management and subject to market conditions and regulatory approvals, up to $700$650 million of long-term debt securities, the proceeds of which would be used to fund capital expenditures and for general corporate purposes.
(LKE, LG&E and KU)
LG&E is authorized to issue, at the discretion of management and subject to market conditions and regulatory approvals, up to $400 million of long-term debt securities, the proceeds of which would be used to repay short-term debt incurred to fund capital expenditures and for general corporate purposes.
KU is authorized to issue, at the discretion of management and subject to market conditions and regulatory approvals, up to $800$300 million of long-term debt securities, the proceeds of which would be used to repay $500 million of First Mortgage Bonds maturing in November 2020, repay short-term debt incurred to fund capital expenditures and for general corporate purposes.
Contributions from Parent/MemberParent (PPL Electric, LKE, LG&E and KU)
From time to time, LKE's member 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.purposes.
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 LKE to its member, and possibly the purchase or redemption of a portion of debt securities.
Capital Expenditures
| Projected | |||||||||||||||||||||||
| Total | 2020 (b) | 2021 | 2022 | 2023 | 2024 | ||||||||||||||||||
| PPL | |||||||||||||||||||||||
| Construction expenditures (a) | |||||||||||||||||||||||
| Generating facilities | $ | 763 | $ | 148 | $ | 222 | $ | 106 | $ | 121 | $ | 166 | |||||||||||
| Distribution facilities | 9,299 | 1,961 | 1,860 | 1,767 | 1,800 | 1,911 | |||||||||||||||||
| Transmission facilities | 2,724 | 903 | 632 | 470 | 357 | 362 | |||||||||||||||||
| Environmental | 549 | 139 | 209 | 113 | 84 | 4 | |||||||||||||||||
| Other | 932 | 221 | 207 | 161 | 171 | 172 | |||||||||||||||||
| Total Capital Expenditures | $ | 14,267 | $ | 3,372 | $ | 3,130 | $ | 2,617 | $ | 2,533 | $ | 2,615 | |||||||||||
PPL Electric (a) | |||||||||||||||||||||||
| Distribution facilities | $ | 1,810 | $ | 419 | $ | 406 | $ | 397 | $ | 294 | $ | 294 | |||||||||||
| Transmission facilities | 1,960 | 713 | 399 | 350 | 245 | 253 | |||||||||||||||||
| Total Capital Expenditures | $ | 3,770 | $ | 1,132 | $ | 805 | $ | 747 | $ | 539 | $ | 547 | |||||||||||
| LKE | |||||||||||||||||||||||
| Generating facilities | $ | 763 | $ | 148 | $ | 222 | $ | 106 | $ | 121 | $ | 166 | |||||||||||
| Distribution facilities | 1,661 | 417 | 392 | 296 | 284 | 272 | |||||||||||||||||
| Transmission facilities | 764 | 190 | 233 | 120 | 112 | 109 | |||||||||||||||||
| Environmental | 549 | 139 | 209 | 113 | 84 | 4 | |||||||||||||||||
| Other | 407 | 113 | 98 | 58 | 69 | 69 | |||||||||||||||||
| Total Capital Expenditures | $ | 4,144 | $ | 1,007 | $ | 1,154 | $ | 693 | $ | 670 | $ | 620 | |||||||||||
| LG&E | |||||||||||||||||||||||
| Generating facilities | $ | 322 | $ | 48 | $ | 100 | $ | 58 | $ | 54 | $ | 62 | |||||||||||
| Distribution facilities | 1,013 | 273 | 254 | 166 | 164 | 156 | |||||||||||||||||
| Transmission facilities | 132 | 44 | 39 | 15 | 15 | 19 | |||||||||||||||||
| Environmental | 214 | 58 | 90 | 38 | 28 | — | |||||||||||||||||
| Other | 207 | 60 | 47 | 31 | 34 | 35 | |||||||||||||||||
| Total Capital Expenditures | $ | 1,888 | $ | 483 | $ | 530 | $ | 308 | $ | 295 | $ | 272 | |||||||||||
| KU | |||||||||||||||||||||||
| Generating facilities | $ | 441 | $ | 100 | $ | 122 | $ | 48 | $ | 67 | $ | 104 | |||||||||||
| Distribution facilities | 648 | 144 | 138 | 130 | 120 | 116 | |||||||||||||||||
| Transmission facilities | 632 | 146 | 194 | 105 | 97 | 90 | |||||||||||||||||
| Environmental | 335 | 81 | 119 | 75 | 56 | 4 | |||||||||||||||||
| Other | 203 | 52 | 52 | 28 | 36 | 35 | |||||||||||||||||
| Total Capital Expenditures | $ | 2,259 | $ | 523 | $ | 625 | $ | 386 | $ | 376 | $ | 349 | |||||||||||
subject to market conditions. These later investments are anticipated to be spread approximately evenly over the two years in the period.
Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions. ForThe capital expenditure plans discussed in this section do not include anticipated capital expenditures with respect to Narragansett Electric. PPL expects to update its capital expenditure plans to include Narragansett Electric upon completion of the years presented, this table includes PPL Electric's asset optimization programacquisition. See Note 9 to replace aging transmission and distribution assets.the Financial Statements for additional information on the pending Narragansett Electric acquisition.
Contractual Obligations
The Registrants have assumed various financial obligations and commitments in the ordinary course of conducting business. At December 31, 2019,2021, estimated contractual cash obligations were as follows:
| Total | 2022 | 2023-2024 | 2025-2026 | After 2026 | |||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||
| Long-term Debt (a) | $ | 11,251 | $ | 474 | $ | 1,003 | $ | 1,454 | $ | 8,320 | |||||||||||||||||||
| Interest on Long-term Debt (b) | 8,322 | 408 | 807 | 771 | 6,336 | ||||||||||||||||||||||||
| Operating Leases (c) | 74 | 23 | 35 | 11 | 5 | ||||||||||||||||||||||||
| Purchase Obligations (d) | 2,711 | 921 | 1,011 | 436 | 343 | ||||||||||||||||||||||||
| Total Contractual Cash Obligations | $ | 22,358 | $ | 1,826 | $ | 2,856 | $ | 2,672 | $ | 15,004 | |||||||||||||||||||
| PPL Electric | |||||||||||||||||||||||||||||
| Long-term Debt (a) | $ | 4,539 | $ | 474 | $ | 990 | $ | — | $ | 3,075 | |||||||||||||||||||
| Interest on Long-term Debt (b) | 3,118 | 154 | 287 | 278 | 2,399 | ||||||||||||||||||||||||
| Unconditional Power Purchase Obligations | 135 | 29 | 57 | 49 | — | ||||||||||||||||||||||||
| Total Contractual Cash Obligations | $ | 7,792 | $ | 657 | $ | 1,334 | $ | 327 | $ | 5,474 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||||
| Long-term Debt (a) | $ | 2,024 | $ | — | $ | — | $ | 390 | $ | 1,634 | |||||||||||||||||||
| Interest on Long-term Debt (b) | 1,413 | 75 | 150 | 141 | 1,047 | ||||||||||||||||||||||||
| Operating Leases (c) | 20 | 6 | 9 | 4 | 1 | ||||||||||||||||||||||||
| Coal and Natural Gas Purchase Obligations (e) | 777 | 317 | 390 | 70 | — | ||||||||||||||||||||||||
| Unconditional Power Purchase Obligations (f) | 330 | 23 | 45 | 44 | 218 | ||||||||||||||||||||||||
| Construction Obligations (g) | 176 | 79 | 66 | 26 | 5 | ||||||||||||||||||||||||
| Other Obligations | 87 | 29 | 6 | 45 | 7 | ||||||||||||||||||||||||
| Total Contractual Cash Obligations | $ | 4,827 | $ | 529 | $ | 666 | $ | 720 | $ | 2,912 | |||||||||||||||||||
| KU | |||||||||||||||||||||||||||||
| Long-term Debt (a) | $ | 2,642 | $ | — | $ | 13 | $ | 414 | $ | 2,215 | |||||||||||||||||||
| Interest on Long-term Debt (b) | 2,117 | 105 | 210 | 201 | 1,601 | ||||||||||||||||||||||||
| Operating Leases (c) | 30 | 10 | 14 | 5 | 1 | ||||||||||||||||||||||||
| Coal and Natural Gas Purchase Obligations (e) | 794 | 323 | 350 | 119 | 2 | ||||||||||||||||||||||||
| Unconditional Power Purchase Obligations (f) | 146 | 10 | 20 | 20 | 96 | ||||||||||||||||||||||||
| Construction Obligations (g) | 156 | 76 | 53 | 22 | 5 | ||||||||||||||||||||||||
| Other Obligations | 103 | 33 | 22 | 40 | 8 | ||||||||||||||||||||||||
| Total Contractual Cash Obligations | $ | 5,988 | $ | 557 | $ | 682 | $ | 821 | $ | 3,928 | |||||||||||||||||||
| Total | 2020 | 2021-2022 | 2023-2024 | After 2024 | |||||||||||||||
| PPL | |||||||||||||||||||
| Long-term Debt (a) | $ | 22,002 | $ | 1,169 | $ | 2,848 | $ | 3,186 | $ | 14,799 | |||||||||
| Interest on Long-term Debt (b) | 15,131 | 926 | 1,657 | 1,435 | 11,113 | ||||||||||||||
| Operating Leases (c) | 122 | 26 | 42 | 27 | 27 | ||||||||||||||
| Purchase Obligations (d) | 2,759 | 1,137 | 842 | 325 | 455 | ||||||||||||||
| Pension Benefit Plan Funding Obligations (e) | 681 | 272 | 226 | 183 | — | ||||||||||||||
| Total Contractual Cash Obligations | $ | 40,695 | $ | 3,530 | $ | 5,615 | $ | 5,156 | $ | 26,394 | |||||||||
| PPL Electric | |||||||||||||||||||
| Long-term Debt (a) | $ | 4,039 | $ | — | $ | 874 | $ | 90 | $ | 3,075 | |||||||||
| Interest on Long-term Debt (b) | 3,441 | 166 | 317 | 281 | 2,677 | ||||||||||||||
| Unconditional Power Purchase Obligations | 30 | 22 | 8 | — | — | ||||||||||||||
| Total Contractual Cash Obligations | $ | 7,510 | $ | 188 | $ | 1,199 | $ | 371 | $ | 5,752 | |||||||||
| LKE | |||||||||||||||||||
| Long-term Debt (a) | $ | 6,041 | $ | 975 | $ | 674 | $ | 13 | $ | 4,379 | |||||||||
| Interest on Long-term Debt (b) | 3,598 | 237 | 378 | 363 | 2,620 | ||||||||||||||
| Operating Leases (c) | 61 | 18 | 22 | 13 | 8 | ||||||||||||||
| Coal and Natural Gas Purchase Obligations (f) | 1,482 | 572 | 661 | 235 | 14 | ||||||||||||||
| Unconditional Power Purchase Obligations (g) | 554 | 31 | 62 | 62 | 399 | ||||||||||||||
| Construction Obligations (h) | 221 | 184 | 34 | 3 | — | ||||||||||||||
| Pension Benefit Plan Obligations (e) | 22 | 22 | — | — | — | ||||||||||||||
| Other Obligations | 304 | 159 | 78 | 25 | 42 | ||||||||||||||
| Total Contractual Cash Obligations | $ | 12,283 | $ | 2,198 | $ | 1,909 | $ | 714 | $ | 7,462 | |||||||||
| LG&E | |||||||||||||||||||
| Long-term Debt (a) | $ | 2,024 | $ | — | $ | 292 | $ | — | $ | 1,732 | |||||||||
| Interest on Long-term Debt (b) | 1,573 | 80 | 146 | 143 | 1,204 | ||||||||||||||
| Operating Leases (c) | 24 | 7 | 9 | 5 | 3 | ||||||||||||||
| Coal and Natural Gas Purchase Obligations (f) | 837 | 289 | 383 | 155 | 10 | ||||||||||||||
| Unconditional Power Purchase Obligations (g) | 382 | 21 | 42 | 43 | 276 | ||||||||||||||
| Construction Obligations (h) | 77 | 64 | 12 | 1 | — | ||||||||||||||
| Pension Benefit Plan Obligations (e) | 4 | 4 | — | — | — | ||||||||||||||
| Other Obligations | 99 | 50 | 20 | 15 | 14 | ||||||||||||||
| Total Contractual Cash Obligations | $ | 5,020 | $ | 515 | $ | 904 | $ | 362 | $ | 3,239 | |||||||||
(b)Assumes interest payments through stated maturity or earlier put dates. The payments herein are subject to change, as payments for debt that is or becomes variable-rate debt have been estimated.
(c)See Note 10 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, natural gas and limestone, as well as certain construction expenditures, which are also included in the Capital Expenditures discussion above.
(e)Represents contracts to purchase coal, natural gas and natural gas transportation. See Note 14 to the Financial Statements for additional information.
(f)Represents future minimum payments under OVEC power purchase agreements through June 2040. See Note 14 to the Financial Statements for additional information.
(g)Represents construction commitments, which are also reflected in the Capital Expenditures table presented above.
| Total | 2020 | 2021-2022 | 2023-2024 | After 2024 | |||||||||||||||
| KU | |||||||||||||||||||
| Long-term Debt (a) | $ | 2,642 | $ | 500 | $ | 132 | $ | 13 | $ | 1,997 | |||||||||
| Interest on Long-term Debt (b) | 1,809 | 104 | 173 | 172 | 1,360 | ||||||||||||||
| Operating Leases (c) | 36 | 11 | 13 | 8 | 4 | ||||||||||||||
| Coal and Natural Gas Purchase Obligations (f) | 645 | 283 | 278 | 80 | 4 | ||||||||||||||
| Unconditional Power Purchase Obligations (g) | 172 | 10 | 20 | 19 | 123 | ||||||||||||||
| Construction Obligations (h) | 108 | 97 | 10 | 1 | — | ||||||||||||||
| Pension Benefit Plan Obligations (e) | 1 | 1 | — | — | — | ||||||||||||||
| Other Obligations | 146 | 70 | 39 | 9 | 28 | ||||||||||||||
| Total Contractual Cash Obligations | $ | 5,559 | $ | 1,076 | $ | 665 | $ | 302 | $ | 3,516 | |||||||||
Dividends/Distributions
(PPL)
PPL views dividends as an integral component of shareowner return and expects to continue to pay dividends in amounts intended to maintain a capitalization structure that supports investment grade credit ratings. In November 2019,2021, PPL declared its quarterly common stock dividend, payable January 2, 2020,3, 2022, at 41.25 cents per share (equivalent to $1.65 per annum). On February 14, 2020, PPL announced an increase of its quarterly common stock dividend to 41.541.50 cents per share (equivalent to $1.66 per annum). On February 18, 2022, PPL announced a quarterly common stock dividend of 20.00 cents per share, payable April 1, 2022, to shareowners of record as of March 10, 2022. 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 factors.
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 2073.2067. At December 31, 2019,2021, no interest payments were deferred.
(PPL Electric, LKE, LG&E and KU)
From time to time, as determined by their respective Board of Directors, the Registrants pay dividends, distributions or distributions,return capital, as applicable, to their respective shareholders or members. Certain of the credit facilities of PPL Electric, LKE, LG&E and KU include minimum debt covenant ratios that could effectively restrict the payment of dividends or distributions.
(All Registrants)
See Note 8 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 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 periodically review the credit ratings of the debt of the Registrants and their subsidiaries. Based on their respective independent reviews, the rating agencies may make certain ratings revisions or ratings affirmations.
A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues. The credit ratings of the Registrants and their subsidiaries are based on information provided by the Registrants and other sources. The ratings of Moody's and S&P are not a recommendation to buy, sell or hold any securities of the Registrants or their subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities.
The credit ratings of the Registrants and their subsidiaries affect their liquidity, access to capital markets and cost of borrowing under their credit facilities. A downgrade in the Registrants' or their subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets. The Registrants and their subsidiaries have no credit rating triggers that would result in the reduction of access to capital markets or the acceleration of maturity dates of outstanding debt.
The following table sets forth the Registrants' and their subsidiaries' credit ratings for outstanding debt securities or commercial paper programs as of December 31, 2019.2021.
51
| 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 | ||||||||||||||||||||||||||||||||||
| PPL and PPL Electric | ||||||||||||||||||||||||||||||||||||||
| PPL Electric | A1 | A | P-2 | A-2 | ||||||||||||||||||||||||||||||||||
| PPL, LG&E and | ||||||||||||||||||||||||||||||||||||||
| A1 | A | P-2 | A-2 | |||||||||||||||||||||||||||||||||||
| A1 | A | P-2 | A-2 | |||||||||||||||||||||||||||||||||||
The rating agencies have taken the following actions related to the Registrants and their subsidiaries.
(PPL)
In September 2019,March 2021, Moody's revised its outlook to positive for PPL and S&P assigned ratings of Baa1 and A- to WPD (East Midlands) £250 million of 1.75% Senior Notes due 2031.PPL Capital Funding.
(PPL and PPL Electric)
In September 2019, Moody'sMarch 2021, S&P revised its outlook to positive for PPL Electric.
In June 2021, Moody’s and S&P assigned ratings of A1 and A to PPL Electric's $400Electric’s $650 million 3.00% First Mortgage Bonds, Floating Rate Series, due 2049.
(PPL and LG&E)
In March 2019,2021, Moody’s and S&P assigned ratings of A1 and A to the Louisville/Jefferson County of Jefferson,Metro Government, Kentucky’s $128 million 1.85%2.00% Pollution Control Revenue Bonds, 20012003 Series A, due 2033, previously issued on behalf of LG&E. The bonds were remarketed April 1, 2019.2021.
In May 2019, Moody'sMarch 2021, Moody’s assigned a rating of A1 and in June 2019,April 2021, S&P assigned a rating of A to the Louisville/Jefferson County Metro Government, Kentucky’s $35 million 1.35% Pollution Control Revenue Bonds, 2001 Series B, due 2027, previously issued on behalf of LG&E. The bonds were remarketed May 3, 2021.
In March 2021, Moody’s assigned a rating of A1 and in April 2021, S&P assigned a rating of A to the County of Trimble, Kentucky’s $35 million 1.35% Pollution Control Revenue Bonds, 2001 Series B, due 2027, previously issued on behalf of LG&E. The bonds were remarketed May 3, 2021.
In May 2021, Moody’s and S&P assigned ratings of A1/P-2 and A/A-2 to the Louisville/Jefferson Kentucky'sCounty Metro Government, Kentucky’s $31 million 1.65% Series A Environmental Facilities Revenue Refunding Bonds, 2007 Series A, due 2033, previously issued on behalf of LG&E. The bonds were remarketed June 1, 2019.2021.
In May 2019, Moody's assigned a rating of A1,2021, Moody’s and in June 2019, S&P assigned a ratingratings of AA1/P-2 and A/A-2 to the Louisville/Jefferson County of Jefferson, Kentucky'sMetro Government, Kentucky’s $35 million 1.65% Series B Environmental Facilities Revenue Refunding Bonds, 2007 Series B, due 2033, previously issued on behalf of LG&E. The bonds were remarketed June 1, 2019.2021.
In September 2019,August 2021, Moody's and S&P assigned ratings of A1 and A to the County of Jefferson,Trimble, Kentucky's $40$28 million 1.75%0.625% Pollution Control Revenue Bonds, 20052001 Series A, due 2035,2026, previously issued on behalf of LG&E. The bonds were remarketed September 17, 2019.1, 2021.
(PPL LKE and KU)
In March 2019, Moody’s assigned a rating of A1May 2021, Moody's and S&P assigned a rating of A to KU’s $300 million 4.375% First Mortgage Bonds due 2045. The bonds were issued April 1, 2019.
52
In August 2019,May 2021, Moody's and S&P assigned a ratingratings of A1 and in September 2019, S&P lowered its rating to A to the following bonds:
County of Carroll, Kentucky’s $50 million 1.75% Environmental Facilities Revenue Bonds, 2004 Series A due 2034;
Ratings Triggers
(PPL, LKE, LG&E and KU)
Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, and interest rate and foreign currency instruments, (for PPL), contain provisions that require the posting of additional collateral or permit the counterparty to terminate the contract, if PPL's, LKE's, LG&E's or KU's or their subsidiaries' credit rating, as applicable, were to fall below investment grade. See Note 1718 to the Financial Statements for a
discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral requirements for PPL LKE and LG&E for derivative contracts in a net liability position at December 31, 2019.2021.
Guarantees for Subsidiaries (PPL)
PPL guarantees 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 believes that these covenants will not limit access to relevant funding sources. See Note 1314 to the Financial Statements for additional information about guarantees.
The Registrants have entered into certain agreements that may contingently require payment to a guaranteed or indemnified party. See Note 1314 to the Financial Statements for a discussion of these agreements.
Risk Management
Market Risk
(All Registrants)
See Notes 1, 1617 and 1718 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.
The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These are not precise indicators of expected future losses, but are rather only indicators of possible losses under normal market conditions at a given confidence level.
Interest Rate Risk
53
The following interest rate hedges were outstanding at December 31:
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||
| 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 and LG&E | |||||||||||||||||||||||||||||||||||||||||
| Economic hedges | |||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps (c) | $ | 64 | $ | (19) | $ | (1) | 2033 | $ | 64 | $ | (24) | $ | — | ||||||||||||||||||||||||||||
| 2019 | 2018 | ||||||||||||||||||||||||
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 | |||||||||||||||||||||||||
| Cross-currency swaps (c) | $ | 702 | $ | 156 | $ | (71 | ) | 2028 | $ | 702 | $ | 137 | $ | (76 | ) | ||||||||||
| Economic hedges | |||||||||||||||||||||||||
| Interest rate swaps (d) | 147 | (22 | ) | (1 | ) | 2033 | 147 | (20 | ) | (1 | ) | ||||||||||||||
| LKE | |||||||||||||||||||||||||
| Economic hedges | |||||||||||||||||||||||||
| Interest rate swaps (d) | 147 | (22 | ) | (1 | ) | 2033 | 147 | (20 | ) | (1 | ) | ||||||||||||||
| LG&E | |||||||||||||||||||||||||
| Economic hedges | |||||||||||||||||||||||||
| Interest rate swaps (d) | 147 | (22 | ) | (1 | ) | 2033 | 147 | (20 | ) | (1 | ) | ||||||||||||||
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, 20192021 and 20182020 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 | |||||||
| 2019 | 2018 | ||||||
| PPL | $ | 655 | $ | 652 | |||
| PPL Electric | 197 | 188 | |||||
| LKE | 198 | 172 | |||||
| LG&E | 84 | 62 | |||||
| KU | 104 | 92 | |||||
| 10% Adverse Movement in Rates | |||||||||||
| 2021 | 2020 | ||||||||||
| PPL | $ | 394 | $ | 582 | |||||||
| PPL Electric | 164 | 175 | |||||||||
| LG&E | 74 | 74 | |||||||||
| KU | 115 | 118 | |||||||||
| 2019 | 2018 | ||||||||||||||||||||||||
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) | |||||||||||||||||||
| Economic hedges (b) | £ | 859 | $ | 137 | $ | (89 | ) | 2020 | £ | 1,540 | $ | 201 | $ | (181 | ) | ||||||||||
(All Registrants)
Commodity Price Risk
PPL is exposed to commodity price risk through its domestic subsidiaries as described below.
•PPL Electric is required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk is insignificant and mitigated through its PUC-approved cost recovery mechanism and full-requirement supply agreements to serve its PLR customers which transfer the risk to energy suppliers.
•LG&E's and KU's rates include certain mechanisms for fuel, fuel-related expenses and energy purchases. In addition, LG&E's rates include a mechanism for natural gas supply expenses. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.
Volumetric Risk
Volumetric risk is the risk related to the changes in volume of retail sales due to weather, economic conditions or other factors. PPL is exposed to volumetric risk through its subsidiaries as described below.
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 - Equity Securities Price Risk
See "Application of Critical Accounting Policies - Defined Benefits" for additional information regarding the effect of equity securities price risk on plan assets.
54
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 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 Electric)
In January 2017, the PUC issued a Final Order approving PPL Electric's PLR procurementElectric’s default service plan for the period June 2017 through May 2021, which includesincluded a total of eight semi-annual solicitations for electricity supply. Additionally, on December 17, 2020, the PUC approved PPL Electric’s default service plan for the period of June 2021 through May 2025, which includes a total of eight solicitations for electricity supply held semiannually in April and October. To date, PPL Electric has conducted six of its plannedThe new plan also includes eight competitive solicitations.solicitations for alternative energy credits held semiannually in January and July with the first solicitation being in July 2021 and the final solicitation being in January 2025.
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, 2019,2021, 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 Note 1718 to the Financial Statements for additional information on credit risk.
Foreign Currency Translation (PPL)
The value of the British pound sterling fluctuates in relation to the U.S. dollar. In 2021, changes in this exchange rate resulted in a foreign currency translation gain of $495 million, which primarily reflected an $856 million increase to PP&E, a $151 million increase to goodwill and a $36 million increase to other net assets, partially offset by a $467 million increase to long-term debt, a $61 million increase to deferred income taxes and a $20 million increase to long-term debt due within one year. In 2020, changes in this exchange rate resulted in a foreign currency translation gain of $267 million, which reflected a $433 million increase to PP&E and a $76 million increase to goodwill partially offset by a $214 million increase to long-term debt and a $28 million increase to other net liabilities. In 2019, changes in this exchange rate resulted in a foreign currency translation gain of $106 million, which reflected a $181 million increase to PP&E, $34 million increase to goodwill and $12 million decrease to other net liabilities partially offset by a $121 million increase to long-term debt. In 2018, changes in this exchange rate resulted in
As a result of the sale of the U.K. utility business on June 14, 2021, accumulated foreign currency translation losslosses of $453$786 million which reflectedwere removed from PPL’s Balance Sheets and realized as a $754 million decreasecomponent of “Income (Loss) from Discontinued Operations (net of income taxes)” on PPL’s Statements of Income (Loss) for the year ended December 31, 2021. See Note 9 to PP&E and $150 million decrease to goodwill partially offset by a $445 million decrease to long-term debt and a decrease of $6 million to other net liabilities. In 2017, changes in this exchange rate resulted in a foreign currency translation gain of $537 million, which reflected a $935 million increase to PP&E and $198 million increase to goodwill partially offset by a $549 million increase to long-term debt and an increase of $47 million to other net liabilities.the Financial Statements for additional information.
(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 1415 to the Financial Statements for additional information on related party transactions for 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. Any resulting transactions may impact future financial results.
(All Registrants)
Environmental Matters
Extensive federal, state and local environmental laws and regulations are applicable to PPL's, PPL Electric's, LKE's, LG&E's and KU'sthe Registrants' air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of the Registrants' businesses. The costs of compliance or alleged non-compliance cannot be predicted with certainty but could be significant. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. Many of these environmental law considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the costs for their products or their demand for the Registrants' services. Increased capital and operating costs are expected to be subject to rate recovery. PPL, PPL Electric, LKE, LG&E and KUThe Registrants can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.
See "Legal Matters" in Note 1314 to the Financial Statements for a discussion of the more significant environmental claims. See "Financial Condition - Liquidity and Capital Resources - Forecasted Uses of Cash - Capital Expenditures" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for information on projected environmental capital expenditures for 20202022 through 2024. See Note 1920 to the Financial Statements for information related to the impacts of CCRs on AROs. See "Item 1. Business - Environmental Matters" for additional information.
Sustainability
Increasing attention has been focused on a broad range of corporate activities under the heading of “sustainability”, which has resulted in a significant increase in the number 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 non-investors concerned with a variety of public policy matters. Often the scope of the information sought is very broad and not necessarily relevant to an issuer’s business or industry. As a result, a number of private groups have proposed to standardize 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”)’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 by the SEC.
As has been PPL’s practice, to the extent sustainability issues have or may have a material impact on the Registrants’ financial condition or results of operation, 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 including tracking reductions related to the company's goal to reduce carbon emissions 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 is guided by the framework established by the Global Reporting Initiative, which identifies environmental, social, governance and other subject matter categories. PPL also participates in efforts by the Edison Electric Institute to provide the appropriate subset of sustainability information that can be applied consistently across the electric utility industry. Additionally, PPL publicly discloses its corporate political contributions and responds to the CDP climate survey.
Cybersecurity
See “Cybersecurity Management” in “Item 1. Business” and “Item 1A. Risk factors” for a discussion of cybersecurity risks affecting the Registrants and the related strategies for managing these risks.
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Competition
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.
New Accounting Guidance
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.
Defined Benefits
(All Registrants)
Certain of the Registrants and/or their subsidiaries sponsor or participate in certain qualified funded and non-qualified unfunded defined benefit pension plans and both funded and unfunded other postretirement benefit plans. See Notes 1, 7 and 1112 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.
| Plan Sponsor | PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||||||||||
| PPL Services | S | P | ||||||||||||||||||||||||||||||
| P | ||||||||||||||||||||||||||||||||
| P | ||||||||||||||||||||||||||||||||
Management makes certain assumptions regarding the valuation of benefit obligations and the performance of plan assets. As such, annual net periodic defined benefit costs are recorded in current earnings or regulatory assets and liabilities 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 significant assumptions are:
•Discount Rate - 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 Aa-rated non-callable (or callable with make-whole provisions) bonds that could be purchased for a hypothetical settlement portfolio. The plan sponsors then use the single discount rate derived from matching the discounted benefit payment stream to the market value of the selected bond portfolio.
Expected Return on Plan Assets - 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.
•Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement. In selecting a rate of compensation increase, plan sponsors consider past experience, the potential impact of movements in inflation rates and expectations of ongoing compensation practices.
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See Note 1112 to the Financial Statements for details of the assumptions selected for pension and other postretirement benefits. A variance in the assumptions could significantly impact accrued defined benefit liabilities or assets, reported annual net periodic defined benefit costs and AOCI or regulatory assets and liabilities.
The following tables reflect changes in certain assumptions based on the Registrants' primary defined benefit plans. The inverse of this change would have the opposite impact on accrued defined benefit liabilities or assets, reported annual net periodic defined benefit costs and AOCI or regulatory assets and liabilities. The sensitivities below reflect an evaluation of the change based solely on a change in that assumption.
| Increase (Decrease) | |||||
| Actuarial assumption | |||||
| Discount Rate | (0.25 | %) | |||
| Expected Return on Plan Assets | (0.25 | %) | |||
| Rate of Compensation Increase | 0.25 | % | |||
| Increase (Decrease) | Increase (Decrease) | (Increase) Decrease | Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||||||||
| Actuarial assumption | Defined Benefit Asset | Defined Benefit Liabilities | AOCI (pre-tax) | Net Regulatory Assets | Defined Benefit Costs | ||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||
| Discount rates | $ | (128) | $ | 13 | $ | 52 | $ | 89 | $ | 16 | |||||||||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 9 | ||||||||||||||||||||||||
| Rate of compensation increase | (11) | — | 4 | 7 | 3 | ||||||||||||||||||||||||
| PPL Electric | |||||||||||||||||||||||||||||
| Discount rates | (50) | 6 | — | 56 | 5 | ||||||||||||||||||||||||
| Expected return on plan assets | n/a | n/a | — | n/a | 4 | ||||||||||||||||||||||||
| Rate of compensation increase | (4) | — | — | 4 | 1 | ||||||||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||||
| Discount rates | (16) | 2 | n/a | 17 | 3 | ||||||||||||||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 1 | ||||||||||||||||||||||||
| Rate of compensation increase | (1) | — | n/a | 1 | 1 | ||||||||||||||||||||||||
| KU | |||||||||||||||||||||||||||||
| Discount rates | (14) | 2 | n/a | 16 | 2 | ||||||||||||||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 1 | ||||||||||||||||||||||||
| Rate of compensation increase | (1) | — | n/a | 1 | — | ||||||||||||||||||||||||
| Increase (Decrease) | Increase (Decrease) | (Increase) Decrease | Increase (Decrease) | Increase (Decrease) | |||||||||||||||
| Actuarial assumption | Defined Benefit Asset | Defined Benefit Liabilities | AOCI (pre-tax) | Net Regulatory Assets | Defined Benefit Costs | ||||||||||||||
| PPL | |||||||||||||||||||
| Discount rates | $ | (371 | ) | $ | 134 | $ | 413 | $ | 92 | $ | 47 | ||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 31 | ||||||||||||||
| Rate of compensation increase | (56 | ) | 15 | 62 | 9 | 13 | |||||||||||||
| PPL Electric | |||||||||||||||||||
| Discount rates | 57 | — | 57 | 3 | |||||||||||||||
| Expected return on plan assets | n/a | — | n/a | 4 | |||||||||||||||
| Rate of compensation increase | 6 | — | 6 | 1 | |||||||||||||||
| LKE | |||||||||||||||||||
| Discount rates | (9 | ) | 51 | 26 | 34 | 6 | |||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 4 | ||||||||||||||
| Rate of compensation increase | n/a | 6 | 3 | 3 | 2 | ||||||||||||||
| Increase (Decrease) | Increase (Decrease) | (Increase) Decrease | Increase (Decrease) | Increase (Decrease) | |||||||||||||||
| Actuarial assumption | Defined Benefit Asset | Defined Benefit Liabilities | AOCI (pre-tax) | Net Regulatory Assets | Defined Benefit Costs | ||||||||||||||
| LG&E | |||||||||||||||||||
| Discount rates | (16 | ) | 2 | n/a | 18 | 2 | |||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 1 | ||||||||||||||
| Rate of compensation increase | (1 | ) | — | n/a | 1 | — | |||||||||||||
| KU | |||||||||||||||||||
| Discount rates | (14 | ) | 2 | n/a | 16 | 2 | |||||||||||||
| Expected return on plan assets | n/a | n/a | n/a | n/a | 1 | ||||||||||||||
| Rate of compensation increase | (2 | ) | — | n/a | 2 | — | |||||||||||||
Income Taxes (All Registrants)
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 inon tax returns and valuation allowances on deferred tax assets, as well as whether the undistributed earnings of WPD are considered indefinitely reinvested.assets.
Additionally, significant management judgment is required to determine the amount of benefit recognized related to an uncertain tax position. On a quarterly basis, uncertain tax positions are reassessed by considering information known as of the reporting date. Based on management's assessment of new information, a tax benefit may subsequently be recognized for a previously unrecognized tax position, a previously recognized tax position may be derecognized, or the benefit of a previously recognized tax position may be remeasured. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements in the future.
The need for valuation allowances to reduce deferred tax assets also requires significant management judgment. Valuation allowances are initially recorded and reevaluated each reporting period by assessing the likelihood of the ultimate realization of a deferred tax asset. Management considers a number ofseveral factors in assessing the expected realization of a deferred tax asset, including the reversal of temporary differences, future taxable income and ongoing prudent and feasible tax planning strategies. Any tax planning strategy utilized in this assessment must meet the recognition and measurement criteria utilized to account for an uncertain tax position. Management also considersWhen evaluating the need for valuation allowances, the uncertainty posed by political risk and the effecton such
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factors that management takes into account in evaluating the need for valuation allowances.is also considered by management. The amount of deferred tax assets ultimately realized may differ materially from the estimates utilized in the computation of valuation allowances and may materially impact the financial statements in the future.
The TCJA included new provisions requiring that certain income, referred to as global intangible low-taxed income (GILTI), earned by certain foreign subsidiaries be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election regarding the timing of inclusion of GILTI in an entity’s financial statements. The election may be either to record deferred taxes for expected GILTI in future periods or record such taxes as a current-period expense when incurred. PPL has elected to record the tax effect of expected GILTI inclusions and thus, records deferred taxes relating to such inclusions. PPL does not expect to generate GILTI income following the disposition of U.K. utilities business.
See Note 6 to the Financial Statements for income tax disclosures, including the impact of the TCJA and management's conclusion that the undistributed earnings of WPD are considered indefinitely reinvested. Based on this conclusion, PPL Global does not record deferred U.S. federal income taxes on WPD's undistributed earnings.disclosures.
Regulatory Assets and Liabilities
(All 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 the Registrants and 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.
See Note 7 to the Financial Statements for regulatory assets and regulatory liabilities recorded at December 31, 20192021 and 2018,2020, as well as additional information on those regulatory assets and liabilities. 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.
Goodwill is tested for impairment at the reporting unit level. PPL has determined itsThe reporting units to be primarily atof PPL include the same level as its reportable segments.Kentucky Regulated segment reporting unit and the LKE reporting unit. LG&E and KU are individually single operating and reportable segments.segments and each are single reporting units. 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.
The fair value of a reporting unit is compared with the carrying value and an impairment charge is recognized if the carrying amount exceeds the fair value of the reporting unit.
PPL, for its Kentucky Regulated segment and LKE reporting units, and individually 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. See “Long-Lived"Long-Lived and Intangible Assets - Asset Impairment (Excluding Investments)”" in Note 1 to the Financial Statements for further discussion of qualitative and quantitative goodwill impairment tests.tests. See Note 1819 to the Financial Statements for information on goodwill balances at December 31, 2019.2021.
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Based on these evaluations, management concluded it was not "more likely than not" that the fair value of these reporting units was less than their carrying values. As such, quantitative impairment tests were not performed.
(PPL)
In the fourth quarter of 2021, PPL elected to perform the two-stepa quantitative goodwill impairment test ofin conjunction with the annual goodwill impairment assessment for the U.K. Regulated segmentDistributed Energy Resources reporting unit, inwhich has a goodwill balance of $53 million at December 31, 2021. The test did not indicate impairment of the fourth quarter of 2019. reporting unit. See Note 1 to the Financial Statements for additional information.
Management used both discounted cash flows and market multiples, including implied RAV premiums, which required significant assumptions, to estimate the fair value of the reporting units.unit. Significant assumptions used in the discounted cash flows include discount and growth rates outcomes of future rate filings, and projected operating and capital cash flows. Projected operating and capital cash flows isare based on the Registrants' internal business plan,plans, which assumesassume the occurrence of certain future events. Significant assumptions used in the market multiples include utility sector market performance and comparable transactions.
A high degree of judgment is required to develop estimates related to fair value conclusions. A decrease in the forecasted cash flows of 10%, an increase in the discount rate of 0.25%10%, or a 10% decrease in the market multiples would not have resulted in an impairment of goodwill for thisthe Distributed Energy Resources reporting unit.
Asset Retirement Obligations (PPL, LKE, LG&E and KU)
ARO liabilities are required to be recognized for legal obligations associated with the retirement of long-lived assets. Initial obligations are measured at 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 asset's useful life.
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 consider estimated retirement costs in current period dollars, inflated to the anticipated retirement date and 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 ARO estimate. Any change to the capitalized asset is generally amortized over the remaining life of the associated long-lived asset.
See “Long-Lived and Intangible Assets - Asset Retirement Obligations” in Note 1, Note 7 and Note 1920 to the Financial Statements for additional information on AROs.
At December 31, 2019,2021, the total recorded balances and information on the most significant recorded AROs were as follows.
| Most Significant AROs | |||||||||||||||||||||||
| Total ARO Recorded | Amount Recorded | % of Total | Description | ||||||||||||||||||||
| LG&E | $ | 84 | $ | 66 | 79 | Ponds, landfills and natural gas mains | |||||||||||||||||
| KU | 105 | 80 | 76 | Ponds and landfills | |||||||||||||||||||
| Most Significant AROs | ||||||||||||
Total ARO Recorded | Amount Recorded | % of Total | Description | |||||||||
| PPL | $ | 282 | $ | 181 | 64 | Ponds, landfills and natural gas mains | ||||||
| LKE | 215 | 181 | 84 | Ponds, landfills and natural gas mains | ||||||||
| LG&E | 73 | 56 | 77 | Ponds, landfills and natural gas mains | ||||||||
| KU | 142 | 125 | 88 | Ponds and landfills | ||||||||
The most significant assumptions surrounding AROs are the forecasted retirement costs (including settlement dates and the timing of cash flows), discount and inflation rates. At December 31, 2019,2021, a 10% increase to retirement cost would increase these ARO liabilities by $33 million.$13 million at LG&E and $23 million at KU. A 0.25% decrease in the discount rate would increase these ARO liabilities by $4 million at LG&E and $1 million at KU and a 0.25% increase in the inflation rate would increase these ARO liabilities by $2 million.$4 million at LG&E. 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.
Revenue Recognition - Unbilled Revenues (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 actual meter reads taken throughout the month, estimates are recorded for unbilled revenues at the end of each reporting period. For LG&E and KU, such unbilled revenue amounts reflect
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estimates of 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. See "Unbilled revenues" on the Registrants' Balance Sheets for balances at December 31, 20192021 and 2018.2020.
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 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 FIRM
To the Shareowners and the Board of Directors of PPL Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PPL Corporation and subsidiaries (the "Company") as of December 31, 20192021 and 2018,2020, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2021, based on criteria established inInternal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2020,18, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current-period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Regulatory Assets and Liabilities -– Impact of Rate Regulation on Various Account Balances and Disclosures -– Refer to Notes 1 and 7 to the Financial Statementsfinancial statements
Critical Audit Matter Description
As discussed in Note 1 to the financial statements, PPL Corporation owns and operates three cost-based rate-regulated utilities in the United States (U.S.) for which rates are set by the Federal Energy Regulatory Commission (FERC), the Kentucky Public Service Commission (KPSC), the Virginia State Corporation Commission (VSCC), and the Pennsylvania Public Utility Commission (PUC) to enable the regulated utilities to recover the costs of providing electric or gas service,services, as applicable, and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by accounting principles generally accepted in the United States of Americaaccounting principles 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.
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, KPSC, VSCC, and PUC. The accounting for the economics of rate regulationrate-regulation also impacts other financial statement line items,
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including regulated utility plant, operating revenues, depreciation, and income taxes and impacts multiple note disclosures. As of December 31, 2019,2021, PPL Corporation had a recorded regulatory assets balance of $1,559$1,300 million and regulatory liabilities balance of $2,687$2,604 million.
PPL Corporation’s U.S. regulated utilities’ rates are subject to cost-based rate-setting processes and annual earnings oversight. Rates are established based on an analysis of the costs incurred and the regulated utility’s capital structure and must be approved by one or more federal or state regulatory commissions, including the FERC, KPSC, VSCC, and PUC. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital, and the timing and amount of assets to be recovered by rates. The FERC, KPSC, VSCC, and PUC regulation of rates is premised on the full recovery of prudently incurred costs and an adequate return on capital investments. Decisions to be made by the FERC, KPSC, VSCC, and PUC in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. While PPL Corporation’s U.S. utilities have indicated that they expect to recover costs from customers through regulated rates, there is a risk that the FERC, KPSC, VSCC, or PUC will not approve full recovery of such costs or approve recovery on a timely basis in future regulatory decisions.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management in continually assessing 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, and the status of any pending legislation. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the FERC, KPSC, VSCC, and PUC included the following, among others:
•We tested the effectiveness of management’s internal controls over evaluating the likelihood of recovery in future rates of costs deferred as regulatory assets. We tested the effectiveness of management’s controls over the recognition of amounts as regulated utility plant, regulatory assets or liabilities, operating revenues, depreciation, income taxes, and note disclosures anddisclosures. We tested the effectiveness of management’s internal controls over the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
•We obtained and read relevant regulatory orders issued by the FERC, KPSC, VSCC, and PUC for PPL Corporation’s U.S. regulated utilities and other public utilities, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates.rates based on precedents of the treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.
•We inquired of management about regulated utility plant that may be abandoned. We inspected minutes of the boardBoard of directors,Directors, other public information, regulatory orders, and other filings with the commissioncommissions to identify any evidence that could indicate utility plant may contradict management’s assertion regarding probability of an abandonment.be abandoned.
•We evaluated PPL Corporation’s disclosures related to the impacts of rate-regulation, including the balances recorded and regulatory developments, in the financial statements.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
February 14, 2020 18, 2022
We have served as the Company's auditor since 2015.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareowners and the Board of Directors of PPL Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of PPL Corporation and subsidiaries (the “Company”) as of December 31, 2019,2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019,2021, of the Company and our report dated February 14, 2020,18, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
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 the accompanying Management’s Report on Internal Control over Financial Reporting at Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
February 14, 202018, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareowner and the Board of Directors of PPL Electric Utilities Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PPL Electric Utilities Corporation and subsidiaries (the "Company") as of December 31, 20192021 and 2018,2020, the related consolidated statements of income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Assets and Liabilities – Impact of Rate Regulation on Various Account Balances and Disclosures – Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
As discussed in Note 1 to the financial statements, PPL Electric Utilities Corporation (PPL Electric) is a cost-based rate-regulated utility for which rates are set by the Federal Energy Regulatory Commission (FERC) and the Pennsylvania Public Utility Commission (PUC) to enable the regulated utility to recover the costs of providing electric service and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by generally accepted accounting principles 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. 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 and PUC. The accounting for the economics of rate-regulation also impacts other financial statement line items, including
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regulated utility plant, operating revenues, depreciation, and income taxes, and impacts multiple note disclosures. As of December 31, 2021, PPL Electric had a recorded regulatory assets balance of $510 million and regulatory liabilities balance of $712 million.
PPL Electric’s regulated utility’s rates are subject to cost-based rate-setting processes and annual earnings oversight. Rates are established based on an analysis of the costs incurred and the regulated utility’s capital structure and must be approved by one or more federal or state regulatory commissions, including the FERC and PUC. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital, and the timing and amount of assets to be recovered by rates. The FERC and PUC regulation of rates is premised on the full recovery of prudently incurred costs and an adequate return on capital investments. Decisions to be made by the FERC and PUC in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. While PPL Electric has indicated that it expects to recover costs from customers through regulated rates, there is a risk that the FERC or PUC will not approve full recovery of such costs or approve recovery on a timely basis in future regulatory decisions.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management in continually assessing 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, and the status of any pending legislation. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the FERC and PUC included the following, among others:
•We tested the effectiveness of management’s internal controls over evaluating the likelihood of recovery in future rates of costs deferred as regulatory assets. We tested the effectiveness of management’s controls over the recognition of amounts as regulated utility plant, regulatory assets or liabilities, operating revenues, depreciation, income taxes, and note disclosures. We tested the effectiveness of management’s internal controls over the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
•We obtained and read relevant regulatory orders issued by the FERC and PUC for PPL Electric and other public utilities in Pennsylvania, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.
•We inquired of management about regulated utility plant that may be abandoned. We inspected minutes of the Board of Directors, other public information, regulatory orders and other filings with the commissions to identify any evidence that may contradict management’s assertion regarding probability of an abandonment.
•We evaluated PPL Electric’s disclosures related to the impacts of rate-regulation, including the balances recorded and regulatory developments, in the financial statements.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
February 14, 2020 18, 2022
We have served as the Company's auditor since 2015.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Sole MemberStockholder and the Board of Directors of LG&ELouisville Gas and KU Energy LLCElectric Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of LG&ELouisville Gas and KU Energy LLC and SubsidiariesElectric Company (the “Company”) as of December 31, 20192021 and 2018,2020, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Assets and Liabilities– Impact of Rate-Regulation on Various Account Balances and Disclosures – Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
As discussed in Note 1 to the financial statements, Louisville Gas and Electric Company (LG&E) is a cost-based rate-regulated utility for which rates are set by the Kentucky Public Service Commission (KPSC) and the Federal Energy Regulatory Commission (FERC) to enable the regulated utility to recover the costs of providing electric or gas services, as applicable, and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by generally accepted accounting principles 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. 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 KPSC and FERC. The accounting for the economics of rate-regulation also impacts other financial statement line items, including regulated utility plant, operating revenues, depreciation, and income taxes, and impacts
67
multiple note disclosures. As of December 31, 2021, LG&E had a recorded regulatory assets balance of $370 million and regulatory liabilities balance of $839 million.
LG&E’s regulated utility’s rates are subject to cost-based rate-setting processes and annual earnings oversight. Rates are established based on an analysis of the costs incurred and the regulated utility’s capital structure and must be approved by one or more federal or state regulatory commissions, including the KPSC and FERC. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. The KPSC and FERC regulation of rates is premised on the full recovery of prudently incurred costs and an adequate return on capital investments. Decisions to be made by the KPSC and FERC in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. While LG&E has indicated that it expects to recover costs from customers through regulated rates, there is a risk that the KPSC or FERC will not approve full recovery of such costs or approve recovery on a timely basis in future regulatory decisions.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management in continually assessing 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, and the status of any pending legislation. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the KPSC and FERC included the following, among others:
•We tested the effectiveness of management’s internal controls over evaluating the likelihood of recovery in future rates of costs deferred as regulatory assets. We tested the effectiveness of management’s controls over the recognition of amounts as regulated utility plant, regulatory assets or liabilities, operating revenues, depreciation, income taxes, and note disclosures. We tested the effectiveness of management’s internal controls over the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
•We obtained and read relevant regulatory orders issued by the KPSC and FERC for LG&E and other public utilities in Kentucky, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.
•We inquired of management about regulated utility plant that may be abandoned. We inspected minutes of the Board of Directors, other public information, regulatory orders and other filings with the commissions to identify any evidence that could indicate utility plant may be abandoned.
•We evaluated LG&E’s disclosures related to the impacts of rate-regulation, including the balances recorded and regulatory developments, in the financial statements.
/s/ Deloitte & Touche LLP
Louisville, Kentucky
February 14, 202018, 2022
We have served as the Company’s auditor since 2015.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of Louisville Gas and ElectricKentucky Utilities Company
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Louisville Gas and ElectricKentucky Utilities Company (the “Company”) as of December 31, 20192021 and 2018,2020, the related statements of income, equity, and cash flows, for each of the three years in the period ended December 31, 2019,2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Assets and Liabilities – Impact of Rate-Regulation on Various Account Balances and Disclosures – Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
As discussed in Note 1 to the financial statements, Kentucky Utilities Company (KU) is a cost-based rate-regulated utility for which rates are set by the Kentucky Public Service Commission (KPSC), the Virginia State Corporation Commission (VSCC), and the Federal Energy Regulatory Commission (FERC) to enable the regulated utility to recover the costs of providing electric service and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by generally accepted accounting principles 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. 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 KPSC, VSCC, and FERC. The accounting for the economics of rate-regulation also impacts other financial statement line items, including regulated utility plant, operating revenues, depreciation, and income taxes, and
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impacts multiple note disclosures. As of December 31, 2021, KU had a recorded regulatory assets balance of $420 million and regulatory liabilities balance of $1,053 million.
KU’s regulated utility’s rates are subject to cost-based rate-setting processes and annual earnings oversight. Rates are established based on an analysis of the costs incurred and the regulated utility’s capital structure and must be approved by one or more federal or state regulatory commissions, including the KPSC, VSCC, and FERC. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. The KPSC, VSCC, and FERC regulation of rates is premised on the full recovery of prudently incurred costs and an adequate return on capital investments. Decisions to be made by the KPSC, VSCC, and FERC in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. While KU has indicated that it expects to recover costs from customers through regulated rates, there is a risk that the KPSC, VSCC, or FERC will not approve full recovery of such costs or approve recovery on a timely basis in future regulatory decisions.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management in continually assessing 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, and the status of any pending legislation. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the KPSC, VSCC, and FERC included the following, among others:
•We tested the effectiveness of management’s internal controls over evaluating the likelihood of recovery in future rates of costs deferred as regulatory assets. We tested the effectiveness of management’s controls over the recognition of amounts as regulated utility plant, regulatory assets or liabilities, operating revenues, depreciation, income taxes, and note disclosures. We tested the effectiveness of management’s internal controls over the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
•We obtained and read relevant regulatory orders issued by the KPSC, VSCC, and FERC for KU and other public utilities in Kentucky and Virginia, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.
•We inquired of management about regulated utility plant that may be abandoned. We inspected minutes of the Board of Directors, other public information, regulatory orders and other filings with the commissions to identify any evidence that could indicate utility plant may be abandoned.
•We evaluated KU’s disclosures related to the impacts of rate-regulation, including the balances recorded and regulatory developments, in the financial statements.
/s/ Deloitte & Touche LLP
Louisville, Kentucky
February 14, 202018, 2022
We have served as the Company’s auditor since 2015.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, except share data)
| 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Operating Revenues | $ | 7,769 | $ | 7,785 | $ | 7,447 | Operating Revenues | $ | 5,783 | $ | 5,474 | $ | 5,602 | |||||||||||||||
| Operating Expenses | Operating Expenses | |||||||||||||||||||||||||||
| Operation | Operation | |||||||||||||||||||||||||||
| Fuel | 709 | 799 | 759 | Fuel | 710 | 632 | 709 | |||||||||||||||||||||
| Energy purchases | 723 | 745 | 685 | Energy purchases | 752 | 634 | 723 | |||||||||||||||||||||
| Other operation and maintenance | 1,985 | 1,983 | 1,802 | Other operation and maintenance | 1,608 | 1,420 | 1,509 | |||||||||||||||||||||
| Depreciation | 1,199 | 1,094 | 1,008 | Depreciation | 1,082 | 1,022 | 949 | |||||||||||||||||||||
| Taxes, other than income | 313 | 312 | 292 | Taxes, other than income | 207 | 180 | 186 | |||||||||||||||||||||
| Total Operating Expenses | 4,929 | 4,933 | 4,546 | Total Operating Expenses | 4,359 | 3,888 | 4,076 | |||||||||||||||||||||
| Operating Income | 2,840 | 2,852 | 2,901 | Operating Income | 1,424 | 1,586 | 1,526 | |||||||||||||||||||||
| Other Income (Expense) - net | 309 | 396 | (88 | ) | Other Income (Expense) - net | 15 | 2 | 14 | ||||||||||||||||||||
| Interest Expense | 994 | 963 | 901 | Interest Expense | 918 | 634 | 621 | |||||||||||||||||||||
| Income Before Income Taxes | 2,155 | 2,285 | 1,912 | |||||||||||||||||||||||||
| Income (Loss) from Continuing Operations Before Income Taxes | Income (Loss) from Continuing Operations Before Income Taxes | 521 | 954 | 919 | ||||||||||||||||||||||||
| Income Taxes | 409 | 458 | 784 | Income Taxes | 503 | 314 | 183 | |||||||||||||||||||||
| Net Income | $ | 1,746 | $ | 1,827 | $ | 1,128 | ||||||||||||||||||||||
| Income (Loss) from Continuing Operations After Income Taxes | Income (Loss) from Continuing Operations After Income Taxes | 18 | 640 | 736 | ||||||||||||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | Income (Loss) from Discontinued Operations (net of income taxes) (Note 9) | (1,498) | 829 | 1,010 | ||||||||||||||||||||||||
| Net Income (Loss) | Net Income (Loss) | $ | (1,480) | $ | 1,469 | $ | 1,746 | |||||||||||||||||||||
| Earnings Per Share of Common Stock: | Earnings Per Share of Common Stock: | |||||||||||||||||||||||||||
| Net Income Available to PPL Common Shareowners: | ||||||||||||||||||||||||||||
| Basic | $ | 2.39 | $ | 2.59 | $ | 1.64 | Basic | |||||||||||||||||||||
| Income (Loss) from Continuing Operations After Income Taxes | Income (Loss) from Continuing Operations After Income Taxes | $ | 0.03 | $ | 0.83 | $ | 1.01 | |||||||||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) | Income (Loss) from Discontinued Operations (net of income taxes) | (1.96) | 1.08 | 1.38 | ||||||||||||||||||||||||
| Net Income (Loss) Available to PPL Common Shareowners | Net Income (Loss) Available to PPL Common Shareowners | $ | (1.93) | $ | 1.91 | $ | 2.39 | |||||||||||||||||||||
| Diluted | $ | 2.37 | $ | 2.58 | $ | 1.64 | Diluted | |||||||||||||||||||||
| Income (Loss) from Continuing Operations After Income Taxes | Income (Loss) from Continuing Operations After Income Taxes | $ | 0.03 | $ | 0.83 | $ | 1.00 | |||||||||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) | Income (Loss) from Discontinued Operations (net of income taxes) | (1.96) | 1.08 | 1.37 | ||||||||||||||||||||||||
| Net Income (Loss) Available to PPL Common Shareowners | Net Income (Loss) Available to PPL Common Shareowners | $ | (1.93) | $ | 1.91 | $ | 2.37 | |||||||||||||||||||||
| Weighted-Average Shares of Common Stock Outstanding (in thousands) | Weighted-Average Shares of Common Stock Outstanding (in thousands) | |||||||||||||||||||||||||||
| Basic | 728,512 | 704,439 | 685,240 | Basic | 762,902 | 768,590 | 728,512 | |||||||||||||||||||||
| Diluted | 736,754 | 708,619 | 687,334 | Diluted | 764,819 | 769,384 | 736,754 | |||||||||||||||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
| 2019 | 2018 | 2017 | |||||||||
| Net income | $ | 1,746 | $ | 1,827 | $ | 1,128 | |||||
| Other comprehensive income (loss): | |||||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||||
| Foreign currency translation adjustments, net of tax of $0, ($2), ($1) | 108 | (444 | ) | 538 | |||||||
| Qualifying derivatives, net of tax of $2, ($9), $19 | (11 | ) | 36 | (79 | ) | ||||||
| Defined benefit plans: | |||||||||||
| Prior service costs, net of tax of $0, $3, $0 | (1 | ) | (11 | ) | — | ||||||
| Net actuarial gain (loss), net of tax of $119, $44, $72 | (592 | ) | (187 | ) | (308 | ) | |||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||
| Qualifying derivatives, net of tax of ($5), $6, ($18) | 13 | (29 | ) | 73 | |||||||
| Equity investees' other comprehensive (income) loss, net of tax of $0, $0, $0 | — | — | 1 | ||||||||
| Defined benefit plans: | |||||||||||
| Prior service costs, net of tax of ($1), $0, ($1) | 2 | 2 | 1 | ||||||||
| Net actuarial (gain) loss, net of tax of ($22), ($36), ($37) | 87 | 142 | 130 | ||||||||
| Total other comprehensive income (loss) | (394 | ) | (491 | ) | 356 | ||||||
| Comprehensive income | $ | 1,352 | $ | 1,336 | $ | 1,484 | |||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Net income (loss) | $ | (1,480) | $ | 1,469 | $ | 1,746 | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||||||||||
| Foreign currency translation adjustments, net of tax of ($123), $0, $0 | 372 | 267 | 108 | ||||||||||||||
| Qualifying derivatives, net of tax of $11, $5, $2 | (39) | (19) | (11) | ||||||||||||||
| Defined benefit plans: | |||||||||||||||||
| Prior service costs, net of tax of $0, $0, $0 | — | (1) | (1) | ||||||||||||||
| Net actuarial gain (loss), net of tax of $1, $74, $119 | (1) | (341) | (592) | ||||||||||||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||||||||
| Qualifying derivatives, net of tax of ($5), ($8), ($5) | 25 | 24 | 13 | ||||||||||||||
| Defined benefit plans: | |||||||||||||||||
| Prior service costs, net of tax of ($1), ($1), ($1) | 2 | 3 | 2 | ||||||||||||||
| Net actuarial (gain) loss, net of tax of ($33), ($51), ($22) | 126 | 205 | 87 | ||||||||||||||
| Reclassifications from AOCI due to sale of the U.K. utility business - (gains) losses, net of tax expense (benefit): | |||||||||||||||||
| Foreign currency translation adjustments, net of tax of $140, $0, $0 | 786 | — | — | ||||||||||||||
| Qualifying derivatives, net of tax of $0, $0, $0 | 15 | — | — | ||||||||||||||
| Defined benefit plans: | |||||||||||||||||
| Prior service costs, net of tax of ($2), $0, $0 | 8 | — | — | ||||||||||||||
| Net actuarial (gain) loss, net of tax of ($798), $0, $0 | 2,769 | — | — | ||||||||||||||
| Total other comprehensive income (loss) | 4,063 | 138 | (394) | ||||||||||||||
| Comprehensive income | $ | 2,583 | $ | 1,607 | $ | 1,352 | |||||||||||
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)
| 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | |||||||||||||||||||||||||||
| Net income | $ | 1,746 | $ | 1,827 | $ | 1,128 | ||||||||||||||||||||||
| Net income (loss) | Net income (loss) | $ | (1,480) | $ | 1,469 | $ | 1,746 | |||||||||||||||||||||
| Loss (income) from discontinued operations (net of income taxes) | Loss (income) from discontinued operations (net of income taxes) | 1,498 | (829) | (1,010) | ||||||||||||||||||||||||
| Income from continuing operations (net of income taxes) | Income from continuing operations (net of income taxes) | 18 | 640 | 736 | ||||||||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||||||||||||||||||
| Depreciation | 1,199 | 1,094 | 1,008 | Depreciation | 1,082 | 1,022 | 949 | |||||||||||||||||||||
| Amortization | 81 | 78 | 97 | Amortization | 39 | 58 | 58 | |||||||||||||||||||||
| Defined benefit plans - (income) | (263 | ) | (192 | ) | (95 | ) | ||||||||||||||||||||||
| Deferred income taxes and investment tax credits | 309 | 355 | 707 | Deferred income taxes and investment tax credits | 87 | 169 | 169 | |||||||||||||||||||||
| Unrealized (gains) losses on derivatives, and other hedging activities | 73 | (186 | ) | 178 | ||||||||||||||||||||||||
| Stock compensation expense | 36 | 26 | 38 | |||||||||||||||||||||||||
| Impairment of solar panels | Impairment of solar panels | 37 | — | — | ||||||||||||||||||||||||
| Loss on extinguishment of debt | Loss on extinguishment of debt | 395 | — | — | ||||||||||||||||||||||||
| Other | (22 | ) | (3 | ) | (9 | ) | Other | 20 | 67 | 69 | ||||||||||||||||||
| Change in current assets and current liabilities | Change in current assets and current liabilities | |||||||||||||||||||||||||||
| Accounts receivable | 4 | 28 | (33 | ) | Accounts receivable | (14) | (70) | (3) | ||||||||||||||||||||
| Accounts payable | (77 | ) | 78 | (10 | ) | Accounts payable | 24 | (1) | (66) | |||||||||||||||||||
| Unbilled revenues | (5 | ) | 41 | (48 | ) | |||||||||||||||||||||||
| Fuel, materials and supplies | (26 | ) | 17 | 40 | ||||||||||||||||||||||||
| Taxes payable | Taxes payable | 27 | 131 | 9 | ||||||||||||||||||||||||
| Regulatory assets and liabilities, net | (88 | ) | 13 | (12 | ) | Regulatory assets and liabilities, net | 52 | (63) | (88) | |||||||||||||||||||
| Other current liabilities | (73 | ) | (22 | ) | 6 | |||||||||||||||||||||||
| Other | (33 | ) | (2 | ) | 11 | Other | (67) | 118 | (29) | |||||||||||||||||||
| Other operating activities | Other operating activities | |||||||||||||||||||||||||||
| Defined benefit plans - funding | (350 | ) | (361 | ) | (565 | ) | Defined benefit plans - funding | (53) | (119) | (73) | ||||||||||||||||||
| Proceeds from transfer of excess benefit plan funds | — | 65 | — | |||||||||||||||||||||||||
| Other assets | (100 | ) | (75 | ) | 32 | Other assets | (111) | (59) | (100) | |||||||||||||||||||
| Other liabilities | 16 | 40 | (12 | ) | Other liabilities | 8 | (21) | (24) | ||||||||||||||||||||
| Net cash provided by operating activities - continuing operations | Net cash provided by operating activities - continuing operations | 1,544 | 1,872 | 1,607 | ||||||||||||||||||||||||
| Net cash provided by operating activities - discontinued operations | Net cash provided by operating activities - discontinued operations | 726 | 874 | 820 | ||||||||||||||||||||||||
| Net cash provided by operating activities | 2,427 | 2,821 | 2,461 | Net cash provided by operating activities | 2,270 | 2,746 | 2,427 | |||||||||||||||||||||
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | |||||||||||||||||||||||||||
| Expenditures for property, plant and equipment | (3,083 | ) | (3,238 | ) | (3,133 | ) | Expenditures for property, plant and equipment | (1,973) | (2,270) | (2,243) | ||||||||||||||||||
| Purchase of investments | (55 | ) | (65 | ) | — | |||||||||||||||||||||||
| Proceeds from the sale of investments | 69 | 6 | — | |||||||||||||||||||||||||
| Proceeds from sale of discontinued operations, net of cash divested | Proceeds from sale of discontinued operations, net of cash divested | 10,560 | — | — | ||||||||||||||||||||||||
| Other investing activities | (11 | ) | (64 | ) | (28 | ) | Other investing activities | (23) | 4 | 10 | ||||||||||||||||||
| Net cash used in investing activities | (3,080 | ) | (3,361 | ) | (3,161 | ) | ||||||||||||||||||||||
| Net cash provided by (used in) investing activities - continuing operations | Net cash provided by (used in) investing activities - continuing operations | 8,564 | (2,266) | (2,233) | ||||||||||||||||||||||||
| Net cash provided by (used in) investing activities - discontinued operations | Net cash provided by (used in) investing activities - discontinued operations | (607) | (992) | (847) | ||||||||||||||||||||||||
| Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | 7,957 | (3,258) | (3,080) | ||||||||||||||||||||||||
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | |||||||||||||||||||||||||||
| Issuance of long-term debt | 1,465 | 1,059 | 1,515 | Issuance of long-term debt | 650 | 1,848 | 1,099 | |||||||||||||||||||||
| Retirement of long-term debt | (300 | ) | (277 | ) | (168 | ) | Retirement of long-term debt | (4,606) | (975) | (300) | ||||||||||||||||||
| Issuance of common stock | 1,167 | 698 | 453 | Issuance of common stock | 9 | 34 | 1,167 | |||||||||||||||||||||
| Proceeds from project financing | Proceeds from project financing | 19 | 173 | — | ||||||||||||||||||||||||
| Payment of common stock dividends | (1,192 | ) | (1,133 | ) | (1,072 | ) | Payment of common stock dividends | (1,279) | (1,275) | (1,192) | ||||||||||||||||||
| Purchase of treasury stock | Purchase of treasury stock | (1,003) | — | — | ||||||||||||||||||||||||
| Issuance of term loan | Issuance of term loan | — | 300 | — | ||||||||||||||||||||||||
| Issuance of commercial paper | Issuance of commercial paper | — | 73 | — | ||||||||||||||||||||||||
| Retirement of term loan | Retirement of term loan | (300) | — | — | ||||||||||||||||||||||||
| Retirement of commercial paper | Retirement of commercial paper | (73) | — | — | ||||||||||||||||||||||||
| Net increase (decrease) in short-term debt | (278 | ) | 363 | 115 | Net increase (decrease) in short-term debt | (726) | (43) | (341) | ||||||||||||||||||||
| Other financing activities | (26 | ) | (20 | ) | (19 | ) | Other financing activities | (35) | (36) | (25) | ||||||||||||||||||
| Net cash provided by financing activities | 836 | 690 | 824 | |||||||||||||||||||||||||
| Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash | 10 | (18 | ) | 15 | ||||||||||||||||||||||||
| Net Increase in Cash, Cash Equivalents and Restricted Cash | 193 | 132 | 139 | |||||||||||||||||||||||||
| Net cash provided by (used in) financing activities - continuing operations | Net cash provided by (used in) financing activities - continuing operations | (7,344) | 99 | 408 | ||||||||||||||||||||||||
| Net cash provided by (used in) financing activities - discontinued operations | Net cash provided by (used in) financing activities - discontinued operations | (411) | 209 | 171 | ||||||||||||||||||||||||
| Contributions from discontinued operations | Contributions from discontinued operations | 365 | 78 | 257 | ||||||||||||||||||||||||
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | (7,390) | 386 | 836 | ||||||||||||||||||||||||
| Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | 8 | 17 | 10 | ||||||||||||||||||||||||
| Net (Increase) Decrease in Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | Net (Increase) Decrease in Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations | 284 | (108) | (154) | ||||||||||||||||||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 3,129 | (217) | 39 | ||||||||||||||||||||||||
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 643 | 511 | 372 | Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 443 | 660 | 621 | |||||||||||||||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 836 | $ | 643 | $ | 511 | Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 3,572 | $ | 443 | $ | 660 | |||||||||||||||
| Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | |||||||||||||||||||||||||||
| Cash paid during the period for: | ||||||||||||||||||||||||||||
| Cash paid (received) during the period for: | Cash paid (received) during the period for: | |||||||||||||||||||||||||||
| Interest - net of amount capitalized | $ | 905 | $ | 910 | $ | 845 | Interest - net of amount capitalized | $ | 191 | $ | 586 | $ | 552 | |||||||||||||||
| Income taxes - net | $ | 93 | $ | 127 | $ | 65 | Income taxes - net | $ | 284 | $ | 4 | $ | (12) | |||||||||||||||
| Significant non-cash transactions: | Significant non-cash transactions: | |||||||||||||||||||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 340 | $ | 345 | $ | 360 | Accrued expenditures for property, plant and equipment at December 31, | $ | 245 | $ | 257 | $ | 292 | |||||||||||||||
| Accrued expenditures for intangible assets at December 31, | $ | 79 | $ | 64 | $ | 68 | ||||||||||||||||||||||
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)
| 2019 | 2018 | 2021 | 2020 | |||||||||||||||
| Assets | Assets | |||||||||||||||||
| Current Assets | Current Assets | |||||||||||||||||
| Cash and cash equivalents | $ | 815 | $ | 621 | Cash and cash equivalents | $ | 3,571 | $ | 442 | |||||||||
| Accounts receivable (less reserve: 2019, $58; 2018, $56) | ||||||||||||||||||
| Accounts receivable (less reserve: 2021, $65; 2020, $71) | Accounts receivable (less reserve: 2021, $65; 2020, $71) | |||||||||||||||||
| Customer | 687 | 663 | Customer | 583 | 603 | |||||||||||||
| Other | 105 | 107 | Other | 58 | 86 | |||||||||||||
| Unbilled revenues | 504 | 496 | ||||||||||||||||
| Unbilled revenues (less reserve: 2021, $2; 2020, $4) | Unbilled revenues (less reserve: 2021, $2; 2020, $4) | 307 | 301 | |||||||||||||||
| Fuel, materials and supplies | 332 | 303 | Fuel, materials and supplies | 322 | 302 | |||||||||||||
| Prepayments | 79 | 70 | Prepayments | 60 | 53 | |||||||||||||
| Price risk management assets | 147 | 109 | ||||||||||||||||
| Other current assets | 98 | 63 | Other current assets | 106 | 130 | |||||||||||||
| Current assets held for sale (Note 9) | Current assets held for sale (Note 9) | — | 18,983 | |||||||||||||||
| Total Current Assets | 2,767 | 2,432 | Total Current Assets | 5,007 | 20,900 | |||||||||||||
| Property, Plant and Equipment | Property, Plant and Equipment | |||||||||||||||||
| Regulated utility plant | 42,709 | 39,734 | Regulated utility plant | 30,477 | 29,040 | |||||||||||||
| Less: accumulated depreciation - regulated utility plant | 8,055 | 7,310 | Less: accumulated depreciation - regulated utility plant | 6,488 | 6,008 | |||||||||||||
| Regulated utility plant, net | 34,654 | 32,424 | Regulated utility plant, net | 23,989 | 23,032 | |||||||||||||
| Non-regulated property, plant and equipment | 357 | 355 | Non-regulated property, plant and equipment | 266 | 237 | |||||||||||||
| Less: accumulated depreciation - non-regulated property, plant and equipment | 109 | 101 | Less: accumulated depreciation - non-regulated property, plant and equipment | 41 | 37 | |||||||||||||
| Non-regulated property, plant and equipment, net | 248 | 254 | Non-regulated property, plant and equipment, net | 225 | 200 | |||||||||||||
| Construction work in progress | 1,580 | 1,780 | Construction work in progress | 1,256 | 1,268 | |||||||||||||
| Property, Plant and Equipment, net | 36,482 | 34,458 | Property, Plant and Equipment, net | 25,470 | 24,500 | |||||||||||||
| Other Noncurrent Assets | Other Noncurrent Assets | |||||||||||||||||
| Regulatory assets | 1,492 | 1,673 | Regulatory assets | 1,236 | 1,262 | |||||||||||||
| Goodwill | 3,198 | 3,162 | Goodwill | 716 | 716 | |||||||||||||
| Other intangibles | 742 | 716 | Other intangibles | 343 | 351 | |||||||||||||
| Pension benefit asset | 464 | 535 | ||||||||||||||||
| Price risk management assets | 149 | 228 | ||||||||||||||||
| Other noncurrent assets | 386 | 192 | ||||||||||||||||
| Other noncurrent assets (less reserve for accounts receivable: 2021, $2; 2020, $0) | Other noncurrent assets (less reserve for accounts receivable: 2021, $2; 2020, $0) | 451 | 387 | |||||||||||||||
| Total Other Noncurrent Assets | 6,431 | 6,506 | Total Other Noncurrent Assets | 2,746 | 2,716 | |||||||||||||
| Total Assets | $ | 45,680 | $ | 43,396 | Total Assets | $ | 33,223 | $ | 48,116 | |||||||||
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)
| 2019 | 2018 | ||||||
| Liabilities and Equity | |||||||
| Current Liabilities | |||||||
| Short-term debt | $ | 1,151 | $ | 1,430 | |||
| Long-term debt due within one year | 1,172 | 530 | |||||
| Accounts payable | 956 | 989 | |||||
| Taxes | 99 | 110 | |||||
| Interest | 294 | 278 | |||||
| Dividends | 317 | 296 | |||||
| Customer deposits | 261 | 257 | |||||
| Regulatory liabilities | 115 | 122 | |||||
| Other current liabilities | 535 | 551 | |||||
| Total Current Liabilities | 4,900 | 4,563 | |||||
| Long-term Debt | 20,721 | 20,069 | |||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||
| Deferred income taxes | 3,088 | 2,796 | |||||
| Investment tax credits | 124 | 126 | |||||
| Accrued pension obligations | 587 | 771 | |||||
| Asset retirement obligations | 212 | 264 | |||||
| Regulatory liabilities | 2,572 | 2,714 | |||||
| Other deferred credits and noncurrent liabilities | 485 | 436 | |||||
| Total Deferred Credits and Other Noncurrent Liabilities | 7,068 | 7,107 | |||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | |||||||
| Equity | |||||||
| Common stock - $0.01 par value (a) | 8 | 7 | |||||
| Additional paid-in capital | 12,214 | 11,021 | |||||
| Earnings reinvested | 5,127 | 4,593 | |||||
| Accumulated other comprehensive loss | (4,358 | ) | (3,964 | ) | |||
| Total Equity | 12,991 | 11,657 | |||||
| Total Liabilities and Equity | $ | 45,680 | $ | 43,396 | |||
| 2021 | 2020 | ||||||||||
| Liabilities and Equity | |||||||||||
| Current Liabilities | |||||||||||
| Short-term debt | $ | 69 | $ | 1,168 | |||||||
| Long-term debt due within one year | 474 | 1,074 | |||||||||
| Accounts payable | 679 | 745 | |||||||||
| Taxes | 96 | 69 | |||||||||
| Interest | 81 | 113 | |||||||||
| Dividends | 305 | 319 | |||||||||
| Regulatory liabilities | 182 | 79 | |||||||||
| Other current liabilities | 437 | 465 | |||||||||
| Current liabilities held for sale (Note 9) | — | 11,023 | |||||||||
| Total Current Liabilities | 2,323 | 15,055 | |||||||||
| Long-term Debt | 10,666 | 13,615 | |||||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||||
| Deferred income taxes | 3,151 | 2,536 | |||||||||
| Investment tax credits | 119 | 122 | |||||||||
| Accrued pension obligations | 183 | 189 | |||||||||
| Asset retirement obligations | 157 | 132 | |||||||||
| Regulatory liabilities | 2,422 | 2,530 | |||||||||
| Other deferred credits and noncurrent liabilities | 479 | 564 | |||||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 6,511 | 6,073 | |||||||||
| Commitments and Contingent Liabilities (Notes 7 and 14) | 0 | 0 | |||||||||
| Equity | |||||||||||
| Common stock - $0.01 par value (a) | 8 | 8 | |||||||||
| Additional paid-in capital | 12,303 | 12,270 | |||||||||
| Treasury stock | (1,003) | — | |||||||||
| Earnings reinvested | 2,572 | 5,315 | |||||||||
| Accumulated other comprehensive loss | (157) | (4,220) | |||||||||
| Total Equity | 13,723 | 13,373 | |||||||||
| Total Liabilities and Equity | $ | 33,223 | $ | 48,116 | |||||||
(a)1,560,000 shares authorized; 769,890 shares issued and 735,112 shares outstanding at December 31, 2021. 1,560,000 shares authorized; 768,907 shares issued and outstanding at December 31, 2020.
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PPL Shareowners | Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Treasury Stock | Earnings reinvested | Accumulated other comprehensive loss | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | December 31, 2018 | 720,323 | $ | 7 | $ | 11,021 | $ | — | $ | 4,593 | $ | (3,964) | $ | 11,657 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | Common stock issued | 46,910 | 1 | 1,184 | 1,185 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Accumulated other comprehensive loss | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | 679,731 | $ | 7 | $ | 9,841 | $ | 3,829 | $ | (3,778 | ) | $ | 9,899 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | 13,667 | 482 | 482 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | (18 | ) | (18 | ) | Stock-based compensation | 9 | 9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,128 | 1,128 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | Net income (loss) | 1,746 | 1,746 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend equivalents (b) | (1,086 | ) | (1,086 | ) | Dividends and dividend equivalents (b) | (1,212) | (1,212) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 356 | 356 | Other comprehensive income (loss) | (394) | (394) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 693,398 | $ | 7 | $ | 10,305 | $ | 3,871 | $ | (3,422 | ) | $ | 10,761 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2019 | 767,233 | $ | 8 | $ | 12,214 | $ | — | $ | 5,127 | $ | (4,358) | $ | 12,991 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | 26,925 | 718 | 718 | Common stock issued | 1,674 | 51 | 51 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | (2 | ) | (2 | ) | Stock-based compensation | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,827 | 1,827 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | Net income (loss) | 1,469 | 1,469 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend equivalents (b) | (1,156 | ) | (1,156 | ) | Dividends and dividend equivalents (b) | (1,279) | (1,279) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (491 | ) | (491 | ) | Other comprehensive income (loss) | 138 | 138 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption of reclassification of certain tax effects from AOCI guidance cumulative effect adjustment (Note 1) | 51 | (51 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 720,323 | $ | 7 | $ | 11,021 | $ | 4,593 | $ | (3,964 | ) | $ | 11,657 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption of financial instrument credit losses guidance cumulative effect adjustment (Note 1) | Adoption of financial instrument credit losses guidance cumulative effect adjustment (Note 1) | (2) | (2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | 768,907 | $ | 8 | $ | 12,270 | $ | — | $ | 5,315 | $ | (4,220) | $ | 13,373 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | 46,910 | 1 | 1,184 | 1,185 | Common stock issued | 983 | 29 | 29 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock | Treasury stock | (34,778) | (1,003) | (1,003) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 9 | 9 | Stock-based compensation | 4 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,746 | 1,746 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | Net income (loss) | (1,480) | (1,480) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend equivalents (b) | (1,212 | ) | (1,212 | ) | Dividends and dividend equivalents (b) | (1,263) | (1,263) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (394 | ) | (394 | ) | Other comprehensive income (loss) | 4,063 | 4,063 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 767,233 | $ | 8 | $ | 12,214 | $ | 5,127 | $ | (4,358 | ) | $ | 12,991 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | 735,112 | $ | 8 | $ | 12,303 | $ | (1,003) | $ | 2,572 | $ | (157) | $ | 13,723 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a)Shares in thousands. Each share entitles the holder to 1 vote on any question presented at any shareowners' meeting. (b)Dividends declared per share of common stock at December 31, 2021, 2020 and 2019 were: $1.66, $1.66 and $1.65. |
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)
| 2021 | 2020 | 2019 | |||||||||||||||
| Operating Revenues | $ | 2,402 | $ | 2,331 | $ | 2,358 | |||||||||||
| Operating Expenses | |||||||||||||||||
| Operation | |||||||||||||||||
| Energy purchases | 566 | 491 | 549 | ||||||||||||||
| Other operation and maintenance | 557 | 513 | 566 | ||||||||||||||
| Depreciation | 424 | 403 | 386 | ||||||||||||||
| Taxes, other than income | 120 | 107 | 112 | ||||||||||||||
| Total Operating Expenses | 1,667 | 1,514 | 1,613 | ||||||||||||||
| Operating Income | 735 | 817 | 745 | ||||||||||||||
| Other Income (Expense) - net | 21 | 18 | 25 | ||||||||||||||
| Interest Income from Affiliate | 5 | 2 | 6 | ||||||||||||||
| Interest Expense | 162 | 173 | 170 | ||||||||||||||
| Income Before Income Taxes | 599 | 664 | 606 | ||||||||||||||
| Income Taxes | 154 | 167 | 149 | ||||||||||||||
| Net Income (a) | $ | 445 | $ | 497 | $ | 457 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Operating Revenues | $ | 2,358 | $ | 2,277 | $ | 2,195 | |||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Energy purchases | 549 | 544 | 507 | ||||||||
| Other operation and maintenance | 566 | 578 | 572 | ||||||||
| Depreciation | 386 | 352 | 309 | ||||||||
| Taxes, other than income | 112 | 109 | 107 | ||||||||
| Total Operating Expenses | 1,613 | 1,583 | 1,495 | ||||||||
| Operating Income | 745 | 694 | 700 | ||||||||
| Other Income (Expense) - net | 25 | 23 | 12 | ||||||||
| Interest Income from Affiliate | 6 | 8 | 5 | ||||||||
| Interest Expense | 170 | 159 | 142 | ||||||||
| Income Before Income Taxes | 606 | 566 | 575 | ||||||||
| Income Taxes | 149 | 136 | 213 | ||||||||
| Net Income (a) | $ | 457 | $ | 430 | $ | 362 | |||||
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)
| 2021 | 2020 | 2019 | |||||||||||||||
| Cash Flows from Operating Activities | |||||||||||||||||
| Net income | $ | 445 | $ | 497 | $ | 457 | |||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||||||||
| Depreciation | 424 | 403 | 386 | ||||||||||||||
| Amortization | 19 | 26 | 24 | ||||||||||||||
| Defined benefit plans expense (income) | (10) | (1) | — | ||||||||||||||
| Deferred income taxes and investment tax credits | 79 | 83 | 90 | ||||||||||||||
| Other | (19) | (5) | (19) | ||||||||||||||
| Change in current assets and current liabilities | |||||||||||||||||
| Accounts receivable | (9) | (47) | 33 | ||||||||||||||
| Accounts payable | (3) | 21 | 5 | ||||||||||||||
| Unbilled revenues | (8) | 13 | (14) | ||||||||||||||
| Materials and supplies | (5) | (18) | (8) | ||||||||||||||
| Prepayments | (4) | (3) | (1) | ||||||||||||||
| Regulatory assets and liabilities, net | 96 | (40) | (43) | ||||||||||||||
| Taxes payable | 14 | 4 | 1 | ||||||||||||||
| Other | (1) | (10) | (3) | ||||||||||||||
| Other operating activities | |||||||||||||||||
| Defined benefit plans - funding | (21) | (21) | (21) | ||||||||||||||
| Other assets | (12) | (28) | 15 | ||||||||||||||
| Other liabilities | (16) | 10 | 11 | ||||||||||||||
| Net cash provided by operating activities | 969 | 884 | 913 | ||||||||||||||
| Cash Flows from Investing Activities | |||||||||||||||||
| Expenditures for property, plant and equipment | (898) | (1,145) | (1,114) | ||||||||||||||
| Expenditures for intangible assets | (6) | (9) | (7) | ||||||||||||||
| Increase in notes receivable from affiliate | (499) | — | — | ||||||||||||||
| Other investing activities | 3 | 3 | 4 | ||||||||||||||
| Net cash used in investing activities | (1,400) | (1,151) | (1,117) | ||||||||||||||
| Cash Flows from Financing Activities | |||||||||||||||||
| Issuance of long-term debt | 650 | 250 | 393 | ||||||||||||||
| Retirement of long-term debt | (400) | — | (100) | ||||||||||||||
| Contributions from parent | 1,075 | 940 | 400 | ||||||||||||||
| Payment of common stock dividends to parent | (334) | (400) | (486) | ||||||||||||||
| Return of capital to parent | (574) | (745) | — | ||||||||||||||
| Other financing activities | (5) | (2) | (8) | ||||||||||||||
| Net cash provided by financing activities | 412 | 43 | 199 | ||||||||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (19) | (224) | (5) | ||||||||||||||
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 40 | 264 | 269 | ||||||||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 21 | $ | 40 | $ | 264 | |||||||||||
| Supplemental Disclosures of Cash Flow Information | |||||||||||||||||
| Cash paid during the period for: | |||||||||||||||||
| Interest - net of amount capitalized | $ | 156 | $ | 158 | $ | 154 | |||||||||||
| Income taxes - net | $ | 64 | $ | 67 | $ | 32 | |||||||||||
| Significant non-cash transactions: | |||||||||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 118 | $ | 156 | $ | 180 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | 457 | $ | 430 | $ | 362 | |||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||
| Depreciation | 386 | 352 | 309 | ||||||||
| Amortization | 24 | 22 | 33 | ||||||||
| Defined benefit plans - expense | — | 3 | 12 | ||||||||
| Deferred income taxes and investment tax credits | 90 | 125 | 258 | ||||||||
| Other | (19 | ) | (4 | ) | (8 | ) | |||||
| Change in current assets and current liabilities | |||||||||||
| Accounts receivable | 33 | 47 | (57 | ) | |||||||
| Accounts payable | 5 | 10 | 3 | ||||||||
| Unbilled revenues | (14 | ) | 7 | (13 | ) | ||||||
| Prepayments | (1 | ) | 1 | 3 | |||||||
| Regulatory assets and liabilities | (43 | ) | (19 | ) | (5 | ) | |||||
| Taxes payable | 1 | 4 | (4 | ) | |||||||
| Other | (11 | ) | 10 | (1 | ) | ||||||
| Other operating activities | |||||||||||
| Defined benefit plans - funding | (21 | ) | (28 | ) | (24 | ) | |||||
| Other assets | 15 | (37 | ) | 15 | |||||||
| Other liabilities | 11 | 55 | (3 | ) | |||||||
| Net cash provided by operating activities | 913 | 978 | 880 | ||||||||
| Cash Flows from Investing Activities | |||||||||||
| Expenditures for property, plant and equipment | (1,114 | ) | (1,192 | ) | (1,244 | ) | |||||
| Expenditures for intangible assets | (7 | ) | (4 | ) | (10 | ) | |||||
| Other investing activities | 4 | 3 | 2 | ||||||||
| Net cash used in investing activities | (1,117 | ) | (1,193 | ) | (1,252 | ) | |||||
| Cash Flows from Financing Activities | |||||||||||
| Issuance of long-term debt | 393 | 398 | 470 | ||||||||
| Retirement of long-term debt | (100 | ) | — | — | |||||||
| Contributions from PPL | 400 | 429 | 575 | ||||||||
| Payment of common stock dividends to parent | (486 | ) | (390 | ) | (336 | ) | |||||
| Net decrease in short-term debt | — | (295 | ) | ||||||||
| Other financing activities | (8 | ) | (4 | ) | (6 | ) | |||||
| Net cash provided by financing activities | 199 | 433 | 408 | ||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (5 | ) | 218 | 36 | |||||||
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 269 | 51 | 15 | ||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 264 | $ | 269 | $ | 51 | |||||
| Supplemental Disclosures of Cash Flow Information | |||||||||||
| Cash paid (received) during the period for: | |||||||||||
| Interest - net of amount capitalized | $ | 154 | $ | 144 | $ | 128 | |||||
| Income taxes - net | $ | 32 | $ | (20 | ) | $ | 4 | ||||
| Significant non-cash transactions: | |||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 180 | $ | 158 | $ | 133 | |||||
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)
| 2021 | 2020 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 21 | $ | 40 | |||||||
| Accounts receivable (less reserve: 2021, $31; 2020, $41) | |||||||||||
| Customer | 305 | 311 | |||||||||
| Other | 22 | 17 | |||||||||
| Accounts receivable from affiliates | 11 | 10 | |||||||||
| Notes receivable from affiliate | 499 | — | |||||||||
| Unbilled revenues (less reserve: 2021, $2; 2020, $2) | 129 | 121 | |||||||||
| Materials and supplies | 61 | 59 | |||||||||
| Prepayments | 13 | 9 | |||||||||
| Regulatory assets | 22 | 40 | |||||||||
| Other current assets | 21 | 13 | |||||||||
| Total Current Assets | 1,104 | 620 | |||||||||
| Property, Plant and Equipment | |||||||||||
| Regulated utility plant | 14,082 | 13,514 | |||||||||
| Less: accumulated depreciation - regulated utility plant | 3,386 | 3,297 | |||||||||
| Regulated utility plant, net | 10,696 | 10,217 | |||||||||
| Construction work in progress | 581 | 592 | |||||||||
| Property, Plant and Equipment, net | 11,277 | 10,809 | |||||||||
| Other Noncurrent Assets | |||||||||||
| Regulatory assets | 488 | 541 | |||||||||
| Intangibles | 270 | 268 | |||||||||
| Pension benefit asset | 50 | 12 | |||||||||
| Other noncurrent assets (less reserve for accounts receivable: 2021, $2; 2020, $0) | 113 | 74 | |||||||||
| Total Other Noncurrent Assets | 921 | 895 | |||||||||
| Total Assets | $ | 13,302 | $ | 12,324 | |||||||
| 2019 | 2018 | ||||||
| Assets | |||||||
| Current Assets | |||||||
| Cash and cash equivalents | $ | 262 | $ | 267 | |||
| Accounts receivable (less reserve: 2019, $28; 2018, $27) | |||||||
| Customer | 258 | 264 | |||||
| Other | 22 | 38 | |||||
| Accounts receivable from affiliates | 11 | 11 | |||||
| Unbilled revenues | 134 | 120 | |||||
| Materials and supplies | 33 | 25 | |||||
| Prepayments | 6 | 5 | |||||
| Regulatory assets | 26 | 11 | |||||
| Other current assets | 9 | 9 | |||||
| Total Current Assets | 761 | 750 | |||||
| Property, Plant and Equipment | |||||||
| Regulated utility plant | 12,589 | 11,637 | |||||
| Less: accumulated depreciation - regulated utility plant | 3,078 | 2,856 | |||||
| Regulated utility plant, net | 9,511 | 8,781 | |||||
| Construction work in progress | 597 | 586 | |||||
| Property, Plant and Equipment, net | 10,108 | 9,367 | |||||
| Other Noncurrent Assets | |||||||
| Regulatory assets | 726 | 824 | |||||
| Intangibles | 263 | 260 | |||||
| Other noncurrent assets | 43 | 42 | |||||
| Total Other Noncurrent Assets | 1,032 | 1,126 | |||||
| Total Assets | $ | 11,901 | $ | 11,243 | |||
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)
| 2019 | 2018 | 2021 | 2020 | |||||||||||||||
| Liabilities and Equity | Liabilities and Equity | |||||||||||||||||
| Current Liabilities | Current Liabilities | |||||||||||||||||
| Long-term debt due within one year | Long-term debt due within one year | $ | 474 | $ | 400 | |||||||||||||
| Accounts payable | $ | 438 | $ | 418 | Accounts payable | 367 | 428 | |||||||||||
| Accounts payable to affiliates | 32 | 25 | Accounts payable to affiliates | 56 | 39 | |||||||||||||
| Taxes | 13 | 12 | Taxes | 31 | 17 | |||||||||||||
| Interest | 41 | 37 | Interest | 35 | 39 | |||||||||||||
| Regulatory liabilities | 96 | 74 | Regulatory liabilities | 153 | 68 | |||||||||||||
| Other current liabilities | 93 | 101 | Other current liabilities | 108 | 105 | |||||||||||||
| Total Current Liabilities | 713 | 667 | Total Current Liabilities | 1,224 | 1,096 | |||||||||||||
| Long-term Debt | 3,985 | 3,694 | Long-term Debt | 4,010 | 3,836 | |||||||||||||
| Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | |||||||||||||||||
| Deferred income taxes | 1,447 | 1,320 | Deferred income taxes | 1,668 | 1,559 | |||||||||||||
| Accrued pension obligations | 179 | 282 | Accrued pension obligations | 8 | 8 | |||||||||||||
| Regulatory liabilities | 599 | 675 | Regulatory liabilities | 559 | 578 | |||||||||||||
| Other deferred credits and noncurrent liabilities | 146 | 144 | Other deferred credits and noncurrent liabilities | 97 | 123 | |||||||||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 2,371 | 2,421 | Total Deferred Credits and Other Noncurrent Liabilities | 2,332 | 2,268 | |||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | ||||||||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 14) | Commitments and Contingent Liabilities (Notes 7 and 14) | 0 | 0 | |||||||||||||||
| Equity | Equity | |||||||||||||||||
| Common stock - no par value (a) | 364 | 364 | Common stock - no par value (a) | 364 | 364 | |||||||||||||
| Additional paid-in capital | 3,558 | 3,158 | Additional paid-in capital | 4,254 | 3,753 | |||||||||||||
| Earnings reinvested | 910 | 939 | Earnings reinvested | 1,118 | 1,007 | |||||||||||||
| Total Equity | 4,832 | 4,461 | Total Equity | 5,736 | 5,124 | |||||||||||||
| Total Liabilities and Equity | $ | 11,901 | $ | 11,243 | Total Liabilities and Equity | $ | 13,302 | $ | 12,324 | |||||||||
(a)170,000 shares authorized; 66,368 shares issued and outstanding at December 31, 2021 and December 31, 2020.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF EQUITY
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
| Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Total | |||||||||||||||||||||||||||||||||||||||||||
Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Total | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | 66,368 | $ | 364 | $ | 2,154 | $ | 873 | $ | 3,391 | ||||||||||||||||||||||||||||||||||||||
| Net income | 362 | 362 | |||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | 575 | 575 | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock | (336 | ) | (336 | ) | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 66,368 | $ | 364 | $ | 2,729 | $ | 899 | $ | 3,992 | ||||||||||||||||||||||||||||||||||||||
| Net income | 430 | 430 | |||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | 429 | 429 | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock | (390 | ) | (390 | ) | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 66,368 | $ | 364 | $ | 3,158 | $ | 939 | $ | 4,461 | December 31, 2018 | 66,368 | $ | 364 | $ | 3,158 | $ | 939 | $ | 4,461 | ||||||||||||||||||||||||||||
| Net income | 457 | 457 | Net income | 457 | 457 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | 400 | 400 | Capital contributions from parent | 400 | 400 | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock | (486 | ) | (486 | ) | Dividends declared on common stock | (486) | (486) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 66,368 | $ | 364 | $ | 3,558 | $ | 910 | $ | 4,832 | December 31, 2019 | 66,368 | $ | 364 | $ | 3,558 | $ | 910 | $ | 4,832 | ||||||||||||||||||||||||||||
| Net income | Net income | 497 | 497 | ||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | Capital contributions from parent | 940 | 940 | ||||||||||||||||||||||||||||||||||||||||||||
| Return of capital to parent | Return of capital to parent | (745) | (745) | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock | Dividends declared on common stock | (400) | (400) | ||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | 66,368 | $ | 364 | $ | 3,753 | $ | 1,007 | $ | 5,124 | |||||||||||||||||||||||||||||||||||||
| Net income | Net income | 445 | 445 | ||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from parent | Capital contributions from parent | 1,075 | 1,075 | ||||||||||||||||||||||||||||||||||||||||||||
| Return of capital to parent | Return of capital to parent | (574) | (574) | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock | Dividends declared on common stock | (334) | (334) | ||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | 66,368 | $ | 364 | $ | 4,254 | $ | 1,118 | $ | 5,736 | |||||||||||||||||||||||||||||||||||||
The accompanying Notes to Financial Statements are an integral part of the financial statements.
| 2019 | 2018 | 2017 | |||||||||
| Operating Revenues | $ | 3,206 | $ | 3,214 | $ | 3,156 | |||||
| Operating Expenses | |||||||||||
| Operation | |||||||||||
| Fuel | 709 | 799 | 759 | ||||||||
| Energy purchases | 174 | 201 | 178 | ||||||||
| Other operation and maintenance | 861 | 848 | 801 | ||||||||
| Depreciation | 547 | 475 | 439 | ||||||||
| Taxes, other than income | 74 | 70 | 65 | ||||||||
| Total Operating Expenses | 2,365 | 2,393 | 2,242 | ||||||||
| Operating Income | 841 | 821 | 914 | ||||||||
| Other Income (Expense) - net | (13 | ) | (16 | ) | (8 | ) | |||||
| Interest Expense | 226 | 206 | 197 | ||||||||
| Interest Expense with Affiliate | 31 | 25 | 18 | ||||||||
| Income Before Income Taxes | 571 | 574 | 691 | ||||||||
| Income Taxes | 103 | 129 | 375 | ||||||||
| Net Income | $ | 468 | $ | 445 | $ | 316 | |||||
| 2019 | 2018 | 2017 | |||||||||
| Net income | $ | 468 | $ | 445 | $ | 316 | |||||
| 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, $0, $1 | (1 | ) | — | (2 | ) | ||||||
| Net actuarial gain (loss), net of tax of $2, ($2), $13 | (6 | ) | 7 | (23 | ) | ||||||
| Reclassifications 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, ($1) | 1 | 2 | 1 | ||||||||
| Net actuarial (gain) loss, net of tax of $1, ($3), ($2) | 2 | 8 | 5 | ||||||||
| Total other comprehensive income (loss) | (4 | ) | 17 | (18 | ) | ||||||
| Comprehensive income | $ | 464 | $ | 462 | $ | 298 | |||||
| 2019 | 2018 | 2017 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | 468 | $ | 445 | $ | 316 | |||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||
| Depreciation | 547 | 475 | 439 | ||||||||
| Amortization | 27 | 18 | 24 | ||||||||
| Defined benefit plans - expense | 11 | 17 | 25 | ||||||||
| Deferred income taxes and investment tax credits | 82 | 94 | 294 | ||||||||
| Other | (3 | ) | (4 | ) | — | ||||||
| Change in current assets and current liabilities | |||||||||||
| Accounts receivable | (16 | ) | 1 | (12 | ) | ||||||
| Accounts payable | (26 | ) | 39 | (9 | ) | ||||||
| Accounts payable to affiliates | 2 | 2 | 2 | ||||||||
| Unbilled revenues | 5 | 34 | (33 | ) | |||||||
| Fuel, materials and supplies | — | 7 | 45 | ||||||||
| Regulatory assets and liabilities, net | (45 | ) | 32 | (7 | ) | ||||||
| Taxes payable | (5 | ) | (3 | ) | 27 | ||||||
| Other | (8 | ) | (24 | ) | 41 | ||||||
| Other operating activities | |||||||||||
| Defined benefit plans - funding | (34 | ) | (131 | ) | (35 | ) | |||||
| Expenditures for asset retirement obligations | (89 | ) | (72 | ) | (34 | ) | |||||
| Other assets | (3 | ) | (24 | ) | 8 | ||||||
| Other liabilities | 25 | 9 | 8 | ||||||||
| Net cash provided by operating activities | 938 | 915 | 1,099 | ||||||||
| Cash Flows from Investing Activities | |||||||||||
| Expenditures for property, plant and equipment | (1,094 | ) | (1,117 | ) | (892 | ) | |||||
| Other investing activities | — | 1 | 4 | ||||||||
| Net cash used in investing activities | (1,094 | ) | (1,116 | ) | (888 | ) | |||||
| Cash Flows from Financing Activities | |||||||||||
| Net increase (decrease) in notes payable with affiliates | 37 | (112 | ) | 62 | |||||||
| Issuance of long-term note with affiliate | — | 250 | — | ||||||||
| Issuance of long-term debt | 705 | 118 | 160 | ||||||||
| Retirement of long-term debt | (200 | ) | (27 | ) | (70 | ) | |||||
| Acquisition of outstanding bonds | (40 | ) | — | — | |||||||
| Remarketing of reacquired bonds | 40 | — | — | ||||||||
| Distributions to member | (308 | ) | (302 | ) | (402 | ) | |||||
| Contributions from member | 63 | — | — | ||||||||
| Net increase (decrease) in short-term debt | (126 | ) | 270 | 59 | |||||||
| Other financing activities | (12 | ) | (2 | ) | (3 | ) | |||||
| Net cash provided by (used in) financing activities | 159 | 195 | (194 | ) | |||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 3 | (6 | ) | 17 | |||||||
| Cash and Cash Equivalents at Beginning of Period | 24 | 30 | 13 | ||||||||
| Cash and Cash Equivalents at End of Period | $ | 27 | $ | 24 | $ | 30 | |||||
| Supplemental Disclosures of Cash Flow Information | |||||||||||
| Cash paid (received) during the period for: | |||||||||||
| Interest - net of amount capitalized | $ | 237 | $ | 218 | $ | 204 | |||||
| Income taxes - net | $ | 29 | $ | 46 | $ | 48 | |||||
| Significant non-cash transactions: | |||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 113 | $ | 150 | $ | 174 | |||||
| 2019 | 2018 | ||||||
| Assets | |||||||
| Current Assets | |||||||
| Cash and cash equivalents | $ | 27 | $ | 24 | |||
| Accounts receivable (less reserve: 2019, $28; 2018, $27) | |||||||
| Customer | 260 | 239 | |||||
| Other | 71 | 63 | |||||
| Unbilled revenues | 164 | 169 | |||||
| Fuel, materials and supplies | 250 | 248 | |||||
| Prepayments | 30 | 25 | |||||
| Regulatory assets | 41 | 25 | |||||
| Other current assets | 2 | — | |||||
| Total Current Assets | 845 | 793 | |||||
| Property, Plant and Equipment | |||||||
| Regulated utility plant | 14,646 | 13,721 | |||||
| Less: accumulated depreciation - regulated utility plant | 2,356 | 2,125 | |||||
| Regulated utility plant, net | 12,290 | 11,596 | |||||
| Construction work in progress | 794 | 1,018 | |||||
| Property, Plant and Equipment, net | 13,084 | 12,614 | |||||
| Other Noncurrent Assets | |||||||
| Regulatory assets | 766 | 849 | |||||
| Goodwill | 996 | 996 | |||||
| Other intangibles | 69 | 78 | |||||
| Other noncurrent assets | 171 | 82 | |||||
| Total Other Noncurrent Assets | 2,002 | 2,005 | |||||
| Total Assets | $ | 15,931 | $ | 15,412 | |||
| 2019 | 2018 | ||||||
| Liabilities and Equity | |||||||
| Current Liabilities | |||||||
| Short-term debt | $ | 388 | $ | 514 | |||
| Long-term debt due within one year | 975 | 530 | |||||
| Notes payable with affiliates | 150 | 113 | |||||
| Accounts payable | 316 | 366 | |||||
| Accounts payable to affiliates | 11 | 9 | |||||
| Customer deposits | 62 | 61 | |||||
| Taxes | 58 | 63 | |||||
| Price risk management liabilities | 4 | 4 | |||||
| Regulatory liabilities | 19 | 48 | |||||
| Interest | 40 | 32 | |||||
| Asset retirement obligations | 70 | 82 | |||||
| Other current liabilities | 153 | 126 | |||||
| Total Current Liabilities | 2,246 | 1,948 | |||||
| Long-term Debt | |||||||
| Long-term debt | 4,377 | 4,322 | |||||
| Long-term debt to affiliate | 650 | 650 | |||||
| Total Long-term Debt | 5,027 | 4,972 | |||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||
| Deferred income taxes | 1,069 | 956 | |||||
| Investment tax credits | 124 | 126 | |||||
| Price risk management liabilities | 17 | 16 | |||||
| Accrued pension obligations | 233 | 282 | |||||
| Asset retirement obligations | 145 | 214 | |||||
| Regulatory liabilities | 1,973 | 2,039 | |||||
| Other deferred credits and noncurrent liabilities | 155 | 136 | |||||
| Total Deferred Credits and Other Noncurrent Liabilities | 3,716 | 3,769 | |||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | |||||||
| Member's equity | 4,942 | 4,723 | |||||
| Total Liabilities and Equity | $ | 15,931 | $ | 15,412 | |||
Member's Equity | |||
| December 31, 2016 | $ | 4,667 | |
| Net income | 316 | ||
| Distributions to member | (402 | ) | |
| Other comprehensive income (loss) | (18 | ) | |
| December 31, 2017 | $ | 4,563 | |
| Net income | $ | 445 | |
| Distributions to member | (302 | ) | |
| Other comprehensive income (loss) | 17 | ||
| December 31, 2018 | $ | 4,723 | |
| Net income | $ | 468 | |
| Contributions from member | 63 | ||
| Distributions to member | (308 | ) | |
| Other comprehensive income (loss) | (4 | ) | |
| December 31, 2019 | $ | 4,942 | |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
Louisville Gas and Electric Company
(Millions of Dollars)
| 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Operating Revenues | Operating Revenues | |||||||||||||||||||||||||||
| Retail and wholesale | $ | 1,473 | $ | 1,467 | $ | 1,422 | Retail and wholesale | $ | 1,545 | $ | 1,435 | $ | 1,473 | |||||||||||||||
| Electric revenue from affiliate | 27 | 29 | 31 | Electric revenue from affiliate | 24 | 21 | 27 | |||||||||||||||||||||
| Total Operating Revenues | 1,500 | 1,496 | 1,453 | Total Operating Revenues | 1,569 | 1,456 | 1,500 | |||||||||||||||||||||
| Operating Expenses | Operating Expenses | |||||||||||||||||||||||||||
| Operation | Operation | |||||||||||||||||||||||||||
| Fuel | 289 | 308 | 292 | Fuel | 265 | 246 | 289 | |||||||||||||||||||||
| Energy purchases | 154 | 183 | 160 | Energy purchases | 167 | 125 | 154 | |||||||||||||||||||||
| Energy purchases from affiliate | 7 | 13 | 10 | Energy purchases from affiliate | 23 | 19 | 7 | |||||||||||||||||||||
| Other operation and maintenance | 387 | 376 | 350 | Other operation and maintenance | 400 | 373 | 387 | |||||||||||||||||||||
| Depreciation | 231 | 195 | 183 | Depreciation | 279 | 259 | 231 | |||||||||||||||||||||
| Taxes, other than income | 39 | 36 | 33 | Taxes, other than income | 46 | 40 | 39 | |||||||||||||||||||||
| Total Operating Expenses | 1,107 | 1,111 | 1,028 | Total Operating Expenses | 1,180 | 1,062 | 1,107 | |||||||||||||||||||||
| Operating Income | 393 | 385 | 425 | Operating Income | 389 | 394 | 393 | |||||||||||||||||||||
| Other Income (Expense) – net | (11 | ) | (12 | ) | (10 | ) | Other Income (Expense) – net | (5) | (1) | (11) | ||||||||||||||||||
| Interest Expense | 87 | 76 | 71 | Interest Expense | 81 | 87 | 87 | |||||||||||||||||||||
| Income Before Income Taxes | 295 | 297 | 344 | Income Before Income Taxes | 303 | 306 | 295 | |||||||||||||||||||||
| Income Taxes | 63 | 64 | 131 | Income Taxes | 54 | 62 | 63 | |||||||||||||||||||||
| Net Income (a) | $ | 232 | $ | 233 | $ | 213 | Net Income (a) | $ | 249 | $ | 244 | $ | 232 | |||||||||||||||
(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)
| 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | |||||||||||||||||||||||||||
| Net income | $ | 232 | $ | 233 | $ | 213 | Net income | $ | 249 | $ | 244 | $ | 232 | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||||||||||||||||||
| Depreciation | 231 | 195 | 183 | Depreciation | 279 | 259 | 231 | |||||||||||||||||||||
| Amortization | 15 | 14 | 14 | Amortization | 2 | 9 | 15 | |||||||||||||||||||||
| Defined benefit plans - expense | 3 | 3 | 7 | Defined benefit plans - expense | 1 | 3 | 3 | |||||||||||||||||||||
| Deferred income taxes and investment tax credits | 56 | 60 | 126 | Deferred income taxes and investment tax credits | 8 | 3 | 56 | |||||||||||||||||||||
| Other | — | — | 1 | |||||||||||||||||||||||||
| Change in current assets and current liabilities | Change in current assets and current liabilities | |||||||||||||||||||||||||||
| Accounts receivable | (9 | ) | 4 | (7 | ) | Accounts receivable | (11) | (3) | (9) | |||||||||||||||||||
| Accounts receivable from affiliates | 6 | — | 4 | Accounts receivable from affiliates | (13) | 4 | 6 | |||||||||||||||||||||
| Accounts payable | (10 | ) | 10 | (7 | ) | Accounts payable | 32 | (18) | (10) | |||||||||||||||||||
| Accounts payable to affiliates | 5 | 1 | (4 | ) | Accounts payable to affiliates | (4) | (5) | 5 | ||||||||||||||||||||
| Unbilled revenues | 1 | 14 | (16 | ) | Unbilled revenues | (1) | (3) | 1 | ||||||||||||||||||||
| Fuel, materials and supplies | 5 | 4 | 12 | Fuel, materials and supplies | (17) | 4 | 5 | |||||||||||||||||||||
| Regulatory assets and liabilities, net | (19 | ) | 5 | (5 | ) | Regulatory assets and liabilities, net | (23) | — | (19) | |||||||||||||||||||
| Taxes payable | 7 | 1 | (15 | ) | Taxes payable | 2 | (1) | 7 | ||||||||||||||||||||
| Other | (5 | ) | (10 | ) | 16 | Other | (18) | (3) | (5) | |||||||||||||||||||
| Other operating activities | Other operating activities | |||||||||||||||||||||||||||
| Defined benefit plans - funding | (6 | ) | (61 | ) | (4 | ) | Defined benefit plans - funding | (3) | (11) | (6) | ||||||||||||||||||
| Expenditures for asset retirement obligations | (30 | ) | (22 | ) | (15 | ) | Expenditures for asset retirement obligations | (27) | (20) | (30) | ||||||||||||||||||
| Other assets | (1 | ) | (12 | ) | 5 | Other assets | 2 | (2) | (1) | |||||||||||||||||||
| Other liabilities | 11 | 4 | 4 | Other liabilities | — | 23 | 11 | |||||||||||||||||||||
| Net cash provided by operating activities | 492 | 443 | 512 | Net cash provided by operating activities | 458 | 483 | 492 | |||||||||||||||||||||
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | |||||||||||||||||||||||||||
| Expenditures for property, plant and equipment | (482 | ) | (554 | ) | (458 | ) | Expenditures for property, plant and equipment | (466) | (456) | (482) | ||||||||||||||||||
| Net cash used in investing activities | (482 | ) | (554 | ) | (458 | ) | Net cash used in investing activities | (466) | (456) | (482) | ||||||||||||||||||
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | |||||||||||||||||||||||||||
| Net increase in notes payable with affiliates | Net increase in notes payable with affiliates | 324 | — | — | ||||||||||||||||||||||||
| Issuance of long-term debt | 399 | 100 | 160 | Issuance of long-term debt | — | — | 399 | |||||||||||||||||||||
| Retirement of long-term debt | (200 | ) | — | (70 | ) | Retirement of long-term debt | — | — | (200) | |||||||||||||||||||
| Acquisition of outstanding bonds | (40 | ) | — | — | Acquisition of outstanding bonds | — | — | (40) | ||||||||||||||||||||
| Remarketing of reacquired bonds | 40 | — | — | Remarketing of reacquired bonds | — | — | 40 | |||||||||||||||||||||
| Payment of common stock dividends to parent | (182 | ) | (156 | ) | (192 | ) | Payment of common stock dividends to parent | (192) | (161) | (182) | ||||||||||||||||||
| Contributions from parent | 25 | 83 | 30 | Contributions from parent | 74 | 103 | 25 | |||||||||||||||||||||
| Net increase (decrease) in short-term debt | (41 | ) | 80 | 30 | ||||||||||||||||||||||||
| Issuance of commercial paper | Issuance of commercial paper | — | 41 | — | ||||||||||||||||||||||||
| Retirement of commercial paper | Retirement of commercial paper | (41) | — | — | ||||||||||||||||||||||||
| Net decrease in short-term debt | Net decrease in short-term debt | (152) | (17) | (41) | ||||||||||||||||||||||||
| Other financing activities | (6 | ) | (1 | ) | (2 | ) | Other financing activities | (3) | (1) | (6) | ||||||||||||||||||
| Net cash provided by (used in) financing activities | (5 | ) | 106 | (44 | ) | Net cash provided by (used in) financing activities | 10 | (35) | (5) | |||||||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 5 | (5 | ) | 10 | Net Increase (Decrease) in Cash and Cash Equivalents | 2 | (8) | 5 | ||||||||||||||||||||
| Cash and Cash Equivalents at Beginning of Period | 10 | 15 | 5 | Cash and Cash Equivalents at Beginning of Period | 7 | 15 | 10 | |||||||||||||||||||||
| Cash and Cash Equivalents at End of Period | $ | 15 | $ | 10 | $ | 15 | Cash and Cash Equivalents at End of Period | $ | 9 | $ | 7 | $ | 15 | |||||||||||||||
| Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | |||||||||||||||||||||||||||
| Cash paid (received) during the period for: | ||||||||||||||||||||||||||||
| Cash paid during the period for: | Cash paid during the period for: | |||||||||||||||||||||||||||
| Interest - net of amount capitalized | $ | 77 | $ | 71 | $ | 65 | Interest - net of amount capitalized | $ | 77 | $ | 82 | $ | 77 | |||||||||||||||
| Income taxes - net | $ | 2 | $ | 7 | $ | 22 | Income taxes - net | $ | 52 | $ | 63 | $ | 2 | |||||||||||||||
| Significant non-cash transactions: | Significant non-cash transactions: | |||||||||||||||||||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 59 | $ | 61 | $ | 92 | Accrued expenditures for property, plant and equipment at December 31, | $ | 60 | $ | 60 | $ | 59 | |||||||||||||||
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)
| 2019 | 2018 | 2021 | 2020 | |||||||||||||||
| Assets | Assets | |||||||||||||||||
| Current Assets | Current Assets | |||||||||||||||||
| Cash and cash equivalents | $ | 15 | $ | 10 | Cash and cash equivalents | $ | 9 | $ | 7 | |||||||||
| Accounts receivable (less reserve: 2019, $1; 2018, $1) | ||||||||||||||||||
| Accounts receivable (less reserve: 2021, $3; 2020, $2) | Accounts receivable (less reserve: 2021, $3; 2020, $2) | |||||||||||||||||
| Customer | 121 | 110 | Customer | 130 | 127 | |||||||||||||
| Other | 41 | 30 | Other | 25 | 35 | |||||||||||||
| Unbilled revenues | 76 | 77 | ||||||||||||||||
| Unbilled revenues (less reserve: 2021, $0; 2020, $1) | Unbilled revenues (less reserve: 2021, $0; 2020, $1) | 80 | 79 | |||||||||||||||
| Accounts receivable from affiliates | 18 | 24 | Accounts receivable from affiliates | 31 | 16 | |||||||||||||
| Fuel, materials and supplies | 122 | 127 | Fuel, materials and supplies | 137 | 119 | |||||||||||||
| Prepayments | 14 | 12 | Prepayments | 14 | 14 | |||||||||||||
| Regulatory assets | 25 | 21 | Regulatory assets | 33 | 23 | |||||||||||||
| Other current assets | 1 | — | Other current assets | 2 | 1 | |||||||||||||
| Total Current Assets | 433 | 411 | Total Current Assets | 461 | 421 | |||||||||||||
| Property, Plant and Equipment | Property, Plant and Equipment | |||||||||||||||||
| Regulated utility plant | 6,372 | 5,816 | Regulated utility plant | 7,192 | 6,735 | |||||||||||||
| Less: accumulated depreciation - regulated utility plant | 846 | 741 | Less: accumulated depreciation - regulated utility plant | 1,172 | 1,020 | |||||||||||||
| Regulated utility plant, net | 5,526 | 5,075 | Regulated utility plant, net | 6,020 | 5,715 | |||||||||||||
| Construction work in progress | 297 | 514 | Construction work in progress | 242 | 320 | |||||||||||||
| Property, Plant and Equipment, net | 5,823 | 5,589 | Property, Plant and Equipment, net | 6,262 | 6,035 | |||||||||||||
| Other Noncurrent Assets | Other Noncurrent Assets | |||||||||||||||||
| Regulatory assets | 380 | 431 | Regulatory assets | 337 | 351 | |||||||||||||
| Goodwill | 389 | 389 | Goodwill | 389 | 389 | |||||||||||||
| Other intangibles | 41 | 47 | Other intangibles | 30 | 35 | |||||||||||||
| Other noncurrent assets | 67 | 16 | Other noncurrent assets | 113 | 114 | |||||||||||||
| Total Other Noncurrent Assets | 877 | 883 | Total Other Noncurrent Assets | 869 | 889 | |||||||||||||
| Total Assets | $ | 7,133 | $ | 6,883 | Total Assets | $ | 7,592 | $ | 7,345 | |||||||||
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)
| 2019 | 2018 | 2021 | 2020 | |||||||||||||||
| Liabilities and Equity | Liabilities and Equity | |||||||||||||||||
| Current Liabilities | Current Liabilities | |||||||||||||||||
| Short-term debt | $ | 238 | $ | 279 | Short-term debt | $ | 69 | $ | 262 | |||||||||
| Notes payable with affiliates | Notes payable with affiliates | 324 | — | |||||||||||||||
| Long-term debt due within one year | — | 434 | Long-term debt due within one year | — | 292 | |||||||||||||
| Accounts payable | 172 | 172 | Accounts payable | 163 | 153 | |||||||||||||
| Accounts payable to affiliates | 31 | 26 | Accounts payable to affiliates | 31 | 31 | |||||||||||||
| Customer deposits | 31 | 29 | Customer deposits | 32 | 32 | |||||||||||||
| Taxes | 33 | 26 | Taxes | 34 | 32 | |||||||||||||
| Price risk management liabilities | 4 | 4 | Price risk management liabilities | 1 | 2 | |||||||||||||
| Regulatory liabilities | 2 | 17 | Regulatory liabilities | 21 | — | |||||||||||||
| Interest | 15 | 11 | Interest | 15 | 15 | |||||||||||||
| Asset retirement obligations | 24 | 23 | Asset retirement obligations | 10 | 10 | |||||||||||||
| Other current liabilities | 47 | 39 | Other current liabilities | 37 | 50 | |||||||||||||
| Total Current Liabilities | 597 | 1,060 | Total Current Liabilities | 737 | 879 | |||||||||||||
| Long-term Debt | 2,005 | 1,375 | Long-term Debt | 2,006 | 1,715 | |||||||||||||
| Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | |||||||||||||||||
| Deferred income taxes | 697 | 628 | Deferred income taxes | 751 | 716 | |||||||||||||
| Investment tax credits | 34 | 34 | Investment tax credits | 32 | 33 | |||||||||||||
| Price risk management liabilities | 17 | 16 | Price risk management liabilities | 17 | 21 | |||||||||||||
| Asset retirement obligations | 49 | 80 | Asset retirement obligations | 74 | 57 | |||||||||||||
| Regulatory liabilities | 883 | 915 | Regulatory liabilities | 818 | 882 | |||||||||||||
| Other deferred credits and noncurrent liabilities | 89 | 88 | Other deferred credits and noncurrent liabilities | 78 | 94 | |||||||||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,769 | 1,761 | Total Deferred Credits and Other Noncurrent Liabilities | 1,770 | 1,803 | |||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | ||||||||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 14) | Commitments and Contingent Liabilities (Notes 7 and 14) | 0 | 0 | |||||||||||||||
| Equity | Equity | |||||||||||||||||
| Common stock - no par value (a) | 424 | 424 | Common stock - no par value (a) | 424 | 424 | |||||||||||||
| Additional paid-in capital | 1,820 | 1,795 | Additional paid-in capital | 1,997 | 1,923 | |||||||||||||
| Earnings reinvested | 518 | 468 | Earnings reinvested | 658 | 601 | |||||||||||||
| Total Equity | 2,762 | 2,687 | Total Equity | 3,079 | 2,948 | |||||||||||||
| Total Liabilities and Equity | $ | 7,133 | $ | 6,883 | Total Liabilities and Equity | $ | 7,592 | $ | 7,345 | |||||||||
(a)75,000 shares authorized; 21,294 shares issued and outstanding at December 31, 2021 and December 31, 2020.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
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 | |||||||||||||||||||||||||||||||||||||||||||
Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Total | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | 21,294 | $ | 424 | $ | 1,682 | $ | 370 | $ | 2,476 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | December 31, 2018 | 21,294 | $ | 424 | $ | 1,795 | $ | 468 | $ | 2,687 | |||||||||||||||||||||||||||||||||||||
| Net income | 213 | 213 | Net income | 232 | 232 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 30 | 30 | Capital contributions from LKE | 25 | 25 | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (192 | ) | (192 | ) | Cash dividends declared on common stock | (182) | (182) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 21,294 | $ | 424 | $ | 1,712 | $ | 391 | $ | 2,527 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2019 | 21,294 | $ | 424 | $ | 1,820 | $ | 518 | $ | 2,762 | |||||||||||||||||||||||||||||||||||||
| Net income | 233 | 233 | Net income | 244 | 244 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 83 | 83 | Capital contributions from LKE | 103 | 103 | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (156 | ) | (156 | ) | Cash dividends declared on common stock | (161) | (161) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 21,294 | $ | 424 | $ | 1,795 | $ | 468 | $ | 2,687 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | 21,294 | $ | 424 | $ | 1,923 | $ | 601 | $ | 2,948 | |||||||||||||||||||||||||||||||||||||
| Net income | 232 | 232 | Net income | 249 | 249 | ||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 25 | 25 | Capital contributions from LKE | 74 | 74 | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (182 | ) | (182 | ) | Cash dividends declared on common stock | (192) | (192) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 21,294 | $ | 424 | $ | 1,820 | $ | 518 | $ | 2,762 | ||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | 21,294 | $ | 424 | $ | 1,997 | $ | 658 | $ | 3,079 | |||||||||||||||||||||||||||||||||||||
(a) Shares in thousands. All common shares of LG&E stock are owned by LKE.
The accompanying Notes to Financial Statements are an integral part of the financial statements.
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STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
Kentucky Utilities Company
(Millions of Dollars)
| 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Operating Revenues | Operating Revenues | |||||||||||||||||||||||||||
| Retail and wholesale | $ | 1,733 | $ | 1,747 | $ | 1,734 | Retail and wholesale | $ | 1,803 | $ | 1,671 | $ | 1,733 | |||||||||||||||
| Electric revenue from affiliate | 7 | 13 | 10 | Electric revenue from affiliate | 23 | 19 | 7 | |||||||||||||||||||||
| Total Operating Revenues | 1,740 | 1,760 | 1,744 | Total Operating Revenues | 1,826 | 1,690 | 1,740 | |||||||||||||||||||||
| Operating Expenses | Operating Expenses | |||||||||||||||||||||||||||
| Operation | Operation | |||||||||||||||||||||||||||
| Fuel | 420 | 491 | 467 | Fuel | 445 | 386 | 420 | |||||||||||||||||||||
| Energy purchases | 20 | 18 | 18 | Energy purchases | 19 | 18 | 20 | |||||||||||||||||||||
| Energy purchases from affiliate | 27 | 29 | 31 | Energy purchases from affiliate | 24 | 21 | 27 | |||||||||||||||||||||
| Other operation and maintenance | 438 | 441 | 423 | Other operation and maintenance | 463 | 429 | 438 | |||||||||||||||||||||
| Depreciation | 315 | 279 | 255 | Depreciation | 366 | 346 | 315 | |||||||||||||||||||||
| Taxes, other than income | 35 | 34 | 32 | Taxes, other than income | 41 | 37 | 35 | |||||||||||||||||||||
| Total Operating Expenses | 1,255 | 1,292 | 1,226 | Total Operating Expenses | 1,358 | 1,237 | 1,255 | |||||||||||||||||||||
| Operating Income | 485 | 468 | 518 | Operating Income | 468 | 453 | 485 | |||||||||||||||||||||
| Other Income (Expense) – net | (4 | ) | (6 | ) | (4 | ) | Other Income (Expense) – net | 4 | 3 | (4) | ||||||||||||||||||
| Interest Expense | 109 | 100 | 96 | Interest Expense | 109 | 113 | 109 | |||||||||||||||||||||
| Income Before Income Taxes | 372 | 362 | 418 | Income Before Income Taxes | 363 | 343 | 372 | |||||||||||||||||||||
| Income Taxes | 79 | 76 | 159 | Income Taxes | 67 | 63 | 79 | |||||||||||||||||||||
| Net Income (a) | $ | 293 | $ | 286 | $ | 259 | Net Income (a) | $ | 296 | $ | 280 | $ | 293 | |||||||||||||||
(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,
Kentucky Utilities Company
(Millions of Dollars)
| 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | |||||||||||||||||||||||||||
| Net income | $ | 293 | $ | 286 | $ | 259 | Net income | $ | 296 | $ | 280 | $ | 293 | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||||||||||||||||||
| Depreciation | 315 | 279 | 255 | Depreciation | 366 | 346 | 315 | |||||||||||||||||||||
| Amortization | 10 | 3 | 9 | Amortization | 12 | 8 | 10 | |||||||||||||||||||||
| Defined benefit plans - expense | (1 | ) | — | 4 | ||||||||||||||||||||||||
| Defined benefit plans - expense (credit) | Defined benefit plans - expense (credit) | (3) | — | (1) | ||||||||||||||||||||||||
| Deferred income taxes and investment tax credits | 39 | 48 | 152 | Deferred income taxes and investment tax credits | 1 | 20 | 39 | |||||||||||||||||||||
| Other | (3 | ) | (4 | ) | — | Other | (3) | (1) | (3) | |||||||||||||||||||
| Change in current assets and current liabilities | Change in current assets and current liabilities | |||||||||||||||||||||||||||
| Accounts receivable | (3 | ) | (4 | ) | (5 | ) | Accounts receivable | 6 | (13) | (3) | ||||||||||||||||||
| Accounts receivable from affiliates | Accounts receivable from affiliates | 1 | (1) | — | ||||||||||||||||||||||||
| Accounts payable | (15 | ) | 29 | — | Accounts payable | (12) | 9 | (15) | ||||||||||||||||||||
| Accounts payable to affiliates | (2 | ) | (3 | ) | (6 | ) | Accounts payable to affiliates | 15 | (16) | (2) | ||||||||||||||||||
| Unbilled revenues | 4 | 20 | (17 | ) | Unbilled revenues | 6 | (9) | 4 | ||||||||||||||||||||
| Fuel, materials and supplies | (6 | ) | 3 | 32 | Fuel, materials and supplies | 1 | 6 | (6) | ||||||||||||||||||||
| Regulatory assets and liabilities, net | (26 | ) | 27 | (2 | ) | Regulatory assets and liabilities, net | (22) | (26) | (26) | |||||||||||||||||||
| Taxes payable | 2 | 5 | (26 | ) | Taxes payable | (10) | 2 | 2 | ||||||||||||||||||||
| Other | (6 | ) | (3 | ) | 9 | Other | (18) | (5) | (6) | |||||||||||||||||||
| Other operating activities | Other operating activities | |||||||||||||||||||||||||||
| Defined benefit plans - funding | (3 | ) | (54 | ) | (23 | ) | Defined benefit plans - funding | (1) | (3) | (3) | ||||||||||||||||||
| Expenditures for asset retirement obligations | (59 | ) | (50 | ) | (19 | ) | Expenditures for asset retirement obligations | (36) | (64) | (59) | ||||||||||||||||||
| Other assets | (2 | ) | (12 | ) | 3 | Other assets | 9 | (2) | (2) | |||||||||||||||||||
| Other liabilities | 16 | 11 | 9 | Other liabilities | — | 12 | 16 | |||||||||||||||||||||
| Net cash provided by operating activities | 553 | 581 | 634 | Net cash provided by operating activities | 608 | 543 | 553 | |||||||||||||||||||||
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | |||||||||||||||||||||||||||
| Expenditures for property, plant and equipment | (610 | ) | (562 | ) | (432 | ) | Expenditures for property, plant and equipment | (560) | (510) | (610) | ||||||||||||||||||
| Other investing activities | — | 1 | 4 | Other investing activities | 4 | 3 | — | |||||||||||||||||||||
| Net cash used in investing activities | (610 | ) | (561 | ) | (428 | ) | Net cash used in investing activities | (556) | (507) | (610) | ||||||||||||||||||
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | |||||||||||||||||||||||||||
| Net increase in notes payable with affiliates | Net increase in notes payable with affiliates | 294 | — | — | ||||||||||||||||||||||||
| Issuance of long-term debt | 306 | 18 | — | Issuance of long-term debt | — | 498 | 306 | |||||||||||||||||||||
| Retirement of long-term debt | — | (27 | ) | — | Retirement of long-term debt | — | (500) | — | ||||||||||||||||||||
| Payment of common stock dividends to parent | (229 | ) | (246 | ) | (226 | ) | Payment of common stock dividends to parent | (250) | (200) | (229) | ||||||||||||||||||
| Contributions from parent | 68 | 45 | — | Contributions from parent | 100 | 128 | 68 | |||||||||||||||||||||
| Issuance of commercial paper | Issuance of commercial paper | — | 32 | — | ||||||||||||||||||||||||
| Retirement of commercial paper | Retirement of commercial paper | (32) | — | — | ||||||||||||||||||||||||
| Net increase (decrease) in short-term debt | (85 | ) | 190 | 29 | Net increase (decrease) in short-term debt | (171) | 21 | (85) | ||||||||||||||||||||
| Other financing activities | (5 | ) | (1 | ) | (1 | ) | Other financing activities | (2) | (5) | (5) | ||||||||||||||||||
| Net cash provided by (used in) financing activities | 55 | (21 | ) | (198 | ) | Net cash provided by (used in) financing activities | (61) | (26) | 55 | |||||||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (2 | ) | (1 | ) | 8 | Net Increase (Decrease) in Cash and Cash Equivalents | (9) | 10 | (2) | |||||||||||||||||||
| Cash and Cash Equivalents at Beginning of Period | 14 | 15 | 7 | Cash and Cash Equivalents at Beginning of Period | 22 | 12 | 14 | |||||||||||||||||||||
| Cash and Cash Equivalents at End of Period | $ | 12 | $ | 14 | $ | 15 | Cash and Cash Equivalents at End of Period | $ | 13 | $ | 22 | $ | 12 | |||||||||||||||
| Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | |||||||||||||||||||||||||||
| Cash paid (received) during the period for: | ||||||||||||||||||||||||||||
| Cash paid during the period for: | Cash paid during the period for: | |||||||||||||||||||||||||||
| Interest - net of amount capitalized | $ | 101 | $ | 95 | $ | 92 | Interest - net of amount capitalized | $ | 105 | $ | 109 | $ | 101 | |||||||||||||||
| Income taxes - net | $ | 39 | $ | 25 | $ | 34 | Income taxes - net | $ | 72 | $ | 44 | $ | 39 | |||||||||||||||
| Significant non-cash transactions: | Significant non-cash transactions: | |||||||||||||||||||||||||||
| Accrued expenditures for property, plant and equipment at December 31, | $ | 54 | $ | 88 | $ | 82 | Accrued expenditures for property, plant and equipment at December 31, | $ | 67 | $ | 40 | $ | 54 | |||||||||||||||
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)
| 2019 | 2018 | 2021 | 2020 | |||||||||||||||
| Assets | Assets | |||||||||||||||||
| Current Assets | Current Assets | |||||||||||||||||
| Cash and cash equivalents | $ | 12 | $ | 14 | Cash and cash equivalents | $ | 13 | $ | 22 | |||||||||
| Accounts receivable (less reserve: 2019, $1; 2018, $2) | ||||||||||||||||||
| Accounts receivable (less reserve: 2021, $3; 2020, $1) | Accounts receivable (less reserve: 2021, $3; 2020, $1) | |||||||||||||||||
| Customer | 139 | 129 | Customer | 144 | 156 | |||||||||||||
| Other | 27 | 34 | Other | 12 | 30 | |||||||||||||
| Unbilled revenues | 88 | 92 | ||||||||||||||||
| Unbilled revenues (less reserve: 2021, $0; 2020, $1) | Unbilled revenues (less reserve: 2021, $0; 2020, $1) | 91 | 97 | |||||||||||||||
| Accounts receivable from affiliates | Accounts receivable from affiliates | — | 1 | |||||||||||||||
| Fuel, materials and supplies | 128 | 121 | Fuel, materials and supplies | 124 | 123 | |||||||||||||
| Prepayments | 14 | 11 | Prepayments | 15 | 15 | |||||||||||||
| Regulatory assets | 16 | 4 | Regulatory assets | 9 | 36 | |||||||||||||
| Other current assets | 1 | — | Other current assets | 2 | 1 | |||||||||||||
| Total Current Assets | 425 | 405 | Total Current Assets | 410 | 481 | |||||||||||||
| Property, Plant and Equipment | Property, Plant and Equipment | |||||||||||||||||
| Regulated utility plant | 8,262 | 7,895 | Regulated utility plant | 9,219 | 8,808 | |||||||||||||
| Less: accumulated depreciation - regulated utility plant | 1,507 | 1,382 | Less: accumulated depreciation - regulated utility plant | 1,929 | 1,690 | |||||||||||||
| Regulated utility plant, net | 6,755 | 6,513 | Regulated utility plant, net | 7,290 | 7,118 | |||||||||||||
| Construction work in progress | 496 | 503 | Construction work in progress | 378 | 321 | |||||||||||||
| Property, Plant and Equipment, net | 7,251 | 7,016 | Property, Plant and Equipment, net | 7,668 | 7,439 | |||||||||||||
| Other Noncurrent Assets | Other Noncurrent Assets | |||||||||||||||||
| Regulatory assets | 386 | 418 | Regulatory assets | 411 | 370 | |||||||||||||
| Goodwill | 607 | 607 | Goodwill | 607 | 607 | |||||||||||||
| Other intangibles | 28 | 31 | Other intangibles | 23 | 26 | |||||||||||||
| Other noncurrent assets | 128 | 63 | Other noncurrent assets | 153 | 149 | |||||||||||||
| Total Other Noncurrent Assets | 1,149 | 1,119 | Total Other Noncurrent Assets | 1,194 | 1,152 | |||||||||||||
| Total Assets | $ | 8,825 | $ | 8,540 | Total Assets | $ | 9,272 | $ | 9,072 | |||||||||
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)
| 2019 | 2018 | 2021 | 2020 | |||||||||||||||
| Liabilities and Equity | Liabilities and Equity | |||||||||||||||||
| Current Liabilities | Current Liabilities | |||||||||||||||||
| Short-term debt | $ | 150 | $ | 235 | Short-term debt | $ | — | $ | 203 | |||||||||
| Notes payable with affiliates | Notes payable with affiliates | 294 | — | |||||||||||||||
| Long-term debt due within one year | 500 | 96 | Long-term debt due within one year | — | 132 | |||||||||||||
| Accounts payable | 121 | 171 | Accounts payable | 108 | 121 | |||||||||||||
| Accounts payable to affiliates | 52 | 53 | Accounts payable to affiliates | 64 | 43 | |||||||||||||
| Customer deposits | 31 | 32 | Customer deposits | 32 | 32 | |||||||||||||
| Taxes | 26 | 24 | Taxes | 19 | 29 | |||||||||||||
| Regulatory liabilities | 17 | 31 | Regulatory liabilities | 8 | 11 | |||||||||||||
| Interest | 20 | 16 | Interest | 18 | 19 | |||||||||||||
| Asset retirement obligations | 46 | 59 | Asset retirement obligations | 22 | 40 | |||||||||||||
| Other current liabilities | 51 | 35 | Other current liabilities | 47 | 59 | |||||||||||||
| Total Current Liabilities | 1,014 | 752 | Total Current Liabilities | 612 | 689 | |||||||||||||
| Long-term Debt | 2,123 | 2,225 | Long-term Debt | 2,618 | 2,486 | |||||||||||||
| Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | |||||||||||||||||
| Deferred income taxes | 792 | 735 | Deferred income taxes | 865 | 835 | |||||||||||||
| Investment tax credits | 90 | 92 | Investment tax credits | 87 | 88 | |||||||||||||
| Asset retirement obligations | 96 | 134 | Asset retirement obligations | 83 | 75 | |||||||||||||
| Regulatory liabilities | 1,090 | 1,124 | Regulatory liabilities | 1,045 | 1,070 | |||||||||||||
| Other deferred credits and noncurrent liabilities | 46 | 36 | Other deferred credits and noncurrent liabilities | 34 | 47 | |||||||||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 2,114 | 2,121 | Total Deferred Credits and Other Noncurrent Liabilities | 2,114 | 2,115 | |||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 13) | ||||||||||||||||||
| Commitments and Contingent Liabilities (Notes 7 and 14) | Commitments and Contingent Liabilities (Notes 7 and 14) | 0 | 0 | |||||||||||||||
| Equity | Equity | |||||||||||||||||
| Common stock - no par value (a) | 308 | 308 | Common stock - no par value (a) | 308 | 308 | |||||||||||||
| Additional paid-in capital | 2,729 | 2,661 | Additional paid-in capital | 2,957 | 2,857 | |||||||||||||
| Earnings reinvested | 537 | 473 | Earnings reinvested | 663 | 617 | |||||||||||||
| Total Equity | 3,574 | 3,442 | Total Equity | 3,928 | 3,782 | |||||||||||||
| Total Liabilities and Equity | $ | 8,825 | $ | 8,540 | Total Liabilities and Equity | $ | 9,272 | $ | 9,072 | |||||||||
(a) 80,000 shares authorized; 37,818 shares issued and outstanding at December 31, 2021 and December 31, 2020.
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, 2018 | December 31, 2018 | 37,818 | $ | 308 | $ | 2,661 | $ | 473 | $ | — | $ | 3,442 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | Net income | 293 | 293 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | Capital contributions from LKE | 68 | 68 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | Cash dividends declared on common stock | (229) | (229) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock shares outstanding (a) | Common stock | Additional paid-in capital | Earnings reinvested | Accumulated other comprehensive income (loss) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | 37,818 | $ | 308 | $ | 2,616 | $ | 400 | $ | (1 | ) | $ | 3,323 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | 259 | 259 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (226 | ) | (226 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 37,818 | $ | 308 | $ | 2,616 | $ | 433 | $ | — | $ | 3,357 | ||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2019 | 37,818 | $ | 308 | $ | 2,729 | $ | 537 | $ | — | $ | 3,574 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | 286 | 286 | Net income | 280 | 280 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 45 | 45 | Capital contributions from LKE | 128 | 128 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (246 | ) | (246 | ) | Cash dividends declared on common stock | (200) | (200) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 37,818 | $ | 308 | $ | 2,661 | $ | 473 | $ | — | $ | 3,442 | ||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | 37,818 | $ | 308 | $ | 2,857 | $ | 617 | $ | — | $ | 3,782 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | 293 | 293 | Net income | 296 | 296 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions from LKE | 68 | 68 | Capital contributions from LKE | 100 | 100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | (229 | ) | (229 | ) | Cash dividends declared on common stock | (250) | (250) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 37,818 | $ | 308 | $ | 2,729 | $ | 537 | $ | — | $ | 3,574 | ||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | 37,818 | $ | 308 | $ | 2,957 | $ | 663 | $ | — | $ | 3,928 | |||||||||||||||||||||||||||||||||||||||||||||
(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
Index to Combined Notes to Consolidated Financial Statements
The notes to the consolidated financial statements that follow are a combined presentation. The following list indicates the Registrants to which the footnotes apply:
| Registrant | ||||||||||||||||||||||||||||
| PPL | PPL Electric | KU | ||||||||||||||||||||||||||
| 1. Summary of Significant Accounting Policies | x | x | x | x | ||||||||||||||||||||||||
| 2. Segment and Related Information | x | x | x | x | ||||||||||||||||||||||||
| 3. Revenue from Contracts with Customers | x | x | x | x | ||||||||||||||||||||||||
| 4. Preferred Securities | x | x | x | x | ||||||||||||||||||||||||
| 5. Earnings Per Share | x | |||||||||||||||||||||||||||
| 6. Income and Other Taxes | x | x | x | x | ||||||||||||||||||||||||
| 7. Utility Rate Regulation | x | x | x | x | ||||||||||||||||||||||||
| 8. Financing Activities | x | x | x | x | ||||||||||||||||||||||||
| 9. | x | |||||||||||||||||||||||||||
| 10. Leases | x | x | x | x | ||||||||||||||||||||||||
| 11. Stock-Based Compensation | x | x | ||||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | ||||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | ||||||||||||||||||||||||||
| x | x | |||||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | x | x | x | |||||||||||||||||||||||||
| x | ||||||||||||||||||||||||||||
1. Summary of Significant Accounting Policies
(All Registrants)
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 each Registrants' related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.
Business and Consolidation
(PPL)
PPL is a utility holding company that, through its regulated subsidiaries, is primarily engaged in: 1) the distribution of electricity in the U.K.; 2) the generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas, primarily in Kentucky; and 3)2) the transmission, distribution and sale of electricity in Pennsylvania. Headquartered in Allentown, PA, PPL's principal subsidiaries are PPL Global, LKE (including its principal subsidiaries, LG&E and KU) and PPL Electric. PPL's corporate level financing subsidiary is PPL Capital Funding.
On March 17, 2021, PPL WPD Limited entered into a share purchase agreement to sell PPL's U.K. utility business, which substantially represented PPL's U.K. Regulated segment, to a subsidiary of PPL Global, through indirect, wholly owned subsidiaries, operates distribution networks providing electricity service inNational Grid plc. The sale was completed on June 14, 2021. The results of operations of the U.K. WPD serves end-users in South Walesutility business are classified as Discontinued Operations on PPL's Statements of Income. The assets and southwestliabilities of the U.K. utility business as of December 31, 2020 are classified as assets and central England. Its principal subsidiaries are WPD (South Wales), WPD (South West), WPD (East Midlands)liabilities held for sale on PPL's Balance Sheets. PPL has elected to separately report the cash flows of continuing and WPD (West Midlands).discontinued operations on the Statements of Cash Flows. Unless otherwise noted, the notes to these financial statements exclude amounts related to discontinued operations and assets and liabilities held for sale for all periods presented. See Note 9 for additional information.
(PPL and PPL Electric)
PPL Electric is a cost-based rate-regulated utility subsidiary of PPL. PPL Electric's principal business is the 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)
(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 Variable Interest Entities (VIEs). The Registrants consolidate a VIE when they are determined to have a controlling interest in the VIE and, as a result, are the primary beneficiary of the entity. The RegistrantsAmounts consolidated under the VIE guidance are not material to the primary beneficiary in any significant 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. Registrants.
All significant intercompany transactions have been eliminated.
The financial statements of PPL, 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 1213 for additional information.
Regulation
(All 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. Base rates are generally established based on a 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 expected future costs, 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 7 for additional details regarding regulatory matters.
Accounting Records
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.
97
Use of Estimates
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.
Loss Accruals
Potential losses are accrued when (1) information is available that indicates it is "probable" that a loss has been incurred, given the likelihood of uncertain future events and (2) the amount of 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.
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.
Price Risk Management
(All Registrants)
Interest rate contracts are used to hedge exposure to changes in the fair value of debt instruments and to hedge exposure 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.exposures. Similar derivatives may receive different accounting treatment, depending on management's intended use and documentation.
Certain contracts may 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 to facilitate net settlement. Certain derivative contracts may be excluded from the requirements of derivative accounting treatment because the NPNS has been elected. These contracts are accounted for using accrual accounting. Contracts that have been classified as derivative contracts are reflected on the balance sheets at fair value. 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."
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)
Processes exist that allow for subsequent review and validation of contract information as it relates to interest rate derivatives and foreign currency derivatives. The accounting department provides the treasury department with guidelines on 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.
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•Cross-currency transactions to hedge interest and principal repayments can be designated as cash flow hedges.
•Transactions to hedge fluctuations in the fair value of existing debt can be designated as fair value hedges.
•Transactions 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-denominated 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. PPL also hedges anticipated transactions, including the previously completed sale of its U.K utility business and net investments.
(All Registrants)
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 1617 and 1718 for additional information on derivatives.
Revenue
(All Registrants)
Operating revenues are primarily recorded based on energy deliveries through the end of each calendar month. Unbilled retail revenues result because customers' bills are rendered throughout the month, rather than bills being rendered at the end of the month. For LKE, LG&E and KU, unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh or Mcf by the estimated average cents per kWh.kWh or Mcf. Any difference between estimated and actual revenues is adjusted the following month when the previous unbilled estimate is reversed and actual billings occur. For PPL Electric, unbilled revenues for a month are calculated by multiplying the actual unbilled kWhvolumes by an average ratethe price per customer class.tariff.
PPL Electric's, LG&E's and KU's base rates are determined based on cost of service. Some regulators have also authorized the use of additional alternative revenue programs, which enable PPL Electric, LG&E and KU to adjust future rates based on past activities or completed events. Revenues from alternative revenue programs are recognized when the specific events permitting future billings have occurred. Revenues from alternative revenue programs are required to be presented separately from revenues from contracts with customers. These amounts are, however, presented as revenues from contracts with customers, with an offsetting adjustment to alternative revenue program revenue, when they are billed to customers in future periods. See Note 3 for additional information.
(All Registrants)
Accounts receivable are reported on the Balance Sheets at the gross outstanding amount adjusted for an allowance for doubtful accounts. Financing receivables include accounts receivable, with the exception of those items within accounts receivable that are not subject to the credit loss model.
The Registrants periodically evaluate the impact of observable external factors on the collectibility of the financing receivables to determine if adjustments to the allowance for doubtful accounts should be made based on current conditions or reasonable and supportable forecasts. Accounts receivable are written off in the period in which the receivable is deemed uncollectible.
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(PPL and PPL Electric)
PPL Electric has identified one class of financing receivables, “accounts receivable - customer”, which includes financing receivables for all billed and unbilled sales with residential and non-residential customers. All other financing receivables are classified as other. Within the credit loss model for the residential customer accounts receivables, customers are disaggregated based on their projected propensity to pay, which is derived from historical trends and the current activity of the individual customer accounts. Conversely, the non-residential customer accounts receivables are not further segmented due to the varying nature of the individual customers, which lack readily identifiable risk characteristics for disaggregation.
(PPL, LG&E and KU)
LG&E and KU have identified one class of financing receivables, “accounts receivable - customer”, which includes financing receivables for all billed and unbilled sales with customers. All other financing receivables are classified as other.
(All Registrants)
The changes in the allowance for doubtful accounts were:are included in the following table. Amounts relate to financing receivables, except as noted.
| Additions | ||||||||||||||||||||||||||||||||
| Balance at Beginning of Period | Charged to Income | Charged to Other Accounts | Deductions (b) | Balance at End of Period | ||||||||||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||||||||
2021 | $ | 73 | $ | 26 | $ | — | $ | 30 | $ | 69 | (d) | |||||||||||||||||||||
| 2020 (a) | 58 | (a) | 28 | — | 13 | 73 | (d) | |||||||||||||||||||||||||
| 2019 | 54 | 34 | 3 | 35 | 56 | |||||||||||||||||||||||||||
PPL Electric | ||||||||||||||||||||||||||||||||
| 2021 | $ | 41 | $ | 13 | $ | — | $ | 19 | $ | 35 | (c) | |||||||||||||||||||||
| 2020 | 30 | (a) | 19 | — | 8 | 41 | (c) | |||||||||||||||||||||||||
| 2019 | 27 | 26 | — | 25 | 28 | |||||||||||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||||||||
| 2021 | $ | 3 | $ | 4 | $ | — | $ | 4 | $ | 3 | ||||||||||||||||||||||
| 2020 | 1 | 4 | — | 2 | 3 | |||||||||||||||||||||||||||
| 2019 | 1 | 2 | 2 | 4 | 1 | |||||||||||||||||||||||||||
| KU | ||||||||||||||||||||||||||||||||
| 2021 | $ | 2 | $ | 8 | $ | — | $ | 7 | $ | 3 | ||||||||||||||||||||||
| 2020 | 1 | 4 | — | 3 | 2 | |||||||||||||||||||||||||||
| 2019 | 2 | 4 | 1 | 6 | 1 | |||||||||||||||||||||||||||
| Additions | |||||||||||||||||||
Balance at Beginning of Period | Charged to Income | Charged to Other Accounts | Deductions (a) | Balance at End of Period | |||||||||||||||
| PPL | |||||||||||||||||||
| 2019 | $ | 56 | $ | 37 | $ | 3 | $ | 38 | $ | 58 | |||||||||
| 2018 | 51 | 41 | 3 | 39 | 56 | ||||||||||||||
| 2017 | 54 | 28 | (1 | ) | 30 | 51 | |||||||||||||
| PPL Electric | |||||||||||||||||||
| 2019 | $ | 27 | $ | 26 | $ | — | $ | 25 | $ | 28 | |||||||||
| 2018 | 24 | 29 | — | 26 | 27 | ||||||||||||||
| 2017 | 28 | 18 | — | 22 | 24 | ||||||||||||||
| LKE | |||||||||||||||||||
| 2019 | $ | 27 | $ | 8 | $ | 3 | $ | 10 | $ | 28 | |||||||||
| 2018 | 25 | 10 | 3 | 11 | 27 | ||||||||||||||
| 2017 | 24 | 8 | (1 | ) | 6 | 25 | |||||||||||||
| LG&E | |||||||||||||||||||
| 2019 | $ | 1 | $ | 2 | $ | 2 | $ | 4 | $ | 1 | |||||||||
| 2018 | 1 | 4 | 1 | 5 | 1 | ||||||||||||||
| 2017 | 2 | 2 | (1 | ) | 2 | 1 | |||||||||||||
| KU | |||||||||||||||||||
| 2019 | $ | 2 | $ | 4 | $ | 1 | $ | 6 | $ | 1 | |||||||||
| 2018 | 1 | 5 | 2 | 6 | 2 | ||||||||||||||
| 2017 | 2 | 4 | (1 | ) | 4 | 1 | |||||||||||||
Cash
(All Registrants)
Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.
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(PPL)
Restricted Cash and Cash Equivalents
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. On the Balance Sheets, the current portion of restricted cash and cash equivalents is included in "Other current assets," while the noncurrent portion is included in "Other noncurrent assets."
Reconciliation of Cash, Cash Equivalents and Restricted Cash
The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash reported within the Balance Sheets that sum to the total of the same amounts shown on the Statements of Cash Flows:
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 3,571 | $ | 442 | |||||||||||||||||||
| Restricted cash - current | 1 | 1 | |||||||||||||||||||||
| Total Cash, Cash Equivalents and Restricted Cash | $ | 3,572 | $ | 443 | |||||||||||||||||||
| PPL | PPL Electric | ||||||||||||||
| December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | ||||||||||||
| Cash and cash equivalents | $ | 815 | $ | 621 | $ | 262 | $ | 267 | |||||||
| Restricted cash - current | 3 | 3 | 2 | 2 | |||||||||||
| Restricted cash - noncurrent (a) | 18 | 19 | — | — | |||||||||||
| Total Cash, Cash Equivalents and Restricted Cash | $ | 836 | $ | 643 | $ | 264 | $ | 269 | |||||||
(All Registrants)
Fair Value Measurements
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 in 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.
Investments
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
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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 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 "Other current assets" on the Balance Sheets.
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. 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. Included in PP&E are capitalized costs of software projects that were developed or obtained for internal use. 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 work is performed and costs are incurred.
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 as a return is provided on construction work in progress.
PPL capitalizesand PPL Electric capitalize interest costs as part of construction costs. Capitalized interest, including the debt component of AFUDC, for PPL, was $10 million in 2019, $15 million in 2018 and $11 million 2017.the years ended December 31 is as follows:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | $ | 6 | $ | 7 | $ | 9 | |||||||||||
| PPL Electric | 6 | 7 | 8 | ||||||||||||||
Depreciation(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. 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.asset or regulatory liability. See "Asset Retirement Obligations" below and Note 7 for additional information. PPL Electric records net costs 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.
Following are the weighted-average annual rates of depreciation, for regulated utility plant, for the years ended December 31:
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| 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | ||||||||||||||||||||
| PPL | 2.84 | % | 2.77 | % | 2.65 | % | PPL | 3.61 | % | 3.53 | % | 3.54 | % | ||||||||||||
| PPL Electric | 3.05 | % | 3.01 | % | 2.86 | % | PPL Electric | 3.05 | % | 2.99 | % | 3.05 | % | ||||||||||||
| LKE | 3.96 | % | 3.69 | % | 3.64 | % | |||||||||||||||||||
| LG&E | 3.87 | % | 3.63 | % | 3.63 | % | LG&E | 3.99 | % | 4.00 | % | 3.87 | % | ||||||||||||
| KU | 4.02 | % | 3.74 | % | 3.66 | % | KU | 4.17 | % | 4.00 | % | 4.02 | % | ||||||||||||
Goodwill and Other Intangible Assets (All Registrants)
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.
Asset Impairment (Excluding Investments)
(All Registrants)
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.
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.
PPL, LKE, LG&E and KU review goodwill for impairment at the reporting unit level annually or more frequently when events or circumstances indicate that the carrying amount of a reporting unit may be greater than the unit's fair value. 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, LKE's, LG&E's and KU's reporting units are primarily at the operating segment level.
PPL, for its Kentucky Regulated segment and LKE reporting units, and individually 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")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, an impairment loss is recognized in an amount equal to that excess, limited to the impliedtotal amount of goodwill allocated to that reporting unit.
In the fourth quarter of 2021, PPL, for its Kentucky Regulated segment and LKE reporting units, and individually, LG&E and KU, elected to perform qualitative step zero evaluations for their annual goodwill impairment tests, as of October 1, 2021. Based on these evaluations, management concluded it was not "more likely than not" that the fair value of goodwill mustthese reporting units was less than their carrying values. As such, quantitative impairment tests were not performed.
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(PPL)
During the three month-period ended June 30, 2021, Safari Energy determined that the carrying value of its solar panel inventory would not be calculatedfully recoverable due to a decrease in the same manner as goodwillnet realizable value of the modules. The decrease was due primarily to the combination of the three following factors: (1) a continued decrease in a business combination. Thethe fair value of the modules on hand due to more efficient modules being available on the market, (2) the federal government's extension of certain investment tax credits which make modules on the open market eligible for those credits at higher levels of credits and (3) an increase in commodity prices for materials used in various types of solar projects, all of which place pressure on the economics of those projects, making the cost of Safari's solar panels uncompetitive. As a result, Safari Energy recorded a loss of $37 million ($28 million after-tax) in June 2021 to record the solar panels at fair value. The loss was recorded to "Other operation and maintenance" expense on the Statement of Income. Solar panel inventories of $32 million are included in "Other noncurrent assets" on PPL's Balance Sheet at December 31, 2021.
PPL considered whether the events and circumstances that led to the impairment of Safari Energy's solar panels would more likely than not reduce the fair value of PPL's Distributed Energy Resources reporting unit is allocatedbelow its carrying amount. Based on PPL's assessment, a quantitative impairment test was not required as of June 30, 2021.
In the fourth quarter of 2021, PPL elected to all assets and liabilitiesperform a quantitative goodwill impairment test in conjunction with the annual goodwill impairment assessment for the Distributed Energy Resources reporting unit. The test did not indicate impairment of that unit as if the reporting unit had been acquired, however, it is possible that an impairment charge could occur in a business combination. The excessfuture periods if any of the assumptions used in determining 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.are negatively impacted.
(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 Income to reflect changes in the obligation due to the passage of time. For LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset.asset or regulatory liability. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, at the time of retirement, the related ARO regulatory assetdeferred accretion and depreciation expense is offset against the associatedrecovered through cost of removal regulatory liability, PP&E and ARO liability.removal.
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 7 and Note 1920 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 required amortization period. Actuarial gains and losses in excess of 10% of the greater
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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 full required amortization period.
See Note 7 for a discussion of the regulatory treatment of defined benefit costs and Note 1112 for a discussion of defined benefits.
Stock-Based Compensation (PPL and PPL Electric and LKE)Electric)
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. Forfeitures of awards are recognized when they occur. See Note 1011 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 Electric and LKE includes an allocation of PPL Services' expense.
Taxes
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 inon tax returns and valuation allowances on deferred tax assets and whether the undistributed earnings of WPD are considered indefinitely reinvested.assets.
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 theits 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%. Unrecognized tax benefits are classified as current to the extent management expects to settle anthe uncertain tax position by payment or receipt of cash within one year of the reporting date. 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. At December 31, 2019,2021, no significant changes in unrecognized tax benefits arewere projected over the next 12 months.
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 income tax assets to the amounts that are more likely than notmore-likely-than-not to be realized. The need for valuation allowances requires significant management judgment. 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 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.future.
The Registrants defer investment tax credits when the credits are generated and amortize the deferred amounts over the average lives of the related assets.
The Registrants recognize tax-related interest and penalties in "Income Taxes" on their Statements of Income.
The Registrants use the portfolio approach method of accounting for deferred taxes related to pre-tax OCI transactions. The portfolio approach involves a strict period-by-period cumulative incremental allocation of income taxes to the change in income and losses reflected in OCI. Under this approach, the net cumulative tax effect is ignored. The net change in unrealized gains and losses recorded in AOCI under this approach would be eliminated only on the date the entire balanceinvestment portfolio is soldclassified as held for sale or otherwise disposed of.is liquidated.
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See Note 6 to the Financial Statements for additional discussion regarding income taxes, including the impact of the TCJA and management's conclusion that the undistributed earnings of WPD are considered indefinitely reinvested.tax disclosures.
The provision for PPL's, PPL Electric's, LKE's, LG&E's and KU'sthe Registrants' deferred income taxes forrelated to regulatory assets and liabilities is based upon the ratemaking principles reflected in rates established by therelevant regulators. The difference in the provision for deferred income taxes for regulatory assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included on the Balance Sheets in noncurrent "Regulatory assets" or "Regulatory liabilities."
(PPL Electric, LKE, LG&E and KU)
The income tax provision for PPL Electric, LG&E and KU is calculated in accordance with an intercompany tax sharing agreement, which provides that taxable income be calculated as if PPL Electric, 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:
| 2021 | 2020 | ||||||||||
| PPL Electric | $ | (4) | $ | (9) | |||||||
| LG&E | 4 | (1) | |||||||||
| KU | 1 | (5) | |||||||||
| 2019 | 2018 | ||||||
| PPL Electric | $ | 3 | $ | 19 | |||
| LKE | (8 | ) | (16 | ) | |||
| LG&E | (4 | ) | — | ||||
| KU | (6 | ) | (5 | ) | |||
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 6 for details onof taxes included in "Taxes, other than income" on the Statements of Income.
Other
(All Registrants)
Leases
The Registrants evaluate whether arrangements entered into contain leases for accounting purposes. See Note 910 for additional information.
Fuel, Materials and Supplies
Fuel, natural gas stored underground and materials and supplies are valued using the average cost method. Fuel costs for electricity 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 7 for further discussion of the fuel adjustment clauses and gas supply clause.
"Fuel, materials and supplies" on the Balance Sheets consisted of the following at December 31:
| 2021 | |||||||||||||||||||||||
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Fuel | $ | 90 | $ | — | $ | 32 | $ | 58 | |||||||||||||||
| Natural gas stored underground | 54 | — | 54 | — | |||||||||||||||||||
| Materials and supplies | 178 | 61 | 51 | 66 | |||||||||||||||||||
| Total | $ | 322 | $ | 61 | $ | 137 | $ | 124 | |||||||||||||||
| PPL | LKE | LG&E | KU | ||||||||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
| Fuel | $ | 106 | $ | 98 | $ | 106 | $ | 98 | $ | 43 | $ | 42 | $ | 63 | $ | 56 | |||||||||||||||
| Natural gas stored underground | 35 | 41 | 35 | 41 | 35 | 41 | — | — | |||||||||||||||||||||||
| Materials and supplies | 191 | 164 | 109 | 109 | 44 | 44 | 65 | 65 | |||||||||||||||||||||||
| Total | $ | 332 | $ | 303 | $ | 250 | $ | 248 | $ | 122 | $ | 127 | $ | 128 | $ | 121 | |||||||||||||||
| 2020 | |||||||||||||||||||||||
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Fuel | $ | 95 | $ | — | $ | 38 | $ | 57 | |||||||||||||||
| Natural gas stored underground | 30 | — | 30 | — | |||||||||||||||||||
| Materials and supplies | 177 | 59 | 51 | 66 | |||||||||||||||||||
| Total | $ | 302 | $ | 59 | $ | 119 | $ | 123 | |||||||||||||||
106
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 1314 for further discussion of recorded and unrecorded guarantees.
(PPL)
Treasury Stock(PPL)
PPL generally restores all shares of common stock acquired to authorized but unissued shares of common stock upon or soon after acquisition. In connection with its recent share repurchases in the third and fourth quarter of 2021, PPL has not yet returned these shares to authorized but unissued shares, as it is determining if it will retain some portion of these shares as Treasury stock to use in connection with certain compensation plans.
Foreign Currency Translation and Transactions(PPL)
| PPL | LKE | LG&E | KU | ||||||||||||
| Right-of-Use Asset (a) | $ | 81 | $ | 56 | $ | 23 | $ | 31 | |||||||
| Lease Liability - Current (b) | 23 | 18 | 9 | 9 | |||||||||||
| Lease Liability - Noncurrent (c) | 67 | 46 | 18 | 26 | |||||||||||
2. Segment and Related Information
(PPL)
PPL is organized into 32 segments: U.K. Regulated, Kentucky Regulated and Pennsylvania Regulated. PPL's segments are segmented by geographic location.
The Kentucky Regulated segment consists primarily of LKE'sLG&E's and KU'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 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.
"Corporate and Other" primarily includes financing costs incurred at the corporate level that have not been allocated or assigned to the segments, certain other unallocated costs, as well as the financial results of Safari Energy, which is presented to reconcile segment information to PPL's consolidated results. For the periods ended December 31, 2020 and 2019, these amounts have been adjusted for certain costs that were previously included in the U.K. Regulated segment.
Income Statement data for the segments and reconciliation to PPL's consolidated results for the years ended December 31 are as follows:
| 2021 | 2020 | 2019 | |||||||||||||||
| Operating Revenues from external customers (a) | |||||||||||||||||
| Kentucky Regulated | $ | 3,348 | $ | 3,106 | $ | 3,206 | |||||||||||
| Pennsylvania Regulated | 2,402 | 2,330 | 2,358 | ||||||||||||||
| Corporate and Other | 33 | 38 | 38 | ||||||||||||||
| Total | $ | 5,783 | $ | 5,474 | $ | 5,602 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Operating Revenues from external customers (a) | |||||||||||
| U.K. Regulated | $ | 2,167 | $ | 2,268 | $ | 2,091 | |||||
| Kentucky Regulated | 3,206 | 3,214 | 3,156 | ||||||||
| Pennsylvania Regulated | 2,358 | 2,277 | 2,195 | ||||||||
| Corporate and Other | 38 | 26 | 5 | ||||||||
| Total | $ | 7,769 | $ | 7,785 | $ | 7,447 | |||||
| Depreciation | |||||||||||
| U.K. Regulated | $ | 250 | $ | 247 | $ | 230 | |||||
| Kentucky Regulated | 547 | 475 | 439 | ||||||||
| Pennsylvania Regulated | 386 | 352 | 309 | ||||||||
| Corporate and Other | 16 | 20 | 30 | ||||||||
| Total | $ | 1,199 | $ | 1,094 | $ | 1,008 | |||||
| Amortization (b) | |||||||||||
| U.K. Regulated | $ | 25 | $ | 34 | $ | 34 | |||||
| Kentucky Regulated | 27 | 18 | 24 | ||||||||
| Pennsylvania Regulated | 24 | 22 | 33 | ||||||||
| Corporate and Other | 5 | 4 | 6 | ||||||||
| Total | $ | 81 | $ | 78 | $ | 97 | |||||
| Unrealized (gains) losses on derivatives and other hedging activities (c) | |||||||||||
| U.K. Regulated | $ | 62 | $ | (190 | ) | $ | 166 | ||||
| Kentucky Regulated | 6 | 6 | 6 | ||||||||
| Corporate and Other | 5 | (2 | ) | 6 | |||||||
| Total | $ | 73 | $ | (186 | ) | $ | 178 | ||||
| Interest Expense | |||||||||||
| U.K. Regulated | $ | 405 | $ | 413 | $ | 397 | |||||
| Kentucky Regulated | 298 | 274 | 261 | ||||||||
| Pennsylvania Regulated | 169 | 159 | 142 | ||||||||
| Corporate and Other | 122 | 117 | 101 | ||||||||
| Total | $ | 994 | $ | 963 | $ | 901 | |||||
| Income Before Income Taxes | |||||||||||
| U.K. Regulated | $ | 1,169 | $ | 1,339 | $ | 804 | |||||
| Kentucky Regulated | 530 | 531 | 645 | ||||||||
| Pennsylvania Regulated | 607 | 567 | 575 | ||||||||
| Corporate and Other | (151 | ) | (152 | ) | (112 | ) | |||||
| Total | $ | 2,155 | $ | 2,285 | $ | 1,912 | |||||
| Income Taxes (d) | |||||||||||
| U.K. Regulated | $ | 192 | $ | 225 | $ | 152 | |||||
| Kentucky Regulated | 94 | 120 | 359 | ||||||||
| Pennsylvania Regulated | 149 | 136 | 216 | ||||||||
| Corporate and Other | (26 | ) | (23 | ) | 57 | ||||||
| Total | $ | 409 | $ | 458 | $ | 784 | |||||
| Deferred income taxes and investment tax credits (e) | |||||||||||
| U.K. Regulated | $ | 140 | $ | 118 | $ | 66 | |||||
| Kentucky Regulated | 82 | 94 | 294 | ||||||||
| Pennsylvania Regulated | 90 | 125 | 257 | ||||||||
| Corporate and Other | (3 | ) | 18 | 90 | |||||||
| Total | $ | 309 | $ | 355 | $ | 707 | |||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Depreciation | |||||||||||||||||
| Kentucky Regulated | $ | 647 | $ | 606 | $ | 547 | |||||||||||
| Pennsylvania Regulated | 424 | 403 | 386 | ||||||||||||||
| Corporate and Other | 11 | 13 | 16 | ||||||||||||||
| Total | $ | 1,082 | $ | 1,022 | $ | 949 | |||||||||||
| Amortization (b) | |||||||||||||||||
| Kentucky Regulated | $ | 15 | $ | 19 | $ | 27 | |||||||||||
| Pennsylvania Regulated | 19 | 26 | 24 | ||||||||||||||
| Corporate and Other | 5 | 13 | 7 | ||||||||||||||
| Total | $ | 39 | $ | 58 | $ | 58 | |||||||||||
| Interest Expense (c) | |||||||||||||||||
| Kentucky Regulated | $ | 249 | $ | 300 | $ | 298 | |||||||||||
| Pennsylvania Regulated | 162 | 172 | 169 | ||||||||||||||
| Corporate and Other (d) | 507 | 162 | 154 | ||||||||||||||
| Total | $ | 918 | $ | 634 | $ | 621 | |||||||||||
| Income Before Income Taxes | |||||||||||||||||
| Kentucky Regulated | $ | 562 | $ | 516 | $ | 530 | |||||||||||
| Pennsylvania Regulated | 599 | 664 | 607 | ||||||||||||||
| Corporate and Other | (640) | (226) | (218) | ||||||||||||||
| Total | $ | 521 | $ | 954 | $ | 919 | |||||||||||
| Income Taxes (e) | |||||||||||||||||
| Kentucky Regulated | $ | 94 | $ | 98 | $ | 94 | |||||||||||
| Pennsylvania Regulated | 154 | 167 | 149 | ||||||||||||||
| Corporate and Other | 255 | 49 | (60) | ||||||||||||||
| Total | $ | 503 | $ | 314 | $ | 183 | |||||||||||
| Deferred income taxes and investment tax credits (f) | |||||||||||||||||
| Kentucky Regulated | $ | 272 | $ | 64 | $ | 82 | |||||||||||
| Pennsylvania Regulated | 79 | 82 | 90 | ||||||||||||||
| Corporate and Other | (264) | 23 | (3) | ||||||||||||||
| Total | $ | 87 | $ | 169 | $ | 169 | |||||||||||
| Net Income | |||||||||||||||||
| Kentucky Regulated | $ | 468 | $ | 418 | $ | 436 | |||||||||||
| Pennsylvania Regulated | 445 | 497 | 458 | ||||||||||||||
| Corporate and Other (d) | (895) | (275) | (158) | ||||||||||||||
| Discontinued Operations | (1,498) | 829 | 1,010 | ||||||||||||||
| Total | $ | (1,480) | $ | 1,469 | $ | 1,746 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net Income | |||||||||||
| U.K. Regulated | $ | 977 | $ | 1,114 | $ | 652 | |||||
| Kentucky Regulated | 436 | 411 | 286 | ||||||||
| Pennsylvania Regulated | 458 | 431 | 359 | ||||||||
| Corporate and Other | (125 | ) | (129 | ) | (169 | ) | |||||
| Total | $ | 1,746 | $ | 1,827 | $ | 1,128 | |||||
(a)See Note 1 and Note 3 for additional information on Operating Revenues.
(b)Represents non-cash expense items that include amortization of operating lease right-of-use assets, regulatory assets and liabilities, debt discounts and premiums and debt issuance costs.
(c)Beginning in 2021, corporate level financing costs are no longer allocated to the reportable segments and are being reported in Corporate and Other. For the years ended December 31, 2020 and 2019, corporate level financing costs of $32 million, net of $8 million of income taxes, and $32 million, net of $9 million of income taxes, were allocated to the Kentucky Regulated segment. For the years ended December 31, 2020 and 2019, an immaterial amount of financing costs were allocated to the Pennsylvania Regulated segment.
(d)2021 includes losses from the extinguishment of PPL Capital Funding debt. See Note 8 for additional information.
(e)Represents both current and deferred income taxes, including investment tax credits.
(f)Represents a non-cash expense item that is also included in "Income Taxes."
108
Cash Flow data for the segments and reconciliation to PPL's consolidated results for the years ended December 31 are as follows:
| 2021 | 2020 | 2019 | |||||||||||||||
| Expenditures for long-lived assets | |||||||||||||||||
| Kentucky Regulated | $ | 1,026 | $ | 966 | $ | 1,097 | |||||||||||
| Pennsylvania Regulated | 904 | 1,154 | 1,121 | ||||||||||||||
| Corporate and Other | 49 | 158 | 32 | ||||||||||||||
| Total | $ | 1,979 | $ | 2,278 | $ | 2,250 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Expenditures for long-lived assets | |||||||||||
| U.K. Regulated | $ | 857 | $ | 954 | $ | 1,015 | |||||
| Kentucky Regulated | 1,097 | 1,117 | 892 | ||||||||
| Pennsylvania Regulated | 1,121 | 1,196 | 1,254 | ||||||||
| Corporate and Other | 32 | 1 | 10 | ||||||||
| Total | $ | 3,107 | $ | 3,268 | $ | 3,171 | |||||
The following provides Balance Sheet data for the segments and reconciliation to PPL's consolidated results as of:
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Total Assets | |||||||||||
| Kentucky Regulated | $ | 16,360 | $ | 15,943 | |||||||
| Pennsylvania Regulated | 13,336 | 12,347 | |||||||||
| Corporate and Other (a) | 3,527 | 843 | |||||||||
| Assets held for sale (b) | — | 18,983 | |||||||||
| Total | $ | 33,223 | $ | 48,116 | |||||||
| As of December 31, | |||||||
| 2019 | 2018 | ||||||
| Total Assets | |||||||
| U.K. Regulated (a) | $ | 17,622 | $ | 16,700 | |||
| Kentucky Regulated | 15,597 | 15,078 | |||||
| Pennsylvania Regulated | 11,918 | 11,257 | |||||
| Corporate and Other (b) | 543 | 361 | |||||
| Total | $ | 45,680 | $ | 43,396 | |||
| 2019 | 2018 | 2017 | |||||||||
| Revenues from external customers | |||||||||||
| U.K. | $ | 2,167 | $ | 2,268 | $ | 2,091 | |||||
| U.S. | 5,602 | 5,517 | 5,356 | ||||||||
| Total | $ | 7,769 | $ | 7,785 | $ | 7,447 | |||||
| As of December 31, | |||||||
| 2019 | 2018 | ||||||
| Long-Lived Assets | |||||||
| U.K. | $ | 13,618 | $ | 12,791 | |||
| U.S. | 23,607 | 22,384 | |||||
| Total | $ | 37,225 | $ | 35,175 | |||
(PPL Electric, LKE, LG&E and KU)
PPL Electric has 2 operating segments that are aggregated into a single reportable segment. LKE, LG&E and KU are individually single operating and reportable segments.
3. Revenue from Contracts with Customers
(All Registrants)
The following is a description of the principal activities from which the Registrants and PPL’s segments generate their revenues.
(PPL and PPL Electric)
Pennsylvania Regulated Segment Revenue
The Pennsylvania Regulated Segment generates substantially all of its revenues from contracts with customers from PPL Electric’s tariff-based distribution and transmission of electricity.
Distribution Revenue
PPL Electric provides distribution services to residential, commercial, industrial, municipal and governmental end users of energy. PPL Electric satisfies its performance obligation to its distribution customers and revenue is recognized over-time as electricity is delivered and simultaneously consumed by the customer. The amount of revenue recognized is the volume of electricity delivered during the period multiplied by a per-unit of energythe price per tariff, plus a monthly fixed charge. This method of recognition fairly presents PPL Electric's transfer of electric service to the customer as the calculation is based on actual volumes, and the per-unit of energyprice per tariff rate and the monthly fixed charge are set by the PUC. Customers are typically billed monthly and outstanding amounts are normally due within 21 days of the date of the bill.
Distribution customers are "at will" customers of PPL Electric with no term contract and no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with PPL Electric’s retail account contracts.
109
Transmission Revenue
PPL Electric generates transmission revenues from a FERC-approved PJM Open Access Transmission Tariff. An annual revenue requirement for PPL Electric to provide transmission services is calculated using a formula-based rate. This revenue requirement is converted into a daily rate (dollars per day). PPL Electric satisfies its performance obligation to provide transmission services and revenue is recognized over-time as transmission services are provided and consumed. This method of
recognition fairly presents PPL Electric's transfer of transmission services as the daily rate is set by a FERC approved formula-based rate. PJM remits payment on a weekly basis.
PPL Electric's agreement to provide transmission services contains no minimum purchase commitment. The performance obligation is limited to the service requested and received to date. Accordingly, PPL Electric has no unsatisfied performance obligations.
(PPL, LKE, LG&E and KU)
Kentucky Regulated Segment Revenue
The Kentucky Regulated Segment generates substantially all of its revenues from contracts with customers from LG&E's and KU's regulated tariff-based sales of electricity and LG&E's regulated tariff-based sales of natural gas.
LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity in Kentucky and, in KU's case, Virginia. LG&E also engages in the distribution and sale of natural gas in Kentucky. Revenue from these activities is generated from tariffs approved by applicable regulatory authorities including the FERC, KPSC and VSCC. LG&E and KU satisfy their performance obligations upon LG&E's and KU's delivery of electricity and LG&E's delivery of natural gas to customers. This revenue is recognized over-time as the customer simultaneously receives and consumes the benefits provided by LG&E and KU. The amount of revenue recognized is the billed volume of electricity or natural gas delivered multiplied by a tariff rate per-unit of energy, plus any applicable fixed charges or additional regulatory mechanisms. Customers are billed monthly and outstanding amounts are typically due within 22 days of the date of the bill. Additionally, unbilled revenues are recognized as a result of customers' bills rendered throughout the month, rather than bills being rendered at the end of the month. Unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh or Mcf delivered but not yet billed by the estimated average cents per kWh or Mcf. Any difference between estimated and actual revenues is adjusted the following month when the previous unbilled estimate is reversed and actual billings occur. This method of recognition fairly presents LG&E's and KU's transfer of electricity and LG&E's transfer of natural gas to the customer as the amount recognized is based on actual and estimated volumes delivered and the tariff rate per-unit of energy and any applicable fixed charges or regulatory mechanisms as set by the respective regulatory body.
LG&E's and KU's customers generally have no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with these customers.
(All Registrants)
The following table reconciles "Operating Revenues" included in each Registrant's Statement of Income with revenues generated from contracts with customers for the years ended December 31:
| 2019 | |||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Operating Revenues (a) | $ | 7,769 | $ | 2,358 | $ | 3,206 | $ | 1,500 | $ | 1,740 | |||||||||
| Revenues derived from: | |||||||||||||||||||
| Alternative revenue programs (b) | (30 | ) | (6 | ) | (24 | ) | (10 | ) | (14 | ) | |||||||||
| Other (c) | (38 | ) | (10 | ) | (21 | ) | (9 | ) | (12 | ) | |||||||||
| Revenues from Contracts with Customers | $ | 7,701 | $ | 2,342 | $ | 3,161 | $ | 1,481 | $ | 1,714 | |||||||||
| 2021 | |||||||||||||||||||||||
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Operating Revenues (a) | $ | 5,783 | $ | 2,402 | $ | 1,569 | $ | 1,826 | |||||||||||||||
| Revenues derived from: | |||||||||||||||||||||||
| Alternative revenue programs (b) | 77 | 83 | (3) | (3) | |||||||||||||||||||
| Other (c) | (22) | (3) | (8) | (9) | |||||||||||||||||||
| Revenues from Contracts with Customers | $ | 5,838 | $ | 2,482 | $ | 1,558 | $ | 1,814 | |||||||||||||||
| 2018 | |||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Operating Revenues (a) | $ | 7,785 | $ | 2,277 | $ | 3,214 | $ | 1,496 | $ | 1,760 | |||||||||
| Revenues derived from: | |||||||||||||||||||
| Alternative revenue programs (b) | 32 | (6 | ) | 38 | 12 | 26 | |||||||||||||
| Other (c) | (38 | ) | (12 | ) | (17 | ) | (5 | ) | (12 | ) | |||||||||
| Revenues from Contracts with Customers | $ | 7,779 | $ | 2,259 | $ | 3,235 | $ | 1,503 | $ | 1,774 | |||||||||
| 2020 | |||||||||||||||||||||||
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Operating Revenues (a) | $ | 5,474 | $ | 2,331 | $ | 1,456 | $ | 1,690 | |||||||||||||||
| Revenues derived from: | |||||||||||||||||||||||
| Alternative revenue programs (b) | (24) | (12) | (8) | (4) | |||||||||||||||||||
| Other (c) | (21) | (3) | (7) | (10) | |||||||||||||||||||
| Revenues from Contracts with Customers | $ | 5,429 | $ | 2,316 | $ | 1,441 | $ | 1,676 | |||||||||||||||
| 2019 | |||||||||||||||||||||||
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Operating Revenues (a) | $ | 5,602 | $ | 2,358 | $ | 1,500 | $ | 1,740 | |||||||||||||||
| Revenues derived from: | |||||||||||||||||||||||
| Alternative revenue programs (b) | (30) | (6) | (10) | (14) | |||||||||||||||||||
| Other (c) | (31) | (10) | (9) | (12) | |||||||||||||||||||
| Revenues from Contracts with Customers | $ | 5,541 | $ | 2,342 | $ | 1,481 | $ | 1,714 | |||||||||||||||
(a)Amounts for PPL Electric represent revenues from external customers reported by the Pennsylvania Regulated segment and amounts for LG&E and KU, net of intercompany power sales and transmission revenues, represent revenues from external customers reported by the Kentucky Regulated segment. See Note 2 for additional information.
(b)Alternative revenue programs include the transmission formula rate for PPL Electric, the ECR and DSM programs for LG&E and KU, the GLT and GSC programs for LG&E, and the generation formula rate for KU. For PPL Electric, revenue in 2021 was reduced by $78 million for a reduction in the transmission formula rate return on equity. See Note 7 for additional information. This line item shows the over/under collection of these rate mechanisms with over-collections of revenue shown as positive amounts in the table above and under-collections shown as negative amounts.
(c)Represents additional revenues outside the scope of revenues from contracts with customers such as leases and other miscellaneous revenues.
The following table shows revenues from contracts with customers disaggregated by customer class for the years ended December 31:
| 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential | Commercial | Industrial | Other (a) | Wholesale - municipality | Wholesale - other (b) | Transmission | Revenues from Contracts with Customers | ||||||||||||||||||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||||||||||||||||||||
| PA Regulated | $ | 1,299 | $ | 350 | $ | 53 | $ | 50 | $ | — | $ | — | $ | 730 | $ | 2,482 | |||||||||||||||||||||||||||||||
| KY Regulated | 1,416 | 928 | 586 | 305 | 24 | 66 | — | 3,325 | |||||||||||||||||||||||||||||||||||||||
| Corp and Other | — | — | — | 31 | — | — | — | 31 | |||||||||||||||||||||||||||||||||||||||
| Total PPL | $ | 2,715 | $ | 1,278 | $ | 639 | $ | 386 | $ | 24 | $ | 66 | $ | 730 | $ | 5,838 | |||||||||||||||||||||||||||||||
| PPL Electric | $ | 1,299 | $ | 350 | $ | 53 | $ | 50 | $ | — | $ | — | $ | 730 | $ | 2,482 | |||||||||||||||||||||||||||||||
| LG&E | $ | 711 | $ | 473 | $ | 180 | $ | 145 | $ | — | $ | 49 | $ | — | $ | 1,558 | |||||||||||||||||||||||||||||||
| KU | $ | 705 | $ | 455 | $ | 406 | $ | 160 | $ | 24 | $ | 64 | $ | — | $ | 1,814 | |||||||||||||||||||||||||||||||
111
| 2019 | |||||||||||||||||||
| PPL (d) | PPL Electric (d) | LKE | LG&E | KU | |||||||||||||||
| Licensed energy suppliers (a) | $ | 2,032 | $ | — | $ | — | $ | — | $ | — | |||||||||
| Residential | 2,610 | 1,288 | 1,322 | 668 | 654 | ||||||||||||||
| Commercial | 1,257 | 349 | 908 | 466 | 442 | ||||||||||||||
| Industrial | 621 | 59 | 562 | 180 | 382 | ||||||||||||||
| Other (b) | 495 | 52 | 277 | 121 | 156 | ||||||||||||||
| Wholesale - municipal | 43 | — | 43 | — | 43 | ||||||||||||||
| Wholesale - other (c) | 49 | — | 49 | 46 | 37 | ||||||||||||||
| Transmission | 594 | 594 | — | — | — | ||||||||||||||
| Revenues from Contracts with Customers | $ | 7,701 | $ | 2,342 | $ | 3,161 | $ | 1,481 | $ | 1,714 | |||||||||
| 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential | Commercial | Industrial | Other (a) | Wholesale - municipality | Wholesale - other (b) | Transmission | Revenues from Contracts with Customers | ||||||||||||||||||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||||||||||||||||||||
| PA Regulated | $ | 1,238 | $ | 314 | $ | 44 | $ | 50 | $ | — | $ | — | $ | 670 | $ | 2,316 | |||||||||||||||||||||||||||||||
| KY Regulated | 1,347 | 871 | 538 | 261 | 20 | 40 | — | 3,077 | |||||||||||||||||||||||||||||||||||||||
| Corp and Other | — | — | — | 36 | — | — | — | 36 | |||||||||||||||||||||||||||||||||||||||
| Total PPL | $ | 2,585 | $ | 1,185 | $ | 582 | $ | 347 | $ | 20 | $ | 40 | $ | 670 | $ | 5,429 | |||||||||||||||||||||||||||||||
| PPL Electric | $ | 1,238 | $ | 314 | $ | 44 | $ | 50 | $ | — | $ | — | $ | 670 | $ | 2,316 | |||||||||||||||||||||||||||||||
| LG&E | $ | 676 | $ | 444 | $ | 173 | $ | 114 | $ | — | $ | 34 | $ | — | $ | 1,441 | |||||||||||||||||||||||||||||||
| KU | $ | 671 | $ | 427 | $ | 365 | $ | 147 | $ | 20 | $ | 46 | $ | — | $ | 1,676 | |||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Licensed energy suppliers (a) | $ | 2,127 | $ | — | $ | — | $ | — | $ | — | |||||||||
| Residential | 2,704 | 1,379 | 1,325 | 666 | 659 | ||||||||||||||
| Commercial | 1,233 | 368 | 865 | 455 | 410 | ||||||||||||||
| Industrial | 624 | 54 | 570 | 180 | 390 | ||||||||||||||
| Other (b) | 489 | 53 | 278 | 129 | 149 | ||||||||||||||
| Wholesale - municipal | 118 | — | 118 | — | 118 | ||||||||||||||
| Wholesale - other (c) | 79 | — | 79 | 73 | 48 | ||||||||||||||
| Transmission | 405 | 405 | — | — | — | ||||||||||||||
| Revenues from Contracts with Customers | $ | 7,779 | $ | 2,259 | $ | 3,235 | $ | 1,503 | $ | 1,774 | |||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential | Commercial | Industrial | Other (a) | Wholesale - municipality | Wholesale - other (b) | Transmission | Revenues from Contracts with Customers | ||||||||||||||||||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||||||||||||||||||||
| PA Regulated | $ | 1,288 | $ | 349 | $ | 59 | $ | 52 | $ | — | $ | — | $ | 594 | $ | 2,342 | |||||||||||||||||||||||||||||||
| KY Regulated | 1,322 | 908 | 562 | 277 | 43 | 49 | — | 3,161 | |||||||||||||||||||||||||||||||||||||||
| Corp and Other | — | — | — | 38 | — | — | — | 38 | |||||||||||||||||||||||||||||||||||||||
| Total PPL | $ | 2,610 | $ | 1,257 | $ | 621 | $ | 367 | $ | 43 | $ | 49 | $ | 594 | $ | 5,541 | |||||||||||||||||||||||||||||||
| PPL Electric | $ | 1,288 | $ | 349 | $ | 59 | $ | 52 | $ | — | $ | — | $ | 594 | $ | 2,342 | |||||||||||||||||||||||||||||||
| LG&E | $ | 668 | $ | 466 | $ | 180 | $ | 121 | $ | — | $ | 46 | $ | — | $ | 1,481 | |||||||||||||||||||||||||||||||
| KU | $ | 654 | $ | 442 | $ | 382 | $ | 156 | $ | 43 | $ | 37 | $ | — | $ | 1,714 | |||||||||||||||||||||||||||||||
(a)Primarily includes revenues from pole attachments, street lighting, other public authorities and other non-core businesses.
(b)Includes wholesale power and transmission revenues. LG&E and KU amounts include intercompany power sales and transmission revenues, which are eliminated upon consolidation at PPL.
As discussed in Note 2, PPL'sPPL segments are segmentedits business by geographic location. Revenues from external customers for each segment/geographic location are reconciled to revenues from contracts with customers in the tablefootnotes to the tables above. For PPL Electric,Electric's revenues from contracts with customers are further disaggregated by distribution and transmission which were $1.7 billion and $594 million foras indicated in the year ended December 31, 2019 and $1.9 billion and $405 million for the year ended December 31, 2018.above tables.
Contract receivables from customers are primarily included in "Accounts receivable - Customer" and "Unbilled revenues" on the Balance Sheets. For PPL Electric, the "Accounts receivable - Customer" balance includes purchased receivables from alternative electricity suppliers. See Note 7 for additional information regarding the purchase of receivables program.
The following table shows the accounts receivable and unbilled revenues balances from contracts with customers that were impaired for the year ended December 31:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | $ | 22 | $ | 25 | $ | 27 | |||||||||||
| PPL Electric | 10 | 17 | 21 | ||||||||||||||
| LG&E | 4 | 4 | 2 | ||||||||||||||
| KU | 8 | 4 | 4 | ||||||||||||||
| 2019 | 2018 | ||||||
| PPL | $ | 27 | $ | 34 | |||
| PPL Electric | 21 | 24 | |||||
| LKE | 6 | 9 | |||||
| LG&E | 2 | 4 | |||||
| KU | 4 | 5 | |||||
112
The following table shows the balances and certain activity of contract liabilities resulting from contracts with customers:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Contract liabilities as of December 31, 2021 | $ | 42 | $ | 25 | $ | 6 | $ | 6 | |||||||||||||||
| Contract liabilities as of December 31, 2020 | 40 | 23 | 5 | 6 | |||||||||||||||||||
| Revenue recognized during the year ended December 31, 2021 that was included in the contract liability balance at December 31, 2020 | 24 | 11 | 5 | 6 | |||||||||||||||||||
| Contract liabilities as of December 31, 2020 | $ | 40 | $ | 23 | $ | 5 | $ | 6 | |||||||||||||||
| Contract liabilities as of December 31, 2019 | 37 | 21 | 5 | 4 | |||||||||||||||||||
| Revenue recognized during the year ended December 31, 2020 that was included in the contract liability balance at December 31, 2019 | 22 | 9 | 5 | 4 | |||||||||||||||||||
| Contract liabilities as of December 31, 2019 | $ | 37 | $ | 21 | $ | 5 | $ | 4 | |||||||||||||||
| Contract liabilities as of December 31, 2018 | 40 | 23 | 5 | 4 | |||||||||||||||||||
| Revenue recognized during the year ended December 31, 2019 that was included in the contract liability balance at December 31, 2018 | 25 | 11 | 5 | 4 | |||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Contract liabilities as of December 31, 2019 | $ | 44 | $ | 21 | $ | 9 | $ | 5 | $ | 4 | |||||||||
| Contract liabilities as of December 31, 2018 | 42 | 23 | 9 | 5 | 4 | ||||||||||||||
| Revenue recognized during the year ended December 31, 2019 that was included in the contract liability balance at December 31, 2018 | 32 | 11 | 9 | 5 | 4 | ||||||||||||||
| Contract liabilities as of December 31, 2018 | $ | 42 | $ | 23 | $ | 9 | $ | 5 | $ | 4 | |||||||||
| Contract liabilities as of December 31, 2017 | 29 | 19 | 8 | 4 | 4 | ||||||||||||||
| Revenue recognized during the year ended December 31, 2018 that was included in the contract liability balance at December 31, 2017 | 21 | 8 | 8 | 4 | 4 | ||||||||||||||
Contract liabilities result from recording contractual billings in advance for customer attachments to the Registrants' infrastructure and payments received in excess of revenues earned to date. Advanced billings for customer attachments are recognized as revenue ratably over the billing period. Payments received in excess of revenues earned to date are recognized as revenue as services are delivered in subsequent periods.
At December 31, 2019,2021, PPL had $36$46 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately $32$41 million within the next 12 months.
4. Preferred Securities
(PPL)
PPL is authorized to issue up to 10 million shares of preferred stock. NaNNo PPL preferred stock was issued or outstanding in 2019, 20182021, 2020 or 2017.2019.
(PPL Electric)
PPL Electric is authorized to issue up to 20,629,936 shares of preferred stock. NaNNo PPL Electric preferred stock was issued or outstanding in 2019, 20182021, 2020 or 2017.2019.
(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 0no preferred stock issued or outstanding in 2019, 20182021, 2020 or 2017.2019.
(KU)
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 0no preferred or preference stock issued or outstanding in 2019, 20182021, 2020 or 2017.2019.
5. Earnings Per Share
(PPL)
Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock Method. Incremental non-participating securities that have a dilutive impact are detailed in the table below. In 2019 and 2018, these
113
These securities also included the remaining shares of PPL common stock forward sale agreements. See Note 8 for additional information on these agreements, which were partially settled in 2018 with the remaining shares settled in 2019. The forward sale agreements were dilutive under the Treasury Stock Method to the extent the average stock price of PPL's common shares exceeded the forward sale price prescribed in the agreements.
Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended December 31, used in the EPS calculation are:
| 2021 | 2020 | 2019 | |||||||||||||||
| Income (Numerator) | |||||||||||||||||
| Income from continuing operations after income taxes | $ | 18 | $ | 640 | $ | 736 | |||||||||||
| Less amounts allocated to participating securities | — | 1 | 1 | ||||||||||||||
| Income from continuing operations after income taxes available to PPL common shareowners - Basic and Diluted | $ | 18 | $ | 639 | $ | 735 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic and Diluted | $ | (1,498) | $ | 829 | $ | 1,010 | |||||||||||
| Net income (loss) attributable to PPL | $ | (1,480) | $ | 1,469 | 1,746 | ||||||||||||
| Less amounts allocated to participating securities | — | 1 | 1 | ||||||||||||||
| Net income (loss) available to PPL common shareowners - Basic and Diluted | $ | (1,480) | $ | 1,468 | $ | 1,745 | |||||||||||
| Shares of Common Stock (Denominator) | |||||||||||||||||
| Weighted-average shares - Basic EPS | 762,902 | 768,590 | 728,512 | ||||||||||||||
| Add incremental non-participating securities: | |||||||||||||||||
| Add: Dilutive share-based payment awards (a) | 1,917 | 794 | 1,101 | ||||||||||||||
| Add: Forward sale agreements | — | — | 7,141 | ||||||||||||||
| Weighted-average shares - Diluted EPS | 764,819 | 769,384 | 736,754 | ||||||||||||||
| Basic EPS | |||||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||||
| Income from continuing operations after income taxes | $ | 0.03 | $ | 0.83 | $ | 1.01 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) | (1.96) | 1.08 | 1.38 | ||||||||||||||
| Net Income (Loss) available to PPL common shareowners | $ | (1.93) | $ | 1.91 | $ | 2.39 | |||||||||||
| Diluted EPS | |||||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||||
| Income from continuing operations after income taxes | $ | 0.03 | $ | 0.83 | $ | 1.00 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) | (1.96) | 1.08 | 1.37 | ||||||||||||||
| Net Income (Loss) available to PPL common shareowners | $ | (1.93) | $ | 1.91 | $ | 2.37 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income (Numerator) | |||||||||||
| Net income | $ | 1,746 | $ | 1,827 | $ | 1,128 | |||||
| Less amounts allocated to participating securities | 1 | 2 | 2 | ||||||||
| Net income available to PPL common shareowners - Basic and Diluted | $ | 1,745 | $ | 1,825 | $ | 1,126 | |||||
| Shares of Common Stock (Denominator) | |||||||||||
| Weighted-average shares - Basic EPS | 728,512 | 704,439 | 685,240 | ||||||||
| Add incremental non-participating securities: | |||||||||||
| Share-based payment awards (a) | 1,101 | 445 | 2,094 | ||||||||
| Forward sale agreements | 7,141 | 3,735 | — | ||||||||
| Weighted-average shares - Diluted EPS | 736,754 | 708,619 | 687,334 | ||||||||
| Basic EPS | |||||||||||
| Net Income available to PPL common shareowners | $ | 2.39 | $ | 2.59 | $ | 1.64 | |||||
| Diluted EPS | |||||||||||
| Net Income available to PPL common shareowners | $ | 2.37 | $ | 2.58 | $ | 1.64 | |||||
(a)The Treasury Stock Method was applied to non-participating share-based payment awards.
For the yearyears ended December 31, PPL issued common stock related to stock-based compensation plans and DRIP as follows (in thousands):
| 2021 | 2020 | ||||||||||
| Stock-based compensation plans (a) | 983 | 731 | |||||||||
| DRIP | — | 943 | |||||||||
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:
| 2021 | 2020 | 2019 | |||||||||||||||
| Stock-based compensation awards | 1,783 | 452 | 8 | ||||||||||||||
| 2019 | 2018 | 2017 | ||||||
| Stock options | — | 172 | 696 | |||||
| Performance units | 5 | — | — | |||||
| Restricted stock units | 3 | 11 | — | |||||
6. Income and Other Taxes
(PPL)
"Income (Loss) from Continuing Operations Before Income Taxes" included the following:is from domestic operations.
| 2019 | 2018 | 2017 | |||||||||
| Domestic income | $ | 964 | $ | 1,127 | $ | 874 | |||||
| Foreign income | 1,191 | 1,158 | 1,038 | ||||||||
| Total | $ | 2,155 | $ | 2,285 | $ | 1,912 | |||||
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 7 for additional information.
Net deferred tax assets have been recognized based on management's estimates of future taxable income for the U.S. and the U.K.income.
Significant components of PPL's deferred income tax assets and liabilities were as follows:
| 2021 | 2020 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Deferred investment tax credits | $ | 30 | $ | 30 | |||||||
| Regulatory liabilities | 94 | 68 | |||||||||
| Income taxes due to customers | 422 | 444 | |||||||||
| Accrued pension and postretirement costs | 75 | 106 | |||||||||
| Federal loss carryforwards (a) | — | 234 | |||||||||
| State loss carryforwards | 483 | 448 | |||||||||
| Federal and state tax credit carryforwards (a) | 15 | 401 | |||||||||
| Leases | 67 | 68 | |||||||||
| Contributions in aid of construction | 120 | 115 | |||||||||
| Other | 84 | 68 | |||||||||
| Valuation allowances | (462) | (536) | |||||||||
| Total deferred tax assets | 928 | 1,446 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Plant - net | 3,812 | 3,700 | |||||||||
| Regulatory assets | 180 | 195 | |||||||||
| Other | 75 | 70 | |||||||||
| Total deferred tax liabilities | 4,067 | 3,965 | |||||||||
| Net deferred tax liability | $ | 3,139 | $ | 2,519 | |||||||
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Deferred investment tax credits | $ | 31 | $ | 31 | |||
| Regulatory liabilities | 75 | 87 | |||||
| Income taxes due to customer | 462 | 479 | |||||
| Accrued pension and postretirement costs | 211 | 277 | |||||
| Federal loss carryforwards | 324 | 325 | |||||
| State loss carryforwards | 432 | 419 | |||||
| Federal and state tax credit carryforwards | 402 | 392 | |||||
| Foreign capital loss carryforwards | 320 | 313 | |||||
| Foreign - other | 8 | 10 | |||||
| Contributions in aid of construction | 112 | 139 | |||||
| Domestic - other | 99 | 88 | |||||
| Valuation allowances | (834 | ) | (808 | ) | |||
| Total deferred tax assets | 1,642 | 1,752 | |||||
| Deferred Tax Liabilities | |||||||
| Domestic plant - net | 3,546 | 3,359 | |||||
| Regulatory assets | 262 | 314 | |||||
| Foreign plant - net | 765 | 724 | |||||
| Foreign - pensions | 72 | 83 | |||||
| Domestic - other | 61 | 40 | |||||
| Total deferred tax liabilities | 4,706 | 4,520 | |||||
| Net deferred tax liability | $ | 3,064 | $ | 2,768 | |||
(a)PPL utilized federal net operating losses of $1,115 million and tax credit carryforwards of $272 million in June 2021 as a result of the completion of the sale of the U.K. utility business on June 14, 2021. The related deferred tax assets decreased by approximately $506 million, with a corresponding reduction in current income taxes.
State deferred taxes are determined by entity and by jurisdiction. As a result, $24$12 million and $28$17 million of net deferred tax assets are shown as "Other noncurrent assets" on the Balance Sheets for 20192021 and 2018.2020.
At December 31, 2019,2021, PPL had the following loss and tax credit carryforwards, related deferred tax assets and valuation allowances recorded against the deferred tax assets:
| Gross | Deferred Tax Asset | Valuation Allowance | Expiration | ||||||||||||||||||||
| Loss and other carryforwards | |||||||||||||||||||||||
| State net operating losses | $ | 6,468 | $ | 483 | $ | (459) | 2022-2041 | ||||||||||||||||
| Credit carryforwards | |||||||||||||||||||||||
| State recycling credit | 14 | — | 2028 | ||||||||||||||||||||
| State - other | 1 | — | Indefinite | ||||||||||||||||||||
| Gross | Deferred Tax Asset | Valuation Allowance | Expiration | ||||||||||
| Loss carryforwards | |||||||||||||
| Federal net operating losses | $ | 1,499 | $ | 315 | $ | — | 2032-2037 | ||||||
| Federal charitable contributions | 42 | 9 | — | 2020-2024 | |||||||||
| State net operating losses | 5,879 | 432 | (393 | ) | 2021-2039 | ||||||||
| State charitable contributions | 1 | — | — | 2020-2024 | |||||||||
| Foreign net operating losses | 3 | — | — | Indefinite | |||||||||
| Foreign capital losses | 1,880 | 320 | (320 | ) | Indefinite | ||||||||
| Federal - Other | 7 | 1 | — | Indefinite | |||||||||
| Credit carryforwards | |||||||||
| Federal investment tax credit | 133 | — | 2025-2039 | ||||||
| Federal alternative minimum tax credit (a) | 8 | — | Indefinite | ||||||
| Federal foreign tax credits (b) | 218 | (113 | ) | 2024-2027 | |||||
| Federal - other | 24 | (6 | ) | 2020-2039 | |||||
| State Recycling Credit | 18 | — | 2028 | ||||||
| State - other | 1 | — | Indefinite | ||||||
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:
115
| Additions | |||||||||||||||||||
Balance at Beginning of Period | Charged to Income | Charged to Other Accounts | Deductions | Balance at End of Period | |||||||||||||||
| 2019 | $ | 808 | $ | 31 | $ | — | $ | 5 | $ | 834 | |||||||||
| 2018 | 838 | 26 | — | 56 | (a) | 808 | |||||||||||||
| 2017 | 593 | 256 | (b) | — | 11 | 838 | |||||||||||||
| Additions | |||||||||||||||||||||||||||||
| Balance at Beginning of Period | Charged to Income | Charged to Other Accounts | Deductions | Balance at End of Period | |||||||||||||||||||||||||
| 2021 | $ | 536 | $ | 48 | (a) | $ | — | $ | 122 | (b) | $ | 462 | |||||||||||||||||
| 2020 | 514 | 26 | — | 4 | 536 | ||||||||||||||||||||||||
| 2019 | 495 | 24 | — | 5 | 514 | ||||||||||||||||||||||||
(a)In addition, the reduction of the U.S. federal corporate income tax rate enacted by the TCJA in 2017 resulted in2021, PPL recorded a $62$31 million increase in federal deferred tax assets and a corresponding valuation allowance related to the federal tax benefits ofon a state net operating losses.
A U.S. based company with foreign subsidiaries may be required to record U.S. incomedeferred taxes onassociated with the differences in the outside book-tax basis of those subsidiaries. The primary component of such outside basis differences is ordinarily accumulated unremitted earnings. In anticipation of the WPD sale, indefinite reinvestment of accumulated unremitted earnings of WPD as management has determined that such earnings are indefinitely reinvested. Current year distributions from WPD towas no longer relevant and, in the U.S. are sourced fromfirst quarter of 2021, PPL recorded a portiondeferred tax liability reflecting the expected tax cost associated with the realization of the current year’s earningsoutside book-tax basis difference in the investment in WPD. In the second quarter of 2021, following completion of the WPD group. There have been no material changessale, that deferred tax was recorded to the facts underlying PPL’s assertion that historically reinvested earnings of WPD as well as some portion of current year earnings will continue to be indefinitely reinvested. WPD's long-term working capital forecasts and capital expenditure projections for the foreseeable future require reinvestment of WPD's undistributed 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 of WPD's future annual earnings. The cumulative undistributed earnings are included in "Earnings reinvested" on the Balance Sheets. The amount considered indefinitely reinvested at December 31, 2019 was $7.5 billion.The foregoing is not impacted by U.S. tax reform and the associated conversion from a worldwide to a participation exemption system. 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.expense.
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:
| 2021 | 2020 | 2019 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Current - Federal | $ | (1) | $ | (8) | $ | (10) | |||||||||||
| Current - State | 36 | 24 | 19 | ||||||||||||||
| Current - Foreign | (1) | (2) | — | ||||||||||||||
| Total Current Expense (Benefit) | 34 | 14 | 9 | ||||||||||||||
| Deferred - Federal | 28 | 135 | 141 | ||||||||||||||
| Deferred - State | 105 | 94 | 76 | ||||||||||||||
| Deferred - Foreign (a) | 383 | 101 | (14) | ||||||||||||||
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 516 | 330 | 203 | ||||||||||||||
| Amortization of investment tax credit | (3) | (3) | (3) | ||||||||||||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||||||||
| Deferred - Federal | 12 | 6 | 7 | ||||||||||||||
| Deferred - State | (56) | (33) | (33) | ||||||||||||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | (44) | (27) | (26) | ||||||||||||||
| Total income tax expense (benefit) | $ | 503 | $ | 314 | $ | 183 | |||||||||||
| Total income tax expense (benefit) - Federal | $ | 36 | $ | 130 | $ | 135 | |||||||||||
| Total income tax expense (benefit) - State | 85 | 85 | 62 | ||||||||||||||
| Total income tax expense (benefit) - Foreign | 382 | 99 | (14) | ||||||||||||||
| Total income tax expense (benefit) | $ | 503 | $ | 314 | $ | 183 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | (10 | ) | $ | (19 | ) | $ | 6 | |||
| Current - State | 19 | 17 | 25 | ||||||||
| Current - Foreign | 91 | 104 | 45 | ||||||||
| Total Current Expense (Benefit) | 100 | 102 | 76 | ||||||||
| Deferred - Federal (a) | 139 | 203 | 532 | ||||||||
| Deferred - State | 76 | 100 | 88 | ||||||||
| Deferred - Foreign | 123 | 107 | 133 | ||||||||
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 338 | 410 | 753 | ||||||||
| Amortization of investment tax credit | (3 | ) | (3 | ) | (3 | ) | |||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||
| Deferred - Federal | 7 | (20 | ) | (16 | ) | ||||||
| Deferred - State | (33 | ) | (31 | ) | (26 | ) | |||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | (26 | ) | (51 | ) | (42 | ) | |||||
| Total income tax expense (benefit) | $ | 409 | $ | 458 | $ | 784 | |||||
| Total income tax expense (benefit) - Federal | $ | 133 | $ | 161 | $ | 519 | |||||
| Total income tax expense (benefit) - State | 62 | 86 | 87 | ||||||||
| Total income tax expense (benefit) - Foreign | 214 | 211 | 178 | ||||||||
| Total income tax expense (benefit) | $ | 409 | $ | 458 | $ | 784 | |||||
In 2020, the U.K. Finance Act 2020 cancelled the tax rate reduction from 35%19% to 21% on17%. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax assetsliabilities and liabilities;
In the table above, the following income tax expense (benefit) are excluded from income taxes:
| 2021 | 2020 | 2019 | |||||||||||||||
| Discontinued operations - PPL U.K. utility business | $ | 759 | $ | 188 | $ | 226 | |||||||||||
| Reclassification from AOCI due to sale of UK utility business | 660 | — | — | ||||||||||||||
| Other comprehensive income | 150 | (19) | (93) | ||||||||||||||
| Total | $ | 1,569 | $ | 169 | $ | 133 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Other comprehensive income | $ | (93 | ) | $ | (6 | ) | $ | (34 | ) | ||
| Valuation allowance on state deferred taxes recorded to other comprehensive income | — | — | (1 | ) | |||||||
| Total | $ | (93 | ) | $ | (6 | ) | $ | (35 | ) | ||
116
| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 453 | $ | 480 | $ | 669 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit (a) | 45 | 40 | 46 | ||||||||
| Valuation allowance adjustments (b) | 22 | 21 | 36 | ||||||||
| Impact of lower U.K. income tax rates (c) | (25 | ) | (25 | ) | (176 | ) | |||||
| U.S. income tax on foreign earnings - net of foreign tax credit (a)(d) | 2 | 3 | 47 | ||||||||
| Foreign income return adjustments | — | — | (8 | ) | |||||||
| Impact of the U.K. Finance Act on deferred tax balances (e) | (14 | ) | (13 | ) | (16 | ) | |||||
| Depreciation and other items not normalized | (10 | ) | (11 | ) | (10 | ) | |||||
| Amortization of excess deferred federal and state income taxes (f) | (40 | ) | (37 | ) | — | ||||||
| Interest benefit on U.K. financing entities | (12 | ) | (17 | ) | (16 | ) | |||||
| Deferred tax impact of U.S. tax reform (g) | — | — | 220 | ||||||||
| Deferred tax impact of Kentucky tax reform (h) | — | 9 | — | ||||||||
| Kentucky recycling credit, net of federal income tax expense (i) | (18 | ) | — | — | |||||||
| Other | 6 | 8 | (8 | ) | |||||||
| Total increase (decrease) | (44 | ) | (22 | ) | 115 | ||||||
| Total income tax expense (benefit) | $ | 409 | $ | 458 | $ | 784 | |||||
| Effective income tax rate | 19.0 | % | 20.0 | % | 41.0 | % | |||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 109 | $ | 200 | $ | 193 | |||||||||||
| State income taxes, net of federal income tax benefit | 23 | 48 | 45 | ||||||||||||||
| Valuation allowance adjustments (a) | 48 | 24 | 22 | ||||||||||||||
| Federal and state income tax return adjustments | (3) | (9) | 1 | ||||||||||||||
| Impact of the U.K. Finance Acts on deferred tax balances (b) | 383 | 101 | (14) | ||||||||||||||
| Depreciation and other items not normalized | (5) | (5) | (10) | ||||||||||||||
| Amortization of excess deferred federal and state income taxes | (54) | (43) | (40) | ||||||||||||||
| Non-deductible officer's salary | 6 | 7 | 4 | ||||||||||||||
| Kentucky recycling credit, net of federal income tax expense (c) | — | — | (18) | ||||||||||||||
| Other | (4) | (9) | — | ||||||||||||||
| Total increase (decrease) | 394 | 114 | (10) | ||||||||||||||
| Total income tax expense (benefit) | $ | 503 | $ | 314 | $ | 183 | |||||||||||
| Effective income tax rate | 96.5% | 32.9% | 19.9% | ||||||||||||||
(a)In 2019, 20182021, PPL recorded a $31 million state deferred tax benefit on a net operating loss and 2017,an offsetting valuation allowance in connection with the loss on extinguishment associated with a tender offer to purchase and retire PPL Capital Funding's outstanding Senior Notes. See Note 8 for additional information on the tender offer.
In 2021, 2020, and 2019, PPL recorded deferred income tax expense of $15 million, $24 million and $25 million$24 million and $16 million for valuation allowances primarily related to increased Pennsylvania net operating loss carryforwards expected to be unutilized.
(b)In 2020, the U.K. Finance Act 2020 cancelled the tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19% for financial years 2020 and 2021. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.
In 2021, the U.K. Finance Act 2021 increased the U.K. corporation tax rate from 19% to 25%, effective April 1, 2023. The primary impact of the corporation tax rate increase was an increase in deferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a corresponding deferred tax expense of $383 million, which was recognized in continuing operations in the second quarter of 2021. (c)In 2019, LG&E recorded a |
| 2021 | 2020 | 2019 | |||||||||||||||
| Taxes, other than income | |||||||||||||||||
| State gross receipts | $ | 113 | $ | 100 | $ | 107 | |||||||||||
| Domestic - other | 94 | 80 | 79 | ||||||||||||||
| Total | $ | 207 | $ | 180 | $ | 186 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| State gross receipts | $ | 107 | $ | 103 | $ | 102 | |||||
| State capital stock | — | — | (6 | ) | |||||||
| Foreign property | 127 | 134 | 127 | ||||||||
| Domestic Other | 79 | 75 | 69 | ||||||||
| Total | $ | 313 | $ | 312 | $ | 292 | |||||
(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 "Regulatory liabilities" on the Balance Sheets.
Significant components of PPL Electric's deferred income tax assets and liabilities were as follows:
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Accrued pension and postretirement costs | $ | 81 | $ | 110 | |||
| Contributions in aid of construction | 88 | 118 | |||||
| Regulatory liabilities | 31 | 35 | |||||
| Income taxes due to customers | 170 | 181 | |||||
| State loss carryforwards | 6 | 14 | |||||
| Federal loss carryforwards | 78 | 79 | |||||
| Other | 23 | 25 | |||||
| Total deferred tax assets | 477 | 562 | |||||
| 2021 | 2020 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Accrued pension and postretirement costs | $ | 14 | $ | 25 | |||||||
| Contributions in aid of construction | 95 | 91 | |||||||||
| Regulatory liabilities | 52 | 24 | |||||||||
| Income taxes due to customers | 154 | 162 | |||||||||
| Federal loss carryforwards (a) | — | 52 | |||||||||
| Other | 21 | 29 | |||||||||
| Total deferred tax assets | 336 | 383 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Electric utility plant - net | 1,891 | 1,826 | |||||||||
| Regulatory assets | 74 | 86 | |||||||||
| Other | 39 | 30 | |||||||||
| Total deferred tax liabilities | 2,004 | 1,942 | |||||||||
| Net deferred tax liability | $ | 1,668 | $ | 1,559 | |||||||
| 2019 | 2018 | ||||||
| Deferred Tax Liabilities | |||||||
| Electric utility plant - net | 1,761 | 1,681 | |||||
| Regulatory assets | 139 | 176 | |||||
| Other | 24 | 25 | |||||
| Total deferred tax liabilities | 1,924 | 1,882 | |||||
| Net deferred tax liability | $ | 1,447 | $ | 1,320 | |||
(a)PPL Electric utilized their remaining federal net operating losses and recorded the related deferred tax assets to current expense in June 2021 as a result of the completion of the sale of the U.K. utility business on June 14, 2021.
PPL Electric expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.
| Gross | Deferred Tax Asset | Expiration | |||||||
| Loss carryforwards | |||||||||
| Federal net operating losses | $ | 363 | $ | 76 | 2032-2037 | ||||
| Federal charitable contributions | 9 | 2 | 2020-2024 | ||||||
| State net operating losses | 81 | 6 | 2031-2032 | ||||||
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:
| 2021 | 2020 | 2019 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Current - Federal | $ | 40 | $ | 61 | $ | 44 | |||||||||||
| Current - State | 35 | 23 | 15 | ||||||||||||||
| Total Current Expense (Benefit) | 75 | 84 | 59 | ||||||||||||||
| Deferred - Federal | 59 | 45 | 51 | ||||||||||||||
| Deferred - State | 20 | 38 | 39 | ||||||||||||||
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 79 | 83 | 90 | ||||||||||||||
| Total income tax expense (benefit) | $ | 154 | $ | 167 | $ | 149 | |||||||||||
| Total income tax expense (benefit) - Federal | $ | 99 | $ | 106 | $ | 95 | |||||||||||
| Total income tax expense (benefit) - State | 55 | 61 | 54 | ||||||||||||||
| Total income tax expense (benefit) | $ | 154 | $ | 167 | $ | 149 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | 44 | $ | 2 | $ | (65 | ) | ||||
| Current - State | 15 | 9 | 20 | ||||||||
| Total Current Expense (Benefit) | 59 | 11 | (45 | ) | |||||||
| Deferred - Federal (a) | 51 | 96 | 234 | ||||||||
| Deferred - State | 39 | 37 | 29 | ||||||||
| Total Deferred Expense (Benefit), excluding operating loss carryforwards | 90 | 133 | 263 | ||||||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||
| Deferred - Federal | — | (8 | ) | (5 | ) | ||||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | — | (8 | ) | (5 | ) | ||||||
| Total income tax expense (benefit) | $ | 149 | $ | 136 | $ | 213 | |||||
| Total income tax expense (benefit) - Federal | $ | 95 | $ | 90 | $ | 164 | |||||
| Total income tax expense (benefit) - State | 54 | 46 | 49 | ||||||||
| Total income tax expense (benefit) | $ | 149 | $ | 136 | $ | 213 | |||||
| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 127 | $ | 119 | $ | 201 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit (a) | 47 | 43 | 36 | ||||||||
| Depreciation and other items not normalized | (10 | ) | (11 | ) | (8 | ) | |||||
| Amortization of excess deferred federal income taxes (b) | (18 | ) | (17 | ) | — | ||||||
| Deferred tax impact of U.S. tax reform (c) | — | — | (13 | ) | |||||||
| Other | 3 | 2 | (3 | ) | |||||||
| Total increase (decrease) | 22 | 17 | 12 | ||||||||
| Total income tax expense (benefit) | $ | 149 | $ | 136 | $ | 213 | |||||
| Effective income tax rate | 24.6 | % | 24.0 | % | 37.0 | % | |||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 126 | $ | 139 | $ | 127 | |||||||||||
| Increase (decrease) due to: | |||||||||||||||||
| State income taxes, net of federal income tax benefit | 46 | 52 | 47 | ||||||||||||||
| Federal and state income tax return adjustments | — | (4) | 1 | ||||||||||||||
| Depreciation and other items not normalized | (5) | (5) | (10) | ||||||||||||||
| Amortization of excess deferred federal income taxes (a) | (14) | (16) | (18) | ||||||||||||||
| Other | 1 | 1 | 2 | ||||||||||||||
| Total increase (decrease) | 28 | 28 | 22 | ||||||||||||||
| Total income tax expense (benefit) | $ | 154 | $ | 167 | $ | 149 | |||||||||||
| Effective income tax rate | 25.7% | 25.2% | 24.6% | ||||||||||||||
(a)In 2021, 2020 and 2019, |
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| State gross receipts | $ | 107 | $ | 103 | $ | 102 | |||||
| Property and other | 5 | 6 | 5 | ||||||||
| Total | $ | 112 | $ | 109 | $ | 107 | |||||
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Federal loss carryforwards | $ | 140 | $ | 142 | |||
| State loss carryforwards | 31 | 33 | |||||
| Federal tax credit carryforwards | 162 | 169 | |||||
| Contributions in aid of construction | 23 | 21 | |||||
| Regulatory liabilities | 44 | 52 | |||||
| Accrued pension and postretirement costs | 71 | 92 | |||||
| State tax credit carryforwards | 19 | 1 | |||||
| Income taxes due to customers | 292 | 299 | |||||
| Deferred investment tax credits | 31 | 32 | |||||
| Lease liabilities | 14 | — | |||||
| Valuation allowances | (6 | ) | (8 | ) | |||
| Other | 28 | 28 | |||||
| Total deferred tax assets | 849 | 861 | |||||
| Deferred Tax Liabilities | |||||||
| Plant - net | 1,778 | 1,671 | |||||
| Regulatory assets | 122 | 138 | |||||
| Lease right-of-use assets | 12 | — | |||||
| Other | 6 | 8 | |||||
| Total deferred tax liabilities | 1,918 | 1,817 | |||||
| Net deferred tax liability | $ | 1,069 | $ | 956 | |||
| Gross | Deferred Tax Asset | Valuation Allowance | Expiration | ||||||||||
| Loss carryforwards | |||||||||||||
| Federal net operating losses | $ | 668 | $ | 140 | $ | — | 2032 - 2037 | ||||||
| Federal charitable contributions | 23 | 5 | — | 2020 - 2024 | |||||||||
| State net operating losses | 797 | 31 | — | 2029 - 2038 | |||||||||
| Gross | Deferred Tax Asset | Valuation Allowance | Expiration | ||||||
| Credit carryforwards | |||||||||
| Federal investment tax credit | 133 | — | 2025 - 2028, 2036 - 2039 | ||||||
| Federal alternative minimum tax credit (a) | 7 | — | Indefinite | ||||||
| Federal - other | 22 | (6 | ) | 2020-2039 | |||||
| State - recycling credit | 18 | — | 2028 | ||||||
| State - other | 1 | — | Indefinite | ||||||
Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | ||||||||||||
| 2019 | $ | 8 | $ | 3 | $ | 5 | (a) | $ | 6 | ||||||
| 2018 | 8 | — | — | 8 | |||||||||||
| 2017 | 11 | 4 | 7 | (a) | 8 | ||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | 20 | $ | 31 | $ | 74 | |||||
| Current - State | — | 4 | 6 | ||||||||
| Total Current Expense (Benefit) | 20 | 35 | 80 | ||||||||
| Deferred - Federal (a) | 81 | 65 | 268 | ||||||||
| Deferred - State (b) | 5 | 34 | 32 | ||||||||
| Total Deferred Expense (Benefit), excluding benefits of operating loss carryforwards | 86 | 99 | 300 | ||||||||
| Amortization of investment tax credit - Federal | (3 | ) | (3 | ) | (3 | ) | |||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||
| Deferred - Federal | — | (2 | ) | (2 | ) | ||||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | — | (2 | ) | (2 | ) | ||||||
| Total income tax expense (benefit) (c) | $ | 103 | $ | 129 | $ | 375 | |||||
| Total income tax expense (benefit) - Federal | $ | 98 | $ | 91 | $ | 337 | |||||
| Total income tax expense (benefit) - State | 5 | 38 | 38 | ||||||||
| Total income tax expense (benefit) (c) | $ | 103 | $ | 129 | $ | 375 | |||||
| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 120 | $ | 121 | $ | 242 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit | 23 | 22 | 26 | ||||||||
| Amortization of investment tax credit | (3 | ) | (3 | ) | (3 | ) | |||||
| Amortization of excess deferred federal and state income taxes (b) | (23 | ) | (20 | ) | (2 | ) | |||||
| Deferred tax impact of U.S. tax reform (c) | — | — | 112 | ||||||||
| Deferred tax impact of state tax reform (d) | — | 9 | — | ||||||||
| Kentucky Recycling Credit, net of federal income tax expense (e) | (18 | ) | — | — | |||||||
| Other | 4 | — | — | ||||||||
| Total increase (decrease) | (17 | ) | 8 | 133 | |||||||
| Total income tax expense (benefit) | $ | 103 | $ | 129 | $ | 375 | |||||
| Effective income tax rate | 18.0 | % | 22.5 | % | 54.3 | % | |||||
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| Property and other | $ | 74 | $ | 70 | $ | 65 | |||||
| Total | $ | 74 | $ | 70 | $ | 65 | |||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Taxes, other than income | |||||||||||||||||
| State gross receipts | $ | 113 | $ | 100 | $ | 107 | |||||||||||
| Property and other | 7 | 7 | 5 | ||||||||||||||
| Total | $ | 120 | $ | 107 | $ | 112 | |||||||||||
(LG&E)
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:
| 2021 | 2020 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Contributions in aid of construction | $ | 15 | $ | 15 | |||||||
| Regulatory liabilities | 18 | 20 | |||||||||
| Deferred investment tax credits | 8 | 8 | |||||||||
| Income taxes due to customers | 125 | 132 | |||||||||
| State tax credit carryforwards | 11 | 12 | |||||||||
| Lease liabilities | 4 | 5 | |||||||||
| Valuation allowances | (11) | (12) | |||||||||
| Other | 11 | 11 | |||||||||
| Total deferred tax assets | 181 | 191 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Plant - net | 854 | 833 | |||||||||
| Regulatory assets | 65 | 66 | |||||||||
| Lease right-of-use assets | 4 | 4 | |||||||||
| Other | 9 | 4 | |||||||||
| Total deferred tax liabilities | 932 | 907 | |||||||||
| Net deferred tax liability | $ | 751 | $ | 716 | |||||||
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Contributions in aid of construction | $ | 15 | $ | 14 | |||
| Regulatory liabilities | 19 | 24 | |||||
| Accrued pension and postretirement costs | 6 | 16 | |||||
| Deferred investment tax credits | 8 | 9 | |||||
| Income taxes due to customers | 136 | 139 | |||||
| State tax credit carryforwards | 14 | — | |||||
| Lease liabilities | 5 | — | |||||
| Valuation allowances | (14 | ) | — | ||||
| Other | 10 | 15 | |||||
| Total deferred tax assets | 199 | 217 | |||||
| 2019 | 2018 | ||||||
| Deferred Tax Liabilities | |||||||
| Plant - net | 811 | 751 | |||||
| Regulatory assets | 77 | 88 | |||||
| Lease right-of-use assets | 4 | — | |||||
| Other | 4 | 6 | |||||
| Total deferred tax liabilities | 896 | 845 | |||||
| Net deferred tax liability | $ | 697 | $ | 628 | |||
At December 31, 20192021 LG&E had $14$11 million of state credit carryforwards that expire in 2028. In 2019, LG&E recorded a $142028 and an $11 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.
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:
| 2021 | 2020 | 2019 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Current - Federal | $ | 41 | $ | 53 | $ | 4 | |||||||||||
| Current - State | 5 | 7 | 4 | ||||||||||||||
| Total Current Expense (Benefit) | 46 | 60 | 8 | ||||||||||||||
| Deferred - Federal | 1 | (4) | 46 | ||||||||||||||
| Deferred - State | 8 | 7 | 10 | ||||||||||||||
| Total Deferred Expense (Benefit) | 9 | 3 | 56 | ||||||||||||||
| Amortization of investment tax credit - Federal | (1) | (1) | (1) | ||||||||||||||
| Total income tax expense (benefit) | $ | 54 | $ | 62 | $ | 63 | |||||||||||
| Total income tax expense (benefit) - Federal | $ | 41 | $ | 48 | $ | 49 | |||||||||||
| Total income tax expense (benefit) - State | 13 | 14 | 14 | ||||||||||||||
| Total income tax expense (benefit) | $ | 54 | $ | 62 | $ | 63 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | 4 | $ | — | $ | — | |||||
| Current - State | 4 | 4 | 5 | ||||||||
| Total Current Expense (Benefit) | 8 | 4 | 5 | ||||||||
| Deferred - Federal | 46 | 51 | 112 | ||||||||
| Deferred - State | 10 | 10 | 14 | ||||||||
| Total Deferred Expense (Benefit), excluding benefits of operating loss carryforwards | 56 | 61 | 126 | ||||||||
| Amortization of investment tax credit - Federal | (1 | ) | (1 | ) | (1 | ) | |||||
| Tax expense (benefit) of operating loss carryforwards | |||||||||||
| Deferred - Federal | — | — | 1 | ||||||||
| Total Tax Expense (Benefit) of Operating Loss Carryforwards | — | — | 1 | ||||||||
| Total income tax expense (benefit) | $ | 63 | $ | 64 | $ | 131 | |||||
| Total income tax expense (benefit) - Federal | $ | 49 | $ | 50 | $ | 112 | |||||
| Total income tax expense (benefit) - State | 14 | 14 | 19 | ||||||||
| Total income tax expense (benefit) | $ | 63 | $ | 64 | $ | 131 | |||||
119
| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 62 | $ | 62 | $ | 120 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit | 12 | 11 | 14 | ||||||||
| Amortization of excess deferred federal and state income taxes (b) | (10 | ) | (8 | ) | (1 | ) | |||||
| Kentucky recycling credit, net of federal income tax expense (c) | (14 | ) | — | — | |||||||
| Valuation allowance adjustments (c) | 14 | — | — | ||||||||
| Other | (1 | ) | (1 | ) | (2 | ) | |||||
| Total increase (decrease) | 1 | 2 | 11 | ||||||||
| Total income tax expense (benefit) | $ | 63 | $ | 64 | $ | 131 | |||||
| Effective income tax rate | 21.4 | % | 21.5 | % | 38.1 | % | |||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| Property and other | $ | 39 | $ | 36 | $ | 33 | |||||
| Total | $ | 39 | $ | 36 | $ | 33 | |||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Taxes, other than income | |||||||||||||||||
| Property and other | $ | 46 | $ | 40 | $ | 39 | |||||||||||
| Total | $ | 46 | $ | 40 | $ | 39 | |||||||||||
(KU)
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 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:
| 2021 | 2020 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Contributions in aid of construction | $ | 9 | $ | 8 | |||||||
| Regulatory liabilities | 23 | 23 | |||||||||
| Deferred investment tax credits | 22 | 22 | |||||||||
| Income taxes due to customers | 143 | 150 | |||||||||
| State tax credit carryforwards | 4 | 5 | |||||||||
| Lease liabilities | 7 | 8 | |||||||||
| Valuation allowances | (3) | (4) | |||||||||
| Other | 4 | 4 | |||||||||
| Total deferred tax assets | 209 | 216 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Plant - net | 1,012 | 992 | |||||||||
| Regulatory assets | 41 | 43 | |||||||||
| Pension and postretirement costs | 13 | 8 | |||||||||
| Lease right-of-use assets | 6 | 7 | |||||||||
| Other | 2 | 1 | |||||||||
| Total deferred tax liabilities | 1,074 | 1,051 | |||||||||
| Net deferred tax liability | $ | 865 | $ | 835 | |||||||
| 2019 | 2018 | ||||||
| Deferred Tax Assets | |||||||
| Contributions in aid of construction | $ | 8 | $ | 7 | |||
| Regulatory liabilities | 25 | 28 | |||||
| Accrued pension and postretirement costs | — | 7 | |||||
| Deferred investment tax credits | 23 | 23 | |||||
| Income taxes due to customers | 156 | 160 | |||||
| State tax credit carryforwards | 5 | — | |||||
| Lease liabilities | 8 | — | |||||
| Valuation allowances | (4 | ) | — | ||||
| Other | 3 | 3 | |||||
| Total deferred tax assets | 224 | 228 | |||||
| Deferred Tax Liabilities | |||||||
| Plant - net | 959 | 911 | |||||
| Regulatory assets | 45 | 50 | |||||
| Accrued pension and postretirement costs | 2 | — | |||||
| Lease right-of-use assets | 7 | — | |||||
| Other | 3 | 2 | |||||
| Total deferred tax liabilities | 1,016 | 963 | |||||
| Net deferred tax liability | $ | 792 | $ | 735 | |||
At December 31, 20192021 KU had $5$4 million of state credit carryforwards of which $4$3 million will expire in 2028 and $1 million that has an indefinite carryforward period. In 2019,At December 31, 2021 KU recordedhad a $4$3 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.
120
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:
| 2021 | 2020 | 2019 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Current - Federal | $ | 58 | $ | 40 | $ | 35 | |||||||||||
| Current - State | 8 | 3 | 5 | ||||||||||||||
| Total Current Expense (Benefit) | 66 | 43 | 40 | ||||||||||||||
| Deferred - Federal | (4) | 11 | 28 | ||||||||||||||
| Deferred - State | 7 | 11 | 13 | ||||||||||||||
| Total Deferred Expense (Benefit) | 3 | 22 | 41 | ||||||||||||||
| Amortization of investment tax credit - Federal | (2) | (2) | (2) | ||||||||||||||
| Total income tax expense (benefit) | $ | 67 | $ | 63 | $ | 79 | |||||||||||
| Total income tax expense (benefit) - Federal | $ | 52 | $ | 49 | $ | 61 | |||||||||||
| Total income tax expense (benefit) - State | 15 | 14 | 18 | ||||||||||||||
| Total income tax expense (benefit) | $ | 67 | $ | 63 | $ | 79 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Income Tax Expense (Benefit) | |||||||||||
| Current - Federal | $ | 35 | $ | 22 | $ | — | |||||
| Current - State | 5 | 6 | 7 | ||||||||
| Total Current Expense (Benefit) | 40 | 28 | 7 | ||||||||
| Deferred - Federal | 28 | 40 | 138 | ||||||||
| Deferred - State | 13 | 10 | 16 | ||||||||
| Total Deferred Expense (Benefit) | 41 | 50 | 154 | ||||||||
| Amortization of investment tax credit - Federal | (2 | ) | (2 | ) | (2 | ) | |||||
| Total income tax expense (benefit) | $ | 79 | $ | 76 | $ | 159 | |||||
| Total income tax expense (benefit) - Federal | $ | 61 | $ | 60 | $ | 136 | |||||
| Total income tax expense (benefit) - State | 18 | 16 | 23 | ||||||||
| Total income tax expense (benefit) | $ | 79 | $ | 76 | $ | 159 | |||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | $ | 76 | $ | 72 | $ | 78 | |||||||||||
| Increase (decrease) due to: | |||||||||||||||||
| State income taxes, net of federal income tax benefit | 14 | 14 | 15 | ||||||||||||||
| Amortization of investment tax credit | (2) | (2) | (2) | ||||||||||||||
| Amortization of excess deferred federal and state income taxes | (20) | (17) | (13) | ||||||||||||||
| Kentucky recycling credit, net of federal income tax expense (a) | — | — | (4) | ||||||||||||||
| Valuation allowance adjustments (a) | — | — | 4 | ||||||||||||||
| Other | (1) | (4) | 1 | ||||||||||||||
| Total increase (decrease) | (9) | (9) | 1 | ||||||||||||||
| Total income tax expense (benefit) | $ | 67 | $ | 63 | $ | 79 | |||||||||||
| Effective income tax rate | 18.4% | 18.4% | 21.2% | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Reconciliation of Income Tax Expense (Benefit) | |||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate (a) | $ | 78 | $ | 76 | $ | 146 | |||||
| Increase (decrease) due to: | |||||||||||
| State income taxes, net of federal income tax benefit | 15 | 13 | 15 | ||||||||
| Amortization of investment tax credit | (2 | ) | (2 | ) | (2 | ) | |||||
| Amortization of excess deferred federal and state income taxes (b) | (13 | ) | (12 | ) | (1 | ) | |||||
| Kentucky recycling credit, net of federal income tax expense (c) | (4 | ) | — | — | |||||||
| Valuation allowance adjustments (c) | 4 | — | — | ||||||||
| Other | 1 | 1 | 1 | ||||||||
| Total increase (decrease) | 1 | — | 13 | ||||||||
| Total income tax expense (benefit) | $ | 79 | $ | 76 | $ | 159 | |||||
| Effective income tax rate | 21.2 | % | 21.0 | % | 38.0 | % | |||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Taxes, other than income | |||||||||||
| Property and other | $ | 35 | $ | 34 | $ | 32 | |||||
| Total | $ | 35 | $ | 34 | $ | 32 | |||||
(All Registrants)
Unrecognized Tax Benefits (All Registrants)
PPL or its subsidiaries file tax returns in 4 major tax jurisdictions. The income tax provisions for PPL Electric, 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. PPL Electric or its subsidiaries indirectly or directly file tax returns in 2 major tax jurisdictions, and LKE, LG&E and KU or their subsidiaries indirectly or directly file tax returns in 2 major tax jurisdictions. With few exceptions, at December 31, 2019,2021, these jurisdictions, as well as the tax years that are no longer subject to examination, were as follows.
| PPL | PPL Electric | KU | |||||||||||||||||||||||
| U.S. (federal) | |||||||||||||||||||||||||
| Pennsylvania (state) | |||||||||||||||||||||||||
| Kentucky (state) | 2014 and prior | 2014 and prior | 2014 and prior | ||||||||||||||||||||||
| U.K. (foreign) | |||||||||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Income tax expense (benefit) | $ | 321 | $ | (13 | ) | $ | 112 | $ | — | $ | — | ||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Income tax expense (benefit) | $ | 220 | $ | (13 | ) | $ | 112 | $ | — | $ | — | ||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| Net Increase in Regulatory Liabilities | $ | 2,185 | $ | 1,019 | $ | 1,166 | $ | 532 | $ | 634 | |||||||||
| Taxable Income (Loss) (a) | |||||||||||
| Adjustments per 2017 Tax Return | Adjustments per 2017 Tax Provision | 2018 Adjustments | |||||||||
| PPL | |||||||||||
| Deemed Dividend | $ | 397 | $ | 462 | $ | (65 | ) | ||||
| Bonus Depreciation (b) | (67 | ) | — | (67 | ) | ||||||
| Consolidated Federal Net Operating Loss due to the TCJA (c) | (330 | ) | (462 | ) | 132 | ||||||
| Total | $ | — | $ | — | $ | — | |||||
| PPL Electric | |||||||||||
| Bonus Depreciation (b) | $ | (39 | ) | $ | — | $ | (39 | ) | |||
| Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) | (68 | ) | (105 | ) | 37 | ||||||
| Total | $ | (107 | ) | $ | (105 | ) | $ | (2 | ) | ||
| LKE | |||||||||||
| Bonus Depreciation (b) | $ | (28 | ) | $ | — | $ | (28 | ) | |||
| Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) | (32 | ) | (45 | ) | 13 | ||||||
| Total | $ | (60 | ) | $ | (45 | ) | $ | (15 | ) | ||
| LG&E | |||||||||||
| Bonus Depreciation (b) | $ | (17 | ) | $ | — | $ | (17 | ) | |||
| Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) | 17 | — | 17 | ||||||||
| Total | $ | — | $ | — | $ | — | |||||
| KU | |||||||||||
| Bonus Depreciation (b) | $ | (11 | ) | $ | — | $ | (11 | ) | |||
| Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) | 11 | — | 11 | ||||||||
| Total | $ | — | $ | — | $ | — | |||||
| Income Tax Expense (Benefit) | |||||||||||
| Adjustments per 2017 Tax Return | Adjustments per 2017 Tax Provision | 2018 Adjustments | |||||||||
| PPL | |||||||||||
| Deemed Dividend | $ | 139 | $ | 161 | $ | (22 | ) | ||||
| Foreign Tax Credits | (157 | ) | (205 | ) | 48 | ||||||
| Valuation of Foreign Tax Credit Carryforward | 110 | 145 | (35 | ) | |||||||
| Reduction in U.S. federal income tax rate | 229 | 220 | 9 | ||||||||
| Total | $ | 321 | $ | 321 | $ | — | |||||
| PPL Electric | |||||||||||
| Reduction in U.S. federal income tax rate | $ | (13 | ) | $ | (13 | ) | $ | — | |||
| LKE | |||||||||||
| Reduction in U.S. federal income tax rate | $ | 110 | $ | 112 | $ | (2 | ) | ||||
7. Utility Rate Regulation
Regulatory Assets and Liabilities
(All Registrants)
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 an item will be recovered or refunded within a year of the balance sheet date.
(PPL, LKE, LG&E and KU)
LG&E is subject to the jurisdiction of the KPSC and FERC, and KU is subject to the jurisdiction of the KPSC, FERC and VSCC.
LG&E's and KU's Kentucky base rates are calculated based on recovery of costs as well as 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.
(PPL LKE and KU)
KU's Virginia base rates are calculated based on recovery of costs as well as a return on rate base (net utility plant plus working capital less accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities, except for regulatory assets and liabilities related to the levelized fuel factor, accumulated deferred income taxes, pension and postretirement benefits, and AROs related to certain CCR impoundments, are excluded from the return on rate base utilized in the calculation of Virginia base rates, no return is earned on the related assets.
KU's rates to 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 accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities, except accumulated deferred income taxes, are excluded from the return on rate base utilized in the development of municipal rates, no return is earned on the related assets.
(PPL and PPL Electric)
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 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)
The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations at December 31:
| PPL | PPL Electric | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||||||
| Plant outage costs | $ | — | $ | 46 | $ | — | $ | — | |||||||||||||||
| Gas supply clause | 21 | 4 | — | — | |||||||||||||||||||
| Smart meter rider | 11 | 17 | 11 | 17 | |||||||||||||||||||
| Transmission formula rate | 6 | 15 | 6 | 15 | |||||||||||||||||||
| Storm costs | — | 7 | — | 7 | |||||||||||||||||||
| Fuel adjustment clause | 11 | — | — | — | |||||||||||||||||||
| Other | 15 | 10 | 5 | 1 | |||||||||||||||||||
| Total current regulatory assets (a) | $ | 64 | $ | 99 | $ | 22 | $ | 40 | |||||||||||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||||||
| Defined benefit plans | $ | 523 | $ | 570 | $ | 256 | $ | 290 | |||||||||||||||
| Plant outage cost | 54 | — | — | — | |||||||||||||||||||
| Storm costs | 11 | 17 | — | — | |||||||||||||||||||
| Unamortized loss on debt | 24 | 30 | 4 | 8 | |||||||||||||||||||
| Interest rate swaps | 18 | 23 | — | — | |||||||||||||||||||
| Terminated interest rate swaps | 70 | 75 | — | — | |||||||||||||||||||
| Accumulated cost of removal of utility plant | 228 | 240 | 228 | 240 | |||||||||||||||||||
| AROs | 302 | 300 | — | — | |||||||||||||||||||
| Other | 6 | 7 | — | 3 | |||||||||||||||||||
| Total noncurrent regulatory assets | $ | 1,236 | $ | 1,262 | $ | 488 | $ | 541 | |||||||||||||||
| PPL | PPL Electric | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Current Regulatory Liabilities: | |||||||||||||||||||||||
| Generation supply charge | $ | 10 | $ | 21 | $ | 10 | $ | 21 | |||||||||||||||
| Transmission service charge | 21 | 1 | 21 | 1 | |||||||||||||||||||
| Universal service rider | 17 | 22 | 17 | 22 | |||||||||||||||||||
| TCJA customer refund | 22 | 11 | 22 | 11 | |||||||||||||||||||
| Act 129 compliance rider | 10 | 7 | 10 | 7 | |||||||||||||||||||
| Transmission formula rate return on equity (b) | 73 | — | 73 | — | |||||||||||||||||||
| Economic relief billing rate | 27 | — | — | — | |||||||||||||||||||
| Other | 2 | 17 | — | 6 | |||||||||||||||||||
| Total current regulatory liabilities | $ | 182 | $ | 79 | $ | 153 | $ | 68 | |||||||||||||||
| Noncurrent Regulatory Liabilities: | |||||||||||||||||||||||
| Accumulated cost of removal of utility plant | $ | 639 | $ | 653 | $ | — | $ | — | |||||||||||||||
| Power purchase agreement - OVEC | 35 | 43 | — | — | |||||||||||||||||||
| Net deferred taxes | 1,591 | 1,690 | 531 | 560 | |||||||||||||||||||
| Defined benefit plans | 95 | 60 | 28 | 18 | |||||||||||||||||||
| Terminated interest rate swaps | 62 | 66 | — | — | |||||||||||||||||||
| Other | — | 18 | — | — | |||||||||||||||||||
| Total noncurrent regulatory liabilities | $ | 2,422 | $ | 2,530 | $ | 559 | $ | 578 | |||||||||||||||
| PPL | PPL Electric | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Current Regulatory Assets: | |||||||||||||||
| Gas supply clause | $ | 8 | $ | 12 | $ | — | $ | — | |||||||
| Smart meter rider | 13 | 11 | 13 | 11 | |||||||||||
| Plant outage costs | 32 | 10 | — | — | |||||||||||
| Transmission formula rate | — | — | 3 | — | |||||||||||
| Transmission service charge | 10 | — | 10 | — | |||||||||||
| Other | 4 | 3 | — | — | |||||||||||
| Total current regulatory assets (a) | $ | 67 | $ | 36 | $ | 26 | $ | 11 | |||||||
| Noncurrent Regulatory Assets: | |||||||||||||||
| Defined benefit plans | $ | 800 | $ | 963 | $ | 467 | $ | 558 | |||||||
| Storm costs | 39 | 56 | 15 | 22 | |||||||||||
| Unamortized loss on debt | 41 | 45 | 18 | 22 | |||||||||||
| Interest rate swaps | 22 | 20 | — | — | |||||||||||
| Terminated interest rate swaps | 81 | 87 | — | — | |||||||||||
| Accumulated cost of removal of utility plant | 220 | 200 | 220 | 200 | |||||||||||
| AROs | 279 | 273 | — | — | |||||||||||
| Act 129 compliance rider | 6 | 19 | 6 | 19 | |||||||||||
| Other | 4 | 10 | — | 3 | |||||||||||
| Total noncurrent regulatory assets | $ | 1,492 | $ | 1,673 | $ | 726 | $ | 824 | |||||||
| PPL | PPL Electric | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Current Regulatory Liabilities: | |||||||||||||||
| Generation supply charge | $ | 23 | $ | 33 | $ | 23 | $ | 33 | |||||||
| Transmission service charge | — | — | — | 3 | |||||||||||
| Environmental cost recovery | 5 | 16 | — | — | |||||||||||
| Universal service rider | 9 | 27 | 9 | 27 | |||||||||||
| Transmission formula rate | — | — | — | 3 | |||||||||||
| Fuel adjustment clause | 8 | — | — | — | |||||||||||
| TCJA customer refund | 61 | 20 | 59 | 3 | |||||||||||
| Storm damage expense rider | 5 | 5 | 5 | 5 | |||||||||||
| Generation formula rate | 1 | 7 | — | — | |||||||||||
| Other | 3 | 14 | — | — | |||||||||||
| Total current regulatory liabilities | $ | 115 | $ | 122 | $ | 96 | $ | 74 | |||||||
| Noncurrent Regulatory Liabilities: | |||||||||||||||
| Accumulated cost of removal of utility plant | $ | 640 | $ | 674 | $ | — | $ | — | |||||||
| Power purchase agreement - OVEC | 51 | 59 | — | — | |||||||||||
| Net deferred taxes | 1,756 | 1,826 | 588 | 629 | |||||||||||
| Defined benefit plans | 51 | 37 | 11 | 5 | |||||||||||
| Terminated interest rate swaps | 68 | 72 | — | — | |||||||||||
| TCJA customer refund | — | 41 | — | 41 | |||||||||||
| Other | 6 | 5 | — | — | |||||||||||
| Total noncurrent regulatory liabilities | $ | 2,572 | $ | 2,714 | $ | 599 | $ | 675 | |||||||
| LG&E | KU | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||||||
| Gas supply clause | $ | 21 | $ | 4 | $ | — | $ | — | |||||||||||||||
| Fuel adjustment clause | 4 | — | 7 | — | |||||||||||||||||||
| Gas line tracker | 3 | 4 | — | — | |||||||||||||||||||
| Generation formula rate | — | — | 2 | 2 | |||||||||||||||||||
| Plant outage costs | — | 12 | — | 34 | |||||||||||||||||||
| Other | 5 | 3 | — | — | |||||||||||||||||||
| Total current regulatory assets | $ | 33 | $ | 23 | $ | 9 | $ | 36 | |||||||||||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||||||
| Defined benefit plans | $ | 164 | $ | 174 | $ | 103 | $ | 106 | |||||||||||||||
| Storm costs | 8 | 11 | 3 | 6 | |||||||||||||||||||
| Unamortized loss on debt | 12 | 13 | 8 | 9 | |||||||||||||||||||
| Interest rate swaps | 18 | 23 | — | — | |||||||||||||||||||
| Terminated interest rate swaps | 41 | 44 | 29 | 31 | |||||||||||||||||||
| AROs | 75 | 85 | 227 | 215 | |||||||||||||||||||
| Plant outage costs | 15 | — | 39 | — | |||||||||||||||||||
| Other | 4 | 1 | 2 | 3 | |||||||||||||||||||
| Total noncurrent regulatory assets | $ | 337 | $ | 351 | $ | 411 | $ | 370 | |||||||||||||||
| LKE | LG&E | KU | |||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||||||
| Plant outage costs | $ | 32 | $ | 10 | $ | 16 | $ | 7 | $ | 16 | $ | 3 | |||||||||||
| Gas supply clause | 8 | 12 | 8 | 12 | — | — | |||||||||||||||||
| Other | 1 | 3 | 1 | 2 | — | 1 | |||||||||||||||||
| Total current regulatory assets | $ | 41 | $ | 25 | $ | 25 | $ | 21 | $ | 16 | $ | 4 | |||||||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||||||
| Defined benefit plans | $ | 333 | $ | 405 | $ | 206 | $ | 249 | $ | 127 | $ | 156 | |||||||||||
| Storm costs | 24 | 34 | 14 | 20 | 10 | 14 | |||||||||||||||||
| Unamortized loss on debt | 23 | 23 | 14 | 15 | 9 | 8 | |||||||||||||||||
| Interest rate swaps | 22 | 20 | 22 | 20 | — | — | |||||||||||||||||
| Terminated interest rate swaps | 81 | 87 | 47 | 51 | 34 | 36 | |||||||||||||||||
| AROs | 279 | 273 | 76 | 75 | 203 | 198 | |||||||||||||||||
| Other | 4 | 7 | 1 | 1 | 3 | 6 | |||||||||||||||||
| Total noncurrent regulatory assets | $ | 766 | $ | 849 | $ | 380 | $ | 431 | $ | 386 | $ | 418 | |||||||||||
| LG&E | KU | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Current Regulatory Liabilities: | |||||||||||||||||||||||
| Economic relief billing credit | $ | 21 | $ | — | $ | 6 | $ | — | |||||||||||||||
| Fuel adjustment clauses | — | — | — | 5 | |||||||||||||||||||
| Environmental cost recovery | — | — | — | 4 | |||||||||||||||||||
| Other | — | — | 2 | 2 | |||||||||||||||||||
| Total current regulatory liabilities | $ | 21 | $ | — | $ | 8 | $ | 11 | |||||||||||||||
| Noncurrent Regulatory Liabilities: | |||||||||||||||||||||||
| Accumulated cost of removal of utility plant | $ | 262 | $ | 274 | $ | 377 | $ | 379 | |||||||||||||||
| Power purchase agreement - OVEC | 24 | 30 | 11 | 13 | |||||||||||||||||||
| Net deferred taxes | 491 | 528 | 569 | 602 | |||||||||||||||||||
| Defined benefit plans | 10 | — | 57 | 42 | |||||||||||||||||||
| Terminated interest rate swaps | 31 | 33 | 31 | 33 | |||||||||||||||||||
| Other | — | 17 | — | 1 | |||||||||||||||||||
| Total noncurrent regulatory liabilities | $ | 818 | $ | 882 | $ | 1,045 | $ | 1,070 | |||||||||||||||
| LKE | LG&E | KU | |||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Current Regulatory Liabilities: | |||||||||||||||||||||||
| Environmental cost recovery | $ | 5 | $ | 16 | $ | 1 | $ | 6 | $ | 4 | $ | 10 | |||||||||||
| Fuel adjustment clauses | 8 | — | — | — | 8 | — | |||||||||||||||||
| TCJA customer refund | 2 | 17 | — | 7 | 2 | 10 | |||||||||||||||||
| Generation formula rate | 1 | 7 | — | — | 1 | 7 | |||||||||||||||||
| Other | 3 | 8 | 1 | 4 | 2 | 4 | |||||||||||||||||
| Total current regulatory liabilities | $ | 19 | $ | 48 | $ | 2 | $ | 17 | $ | 17 | $ | 31 | |||||||||||
| Noncurrent Regulatory Liabilities: | |||||||||||||||||||||||
| Accumulated cost of removal of utility plant | $ | 640 | $ | 674 | $ | 266 | $ | 279 | $ | 374 | $ | 395 | |||||||||||
| Power purchase agreement - OVEC | 51 | 59 | 35 | 41 | 16 | 18 | |||||||||||||||||
| Net deferred taxes | 1,168 | 1,197 | 544 | 557 | 624 | 640 | |||||||||||||||||
| Defined benefit plans | 40 | 32 | — | — | 40 | 32 | |||||||||||||||||
| Terminated interest rate swaps | 68 | 72 | 34 | 36 | 34 | 36 | |||||||||||||||||
| Other | 6 | 5 | 4 | 2 | 2 | 3 | |||||||||||||||||
| Total noncurrent regulatory liabilities | $ | 1,973 | $ | 2,039 | $ | 883 | $ | 915 | $ | 1,090 | $ | 1,124 | |||||||||||
(a)For PPL, these amounts are included in "Other current assets" on the Balance Sheets.
(b)See “Regulatory Matters - Federal Matters - PPL Electric Transmission Formula Rate Return on Equity” below for additional information.
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."
Defined Benefit Plans
(All Registrants)
Defined benefit plan regulatory assets and liabilities represent 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 remeasured.
(PPL, LKE, LG&E and KU)
As a result of the 2014 Kentuckyprevious rate case settlement that became effective July 1, 2015,settlements and orders, 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
124
and losses isand settlements are recorded as a regulatory asset. As of December 31, 2019,2021, the balances were $51$98 million for PPL, and LKE, $29$54 million for LG&E and $22$44 million for KU. As of December 31, 2018,2020, the balances were $45$79 million for PPL, and LKE, $25$44 million for LG&E and $20$35 million for KU.
(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. Storm costs incurred in PPL Electric's regulatory assets forterritory from a March 2018 storm costs are beingwere amortized through various dates ending in 2021. LG&E's and KU's regulatory assets for storm costs are being amortized through various dates ending in 2029.2031.
Unamortized Loss on Debt
Unamortized loss on reacquired debt represents losses on long-term debt refinanced, 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 LG&E.
Accumulated Cost of Removal of Utility Plant
LG&E and KU charge costs of removal through depreciation expense with an offsetting credit to a regulatory liability. The regulatory liability is relieved as costs are incurred.
PPL 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-yearfive-year period.
Net Deferred Taxes
Regulatory liabilities associated with net deferred taxes represent the future revenue impact from the adjustment of deferred income taxes required primarily for excess deferred taxes and unamortized investment tax credits, largely a result of the TCJA enacted in 2017. See Note 6 for additional information on the TCJA.
(PPL and PPL Electric)
Generation Supply Charge (GSC)
The GSC 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, as well as administration of the acquisition process. In addition, the GSC contains a reconciliation mechanism whereby any over- or
under-recovery from prior quartersperiods 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 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 Tariff that utilizes a formula-based rate recovery mechanism. Under this formula, 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
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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 $20 million. The SDER will recover from or refund to customers as appropriate, onlythe applicable expenses from reportable storms that are greater than or less thanas compared to the $20 million recovered annually through base rates. Storm costs incurred in PPL Electric's territory from a March 2018 storm are being amortized through 2021.
Act 129 Compliance Rider
In compliance with Pennsylvania's Act 129 of 2008 and implementing regulations, PPL Electric is currently in Phase IIIIV of the energy efficiency and conservation plan which was approved in June 2016.March 2021. Phase IIIIV allows PPL Electric to recover the maximum $313 million over the five-yearfive-year period, June 1, 20162021 through May 31, 2021.2026. 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 actual Phase IIIIV 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. PPL Electric's Act 129 Phase III plan ended May 31, 2021 and any over-or under-recovery from customers related to Phase III will be refunded or recovered over the next rate filing period.
Smart Meter Rider (SMR)
Act 129 requires each electric distribution company (EDC) with more than 100,000 customers to have a PUC approved Smart Meter Technology Procurement and Installation Plan (SMP). As of December 31, 2019, PPL Electric replaced substantially all of its old meters with meters that meet the Act 129 requirements under its SMP. In accordance with Act 129, EDCs are able to recover the costs and earn a return on capital of providing smart metering technology. PPL Electric uses the SMR to recover the costs to implement its SMP. The SMR is 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. The KPSC has authorized a return on equity of 9.725%9.35% for all existing approved ECR plans and projects. The ECR regulatory asset or liability represents
126
the amount that has been under- or over-recovered due to timing or adjustments to the mechanism and is typically recovered or refunded within 12 months.
Fuel Adjustment Clauses
LG&E's and KU's retail electric rates contain a fuel adjustment clause, whereby variances in power purchases and 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 hearingsformal reviews 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, may conduct public hearings and 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. LG&E's fuel adjustment clause asset is included within other current regulatory assets above.
KU also employs a levelized fuel factor mechanism for Virginia customers using an average fuel cost factor based primarily on projected fuel costs.costs and load for the fuel year (12 months ending March 31). The Virginia levelized fuel factor allows fuel recovery based on projected fuel costs for the comingfuel year plus an adjustment for any under- or over-recovery of fuel expenses from the prior fuel 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 or refunded within 12 months.
Economic Relief Billing Credit
The Economic Relief Billing Credit represents regulatory liabilities to be returned to customers through June 30, 2022, as agreed to in the Kentucky rate case in recognition of the economic impact of COVID-19. See "Regulatory Matters - Kentucky Activities - Rate Case Proceedings" below for additional information.
AROs
As discussed in Note 1, for LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset.asset or regulatory liability. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, at the time of retirement, the related ARO regulatory assetdeferred accretion and depreciation expense is offset against the associatedrecovered through cost of removal regulatory liability, PP&E and ARO liability.removal.
Power Purchase Agreement - OVEC
As a result of purchase accounting associated with PPL's acquisition of LKE,LG&E and KU, 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. LG&E's and KU's customer rates continue to reflect the original contracts. See Notes 1314 and 1819 for additional discussion of the power purchase agreement.
Interest Rate Swaps
LG&E's unrealized gains and losses are recorded as regulatory assets or regulatory liabilities 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 throughin 2033.
Terminated Interest Rate Swaps
Net realized gains and losses on all interest rate swaps are probable of recoveryrecovered through regulated rates. As such, any gains and losses on these derivatives are included in regulatory assets or liabilities and are primarily recognized in "Interest Expense" on the Statements of Income over the life of the associated debt.
Plant Outage Costs
127
Gas Supply Clause(PPL LKE and LG&E)
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 and customer usage 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 or refunded within 18 months.
Regulatory Matters
Kentucky Activities(PPL, LKE, LG&E and KU)
Rate Case Proceedings
LG&E’s and KU’s applications also included a request for a CPCN to deploy Advanced Metering Infrastructure across LG&E’s and KU’s service territories in Kentucky.
The applications were based on a forecasted test year of MayJuly 1, 20192021 through AprilJune 30, 2020 with a2022 and requested return-on-equityan authorized return on equity of 10.42%10.0%.
On June 30, 2021 and December 6, 2021, the KPSC resolving all material issues with the parties. In addition to terminating the TCJA bill credit mechanism,issued orders approving the proposed stipulationsagreement filed in April 2021, with certain modifications. The orders provided for increases in annual revenue requirements associated with baserevenues of $207 million ($74 million and $110 million in electricity rates of approximately $58 millionrevenues at LG&E and KU and increases$23 million in annual base electricity and gas rates of approximately $4 million and $20 millionrevenues at LG&E,&E) based on an authorized return on equity of 9.425%. The orders grant an authorized 9.35% return on equity for the ECR and GLT mechanisms and do not modify the requested one-year billing credit. The orders approved the CPCN to deploy Advanced Metering Infrastructure and provide regulatory asset treatment for the remaining net book value of legacy meters upon full implementation of the Advanced Metering Infrastructure program. The orders also approved the establishment of a 9.725% return-on-equity.
Retired Asset Recovery (RAR) rider to provide for recovery of and return on the remaining investment in certain electric generating units upon their retirement over a ten-year period following retirement. In respect of the RAR rider, LG&E and KU continue to use currently approved depreciation rates for Mill Creek Units 1 and 2 and Brown Unit 3. The orders also approved a four-year "stay out" commitment from LG&E and KU to refrain from effective base rate increases before July 1, 2025, subject to certain exceptions. On April 30, 2019,September 24, 2021, the KPSC issued orders ruling on open issues and approvingproviding adjustments to previous net metering proposals. These adjustments did not impact the proposed stipulations filed in March 2019. The orders provide for increases in the revenue requirements associated with base electricity rates of $56 million at KU and increases associated with base electricity and gas rates of $2 million and $19 million at LG&E. With the termination of the TCJA bill credit mechanism, this represents annual revenue increases of $187 million ($114 million at KU and $73 million at LG&E). The new base rates and all elements of the orders became effective on May 1, 2019.increases.
(PPL and PPL Electric)
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. PPL Electric filed with the PUC approvedits Act 129 Phase IV Energy Efficiency and Conservation Plan on November 30, 2020, for the five-year period starting June 1, 2021 and ending on May 31, 2026. PPL Electric's October 2019 petitionPhase IV Act 129 Plan was approved by the PUC at its March 25, 2021, public meeting.
128
Act 129 also requires EDCs to distributeact as a default service provider (DSP), which provides electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan. A DSP is able to recover the $43 million of TCJA tax savings for the period between January 1, 2018 and June 30, 2018 over the period January 1, 2020 through December 31, 2020.costs associated with its default service procurement plan.
Federal Matters
On August 20, 2021, PPL Electric entered into a revised revenue requirement, which includessettlement agreement (the Settlement) with PPLICA and all other parties, including intervenors, with respect to the impactcomplaint filed by PPLICA on May 21, 2020.
The key aspects of the TCJA.Settlement include:
•changes to PPL Electric’s base ROE:
◦beginning as of May 21, 2020 and continuing through May 31, 2022, the ROE shall be 9.90%;
◦beginning on June 1, 2022 and continuing through May 31, 2023, the ROE shall be 9.95%;
◦beginning on June 1, 2023, the ROE shall be 10.00%, which shall continue in effect unless and until changed as permitted by the terms of the Settlement;
•changes the equity component of PPL Electric’s capital structure to be the lower of (i) PPL Electric’s actual equity component, calculated in accordance with the formula rate template, or (ii) 56.00%;
•allows modification of the current rate year of June 1 to May 31 to a calendar year of January 1 to December 31; and
•allows modification of the current formula rate based on a historic test year to a projected test year.
In 2021, PPL Electric recorded a revenue reduction of $78 million ($55 million after-tax), of which $73 million ($52 million after-tax) represents revenue subject to refund for the period May 21, 2020 through November 30, 2021. The filing establishedreduction recorded includes $28 million ($20 million after-tax) related to the period from May 21, 2020 to December 31, 2020. The $73 million of revenue requirement used to setbe refunded will be returned to customers from January 1, 2022 through May 31, 2022 and is based on the difference between charges that were calculated using the ROE in effect at the time and charges calculated using the revised ROE provided for the Settlement, plus interest at the FERC interest rate.
The FERC approved the Settlement on November 5, 2021. Interim rates that took effectreflecting the agreed-to-base ROE in June 2019.the Settlement were effective December 1, 2021.
(PPL, LKE, LG&E and KU)
FERC Transmission Rate Filing
In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application seekssought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky Municipalitiesmunicipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the on-goingongoing credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject towhich was subsequently filed, modified, and approved by the FERC reviewin 2020 and approval.2021. In July 2019,2020, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KUother parties filed requests for rehearing and clarification on the two September orders. These rehearing requests are currently pending before FERC. Additionally, certain petitions for review of FERC's orders have been filed by multiple parties, including LG&E and KU, atappeals with the D.C. Circuit Court of Appeals. Appeals regarding FERC's orders on the elimination of the mitigation and required transition mechanism. Oral arguments in the appellate proceeding occurred on February 14, 2022.LG&E and KU cannot predict the outcome of the respective appellate and FERC proceedings. LG&E and KU currently receive recovery of the waivers and credits provided through other rate mechanisms.
Other
Purchase of Receivables Program
(PPL and PPL Electric)
In accordance with a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. During 2019, 20182021, 2020 and 2017,2019, PPL Electric purchased $1.2 billion, $1.3$1.1 billion and $1.3$1.2 billion of accounts receivable from alternative suppliers.
8. Financing Activities
Credit Arrangements and Short-term Debt
(All Registrants)
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of PPL Electric, LKE, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE.PPL. The amounts listed in the borrowed column below are recorded as "Short-term debt" on the Balance Sheets except for borrowings under LG&E's Term Loan FacilityPPL Capital Funding's term loan agreement due March 2022, which are recorded asreflected in "Long-term debt due within one year" on thedebt" at December 31, 2018 Balance Sheet.2020. The following credit facilities were in place at:
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
| Expiration Date | Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | Unused Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | |||||||||||||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||||||||||||||||
| PPL Capital Funding | |||||||||||||||||||||||||||||||||||||||||
| Syndicated Credit Facility (a) (b) | Dec 2026 | $ | 1,250 | $ | — | $ | — | $ | 1,250 | $ | — | $ | 402 | ||||||||||||||||||||||||||||
| Bilateral Credit Facility (a) (b) | Mar 2022 | 50 | — | — | 50 | — | — | ||||||||||||||||||||||||||||||||||
| Bilateral Credit Facility (a) (b) | Mar 2022 | 50 | — | 15 | 35 | — | 15 | ||||||||||||||||||||||||||||||||||
| Term Loan Credit Facility (a) (b) | Mar 2021 | — | — | — | — | 200 | — | ||||||||||||||||||||||||||||||||||
| Term Loan Credit Facility (a) (b) | Mar 2021 | — | — | — | — | 100 | — | ||||||||||||||||||||||||||||||||||
| Term Loan Credit Facility (a) (b) | Mar 2022 | — | — | — | — | 100 | — | ||||||||||||||||||||||||||||||||||
| Total PPL Capital Funding Credit Facilities | $ | 1,350 | $ | — | $ | 15 | $ | 1,335 | $ | 400 | $ | 417 | |||||||||||||||||||||||||||||
| PPL Electric | |||||||||||||||||||||||||||||||||||||||||
| Syndicated Credit Facility (a) (b) | Dec 2026 | $ | 650 | $ | — | $ | 1 | $ | 649 | $ | — | $ | 1 | ||||||||||||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||||||||||||||||
| Syndicated Credit Facility (a) (b) | Dec 2026 | $ | 500 | $ | — | $ | 69 | $ | 431 | $ | — | $ | 262 | ||||||||||||||||||||||||||||
| KU | |||||||||||||||||||||||||||||||||||||||||
| Syndicated Credit Facility (a) (b) | Dec 2026 | $ | 400 | $ | — | $ | — | $ | 400 | $ | — | $ | 203 | ||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||
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)(b)(c) | Jan. 2023 | £ | 210 | £ | 155 | £ | — | £ | 55 | £ | 157 | £ | — | ||||||||||||
| WPD (South West) | |||||||||||||||||||||||||
| Syndicated Credit Facility (a)(b)(c) | July 2021 | 245 | 40 | — | 205 | — | — | ||||||||||||||||||
| WPD (East Midlands) | |||||||||||||||||||||||||
| Syndicated Credit Facility (a)(b)(c) | July 2021 | 300 | — | — | 300 | 38 | — | ||||||||||||||||||
| WPD (West Midlands) | |||||||||||||||||||||||||
| Syndicated Credit Facility (a)(b)(c) | July 2021 | 300 | 48 | — | 252 | — | — | ||||||||||||||||||
| Uncommitted Credit Facilities | 100 | — | 4 | 96 | — | 4 | |||||||||||||||||||
| Total U.K. Credit Facilities (b) | £ | 1,155 | £ | 243 | £ | 4 | £ | 908 | £ | 195 | £ | 4 | |||||||||||||
| U.S. | |||||||||||||||||||||||||
| PPL Capital Funding | |||||||||||||||||||||||||
| Syndicated Credit Facility (c) (d) | Jan 2024 | $ | 1,450 | $ | 450 | $ | 1,000 | $ | — | $ | 669 | ||||||||||||||
| Bilateral Credit Facility (c) (d) | Mar 2020 | 100 | — | 15 | 85 | — | 15 | ||||||||||||||||||
| Total PPL Capital Funding Credit Facilities | $ | 1,550 | $ | — | $ | 465 | $ | 1,085 | $ | — | $ | 684 | |||||||||||||
| PPL Electric | |||||||||||||||||||||||||
| Syndicated Credit Facility (c) (d) | Jan 2024 | $ | 650 | $ | — | $ | 1 | $ | 649 | $ | — | $ | 1 | ||||||||||||
(a)Each company pays customary fees under its respective facility and borrowings generally bear interest at LIBOR-based rates plus an applicable margin.
(b)The facilities contain a financial covenant requiring debt to total capitalization not to exceed 70% for PPL Capital Funding, PPL Electric, LG&E and KU, as calculated in accordance with the facilities and other customary covenants. Additionally, subject to certain conditions, PPL Capital Funding may request that the capacity of one of its bilateral credit facilities expiring in March 2022 be increased by up to $30 million and PPL Capital Funding, PPL Electric, LG&E and KU may each request up to a $250 million increase in its syndicated credit facility's capacity. Participation in any such increase is at the sole discretion of each lender.
(PPL)
In December 2021, PPL Capital Funding amended and restated its existing $1.450 billion revolving credit facility to extend the termination date from January 26, 2024 to December 6, 2026, to decrease the borrowing capacity to $1.250 billion and to
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||
Expiration Date | Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | Unused Capacity | Borrowed | Letters of Credit and Commercial Paper Issued | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||
| Syndicated Credit Facility (c) (d) | Jan 2024 | $ | 500 | $ | — | $ | 238 | $ | 262 | $ | — | $ | 279 | ||||||||||||
| Term Loan Credit Facility (c) (e) | — | — | — | — | 200 | — | |||||||||||||||||||
| Total LG&E Credit Facilities | $ | 500 | $ | — | $ | 238 | $ | 262 | $ | 200 | $ | 279 | |||||||||||||
| KU | |||||||||||||||||||||||||
| Syndicated Credit Facility (c) (d) | Jan 2024 | $ | 400 | $ | — | $ | 150 | $ | 250 | $ | — | $ | 235 | ||||||||||||
| Letter of Credit Facility (f) | — | — | — | — | — | 198 | |||||||||||||||||||
| Total KU Credit Facilities | $ | 400 | $ | — | $ | 150 | $ | 250 | $ | — | $ | 433 | |||||||||||||
In December 2021, PPL Electric Utilities Corporation amended and restated its existing $650 million revolving credit facility to extend the termination date from January 26, 2024 to December 6, 2026.
(PPL and LG&E)
In December 2021, LG&E amended and restated its existing $500 million revolving credit facility to extend the termination date from January 26, 2024 to December 6, 2026.
(PPL and KU)
In December 2021, KU amended and restated its existing $400 million revolving credit facility to extend the termination date from January 26, 2024 to December 6, 2026.
(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. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's credit facilities. The following commercial paper programs were in place at:
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Weighted - Average Interest Rate | Capacity | Commercial Paper Issuances | Unused Capacity | Weighted - Average Interest Rate | Commercial Paper Issuances | ||||||||||||||||||||||||||||||
| PPL Capital Funding | 0 | $ | 1,500 | $ | — | $ | 1,500 | 0.25% | $ | 402 | |||||||||||||||||||||||||
| PPL Electric | 00 | 650 | — | 650 | 00 | — | |||||||||||||||||||||||||||||
| LG&E (a) | 0.31% | 425 | 69 | 356 | 0.28% | 262 | |||||||||||||||||||||||||||||
| KU | 00 | 350 | — | 350 | 0.28% | 203 | |||||||||||||||||||||||||||||
| Total | $ | 2,925 | $ | 69 | $ | 2,856 | $ | 867 | |||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||
| Weighted - Average Interest Rate | Capacity | Commercial Paper Issuances | Unused Capacity | Weighted - Average Interest Rate | Commercial Paper Issuances | ||||||||||||||
| PPL Capital Funding | 2.13% | $ | 1,500 | $ | 450 | $ | 1,050 | 2.82% | $ | 669 | |||||||||
| PPL Electric | 650 | — | 650 | — | |||||||||||||||
| LG&E | 2.07% | 350 | 238 | 112 | 2.94% | 279 | |||||||||||||
| KU | 2.02% | 350 | 150 | 200 | 2.94% | 235 | |||||||||||||
| Total | $ | 2,850 | $ | 838 | $ | 2,012 | $ | 1,183 | |||||||||||
(a)In March 2021, the capacity for the LG&E commercial paper program was increased from $350 million to $425 million.
(PPL Electric, LKE, LG&E and KU)
See Note 1415 for a discussion of intercompany borrowings.
Long-term Debt (All Registrants)
| December 31, | ||||||||||||
| Weighted-Average Rate (g) | Maturities (g) | 2019 | 2018 | |||||||||
| PPL | ||||||||||||
| U.S. | ||||||||||||
| Senior Unsecured Notes | 3.88 | % | 2020 - 2047 | $ | 4,325 | $ | 4,325 | |||||
| Senior Secured Notes/First Mortgage Bonds (a) (b) (c) | 3.95 | % | 2020 - 2049 | 8,705 | 7,705 | |||||||
| Junior Subordinated Notes | 5.24 | % | 2067 - 2073 | 930 | 930 | |||||||
| Term Loan Credit Facility | 2019 | — | 200 | |||||||||
| Total U.S. Long-term Debt | 13,960 | 13,160 | ||||||||||
| U.K. | ||||||||||||
| Senior Unsecured Notes (d) | 4.97 | % | 2020 - 2040 | 6,874 | 6,471 | |||||||
| Index-linked Senior Unsecured Notes (e) | 1.45 | % | 2026 - 2056 | 1,104 | 1,063 | |||||||
| Term Loan Credit Facility | 2.18 | % | 2024 - 2024 | 64 | — | |||||||
| Total U.K. Long-term Debt (f) | 8,042 | 7,534 | ||||||||||
| Total Long-term Debt Before Adjustments | 22,002 | 20,694 | ||||||||||
| Fair market value adjustments | 12 | 16 | ||||||||||
| Unamortized premium and (discount), net | 5 | 9 | ||||||||||
| Unamortized debt issuance costs | (126 | ) | (120 | ) | ||||||||
| Total Long-term Debt | 21,893 | 20,599 | ||||||||||
| Less current portion of Long-term Debt | 1,172 | 530 | ||||||||||
| Total Long-term Debt, noncurrent | $ | 20,721 | $ | 20,069 | ||||||||
| PPL Electric | ||||||||||||
| Senior Secured Notes/First Mortgage Bonds (a) (b) | 4.08 | % | 2021 - 2049 | $ | 4,039 | $ | 3,739 | |||||
| Total Long-term Debt Before Adjustments | 4,039 | 3,739 | ||||||||||
| Unamortized discount | (24 | ) | (18 | ) | ||||||||
| Unamortized debt issuance costs | (30 | ) | (27 | ) | ||||||||
| Total Long-term Debt | 3,985 | 3,694 | ||||||||||
| Less current portion of Long-term Debt | — | — | ||||||||||
| Total Long-term Debt, noncurrent | $ | 3,985 | $ | 3,694 | ||||||||
| LKE | ||||||||||||
| Senior Unsecured Notes | 3.97 | % | 2020 - 2021 | $ | 725 | $ | 725 | |||||
| Term Loan Credit Facility | — | 200 | ||||||||||
| First Mortgage Bonds (a) (c) | 3.84 | % | 2020 - 2049 | 4,666 | 3,966 | |||||||
| Long-term debt to affiliate | 3.69 | % | 2026 - 2028 | 650 | 650 | |||||||
| Total Long-term Debt Before Adjustments | 6,041 | 5,541 | ||||||||||
| Unamortized premium | 5 | — | ||||||||||
| Unamortized discount | (12 | ) | (13 | ) | ||||||||
| Unamortized debt issuance costs | (32 | ) | (26 | ) | ||||||||
| Total Long-term Debt | 6,002 | 5,502 | ||||||||||
| Less current portion of Long-term Debt | 975 | 530 | ||||||||||
| Total Long-term Debt, noncurrent | $ | 5,027 | $ | 4,972 | ||||||||
| December 31, | |||||||||||||||||||||||
| Weighted-Average Rate (d) | Maturities (d) | 2021 | 2020 | ||||||||||||||||||||
| PPL | |||||||||||||||||||||||
| Senior Unsecured Notes | 3.81 | % | 2026 - 2047 | $ | 1,566 | $ | 4,850 | ||||||||||||||||
| Senior Secured Notes/First Mortgage Bonds (a) (b) (c) | 3.59 | % | 2022 - 2050 | 9,205 | 8,955 | ||||||||||||||||||
| Junior Subordinated Notes | 2.89 | % | 2067 | 480 | 930 | ||||||||||||||||||
| Term Loan Credit Facility | — | 100 | |||||||||||||||||||||
| Total Long-term Debt before adjustments | 11,251 | 14,835 | |||||||||||||||||||||
| Unamortized premium and (discount), net | (34) | (40) | |||||||||||||||||||||
| Unamortized debt issuance costs | (77) | (106) | |||||||||||||||||||||
| Total Long-term Debt | 11,140 | 14,689 | |||||||||||||||||||||
| Less current portion of Long-term Debt | 474 | 1,074 | |||||||||||||||||||||
| Total Long-term Debt, noncurrent | $ | 10,666 | $ | 13,615 | |||||||||||||||||||
| December 31, | |||||||||||||||||||||||
| Weighted-Average Rate (d) | Maturities (d) | 2021 | 2020 | ||||||||||||||||||||
| PPL Electric | |||||||||||||||||||||||
| Senior Secured Notes/First Mortgage Bonds (a) (b) | 3.37 | % | 2022 - 2049 | $ | 4,539 | $ | 4,289 | ||||||||||||||||
| Total Long-term Debt Before Adjustments | 4,539 | 4,289 | |||||||||||||||||||||
| Unamortized discount | (22) | (23) | |||||||||||||||||||||
| Unamortized debt issuance costs | (33) | (30) | |||||||||||||||||||||
| Total Long-term Debt | 4,484 | 4,236 | |||||||||||||||||||||
| Less current portion of Long-term Debt | 474 | 400 | |||||||||||||||||||||
| Total Long-term Debt, noncurrent | $ | 4,010 | $ | 3,836 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||
| First Mortgage Bonds (a) (c) | 3.59 | % | 2025 - 2049 | $ | 2,024 | $ | 2,024 | ||||||||||||||||
| Total Long-term Debt Before Adjustments | 2,024 | 2,024 | |||||||||||||||||||||
| Unamortized discount | (4) | (4) | |||||||||||||||||||||
| Unamortized debt issuance costs | (14) | (13) | |||||||||||||||||||||
| Total Long-term Debt | 2,006 | 2,007 | |||||||||||||||||||||
| Less current portion of Long-term Debt | — | 292 | |||||||||||||||||||||
| Total Long-term Debt, noncurrent | $ | 2,006 | $ | 1,715 | |||||||||||||||||||
| KU | |||||||||||||||||||||||
| First Mortgage Bonds (a) (c) | 3.97 | % | 2023 - 2050 | $ | 2,642 | $ | 2,642 | ||||||||||||||||
| Total Long-term Debt Before Adjustments | 2,642 | 2,642 | |||||||||||||||||||||
| Unamortized premium | 5 | 5 | |||||||||||||||||||||
| Unamortized discount | (9) | (9) | |||||||||||||||||||||
| Unamortized debt issuance costs | (20) | (20) | |||||||||||||||||||||
| Total Long-term Debt | 2,618 | 2,618 | |||||||||||||||||||||
| Less current portion of Long-term Debt | — | 132 | |||||||||||||||||||||
| Total Long-term Debt, noncurrent | $ | 2,618 | $ | 2,486 | |||||||||||||||||||
| December 31, | ||||||||||||
| Weighted-Average Rate (g) | Maturities (g) | 2019 | 2018 | |||||||||
| LG&E | ||||||||||||
| Term Loan Credit Facility | $ | — | $ | 200 | ||||||||
| First Mortgage Bonds (a) (c) | 3.73 | % | 2025 - 2049 | 2,024 | 1,624 | |||||||
| Total Long-term Debt Before Adjustments | 2,024 | 1,824 | ||||||||||
| Unamortized discount | (4 | ) | (4 | ) | ||||||||
| Unamortized debt issuance costs | (15 | ) | (11 | ) | ||||||||
| Total Long-term Debt | 2,005 | 1,809 | ||||||||||
| Less current portion of Long-term Debt | — | 434 | ||||||||||
| Total Long-term Debt, noncurrent | $ | 2,005 | $ | 1,375 | ||||||||
| KU | ||||||||||||
| First Mortgage Bonds (a) (c) | 3.93 | % | 2020 - 2045 | $ | 2,642 | $ | 2,342 | |||||
| Total Long-term Debt Before Adjustments | 2,642 | 2,342 | ||||||||||
| Unamortized premium | 5 | — | ||||||||||
| Unamortized discount | (8 | ) | (8 | ) | ||||||||
| Unamortized debt issuance costs | (16 | ) | (13 | ) | ||||||||
| Total Long-term Debt | 2,623 | 2,321 | ||||||||||
| Less current portion of Long-term Debt | 500 | 96 | ||||||||||
| Total Long-term Debt, noncurrent | $ | 2,123 | $ | 2,225 | ||||||||
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 $5.3$5.7 billion and $5.1$5.5 billion at December 31, 20192021 and 2018.2020.
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 $6.6$6.9 billion and $6.3$6.7 billion at December 31, 20192021 and 2018.2020.
(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 (a) above. This amount includes $224 million of 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 least one year and $90 million which is 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.
Includes $250 million of notes that may be called on or after September 28, 2021 and $650 million of notes that may be called on or after June 24, 2022, at a redemption price equal to 100% of the principal amount of the bonds, plus accrued and unpaid interest to, but excluding, such redemption date.
(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 (a) above. The related tax-exempt revenue
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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, 2019,2021, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a term rate mode totaled $700$782 million for LKE,PPL, comprised of $392$473 million and $308$309 million for LG&E and KU respectively.KU. At December 31, 2019,2021, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a variable rate mode totaled $181 million for LKE, comprised of $148$66 million and $33 million for LG&E and KU respectively.KU. These variable rate tax-exempt revenue bonds 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.
(d)The table reflects principal maturities only, based on stated maturities or earlier put dates, and the weighted-average rates as of |
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 20202022 through 20242026 and thereafter are as follows:
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||||||||
| 2022 | $ | 474 | $ | 474 | $ | — | $ | — | |||||||||||||||||||||
| 2023 | 353 | 340 | — | 13 | |||||||||||||||||||||||||
| 2024 | 650 | 650 | — | — | |||||||||||||||||||||||||
| 2025 | 550 | — | 300 | 250 | |||||||||||||||||||||||||
| 2026 | 904 | — | 90 | 164 | |||||||||||||||||||||||||
| Thereafter | 8,320 | 3,075 | 1,634 | 2,215 | |||||||||||||||||||||||||
| Total | $ | 11,251 | $ | 4,539 | $ | 2,024 | $ | 2,642 | |||||||||||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||||||
| 2020 | $ | 1,169 | $ | — | $ | 975 | $ | — | $ | 500 | |||||||||
| 2021 | 1,574 | 400 | 674 | 292 | 132 | ||||||||||||||
| 2022 | 1,274 | 474 | — | — | — | ||||||||||||||
| 2023 | 2,254 | 90 | 13 | — | 13 | ||||||||||||||
| 2024 | 932 | — | — | — | — | ||||||||||||||
| Thereafter | 14,799 | 3,075 | 4,379 | 1,732 | 1,997 | ||||||||||||||
| Total | $ | 22,002 | $ | 4,039 | $ | 6,041 | $ | 2,024 | $ | 2,642 | |||||||||
(PPL)
In April 2021, PPL Capital Funding repaid its $100 million term loan expiring in March 2022.
In June 2019, WPD plc executed2021, PPL Capital Funding commenced a tender offer to purchase for cash and drew £50 million under a 5-year term loan facility due 2024 at a rateretire (1) any and all of 2.189%, to be reset quarterly as detailed in the terms of the facility. The borrowing equated to $63 million at the time of drawdown, net of fees. The proceeds were used for general corporate purposes.
In June 2021, in connection with the tender offer, PPL Capital Funding retired $1,962 million combined aggregate principal amount of its outstanding Senior Notes for $2,293 million aggregate cash purchase price that included the tender premium and accrued interest. These Senior Notes had a weighted average interest rate of 4.14%. The loss on extinguishment associated with the transaction was $322 million, which included the tender premium, bank fees and unamortized fees, hedges and discounts. This loss on extinguishment was recorded to "Interest Expense" on the Statements of Income.
In July 2021, PPL Capital Funding redeemed the remaining $1,072 million combined aggregate principal amount of its outstanding 4.20% Senior Notes due 2022, 3.50% Senior Notes due 2022, 3.40% Senior Notes due 2023 and 3.95% Senior Notes due 2024 that had not been validly tendered for an aggregate cash purchase price of $1,133 million, which included make-whole premiums and accrued interest. These Senior Notes had a weighted average interest rate of 3.71%. The loss on extinguishment associated with the transaction was $58 million, which included make-whole premiums, unamortized fees, hedges and discounts. PPL Capital Funding also redeemed its $450 million of 5.90% Junior Subordinated Notes due in 2073 at par. The loss on extinguishment associated with this transaction was $15 million, which included unamortized fees.
In July 2021, LKE redeemed at par the $250 million 4.375% Senior Notes due 2021.
PPL has guaranteed PPL Capital Funding's obligations under the credit agreement and notes.
(PPL and PPL Electric)
In June 2021, PPL Electric issued $650 million of First Mortgage Bonds, Floating Rate Series due 2024. PPL Electric received proceeds of £245$647 million, which equated to $301 million at the time of issuance, net of underwriting fees, and a discount. The proceedswhich were used to repay short-term debtredeem its $400 million outstanding First Mortgage Bonds, 3% Series due 2021 in July 2021 and for general corporate purposes.
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(PPL and PPL Electric)
In April 2019, LG&E issued $400 million2021, the Louisville/Jefferson County Metro Government of 4.25% First Mortgage Bonds due 2049. LG&E received proceeds of $396 million, net of discounts and underwriting fees, which were used to repay commercial paper and LG&E's term loan.
In June 2019,May 2021, the Louisville/Jefferson County Metro Government of Trimble, Kentucky remarketed $31$35 million of Environmental FacilitiesPollution Control Revenue Refunding Bonds, 20072001 Series AB due 20332027 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.65%1.35% through their mandatory purchasematurity date of JuneNovember 1, 2021.2027.
In June 2019,May 2021, the Louisville/Jefferson County Metro Government of Kentucky remarketed $35 million of Environmental FacilitiesPollution Control Revenue Refunding Bonds, 20072001 Series B due 20332027 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.65%1.35% through their mandatory purchasematurity date of JuneNovember 1, 2021.2027.
In June 2019,2021, LG&E issued a notice to bondholdersconverted the $31 million of its intention to convert the $40 million Louisville/Jefferson County Metro Government of Kentucky Environmental Facilities Revenue Refunding Bonds, 2007 Series A issued on its behalf to a weekly interest rate. The bonds mature on June 1, 2033.
In June 2021, LG&E converted the $35 million of Louisville/Jefferson County Metro Government, of Kentucky Environmental Facilities Revenue Refunding Bonds, 2007 Series B issued on its behalf to a weekly interest rate. The bonds mature on June 1, 2033.
In September 2021, the County of Trimble, Kentucky remarketed $28 million of Pollution Control Revenue Bonds, 2005 Series A to a weekly interest rate, as permitted under the loan documents. The conversion was completed on August 1, 2019. In connection with the conversation, LG&E purchased
(PPL and KU)
In September 2019, the County of Carroll, Kentucky remarketed $96 million of Pollution Control Revenue Bonds, 2016 Series A due 2042 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.55% through their mandatory purchase date of September 1, 2026.
In September 2019,June 2021, the County of Carroll, Kentucky remarketed $78 million of Environmental Facilities Revenue Bonds 2008 Series A due 2032 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.20% through their mandatory purchase date of June 1, 2021.
See Note 1415 for additional information related to intercompany borrowings.
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 Electric and LKE are each separate legal entities. These subsidiaries are not liable for the debts of PPL Electric and LKE.Electric. Accordingly, creditors of PPL Electric and LKE may not satisfy theirits debts from the assets of theirits subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation. Similarly, PPL Electric and LKE areis not liable for the debts of theirits subsidiaries, nor are theirits subsidiaries liable for the debts of one another. Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of PPL Electric and LKE (or theirits other subsidiaries) absent a specific contractual undertaking by that parentPPL Electric or any such other subsidiary to pay such creditors or as required by applicable law or regulation.
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(PPL)
Equity Securities
In May 2018, PPL completed a registered underwritten public offeringAugust 2021, PPL's Board of 55 million sharesDirectors authorized share repurchases of its common stock. In conjunction with that offering, the underwriters exercised an optionup to purchase 8.25 million additional shares$3 billion of PPL common stock solelyshares. The actual amount repurchased will depend on various factors, including PPL’s share price, market conditions, and the determination of other uses for the proceeds from the sale of the U.K. utility business, including for incremental capital expenditures. PPL may purchase shares on each trading day subject to cover over-allotments.market conditions and principles of best execution.
ATM Program
In February 2018, PPL entered into an equity distribution agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of $1.0 billion of its common stock through an at-the-market offering program, including a forward sales component. The compensation paid to the selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. There were 0no issuances under the ATM program for the twelve months ended December 31, 2019. PPL issued 42 million shares of common stock2021 and received proceeds of $119 million for the year ended December 31, 2018.2020. The ATM program expired in February 2021.
Distributions and Related Restrictions
In November 2019,2021, PPL declared its quarterly common stock dividend, payable January 2, 2020,3, 2022, at 41.25 cents per share (equivalent to $1.65 per annum). On February 14, 2020, PPL announced an increase of its quarterly common stock dividend to 41.541.50 cents per share (equivalent to $1.66 per annum). On February 18, 2022, PPL announced a quarterly common stock dividend of 20.00 cents per share, payable April 1, 2022, to shareowners of record as of March 10, 2022. 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 factors.
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 2073.2067. At December 31, 2019, 02021, no interest payments were deferred.
(All 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 distributions 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 PPL's 2010 acquisition of LKE.LG&E and KU. 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, 2019,2021, net assets of $3 billion ($1.3$1.4 billion for LG&E and $1.7$1.9 billion for KU)KU were restricted for purposes of paying dividends to LKE, and net assets of $3.3 billion ($1.5$1.7 billion for LG&E and $1.8$2.0 billion for KU)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.
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9. Acquisitions, Development and Divestitures
(PPL)
Discontinued Operations
Sale of the U.K. Utility Business
On March 17, 2021, PPL WPD Limited (WPD Limited) entered into a share purchase agreement (WPD SPA) to sell PPL's U.K. utility business to National Grid Holdings One plc (National Grid U.K.), a subsidiary of National Grid plc. Pursuant to the WPD SPA, National Grid U.K. would acquire 100% of the issued share capital of PPL WPD Investments Limited (WPD Investments) for £7.8 billion in cash. WPD Limited would also receive an additional amount of £548,000 for each day during the period from January 1, 2021 to the closing date if the dividends usually declared by WPD Investments to WPD Limited were not paid for that period.
On June 14, 2021, the sale of the U.K. utility business was completed.The transaction resulted in cash proceeds of $10.7 billion inclusive of foreign currency hedges executed by PPL. PPL received net proceeds, after taxes and fees, of $10.4 billion.
WPD Limited and National Grid U.K. each made customary representations and warranties in the WPD SPA. National Grid U.K., at its expense, purchased warranty and indemnity insurance. WPD Limited agreed to indemnify National Grid U.K. for certain tax related matters. See Note 14 for additional information. PPL has not had and will not have any significant involvement with the U.K. utility business after completion of the sale.
Loss on Sale
The following table summarizes the pre-tax loss recorded upon completion of the sale.
| Loss on sale for the year ended December 31, 2021 | |||||
| Sales proceeds, net of realized foreign currency hedge losses (a) | $ | 10,732 | |||
| Unrealized foreign currency hedge losses recognized in 2020 | 125 | ||||
| Less: Costs to sell (b) | 69 | ||||
| Less: Carrying value (c) | 12,397 | ||||
| Loss on sale | $ | (1,609) | |||
(a)Includes the fixed and additional consideration of £7,881 million specified in the WPD SPA, converted at a spot rate of $1.4107 per GBP, offset by $386 million of realized foreign currency hedge losses to hedge the proceeds from the sale.
(b)Includes bank advisory, legal and accounting fees to facilitate the transaction.
(c)Represents the carrying value of the U.K. utility business at the time of sale and includes the realization of AOCI of $3.6 billion, which arose primarily from currency translation adjustments and defined benefit plans associated with the U.K. utility business.
Summarized Results of Discontinued Operations
The operations of the U.K. utility business are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income. Following are the components of discontinued operations in the Statements of Income for the years ended December 31:
| 2021 | 2020 | 2019 | |||||||||||||||
| Operating Revenues | $ | 1,344 | $ | 2,133 | $ | 2,167 | |||||||||||
| Operating Expenses | 467 | 916 | 853 | ||||||||||||||
| Other Income (Expense) - net | 202 | 167 | 295 | ||||||||||||||
| Interest Expense (a) | 209 | 367 | 373 | ||||||||||||||
| Income before income taxes | 870 | 1,017 | 1,236 | ||||||||||||||
| Loss on sale | (1,609) | — | — | ||||||||||||||
| Income Taxes | 759 | 188 | 226 | ||||||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) | $ | (1,498) | $ | 829 | $ | 1,010 | |||||||||||
(a)No interest from corporate level debt was allocated to discontinued operations.
136
Summarized Assets and Liabilities Held for Sale
The following major classes of assets and liabilities of the U.K. utility business were reclassified on PPL's Balance Sheet to "Current assets held for sale" and "Current liabilities held for sale" as of December 31, 2020:
| Held for Sale at December 31, 2020 | |||||||||||
| Cash and cash equivalents | $ | 266 | |||||||||
| Accounts receivable and unbilled revenues | 389 | ||||||||||
| Price risk management assets | 146 | ||||||||||
| Property, plant and equipment, net (a) | 14,392 | ||||||||||
| Goodwill | 2,558 | ||||||||||
| Other intangibles | 413 | ||||||||||
| Pension benefit asset | 682 | ||||||||||
| Other assets | 137 | ||||||||||
| Total Assets | $ | 18,983 | |||||||||
| Short-term debt and long-term debt due within one year | $ | 994 | |||||||||
| Accounts payable | 220 | ||||||||||
| Customer deposits | 217 | ||||||||||
| Accrued interest | 190 | ||||||||||
| Long-term debt | 7,938 | ||||||||||
| Total deferred income taxes | 1,032 | ||||||||||
| Price risk management liabilities | 137 | ||||||||||
| Other deferred credits and liabilities | 295 | ||||||||||
| Total Liabilities | $ | 11,023 | |||||||||
| Net assets (b) | $ | 7,960 | |||||||||
(a)Depreciation of fixed assets ceased upon classification as held for sale in the first quarter of 2021.
(b)The net assets and liabilities held for sale exclude $4.0 billion of AOCI related to the U.K. utility business that is required to be included in the carrying value of an entity classified as held for sale when assessing impairment and determining the gain or loss on sale. Prior to the sale, AOCI related to the U.K. utility business was reported as a component of PPL’s equity.
Acquisitions
Share Purchase Agreement to Acquire Narragansett Electric
On March 17, 2021, PPL and its subsidiary, PPL Energy Holdings, entered into a share purchase agreement (Narragansett SPA) with National Grid USA (National Grid U.S.), a subsidiary of National Grid plc, to acquire 100% of the outstanding shares of common stock of Narragansett Electric for approximately $3.8 billion in cash. On May 3, 2021, an Assignment and Assumption Agreement was entered into by PPL, PPL Energy Holdings, PPL Rhode Island Holdings and National Grid U.S. whereby certain interests of PPL Energy Holdings in the Narragansett SPA were assigned to and assumed by PPL Rhode Island Holdings. Pursuant to that Assignment and Assumption Agreement, PPL Rhode Island Holdings became the purchasing entity under the Narragansett SPA. The acquisition is expected to be funded with proceeds from the sale of the U.K. utility business. PPL has agreed to guarantee all obligations of PPL Energy Holdings and PPL Rhode Island Holdings under the Narragansett SPA and the related Assignment and Assumption Agreement.
The closing of the acquisition is subject to the receipt of certain U.S. regulatory approvals or waivers, including, among others, authorizations or waivers from the Rhode Island Division of Public Utilities and Carriers, the Massachusetts Department of Public Utilities, the Federal Communications Commission (FCC), and the FERC, as well as review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary conditions to closing, including the execution and delivery of certain related transaction documents. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the acquisition, expired on June 2, 2021. On July 14, 2021, the FCC consented to the Transfer of Control Application for the transfer of control of certain communications licenses held by Narragansett Electric from National Grid U.S. to PPL. On July 16, 2021, the Massachusetts Department of Public Utilities (MDPU) granted a waiver of jurisdiction with respect to the acquisition, finding that the acquisition would not adversely impact Massachusetts ratepayers. On December 3, 2021, the MPDU denied the request by the Attorney General of Massachusetts (AG) to stay the order granting the waiver, and on December 31, 2021, the AG then moved for the Massachusetts Supreme Judicial Court (SJC) to stay the
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final MDPU order. That request remains pending. If a stay is issued, PPL would not be able to close the acquisition until any stay is lifted or the appeal is resolved. On September 23, 2021, the FERC issued an order authorizing, as consistent with the public interest, the disposition of jurisdictional facilities that will result in PPL Rhode Island Holdings, LLC, acquiring 100% of the outstanding shares of common stock of Narragansett Electric. The regulatory approvals remain subject to any applicable appeal periods. PPL anticipates receiving a final order from the Rhode Island Division of Public Utilities and Carriers with respect to the acquisition by March 2022, however, no assurance can be given as to ultimate outcome of that review or the timing of any final decision.
PPL Energy Holdings and PPL Rhode Island Holdings and National Grid U.S. have each made customary representations, warranties and covenants in the Narragansett SPA, including, among others, customary indemnification provisions and covenants by National Grid U.S. to conduct the Narragansett Electric business in the ordinary course between the execution of the Narragansett SPA and the closing of the acquisition. The consummation of the transaction is not subject to a financing condition.
In connection with the acquisition, National Grid U.S. and one or more of its subsidiaries and Narragansett Electric will enter into a transition services agreement, pursuant to which National Grid U.S. and/or one or more of its affiliates will agree to provide certain transition services to Narragansett Electric and its affiliates to facilitate the operation of Narragansett Electric following the consummation of the acquisition and the transition of operations to PPL, as agreed upon in the Narragansett SPA.
10. Leases
(All Registrants)
The Registrants determine whether contractual arrangements contain a lease by evaluating whether those arrangements either implicitly or explicitly identify an asset, whether the Registrants have the right to obtain substantially all of the economic benefits from use of the asset throughout the term of the arrangement, and whether the Registrants have the right to direct the
use of the asset. Renewal options are included in the lease term if it is reasonably certain the Registrants will exercise those options. Periods for which the Registrants are reasonably certain not to exercise termination options are also included in the lease term. The Registrants have certain agreements with lease and non-lease components, such as office space leases, which are generally accounted for separately.
PPL has also entered into various operating leases primarily for office space, land easements, telecom assets and warehouse space. These leases generally have fixed payments with expiration dates ranging from 20202024 through 2029, except for the land agreements which extend through 2116.2030.
PPL Electric also has operating leases which do not have a significant impact to its operations.
Short-term Leases
Short-term leases are leases with a term that is 12 months or less and do not include a purchase option or option to extend the initial term of the lease to greater than 12 months that the Registrants are reasonably certain to exercise. The Registrants have made an accounting policy election to not recognize the ROUright-of-use asset and the lease liability arising from leases classified as short-term. Expenses related to short-term leases are included in the tables below.
Discount Rate
The discount rate for a lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the Registrants are required to use their incremental borrowing rate, which is the rate the Registrants would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.
The Registrants receive secured borrowing rates from financial institutions based on their applicable credit profiles. The Registrants use the secured rate which corresponds with the term of the applicable lease.
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(PPL, LKE, LG&E and KU)
Lessee Transactions
The following table provides the components of lease cost for the Registrants' operating leases for the yearyears ended December 31, 2019.31:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | |||||||||||||||||
| Lease cost: | |||||||||||||||||
| Operating lease cost | $ | 24 | $ | 28 | $ | 30 | |||||||||||
| Short-term lease cost | 6 | 7 | 5 | ||||||||||||||
| Total lease cost | $ | 30 | $ | 35 | $ | 35 | |||||||||||
| LG&E | |||||||||||||||||
| Lease cost: | |||||||||||||||||
| Operating lease cost | $ | 6 | $ | 8 | $ | 12 | |||||||||||
| Short-term lease cost | 1 | 1 | 1 | ||||||||||||||
| Total lease cost | $ | 7 | $ | 9 | $ | 13 | |||||||||||
| KU | |||||||||||||||||
| Lease cost: | |||||||||||||||||
| Operating lease cost | $ | 10 | $ | 13 | $ | 13 | |||||||||||
| Short-term lease cost | 1 | 1 | 1 | ||||||||||||||
| Total lease cost | $ | 11 | $ | 14 | $ | 14 | |||||||||||
| PPL | LKE | LG&E | KU | ||||||||||||
| Lease cost: | |||||||||||||||
| Operating lease cost | $ | 33 | $ | 25 | $ | 12 | $ | 13 | |||||||
| Short-term lease cost | 7 | 2 | 1 | 1 | |||||||||||
| Total lease cost | $ | 40 | $ | 27 | $ | 13 | $ | 14 | |||||||
The following table provides other key information related to the Registrants' operating leases at December 31, 2019.31:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 23 | $ | 24 | $ | 26 | |||||||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | 12 | 17 | 45 | ||||||||||||||
| LG&E | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 6 | $ | 7 | $ | 9 | |||||||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | 4 | 6 | 5 | ||||||||||||||
| KU | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 10 | $ | 11 | $ | 11 | |||||||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | 7 | 9 | 11 | ||||||||||||||
| PPL | LKE | LG&E | KU | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||
| Operating cash flows from operating leases | $ | 29 | $ | 21 | $ | 9 | $ | 11 | |||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | 46 | 16 | 5 | 11 | |||||||||||
The following table provides the total future minimum rental payments for operating leases, as well as a reconciliation of these undiscounted cash flows to the lease liabilities recognized on the Balance Sheets as of December 31, 2019.2021.
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| PPL | LG&E | KU | ||||||||||||||||||||||||||||||
| PPL | LKE | LG&E | KU | |||||||||||||||||||||||||||||
| 2020 | $ | 29 | $ | 18 | $ | 7 | $ | 11 | ||||||||||||||||||||||||
| 2021 | 22 | 13 | 5 | 8 | ||||||||||||||||||||||||||||
| 2022 | 17 | 9 | 4 | 5 | 2022 | $ | 23 | $ | 6 | $ | 10 | |||||||||||||||||||||
| 2023 | 15 | 7 | 3 | 4 | 2023 | 20 | 5 | 8 | ||||||||||||||||||||||||
| 2024 | 12 | 6 | 2 | 4 | 2024 | 15 | 4 | 6 | ||||||||||||||||||||||||
| 2025 | 2025 | 8 | 3 | 4 | ||||||||||||||||||||||||||||
| 2026 | 2026 | 3 | 1 | 1 | ||||||||||||||||||||||||||||
| Thereafter | 27 | 8 | 3 | 4 | Thereafter | 5 | 1 | 1 | ||||||||||||||||||||||||
| Total | $ | 122 | $ | 61 | $ | 24 | $ | 36 | Total | $ | 74 | $ | 20 | $ | 30 | |||||||||||||||||
Weighted-average discount rate | 3.48 | % | 3.96 | % | 3.89 | % | 4.01 | % | Weighted-average discount rate | 3.38% | 3.48% | 3.67% | ||||||||||||||||||||
Weighted-average remaining lease term (in years) | 8 | 5 | 5 | 5 | Weighted-average remaining lease term (in years) | 4 | 4 | 4 | ||||||||||||||||||||||||
| Current lease liabilities (a) | $ | 26 | $ | 16 | $ | 6 | $ | 10 | Current lease liabilities (a) | $ | 22 | $ | 6 | $ | 9 | |||||||||||||||||
| Non-current lease liabilities (a) | 78 | 39 | 15 | 23 | Non-current lease liabilities (a) | 47 | 12 | 17 | ||||||||||||||||||||||||
| Right-of-use assets (b) | 96 | 47 | 18 | 28 | Right-of-use assets (b) | 62 | 15 | 24 | ||||||||||||||||||||||||
(a) Current lease liabilities are included in "Other Current Liabilities" on the Balance Sheets. Non-current lease liabilities are included in "Other deferred credits and noncurrent liabilities" on the Balance Sheets. The difference between |
(b) Right-of-use assets are included in "Other noncurrent assets" on the Balance Sheets.
| PPL | LKE | LG&E | KU | ||||||||||||
| 2019 | $ | 26 | $ | 20 | $ | 10 | $ | 10 | |||||||
| 2020 | 21 | 15 | 6 | 9 | |||||||||||
| 2021 | 15 | 11 | 4 | 7 | |||||||||||
| 2022 | 13 | 7 | 3 | 4 | |||||||||||
| 2023 | 8 | 6 | 3 | 3 | |||||||||||
| Thereafter | 33 | 11 | 4 | 6 | |||||||||||
| Total | $ | 116 | $ | 70 | $ | 30 | $ | 39 | |||||||
Lessor Transactions
Third parties leaseleased land from LKE, LG&E and KU at certain generation plants to produce refined coal used to generate electricity. The leases arewere operating leases and expireexpired in 2021. Payments arewere allocated among lease and non-lease components as stated in the agreements. Lease payments arewere fixed or are determined based on the amount of refined coal used in electricity generation at the facility. Payments received arewere primarily recorded as a regulatory liability and are amortized in accordance with regulatory approvals.
| PPL | LKE | LG&E | KU | ||||||||||||
| 2020 | $ | 13 | $ | 7 | $ | — | $ | 7 | |||||||
| 2021 | 11 | 5 | — | 5 | |||||||||||
| 2022 | 5 | — | — | — | |||||||||||
| 2023 | 5 | 1 | — | — | |||||||||||
| 2024 | 3 | — | — | — | |||||||||||
| Thereafter | 12 | — | — | — | |||||||||||
| Total | $ | 49 | $ | 13 | $ | — | $ | 12 | |||||||
| Lease income recognized for the twelve months ended December 31, 2019 | $ | 21 | $ | 13 | $ | 5 | $ | 8 | |||||||
| PPL | LG&E | KU | |||||||||||||||
| Lease income recognized for the twelve months ended December 31, 2021 | $ | 11 | $ | 5 | $ | 5 | |||||||||||
| Lease income recognized for the twelve months ended December 31, 2020 | 16 | 6 | 9 | ||||||||||||||
| Lease income recognized for the twelve months ended December 31, 2019 | 14 | 5 | 8 | ||||||||||||||
11. Stock-Based Compensation
(PPL and PPL Electric and LKE)Electric)
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 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.
| 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 | 15,000,000 | 2,000,000 | 750,000 | $ | 15,000,000 | |||||||||||||||||||||||||||
| ICPKE | 14,199,796 | 2 | % | 3,000,000 | ||||||||||||||||||||||||||||
Any portion of these awards that has not been granted may be carried over and used in any subsequent year. If any award lapses, the rights of the participant terminate, or, with respect to certain awards, is forfeited, and 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
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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 Units
Restricted stock units represent the right to receive shares of PPL common stock in the future, generally three years after the date of grant, in an amount based on the fair value of PPL common stock on the date of grant.
Under the SIP, each restricted stock unit entitles the grant recipient 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 ICPKE are currently paid in cash when dividends are declared by PPL.
The fair value of restricted stock units granted is recognized on a straight-line basis over the restriction period or through the date at which the employee reaches retirement eligibility. The fair value of 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 units are subject to forfeiture or accelerated payout under the plan provisions for termination, retirement, disability and death of employees. Restrictions lapse on restricted stock units fully, in certain situations, as defined by each of the Plans.
The weighted-average grant date fair value of restricted stock units granted was:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | $ | 28.00 | $ | 35.30 | $ | 31.95 | |||||||||||
| PPL Electric | 27.96 | 35.37 | 32.33 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 31.95 | $ | 30.58 | $ | 35.30 | |||||
| PPL Electric | 32.33 | 30.00 | 35.45 | ||||||||
| LKE | 30.65 | 30.98 | 35.25 | ||||||||
Restricted stock unit activity for 20192021 was:
| Restricted Shares/Units | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| PPL | |||||||||||
| Nonvested, beginning of period | 896,336 | $ | 32.56 | ||||||||
| Granted | 458,610 | 28.00 | |||||||||
| Vested | (303,890) | 30.57 | |||||||||
| Forfeited | (46,473) | 30.23 | |||||||||
| Nonvested, end of period | 1,004,583 | 31.19 | |||||||||
| PPL Electric | |||||||||||
| Nonvested, beginning of period | 210,720 | $ | 32.73 | ||||||||
| Transfer between registrants | (92,596) | 32.99 | |||||||||
| Granted | 51,587 | 27.96 | |||||||||
| Vested | (32,266) | 29.98 | |||||||||
| Forfeited | (6,158) | 32.16 | |||||||||
| Nonvested, end of period | 131,287 | 31.50 | |||||||||
Restricted Shares/Units | Weighted- Average Grant Date Fair Value Per Share | |||||
| PPL | ||||||
| Nonvested, beginning of period | 1,098,203 | $ | 33.45 | |||
| Granted | 479,428 | 31.95 | ||||
| Vested | (429,258 | ) | 33.64 | |||
| Forfeited | (10,688 | ) | 31.53 | |||
| Nonvested, end of period | 1,137,685 | 32.76 | ||||
| PPL Electric | ||||||
| Nonvested, beginning of period | 187,337 | $ | 33.09 | |||
| Transfer between registrants | (3,305 | ) | 33.06 | |||
| Granted | 112,138 | 32.33 | ||||
| Vested | (59,661 | ) | 33.77 | |||
| Forfeited | (6,649 | ) | 31.01 | |||
| Nonvested, end of period | 229,860 | 32.61 | ||||
| LKE | ||||||
| Nonvested, beginning of period | 133,030 | $ | 33.45 | |||
| Granted | 76,256 | 30.65 | ||||
| Vested | (42,841 | ) | 33.75 | |||
| Nonvested, end of period | 166,445 | 32.09 | ||||
Substantially all restricted stock unit awards are expected to vest.
The total fair value of restricted stock units vesting for the years ended December 31 was:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | $ | 8 | $ | 19 | $ | 13 | |||||||||||
| PPL Electric | 1 | 3 | 2 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 13 | $ | 16 | $ | 20 | |||||
| PPL Electric | 2 | 2 | 3 | ||||||||
| LKE | 1 | 5 | 4 | ||||||||
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Performance Units - Total Shareowner Return
Performance units based on relative Total Shareowner Return (TSR) 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 TSR during a three-yearthree-year performance period. At the end of the period, payout is determined by comparing PPL's performance to the TSR of the companies included in the Philadelphia Stock ExchangePHLX Utility Sector 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 year's 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 CGNC'sCompensation Committee's determination of achievement of the performance goals. Under the plan provisions, TSR performance units are subject to forfeiture upon termination of employment other than retirement, one year or more from commencement of the performance period, disability or death of an employee.
The fair value of TSR performance units granted to retirement-eligible employees is recognized as compensation expense on a straight-line basis over a one-yearone-year period, the minimum vesting period required for an employee to be entitled to payout of the
awards with no proration. For employees who are not retirement-eligible, compensation expense is recognized over the shorter of the three-yearthree-year performance period or the period until the employee is retirement-eligible, with a minimum vesting and recognition period of one-year.one-year. If an employee retires before the one-year vesting period, the performance units are forfeited. 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:
| 2021 | 2020 | 2019 | |||||||||||||||
| Expected stock volatility | 27.81% | 15.64% | 17.57% | ||||||||||||||
| Expected life | 3 years | 3 years | 3 years | ||||||||||||||
| 2019 | 2018 | 2017 | ||||||
| Expected stock volatility | 17.57 | % | 17.60 | % | 17.40 | % | ||
| Expected life | 3 years | 3 years | 3 years | |||||
The weighted-average grant date fair value of TSR performance units granted was:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | $ | 32.44 | $ | 37.63 | $ | 35.83 | |||||||||||
| PPL Electric | 32.92 | 38.64 | 35.68 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 35.83 | $ | 38.26 | $ | 38.38 | |||||
| PPL Electric | 35.68 | 38.37 | 38.37 | ||||||||
| LKE | 35.93 | 38.32 | 38.24 | ||||||||
TSR performance unit activity for 20192021 was:
| TSR Performance Units | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| PPL | |||||||||||
| Nonvested, beginning of period | 626,254 | $ | 36.98 | ||||||||
| Granted | 306,009 | 32.44 | |||||||||
| Vested | (53,340) | 34.47 | |||||||||
| Forfeited (a) | (245,150) | 37.75 | |||||||||
| Nonvested, end of period | 633,773 | 34.68 | |||||||||
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| TSR Performance Units | Weighted- Average Grant Date Fair Value Per Share | ||||||||||||||||
| TSR Performance Units | Weighted- Average Grant Date Fair Value Per Share | ||||||||||||||||
| PPL | |||||||||||||||||
| PPL Electric | PPL Electric | ||||||||||||||||
| Nonvested, beginning of period | 840,124 | $ | 37.89 | Nonvested, beginning of period | 61,807 | $ | 37.44 | ||||||||||
| Transfer between registrants | Transfer between registrants | (53,663) | 37.42 | ||||||||||||||
| Granted | 250,734 | 35.83 | Granted | 10,010 | 32.92 | ||||||||||||
| Forfeited (a) | (351,466 | ) | 37.24 | Forfeited (a) | (2,800) | 38.47 | |||||||||||
| Nonvested, end of period | 739,392 | 37.50 | Nonvested, end of period | 15,354 | 34.36 | ||||||||||||
| PPL Electric | |||||||||||||||||
| Nonvested, beginning of period | 67,863 | $ | 37.86 | ||||||||||||||
| Granted | 24,158 | 35.68 | |||||||||||||||
| Forfeited (a) | (25,222 | ) | 36.92 | ||||||||||||||
| Nonvested, end of period | 66,799 | 37.43 | |||||||||||||||
| LKE | |||||||||||||||||
| Nonvested, beginning of period | 148,996 | $ | 37.81 | ||||||||||||||
| Granted | 39,453 | 35.93 | |||||||||||||||
| Forfeited (a) | (57,916 | ) | 37.02 | ||||||||||||||
| Nonvested, end of period | 130,533 | 37.60 | |||||||||||||||
For the year ended December 31, 2019 and the total fair value2021, $2 million of TSR performance units vestingvested. All awards vested were associated with the sale of the U.K. utility business. See Note 9 for additional information on the sale of the U.K. utility business. No TSR performance units vested for the yearyears ended December 31, 20182020 and 2017 was $3 million and $8 million for PPL and insignificant2019. Amounts for PPL Electric and LKE.are insignificant.
Performance Units - Return on Equity
Beginning in 2017, PPL changed its executive compensation mix to add performance units based on achievement of a corporate Return on Equity (ROE). ROE performance units are intended to further align compensation with the company’s strategy and reward for future corporate performance.
Payout of these performance units will be based on the calculated average of the annual corporate ROE for each year of the three-yearthree-year performance period for PPL Corporation. In light of the transformational nature of the potential sale of the U.K. utility business in 2021, PPL’s ROE-based performance units issued for 2021 were based on a one-year performance period from January 1, 2021 to December 31, 2021; however, these units retained the three year vesting schedule and other characteristics. ROE 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 ROE performance goal. ROE performance units 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 CGNC'sCompensation Committee's determination of achievement of the performance goals. Under the plan provisions, these performance units are subject to forfeiture upon termination of employment other than retirement, disability or death of an employee.
The fair value of each ROE performance unit is based on the closing price of PPL Common Stock on the date of grant. The fair value of ROE performance units 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 awards granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. As these awards are based on performance conditions, the level of attainment is monitored each reporting period and compensation expense is adjusted based on the expected attainment level.
The weighted-average grant date fair value of ROE performance units granted was:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | $ | 30.08 | $ | 34.95 | $ | 30.89 | |||||||||||
| PPL Electric | 29.39 | 35.59 | 30.76 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 30.89 | $ | 32.21 | $ | 32.42 | |||||
| PPL Electric | 30.76 | 32.32 | 34.41 | ||||||||
| LKE | 30.99 | 32.28 | 34.29 | ||||||||
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ROE performance unit activity for 20192021 was:
| ROE Performance Unit | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| PPL | |||||||||||
| Nonvested, beginning of period | 728,664 | $ | 32.81 | ||||||||
| Granted | 572,571 | 30.08 | |||||||||
| Vested | (570,722) | 32.02 | |||||||||
| Forfeited | (8,160) | 30.44 | |||||||||
| Nonvested, end of period | 722,353 | 31.28 | |||||||||
| PPL Electric | |||||||||||
| Nonvested, beginning of period | 61,807 | $ | 33.01 | ||||||||
| Transfer between registrants | (53,663) | 33.00 | |||||||||
| Granted | 12,895 | 29.39 | |||||||||
| Vested | (5,685) | 32.27 | |||||||||
| Nonvested, end of period | 15,354 | 30.27 | |||||||||
| ROE Performance Unit | Weighted- Average Grant Date Fair Value Per Share | |||||
| PPL | ||||||
| Nonvested, beginning of period | 328,958 | $ | 32.86 | |||
| Granted | 241,807 | 30.89 | ||||
| Nonvested, end of period | 570,765 | 32.02 | ||||
| PPL Electric | ||||||
| Nonvested, beginning of period | 25,960 | $ | 32.96 | |||
| Granted | 23,234 | 30.76 | ||||
| Nonvested, end of period | 49,194 | 31.92 | ||||
| LKE | ||||||
| Nonvested, beginning of period | 69,620 | $ | 32.87 | |||
| Granted | 38,185 | 30.99 | ||||
| Nonvested, end of period | 107,805 | 32.20 | ||||
The total fair value of ROE performance units vesting for the years ended December 31 was:
| 2021 | 2020 | ||||||||||||||||
| PPL | $ | 16 | $ | 8 | |||||||||||||
| PPL Electric | — | 1 | |||||||||||||||
Stock Options
PPL's CGNCCompensation, Governance and Nominating Committee, now known as the Compensation Committee, eliminated the use of stock options due to changes in its long-term incentive mix 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, 2019,2021, are fully vested. All options expire no later than 10 years from the grant date. The options become exercisable immediately in certain situations, as defined by each of the Plans.
Stock option activity for 20192021 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 | 1,103,016 | $ | 26.22 | ||||||||||||||||||||
| Exercised | (337,014) | 25.42 | |||||||||||||||||||||
| Outstanding and exercisable at end of period | 766,002 | 26.57 | 1 | $ | 3 | ||||||||||||||||||
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 | 2,914,525 | $ | 26.26 | |||||||||
| Exercised | (1,578,554 | ) | 26.31 | |||||||||
| Forfeited | (5,028 | ) | 28.77 | |||||||||
| Outstanding and exercisable at end of period | 1,330,943 | 26.20 | 2.5 | $ | 13 | |||||||
For 2019, 20182021, 2020 and 2017,2019, PPL received $53$10 million, $5$8 million and $19$53 million in cash from stock options exercised. The total intrinsic value of stock options exercised for 2019 was insignificant in 2021 and 2020 and $11 million insignificant in 2018 and $8 million for 2017.2019. The related income tax benefits realized were not significant.
Compensation Expense
Compensation expense for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards, which for PPL Electric and LKE includes an allocation of PPL Services' expense, was:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | $ | 34 | $ | 28 | $ | 35 | |||||||||||
| PPL Electric | 11 | 10 | 12 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 35 | $ | 25 | $ | 32 | |||||
| PPL Electric | 12 | 10 | 18 | ||||||||
| LKE | 9 | 8 | 8 | ||||||||
144
The income tax benefit related to above compensation expense was as follows:
| 2021 | 2020 | 2019 | |||||||||||||||
| PPL | $ | 10 | $ | 8 | $ | 10 | |||||||||||
| PPL Electric | 3 | 3 | 3 | ||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| PPL | $ | 10 | $ | 10 | $ | 13 | |||||
| PPL Electric | 3 | 3 | 8 | ||||||||
| LKE | 2 | 2 | 3 | ||||||||
At December 31, 2019,2021, unrecognized compensation expense related to nonvested stock awards was:
| Unrecognized Compensation Expense | Weighted- Average Period for Recognition | ||||||||||
| PPL | $ | 19 | 1.7 | ||||||||
| PPL Electric | 2 | 1.8 | |||||||||
Unrecognized Compensation Expense | Weighted- Average Period for Recognition | ||||
| PPL | $ | 14 | 1.9 | ||
| PPL Electric | 3 | 2.2 | |||
| LKE | 1 | 1.5 | |||
(All Registrants)
Defined Benefits
Certain employees of PPL's domestic subsidiaries 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 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. The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan. The merged plan is sponsored by LKE. LG&E and KU participate in this plan.
PPL and certain of its subsidiaries also provide supplemental retirement benefits to executives and other key management employees through unfunded nonqualified retirement plans.
Certain 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 Pension Plan within the PPL Services Corporation Master Trust, funded VEBA trusts and company funds. WPD does not sponsor any postretirement benefit plans other than pensions.
145
(PPL)
The following table provides the components of net periodic defined benefit costs (credits) 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 | Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic defined benefit costs (credits): | Net periodic defined benefit costs (credits): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Service cost | $ | 50 | $ | 62 | $ | 65 | $ | 68 | $ | 82 | $ | 76 | $ | 6 | $ | 7 | $ | 7 | Service cost | $ | 56 | $ | 56 | $ | 50 | $ | 6 | $ | 6 | $ | 6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest cost | 164 | 156 | 168 | 187 | 185 | 178 | 22 | 21 | 23 | Interest cost | 121 | 146 | 164 | 16 | 19 | 22 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (245 | ) | (249 | ) | (231 | ) | (588 | ) | (587 | ) | (514 | ) | (18 | ) | (23 | ) | (22 | ) | Expected return on plan assets | (255) | (246) | (245) | (23) | (21) | (18) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of: | Amortization of: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prior service cost (credit) | 8 | 10 | 10 | 1 | — | — | (1 | ) | (1 | ) | (1 | ) | Prior service cost (credit) | 8 | 9 | 8 | 1 | 1 | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actuarial (gain) loss | 56 | 84 | 69 | 92 | 151 | 144 | 1 | — | 1 | Actuarial (gain) loss | 93 | 89 | 56 | (1) | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net periodic defined benefit costs (credits) prior to settlements and termination benefits | 33 | 63 | 81 | (240 | ) | (169 | ) | (116 | ) | 10 | 4 | 8 | Net periodic defined benefit costs (credits) prior to settlements and termination benefits | 23 | 54 | 33 | (1) | 5 | 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlements | 1 | — | 1 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Termination benefits | — | — | 1 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlements (a) | Settlements (a) | 18 | 23 | 1 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net periodic defined benefit costs (credits) | $ | 34 | $ | 63 | $ | 83 | $ | (240 | ) | $ | (169 | ) | $ | (116 | ) | $ | 10 | $ | 4 | $ | 8 | Net periodic defined benefit costs (credits) | $ | 41 | $ | 77 | $ | 34 | $ | (1) | $ | 5 | $ | 10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross: | Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement | (1 | ) | — | (1 | ) | — | — | — | — | — | — | Settlement | (18) | (23) | (1) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (gain) loss | (121 | ) | 157 | 27 | 723 | 201 | 346 | (18 | ) | 8 | (28 | ) | Net (gain) loss | 42 | (221) | (121) | (53) | (6) | (18) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prior service cost (credit) | 2 | 1 | (1 | ) | — | 13 | — | — | — | 8 | Prior service cost (credit) | 3 | 1 | 2 | — | 5 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of: | Amortization of: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prior service (cost) credit | (8 | ) | (10 | ) | (10 | ) | (1 | ) | — | — | 1 | 1 | 1 | Prior service (cost) credit | (8) | (9) | (8) | (1) | (1) | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actuarial gain (loss) | (56 | ) | (84 | ) | (69 | ) | (92 | ) | (151 | ) | (144 | ) | (1 | ) | — | (1 | ) | Actuarial gain (loss) | (93) | (89) | (56) | 1 | — | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total recognized in OCI and regulatory assets/liabilities (a) | (184 | ) | 64 | (54 | ) | 630 | 63 | 202 | (18 | ) | 9 | (20 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total recognized in OCI and regulatory assets/liabilities | Total recognized in OCI and regulatory assets/liabilities | (74) | (341) | (184) | (53) | (2) | (18) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities (a) | $ | (150 | ) | $ | 127 | $ | 29 | $ | 390 | $ | (106 | ) | $ | 86 | $ | (8 | ) | $ | 13 | $ | (12 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities | Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities | $ | (33) | $ | (264) | $ | (150) | $ | (54) | $ | 3 | $ | (8) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||
| OCI | $ | (194 | ) | $ | 90 | $ | (53 | ) | $ | (13 | ) | $ | 20 | $ | (25 | ) | |||||||
| Regulatory assets/liabilities | 10 | (26 | ) | (1 | ) | (5 | ) | (11 | ) | 5 | |||||||||||||
Total recognized in OCI and regulatory assets/liabilities | $ | (184 | ) | $ | 64 | $ | (54 | ) | $ | (18 | ) | $ | 9 | $ | (20 | ) | |||||||
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||
| Net periodic defined benefit costs (credits): | |||||||||||||||||||||||
| Service cost | $ | 22 | $ | 25 | $ | 24 | $ | 4 | $ | 4 | $ | 4 | |||||||||||
| Interest cost | 66 | 63 | 68 | 8 | 8 | 9 | |||||||||||||||||
| Expected return on plan assets | (101 | ) | (102 | ) | (92 | ) | (8 | ) | (9 | ) | (7 | ) | |||||||||||
| Amortization of: | |||||||||||||||||||||||
| Prior service cost | 8 | 9 | 8 | 1 | 1 | 1 | |||||||||||||||||
| Actuarial (gain) loss (a) | 22 | 35 | 31 | (1 | ) | — | — | ||||||||||||||||
| Net periodic defined benefit costs (b) | $ | 17 | $ | 30 | $ | 39 | $ | 4 | $ | 4 | $ | 7 | |||||||||||
Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross: | |||||||||||||||||||||||
| Net (gain) loss | $ | (37 | ) | $ | 40 | $ | 30 | $ | (14 | ) | $ | 1 | $ | (14 | ) | ||||||||
| Prior service cost | 2 | — | 7 | — | — | 8 | |||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Prior service credit | (8 | ) | (9 | ) | (8 | ) | (1 | ) | (1 | ) | (1 | ) | |||||||||||
| Actuarial gain (loss) | (22 | ) | (35 | ) | (32 | ) | 1 | — | — | ||||||||||||||
Total recognized in OCI and regulatory assets/liabilities | (65 | ) | (4 | ) | (3 | ) | (14 | ) | — | (7 | ) | ||||||||||||
Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities | $ | (48 | ) | $ | 26 | $ | 36 | $ | (10 | ) | $ | 4 | $ | — | |||||||||
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||
| OCI | $ | 13 | $ | (25 | ) | $ | 33 | $ | (7 | ) | $ | 4 | $ | (2 | ) | ||||||||
| Regulatory assets/liabilities | (78 | ) | 21 | (36 | ) | (7 | ) | (4 | ) | (5 | ) | ||||||||||||
Total recognized in OCI and regulatory assets/liabilities | $ | (65 | ) | $ | (4 | ) | $ | (3 | ) | $ | (14 | ) | $ | — | $ | (7 | ) | ||||||
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| OCI | $ | (70) | $ | (428) | $ | (194) | $ | (42) | $ | (12) | $ | (13) | |||||||||||||||||||||||
| Regulatory assets/liabilities | (4) | 87 | 10 | (11) | 10 | (5) | |||||||||||||||||||||||||||||
| Total recognized in OCI and regulatory assets/liabilities | $ | (74) | $ | (341) | $ | (184) | $ | (53) | $ | (2) | $ | (18) | |||||||||||||||||||||||
(LG&E)
The following table provides the components of net periodic defined benefit costs for LG&E's pension benefit plan for the yearsyear ended December 31.
| Pension Benefits | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net periodic defined benefit costs (credits): | |||||||||||
| Service cost | $ | 1 | $ | 1 | $ | 1 | |||||
| Interest cost | 11 | 12 | 13 | ||||||||
| Expected return on plan assets | (21 | ) | (22 | ) | (22 | ) | |||||
| Amortization of: | |||||||||||
| Prior service cost | 5 | 5 | 5 | ||||||||
| Actuarial loss (a) | 9 | 7 | 9 | ||||||||
| Net periodic defined benefit costs (b) | $ | 5 | $ | 3 | $ | 6 | |||||
Other Changes in Plan Assets and Benefit Obligations Recognized in Regulatory Assets - Gross: | |||||||||||
| Net (gain) loss | $ | (19 | ) | $ | 22 | $ | (9 | ) | |||
| Prior service cost | — | — | 7 | ||||||||
| Amortization of: | |||||||||||
| Prior service credit | (5 | ) | (5 | ) | (5 | ) | |||||
| Actuarial gain | (9 | ) | (7 | ) | (9 | ) | |||||
| Total recognized in regulatory assets/liabilities | (33 | ) | 10 | (16 | ) | ||||||
| Total recognized in net periodic defined benefit costs and regulatory assets | $ | (28 | ) | $ | 13 | $ | (10 | ) | |||
| Pension Benefits | |||||
| 2019 (a) | |||||
| Net periodic defined benefit costs (credits): | |||||
| Service cost | $ | 1 | |||
| Interest cost | 11 | ||||
| Expected return on plan assets | (21) | ||||
| Amortization of: | |||||
| Prior service cost (credit) | 5 | ||||
| Actuarial loss (b) | 9 | ||||
| Net periodic defined benefit costs (credits) (c) | $ | 5 | |||
Recognized in Regulatory Assets - Gross: | |||||
| Net (gain) loss | $ | (19) | |||
| Amortization of: | |||||
| Prior service credit | (5) | ||||
| Actuarial gain | (9) | ||||
| Total recognized in regulatory | (33) | ||||
| Total recognized in | $ | (28) | |||
(a)The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan, sponsored by LKE.
(b)As a result of 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 $3 million in 2019.
(c)Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, settlement charges of $5 million in 2019 was incurred. In accordance with existing regulatory accounting treatment, LG&E has maintained the settlement charge in regulatory assets. The amount will be amortized in accordance with existing regulatory practice.
(All Registrants)
The following net periodic defined benefit costs (credits) were charged to 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 | Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PPL | $ | 18 | $ | 40 | $ | 59 | $ | (287 | ) | $ | (226 | ) | $ | (151 | ) | $ | 8 | $ | 2 | $ | 5 | PPL | $ | 12 | $ | 40 | $ | 18 | $ | (1) | $ | 4 | $ | 8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PPL Electric (a) | (4 | ) | 4 | 12 | 4 | (1 | ) | — | PPL Electric (a) | (9) | (2) | (4) | (1) | 2 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LKE (b) | 12 | 21 | 28 | 2 | 3 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LG&E (b) | 3 | 4 | 8 | 2 | 2 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LG&E (a) (b) | LG&E (a) (b) | (1) | 4 | 3 | 2 | 2 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| KU (a) (b) | (1 | ) | 2 | 4 | — | 1 | 1 | KU (a) (b) | (3) | 1 | (1) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a)PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric and KU were allocated these |
(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 LG&E's participationand 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 Other operation and maintenance, Other Income (Expense) - net or regulatory assets, excluding amounts charged to construction and other non-expense accounts, insignificant amounts for LG&E and KU were recorded as regulatory assets in those plans, which management believes are reasonable:2021, $3 million for LG&E and $1 million for KU were recorded as regulatory assets in 2020 and $2 million for LG&E and $1 million for KU were recorded as regulatory assets in 2019.
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||
| LG&E Non-Union Only | $ | — | $ | 2 | $ | 5 | $ | 2 | $ | 2 | $ | 3 | |||||||||||
(PPL LKE and LG&E)
PPL LKE and LG&E use the base mortality tables issued by the Society of Actuaries in October 2014 (RP-2014 base tables with collar and factor adjustments, where applicable) for all U.S. defined benefit pension and other postretirement benefit plans. In 2017,2019, PPL LKE and LG&E updated toused RP-2014 base tables with collar and factor adjustments, where applicable, and the MP-2017 mortality improvement scale from 2006 on a generational basisbasis. In 2020, PPL updated to the Pri-2012 base table and continued to use this improvementthe MP-2020 projection scale in 2019.with varying adjustment factors based on the underlying demographic and geographic differences and experience of the plan participants.
147
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 | Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||
| PPL | PPL | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount rate | 3.64 | % | 4.35 | % | 1.94 | % | 2.98 | % | 3.60 | % | 4.31 | % | Discount rate | 3.15 | % | 2.92 | % | 3.13 | % | 2.84 | % | |||||||||||||||||||||||||||||||
| Rate of compensation increase | 3.79 | % | 3.79 | % | 3.25 | % | 3.50 | % | 3.76 | % | 3.76 | % | Rate of compensation increase | 3.76 | % | 3.76 | % | 3.77 | % | 3.75 | % | |||||||||||||||||||||||||||||||
| LKE | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount rate | 3.62 | % | 4.35 | % | 3.59 | % | 4.32 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % | 3.50 | % | ||||||||||||||||||||||||||||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount rate | 3.60 | % | 4.33 | % | ||||||||||||||||||||||||||||||||||||||||||||||||